Star Group Partners, L.P.

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

STAMFORD, Conn., Aug 3, 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 third quarter and the nine-month period ended June 30, 2010. Separately, the Board of Directors of the Partnership's General Partner authorized the repurchase of up to an additional 7.0 million common units. As of June 30, 2010, Star Gas had 68.3 million common units outstanding. The prior authorization for the purchase of 7.5 million common units was completed in June, 2010.

For the fiscal 2010 third quarter, Star reported a 5.4 percent increase in total revenues to $176.8 million, compared to total revenues of $167.7 million in the prior year period, principally in recognition of a rise in other petroleum product sales of $6.1 million driven largely by an increase in selling prices. Home heating oil product revenue declined by $2.3 million as the impact of higher home heating oil selling prices of 20.7 percent was more than offset by a decline in home heating oil volume of 18.9 percent, primarily due to warmer temperatures of 27.5 percent. Service and installation sales increased $5.3 million, or 12.9 percent, reflecting revenue from the Champion acquisition and additional air conditioning installation and service revenue.

During the three-month period ended June 30, 2010, operating income decreased $14.8 million to an operating loss of $13.9 million, due to the impact of warmer temperatures which led to lower home heating oil gross profit and an unfavorable non-cash change in the fair value of derivative instruments of $12.0 million. The Partnership reported a net loss of $10.0 million, an $8.1 million greater loss than that of the fiscal 2009 third quarter.

The Adjusted EBITDA loss increased $2.5 million to $7.5 million, as compared to an Adjusted EBITDA loss of $5.0 million for the three months ended June 30, 2009, as the impact of the decline in home heating oil volume more than offset the impact of higher per gallon margins. Acquisitions and related expenses accounted for $0.9 million of the increase in the Adjusted EBITDA loss.

Star Gas Partners Chief Executive Officer, Dan Donovan, stated, "This quarter saw some rather unusual swings in several aspects of our business, reflecting both extreme weather trends and fluctuating petroleum pricing. With high temperatures in much of our coverage area, volumes fell dramatically, while oil prices rose when compared to the prior year period. However, not surprisingly, we saw strong demand for our air conditioning services, helping drive 13 percent growth in our overall installation and service business, an area we continue to target for further expansion. Our integration with Champion Energy remains on track, and we are proud to have their customer base under the Star umbrella. Overall, we believe the Partnership is well positioned financially and operationally for the coming quarters, and we are pleased to announce the additional 7.0 million common unit repurchase authorization. This clearly indicates our belief in the positive outlook for Star, as we view buying our own units as a very sound investment."

For the nine months ended June 30, 2010, Star reported a 1.3 percent decrease in total revenues to $1.1 billion, as a reduction in home heating oil volume and other petroleum products was largely offset by higher selling prices and an increase in installation and service revenue. Home heating oil volume declined due to warmer temperatures of 9.1 percent and net customer attrition.

Operating income for the first nine months of fiscal 2010 declined by $16.6 million to $87.8 million, as a $27.8 million decline in product gross profit and a $9.3 million unfavorable change in the fair value of derivatives was somewhat offset by a $5.6 million improvement in service profitability and lower operating expenses (including depreciation and amortization) of $14.9 million.

The Partnership reported net income of $42.5 million for the nine months ended June 30, 2010, as compared to net income of $98.7 million for the nine months ended June 30, 2009.

Adjusted EBITDA decreased $12.0 million to $93.3 million for the nine months ended June 30, 2010, as compared to $105.3 million for the nine months ended June 30, 2009, as the impact of warmer temperatures and net customer attrition on home heating oil volume more than offset the effects of higher per gallon margins and lower operating costs. In addition, Adjusted EBITDA was reduced by $0.9 million due to acquisitions and related expenses.

In June 2010, the Partnership completed the initial stage of its unit repurchase program under which an aggregate 7.5 million common units of Star Gas were acquired. The Board of Directors of the General Partner has authorized the Partnership to acquire up to an additional 7 million common units under its repurchase program. The authorized common unit repurchases may be made from time-to-time in the open market, in privately negotiated transactions or in such other manner as deemed appropriate by management. The program does not have a time limit. The Partnership's repurchase activities will take into account SEC safe harbor rules and guidance for issuer repurchases.

In order to facilitate the common unit repurchase, the Partnership intends to enter into one or more prearranged common unit repurchase plans under Rule 10b5-1 of the Securities Exchange Act of 1934 (the "10b5-1 Plan"). Under the 10b5-1 Plan, the Partnership's third-party broker will have authority to repurchase common units in the open market or through privately negotiated transactions in accordance with the terms of the plan. The l0b5-1 Plan will permit repurchases commencing on or about August 6, 2010, unless the plan is terminated earlier in accordance with its terms.

