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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2009

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: 000-51304





Inergy Holdings,
L.P.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 43-1792470                       
|(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  x    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 |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|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  x

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   ̈    No   ̈

The following units were outstanding at January 29, 2010:



|             |  |           
|------------ |  | ----------
|Common units |  | 20,352,019









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INERGY HOLDINGS, L.P.

INDEX TO FORM 10-Q



|                                                                                                       |  |     
|------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                       |  | Page
|Part I  Financial Information                                                                         |  |     
|Item 1  Financial Statements of Inergy Holdings, L.P.:                                                |  |     
|Consolidated Balance Sheets as of December 31, 2009 (unaudited) and September 30,
2009                 |  | 3   
|Unaudited Consolidated Statements of Operations for the Three Months Ended December 
31, 2009 and 2008 |  | 4   
|Unaudited Consolidated Statement of Partners Capital for the Three Months Ended December 31,
2009     |  | 5   
|Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and
2008  |  | 6   
|Unaudited Notes to Consolidated Financial Statements                                                   |  | 8   
|                                                                                                       | 
|Item 
2  Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 24  
|                                                                                                       | 
|Item 3  Quantitative and Qualitative Disclosures About Market Risk                                    |  | 33  
|                                                                                                       | 
|Item 4  Controls and Procedures                                                                       |  | 34  
|                                                                                                       | 
|Part II  Other Information                                                                            |  |     
|                                                                                                       | 
|Item 1  Legal Proceedings                                                                             |  | 35  
|                                                                                                       | 
|Item 1A  Risk Factors                                                                                 |  | 35  
|                                                                                                       | 
|Item 2  Unregistered Sales of Equity Securities and Use of Proceeds                                   |  | 35  
|                                                                                                       | 
|Item 3  Defaults Upon Senior Securities                                                               |  | 35  
|                                                                                                       | 
|Item 4  Submission of Matters to a Vote of Security Holders                                           |  | 35  
|                                                                                                       | 
|Item 5  Other Information                                                                             |  | 35  
|                                                                                                       | 
|Item 6  Exhibits                                                                                      |  | 36  
|                                                                                                       | 
|Signature                                                                                              |  | 37  



2



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PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements of Inergy Holdings, L.P.
|------- | ---------------------------------------------

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except unit information)



|                                                                                                                                                     |  |                  |         |                   |   |        
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ----------------- | - | -------
|                                                                                                                                                     |  | December 31,2009 |         | September 30,2009
|                                                                                                                                                     |  | (unaudited)      |         |                  
|Assets                                                                                                                                               |  |                  |         |                   |   |        
|Current assets:                                                                                                                                      |  |                  |         |                   |   |        
|Cash and cash equivalents                                                                                                                            |  | $                | 15.9    |                   | $ | 11.7   
|Accounts receivable, less allowance for doubtful accounts of $2.3 million and $2.7 million at December 31, 2009 and
September 30, 2009, respectively |  |                  | 194.6   |                   |   | 94.7   
|Inventories (Note 3)                                                                                                                                 |  |                  | 115.7   |                   |   | 96.5   
|Assets from price risk management activities                                                                                                         |  |                  | 22.1    |                   |   | 23.8   
|Prepaid expenses and other current assets                                                                                                            |  |                  | 21.0    |                   |   | 20.8   
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total current assets                                                                                                                                 |  |                  | 369.3   |                   |   | 247.5  
|                                                                                                                                                     |  |                 
|Property, plant and equipment (Note 3)                                                                                                               |  |                  | 1,686.7 |                   |   | 1,555.2
|Less: accumulated depreciation                                                                                                                       |  |                  | 357.0   |                   |   | 327.9  
|                                                                                                                                                     |  |                  |         |                   |   |        
|Property, plant and equipment, net                                                                                                                   |  |                  | 1,329.7 |                   |   | 1,227.3
|                                                                                                                                                     |  |                 
|Intangible assets (Note 3):                                                                                                                          |  |                  |         |                   |   |        
|Customer accounts                                                                                                                                    |  |                  | 297.4   |                   |   | 277.4  
|Other intangible assets                                                                                                                              |  |                  | 153.2   |                   |   | 133.4  
|                                                                                                                                                     |  |                  |         |                   |   |        
|                                                                                                                                                     |  |                  | 450.6   |                   |   | 410.8  
|Less: accumulated amortization                                                                                                                       |  |                  | 136.6   |                   |   | 133.4  
|                                                                                                                                                     |  |                  |         |                   |   |        
|                                                                                                                                                     |  |                 
|Intangible assets, net                                                                                                                               |  |                  | 314.0   |                   |   | 277.4  
|                                                                                                                                                     |  |                 
|Goodwill                                                                                                                                             |  |                  | 475.2   |                   |   | 394.5  
|Other assets                                                                                                                                         |  |                  | 2.9     |                   |   | 7.4    
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total assets                                                                                                                                         |  | $                | 2,491.1 |                   | $ | 2,154.1
|                                                                                                                                                     |  |                  |         |                   |   |        
|                                                                                                                                                     |  |                 
|Liabilities and partners capital                                                                                                                    |  |                  |         |                   |   |        
|Current liabilities:                                                                                                                                 |  |                  |         |                   |   |        
|Accounts payable                                                                                                                                     |  | $                | 130.0   |                   | $ | 71.8   
|Accrued expenses                                                                                                                                     |  |                  | 81.7    |                   |   | 74.2   
|Customer deposits                                                                                                                                    |  |                  | 48.3    |                   |   | 60.1   
|Income tax liability (Note 4)                                                                                                                        |  |                  | 26.3    |                   |   |       
|Liabilities from price risk management activities                                                                                                    |  |                  | 37.6    |                   |   | 29.3   
|Current portion of long-term debt (Note 7)                                                                                                           |  |                  | 21.8    |                   |   | 22.0   
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total current liabilities                                                                                                                            |  |                  | 345.7   |                   |   | 257.4  
|                                                                                                                                                     |  |                 
|Long-term debt, less current portion (Note 7)                                                                                                        |  |                  | 1,351.3 |                   |   | 1,102.8
|Other long-term liabilities                                                                                                                          |  |                  | 0.9     |                   |   | 0.9    
|Deferred income taxes                                                                                                                                |  |                  | 21.1    |                   |   | 21.0   
|                                                                                                                                                     |  |                 
|Partners capital (Note 8):                                                                                                                          |  |                  |         |                   |   |        
|Common unitholders (20,340,986 and 20,276,611 units issued and outstanding as of December 31, 2009 and September 30,
2009, respectively)             |  |                  | 38.7    |                   |   | 38.8   
|Accumulated other comprehensive income                                                                                                               |  |                  | 2.2     |                   |   | 1.7    
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total controlling partners capital                                                                                                                  |  |                  | 40.9    |                   |   | 40.5   
|Interest of non-controlling partners in Inergy, L.P.                                                                                                 |  |                  | 727.1   |                   |   | 727.2  
|Interest of non-controlling partners in ASCs subsidiaries                                                                                           |  |                  | 4.1     |                   |   | 4.3    
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total partners capital                                                                                                                              |  |                  | 772.1   |                   |   | 772.0  
|                                                                                                                                                     |  |                  |         |                   |   |        
|Total liabilities and partners capital                                                                                                              |  | $                | 2,491.1 |                   | $ | 2,154.1
|                                                                                                                                                     |  |                  |         |                   |   |        

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



3



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except unit and per unit data)

(unaudited)



|                                                                                     |  |                                |        |   |      |   |        |  
|------------------------------------------------------------------------------------ |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                     |  | Three Months EndedDecember 31, |       
|                                                                                     |  | 2009                           |        |   | 2008 |  
|Revenue:                                                                             |  |                                |        |   |      |   |        |  
|Propane                                                                              |  | $                              | 372.3  |   |      | $ | 409.2  |  
|Other                                                                                |  |                                | 129.4  |   |      |   | 124.8  |  
|                                                                                     |  |                                |        |   |      |   |        |  
|                                                                                     |  |                                | 501.7  |   |      |   | 534.0  |  
|Cost of product sold (excluding depreciation and amortization as shown below):       |  |                                |        |   |      |   |        |  
|Propane                                                                              |  |                                | 252.3  |   |      |   | 283.2  |  
|Other                                                                                |  |                                | 74.2   |   |      |   | 76.5   |  
|                                                                                     |  |                                |        |   |      |   |        |  
|                                                                                     |  |                                | 326.5  |   |      |   | 359.7  |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Gross profit                                                                         |  |                                | 175.2  |   |      |   | 174.3  |  
|Expenses:                                                                            |  |                                |        |   |      |   |        |  
|Operating and administrative                                                         |  |                                | 68.7   |   |      |   | 73.0   |  
|Depreciation and amortization                                                        |  |                                | 37.1   |   |      |   | 26.3   |  
|Loss on disposal of assets                                                           |  |                                | 2.0    |   |      |   | 0.7    |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Operating income                                                                     |  |                                | 67.4   |   |      |   | 74.3   |  
|Interest expense, net                                                                |  |                                | (21.3  | ) |      |   | (17.2  | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Income before gain on issuance of units in Inergy, L.P. and income taxes             |  |                                | 46.1   |   |      |   | 57.1   |  
|Gain on issuance of units in Inergy, L.P.                                            |  |                                |       |   |      |   | 0.3    |  
|Provision for income taxes                                                           |  |                                | (0.3   | ) |      |   | (0.5   | )
|                                                                                     |  |                                |        |   |      |   |        |  
|Net income                                                                           |  |                                | 45.8   |   |      |   | 56.9   |  
|Net income attributable to non-controlling partners in Inergy, L.P.s net income     |  |                                | 28.9   |   |      |   | 42.1   |  
|Net income attributable to non-controlling partners in ASCs consolidated net income |  |                                | 0.4    |   |      |   | 0.4    |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Net income attributable to controlling partners                                      |  | $                              | 16.5   |   |      | $ | 14.4   |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Total limited partners interest in net income                                       |  | $                              | 16.5   |   |      | $ | 14.4   |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Net income per limited partner unit:                                                 |  |                                |        |   |      |   |        |  
|Basic                                                                                |  | $                              | 0.81   |   |      | $ | 0.71   |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Diluted                                                                              |  | $                              | 0.80   |   |      | $ | 0.71   |  
|                                                                                     |  |                                |        |   |      |   |        |  
|                                                                                     |  |                               
|Weighted average limited partners units outstanding (in thousands):                 |  |                                |        |   |      |   |        |  
|Basic                                                                                |  |                                | 20,302 |   |      |   | 20,240 |  
|Dilutive units                                                                       |  |                                | 282    |   |      |   |       |  
|                                                                                     |  |                                |        |   |      |   |        |  
|Diluted                                                                              |  |                                | 20,584 |   |      |   | 20,240 |  
|                                                                                     |  |                                |        |   |      |   |        |  

