<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 33-98490
--------
STAR GAS PARTNERS, L.P.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1437793
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2187 Atlantic Street, Stamford, Connecticut 06902
- ------------------------------------------------------
(Address of principal executive office) (Zip Code)
(203) 328-7300
- ---------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) had been subject to such filing
requirements for the past 90 days.
Yes X No __
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1997:
Star Gas Partners, L.P. 2,875,000 Common Units
2,396,078 Subordinated Units
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I FINANCIAL INFORMATION:
Item 1 - Financial Statements
Star Gas Partners, L.P. and the Star Gas Group (Predecessor)
------------------------------------------------------------
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1997 3
Consolidated Statements of Operations for the three
months ended June 30, 1996 and for the three months
ended June 30, 1997 4
Consolidated Statements of Operations from October 1, 1995
through December 20, 1995 (Predecessor), from December 20,
1995 through June 30, 1996 and for the nine months ended
June 30, 1997 5
Consolidated Statements of Cash Flows from October 1, 1995
through December 20, 1995 (Predecessor), from December 20,
1995 through June 30, 1996 and for the nine months ended
June 30, 1997 6
Consolidated Statement of Partners' Capital for the nine
months ended June 30, 1997 7
Notes to Consolidated Financial Statements 8 - 10
Item 2 - Management's Discussion and Analysis of Financial
Conditions and Results of Operations 11 - 14
PART II OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
</TABLE>
2
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JUNE 30,
SEPTEMBER 30, 1997
1996 (unaudited)
------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,106 $ 7,255
Receivables, net of allowance of $291
and $485, respectively 7,226 6,495
Inventories 8,494 3,339
Prepaid expenses and other current assets 1,016 1,543
-------- --------
Total current assets 17,842 18,632
-------- --------
Property and equipment, net 97,733 96,385
Intangibles and other assets, net 41,338 38,750
-------- --------
Total assets $156,913 $153,767
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Bank credit facility borrowings $ 2,350 $ -
Accounts payable 1,991 2,288
Accrued interest 285 2,013
Other accrued expenses 2,812 3,203
Customer credit balances 2,858 1,444
-------- --------
Total current liabilities 10,296 8,948
-------- --------
Long-term debt 85,000 85,000
Other long-term liabilities 219 221
Partners' capital:
Common unitholders 52,821 51,859
Subordinated unitholder 8,410 7,607
General partner 167 132
-------- --------
Total partners' capital 61,398 59,598
-------- --------
Total liabilities and partners' capital $156,913 $153,767
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
Sales $18,416 $20,078
Cost of sales 8,483 9,632
------- -------
Gross profit 9,933 10,446
Delivery and branch expenses 7,768 8,702
Depreciation and amortization 2,546 2,653
General and administrative expenses 2,005 1,491
Net gain (loss) on sales of assets (29) (67)
------- -------
Operating loss (2,415) (2,467)
Interest expense, net 1,614 1,671
------- -------
Loss before income taxes (4,029) (4,138)
Income tax expense 17 5
------- -------
Net loss $(4,046) $(4,143)
======= =======
General Partner's interest in net loss $ (81) $ (83)
------- -------
Limited Partners' interest in net loss $(3,965) $(4,060)
======= =======
Net loss per Limited Partner unit $(0.75) $(0.77)
======= =======
Weighted average number of Limited
Partner units outstanding 5,271 5,271
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit amounts)
(unaudited)
<TABLE>
<CAPTION>
OCTOBER 1,
1995 DECEMBER 20, NINE MONTHS ENDED
THROUGH 1995 ---------------------
DECEMBER 20, THROUGH JUNE 30,
1995 JUNE 30, 1996 JUNE 30,
(Predecessor) 1996 (combined) 1997
