Star Group LP (SGU) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Star Gas Partners fiscal 2005 third quarter results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded Tuesday, August 9, 2005. I would like to turn the conference over to Joe Cavanaugh, Chief Executive Officer, Star Gas Partners. Please, go ahead, sir.

Thank you. I want to welcome everyone to our fiscal third quarter call. With me today is Dan Donovan, our President and COO, and Rich Ambury, our CFO. Before we get started, we'd ask Rob Brendeman [ph] to read the safe harbor statement, please.

Thank you, Joe. Good morning everyone. This conference call will include forward-looking statements which represent the Partnership's expectations or beliefs concerning future events and involve risks and uncertainties, including those associated with the effect of weather conditions on the Partnership's financial performance, the price and supply of - on heating oil, the consumption patterns of the Partnership's customers, the Partnership's ability to obtain satisfactory gross profit margins, the ability of the Partnership to obtain new accounts and retain existing accounts, the impact of the business process redesign project, and the heating oil segment at the [inaudible] and the ability of the Partnership to address issues related to such projects.

All statements other than statements of historical fact included in this conference call 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 expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Partnership's expectations are disclosed in this conference call and in the Partnership's annual report on form 10-K for the year ended September 30, 2004 and in it's quarterly report on form 10-Q for the three months and six months ended June 30, 2005.

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 conference call. Okay Joe, Thank you.

Thanks, Rob. As with our second quarter call, we continue to have encouraging news to report. Our operating loss in this nonheating period was $23.4 million. Higher than the $22.8 million loss in 2004 which was favorably impacted by a $2.3 million credit relating to unit appreciations -- appreciation rights. This quarter was positively impacted by higher margins, lower operating costs, and improved service results, but negatively impacted by lower volume and an additional $1.4 million in Sarbanes-Oxley compliance costs. Our EBITDA loss was 14.7 million, higher again than last year's loss of 13.6 million for the same reasons.

Our per gallon margins have improved $0.035, despite the continued volatility in the fuel, oil wholesale costs. Our service and installation operations turned a $2.6 million quarterly loss in 2004 into a $400,000 gain in 2005 which is equal to a $0.04 per gallon improvement. That reflects our progress in turning what has been for us a loss operation into a profitable one. We have continued success with our cost containment efforts reflected in a 9%, $4.3 million reduction in operating costs quarter-to-quarter.

We continue our additional cost saving initiatives including recent real estate consolidations in Massachusetts, Rhode Island, and New York. And we believe that our transition to a hybrid model for handling calls at both our call center and our local districts, which is under way in two districts, is being well received and we continue to monitor those results with an eye towards expanding this to the other districts. Our adoption of a stricter credit policy has resulted in accounts receivable balances that are approximately the same level as last year despite a 60% increase in the cost of heating oil. And, our district management has enthusiastically accepted their expanded roles as we moved additional responsibilities for customer service and pricing to the local level.

Our customer losses have continued to decline. We had a 19% reduction in gross customer losses for the quarter, and due to tightened credit policies and our emphasis on maintaining reasonable margins offsetting customer gains, we're also slightly lower during the period, but net attrition for the February through June period was reduced to 4.2% on an annual basis which was a 7. 5% in the same period in 2004. Now, that's very encouraging, but I -- I want to point out that during the last 3 months about 40% of our fixed price customers, whose programs were up for renewal haven't yet renewed their fixed price contracts or fixed price programs. They have been informed and we've put them now on variable pricing and they may be comfortable with that.

They may be waiting for prices to come down. We know people are doing that or they just, a lot of people just simply not interested in heating oil in the summertime. And some may be shopping. We've also seen an increase in our numbers of will-call customers from 6.8 to 7.5% of our total customer base, and this impacted deliveries in the quarter as these customers managed their own schedules. Some of these customers may be shopping as well. We are concerned with the high oil prices and the impact on our customers and our volume was down for the quarter beyond attrition because of conservation. We have -- we do have flexible and varied pricing programs in place which are designed to assist the customers in dealing with the high prices. The high price of fuel as well as the volatility in pricing and the resultant customer demand for fixed and capped price protection has to be hedged, makes it difficult for us to determine our working capital requirements for the coming heating season.

