NRGY - 10Q - Q1 13
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2012
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: 001-34664
Inergy, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
 
43-1918951
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
Two Brush Creek Blvd., Suite 200
Kansas City, Missouri
 
64112
(Address of principal executive offices)
 
(Zip code)
(816) 842-8181
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)

 
 
Indicate by check mark whether the registrant (1) has 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) has been subject to such filing requirements for the past 90 days.     Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
 (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý


Table of Contents

INERGY, L.P.
INDEX TO FORM 10-Q


Page
 
 
 
 
 
 
Consolidated Balance Sheets as of December 31, 2012 (unaudited) and September 30, 2012
 
 
Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2012 and 2011
 
 
Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2012 and 2011
 
 
Unaudited Consolidated Statement of Partners’ Capital for the Three Months Ended December 31, 2012
 
 
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2012 and 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents



INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except unit information)
 
December 31,
2012
 
September 30,
2012
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1.8

 
$

Accounts receivable, less allowance for doubtful accounts of $0.4 million at December 31, 2012 and September 30, 2012, respectively
201.7

 
133.6

Inventories (Note 3)
63.5

 
87.1

Assets from price risk management activities
30.8

 
37.5

Prepaid expenses and other current assets
19.1

 
20.3

Total current assets
316.9

 
278.5

 
 
 
 
Property, plant and equipment (Note 3)
2,297.9

 
2,160.7

Less: accumulated depreciation
484.7

 
450.2

Property, plant and equipment, net
1,813.2

 
1,710.5

 
 
 
 
Intangible assets (Note 3):
 
 
 
Customer accounts
194.4

 
41.2

Other intangible assets
36.2

 
21.3

 
230.6

 
62.5

Less: accumulated amortization
23.7

 
21.2

Intangible assets, net
206.9

 
41.3

 
 
 
 
Goodwill
330.8

 
165.8

Other assets
11.1

 
11.5

Total assets
$
2,678.9

 
$
2,207.6

 
 
 
 
Liabilities and partners’ capital
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
143.5

 
$
120.8

Accrued expenses
68.0

 
93.9

Liabilities from price risk management activities
24.2

 
20.9

Current portion of long-term debt (Note 7)
2.1

 
3.4

Total current liabilities
237.8

 
239.0

 
 
 
 
Long-term debt, less current portion (Note 7)
1,024.2

 
739.8

Other long-term liabilities
22.7

 
23.4

Deferred income taxes
20.3

 
20.6

 
 
 
 
Partners’ capital (Note 8):
 
 
 
Limited partner unitholders (131,740,895 and 125,795,836 common units issued and outstanding at December 31, 2012 and September 30, 2012, respectively, and 5,882,105 Class B units issued and outstanding at September 30, 2012)
1,113.6

 
1,046.2

Total Inergy, L.P. partners’ capital
1,113.6

 
1,046.2

Interest of non-controlling partners in subsidiaries
260.3

 
138.6

Total partners’ capital
1,373.9

 
1,184.8

Total liabilities and partners’ capital
$
2,678.9

 
$
2,207.6


The accompanying notes are an integral part of these consolidated financial statements.

3

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INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except unit and per unit data)
(unaudited)
 
Three Months Ended
 
December 31,
 
2012
 
2011
Revenue:
 
 
 
Retail
$

 
$
295.0

Marketing, supply and logistics
370.8

 
314.4

Storage and transportation
67.8

 
59.2


438.6

 
668.6

 
 
 
 
Cost of product sold (excluding depreciation and amortization as shown below):
 
 
 
Retail

 
178.8

Marketing, supply and logistics
338.8

 
295.1

Storage and transportation
19.8

 
13.9

 
358.6

 
487.8

Expenses:
 
 
 
Operating and administrative
32.5

 
82.6

Depreciation and amortization
36.3

 
48.7

Loss on disposal of assets
0.8

 
1.4

Operating income
10.4

 
48.1

 
 
 
 
Other income (expense):
 
 
 
Interest expense, net
(8.1
)
 
(28.0
)
Early extinguishment of debt

 
(24.9
)
Other income
0.6

 
1.3

Income (loss) before income taxes
2.9

 
(3.5
)
Provision for income taxes
0.1

 
0.1

Net income (loss)
2.8

 
(3.6
)
Net income attributable to non-controlling partners
(1.5
)
 
(0.4
)
Net income (loss) attributable to partners
$
1.3

 
$
(4.0
)
 
 
 
 
Partners' interest information:
 
 
 
Total limited partners’ interest in net income (loss)
$
1.3

 
$
(4.0
)
 
 
 
 
Net income (loss) per limited partner unit:
 
 
 
Basic
$
0.01

 
$
(0.03
)
Diluted
$
0.01

 
$
(0.03
)
 
 
 
 
Weighted-average limited partners’ units outstanding (in thousands):
 
 
 
Basic
128,769

 
122,556

Dilutive units
2,813

 

Diluted
131,582

 
122,556


The accompanying notes are an integral part of these consolidated financial statements.


4

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INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
 
Three Months Ended December 31,

2012
 
2011
 
 
 
 
Net income (loss)
$
2.8

 
$
(3.6
)
Change in unrealized fair value on cash flow hedges (Note 2)
4.1

 
(2.6
)
Change in Suburban Propane Partners, L.P. units (Note 2)
(0.4
)
 

Comprehensive income (loss)
$
6.5

 
$
(6.2
)

The accompanying notes are an integral part of these consolidated financial statements.


5

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INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
(in millions)
(unaudited)
 
Common Unit
Capital
 
Non-Controlling
Partners
 
Total Partners’
Capital
Balance at September 30, 2012
$
1,046.2

 
$
138.6

 
$
1,184.8

Net proceeds from issuance of common units by Inergy Midstream, L.P.

 
224.7

 
224.7

Net proceeds from common unit options exercised
0.7

 

 
0.7

Unit-based compensation charges
2.2

 
0.9

 
3.1

Retirement of common units
(2.0
)
 

 
(2.0
)
Distributions
(36.7
)
 
(7.2
)
 
(43.9
)
Gain (loss) on issuance of Inergy Midstream, L.P. units
98.2

 
(98.2
)
 

Change in unrealized fair value on cash flow hedges and change in Suburban Propane Partners, L.P. units
3.7

 

 
3.7

Net income
1.3

 
1.5

 
2.8

Balance at December 31, 2012
$
1,113.6

 
$
260.3

 
$
1,373.9


The accompanying notes are an integral part of these consolidated financial statements.


6

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INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended
 
December 31,
 
2012
 
2011
Operating activities
 
 
 
Net income (loss)
$
2.8

 
$
(3.6
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and depletion
34.8

 
39.9

Amortization
1.5

 
8.8

Amortization of deferred financing costs, swap premium and bond discount
3.3

 
1.5

Unit-based compensation charges
3.1

 
3.1

Provision for doubtful accounts
0.1

 
(0.1
)
Loss on disposal of assets
0.8

 
1.4

Deferred income taxes
(0.3
)
 
(0.1
)
Early extinguishment of debt

 
8.3

Changes in operating assets and liabilities, net of effects from acquisitions:
 
 
 
Accounts receivable
(64.9
)
 
(69.5
)
Inventories
23.6

 
56.0

Prepaid expenses and other current assets
1.3

 
(4.5
)
Other assets (liabilities)
0.2

 
(0.1
)
Accounts payable and accrued expenses
8.1

 
(0.7
)
Customer deposits

 
(7.4
)
Net liabilities from price risk management activities
13.6

 
(9.8
)
Net cash provided by operating activities
28.0

 
23.2

 
 
 
 
Investing activities
 
 
 
Acquisitions, net of cash acquired
(423.4
)
 
(19.8
)
Purchases of property, plant and equipment
(52.2
)
 
(57.1
)
Proceeds from sale of assets

 
2.7

Net cash used in investing activities
(475.6
)
 
(74.2
)
The accompanying notes are an integral part of these consolidated financial statements.

