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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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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 December 31, 2003
| | ------------------------------------------------



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



| | For the transition period from  to
| | ----------------------------------



Commission File Number: 33-98490

Commission File Number: 333-103873



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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)



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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.  Yes  x  No ̈



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



At January 22, 2004, the registrants had units and shares of each issuers classes of common stock outstanding as follows:



|                         |  |                           |  |            |  | 
|------------------------ |  | ------------------------- |  | ---------- |  | 
|Star Gas Partners, L.P.  |  | Common Units              |  | 30,670,528 |  | 
|Star Gas Partners, L.P.  |  | Senior Subordinated Units |  | 3,245,696  |  | 
|Star Gas Partners, L.P.  |  | Junior Subordinated Units |  | 345,364    |  | 
|Star Gas Partners, L.P.  |  | General Partner Units     |  | 325,729    |  | 
|Star Gas Finance Company |  | Common Shares             |  | 100        |  | 



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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

INDEX TO FORM 10-Q



|        |  |                                                                                                                              |  |      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | -----
|Part I  |  | Financial Information                                                                                                        |  | Page 
|        |  |                                                                                                                             
|        |  | Item 1Condensed Consolidated Financial Statements                                                                           |  |      
|        |  |                                                                                                                             
|        |  | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2003                                         |  | 3    
|        |  |                                                                                                                             
|        |  | Condensed Consolidated Statements of Operations for the three months ended December 31, 2002 and December 31,
2003           |  | 4    
|        |  |                                                                                                                             
|        |  | Condensed Consolidated Statements of Comprehensive Income for the three months ended December 31, 2002 and
December 31, 2003 |  | 5    
|        |  |                                                                                                                             
|        |  | Condensed Consolidated Statement of Partners Capital for the three months ended December 31,
2003                           |  | 6    
|        |  |                                                                                                                             
|        |  | Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2002 and December 31,
2003           |  | 7    
|        |  |                                                                                                                             
|        |  | Notes to Condensed Consolidated Financial Statements                                                                         |  | 8-17 
|        |  |                                                                                                                             
|        |  | Item 2Managements Discussion and Analysis of Financial Condition and Results of
Operations                                 |  | 18-26
|        |  |                                                                                                                             
|        |  | Item 3Quantitative and Qualitative Disclosures About Market Risk                                                            |  | 27   
|        |  |                                                                                                                             
|        |  | Item 4Controls and Procedures                                                                                               |  | 27   
|        |  |                                                                                                                             
|Part II |  | Other Information:                                                                                                           |  |      
|        |  |                                                                                                                             
|        |  | Item 6Exhibits and Reports on Form 8-K                                                                                      |  | 28   
|        |  |                                                                                                                             
|        |  | Signatures                                                                                                                   |  | 29   



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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



|                                                                  |  |               |         |   |               |   |           |  
|----------------------------------------------------------------- |  | ------------- | ------- | - | ------------- | - | --------- | -
|                                                                  |  | Sept. 30,2003 |         |   | Dec. 31, 2003 |  
|(in thousands)                                                    |  |               |         |   | (unaudited)   |  
|                                                                  |  |              
|ASSETS                                                            |  |               |         |   |               |   |           |  
|Current assets                                                    |  |               |         |   |               |   |           |  
|Cash and cash equivalents                                         |  | $             | 10,111  |   |               | $ | 14,241    |  
|Receivables, net of allowance of $9,560 and $10,043, respectively |  |               | 105,639 |   |               |   | 189,430   |  
|Inventories                                                       |  |               | 42,391  |   |               |   | 62,890    |  
|Prepaid expenses and other current assets                         |  |               | 52,968  |   |               |   | 44,989    |  
|                                                                  |  |               |         |   |               |   |           |  
|Total current assets                                              |  |               | 211,109 |   |               |   | 311,550   |  
|                                                                  |  |               |         |   |               |   |           |  
|                                                                  |  |              
|Property and equipment, net                                       |  |               | 262,301 |   |               |   | 259,207   |  
|Long-term portion of accounts receivables                         |  |               | 7,145   |   |               |   | 7,806     |  
|Goodwill                                                          |  |               | 278,857 |   |               |   | 278,857   |  
|Intangibles, net                                                  |  |               | 201,784 |   |               |   | 194,368   |  
|Deferred charges and other assets, net                            |  |               | 14,414  |   |               |   | 17,799    |  
|                                                                  |  |               |         |   |               |   |           |  
|Total Assets                                                      |  | $             | 975,610 |   |               | $ | 1,069,587 |  
|                                                                  |  |               |         |   |               |   |           |  
|                                                                  |  |              
|LIABILITIES AND PARTNERS CAPITAL                                 |  |               |         |   |               |   |           |  
|Current liabilities                                               |  |               |         |   |               |   |           |  
|Accounts payable                                                  |  | $             | 31,026  |   |               | $ | 53,782    |  
|Working capital facility borrowings                               |  |               | 12,000  |   |               |   | 78,500    |  
|Current maturities of long-term debt                              |  |               | 22,847  |   |               |   | 21,571    |  
|Accrued expenses                                                  |  |               | 83,197  |   |               |   | 88,221    |  
|Unearned service contract revenue                                 |  |               | 32,036  |   |               |   | 36,941    |  
|Customer credit balances                                          |  |               | 77,558  |   |               |   | 62,354    |  
|                                                                  |  |               |         |   |               |   |           |  
|Total current liabilities                                         |  |               | 258,664 |   |               |   | 341,369   |  
|                                                                  |  |               |         |   |               |   |           |  
|                                                                  |  |              
|Long-term debt                                                    |  |               | 499,341 |   |               |   | 501,845   |  
|Other long-term liabilities                                       |  |               | 27,829  |   |               |   | 27,575    |  
|                                                                  |  |              
|Partners capital (deficit)                                       |  |               |         |   |               |   |           |  
|Common unitholders                                                |  |               | 210,636 |   |               |   | 210,071   |  
|Subordinated unitholders                                          |  |               | (57     | ) |               |   | 39        |  
|General partner                                                   |  |               | (3,082  | ) |               |   | (3,075    | )
|Accumulated other comprehensive loss                              |  |               | (17,721 | ) |               |   | (8,237    | )
|                                                                  |  |               |         |   |               |   |           |  
|Total Partners capital                                           |  |               | 189,776 |   |               |   | 198,798   |  
|                                                                  |  |               |         |   |               |   |           |  
|                                                                  |  |              
|Total Liabilities and Partners Capital                           |  | $             | 975,610 |   |               | $ | 1,069,587 |  
|                                                                  |  |               |         |   |               |   |           |  



See accompanying notes
to condensed consolidated financial statements.



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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                                                                      |  |                                |         |   |      |   |         |  
|----------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                      |  | Three Months EndedDecember 31, |        
|(in thousands, except per unit data)                                                                  |  | 2002                           |         |   | 2003 |  
|                                                                                                      |  |                               
|Sales:                                                                                                |  |                                |         |   |      |   |         |  
|Product                                                                                               |  | $                              | 334,712 |   |      | $ | 371,866 |  
|Installations, service and appliances                                                                 |  |                                | 50,268  |   |      |   | 61,996  |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|Total sales                                                                                           |  |                                | 384,980 |   |      |   | 433,862 |  
|                                                                                                      |  |                               
|Cost and expenses:                                                                                    |  |                                |         |   |      |   |         |  
|Cost of product                                                                                       |  |                                | 201,327 |   |      |   | 233,326 |  
|Cost of installations, service and appliances                                                         |  |                                | 54,020  |   |      |   | 60,706  |  
|Delivery and branch expenses                                                                          |  |                                | 74,514  |   |      |   | 83,993  |  
|Depreciation and amortization expenses                                                                |  |                                | 12,848  |   |      |   | 14,545  |  
|General and administrative expenses                                                                   |  |                                | 12,849  |   |      |   | 9,411   |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|Operating income                                                                                      |  |                                | 29,422  |   |      |   | 31,881  |  
|                                                                                                      |  |                               
|Interest expense                                                                                      |  |                                | (9,031  | ) |      |   | (11,727 | )
|Interest income                                                                                       |  |                                | 661     |   |      |   | 833     |  
|Amortization of debt issuance costs                                                                   |  |                                | (437    | ) |      |   | (1,269  | )
|                                                                                                      |  |                                |         |   |      |   |         |  
|Income before income taxes and cumulative effect of change in accounting principle                    |  |                                | 20,615  |   |      |   | 19,718  |  
|Income tax expense                                                                                    |  |                                | 675     |   |      |   | 406     |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|Income before cumulative effect of change in accounting principle                                     |  |                                | 19,940  |   |      |   | 19,312  |  
|                                                                                                      |  |                               
|Cumulative effect of change in accounting principle for adoption of SFAS No. 142, net of income taxes |  |                                | (3,901  | ) |      |   |        |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|Net income                                                                                            |  | $                              | 16,039  |   |      | $ | 19,312  |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                                      |  |                               
|General Partners interest in net income                                                              |  | $                              | 159     |   |      | $ | 194     |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                                      |  |                               
|Limited Partners interest in net income                                                              |  | $                              | 15,880  |   |      | $ | 19,118  |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                                      |  |                               
|Basic and diluted net income per Limited Partner unit                                                 |  | $                              | 0.49    |   |      | $ | 0.56    |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|                                                                                                      |  |                               
|Weighted average number of Limited Partner units outstanding:                                         |  |                                |         |   |      |   |         |  
|Basic                                                                                                 |  |                                | 32,449  |   |      |   | 34,158  |  
|                                                                                                      |  |                                |         |   |      |   |         |  
|Diluted                                                                                               |  |                                | 32,564  |   |      |   | 34,158  |  
|                                                                                                      |  |                                |         |   |      |   |         |  



See accompanying notes
to condensed consolidated financial statements.



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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)



|                                          |  |                                |        |      |   |       
|----------------------------------------- |  | ------------------------------ | ------ | ---- | - | ------
|                                          |  | Three Months EndedDecember 31,
|(in thousands)                            |  | 2002                           |        | 2003
|                                          |  |                               
|Net income                                |  | $                              | 16,039 |      | $ | 19,312
|Other comprehensive income:               |  |                                |        |      |   |       
|Unrealized gain on derivative instruments |  |                                | 480    |      |   | 9,484 
|                                          |  |                                |        |      |   |       
|                                          |  |                               
|Comprehensive income                      |  | $                              | 16,519 |      | $ | 28,796
|                                          |  |                                |        |      |   |       



Reconciliation of Accumulated Other
Comprehensive Income (Loss)



|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|----------------------------------------- |  | ---------------------- | ------- | - | --------------------- | - | ------ | ----- |  | - | ------- | -
|                                          |  | PensionPlanObligations |         |   | DerivativeInstruments |   |        | Total | 
|(in thousands)                            |  |                        |        
|                                          |  |                        |        
|Balance as of September 30, 2002          |  | $                      | (15,745 | ) |                       | $ | 4,918  |       |  | $ | (10,827 | )
|                                          |  |                        |        
|Reclassification to earnings              |  |                        |        |   |                       |   | (2,702 | )     |  |   | (2,702  | )
|Unrealized gain on derivative instruments |  |                        |        |   |                       |   | 3,182  |       |  |   | 3,182   |  
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|Other comprehensive income                |  |                        |        |   |                       |   | 480    |       |  |   | 480     |  
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|                                          |  |                        |        
|Balance as of December 31, 2002           |  | $                      | (15,745 | ) |                       | $ | 5,398  |       |  | $ | (10,347 | )
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|                                          |  |                        |        
|Balance as of September 30, 2003          |  | $                      | (17,214 | ) |                       | $ | (507   | )     |  | $ | (17,721 | )
|                                          |  |                        |        
|Reclassification to earnings              |  |                        |        |   |                       |   | 25     |       |  |   | 25      |  
|Unrealized gain on derivative instruments |  |                        |        |   |                       |   | 9,459  |       |  |   | 9,459   |  
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|Other comprehensive income                |  |                        |        |   |                       |   | 9,484  |       |  |   | 9,484   |  
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  
|                                          |  |                        |        
|Balance as of December 31, 2003           |  | $                      | (17,214 | ) |                       | $ | 8,977  |       |  | $ | (8,237  | )
|                                          |  |                        |         |   |                       |   |        |       |  |   |         |  



See accompanying notes
to condensed consolidated financial statements.