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.


Conference Call: Star Gas management will host a webcast and conference call Wednesday, August 4 at 11:00 a.m. (ET). The webcast is available at www.star-gas.com/events.cfm and at www.vcall.com. The Conference call dial-in is 888-335-0893 (or 970-315-0470 for international callers).

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 customers and retain existing customers; our ability to make strategic acquisitions; the impact of litigation; our ability to contract for our current and future supply needs; natural gas conversions; future union relations and the outcome of current and future union negotiations; the impact of future environmental, health and safety regulations; the ability to attract and retain employees; 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. Without limiting the foregoing, the words "believe," "anticipate," "plan," "expect," "seek," "estimate" and similar expressions are intended to identify 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 be correct and actual results may differ materially from those projected as a result of certain risks and uncertainties. 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 10-Q for the fiscal quarter ended June 30, 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
                 CONSOLIDATED BALANCE SHEETS

                                                  September
                                     June 30,       30,

  (in thousands)                       2010         2009
  --------------------------------  -----------  ----------
                                    (unaudited)
  ASSETS
  Current assets
   Cash and cash equivalents           $ 43,951   $ 195,160
   Receivables, net of allowance
    of $8,446 and $6,267,
    respectively                        106,074      58,854
   Inventories                           62,851      62,636
   Fair asset value of derivative
    instruments                           6,652      14,676
   Current deferred tax asset, net       24,940      30,135
   Prepaid expenses and other
    current assets                       20,545      15,437
                                    -----------  ----------

     Total current assets               265,013     376,898
                                    -----------  ----------

  Property and equipment, net            43,971      37,494
  Long-term portion of accounts
   receivables                              662         504
  Goodwill                              202,803     182,942
  Intangibles, net                       59,552      20,468
  Long-term deferred tax asset,
   net                                    1,300      36,265
  Deferred charges and other
   assets, net                            6,721       9,555
                                    -----------  ----------

   Total assets                       $ 580,022   $ 664,126
                                    ===========  ==========

  LIABILITIES AND PARTNERS'
   CAPITAL
  Current liabilities
   Accounts payable                    $ 15,788    $ 17,103
   Fair liability value of
    derivative instruments                  276         665
   Accrued expenses and other
    current liabilities                  70,061      64,446
   Unearned service contract
    revenue                              40,066      37,121

   Customer credit balances              33,533      74,153
                                    -----------  ----------

     Total current liabilities          159,724     193,488
                                    -----------  ----------

  Long-term debt                         82,797     133,112
  Other long-term liabilities            30,821      31,192

  Partners' capital
   Common unitholders                   331,516     332,340
   General partner                          397         309
   Accumulated other comprehensive
    income (loss), net of taxes        (25,233)    (26,315)
                                    -----------  ----------

     Total partners' capital            306,680     306,334
                                    -----------  ----------
   Total liabilities and partners'
    capital                           $ 580,022   $ 664,126
                                    ===========  ==========



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


                                             Three Months Ended       Nine Months Ended
                                                  June 30,                June 30,
                                           ----------------------  ----------------------

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

  Sales:
   Product                                  $ 130,168   $ 126,404   $ 942,646   $ 959,433

   Installations and service                   46,593      41,265     134,666     131,586
                                           ----------  ----------  ----------  ----------
     Total sales                              176,761     167,669   1,077,312   1,091,019
  Cost and expenses:
   Cost of product                             93,345      85,100     669,573     658,511
   Cost of installations and service           40,066      37,447     128,255     130,790
   (Increase) decrease in the fair value
    of derivative instruments                   2,324     (9,656)     (5,770)    (15,064)
   Delivery and branch expenses                45,076      44,776     169,770     180,903
   Depreciation and amortization expenses       4,083       3,744      11,179      15,853

   General and administrative expenses          5,748       5,302      16,447      15,556
                                           ----------  ----------  ----------  ----------
     Operating income (loss)                 (13,881)         956      87,858     104,470
  Interest expense                            (3,103)     (4,119)    (11,258)    (13,487)
  Interest income                               1,421       1,305       2,750       3,593
  Amortization of debt issuance costs           (660)       (564)     (1,988)     (1,732)

  Gains (loss) on redemption of debt               --          --     (1,132)       9,740
                                           ----------  ----------  ----------  ----------
   Income (loss) before income taxes         (16,223)     (2,422)      76,230     102,584

  Income tax expense (benefit)                (6,232)       (498)      33,681       3,852
                                           ----------  ----------  ----------  ----------

