ComparedTable toof the Three Months Ended June 30, 2008 Contents

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ComparedTable toof the Three Months Ended June 30, 2008 Contents

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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~~December 3031, 2009

¨	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: 001-14129

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 registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).* Yes ¨ No ¨

The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, non-accelerated filers or smaller reporting companies. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Act). Yes ¨ No x

At ~~July~~January 31, ~~2009~~2010, the registrants had units and shares of each issuer’s classes of common stock outstanding as follows:

Star Gas Partners, L.P.	Common Units	7570,~~774~~880,~~336~~583
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	~~Page~~
Part I	Financial Information
Part I Financial Information
Item 1—Condensed Consolidated Financial Statements	~~Item 1—Condensed Consolidated Financial Statements~~
	Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and September 30, 2008	3
Condensed Consolidated Balance Sheets as of December 31, 2009 (unaudited) and September 30, 2009	3
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2009 and June 30, 2008	4
Condensed Consolidated Statements of Operations for the three months ended December 31, 2009 and December 31, 2008 (unaudited)	4
	Condensed Consolidated Statement of Partners’ Capital and Comprehensive Income for the nine months ended June 30, 2009 (unaudited)	5
Condensed Consolidated Statement of Partners’ Capital and Comprehensive Income for the three months ended December 31, 2009 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended June 30, 2009 and June 30, 2008	6
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2009 and December 31, 2008	6
Notes to Condensed Consolidated Financial Statements (unaudited)	~~Notes to Condensed Consolidated Financial Statements (unaudited)~~7-18	~~7-18~~
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations~~19-31	~~19-34~~
Item 3—Quantitative and Qualitative Disclosures About Market Risk	~~Item 3—Quantitative and Qualitative Disclosures About Market Risk~~31	~~34-35~~
Item 4—Controls and Procedures	~~Item 4—Controls and Procedures~~31-32	35
Part II	Other Information:
Part II Other Information:
Item 1—Legal Proceedings	~~Item 1—Legal Proceedings~~32	35
Item 1A—Risk Factors	~~Item 1A—Risk Factors~~32	36
	Item 6—Exhibits	36
Item 2— Unregistered Sales of Equity Securities and Use of Proceeds	32
	Signatures	37
Item 6—Exhibits	33
Signatures	34

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)	~~June~~December 3031,2009			September 30,~~2008~~2009
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	~~217~~98,~~416~~671		$	~~178~~195,~~808~~160
Receivables, net of allowance of $8,434 and $10,821, respectively		82,245			95,691
Receivables, net of allowance of $6,848 and $6,267, respectively		133,518			58,854
Inventories		5572,~~484~~023			4462,~~759~~636
Fair asset value of derivative instruments		1019,~~594~~796			714,~~452~~676
Prepaid expenses and other current assets		18,359			17,589
Current deferred tax asset, net		32,067			30,135
Total current assets		384,098			344,299
Prepaid expenses and other current assets		24,780			15,437
Property and equipment, net		37,064			38,829
Total current assets		380,855			376,898
Long-term portion of accounts receivables		473			634
Property and equipment, net		37,727			37,494
Goodwill		182,933			182,011
Long-term portion of accounts receivables		644			504
Intangibles, net		22,475			30,861
Goodwill		182,942			182,942
Deferred charges and other assets, net		4,175			8,799
Intangibles, net		18,396			20,468
Total assets	$	631,218		$	605,433
Long-term deferred tax asset, net		24,851			36,265
Deferred charges and other assets, net		9,001			9,555
Total assets	$	654,416		$	664,126
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities
Accounts payable	$	1625,~~108~~217		$	1617,~~887~~103
Fair liability value of derivative instruments		31,~~120~~696			~~7,188~~665
Accrued expenses and other current liabilities		7268,~~048~~350			64,~~670~~446
Unearned service contract revenue		3645,~~873~~408			3937,~~085~~121
Customer credit balances		6152,~~311~~363			8574,~~408~~153
Total current liabilities		~~189~~193,~~460~~034			~~213~~193,~~238~~488
Long-term debt		~~137~~133,~~131~~059			~~173~~133,~~752~~112
Other long-term liabilities		1531,~~171~~570			1831,~~466~~192
Partners’ capital
Common unitholders		~~307~~322,~~623~~366			~~219~~332,~~544~~340
General partner		~~193~~341			~~(186~~309	)
Accumulated other comprehensive loss		(18,360	)		(19,381	)
Accumulated other comprehensive income (loss), net of taxes		(25,954	)		(26,315	)
Total partners’ capital		~~289~~296,~~456~~753			~~199~~306,~~977~~334
Total liabilities and partners’ capital	$	~~631~~654,~~218~~416		$	~~605~~664,~~433~~126

See accompanying notes to condensed consolidated financial statements.

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months EndedJune 30,

Nine Months EndedJune 30,

Three Months Ended December 31,

(in thousands, except per unit data - unaudited)

2009

2008

~~2009~~

~~2008~~

Sales:

Product

~~126~~301,~~404~~765

~~212~~354,~~229~~267

~~959,433~~

~~1,234,185~~

Installations and service

4147,~~265~~054

4548,~~838~~583

~~131,586~~

~~143,112~~

Total sales

~~167~~348,~~669~~819

~~258~~402,~~067~~850

~~1,091,019~~

~~1,377,297~~

Cost and expenses:

Cost of product

85214,~~007~~515

~~174~~249,~~979~~706

~~658,123~~

~~985,425~~

Cost of installations and service

3745,~~627~~672

4048,~~451~~782

~~131,439~~

~~138,313~~

(Increase) decrease in the fair value of derivative instruments

(93,~~656~~392

)

~~(30~~36,~~043~~854

)

~~(15,064~~

)

~~(45,983~~

)

Delivery and branch expenses

4456,~~295~~822

4763,~~231~~571

~~179,389~~

~~171,985~~

Depreciation and amortization expenses

3,~~744~~535

6,~~703~~043

~~15,853~~

~~20,573~~

General and administrative expenses

5,~~696~~053

45,~~944~~260

~~16,809~~

~~13,983~~

Operating income

~~956~~26,614

13(7,~~802~~366

)

~~104,470~~

~~93,001~~

Interest expense

(4,~~119~~270

)

(5,~~189~~019

)

~~(13,487~~

)

~~(15,910~~

)

Interest income

~~1,305~~394

21,~~131~~092

~~3,593~~

~~4,984~~

Amortization of debt issuance costs

(~~564~~656

)

(592

)

~~(1,732~~

)

~~(1,747~~

)

Gain on redemption of debt

—

—3,522

~~9,740~~

—

Income (loss) before income taxes

(222,~~422~~082

)

10(8,~~152~~363

)

~~102,584~~

~~80,328~~

Income tax expense (benefit)

~~(498~~10,077

)

(~~1,695~~352

)

~~3,852~~

~~1,827~~

Net income (loss)

(112,~~924~~005

)

11(8,~~847~~011

)

~~98,732~~

~~78,501~~

General Partner’s interest in net income (loss)

(854

)

51(35

)

~~423~~

~~336~~

Limited Partners’ interest in net income (loss)

(111,~~916~~951

)

11(7,~~796~~976

)

~~98,309~~

~~78,165~~

Basic and Diluted income (loss) per Limited Partner Unit (1)

(0.0315

)

(0.1611

)

~~1.07~~

~~1.03~~

Weighted average number of Limited Partner units outstanding:

Basic and Diluted

7572,~~774~~661

75,774

~~75,774~~

(1) See Note 2. Summary of Significant Accounting Policies - Net Income (Loss) per Limited Partner Unit.

See accompanying notes to condensed consolidated financial statements.

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

AND COMPREHENSIVE INCOME

	Number of Units
(in thousands)	Common		~~GeneralPartner~~	GeneralPartner	~~Common~~	Common			~~GeneralPartner~~	GeneralPartner			~~Accum. OtherComprehensiveIncome (Loss)~~	Accum. OtherComprehensiveIncome (Loss)			~~TotalPartners’Capital~~	TotalPartners’Capital
Balance as of September 30, 2008	75,774		326		$	219,544			$	(186	)		$	(19,381	)		$	199,977
Balance as of September 30, 2009	75,137			326		$	332,340			$	309			$	(26,315	)		$	306,334
Comprehensive income:
Net income (unaudited)	—		—	—		~~98,309~~	11,951			~~423~~	54			—	—			~~98,732~~	12,005
Unrealized gain on pension plan obligation	—		—	—		—	—			—	—			~~1,021~~	616			~~1,021~~	616
Total comprehensive income	—		—			98,309				423				1,021				99,753
Tax affect of unrealized gain on pension plan	—			—			—				—				(255	)			(255	)
Distributions	—		—			(10,230	)			(44	)			—				(10,274	)
Total comprehensive income	—			—			11,951				54				361				12,366
Balance as of June 30, 2009 (unaudited)	75,774		326		$	307,623			$	193			$	(18,360	)		$	289,456
Distributions	—			—			(5,037	)			(22	)			—				(5,059	)
Retirement of units (1)	(4,256	)		—			(16,888	)							—				(16,888	)
Balance as of December 31, 2009 (unaudited)	70,881			326		$	322,366			$	341			$	(25,954	)		$	296,753

(1)	See Note 2 - Common Unit Repurchase and Retirement.

See accompanying notes to condensed consolidated financial statements.

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months EndedJune 30,
	Three Months EndedDecember 31,
(in thousands - unaudited)	2009			2008
Cash flows provided by (used in) operating activities:
Net income	$	98,732		$	78,501
Net income (loss)	$	12,005		$	(8,011	)
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Increase in fair value of derivative instruments		(15,064	)		(45,983	)
(Increase) decrease in fair value of derivative instruments		(3,392	)		36,854
Depreciation and amortization		174,~~585~~191			226,~~320~~635
Gain on redemption of debt		~~(9,740~~—	)		—(3,522	)
Provision for losses on accounts receivable		92,~~257~~148			102,~~988~~868
Change in deferred taxes		9,482			—
Changes in operating assets and liabilities:
(Increase) decrease in receivables		4,350			(83,976	)
Increase in receivables		(76,952	)		(54,998	)
(Increase) decrease in inventories		(10,595	)		30,895
Increase in inventories		(9,387	)		(21,029	)
Decrease in other assets		9,191			3,084
Increase in other assets		(10,282	)		(16,025	)
Decrease in accounts payable		(752	)		(3,009	)
Increase in accounts payable		8,114			7,925
Decrease in customer credit balances		(24,806	)		(38,960	)
Increase (decrease) in customer credit balances		(21,790	)		8,713
Increase in other current and long-term liabilities		212,~~650~~876			720,~~795~~399
Net cash provided by (used in) operating activities		80,808			(18,345	)
Net cash used in operating activities		(72,987	)		(20,191	)
Cash flows provided by (used in) investing activities:
Capital expenditures		(21,~~495~~636	)		(~~2,213~~837	)
Proceeds from sales of fixed assets		~~153~~81			~~426~~74
Acquisitions		~~(3,313~~—	)		(13,~~685~~241	)
Net cash used in investing activities		(51,~~655~~555	)		(34,~~472~~004	)
Cash flows provided by (used in) financing activities:
Revolving credit facility borrowings		—			57,161
Repayment of debt		—			(6,400	)
Revolving credit facility repayments		—			(57,161	)
Distributions		(5,059	)		—
Repayment of debt		(26,271	)		—
Unit repurchase		(16,888	)		—
Distributions		(10,274	)		—
Net cash provided by (used in) financing activities		(21,947	)		(6,400	)
Increase in deferred charges		—			(144	)
Net decrease in cash and cash equivalents		(96,489	)		(30,595	)
Net cash used in financing activities		(36,545	)		(144	)
Cash and cash equivalents at beginning of period		195,160			178,808
Net increase (decrease) in cash and cash equivalents		38,608			(21,961	)
Cash and cash equivalents at end of period	$	98,671		$	148,213
Cash and cash equivalents at beginning of period		178,808			112,886
Cash and cash equivalents at end of period	$	217,416		$	90,925

See accompanying notes to condensed consolidated financial statements.

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1) Partnership Organization

Star Gas Partners, L.P. (“Star Gas Partners,” the “Partnership,” “we,” “us,” or “our”) is a home heating oil distributor and services provider with one reportable operating segment that principally provides services to residential and commercial customers to heat their homes and buildings. Star Gas Partners is a master limited partnership, which at ~~June~~December 3031, 2009, had outstanding 7570.89 million common units (NYSE: “SGU”) representing 99.65% limited partner interest in Star Gas Partners, and 0.3 million general partner units, representing 0.45 % general partner interest in Star Gas Partners.

The Partnership is organized as follows:

•

The general partner of the Partnership is Kestrel Heat, LLC, a Delaware limited liability company (“Kestrel Heat” or the “general partner”). The Board of Directors of Kestrel Heat is appointed by its sole member, Kestrel Energy Partners, LLC, a Delaware limited liability company (“Kestrel”).

• The Partnership’s operations are conducted through Petro Holdings, Inc. and its subsidiaries (“Petro”). Petro is a Minnesota corporation that is an indirect wholly-owned subsidiary of the Partnership. Petro is a Northeast and Mid-Atlantic region retail distributor of home heating oil that at ~~June~~December 3031, 2009 served approximately ~~381~~370,000 full-service residential and commercial home heating oil customers, and 7,000 propane customers. Petro also sold home heating oil, gasoline and diesel fuel to approximately 3536,000 customers on a delivery only basis. In addition, Petro installed, maintained, and repaired heating and air conditioning equipment for its customers, and provided ancillary home services, including home security and plumbing, to approximately 11,000 customers.

• Star Gas Finance Company is a 100% owned subsidiary of the Partnership. Star Gas Finance Company serves as the co-issuer, jointly and severally with the Partnership, of the Partnership’s $~~137~~132.15 million 10.25% Senior Notes (excluding discounts and premiums), which are due in 2013. The Partnership is dependent on distributions including inter-company interest payments from its subsidiaries to service the Partnership’s debt obligations. The distributions from the Partnership’s subsidiaries are not guaranteed and are subject to certain loan restrictions. Star Gas Finance Company has nominal assets and conducts no business operations. (See Note 6.—Long-Term Debt and Bank Facility Borrowings)

2) ~~Summary~~Common ofUnit ~~Significant~~Repurchase ~~Accounting~~and ~~Policies~~Retirement

On July 21, 2009, the Board of Directors of the Partnership’s General Partner authorized the repurchase of up to 7.5 million of the Partnership’s common units. 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 deemed appropriate by management. The program does not have a time limit. The Partnership’s repurchase activities take into account SEC safe harbor rules and guidance for issuer repurchases. All of the common units purchased in the repurchase program will be retired.

(in thousands, except per unit amounts)


Period	Total Number of Units Purchased as Part of a Publicly Announced Plan or Program	Average Price Paid per Unit		Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs

Fiscal year 2009 total	637	$	3.67	6,863

October 2009	3,072	$	3.97	3,791
November 2009	350	$	3.96	3,441
December 2009	834	$	3.95	2,607

First quarter fiscal year 2010 total	4,256	$	3.97	2,607

3) Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of Star Gas Partners, L.P. and its subsidiaries. All material ~~intercompany~~inter-company items and transactions have been eliminated in consolidation.

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair statement of financial condition and results for the interim periods. Due to the seasonal nature of the Partnership’s business, the results of operations for the ~~nine~~three-month periods ended ~~June~~December 3031, 2009 and ~~June~~December 3031, 2008 are not necessarily indicative of the results to be expected for the full year.

These interim financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission and should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the year ended September 30, ~~2008~~2009.

Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Sales of heating oil and other fuels are recognized at the time of delivery of the product to the customer and sales of heating and air conditioning equipment are recognized at the time of installation. Revenue from repairs and maintenance service is recognized upon completion of the service. Payments received from customers for heating oil equipment service contracts are deferred and amortized into income over the terms of the respective service contracts, on a straight-line basis, which generally do not exceed one year. To the extent that the Partnership anticipates that future costs for fulfilling its contractual obligations under its service maintenance contracts will exceed the amount of deferred revenue currently attributable to these contracts, the Partnership recognizes a loss in current period earnings equal to the amount that anticipated future costs exceed related deferred revenues.

Cost of Product

Cost of product includes the cost of heating oil, diesel, kerosene, heavy oil, gasoline, throughput costs, barging costs, option costs, and realized gains/losses on closed derivative positions for product sales.

Cost of Installations and Service

Cost of installations and service includes equipment and material costs, wages and benefits for equipment technicians, dispatchers and other support personnel, subcontractor expenses, commissions and vehicle related costs.

Delivery and Branch Expenses

Delivery and branch expenses include wages and benefits and department related costs for drivers, dispatchers, mechanics, customer service, sales and marketing, compliance, credit and branch accounting, information technology and operational support.

General and Administrative Expenses

General and administrative expenses include wages and benefits and department related costs for human resources, finance and accounting, administrative support and insurance.

Allowance for Doubtful Accounts

The Partnership periodically reviews past due customer accounts receivable balances. After giving consideration to economic conditions, overdue status and other factors, it establishes an allowance for doubtful accounts, representing the Partnership’s best estimate of amounts that may not be collectible.

Allocation of Net Income (Loss)

Net income (loss) for partners’ capital and statement of operations is allocated to the general partner and the limited partners in accordance with their respective ownership percentages, after giving effect to cash distributions paid to the general partner in excess of its ownership interest, if any.

Net Income (Loss) per Limited Partner Unit

Income per limited partner unit is computed in accordance with ~~Emerging~~FASB ~~Issues~~ASC ~~Task~~260-10-45-60 Basic ~~Force~~and ~~Issue~~Diluted ~~No. 03-6~~Earnings per Share topic, “Participating Securities and the Two-Class Method ~~under~~subtopic ~~FASB Statement No. 128”~~ (“EITF 03-6”06), by dividing the limited partners’ interest in net income by the weighted average number of limited partner units outstanding. The pro forma nature of the allocation required by ~~EITF 03-06~~this standard provides that in any accounting period where the Partnership’s aggregate net income exceeds its aggregate distribution for such period, the Partnership is required to present net income per limited partner unit as if all of the earnings for the periods were distributed, regardless of whether those earnings would actually be distributed during a particular period from an economic or practical perspective. This allocation does not impact the Partnership’s overall net income or other financial results. However, for periods in which the Partnership’s aggregate net income exceeds its aggregate distributions for such period, it will have the impact of reducing the earnings per limited partner unit, as the calculation according to ~~the~~this ~~two-class~~standard ~~method~~ results in a theoretical increased allocation of undistributed earnings to the general partner. In accounting periods where aggregate net income does not exceed aggregate distributions for such period, ~~EITF 03-06~~this standard does not have any impact on the Partnership’s net income per limited partner unit calculation. A separate and independent calculation for each quarter and year-to-date period is required.

Until the quarter ended March 31, 2009, ~~either~~ the partners had no rights to accrue or receive distributions~~, or the earnings of the period did not exceed the aggregate distributions~~.

The following presents the net income allocation and per unit data using this method for the periods presented:

Basic and Diluted Earnings Per Limited Partner:	Three Months EndedJune 30,						Nine Months EndedJune 30,
Basic and Diluted Earnings Per Limited Partner: (in thousands, except per unit data)	Three Months EndedDecember 31,
(in thousands, except per unit data)	2009				2008		2009		2008
	2009			2008
Net income (loss)	$	(112,~~924~~005	)	$	$(8,011	~~11,847~~)	$	~~98,732~~	$	~~78,501~~
Less General Partners’ interest in net income (loss)		(854	)		(35	51)		~~423~~		~~336~~
Net income (loss) available to limited partners		(111,~~916~~951	)		(7,976	~~11,796~~)		~~98,309~~		~~78,165~~
Dilutive impact of theoretical distribution of earnings under EITF 03-06		—				—		17,125		—
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60		994			—
Limited Partner’s interest in net income (loss) under EITF 03-06	$	(1,916	)		$	11,796	$	81,184	$	78,165
Limited Partner’s interest in net income (loss) under FASB ASC 260-10-45-60	$	10,957		$	(7,976	)
Per unit data:
Net income (loss) available to limited partners	$	(0.03	)		$	0.16	$	1.30	$	1.03
Basic and diluted net income (loss) available to limited partners	$	0.16		$	(0.11	)
Dilutive impact of theoretical distribution of earnings under EITF 03-06		—				—		0.23		—
Less dilutive impact of theoretical distribution of earnings under FASB ASC 260-10-45-60		0.01			—
Limited Partner’s interest in net income (loss) under EITF 03-06	$	(0.03	)		$	0.16	$	1.07	$	1.03
Limited Partner’s interest in net income (loss) under FASB ASC 260-10-45-60	$	0.15		$	(0.11	)
Weighted average number of Limited Partner units outstanding		7572,~~774~~661			75,774	~~75,774~~		~~75,774~~		~~75,774~~

Cash Equivalents

The Partnership considers all highly liquid investments with a maturity of three months or less, when purchased, to be cash equivalents.