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



4



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PARTNERS CAPITAL

(in millions)

(unaudited)



|                                                                                 |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   |       |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ----- | - | ----------------------------------- | - | ----------------------- |  | - | ---------------------- | - |  | - | ----- | -
|                                                                                 |  | PartnersCommon Interest |       |   | AccumulatedOtherComprehensiveIncome |   | Non-controllingInterest |  |   | Total PartnersCapital |  
|Balance at September 30, 2009                                                    |  | $                        | 38.8  |   |                                     | $ | 1.7                     |  | $ | 731.5                  |   |  | $ | 772.0 |  
|Distributions paid to non-controlling partners                                   |  |                          |      |   |                                     |   |                        |  |   | (37.8                  | ) |  |   | (37.8 | )
|Distributions                                                                    |  |                          | (17.2 | ) |                                     |   |                        |  |   |                       |   |  |   | (17.2 | )
|Change in non-controlling interest in AOCI                                       |  |                          |      |   |                                     |   |                        |  |   | 5.7                    |   |  |   | 5.7   |  
|Change in non-controlling interest in unit based compensation charges            |  |                          |      |   |                                     |   |                        |  |   | 2.5                    |   |  |   | 2.5   |  
|Net proceeds from common unit options exercised                                  |  |                          | 0.6   |   |                                     |   |                        |  |   |                       |   |  |   | 0.6   |  
|Comprehensive income:                                                            |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   |       |  
|Net income                                                                       |  |                          | 16.5  |   |                                     |   |                        |  |   | 29.3                   |   |  |   | 45.8  |  
|Allocation of Inergy, L.P.s change in unrealized fair value on cash flow hedges |  |                          |      |   |                                     |   | 0.5                     |  |   |                       |   |  |   | 0.5   |  
|                                                                                 |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   |       |  
|Comprehensive income                                                             |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   | 46.3  |  
|                                                                                 |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   |       |  
|Balance at December 31, 2009                                                     |  | $                        | 38.7  |   |                                     | $ | 2.2                     |  | $ | 731.2                  |   |  | $ | 772.1 |  
|                                                                                 |  |                          |       |   |                                     |   |                         |  |   |                        |   |  |   |       |  

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



5



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)



|                                                                                  |  |                                |        |   |      |   |       |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ----- | -
|                                                                                  |  | Three Months EndedDecember 31, |       
|                                                                                  |  | 2009                           |        |   | 2008 |  
|Operating activities                                                              |  |                                |        |   |      |   |       |  
|Net income attributable to controlling partners                                   |  | $                              | 16.5   |   |      | $ | 14.4  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |        |   |      |   |       |  
|Depreciation                                                                      |  |                                | 30.4   |   |      |   | 19.7  |  
|Amortization                                                                      |  |                                | 6.7    |   |      |   | 6.6   |  
|Amortization of deferred financing costs and net bond discount                    |  |                                | 1.9    |   |      |   | 0.6   |  
|Unit-based compensation charges                                                   |  |                                | 2.1    |   |      |   | 0.6   |  
|Provision for doubtful accounts                                                   |  |                                | (0.9   | ) |      |   | (0.4  | )
|Loss on disposal of assets                                                        |  |                                | 2.0    |   |      |   | 0.7   |  
|Gain on issuance of units in Inergy, L.P.                                         |  |                                |       |   |      |   | (0.3  | )
|Interest of non-controlling partners in Inergy, L.P.s net income                 |  |                                | 28.9   |   |      |   | 42.1  |  
|Interest of non-controlling partners in ASCs consolidated net income             |  |                                | 0.4    |   |      |   | 0.4   |  
|Deferred income taxes                                                             |  |                                | 0.1    |   |      |   | 0.1   |  
|Changes in operating assets and liabilities, net of effects from acquisitions:    |  |                                |        |   |      |   |       |  
|Accounts receivable                                                               |  |                                | (83.6  | ) |      |   | (54.1 | )
|Inventories                                                                       |  |                                | (13.2  | ) |      |   | 35.2  |  
|Prepaid expenses and other current assets                                         |  |                                | 0.7    |   |      |   | (1.0  | )
|Other liabilities                                                                 |  |                                | (0.3   | ) |      |   | (0.5  | )
|Accounts payable                                                                  |  |                                | 54.5   |   |      |   | 20.6  |  
|Accrued expenses                                                                  |  |                                | 0.9    |   |      |   | (1.3  | )
|Customer deposits                                                                 |  |                                | (14.1  | ) |      |   | (22.1 | )
|Net assets (liabilities) from price risk management activities                    |  |                                | 16.1   |   |      |   | (50.6 | )
|                                                                                  |  |                                |        |   |      |   |       |  
|Net cash provided by operating activities                                         |  |                                | 49.1   |   |      |   | 10.7  |  
|                                                                                  |  |                               
|Investing activities                                                              |  |                                |        |   |      |   |       |  
|Acquisitions, net of cash acquired                                                |  |                                | (192.5 | ) |      |   | (1.3  | )
|Purchases of property, plant and equipment                                        |  |                                | (34.8  | ) |      |   | (47.0 | )
|Proceeds from sale of assets                                                      |  |                                | 2.2    |   |      |   | 2.3   |  
|                                                                                  |  |                                |        |   |      |   |       |  
|Net cash used in investing activities                                             |  |                                | (225.1 | ) |      |   | (46.0 | )

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



6



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in millions)

(unaudited)



|                                                                                                                                   |  |                                |        |   |      |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                                                                   |  | Three Months EndedDecember 31, |       
|                                                                                                                                   |  | 2009                           |        |   | 2008 |  
|Financing activities                                                                                                               |  |                                |        |   |      |   |        |  
|Proceeds from the issuance of long-term debt                                                                                       |  | $                              | 429.3  |   |      | $ | 201.1  |  
|Principal payments on long-term debt                                                                                               |  |                                | (189.4 | ) |      |   | (121.7 | )
|Distributions to non-controlling partners in Inergy, L.P.                                                                          |  |                                | (37.2  | ) |      |   | (29.3  | )
|Distributions to non-controlling partners in ASC                                                                                   |  |                                | (0.6   | ) |      |   |       |  
|Distributions                                                                                                                      |  |                                | (17.2  | ) |      |   | (13.2  | )
|Payments for deferred financing costs                                                                                              |  |                                | (9.9   | ) |      |   |       |  
|Proceeds from swap settlement                                                                                                      |  |                                | 4.3    |   |      |   |       |  
|Net proceeds from common unit options exercised                                                                                    |  |                                | 0.6    |   |      |   |       |  
|Net proceeds from common unit options exercised of Inergy, L.P.                                                                    |  |                                | 0.4    |   |      |   |       |  
|Other                                                                                                                              |  |                                | (0.1   | ) |      |   |       |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|Net cash provided by financing activities                                                                                          |  |                                | 180.2  |   |      |   | 36.9   |  
|                                                                                                                                   |  |                               
|Net increase (decrease) in cash                                                                                                    |  |                                | 4.2    |   |      |   | 1.6    |  
|Cash at beginning of period                                                                                                        |  |                                | 11.7   |   |      |   | 17.4   |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  |                               
|Cash at end of period                                                                                                              |  | $                              | 15.9   |   |      | $ | 19.0   |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  |                               
|Supplemental schedule of noncash investing and financing activities                                                                |  |                                |        |   |      |   |        |  
|Additions to intangible assets through the issuance of noncompetition agreements and notes to former owners of businesses
acquired |  | $                              |       |   |      | $ | 2.7    |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  |                               
|Net change to property, plant and equipment through accounts payable and accrued expenses                                          |  | $                              | (3.2   | ) |      | $ | 2.7    |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  |                               
|Change in the fair value of interest rate swap liability and related long-term debt                                                |  | $                              | (0.6   | ) |      | $ | 6.4    |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  |                               
|Acquisitions, net of cash acquired:                                                                                                |  |                                |        |   |      |   |        |  
|Current assets                                                                                                                     |  | $                              | 22.1   |   |      | $ | 0.3    |  
|Property, plant and equipment                                                                                                      |  |                                | 104.5  |   |      |   | 5.9    |  
|Intangible assets                                                                                                                  |  |                                | 35.3   |   |      |   | 1.8    |  
|Goodwill                                                                                                                           |  |                                | 80.8   |   |      |   | 0.9    |  
|Other assets                                                                                                                       |  |                                | 0.1    |   |      |   |       |  
|Current liabilities                                                                                                                |  |                                | (50.3  | ) |      |   | (0.9   | )
|Issuance of equity                                                                                                                 |  |                                |       |   |      |   | (6.7   | )
|                                                                                                                                   |  |                                |        |   |      |   |        |  
|                                                                                                                                   |  | $                              | 192.5  |   |      | $ | 1.3    |  
|                                                                                                                                   |  |                                |        |   |      |   |        |  