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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF PARTNERS CAPITAL

(unaudited)



|                                        |  |        |  |          |  |         |  |                 |  |        |         |   |             |   |        |             |  |   |                 |   |  |                                          |        |   |                   |   |         |   |  |   |         |  
|--------------------------------------- |  | ------ |  | -------- |  | ------- |  | --------------- |  | ------ | ------- | - | ----------- | - | ------ | ----------- |  | - | --------------- | - |  | ---------------------------------------- | ------ | - | ----------------- | - | ------- | - |  | - | ------- | -
|(in thousands, except per unit amounts) |  | Common |  | Sr. Sub. |  | Jr. Sub |  | General Partner |  | Common |         |   | Senior Sub. |   |        | Junior Sub. |  |   | General Partner |   |  | Accum. Other Comprehensive Income (Loss) |        |   | Partners Capital |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Balance as of September 30, 2003        |  | 30,671 |  | 3,142    |  | 345     |  | 326             |  | $      | 210,636 |   |             | $ | 1,571  |             |  | $ | (1,628          | ) |  | $                                        | (3,082 | ) |                   | $ | (17,721 | ) |  | $ | 189,776 |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Net income                              |  |        |  |          |  |         |  |                 |  |        | 17,069  |   |             |   | 1,846  |             |  |   | 203             |   |  |                                          | 194    |   |                   |   |         |   |  |   | 19,312  |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Other comprehensive income, net         |  |        |  |          |  |         |  |                 |  |        |         |   |             |   |        |             |  |   |                 |   |  |                                          |        |   |                   |   | 9,484   |   |  |   | 9,484   |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Unit compensation expense               |  |        |  |          |  |         |  |                 |  |        |         |   |             |   | 52     |             |  |   |                 |   |  |                                          |        |   |                   |   |         |   |  |   | 52      |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Distributions ($0.575 per unit)         |  |        |  |          |  |         |  |                 |  |        | (17,634 | ) |             |   | (1,806 | )           |  |   | (199            | ) |  |                                          | (187   | ) |                   |   |         |   |  |   | (19,826 | )
|                                        |  |        |  |          |  |         |  |                 |  |       
|                                        |  |        |  |          |  |         |  |                 |  |        |         |   |             |   |        |             |  |   |                 |   |  |                                          |        |   |                   |   |         |   |  |   |         |  
|                                        |  |        |  |          |  |         |  |                 |  |       
|Balance as of December 31, 2003         |  | 30,671 |  | 3,142    |  | 345     |  | 326             |  | $      | 210,071 |   |             | $ | 1,663  |             |  | $ | (1,624          | ) |  | $                                        | (3,075 | ) |                   | $ | (8,237  | ) |  | $ | 198,798 |  
|                                        |  |        |  |          |  |         |  |                 |  |        |         |   |             |   |        |             |  |   |                 |   |  |                                          |        |   |                   |   |         |   |  |   |         |  



See accompanying notes
to condensed consolidated financial statements.





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STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)



|                                                                                            |  |                                 |         |   |      |   |         |  
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                            |  | Three Months Ended December 31, |        
|(in thousands)                                                                              |  | 2002                            |         |   | 2003 |  
|                                                                                            |  |                                
|Cash flows provided by (used in) operating activities:                                      |  |                                 |         |   |      |   |         |  
|Net income                                                                                  |  | $                               | 16,039  |   |      | $ | 19,312  |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                                 |         |   |      |   |         |  
|Depreciation and amortization                                                               |  |                                 | 12,848  |   |      |   | 14,545  |  
|Amortization of debt issuance cost                                                          |  |                                 | 437     |   |      |   | 1,269   |  
|Unit compensation expense                                                                   |  |                                 | 472     |   |      |   | 52      |  
|Provision for losses on accounts receivable                                                 |  |                                 | 1,383   |   |      |   | 1,555   |  
|Gain on sales of fixed assets, net                                                          |  |                                 | (16     | ) |      |   | (84     | )
|Cumulative effect of change in accounting principle for the adoption of SFAS No. 142        |  |                                 | 3,901   |   |      |   |        |  
|Changes in operating assets and liabilities:                                                |  |                                 |         |   |      |   |         |  
|Increase in receivables                                                                     |  |                                 | (89,325 | ) |      |   | (85,360 | )
|Increase in inventories                                                                     |  |                                 | (15,564 | ) |      |   | (20,419 | )
|Decrease in other assets                                                                    |  |                                 | 1,493   |   |      |   | 16,211  |  
|Increase in accounts payable                                                                |  |                                 | 29,746  |   |      |   | 22,645  |  
|Decrease in other current and long-term liabilities                                         |  |                                 | (8,162  | ) |      |   | (5,380  | )
|                                                                                            |  |                                 |         |   |      |   |         |  
|Net cash provided by (used in) operating activities                                         |  |                                 | (46,748 | ) |      |   | (35,654 | )
|                                                                                            |  |                                
|Cash flows provided by (used in) investing activities:                                      |  |                                 |         |   |      |   |         |  
|Capital expenditures                                                                        |  |                                 | (4,522  | ) |      |   | (2,578  | )
|Proceeds from sales of fixed assets                                                         |  |                                 | 192     |   |      |   | 532     |  
|Acquisitions                                                                                |  |                                 | (512    | ) |      |   | (1,785  | )
|                                                                                            |  |                                 |         |   |      |   |         |  
|Net cash used in investing activities                                                       |  |                                 | (4,842  | ) |      |   | (3,831  | )
|                                                                                            |  |                                
|Cash flows provided by (used in) financing activities:                                      |  |                                 |         |   |      |   |         |  
|Working capital facility borrowings                                                         |  |                                 | 69,000  |   |      |   | 66,500  |  
|Working capital facility repayments                                                         |  |                                 | (3,195  | ) |      |   |        |  
|Acquisition facility borrowings                                                             |  |                                 |        |   |      |   | 1,800   |  
|Acquisition facility repayments                                                             |  |                                 | (700    | ) |      |   |        |  
|Repayment of debt                                                                           |  |                                 | (46,277 | ) |      |   | (67     | )
|Distributions                                                                               |  |                                 | (17,449 | ) |      |   | (19,826 | )
|Increase in deferred charges                                                                |  |                                 | (746    | ) |      |   | (4,792  | )
|                                                                                            |  |                                 |         |   |      |   |         |  
|Net cash provided by financing activities                                                   |  |                                 | 633     |   |      |   | 43,615  |  
|                                                                                            |  |                                
|Net increase (decrease) in cash                                                             |  |                                 | (50,957 | ) |      |   | 4,130   |  
|Cash at beginning of period                                                                 |  |                                 | 61,481  |   |      |   | 10,111  |  
|                                                                                            |  |                                 |         |   |      |   |         |  
|Cash at end of period                                                                       |  | $                               | 10,524  |   |      | $ | 14,241  |  
|                                                                                            |  |                                 |         |   |      |   |         |  



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|1) | Partnership Organization
|-- | ------------------------



Star Gas Partners, L.P. (Star Gas or the Partnership) is a diversified home energy distributor and services provider, specializing
in heating oil, propane, natural gas and electricity. Star Gas is a master limited partnership, which at December 31, 2003 had outstanding 30.7 million common units (NYSE: SGU representing an 88.9% limited partner interest in Star Gas
Partners) and 3.1 million senior subordinated units (NYSE: SGH representing a 9.1% limited partner interest in Star Gas Partners) outstanding. Additional Partnership interests include 0.3 million junior subordinated units (representing a
1.0% limited partner interest) and 0.3 million general partner units (representing a 1.0% general partner interest).



The Partnership is organized as follows:



| |  | Star Gas Propane, L.P. (Star Gas Propane) is the Partnerships operating subsidiary and, together with its direct and indirect subsidiaries, accounts for
substantially all of the Partnerships assets, sales and earnings. Both the Partnership and Star Gas Propane are Delaware limited partnerships that were formed in October 1995 in connection with the Partnerships initial public offering.
The Partnership is the sole limited partner of Star Gas Propane with a 99% limited partnership interest.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The general partner of both the Partnership and Star Gas Propane is Star Gas LLC, a Delaware limited liability company. The Board of Directors of Star Gas LLC is appointed by its
members. For information concerning the members of Star Gas LLC and its Board of Directors see Item 10, Directors and Executive Officers of the Registrant in the Partnerships annual report on Form 10-K for fiscal year ended
September 30, 2003. Star Gas LLC owns an approximate 1% general partner interest in the Partnership and also owns an approximate 1% general partner interest in Star Gas Propane.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnerships propane operations (the propane segment) are conducted through Star Gas Propane and its direct and indirect subsidiaries. Star Gas Propane
primarily markets and distributes propane gas and related products to over 350,000 customers in the Midwest, Northeast, Florida and Georgia.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnerships heating oil operations (the heating oil segment) are conducted through Petro Holdings, Inc. (Petro) and its direct and indirect
subsidiaries. Petro is a Minnesota corporation that is an indirect wholly owned subsidiary of Star Gas Propane. Petro is a retail distributor of home heating oil and serves approximately 539,000 customers in the Northeast and Mid-Atlantic.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Partnerships natural gas and electricity operations (the natural gas and electric reseller segment are conducted through Total Gas & Electric, Inc.
(TG&E), a Florida corporation, that is an indirect wholly-owned subsidiary of Petro. TG&E is an energy reseller that markets natural gas and electricity to residential households in deregulated energy markets in New York, New
Jersey, Florida and Maryland and serves approximately 65,000 residential customers.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Star Gas Finance Company is a direct wholly-owned subsidiary of the Partnership. Star Gas Finance Company serves as the co-issuer, jointly and severally with the Partnership, of the
Partnerships $200 million 101⁄4% Senior Notes issued February 6, 2003, which are due in 2013. The Partnership is dependent on distributions 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|2) | Summary of Significant Accounting Policies
|-- | ------------------------------------------



Basis of Presentation



The Condensed Consolidated Financial Statements include the accounts of Star Gas Partners, L.P., and its subsidiaries. All material intercompany 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. The results of operations for the three month periods ended December 31, 2002 and December 31, 2003 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, 2003.