Inventories

The Partnership’s inventory of heating oil and other fuels are stated at the lower of cost computed on the weighted average cost (WAC) method, or market. All other inventories, representing parts and equipment are stated at the lower of cost computed on the FIFO method, or market.

(in thousands)	~~June~~December 3031,2009		September 30,~~2008~~2009
Heating oil and other fuels	$	4157,~~120~~820	$	3048,~~208~~504
Fuel oil parts and equipment		14,~~364~~203		14,~~551~~132
	$	5572,~~484~~023	$	4462,~~759~~636

Derivatives and Hedging – Disclosures and Fair Value Measurements

The Partnership uses derivative instruments such as futures, options, and swap agreements, in order to mitigate ~~our~~ exposure to market risk associated with the purchase of home heating oil for ~~our~~ price-protected customers, physical inventory on hand, inventory in transit and priced purchase commitments.

To hedge a substantial majority of the purchase price associated with heating oil gallons anticipated to be sold to its price-protected customers as of ~~June~~December 3031, 2009, the Partnership had 4.2.3 million gallons of swap contracts to buy heating oil,; ~~and~~ 0.31 million gallons of futures contracts to sell heating oil,; ~~along with 58~~87.49 million gallons of call options; ~~and 2~~0.97 million gallons of put options. ~~The~~and ~~Partnership~~17.2 million ~~also~~net ~~had~~gallons of synthetic calls (a swap combined with two offsetting puts at different prices) ~~of 3~~.~~9 million~~ ~~net~~At ~~gallons. In addition~~December 31, ~~to hedge the inter-month differentials for our price protected customers~~2008, ~~its physical inventory on hand, and inventory in transit,~~ the Partnership at ~~June 30, 2009~~ had 4027.23 million gallons of ~~future~~swap contracts to buy heating oil,; 440.93 million gallons of ~~future~~futures contracts to sell heating oil,; ~~and~~86.4 million 21gallons of call options; 18.53 million gallons of ~~swap~~put ~~contracts~~options toand ~~sell~~17.0 million ~~heating~~net ~~oil~~gallons of synthetic calls.

To hedge the inter-month differentials for our price protected customers, its ~~internal~~physical ~~fuel~~inventory ~~usage~~on ~~the~~hand, and inventory in transit, the Partnership as of December 31, 2009 had 010.46 million gallons of future contracts to buy heating oil; 11.3 million gallons of future contracts to sell heating oil; and 130.52 million gallons of swap contracts to ~~buy~~sell heating oil. ~~gasoline~~The Partnership at December 31, 2008 had 26.7 million gallons of futures contract to buy heating oil; 34.8 million gallons of future contracts to sell heating oil; and 130.47 million gallons of swap contracts to ~~buy~~sell ~~diesel.~~heating oil.

~~These~~To ~~derivative~~hedge ~~instruments~~a ~~are~~portion ~~with~~of ~~the~~its ~~following~~internal ~~counterparties: Cargill,~~fuel ~~Inc.~~usage, ~~Wachovia~~the ~~Bank,~~Partnership ~~NA,~~as ~~JPMorgan~~of ~~Chase Bank~~December 31, NA2009, ~~Newedge~~had ~~USA,~~1.1 million ~~LLC,~~gallons ~~Bank~~ of swap ~~America,~~contracts ~~N.A.,~~to ~~Key~~buy ~~Bank~~gasoline ~~National~~and ~~Association,~~0.9 million ~~Societe~~gallons ~~Generale,~~of ~~RBS~~swap ~~Sempra,~~contracts ~~and~~to ~~Credit~~buy ~~Suisse~~diesel. AtThe ~~June~~Partnership at December 3031, ~~2009~~2008, ~~the~~had ~~aggregate~~1.0 million ~~cash~~gallons ~~posted~~of asswap ~~collateral~~contracts into ~~the normal~~buy ~~course~~gasoline ofand ~~business~~0.9 million atgallons ~~counterparties~~of ~~was~~swap ~~$1.8~~contracts ~~million~~to buy diesel.

910

~~Statements~~The ofPartnership’s ~~Financial~~derivative ~~Accounting~~instruments ~~Standards~~are ~~(“SFAS”)~~with ~~No. 133~~the ~~Accounting~~following ~~for~~counterparties: ~~Derivative~~Newedge ~~Instruments~~USA, ~~and~~LLC, ~~Hedging~~JPMorgan ~~Activities~~Chase ~~(“SFAS~~Bank, ~~No. 133”)~~NA, ~~and~~Societe ~~SFAS~~Generale, ~~No. 161~~Key ~~Disclosures~~Bank ~~about~~National ~~Derivative~~Association, ~~Instruments~~Cargill, ~~and~~Inc., ~~Hedging~~Wachovia ~~Activities~~Bank, ~~established~~NA, ~~accounting~~ and ~~reporting~~Bank ~~standards~~of ~~requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities~~America, ~~along with qualitative disclosures regarding the derivative activity~~N. ~~To the extent derivative instruments designated as cash flow hedges are effective and SFAS No~~A. ~~133~~ ~~documentation~~The ~~requirements~~Partnership ~~have~~maintains ~~been~~master ~~met,~~netting ~~changes~~arrangements inwith ~~fair~~its ~~value~~counterparties ~~are~~to ~~recognized~~help inmanage ~~other~~counterparty credit ~~comprehensive~~risks ~~income~~and ~~until~~records ~~the underlying hedged item is recognized in earnings. Currently, the Partnership has elected not to designate~~ its derivative ~~instruments~~positions ason ~~hedging~~a ~~instruments~~net ~~under~~basis. ~~SFAS~~At ~~No.~~December ~~133~~31, ~~and~~2009, the ~~change~~aggregate incash ~~fair~~posted ~~value~~as ofcollateral ~~the derivative instruments are recognized~~ in ~~our statement of operations in~~ the ~~line~~normal ~~item~~course ~~(increase)~~of ~~decrease~~business inat ~~the~~counterparties ~~fair~~was ~~value of derivative instruments~~$0.3 ~~Realized gains and losses are recorded in cost of product~~million.

~~Financial~~FASB ~~Accounting~~ASC ~~Standards~~815-10-05 ~~Board~~Derivatives ~~(“FASB”)~~and ~~Statement No. 157~~Hedging ~~“Fair~~topic ~~Value Measurements”~~ (“SFAS ~~No. 157”~~133), ~~establishes~~established aaccounting ~~three-tier~~and reporting standards requiring that derivative instruments be recorded at fair value ~~hierarchy,~~and ~~which~~included ~~classifies~~in the ~~inputs~~consolidated ~~used~~balance insheet ~~measuring~~as ~~fair~~assets ~~value~~or liabilities, along with qualitative disclosures regarding the derivative activity. ~~These~~To ~~tiers~~the ~~include:~~extent ~~Level~~derivative 1,instruments ~~defined~~designated as ~~observable~~cash ~~inputs~~flow hedges ~~such~~are aseffective ~~quoted~~and ~~prices~~the ~~for~~standard’s ~~identical~~documentation ~~instruments~~requirements inhave ~~active~~been ~~markets;~~met, ~~Level~~changes 2,in ~~defined~~fair asvalue ~~inputs~~are recognized in other ~~than~~comprehensive ~~quoted~~income ~~prices~~until the underlying hedged item is recognized in ~~active~~earnings. ~~markets~~The ~~that~~Partnership ~~are~~has ~~either~~elected ~~directly~~not orto designate ~~indirectly~~its ~~observable;~~derivative instruments as hedging instruments under this standard and ~~Level~~the 3,change ~~defined~~in asfair ~~unobservable~~value ~~inputs~~of the derivative instruments is recognized in ~~which~~our ~~little or~~statement noof ~~market~~operations ~~data~~in ~~exists,~~the ~~therefore~~line ~~requiring~~item an(increase) ~~entity~~decrease toin ~~develop~~the ~~its~~fair ~~own~~value ~~assumptions~~of derivative instruments. Realized gains and losses are recorded in cost of product.

FASB ASC 820-10 Fair Value Measurements and Disclosures topic (SFAS 157), established a three-tier fair value hierarchy, which classified the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Partnership’s financial assets and liabilities measured at fair value on a recurring basis are listed on the following table. The Partnership had no assets or liabilities that are measured at fair value on a nonrecurring basis subsequent to their initial recognition. All derivative instruments were non-trading positions. The market prices used to value the Partnership’s derivatives have been determined using the New York Mercantile Exchange (“NYMEX”) and independent third party prices.

~~(In~~11 ~~thousands)~~

					Fair Value Measurements at Reporting Date Using:
Derivatives Not Designated as Hedging Instruments Under Statement 133 at June 30, 2009	Balance Sheet Location	Total			Quoted Prices inActive Markets forIdentical AssetsLevel 1			Significant OtherObservable InputsLevel 2			SignificantUnobservableInputsLevel 3
Asset Derivatives
Commodity contracts	Fair asset value of derivative instruments	$	19,335		$	1,651		$	17,684		$	—
Commodity contracts	Long-term derivative assets included in the deferred charges and other assets, net balance		471			165			306
Commodity contract assets		$	19,806		$	1,816		$	17,990		$	—
Liability Derivatives
Commodity contracts	Fair liability value of derivative instruments	$	(11,862	)	$	(3,437	)	$	(8,425	)	$	—
Commodity contract liabilities		$	(11,862	)	$	(3,437	)	$	(8,425	)	$	—

(In thousands)

The Effect of Derivative Instruments on the Statement of Operations


					Fair Value Measurements at Reporting Date Using:
Derivatives Not Designated as Hedging Instruments Under FASB ASC 815-10	Balance Sheet Location	Total			Quoted Prices in Active Markets for Identical Assets Level 1			Significant Other Observable Inputs Level 2			Significant Unobservable Inputs Level 3

Asset Derivatives at December 31, 2009
Commodity contracts	Fair asset and fair liability value of derivative instruments	$	26,971		$	2,610		$	24,361		$	—
Commodity contracts	Long-term derivative assets included in the deferred charges and other assets, net balance		552			368			184

Commodity contract assets at December 31, 2009		$	27,523		$	2,978		$	24,545		$	—


Liability Derivatives at December 31, 2009
Commodity contracts	Fair liability and fair asset value of derivative instruments	$	(8,871	)	$	(3,246	)	$	(5,625	)	$	—

Commodity contract liabilities at December 31, 2009		$	(8,871	)	$	(3,246	)	$	(5,625	)	$	—


Asset Derivatives at September 30, 2009
Commodity contracts	Fair asset and fair liability value of derivative instruments	$	23,867		$	3,875		$	19,992		$	—
Commodity contracts	Long-term derivative assets included in the deferred charges and other assets, net balance		389			133			256

Commodity contract assets at September 30, 2009		$	24,256		$	4,008		$	20,248		$	—


Liability Derivatives at September 30, 2009
Commodity contracts	Fair liability and fair asset value of derivative instruments	$	(9,856	)	$	(3,986	)	$	(5,870	)	$	—

Commodity contract liabilities at September 30, 2009		$	(9,856	)	$	(3,986	)	$	(5,870	)	$	—

		Amount of Gain or (Loss) Recognized inIncome on Derivative
Derivatives Not Designated as Hedging Instruments Under Statement 133	Location of Gain or (Loss) Recognized in Income on Derivative	Three Months EndedJune 30, 2009			Nine Months EndedJune 30, 2009
Commodity contracts	Cost of product (a)	$	(13,100	)	$	(76,049	)
Commodity contracts	Increase / decrease in the fair value of derivative instruments	$	9,656		$	15,064

(In thousands)


The Effect of Derivative Instruments on the Statement of Operations
		Amount of (Gain) or Loss Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments Under FASB ASC 815-10	Location of (Gain) or Loss Recognized in Income on Derivative	Three Months Ended December 31, 2009			Three Months Ended December 31, 2008

Commodity contracts	Cost of product (a)	$	9,878		$	14,015

Commodity contracts	(Increase) / decrease in the fair value of derivative instruments	$	(3,392	)	$	36,854

(a)	Represents realized closed positions and includes the cost of options as they expire.

Weather Hedge Contract

~~The~~Weather ~~Partnership’s weather~~ hedge contract is recorded in accordance with the intrinsic value method defined by ~~the~~FASB ~~Emerging~~ASC ~~Issues~~815-45-15 ~~Task~~Derivatives ~~Force~~and ~~(“EITF”)~~Hedging ~~99-2~~topic, Weather ~~“Accounting~~Derivatives ~~for~~subtopic ~~Weather~~(EITF ~~Derivatives~~99-2).” The premium paid is amortized over the life of the contract and the intrinsic value method is applied at each interim period. ~~In August 2009, the Partnership purchased a weather hedge for fiscal 2010.~~

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is computed over the estimated useful lives of the depreciable assets using the straight-line method.

(in thousands)	~~June~~December 3031,2009		September 30,~~2008~~2009
Property, plant and equipment	$	~~133~~136,~~462~~671	$	~~130~~135,~~916~~269
Less: accumulated depreciation		9698,~~398~~944		9297,~~087~~775
Property, plant and equipment, net	$	37,~~064~~727	$	3837,~~829~~494

Goodwill and Intangible Assets

Goodwill and intangible assets include goodwill, customer lists and covenants not to compete.

Goodwill is the excess of cost over the fair value of net assets in the acquisition of a company. InUnder ~~accordance~~FASB ~~with~~ASC ~~Statements~~350-10-05 Intangibles-Goodwill ofand ~~Financial~~Other ~~Accounting Standards~~topic (“SFAS”) No. 142), ~~“Goodwill~~a ~~and~~potential ~~Other Intangible Assets,”~~ goodwill ~~and intangible assets with indefinite useful lives are not amortized, but instead are annually tested for~~ impairment. ~~Also~~is indeemed ~~accordance with this standard, intangible assets with definite useful lives are amortized over their respective estimated useful lives~~ to ~~their~~exist ~~estimated~~if ~~residual~~the ~~values,~~net ~~and~~book ~~reviewed~~value ~~for~~of ~~impairment.~~a ~~The~~reporting ~~Partnership~~unit ~~performs~~exceeds its ~~annual~~estimated ~~impairment~~fair ~~review during its fiscal fourth quarter or more frequently if events or circumstances indicate that the~~ value. ofIf goodwill ~~might~~of bea ~~impaired.~~reporting ~~This~~unit ~~review~~ is ~~required~~determined to be ~~performed in two steps~~impaired, the ~~step~~amount ~~one~~of ~~to test for a potential~~ impairment ofis ~~goodwill~~measured bybased ~~comparing~~on the ~~estimated~~ ~~fair~~excess ~~value~~ of the ~~reporting unit to the~~ net ~~assets~~book ~~and,~~value ifof ~~potential~~the ~~losses~~goodwill ~~are~~over ~~identified, step two to measure~~ the ~~impairment~~implied ~~loss via a full~~ fair ~~valuing~~value of the ~~assets and liabilities of the reporting unit utilizing the purchase method of accounting~~goodwill.

The Partnership has selected August 31 of each year to perform its annual impairment review under this standard. The evaluations utilize an Income Approach and Market Approach (consisting of the Market Comparable and the Market Transaction Approach), which contain reasonable and supportable assumptions and projections reflecting management’s best estimate in deriving the Partnership’s total enterprise value. The Income Approach calculates over a discrete period the free cash flow generated by the Partnership to determine the enterprise value. The Market Comparable approach compares the Partnership to comparable companies in similar industries to determine the enterprise value. The Market Transaction approach uses exchange prices in actual sales and purchases of comparable businesses to determine the enterprise value.

The total enterprise value as indicated by these two approaches is compared to the Partnership’s book value of net assets and reviewed in light of the Partnership’s market capitalization.

Customer lists are the names and addresses of an acquired company’s customers. Based on historical retention experience, these lists are amortized on a straight-line basis over eight to ten years.

Trade names are the names of acquired companies. Based on the economic benefit expected and historical retention experience of customers, trade names are amortized on a straight-line basis over eight to ten years.

Covenants not to compete are agreements with the owners of acquired companies and are amortized over the respective lives of the covenants on a straight-line basis, which are generally five years.

Partners’ Capital

Comprehensive income includes net income (loss), plus certain other items that are recorded directly to partners’ capital. Accumulated other comprehensive income reported on the Partnerships’ consolidated balance sheets consists of unrealized losses on pension plan obligations and the tax affect. For the three months ended ~~June~~December 3031, 2009, comprehensive ~~loss~~income was $(112.6)4 million, comprised of net ~~loss~~ income of $(212.0) million, ~~and~~ an unrealized gain on pension plan obligation of $0.46 million and the tax affect of $0.2 million. For the three months ended ~~June~~December 3031, 2008, comprehensive ~~income~~loss was $127.17 million, comprised of net ~~income~~loss of $~~11.~~8.0 million and an unrealized gain on pension plan obligation of $0.3 million.

For the nine months ended June 30, 2009, comprehensive income was $99.8 million, comprised of net income of $98.7 million and an unrealized gain on pension plan obligation of $1.0 million. For the nine months ended June 30, 2008, comprehensive income was $79.2 million, comprised of net income of $78.5 million and an unrealized gain on pension plan obligation of $0.7 million.

Income Taxes

The Partnership is a master limited partnership and is not subject to tax at the entity level for federal and state income tax purposes. Rather, income and losses of the Partnership are allocated directly to the individual partners. ~~Except for the Partnership’s corporate subsidiaries, no recognition has been given to federal income taxes in the accompanying financial statements of the Partnership.~~ While the Partnership’s ~~corporate subsidiaries~~ will generate non-qualifying Master Limited Partnership revenue, distributions from the corporate subsidiaries to the Partnership are generally included in the determination of qualified Master Limited Partnership income. All or a portion of the distributions received by the Partnership from the corporate subsidiaries could be ~~taxable as either~~ a dividend or capital gain to the partners.

In13 December 2008, the Partnership repurchased $10.0 million face value of its 10.25 % Senior Notes and recorded a gain of $3.5 million. This gain was taxable to unit holders in calendar year 2008. During the three months ended March 31, 2009, the Partnership acquired an additional $26.3 million face value of its 10.25 % Senior Notes and recorded an additional gain of $6.2 million, which will be taxable to unit holders in calendar year 2009.

The accompanying financial statements are reported on a fiscal year, however, the Partnership and its Corporate subsidiaries file state and Federal income tax returns on a calendar year.

As of the calendar year ended December 31, 2008, Star/Petro, Inc., a wholly-owned subsidiary of the Partnership, had an estimated federal net operating loss carryforward (“NOL”) of $80 million.

For corporate subsidiaries of the Partnership, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if based on the weight of available evidence including historical tax losses, it is more likely than not that some or all of deferred tax assets will not be realized.

In accordance to the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (As amended) – “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), we recognize in our financial statements the impact of a tax position taken or expected to be taken in a tax return, if that position is more likely than not to be sustained under audit, based on the technical merits of the position.

At June 30, 2009, we had unrecognized income tax benefits totaling $0.5 million and related accrued interest and penalties of $0.1 million. These unrecognized tax benefits are primarily the result of state and local income tax uncertainties. If recognized essentially all of the tax benefits and related interest and penalties would reduce future tax expense.

We believe that the total liability for unrecognized tax benefits will decrease by $0.1 million during the next 12 months ending June 30, 2010. Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.