7

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INERGY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in millions)
(unaudited)
 
Three Months Ended
 
December 31,
 
2012
 
2011
Financing activities
 
 
 
Proceeds from the issuance of Inergy, L.P. long-term debt
$
203.2

 
$
577.7

Proceeds from the issuance of Inergy Midstream, L.P. long-term debt
581.1

 
86.8

Principal payments on Inergy, L.P. long-term debt
(183.5
)
 
(803.2
)
Principal payments on Inergy Midstream, L.P. long-term debt
(317.8
)
 
(6.6
)
Proceeds from the issuance of promissory note

 
255.0

Principal payment on promissory note

 
(255.0
)
Distributions
(36.7
)
 
(83.9
)
Distributions paid to non-controlling partners
(7.2
)
 

Payments for deferred financing costs
(13.1
)
 
(4.6
)
Net proceeds from issuance of Inergy Midstream, L.P. common units
224.7

 
292.7

Retirement of common units
(2.0
)
 
(1.1
)
Net proceeds from Inergy, L.P. common unit options exercised
0.7

 
0.4

Net cash provided by financing activities
449.4

 
58.2

 
 
 
 
Net increase in cash
1.8

 
7.2

Cash at beginning of period

 
11.5

Cash at end of period
$
1.8

 
$
18.7

 
 
 
 
Supplemental schedule of noncash investing and financing activities
 
 
 
Change in the value of intangible assets and equity
$

 
$
(3.0
)
Net change to property, plant and equipment through accounts payable and accrued expenses
$
(15.4
)
 
$
(7.0
)
Change in the fair value of interest rate swap liability and related long-term debt
$

 
$
(0.1
)
 
 
 
 
Acquisitions, net of cash acquired:
 
 
 
Current assets
$
3.3

 
$
4.7

Property, plant and equipment
100.9

 
10.5

Intangible assets
157.2

 
2.0

Goodwill
165.0

 
3.2

Other assets

 
0.1

Current liabilities
(3.5
)
 

Debt
0.5

 
(0.7
)
Total acquisitions, net of cash acquired
$
423.4

 
$
19.8


The accompanying notes are an integral part of these consolidated financial statements.


8

Table of Contents

INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 – Partnership Organization and Basis of Presentation

Organization

The accompanying consolidated financial statements include the accounts of Inergy, L.P. (“Inergy” or "the Company") and its wholly owned subsidiaries, including among others, Inergy Partners, LLC (“Partners”), Tres Palacios Gas Storage LLC ("TPGS"), IPCH Acquisition Corp. (“IPCHA”), Inergy Finance Corp. and Inergy Operations, LLC. The accompanying consolidated financial statements also include the accounts of Inergy's majority-owned subsidiary, Inergy Midstream, L.P. (“Inergy Midstream”), and its wholly-owned subsidiaries.

NRGM GP, LLC Change of Control Event

In connection with the Inergy Midstream initial public offering ("IPO"), Inergy and Inergy Holdings GP, LLC (“Holdings GP”), the indirect owner of Inergy's general partner, entered into a membership interest purchase agreement under which, under certain circumstances, Holdings GP will be required to purchase from Inergy, and Inergy will be required to sell to Holdings GP, all of the membership interests in MGP GP, LLC, the entity that controls Inergy Midstream's general partner, for nominal consideration. MGP GP, LLC is a wholly owned subsidiary of Inergy and the general partner of Inergy Midstream Holdings, L.P., which is the sole member of Inergy Midstream's general partner and direct holder of all of its IDRs. Under the agreement, Holdings GP is required to purchase MGP GP, LLC in the event that (i) a change of control of Inergy occurs at a time when Inergy is entitled to receive less than 50% of all cash distributed with respect to Inergy Midstream's limited partner interests and IDRs or (ii) through dilution or a distribution to the Inergy common unitholders of Inergy's interests in Inergy Midstream, Inergy is entitled to receive less than 25% of all cash distributed with respect to Inergy Midstream's limited partner interests and IDRs.

Nature of Operations

Inergy's financial statements reflect two operating and reporting segments: (i) marketing, supply and logistics operations and (ii) storage and transportation operations. Inergy's marketing, supply and logistics operations provide natural gas liquids ("NGLs") and crude oil marketing, supply and logistics services to producers, refiners, petrochemical companies, marketers, and others that effectively provide flow assurances to our customers. Inergy's marketing, supply and logistics assets primarily includes its West Coast operations, a fleet of 275 tractors and 457 transports managed by a team of experienced employees in the NGL business, and a crude oil loading and storage terminal (the "COLT Hub") that was acquired by Inergy Midstream on December 7, 2012. The historical results of the retail propane operations that were contributed to Suburban Propane Partners, L.P. (“SPH”) on August 1, 2012 are also included in this segment.

Inergy's storage and transportation operations provide natural gas and NGL storage and transportation services to third parties, as well as the production and sale of salt products. Inergy's storage and transportation assets include the Tres Palacios natural gas storage facility in Texas. Through its ownership interest in Inergy Midstream, Inergy has an investment in four natural gas storage facilities in New York (Stagecoach, Thomas Corners, Steuben and Seneca Lake), natural gas transportation assets in New York and Pennsylvania (the North-South Facilities, the MARC I Pipeline, and the East Pipeline), an NGL storage facility in New York (Bath storage facility) and a solution-mining and salt production company in New York (US Salt).

Basis of Presentation

The financial information contained herein as of December 31, 2012, and for the three-month periods ended December 31, 2012 and 2011, is unaudited. Inergy believes this information has been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. Inergy also believes this information includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods then ended.

On August 1, 2012, Inergy contributed its retail propane operations to SPH.  ASC 205 requires that in order for a transaction to be considered discontinued operations, the gross cash flows related to the continuing involvement with the discontinued operations must be immaterial. The financial statements do not report the retail propane operations as discontinued as the involvement of Inergy with the retail propane operations subsequent to contribution is expected to be material due to a propane supply arrangement between Inergy and SPH.

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Table of Contents
INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements of Inergy, L.P. and subsidiaries and the notes thereto included in Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended September 30, 2012.

Reclassifications

The consolidated statement of operations for the three months ended December 31, 2011 reflects a reclassification within revenue and a reclassification within cost of product sold to conform to the current period presentation. For the three months ended December 31, 2011, propane and other revenue was $478.7 million and $189.9 million, respectively, and propane and other cost of product sold was $374.4 million and $113.4 million, respectively. These reclassifications had no effect on net income.


Note 2 – Summary of Significant Accounting Policies

Financial Instruments and Price Risk Management

Inergy utilizes certain derivative financial instruments to (i) manage its exposure to commodity price risk, specifically, the related change in the fair value of inventories, as well as the variability of cash flows related to forecasted transactions; (ii) ensure adequate physical supply of commodity will be available; and (iii) manage its exposure to interest rate risk associated with fixed and variable rate borrowings. Inergy records all derivative instruments on the balance sheet as either assets or liabilities measured at fair value. Changes in the fair value of these derivative financial instruments are recorded either through current earnings or as other comprehensive income, depending on the type of transaction.

Inergy is party to certain commodity derivative financial instruments that are designated as hedges of selected inventory positions, and qualify as fair value hedges. Inergy is also periodically party to certain interest rate swap agreements designed to manage interest rate risk exposure. Inergy’s overall objective for entering into fair value hedges is to manage its exposure to fluctuations in commodity prices and changes in the fair market value of its inventories and fixed and variable rate borrowings. The commodity derivatives are recorded at fair value on the balance sheets as price risk management assets or liabilities and the related change in fair value is recorded to earnings in the current period as cost of product sold. The interest rate derivatives are recorded at fair value on the balance sheets in other assets or liabilities and the related change in fair value is recorded to earnings in the current period as interest expense.

Any ineffective portion of the fair value hedges is recognized as cost of product sold in the current period. Inergy recognized net gains of $2.1 million and $1.0 million in the three months ended December 31, 2012 and 2011, respectively, related to the ineffective portion of its fair value hedging instruments. In addition, Inergy recognized no gain or loss for the three months ended December 31, 2012 and 2011, related to the portion of fair value hedging instruments that it excluded from its assessment of hedge effectiveness.

Inergy also enters into derivative financial instruments that qualify as cash flow hedges, which hedge the exposure of variability in expected future cash flows predominantly attributable to forecasted purchases to supply fixed price sale contracts and variable interest payments. These derivatives are recorded on the balance sheet at fair value as price risk management assets or liabilities. The effective portion of the gain or loss on these cash flow hedges is recorded in other comprehensive income in partner's capital and reclassified into earnings in the same period in which the hedge transaction affects earnings. In certain situations under the rules, the ineffective portion of the gain or loss is recognized as cost of product sold in the current period. Accumulated other comprehensive loss was $11.2 million and $14.9 million at December 31, 2012 and September 30, 2012, respectively. Included in accumulated other comprehensive loss at December 31, 2012 was a loss of $3.9 million attributable to commodity instruments, a loss of $6.9 million attributable to interest rate swaps, and a loss of $0.4 million attributable to SPH units. Approximately $3.6 million is expected to be reclassified to earnings from other comprehensive income over the next twelve months.

