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Star Gas Partners, L.P. Reports Fiscal 2010 Second Quarter Results

STAMFORD, Conn., May 10, 2010 (GlobeNewswire via COMTEX News Network) -- Star Gas Partners, L.P. (the "Partnership" or "Star") (NYSE:SGU), a home energy distributor and services provider specializing in heating oil, today announced financial results for its fiscal 2010 second quarter and the six-month period ended March 31, 2010. Star also announced the acquisition of Champion Energy Corporation ("Champion") for $50.2 million plus working capital, which is estimated to be $11.3 million. Star purchased the stock of Champion with cash on hand.

In commenting on this acquisition, Star Gas Partners Chief Executive Officer Mr. Donovan stated, "We are very excited with the acquisition of Champion and look forward to working with their 300 motivated and dedicated employees. Champion serves over 45,000 residential and commercial home heating oil customers in markets where we currently operate and, for their fiscal year ended June 30, 2009, had sales of $151.5 million, generating $9.5 million of Adjusted EBITDA and net income of $1.5 million. During this time, Champion sold 35.2 million gallons of residential home heating oil, 4.1 million gallons of commercial home heating oil, and 8.9 million gallons of other petroleum products. We believe Champion is an excellent fit for Star and are eager to work with their management team. Champion's companies are all local operations whose employees take great pride in the home heating services they have been offering their customers for many years. Under the Star banner, we expect these operations to continue following the same tradition of excellence in customer service."

For the fiscal 2010 second quarter, Star reported a 6.0 percent increase in total revenues to $551.7 million, compared to total revenues of $520.5 million in the year ago period, as an increase in home heating oil selling prices more than offset a decline in home heating oil volume. Selling prices rose in response to an increase in wholesale product cost.

Home heating oil volume for the fiscal 2010 second quarter decreased 19.1 million gallons, to 156.8 million gallons due to the impact of warmer temperatures and net customer attrition. Temperatures in Star's geographic areas of operations for the fiscal 2010 second quarter were 8.4 percent warmer than the fiscal 2009 second quarter and were 6.3 percent warmer than normal.

Operating income decreased $35.8 million to $75.1 million largely due to an unfavorable non cash change in the fair value of derivatives of $37.6 million.

The Partnership reported net income of $40.5 million, a $68.1 million decrease versus the fiscal 2009 second quarter, largely due to an unfavorable change in the fair value of derivative instruments of $37.6 million, an increase in deferred income taxes of $26.6 million, a decrease in current tax expense of $1.4 million and a reduction in income relating to repurchasing the Partnership's Senior Notes of $7.3 million.

Adjusted EBITDA decreased $0.7 million to $74.0 million, as compared to $74.7 million for the three months ended March 31, 2009.

EBITDA and Adjusted EBITDA are non-GAAP (Generally Accepted Accounting Principles) financial measures which are explained below in greater detail under "EBITDA and Adjusted EBITDA (non-GAAP Financial Measures)." Please refer to the Supplemental Information included in this news release for reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures for the three and six months ended March 31, 2010 and 2009 for Star, and for the twelve months ended June 30, 2009 for Champion.

In commenting on Star's second quarter results, Mr. Donovan added, "We continued to focus on customer retention this quarter and achieved EBITDA almost equivalent to that of last year. Given the warm weather, particularly in March, which was 25 percent warmer than March 2009, these results speak to our high level of service and sound financial management. These are qualities that not only serve our unitholders but also attract the best acquisition candidates, such as Champion."

For the six months ended March 31, 2010, Star reported a 2.5 percent decrease in total revenues to $900.6 million, compared to total revenues of $923.4 million in the year-ago period, as a reduction in home heating oil volume was partially offset by higher selling prices.

Home heating oil volume decreased 33.3 million gallons to 252.2 million gallons, due to the impact of warmer temperatures and net customer attrition.

Temperatures in Star's geographic areas of operations for the six months ended March 31, 2010 were 7.1 percent warmer than the six months ended March 31, 2009 and approximately 4.7 percent warmer than normal. The higher temperatures were largely due to a warming trend that began in March 2010 and continued into April 2010; temperatures in April 2010 were 29 percent warmer than in April 2009.

Net income decreased $48.1 million to $52.5 million largely due to an increase in deferred income tax expense of $35.8 million and a $10.9 million reduction in income related to repurchasing the Partnership's Senior Notes.

Adjusted EBITDA decreased $9.5 million to $100.7 million for the six months ended March 31, 2010, as the decline in home heating oil volume more than offset the positive impacts of higher per gallon margins and lower operating expenses.