We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. A number of years may elapse before an uncertain tax position is audited and finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New York, Connecticut, Pennsylvania, and New Jersey, we have three, three, four, and four tax years, respectively, that are subject to examination. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of

~~many~~The ~~factors~~accompanying ~~including~~financial ~~past~~statements ~~experience~~are ~~and~~reported ~~interpretation~~on ofa ~~tax~~fiscal ~~law~~year, wehowever, ~~believe that our provision for income taxes reflect~~ the Partnership ~~most~~and ~~probable~~its ~~outcome.~~Corporate ~~This assessment~~subsidiaries ~~relies~~file onFederal ~~estimates~~ and ~~assumptions~~State ~~and~~income ~~may~~tax ~~involve~~returns on a ~~series~~calendar ~~of complex judgments about future events~~year.

As most of the Partnership’s income is derived from its corporate subsidiaries, these financial statements reflect significant federal and state income taxes. For corporate subsidiaries of the Partnership, a consolidated Federal income tax return is filed. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recognized if, based on the weight of available evidence including historical tax losses, it is more likely than not that some or all of deferred tax assets will not be realized.

Until September 30, 2009, the Partnership’s deferred tax assets and liabilities related to its corporate subsidiaries were fully offset by a valuation allowance. Approximately $86.4 million of this valuation allowance was released as of September 30, 2009 resulting in net deferred tax assets being recorded on the balance sheet. As a result of this change, any comparison of the income tax expense (benefit) in the first three fiscal quarters of 2009 to the corresponding quarters of fiscal 2010 will be comparing current income tax expense (benefit) in the fiscal 2009 quarters to both current and deferred income tax expense (benefit) in fiscal 2010 quarters. For the three months ended December 31, 2008 the Partnership recorded an income tax benefit of $0.4 million on a loss before income taxes of $8.4 million. The entire benefit recorded was for current taxes only. For the three months ended December 31, 2009 the Partnership recorded an income tax expense of $10.1 million on income before taxes of $22.1 million. The $10.1 million consists of $0.8 million in current tax expense and $9.3 million in deferred tax expense.

As of the calendar tax year ended December 31, 2009, Star Acquisitions, a wholly-owned subsidiary of the Partnership, had a federal net operating loss carry forward (“NOL”) of approximately $51 million. The NOLs, which will expire between 2018 and 2024, are generally available to offset any future taxable income. In the event that the Partnership experiences an “ownership change” for federal income tax purposes under Internal Revenue Code Section 382 (“Section 382”), Star Acquisitions may be restricted annually in its ability to use its NOLs to reduce its federal taxable income. In general, the Partnership would be deemed to have an “ownership change” under Section 382 if, immediately after any owner shift involving a 5% unitholder or any equity structure shift, the percentage of units of the Partnership owned by one or more 5% unitholder has increased by more than 50% over the lowest percentage of units of the Partnership (or any predecessor entity) owned by such unitholder at any time during the three-year testing period.

FASB ASC 740-10-05-6 Income Taxes topic, Tax Position subtopic (SFAS No. 109 and FIN 48), provides financial statement accounting guidance for uncertainty in income taxes and tax positions taken or expected to be taken in a tax return.

At December 31, 2009, we had unrecognized income tax benefits totaling $1.9 million including related accrued interest and penalties of $0.1 million. These unrecognized tax benefits are primarily the result of federal tax uncertainties. If recognized, these tax benefits and related interest and penalties would be recorded as a benefit to the effective tax rate.

We believe that the total liability for unrecognized tax benefits will decrease by $0.1 million during the next 12 months ending December 31, 2010. Our continuing practice is to recognize interest and penalties related to income tax matters as a component of income tax expense.

We file U.S. federal income tax returns and various state and local returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. For our Federal income tax returns we have four tax years subject to examination. In our major state tax jurisdictions of New York, Pennsylvania, Connecticut, and New Jersey, we have four, four, five, and five tax years, respectively, that are subject to examination. While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, based on our assessment of many factors including past experience and interpretation of tax law, we believe that our provision for income taxes reflect the most probable outcome. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events.

Sales, Use and Value Added Taxes

Taxes are assessed by various governmental authorities on many different types of transactions. Sales reported for product, installation and service exclude taxes.

Recent Accounting Pronouncements

In the first quarter of fiscal ~~2009~~2010, the Partnership adopted the provisions of FASB ~~Statement~~ASC ~~No. 157~~805-10 ~~“Fair~~Business ~~Value~~Combinations ~~Measurements”~~ (“SFAS No. ~~157”~~141R),. This ~~which~~standard ~~defines~~establishes ~~fair~~in ~~value,~~a ~~establishes~~business acombination ~~framework~~principles and requirements for ~~measuring~~how ~~fair~~an ~~value~~acquirer inrecognizes ~~generally~~and ~~accepted~~measures ~~accounting~~identifiable ~~principles~~assets acquired, ~~and~~goodwill ~~expands~~acquired, ~~disclosures~~liabilities ~~about~~assumed, ~~fair~~and ~~value~~any ~~measurements~~noncontrolling interests.

~~In the second quarter of fiscal 2009, the Partnership adopted the provisions of FASB Statement No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”~~4) ~~which~~Goodwill ~~amends~~ and ~~expands the disclosure requirements of Statement No. 133. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives~~Intangibles, ~~quantitative~~net ~~disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.~~

In the third quarter of fiscal 2009, the Partnership adopted the provisions of FASB Statement No. 165 “Subsequent Events” (“SFAS No. 165”). This statement was issued in May 2009, and is effective for interim or annual financial periods ending after June 15, 2009. SFAS No. 165 establishes principles and requirements for events that occur after the balance sheet date but before financial statements are issued.

In December 2007, the FASB issued Statement No. 141(revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R establishes in a business combination principles and requirements for how an acquirer recognizes and measures identifiable assets acquired, goodwill acquired, liabilities assumed, and any noncontrolling interests. SFAS No. 141R is effective in fiscal years beginning after December 15, 2008. The Partnership is required to adopt SFAS No. 141R in fiscal 2010. The Partnership is currently assessing the impact of adopting SFAS No. 141R.

3) Goodwill and Intangibles, net

Goodwill

A summary of changes in the Partnership’s goodwill is as follows (in thousands):

Balance as of September 30, 2008	$	182,011
Balance as of September 30, 2009	$	182,942
Fiscal year 2009 acquisitions		922
Fiscal year 2010 acquisitions		—
Balance as of June 30, 2009	$	182,933
Balance as of December 31, 2009	$	182,942

The Partnership performed its annual goodwill impairment valuation asfor ofthe period ending August 31, ~~2008~~2009 and ~~concluded~~ determined that there was no goodwill impairment ~~existed~~. As part of this step one test (see Note 2. Summary of Significant Accounting Policies – Goodwill and Intangible Assets) the Partnership estimates the fair value of its sole reporting unit utilizing two generally accepted approaches: the Income Approach and the Market Approach. The Income Approach uses management’s projections of cash flows, market trends and other factors to determine a value of the reporting unit based on discounted cash flows. The Market Approach determines a fair value of the reporting unit based (a) on the results of comparable publicly traded companies and their current market values and (b) on transactions involving comparable companies. In addition the Partnership reconciles the estimated fair value of the reporting unit determined in the step one test to its market capitalization as an additional reasonableness test.

The ~~cash~~preparation ~~flow~~of ~~projections,~~this ~~discount~~analysis ~~rate~~(see ~~assumption~~Note 3. ~~and~~Summary ~~transaction~~of ~~multiples~~Significant ~~used~~Accounting byPolicies ~~the~~– ~~Partnership~~Goodwill toand ~~estimate~~Intangible ~~the~~Assets) ~~fair~~was ~~value of its reporting unit are~~ based onupon ~~subjective~~management’s estimates. ~~Although~~and ~~the~~assumptions, ~~Partnership~~and ~~believes that its projections reflect its best estimates of~~ future ~~performance,~~impairment ~~changes~~calculations inwould ~~estimated~~be ~~revenues,~~affected ~~per~~by ~~gallon~~actual ~~margins~~results orthat inare ~~discount~~materially ~~rates could have an impact on the estimated~~different ~~fair~~from ~~values~~projected amounts. ~~Any~~To ~~increase~~provide infor ~~estimated cash flows or~~ a ~~decrease~~sensitivity inof the discount ~~rate~~rates ~~would~~and ~~not~~transaction ~~have~~multiples anused, ~~impact~~ranges onof ~~the~~high ~~carrying~~and ~~value~~low ofvalues ~~the~~are ~~goodwill.~~employed Ain ~~decrease~~the inanalysis, ~~future~~with ~~estimated~~the ~~cash~~low ~~flows~~values orexamined anto ~~increase~~ensure inthat ~~the~~a ~~discount~~reasonably ~~rate~~likely ~~could~~change ~~require~~in ~~the~~an ~~Partnership~~assumption towould ~~determine~~not ~~whether~~cause the ~~recognition~~Partnership ofto reach a ~~goodwill~~different ~~impairment charge was required~~conclusion. To

provide for a sensitivity of the discount rates and transaction multiples used, ranges of high and low values are employed in the analysis, with the low values examined to ensure that a reasonable change in an assumption would not cause the Partnership to reach a different conclusion.

Since the Partnership’s book value was greater than its market capitalization as of June 30, 2009 (as was also the case at August 31, 2008), the Partnership performed a goodwill analysis as of June 30, 2009, which included a reconciliation of its book value to its market capitalization with the calculation of a reasonable control premium. It was determined based on this analysis that there was no goodwill impairment as of June 30, 2009. The preparation of this analysis was based upon management’s estimates and assumptions, and future impairment assessments may be affected if actual results are materially different from results currently projected.

Intangibles, net

The gross carrying amount and accumulated amortization of intangible assets subject to amortization isare as follows:

June 30, 2009

September 30, 2008

December 31, 2009

September 30, 2009

(in thousands)

GrossCarryingAmount

Accum.Amortization

Net

GrossCarryingAmount

Accum.Amortization

Net

Customer lists and other intangibles

204,~~357~~425

~~181~~186,~~882~~029

2218,~~475~~396

~~201~~204,~~865~~426

~~171~~183,~~004~~958

3020,~~861~~468

Amortization expense for intangible assets and deferred charges was $112.1 million for the ~~nine~~ three months ended ~~June~~December 3031, 2009 compared to $144.94 million for the ~~nine~~three months ended ~~June~~December 3031, 2008. ~~Total~~Amortization expense was lower as acquisitions from 1999 with a 10 year life became fully amortized in fiscal 2009. Total estimated annual amortization expense related to intangible assets subject to amortization and deferred charges, for the fiscal year ending September 30, ~~2009,~~2010 and the four succeeding fiscal years ending September 30, is as follows (in thousands):

	Estimated AnnualAmortization Expense
	Estimated Annual BookAmortization Expense
2009	$	12,955
2010	$	7,820
2010	$	7,798
2011	$	5,769
2011	$	5,747
2012	$	1,402
2012	$	1,380
2013	$	1,400
2013	$	1,378
2014	$	1,324

4) Acquisitions

For the nine months ended June 30, 2009 the Partnership acquired one retail heating oil dealer. The aggregate purchase price was approximately $4.0 million, reduced by working capital credits of $0.7 million.

For the nine months ended June 30, 2008 the Partnership acquired four retail heating oil dealers. The aggregate purchase price was approximately $1.7 million.

The acquired assets and assumed liabilities were recorded at fair value based on valuations and estimates. The excess of the cost of acquired net assets over fair value was recorded as goodwill. Estimates used to determine the fair value of acquisitions made within the previous twelve months may be subject to change.

The following table indicates the allocation of the aggregate purchase price paid and the respective periods of amortization assigned for the acquisitions made as of June 30, 2009 (in thousands):

	June 30, 2009			Useful Lives
Fleet	$	558		8 years
Customer lists and other intangibles		2,372		8 years
Goodwill		922		—
Trade names		120		8 years
Working capital		(659	)	—
Total	$	3,313

5) Long-Term Debt and Bank Facility Borrowings

The Partnership’s long-term debt is as follows (in thousands):

	At June 30, 2009				At September 30, 2008
	CarryingAmount		EstimatedFair Value		CarryingAmount		EstimatedFair Value
10.25% Senior Notes (a)	$	137,131	$	137,131	$	173,752	$	150,293
Revolving Credit Facility Borrowings (b)		—		—		—		—
Total debt	$	137,131	$	137,131	$	173,752	$	150,293
Total long-term portion of debt	$	137,171	$	137,171	$	173,752	$	150,293

(a) These notes mature in February 2013 and accrue interest at an annual rate of 10.25% requiring semi-annual interest payments on February 15 and August 15 of each year. The net premium on these notes were $0.7 million at June 30, 2009 and $1.0 million at September 30, 2008.

Year-to-date of fiscal year 2009, the Partnership repurchased in total $36.3 million (face value) of these notes and recorded a total gain of $9.7 million (See footnote 2. Summary of Significant Accounting Policies – Income Taxes and footnote 9. Subsequent Events).

(b) In July 2009, the Partnership entered into an amended and restated asset based revolving credit facility agreement with a bank syndication comprised of nine banks. This amended facility, that extends to July 2012, provides the Partnership with the ability to borrow up to $240 million ($290 million during the heating season from November to April each year) for working capital purposes (subject to certain borrowing base limitations and coverage ratios), including the issuance of up to $100 million in letters of credit. The Partnership can increase the facility size by $50 million without the consent of the bank group. The bank group is not obligated to fund the $50 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. (See footnote 9. Subsequent Events).

The Partnership has not borrowed under the revolving credit facility for the last twelve months. At June 30, 2009 and September 30, 2008 letters of credit of $45.6 million and $56.1 million were issued, respectively.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information, open market quotations and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

65) ~~Employee~~Acquisitions ~~Pension Plan~~

	Three Months EndedJune 30,						Nine Months EndedJune 30,
(in thousands)	2009			2008			2009			2008
Components of net periodic benefit cost:
Service cost	$	—		$	—		$	—		$	—
Interest cost		935			893			2,805			2,679
Expected return on plan assets		(728	)		(916	)		(2,184	)		(2,748	)
Net amortization		340			245			1,020			735
Net periodic benefit cost	$	547		$	222		$	1,641		$	666

The Partnership made no acquisitions for the three months ended December 31, 2009.

~~The~~For ~~Partnership~~the ~~expects~~three tomonths ~~contribute~~ended ~~approximately~~December 31, ~~$2.1~~2008 ~~million~~the toPartnership ~~fund~~acquired ~~its~~one ~~pension~~retail ~~obligations for~~heating ~~fiscal~~oil ~~2009,~~dealer. ofThe ~~which~~aggregate purchase price was approximately $13.19 million, inreduced ~~payments~~by ~~have~~working ~~been~~capital ~~made~~credits of $0.7 million.

76) ~~Supplemental~~Long-Term ~~Disclosure~~Debt ofand ~~Cash~~Bank ~~Flow~~Facility ~~Information~~Borrowings

	Nine Months EndedJune 30,
(in thousands)	2009		2008
Cash paid during the period for:
Income taxes, net	$	1,665	$	1,389
Interest	$	10,420	$	11,317
Non-cash financing activities:
Decrease in interest expense— amortization of net debt premium	$	132	$	140
Decrease in net debt premium attributable to redemption of debt	$	199	$	—

The Partnership’s long-term debt is as follows (in thousands):

8) Commitments and Contingencies


	At December 31, 2009				At September 30, 2009
	Carrying Amount		Estimated Fair Value (a)		Carrying Amount		Estimated Fair Value (a)
10.25% Senior Notes (b)	$	133,059	$	133,059	$	133,112	$	133,112
Revolving Credit Facility Borrowings (c)		—		—		—		—

Total debt	$	133,059	$	133,059	$	133,112	$	133,112

Total long-term portion of debt	$	133,059	$	133,059	$	133,112	$	133,112

On(a) orThe ~~about~~Partnership’s ~~October 21,~~fair ~~2004,~~value aestimates ~~purported~~of ~~class~~long-term ~~action~~debt ~~lawsuit~~are onmade ~~behalf~~at of a ~~purported~~specific ~~class~~point ofin ~~unitholders~~time, ~~was~~based ~~filed~~on ~~against~~relevant ~~the~~market ~~Partnership~~information, ~~and various~~open ~~subsidiaries~~market ~~and~~quotations ~~officers~~ and ~~directors~~information inabout the ~~United~~financial ~~States District Court of the District of Connecticut entitled Carter v~~instrument. ~~Star~~These ~~Gas~~estimates ~~Partners,~~are ~~L.P.,~~subjective etin ~~al,~~nature ~~No. 3:04-cv-01766-IBA,~~and etinvolve ~~al.~~uncertainties ~~Subsequently,~~and 16matters ~~additional~~of ~~class~~significant ~~action complaints,~~judgment ~~alleging~~and ~~the~~therefore ~~same~~cannot orbe ~~substantially~~determined ~~similar~~with ~~claims,~~precision. ~~were~~Changes ~~filed~~ in ~~the~~assumptions ~~same~~could ~~district~~significantly ~~court~~affect ~~collectively referred to herein as~~ the ~~“Class Action Complaints”)~~estimates. ~~The class actions have been consolidated into one action entitled In re Star Gas Securities Litigation, No 3:04cv1766 (JBA).~~

~~The class action plaintiffs generally allege that the Partnership violated Sections 10~~(b) ~~and~~These ~~20(a)~~notes ofmature ~~the~~in ~~Securities~~February ~~Exchange~~2013 ~~Act of 1934, as amended,~~ and ~~Rule~~accrue ~~10b-5~~interest ~~promulgated~~at ~~hereunder,~~an byannual ~~purportedly~~rate ~~failing to disclose, among other things: (1) problems with the restructuring~~ of ~~Star~~10.25% ~~Gas’~~requiring ~~dispatch~~semi-annual ~~system~~interest ~~and~~payments customer attrition related thereto; (2) that Star Gas’ business process improvement program was not generating the benefits allegedly claimed; (3) that Star Gas was struggling to maintain its profit margins; (4) that Star Gas’s fiscal 2004 second quarter profit margins were not representative of its ability to pass on ~~heating~~February ~~oil~~15 ~~price increases;~~ and ~~(5) that~~August ~~Star~~15 ~~Gas~~of ~~was~~each ~~facing an inability to pay its debts and that, as a result, its credit rating and ability to obtain future financing was in jeopardy~~year. The ~~class~~net ~~action~~premium ~~plaintiffs~~on ~~seek~~these annotes ~~unspecified~~included ~~amount~~above ofwere ~~compensatory~~$0.6 ~~damages~~million ~~including~~at ~~interest~~December ~~against~~31, ~~the~~2009 ~~defendants jointly~~ and ~~severally~~$0.6 ~~and~~million anat ~~award~~September of30, ~~reasonable~~2009 ~~costs and expenses~~respectively. ~~On February 23,~~These ~~2005,~~notes ~~the~~are ~~Court~~redeemable ~~consolidated~~at the ~~Class~~option ~~Action Complaints and heard argument on motions for the appointment~~ of ~~lead plaintiff. On April 8, 2005,~~ the ~~Court appointed the lead plaintiff. Pursuant to the Court’s order~~Partnership, ~~the lead~~in ~~plaintiff~~whole ~~filed~~or ain ~~consolidated amended complaint on June 20~~part, ~~2005~~from ~~(the~~time ~~“Consolidated~~to ~~Amended~~time ~~Complaint”).~~by ~~The~~payment ~~Consolidated~~of ~~Amended Complaint named: (~~a~~) Star~~ ~~Gas Partners, L~~premium.~~P.;~~ (~~b) Star~~See ~~Gas~~Note ~~LLC; (c) Irik Sevin; (d) Audrey Sevin; (e) Hanseatic Americas, Inc~~10.; ~~(f) Paul~~Subsequent ~~Biddelman;~~Events—Note (gRepurchase) ~~Ami~~ ~~Trauber;~~Under ~~(h) A.G.~~the ~~Edwards &~~terms ~~Sons~~of ~~Inc.;~~the ~~(i) UBS~~indenture ~~Investment~~dated ~~Bank; and (j) RBC Dain Rauscher Inc.~~ as ~~defendants. The Consolidated Amended Complaint added claims arising out~~ of ~~two~~April ~~registration~~28, ~~statements and the same transactions under Sections 11~~2006, ~~12(a)(2)~~these ~~and~~notes 15permit ofrestricted ~~the~~payments ~~Securities Act~~ of ~~1933~~$22 asmillion, ~~well~~allow ~~as certain allegations concerning~~ the Partnership’s ~~hedging practices. On September 23, 2005, defendants filed motions~~ to ~~dismiss~~make ~~the~~acquisitions ~~Consolidated~~of ~~Amended~~up ~~Complaint for failure~~ to ~~state~~$60 amillion ~~claim~~without ~~under~~passing ~~the~~certain ~~federal~~financial ~~securities~~tests, ~~laws~~ and ~~failure~~restrict ~~to satisfy~~ the ~~applicable~~proceeds ~~pleading requirements~~ of ~~the~~asset ~~Private~~sales ~~Securities Litigation~~from ~~Reform~~being ~~Act~~invested ofin ~~1995~~current orassets ~~PSLRA,~~for ~~and~~purposes ~~the Federal Rules~~ of ~~Civil Procedure. On July 27, 2006,~~ the ~~Court~~“asset ~~heard~~sale” ~~oral argument on the pending motions to dismiss~~covenant. ~~On August 21, 2006, the court issued its rulings on defendants’ motions to dismiss, granting the motions and~~

(c)

In July 2009, the Partnership entered into an amended and restated asset based revolving credit facility agreement with a bank syndication comprised of nine banks. This amended facility, that extends to July 2012, provides the Partnership with the ability to borrow up to $240 million ($290 million during the heating season from November to April each year) for working capital purposes (subject to certain borrowing base limitations and coverage ratios), including the issuance of up to $100 million in letters of credit. The Partnership can increase the facility size by $50 million without the consent of the bank group. The bank group is not obligated to fund the $50 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. The interest rate is LIBOR plus (i) 3.50% (if availability, as defined in the revolving credit facility agreement is greater than or equal to $150 million), or (ii) 3.75% (if availability is greater than $75 million but less than $150 million), or (iii) 4.00% (if availability is less than or equal to $75 million). The commitment fee on the unused portion of the facility is 0.75% per annum.