Inergy’s policy is to offset fair value amounts of derivative instruments and cash collateral paid or received with the same counterparty under a master netting arrangement.

The cash flow impact of derivative financial instruments is reflected as cash flows from operating activities in the consolidated statements of cash flows.


10

Table of Contents
INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Revenue Recognition

Sales of NGLs and salt are recognized at the time product is shipped or delivered to the customer depending on the sales terms. NGL processing and fractionation fees are recognized upon delivery of the product. Revenues from the COLT Hub are recognized when the contractual services are provided, such as loading of customer rail cars. Revenues from storage and transportation contracts are recognized during the period in which the storage and transportation services are provided, such as loading of customer rail cars.

Expense Classification

Cost of product sold consists of tangible products sold including NGLs and salt, as well as certain direct costs incurred in providing storage and transportation services (period ended December 31, 2011 also includes costs of tangible product associated with retail propane sales). Operating and administrative expenses consist of all expenses incurred other than those described above in cost of product sold and depreciation and amortization. Certain operating and administrative expenses and depreciation and amortization are incurred in the distribution of the product sales and storage sales but are not included in cost of product sold. These amounts were $35.9 million and $54.1 million for the three months ended December 31, 2012 and 2011, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.

Inventories

Inventories for marketing, supply and logistics operations, which mainly consist of NGLs, are stated at the lower of cost or market and are computed using the average cost method. These inventories are designated under a fair value hedge program and are consequently marked to market. NGL inventories being hedged and carried at market value at December 31, 2012 and September 30, 2012, amount to $48.4 million and $73.2 million, respectively. Inventories for storage and transportation operations are stated at the lower of cost or market and are computed predominantly using the average cost method.

Shipping and Handling Costs

Shipping and handling costs are recorded as part of cost of product sold at the time product is shipped or delivered to the customer except as discussed in “Expense Classification.”

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation. Inergy capitalizes all construction-related direct labor and material costs as well as the cost of funds used during construction. Amounts capitalized for cost of funds used during construction amounted to $3.1 million and $3.4 million for the three months ended December 31, 2012 and 2011, respectively. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows:
 
Years
Land, buildings and improvements
15 – 70
Office furniture and equipment
3 – 7
Vehicles
3 – 10
Pipelines
15
Tanks and plant equipment
3 – 30
Base gas
10

Salt deposits are depleted on a unit of production method.

11

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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Identifiable Intangible Assets

The Company has recorded certain identifiable intangible assets, including customer accounts, covenants not to compete and deferred financing costs. Customer accounts and covenants not to compete have arisen from acquisitions. Deferred financing costs represent financing costs incurred in obtaining financing and are being amortized over the term of the related debt. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so.

Certain intangible assets are amortized on a straight-line basis over their estimated economic lives, as follows:
 
Years
Customer accounts
15 - 20
Covenants not to compete
2 - 10
Deferred financing costs
4 - 10

Goodwill

Goodwill is recognized for various acquisitions as the excess of the cost of the acquisitions over the fair value of the related net assets at the date of acquisition. Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test.

Inergy completed its annual impairment test for each of its reporting units and determined that no impairment existed as of September 30, 2012. No indicators of impairment were identified requiring an interim impairment test during the three-month period ended December 31, 2012.

Income Taxes

Inergy is a publicly-traded master limited partnership. Partnerships are generally not subject to federal income tax, although publicly-traded partnerships are treated as corporations for federal income tax purposes and therefore are subject to federal income tax, unless the partnership generates at least 90% of its gross income from qualifying sources. If the qualifying income requirement is satisfied, the publicly-traded partnership will be treated as a partnership for federal income tax purposes. Inergy Sales and Service, Inc. (“Services”), a subsidiary of Inergy, does not generate at least 90% of its gross income from qualifying sources, and as such, federal and state income taxes are provided on the taxable income of Services. The earnings of the Company and its limited liability subsidiaries are included in the Federal and state income tax returns of the individual members or partners. However, legislation in certain states allows for taxation of partnerships, and as such, certain state taxes for Inergy have been included in the accompanying financial statements as income taxes due to the nature of the tax in those particular states. In addition, Federal and state income taxes are provided on the earnings of the subsidiaries incorporated as taxable entities (IPCHA and Services). The Company is required to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using expected rates in effect for the year in which differences are expected to reverse.

Net earnings for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and the financial reporting basis of assets and liabilities and the taxable income allocation requirements under the partnership agreement.

Sales Tax

Inergy accounts for the collection and remittance of sales tax on a net tax basis. As a result, these amounts are not reflected in the consolidated statements of operations.


12

Table of Contents
INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Income Per Unit

Inergy calculates basic net income per limited partner unit by utilizing the two class method. Diluted net income per limited partner unit is computed by dividing net income by the weighted-average number of units outstanding and the effect of dilutive units granted under the Long Term Incentive Plan and the Class B units. All outstanding Class B units converted to common units during the quarter ended December 31, 2012. No Class B units were outstanding as of December 31, 2012.

Asset Retirement Obligations

An asset retirement obligation (ARO) is an estimated liability for the cost to retire a tangible asset. The fair value of certain AROs could not be made as settlement dates (or range of dates) associated with these assets were not estimable.

Accounting for Unit-Based Compensation

Inergy sponsors a Long Term Incentive Plan and all share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statements of operations based on their fair values.

The amount of compensation expense recorded by the Company was $3.1 million and $3.1 million during the three months ended December 31, 2012 and 2011, respectively.

Segment Information

There are certain accounting requirements that establish standards for reporting information about operating segments, as well as related disclosures about products and services, geographic areas and major customers. Further, they define operating segments as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. In determining its operating segments, Inergy examined the way it organizes its business internally for making operating decisions and assessing business performance. See Note 10 for disclosures related to Inergy’s two operating and reporting segments.

Fair Value

Cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts) and payables are carried at cost, which approximates fair value due to their liquid and short-term nature. As of December 31, 2012, the estimated fair value of Inergy's fixed-rate Senior Notes, based on available trading information, totaled $11.9 million compared with the aggregate principal amount at maturity of $11.5 million. As of December 31, 2012, the estimated fair value of Inergy Midstream's fixed-rate Senior Notes, based on available trading information, totaled $515.3 million compared with the aggregate principal amount at maturity of $500.0 million. The fair value of debt was determined based on market quotes from Bloomberg. This is considered a level 1 pricing source within the fair value hierarchy. At December 31, 2012, Inergy's credit agreement (“Credit Agreement”) consists of a $550 million revolving loan facility (“Revolving Loan Facility”). The carrying value at December 31, 2012, of amounts outstanding under the Credit Agreement of $332.1 million approximate fair value due primarily to the floating interest rate associated with the Credit Agreement.  At December 31, 2012, Inergy Midstream's $600 million revolving credit facility (“NRGM Credit Facility”) had amounts outstanding of $179.8 million, which approximated fair value due primarily to the floating interest rate associated with borrowings under the NRGM Credit Facility. See Note 7 for a discussion of the Company's debt.

Assets and liabilities from price risk management are carried at fair value as discussed in Note 6. At December 31, 2012, the estimated fair value of assets, on a net basis, from price risk management activities amounted to $30.8 million and liabilities, on a net basis, from price risk management amounted to $24.2 million.

Recently Issued Accounting Pronouncements

On December 16, 2011, the Financial Accounting Standards Board issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires disclosures to provide information to help reconcile differences in the offsetting requirements under U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards. The disclosure requirements of this ASU mandate that entities disclose both gross and net information about financial instruments and transactions eligible for offset in the statement of financial position as well as instruments and

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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


transactions subject to an enforceable master netting arrangement or similar agreement. ASU No. 2011-11 also requires disclosure of collateral received and posted in connection with master netting arrangements or similar arrangements. The scope of this ASU includes derivative contracts, repurchase agreements, and securities borrowing and lending arrangements. Entities are required to apply the amendments of ASU No. 2011-11 for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. All disclosures provided by those amendments are required to be provided retrospectively for all comparative periods presented. The Company is currently reviewing the effects of ASU No. 2011-11.