We believe that we have sufficient resources to meet our needs and we retained Jefferies and Company and Alvarez and Marsal [ph] to assist us in determining how best to allocate those resources, to meet the interests of our unit holders, bond holders, banks, and our suppliers, customers and employees. This review is now underway. As part of this review, we are continuing to evaluate the use of the net proceeds from the sale of the propane segment which, by the way, are the same as they were last quarter, about $93 million. But no decisions have been made at this time. Accordingly, we are not going to be addressing specific questions about the use of proceeds on this call.

We believe that we're making progress. We still have a long way to go, but I'm happy to report that employee morale continues to improve and that there's a very positive spirit throughout the Company. That said, I will open the phones for questions.

Thank you. Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. If you're using a speaker phone, please lift your handset before entering your request. One moment please for our first question. As a reminder, ladies and gentlemen, please press the 1 followed by the 4 to register any questions. Our first question comes from the line of Bryan O'Donohue. [ph] from [inaudible] Capital. Please proceed with your question.

Good morning, gentlemen.

Good morning.

Congratulations on what looks to us like terrific and fast results of your turn around efforts.

Thank you.

We see that you've had almost 100 million in cash flow for the quarter, up 40% from the same quarter last year, and looking at your historical performance it looks to us like you'll generate between 20 and 40 million in cash flow this quarter. So, my question is, what are you planning to do with all the cash? Our lawyers tell us that based on the Company's indenture, you're under no obligation to make a tender offer for your notes. As long as you invest the cash in inventory, or oil hedges, and your continued operational turn around, don't you think that that use of cash would provide the most benefit to stockholders?

We are -- we are studying that. As I mentioned, we retained, we retained Jefferies. We retained Alvarez and Marsal to go through all our cash requirements as to where we are, what we need to working capital. You know, one of the concerns is how high, how high the price of oil could go. And we're very comfortable that we can withstand a significant increase in the price of oil through the use of cash and through the use of our revolving credit, but we have not reached a decision on that yet. We are studying it, as I say, with Jefferies and Alvarez, and we are looking at vary -- various proposals, but I'd really rather not comment anymore on this right at this point.

Okay, well, congratulations again on the turnaround so far. You guys are doing a great job.

I appreciate it, thank you very much.

Thank you. Our next question comes from the line of Ron Londe from A.G. Edwards. Please proceed with your question.

Sure, you know, from the standpoint of working capital needs, you know, what would be your estimate as to your working capital needs at current prices of heating oil?

Ron, I've got to tell you the same thing. You just got to give us a little bit of time to finalize our study to see where we are, and we spent a lot of time already on this to come up with right where we believe we are and we're getting close, but we really just - don't want to talk about it right now at this point. We think we're fine. We believe -- we believe we're going to be fine but, but we need to -- how we utilize our working capital and our cash, we just have to decide on that.

Okay. Now, you mentioned that you had colder temperatures in the quarter. Attrition was around 4.2%? Correct?

Yeah.

And you still had gallons that were down 14.5%. What were the factors that made up that differential between what you would expect is more gallons rather than fewer gallons? Was it totally conservation? Or, maybe you could talk a little bit more about your will-call customers and what's going on there.

We have seen -- the will-call customers are definitely managing their deliveries. One of the things about it being colder is really the timing. It was really May and late April where, where the degree days we just don't think had an impact whatsoever on deliveries. They came in a period of time when it just wasn't -- they were degree days, but it just wasn't cold enough for people to be using, you know, heat. So that that, that wasn't a meaningful -- that it was cold. We have seen a reduction in the use by by the will-call customers, and we have studies we've done internally that show that our customers are conserving, and I believe the rate was 3.5% or so from year to year.