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



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##### Table of Contents

INERGY HOLDINGS, 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 Holdings, L.P. (Holdings or the Company), its subsidiaries, Inergy Partners, LLC (Partners), Inergy GP, LLC (Inergy GP),
IPCH Acquisition Corp. (IPCHA) and its controlled subsidiary Inergy, L.P. (Inergy or the Partnership). IPCHA is a subsidiary created as a result of transactions with Inergy. All significant intercompany
transactions, including distribution income, and balances have been eliminated in consolidation.

The consolidated financial statements of the
Company include the accounts of Inergy and its subsidiaries, including Inergy Propane, LLC (Inergy Propane), Inergy Midstream, LLC (collectively, the Operating Companies) and Inergy Finance Corp. Partners (the
Non-Managing General Partner) owns the non-managing general partner interest in Inergy. Inergy GP (the Managing General Partner) has sole responsibility for conducting Inergys business and managing Inergys
operations. The Company is a holding company whose principal business, through its subsidiaries, is its management of and ownership in Inergy. The Company has no operations of its own.

As of December 31, 2009, Holdings owns an aggregate 8.6% interest in Inergy, inclusive of ownership of the Non-Managing General Partner and Managing General Partner. This ownership is comprised of an
approximate 0.8% general partnership interest and an approximate 7.8% limited partnership interest. The Company also owns all of the incentive distribution rights provided for in the Inergy partnership agreement, which entitles Holdings
to receive increasing percentages, up to 48%, of any cash distributed by Inergy in excess of $0.33 per unit in any quarter.

Nature of
Operations

Inergy conducts all of the business activities of the consolidated group and is engaged primarily in the sale, distribution,
storage, marketing, trading, processing and fractionation of propane, natural gas and other natural gas liquids. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings, as well as for
agricultural purposes. Inergys operations are primarily concentrated in the Midwest, Northeast, South and West regions of the United States.

Basis of Presentation

The financial information contained herein as of December 31, 2009 and for the three-month periods
ended December 31, 2009 and 2008, is unaudited. The Company 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. The Company 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. The retail distribution business is largely seasonal due to propanes primary use as a heating source in residential and commercial buildings. Accordingly, the results of operations for the three-month period ended December 31,
2009, are not indicative of the results of operations that may be expected for the entire fiscal year.

The accompanying consolidated
financial statements should be read in conjunction with the consolidated financial statements of Inergy Holdings, 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, 2009.

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 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.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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 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 rate borrowings. These 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.

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. 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 Inergys other comprehensive income in partners capital and
reclassified into earnings as a component of cost of product sold in the same period in which the hedged transaction affects earnings. Any ineffective portion of the gain or loss is recognized as cost of product sold in the current period.
Inergys accumulated other comprehensive income was $17.2 million and $11.0 million at December 31, 2009 and September 30, 2009, respectively. Approximately $17.8 million is expected to be reclassified to earnings from Inergys
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.

Revenue Recognition

Sales of propane, other liquids and salt are recognized at the time product is shipped or delivered to the customer depending on the sales
terms. Gas processing and fractionation fees are recognized upon delivery of the product. Revenue from the sale of propane appliances and equipment is recognized at the later of the time of sale or installation. Revenue from repairs and maintenance
is recognized upon completion of the service. Revenue from storage contracts is recognized during the period in which storage services are provided.

Expense Classification

Cost of product sold consists of tangible products sold including all propane and other natural gas
liquids, salt and all propane related appliances. Operating and administrative expenses consist of all expenses incurred by the Company other than those described above in cost of product sold and depreciation and amortization. Certain of
Inergys operating and administrative expenses and depreciation and amortization are incurred in the distribution of product and storage sales but are not included in cost of product sold. These amounts were $42.6 million and $33.7 million for
the three months ended December 31, 2009 and 2008, 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 at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those
estimates.

Inventories

Inventories for retail operations, which mainly consist of propane gas and other liquids, are stated at the lower of cost or market and are computed using the average-cost method. Wholesale propane and other liquids inventories are
designated under a fair value hedge program and are consequently marked to market. Propane and other liquids inventories being hedged and carried at market value at December 31, 2009 and September 30, 2009 amount to $58.8 million and $53.7
million, respectively. Inventories for midstream operations are stated at the lower of cost or market and are computed predominantly using the average cost method.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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 cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows:



|                               |  |      
|------------------------------ |  | -----
|                               |  | Years
|Buildings and improvements     |  | 2540
|Office furniture and equipment |  | 310 
|Vehicles                       |  | 510 
|Tanks and plant equipment      |  | 530 

Salt deposits are depleted on a unit of production method.

Identifiable Intangible Assets

The Company
has recorded certain identifiable intangible assets, including customer accounts, covenants not to compete, trademarks, deferred financing costs and deferred acquisition costs. Customer accounts, covenants not to compete and trademarks have arisen
from the various acquisitions by Inergy. Deferred financing costs represent financing costs incurred in obtaining financing and are being amortized over the term of the related debt. Deferred acquisition costs represent costs incurred on
acquisitions that Inergy is actively pursuing. 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   
|Covenants not to compete |  | 210 
|Deferred financing costs |  | 110 

Trademarks have been assigned an indefinite economic life and are not being amortized, but are
subject to an annual impairment evaluation.

Goodwill

Goodwill is recognized for various acquisitions by Inergy 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.

In connection with the goodwill impairment evaluation, Inergy
identified five reporting units. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of the evaluation on a
specific identification basis. To the extent a reporting units carrying value exceeds its fair value, an indication exists that the reporting units goodwill may be impaired and the second step of the impairment test must be performed. In
the second step, the implied fair value of the goodwill is determined by allocating the fair value to all of its assets (recognized and unrecognized) and liabilities to its carrying amount.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Inergy completed its annual impairment test for each of its reporting units and determined that no
impairment existed as of September 30, 2009. No indicators of impairment were identified requiring an interim impairment test during the three-month period ended December 31, 2009.

Income Taxes

The earnings of the Company,
its limited liability subsidiaries and Inergy are included in the federal and state income tax returns of the individual members or partners. As a result, no income tax expense has been reflected in the consolidated financial statements relating to
the earnings of Inergy and the limited liability subsidiaries. Federal and state income taxes are provided on the earnings of the subsidiaries incorporated as taxable entities (IPCHA and Inergy Sales and Service, Inc.). These taxable entities are
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 income 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.

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.

Income Per Unit

The Company calculates basic net income per limited partner unit by dividing net income applicable to
partners common interest by the weighted average number of units outstanding. 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
outstanding.

Accounting for Unit-Based Compensation

The Company and Inergy each have a unit-based employee compensation 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 during the three months ended
December 31, 2009 and 2008 was $2.1 million and $0.6 million, 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 assessing performance. In determining its reportable 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 propane and midstream segments.

Fair Value

Cash and cash equivalents, accounts receivable (net of reserve for bad debts) and payables are carried at cost, which approximates fair value due to their
liquid and short-term nature. As of December 31, 2009, the estimated fair value of the fixed-rate Senior Notes, based on available trading information, totaled $1,053.3 million compared with the aggregate principal amount at maturity of
$1,050.0 million. Inergys credit agreement (Credit Agreement) consists of a $75 million working capital facility (Working Capital Facility) and a $450 million revolving general partnership facility (General
Partnership Facility). The carrying value at December 31, 2009 of amounts outstanding under the Credit Agreement of $270.0 million approximate fair value due primarily to the floating interest rate associated with the Credit Agreement.



11



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Holdings credit agreement (Bank Facility) consists of a $14 million revolver for
Inergy Holdings, L.P. and a $6 million revolver for IPCH Acquisition Corp. The carrying value of amounts outstanding under the Bank Facility of $5.2 million at December 31, 2009, approximate fair value due primarily to the floating interest
rate associated with the Bank Facility. The carrying value of Holdings $25 million term loan with a bank (Term Loan) at December 31, 2009, approximates fair value due primarily to the floating interest rate associated with the
Term Loan.

Recently Issued Accounting Pronouncements

FASB Accounting Standards Codification Subtopic 810-10 (810-10), originally issued as SFAS No. 160, Non-controlling Interests in Consolidated Financial Statementsan amendment
of ARB No. 51, was issued in December 2007 and requires that accounting and reporting for minority interests will be recharacterized as non-controlling interests and classified as a component of equity. 810-10 also establishes reporting
requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. 810-10 applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. The Company adopted 810-10 on October 1,
2009. The adoption of 810-10 did not have a material impact on the Companys results of operations or financial position.