Note 3 – Certain Balance Sheet Information

Inventories consisted of the following at December 31, 2012 and September 30, 2012, respectively (in millions):
 
December 31,
2012
 
September 30,
2012
NGLs
$
56.9

 
$
80.8

Parts, supplies and other
6.6

 
6.3

Total inventory
$
63.5

 
$
87.1


Property, plant and equipment consisted of the following at December 31, 2012 and September 30, 2012, respectively (in millions):
 
December 31,
2012
 
September 30,
2012
Plant equipment
$
721.1

 
$
619.3

Buildings, land and storage rights
594.9

 
513.9

Pipelines
578.1

 
381.3

Vehicles
45.3

 
44.1

Construction in process
164.7

 
409.6

Base gas
134.1

 
134.0

Salt deposits
41.6

 
41.6

Office furniture and equipment
18.1

 
16.9

 
2,297.9

 
2,160.7

Less: accumulated depreciation
484.7

 
450.2

Total property, plant and equipment, net
$
1,813.2

 
$
1,710.5


Intangible assets consisted of the following at December 31, 2012 and September 30, 2012, respectively (in millions):
 
December 31,
2012
 
September 30,
2012
Customer accounts
$
194.4

 
$
41.2

Covenants not to compete
8.3

 
4.2

Deferred financing and other costs
27.9

 
17.1

 
230.6

 
62.5

Less: accumulated amortization
23.7

 
21.2

Total intangible assets, net
$
206.9

 
$
41.3




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Note 4 – Business Acquisitions

On December 7, 2012, Inergy Midstream completed the acquisition of 100% of the ownership interest of Rangeland Energy, LLC in exchange for $425 million in cash, net of cash acquired in the transaction and subject to certain closing adjustments. Rangeland Energy, LLC was the owner and operator of the Crude Hub. Concurrently with the closing of the acquisition, Inergy Midstream completed the private placement of $225 million common units and $500 million of senior unsecured notes due 2020. The remaining net proceeds from these offerings were used to repay borrowings under the NRGM Credit Facility.
The primary purpose of this acquisition was to acquire the integrated crude oil loading terminal, storage, and pipeline assets of Rangeland Energy, LLC and its subsidiaries, which are located in Williams County, North Dakota. The COLT Hub primarily consists of 720,000 barrels of crude oil storage, two 8,700-foot rail loops, an eight-bay truck unloading rack, and a 21-mile bi-directional crude oil pipeline that connects the hub to gathering systems and interstate crude oil pipelines. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in millions):
 
December 7, 2012
Current assets
$
3.3

Property, plant and equipment
100.9

Intangible assets
157.2

Total identifiable assets acquired
261.4

 
 
Current liabilities
2.9

Total liabilities assumed
2.9

 
 
Net identifiable assets acquired
258.5

Goodwill
165.0

Net assets acquired
$
423.5

The $165.0 million of goodwill is reflected in Inergy's marketing, supply and logistics segment. Goodwill recognized in the transaction relates primarily to expanding our geographic footprint into a new growing shale play.  The name of the acquired entity has since been changed from Rangeland Energy, LLC to Inergy Crude Logistics, LLC ("ICL"). Based on the preliminary purchase price allocation, amortization expenses relative to the intangible assets acquired are expected to be $8.9 million, $10.9 million, $10.9 million, $9.8 million, and $9.5 million for the years ended September 30, 2013 through September 30, 2017, respectively.

The following represents the pro forma consolidated statements of operations as if the COLT Hub had been included in the consolidated results of the Company for the full three-month periods ended December 31, 2012 and 2011 (in millions):
 
(Unaudited) Pro Forma Consolidated Statement of Operations
 
Three Months Ended December 31,
 
2012
 
2011
Revenue
$
443.8

 
$
668.6

Net income
$
1.3

 
$
(10.2
)



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These amounts have been calculated after applying the Company's accounting policies and adjusting the results of Rangeland Energy, LLC to reflect the depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant and equipment and intangible assets had been made at the beginning of the current period.  The purchase price allocation for this acquisition has been prepared on a preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available. Accordingly, the purchase accounting adjustments made in connection with the development of the unaudited pro forma are preliminary and subject to change. The entities acquired were development stage entities (as defined by ASC Topic 915, Development Stage Entities) until commencing principal commercial operations in June 2012.


Note 5 – Risk Management

The Company is exposed to certain market risks related to its ongoing business operations. These risks include exposure to changing commodity prices as well as fluctuations in interest rates. The Company utilizes derivative instruments to manage its exposure to fluctuations in commodity prices, which is discussed more fully below. The Company also periodically utilizes derivative instruments to manage its exposure to fluctuations in interest rates, which is discussed more fully in Note 7. Additional information related to derivatives is provided in Note 2 and Note 6.

Commodity Derivative Instruments and Price Risk Management

Risk Management Activities

Inergy sells NGLs to energy related businesses and may use a variety of financial and other instruments including forward contracts involving physical delivery of propane. Inergy will enter into offsetting positions to economically hedge against the exposure its customer contracts create, however does not designate these instruments as hedging instruments for accounting purposes. These instruments are marked to market with the changes in the market value reflected in cost of product sold. Inergy attempts to balance its contractual portfolio in terms of notional amounts and timing of performance and delivery obligations. This balance in the contractual portfolio significantly reduces the volatility in cost of product sold related to these instruments.

Cash Flow Hedging Activity

Prior to the disposition of its retail propane operations, the Company entered into derivative instruments to hedge a significant portion of its exposure to fluctuations in commodity prices as a result of entering into fixed price contracts with certain of its retail customers. The Company designated these instruments as cash flow hedges. As a result of the disposition of the retail propane operations, the Company no longer anticipates utilizing cash flow hedges for commodity price risk. However, existing cash flow hedges in place at the time of the disposition will remain in OCI until the forecasted transaction takes place, the bulk of which will be in the first two quarters of fiscal 2013. The forecasted transaction is still expected to take place due to the supply arrangement with SPH.

Fair Value Hedging Activity

Inergy will enter into derivative instruments to hedge its exposure to fluctuating commodity prices that results from maintaining its NGL inventory. These instruments qualify as fair value hedges. This accounting treatment requires the fair value changes in both the derivative instruments and the hedged inventory to be recorded in cost of product sold.

A significant amount of inventory held in bulk storage facilities is hedged as it is not expected to be sold in the immediate future and is therefore exposed to fluctuations in commodity prices.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Commodity Price and Credit Risk

Notional Amounts and Terms

The notional amounts and terms of the Company’s derivative financial instruments include the following at December 31, 2012 and September 30, 2012, respectively (in millions):

 
December 31, 2012
 
September 30, 2012
 
Fixed Price
Payor
 
Fixed Price
Receiver
 
Fixed Price
Payor
 
Fixed Price
Receiver
Propane, crude and heating oil (barrels)
6.8

 
7.8

 
7.8

 
9.2

Natural gas (MMBTUs)
13.6

 
13.6

 
11.8

 
11.6


Notional amounts reflect the volume of transactions, but do not represent the amounts exchanged by the parties to the financial instruments. Accordingly, notional amounts do not reflect the Company’s monetary exposure to market or credit risks.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Fair Value of Derivative Instruments

The following tables detail the amount and location on the Company’s consolidated balance sheets and consolidated statements of operations related to all of its commodity and debt derivatives (in millions):
 
Amount of Gain (Loss) Recognized
in Net Income from Derivatives
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives in fair value hedging relationships:
 
 
 
Commodity (a)
$
2.9

 
$
4.3

Debt(b)

 
0.1

Total fair value of derivatives
$
2.9

 
$
4.4

 
 
 
 
 
Amount of Gain (Loss) Recognized
in Net Income on Item Being Hedged
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives in fair value hedging relationships:
 
 
 
Commodity (a)
$
(0.8
)
 
$
(3.3
)
Debt(b)

 
(0.1
)
Total fair value of derivatives
$
(0.8
)
 
$
(3.4
)
 
 
 
 
 
Amount of Gain (Loss) Recognized
in OCI on Effective Portion of Derivatives
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives in cash flow hedging relationships:
 
 
 
Commodity (c)
$

 
$
(3.2
)
Debt (e)

