Inergy Reports Record First Quarter Earnings; 78% Increase in EBITDA

    Business Editors

    KANSAS CITY, Mo.--(BUSINESS WIRE)--Feb. 8, 2005--Inergy, L.P. (Nasdaq:NRGY) today reported its results of operations for the quarter ended December 31, 2004, the first quarter of fiscal 2005.
    For the three months ended December 31, 2004, Inergy, L.P. (Inergy) reported EBITDA of $30.4 million, an increase of $13.4 million, or 78%, over the $17.0 million reported in the first quarter of last year. Net income, before a write-off of $7.0 million of deferred financing costs associated with the Star Gas Propane, L.P. acquisition, was $18.0 million, or $0.67 per diluted limited partner unit, as compared to $9.4 million, or $0.45 per diluted limited partner unit for the same period in the prior year, a per unit increase of 49%. The improved EBITDA and net income results are attributable to our retail propane acquisitions, primarily Star Gas Propane L.P.
    As previously announced, the Board of Directors of the Partnership's general partner increased Inergy's quarterly cash distribution to $0.475 per unit ($1.90 annually) for the quarter ended December 31, 2004. This represents a 20% increase over the distribution for the same quarter of the prior year. The distribution will be paid on February 14, 2005, to unitholders of record as of February 7, 2005.
    "We are pleased with the results of our first quarter," said John Sherman, President and CEO of Inergy. Sherman continued, "During the period, we doubled the size of our operations with the Star Gas Propane acquisition. Our strong performance is the result of day-one execution on our business combination plans and an acute focus from our employees on the right priorities during the heating season."
    Retail gallon sales increased 72% to 73.3 million in the first quarter of fiscal 2005 from 42.5 million gallons sold in the same quarter last year. Retail propane gross profit increased to $49.7 million in the quarter ended December 31, 2004, from $27.9 million in the same quarter a year ago due to the increased sales volume from acquisitions and higher gross profit per gallon. Gross profit from wholesale operations was $5.3 million in the first quarter of both the fiscal 2005 and 2004 periods. Operating and administrative expenses were $34.8 million in the three months ended December 31, 2004, compared to $20.3 million in the first quarter of fiscal 2004. The increase in operating expenses is primarily the result of growth related to acquisitions.

    Inergy -- headquartered in Kansas City, Missouri -- is among the fastest growing Master Limited Partnerships in the country. The Company's operations include the retail marketing, sale and distribution of propane to residential, commercial, industrial and agricultural customers. Today, Inergy serves nearly 600,000 retail customers from 280 customer service centers throughout the eastern half of the United States. The Company also operates a growing supply logistics, transportation and wholesale marketing business that serves independent dealers and multi-state marketers in the United states and Canada.

    Inergy will conduct a live conference call and webcast on Tuesday, February 8, 2005, to discuss the Company's performance for the first quarter and the business outlook. The call will be at 3:30 p.m., CST. Call-in begins at 3:20 p.m., CST. The call-in number is 1-877-405-3427. The webcast can be accessed through Inergy's website at www.InergyPropane.com. A digital recording of the call will be available for one week following the call by dialing 1-800-642-1687 and entering the pass code 3719511. For more information, please contact Mike Campbell in Inergy's Investor Relations Department at 816-842-8181 or via e-mail at investorrelations@inergyservices.com.

    This press release contains forward-looking statements, which are statements that are not historical in nature. Forward-looking statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or any underlying assumption prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the key factors that could cause actual results to differ materially from those referred to in the forward-looking statements are: weather conditions that vary significantly from historically normal conditions, the general level of petroleum product demand and the availability of propane supplies, the price of propane to the consumer compared to the price of alternative and competing fuels, our ability to generate available cash for distribution to unitholders, the costs and effects of legal and administrative proceedings against us or which may be brought against us, and our ability to sustain our historical levels of growth. These and other risks and assumptions are described in Inergy's annual report on Form 10-K and other reports that are available from the United States Securities and Exchange Commission.

