STAR GAS PARTNERS LP - 10-Q Quarterly Report

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, 2004

¨	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

Commission File Number: 333-103873

STAR GAS PARTNERS, L.P.

STAR GAS FINANCE COMPANY

(Exact name of registrants as specified in its charters)


Delaware		06-1437793
Delaware		75-3094991
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2187 Atlantic Street, Stamford, Connecticut 06902

(Address of principal executive office)

(203) 328-7310

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 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) have been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrants are accelerated filers (as defined in Rule 12b-2 of the Act).

Yes x No ¨

At July 23, 2004, the registrants had units and shares of each issuer’s classes of common stock outstanding as follows:


Star Gas Partners, L.P.	Common Units	32,165,528
Star Gas Partners, L.P.	Senior Subordinated Units	3,245,196
Star Gas Partners, L.P.	Junior Subordinated Units	345,364
Star Gas Partners, L.P.	General Partner Units	325,729
Star Gas Finance Company	Common Shares	100

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q


		Page

Part I	Financial Information

	Item 1 – Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2003 and June 30, 2004	3

	Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2003 and June 30, 2004	4

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2003 and June 30, 2004	5

	Condensed Consolidated Statement of Partners’ Capital for the nine months ended June 30, 2004	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2003 and June 30, 2004	7

	Notes to Condensed Consolidated Financial Statements	8-17

	Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	18-27

	Item 3 – Quantitative and Qualitative Disclosures About Market Risk	28

	Item 4 – Controls and Procedures	28

Part II	Other Information:

	Item 6 – Exhibits and Reports on Form 8-K	29

	Signatures	30

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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)	Sept. 30, 2003			June 30, 2004
ASSETS
Current assets
Cash and cash equivalents	$	10,044		$	19,328
Receivables, net of allowance of $7,542 and $10,597, respectively		100,511			130,458
Inventories		38,561			43,738
Prepaid expenses and other current assets		51,470			40,257
Net current assets of discontinued operations		10,523			—

Total current assets		211,109			233,781

Property and equipment, net		261,867			250,351
Long-term portion of accounts receivables		7,145			6,684
Goodwill		272,740			274,097
Intangibles, net		201,468			183,153
Deferred charges and other assets, net		14,414			16,817
Net long-term assets of discontinued operations		6,867			—

Total Assets	$	975,610		$	964,883

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable	$	27,140		$	25,495
Working capital facility borrowings		12,000			29,650
Current maturities of long-term debt		22,847			24,536
Accrued expenses		82,356			82,432
Unearned service contract revenue		32,036			33,528
Customer credit balances		74,716			29,875
Net current liabilities of discontinued operations		7,569			—

Total current liabilities		258,664			225,516

Long-term debt		499,341			485,202
Other long-term liabilities		27,829			27,072
Partners’ capital (deficit)
Common unitholders		210,636			242,213
Subordinated unitholders		(57	)		(373	)
General partner		(3,082	)		(3,116	)
Accumulated other comprehensive loss		(17,721	)		(11,631	)

Total Partners’ capital		189,776			227,093

Total Liabilities and Partners’ Capital	$	975,610		$	964,883

See accompanying notes to condensed consolidated financial statements.

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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands, except per unit data)	2003			2004			2003			2004
Sales:
Product	$	171,129		$	178,023		$	1,075,779		$	1,106,965
Installations, service and appliances		45,736			51,132			141,121			165,596

Total sales		216,865			229,155			1,216,900			1,272,561
Cost and expenses:
Cost of product		102,209			114,953			663,310			687,580
Cost of installations, service and appliances		46,888			49,621			153,089			167,436
Delivery and branch expenses		66,030			73,953			227,188			254,608
Depreciation and amortization expenses		13,086			14,214			38,598			43,236
General and administrative expenses		14,350			6,407			36,255			25,102

Operating income (loss)		(25,698	)		(29,993	)		98,460			94,599
Interest expense		(12,415	)		(12,455	)		(32,758	)		(36,836	)
Interest income		1,533			1,083			3,050			2,717
Amortization of debt issuance costs		(606	)		(794	)		(1,597	)		(2,837	)
Loss on redemption of debt		—			—			(181	)		—

Income (loss) from continuing operations before income taxes		(37,186	)		(42,159	)		66,974			57,643
Income tax expense		100			75			2,235			1,225

Income (loss) from continuing operations		(37,286	)		(42,234	)		64,739			56,418
Income (loss) from discontinued operations before loss on sale of TG&E segment and cumulative effect of change in accounting principle, net of income taxes		(566	)		(50	)		512			1,033
Loss on sale of TG&E segment, net of income taxes		—			(247	)		—			(17	)
Cumulative effect of change in accounting principle for adoption of SFAS No. 142 for discontinued operations		—			—			(3,901	)		—

Net income (loss)	$	(37,852	)	$	(42,531	)	$	61,350		$	57,434

General Partner’s interest in net income (loss)	$	(378	)	$	(405	)	$	614		$	528

Limited Partners’ interest in net income (loss)	$	(37,474	)	$	(42,126	)	$	60,736		$	56,906

Basic and diluted income (loss) per Limited Partner unit:
Income from continuing operations	$	(1.14	)	$	(1.17	)	$	1.97		$	1.60

Net income (loss)	$	(1.15	)	$	(1.18	)	$	1.87		$	1.62

Basic weighted average number of Limited Partner units outstanding		32,457			35,756			32,453			35,021

Diluted number of Limited Partner units		32,457			35,756			32,561			35,021

See accompanying notes to condensed consolidated financial statements.

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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands)	2003			2004			2003			2004
Net income (loss)	$	(37,852	)	$	(42,531	)	$	61,350		$	57,434
Other comprehensive income (loss):
Net unrealized gain (loss) on derivative instruments		2,587			2,051			(3,401	)		6,090

Comprehensive income (loss)	$	(35,265	)	$	(40,480	)	$	57,949		$	63,524

Reconciliation of Accumulated Other Comprehensive Income (Loss)


(in thousands)	Pension Plan Obligations			Derivative Instruments			Total
Balance as of September 30, 2002	$	(15,745	)	$	4,918		$	(10,827	)
Reclassification to earnings		—			(8,110	)		(8,110	)
Gain on derivative instruments		—			4,709			4,709

Other comprehensive loss		—			(3,401