FASB
Accounting Standards Codification Subtopic 260-10 (260-10), originally issued as FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities was
ratified in June 2008 and applies to the calculation of earnings per share (EPS) under FASB Accounting Standards Codification Subtopic 260-10 (260-10), originally issued as SFAS 128, Earnings Per Share for
share-based payment awards with rights to dividends or dividend equivalents. 260-10 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be
included in the computation of EPS pursuant to the two-class method. The Company adopted 260-10 on October 1, 2009. The adoption of 260-10 did not have a significant impact on the Companys earnings per unit calculation.

In June 2009, the FASB issued FASB Accounting Standards Codification Subtopic 105-10 (105-10), originally issued as SFAS 168, The FASB
Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, to supersede FASB Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles, and reorganize the standards
applicable to financial statements of nongovernmental entities that are presented in conformity with GAAP. The purpose of the codification was to provide a single source of authoritative nongovernmental GAAP literature. The codification was not
intended to create new accounting standards or guidance. While the codification includes portions of SEC content related to matters within the basic financial statements for user convenience, it does not contain all SEC guidance on accounting
topics, and does not replace any SEC rules or regulations. The Company adopted 105-10 on September 30, 2009. The adoption of 105-10 did not impact any amounts comprising the consolidated balance sheets, consolidated statements of operations,
consolidated statements of partners capital or the consolidated statements of cash flows.

Note 3  Certain Balance Sheet
Information

Inventories consist of the following at December 31, 2009 and September 30, 2009, respectively (in millions):



|                               |  |                   |       |                    |   |     
|------------------------------ |  | ----------------- | ----- | ------------------ | - | ----
|                               |  | December 31, 2009 |       | September 30, 2009
|Propane gas and other liquids  |  | $                 | 98.8  |                    | $ | 81.3
|Appliances, parts and supplies |  |                   | 16.2  |                    |   | 14.8
|Salt finished goods            |  |                   | 0.7   |                    |   | 0.4 
|                               |  |                   |       |                    |   |     
|Total inventory                |  | $                 | 115.7 |                    | $ | 96.5
|                               |  |                   |       |                    |   |     



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Property, plant and equipment consists of the following at December 31, 2009 and September 30,
2009, respectively (in millions):



|                                         |  |                   |         |                    |   |        
|---------------------------------------- |  | ----------------- | ------- | ------------------ | - | -------
|                                         |  | December 31, 2009 |         | September 30, 2009
|Tanks and plant equipment                |  | $                 | 1,035.6 |                    | $ | 916.7  
|Buildings and improvements               |  |                   | 371.7   |                    |   | 323.6  
|Vehicles                                 |  |                   | 121.2   |                    |   | 107.7  
|Construction in process                  |  |                   | 86.3    |                    |   | 136.0  
|Salt deposits                            |  |                   | 41.6    |                    |   | 41.6   
|Office furniture and equipment           |  |                   | 30.3    |                    |   | 29.6   
|                                         |  |                   |         |                    |   |        
|                                         |  |                   | 1,686.7 |                    |   | 1,555.2
|Less: accumulated depreciation           |  |                   | 357.0   |                    |   | 327.9  
|                                         |  |                   |         |                    |   |        
|Total property, plant and equipment, net |  | $                 | 1,329.7 |                    | $ | 1,227.3
|                                         |  |                   |         |                    |   |        

The tanks and plant equipment balances above include tanks owned by the Company that reside at
customer locations. The leases associated with these tanks are accounted for as operating leases. These tanks have a value of $417.7 million with an associated accumulated depreciation balance of $91.9 million at December 31, 2009.

Intangible assets consist of the following at December 31, 2009 and September 30, 2009, respectively (in millions):



|                                   |  |                   |       |                    |   |      
|---------------------------------- |  | ----------------- | ----- | ------------------ | - | -----
|                                   |  | December 31, 2009 |       | September 30, 2009
|Customer accounts                  |  | $                 | 297.4 |                    | $ | 277.4
|Covenants not to compete           |  |                   | 80.3  |                    |   | 72.5 
|Deferred financing and other costs |  |                   | 43.7  |                    |   | 34.7 
|Trademarks                         |  |                   | 29.2  |                    |   | 26.2 
|                                   |  |                   |       |                    |   |      
|                                   |  |                   | 450.6 |                    |   | 410.8
|Less: accumulated amortization     |  |                   | 136.6 |                    |   | 133.4
|                                   |  |                   |       |                    |   |      
|Total intangible assets, net       |  | $                 | 314.0 |                    | $ | 277.4
|                                   |  |                   |       |                    |   |      

Note 4  Business Acquisitions

On December 31, 2009, Inergy entered into an Equity Purchase Agreement with Sterling Capital Partners, L.P., Sterling Capital Partners GmbH &
Co. KG and the other parties thereto (collectively, Sellers) wherein Inergy acquired 100% of the capital stock, membership interests, partnership interests, as applicable, of SCP GP Propane Partners I, Inc., SCP LP Propane Partners I,
Inc., Liberty Propane GP, LLC, Liberty Propane, LP and Liberty Propane Operations, LLC (collectively, Liberty). Liberty is a retail propane company servicing approximately 100,000 customers in the Mid-Atlantic, Northeast and Western
regions of the United States. This acquisition expands Inergys footprint in its core Mid-Atlantic and Northeast market areas, as well as establishing a quality new footprint in the attractive western United States propane market.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



The following table summarizes the estimated fair values of the assets acquired and liabilities assumed
at the acquisition date (in millions). Inergy is in the process of obtaining third party valuations of certain property, plant and equipment as well as intangible assets; thus the provisional measurements of intangible assets, goodwill and
deferred income taxes are subject to change.



|                                                                          |  |                   |      
|------------------------------------------------------------------------- |  | ----------------- | -----
|                                                                          |  | December 31, 2009
|Accounts receivable, less allowance for doubtful accounts of $0.5 million |  | $                 | 15.2 
|Inventory                                                                 |  |                   | 6.1  
|Prepaid expenses and other current assets                                 |  |                   | 0.8  
|Property, plant and equipment                                             |  |                   | 104.5
|Customer accounts                                                         |  |                   | 20.0 
|Covenants not to compete                                                  |  |                   | 12.3 
|Trademarks                                                                |  |                   | 3.0  
|Other                                                                     |  |                   | 0.1  
|                                                                          |  |                   |      
|Total identifiable assets acquired                                        |  |                   | 162.0
|                                                                          | 
|Current liabilities                                                       |  |                   | 15.9 
|Income tax liability                                                      |  |                   | 26.3 
|Current portion of long-term debt                                         |  |                   | 1.9  
|Notes payable                                                             |  |                   | 6.2  
|                                                                          |  |                   |      
|Total liabilities assumed                                                 |  |                   | 50.3 
|                                                                          |  |                   |      
|                                                                          | 
|Net identifiable assets acquired                                          |  |                   | 111.7
|Goodwill                                                                  |  |                   | 80.8 
|                                                                          |  |                   |      
|Net assets acquired                                                       |  | $                 | 192.5
|                                                                          |  |                   |      

The customer accounts are amortized over a period of 15 years and the covenants not to compete are
amortized over a period of approximately 5 years.

The $80.8 million of goodwill has all been assigned to the propane operations segment. The
goodwill recognized is attributable primarily to expected synergies and the assembled workforce.

The following represents the pro-forma
consolidated statements of operations as if Liberty had been included in the consolidated results of the Company for the three month periods ending December 31, 2009 and December 31, 2008, respectively (in millions):



|           |  |                                                 |       |                   |   |      
|---------- |  | ----------------------------------------------- | ----- | ----------------- | - | -----
|           |  | Pro-Forma Consolidated Statements of Operations
|           |  | Three Months Ended                             
|           |  | December 31, 2009                               |       | December 31, 2008
|Revenue    |  | $                                               | 537.9 |                   | $ | 575.6
|Net income |  | $                                               | 50.4  |                   | $ | 64.2 

These amounts have been calculated after applying Inergys accounting policies and adjusting the
results of Liberty 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 respective
period.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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.Changes to reflect final asset valuation of prior fiscal year acquisitions have been included in the Companys
consolidated financial statements but are not material.

Note 5  Risk Management

Inergy 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. Inergy utilizes derivative instruments to manage its exposure to fluctuations in commodity prices, which is discussed more fully below. Inergy also 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 propane and other commodities 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 hedge against the exposure its customer contracts create. Inergy does not designate these instruments as hedging instruments. 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. However, immaterial net unbalanced positions can exist or are established based on assessment of anticipated short-term needs or market
conditions.

Cash Flow Hedging Activity

Inergy sells propane and heating oil to retail customers at fixed prices. Inergy will enter into derivative instruments to hedge a significant portion of its exposure to fluctuations in commodity prices
as a result of selling the fixed price contracts. These instruments are identified and qualify to be treated as cash flow hedges. This accounting treatment requires the effective portion of the gain or loss on the derivative to be reported as a
component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge
components excluded from the assessment of effectiveness are recognized in current earnings.