Inventories



Inventories are stated at the lower of cost or market and are computed on a first-in, first-out basis. At the dates indicated, the components of inventory were as follows (in thousands):



|                                 |  |               |        |              |   |       
|-------------------------------- |  | ------------- | ------ | ------------ | - | ------
|                                 |  | Sept. 30,2003 |        | Dec. 31,2003
|Propane gas and other fuels      |  | $             | 9,262  |              | $ | 11,200
|Propane appliances and equipment |  |               | 5,153  |              |   | 5,039 
|Heating oil and other fuels      |  |               | 11,294 |              |   | 28,217
|Fuel oil parts and equipment     |  |               | 12,852 |              |   | 12,857
|Natural gas                      |  |               | 3,830  |              |   | 5,577 
|                                 |  |               |        |              |   |       
|                                 |  | $             | 42,391 |              | $ | 62,890
|                                 |  |               |        |              |   |       



Property, plant and
equipment, consists of the following (in thousands):



|                               |  |               |         |              |   |        
|------------------------------ |  | ------------- | ------- | ------------ | - | -------
|                               |  | Sept. 30,2003 |         | Dec. 31,2003
|Property, plant and equipment  |  | $             | 375,095 |              | $ | 378,479
|Less: accumulated depreciation |  |               | 112,794 |              |   | 119,272
|                               |  |               |         |              |   |        
|Property and equipment, net    |  | $             | 262,301 |              | $ | 259,207
|                               |  |               |         |              |   |        



Reclassifications



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



Derivatives and
Hedging



The Partnership uses derivative financial
instruments to manage its exposure to market risk related to changes in the current and future market price of home heating oil, propane, and natural gas. The Partnership believes it is prudent to minimize the variability and price risk associated
with the purchase of home heating oil and propane. Accordingly, it is the Partnerships objective to hedge the cash flow variability associated with forecasted purchases of its inventory held for resale through the use of derivative instruments
when appropriate. To a lesser extent, the Partnership also hedges the fair value of inventory on hand or firm commitments to purchase inventory. To meet these objectives, it is the Partnerships policy to enter into various types of derivative
instruments to (i) manage the variability of cash flows resulting from the price risk associated with forecasted purchases of home heating oil, propane, and natural gas and (ii) hedge the downside price risk of firm purchase commitments and in some
cases physical inventory on hand.



Derivatives that are not
designated as hedges must be adjusted to fair value through income. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair value hedge, along with the loss or gain on the hedged asset or
liability or unrecognized firm commitment of the hedged item that is attributable to the hedged risk are recorded in earnings. Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a cash-flow
hedge are recorded in accumulated other comprehensive income, until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of a derivatives change in fair value is immediately recognized
in earnings.





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##### Table of Contents

|2) | Summary of Significant Accounting Policies(continued)
|-- | ------------------------------------------------------



All derivative instruments are recognized on the balance sheet at their fair value. On the date the derivative contract is entered into, the Partnership
designates the derivative as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), or a hedge of a forecasted transaction or the variability of cash flows to be received or paid
related to a recognized asset or liability (cash flow hedge). The Partnership formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Partnership
also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items. When it is
determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Partnership discontinues hedge accounting prospectively. When hedge accounting is discontinued because it is determined that
the derivative no longer qualifies as an effective hedge, the Partnership continues to carry the derivative on the balance sheet at its fair value, and recognizes changes in the fair value of the derivative through current-period earnings.



For the three months ended December 31, 2003, the change in
accumulated other comprehensive income (loss) is principally attributable to the increase in fair value of existing cash flow hedges offset in part by the reclassification of accumulated gains on cash flow hedges that settled during the period.



Goodwill and Other Intangible Assets



SFAS No. 142, Goodwill and Other Intangible Assets requires that
goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.



The Partnership adopted the applicable provisions of SFAS No.
142 on October 1, 2002, and recorded a non-cash charge of $3.9 million to reduce the carrying value of the TG&E segments goodwill in its first fiscal quarter of 2002. This charge was reflected as a cumulative effect of change in accounting
principle in the Partnerships condensed consolidated statement of operations for the three months ended December 31, 2002. The Partnership performs its annual impairment review during its fourth fiscal quarter.



Accounting Policies not yet Adopted



In January 2004, the Financial Accounting Standards Board issued SFAS No.
132 (revised), Employers Disclosures about Pensions and Other Postretirement Benefits. This Statement replaces existing SFAS No. 132, of the same title. All disclosure requirements now required in existing SFAS No. 132 have been
retained in the revised version. The SFAS No. 132 (revised) requires additional disclosures regarding types of plan assets held, investment strategies, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost
(expense). This statement is effective for the Partnerships September 30, 2004, Form 10-K. It is also, effective for the Partnerships interim reporting period beginning January 1, 2004.



|3) | Long-term Debt
|-- | --------------



In December 2003, the heating oil segment entered into a new credit agreement consisting of three facilities totaling $235.0 million having a maturity
date of June 30, 2006. These facilities consist of a $150.0 million revolving credit facility, which is to be used for working capital purposes, a $35.0 million revolving credit facility, which is to be used for the issuance of standby letters of
credit in connection with surety, workers compensation and other financial guarantees, and a $50.0 million revolving credit facility, which is to be used to finance or refinance certain acquisitions and capital expenditures, for the issuance
of letters of credit in connection with acquisitions and, to the extent that there is insufficient availability under the working capital facility. These facilities refinanced and replaced the existing credit agreements, which totaled $193.0
million. The former facilities consisted of a working capital facility and an insurance letter of credit facility that were due to expire on June 30, 2004. These new facilities also replaced the heating oil segments acquisition facility that was due
to convert to a term loan on June 30, 2004.



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##### Table of Contents

|4) | Segment Reporting
|-- | -----------------



The Partnership has three reportable operating segments: retail distribution of heating oil, retail distribution of propane and reselling of natural gas
and electricity. The administrative expenses for the public master limited partnership, Star Gas Partners, have not been allocated to the segments. Management has chosen to organize the enterprise under these three segments in order to leverage the
expertise it has in each industry, allow each segment to continue to strengthen its core competencies and provide a clear means for evaluation of operating results.



The heating oil segment is primarily engaged in the retail distribution of home heating oil, related equipment services and
equipment sales to residential and commercial customers. It operates primarily in the Northeast and Mid-Atlantic states. Home heating oil is principally used by the Partnerships residential and commercial customers to heat their homes and
buildings, and as a result, weather conditions have a significant impact on the demand for home heating oil.



The propane segment is primarily engaged in the retail distribution of propane and related supplies and equipment to residential, commercial, industrial,
agricultural and motor fuel customers, in the Midwest, Northeast, Florida and Georgia. Propane is used primarily for space heating, water heating and cooking by the Partnerships residential and commercial customers and as a result, weather
conditions also have a significant impact on the demand for propane.



The natural gas and electric reseller segment is primarily engaged in offering natural gas and electricity to residential consumers in deregulated energy markets. In deregulated energy markets, customers have a choice in selecting energy
suppliers to power and / or heat their homes; as a result, a significant portion of this segments revenue is directly related to weather conditions. TG&E operates in New York, New Jersey, Maryland and Florida, where competitors range from
independent resellers, like TG&E, to large public utilities.



The public master limited partnership includes the office of the Chief Executive Officer and has the responsibility for maintaining investor relations and investor reporting for the Partnership.



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##### Table of Contents

|4) | Segment Reporting(continued)
|-- | -----------------------------



The following are the condensed statements of operations and balance sheets for each segment as of and for the periods indicated. There were no inter-segment sales.



|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|------------------------------------------------------------------------ |  | ------------------------------- | ------- | ------- | ---- | ------ |  | - | ----------------- | - |  | ------- | ------ | - | ----------- | - | ------- | - | ---- | - | ----------------- |  | - | ------- |  | - | ------ |  | - | ------ | - |  | - | -------
|                                                                         |  | Three Months Ended December 31,
|                                                                         |  | 2002                            |         |         | 2003
|(in thousands) Statements of Operations                                  |  | Heating Oil                     |         | Propane |      | TG&E   |  |   | Partners & Others |   |  | Consol. |        |   | Heating Oil |   | Propane |   | TG&E |   | Partners & Others |  |   | Consol.
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |        
|Sales                                                                    |  | $                               | 294,986 |         | $    | 76,345 |  | $ | 13,649            |   |  | $       |       |   |             | $ | 384,980 |   |      | $ | 316,070           |  | $ | 101,947 |  | $ | 15,845 |  | $ |       |   |  | $ | 433,862
|Cost of sales                                                            |  |                                 | 206,918 |         |      | 36,568 |  |   | 11,861            |   |  |         |       |   |             |   | 255,347 |   |      |   | 225,893           |  |   | 54,384  |  |   | 13,755 |  |   |       |   |  |   | 294,032
|Delivery and branch                                                      |  |                                 | 55,574  |         |      | 18,940 |  |   |                  |   |  |         |       |   |             |   | 74,514  |   |      |   | 60,678            |  |   | 23,315  |  |   |       |  |   |       |   |  |   | 83,993 
|Depreciation & amortization                                              |  |                                 | 8,567   |         |      | 4,157  |  |   | 124               |   |  |         |       |   |             |   | 12,848  |   |      |   | 9,517             |  |   | 4,908   |  |   | 120    |  |   |       |   |  |   | 14,545 
|G & A expense                                                            |  |                                 | 4,381   |         |      | 2,220  |  |   | 2,692             |   |  |         | 3,556  |   |             |   | 12,849  |   |      |   | 3,573             |  |   | 2,402   |  |   | 1,308  |  |   | 2,128  |   |  |   | 9,411  
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|Operating income (loss)                                                  |  |                                 | 19,546  |         |      | 14,460 |  |   | (1,028            | ) |  |         | (3,556 | ) |             |   | 29,422  |   |      |   | 16,409            |  |   | 16,938  |  |   | 662    |  |   | (2,128 | ) |  |   | 31,881 
|                                                                         |  |                                 |         |         |      |        |  |   |                   |  
|Net interest expense (income)                                            |  |                                 | 4,994   |         |      | 3,299  |  |   | 81                |   |  |         | (4     | ) |             |   | 8,370   |   |      |   | 6,176             |  |   | 2,424   |  |   | 75     |  |   | 2,219  |   |  |   | 10,894 
|Amortization of debt issuance costs                                      |  |                                 | 385     |         |      | 52     |  |   |                  |   |  |         |       |   |             |   | 437     |   |      |   | 1,062             |  |   | 41      |  |   |       |  |   | 166    |   |  |   | 1,269  
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|Income (loss) before income taxes                                        |  |                                 | 14,167  |         |      | 11,109 |  |   | (1,109            | ) |  |         | (3,552 | ) |             |   | 20,615  |   |      |   | 9,171             |  |   | 14,473  |  |   | 587    |  |   | (4,513 | ) |  |   | 19,718 
|                                                                         |  |                                 |         |         |      |        |  |   |                   |  
|Income tax expense                                                       |  |                                 | 600     |         |      | 75     |  |   |                  |   |  |         |       |   |             |   | 675     |   |      |   | 331               |  |   | 75      |  |   |       |  |   |       |   |  |   | 406    
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|Income (loss) before cumulative effect of change in accounting principle |  |                                 | 13,567  |         |      | 11,034 |  |   | (1,109            | ) |  |         | (3,552 | ) |             |   | 19,940  |   |      |   | 8,840             |  |   | 14,398  |  |   | 587    |  |   | (4,513 | ) |  |   | 19,312 
|Cumulative effect of change in accounting principle                      |  |                                 |        |         |      |       |  |   | (3,901            | ) |  |         |       |   |             |   | (3,901  | ) |      |   |                  |  |   |        |  |   |        |  |   |       |   |  |   |       
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|Net income (loss)                                                        |  | $                               | 13,567  |         | $    | 11,034 |  | $ | (5,010            | ) |  | $       | (3,552 | ) |             | $ | 16,039  |   |      | $ | 8,840             |  | $ | 14,398  |  | $ | 587    |  | $ | (4,513 | ) |  | $ | 19,312 
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        
|                                                                         |  |                                 |         |         |      |        |  |   |                   |  
|Capital expenditures                                                     |  | $                               | 2,657   |         | $    | 1,840  |  | $ | 25                |   |  | $       |       |   |             | $ | 4,522   |   |      | $ | 853               |  | $ | 1,725   |  | $ |       |  | $ |       |   |  | $ | 2,578  
|                                                                         |  |                                 |         |         |      |        |  |   |                   |   |  |         |        |   |             |   |         |   |      |   |                   |  |   |         |  |   |        |  |   |        |   |  |   |        



