Inergy Reports Record Second Quarter 2005 Earnings; Net Income Per Uni

Inergy Reports Record Second Quarter 2005 Earnings; Net Income Per Unit Up 45% and Distributable Cash Flow Per Unit Up 59%; EBITDA Increases 159%

    Business Editors

    KANSAS CITY, Mo.--(BUSINESS WIRE)--May 5, 2005--

Management Conference Call Scheduled for 3:30 CDT Today
    Inergy, L.P. (Nasdaq:NRGY) today reported its results of operations for the quarter ended March 31, 2005, the second quarter of fiscal 2005.
    For the three months ended March 31, 2005, Inergy, L.P. (Inergy) reported EBITDA of $78.0 million, an increase of $47.9 million, or 159%, over the $30.1 million reported in the second quarter of last year. For the six-month period, EBITDA increased 130% to $108.4 million from $47.1 million last year. Net income for the quarter ended March 31, 2005, was $55.0 million, or $1.49 per diluted limited partner unit. Net income in the comparable prior year period, before an $18.2 million net charge to earnings associated with the early retirement of debt recorded in January 2004, was $23.6 million, or $1.03 per diluted limited partner unit. For the six-month period ended March 31, 2005, net income, before a $7.0 million net charge to earnings associated with the early retirement of debt recorded in December 2004, was $73.0 million, or $2.46 per diluted limited partner unit. Net income in the comparable prior year six month period, before $18.2 million net charge to earnings in January 2004, was $33.0 million, or $1.55 per diluted limited partner unit.
    As previously announced, the Board of Directors of the Partnership's general partner increased Inergy's quarterly cash distribution to $0.50 per unit ($2.00 annually) for the quarter ended March 31, 2005. This represents a 23% increase over the distribution for the same quarter of the prior year. The distribution will be paid on May 13, 2005, to unitholders of record as of May 6, 2005.
    "We are extremely pleased with our strong financial performance in the face of yet another challenging operating environment for the industry," said John Sherman, President and CEO of Inergy. Sherman continued, "Inergy's flexible entrepreneurial business model continues to demonstrate our unique capability to react to factors impacting demand and pricing in our market areas. Our employees' contributions have been essential to this performance."
    The improved EBITDA and net income results for the three and six-month periods ended March 31, 2005, are primarily attributable to our retail propane acquisitions. In addition, higher retail margins and lower operating expenses at our existing retail locations served to partially offset lower volume sales that were a result of higher propane costs and warmer weather.
    Retail gallon sales increased 161% to 147.8 million in the second quarter of fiscal 2005 from 56.7 million gallons sold in the same quarter last year. For the six-month period, retail gallon sales increased 123% to 221.1 million gallons in 2005 compared to 99.2 million gallons sold in the same period of the prior year. Retail propane gross profit increased to $111.5 million in the quarter ended March 31, 2005, from $39.8 million in the same quarter of the prior year due to the increased sales volume from acquisitions and higher gross profit per gallon. Retail propane gross profit in the six months ended March 31, 2005, was $161.3 million as compared to $67.7 million in the same period of 2004.
    Gross profit from wholesale operations was $4.8 million in the second quarter of fiscal 2005 compared to $6.2 million in the same period of 2004. In the six months ended March 31, 2005, gross profit from wholesale operations was $10.1 million as compared to $11.5 million in the same period of 2004.
    Operating and administrative expenses were $59.2 million in the three months ended March 31, 2005, compared to $20.2 million in the same period of 2004. For the six months ended March 31, 2005, operating and administrative expenses were $94.0 million compared to $40.5 million in the same period of 2004. The increase in operating expenses is the result of growth related to acquisitions.
    In December 2004, Inergy repaid in full its 364-day credit facility and prior credit agreement with proceeds from offerings of common units and senior unsecured notes and borrowings under its new bank credit facility. The early retirement of this debt resulted in a net charge to earnings in the first quarter of fiscal 2005 of approximately $7.0 million related to the write-off of deferred financing costs associated with the debt. In January 2004 Inergy repaid in full its senior secured notes with proceeds from a common unit offering and borrowings under its bank credit facility. The early retirement of this debt resulted in a net charge to earnings in the second quarter of fiscal 2004 of approximately $18.2 million comprised of a make-whole premium paid to the lenders ($17.9 million) and the write-off of deferred financing costs associated with the debt ($1.2 million) partially offset by a gain recognized on the termination of an interest rate swap agreement associated with the debt ($0.9 million). Although these are reflected as charges to earnings, these net charges do not affect Inergy's distributable cash flow.