Fair Value Hedging Activity

Inergy will enter into derivative instruments to hedge its exposure to fluctuating commodity prices that results from maintaining its wholesale inventory.
The instruments hedging wholesale inventory qualify to be treated 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. Commodity inventory held at retail locations is not hedged as this inventory is expected to be sold in the immediate future and is therefore not exposed to fluctuations in commodity prices over
an extended period of time.

Commodity Price and Credit Risk

Notional Amounts and Terms

The notional amounts and terms of Inergys derivative
financial instruments include the following at December 31, 2009 and September 30, 2009, respectively (in millions):



|                                         |  |                   |  |                     |  |                  |  |                    
|---------------------------------------- |  | ----------------- |  | ------------------- |  | ---------------- |  | -------------------
|                                         |  | December 31, 2009 |  | September 30, 2009 
|                                         |  | Fixed PricePayor  |  | Fixed PriceReceiver |  | Fixed PricePayor |  | Fixed PriceReceiver
|Propane, crude and heating oil (barrels) |  | 3.6               |  | 3.6                 |  | 6.8              |  | 6.5                
|Natural gas (MMBTUs)                    |  | 0.5               |  |                    |  |                 |  |                   



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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 Inergys monetary exposure to market or credit risks.

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 derivatives (in millions):



|                                                 |  |                                                               |       |   |                                                                   |   |     
|------------------------------------------------ |  | ------------------------------------------------------------- | ----- | - | ----------------------------------------------------------------- | - | ----
|                                                 |  | Amount of Gain (Loss)Recognized in Net Incomefrom
Derivatives |       |   | Amount of Gain (Loss)Recognized in Net Incomeon Item Being
Hedged
|                                                 |  | Three Months EndedDecember 31,
2009                          
|Derivatives in fair value hedging relationships: |  |                                                               |       |   |                                                                   |   |     
|Commodity(a)                                     |  | $                                                             | (9.9  | ) |                                                                   | $ | 10.2
|Debt(b)                                          |  |                                                               | (0.6  | ) |                                                                   |   | 0.6 
|                                                 |  |                                                               |       |   |                                                                   |   |     
|Total fair value of derivatives                  |  | $                                                             | (10.5 | ) |                                                                   | $ | 10.8
|                                                 |  |                                                               |       |   |                                                                   |   |     



|                                                   |  |                                                                                   |      |                                                                  |   |                                                                                                                 |  |   |  
|-------------------------------------------------- |  | --------------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------- | - | --------------------------------------------------------------------------------------------------------------- |  | - | -
|                                                   |  | Amount of Gain (Loss)Recognized in Inergys OCIon Effective Portion
ofDerivatives |      | Amount of Gain (Loss)Reclassified from InergysOCI to Net Income |   | Amount of Gain (Loss)Recognized in Net Incomeon Ineffective Portion ofDerivatives
& AmountExcluded from Testing
|                                                   |  | Three Months EndedDecember 31,
2009                                              
|Derivatives in cash flow hedging relationships:    |  |                                                                                   |      |                                                                  |   |                                                                                                                 |  |   |  
|Commodity(c)                                       |  | $                                                                                 | 11.6 |                                                                  | $ | 5.3                                                                                                             |  | $ | 
|                                                   |  |                                                                                   |      |                                                                  |   |                                                                                                                 |  |   |  
|                                                   |  |                                                                                  
|                                                   |  | Amount of Gain (Loss)Recognized in Net Incomefrom Derivatives                     |      |                                                                 
|                                                   |  | Three Months EndedDecember 31,
2009                                               |     
|Derivatives not designated as hedging instruments: |  |                                                                                   |      |                                                                 
|Commodity(d)                                       |  | $                                                                                 | 3.0  |                                                                 
|                                                   |  |                                                                                   |      |                                                                  |   |                                                                                                                 |  |   |  



|(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 Inergys 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.
|--- | ------------------------------------------------------



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Credit Risk

Inherent in Inergy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. Inergy 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, 2009 and September 30, 2009 were propane retailers, resellers, energy marketers and dealers.

Certain of Inergys derivative instruments have credit limits that require Inergy 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 Inergys established credit limit with the respective counterparty. If Inergys credit rating were to change, the counterparties could require it 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 Inergy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, 2009, is $18.1 million for which Inergy has posted collateral of $4.1 million, in the normal course of business. Inergy has received collateral of $14.7
million in the normal course of business. All collateral amounts have been netted against the asset or liability with the respective counterparty.

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,
2009, Inergy held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included Inergys derivative instruments related to propane, heating oil, crude oil, natural gas, natural gas liquids
and interest rates as well as the portion of inventory that is hedged in a qualifying fair value hedge. Inergys derivative instruments consist of forwards, swaps, futures, physical exchanges, and options.

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

Inergy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.



17



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Inergy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.

Inergys OTC
options are valued based on an internal option model. The inputs utilized in the model are based on publicly available information as well as broker quotes. These options have been categorized as level 3.

The following table sets forth by level within the fair value hierarchy Inergys assets and liabilities that were accounted for at fair value on a
recurring basis as of December 31, 2009 (in millions). The assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Inergy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.



|                                       |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|-------------------------------------- |  | ------------------------- | --- | ------- | - | ------- |  | ----- | --- | ------------------- | - | ---------------------- |  | -------------------- | ---- |  | ----- | ---- |  | - | ----- | - |  | - | ----
|                                       |  | Fair Value of Derivatives |     |         |   |         | 
|                                       |  | Level 1                   |     | Level 2 |   | Level 3 |  | Total |     | Designatedas Hedges |   | NotDesignatedas Hedges |  | NettingAgreements(a) |      |  | Total
|Assets                                 |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Assets from price risk management      |  | $                         | 1.7 |         | $ | 58.0    |  | $     | 0.9 |                     | $ | 60.6                   |  | $                    | 16.4 |  | $     | 44.2 |  | $ | (38.5 | ) |  | $ | 22.1
|Inventory                              |  |                           |    |         |   | 58.8    |  |       |    |                     |   | 58.8                   |  |                      |     |  |       |     |  |   |      |   |  |   | 58.8
|Interest rate swap                     |  |                           |    |         |   | 0.7     |  |       |    |                     |   | 0.7                    |  |                      | 0.7  |  |       |     |  |   |      |   |  |   | 0.7 
|                                       |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Total assets at fair value             |  | $                         | 1.7 |         | $ | 117.5   |  | $     | 0.9 |                     | $ | 120.1                  |  | $                    | 17.1 |  | $     | 44.2 |  | $ | (38.5 | ) |  | $ | 81.6
|                                       |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|                                       |  |                           |     |         |   |         |  |      
|Liabilities                            |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Liabilities from price risk management |  | $                         | 4.6 |         | $ | 51.8    |  | $     | 3.2 |                     | $ | 59.6                   |  | $                    | 15.3 |  | $     | 44.3 |  | $ | (22.0 | ) |  | $ | 37.6
|                                       |  |                           |     |         |   |         |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     



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

For assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period, 820-10 requires a reconciliation of the beginning and ending
balances, separated for each major category of assets. The reconciliation is as follows (in millions):



|                                                        |  |                                                                     |      |  
|------------------------------------------------------- |  | ------------------------------------------------------------------- | ---- | -
|                                                        |  | Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3) |     
|                                                        |  | Three Months EndedDecember 31, 2009                                 |     
|Beginning balance                                       |  | $                                                                   | (0.2 | )
|Beginning balance recognized during the period          |  |                                                                     | (0.1 | )
|Change in value of contracts executed during the period |  |                                                                     | (2.0 | )
|                                                        |  |                                                                     |      |  
|Ending balance                                          |  | $                                                                   | (2.3 | )
|                                                        |  |                                                                     |      |  



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INERGY HOLDINGS, 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, 2009 and September 30, 2009, respectively (in millions):



|                                                                                                     |  |                  |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                     |  | December 31,2009 |         |   | September 30,2009 |  
|Inergy credit agreement                                                                              |  | $                | 270.0   |   |                   | $ | 27.2    |  
|Inergy senior unsecured notes                                                                        |  |                  | 1,050.0 |   |                   |   | 1,050.0 |  
|Inergy fair value hedge adjustment on senior unsecured notes                                         |  |                  | 5.0     |   |                   |   | 5.6     |  
|Inergy bond premium                                                                                  |  |                  | 3.1     |   |                   |   | 3.3     |  
|Inergy bond discount                                                                                 |  |                  | (18.7   | ) |                   |   | (19.7   | )
|ASC credit agreement                                                                                 |  |                  | 7.7     |   |                   |   | 8.3     |  
|Inergy obligations under noncompetition agreements and notes to former owners of businesses acquired |  |                  | 25.8    |   |                   |   | 18.6    |  
|Holdings bank facility                                                                               |  |                  | 5.2     |   |                   |   | 6.5     |  
|Holdings term loan                                                                                   |  |                  | 25.0    |   |                   |   | 25.0    |  
|                                                                                                     |  |                  |         |   |                   |   |         |  
|Total debt                                                                                           |  |                  | 1,373.1 |   |                   |   | 1,124.8 |  
|Less: current portion                                                                                |  |                  | 21.8    |   |                   |   | 22.0    |  
|                                                                                                     |  |                  |         |   |                   |   |         |  
|Total long-term debt                                                                                 |  | $                | 1,351.3 |   |                   | $ | 1,102.8 |  
|                                                                                                     |  |                  |         |   |                   |   |         |  

The Companys bank facility (the Bank Facility) consists of a $14 million working capital revolver for
Holdings and a $6 million working capital revolver for IPCHA. The maturity date of the Bank Facility is July 22, 2011 and is collateralized by certain of the Companys interests in Inergy. In addition, the Bank Facility is guaranteed by
Partners. The interest rates of these revolvers are based on prime rate and LIBOR plus the applicable spreads, which were 1.74% at December 31, 2009 for all outstanding debt under the Bank Facility. Availability under the Bank Facility amounted
to $14.8 million and $13.5 million at December 31, 2009 and September 30, 2009, respectively. The Bank Facility contains several covenants which, among other things, require the maintenance of various financial performance ratios, restrict
the payment of distributions to unitholders, and require financial reports to be submitted periodically to the financial institutions.

