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Inergy Reports Third Quarter Results

EBITDA and Adjusted 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, and our ability to service debt obligations. We believe that EBITDA provides additional information for evaluating our ability to make the minimum quarterly distribution and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information for evaluating our financial performance without regard to our financing methods, capital structure, and historical cost basis. Further, EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA and Adjusted EBITDA or similarly titled measures used by other corporations or partnerships.

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 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; the demand for high deliverability natural gas storage capacity in the Northeast; our ability to successfully implement our business plan; the outcome of rate decisions levied by the Federal Energy Regulatory Commission; our ability to generate available cash for distribution to unitholders; and the costs and effects of legal, regulatory, and administrative proceedings against us or which may be brought against us. These and other risks and assumptions are described in Inergy’s annual reports on Form 10-K and other reports that are available from the United States Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made. We undertake no obligation to update any forward-looking statement, except as otherwise required by law.

 

Inergy, L.P. and Subsidiaries

Consolidated Statements of Operations
For the Three Months and Nine Months Ended June 30, 2012 and 2011
(in millions, except unit and per unit data)
 
      (Unaudited)       (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2012         2011   2012         2011  
Revenues:
Propane $ 203.7 $ 220.4 $ 1,132.3 $ 1,187.9
Other   167.9     168.3     570.3     517.3  
371.6 388.7 1,702.6 1,705.2
 
Cost of product sold (excluding depreciation and amortization as shown below):
Propane 148.2 164.0 851.2 819.1
Other   93.3     107.7     340.7     321.4  
241.5 271.7 1,191.9 1,140.5
 
Expenses:
Operating and administrative 83.1 77.4 247.1 243.6
Depreciation and amortization 38.2 48.0 136.6 141.8
Loss on disposal of assets   2.2     0.5     5.8     3.1  
Operating income (loss) 6.6 (8.9 ) 121.2 176.2
 
Other income (expense):
Interest expense, net (22.8 ) (27.2 ) (73.2 ) (87.5 )
Early extinguishment of debt (1.7 ) (0.2 ) (26.6 ) (49.6 )
Other income   0.1     1.1     1.5     1.2  
Income (loss) before income taxes (17.8 ) (35.2 ) 22.9 40.3
Benefit (provision) for income taxes   0.1     (0.3 )   (0.2 )   (0.7 )
Net income (loss) (17.7 ) (35.5 ) 22.7 39.6
Net (income) loss attributable to non-controlling partners

 

(4.1

)

 

-

   

(7.8

)

 

28.2

 

Net income (loss) attributable to partners $ (21.8 ) $ (35.5 ) $ 14.9   $ 67.8  
 
Total limited partners’ interest in net income (loss) $ (21.8 ) $ (35.5 ) $ 14.9   $ 67.8  
 
Net income (loss) per limited partner unit:
Basic (j) $ (0.15 ) $ (0.32 ) $ 0.17   $ 0.67  
Diluted $ (0.17 ) $ (0.32 ) $ 0.11   $ 0.60  
 
Weighted average limited partners’ units outstanding (in thousands):
Basic   125,818     112,538     124,698     101,215  
Diluted   125,818     112,538     131,556     113,077  
 
 

      (Unaudited)       (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2012         2011   2012         2011  

Supplemental Information:

Retail gallons sold 38.9 45.7 222.0 282.5
 
Cash and cash equivalents $ 4.9 $ 158.6
 
Outstanding debt:
Inergy credit agreement:
Term loan facility $ - $ 300.0
Revolving loan facility 170.2 -
Inergy senior unsecured notes 1,200.8 1,466.1
Inergy fair value hedge adjustment on senior unsecured notes - 4.8
Inergy net bond/swap discount (e) (f) 10.8 (4.3 )
Inergy other debt 2.0 1.2
NRGM credit facility (h)   324.2     -  
Total debt $ 1,708.0   $ 1,767.8  
 
Total partners’ capital $ 1,229.9   $ 1,283.7  
 
Limited partner units outstanding (in thousands):
Common units 125,827 119,087
Class B units (g)   5,882     11,963  
Total common and Class B limited partner units   131,709     131,050  
 
EBITDA:
Net income (loss) $ (17.7 ) $ (35.5 ) $ 22.7 $ 39.6
Interest expense, net 22.8 27.2 73.2 87.5
Early extinguishment of debt 1.7 0.2 26.6 49.6
Provision (benefit) for income taxes (0.1 ) 0.3 0.2 0.7
Depreciation and amortization   38.2     48.0     136.6     141.8  
EBITDA (a) $ 44.9   $ 40.2   $ 259.3   $ 319.2  
Non-cash (gain) loss on derivative contracts 0.5 0.1 (0.1 ) (0.2 )
Long-term incentive and equity compensation expense 3.6 1.5 9.8 4.4
Loss on disposal of assets 2.2 0.5 5.8 3.1
Transaction costs   3.2     0.1     4.3     9.0  
Adjusted EBITDA (a) $ 54.4   $ 42.4   $ 279.1   $ 335.5  
 