------------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $28,159 $71,971 $100,130 $117,396
Cost of sales 12,808 36,061 48,869 63,578
------- ------- -------- --------
Gross profit 15,351 35,910 51,261 53,818
Delivery and branch expenses 7,729 18,759 26,488 28,054
Depreciation and amortization 2,177 5,285 7,462 7,869
General and administrative expenses 1,349 3,543 4,892 5,384
Net gain (loss) on sales of assets (113) (52) (165) (129)
------- ------- -------- --------
Operating income 3,983 8,271 12,254 12,382
Interest expense, net 1,922 3,569 5,491 5,290
------- ------- -------- --------
Income before income taxes 2,061 4,702 6,763 7,092
Income tax expense 60 33 93 18
------- ------- -------- --------
Net income $ 2,001 $ 4,669 $ 6,670 $ 7,074
======= ======= ======== ========
General Partner's interest in
net income $ 93 $ 142
------- --------
Limited Partners' interest in
net income $ 4,576 $ 6,932
======= ========
Net income per Limited Partner
unit $0.87 $1.32
======= ========
Weighted average number of Limited
Partner units outstanding 5,271 5,271
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
OCTOBER 1, 1995 OCTOBER 1, 1995
THROUGH DECEMBER 20, 1995 THROUGH NINE MONTHS
DECEMBER 20, 1995 THROUGH JUNE 30, 1996 ENDED
(Predecessor) JUNE 30, 1996 (combined) JUNE 30, 1997
------------------ ------------------ ---------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,001 $ 4,669 $ 6,670 $ 7,074
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,177 5,285 7,462 7,869
Provision for losses on
accounts receivable 101 245 346 382
Loss on sales of assets 113 52 165 129
Changes in operating assets
and liabilities:
Decrease (increase) in receivables (2,779) 2,878 99 349
Decrease in inventories 1,430 1,733 3,163 5,155
Decrease (increase) in other assets (455) 400 (55) (355)
Increase (decrease) in accounts
payable 10 (873) (863) 297
Increase (decrease) in other current
liabilities (1,713) 1,206 (507) 705
Increase (decrease) in other
long-term liabilities (12) (56) (68) 2
-------- -------- -------- --------
Net cash provided by
operating activities 873 15,539 16,412 21,607
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,617) (2,315) (3,932) (4,454)
Purchase of Company - (1,527) (1,527) -
Proceeds from sales of fixed assets 566 130 696 314
-------- -------- -------- --------
Net cash used in investing
activities (1,051) (3,712) (4,763) (4,140)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Credit facility borrowings - - - 5,000
Credit facility repayments - - - (7,350)
Acquisition facility borrowings - - - 3,350
Acquisition facility repayments - - - (3,350)
Repayments of debt (35,783) (53,780) (89,563) -
Cash dividends paid (21,309) - (21,309) -
Distributions - (3,348) (3,348) (8,874)
Loan to Petro (12,000) - (12,000) -
Proceeds from issuance of First
Mortgage Notes 85,000 - 85,000 -
Proceeds from issuance of
Common Units, net - 55,931 55,931 -
Repayment of preferred stock to Petro (8,625) - (8,625) -
Increase in deferred charges (1,313) (814) (2,127) (94)
Cash retained by general partner (6,000) - (6,000) -
-------- -------- -------- --------
Net cash used in
financing activities (30) (2,011) (2,041) (11,318)
-------- -------- -------- --------
Net increase (decrease) in cash (208) 9,816 9,608 6,149
Cash at beginning of period 727 519 727 1,106
-------- -------- -------- --------
Cash at end of period $ 519 $ 10,335 $ 10,335 $ 7,255
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes $ 78 $ 4 $ 82 $ 7
======== ======== ======== ========
Interest $ 19 $ 1,652 $ 1,671 $ 3,417
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
NINE MONTHS ENDED JUNE 30, 1997
(in thousands, except per unit data)
(unaudited)
<TABLE>
<CAPTION>
NUMBER OF UNITS TOTAL
-------------------- GENERAL PARTNERS'
COMMON SUBORDINATED COMMON SUBORDINATED PARTNER CAPITAL
------ ------------ -------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1996 2,875 2,396 $52,821 $ 8,410 $ 167 $61,398
Minimum Quarterly Distribution
($1.65 per unit) (4,743) (3,954) (177) (8,874)
Net income - - 3,781 3,151 142 7,074