In January 2010, the Partnership entered into a first amendment to the amended and restated asset based revolving credit facility agreement that updated the consolidated fixed charges defined term.

At December 31, 2009 and September 30, 2009, no amount was outstanding under the revolving credit facility and $40.8 million and $40.9 million of letters of credit were issued, respectively.

Obligations under the revolving credit facility are secured by liens on substantially all assets and are guaranteed by the Partnership. The revolving credit facility imposes certain restrictions on the Partnership, including restrictions on its ability to incur additional indebtedness, to pay distributions to its unitholders, to pay inter-company dividends or distributions, make investments, grant liens, sell assets, make acquisitions and engage in certain other activities. The revolving credit facility also requires the Partnership to maintain certain financial ratios, and contains borrowing conditions and customary events of default, including nonpayment of principal or interest, violation of covenants, inaccuracy of representations and warranties, cross-defaults to other indebtedness, bankruptcy and other insolvency

~~dismissing~~events. ~~the~~The ~~consolidated~~occurrence ~~amended~~of ~~complaint~~an inevent ~~its~~of ~~entirety.~~default Onor ~~August 23,~~an ~~2006,~~acceleration under the ~~court~~revolving ~~entered~~credit afacility ~~judgment~~would ofresult ~~dismissal.~~in ~~On September 7, 2006,~~ the ~~plaintiffs~~Partnership’s ~~moved~~inability ~~for reconsideration and~~ to ~~alter~~obtain ~~and~~further ~~reopen~~borrowings ~~the~~under ~~court’s August 23~~that facility, ~~2006~~which ~~judgment~~could ofadversely ~~dismissal~~affect ~~and~~its ~~for~~results ~~leave~~of tooperations. ~~file~~Such a ~~second~~default ~~consolidated~~may ~~amended~~also ~~complaint~~restrict ~~(“Plaintiffs’~~the ~~Post-Judgment~~ability ~~Motion”).~~of ~~On October 20,~~the ~~2006,~~Partnership ~~defendants~~to ~~filed~~obtain ~~their~~funds ~~memorandum~~from ofits ~~law~~subsidiaries in ~~opposition~~order to ~~the~~pay ~~Plaintiffs’~~interest ~~Post-Judgment~~or ~~Motion~~paydown debt. ~~Plaintiffs~~An ~~filed~~acceleration ~~their~~under ~~reply~~the ~~brief~~revolving credit onfacility orwould ~~about~~result ~~November 20,~~in ~~2006.~~a Ondefault ~~March 22,~~under ~~2007~~ the ~~Court issued its decision denying Plaintiffs~~Partnership’s ~~Post-Judgment~~other ~~Motion~~funded debt.

OnUnder ~~April 3,~~the ~~2007,~~terms of the ~~Star~~revolving ~~Gas~~credit ~~Defendants~~facility, ~~filed~~the aPartnership ~~Motion~~must ~~for~~maintain aat ~~Mandatory~~all ~~Rule~~times ~~11 Inquiry~~either ~~and~~availability ~~fee shifting~~ (~~“Rule~~borrowing 11base ~~Motion”)~~less ~~which~~amounts ~~seeks~~borrowed ~~recovery~~and letters of ~~Defendants’~~credit ~~legal~~issued) ~~fees~~of ~~pursuant to the PSLRA~~$43.5 Onmillion ~~April 24,~~or ~~2007,~~a ~~class~~fixed ~~plaintiffs~~charge ~~filed~~coverage ~~their~~ratio ~~opposition~~(as todefined ~~that~~in ~~motion. The~~the ~~Star~~credit ~~Gas Defendants’~~agreement) ~~reply was~~of ~~filed~~not onless ~~May 8,~~than ~~2007~~1. On10x. ~~May 15,~~In ~~2009~~addition, the ~~District~~Partnership ~~Court~~must ~~notified~~maintain ~~the~~a ~~parties~~fixed ~~that~~charge ~~due~~coverage toratio ~~the~~of ~~Court’s~~1.15x ~~view~~in ~~that~~order ~~decision~~to onmake ~~the~~its ~~Rule~~minimum 11quarterly ~~Motion~~distributions ~~should await the conclusion~~ of ~~the~~$0.0675 ~~appellate~~per ~~process~~unit, and ~~the~~1.25x ~~pendency of~~to ~~the~~make ~~Rule~~any 11distributions ~~Motion~~in ~~for~~excess ~~over~~of ~~two years, while awaiting a decision from~~ the ~~Second~~minimum quarterly ~~Circuit~~distributions. onNo ~~plaintiffs’~~inter-company ~~appeal,~~dividends ~~the~~or ~~Court~~distributions ~~proposed~~can tobe ~~deny~~made ~~the~~(including ~~Rule~~those 11needed ~~Motion without prejudice~~ to ~~refiling~~pay ~~following~~interest ~~the~~or ~~issuance~~principle ofon the ~~Second Circuit’s decision in the matter~~10.25% OnSenior ~~May 18,~~Notes) ~~2009,~~if the ~~Star~~relevant ~~Gas~~covenant ~~Defendants~~described ~~consented~~above tohas ~~the~~not ~~District~~been ~~Court’s request, specifically noting that it was without prejudice to refiling the Motion following issuance of the Second Circuit’s decision~~met.

OnAs ~~April~~of December 2031, ~~2007~~2009, ~~class~~availability ~~plaintiffs~~was ~~filed~~$196 amillion, ~~notice of appeal to the Court of Appeals for the Second Circuit of Judge Arterton’s decisions dismissing the amended complaint~~ and ~~denying Plaintiffs’ Post-Judgment Motion. Subsequent to~~ the ~~filing~~Partnership ofwas ~~the~~in ~~notice~~compliance ofwith ~~appeal, class plaintiffs stipulated to~~ the ~~dismissal~~fixed ~~of the appeal as against~~charge ~~Hanseatic~~coverage ~~Americas, Inc~~ratio., ~~Paul~~As ~~Biddelman,~~of ~~A.G. Edwards~~September ~~& Sons~~30, ~~Inc.~~2009, ~~RBC~~availability ~~Dain~~was ~~Rauscher Inc~~$194.,4 ~~UBS Investment Bank~~million, ~~and~~ ~~Audrey Sevin. On or about July 6, 2007, class plaintiffs filed their brief on appeal. The Star Gas Defendants filed their opposition brief on or about August 21, 2007,~~ and ~~class~~ ~~plaintiffs~~the ~~filed~~Partnership ~~their reply brief on or about September 11, 2007. Oral argument~~ was ~~held~~ in ~~December~~compliance ~~2008~~with ~~and a decision is awaited. In~~ the ~~interim,~~ ~~discovery~~fixed incharge ~~the~~coverage ~~matter remains stayed pursuant to the mandatory stay provisions of the PSLRA~~ratio. ~~While no prediction may be made as to the outcome of litigation, we intend to defend against this class action vigorously.~~

In7) ~~the~~Employee ~~event~~Pension ~~that~~Plan the above action is decided adversely to us, it could have a material effect on our results of operations, financial condition and liquidity. The Partnership has not accrued any amount for this action because, based on the court’s judgment of dismissal, we believe an unfavorable outcome is not probable.


	Three Months Ended December 31,
(in thousands)	2009			2008

Components of net periodic benefit cost:
Service cost	$	—		$	—
Interest cost		811			935
Expected return on plan assets		(665	)		(728	)
Net amortization		616			340

Net periodic benefit cost	$	762		$	547

8) Supplemental Disclosure of Cash Flow Information


	Three Months Ended December 31,
(in thousands)	2009		2008

Cash paid during the period for:
Income taxes, net	$	634	$	749
Interest	$	825	$	949
Non-cash financing activities:
Decrease in interest expense—amortization of net debt premium	$	40	$	49
Decrease in net debt premium attributable to redemption of debt	$	—	$	57

9) Commitments and Contingencies

The Partnership’s operations are subject to all operating hazards and risks normally incidental to handling, storing and transporting and otherwise providing for use by consumers of combustible liquids such as home heating oil and propane. As a result, at any given time the Partnership is a defendant in various legal proceedings and litigation arising in the ordinary course of business. The Partnership maintains insurance policies with insurers in amounts and with coverages and deductibles we believe are reasonable and prudent. However, the Partnership cannot assure that this insurance will be adequate to protect it from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices. In the opinion of management, except as described above 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 Partnership’s results of operations, financial position or liquidity.

9) Subsequent Events

Subsequent events have been evaluated up to August 5, 2009, the date the financial statements were issued.

Debt and Unit Repurchase Authorized

In July 2009, the Board of Directors of the Partnership’s General Partner authorized both the repurchase of up to $20 million in face amount of the Partnership’s 10.25% notes due 2013 and up to 7.5 million of the Partnership’s common units. Repurchases may be made from time to time in the open market, in privately negotiated transactions or in such other manner 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.

On July 28, 2009 the Partnership repurchased $1.8 million in face value of its 10.25% notes reducing the outstanding amount to $135.4 million.

~~Amended~~10) ~~and~~Subsequent ~~Restated~~Events ~~Asset Based Revolving Credit Facility~~

AsSubsequent ~~described~~events inhave ~~the~~been ~~Partnership’s~~evaluated ~~July~~up to February 73, ~~2009~~2010, ~~Form~~the ~~8-K,~~date ~~a subsidiary of~~ the ~~Partnership~~financial ~~entered~~statements ~~into~~were ~~an amended and restated asset based revolving credit facility agreement on July 2, 2009 (See footnote 5~~issued. ~~Long-Term Debt and Bank Facility Borrowings).~~

Quarterly Distribution Declared

On ~~July~~January 2221, ~~2009~~2010, the Partnership declared a quarterly distribution of $0.~~0675~~0725 per common unit on(an ~~all~~increase ~~common and~~of ~~general~~$0.005 ~~partner~~per ~~units~~common unit), ~~for~~payable ~~unitholders of record~~ on ~~August~~February 6,12 ~~2009,~~ to beholders ~~paid~~of record on ~~August~~February 144, ~~2009~~2010.

Announcement to Redeem $50 Million in Senior Notes

On January 15, 2010, the Partnership announced that it has elected to redeem $50 million in principal amount of its outstanding 10.25% Senior Notes due 2013. On February 19, 2010, the Redemption Date, the Partnership will redeem this amount at a price equal to 101.708% of face value plus any accrued but unpaid interest thereon, as provided for in the indenture. After the redemption, the outstanding face value of the 10.25% Senior Notes will be $82.5 million.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Disclosure

This Quarterly Report on Form 10-Q includes “forward-looking statements” which represent our 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 accounts and retain existing accounts, 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 credit worthiness, counter party credit worthiness, marketing plans and general economic conditions. All statements other than statements of historical facts included in this Report including, without limitation, the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we 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 our expectations (“Cautionary Statements”) include, but are not limited to, those set forth under the heading “Risk Factors” and “Business Initiatives and Strategy” in the Partnership’s Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended September 30, ~~2008~~2009 and under the heading “Risk Factors” in this Quarterly Report on Form 10-Q. Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “seek,” “estimate” and similar expressions are intended to identify forward-looking statements. 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, we undertake 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 Report.

Overview

The following is a discussion of the historical condition and results of operations of the Partnership and its subsidiaries, and should be read in conjunction with the description of our business in Item 1. “Business” of the Form 10-K and the historical Financial and Operating Data and Notes thereto included elsewhere in this Report.

Current Economic Conditions Could Adversely Affect Our Results Of Operations And Financial Condition.

In 2008 and continuing into fiscal 2009, economic conditions in the United States have experienced a downturn due to the sequential effects of the sub-prime lending crisis, general credit market crisis, the general unavailability of financing, collateral effects on the finance and banking industries, volatile energy prices, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions, increased unemployment and liquidity concerns.

Uncertainty about current economic conditions poses a risk as our customers may postpone spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for the Partnership’s equipment and services and could lead to increased conservation and the possibility of certain of our customers seeking lower cost providers. Any increase in existing customers seeking lower cost providers and/or increase in the rejection rate of potential accounts could increase the Partnership’s overall rate of net customer attrition. If adverse economic conditions persist, the Partnership could experience an increase in bad debts from financially distressed customers, which would have a negative effect on our liquidity, results of operations and financial condition.

Pending Legislation

There is increasing attention concerning the issue of climate change and the effect of emissions of greenhouse gases, in particular from the combustion of fossil fuels. There are efforts to develop new federal proposals by Congress and the EPA that could lead to the adoption of a mandatory program to reduce greenhouse gas emissions through, for example, an economy-wide cap-and-trade program, a carbon tax or a combination of both. Debate continues on the direction, scope and timing of U.S. policy on the regulation of greenhouse gas emissions. It is probable that any regulatory program that caps emissions or imposes a carbon tax will increase costs for the Partnership and its customers which could lead to increased conservation or customers seeking lower cost alternatives. However, at this time an estimate of such costs to comply with potential national, regional or state greenhouse gas emissions reduction legislation, regulations or initiatives is not possible because these programs and proposals are in the early stages of development and any final program, if adopted, could vary from current proposals.

In addition, laws and regulations that affect operations continue to evolve at both the state and federal levels, which may ultimately add compliance costs to the Partnership. Changes in regulations under different political administrations, the imposition of additional regulations, or the enactment of new legislation that impacts employment, labor, trade, transportation or logistics, health care, tax or environmental issues could have the potential of materially impacting our financial condition or results of operations.

The Partnership will continue to monitor and evaluate federal, regional or state programs and proposals and judicial and administrative decisions that could affect our customers or operations.

Seasonality

InThe ~~analyzing our financial results, the~~ following matters should be considered in analyzing our financial results. Our fiscal year ends on September 30. All references to quarters and years respectively in this document are to fiscal quarters and years unless otherwise noted. The seasonal nature of our business results in the sale of approximately 30% of our volume of home heating oil in the first fiscal quarter and 45% of our volume in the second fiscal quarter of each fiscal year, the peak heating season. In addition, sales volume typically fluctuates from year to year in response to variations in weather, wholesale energy prices, ~~customer mix~~ and other factors.

Degree Day

A “degree day” is an industry measurement of temperature designed to evaluate energy demand and consumption. Degree days are based on how far the average temperature departs from 65°F. Each degree of temperature above 65°F is counted as one cooling degree day, and each degree of temperature below 65°F is counted as one heating degree day. Degree days are accumulated each day over the course of a year and can be compared to a monthly or a long-term (multi-year) average, or normal, to see if a month or a year was warmer or cooler than usual. Degree days are officially observed by the National Weather Service and officially archived by the National Climatic Data Center. For purposes of evaluating our results of operations, we use the normal heating degree day amount as reported by the National Weather Service in our operating areas.

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, the (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% 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~~ cash transactions for the Partnership if we failed to comply with the minimum ~~availability~~“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 (15% of the maximum facility size) or a fixed charge coverage ratio of 1.1x (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.

maximum facility size) 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.

Per Gallon Gross Profit Margins

We believe the change in home heating oil margins should be evaluated on a cents per gallon basis, 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.

A significant portion of our home heating oil volume is sold to individual customers under an arrangement pre-establishing the ceiling sales price or a fixed price of home heating oil over a fixed period. When ~~our~~these price-protected customers agree to purchase home heating oil from us for the next heating season, we will purchase option contracts, swaps and futures contracts for a substantial majority of the heating oil that we expect to sell to these ~~price-protected~~ customers. The amount of home heating oil volume that we hedge per price-protected customer is based upon the estimated fuel consumption per average customer, per month. In the event that the actual usage exceeds the amount of the hedged volume on a monthly basis, we could be required to obtain additional volume at unfavorable margins. In addition, should actual usage in any month be less than the hedged volume, our hedging losses could be greater.

Derivatives

~~SFAS~~FASB ~~No.~~ASC ~~133~~815-10-05 Derivatives and ~~No. 161~~Hedging topic (FAS 133), established accounting and reporting standards requiring that derivative instruments be recorded at fair value and included in the consolidated balance sheet as assets or liabilities. To the extent derivative instruments designated as cash flow hedges are effective, as defined inunder ~~SFAS~~this ~~No. 133~~standard, changes in fair value are recognized in other comprehensive income until the forecasted hedged item is recognized in earnings. ~~Currently,~~The ~~the~~ Partnership has elected not to designate its derivative instruments as hedging instruments under ~~SFAS~~this ~~133~~standard, and, as a result, the changes in fair value of the derivative instruments are recognized in our statement of operations. Therefore, we experience great volatility in earnings as outstanding home heating oil derivative instruments are marked to market and non-cash gains and losses are recorded prior to the sale of the commodity to the customer. To the extent that the Partnership continues this accounting treatment, the volatility in any given period related to unrealized non-cash gains or losses on derivative home heating oil instruments can be significant to the overall results of the Partnership. However, we ultimately expect those gains and losses to be offset by the cost of product when purchased.

~~Impact~~Weather onHedge ~~Liquidity~~Contract—Warm ofWeather ~~Wholesale Product Cost Volatility~~

~~The~~Weather ~~wholesale~~conditions ~~price~~have ofa significant impact on the demand for home heating oil ~~has~~because ~~been~~our customers ~~extremely~~depend ~~volatile~~on ~~over~~this ~~the~~product ~~last several~~principally ~~years.~~for ~~Our~~heating ~~liquidity~~purposes. isActual ~~adversely~~weather ~~impacted~~conditions incan ~~times~~vary ofsubstantially ~~increasing~~from ~~heating~~year ~~oil~~to ~~prices~~year, assignificantly ~~the~~affecting ~~Partnership~~our ~~must~~financial ~~use~~performance. ~~cash~~To topartially ~~pay~~mitigate ~~for~~the ~~its~~adverse ~~hedging~~effect ~~requirements~~of ~~and~~warm toweather ~~fund~~on aour cash ~~portion~~flows, ofwe ~~the~~have ~~increased~~purchased ~~levels~~a ofwarm ~~accounts~~weather ~~receivable~~hedge ~~and~~from ~~inventory. Our~~Swiss ~~liquidity~~Re isFinancial ~~also~~Products. ~~adversely~~Under ~~impacted~~this athedge ~~times~~agreement, bywe ~~sudden~~will ~~and~~receive ~~sharp~~a ~~decreases~~payment inof $35,000 per heating ~~oil~~degree-day, ~~prices~~when ~~due to~~ the ~~increased~~total ~~margin~~number ~~requirements~~of ~~for~~heating ~~futures~~degree-days ~~contracts~~in ~~and~~the ~~collateral~~period ~~requirements~~covered ~~for~~is less ~~swaps~~than ~~that~~92.5% weof ~~use~~the to10-year ~~manage~~average. ~~market~~This ~~risks~~contract ~~related~~covers ~~to our~~the ~~fixed~~period ~~price~~from ~~customers~~November 1, ~~and~~2009 ~~physical~~through ~~inventory~~March 31, ~~that~~2010 ~~are~~taken ~~not~~as ~~immediately~~a ~~offset~~whole byand ~~lower~~has ~~inventory~~a ~~and~~maximum ~~accounts~~payout ~~receivable~~of ~~carrying~~$12.5 ~~costs~~million.