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

EBITDA (Earnings from continuing operations before net interest expense, income taxes, depreciation and amortization) and Adjusted EBITDA are non-GAAP financial measures that are used as supplemental financial measures by management and external users of our financial statements, such as investors, commercial banks and research analysts, to assess:

  --  our compliance with certain financial covenants included in our debt
      agreements;
  --  our financial performance without regard to financing methods, capital
      structure, income taxes or historical cost basis;
  --  our ability to generate cash sufficient to pay interest on our
      indebtedness and to make distributions to our partners;
  --  our operating performance and return on invested capital as compared to
      those of other companies in the retail distribution of refined petroleum
      products business, without regard to financing methods and capital
      structure; and
  --  the viability of acquisitions and capital expenditure projects and the
      overall rates of return of alternative investment opportunities.


Adjusted EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, gain or loss on debt redemption, goodwill impairment, and other non-cash and non-operating charges. Management believes the presentation of this measure is relevant and useful because it allows investors to view the Partnership's performance in a manner similar to the method management uses, and makes it easier to compare its results with other companies that have different financing and capital structures. In addition, this measure is consistent with the manner in which the Partnership's debt covenants in its material debt agreements are calculated. Both the Partnership's 10.25 percent Senior Note agreement and its bank credit facility contain covenants that restrict equity distributions, acquisitions, and the amount of debt it can incur. Under the most restrictive of these covenants, which is found in the bank credit facility, the agent bank could step in and control all cash transactions for the Partnership if we failed to comply with the minimum availability or the fixed charge coverage ratio. The Partnership is required to maintain either availability (borrowing base less amounts borrowed and letters of credit issued) of $43.5 million or a fixed charge coverage ratio of 1.1 to 1.0 (Adjusted EBITDA being a significant component of this calculation). This method of calculating Adjusted EBITDA may not be consistent with that of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP.

Each of EBITDA and Adjusted EBITDA has its limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of EBITDA and Adjusted EBITDA are:

  --  EBITDA and Adjusted EBITDA do not reflect our cash used for capital
      expenditures;
  --  Although depreciation and amortization are non-cash charges, the assets
      being depreciated or amortized often will have to be replaced and EBITDA
      and Adjusted EBITDA do not reflect the cash requirements for such
      replacements;
  --  EBITDA and Adjusted EBITDA do not reflect changes in, or cash
      requirements for, our working capital requirements;
  --  EBITDA and Adjusted EBITDA do not reflect the cash necessary to make
      payments of interest or principal on our indebtedness; and
  --  EBITDA and Adjusted EBITDA do not reflect the cash required to pay
      taxes.


REMINDER: Star Gas management will host a webcast and conference call Tuesday, May 11 at 11:00 a.m. (ET). The webcast is available at http://www.star-gas.com/MediaList.cfm and at www.vcall.com. The Conference call dial-in is 888-335-0893 (or 970-315-0470 for international callers).

About Star Gas Partners, L.P.

Star Gas Partners, L.P., is the nation's largest retail distributor of home heating oil. Additional information is available by obtaining the Partnership's SEC filings at www.sec.gov and by visiting Star's website at www.star-gas.com, where unitholders may request a hard copy of Star's complete audited financial statements free of charge.

Forward Looking Information

This news release includes "forward-looking statements" which represent the Partnership's expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on our financial performance, the price and supply of home heating oil, the consumption patterns of our customers, our ability to obtain satisfactory gross profit margins, our ability to obtain new accounts and retain existing accounts, our ability to make strategic acquisitions, the impact of litigation, natural gas conversions, future union relations and the outcome of current and future union negotiations, the impact of current and future environmental, health and safety regulations, customer creditworthiness, counterparty creditworthiness, marketing plans and general economic conditions. All statements other than statements of historical facts included in this news release are forward-looking statements. Although the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Partnership's expectations ("Cautionary Statements") are disclosed in this news release and in the Partnership's quarterly report on form 10Q for the quarter ended March 31, 2010 and its Annual Report on Form 10-K for the year ended September 30, 2009, including without limitation and in conjunction with the forward-looking statements included in this news release. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. Unless otherwise required by law, the Partnership undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this news release.

           STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED BALANCE SHEETS


                                                   September
                                      March 31,      30,
  (in thousands)                        2010         2009
  ---------------------------------  -----------  ----------
                                     (unaudited)
  ASSETS
  Current assets
    Cash and cash equivalents           $ 53,573   $ 195,160
    Receivables, net of allowance
     of $9,017 and $6,267,
     respectively                        188,495      58,854
    Inventories                           60,200      62,636
    Fair asset value of derivative
     instruments                          11,771      14,676
    Current deferred tax asset, net       19,785      30,135
    Prepaid expenses and other
     current assets                       19,956      15,437
                                     -----------  ----------

      Total current assets               353,780     376,898
                                     -----------  ----------

  Property and equipment, net             37,324      37,494
  Long-term portion of accounts
   receivables                               671         504
  Goodwill                               183,065     182,942
  Intangibles, net                        16,324      20,468
  Long-term deferred tax asset, net       10,318      36,265
  Deferred charges and other
   assets, net                             7,673       9,555
                                     -----------  ----------

    Total assets                       $ 609,155   $ 664,126
                                     ===========  ==========

  LIABILITIES AND PARTNERS' CAPITAL
  Current liabilities
    Accounts payable                    $ 17,136    $ 17,103
    Revolving credit facility
     borrowings                           19,094          --
    Fair liability value of
     derivative instruments                1,356         665
    Accrued expenses and other
     current liabilities                  67,178      64,446
    Unearned service contract
     revenue                              40,745      37,121

    Customer credit balances              21,055      74,153
                                     -----------  ----------

      Total current liabilities          166,564     193,488
                                     -----------  ----------

  Long-term debt                          82,827     133,112
  Other long-term liabilities             31,185      31,192

  Partners' capital
    Common unitholders                   353,686     332,340
    General partner                          486         309
    Accumulated other comprehensive
     income (loss), net of taxes        (25,593)    (26,315)
                                     -----------  ----------

      Total partners' capital            328,579     306,334
                                     -----------  ----------
    Total liabilities and partners'
     capital                           $ 609,155   $ 664,126
                                     ===========  ==========



                         STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                            Three Months Ended      Six Months Ended
                                                March 31,               March 31,
                                           --------------------  ----------------------

  (in thousands, except per unit data -
   unaudited)                                2010       2009        2010        2009
  ---------------------------------------  --------  ----------  ----------  ----------

  Sales:
    Product                                $510,713   $ 478,762   $ 812,478   $ 833,029

    Installations and service                41,019      41,738      88,073      90,321
                                           --------  ----------  ----------  ----------
      Total sales                           551,732     520,500     900,551     923,350
  Cost and expenses:
    Cost of product                         361,713     323,705     576,228     573,411
    Cost of installations and service        42,517      44,561      88,189      93,343
    (Increase) decrease in the fair value
     of derivative instruments              (4,702)    (42,262)     (8,094)     (5,408)
    Delivery and branch expenses             67,872      71,597     124,694     135,168
    Depreciation and amortization
     expenses                                 3,561       6,066       7,096      12,109

    General and administrative expenses       5,646       5,953      10,699      11,213
                                           --------  ----------  ----------  ----------
      Operating income                       75,125     110,880     101,739     103,514
  Interest expense                          (3,885)     (4,349)     (8,155)     (9,368)
  Interest income                               935       1,196       1,329       2,288
  Amortization of debt issuance costs         (672)       (576)     (1,328)     (1,168)

  Gains (losses) on redemption of debt      (1,132)       6,218     (1,132)       9,740
                                           --------  ----------  ----------  ----------
    Income before income taxes               70,371     113,369      92,453     105,006

  Income tax expense                         29,836       4,702      39,913       4,350
                                           --------  ----------  ----------  ----------

    Net income                              $40,535   $ 108,667    $ 52,540   $ 100,656
                                           ========  ==========  ==========  ==========
      General Partner's interest in net
       income                                   187         466         241         431
                                           --------  ----------  ----------  ----------
  Limited Partners' interest in net
   income                                   $40,348   $ 108,201    $ 52,299   $ 100,225
                                           ========  ==========  ==========  ==========


    Per unit data (Basic and Diluted):
    Net income available to limited
     partners                                 $0.57      $ 1.43      $ 0.73      $ 1.32
      Dilutive impact of theoretical
       distribution of earnings under
      FASB ASC 260-10-45-60 (EITF 03-06)       0.09        0.26        0.11        0.24
                                           --------  ----------  ----------  ----------
    Limited Partner's interest in net
     income under FASB
    ASC 260-10-45-60                          $0.48      $ 1.17      $ 0.62      $ 1.08
                                           ========  ==========  ==========  ==========



                                           --------  ----------  ----------  ----------
    Weighted average number of Limited
     Partner units outstanding
    (Basic and Diluted)                      70,302      75,774      71,494      75,774
                                           ========  ==========  ==========  ==========


                     SUPPLEMENTAL INFORMATION

             STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
           RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
                           (Unaudited)


                                          Three Months Ended
                                              March 31,
                                       ------------------------

  (in thousands)                          2010         2009
  -----------------------------------  -----------  -----------

  Net income                              $ 40,535    $ 108,667
  Plus:
  Income tax expense                        29,836        4,702
  Amortization of debt issuance cost           672          576
  Interest expense, net                      2,950        3,153