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##### Table of Contents

|4) | Segment Reporting(continued)
|-- | -----------------------------



|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|---------------------------------------------- |  | ------------------ | ------- | ----------------- | ------- | - | ------- | ---- |  | -------------------- | ------ |  | ------- | -------- | ---------- |  | - | ------- |  | - | ------- | - | -------------------- | - | ------- | ------- |  | - | ------ |  | - | -------- | - |  | - | ---------
|                                               |  | September 30, 2003 |         | December 31, 2003
|(in thousands) Balance
Sheets                  |  | HeatingOil         |         |                   | Propane |   |         | TG&E |  | Partners &Others (1) |        |  | Consol. |          | HeatingOil |  |   | Propane |  |   | TG&E    |   | Partners &Others (1) |   |         | Consol.
|ASSETS                                         |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Current assets:                                |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Cash and cash equivalents                      |  | $                  | 4,244   |                   |         | $ | 5,788   |      |  | $                    | 67     |  | $       | 12       |            |  | $ | 10,111  |  | $ | 4,613   |   |                      | $ | 9,533   |         |  | $ | 90     |  | $ | 5        |   |  | $ | 14,241   
|Receivables, net                               |  |                    | 84,814  |                   |         |   | 15,697  |      |  |                      | 5,128  |  |         |         |            |  |   | 105,639 |  |   | 148,374 |   |                      |   | 32,480  |         |  |   | 8,576  |  |   |         |   |  |   | 189,430  
|Inventories                                    |  |                    | 24,146  |                   |         |   | 14,415  |      |  |                      | 3,830  |  |         |         |            |  |   | 42,391  |  |   | 41,074  |   |                      |   | 16,239  |         |  |   | 5,577  |  |   |         |   |  |   | 62,890   
|Prepaid expenses and other current assets      |  |                    | 48,168  |                   |         |   | 3,736   |      |  |                      | 1,498  |  |         | (434     | )          |  |   | 52,968  |  |   | 39,008  |   |                      |   | 5,161   |         |  |   | 1,410  |  |   | (590     | ) |  |   | 44,989   
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Total current assets                           |  |                    | 161,372 |                   |         |   | 39,636  |      |  |                      | 10,523 |  |         | (422     | )          |  |   | 211,109 |  |   | 233,069 |   |                      |   | 63,413  |         |  |   | 15,653 |  |   | (585     | ) |  |   | 311,550  
|Property and equipment, net                    |  |                    | 75,715  |                   |         |   | 186,152 |      |  |                      | 434    |  |         |         |            |  |   | 262,301 |  |   | 72,283  |   |                      |   | 186,558 |         |  |   | 366    |  |   |         |   |  |   | 259,207  
|Long-term portion of accts. rec.               |  |                    | 6,108   |                   |         |   | 1,037   |      |  |                      |       |  |         |         |            |  |   | 7,145   |  |   | 6,770   |   |                      |   | 1,036   |         |  |   |       |  |   |         |   |  |   | 7,806    
|Investment in subsidiaries                     |  |                    | 3,894   |                   |         |   | 104,024 |      |  |                      |       |  |         | (107,918 | )          |  |   |        |  |   | 4,279   |   |                      |   | 107,588 |         |  |   |       |  |   | (111,867 | ) |  |   |         
|Goodwill                                       |  |                    | 232,602 |                   |         |   | 40,138  |      |  |                      | 6,117  |  |         |         |            |  |   | 278,857 |  |   | 232,602 |   |                      |   | 40,138  |         |  |   | 6,117  |  |   |         |   |  |   | 278,857  
|Intangibles, net                               |  |                    | 123,415 |                   |         |   | 78,053  |      |  |                      | 316    |  |         |         |            |  |   | 201,784 |  |   | 118,022 |   |                      |   | 76,081  |         |  |   | 265    |  |   |         |   |  |   | 194,368  
|Deferred charges & other assets, net           |  |                    | 5,403   |                   |         |   | 2,738   |      |  |                      |       |  |         | 6,273    |            |  |   | 14,414  |  |   | 8,795   |   |                      |   | 2,897   |         |  |   |       |  |   | 6,107    |   |  |   | 17,799   
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Total Assets                                   |  | $                  | 608,509 |                   |         | $ | 451,778 |      |  | $                    | 17,390 |  | $       | (102,067 | )          |  | $ | 975,610 |  | $ | 675,820 |   |                      | $ | 477,711 |         |  | $ | 22,401 |  | $ | (106,345 | ) |  | $ | 1,069,587
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|                                               |  |                    |         |                   |         |   |         |      |  |                     
|LIABILITIES AND PARTNERS CAPITAL              |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Current Liabilities:                           |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Accounts payable                               |  | $                  | 19,428  |                   |         | $ | 7,712   |      |  | $                    | 3,886  |  | $       |         |            |  | $ | 31,026  |  | $ | 29,179  |   |                      | $ | 17,127  |         |  | $ | 7,476  |  | $ |         |   |  | $ | 53,782   
|Working capital facility borrowings            |  |                    | 6,000   |                   |         |   | 6,000   |      |  |                      |       |  |         |         |            |  |   | 12,000  |  |   | 65,000  |   |                      |   | 13,500  |         |  |   |       |  |   |         |   |  |   | 78,500   
|Current maturities of long-term debt           |  |                    | 12,597  |                   |         |   | 10,250  |      |  |                      |       |  |         |         |            |  |   | 22,847  |  |   | 11,321  |   |                      |   | 10,250  |         |  |   |       |  |   |         |   |  |   | 21,571   
|Accrued expenses and other current liabilities |  |                    | 60,582  |                   |         |   | 9,222   |      |  |                      | 841    |  |         | 12,552   |            |  |   | 83,197  |  |   | 57,491  |   |                      |   | 12,479  |         |  |   | 1,201  |  |   | 17,050   |   |  |   | 88,221   
|Due to affiliates                              |  |                    | (8,732  | )                 |         |   | (7,600  | )    |  |                      | 6,348  |  |         | 9,984    |            |  |   |        |  |   | (4,582  | ) |                      |   | (8,418  | )       |  |   | 6,506  |  |   | 6,494    |   |  |   |         
|Unearned service contract revenue              |  |                    | 31,023  |                   |         |   | 1,013   |      |  |                      |       |  |         |         |            |  |   | 32,036  |  |   | 35,941  |   |                      |   | 1,000   |         |  |   |       |  |   |         |   |  |   | 36,941   
|Customer credit balances                       |  |                    | 49,258  |                   |         |   | 25,458  |      |  |                      | 2,842  |  |         |         |            |  |   | 77,558  |  |   | 39,146  |   |                      |   | 20,269  |         |  |   | 2,939  |  |   |         |   |  |   | 62,354   
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Total current liabilities                      |  |                    | 170,156 |                   |         |   | 52,055  |      |  |                      | 13,917 |  |         | 22,536   |            |  |   | 258,664 |  |   | 233,496 |   |                      |   | 66,207  |         |  |   | 18,122 |  |   | 23,544   |   |  |   | 341,369  
|Long-term debt                                 |  |                    | 191,380 |                   |         |   | 110,850 |      |  |                      |       |  |         | 197,111  |            |  |   | 499,341 |  |   | 192,007 |   |                      |   | 112,650 |         |  |   |       |  |   | 197,188  |   |  |   | 501,845  
|Due to affiliate                               |  |                    | 116,417 |                   |         |   |        |      |  |                      |       |  |         | (116,417 | )          |  |   |        |  |   | 116,417 |   |                      |   |        |         |  |   |       |  |   | (116,417 | ) |  |   |         
|Other long-term liabilities                    |  |                    | 26,532  |                   |         |   | 1,297   |      |  |                      |       |  |         |         |            |  |   | 27,829  |  |   | 26,312  |   |                      |   | 1,263   |         |  |   |       |  |   |         |   |  |   | 27,575   
|Partners Capital:                             |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Equity Capital                                 |  |                    | 104,024 |                   |         |   | 287,576 |      |  |                      | 3,473  |  |         | (205,297 | )          |  |   | 189,776 |  |   | 107,588 |   |                      |   | 297,591 |         |  |   | 4,279  |  |   | (210,660 | ) |  |   | 198,798  
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          
|Total Liabilities and Partners Capital        |  | $                  | 608,509 |                   |         | $ | 451,778 |      |  | $                    | 17,390 |  | $       | (102,067 | )          |  | $ | 975,610 |  | $ | 675,820 |   |                      | $ | 477,711 |         |  | $ | 22,401 |  | $ | (106,345 | ) |  | $ | 1,069,587
|                                               |  |                    |         |                   |         |   |         |      |  |                      |        |  |         |          |            |  |   |         |  |   |         |   |                      |   |         |         |  |   |        |  |   |          |   |  |   |          



|(1) | The Partner and Other amounts include the balance sheet of the Public Master Limited Partnership, Star Gas Finance Company, as well as the necessary consolidation entries to
eliminate the investment in Petro Holdings, Star Gas Propane and TG&E.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|5) | Goodwill and Other Intangible Assets
|-- | ------------------------------------



On October 1, 2002, Star Gas adopted SFAS No. 142, which required the Partnership to discontinue amortizing goodwill. SFAS No. 142 also requires that
goodwill be reviewed for impairment upon adoption of SFAS No. 142 and annually thereafter. The Partnership will perform its annual impairment review during the fourth fiscal quarter of each year, which commenced in the fiscal fourth quarter of 2003.



Under SFAS No. 142, goodwill impairment is deemed to exist if
the net book value of a reporting unit exceeds its estimated fair value. If goodwill of a reporting unit is determined to be impaired, the amount of impairment is measured based on the excess of the net book value of the goodwill over the implied
fair value of the goodwill. The Partnerships reporting units are consistent with the operating segments identified in Note 4  Segment Reporting.