 
(0.1
)
Total fair value of derivatives
$

 
$
(3.3
)
 
 
 
 
 
Amount of Gain (Loss) Reclassified
from OCI to Net Income
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives in cash flow hedging relationships:
 
 
 
Commodity (c)
$
(3.4
)
 
$
(0.7
)
Debt (e)
(0.7
)
 

Total fair value of derivatives
$
(4.1
)
 
$
(0.7
)


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


 
Amount of Gain (Loss) Recognized 
in Net Income on Ineffective
Portion of Derivatives and
Amount Excluded from Testing
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives in cash flow hedging relationships:
 
 
 
Commodity (c)
$

 
$

Debt (e)

 

Total fair value of derivatives
$

 
$

 
 
 
 
 
Amount of Gain (Loss) Recognized
in Net Income from Derivatives
 
Three Months Ended December 31,
 
2012
 
2011
Derivatives not designated as hedging instruments:
 
 
 
Commodity (d)
$
5.5

 
$
2.8


(a)
The gain (loss) on both the derivative and the item being hedged are located in cost of product sold in the consolidated statements of operations.
(b)
The gain (loss) on both the derivative and the item being hedged are located in interest expense in the consolidated statements of operations.
(c)
The gain (loss) on the amount reclassified from OCI into income, the ineffective portion and the amount excluded from effectiveness testing are included in cost of product sold.
(d)
The gain (loss) is recognized in cost of product sold.
(e)
The gain (loss) on the amount reclassified from OCI into income, the ineffective portion and the amount excluded from effectiveness testing are included in interest expense.

All contracts subject to price risk had a maturity of twenty-six months or less; however, 99% of the contracts expire within twelve months.

Credit Risk

Inherent in the Company's contractual portfolio are certain credit risks. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Inergy takes an active role in managing credit risk and has established control procedures, which are reviewed on an ongoing basis. The Company attempts to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as through customer deposits, letters of credit and entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. The counterparties associated with assets from price risk management activities as of December 31, 2012 and September 30, 2012, were energy marketers and propane retailers, resellers and dealers.

Certain of the Company's derivative instruments have credit limits that require the Company to post collateral. The amount of collateral required to be posted is a function of the net liability position of the derivative as well as the Company's established credit limit with the respective counterparty. If the Company's credit rating were to change, the counterparties could require the Company to post additional collateral. The amount of additional collateral that would be required to be posted would vary depending on the extent of change in the Company's credit rating as well as the requirements of the individual counterparty. The aggregate fair value of all commodity derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2012, is $4.0 million for which the Company has posted collateral of $3.0 million and $6.1 million of NYMEX margin deposit in the normal course of business. The Company has received collateral of $9.4 million in the normal course of business. All collateral amounts have been netted against the asset or liability with the respective counterparty.



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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 6 – Fair Value Measurements

FASB Accounting Standards Codification Subtopic 820-10 (“820-10”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the fair value hierarchy are as follows:

Level 1—Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and US government treasury securities.

Level 2—Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over the counter (“OTC”) forwards, options and physical exchanges.

Level 3—Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

As of December 31, 2012, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’s derivative instruments related to heating oil, crude oil, NGLs and interest rates as well as the portion of inventory that is hedged in a qualifying fair value hedge. The Company’s derivative instruments consist of forwards, swaps, futures, physical exchanges and options.

Certain of the Company’s derivative instruments are traded on the NYMEX. These instruments have been categorized as level 1.

The Company’s derivative instruments also include OTC contracts, which are not traded on a public exchange. The fair values of these derivative instruments are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. These instruments have been categorized as level 2.

The Company’s inventory that is the hedged item in a qualifying fair value hedge is valued based on prices quoted from observable sources and verified with broker quotes. This inventory has been categorized as level 2.

The Company’s OTC options are valued based on Black Scholes option pricing model that considers time value and volatility of the underlying commodity. The inputs utilized in the model are based on publicly available information as well as broker quotes. These options have been categorized as level 2.

No changes in valuation techniques were made by the Company during the three months ended December 31, 2012.

The assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The following tables set forth by level within the fair value hierarchy the Company's assets and liabilities that were accounted for at fair value on a recurring basis at December 31, 2012 and September 30, 2012 (in millions):
 
December 31, 2012
 
Fair Value of Derivatives
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Designated
as Hedges
 
Not
Designated
as Hedges
 
Netting
Agreements(a)
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
2.5

 
$
40.4

 
$

 
$
42.9

 
$
5.7

 
$
37.2

 
$
(12.1
)
 
$
30.8

Inventory

 
48.4

 

 
48.4

 

 

 

 
48.4

SPH units
5.5

 

 

 
5.5

 

 

 

 
5.5

Total assets at fair value
$
8.0

 
$
88.8

 
$

 
$
96.8

 
$
5.7

 
$
37.2

 
$
(12.1
)
 
$
84.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
2.9

 
$
30.2

 
$

 
$
33.1

 
$
4.2

 
$
28.9

 
$
(8.9
)
 
$
24.2

Interest rate swaps

 
6.8

 

 
6.8

 

 

 

 

Total liabilities at fair value
$
2.9

 
$
37.0

 
$

 
$
39.9

 
$
4.2

 
$
28.9

 
$
(8.9
)
 
$
24.2


 
September 30, 2012
 
Fair Value of Derivatives
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Designated
as Hedges
 
Not
Designated
as Hedges
 
Netting
Agreements(a)
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from price risk management
$
2.7

 
$
51.3

 
$

 
$
54.0

 
$
9.8

 
$
44.2

 
$
(16.5
)
 
$
37.5

Inventory

 
73.2

 

 
73.2

 

 

 

 
73.2

SPH units
5.9

 

 

 
5.9

 

 

 

 
5.9

Total assets at fair value
8.6

 
124.5

 

 
133.1

 
9.8

 
44.2

 
(16.5
)
 
116.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities from price risk management
$
2.0

 
$
31.1

 
$

 
$
33.1

 
$
11.3

 
$
21.8

 
$
(12.2
)
 
$
20.9

Interest rate swap

 
7.5

 

 
7.5

 
7.5

 

 

 
7.5

Total liabilities at fair value
$
2.0

 
$
38.6

 
$

 
$
40.6

 
$
18.8

 
$
21.8

 
$
(12.2
)
 
$
28.4


(a)
Amounts represent the impact of legally enforceable master netting agreements that allow the Company to settle positive and negative positions as well as cash collateral held or placed with the same counterparties.



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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 7 – Long-Term Debt

Long-term debt consisted of the following at December 31, 2012 and September 30, 2012, respectively (in millions):
 
December 31,
2012
 
September 30,
2012

 
 
 
Inergy credit agreement
$
332.1

 
$
311.7

Inergy senior unsecured notes
11.5

 
11.5

Inergy obligations under noncompetition agreements and notes to former owners of businesses acquired
2.9

 
3.5

NRGM credit facility
179.8

 
416.5

NRGM senior unsecured notes
500.0

 

Total debt
1,026.3

 
743.2

Less: current portion
2.1

 
3.4

Total long-term debt
$
1,024.2

 
$
739.8


On November 24, 2009, Inergy entered into a secured credit facility (“Credit Agreement”) which, at the time, provided borrowing capacity of up to $525 million in the form of a $450 million revolving general partnership credit facility and a $75 million working capital credit facility. The Credit Agreement was to mature on November 22, 2013.

On February 2, 2011, Inergy amended and restated the Credit Agreement to add a $300 million term loan facility. The term loan was repaid in full in December 2011 as discussed below. The term loan was to mature on February 2, 2015, and did bear interest, at Inergy's option, subject to certain limitations, at a rate equal to the following:

the Alternate Base Rate, which is defined as the higher of (i) the federal funds rate plus 0.50%; (ii) JP Morgan’s prime rate; or (iii) the Adjusted LIBO Rate plus 1%; plus a margin varying from 1.00% to 2.25%; or

the Adjusted LIBO Rate, which is defined as the LIBO Rate plus a margin varying from 2.00% to 3.25%.

On July 28, 2011, Inergy further amended its Credit Agreement to (i) raise the aggregate revolving commitment from $525 million to $700 million with the amount existing as a singular tranche, (ii) reduce the applicable rate on revolving loans and commitment fees, (iii) modify and refresh certain covenants and covenant baskets, and (iv) extend the maturity date from November 22, 2013 to July 28, 2016.