Income Taxes—Valuation Allowance and Net Operating Loss Carry Forward

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 Partnership’s 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.

Most of the $86.4 million benefit relating to the valuation allowance release related to federal and state loss carry forwards (NOLs), insurance reserves, and the net operating book versus tax timing of intangible amortization.

The release of the valuation allowance in 2009 will also affect the comparison of income tax expense (benefit) of fiscal 2009 quarters in fiscal 2010. The income tax expense in the first three quarters of fiscal 2009 consisted of current taxes only, as any deferred income tax expense or benefit for those periods were fully offset by the valuation allowance.

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.

~~Weather~~Income ~~Hedge~~Taxes- ~~Contract~~Book –Versus ~~Warm~~Tax ~~Weather~~Deductions

~~Weather~~The ~~conditions~~amount ~~have~~of acash ~~significant~~flow ~~impact~~that onwe ~~the~~generate ~~demand~~in ~~for~~any ~~home~~given ~~heating~~year ~~oil~~will ~~because~~depend ~~our~~upon ~~customers~~a ~~depend~~variety onof ~~this~~factors ~~product~~including ~~principally~~the ~~for~~amount ~~space~~of ~~heating~~cash income taxes ~~purposes.~~that ~~Actual~~our ~~weather~~corporate ~~conditions~~subsidiary ~~can~~will ~~vary~~pay. ~~substantially~~The ~~from~~amount ~~year~~of todepreciation ~~year,~~and ~~significantly~~amortization ~~affecting~~that ~~our~~we ~~financial~~deduct ~~performance.~~for Tobook ~~partially~~(i.e. ~~mitigate~~financial ~~the~~reporting) ~~adverse~~purposes ~~effect~~will ofdiffer ~~warm~~from ~~weather~~the onamount that our ~~cash~~corporate ~~flows,~~subsidiary wecan ~~have~~deduct ~~purchased~~for atax ~~weather~~purposes. ~~hedge~~The ~~from~~table ~~Swiss~~below Recompares ~~Financial~~the ~~Products.~~estimated Wedepreciation ~~will~~and ~~receive~~amortization afor ~~payment~~book ofpurposes ~~$35,000~~to ~~per degree-day, when~~ the ~~actual~~amount ~~degree-days~~that ~~are~~our ~~less~~corporate ~~than~~subsidiary ~~the~~expects 10to ~~year~~deduct ~~average~~for bytax 7purposes.~~5%.~~ ~~The~~(Our ~~hedge~~corporate ~~covers~~subsidiary ~~the~~files ~~period~~it’s ~~from~~tax ~~November~~return 1,based ~~2009~~on ~~through~~a ~~March~~calendar ~~31,~~year. ~~2010~~The ~~taken~~amounts asbelow are abased ~~whole~~on ~~and~~our ~~has~~fiscal ~~a maximum payout of $12~~year.5) ~~million.~~

~~Protected~~(Amounts ~~Price~~in ~~Account~~000’s) ~~Renewals~~

Approximately 53% of the Partnership’s protected price customers renew their agreements with us in the period from August through November of each fiscal year. If the Partnership cannot renew most of its protected price customers at attractive per gallon gross profit margins, the Partnership’s near term profitability, liquidity and cash flow will be adversely impacted. Alternatively, efforts to achieve these gross profit margins may negatively impact net customer attrition.


Fiscal Year	Book		Tax
2010	$	16,188	$	29,375
2011		13,105		26,652
2012		7,010		23,677
2013		4,022		21,150
2014		3,332		17,753

~~Accounts~~Income ~~Receivable~~Taxes—Consideration of Election to be Taxed as an Association or “C Corporation”

~~As of June 30~~Currently, ~~2009,~~ the Partnership’s ~~accounts~~main ~~receivable~~asset ~~balance was $82.2 million (net of allowance)~~ and ~~represents~~source ~~a decrease~~ of ~~$70.3~~income ~~million~~is oran ~~46%~~investment ~~when~~in ~~compared~~Star ~~to the balance as of June 30~~Acquisitions, ~~2008~~ ~~of $152~~Inc.5 ~~million~~Our ~~(net~~unitholders ofdo ~~allowance).~~not ~~This~~receive ~~decline~~any ~~in accounts receivable~~ of ~~46% was largely due to~~ the ~~decline~~tax inbenefits ~~the~~normally ~~wholesale~~associated ~~cost~~with ofowning ~~product.~~units ~~Day’s~~in ~~sales~~a ~~outstanding~~publicly astraded ~~of June 30~~partnership, ~~2009,~~as ~~improved~~any tocash 48coming ~~days,~~from ~~when~~Star ~~compared~~Acquisitions to the ~~level at~~Partnership ~~June 30,~~will ~~2008~~generally ofhave 58been ~~days.~~taxed ~~Included~~first inat ~~the~~a ~~gross~~corporate level ~~accounts~~and ~~receivable~~then ~~balance~~may asalso ofbe ~~June 30,~~taxable ~~2009~~to ~~are~~our ~~amounts~~unitholders ~~due~~as ~~that~~dividends, ~~are~~reported ~~90-days~~via orannual ~~more~~Forms ~~in arrears of $33.~~K-1 ~~million~~. AsThe production of ~~June 30, 2008,~~ the ~~comparable~~Forms ~~amounts~~K-1 ~~due~~themselves ~~from~~is ~~customers~~an ~~90 days~~expensive orand ~~more~~administratively inintensive ~~arrears was $59~~process.0 ~~million.~~Thus, ~~The~~the Partnership ~~is actively collecting these past due accounts and~~ has ~~established~~all athe ~~reserve~~administrative issues ~~based on historical data~~ and ~~current~~costs ~~economic~~associated ~~and~~with ~~pricing~~being ~~conditions.~~a ~~Given~~large, ~~the~~publicly ~~current~~traded ~~economic conditions~~partnership, ~~the collection~~but ofour ~~these~~unitholders ~~amounts~~do ~~could~~not ~~prove~~currently toreceive beany ~~more~~material ~~difficult~~tax ~~than~~benefits infrom ~~the~~this ~~past and bad debt expense could increase~~structure.

~~Customer~~To ~~Attrition~~reduce these administrative expenses and to better rationalize our tax reporting structure, the Partnership is evaluating whether to make an election sometime in calendar 2010 or thereafter, to be treated as a corporation for federal and state income tax purposes. While the Partnership would still remain a publicly traded partnership for legal and governance purposes, for income tax purposes its unitholders would be treated as owning stock in a corporation rather than being partners in a partnership. Subsequent to the year of election unitholders would receive Forms 1099-DIV annually for any dividends and would no longer receive K-1’s. In the year of election unitholders would receive both, each form covering part of the year.

WeThis ~~measure~~election ~~net~~may ~~customer~~have ~~attrition~~immediate ~~for~~short ~~our~~term ~~full~~tax ~~service~~implications ~~residential~~as unitholders ~~and~~who ~~commercial~~own ~~heating~~units ~~oil~~during ~~customers. Net customer attrition is~~ the ~~difference between~~calendar ~~gross~~year ~~customer~~of ~~losses and customers added through internal marketing efforts. Customers purchased in acquisitions are not included in~~ the ~~calculation~~election ofcould ~~gross~~receive ~~customer~~taxable ~~gains,~~dividend ~~but~~income ~~are~~related ~~factored~~to ~~on a pro-rata basis in~~ the ~~denominator~~deemed ~~when calculating~~exchange ~~the percentages~~ of ~~gross~~partnership ~~customer~~units ~~gains~~for ~~and~~stock ~~losses. Gains~~ and ~~losses at acquisitions since~~ the ~~acquired~~"assumption" ~~date~~by of the ~~acquisition~~"new" ~~are~~corporation ~~included in the calculation~~ of ~~net customer attrition. Gross customer losses are~~ the ~~result~~liabilities of ~~a number of factors, including price competition, move-outs, service issues, credit losses and conversions to natural gas. When a customer moves out of an existing home, we count~~ the ~~“move out” as a loss and if we are successful in signing up the~~ ~~new~~Partnership ~~homeowner,~~(primarily the ~~“move~~Senior ~~in” is treated as a gain~~Notes).

~~Gross~~Assuming ~~customer~~that ~~gains~~the Partnership’s taxable earnings and ~~gross~~profits ~~customer~~are ~~losses~~equal to or less than the amount of distributions/dividends paid out during the year by the Partnership and that the unitholder holds the units for the entire calendar year, (or at least long enough during the year to receive a distribution(s) at least equal to the tax resulting from a share of dividend income reported on Form K-1), then most partners should not have any material negative cash flow consequences as a result of the Partnership making this election. Note that nothing herein should be interpreted as a projection of any future earnings amount or a projection or guarantee of future distributions or dividends.

	Three Months EndedJune 30				Nine Months EndedJune 30
	2009		2008		2009		2008
Description
Gross Customer Gains	5,900		8,100		43,900		42,500
Gross Customer Losses	(12,400	)	(13,700	)	(68,100	)	(60,200	)
Net Customer Loss	(6,500	)	(5,600	)	(24,200	)	(17,700	)

In addition, there are risks that the Partnership could make this election but:

•

Not distribute or dividend enough cash to cover the taxes that may be due as a result of the dividend income generated by the election.

•

Even if total distributions are made by the Partnership that are equal to its total taxable earnings in the year of election, any particular unit holder could buy or sell units in a time period such that they would receive an allocation on their K-1 of more taxable dividend income than they would receive in cash distributions

The Partnership intends to only make this election if it believes that it will have no overall material adverse impact on its unitholders, of which there can be no assurance. Since determining this is a function of projecting taxable earnings, making assumptions regarding the payment of distributions, and trying to determine when, during any particular calendar

~~Gross~~ year, ~~customer~~making ~~gains,~~the ~~gross~~election ~~customer~~will ~~losses~~have ~~and~~the ~~net~~least ~~customer~~impact ~~attrition~~on asthe amost ~~percentage~~number of ~~the~~unitholders, ~~home~~when or, even if, it will make this election is not determinable at this time. Unitholders are encouraged ~~heating~~to ~~oil~~consult ~~customer~~their ~~base~~tax advisors with respect to these possible outcomes.

	Three Months EndedJune 30				Nine Months EndedJune 30
	2009		2008		2009		2008
Description
Gross Customer Gains	1.5	%	2.0	%	10.9	%	10.2	%
Gross Customer Losses	(3.1	)%	(3.3	)%	(17.0	)%	(14.5	)%
Net Customer Loss	(1.6	)%	(1.3	)%	(6.0	)%	(4.3	)%

Customer Attrition

~~During~~We ~~the~~measure ~~nine~~net ~~months~~customer ~~ended~~attrition ~~June 30,~~for ~~2009~~our wefull ~~lost~~service ~~68,100~~residential ~~accounts,~~and orcommercial 17home heating oil customers.0% ofNet ~~our~~customer ~~home~~attrition is the ~~heating~~difference ~~oil~~between gross customer ~~base,~~losses asand ~~compared~~customers toadded ~~the~~through ~~nine~~internal ~~months~~marketing ~~ended~~efforts. ~~June 30,~~Customers ~~2008~~purchased in ~~which~~acquisitions weare ~~lost~~not ~~60,200~~included ~~accounts,~~in orthe ~~14.5%~~calculation of ~~our~~gross ~~home~~customer ~~heating~~gains, ~~oil~~but ~~customers.~~are ~~The~~factored ~~increase~~on a pro-rata basis in the denominator when calculating the percentages of gross customer ~~losses~~gains ofand ~~7,900~~losses. ~~accounts~~Gains ~~was~~and ~~primarily~~losses ~~due~~at toacquisitions ~~price (5,000~~since ~~accounts)~~the ~~and~~acquired ~~credit-related~~date ~~losses~~of ~~(3,000~~the ~~accounts).~~acquisition ~~The~~are ~~increase~~included in ~~price~~the ~~losses~~calculation ~~was~~of ~~largely~~net ~~due~~customer toattrition. ~~fixed~~Gross ~~price~~customer ~~customers~~losses ~~that~~are ~~decided~~the toresult ~~terminate~~of ~~their~~a number ~~arrangements~~of ~~with~~factors, usincluding price competition, move-outs, credit losses and ~~switch~~conversions to anatural ~~competitor~~gas. inWhen ~~order~~a tocustomer ~~take~~moves ~~advantage~~out of ~~decreases~~ inan ~~heating~~existing ~~oil~~home ~~prices~~we ~~that~~count ~~these~~the ~~customers~~“move ~~perceived~~out” toas bea ofloss ~~greater~~and ~~value~~if ~~than~~we are successful in signing up the ~~cost~~new homeowner, ofthe ~~paying~~“move ain” ~~termination~~is ~~fee~~treated toas usa gain.

~~During~~Gross ~~the nine months ended June 30, 2009, we gained 43,900 customers, or 10.9% of our home heating oil~~ customer ~~base,~~gains asand ~~compared to the nine months ended June 30, 2008 in which we gained 42,500 customers, or 10.2% of our home heating oil customer base. This increase in~~ gross customer ~~gains of 1,400 accounts was largely due to our customer referral program (1,800 accounts) and targeted advertising (1,700 accounts). The continued slowdown in the real estate market~~losses ~~contributed to a decline in gains of 2,500 accounts.~~

We believe that the continued adverse economic conditions and price volatility will negatively impact our ability to attract new customers and retain existing customers in the future.

Fiscal Year Ended

2010

2009

Gross Customer

Net
Attrition

Gross Customer

Net
Attrition

Gains

Losses

Gains

Losses

First Quarter

19,000

21,600

(2,600

)

26,300

31,800

(5,500

)

23Net customer attrition as a percentage of the home heating oil customer base

Fiscal Year Ended

2010

2009

Gross Customer

Net
Attrition

Gross Customer

Net
Attrition

Gains

Losses

Gains

Losses

First Quarter

5.1%

5.8%

-0.7%

6.5%

7.9%

-1.4%

We lost 2,600 accounts (net) during the three months ended December 31, 2009, or 0.7% of our home heating oil customer base, as compared to the three months ended December 31, 2008 in which we lost 5,500 accounts (net), or 1.4% of our home heating oil customers as the decline in gross customer gains of 7,300 accounts was less than the decline in gross customer losses of 10,200 accounts. Gross customer gains in the three months ended December 31, 2009 decreased 7,300 accounts as compared to the three months ended December 31, 2008. We believe that most of this decrease is due to the Partnership being able to take advantage of an unusually high number of consumers seeking an alternate supplier in the three months ended December 31, 2008 as a result of extreme price volatility in the summer and fall of 2008. These favorable conditions did not reoccur in the three months ended December 31, 2009, The decrease in gross customer losses of 10,200 accounts was primarily due to the aforementioned market condition, as losses due to price declined by 5,000 accounts. In addition, our credit losses improved by 3,100 accounts and natural gas conversions declined by 1,200 accounts.

We believe that the continued adverse economic conditions and price volatility will adversely impact our ability to attract customers and retain existing customers in the future.

Results of Operations

The following is a discussion of the results of operations of the Partnership and its subsidiaries, and should be read in conjunction with the historical Financial and Operating Data and Notes thereto included elsewhere in this Quarterly Report.

~~Three~~23 ~~Months Ended June 30, 2009~~

Three Months Ended December 31, 2009

Compared to the Three Months Ended December 31, 2008

Volume

For the three months ended ~~June~~December 3031, 2009, retail volume of home heating oil decreased by 214.92 million gallons, or 613.50%, to 4395.04 million gallons, as compared to 45109.9 million gallons for the three months ended June 30, 2008, as an increase in volume from acquisitions only partially offset reductions in volume from net customer attrition, conservation and other factors. Volume of other petroleum products was 7.6 million gallons for the three months ended ~~June~~December 3031, ~~2009, or 2.1 million gallons less than the three months ended June 30,~~ 2008. An analysis of the change in the retail volume of home heating oil, which is based on management’s estimates, sampling and other mathematical calculations, is found below:

(in millions of gallons)	~~Heating Oil~~HeatingOil
Volume-Three months ended June 30, 2008	45.9
Volume - Three months ended December 31, 2008	109.6
Impact of temperatures	—
Impact of warmer temperatures	(5.5	)
Net customer attrition - retail / commercial	(2.5	)
Net customer attrition	(7.7	)
Acquisitions	0.6
Conservation and other	(1.0	)
Conservation / other	(1.0	)
Change	(14.2	)
Change	(2.9	)
Volume - Three months ended December 31, 2009	95.4
Volume-Three months ended June 30, 2009	43.0

Temperatures in our geographic areas of operations for the three months ended ~~June~~ December 3031, 2009 were ~~equal~~5.0% towarmer than the three months ended ~~June~~December 3031, 2008 and ~~were~~approximately 82.2% warmer than normal, as reported by the National Oceanic Atmospheric Administration (“NOAA”). ~~For~~Between ~~the~~December 31, ~~twelve~~2008 and ~~months ended June~~December 3031, 2009, net customer attrition was 5 6.9%, and the above table reflects the lost volume related to this net attrition. ~~Excluding~~Due to the ~~impact~~significant ofincrease ~~weather~~in ~~and~~the ~~acquisitions,~~price weper ~~expect~~gallon ~~that~~of home heating oil ~~volume~~over ~~for~~ the ~~remainder~~last ofseveral ~~fiscal~~years, ~~2009~~we believe ~~will~~that becustomers ~~less~~are ~~than~~using inless ~~the~~home ~~comparable~~heating ~~period~~oil ingiven ~~fiscal~~similar ~~2008~~temperatures ~~due~~when compared to ~~net~~prior ~~customer~~periods ~~attrition,~~and ~~conservation~~this ~~and~~decrease ~~other~~is ~~factors~~reflected in the "Conservation/Other" heading in the above table.

~~The~~Volume ~~percentage~~ of ~~home~~other ~~heating~~petroleum ~~oil~~products ~~volume sold to residential variable price customers increased to 40% of total home heating oil volume sales~~ for the three months ended ~~June~~December 3031, 2009, asdecreased ~~compared~~by ~~to 39~~1.~~3% for the three months ended June~~5 30million gallons, ~~2008.~~or ~~The percentage of home heating oil volume sold to residential price-protected customers was 45~~13.61%, ~~for the three months representing a decrease~~to ~~from 45~~9.~~7% for the three months ended June~~8 ~~30,~~million ~~2008. For the three months ended June 30~~gallons, ~~2009,~~as ~~sales~~compared to ~~commercial/ industrial customers represented 14~~11.4%3 million gallons of ~~total~~other ~~home~~petroleum ~~heating~~products ~~oil~~sold ~~volume~~during ~~sales, as compared to 15.0% for~~ the three months ended ~~June~~December 3031, 2008.

The percentage of heating oil volume sold to residential variable price customers increased to 41.3% for the three months ended December 31, 2009, as compared to 39.0% for the three months ended December 31, 2008. The percentage of heating oil volume sold to residential price-protected customers decreased to 44.4 % for the three months ended December 31, 2009, as compared to 46.2% for the three months ended December 31, 2008. For the three months ended December 31, 2009, sales to commercial/industrial customers decreased to 14.3% of total heating oil volume sales, as compared to 14.8% for the three months ended December 31, 2008.

