Star Gas Partners L.P. Reports Operating Results (10-Q)
Star Gas Partners L.p. has a market cap of $300.4 million; its shares were traded at around $4.17 with a P/E ratio of 18.1 and P/S ratio of 0.2. The dividend yield of Star Gas Partners L.p. stocks is 6.4%.
Highlight of Business Operations: Based upon a review of a number of factors, including historical operating performance and our expectation that we could generate sustainable consolidated taxable income for the foreseeable future, we concluded at the end of fiscal 2009 that the majority of the Partnerships net deferred tax assets should be recognized. Thus, pursuant to FASB ASC 740-10 Income Taxes topic (FAS 109), we recorded a tax benefit during fiscal 2009 reversing a majority of the opening valuation allowance, resulting in a non-cash increase in net income of $86.4 million. This benefit was partially offset by a current income tax expense of $3.8 million and deferred income tax expense of $25.0 million related to current year activity (including net operating loss carry forward utilization), resulting in a net income tax benefit of $57.6 million.
At December 31, 2004, we had federal NOLs of $170.6 million and at December 31, 2009, these NOLs were reduced to approximately $51 million. Over the five year period, we utilized approximately $24 million of federal NOLs on average each year to offset our taxable income. We expect that over the next few years, we will utilize the majority of the remaining NOLs. After we exhaust the NOLs, the amount of cash taxes that we will pay will increase significantly and will reduce the annual amount of cash available for distribution to unitholders. For example, in calendar 2006, 2007, 2008 and 2009 we paid federal cash taxes of $0.1 million, $1.0 million, $0.6 million and $0.6 million, respectively. If we did not have the NOLs available to us for calendar 2006, 2007, 2008 and 2009 our federal cash taxes would have increased to $2.6 million, $17.2 million, $11.1 million and $10.1 million for calendar 2006, 2007 and 2008 and 2009, respectively.
For the three months ended December 31, 2009, product sales decreased $52.5 million, or 14.8%, to $301.8 million, as compared to $354.3 million for the three months ended December 31, 2008, due to lower home heating oil volume and lower home heating oil selling prices.
For the three months ended December 31, 2009, service and installation sales decreased $1.5 million, or 3.1%, to $47.1 million, as compared to $48.6 million for the three months ended December 31, 2008, due to a decline in our customer base and lower new equipment sales. We believe that consumers are generally reluctant to replace their heating systems given the current economic environment.
For the three months ended December 31, 2009, cost of product decreased $35.2 million, or 14.1%, to $214.5 million, as compared to $249.7 million for the three months ended December 31, 2008, due to a decrease in home heating oil volume sold of 13% and a decrease in home heating oil product costs.
The table below recalculates the Partnerships per gallon margins and reconciles product gross profit for home heating oil and other petroleum products. We believe the change in home heating oil margins should be evaluated before the effects of increases or decreases in the fair value of derivative instruments, as we believe that realized per gallon margins should not include the impact of non-cash changes in the market value of hedges before the settlement of the underlying transaction. On that basis, home heating oil margins for the three months ended December 31, 2009 decreased by $0.0418 per gallon, or 4.5%, to $0.8820 per gallon, from $0.9238 per gallon in the three months ended December 31, 2008. Product sales and cost of product include home heating oil, other petroleum products and liquidated damages billings.
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