On April 13, 2012, Inergy further amended its Credit Agreement. This amendment, among other things, (i) permitted Inergy to sell up to 5,000,000 of the Inergy Midstream common units that Inergy owns, (ii) permitted Inergy to sell US Salt, (iii) decreased the aggregate revolving commitment and general partnership commitment from $700 million to $550 million, and (iv) adjusted several of the financial covenants.

On July 26, 2012, Inergy further amended its Credit Agreement in order to (i) permit Inergy to enter into a series of transactions as described in the Contribution Agreement dated as of April 25, 2012 among Inergy and SPH, (ii) permit Inergy to repurchase, repay or redeem all or any portion of the senior notes that remain outstanding after the closing of the Contribution Agreement,  (iii) modify certain negative and financial covenants under the Credit Agreement, and  (iv) allow Inergy to redeem, buy back or otherwise acquire up to $100 million of its common units on or prior to March 31, 2013 subject to meeting certain financial covenant requirements. This amendment did not become effective until the contribution of Inergy's retail propane assets to SPH closed on August 1, 2012. In conjunction with the close of this transaction, $1,187.0 million in Inergy senior notes were exchanged for SPH senior notes and cash paid directly to noteholders, thereby eliminating the senior notes from Inergy's consolidated balance sheet on August 1, 2012.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


The Credit Agreement contains various covenants and restrictive provisions that limit its ability to, among other things:

incur additional debt;

make distributions on or redeem or repurchase units;

make certain investments and acquisitions;

incur or permit certain liens to exist;

enter into certain types of transactions with affiliates;

merge, consolidate or amalgamate with another company; and

transfer or otherwise dispose of assets.

The Credit Agreement contains the following financial covenants:
 
the ratio of Inergy's total funded debt (as defined in the Credit Agreement) to consolidated EBITDA (as defined in the Credit Agreement) for the four fiscal quarters most recently ended must be no greater than 4.75 to 1.0; and

the ratio of Inergy's consolidated EBITDA to consolidated interest expense (as defined in the Credit Agreement), for the four fiscal quarters then most recently ended, must not be less than 2.50 to 1.0.

If Inergy should fail to perform its obligations under these and other covenants, the Revolving Loan Facility could be terminated and any outstanding borrowings, together with accrued interest, under the Credit Agreement could be declared immediately due and payable. The Credit Agreement also has cross default provisions that apply to any other material indebtedness of Inergy, excluding the debt of Inergy's majority-owned subsidiary, Inergy Midstream.

All borrowings under the Credit Agreement are generally secured by substantially all of Inergy's assets and the equity interests in all of Inergy's wholly owned subsidiaries, and loans thereunder bear interest, at Inergy's option, subject to certain limitations, at a rate equal to the following:

the Alternate Base Rate, which is defined as the higher of (i) the federal funds rate plus 0.50%; (ii) JP Morgan's prime rate; or (iii) the Adjusted LIBO Rate plus 1%; plus a margin varying from 0.75% to 2.00%; or

the Adjusted LIBO Rate, which is defined as the LIBO Rate plus a margin varying from 1.75% to 3.00%.

We are required to use 50% of the net cash proceeds (that are not applied to purchase replacement assets) from asset dispositions (other than the sale of inventory and motor vehicles in the ordinary course of business, sales of assets among us and our domestic subsidiaries and the sale or disposition of obsolete or worn-out equipment) to reduce borrowings under the Credit Agreement during any fiscal year in which unapplied net cash proceeds are in excess of $50 million.

At December 31, 2012, the balance outstanding under the Credit Agreement was $332.1 million. At September 30, 2012, the balance outstanding under the Credit Agreement was $311.7 million. The interest rates of the Revolving Loan Facility are based on prime rate and LIBOR plus the applicable spreads, resulting in interest rates which were between 1.96% and 4.00% at December 31, 2012, and 2.99% and 5.00% at September 30, 2012. Availability under the Credit Agreement amounted to $168.7 million and $184.0 million at December 31, 2012 and September 30, 2012, respectively. Outstanding standby letters of credit under the Credit Agreement amounted to $49.2 million and $54.3 million at December 31, 2012 and September 30, 2012, respectively.

At December 31, 2012, Inergy was in compliance with the debt covenants in the Credit Agreement and senior unsecured notes.

Inergy is party to six interest rate swap agreements scheduled to mature in 2016 to hedge its exposure to variable interest payments due under the Credit Agreement. These swap agreements require Inergy to pay the counterparty an amount based on fixed rates from 0.84% to 2.52% due quarterly. In exchange, the counterparty is required to make quarterly floating interest

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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


rate payments on the same date to Inergy based on the three-month LIBOR applied to the same aggregate notional amount of $225.0 million. These swap agreements have been accounted for as cash flow hedges.

Inergy Midstream

NRGM Credit Facility

On December 21, 2011, Inergy Midstream entered into a $500 million, five-year revolving credit facility (“NRGM Credit Facility”). The NRGM Credit Facility is available to fund acquisitions, working capital and internal growth projects and for general partnership purposes. The NRGM Credit Facility has an accordion feature that allows Inergy Midstream to increase the available borrowings under the facility by up to $250 million, subject to the lenders' agreement and the satisfaction of certain conditions. In addition, its credit facility includes a sub-limit up to $10 million for same-day swing line advances and a sub-limit up to $100 million for letters of credit.

On April 16, 2012, Inergy Midstream exercised a portion of its accordion feature under the NRGM Credit Facility and increased the loan commitments thereunder by $100 million and as a result, the accordion feature available to Inergy Midstream is now $150 million. The aggregate amount of revolving loan commitments under the NRGM Credit Facility is now $600 million, and can be increased by up to $150 million, subject to the lenders' agreement and the satisfaction of certain conditions.

On November 16, 2012, Inergy Midstream amended its revolving credit facility to, among other things, (i) amend the definition of consolidated EBITDA to include projected consolidated EBITDA attributable to fixed fee contracts acquired in the acquisition of the COLT Hub; (ii) increase the maximum total leverage ratio to 5.50 to 1.0 for any two consecutive fiscal quarters ending on or immediately after the date of the consummation of a permitted acquisition in excess of $50 million; and (iii) add a senior secured leverage ratio of 3.75 to 1.0 on and after the cumulative issuance of $200 million or more of permitted junior debt.

At December 31, 2012, the balance outstanding under the NRGM Credit Facility was $179.8 million. At September 30, 2012, the balance outstanding under the NRGM Credit Facility was $416.5 million. Outstanding standby letters of credit under the NRGM Credit Facility amounted to $2.0 million at December 31, 2012. As a result, Inergy Midstream had approximately $418.2 million of remaining capacity at December 31, 2012, subject to compliance with any applicable covenants under such facility.
 
The NRGM Credit Facility contains various covenants and restrictive provisions that limit its ability to, among other things:

incur additional debt;

make distributions on or redeem or repurchase units;

make certain investments and acquisitions;

incur or permit certain liens to exist;

enter into certain types of transactions with affiliates;

merge, consolidate or amalgamate with another company; and

transfer or otherwise dispose of assets.

If Inergy Midstream fails to perform its obligations under these and other covenants, the lenders' credit commitment could be terminated and any outstanding borrowings, together with accrued interest, under its credit facility could be declared immediately due and payable. The NRGM Credit Facility also has cross default provisions that apply to any other material indebtedness of Inergy Midstream.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Borrowings under the NRGM Credit Facility are generally secured by pledges of the equity interests in Inergy Midstream's wholly owned subsidiaries, liens on substantially all of its assets and guarantees issued by all of Inergy Midstream's subsidiaries. Borrowings under the NRGM Credit Facility (other than swing line loans) will bear interest at its option at either:

the Alternate Base Rate, which is defined as the highest of (i) the federal funds rate plus 0.50%; (ii) JP Morgan's prime rate; or (iii) the Adjusted LIBO Rate plus 1%; plus a margin varying from 0.75% to 1.75% depending on our most recent total leverage ratio; or

the Adjusted LIBO Rate, which is defined as the LIBO Rate plus a margin varying from 1.75% to 2.75% depending on Inergy Midstream's most recent total leverage ratio.
  
