Propane, a by-product of natural gas processing and petroleum refining, is a clean-burning energy source recognized for its transportability and ease of use relative to alternative stand-alone energy sources. Retail propane falls into three broad categories: residential, industrial and commercial, and agricultural. Residential customers use propane primarily for space and water heating. Industrial customers use propane primarily as fuel for forklifts and stationary engines, to fire furnaces, as a cutting gas, in mining operations and in other process applications. Commercial customers, such as restaurants, motels, laundries and commercial buildings, use propane in a variety of applications, including cooking, heating and drying. In the agricultural market, propane is primarily used for tobacco curing, crop drying, poultry brooding and weed control. The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings.

Propane competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. Propane is more expensive than natural gas on an equivalent BTU basis in locations served by natural gas, but serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Historically, the expansion of natural gas into traditional propane markets has been inhibited by the capital costs required to expand pipeline and retail distribution systems. Although the extension of natural gas pipelines tends to displace propane distribution in areas affected, it is believed that new opportunities for propane sales arise as more geographically remote neighborhoods are developed. Propane is generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking.

The propane distribution industry is characterized by a large number of relatively small, independently owned and operated local distributors. Each year a significant number of these local distributors have sought to sell their business for reasons that include retirement and estate planning. In addition, the propane industry faces increasing environmental regulations and escalating capital requirements needed to acquire advanced, customer-oriented technologies.

The Company currently distributes propane to approximately 600,000 retail customers from 280 customer service centers in 27 states. The Company markets propane primarily in rural areas, but also has a significant number of customers in suburban areas where energy alternatives to propane such as natural gas are generally not available.

The Company markets its propane primarily in the eastern half of the United States through its customer service centers using primarily 21 regional brand names.

From its customer service centers, the Company also sells, installs and services equipment related to its propane distribution business, including heating and cooking appliances. Typical customer service centers consist of an office and service facilities, with one or more 12,000 to 30,000 gallon bulk storage tanks.

Retail deliveries of propane are usually made to customers by means of the Company’s fleet of bobtail and rack trucks. Propane is pumped from the bobtail truck, which generally holds 2,500 to 3,000 gallons, into a stationary storage tank at the customer’s premises. The capacity of these tanks ranges from 100 gallons to 1,200 gallons, with a typical tank having a capacity of 100 to 300 gallons in milder climates and 500 to 1,000 gallons in colder climates. The Company also delivers propane to retail customers in portable cylinders, which typically have a capacity of five to 35 gallons. These cylinders are picked up and replenished at the Company’s distribution locations, then returned to the retail customer. To a limited extent, the Company also delivers propane to certain customers in larger trucks known as transports, which have an average capacity of approximately 10,000 gallons. These customers include industrial customers, large-scale heating accounts and large agricultural accounts.

Over half of the Company’s residential customers receive their propane supply under an automatic delivery program. Under the automatic delivery program, the Company delivers propane to its heating customers approximately six times during the year. The Company determines the amount of propane delivered based on weather conditions and historical consumption patterns. The Company promotes this program by offering level payment billing, discounts, fixed price options and price caps. In addition, the Company provides emergency service 24 hours a day, seven days a week, 52 weeks a year.

Retail cost of product sold in the three months ended December 31, 2004 was $81.0 million, an increase of $50.5 million or 166%, from retail cost of product sold of $30.5 million during the three months ended December 31, 2003.

Retail gross profit was $59.4 million in the three months ended December 31, 2004 compared to $31.8 million during the three months ended December 31, 2003, an increase of $27.6 million, or 87%.

Interest expense increased $0.9 million, or 30%, to $3.8 million in the three months ended December 31, 2004 as compared to $2.9 million in the three months ended December 31, 2003.

Net income for the three months ended December 31, 2004 was $15.1 million compared to net income of $1.9 million in the three months ended December 31, 2003.