----- ----- ------- ------- ----- -------
Balance June 30, 1997 2,875 2,396 $51,859 $ 7,607 $ 132 $59,598
===== ===== ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1) PARTNERSHIP ORGANIZATION AND FORMATION
Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") was
formed on October 16, 1995, as a Delaware limited partnership. Star Gas
Partners and its subsidiary, Star Gas Propane, L.P., a Delaware limited
partnership, (the "Operating Partnership") were formed to acquire, own and
operate substantially all of the propane operations and assets and
liabilities of Star Gas Corporation ("Star Gas"), a Delaware corporation
(and the general partner of Star Gas Partners and the Operating
Partnership) and the propane operations and assets and liabilities of Star
Gas' parent corporation, Petroleum Heat and Power Co., Inc., a Minnesota
corporation ("Petro"), (collectively hereinafter referred to as the "Star
Gas Group" or the "Predecessor Company"). The Operating Partnership is,
and the Star Gas Group was, engaged in the marketing and distribution of
propane gas and related appliances to retail and wholesale customers in the
United States located principally in the Midwest and Northeast. On
December 20, 1995, (i) Petro conveyed all of its propane assets and related
liabilities to Star Gas and (ii) Star Gas and its subsidiaries conveyed
substantially all of their assets (other than $83.7 million in cash from
the proceeds of the First Mortgage Notes and certain non-operating assets)
to the Operating Partnership (the "Star Gas Conveyance") in exchange for
general and limited partner interests in the Operating Partnership and the
assumption by the Operating Partnership of substantially all of the
liabilities of Star Gas and its subsidiaries (excluding certain income tax
liabilities and certain other long-term obligations of Star Gas that were
assumed by Petro), including the First Mortgage Notes and approximately
$53.8 million in outstanding Star Gas debt due to Petro. The net book
value of the assets contributed by Star Gas and its subsidiaries to the
Operating Partnership exceeded liabilities assumed by $11.2 million.
Immediately after the Star Gas Conveyance, Star Gas and its subsidiaries
conveyed their limited partner interests in the Operating Partnership to
Star Gas Partners in exchange for an aggregate of 2.4 million Subordinated
Units of limited partner interests in Star Gas Partners.
Of the $83.7 million in cash retained by the General Partner, $35.8 was
paid to Petro in satisfaction of additional indebtedness, $8.6 million was
used to redeem preferred stock of the General Partner held by Petro, $12.0
million was loaned to Petro, and $6.0 million was retained to be available
to fund the General Partner's additional capital contribution obligation.
The remaining $21.3 million was paid to Petro as dividends.
On December 20, 1995, Star Gas Partners completed its initial public
offering of 2.6 million Common Units, representing Limited Partner
interests, at a price of $22.00 a unit. The net proceeds received of $51.0
million, after deducting underwriting discounts, commissions and expenses
were contributed to the Operating Partnership and used to repay debt due to
Petro, which was assumed by the Operating Partnership in the Star Gas
Conveyance.
In January 1996, pursuant to the underwriters' over-allotment, an
additional 0.3 million Common Units were issued for approximately $5.6
million, net of underwriting discounts and expenses.
The General Partner holds a 1.0% general partner interest in Star Gas
Partners and a 1.0101% general partner interest in the Operating
Partnership. Star Gas Partners and the Operating Partnership have no
employees, except for certain employees of its corporate subsidiary Stellar
Propane Service Corporation. The General Partner conducts, directs and
manages all activities of Star Gas Partners and the Operating Partnership
and is reimbursed on a monthly basis for all direct and indirect expenses
it incurs on their behalf including the cost of employee wages.