Inergy, L.P. and Subsidiary Consolidated Statements of Operations For the Three Months Ended December 31, 2004 and 2003 (in thousands, except per unit data)

(Unaudited) Three Months Ended December 31, 2004 2003 ------------------ Revenues: Propane $224,476 $120,824 Other 32,989 11,757 ------------------ 257,465 132,581

Cost of product sold 192,777 95,464 ------------------

Gross profit 64,688 37,117

Operating and administrative expenses 34,790 20,298 Depreciation and amortization 8,846 4,718 ------------------

Operating income 21,052 12,101

Other income (expense): Interest expense, net (3,469) (2,896) Write-off of deferred financing costs (b) (6,990) - Gain/(Loss) on sale of property, plant and equipment 173 45 Finance charges 236 115 Other 57 36 ------------------

Income before income taxes 11,059 9,401

Provision for income taxes 58 31 ------------------

Net income $11,001 $9,370 ==================

Net Income allocable to: Non-Managing General Partner Interest $728 $376 Limited Partner Interest 10,273 8,994 ------------------ $11,001 $9,370 ==================

Net Income Per Limited Partner Unit: Basic $0.41 $0.47 Diluted $0.40 $0.45

Supplemental Information: -------------------------

Retail gallons sold 73,307 42,519

Outstanding Debt: Working Capital Facility $51,000 $33,317 Acquisition Facility 81,000 41,250 Senior Unsecured Notes 425,000 - Senior Secured Notes - 85,717 Other Debt 10,955 3,834 ------------------ Total Debt $567,955 $164,118

Total Partners' Capital $461,432 $180,604 ==================

EBITDA: Net Income $11,001 $9,370 Interest expense, net 3,469 2,896 Write-off of deferred financing costs (b) 6,990 - Provision for income taxes 58 31 Depreciation and amortization 8,846 4,718 ------------------ EBITDA (a) $30,364 $17,015 ==================

Distributable Cash Flow: EBITDA (a) $30,364 $17,015 Cash interest expense, net (b) (3,133) (2,394) Maintenance capital expenditures (c) (800) (295) Provision for income taxes (58) (31) ------------------ Distributable cash flow (d) $26,373 $14,295 ==================

Weighted Average Limited Partner Units Outstanding: --------------------------------------------------- Basic 25,310 19,325 Diluted 25,874 19,779

    (a) EBITDA is defined as income before taxes, plus net interest expense (inclusive of write-off of deferred financing costs) and depreciation and amortization expense. EBITDA should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with generally accepted accounting principles as those items are used to measure operating performance, liquidity or ability to service debt obligations. EBITDA is presented because such information is relevant and is used by management, industry analysts, investors, lenders and rating agencies to assess the financial performance and operating results of our fundamental business activities. We believe that the presentation of EBITDA is useful to lenders and investors because of its use in the propane industry and for master limited partnerships as an indicator of the strength and performance of the ongoing business operations, including the ability to fund capital expenditures, service debt and pay distributions. Additionally, we believe that EBITDA provides useful information to our investors for trending, analyzing and benchmarking our operating results as compared to other companies that may have different financing and capital structures. The presentation of EBITDA allows investors to view our performance in a manner similar to the methods used by management and provides additional insight to our operating results.
    (b) Cash interest expense is net of amortization charges associated with deferred financing costs. Write-off of deferred financing costs includes $1.5 million from the early termination of a bank credit facility and $5.5 million associated with the incurrence and write-off in December 2004 of commitment and funding fees associated with the bridge financing facility utilized in the Star Gas Propane, L.P. acquisition.
    (c) Maintenance capital expenditures are defined as those capital expenditures which do not increase operating capacity or revenues from existing levels.
    (d) Distributable cash flow is defined as EBITDA, less cash interest expense, maintenance capital expenditures and income taxes. We believe that distributable cash flow provides additional information for evaluating the Partnership's ability to declare and pay distributions to unitholders. Distributable cash flow should not be considered an alternative to cash flow from operating activities or any other measure of financial performance in accordance with accounting principles generally accepted in the United States. Distributable cash flow, as we define it, may not be comparable to distributable cash flow or similarly titled measures used by other corporations or partnerships.

--30--AMM/dx*

CONTACT: Inergy, L.P. Mike Campbell, 816-842-8181 investorrelations@inergyservices.com

KEYWORD: MISSOURI KANSAS INDUSTRY KEYWORD: OIL/GAS ENERGY UTILITIES EARNINGS CONFERENCE CALLS SOURCE: Inergy, L.P.

Copyright Business Wire 2005