Swing line loans bear interest at the Alternate Base Rate plus a margin varying from 0.75% to 1.75%. The unused portion of the NRGM Credit Facility is subject to a commitment fee ranging from 0.30% to 0.50% per annum according to its most recent total leverage ratio. Interest on Alternative Base Rate loans is payable quarterly or, if the Adjusted LIBO Rate applies, it may be paid at more frequent intervals.

The NRGM Credit Facility requires maintenance of a consolidated leverage ratio (as defined in its credit agreement) of not more than 5.00 to 1.0 (subject to increase to 5.50 to 1.0 following certain permitted acquisitions, as indicated above) and an interest coverage ratio (as defined in its credit agreement) of not less than 2.50 to 1.0. The NRGM Credit Facility also requires maintenance of a senior secured leverage ratio (as defined in its credit agreement) of not more than 3.75 to 1.0 on and after the cumulative issuance of $200 million or more of permitted junior debt.

NRGM Senior Notes

On December 7, 2012, Inergy Midstream and NRGM Finance Corp. (“Finance Corp.” and together with Inergy Midstream, the “Issuers”) issued and sold $500 million in a private offering in aggregate principal amount of their 6.0% Senior Notes due 2020 (the “NRGM Notes”) pursuant to a purchase agreement dated November 29, 2012. The Issuers issued the NRGM Notes pursuant to an indenture dated as of December 7, 2012 (the “Indenture”), among the Issuers, the subsidiary guarantors and U.S. Bank National Association, as trustee. The NRGM Notes will mature on December 15, 2020. Interest on the NRGM Notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2013. The NRGM Notes are guaranteed on a senior unsecured basis by all of Inergy Midstream's existing subsidiaries (other than Finance Corp.) and certain of the Inergy Midstream's future subsidiaries.

The Indenture restricts Inergy Midstream's ability and the ability of its subsidiaries to: (i) sell assets; (ii) pay distributions on, redeem or repurchase Inergy Midstream's units or redeem or repurchase its subordinated debt; (iii) make investments; (iv) incur or guarantee additional indebtedness or issue preferred units; (v) create or incur certain liens; (vi) enter into agreements that restrict distributions or other payments from Inergy Midstream's restricted subsidiaries to Inergy Midstream; (vii) consolidate, merge or transfer all or substantially all of Inergy Midstream's assets; (viii) engage in transactions with affiliates; (ix) create unrestricted subsidiaries and (x) enter into sale and leaseback transactions. These covenants are subject to a number of important exceptions and qualifications. At any time when the NRGM Notes are rated investment grade by either of Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Services and no Default or Event of Default (each as defined in the Indenture) has occurred and is continuing, many of these covenants will terminate.

Inergy and its wholly owned subsidiaries do not provide credit support or guarantee any amounts outstanding under the NRGM Credit Facility or the NRGM Notes.

At December 31, 2012, Inergy Midstream was in compliance with the debt covenants in the NRGM Credit Facility and the NRGM Notes.



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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Note 8 – Partners’ Capital

Class B Units

The Class B units have similar rights and obligations of Inergy common units except that the units will pay distributions in kind rather than in cash for a certain period of time. All of the outstanding Class B units converted into Inergy common units in the first quarter of fiscal 2013. There were no Class B units outstanding as of December 31, 2012. 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.

Quarterly Distributions of Available Cash

A summary of the Company’s limited partner quarterly distribution for the three months ended December 31, 2012 and 2011, is presented below:
Three Months Ended December 31, 2012
Record Date
Payment Date
 
Per Unit Rate
 
Distribution Amount
(in millions)
November 7, 2012
November 14, 2012
 
$
0.290

 
$
36.4

 
 
 
 
 
$
36.4

 
 
 
 
 
 
Three Months Ended December 31, 2011
Record Date
Payment Date
 
Per Unit Rate
 
Distribution Amount
(in millions)
November 7, 2011
November 14, 2011
 
$
0.705

 
$
83.9

 
 
 
 
 
$
83.9


On January 25, 2013, Inergy declared a distribution of $0.290 per limited partner unit to be paid on February 14, 2013, to unitholders of record on February 7, 2013 with respect to the first fiscal quarter of 2013. On February 14, 2012, Inergy paid a distribution of $0.705 per limited partner unit to unitholders of record on February 7, 2012 with respect to the first fiscal quarter of 2012.


Note 9 – Commitments and Contingencies

Inergy periodically enters into agreements with suppliers to purchase fixed quantities of NGLs, distillates and natural gas at fixed prices. At December 31, 2012, the total of these firm purchase commitments was $317.2 million, all of which will occur over the course of the next twelve months. The Company also enters into non-binding agreements with suppliers to purchase quantities of NGLs, distillates and natural gas at variable prices at future dates at the then prevailing market prices.

Inergy and Inergy Midstream have entered into certain purchase commitments in connection with the identified growth projects primarily related to the Watkins Glen NGL development project and the MARC I Pipeline. The Watkins Glen NGL development project entails the conversion of certain caverns created by US Salt into 2.1 million barrels of NGL storage.  The MARC I Pipeline, which was placed into service in December 2012, is a 39 mile, 30" bi-directional pipeline that extends between the Stagecoach south lateral interconnect with Tennessee Gas Pipeline Company's 300 Line near its compressor station 319 and Transco's Leidy Line near its compressor station 517, and is capable of providing 550 MMcf/d of firm transportation capacity. At December 31, 2012, the total of Inergy's and Inergy Midstream's storage and transportation operations' firm purchase commitments was approximately $8.4 million, and the majority of the purchases associated with these commitments are expected to occur over the course of the next twelve months.

Inergy is periodically involved in litigation proceedings. The results of litigation proceedings cannot be predicted with certainty; however, management believes that Inergy does not have material potential liability in connection with these proceedings that would have a significant financial impact on its consolidated financial condition, results of operations or cash flows.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


In June 2010, Inergy Midstream and CNYOG entered into a letter of intent with Anadarko Petroleum Corporation (“Anadarko”) which contemplated that, subject to certain conditions, Anadarko may exercise an option to acquire up to a 25% ownership interest in the MARC I pipeline. On September 23, 2011, Anadarko filed a complaint against the Inergy Midstream entities in the Court of Common Pleas in Lycoming County, Pennsylvania (Cause No. 11-01697) alleging that (i) Anadarko had an option to acquire, and timely exercised its option to acquire, a 25% ownership interest in the MARC I Pipeline, (ii) the Inergy Midstream entities refused to enter into definitive agreements under which Anadarko would acquire a 25% interest in the pipeline and, by doing so, the Inergy Midstream entities breached the letter of intent, and (iii) by refusing to enter into definitive agreements, the Inergy Midstream entities breached a duty of good faith and fair dealing in connection with the letter of intent. Based on these allegations, Anadarko seeks various remedies, including specific performance of the letter of intent and monetary damages.

The Inergy Midstream entities filed an answer to Anadarko's complaint on January 17, 2012 and discovery is ongoing. The Inergy Midstream entities believe that Anadarko's claims are without merit and intends to vigorously defend themselves in the lawsuit. Inergy may be required to indemnify Inergy Midstream for litigation-related costs and damages under the omnibus agreement that governs its relationship with Inergy Midstream and its general partner.
 
Inergy utilizes third-party insurance subject to varying retention levels of self-insurance, which management considers prudent. Such self-insurance relates to losses and liabilities primarily associated with medical claims, workers' compensation claims and general, product, vehicle and environmental liability. Losses are accrued based upon management's estimates of the aggregate liability for claims incurred using certain assumptions followed in the insurance industry and based on past experience. The primary assumption utilized is actuarially determined loss development factors. The loss development factors are based primarily on historical data. Inergy's self insurance reserves could be affected if future claims development differs from the historical trends. Inergy believes changes in health care costs, trends in health care claims of its employee base, accident frequency and severity and other factors could materially affect the estimate for these liabilities. Inergy continually monitors changes in employee demographics, incident and claim type and evaluates its insurance accruals and adjusts its accruals based on its evaluation of these qualitative data points. Inergy is liable for the development of claims for its disposed retail propane operations, provided they were reported prior to August 1, 2012. At December 31, 2012 and September 30, 2012, Inergy's self-insurance reserves were $21.2 million and $23.8 million, respectively. The Company estimates that $15.0 million of this balance will be paid subsequent to December 31, 2013. As such, $15.0 million has been classified in other long-term liabilities on the consolidated balance sheets.