Inergys Credit Agreement

On November 24, 2009, Inergy entered into a secured credit facility (Credit
Agreement) which provides borrowing capacity of up to $525 million in the form of a $450 million revolving general partnership credit facility (General Partnership Facility) and a $75 million working capital credit facility
(Working Capital Facility). This facility replaces its former senior credit facility due 2010. This new facility will mature on November 22, 2013. Borrowings under this new facility are available for working capital needs, future
acquisitions, capital expenditures and other general partnership purposes, including the refinancing of existing indebtedness under the former credit facility.

The new secured credit facility contains various affirmative and negative covenants and default provisions, as well as requirements with respect to the maintenance of specified financial ratios and
limitations on making investments, permitting liens and entering into other debt obligations. All borrowings under the facility 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 1.50% to 2.75%; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Adjusted LIBO Rate, which is defined as the LIBO Rate plus a margin varying from 2.50% to 3.75%.
| | - |  | ----------------------------------------------------------------------------------------------------

At December 31, 2009, the balance outstanding under the new Credit Agreement was $270.0 million, including $245.0 million borrowed for acquisitions and
growth capital expenditures and $25.0 million borrowed for working capital purposes. At September 30, 2009, the balance outstanding under the previous Credit Agreement was $27.2 million, with



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



the entire balance borrowed for working capital purposes. The interest rates of these revolvers are based on prime rate and LIBOR plus the applicable spreads, which were between 3.24% and 5.25%
at December 31, 2009, and between 2.0% and 3.5% at September 30, 2009, for all outstanding debt under the Credit Agreement. Availability under the Credit Agreement amounted to $238.6 million and $381.1 million at December 31, 2009 and
September 30, 2009, respectively. Outstanding standby letters of credit under the Credit Agreement amounted to $16.4 million and $16.7 million at December 31, 2009 and September 30, 2009, respectively.

During each fiscal year beginning October 1, the outstanding balance of the Working Capital Facility must be reduced to $10.0 million or less for a
minimum of 30 consecutive days during the period commencing March 1 and ending September 30 of each calendar year.

Steuben Gas
Storage Company, a majority-owned subsidiary of Arlington Storage Company (ASC), had a debt agreement in place at the time of Inergys acquisition of ASC (ASC Credit Agreement). The ASC Credit Agreement is secured by the
assets of Steuben and has no recourse against the assets of Inergy. The ASC Credit Agreement is scheduled to mature in December 2015. The interest rate on approximately half of the ASC Credit Agreement is at a fixed rate, while the other portion is
based on LIBOR plus the applicable spreads.

Certain counterparties elected to call their respective interest rate swap positions in December
2009. The aggregate notional amount associated with these swaps amounted to $125 million. Inergy received $4.3 million in consideration for the cancellation of the swaps.

Inergy is party to an interest rate swap agreement scheduled to mature in December 2014, designed to hedge $25 million in underlying fixed rate senior unsecured notes in order to manage interest rate risk
exposure. This swap agreement, which expires on the same date as the maturity date of the related senior unsecured notes due 2014 and contains call provisions consistent with the underlying senior unsecured notes, requires the counterparty to pay
Inergy an amount based on the stated fixed interest rate due every six months. In exchange, Inergy is required to make semi-annual floating interest rate payments on the same dates to the counterparty based on an annual interest rate equal to the
6-month LIBOR interest rate plus spreads between 0.92% and 2.20% applied to the same aggregate notional amount of $25 million. The swap agreement has been accounted for as a fair value hedge. Amounts to be received or paid under the agreement are
accrued and recognized over the life of the agreement as an adjustment to interest expense. The change in the market value of the interest rate swap for the three months ended December 31, 2009 was recorded as a $0.2 million increase to
interest expense. This amount was offset by a $0.2 million decrease to interest expense that was recorded as a result of a change in the fair value of the hedged fixed rate debt.

At December 31, 2009, the Company was in compliance with all of its debt covenants.

Note
8  Partners Capital

Quarterly Distributions of Available Cash

A summary of the Companys limited partner quarterly distributions for the three months ended December 31, 2009 and 2008 is presented below:



|                                  |  |                                 |                   |      |   |                  
|--------------------------------- |  | ------------------------------- | ----------------- | ---- | - | -----------------
|                                  |  | Three Months Ended December 31,
|                                  |  | 2009                            |                   | 2008
|Record date                       |  |                                 | November 6, 2009  |      |   | November 7, 2008 
|Payment date                      |  |                                 | November 13, 2009 |      |   | November 14, 2008
|Per unit rate                     |  | $                               | 0.85              |      | $ | 0.65             
|Distribution amount (in millions) |  | $                               | 17.2              |      | $ | 13.1             



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



On January 25, 2010, the Company declared a distribution of $0.94 per limited partner unit to be
paid on February 12, 2010 to unitholders of record on February 5, 2010 for a total distribution of $19.1 million with respect to the first fiscal quarter of 2010. On February 13, 2009, a quarterly distribution of $0.675 per limited
partner unit was paid to unitholders of record on February 6, 2009 with respect to the first fiscal quarter of 2009, for a total distribution of $13.7 million.

The Companys capital is comprised primarily of its equity in Inergy and the Companys ability to make distributions is contingent upon the distributions it receives from Inergy. While Inergy
distributes all available cash, its capital is not all available for distribution.

Note 9  Commitments and Contingencies

Inergy periodically enters into agreements with suppliers to purchase fixed quantities of propane, distillates, natural gas and liquids at
fixed prices. At December 31, 2009, the total of these firm purchase commitments was $140.1 million, of which $139.2 million will occur over the course of the next twelve months with the balance of $0.9 million occurring over the following
twelve months. Inergy also enters into non-binding agreements with suppliers to purchase quantities of propane, distillates, natural gas and liquids at variable prices at future dates at the then prevailing market prices.

Inergy has entered into certain purchase commitments in connection with the identified growth projects related to the Thomas Corners and Finger Lakes
midstream assets. At December 31, 2009, the total of these firm purchase commitments was $8.1 million and the purchases associated with these commitments will occur over the course of the next twelve months.

The Company is periodically involved in litigation proceedings. The results of litigation proceedings cannot be predicted with certainty; however,
management believes that the Company 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.

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. At December 31, 2009 and September 30, 2009, Inergys self-insurance reserves were $20.0 million and $19.3 million, respectively.

Note 10  Segments

The Companys
financial statements reflect two operating and reportable segments: propane operations and midstream operations. The Companys propane operations include propane sales to end users, the sale of propane-related appliances and service work for
propane-related equipment, the sale of distillate products and wholesale distribution of propane and marketing and price risk management services to other users, retailers and resellers of propane. The Companys midstream operations include
storage of natural gas for third parties, fractionation of natural gas liquids, processing of natural gas, distribution of natural gas liquids and the production and sale of salt.

The identifiable assets associated with each reportable 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 propane segment.



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INERGY HOLDINGS, 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 the Companys reportable segments are presented below (in millions):