Upon adoption of SFAS No. 142 in the first fiscal quarter of 2003, the Partnership recorded a non-cash charge of approximately $3.9 million to reduce the
carrying value of its goodwill for its TG&E segment. This charge is reflected as a cumulative effect of change in accounting principle in the Partnerships condensed consolidated statement of operations for the three month period ended
December 31, 2002. In calculating the impairment charge, the fair value of the reporting units was estimated using a discounted cash flow methodology.



A summary of the Partnerships goodwill at September 30, 2003 and December 31, 2003, by business segment is as follows (in thousands):



|                    |  |   |        
|------------------- |  | - | -------
|Heating Oil Segment |  | $ | 232,602
|Propane Segment     |  |   | 40,138 
|TG&E Segment        |  |   | 6,117  
|                    |  |   |        
|                    |  | $ | 278,857
|                    |  |   |        



Intangible assets
subject to amortization consist of the following (in thousands):



|                         |  |                     |         |                    |   |         |  |                     |         |                    |   |         |  |   |         |  |   |        
|------------------------ |  | ------------------- | ------- | ------------------ | - | ------- |  | ------------------- | ------- | ------------------ | - | ------- |  | - | ------- |  | - | -------
|                         |  | September 30, 2003  |         | December 31, 2003 
|                         |  | GrossCarryingAmount |         | Accum.Amortization |   | Net     |  | GrossCarryingAmount |         | Accum.Amortization |   | Net    
|Customer lists           |  | $                   | 292,213 |                    | $ | 95,451  |  | $                   | 196,762 |                    | $ | 292,213 |  | $ | 102,358 |  | $ | 189,855
|Covenants not to compete |  |                     | 12,959  |                    |   | 7,937   |  |                     | 5,022   |                    |   | 12,966  |  |   | 8,453   |  |   | 4,513  
|                         |  |                     |         |                    |   |         |  |                     |         |                    |   |         |  |   |         |  |   |        
|                         |  | $                   | 305,172 |                    | $ | 103,388 |  | $                   | 201,784 |                    | $ | 305,179 |  | $ | 110,811 |  | $ | 194,368
|                         |  |                     |         |                    |   |         |  |                     |         |                    |   |         |  |   |         |  |   |        



Amortization expense
for intangible assets was $6.6 million for the three months ended December 31, 2002 compared to $7.4 million for the three months ended December 31, 2003. Total estimated annual amortization expense related to intangible assets subject to
amortization, for the year ended September 30, 2004 and the four succeeding fiscal years ended September 30, is as follows (in thousands):



|     |  |                                      |       
|---- |  | ------------------------------------ | ------
|     |  | EstimatedAnnual Amortization Expense
|2004 |  | $                                    | 29,734
|2005 |  | $                                    | 29,299
|2006 |  | $                                    | 28,106
|2007 |  | $                                    | 27,454
|2008 |  | $                                    | 25,515



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##### Table of Contents

|6) | Acquisitions
|-- | ------------



During the three month period ended December 31, 2002, the Partnership acquired two retail propane dealers. The aggregate consideration for these
acquisitions accounted for by the purchase method of accounting was approximately $0.5 million. For the remainder of fiscal 2003, the Partnership acquired an additional three retail heating oil dealers and five propane dealers.



During the three month period ended December 31, 2003, the Partnership
acquired two retail propane dealers. The aggregate consideration for the acquisitions accounted for by the purchase method of accounting was approximately $1.8 million.



The following table indicates the allocation of the aggregate purchase price paid for these acquisitions and the respective
periods of amortization assigned for the fiscal first quarter 2002 and fiscal first quarter 2003 acquisitions:



|                        |  |      |     |   |      |   |              |  |             
|----------------------- |  | ---- | --- | - | ---- | - | ------------ |  | ------------
|(in thousands)          |  | 2002 |     |   | 2003 |   | Useful Lives
|Land                    |  | $    |    |   |      | $ | 180          |  |            
|Buildings               |  |      |    |   |      |   | 120          |  | 30 years    
|Furniture and equipment |  |      |    |   |      |   | 20           |  | 10 years    
|Fleet                   |  |      |    |   |      |   | 100          |  | 3 - 30 years
|Tanks and equipment     |  |      | 425 |   |      |   | 1,288        |  | 5 - 30 years
|Restrictive covenants   |  |      | 107 |   |      |   | 7            |  | 5 years     
|Working capital         |  |      | (20 | ) |      |   | 70           |  |            
|                        |  |      |     |   |      |   |              |  |             
|Total                   |  | $    | 512 |   |      | $ | 1,785        |  |             
|                        |  |      |     |   |      |   |              |  |             



The acquisitions were
accounted for under the purchase method of accounting. Purchase prices have been allocated to the acquired assets and liabilities based on their respective fair market values on the dates of acquisition. The purchase prices in excess of the fair
values of net assets acquired are classified as goodwill in the Condensed Consolidated Balance Sheets.



Sales and net income have been included in the Condensed Consolidated Statements of Operations from the respective dates of acquisition. The following
unaudited pro forma information presents the results of operations of the Partnership, including the twelve acquisitions completed since October 1, 2002, as if the acquisitions had taken place on October 1, 2002. This pro forma information is
presented for informational purposes; it is not indicative of future operating performance (in thousands, except per unit data).





|                                            |  |                                |         |      |   |        
|------------------------------------------- |  | ------------------------------ | ------- | ---- | - | -------
|                                            |  | Three Months EndedDecember 31,
|                                            |  | 2002                           |         | 2003
|Sales                                       |  | $                              | 424,774 |      | $ | 434,120
|                                            |  |                                |         |      |   |        
|Net income                                  |  | $                              | 21,123  |      | $ | 19,391 
|General Partners interest in net income    |  |                                | 212     |      |   | 195    
|                                            |  |                                |         |      |   |        
|Limited Partners interest in net income    |  | $                              | 20,911  |      | $ | 19,196 
|                                            |  |                                |         |      |   |        
|Basic net income per limited partner unit   |  | $                              | 0.61    |      | $ | 0.56   
|                                            |  |                                |         |      |   |        
|Diluted net income per limited partner unit |  | $                              | 0.61    |      | $ | 0.56   
|                                            |  |                                |         |      |   |        



|7) | Supplemental Disclosure of Cash Flow Information
|-- | ------------------------------------------------



|                                                             |  |                                |        |   |      |   |        |  
|------------------------------------------------------------ |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|(in thousands)                                               |  | Three Months EndedDecember 31, |       
|                                                             |  | 2002                           |        |   | 2003 |  
|Cash paid during the period for:                             |  |                                |        |   |      |   |        |  
|Income taxes                                                 |  | $                              | 329    |   |      | $ | 605    |  
|Interest                                                     |  | $                              | 9,530  |   |      | $ | 10,249 |  
|Non-cash financing activities:                               |  |                                |        |   |      |   |        |  
|Decrease in long-term debt for interest rate swaps           |  | $                              | (6,068 | ) |      | $ | (582   | )
|Increase in long-term debt for amortization of debt discount |  | $                              |       |   |      | $ | 77     |  
|Decrease in other assets                                     |  | $                              | 6,068  |   |      | $ | 505    |  



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##### Table of Contents

|8) | Earnings Per Limited Partner Unit
|-- | ---------------------------------



|                                                                                            |  |                                |        |   |      |   |       
|------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------
|                                                                                            |  | Three Months EndedDecember 31,
|(in thousands, except per unit data)                                                        |  | 2002                           |        |   | 2003
|Income before cumulative effect of change in accounting principle per Limited Partner unit: |  |                                |        |   |      |   |       
|Basic                                                                                       |  | $                              | 0.61   |   |      | $ | 0.56  
|Diluted                                                                                     |  | $                              | 0.61   |   |      | $ | 0.56  
|                                                                                            |  |                               
|Cumulative effect of change in accounting principle per Limited Partner unit:               |  |                                |        |   |      |   |       
|Basic                                                                                       |  | $                              | (0.12  | ) |      | $ |      
|Diluted                                                                                     |  | $                              | (0.12  | ) |      | $ |      
|                                                                                            |  |                               
|Net income per Limited Partner unit:                                                        |  |                                |        |   |      |   |       
|Basic                                                                                       |  | $                              | 0.49   |   |      | $ | 0.56  
|Diluted                                                                                     |  | $                              | 0.49   |   |      | $ | 0.56  
|                                                                                            |  |                               
|Basic Earnings Per Unit:                                                                    |  |                                |        |   |      |   |       
|Net income                                                                                  |  | $                              | 16,039 |   |      | $ | 19,312
|Less: General Partners interest in net income                                              |  |                                | 159    |   |      |   | 194   
|                                                                                            |  |                                |        |   |      |   |       
|Limited Partners interest in net income                                                    |  | $                              | 15,880 |   |      | $ | 19,118
|                                                                                            |  |                                |        |   |      |   |       
|                                                                                            |  |                               
|Common Units                                                                                |  |                                | 28,970 |   |      |   | 30,671
|Senior Subordinated Units                                                                   |  |                                | 3,134  |   |      |   | 3,142 
|Junior Subordinated Units                                                                   |  |                                | 345    |   |      |   | 345   
|                                                                                            |  |                                |        |   |      |   |       
|Weighted average number of Limited Partner units outstanding                                |  |                                | 32,449 |   |      |   | 34,158
|                                                                                            |  |                                |        |   |      |   |       
|Basic earnings per unit                                                                     |  | $                              | 0.49   |   |      | $ | 0.56  
|                                                                                            |  |                                |        |   |      |   |       
|                                                                                            |  |                               
|Diluted Earnings Per Unit:                                                                  |  |                                |        |   |      |   |       
|Effect of diluted securities                                                                |  | $                              |       |   |      | $ |      
|                                                                                            |  |                                |        |   |      |   |       
|Limited Partners interest in net income                                                    |  | $                              | 15,880 |   |      | $ | 19,118
|                                                                                            |  |                                |        |   |      |   |       
|                                                                                            |  |                               
|Weighted average number of Limited Partner units outstanding                                |  |                                | 32,449 |   |      |   | 34,158
|Senior subordinated units anticipated to be issued under employee incentive plan            |  |                                | 115    |   |      |   |      
|                                                                                            |  |                                |        |   |      |   |       
|Diluted weighted average number of Limited Partner units                                    |  |                                | 32,564 |   |      |   | 34,158
|                                                                                            |  |                                |        |   |      |   |       
|Diluted earnings per unit                                                                   |  | $                              | 0.49   |   |      | $ | 0.56  
|                                                                                            |  |                                |        |   |      |   |       



|9) | Expiration of Senior Subordinated Incentive
|-- | -------------------------------------------



In connection with the acquisition of Petro by Star Gas Partners in March of 1999, the Senior Subordinated Units, Junior Subordinated Units and General
Partners Units could have earned, pro rata, an aggregate of up to 303,000 additional Senior Subordinated Units over a five year period for each year that Petro met certain financial goals. No units were earned under this incentive for the quarter
ended December 31, 2003. No additional units will be issued under this incentive in the future as the calculation period for this incentive expired on December 31, 2003.