Distributable cash flow:
Adjusted EBITDA (a) $ 54.4 $ 42.4 $ 279.1 $ 335.5
Cash interest expense (b) (21.1 ) (25.6 ) (68.2 ) (82.7 )
Maintenance capital expenditures (c) (2.5 ) (4.1 ) (9.3 ) (9.8 )
Income tax benefit (expense) 0.1 (0.3 ) (0.2 ) (0.7 )
Inergy Midstream distributions declared and paid for minority unitholders (i)  

(7.1

)

 

-

   

(14.7

)

 

-

 
Distributable cash flow (d) $ 23.8   $ 12.4   $ 186.7   $ 242.3  
 
EBITDA:
Net cash provided by operating activities $ 58.7 $ 8.7 $ 253.2 $ 130.5
Net changes in working capital balances (28.5 ) 9.9 (63.1 ) 77.7
Non-cash early extinguishment of debt (1.7 ) - (10.0 ) (11.2 )
Provision for doubtful accounts (1.4 ) (2.4 ) (1.8 ) (2.6 )
Amortization of deferred financing costs, swap premium and net bond discount

(1.2

)

(1.9

)

(3.9

)

(5.7

)

Long-term incentive and equity compensation expense (3.6 ) (1.5 ) (9.8 ) (4.4 )
Loss on disposal of assets (2.2 ) (0.5 ) (5.8 ) (3.1 )
Deferred income tax 0.4 0.2 0.5 0.2
Interest expense, net 22.8 27.2 73.2 87.5
Early extinguishment of debt 1.7 0.2 26.6 49.6
Provision (benefit) for income taxes   (0.1 )   0.3     0.2     0.7  
EBITDA $ 44.9   $ 40.2   $ 259.3   $ 319.2  
Non-cash (gain) loss on derivative contracts 0.5 0.1 (0.1 ) (0.2 )
Long-term incentive and equity compensation expense 3.6 1.5 9.8 4.4
Loss on disposal of assets 2.2 0.5 5.8 3.1
Transaction costs   3.2     0.1     4.3     9.0  
Adjusted EBITDA $ 54.4   $ 42.4   $ 279.1   $ 335.5  
(a)     EBITDA is defined as income (loss) before taxes plus net interest expense, early extinguishment of debt, and depreciation and amortization expense. As indicated in the table, Adjusted EBITDA represents EBITDA excluding the gain or loss on derivative contracts associated with retail propane fixed price sales contracts, the gain or loss on the disposal of assets, long-term incentive and equity compensation expenses, and transaction costs. Transaction costs are third party professional fees and other costs that are incurred in conjunction with closing a transaction. EBITDA and Adjusted 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, and our ability to service debt obligations. We believe that EBITDA provides additional information for evaluating our ability to make the minimum quarterly distribution and is presented solely as a supplemental measure. We believe that Adjusted EBITDA provides additional information for evaluating our financial performance without regard to our financing methods, capital structure, and historical cost basis. EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA and Adjusted EBITDA or similarly titled measures used by other corporations or partnerships.
 
(b) Cash interest expense is book interest expense less amortization of deferred financing costs.
 
(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 Adjusted EBITDA, less cash interest expense, maintenance capital expenditures, and income taxes. Distributable cash flow should not be considered an alternative to 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 the ability to service debt obligations. We believe that distributable cash flow provides additional information for evaluating our ability to declare and pay distributions to unitholders. 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. Subsequent to the Inergy Midstream, L.P. initial public offering, this amount includes the distributable cash flow of Inergy Midstream except that which has been paid or declared payable to the public unitholders of Inergy Midstream.
 
(e) In April 2008, the Company announced the placement of a $200 million add-on to its existing 8.25% senior unsecured notes under Rule 144A to eligible purchasers. The proceeds from the bond issuance were $204 million, representing a premium of $4 million to par. The $4 million premium will be amortized on a non-cash basis over the term of the senior notes.
 
(f) In February 2009, the Company closed on a $225 million offering of senior notes under Rule 144A to eligible purchasers. The 8¾% notes were issued at 90.191%, which resulted in a discount of $22.1 million. The discount will be amortized on a non-cash basis over the term of the senior notes.
 
(g) The Class B units have similar rights and obligations of Inergy, L.P. common units except that the units will pay distributions in kind rather than in cash for a certain period of time. For a complete description of the Class B units, please see the Third Amended and Restated Agreement of Limited Partnership of Inergy, filed on Form 8-K on November 5, 2010.
 
(h) Inergy and each of its wholly owned subsidiaries do not provide credit support nor do they guarantee any amounts outstanding under the NRGM Credit Facility.
 
(i) The amount of distributions for the three and nine months ended June 30, 2012, includes amounts that are to be received by Inergy Midstream’s minority unitholders based on the $0.38 distribution per limited partner unit declared on July 26, 2012. The amount of distributions for the nine months ended June 30, 2012, also includes the $0.04 and $0.37 distributions per limited partner unit paid to Inergy Midstream’s minority unitholders on February 14, 2012, and May 15, 2012, respectively.
 
(j) Basic net income applicable to partners’ common interest is increased for the disproportionate ownership of Class B units in the undistributed earnings relative to their ownership of distributed earnings. This impact resulted in an increase to basic net income per limited partner unit of $0.02 and $0.05 for the three and nine month periods ended June 30, 2012, respectively.




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