Product Sales

For the three months ended ~~June~~December 3031, 2009, product sales decreased $8552.85 million, or 4014.48%, to $~~126~~301.48 million, as compared to $~~212~~354.23 million for the three months ended ~~June~~December 3031, 2008, asdue ato ~~result~~lower ~~of a decrease in~~ home heating oil ~~selling~~ ~~prices~~volume ~~of 36.5%~~ and alower ~~decline in~~ home heating oil ~~volume of 6.5%. Sales of other petroleum products, which is a component of product sales, decreased by $21.8 million due to lower~~ selling prices ~~of 59~~.5% ~~and a decline in volume of 21.2%.~~

Installation and Service Sales

For the three months ended ~~June~~December 3031, 2009, ~~installation~~service and ~~service~~installation sales decreased $41.65 million, or 103.1%, to $4147.21 million, as compared to $4548.86 million for the three months ended ~~June~~December 3031, 2008~~. While service contract revenues increased by $0.5 million~~, ~~revenue from non-essential services such as plumbing and air conditioning declined by $0.6 million. Demand for installation sales declined by $4.2 million~~ due to ~~rising~~a ~~unemployment,~~decline ~~reduced~~in ~~home~~our ~~equity~~customer ~~loans~~base and ~~consumer~~lower ~~credit, and reduced consumer confidence. The cool spring also adversely impacted the demand for~~ new ~~air~~equipment ~~conditioning systems~~sales. We believe that ~~this~~consumers ~~trend~~are ~~will~~generally ~~continue~~reluctant ~~and~~to ~~that~~replace ~~our~~their ~~installation~~heating ~~sales~~systems ~~will~~given ~~be lower for~~ the ~~balance~~current economic ~~of fiscal 2009~~environment.

Cost of Product

For the three months ended ~~June~~December 3031, 2009, cost of product decreased $9035.02 million, or 5114.41%, to $85214.05 million, as compared to $~~175~~249.07 million for the three months ended ~~June~~December 3031, 2008, ~~largely~~ due to ~~decreases~~ a decrease in ~~the~~home ~~wholesale~~heating ~~product~~oil ~~cost~~volume ~~for~~sold of 13% and a decrease in home heating oil ~~and~~product ~~other petroleum products~~costs.

WeGross ~~believe~~Profit—Product ~~that 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 June 30, 2009 increased by $0.1449 per gallon, to $0.8999 per gallon in the three months ended June 30, 2009 from $0.7550 per gallon in the three months ended June 30, 2008. Wholesale product costs increased throughout fiscal 2008, limiting margin expansion capability in the three months ended June 30, 2008. While wholesale product costs also increased during the three months ended June 30, 2009, they had decreased significantly in the prior six months to levels not seen since 2004. This lower absolute wholesale product cost allowed the Partnership to maintain higher margins already established earlier in fiscal 2009, as it was generally able to raise retail prices in conjunction with the increases in wholesale product costs.

~~For~~The table below recalculates the ~~three~~ ~~months~~Partnership’s ~~ended~~per ~~June 30,~~gallon ~~2009,~~margins ~~total~~and reconciles product gross profit ~~increased~~for byhome $4heating oil and other petroleum products.1 ~~million,~~We ~~versus~~believe the ~~prior~~change ~~year’s~~in ~~comparable~~home ~~period~~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 ~~increase~~impact of non-cash changes in ~~product~~the ~~gross~~market ~~profit~~value ~~resulting~~of ~~from~~hedges ~~higher~~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 ~~margins~~4.5%, (to $60.~~2 million)~~8820 ~~was~~per ~~reduced~~gallon, byfrom ~~the~~$0.9238 ~~impact~~per ofgallon in the ~~decrease~~three inmonths ended December 31, 2008. Product sales and cost of product include home heating oil, ~~volume~~other ~~($2.3~~petroleum ~~million)~~products and liquidated damages billings.


	Three Months Ended
	December 31, 2009				December 31, 2008
	Amount (000)		Per Gallon		Amount (000)		Per Gallon
Home Heating Oil
Volume (in millions of gallons)		95,400				109,638

Sales	$	279,294	$	2.9276	$	329,711	$	3.0073
Cost		195,149		2.0456		228,427		2.0835

Gross Profit	$	84,145	$	0.8820	$	101,284	$	0.9238


	Amount (000)		Per Gallon		Amount (000)		Per Gallon
Other Petroleum Products
Volume (in millions of gallons)		9,807				11,279

Sales	$	22,471	$	2.2913	$	24,556	$	2.1771
Cost		19,366		1.9747		21,279		1.8866

Gross Profit	$	3,105	$	0.3166	$	3,277	$	0.2905


	Amount (000)				Amount (000)		Change
Total Product
Sales	$	301,765			$	354,267	$	(52,502	)
Cost		214,515				249,706		(35,191	)

Gross Profit	$	87,250			$	104,561	$	(17,311	)

For the three months ended December 31, 2009, total product gross profit decreased by $17.3 million to $87.3 million, as compared to $104.6 million for the three months ended December 31, 2008, due to the impact of lower home heating oil volume ($13.2 million) and lower home heating oil per gallon margins ($4.0 million).

Since the beginning of the heating season of fiscal 2010, home heating oil costs have risen, which has limited the Partnership’s ability to expand its margins. During the beginning of the heating season of fiscal 2009, home heating oil product costs declined, which largely contributed to the Partnership’s ability to expand its home heating oil margins during this period, as wholesale prices decreased more rapidly than retail selling prices.

(Increase) Decrease in the Fair Value of Derivative Instruments

During the three months ended ~~June~~December 3031, 2009, the ~~change~~increase in the fair value of derivative instruments resulted in the recording of a $93.74 million ~~net~~ credit due to the expiration of certain hedged positions or their realization to cost of product (a $73.95 million credit), and ana ~~increase~~decrease in the market value offor unexpired hedges (a $10.81 million ~~credit~~charge).

During the three months ended ~~June~~December 3031, 2008, the ~~change~~decrease in the fair value of derivative instruments resulted in the recording of a $3036.09 million ~~net credit~~charge due to the expiration of certain hedged positions or their realization to cost of product (a $79.6 million ~~debit~~credit), and ana ~~increase~~decrease in the market value offor unexpired hedges (a $3746.65 million ~~credit~~charge).

Cost of Installations and Service

~~For~~During the three months ended ~~June~~December 3031, 2009, cost of installations and service decreased $23.81 million, or 76.04%, to $3745.67 million, as compared to $4048.48 million for the three months ended ~~June~~December 3031, 2008, ~~as an increase in service costs of $0.5 million was reduced by lower installation expenses of approximately $3.3 million. Service expenses were higher~~ due to anthe ~~increase~~decline in installation ~~vehicle fuel costs of $0.5 million~~sales, aslower ~~the Partnership hedged a portion of its~~ vehicle fuel ~~costs during a higher cost period. For fiscal 2010, the Partnership has again hedged its vehicle fuels, which would lower this~~ expense byand ~~approximately~~management’s ~~$2.5~~efforts ~~million~~to inreduce ~~fiscal 2010. Installation~~ costs ~~were lower, due to the decrease~~ in ~~installation~~line ~~sales~~with asnet ~~described~~customer ~~above~~attrition. ~~The~~Management ~~gross~~views ~~profit~~the ~~realized from~~ service (including installations) decreased by $1.8 million, from $5.4 million for the three months ended June 30, 2008 to $3.6 million for the three months ended June 30, 2009. Installation costs were $11.9 million, or 89.7% of installation sales during the three months ended June 30, 2009, and ~~were $15.3 million, or 87.5% of~~ installation ~~sales~~department ~~during~~on ~~the~~a ~~three~~combined ~~months~~basis ~~ended~~because ~~June 30,~~many ~~2008. Service~~ expenses ~~increased~~cannot tobe ~~$25.7 million,~~ separated or ~~91.9%~~allocated ofto either service ~~sales during the three months ended June 30, 2009, from $25.1 million in the three months ended June 30, 2008,~~ or ~~88.7%~~installation ~~of service sales~~billings. ~~Service~~Many ~~costs~~overhead asfunctions ~~a percentage of total service revenue increased due to the increase in vehicle fuel costs~~ and ~~the~~direct ~~Partnership was not able to fully reduce its service~~ expenses insuch ~~response~~as ~~to unforeseen reductions in non-essential~~ service ~~billings~~technician ~~such~~time ascannot ~~air~~be ~~conditioning~~precisely ~~and plumbing services~~allocated.

Installation costs were $15.4 million, or 83.6% of installation sales during the three months ended December 31, 2009, and were $16.5 million, or 86.7% of installation sales during the three months ended December 31, 2008. Service expenses decreased to $30.3 million, or 105.7% of service sales during the three months ended December 31, 2009, from $32.3 million in the three months ended December 31, 2008, or 109.3% of sales. For the three months ended December 31, 2009, a net gross profit from service and installation of $1.4 million was generated, as compared to a net gross loss of $0.2 million for the three months ended December 31, 2008.

Delivery and Branch Expenses

For the three months ended ~~June~~December 3031, 2009, delivery and branch expenses decreased $26.98 million, or 610.27%, to $4456.38 million, as compared to $4763.26 million for the three months ended ~~June~~December 3031, 2008,. ~~due~~Bad ~~to lower bad~~ debt expense ofdeclined by $10.87 million ~~and~~due ~~lower~~to ~~insurance~~the ~~expense~~decline in total sales of $213.24%, ~~million.~~and ~~Bad~~vehicle ~~debt~~fuels ~~expense~~ declined by $1.5 million due to athe decline in ~~sales~~fuel ~~for~~costs. ~~the~~Insurance ~~three and~~expense ~~nine~~was ~~months~~lower ~~ended~~by ~~June 30,~~$3.1 ~~2009~~million ofdue ~~35%~~to ~~and~~a ~~21%,~~decline ~~respectively,~~in ~~and~~the ancost ~~improvement~~of inthe ~~days~~Partnership’s ~~sales~~weather ~~outstanding~~hedge ($0.9 tomillion) 48and ~~days~~improved asclaims ofexperience ~~June 30,~~($2.2 ~~2009~~million). ~~from~~Delivery 58and ~~days~~branch asexpenses ofwere ~~June 30,~~also ~~2008.~~favorably ~~The~~impacted ~~reduction~~by inthe ~~insurance~~decline ~~expense~~in ~~was~~home ~~due~~heating tooil ~~changes~~volume ~~in prior~~of ~~year reserves~~13.0%.

Depreciation and Amortization

For the three months ended ~~June~~December 3031, 2009, depreciation and amortization expenses declined by $32.05 million, or 4441.2 5%, to $3.75 million, as compared to $6.70 million for the three months ended ~~June~~December 3031, ~~2008~~ ~~as certain assets became fully depreciated~~2008. Amortization expense was lower by $2.8 million, as customer lists of acquisitions from fiscal 2001 became fully amortized. Depreciation expense declined by $0.2 million as capital expenditures for technology acquired in fiscal 2003 became fully depreciated.

Amortization expense was lower by $2.3 million, as acquisitions from 1999 with a 10 year life became fully amortized in fiscal 2009.

General and Administrative Expenses

For the three months ended ~~June~~December 3031, 2009, general and administrative expenses ~~increased~~were $05.81 million, orslightly ~~15.3%,~~less towhen ~~$5.7 million, as~~ compared to $45.9 3 million for the three months ended ~~June~~December 3031, 2008 ~~due to an increase in pension expense of $0~~.~~3 million relating to the Partnership’s frozen pension plan (mostly due to the general decline in pension assets) and other increases of $0.5~~ ~~million.~~

Operating Income (Loss)

For the three months ended ~~June~~December 3031, 2009, operating income ~~decreased~~increased $1234.80 million to $126.06 million, asfrom ~~compared~~a toloss of $137.84 million for the three months ended ~~June~~December 3031, 2008, as ana ~~increase~~ decrease in product gross profit of $417.13 million ~~and~~was ~~lower~~more ~~operating expenses~~than ~~(including~~offset ~~depreciation and amortization) of $5.1 million, were reduced~~ by ~~lower~~a ~~non-cash~~favorable ~~gains from the~~ change in the fair value of derivative instruments of $2040.42 million, and lower ~~installation~~operating ~~and~~costs (net service, ~~profitability~~delivery, general and administrative) of $111.80 million.

Interest Expense

For the three months ended ~~June~~December 3031, 2009, interest expense decreased by $10.18 million, or 2014.69 %, to $4.13 million, as compared to $5.21 million for the three months ended ~~June~~December 3031, 2008. During In fiscal 2009, the Partnership ~~has~~ repurchased $3640.23 million face value of its 10.25% Senior Notes ~~due February 2013,~~ which lowered ~~the~~average long-term debt outstanding toby $~~137~~30.16 million and ~~correspondingly~~corresponding ~~reduced~~ interest expense by $1.0 million. Bank charges increased by $0.3 million due to an increase in letter of credit fees.

Interest Income

For the three months ended ~~June~~December 3031, 2009, interest income decreased $0.87 million, or 3863.89%, to $10.34 million, as compared to $21.1 million for the three months ended ~~June~~December 3031, 2008~~. Despite higher average invested cash balances~~, ~~interest income declined $0.1 million from the prior period~~ due to lower ~~rates~~returns, onlower invested cash. ~~Late~~balances, ~~fee~~and ~~income~~lower ~~declined~~finance bycharge ~~$0.7~~income ~~million~~on ~~due to lower~~ past due accounts ~~receivable~~receivables balances.

Amortization of Debt Issuance Costs

For the three months ended ~~June~~ December 3031, 2009, amortization of debt issuance costs ~~was~~increased $0.61 million, ~~unchanged~~or ~~from~~10.8% to $0.7 million, as compared to $0.6 million for the three months ended ~~June~~December 3031, 2008.

~~Income~~Gains ~~Tax~~on ~~Expense~~Bond Repurchase

~~For~~During the three months ended ~~June~~December 3031, ~~2009~~2008, the ~~income~~Partnership ~~tax~~repurchased ~~benefit was~~ $010.50 million, aface ~~decrease~~value of $1its 10.225% ~~million,~~Senior ~~when~~Notes ~~compared~~due toFebruary ~~the~~2013 ~~income~~at ~~tax~~an ~~benefit~~average price of $~~1.7~~64 ~~million~~per ~~for~~$100 ~~the~~of ~~three~~principal ~~months~~plus ~~ended~~accrued ~~June 30, 2008~~interest. ~~Income~~The ~~taxes are~~ Partnership recorded ~~based~~a ongain ~~an annual effective rate (including any benefit~~ of ~~Net~~$3.5 ~~Operating~~million. ~~Loss~~The ~~carry~~Partnership ~~forwards),~~did ~~which~~not isrepurchase ~~then~~any ~~applied~~of toits ~~book~~notes ~~income~~during ~~(or~~the ~~loss)~~three ~~before~~months ~~taxes~~ended December 31, ~~resulting in a quarterly tax charge (or benefit)~~2009.

Income Tax Expense (Benefit)

For the three months ended December 31, 2009 income tax expense increased $10.5 million, to a $10.1 million expense, from a $0.4 million benefit for the three months ended December 31, 2008. This increase is due primarily to the $30.4 million increase in the Income (loss) before income taxes for 2009 versus 2008. In addition, due to the Partnership having a full valuation allowance as of December 31, 2008, any deferred tax benefits from the loss before income taxes for the three months ended December 31, 2008 were fully offset by the valuation allowance, leaving only a current tax benefit. As much of the valuation allowance was released as of September 30, 2009, the tax expense for the three months ended December 31, 2009 consists of a both $0.8 million current tax expense and a $9.3 million deferred tax expense.

Net Income (Loss)

For the three months ended ~~June~~ December 3031, 2009, athe Partnership generated net ~~loss~~income of $~~1.9~~ 12.0 million ~~was recorded~~, as compared to a net ~~income~~loss of $~~11.~~8.0 million for the three months ended ~~June~~December 3031, 2008. This ~~change~~increase in net income of $~~13.8~~ 20.0 million was ~~due~~attributable to aan increase in operating income of $1234.80 million ~~decrease~~which inwas ~~operating~~reduced by an increase in income ~~and~~tax aexpense of $10.5 ~~decrease~~million. inDuring the ~~income~~three ~~tax~~months ~~benefit~~ended December 31, 2008, the Partnership’s recorded a gain of $13.25 million from repurchasing $10.0 million face value of its 10.25% Senior Notes, which positively impacted net income in that period.

Adjusted EBITDA

For the three months ended ~~June~~December 3031, 2009, ~~the~~ Adjusted EBITDA ~~loss~~ decreased by $48.68 million to $526.07 million, as ~~the~~compared ~~impact~~to of$35.5 ~~higher~~million ~~per~~for ~~gallon~~the ~~margins~~three ~~and~~months ~~lower~~ended ~~branch~~December 31, ~~and~~2008, ~~general~~as a reduction in delivery and ~~administrative~~branch expenses was ~~reduced~~more than offset by the decline in ~~installation~~home ~~profitability~~heating ~~and~~oil ~~lower~~volume and home heating oil ~~volume~~margins.

EBITDA and Adjusted 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 our ability to make the Minimum Quarterly Distribution. EBITDA and Adjusted EBITDA are calculated as follows:

	Three Months EndedJune 30,
(in thousands)	2009			2008
Income (loss) from continuing operations	$	(1,924	)	$	11,847
Plus:
Income tax benefit		(498	)		(1,695	)
Amortization of debt issuance cost		564			592
Interest expense, net		2,814			3,058
Depreciation and amortization		3,744			6,703
EBITDA from continuing operations		4,700			20,505
(Increase) / decrease in the fair value of derivative instruments		(9,656	)		(30,043	)
Gain on redemption of debt		—			—
Adjusted EBITDA		(4,956	)		(9,538	)
Add / (subtract)
Income tax expense / benefit		498			1,695
Interest expense, net		(2,814	)		(3,058	)
Provision for losses on accounts receivable		2,371			4,131
Decrease in accounts receivables		75,933			109,025
(Increase) decrease in inventories		(15,993	)		9,366
Increase in customer credit balances		11,586			10,590
Change in other operating assets and liabilities		(19,176	)		4,685
Net cash provided by operating activities	$	47,449		$	126,896
Net cash used in investing activities	$	(814	)	$	(1,545	)
Net cash used in financing activities	$	(5,137	)	$	(48,050	)

Adjusted EBITDA is a non-GAAP financial measure that is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, (increase) decrease in the fair value of derivatives, 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% 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.