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##### Table of Contents

|10) | Subsequent Events
|--- | -----------------



Cash DistributionsOn January 29, 2004, the Partnership announced that it would pay a cash distribution of $0.575 per Common Unit and $0.575
per Senior Subordinated Unit, Junior Subordinated Unit and General Partner Interest for the quarter ended December 31, 2003. The distribution will be paid on February 13, 2004, to unitholders of record on February 9, 2004.



Sale of 10 1⁄4% Senior NotesOn January 22, 2004, the
Partnership and its wholly owned subsidiary, Star Gas Finance Company, jointly issued $35.0 million of 10 1⁄4% Senior Notes, due 2013 in a private placement. These notes were issued at a premium to par for total gross proceeds of $38.7 million.
The net proceeds from the offering will be used to repay indebtedness as it becomes due.



Issuance of Senior Subordinated UnitsOn January 20, 2004, the Partnership issued 104,000 Senior Subordinated Units that were fully vested in fiscal 2003, under the Partnerships Director and Employee
Unit Incentive Plan.



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##### Table of Contents

Item 2.



STAR GAS PARTNERS, L.P. AND SUBSIDIARIES



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



Statement Regarding Forward-Looking Disclosure



This Report includes forward-looking statements which represent the
Partnerships expectations or beliefs concerning future events that involve risks and uncertainties, including those associated with the effect of weather conditions on the Partnerships financial performance, the price and supply of home
heating oil, propane, electricity and natural gas and the ability of the Partnership to obtain new accounts and retain existing accounts and the realization of savings from the business process redesign project. 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 the Partnership believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Partnerships expectations (Cautionary Statements) are disclosed in this Report, including without limitation and in conjunction with the forward-looking statements included in this
Report. 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.



Overview



In analyzing the financial results of the Partnership, the following matters should be
considered.



The primary use for heating oil, propane and natural gas is for
space heating in residential and commercial applications. As a result, weather conditions have a significant impact on financial performance and should be considered when analyzing changes in financial performance. The Partnership has purchased
weather insurance to partially mitigate the risk of weather conditions. In addition, gross margins can vary according to customer mix. For example, sales to residential customers generate higher profit margins than sales to other customer groups,
such as agricultural customers. Accordingly, a change in customer mix can affect gross margins without necessarily impacting total sales. The customer mix was not a significant factor in the current quarter to quarter comparison.



The heating oil, propane and natural gas industries are seasonal in nature with peak activity
occurring during the winter months. Accordingly, results of operations for the periods presented are not indicative of the results to be expected for a full year.



The following is a discussion of the historical condition and results of operations of Star Gas Partners, L.P. 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 on Form 10-Q.



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##### Table of Contents

THREE MONTHS ENDED DECEMBER 31, 2003

COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2002



Volume



For the three months ended
December 31, 2003, retail volume of home heating oil and propane increased 8.5 million gallons, or 3.8%, to 230.1 million gallons, as compared to 221.6 million gallons for the three months ended December 31, 2002. This increase was due to a 8.7
million gallon increase in the propane segment and a 0.2 million gallon decrease in the heating oil segment. The increase in volume reflects the impact of an additional 26.5 million gallons provided by acquisitions partially offset by the impact of
warmer temperatures. The Partnership also believes that a planned shift in the delivery pattern at the heating oil segment, designed to increase efficiency, reduced volume for the quarter ended December 31, 2002 by an estimated 10.1 million gallons.
Typical delivery patterns would have resulted in these gallons being delivered in the three months ended December 31, 2002 but were actually delivered in the three months ended September 30, 2002. Temperatures in the Partnerships areas of
operations for the three months ended December 31, 2003 were an average of 9.6% warmer than in the prior years comparable quarter and approximately 4.0% warmer than normal as reported by the National Oceanic Atmosphere Administration
(NOAA).



The above activity is summarized as follows:



|                                            |  |               |  
|------------------------------------------- |  | ------------- | -
|                                            |  | (in millions) |  
|VolumeThree months ended December 31, 2002 |  | 221.6         |  
|                                            | 
|Impact of warmer temperatures               |  | (22.1         | )
|Impact of acquisitions                      |  | 26.5          |  
|Impact of 2002 delivery pattern shift       |  | 10.1          |  
|Impact of scheduling/attrition/other        |  | (6.0          | )
|                                            |  |               |  
|                                            | 
|VolumeThree months ended December 31, 2003 |  | 230.1         |  
|                                            |  |               |  



Sales



For the three months ended December 31, 2003, sales increased $48.9 million, or 12.7%, to
$433.9 million, as compared to $385.0 million for the three months ended December 31, 2002. This increase was due to $21.1 million higher home heating oil sales, $25.6 million higher propane segment sales and a $2.2 million increase in TG&E
sales. Sales increased largely as a result of higher selling prices and by a much lesser extent from the additional volume sold. Selling prices increased versus the prior years comparable period in response to higher supply costs. Sales of
rationally related products, including heating and air conditioning equipment installation and service and water softeners increased $7.7 million in the heating oil segment and by $4.0 million in the propane segment from the prior years
comparable period due to acquisitions, increased installation activity and from increases in rates charged to customers for service contracts and increases in billable service. TG&Es sales also largely increased as a result of higher
selling prices in response to higher supply cost for natural gas.



Cost of
Product



For the three months ended December 31, 2003, cost of product
increased $32.0 million, or 15.9%, to $233.3 million, as compared to $201.3 million for the three months ended December 31, 2002. This increase was due to $14.2 million of higher cost of product at the home heating oil segment, $15.9 million higher
cost of product at the propane segment and a $1.9 million increase in TG&E cost of product. Cost of product increased largely due to higher supply cost and to a much lesser extent from the cost of product related to the increasing volume. While
selling prices and supply cost both increased on a per gallon basis, the increase in selling prices was greater than the increase in supply cost, which results in higher per gallon margins of approximately 1.5 cents.



Cost of Installations, Service and Appliances



For the three months ended December 31, 2003, cost of installations, service and appliances
increased $6.7 million, or 12.4%, to $60.7 million, as compared to $54.0 million for the three months ended December 31, 2002. This increase was due to an additional $4.8 million in the heating oil segment and by $1.9 million in the propane segment
from the prior years comparable period largely due to the increase in sales of these products.





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##### Table of Contents

Delivery and Branch Expenses



For the three months ended December 31, 2003, delivery and branch expenses increased $9.5 million, or 12.7%, to $84.0 million, as compared
to $74.5 million for the three months ended December 31, 2002. This increase was due to an additional $5.1 million of delivery and branch expenses at the heating oil segment and a $4.4 million increase in delivery and branch expenses for the propane
segment. The increase in delivery and branch expenses was largely due to additional operating cost associated with acquisitions, increased customer service expense of $1.5 million at the heating oil segment resulting largely from the start-up of the
new outsourced call center and for the impact of operating expense and wage increases. The Partnership estimates that delivery and branch expenses increased approximately $2.0 million from the comparable prior year quarter due to the impact of
operating expense and wage increases. The Partnership also estimated that delivery and branch expenses increased by $7.7 million for acquisitions. The volume provided by these acquisitions largely offset the impact of the warmer weather experienced
during the quarter. This $7.7 million is largely for the establishment of base operations in new markets as well as for the variable cost of delivering the additional gallons provided by acquisitions.



The heating oil segments business process redesign project was substantially completed
during fiscal 2003. As part of this redesign, a transition to outsourcing in the area of customer relationship management has been undertaken as both a customer satisfaction and a cost reduction strategy. The Partnership believes outsourcing
customer inquiries will improve customer responsiveness and eliminate redundancy by leveraging the technology and expertise available from third party service organizations. In addition, an outsourcing partner has greater flexibility to manage
extreme seasonal volume. However, significant challenges remain with this transition. While the physical transition is largely complete, the Partnership anticipates that supplementary training and support will be required through the 2003-2004
heating season, which will reduce the savings otherwise anticipated to be realized from the business process redesign project in fiscal 2004, but should not impact subsequent period savings.



Depreciation and Amortization Expenses



For the three months ended December 31, 2003, depreciation and amortization expenses
increased $1.7 million, or 13.2%, to $14.5 million, as compared to $12.8 million for the three months ended December 31, 2002. This increase was primarily due to a larger depreciable base of assets as a result of the impact of acquisitions and for
increased depreciation resulting from the technology investment made by the heating oil segment as part of its business process redesign project.



General and Administrative Expenses



For the three months ended December 31, 2003, general and administrative expenses decreased $3.4 million, or 26.8%, to $9.4 million, as compared to $12.8 million for the
three months ended December 31, 2002. The heating oil segments business process redesign project was substantially completed during fiscal 2003 and the Partnership did not incur any expense for this project for the quarter ended December 31,
2003. General and administrative expenses for the three months ended December 31, 2002 included $1.1 million of expense for this project. General and administrative expenses also decreased due to a $1.3 million decrease in the accrual for
compensation earned for unit appreciation rights and restricted stock awards previously granted. The decrease in the accrual was due to a more stable unit price for the senior subordinated units for the current fiscal quarter versus the comparable
prior year quarter which had a significant increase in the market value for these units. In addition, the accrual was lower as the Partnership recorded a lower accrual for units to be issued under the Director and Employee Unit Incentive Plan as the
Partnership doesnt currently expect to achieve the specified objectives for this plan in fiscal 2004. TG&Es general and administrative expense were also lower by $1.4 million largely due to lower bad debt and collection expenses of
$1.1 million and for lower third party direct marketing expense of $0.4 million.



Interest Expense



For the three months ended December 31,
2003, interest expense increased $2.7 million, or 29.9%, to $11.7 million, as compared to $9.0 million for the three months ended December 31, 2002. This increase was largely due to a higher weighted average balance of long-term debt outstanding
during the three months ended December 31, 2003 compared to the three month period ended December 31, 2002 and for additional interest related to the higher interest rate on the Partnerships $200.0 million debt offering completed in fiscal
2003 versus the debt repaid with the proceeds from this offering. This increase in long-term debt outstanding was largely for the funding of acquisitions.



Amortization of Debt Issuance Costs



For the three months ended December 31, 2003, amortization of debt issuance costs increased $0.8 million, or 190.4%, to $1.3 million, as compared to $0.4 million for the
three months ended December 31, 2002. This increase was largely due to the amortization of debt issuance costs for the Partnerships $200.0 million debt offering and for the amortization of bank fees incurred in connection with the heating oil
segments bank credit facility.





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##### Table of Contents

Cumulative Effect of Change in Accounting Principle



For the three months ended December 31, 2002, the Partnership recorded a $3.9 million decrease in net income arising from the adoption of
Statement No. 142 to reflect the impairment of its goodwill for its TG&E segment.



Net Income



For the three months ended December 31, 2003, net
income increased $3.3 million, or 20.4%, to $19.3 million, as compared to $16.0 million for the three months ended December 31, 2002. The increase was due to a $5.6 million increase in net income at TG&E, a $3.4 million increase in net income at
the propane segment partially offset by a $4.7 million decrease in the net income at the heating oil segment and a $1.0 million increase in the net loss at the Partnership level. The increase in net income was primarily due to the results of
acquisitions, increased revenues from installations, service and appliance sales, increased per gallon margins and from the impact in fiscal 2003 of the $3.9 million decrease in net income at the TG&E segment for the adoption of SFAS No. 142
partially offset by the impact of warmer weather and for increased interest expense.