Joe, one thing that I might add on that is, with our will-call base, we are actively working the will-call base. We're just not letting them sit there. As before, in the former setup, we really didn't have our districts involved in calling the will-call base, or what I call at risk customers. Customers who might even be on automatic delivery who for some reason or other, say I don't want my next delivery, put me in for a delivery in the fall. And we do have customers who do that from year-to-year. And especially this year, some people are saying hey, I think maybe the price of oil is going to drop down, so don't make my delivery, but schedule me in the fall and we'll see what happens.

But, the key thing here is that our management in the field are managing those lists, not somebody here in Stamford. We control it, we look at it. I have ways of knowing that that is being done, but the main thing is that our local management in the field in those local areas are managing the will-call, or as I call it, the at risk customers, to make sure we're not fooling ourselves and having customers on there who in fact are really not buying from us but buying from somebody else.

Hey Ron, this is Rich, and when you look at the degree days, probably not degrees days that, that's such a great indication of the additional volume we should deliver in the quarter. If you look at average temperature, the average temperature for the June quarter last year was about 60 degrees day, about 60 degrees fahrenheit. When you look at this year it was about 59 degrees fahrenheit, so the absolute temperature was basically, pretty much similar this year versus last year.

Also on those degree days, a lot of people refer to those as false degree days. For instance the degree days we had in May, most of them came at night, and that they really don't affect heat use because a lot of people have setback thermostats and they just don't draw heat.

Okay. Can you give us a, a, kind of a rough breakdown of your client base, what percent of sales is from will-call customers, and just the various sectors?

Well, the will call customers comprise about 7, 7.5% of our, our customer base.

Okay. And, how about your budget billing customers?

Our budget billing, which could include will call customers, we're about 30% of our business of our customers are on a budget payment plan.

And commercial?

Commercial, that's been hovering around 16% of our business.

Okay. Am I missing a category in there?

Well, you know, some of them do, do overlap. I mean, there's -- you know, commercial is about 16%.

Okay.

All of the specific volumes that were sold to these customers are enumerated in the 10-Q.

Okay. I'll find it there. Okay, thank you.

You're welcome.

Our next question comes from the line of Eric Calamaris [ph] from Wachovia Securities.

Good morning, gentlemen. Hi, Eric. I have a question, and Rich, this may be better for you, but can you indicate what the, what the LCs were outstanding at the end of the quarter?

Yeah. The LCs outstanding at the end of the quarter I believe are around $49 million.

And can you -- additionally, can you indicate what the reserve looks like on the borrowing base?

When you say "reserves," what do you mean?

Well, I'm specifically, I remember you specifically talking about the allocation that's going to be tied to the gross availability on the borrowing base. I mean you should have -- you should have reserves for the receivables.

Accounts receivable reserves? Is that what you're referring to?

Yes, yes, yes.

I believe our allowance for doubtful accounts at June 30 is about $6.4 million.

Okay. And I don't know if you can answer this or not, but with relating to the alternatives that you're looking at, can you comment as to just in general, what options might be available?

Probably not. No, I really can't.

That's fair enough. Additionally, one last question. Regarding the, regarding the amount of availability, I was surprised to see it come down as much as it did. Can you speak to the amount of net availability on the revolver? I mean, it looks like it's about $33 million or so, which is, which is fair but shyer than what I was expecting it to be. Any comment on that?

Again, I'm having a hard time following your question. Availability under the revolver or --

You've got gross availability, it looks like, $58 million according to the 10-Q. Is that correct?

That's correct.

Okay, and then you back out 25 million, you've got $33 million of availability. And I guess the question is, you've had $88 million return on the receivables during the quarter, so I'm, I'm trying to get a better handle on why their availability is so low.

Well, there are, there are receivables that are over 60 days past due, and I believe we said in the queue that that's about $21 million. That's probably a greater number than we had at March.

Okay, okay. And, and how are you addressing those, those issues?

Those issues being?

Well, the receivables that are outstanding, you know, 60-plus days, 90 days, et cetera. What's, what's the ...?

Well, if you look at versus last year, we're at the same dollar value of accounts receivable greater than 60 days as we had at this time last year despite the fact that we had an increase in cost of sales, an increase in selling prices. So, as far as our receivables, I would think versus last year we're probably in better shape because we have the same dollar value over 60 days as we did this year versus last year in light of an increase in wholesale costs.