8
<PAGE>
2) BASIS OF PRESENTATION
The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the interim periods presented. All adjustments to the financial statements
were of a normal recurring nature.
The propane industry is seasonal in nature because propane is used
primarily for heating in residential and commercial buildings. Therefore,
the results of operations for the periods ended June 30, 1996 and June 30,
1997 are not necessarily indicative of the results to be expected for a
full year.
Inventories
Inventories are stated at the lower of cost or market and are computed on
a first-in, first-out basis. At the dates indicated the components of
inventory were as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- --------
<S> <C> <C>
Propane gas $6,625 $1,399
Appliances and equipment 1,869 1,940
------ ------
$8,494 $3,339
====== ======
</TABLE>
3) NET INCOME PER LIMITED PARTNER UNIT
Net income per Limited Partner Unit is computed by dividing net income,
after deducting the General Partner's 2.0% interest, by the weighted
average number of Common Units and Subordinated Units outstanding.
4) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Partnership is threatened with,
or is named in, various lawsuits. The Partnership is not a party to any
litigation which individually or in the aggregate could reasonably be
expected to have a material adverse effect on the company.
5) RELATED PARTY TRANSACTIONS
The Partnership has no employees except for certain employees of its
corporate subsidiary, Stellar Propane Service Corporation and is managed
and controlled by the General Partner. Pursuant to the Partnership
Agreement, the General Partner is entitled to reimbursement for all direct
and indirect expenses incurred or payments it makes on behalf of the
Partnership, and all other necessary or appropriate expenses allocable to
the Partnership or otherwise reasonably incurred by the General Partner in
connection with operating the Partnership's business. For the nine months
ended June 30, 1997, the Partnership reimbursed the General Partner and
Petro $13.2 million representing salary, payroll tax and other compensation
paid to the employees of the General Partner, including $0.2 million paid
to Petro for certain corporate functions such as purchasing, finance and
compliance.
6) RETENTION OF MORGAN STANLEY & CO. INCORPORATED
On March 3, 1997, the Partnership announced that it has concluded its
review of strategic alternatives. Based on the results of this study, the
Partnership's financial performance and industry prospects, the Partnership
has decided to pursue the opportunities it sees to grow the business rather
than seek a sale.
7) SUBSEQUENT EVENTS
On July 11, 1997, the Partnership announced that it will pay a cash
distribution of $0.55 per Limited Partner Unit for the three months ended
June 30, 1997. The distribution is payable on August 14, 1997 to
unitholders of record as of August 1, 1997.
9
<PAGE>
8) GENERAL PARTNER FINANCIAL STATEMENTS
The following presents the Condensed Consolidated Balance Sheet as of
June 30, 1997 together with the Condensed Consolidated Statement of
Operations of the General Partner, Star Gas Corporation and Subsidiary, for
the nine months ended June 30, 1997.
STAR GAS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------
<S> <C>
ASSETS
Current assets:
Cash $ 1,595
Interest receivable 336
-------
Total current assets 1,931
Note receivable from Petro 12,000
Investment in Partnership 7,739
-------
Total assets $21,670
=======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accrued expenses $ 37
-------
Shareholder's equity 21,633
-------
Total liabilities and shareholder's equity $21,670
=======
</TABLE>
STAR GAS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1997
-----------------
<S> <C>
Revenues:
Reimbursement of employee expenses from Operating Partnership $13,028
Expenses:
Cost of employee services provided to Operating Partnership 13,028
-------
Operating income -
Interest income 1,107
-------
Income before equity interest in Partnership 1,107
Share of income of Partnership 3,293
-------
Net income $ 4,400
=======
</TABLE>
10
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
- -------------------------------
COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
- -------------------------------------------
OVERVIEW
The following discussion reflects the results of operations and operating data
of Star Gas Partners, L.P. for the nine months ended June 30, 1997 and is
compared to the combined results of the Star Gas Group, the Predecessor Company,
from October 1, 1995 to December 20, 1995 and Star Gas Partners, L.P. from
December 20, 1995 to June 30, 1996. The operating results of the Star Gas Group
and Star Gas Partners, L.P. were combined for the nine months ended June 30,
1996 to facilitate an analysis of the fundamental operating data.