Nine Months Ended June 30, 2009


	Three Months Ended December 31,
(in thousands)	2009			2008
Net income (loss)	$	12,005		$	(8,011	)
Plus:
Income tax expense (benefit)		10,077			(352	)
Amortization of debt issuance cost		656			592
Interest expense, net		3,876			3,927
Depreciation and amortization		3,535			6,043

EBITDA		30,149			2,199

(Increase) / decrease in the fair value of derivative instruments		(3,392	)		36,854
Gain on redemption of debt		—			(3,522	)

Adjusted EBITDA (a)		26,757			35,531

Add/ (Subtract)
Income tax expense (benefit)		(10,077	)		352
Interest expense, net		(3,876	)		(3,927	)
Provision for losses on accounts receivable		2,148			2,868
Increase in accounts receivables		(76,952	)		(54,998	)
Increase in inventories		(9,387	)		(21,029	)
Increase (decrease) in customer credit balances		(21,790	)		8,713
Change in deferred taxes		9,482			0
Change in other operating assets and liabilities		10,708			12,299

Net cash used in operating activities	$	(72,987	)	$	(20,191	)


Net cash used in investing activities	$	(1,555	)	$	(4,004	)


Net cash used in financing activities	$	(21,947	)	$	(6,400	)

~~Compared~~(a) toEBITDA ~~the~~(Earnings ~~Nine~~from ~~Months~~continuing ~~Ended~~operations ~~June 30~~before net interest expense, ~~2008~~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:

~~Volume~~• our compliance with certain financial covenants included in our debt agreements;

~~For~~• ~~the~~our ~~nine~~financial ~~months~~performance ~~ended~~without ~~June 30,~~regard ~~2009,~~to ~~retail~~financing ~~volume of home heating oil sold was 328.5 million gallons~~methods, ~~unchanged~~capital ~~from the nine months ended June 30~~structure, ~~2008~~income astaxes the impact of increased volume from colder temperatures and acquisitions was offset by net reductions in volume from customer attrition and conservation. Volume of other petroleum products declined by 7.6 million gallons, or ~~19.0%,~~historical tocost 32.4 million gallons for the nine months ended June 30, 2009, as compared to 40.0 million gallons for the nine months ended June 30, 2008. An analysis of the change in the retail volume of home heating oil, which is based on management’s estimates, sampling and other mathematical calculations, is found below: basis;

(in millions of gallons)	Heating Oil
Volume-Nine months ended June 30, 2008	328.5
Impact of colder temperatures	26.6
Net customer attrition - retail/commercial	(19.4	)
Acquisitions	5.6
Conservation/Other	(12.8	)
Change	—
Volume-Nine months ended June 30, 2009	328.5

•

our ability to generate cash sufficient to pay interest on our indebtedness and to make distributions to our partners;

~~Temperatures~~• in our ~~geographic~~operating ~~areas~~performance ofand ~~operations~~return ~~for~~on ~~the~~invested ~~nine~~capital ~~months~~as ~~ended~~compared ~~June 30,~~to ~~2009 were~~those ~~8.1%~~of ~~colder~~other ~~than~~companies in the ~~nine~~retail ~~months~~distribution ~~ended~~of ~~June 30,~~refined ~~2008~~petroleum ~~and~~products ~~1.2% colder than normal~~business, aswithout ~~reported~~regard byto ~~the~~financing ~~NOAA.~~methods ~~For~~and ~~the~~capital ~~twelve~~structure; ~~months ended June 30, 2009, net customer attrition was 5.9%.~~ and

~~The~~• ~~percentage~~the ofviability ~~home heating oil volume sold to residential variable price customers decreased to 40.3%~~ of ~~total~~acquisitions ~~home~~and ~~heating~~capital ~~oil~~expenditure ~~volume~~projects ~~sales~~and ~~for~~ the ~~nine~~ ~~months~~overall ~~ended~~rates ~~June 30, 2009, as compared to 43.5% for the nine months ended June 30, 2008. Accordingly, the percentage~~ of ~~home~~return heating oil volume sold to residential price-protected customers increased to 45.5% for the nine months ended June 30, 2009, as compared to 42.0% for the nine months ended June 30, 2008. For the nine months ended June 30, 2009, sales to commercial/industrial customers represented 14.2% of ~~total~~alternative ~~home~~investment ~~heating oil volume sales, as compared to 14~~opportunities.~~5% for the nine months ended June 30, 2008.~~

~~Product~~Adjusted ~~Sales~~EBITDA is calculated as earnings from continuing operations before net interest expense, income taxes, depreciation and amortization, the (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

For the nine months ended June 30, 2009, product sales decreased $274.7 million, or 22.3%, to $959.4 million, as compared to $1.234 billion for the nine months ended June 30, 2008 due largely to decreases in home heating oil and other petroleum selling prices of 19.3% and 37.0%, respectively.

Installation and Service Sales

For the nine months ended June 30, 2009, installation and service sales decreased $11.5 million, or 8.1%, to $131.6 million, as compared to $143.1 million for the nine months ended June 30, 2008. While service contract revenue increased $1.8 million, non-essential service billings declined $1.3 million and installation sales decreased $11.6 million. Demand for installation sales declined due to rising unemployment, reduced home equity loans and consumer credit, and reduced consumer confidence. The cool spring also adversely impacted the demand for new air conditioning systems.

Cost of Product

For the nine months ended June 30, 2009, cost of product decreased $327.3 million, or 33.2%, to $658.1 million, as compared to $985.4 million for the nine months ended June 30, 2008, due to lower per gallon wholesale product cost for home heating oil and other petroleum products of 30.6% and 42.6%, respectively and a decline in volume sales of other petroleum products.

We structures. ~~believe~~In ~~that~~addition, this measure is consistent with the ~~change~~manner in ~~home~~which ~~heating~~the ~~oil~~Partnership’s ~~margins~~debt ~~should~~covenants bein ~~evaluated~~its ~~before~~material ~~the~~debt ~~effects~~agreements ~~of increases~~are orcalculated. ~~decreases~~Both in the ~~fair~~Partnership’s 10.25% ~~value~~Senior ofNote ~~derivative~~agreement ~~instruments,~~and asits webank ~~believe~~credit ~~that~~facility ~~realized~~contain ~~per~~covenants ~~gallon~~that ~~margins~~restrict ~~should~~equity ~~not~~distributions, ~~include~~acquisitions, and the ~~impact~~amount of ~~non-cash~~debt ~~changes~~it incan incur. Under the ~~market~~most ~~value~~restrictive of ~~hedges~~these ~~before~~covenants, ~~the~~which ~~settlement~~is offound in the ~~underlying~~bank ~~transaction.~~credit Onfacility, ~~that~~the ~~basis,~~agent ~~home~~bank ~~heating~~could ~~oil~~step ~~margins~~in ~~for~~and ~~the~~control ~~nine~~all ~~months~~cash ~~ended~~transactions ~~June 30,~~for ~~2009~~the ~~increased~~Partnership ~~$0.1584~~if ~~per~~we ~~gallon~~failed to ~~$0.8869~~comply ~~per~~with ~~gallon~~the ~~from~~minimum ~~$0.7284~~“Availability” ~~per~~or ~~gallon in~~ the ~~nine~~fixed ~~months~~charge ~~ended~~coverage ~~June 30, 2008~~ratio. ~~During~~The ~~the~~Partnership ~~nine~~is ~~months~~required ~~ended~~to ~~June 30,~~maintain either ~~2009,~~availability ~~home~~(borrowing ~~heating~~base ~~oil~~less ~~product~~amounts ~~costs~~borrowed ~~continued~~and toletters ~~decline,~~of ~~which~~credit ~~largely~~issued) ~~contributed~~of to$43.5 ~~the~~million ~~Partnership’s~~(15% ~~ability~~of tothe ~~expand~~maximum ~~its~~facility ~~home~~size) ~~heating~~or ~~oil~~a ~~margin~~fixed ~~during~~charge ~~that~~coverage ~~period,~~ratio asof ~~wholesale~~1.1x ~~prices~~(Adjusted ~~decreased~~EBITDA ~~more~~being ~~rapidly~~a ~~than~~significant ~~retail~~component ~~prices~~of this calculation). This ~~Conversely,~~method ~~during~~of ~~the~~calculating ~~nine~~Adjusted ~~months~~EBITDA ~~ended~~may ~~June 30,~~not ~~2008,~~be ~~home~~consistent ~~heating~~with ~~oil~~that ~~costs~~of ~~continued~~other tocompanies ~~escalate,~~and ~~which~~should ~~limited~~be ~~margin~~viewed ~~expansion~~in ~~capability~~conjunction with measurements that are computed in accordance with GAAP.

~~For~~Each ~~the~~of ~~nine~~EBITDA ~~months~~and ~~ended~~Adjusted ~~June 30,~~EBITDA ~~2009,~~has ~~total~~its ~~product~~limitations ~~gross~~as ~~profit~~an ~~increased~~analytical ~~$52.5~~tool, ~~million~~and toit ~~$301.3~~should ~~million,~~not asbe ~~compared~~considered toin ~~$248.8~~isolation ~~million~~or ~~for~~as ~~the~~a substitute ~~nine~~for ~~months~~analysis ~~ended~~of ~~June 30,~~our ~~2008,~~results ~~due~~as toreported ~~higher~~under ~~home heating~~GAAP. ~~oil~~Some ~~and~~of ~~other~~the ~~petroleum~~limitations ~~products~~of ~~per~~EBITDA ~~gallon~~and ~~margins.~~

~~(Increase)~~Adjusted ~~Decrease~~EBITDA ~~in the Fair Value of Derivative Instruments~~ are:

~~During~~• ~~the~~EBITDA ~~nine~~and ~~months~~Adjusted ~~ended~~EBITDA ~~June 30,~~do ~~2009,~~not ~~the~~reflect ~~change~~our incash ~~the~~used ~~fair value of derivative instruments resulted in the recording of a $15.1 million net credit due to the expiration of certain hedged positions ($19.9 million credit), and a decrease in market value~~ for ~~unexpired~~capital ~~hedges ($4.8 million debit).~~ expenditures;

~~During~~• ~~the~~Although ~~nine~~depreciation ~~months~~and ~~ended~~amortization ~~June 30,~~are ~~2008~~non-cash charges, the ~~change~~assets inbeing ~~the~~depreciated ~~fair~~or ~~value~~amortized ofoften ~~derivative~~will ~~instruments~~have ~~resulted in the recording of a $46.0 million net credit due~~ to ~~the~~be ~~expiration of certain hedged positions ($1.1 million debit)~~replaced, and anEBITDA ~~increase~~and inAdjusted ~~market~~EBITDA ~~value~~do ~~for~~not ~~unexpired~~reflect ~~hedges~~the ~~($47.1~~cash ~~million~~requirements ~~credit).~~for such replacements;

~~Cost~~• ofEBITDA ~~Installations~~ and ~~Service~~Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital requirements;

~~For~~• ~~the~~EBITDA ~~nine months ended June 30, 2009, cost of installations~~ and ~~service~~Adjusted ~~decreased~~EBITDA ~~$6.9~~do ~~million,~~not orreflect ~~5.0%, to $131.4 million, as compared to $138.3 million for~~ the ~~nine~~cash ~~months~~necessary ~~ended June 30, 2008, as a decrease in installation costs of $8.4 million was partially offset by higher service expenses of $1.5 million. Installation costs were lower due~~ to ~~the~~make ~~decline~~payments ~~in installation sales. Service expenses were higher due to colder temperatures and an increase in vehicle fuels~~ of ~~$1.7~~interest million, as the Partnership hedged a portion of its vehicle fuels during the high cost period. For fiscal 2010, the Partnership has again hedged its vehicle fuels, which would lower this expense by approximately $2.5 million in 2010. The gross profit realized from service and installations was $0.1 million for the nine months ended June 30, 2009, as compared to a profit of $4.8 million for the nine months ended June 30, 2008. Installation gross profit declined by $3.2 million due to the lower level of installation sales and service gross profit declined by $1.5 million due to the increase in vehicle fuels. Installation costs were $40.4 million, or ~~89.0%~~principal ofon ~~installation~~our ~~sales~~indebtedness; ~~during the nine months ended June 30, 2009,~~ and were $48.8 million, or 85.7% of installation sales during the nine months ended June 30, 2008. Service expenses increased $1.5 million to $91.1 million, or 105.6% of service sales during the nine months ended June 30, 2009, from $89.6 million in the nine months ended June 30, 2008, or 103.9% of service sales. Service costs as a percentage of total service revenue increased due to the colder weather, the increase in vehicle fuels and a decline in non-essential service revenue.

~~Delivery~~• EBITDA and ~~Branch~~Adjusted ~~Expenses~~EBITDA do not reflect the cash required to pay taxes.

For the nine months ended June 30, 2009, delivery and branch expenses increased $7.4 million, or 4.3%, to $179.4 million, as compared to $172.0 million for the nine months ended June 30, 2008 as a reduction in bad debt expense of $1.7 million was more than offset by increases in delivery costs of $3.3 million, insurance expense of $1.4 million, additional stand-alone acquisition costs of $1.6 million, additional credit staffing and collection costs of $0.8 million, advertising costs of $0.6 million and other increases of $1.4 million. Delivery costs and insurance expense rose due in part to the impact of colder temperatures and a return to normal winter weather conditions. The increase in delivery expense was also impacted by higher vehicle fuel costs of $2.1 million, as the Partnership hedged a portion of its vehicle fuels during a higher cost period. The balance of the increase in delivery and branch expense was $1.2 million, or 0.7%, largely driven by wage and benefit increases. On a cents per gallon basis, delivery expenses increased 2.2 cents per gallon, or 4.3%, from 52.4 cents per gallon for the nine months ended June 30, 2008, to 54.6 cents per gallon for the nine months ended June 30, 2009, due to the fixed nature of certain delivery and branch expenses, the increase in insurance expense and vehicle fuel cost and inflationary pressures.

Depreciation and Amortization

For the nine months ended June 30, 2009, depreciation and amortization expenses declined $4.7 million, or 22.9%, to $15.9 million, as compared to $20.6 million for the nine months ended June 30, 2008. Amortization expense was lower by $3.8 million, as acquisitions from fiscal 2001 became fully amortized. Depreciation expenses declined by $0.9 million as capital expenditures for technology acquired in fiscal 2003 became fully depreciated.

General and Administrative Expenses

For the nine months ended June 30, 2009, general and administrative expenses increased $2.8 million, or 20.2%, to $16.8 million, as compared to $14.0 million for the nine months ended June 30, 2008 primarily due to higher compensation expense of $1.4 million relating to the Partnership’s profit sharing plan and an increase in pension expense of $0.7 million relating to the Partnership’s frozen defined benefit pension plan (mostly due to the general decline in pension assets). The Partnership accrues approximately 6% of Adjusted EBITDA, as defined in the profit sharing plan for distribution to its employees. If Adjusted EBITDA increases, the dollar amount of the profit sharing pool will increase. On the other hand, if Adjusted EBITDA decreases, the dollar amount of the profit sharing pool will be less.

Operating Income

For the nine months ended June 30, 2009, operating income increased $11.5 million to $104.5 million, as compared to $93.0 million for the nine months ended June 30, 2008, as an increase in product gross profit of $52.5 million was reduced by lower non-cash gains from the change in the fair value of derivative instruments of $30.9 million, lower installation and service profitability of $4.6 million and higher operating expenses, including depreciation and amortization, of $5.5 million.

Interest expense

For the nine months ended June 30, 2009, interest expense decreased $2.4 million, or 15.2%, to $13.5 million, as compared to $15.9 million for the nine months ended June 30, 2008. In fiscal 2009, the Partnership has repurchased $36.3 million of its 10.25% Senior Notes due February 2013, which lowered the debt outstanding to $137.1 million and corresponding interest expense by $1.8 million. In addition, working capital interest expense declined by $0.7 million.

Interest Income

For the nine months ended June 30, 2009, interest income decreased $1.4 million to $3.6 million, as compared to $5.0 million for the nine months ended June 30, 2008, due to a reduction in interest income from lower invested cash balances ($0.5 million) and a decrease in finance charge income on past due accounts receivable balances ($0.9 million).

Amortization of Debt Issuance Costs

For the nine months ended June 30, 2009, amortization of debt issuance costs was $1.7 million unchanged from the nine months ended June 30, 2008.

Gains on Bond Repurchase

During the nine months ended June 30, 2009, the Partnership repurchased $36.3 million face value of its 10.25% Senior Notes due February 2013 at a price of $72.4 per $100 of principal plus accrued interest. The Partnership recorded a gain of $9.7 million for this transaction.

Income Tax Expense

For the nine months ended June 30, 2009, income tax expense increased $2.0 million to $3.8 million, as compared to income tax expense of $1.8 million for the nine months ended June 30, 2008. The $2.0 million increase is due to an increase in estimated taxable income for 2009, versus 2008.

Net Income

For the nine months ended June 30, 2009, net income of $98.7 million was recorded as compared to net income of $78.5 million for the nine months ended June 30, 2008. This increase of $20.2 million was due to an $11.5 million increase in operating income, lower net interest expense of $1.0 million, and the gain on bond redemption of $9.7 million, reduced by higher income tax expense of $2.0 million.

Adjusted EBITDA

For the nine months ended June 30, 2009, Adjusted EBITDA increased $37.7 million to $105.3 million, as compared to $67.6 million for the nine months ended June 30, 2008, as the increase in product gross profit of $52.5 million was reduced by a decline in installation and service profitability of $4.6 million and an increase in delivery, branch and administrative expenses of $10.2 million.

	Nine Months EndedJune 30,
(in thousands)	2009			2008
Income from continuing operations	$	98,732		$	78,501
Plus:
Income tax expense		3,852			1,827
Amortization of debt issuance cost		1,732			1,747
Interest expense, net		9,894			10,926
Depreciation and amortization		15,853			20,573
EBITDA from continuing operations		130,063			113,574
(Increase) / decrease in the fair value of derivative instruments		(15,064	)		(45,983	)
Gain on redemption of debt		(9,740	)		—
Adjusted EBITDA		105,259			67,591
Add / (subtract)
Income tax expense		(3,852	)		(1,827	)
Interest expense, net		(9,894	)		(10,926	)
Provision for losses on accounts receivable		9,257			10,988
(Increase) decrease in accounts receivables		4,350			(83,976	)
(Increase) decrease in inventories		(10,595	)		30,895
Decrease in customer credit balances		(24,806	)		(38,960	)
Change in other operating assets and liabilities		11,089			7,870
Net cash provided by (used in) operating activities	$	80,808		$	(18,345	)
Net cash used in investing activities	$	(5,655	)	$	(3,472	)
Net cash used in financing activities	$	(36,545	)	$	(144	)

DISCUSSION OF CASH FLOWS

We use the indirect method to prepare our Consolidated Statements of Cash Flows. Under this method, we reconcile net income to cash flows provided by operating activities by adjusting net income for those items that impact net income but may not result in actual cash receipts or payment during the period.

Operating Activities

Due to the seasonal nature of the home heating oil business, cash is generally used in operations during the winter (our first and second fiscal quarters) as customers receive deliveries and pay for products purchased within our payment terms, and cash is generally provided by operating activities during the spring and summer (our third and fourth quarters) when customer payments exceed deliveries. ~~During~~For the ~~nine~~ three months ended ~~June~~December 3031, 2009, wecash ~~generated~~used ~~$80.8 million~~ in ~~cash flow from~~ operating activities, ~~which~~was is $~~99.1~~73 million, ~~higher~~as ~~than~~compared ~~the~~to $1820.32 million of cash used in ~~operations~~operating ~~for~~activities during the ~~nine~~three months ofended ~~the~~December 31, ~~prior year~~2008. This change ~~dramatic~~of ~~improvement~~$52.8 million was ~~primarily~~ largely due to ~~the~~a ~~impact~~decline in cash received from budget payment plan customers of ~~lower~~$41.5 ~~wholesale~~million. ~~product~~Approximately ~~costs,~~34% ~~which~~of ~~impacts~~our ~~accounts~~customers ~~receivable~~are ~~collections,~~on ~~inventory~~a ~~costs,~~budget ~~prepaid~~payment ~~hedging~~plan ~~costs,~~and ~~hedging~~these ~~margin~~customers ~~requirements,~~pay ~~customer~~their ~~credit~~annual ~~balances~~estimated heating bill in 12 monthly installments. Typically, ~~accounts~~these ~~payable~~plans begin before the heating season and ~~accrued~~a ~~expenses.~~liability ~~Our cash~~is ~~flow~~created ~~from~~as ~~operations~~payments ~~for~~exceed deliveries. During the ~~nine~~three months ended ~~June~~December 3031, ~~2009~~2008, ~~also~~cash ~~benefited~~received from ~~higher~~these ~~earnings~~customers benefited from ~~operations,~~a declining ~~when~~home ~~compared~~heating tooil ~~the~~market ~~nine~~as ~~months~~payment ~~ended~~plans ~~June 30,~~for ~~2008.~~these ~~While~~customers had been set prior to the ~~Partnership~~precipitous ~~generated~~drop ~~$100~~in the cost of home heating oil.8 ~~million~~This resulted in ~~cash~~an increase in collections from budget payment plan customers versus expected ~~operations~~deliveries. ~~during~~The ~~the~~timing ~~nine~~of ~~months~~sales ~~ended~~versus ~~June 30,~~collections ~~2009,~~of ~~this~~accounts ~~amount~~receivable ~~was~~within ~~reduced~~the bycomparable anperiods ~~aggregate~~also ~~net~~led ~~increase~~to ina ~~operating~~reduction ~~assets~~in ~~and~~cash ~~liabilities~~received of $2013.05 million. During the ~~nine~~three months ended ~~June~~December 3031, 2009, ~~cash~~a ~~was~~greater ~~used~~proportion toof ~~finance an~~sales ~~increase~~occurred in ~~inventories~~the month of ~~$10.6~~December ~~million~~2009, aswhen wecompared ~~purchased~~to ~~18.0 million~~the ~~gallons~~proportion of ~~home~~sales ~~heating~~made ~~oil~~in ~~for~~December ~~our~~2008, ~~fiscal~~in ~~2010~~relation ~~fall~~to ~~and~~the ~~winter~~three ~~needs.~~months ~~Cash~~ended ~~was~~December 31, ~~also~~2008. ~~used~~This toresulted ~~fund~~in ~~home~~an ~~heating~~increase ~~oil~~in ~~purchases~~accounts ~~for~~receivable ~~customers~~that onwere ~~our~~not ~~budget~~due ~~payment~~for ~~plan.~~payment ~~Approximately~~until ~~35%~~the ofnext ~~our~~quarter ~~customers~~according ~~are~~to onthe aPartnership’s ~~budget~~credit ~~payment~~terms. ~~plan~~While ~~and~~cash ~~these~~flow ~~customers~~generated ~~pay~~from ~~their~~earnings ~~annual~~declined ~~estimated~~by ~~heating~~$10.4 ~~bill~~million infor 12the ~~monthly~~three ~~installments.~~months ~~Typically~~ended December 31, ~~these~~2009, ~~plans~~when ~~begin~~compared ~~before~~to the ~~heating~~three ~~season~~months ~~and~~ended aDecember 31, 2008, ~~liability~~cash isexpenditures ~~created~~for asinventory ~~payments exceed~~purchases ~~deliveries~~were lower by $11.6 Asmillion. ~~the~~To take advantage of favorable home heating ~~season~~oil ~~progressed~~prices in the spot and ~~deliveries~~futures ~~made~~market ~~exceeded~~prior ~~cash~~to ~~received,~~the ~~cash~~beginning ~~expenditures~~of ~~for~~fiscal ~~budget~~2010, ~~customers~~we ~~exceeded~~increased ~~receipts~~our byinventory ~~$24.8~~levels ~~million.~~which ~~Accounts~~lowered our ~~receivable~~need ~~declined~~to ~~and~~purchase ~~provided~~inventory ~~$4.4~~during ~~million~~the inthree ~~cash.~~months ~~Changes in~~ended ~~other~~December 31, ~~assets~~2009, ~~and~~when ~~liabilities~~compared ~~provided~~to ~~$11.0~~the ~~million~~three inmonths ~~cash~~ended December 31, 2008.