Okay.

And what happens over the summer is we don't sell a heck of a lot over the summer, and we collect against those receivables so that people are in line as we go into the heating season.

Okay. And I guess I lied. One more, one more question. Given the availability amount, if I roll this forward, it looks like it could get precarious towards the first and second quarters of '06. And I'm, I'm curious, can you comment as to how you may address that? I mean, if we're at 33 now and the cash has already started coming in, I'm just curious as to how, how you can, how you can reconcile -- going into '06. And I'm just looking for general terms. I mean, do you need additional liquidity? It appears that you may.

I don't have your projections in front of me, but we do collect receivables. We do have an account on our books called customer credit balances, where people do pay upon a budget payment and they pay us over time, so those are going to be two rather significant sources of cash over the next couple of months.

Okay. Thanks.

You're welcome.

Thank you. Our next question comes from the line of Marianna Kushner [ph]from Nomura Asset Management [ph]. Please proceed with your question.

I have a few questions for you. First of all, could you state what your borrowing base was at June 30?

We haven't disclosed what our borrowing base is as of June 30. Our net availability was $58 million.

58, but we -- you have to take out 25 out of that 58. Correct?

That's correct.

L and you said 49 million LCs outstanding against -- were these LCs cash collateralized or were they outstanding against the revolver?

Well, to start computing the availability, you take our receivables, you take our inventory, and you subtract from that the outstanding letters of credit and the working capital borrowing on the books. In addition, our borrowing base also consists of around $30 million for fixed assets. So that is kind of the formula, and you can work the numbers up.

Okay. But 49 million LCs, that's supported by revolver and not cash?

It's a deduction against the borrowing base. So yes it is, and it is part of the revolver, yes.

Okay. And, regarding the cash balance on hand, your hedging program, is any of the hedges are being supported by cash and therefore is trapped?

None of the hedges is being supported by cash with the exception of -- we do hedge on the Merc and there is additional margin like all folks who hedge on the Merc have to put up initial margin and, if there's margin calls, we have to support that margin call.

Okay. So when you support a margin call, it's a direct cash outflow?

That is correct.

Okay. Regarding the margin improvement that you showed, it was -- you showed basically a neutral gross margin from installation services, while in prior quarters, you consistently showed loss. Do you feel comfortable, you can sustain this type of gross margin and not go back into a loss on that heating installation segment?

Dan, why don't you address that.

Are you talking about margin on installation or on service or a combination of both?

On the installation. So basically it was about, I think, 300,000 this quarter while it was negative consistently for the past I don't know how many quarters. Probably 20 or so.

Well, on installation, we continue to try to be very competitive but also obviously make the profit margins that we have planned. But one of the ways we look at installation also is the retention tool. It's a way of keeping our customers for long periods of time. So, it depends upon what our competition does, but we also have our own goals as to what we want to make on the gross revenue side for installation, as well as service revenue.

But was there anything unusual about this quarter that helped you turn this operation into neutral versus being in a loss position for quite some time?

Well, what's starting to happen is that we've gotten local managers more involved in the process, and these local managers are incentivised to make sure that they make their individual goals. So, I think that's probably the biggest change and we've been talking about that for months now. And, it's going to take time for that to get better, and it's going to take time for that to get to where we want it to be, but it's starting -- had started happening, and we're hoping that it continues.

Okay. Regarding the improvement in the gross margin on heating gallon -- heating oil gallons sold, if I recall correctly, you are on 5/4 basis in terms of accounting for heating oil inventory. Is that correct?

That's correct.

So if -- this quarter heating oil prices have been rising,so wouldn't you get a benefit, 5/4 benefit on your gross margin?

Mechanically, I would say that's a, that's a true statement, yes.

Okay, also I would like to ask what is the cap price that you're offering for this new heating season -- upcoming heating season?