|                                                    |  |                                     |       |                     |   |                        |  |   |                 |   |       |   |      |  |   |        
|--------------------------------------------------- |  | ----------------------------------- | ----- | ------------------- | - | ---------------------- |  | - | --------------- | - | ----- | - | ---- |  | - | -------
|                                                    |  | Three Months EndedDecember 31,
2009
|                                                    |  | PropaneOperations                   |       | MidstreamOperations |   | IntersegmentOperations |  |   | CorporateAssets |   | Total
|Retail propane revenues                             |  | $                                   | 221.3 |                     | $ |                       |  | $ |                |   |       | $ |     |  | $ | 221.3  
|Wholesale propane revenues                          |  |                                     | 143.3 |                     |   | 7.7                    |  |   |                |   |       |   |     |  |   | 151.0  
|Storage, fractionation and other midstream revenues |  |                                     |      |                     |   | 68.9                   |  |   | (0.4            | ) |       |   |     |  |   | 68.5   
|Transportation revenues                             |  |                                     | 4.2   |                     |   | 4.8                    |  |   |                |   |       |   |     |  |   | 9.0    
|Propane-related appliance sales revenues            |  |                                     | 7.1   |                     |   |                       |  |   |                |   |       |   |     |  |   | 7.1    
|Retail service revenues                             |  |                                     | 5.0   |                     |   |                       |  |   |                |   |       |   |     |  |   | 5.0    
|Rental service and other revenues                   |  |                                     | 6.7   |                     |   |                       |  |   |                |   |       |   |     |  |   | 6.7    
|Distillate revenues                                 |  |                                     | 33.1  |                     |   |                       |  |   |                |   |       |   |     |  |   | 33.1   
|Gross profit                                        |  |                                     | 142.1 |                     |   | 33.5                   |  |   | (0.4            | ) |       |   |     |  |   | 175.2  
|Identifiable assets                                 |  |                                     | 253.2 |                     |   | 57.1                   |  |   |                |   |       |   |     |  |   | 310.3  
|Goodwill                                            |  |                                     | 358.7 |                     |   | 96.3                   |  |   |                |   |       |   | 20.2 |  |   | 475.2  
|Property, plant and equipment                       |  |                                     | 801.3 |                     |   | 874.3                  |  |   |                |   |       |   | 11.1 |  |   | 1,686.7
|Expenditures for property, plant and equipment      |  |                                     | 4.3   |                     |   | 27.2                   |  |   |                |   |       |   | 0.1  |  |   | 31.6   
|                                                    | 
|                                                    |  | Three Months EndedDecember 31,
2008
|                                                    |  | PropaneOperations                   |       | MidstreamOperations |   | IntersegmentOperations |  |   | CorporateAssets |   | Total
|Retail propane revenues                             |  | $                                   | 267.7 |                     | $ |                       |  | $ |                |   |       | $ |     |  | $ | 267.7  
|Wholesale propane revenues                          |  |                                     | 135.4 |                     |   | 6.1                    |  |   |                |   |       |   |     |  |   | 141.5  
|Storage, fractionation and other midstream revenues |  |                                     |      |                     |   | 51.2                   |  |   | (0.2            | ) |       |   |     |  |   | 51.0   
|Transportation revenues                             |  |                                     | 4.6   |                     |   | 4.5                    |  |   |                |   |       |   |     |  |   | 9.1    
|Propane-related appliance sales revenues            |  |                                     | 7.1   |                     |   |                       |  |   |                |   |       |   |     |  |   | 7.1    
|Retail service revenues                             |  |                                     | 6.1   |                     |   |                       |  |   |                |   |       |   |     |  |   | 6.1    
|Rental service and other revenues                   |  |                                     | 8.2   |                     |   |                       |  |   |                |   |       |   |     |  |   | 8.2    
|Distillate revenues                                 |  |                                     | 43.3  |                     |   |                       |  |   |                |   |       |   |     |  |   | 43.3   
|Gross profit                                        |  |                                     | 152.3 |                     |   | 22.2                   |  |   | (0.2            | ) |       |   |     |  |   | 174.3  
|Identifiable assets                                 |  |                                     | 221.1 |                     |   | 26.4                   |  |   |                |   |       |   |     |  |   | 247.5  
|Goodwill                                            |  |                                     | 275.1 |                     |   | 168.9                  |  |   |                |   |       |   | 20.2 |  |   | 464.2  
|Property, plant and equipment                       |  |                                     | 695.3 |                     |   | 620.8                  |  |   |                |   |       |   | 10.7 |  |   | 1,326.8
|Expenditures for property, plant and equipment      |  |                                     | 4.0   |                     |   | 45.2                   |  |   |                |   |       |   | 0.5  |  |   | 49.7   



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 11  Subsequent Events

The Company has identified subsequent events requiring disclosure through February 3, 2010, the date of the filing of this Form 10-Q.

On January 11, 2010, Inergy executed a definitive agreement to purchase Seneca Lake natural gas storage facility (Seneca Lake) located in Schuyler County, New York, and two related
pipelines. Seneca Lake is an approximate 2.0 billion cubic feet (bcf) underground salt cavern storage facility located on Inergys US Salt property outside Watkins Glen, New York, and has a maximum withdrawal capability of 145 MMcf/day and
maximum injection capability of 75 MMcf/day. Seneca Lake is connected to the Dominion Transmission System via the 16-inch, 20 mile Seneca West Pipeline and indirectly to the city gate of Binghamton, New York, via the 12-inch, 37.5 mile Seneca East
Pipeline, which runs within approximately 4 miles of Inergys Stagecoach North Lateral interconnect with the Millennium Pipeline.

On
January 12, 2010, Inergy acquired the propane assets of MGS Corporation (MGS), headquartered in Hackensack, New Jersey. MGS currently delivers propane to nearly 6,400 customers from five customer service centers.

On January 25, 2010, Inergy issued 5,000,000 common units in a public offering. Inergy also granted the underwriters the option to purchase up to
750,000 additional common units to cover over-allotments. The over-allotment option was exercised on January 28, 2010, for 749,100 common units. Inergy used the net proceeds from this offering to repay outstanding indebtedness under its
revolving general partnership credit facility, which was borrowed to fund the recent acquisitions of Liberty and MGS and to fund other capital expenditures in its midstream business.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying
consolidated financial statements and Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K of Inergy Holdings, L.P. for the fiscal year ended
September 30, 2009.

The statements in this Quarterly Report on Form 10-Q that are not historical facts, including most importantly,
those statements preceded by, or that include the words may, believes, expects, anticipates or the negation thereof, or similar expressions, constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 (Reform Act). Such forward-looking statements include, but are not limited to, statements that: (i) we believe our wholesale supply, marketing and distribution business
complements our retail distribution business, (ii) we expect recovery of goodwill through future cash flows associated with acquisitions, and (iii) we believe that anticipated cash from operations and borrowings under our credit facility
will be sufficient to meet our liquidity needs for the foreseeable future. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from
any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: weather in our area of operations; market price of propane; availability of
financing; changes in, or failure to comply with, government regulations; the costs, uncertainties and other effects of legal and administrative proceedings and other risks and uncertainties detailed in our Securities and Exchange Commission
filings. For those statements, we claim the protections of the safe harbor for forward-looking statements contained in the Reform Act. We will not undertake and specifically decline any obligation to publicly release the result of any revisions to
any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect events or circumstances after anticipated or unanticipated events.

Overview

Our cash-generating assets consist of our partnership interests, including
incentive distribution rights, in Inergy, L.P. (Inergy), a publicly traded Delaware limited partnership. Our primary objective is to increase distributable cash flow to our unitholders through our ownership of partnership interests in
Inergy. Our incentive distribution rights entitle us to receive an increasing percentage of total cash distributions made by Inergy as it reaches certain target distribution levels and have resulted in significantly increasing cash distributions to
us.

Our aggregate partnership interests in Inergy consist of the following:



| |  |  | a 100% ownership interest in each of the managing general partner of Inergy, which manages Inergys business and affairs, and the non-managing
general partner of Inergy, which owns an approximate 0.8% general partner interest in Inergy;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 4,706,689 Inergy common units, representing an aggregate limited partner interest in Inergy of approximately 7.8%;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | all of the incentive distribution rights in Inergy which entitle us to receive increasing percentages, up to a maximum of 48.0%, of any cash
distributed by Inergy as certain target distribution levels are reached in excess of $0.33 per Inergy unit in any quarter.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Inergy is a growing retail and wholesale propane supply, marketing and distribution business. Inergy also owns and operates a growing midstream business that includes two natural gas storage facilities (Stagecoach and
Thomas Corners), a majority interest in a third natural gas storage facility (Steuben), a liquefied petroleum gas (LPG) storage facility (Bath), a natural gas liquids (NGL) business and a
solution-mining and salt production company (US Salt). Inergy further intends to pursue its growth objectives in the propane business through, among other things, future acquisitions. Inergys acquisition strategy focuses on propane
companies that meet its acquisition criteria, including targeting acquisition prospects that maintain a high percentage of retail sales to residential customers, operating in attractive markets and focusing its operations under established and
locally recognized trade names. Inergys midstream growth objectives focus both on organically expanding its existing assets and acquiring future operations that leverage its existing operating platform, produce predominantly fee-based cash
flow characteristics and have future organic or commercial expansion characteristics.



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Both of Inergys operating segments, propane and midstream, are supported by business development
personnel groups employed by Inergy. These groups daily responsibilities include research, sourcing, financial analysis and due diligence of potential acquisition targets and organic growth opportunities. These employees work closely with the
operators of both of Inergys segments in the course of their work to ensure the appropriate growth opportunities are pursued.

Inergy
has grown primarily through acquisitions. Since the inception of its predecessor in November 1996 through December 31, 2009, Inergy has acquired 85 companies, including 79 retail propane companies and 6 midstream businesses, for an aggregate
purchase price of approximately $2.0 billion, including working capital, assumed liabilities and acquisition costs.

On December 31,
2009, Inergy acquired the partnership interests of Liberty Propane, LP (Liberty) headquartered in Overland Park, Kansas. Liberty delivers propane to nearly 100,000 customers from 38 customer service centers in the Northeast, Mid-Atlantic
and Western regions of the United States. 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. Changes to final asset valuation of prior fiscal year acquisitions have been included in our consolidated financial statements but are not material.

Since we control the managing general partner of Inergy, we reflect our ownership interest in Inergy on a consolidated basis, which means that our financial results are combined with Inergys
financial results and the results of our other subsidiaries. The limited partner interests in Inergy not owned by affiliates of the managing general partner are reflected as an expense in our results of operations. We have no separate operating
activities apart from those conducted by Inergy, and our cash flows consist of distributions from Inergy on the partnership interests we own. Our consolidated results of operations principally reflect the results of operations of Inergy, and also
include our provision for income taxes and interest of non-controlling partners in Inergys net income. Accordingly, the discussion of our financial position and results of operations in this Managements Discussion and Analysis of
Financial Condition and Results of Operations reflects the operating activities and results of operations of Inergy.