In analyzing the historical financial results of the Star Gas Group and the
financial results of the Partnership, the following matters should be
considered:
Propane's primary use is for residential and commercial heating. As a result,
weather conditions have a significant impact on financial performance.
Accordingly, in analyzing changes in financial performance, the weather
conditions in which the Partnership/Star Gas Group operated in any given period
should be considered.
In addition, gross profit margins vary according to the customer mix. For
example, sales to residential customers generate higher gross profit margins
than sales to other customer groups, such as agricultural customers.
Accordingly, a change in customer mix can affect gross profit without
necessarily impacting total sales.
Lastly, the propane industry is seasonal in nature with peak activity occurring
during the winter months, during the Partnership's first and second fiscal
quarter. Due to the seasonality of the business, results of operations for the
periods presented are not necessarily indicative of the results to be expected
for a full year.
VOLUME
For the nine months ended June 30, 1997, retail propane volume declined 1.7
million gallons, or 2.0%, to 80.8 million gallons, as compared to 82.5 million
gallons for the nine months ended June 30, 1996. The decline was primarily
attributable to the effect on volume of warmer temperatures experienced during
the second fiscal quarter compared to the prior year's second fiscal quarter and
to customer conservation efforts attributable to significantly higher propane
selling prices. The Partnership was able to mitigate the effects of the warmer
temperatures on retail propane volume through both internal account growth and
two acquisitions completed since March 15, 1996. Also favorably impacting the
year-to-year comparison was an increase in sales to agricultural customers,
resulting from a return to more normal propane demand for grain drying.
SALES
For the nine months ended June 30, 1997, sales increased $17.3 million, or
17.2%, to $117.4 million, as compared to $100.1 million for the nine months
ended June 30, 1996. The increase was due to higher selling prices in response
to a significant increase in propane supply costs experienced during the nine
months ended June 30, 1997.
COST OF SALES
For the nine months ended June 30, 1997, cost of sales increased $14.7 million,
or 30.1%, to $63.6 million, as compared to $48.9 million for the nine months
ended June 30, 1996. The increase was due to higher per gallon propane supply
costs.
11
<PAGE>
GROSS PROFIT
For the nine months ended June 30, 1997, gross profit increased $2.6 million, or
5.0%, to $53.8 million, as compared to $51.3 million for the nine months ended
June 30, 1996. The increase in gross profit resulted from higher per gallon
margins across all market segments which was partially offset by the impact of
slightly lower retail propane volume.
DELIVERY AND BRANCH EXPENSES
For the nine months ended June 30, 1997, delivery and branch expenses increased
$1.6 million, or 5.9%, to $28.1 million, as compared to $26.5 million for the
nine months ended June 30, 1996. The increase was primarily due to the
additional expenses associated with the first fiscal quarter's increase in
agricultural volume, higher vehicle operating costs due to an increase in fuel
costs, and higher employee benefit expenses.
DEPRECIATION AND AMORTIZATION
For the nine months ended June 30, 1997, depreciation and amortization expense
increased $0.4 million, or 5.5%, to $7.9 million, as compared to $7.5 million
for the nine months ended June 30, 1996, due to the impact of two acquisitions
completed since March 15, 1996 and the amortization of certain deferred charges
relating to the Partnership's First Mortgage Notes.
GENERAL AND ADMINISTRATIVE EXPENSES
For the nine months ended June 30, 1997, general and administrative expenses
increased $0.5 million, or 10.1%, to $5.4 million, as compared to $4.9 million
for the nine months ended June 30, 1996. This increase was primarily due to
$0.8 million of one-time expenses associated with the exploration of strategic
alternatives designed to maximize unitholder value. On March 3, 1997, the
Partnership decided to terminate its efforts to seek a merger or possible sale
of the Partnership.