  Depreciation and amortization              3,561        6,066
                                       -----------  -----------
  EBITDA from continuing operations         77,554      123,164

  (Increase) / decrease in the fair
   value of derivative instruments         (4,702)     (42,262)
  (Gains) / losses on redemption of
   debt                                      1,132      (6,218)
                                       -----------  -----------
  Adjusted EBITDA                           73,984       74,684

  Add / (subtract)
  Income tax expense                      (29,836)      (4,702)
  Interest expense, net                    (2,950)      (3,153)
  Provision for losses on accounts
   receivable                                3,334        4,018
  Increase in accounts receivables        (58,338)     (16,585)
  Decrease in inventories                   11,823       26,427
  Decrease in customer credit
   balances                               (31,308)     (45,105)
  Change in deferred taxes                  26,306           --
  Change in other operating assets
   and liabilities                           3,924       17,966
                                       -----------  -----------
  Net cash provided by (used in)
   operating activities                  $ (3,061)     $ 53,550
                                       ===========  ===========


                                       -----------  -----------
  Net cash used in investing
   activities                            $ (1,077)      $ (837)
                                       ===========  ===========


                                       -----------  -----------
  Net cash used in financing
   activities                           $ (40,960)   $ (25,008)
                                       ===========  ===========

  Home heating oil gallons sold            156,800      175,900



                     SUPPLEMENTAL INFORMATION

             STAR GAS PARTNERS, L.P. AND SUBSIDIARIES
           RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
                           (Unaudited)


                                           Six Months Ended
                                              March 31,
                                       ------------------------

  (in thousands)                          2010         2009
  -----------------------------------  -----------  -----------

  Net income                              $ 52,540    $ 100,656
  Plus:
  Income tax expense                        39,913        4,350
  Amortization of debt issuance cost         1,328        1,168
  Interest expense, net                      6,826        7,080

  Depreciation and amortization              7,096       12,109
                                       -----------  -----------
  EBITDA from continuing operations        107,703      125,363

  (Increase) / decrease in the fair
   value of derivative instruments         (8,094)      (5,408)
  (Gains) / losses on redemption of
   debt                                      1,132      (9,740)
                                       -----------  -----------
  Adjusted EBITDA                          100,741      110,215

  Add / (subtract)
  Income tax expense                      (39,913)      (4,350)
  Interest expense, net                    (6,826)      (7,080)
  Provision for losses on accounts
   receivable                                5,482        6,886
  Increase in accounts receivables       (135,290)     (71,583)
  Decrease in inventories                    2,436        5,398
  Decrease in customer credit
   balances                               (53,098)     (36,392)
  Change in deferred taxes                  35,788           --
  Change in other operating assets
   and liabilities                          14,632       30,265
                                       -----------  -----------
  Net cash provided by (used in)
   operating activities                 $ (76,048)     $ 33,359
                                       ===========  ===========


                                       -----------  -----------
  Net cash used in investing
   activities                            $ (2,632)    $ (4,841)
                                       ===========  ===========


                                       -----------  -----------
  Net cash used in financing
   activities                           $ (62,907)   $ (31,408)
                                       ===========  ===========

  Home heating oil gallons sold            252,200      285,500



            SUPPLEMENTAL INFORMATION

           CHAMPION ENERGY CORPORATION
  RECONCILIATION OF EBITDA AND ADJUSTED EBITDA
                   (Unaudited)


                                      Twelve
                                      Months
                                       Ended
                                     June 30,
  (in thousands)                       2009
  --------------------------------  ----------

  Net income                           $ 1,492
  Plus:
  Income tax benefit                     (543)
  Amortization of deferred charges       1,247
  Interest expense, net                  4,327

  Depreciation and amortization          3,017
                                    ----------
  EBITDA from continuing
   operations                            9,540

  (Increase) / decrease in the
   fair value of derivative
   instruments                              --
  (Gains) / losses on redemption
   of debt                                  --
                                    ----------
  Adjusted EBITDA                        9,540

  Add / (subtract)
  Income tax benefit                       543
  Interest expense, net                (4,327)
  Decrease in accounts receivables       5,052
  Decrease in inventories                  255
  Change in deferred taxes               (874)
  Change in other operating assets
   and liabilities                     (2,742)
                                    ----------
  Net cash provided by operating
   activities                          $ 7,447
                                    ==========


                                    ----------
  Net cash used in investing
   activities                        $ (1,063)
                                    ==========


                                    ----------
  Net cash used in financing
   activities                        $ (7,006)
                                    ==========

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Star Gas Partners, L.P.

CONTACT:  Star Gas Partners
Investor Relations
203/328-7310
Darrow Associates
Chris Witty
646/438-9385
cwitty@darrowir.com

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