That price changes every day. It changes with the market, and that's one of the reasons why we might not have as many gains as we've had. It's one of the reasons why our margins might look better, and that's because we're making sure that we lock in the margins we need. And people want to count price, and want a fixed price, and it's mainly a fixed price that we're offering. We're going to offer the product but we're going to offer it based upon what the market was that particular day, or the previous day, meaning what the strip was -- 12-month strip on the Mercantile Exchange, plus what it cost us to get into the truck, plus what it might cost us to actually make that purchase, and then the required margins we need.

So, to give you an answer, I could only give you an answer at any point in time, but we're very fluid on this and we change our pricing on a daily basis and sometimes more than that.

And Mary, going back to your heating oil margin question, we sold between home heating oil and other petroleum products 80 million -- 81 million gallons or so this quarter, and we sure didn't have 80 million gallons worth of inventory at the beginning of the quarter. You know our, our philosophy is to have a 10 to 15 day supply of inventory during the course of the year. So, you know, our margins were not a result of having inventory profits, if you will, because we didn't sure have 90 days worth of supply in inventory.

Okay, but in terms of -- with regard to your cap prices, you saying it's changing everyday, but when you sign up a customer, that margin for that customer or that cap price for that customer is going to be good for the next I don't know how many months, for the next season. Correct?

That's right. It's 12 months. That's why we use the 12-month strip as the basis of all that pricing.

We're buying that -- we're buying that product so we know what the cost is going to be for those customers that we sell it on that particular day for, for the whole year. All right, thank you.

Our next question comes from the line of Ian Wallace from River Run . Please proceed with your question.

Yeah, hi, guys.

Hi.

Seasonally I know you don't want to get into working capital, but just kind of generally, when is your period of peak usage of working capital? When is the trough?

Our peak -- our peak usage of working capital generally is, I mean, you would expect it sometime in, in late, late January or early February, where our customers are getting, you know, one or two deliveries within a 30-day period. And our borrowings under our revolver usually go down to their lowest point this time of year, in the July, August timeframe.

Great. Thank you.

You're welcome.

Our next question comes from the line of Adam Cecil [ph], from Gravity Partners. Please proceed with your question.

Yes, Good morning. I just wanted to follow up on the Wachovia guy's question and your comments and your prepared at the beginning that you thought you had sufficient resources to need your needs. Am I thinking about it the right way that you now have $30 million on a working capital line and last year it peaked at about $120 million in December, at least from the balance sheet reporting date, and so assuming that heating oil prices go higher this year, let's say, you know, you need a hundred -- you know, the working with capital end goes to 150 million.

I mean, that's a, that's a borrowing of 120 million that you need, and you've got about $135 million available in cash and borrowing base or credit line availability, which is going to be hickeyed by old receivables and hedging cash requirements. Am I dimensioning that correctly? I'm not asking you to give me any guidance, but is that sort of directionally what we're up against here?

That's correct.

Yeah.

So you basically think that, you know, with 135 million available and you know, 100 million plus needed, you know, there's going to be some offsets to both? There's going to be the 135 million available, it's going to be hickeyed by the old receivables and by the cash hedge requirements, but the 120 million be bolstered by receivables coming back in, and these customer credit balancing trueing up. And you think that on balance, that's going to net out to where you're not going to have to access the capital markets?

Well, you have -- you're going to need to do your own numbers as to what the needs are going to be. We haven't come up with, or we haven't, you know, given out where we think working capital levels are going to go.

Right, but I'm sort of thinking about it in the correct quantitative way?

Yes.

And you did way, that you had sufficient, you though, you said that you had sufficient resources to meet your needs.

That's correct.

Thanks a lot. Good luck.

You're welcome. Thank you.

Our next question comes from the line of Barry Tussleberg [ph] from Trilogy Capital [ph]. Please proceed with your question.

Could you talk about the competitive environment? At least one of your competitors has announced that they are no longer offering a fixed price package. Can you, you know, just comment on what customers are demanding and where your services are priced in the market?