INTEREST EXPENSE, NET
For the nine months ended June 30, 1997, net interest expense declined $0.2
million, or 3.7%, to $5.3 million, as compared to $5.5 million for the nine
months ended June 30, 1996. This reduction was primarily due to a decline in
the weighted average borrowing rate.
INCOME TAX EXPENSE
Income tax expense primarily represents certain state income taxes related to
the Partnership's wholly owned corporate subsidiary which conducts non-
qualifying master limited partnership business.
NET INCOME
For the nine months ended June 30, 1997, net income increased $0.4 million, or
6.1%, to $7.1 million, as compared to $6.7 million, for the nine months ended
June 30, 1996. This increase was attributable to a $2.6 million increase in
gross profit that was partially offset by the increase in operating expenses,
$0.8 million of one-time costs associated with the strategic initiative and $0.4
million of depreciation and amortization.
EBITDA
For the nine months ended June 30, 1997, EBITDA (defined as operating income
(loss) plus depreciation and amortization less net gain (loss) on sales of
assets) increased $0.5 million, or 2.5%, to $20.4 million, as compared to $19.9
million for the nine months ended June 30, 1996. Excluding the one-time
expenses associated with the strategic alternative, EBITDA increased $1.3
million, or 6.7%, to $21.2 million due to improved per gallon margins across all
market segments and growth in the customer base provided by both internal
marketing and acquisition efforts. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service debt
obligations) but provides additional information for evaluating the
Partnership's ability to make the Minimum Quarterly Distribution.
12
<PAGE>
STAR GAS PARTNERS, L.P. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
- --------------------------------
COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------------------
VOLUME
For the three months ended June 30, 1997, retail propane volume sold was 13.5
million gallons, unchanged from the prior year's comparable quarter. Propane
sold to wholesale customers increased 2.6 million to 8.9 million gallons due to
a purchase decision by several customers to pre-buy a portion of their fall
needs in this quarter.
SALES
For the three months ended June 30, 1997, sales increased $1.7 million, or 9.0%,
to $20.1 million, as compared to $18.4 million for the three months ended June
30, 1996. The increase was due to higher retail selling prices and the
additional volume sold to wholesale customers.
COST OF SALES
For the three months ended June 30, 1997, cost of sales increased $1.1 million,
or 13.5%, to $9.6 million, as compared to the $8.5 million for the three months
ended June 30, 1996, due to the increase in wholesale volume.
GROSS PROFIT
For the three months ended June 30, 1997, gross profit increased $0.5 million,
or 5.2%, to $10.4 million, as compared to $9.9 million for the three months
ended June 30, 1996. This increase in gross profit was due to higher retail per
gallon margins across all market segments and the increase in wholesale volume.
DELIVERY AND BRANCH EXPENSES
For the three months ended June 30, 1997, delivery and branch expenses increased
by $0.9 million to $8.7 million, as compared to $7.8 million for the three
months ended June 30, 1996. The change was mainly due to higher employee benefit
expenses, increased insurance expense, and the timing of certain vehicle
maintenance expenditures, which occurred later in fiscal 1997 than in fiscal
1996.
DEPRECIATION AND AMORTIZATION EXPENSE
For the three months ended June 30, 1997, depreciation and amortization expense
increased $0.1 million, or 4.2%, to $2.7 million, due to the impact of
acquisitions made subsequent to March 15, 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended June 30, 1997, general and administrative expenses
declined $0.5 million, or 25.6%, to $1.5 million, as compared to $2.0 million
for the three months ended June 30, 1996. The decrease was primarily due to a
reduction in expenses associated with reviewing several large acquisition
candidates that were pursued during the three months ended June 30, 1996.
13
<PAGE>
INTEREST EXPENSE, NET
For the three months ended June 30, 1997, net interest expense remained
relatively unchanged at $1.7 million, as compared to $1.6 million for the three
months ended June 30, 1996.