~~For~~29 the nine months ended June 30, 2008, cash used in operating activities was $18.3 million, as the cash generated from business operations of $65.8 million and lower product inventory purchases of $30.8 million were more than offset by the increase in accounts receivable of $84.0 million, and a decline in customer credit balances of $39.0 million and other net changes in operating assets and liabilities of $8.1 million. Accounts receivable rose due not only to the seasonal nature of our business but also as a result of the increase in the wholesale cost for home heating oil. As described above, customer credit balances will normally decline during the winter, but the decline was accelerated by the rapid increase in the cost for home heating oil during fiscal 2008. For certain budget customers, their budget payments were based on a lower home heating oil cost and as deliveries were made at a higher per gallon cost, their credit balance declined faster than expected.

Investing Activities

During the ~~nine~~three months ended ~~June~~December 3031, 2009, our capital expenditures totaled $21.56 million, as we invested in computer hardware and software ($0.86 million), refurbished certain physical plants ($0.41 million) and made additions to our fleet ~~($1.3 million). We also completed one acquisition for $3.3 million, net of working capital credits of $0.7 million. We allocated $3.4 million of the gross purchase to intangible assets~~ and ~~$0.6~~other ~~million~~equipment ~~to fleet. During the nine months ended June 30, 2008, we spent~~ ($~~2.2 million for fixed assets, completed four acquisitions for $1.7 million and received $~~0.49 million ~~from the sale of certain fixed assets~~).

During the three months ended December 31, 2008, we spent $0.8 million for fixed assets and received $0.1 million from the sale of certain assets as we invested in computer hardware and software ($0.2 million), refurbished certain physical plants ($0.1 million) and made additions to our fleet and other equipment ($0.4 million). We also completed one acquisition for $3.9 million and allocated $3.3 million of the gross purchase to intangible assets and $0.6 million to fleet. We paid $3.2 million in cash and assumed net working capital credits of $ 0.7 million.

Financing Activities

During the ~~nine~~three months ~~ended~~of ~~June 30,~~fiscal ~~2009~~2010, the Partnership repurchased ~~$36~~ 4.3 million ~~face~~common ~~value~~units offor ~~its 10~~$16.~~25%~~9 ~~Senior~~million ~~Notes~~in ~~due February~~connection ~~2013~~with ~~for~~our ~~$26.3~~unit ~~million~~repurchase plan program and paid distributions to our unit holders of $105.31 million. ~~During~~We ~~fiscal 2009, we~~ did not borrow under our revolving credit facility but had letters-of-credit outstanding under the facility.

~~For~~During the ~~nine~~three months ended ~~June~~December 3031, 2008, wethe ~~borrowed~~Partnership ~~and~~repurchased ~~subsequently repaid~~ $5710.2 0 million ~~under~~in ~~our~~face ~~revolving~~value ~~credit~~of ~~facility~~its ~~and~~10.25% ~~had letters-of-credit~~Senior ~~outstanding~~Notes ~~under~~due ~~the~~February ~~facility~~2013 for $6.4 million.

FINANCING AND SOURCES OF LIQUIDITY

Liquidity and Capital Resources

Our ability to satisfy our financial obligations depends on our future performance, which will be subject to prevailing economic, financial, business and weather conditions, the ability to pass on the full impact of high wholesale heating oil prices to customers, the effects of high net customer attrition, conservation and other economic and geo-political factors, most of which are beyond our control. In the near term, capital requirements are expected to be provided by cash flows from operating activities, cash on hand at ~~June~~December 3031, 2009, or a combination thereof. To the extent future capital requirements exceed cash on hand plus cash flows from operating activities, we anticipate that working capital will be financed by a our revolving credit facility.

InOur ~~July 2009, we entered into an amended and restated~~ asset based revolving credit facility ~~with a group of lenders, that expires in July 2012 and which~~ provides us with the ability to borrow up to $240 million ($290 million during the heating season from November through April of each year) for working capital purposes (subject to certain borrowing base limitations and coverage ratios), including the issuance of up to $100.0 million in letters of credit. The Partnership can increase the facility size by $50 million without the consent of the bank group. However, ~~The~~the bank group is not obligated to fund the $50 million increase. If the bank group elects not to fund the increase, the Partnership can add additional lenders to the group, with the consent of the Agent, which shall not be unreasonably withheld. ~~During~~Obligations ~~this~~under ~~past~~the ~~heating~~revolving ~~season,~~credit wefacility ~~did~~are ~~not~~secured ~~borrow~~by ~~under~~liens on substantially all of our ~~previous~~assets ~~credit~~including ~~facility~~accounts receivable, inventory, general intangibles, real property, fixtures and equipment. As of ~~June~~December 3031, 2009, $4540.68 million in letters of credit were outstanding, of which $39.72 million are for current and future insurance reserves and bonds and $51.96 million are for seasonal inventory purchases and other working capital purposes. ~~Obligations under~~We ~~the~~have ~~new~~reduced ~~revolving~~our reliance ~~credit facility are secured by liens~~ on ~~substantially~~letters ~~all~~ of ~~our~~credit ~~assets~~for ~~including~~inventory ~~accounts~~purchases ~~receivable,~~as ~~inventory,~~we ~~general~~have ~~intangibles,~~increased ~~real~~our ~~property,~~trade ~~fixtures~~credit ~~and~~to ~~equipment~~over $28.0 million.

Under the terms of the credit facility, we must maintain at all times either availability (borrowing base less amounts borrowed and letters of credit issued) of $43.5 million (15% of the maximum facility size) or a fixed charge coverage ratio (as defined in the credit agreement) of not less than 1.~~1 to 1~~1x.0. As of ~~June~~December 3031, 2009, availability, as defined in the amended and restated credit agreement, was $~~194~~196.40 million and the Partnership was in compliance with ~~this~~the fixed charge coverage ratio. The fixed charge coverage ratio is calculated based upon Adjusted EBITDA. In the event that the Partnership is not able to comply with these covenants it could have a material adverse effect on the Partnership’s liquidity and results of its operations.

~~Annual~~On January 15, 2010, the Partnership announced that it had elected to redeem $50.0 million of its outstanding 10.25% Senior Notes due in 2013 at a price equal to 101.708% of face value with a redemption date of February 19, 2010. The Partnership’s scheduled interest payments on our 10.25% Senior Notes for the remainder of fiscal 2010 are $11.0 million and maintenance capital expenditures for fixed assets are estimated to be approximately $3.0 to $5.0 million, excluding the capital requirements for leased fleet. Based on the funding levels required by the Pension Protection Act of 2006, and certain actuarial assumptions, we estimate that the Partnership will ~~be required to~~ make ~~minimum~~ cash contributions to fund its frozen defined benefit pension obligations of atapproximately ~~least~~$12.2 million for the balance of fiscal 2010. We anticipate paying distributions of approximately $1815.06 million ~~over~~for the ~~next~~remainder ~~five~~of ~~years~~fiscal 2010 and, we plan to purchase the remaining balance (2.6 million units) authorized under our unit repurchase plan. In addition, we will continue to seek strategic acquisitions.

In30 July 2009, the Board of Directors of the Partnership’s General Partner authorized both the repurchase of up to $20 million in face amount of the Partnership’s 10.25% notes due 2013 and up to 7.5 million of the Partnership’s common units. Repurchases may be made from time-to-time in the open market, in privately negotiated transactions or in such other manner 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.

Partnership Distributions

Commencing with the fiscal quarter ended December 31, 2008, we are required to make distributions in an amount equal to our Available Cash, as defined in our Partnership Agreement, no more than 45 days after the end of each fiscal quarter, to holders of record on the applicable record dates. Available Cash, as defined in our Partnership Agreement, generally means all cash on hand at the end of the relevant fiscal quarter less the amount of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business, the payment of debt principal and interest and for distributions during the next four quarters. The Board of Directors of our general partner reviews the level of Available Cash each quarter based upon information provided by management.

On July 22, 2009, we declared a quarterly distribution of $0.0675 per unit, or $0.27 on an annualized basis, on all common units and general partner units in respect of the second quarter of fiscal 2009 payable on August 14, 2009 to holders of record on August 8, 2009. The total quarterly distribution is $5.1 million.

~~Available Cash from operating surplus (as defined in our~~ Partnership ~~Agreement)~~Distribution ~~will~~Provisions ~~be distributed in the following manner:~~

~~First~~We are required to make distributions in an amount equal to our Available Cash, ~~100%~~as defined in our Partnership Agreement, no more than 45 days after the end of each fiscal quarter, to holders of record on the applicable record dates. Available Cash, as defined in our Partnership Agreement, generally means all ~~common~~cash ~~units~~on hand at the end of the relevant fiscal quarter less the amount of cash reserves established by the Board of Directors of our general partner in its reasonable discretion for future cash requirements. These reserves are established for the proper conduct of our business, ~~pro~~including ~~rata~~acquisitions, ~~until~~the ~~there~~payment ~~has~~of ~~been~~debt principal ~~distributed~~and interest and for distributions during the next four quarters and to ~~each~~comply ~~common~~with ~~unit~~applicable anlaws ~~amount~~and ~~equal~~the terms of any debt agreements or other agreements to which we are subject. Under the terms of our credit facility, the Partnership must have a fixed charge coverage ratio of 1.15x to pay the minimum quarterly distribution of $0.0675. ~~for~~Any distribution in excess of the minimum quarterly distribution requires the Partnership to have a fixed charge coverage ratio of 1.25x. These tests restrict the amount of cash that the Partnership can use to pay distributions with respect to any fiscal quarter;. The Board of Directors of our general partner reviews the level of Available Cash each quarter based upon information provided by management.

~~Second~~On January 21, ~~100% to all common units~~2010, ~~pro~~the ~~rata,~~Partnership ~~until~~declared ~~there~~a ~~has~~quarterly ~~been distributed~~distribution toof ~~each~~$0.0725 per common unit (an increase ~~amount equal to any arrearages in the payment~~ of ~~the~~$0.005 ~~minimum~~per ~~quarterly~~common ~~distribution~~unit), ~~for~~payable ~~prior~~on ~~quarters~~February 12 ~~(commencing~~to ~~with~~holders ~~the~~of ~~quarter~~record ~~ended~~on ~~December~~February 314, ~~2008);~~2010.

Third, 100% to all general partner units, pro rata, until there has been distributed to each general partner unit an amount equal to the minimum quarterly distribution;

Fourth, 90% to all common units, pro rata, and 10% to all general partner units, pro rata, until each common unit has received the first target distribution of $0.1125; and

Finally, 80% to all common units, pro rata, and 20% to all general partner units, pro rata.

Distributions of available cash from capital surplus (as defined in our Partnership Agreement) will be made 100% on all units, pro rata, until each common unit that was issued and outstanding on the closing date of our recapitalization receives distributions equal to $2.25 and, thereafter, all distributions from capital surplus will be distributed as if they were from operating surplus.

Contractual Obligations and Off-Balance Sheet Arrangements

There has been no material change to Contractual Obligations and Off-Balance Sheet Arrangements ~~table~~ since September 30, ~~2008~~2009, and therefore, the table has not been included in this Form 10-Q.

Recent Accounting Pronouncements

In the first quarter of fiscal ~~2009~~ 2010, the Partnership adopted the provisions of FASB ~~Statement~~ASC 805-10 Business Combinations (SFAS No. ~~157~~141R). ~~“Fair~~This ~~Value~~standard ~~Measurements”~~establishes ~~(See footnote~~in 2.a ~~Summary~~business ofcombination ~~Significant~~principles ~~Accounting~~and ~~Policies~~requirements –for ~~Derivatives~~how an acquirer recognizes and ~~Hedging~~measures –identifiable assets ~~Disclosures~~acquired, goodwill acquired, liabilities assumed, and ~~Fair~~any ~~Value~~noncontrolling ~~Measurements)~~interests.

In the second quarter of fiscal 2009, the Partnership adopted the provisions of FASB Statement No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (See footnote 2. Summary of Significant Accounting Policies – Derivatives and Hedging – Disclosures and Fair Value Measurements).

In the third quarter of fiscal 2009, the Partnership adopted the provisions of FASB Statement No. 165 “Subsequent Events” (See footnote 9. Subsequent Events).

The following new accounting standard is currently being evaluated by the Partnership, and is more fully described in Note 2. Summary of Significant Accounting Policies – Recent Accounting Pronouncements, of the consolidation financial statements:

• Statement No. 141 (revised 2007), Business Combinations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk primarily through our bank credit facilities. We utilize these borrowings to meet our working capital needs.

At ~~June~~December 3031, 2009, we had outstanding borrowings totaling $~~137~~132.15 million (excluding discounts and premiums), none of which is subject to variable interest rates.

We also selectively use derivative financial instruments to manage our exposure to market risk related to changes in the current and future market price of home heating oil. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Sensitivity analysis is a technique used to evaluate the impact of hypothetical market value changes. Based on a hypothetical ten percent increase in the cost of product at December 31, 2009, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $11.0 million to a fair market value of $29.6 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $7.0 million to a fair market value of $11.6 million.

market value changes. Based on a hypothetical ten percent increase in the cost of product at June 30, 2009, the potential impact on our hedging activity would be to increase the fair market value of these outstanding derivatives by $4.3 million to a fair market value of $12.2 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair market value of these outstanding derivatives by $2.1 million to a fair market value of $5.8 million.

Item 4.

Controls and Procedures

(a)	Evaluation of disclosure controls and procedures.

The General Partner’s principal executive officer and its principal financial officer evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of ~~June~~December 3031, 2009. Based on that evaluation, such principal executive officer and principal financial officer concluded that the Partnership’s disclosure controls and procedures were effective as of ~~June~~December 3031, 2009 at the reasonable level of assurance. For purposes of Rule 13a-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required ~~to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a~~ et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)	Change in Internal Control over Financial Reporting.

No change in the Partnership’s internal control over financial reporting occurred during the Partnership’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the Partnership’s internal control over financial reporting.

(c) The ~~general~~General ~~partner~~Partner and the Partnership believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and the principal executive officer and principal financial officer of our general partner have concluded, as of ~~June 30~~December 31, 2009, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.

PART II OTHER INFORMATION

Item 1

Legal Proceedings

OnIn ~~or about October 21, 2004, a purported class action lawsuit on behalf of a purported class of unitholders was filed against~~ the ~~Partnership~~opinion ~~and various subsidiaries and officers and directors in the United States District Court~~ of ~~the District of Connecticut entitled Carter v. Star Gas Partners~~management, ~~L.P.,~~we ~~et.~~are ~~al.,~~not ~~No. 3:04-cv-01766-IBA,~~a ~~et.al.~~party ~~Subsequently,~~to 16any ~~additional class action complaints~~litigation, ~~alleging~~which ~~the~~individually ~~same~~ or ~~substantially similar claims, were filed~~ in the ~~same~~aggregate ~~district~~could ~~court.~~reasonably ~~The~~be ~~class~~expected ~~actions~~to have ~~were~~a ~~consolidated~~material ~~into~~adverse ~~one~~effect ~~consolidated~~on ~~amended~~our ~~complaint.~~results ~~For information concerning the procedural history and current status~~ of ~~this lawsuit~~operations, ~~see~~financial ~~Note~~position ~~8—Commitments~~or ~~and Contingencies~~liquidity.

In the event that the above action is decided adversely to us, it could have a material effect on our results of operations, financial condition and liquidity. The Partnership has not accrued any amount for this action because, based on the court’s judgment of dismissal, we believe an unfavorable outcome is not probable.

In the opinion of management, except as described above we are not a party to any litigation, which individually or in the aggregate could reasonably be expected to have a material adverse effect on our results of operations, financial position or liquidity. (See Note 8 – Commitments and Contingencies)

Item 1A

Risk Factors

An investment in the Partnership involves a high degree of risk, including the following factors:

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2008~~2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing the Partnership. Other unknown or unpredictable factors could also have material adverse effects on future results.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

See Note 2. to the Consolidated Financial Statements for information concerning the Partnership’s repurchase of common units in the three months ended December 31, 2009.

Item 6.

Exhibits

(a)	Exhibits Included Within:

31.1		Rule 13a-14(a) Certification, Star Gas Partners, L.P.
31.2		Rule 13a-14(a) Certification, Star Gas Finance Company
31.3		Rule 13a-14(a) Certification, Star Gas Partners, L.P.
31.4		Rule 13a-14(a) Certification, Star Gas Finance Company
32.1		Section 906 Certification.
32.2		Section 906 Certification.
99.5		First Amendment to the Amended and Restated Credit Agreement, dated as of July 2, 2009

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized:

Star Gas Partners, L.P.

(Registrant)


By:		Kestrel Heat LLC AS GENERAL PARTNER

Signature	Title	Date
/s/ RICHARD F. AMBURY	Chief Financial Officer	August 5, 2009
/S/ RICHARD F. AMBURY	Chief Financial Officer	February 3, 2010
Richard F. Ambury	Kestrel Heat LLC
	(Principal Financial Officer)
Signature	Title	Date
/s/ RICHARD G. Oakley	Vice President - Controller	August 5, 2009
/S/ RICHARD G. OAKLEY	Vice President - Controller	February 3, 2010
Richard G. Oakley	Kestrel Heat LLC
	(Principal Accounting Officer)
Star Gas Finance Company (Registrant)
Signature	Title	Date
/s/ RICHARD F. AMBURY	Chief Financial Officer	August 5, 2009
/S/ RICHARD F. AMBURY	Chief Financial Officer	February 3, 2010
Richard F. Ambury	(Principal Financial Officer)
Signature	Title	Date
/s/ RICHARD G. Oakley	Vice President - Controller	August 5, 2009
/S/ RICHARD G. OAKLEY	Vice President - Controller	February 3, 2010
Richard G. Oakley	(Principal Accounting Officer)

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