Note 10 – Segments

Inergy's financial statements reflect two operating and reporting segments: (i) marketing, supply and logistics operations and (ii) storage and transportation operations. Inergy's marketing, supply and logistics operations provide NGLs and crude oil marketing, supply and logistics services to producers, refiners, petrochemical companies, marketers, and others that effectively provide flow assurances to our customers. Inergy's storage and transportation operations provide natural gas and NGL storage and transportation services to third parties, as well as the production and sale of salt products.

The identifiable assets associated with each reporting segment include accounts receivable and inventories. Goodwill, property, plant and equipment and expenditures for property, plant and equipment are also presented for each segment. The net asset/liability from price risk management, as reported in the accompanying consolidated balance sheets, is primarily related to the marketing, supply and logistics segment.


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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Revenues, gross profit, identifiable assets, goodwill, property, plant and equipment and expenditures for property, plant and equipment for each of Inergy's reporting segments are presented below (in millions):
 
Three Months Ended December 31, 2012
 
Marketing, Supply and Logistics Operations
 
Storage and Transportation Operations
 
Intersegment
Operations
 
Corporate
Assets
 
Total
Retail revenues
$

 
$

 
$

 
$

 
$

Marketing, supply and logistics revenues
370.8

 

 

 

 
370.8

Storage and transportation revenues

 
67.8

 

 

 
67.8

Gross profit (excluding depreciation and amortization)
32.0

 
48.0

 

 

 
80.0

Identifiable assets
235.9

 
29.3

 

 

 
265.2

Goodwill
168.8

 
141.8

 

 
20.2

 
330.8

Property, plant and equipment
455.7

 
1,835.3

 

 
6.9

 
2,297.9

Expenditures for property, plant and equipment
2.9

 
33.9

 

 

 
36.8


 
Three Months Ended December 31, 2011
 
Marketing, Supply and Logistics Operations
 
Storage and Transportation Operations
 
Intersegment
Operations
 
Corporate
Assets
 
Total
Retail revenues
$
295.0

 
$

 
$

 
$

 
$
295.0

Marketing, supply and logistics revenues
314.8

 

 
(0.4
)
 

 
314.4

Storage and transportation revenues

 
59.2

 

 

 
59.2

Gross profit (excluding depreciation and amortization)
135.5

 
45.3

 

 

 
180.8

Identifiable assets
370.5

 
28.6

 

 

 
399.1

Goodwill
339.2

 
141.8

 

 
20.2

 
501.2

Property, plant and equipment
1,083.5

 
1,575.5

 

 
12.5

 
2,671.5

Expenditures for property, plant and equipment
8.2

 
41.8

 

 
0.1

 
50.1



Note 11 – Condensed Consolidating Financial Information

Inergy is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries. Obligations under its outstanding senior notes and credit agreement listed in Note 8 are jointly and severally guaranteed by Inergy's wholly owned domestic subsidiaries. Subsequent to Inergy Midstream's IPO on December 21, 2011, Inergy Midstream and its wholly owned subsidiaries no longer guarantee Inergy's senior notes or credit agreement.

The tables below present condensed consolidated financial statements for Inergy (parent) on a stand-alone, unconsolidated basis, and its combined guarantor and combined non-guarantor subsidiaries as of December 31, 2012 and September 30, 2012, and for the three months ended December 31, 2012 and 2011. The financial information may not necessarily be indicative of the results of operations, cash flows or financial position had the subsidiaries operated as independent entities.







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Table of Contents
INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Balance Sheet
December 31, 2012
(in millions)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
0.1

 
$
1.7

 
$

 
$

 
$
1.8

Accounts receivable

 
178.5

 
23.2

 

 
201.7

Inventories

 
57.4

 
6.1

 

 
63.5

Other

 
40.2

 
9.7

 

 
49.9

Total current assets
0.1

 
277.8

 
39.0

 

 
316.9

 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net

 
831.4

 
981.8

 

 
1,813.2

Goodwill and intangible assets, net
20.2

 
60.3

 
457.2

 

 
537.7

Investment in subsidiary
1,468.7

 

 

 
(1,468.7
)
 

Other assets

 
8.3

 
2.8

 

 
11.1

Total assets
$
1,489.0

 
$
1,177.8

 
$
1,480.8

 
$
(1,468.7
)
 
$
2,678.9

 
 
 
 
 
 
 
 
 
 
Liabilities and partners' capital
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
139.3

 
$
4.2

 
$

 
$
143.5

Other
2.0

 
53.5

 
38.8

 

 
94.3

Total current liabilities
2.0

 
192.8

 
43.0

 

 
237.8

 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, less current portion
346.3

 
(0.1
)
 
678.0

 

 
1,024.2

Other long-term liabilities
27.1

 
15.1

 
0.8

 

 
43.0

Total long-term liabilities
373.4

 
15.0

 
678.8

 

 
1,067.2

 
 
 
 
 
 
 
 
 
 
Partners' capital
1,113.6

 
970.0

 
498.7

 
(1,468.7
)
 
1,113.6

Interest of non-controlling partners in subsidiary

 

 
260.3

 

 
260.3

Total partners' capital
1,113.6

 
970.0

 
759.0

 
(1,468.7
)
 
1,373.9

Total liabilities and partners' capital
$
1,489.0

 
$
1,177.8

 
$
1,480.8

 
$
(1,468.7
)
 
$
2,678.9





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Table of Contents
INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Balance Sheet
September 30, 2012
(in millions)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2.9

 
$
(2.9
)
 
$

 
$

 
$

Accounts receivable

 
114.3

 
19.3

 

 
133.6

Inventories

 
81.5

 
5.6

 

 
87.1

Other

 
52.7

 
5.4

 
(0.3
)
 
57.8

Total current assets
2.9

 
245.6

 
30.3

 
(0.3
)
 
278.5

 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net

 
842.6

 
867.9

 

 
1,710.5

Goodwill and intangible assets, net
20.2

 
61.1

 
125.8

 

 
207.1

Investment in subsidiary
1,380.6

 

 

 
(1,380.6
)
 

Other assets

 
7.6

 
3.9

 

 
11.5

Total assets
$
1,403.7

 
$
1,156.9

 
$
1,027.9

 
$
(1,380.9
)
 
$
2,207.6

 
 
 
 
 
 
 
 
 
 
Liabilities and partners' capital
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
116.9

 
$
3.9

 
$

 
$
120.8

Other
4.6

 
61.0

 
52.9

 
(0.3
)
 
118.2

Total current liabilities
4.6

 
177.9

 
56.8

 
(0.3
)
 
239.0

 
 
 
 
 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, less current portion
324.8

 

 
415.0

 

 
739.8

Other long-term liabilities
28.1

 
15.1

 
0.8

 

 
44.0

Total long-term liabilities
352.9

 
15.1

 
415.8

 

 
783.8

 
 
 
 
 
 
 
 
 
 
Partners' capital
1,046.2

 
963.9

 
416.7

 
(1,380.6
)
 
1,046.2

Interest of non-controlling partners in subsidiary

 

 
138.6

 

 
138.6

Total partners' capital
1,046.2

 
963.9

 
555.3

 
(1,380.6
)
 
1,184.8

Total liabilities and partners' capital
$
1,403.7

 
$
1,156.9

 
$
1,027.9

 
$
(1,380.9
)
 
$
2,207.6





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INERGY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


Condensed Consolidating Statements of Operations
Three Months Ended December 31, 2012
(in millions)
 
Parent
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Revenue:
 
 
 
 
 
 
 
 
 
Retail
$

 
$

 
$

 
$

 
$

Marketing, supply and logistics

 
368.0

 
2.8

 

 
370.8

Storage and transportation

 
23.6

 
47.6

 
(3.4
)
 
67.8

 

 
391.6

 
50.4

 
(3.4
)
 
438.6

 
 
 
 
 
 
 
 
 
 
Cost of product sold (excluding depreciation and amortization as shown below):
 
 
 
 
 
 
 
 
 
Retail

 

 

 

 

Marketing, supply and logistics

 
338.5

 
0.3

 

 
338.8

Storage and transportation

 
12.6

 
10.6

 
(3.4
)
 
19.8

 

 
351.1

 
10.9

 
(3.4
)
 
358.6

 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
Operating and administrative

 
20.8

 
11.7

 

 
32.5

Depreciation and amortization

 
21.1

 
15.2

 

 
36.3

Loss on disposal of assets

 
0.2

 
0.6