   Net income (loss)                        $ (9,991)   $ (1,924)    $ 42,549    $ 98,732
                                           ==========  ==========  ==========  ==========
     General Partner's interest in net
      income (loss)                              (47)         (8)         194         423
                                           ----------  ----------  ----------  ----------
  Limited Partners' interest in net
   income (loss)                            $ (9,944)   $ (1,916)    $ 42,355    $ 98,309
                                           ==========  ==========  ==========  ==========



   Per unit data (Basic and Diluted):
  ---------------------------------------
   Net income (loss) available to limited
    partners                                 $ (0.14)    $ (0.03)      $ 0.60      $ 1.30
     Less dilutive impact of theoretical
      distribution of earnings under
     FASB ASC 260-10-45-60 (EITF 03-06)            --          --        0.07        0.23
                                           ----------  ----------  ----------  ----------
   Limited Partner's interest in net
    income (loss) under FASB ASC
    260-10-45-60                             $ (0.14)    $ (0.03)      $ 0.53      $ 1.07
                                           ==========  ==========  ==========  ==========


                                           ----------  ----------  ----------  ----------
   Weighted average number of Limited
    Partner units outstanding (Basic and
    Diluted)                                   69,469      75,774      70,819      75,774
                                           ==========  ==========  ==========  ==========


                    SUPPLEMENTAL INFORMATION

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


                                       Three Months Ended June
                                                 30,
                                       -----------------------

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

  Net loss                               $ (9,991)   $ (1,924)
  Plus:
  Income tax benefit                       (6,232)       (498)
  Amortization of debt issuance cost           660         564
  Interest expense, net                      1,682       2,814

  Depreciation and amortization              4,083       3,744
                                       -----------  ----------
  EBITDA from continuing operations        (9,798)       4,700

  (Increase) / decrease in the fair
   value of derivative instruments           2,324     (9,656)
                                       -----------  ----------
  Adjusted EBITDA                          (7,474)     (4,956)


  Add / (subtract)
  -----------------------------------
  Income tax benefit                         6,232         498
  Interest expense, net                    (1,682)     (2,814)
  Provision for losses on accounts
   receivable                                1,088       2,371
  Decrease in accounts receivables          93,573      75,933
  Increase in inventories                    (565)    (15,993)
  Increase in customer credit
   balances                                  8,673      11,586
  Change in deferred taxes                 (5,420)          --
  Change in other operating assets
   and liabilities                         (4,130)    (19,176)
                                       -----------  ----------
  Net cash provided by operating
   activities                             $ 90,295    $ 47,449
                                       ===========  ==========

  Net cash used in investing
   activities                           $ (68,555)     $ (814)
                                       -----------  ----------


                                       -----------  ----------
  Net cash used in financing
   activities                           $ (31,362)   $ (5,137)
                                       ===========  ==========

  Home heating oil gallons sold             34,900      43,000



                       SUPPLEMENTAL INFORMATION

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


                                              Nine Months Ended
                                                   June 30,
                                           ------------------------

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

  Net income                                  $ 42,549     $ 98,732
  Plus:
  Income tax expense                            33,681        3,852
  Amortization of debt issuance cost             1,988        1,732
  Interest expense, net                          8,508        9,894

  Depreciation and amortization                 11,179       15,853
                                           -----------  -----------
  EBITDA from continuing operations             97,905      130,063

  (Increase) / decrease in the fair value
   of derivative instruments                   (5,770)     (15,064)

  (Gains) / loss on redemption of debt           1,132      (9,740)
                                           -----------  -----------
  Adjusted EBITDA                               93,267      105,259


  Add / (subtract)
  ---------------------------------------
  Income tax expense                          (33,681)      (3,852)
  Interest expense, net                        (8,508)      (9,894)
  Provision for losses on accounts
   receivable                                    6,570        9,257
  (Increase) decrease in accounts
   receivables                                (41,717)        4,350
  (Increase) decrease in inventories             1,871     (10,595)
  Decrease in customer credit balances        (44,425)     (24,806)
  Change in deferred taxes                      30,368           --
  Change in other operating assets and
   liabilities                                  10,502       11,089
                                           -----------  -----------
  Net cash provided by operating
   activities                                 $ 14,247     $ 80,808
                                           ===========  ===========


                                           -----------  -----------

  Net cash used in investing activities     $ (71,187)    $ (5,655)
                                           ===========  ===========


                                           -----------  -----------

  Net cash used in financing activities     $ (94,269)   $ (36,545)
                                           ===========  ===========

  Home heating oil gallons sold                287,100      328,500


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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