Well, certainly generally we're aware of the company that's saying -- and actually they said capped prices they didn't say fixed. But, they also, I think, noted that they were potentially going to lose a lot of customers and are willing to do that. We're in the business to meet our customers' needs and still make money, and so we are, as Dan said earlier, where customers are looking for a capped price program, that's what they need to be comfortable in the kind of market we're in. We're going to give it to them. We're just going to be sure we have it properly priced so that we both come out ahead on the deal.

Mm-hmm.

I certainly can't comment on why the other company's doing what they're doing.

Okay, and could you comment -- I think last quarter you talked about how it was sometimes difficult to match prices by smaller companies. Can you, can you comment on what your experience is, you know, more recently in terms of competition?

Well, I think I'll let Dan answer that, but I'll tell you it's pretty much what it was before. There's still people out there that are offering low prices. We don't know if they're going to be able to meet them or continue in business, but they're offering prices that don't make any kind of economic sense. Dan?

We're seeing basically the same thing from some competitors. I'd say it's tailed off a little bit, but you still have enough out there to make it seem strange, especially since some of the prices they're offering might be at current cost levels. So either it's an acquisition program that a small company might have or they're just rolling the dice and thinking that the price of oil is going to calm down and of course they're leaving themselves open for some big problems and they might not be around the next heating season. We are not going to market that way obviously. We're going to market, where if somebody wants a fixed price or a ceiling price, we'll give them that price.

We'll make sure that we build it so that we get the margin we need. If that price is too high for them, hopefully the customer will see other values that we have to offer and stay with us, but if not we're willing to lose that customer, because we know the bottom line is, it's not a numbers name. We don't need customers for the sake of numbers. We are more interested in the profitability of every customer we have.

Okay, so is that the primary metric at this point you're using, in effect a focus on a margin?

Yes.

Yes. Absolutely.

Thank you.

Our next question comes from the line of Jason Kroll from Bear Stearns.

Yeah, you had mentioned earlier that I guess your trough working capital needs are around July, August. Would you expect that the revolver -- that you would be able to bring the revolver down to zero during this time period?

I don't think we're going to get it completely down to zero. It was $33 million at the end of June. I mean, we're lower than that today. Whether it hits zero or is anywhere between 15 and $20 million, I'm not quite sure where that's going to, kind of, end pickup.

Could you provide us with where it is today?

$22 million as of today.

Okay. Separately, as it relates to the work Alvarez and Marsal are doing, clearly you guys have made some very nice strides, operationally since you took over. Could you give us a little more color on what they're designed to help you with?

On our capital structure.

So they're more capital structure as opposed to operational?

Yes.

Okay. And then, third, as it looks out to, you know, your last fiscal quarter, again you guys have made some very nice progress in the last two quarters. Would it be your expectation that you would be in line with what you did last year's fourth quarter or do you think there's some potential upside?

I don't think I can comment on that right at this point. I just don't think I'd be comfortable commenting on that.

Okay. Thanks.

Sure.

Thank you. Our next question comes from the line of Allen Marks [ph] from Raven . Please proceed with your question.

Thanks. Just a follow-up on the competitive environment. You mentioned earlier that I think it was 40% or so of your customers have not responded at this point, regarding a fixed price contract. Just relative to, say, where you were a year ago or even two or three years ago, for that matter, this time of year, is that normal? You know, a typical ...

We didn't have this program last year, so we have nothing to weigh it against.

What were you -- so, you didn't have a fixed price program?

We had a fixed price program. Dan, do you want to explain what happened last year? How it was done?

I would say that last year, because last year the high prices were just starting to occur, and people were looking at $1.89 or $1.99 as, you know, totally ridiculous prices and people really weren't used to the environment that we're in right now. But, the prior renewal program that we had at Star Gas was -- was for the most part was a lot different than the one that we started in January. Whereas we're now communicating with each customer via letter, via follow-up letter, and via telephone; inviting them to call us where we talk to them about their prices for the next year and give them their options, and hopefully settle on a method of pricing them for the coming year. A lot of customers have not yet responded, but from some surveys that we've made, we feel that they're comfortable with the level that they're at right now.