Liquidity and Capital Resources



The ability of Star Gas to
satisfy its obligations will depend on its future performance, which will be subject to prevailing economic, financial, business, and weather conditions, and other factors, most of which are beyond its control. Future capital requirements of Star
Gas are expected to be provided by cash flows from operating activities and cash on hand at December 31, 2003. To the extent future capital requirements exceed cash flows from operating activities:



| | a) | working capital will be financed by the Partnerships working capital lines of credit and repaid from subsequent seasonal reductions in inventory and accounts receivable;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | growth capital expenditures, mainly for customer tanks will be financed in fiscal 2004 by the use of the Partnerships credit facilities; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | c) | acquisition capital expenditures will be financed by the revolving acquisition lines of credit, long-term debt, the issuance of additional Common Units or a combination thereof.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cash Flows



Operating Activities. The net cash used in operations of $35.7 million for the first
quarter of fiscal 2004 consisted of net income of $19.3 million, noncash charges of $17.3 million, primarily made up of depreciation and amortization of $15.8 million, which were offset by an increase in operating assets and liabilities of $72.3
million. The increase in operating assets and liabilities of $72.3 million was less than the $81.8 million for the three months ended December 31, 2002 largely due to a reduction of prepaids and other receivables. Despite sales increasing from
$385.0 million in the first quarter of fiscal 2003 to $433.9 million for the first quarter of fiscal 2004, the increase in accounts receivable was $4.0 million less than the increase in the first quarter in fiscal 2003 as collections increased from
$295.7 million in the first quarter of fiscal 2003 to $348.5 million for the first quarter of fiscal 2004. This increase in collections was largely offset by cash payments for cost of product and cost of installations, service and appliances which
increased from $241.2 million in the first quarter of fiscal 2003 to $292.9 million in the first quarter of fiscal 2004.



Investing Activities. Star Gas completed one acquisition during the fiscal quarter ended December 31, 2003, investing $1.8 million. This expenditure for
acquisitions is reflected in the cash used in investing activities of $3.8 million along with $2.6 million invested for capital expenditures. The $2.6 million for capital expenditures is comprised of $1.5 million of capital additions needed to
sustain operations at current levels and $1.1 million for capital expenditures incurred in connection with the heating oil segments business process redesign program and for customer tanks and other capital expenditures to support growth of
operations. The capital expenditures made for the business process redesign program were largely for the purchase of technology to increase the efficiency and quality of services provided to its customers. Investing activities also includes proceeds
from the sale of fixed assets of $0.5 million.



Financing Activities.
During the quarter ended December 31, 2003, increased bank working capital borrowings of $66.5 million and acquisition facility borrowings of $1.8 million provided funds of $68.3 million. Cash distributions paid to Unitholders of $19.8 million, debt
repayments of $0.1 million and other financing activities, which were largely for fees incurred in connection with the renewal of the home heating oil segments bank credit facilities of $4.8 million reduced the net cash provided by financing
activities to $43.6 million.



As a result of the above activity, cash increased
by $4.1 million to $14.2 million as of December 31, 2003.





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##### Table of Contents

Earnings before interest, taxes, depreciation and amortization (EBITDA)



For the three months ended December 31, 2003, EBITDA increased $8.1 million, or 21.0% to
$46.4 million as compared to $38.4 million for the three months ended December 31, 2002. This increase was due to $5.6 million of more EBITDA generated by TG&E, a $3.2 million increase in the propane segment EBITDA and a $1.4 million increase in
the EBITDA at the Partnership level partially offset by a $2.2 million reduction in EBITDA at the heating oil segment primarily due to the warmer weather. The increase in EBITDA was largely due to the results of acquisitions, increased revenues from
installations, service and appliance sales and from increased per gallon margins and from the impact in fiscal 2003 of the $3.9 million decrease in EBITDA at the TG&E segment for the adoption of SFAS No. 142 partially offset by the impact of
warmer weather.



The Partnership uses EBITDA as a measure of liquidity and it
is being included because the Partnership believes that it provides investors and industry analysts with additional information to evaluate the Partnerships ability to pay quarterly distributions. EBITDA is not a recognized term under
generally accepted accounting principles (GAAP) and should not be considered as an alternative to net income/(loss) or net cash provided by operating activities determined in accordance with GAAP. Because EBITDA as determined by the
Partnership excludes some, but not all of the items that affect net income/(loss), it may not be comparable to EBITDA or similarly titled measures used by other companies. The following table sets forth (i) the calculation of EBITDA and (ii) a
reconciliation of EBITDA, as so calculated, to cash provided by operating activities (amounts in thousands):



|                                                                                     |  |                                |         |   |      |   |         |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                     |  | Three Months EndedDecember 31, |        
|                                                                                     |  | 2002                           |         |   | 2003 |  
|(in thousands)                                                                       |  |                                |         |   |      |   |         |  
|Net income                                                                           |  | $                              | 16,039  |   |      | $ | 19,312  |  
|Plus:                                                                                |  |                                |         |   |      |   |         |  
|Income tax expense                                                                   |  |                                | 675     |   |      |   | 406     |  
|Amortization of debt issuance costs                                                  |  |                                | 437     |   |      |   | 1,269   |  
|Interest expense, net                                                                |  |                                | 8,370   |   |      |   | 10,894  |  
|Depreciation and amortization                                                        |  |                                | 12,848  |   |      |   | 14,545  |  
|                                                                                     |  |                                |         |   |      |   |         |  
|EBITDA                                                                               |  |                                | 38,369  |   |      |   | 46,426  |  
|Add/(subtract)                                                                       |  |                                |         |   |      |   |         |  
|Income tax expense                                                                   |  |                                | (675    | ) |      |   | (406    | )
|Interest expense, net                                                                |  |                                | (8,370  | ) |      |   | (10,894 | )
|Unit compensation expense                                                            |  |                                | 472     |   |      |   | 52      |  
|Provision for losses on accounts receivable                                          |  |                                | 1,383   |   |      |   | 1,555   |  
|Gain on sale of fixed assets                                                         |  |                                | (16     | ) |      |   | (84     | )
|Cumulative effect of change in accounting principle for the adoption of SFAS No. 142 |  |                                | 3,901   |   |      |   |        |  
|Change in operating assets and liabilities                                           |  |                                | (81,812 | ) |      |   | (72,303 | )
|                                                                                     |  |                                |         |   |      |   |         |  
|                                                                                     |  |                               
|Net cash used in operating activities                                                |  | $                              | (46,748 | ) |      | $ | (35,654 | )
|                                                                                     |  |                                |         |   |      |   |         |  







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##### Table of Contents

Financing and Sources of Liquidity



The Partnerships heating oil segment has a bank credit facility, which includes a working capital facility, providing for up to $150.0
million of borrowings to be used for working capital purposes, an acquisition facility, providing for up to $50.0 million of borrowings to be used for acquisitions and for certain improvements and a $35.0 million letter of credit facility primarily
for insurance purposes. The working capital facility and letter of credit facility will expire on June 30, 2006. The acquisition facility will convert to a term loan for any outstanding borrowings on June 30, 2006, which balance will be payable in
eight equal quarterly principal payments. At December 31, 2003, $65.0 million of working capital borrowings and $33.0 million of acquisition facility borrowings were outstanding.



The Partnerships propane segment has a bank credit facility, which consists of a $25.0 million acquisition facility, a $25.0 million
parity debt facility that can be used to fund maintenance and growth capital expenditures and an $24.0 million working capital facility. The working capital facility expires on September 30, 2006. Borrowings under the acquisition and parity debt
facilities will revolve until September 30, 2006, after which time any outstanding loans thereunder, will amortize in quarterly principal payments with a final payment due on September 30, 2008. At December 31, 2003, $14.4 million of acquisition
facility borrowings, $2.0 million of Parity Debt Facility borrowings and $13.5 million of working capital borrowings were outstanding.



The Partnerships bank credit facilities and debt agreements contain several financial tests and covenants restricting the various segments and Partnerships
ability to pay distributions, incur debt and engage in certain other business transactions. In general these tests are based upon achieving certain debt to cash flow ratios and cash flow to interest expense ratios. In addition, amounts borrowed
under the working capital facility are subject to a requirement to maintain a zero balance for at least forty-five consecutive days. Failure to comply with the various restrictive and affirmative covenants of the Partnerships various bank and
note facility agreements could negatively impact the Partnerships ability to incur additional debt and/or pay distributions and could cause certain debt to become currently payable.



As of December 31, 2003, the Partnership was in compliance with all debt covenants.



On January 22, 2004, the Partnership and its wholly owned subsidiary, Star Gas Finance
Company, jointly issued $35.0 million face value senior notes due on February 15, 2013. These notes accrue interest at an annual rate of 10.25% and require semi-annual interest payments on February 15 and August 15 of each year commencing on
February 15, 2003. These notes are redeemable at the option of the Partnership, in whole or in part, from time to time by payment of a premium as defined. These notes were priced at 110.5% for total gross proceeds of $38.7 million. The Partnership
also incurred $0.7 million of fees and expenses in connection with the issuance of these notes resulting in net proceeds of $38.0 million. The net proceeds from the offering will be used to repay indebtedness as it becomes due.



The Partnership had $523.4 million of debt outstanding as of December 31, 2003 (amount does
not include working capital borrowings of $78.5 million), with significant maturities occurring over the next five years. The following summarizes the Partnerships long-term debt maturities during the twelve months ended December 31, 2003:



|           |  |   |              
|---------- |  | - | -------------
|2004       |  | $ | 21.6 million 
|2005       |  | $ | 34.4 million 
|2006       |  | $ | 75.2 million 
|2007       |  | $ | 63.4 million 
|2008       |  | $ | 36.2 million 
|Thereafter |  | $ | 292.6 million



The Partnerships heating oil
segments bank credit facilities allow for the use of the credit facilities to repay up to $22.5 million of existing senior debt and the Partnerships propane segments bank credit facilities allow for the refinancing of up to $25.0
million of existing senior debt. The refinancing capabilities are subject to capacity and other restrictions. Funding for debt maturities other than for what could be refinanced with bank facilities or the application of the proceeds from the $35.0
million senior note offering will otherwise largely be dependent upon new debt or equity issuances.



The Partnership continues to evaluate strategic alternatives for its TG&E business segment, including evaluating the possible sale of the business. An investment advisor, Cenatar Advisory Group, has been hired to
assist the Partnership in this endeavor. The Partnership has not made a decision to sell the TG&E business but is currently evaluating preliminary interest expressed by potential buyers as well as evaluating other alternatives for the business.
A major consideration in the Partnerships evaluation process is the significant improvement that TG&E demonstrated in fiscal 2003 and for the first fiscal quarter of fiscal 2004 in becoming a profitable operation. The Partnership would not
expect any potential sale to result in a significant gain or loss. In addition, the Partnership would also not expect that any potential sale would have a significant impact on liquidity on a going forward basis.