    Inergy -- headquartered in Kansas City, Missouri -- is among the fastest growing Master Limited Partnerships in the country. Inergy'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. Inergy also operates a 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 Thursday, May 5, 2005, to discuss the company's performance for the second quarter and the business outlook. The call will be at 3:30 p.m., CDT. Call-in begins at 3:20 p.m., CDT. 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 the one week following the call by dialing 1-800-642-1687 and entering the pass code 5560802. 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 such as our business outlook. 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 proves 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, and the costs and effects of legal and administrative proceedings against us or which may be brought against us. 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 and Six Months Ended March 31, 2005 and 2004 (in thousands, except per unit data)

(Unaudited) (Unaudited) Three Months Ended Six Months Ended March 31, March 31, 2005 2004 2005 2004 ------------------ ------------------ Revenue: Propane $356,232 $167,422 $580,708 $288,247 Other 58,196 10,646 91,185 22,403 ------------------ ------------------ 414,428 178,068 671,893 310,650

Cost of product sold (excluding depreciation and amortization as shown below) Propane 243,402 126,346 416,045 216,375 Other 34,513 1,402 54,647 6,838 ------------------ ------------------ Cost of product sold 277,915 127,748 470,692 223,213 ------------------ ------------------

Gross profit 136,513 50,320 201,201 87,437

Operating and administrative expenses 59,187 20,188 93,977 40,487 Depreciation and amortization 12,383 4,958 21,229 9,676 ------------------ ------------------

Operating income 64,943 25,174 85,995 37,274

Other income (expense): Interest expense, net (10,405) (1,471) (13,874) (4,367) Write-off of deferred financing costs (a) - (1,216) (6,990) (1,216) Make whole premium charge (b) - (17,949) - (17,949) Swap value received (c) - 949 - 949 Gain/(loss) on sale of property, plant and equipment (73) (325) 100 (279) Finance charges 676 238 912 353 Other 94 42 151 78 ------------------ ------------------

Income before income taxes 55,235 5,442 66,294 14,843

Provision for income taxes 276 20 334 51 ------------------ ------------------

Net income $54,959 $5,422 $65,960 $14,792 ================== ==================

Net income allocable to: Non-Managing General Partner Interest (d) $5,001 $109 $5,798 $296 Limited Partner Interest 49,958 5,313 60,162 14,496 ------------------ ------------------ $54,959 $5,422 $65,960 $14,792 ================== ==================

Net Income Per Limited Partner Unit: Basic $1.52 $0.24 $2.07 $0.70 Diluted $1.49 $0.23 $2.03 $0.68 ================== ==================

(a) Deferred financing costs that were being amortized were written off as a result of the early retirement of the debt with which they were associated. (b) Represents contractual premium paid to lenders upon early retirement of the senior secured notes in January 2004. (c) Gain upon termination of interest rate swap agreement associated with the senior secured notes that were retired in January 2004. (d) On March 10, 2005 the board of directors of Inergy GP, LLC declared a quarterly distribution of $0.50 for the quarter ended March 31, 2005. This distribution is payable on May 13, 2005. Accordingly, we accrued this distribution in the March quarter and as such the allocation of net income to the non-managing general partner reflects this distribution in addition to the distribution paid on February 14, 2005.

(Unaudited) (Unaudited) Three Months Ended Six Months Ended March 31, March 31, 2005 2004 2005 2004 Supplemental Information: -------------------------

Retail gallons sold 147,756 56,650 221,063 99,169

Outstanding Debt: Working Capital Facility $- $- Acquisition Facility 81,500 75,939 Senior Unsecured Notes 422,254 - Other Debt 8,311 4,750 ------------------ Total Debt $512,065 $80,689 ==================

Total Partners' Capital $500,308 $261,668 ==================

EBITDA: Net Income $54,959 $5,422 $65,960 $14,792 Interest expense, net 10,405 1,471 13,874 4,367 Write-off of deferred financing costs (b) - 1,216 6,990 1,216 Make whole premium charge - 17,949 - 17,949 Swap value received - (949) - (949) Provision for income taxes 276 20 334 51 Depreciation and amortization 12,383 4,958 21,229 9,676 ---------------- ------------------ EBITDA (a) $78,023 $30,087 $108,387 $47,102 ================ ==================

Distributable Cash Flow: EBITDA (a) $78,023 $30,087 $108,387 $47,102 Cash interest expense (b) (9,909) (1,160) (13,042) (3,554) Maintenance capital expenditures (c) (954) (167) (1,754) (462) Provision for income taxes (276) (20) (334) (51) ---------------- ------------------ Distributable cash flow (d) $66,884 $28,740 $93,257 $43,035 ================ ==================

Weighted Average Limited Partner Units Outstanding: ------------------------------- Basic 32,856 22,401 29,042 20,855 Diluted 33,498 22,877 29,645 21,320

(a) EBITDA is defined as income before taxes, plus net interest expense (inclusive of write-off of deferred financing costs, make whole premium charge, less gain from termination of interest rate swap agreement) 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 for the six months ended March 31, 2005 includes $1.5 million from the early retirement 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 and partnerships.

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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.

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