NET LOSS
For the three months ended June 30, 1997, the net loss increased $0.1 million,
or 2.4%, to $4.1 million, slightly higher than the $4.0 million net loss for the
three months ended June 30, 1996.
EBITDA
For the three months ended June 30, 1997, EBITDA (defined as operating income
(loss) plus depreciation and amortization less net gain (loss) on sales of
assets) increased $0.1 million, or 58.8%, to $0.3 million, as compared to $0.2
million for the three months ended June 30, 1996. EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
ability to service debt obligations) but provides additional information for
evaluating the Partnership's ability to make the Minimum Quarterly Distribution.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 30, 1997, net cash provided by operating
activities of $21.6 million combined with $0.3 million from the sale of certain
fixed assets amounted to $21.9 million. These funds were utilized in investing
activities to fund $4.5 million of growth and maintenance capital expenditures,
in financing activities to repay net credit facility borrowings of $2.4 million
and to pay Partnership distributions of $8.9 million. As a result of the above
activities, cash at June 30, 1997 increased by $6.2 million to $7.3 million, as
compared to $1.1 million on hand at the beginning of the period.
Based on its current cash position, bank credit availability and expected net
cash flow from operating activities, the Partnership expects to be able to meet
all of its above obligations for fiscal 1997, as well as all of its other
current obligations as they become due. For the remainder of fiscal 1997, the
Partnership anticipates paying interest on the First Mortgage Notes of $3.4
million and anticipates paying Limited and General Partner distributions of $3.0
million.
14
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits Included Within:
------------------------
(27) Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
15
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized:
Star Gas Partners, L.P.
By: Star Gas Corporation
(General Partner)
Signature Title Date
- --------- ----- ----
By:/s/ William G. Powers, Jr. President August 1, 1997
---------------------- Star Gas Corporation
William G. Powers, Jr. (Principal Executive Officer)
By:/s/ Richard F. Ambury Vice President - Finance August 1, 1997
-----------------
Richard F. Ambury Star Gas Corporation
(Principal Financial
and Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STAR GAS
PARTNERS, L.P. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1997
AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE INTERIM PERIOD OCTOBER 1, 1996
THROUGH JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001002590
<NAME> STAR GAS PARTNERS, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 7,255
<SECURITIES> 0
<RECEIVABLES> 6,980
<ALLOWANCES> 485
<INVENTORY> 3,339
<CURRENT-ASSETS> 18,632
<PP&E> 114,135
<DEPRECIATION> 17,750
<TOTAL-ASSETS> 153,767
<CURRENT-LIABILITIES> 8,948
<BONDS> 85,000
0
0
<COMMON> 59,466<F1>
<OTHER-SE> 132<F2>
<TOTAL-LIABILITY-AND-EQUITY> 153,767
<SALES> 113,877
<TOTAL-REVENUES> 117,396
<CGS> 63,578
<TOTAL-COSTS> 33,056
<OTHER-EXPENSES> 7,902
<LOSS-PROVISION> 382
<INTEREST-EXPENSE> 5,386
<INCOME-PRETAX> 7,092
<INCOME-TAX> 18
<INCOME-CONTINUING> 7,074
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,074
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
<FN>
<F1>COMMON STOCK - IN DECEMBER 1995 STAR GAS PARTNERS, L.P. ISSUED COMMON AND
SUBORDINATED UNITS WHICH REPRESENT LIMITED PARTNER INTERESTS. THESE UNITS ARE
CONSIDERED TO POSSESS THE CHARACTERISTICS OF COMMON STOCK AND ARE BOTH INCLUDED
IN THE DETERMINATION OF EPS.
<F2>OTHER SE - REPRESENTS THE GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP AND
IS CLASSIFIED HERE SINCE IT DOES NOT POSSESS THE RELEVANT CHARACTERISTICS OF
EITHER COMMON OR PREFERRED STOCK.
</FN>
</TABLE>