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##### Table of Contents

Financing and Sources of Liquidity  (continued)



In general, the Partnership distributes to its partners on a quarterly basis, all of its
Available Cash in the manner described below. Available Cash is defined for any of the Partnerships fiscal quarters, as all cash on hand at the end of that quarter, less the amount of cash reserves that are necessary or appropriate in the
reasonable discretion of the general partner to (i) provide for the proper conduct of the business; (ii) comply with applicable law, any of its debt instruments or other agreements; or (iii) provide funds for distributions to the common unitholders
and the senior subordinated unitholders during the next four quarters, in some circumstances.



The Partnership believes that the purchase of weather insurance could be an important element in the Partnerships ability to maintain the stability of its cash flows. The Partnership purchased a base of $12.5
million of weather insurance coverage for each year from 20042007 and purchased an additional $7.5 million of weather insurance coverage for fiscal 2004. The amount of insurance proceeds that could be realized under these policies is
calculated by multiplying the degree day deviation from an agreed upon cumulative degree day strike price by $35,000. The calculation period for the weather insurance coverage is from November first to the end of February and is measured based upon
a weighting of certain New England and Mid-Atlantic weather stations. Due to the close to normal weather conditions experienced for the policy period during the quarter ended December 31, 2003, the Partnership did not receive any benefit from the
weather insurance for this period.



For the remainder of fiscal 2004, the
Partnership anticipates paying interest of approximately $32.3 million and anticipates growth and maintenance capital additions of approximately $6.0 million. In addition, the Partnership plans to pay distributions on its units to the extent there
is sufficient available cash in accordance with the partnership agreement. The Partnership plans to fund acquisitions made through a combination of debt and equity. Based on its current cash position, proceeds from its $35.0 million senior note
offering completed in January 2004, bank credit availability and anticipated net cash to be generated from operating activities, the Partnership expects to be able to meet all of its obligations for fiscal 2004.



Accounting Policies not yet Adopted



In January 2004, the Financial Accounting Standards Board issued SFAS No. 132 (revised),
Employers Disclosures about Pensions and Other Postretirement Benefits. This Statement replaces existing SFAS No. 132, of the same title. All disclosure requirements now required in existing SFAS No. 132 have been retained in the
revised version. SFAS No. 132 (revised) requires additional disclosures regarding types of plan assets held, investment strategies, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost (expense). This
statement is effective for the Partnerships September 30, 2004, Form 10-K. It is also, effective for the Partnerships interim reporting period beginning January 1, 2004.





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##### Table of Contents

Critical Accounting Policies and Estimates



The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires management to establish
accounting policies and make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. Star Gas evaluates its policies and estimates on an on-going basis. The
Partnerships Consolidated Financial Statements may differ based upon different estimates and assumptions. Star Gas believes the following are its critical accounting policies:



Goodwill and Other Intangible Assets



The FASB issued SFAS No. 142, Goodwill and Other Intangible Assets in June 2001. SFAS No. 142 requires that goodwill no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives, such as customer lists, continue to be amortized over their respective estimated
useful lives.



SFAS No. 142 was adopted on October 1, 2002, with the
Partnership now calculating amortization using the straight-line method over periods ranging from 5 to 15 years for intangible assets with definite useful lives. Star Gas uses amortization methods and determines asset values based on its best
estimates using reasonable and supportable assumptions and projections. Star Gas assesses the useful lives of intangible assets based on the estimated period over which Star Gas will receive benefit from such intangible assets such as historical
evidence regarding customer churn rate. In some cases, the estimated useful lives are based on contractual terms. At December 31, 2003, the Partnership had $194.4 million of net intangible assets subject to amortization. If circumstances required a
change in estimated useful lives of the assets, it could have a material effect on results of operations. For example, if lives were shortened by one year, the Partnership estimates that amortization for these assets for the three month period ended
December 31, 2003 would have increased by approximately $0.7 million.



SFAS No.
142 also requires the Partnerships goodwill to be assessed annually for impairment. These assessments involve managements estimates of future cash flows, market trends and other factors. If goodwill is determined to be impaired, a loss
is recorded in accordance with SFAS No. 142. At December 31, 2003, the Partnership had $278.9 million of goodwill. Intangible assets with finite lives must be assessed for impairment whenever changes in circumstances indicate that the assets may be
impaired. Similar to goodwill, the assessment for impairment requires estimates of future cash flows related to the intangible asset. To the extent the carrying value of the assets exceeds it future cash flows, an impairment loss is recorded based
on the fair value of the asset.



Depreciation of Property, Plant and
Equipment



Depreciation is calculated using the straight-line method based
on the estimated useful lives of the assets ranging from 3 to 30 years. Net property, plant and equipment was $259.2 million for the Partnership at December 31, 2003. If circumstances required a change in estimated useful lives of the assets, it
could have a material effect on results of operations. For example, if lives were shortened by one year, the Partnership estimates that depreciation for the three month period ended December 31, 2003 would have increased by approximately $0.7
million.





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##### Table of Contents

Critical Accounting Policies and Estimates(continued)



Assumptions Used in the Measurement of the Partnerships Defined Benefit Obligations



SFAS No. 87, Employers Accounting for Pensions requires
the Partnership to make assumptions as to the expected long-term rate of return that could be achieved on defined benefit plan assets and discount rates to determine the present value of the plans pension obligations. The Partnership evaluates
these critical assumptions at least annually.



The discount rate enables the
Partnership to state expected future cash flows at a present value on the measurement date. The rate is required to represent the market rate for high-quality fixed income investments. A lower discount rate increases the present value of benefit
obligations and increases pension expense. A 25 basis point decrease in the discount rate used for fiscal 2003 would have increased pension expense by approximately $0.1 million and would have increased the minimum pension liability by another $1.8
million. The Partnership assumed a discount rate of 6.00% as of September 30, 2003.



The Partnership considers the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets to determine its expected long-term rate of return on pension plan assets. The expected
long-term rate of return on assets is developed with input from the Partnerships actuarial firm. The long-term rate of return assumption used for determining net periodic pension expense for fiscals 2002 and 2003 was 8.50 percent. As of
September 30, 2003, this assumption was reduced to 8.25 percent for determining fiscal 2004 net periodic pension expense. A further 25 basis point decrease in the expected return on assets would have increased pension expense in fiscal 2003 by
approximately $0.1 million.



Over the life of the plans, both gains and losses
have been recognized by the plans in the calculation of annual pension expense. As of September 30, 2003, $17.2 million of unrecognized losses remain to be recognized by the plans. These losses may result in increases in future pension expense as
they are recognized.



Insurance Reserves



The Partnerships heating oil segment has in the past and is currently self-insuring a
portion of workers compensation, auto and general liability claims. In February 2003, the propane segment also began self-insuring a portion of its workers compensation claims. The Partnership establishes reserves based upon expectations
as to what its ultimate liability will be for these claims using developmental factors based upon historical claim experience. The Partnership continually evaluates the potential for changes in loss estimates with the support of qualified actuaries.
As of September 30, 2003, the heating oil segment had approximately $29.4 million of insurance reserves and the propane segment had $1.1 million of insurance reserves. The ultimate settlement of these claims could differ materially from the
assumptions used to calculate the reserves which could have a material effect on results of operations.





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##### Table of Contents

Item 3.



Quantitative and Qualitative Disclosures About Market Risk



The Partnership is exposed to interest rate risk primarily through its Bank Credit Facilities due to the fact that they are subject to variable interest rates. The Partnership utilizes these borrowings to meet its working capital needs and
also to fund the short-term needs of its acquisition program.



At December 31,
2003, the Partnership had outstanding borrowings totaling $601.9 million, of which approximately $127.9 million is subject to variable interest rates under its Bank Credit Facilities. The Partnership also has interest rate swaps with a notional
value of $55.0 million which swap fixed rate borrowings of 8.05% to variable rate borrowings based on the six month LIBOR interest rate plus 5.52%. In the event that interest rates associated with these facilities were to increase 100 basis points,
the impact on future cash flows would be a decrease of approximately $1.8 million annually.



The Partnership also selectively uses derivative financial instruments to manage its exposure to market risk related to changes in the current and future market price of home heating oil, propane and natural gas. The
Partnership does not hold derivatives for trading purposes. The value of market sensitive derivative instruments is subject to change as a result of movements in market prices. Consistent with the nature of hedging activity, associated unrealized
gains and losses would be offset by corresponding decreases or increases in the purchase price the Partnership would pay for the product being hedged. 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, 2003, the potential gain on the Partnerships hedging activity would be to increase the fair value of these outstanding derivatives by $7.3 million to
a fair value of $21.6 million; and conversely a hypothetical ten percent decrease in the cost of product would decrease the fair value of these outstanding derivatives by $6.0 million to a fair value of $8.2 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 of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financial officer concluded that, the Partnerships disclosure controls and
procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Partnership in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. The General Partner and the Partnership believe that a controls system, no matter how well designed and
operated, can not 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.



|(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.





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##### Table of Contents

PART II OTHER INFORMATION



Item 6.



Exhibits and Reports on Form 8-K



| | (a) | Exhibits Included Within:
| | --- | -------------------------



|      |  |                                                                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.35 |  | Credit agreement dated December 22, 2003, between Petroleum Heat and Power Co., Inc. and the agents, Fleet National Bank, JPMorgan Chase Bank and LaSalle Bank National
Association.
|      | 
|10.36 |  | First supplemental indenture dated January 22, 2004 to the indenture dated February 6, 2003 for the Partnerships 10 1⁄4% Senior Notes due 2013.                                      
|      | 
|31.1  |  | Rule 13a-14(a) Certification.                                                                                                                                                       
|      | 
|31.2  |  | Rule 13a-14(a) Certification.                                                                                                                                                       
|      | 
|32.1  |  | Section 906 Certification.                                                                                                                                                          
|      | 
|32.2  |  | Section 906 Certification.                                                                                                                                                          



| | (b) | Reports on Form 8-K:
| | --- | --------------------



12/4/03On December 4, 2003, Star Gas Partners, L.P., a Delaware partnership (the Partnership), issued a press release describing its
financial results for its fourth quarter and year ended September 30, 2003.



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##### Table of Contents

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: Star Gas LLC as General Partner





|                                                |  |                                                                    |  |                 
|----------------------------------------------- |  | ------------------------------------------------------------------ |  | ----------------
|Signature                                       |  | Title                                                              |  | Date            
|                                                |  |                                                                   
|/s/    Ami TrauberAmi Trauber                   |  | Chief Financial Officer Star Gas LLC (Principal Financial Officer) |  | January 29, 2004
|                                                |  |                                                                   
|/s/    James J. BottiglieriJames J. Bottiglieri |  | Vice President Star Gas LLC                                        |  | January 29, 2004



Star Gas Finance Company

(Registrant)



|                                                |  |                                                       |  |                 
|----------------------------------------------- |  | ----------------------------------------------------- |  | ----------------
|Signature                                       |  | Title                                                 |  | Date            
|                                                |  |                                                      
|/s/    Ami TrauberAmi Trauber                   |  | Chief Financial Officer (Principal Financial
Officer) |  | January 29, 2004
|                                                |  |                                                      
|/s/    James J. BottiglieriJames J. Bottiglieri |  | Vice President                                        |  | January 29, 2004





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