We anticipate and we're planning to have a lot of these people call us in September, October, and November, and we feel confident that we'll be able to sign them then. But, the main thrust of our renewal program is to make sure we have a two-way relationship or two-way commitment with our customers that, yes, I'm going out and I'm buying the oil for you and I'll have the oil at that price for the next 12 months, but the customer also understanding it's a two-way street and that they stay with me for the 12 months, that they stick with the price we negotiated and not try to negotiate a price if in fact the prices drop.

And just -- another way of asking this question as far as the competitive environment, obviously, there are, there are other people out there -- everyone seems to be complaining that everybody's undercutting the next guy. I mean, you guys have been in the business for a number of years. Would you say it's any more -- materially anymore or less competitive at this point in 2005 than it was in prior years?

It's always -- this industry has always been that way. And, we have a lot of competitors -- a lot of smaller competitors. I don't see any real big change. The big change of course is in the prices that are being offered.

Right. Well, given that -- given the prices of the oil, but, as far as the margins go, I mean, also there's -- everyone is hopeful that some of these guys will just sort of price themselves out of the market to the extent that they're going to go -- going to go away. Are you seeing any players that are not there this year that might have been? Any [inaudible] players that have exited over the last couple years?

To think these are really -- most of these are small, small companies that we wouldn't even know if they necessarily dropped out of the market. There's no that's in all of our markets. You tend to find them in different marketplaces. I do know that there has been a large number of customer -- large number of companies that have been put up for sale. I'm getting calls from brokers and people about that, so...

Are there obviously, -- you know, Star Gas has been a primary consolidator over the years. Are there -- is there anybody else match you that is buying these companies at this point?

There are. There is at least one other company that I know is buying, but buying at very attractive terms.

What are the metrics? I mean was it, I know it was like, three or four times historically. Is it lower than that now?

I don't know what they are now, I think they're -- but they're buying at, as I understand it, they're buying on retained gallonage as opposed to paying up front for business, which kind of gives you an indication that some of these smaller guys are not able to, to keep going.

Thank you.

You're welcome.

Our next question comes from the line of Don Wakemann [ph] from Speedwell [ph]. Please proceed with your question.

Hello. Can you hear me?

Sure.

Sure.

Okay. Yeah, you're saying that selling prices have increased by 51% and volume dropped by 14%. Doesn't that imply a net increase of 29% and you're only showing 16% increase in product sales? And then, in addition, the 65.8 million gallons at 143 comes out to 94 million. It doesn't tie into the 135. Could you reconcile this for me?

Are you speaking about the quarter? Are you speaking about the nine months?

About the quarter.

Well, we had an increase in cost of product of about 51% on average during the quarter. Were you using 60?

You mean -- I thought it was selling price of product, not cost of product.

Cost of product went up $0.51 or 51%.

And selling price of product?

Well, our sales went up by -- went up by 16, 17%. It went up by 16% for the quarter. I guess I'm just not understanding your question.

You said average wholesale price -- oh, increased 51%. Okay. I'll figure it out. Go onto the next question.

Thanks.

Our next question is a follow-up question from the line of Adam Cecil from Gravity Partners.

Yes, sorry. Really quickly, when you say Alvarez has been hired for capital structure, I think most of us hear that as, you know, raising capital, but I think what you're saying -- and tell me if I'm wrong, is that you're, you're getting them to help you nurse the balance sheet along so you don't need to access capital. You're trying to squeeze every penny out of the balance sheet so you can meet the working capital requirements of the heating season. Am I correct?

Well, that's part of it. We're looking at the whole structure, the working capital requirements as to what we can do with all the resources that we have.

Right. Okay. I mean, are they going to get involved in this whole debt question and whether you pay it off and stuff?

That's part of the whole structure. Yes.

Okie Doke.

Thank you, and Mr. Cavanaugh, I'm showing no more questions at this time, I'll turn the conference back to you.

Well, thank you very much for your questions, and thank you very much for listening and your interest in Star Gas. We hope to be able to continue to -- to have -- continue to have encouraging news to report. And, again, thank you. Thank you very much.

Thank you. Ladies and gentlemen, that concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.