The retail propane
distribution business is largely seasonal due to propanes primary use as a heating source in residential and commercial buildings. As a result, cash flows from operations are generally highest from November through April when customers pay for
propane purchased during the six-month peak heating season of October through March.

Because a substantial portion of Inergys propane
is used in the weather-sensitive residential markets, the temperatures realized in its areas of operations, particularly during the six-month peak heating season of October through March, have a significant effect on its financial performance. In
any given area, warmer-than-normal temperatures will tend to result in reduced propane use, while sustained colder-than-normal temperatures will tend to result in greater propane use. Therefore, Inergy uses information on normal temperatures in
understanding how historical results of operations are affected by temperatures that are colder or warmer than normal and in preparing forecasts of future operations, which are based on the assumption that normal weather will prevail in each of its
operating regions. Heating degree days are a general indicator of how weather impacts propane usage and are calculated for any given period by adding the difference between 65 degrees and the average temperature of each day in the period
(if less than 65 degrees). While a substantial portion of Inergys propane is used by its customers for heating needs, Inergys propane operations are geographically diversified and not all of its propane sales are weather sensitive.
Together, these factors may make it difficult to draw definitive conclusions as to the correlation of Inergys gallon sales to weather calculations comparing weather in a year to normal or to the prior year.

The retail propane business is a margin-based business where the level of profitability is largely dependent on the difference between sales
prices and product costs. Propane prices continued to be volatile during 2009. At the main pricing hub of Mount Belvieu, Texas during the three-month period ended December 31, 2009, propane prices ranged from a low of $0.93 per gallon to a
high of $1.32 per gallon and a price of $1.31 per gallon at December 31, 2009. Inergys ability to pass on price increases to its customers and its hedging program limits the impact that such volatility has had on its results from
operations. In the future, Inergy will continue to hedge virtually 100% of its exposure from fixed price sales. While Inergy has historically been successful in passing on any price increases to its customers, there can be no guarantees
that this trend will continue in the future. In periods of increasing



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costs, Inergy has experienced a decline in its gross profit as a percentage of revenues. In addition, during those periods Inergy has historically experienced conservation of propane gallons used
by its customers which has resulted in a decline in gross profit. In periods of decreasing costs, Inergy has experienced an increase in its gross profit as a percentage of revenues. There is no assurance that because propane prices decline customers
will use more propane and thus historical gallon sales declines Inergy has attributed to customer conservation will reverse. The prices of crude oil and natural gas had maintained historically high costs in calendar year 2007 and 2008 before falling
in late 2008 and somewhat leveling off in early 2009 and, since propane is a by-product of these commodities, it too has been at historically high levels over this same time frame. As such, Inergys selling prices of propane have been at higher
levels in order to attempt to maintain its historical gross margin per gallon. Inergy does not attempt to predict or control the underlying commodity prices; however, it monitors these prices daily and adjusts its operations and retail prices to
maintain expected margins by passing on the wholesale costs to end users of its product. Inergy believes that volatility in commodity prices will continue, and its ability to adjust to and manage its operations in response to this volatility may
impact its operations and financial results.

Inergy believes that the economic downturn that began in the second half of 2008 has caused
certain of its retail propane customers to conserve and thereby purchase less propane. This trend is expected to continue throughout the life of the economic downturn. In addition, although we believe the economic downturn has not currently had a
material impact on Inergys cash collections, it is possible that a prolonged economic downturn could have a negative impact on its future cash collections.

Inergy believes its wholesale supply, marketing and distribution business complements its retail distribution business. Through its wholesale operations, Inergy distributes propane and also offers price
risk management services to propane retailers, resellers and other related businesses as well as energy marketers and dealers, through a variety of financial and other instruments, including:



| |  |  | forward contracts involving the physical delivery of propane;
| | - |  | -------------------------------------------------------------



| |  |  | a swap agreement which requires payments to (or receipt of payments from) a counterparty based on the differential between a fixed and variable price
for propane; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | options, futures contracts on the New York Mercantile Exchange and other contractual arrangements.
| | - |  | --------------------------------------------------------------------------------------------------

Inergy engages in derivative transactions to reduce the effect of price volatility on its product costs and to help ensure the availability of propane
during periods of short supply. Inergy attempts to balance its contractual portfolio by purchasing volumes only when Inergy has a matching purchase commitment from its wholesale customers. However, Inergy may experience net unbalanced positions from
time to time.

Inergys midstream operations primarily include the storage, processing, fractionation and sale of natural gas and NGLs
and, to a lesser extent, the wholesale distribution of salt from solution mining operations of US Salt, which was acquired in August 2008. The cash flows from these operations are predominantly fee-based under one to ten year contracts with
substantial, creditworthy counterparties and, therefore, are generally economically stable and not significantly affected in the short term by changing commodity prices, seasonality or weather fluctuations.

Inergy believes its midstream operations could be negatively affected in the long term by sustained downturns or sluggishness in the economy, which could
affect long-term demand and market prices for natural gas and NGLs, all of which are beyond Inergys control and could impair its ability to meet long-term goals. However, Inergy also believes that the contractual fee-based nature of its
midstream operations may serve to mitigate this potential risk.

The majority of Inergys operating cash flows in its midstream
operations are generated by its natural gas storage operations. Most of Inergys natural gas storage revenues are based on regulated market-based tariff rates, which are driven in large part by competition and demand for its storage capacity
and deliverability. Demand for storage in Inergys key midstream market in the northeastern United States is projected to continue to be strong, driven by a shortage in storage capacity and a higher than average annual growth in natural gas
demand. This demand growth is primarily driven by the natural gas-fired electric generation sector and conversion from petroleum based fuels. The natural gas industry is currently experiencing a significant shift in the sources of supply, and this
dramatic change could affect Inergys operations. Traditionally, supply to Inergys markets has come from the Gulf Coast region, onshore and offshore, as well as from Canada. The national supply profile is shifting to new sources of
natural gas from basins in the Rockies,



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Mid-Continent, Appalachia and East Texas. In addition, the natural gas supply outlook includes new LNG regasification facilities under various stages of development in multiple locations. LNG can
be a new source of potential supply, but the timing and extent of incremental supply ultimately realized from LNG is yet to be determined and, at present, LNG remains a small percentage of the overall supply to the markets Inergy serves. These
supply shifts and other changes to the natural gas market may have an impact on Inergys storage operations and its development plans in the northeastern United States and may ultimately drive the need for more domestic capacity for natural gas
storage. Currently, Inergy has committed to capital expansion projects at its Finger Lakes LPG storage expansion. The Finger Lakes LPG storage expansion project relates to the development of certain caverns acquired in the acquisition of US Salt in
August 2008. The solution mining process creates caverns that can be developed into LPG or natural gas storage after the salt has been extracted. The Finger Lakes LPG expansion project is expected to convert certain of the caverns at US
Salt into LPG storage with a capacity of up to 5 million barrels. This project is expected to be completed in summer 2010.

As
Inergy executes on its strategic objectives, capital expansion projects will continue to be an important part of its growth plan. Inergy has committed capital and investment expenditures at December 31, 2009 of $8.1 million in its midstream
operations. These capital requirements, along with the refinancings of normal maturities of existing debt, will require Inergy to continue long-term borrowings. An inability to access capital at competitive rates could adversely affect Inergys
ability to implement its strategy. Market disruptions or a downgrade in Inergys credit ratings may increase the cost of borrowing or adversely affect its ability to access one or more sources of liquidity. During the past several years,
capital expansion projects have been exposed to cost pressures associated with the availability of skilled labor and the pricing of materials. Although certain costs have begun to decrease, there will be continual focus on project management
activities to address these pressures as Inergy moves forward with planned expansion opportunities. Significant cost increases could negatively affect the returns ultimately earned on current and future expansions.

Inergys midstream operations in the United States are subject to regulations at the federal and state level. Regulations applicable to the gas storage
industry have a significant effect on the nature of Inergys midstream operations and the manner in which they operate. Changes to regulations are ongoing and Inergy cannot predict the future course of changes in the regulatory environment or
the ultimate effect that any future changes will have on its midstream operations.

Results of Operations

The results of operations discussed below principally reflect the activities of Inergy. Because our financial statements represent combined consolidated
results of Inergy, our financial statements are substantially similar to Inergys. The primary differences in our financial statements include the following amounts in the income statement:



| |  |  | Provision for Income Taxes. Our provision for income taxes is primarily related to income earned by IPCH Acquisition Corp.
(IPCHA), a wholly-owned subsidiary of the Company.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest of Non-Controlling Partners in Inergys Net Income. We adjust our net income by excluding the earnings allocated to Inergy
limited partner units that are not directly or indirectly owned by us. At December 31, 2009, we owned an approximate 7.8% limited partner interest in Inergy together with a 0.8% non-managing general partner interest; and the non-affiliated
unitholders owned a 91.4% limited partner interest in Inergy.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

The following table summarizes the consolidated income statement components for the three months ended December 31, 2009 and 2008,
respectively (in millions):



|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|------------------------------------------------------------------------------------ |  | ------------------------------ | ----- | - | ------ | - | ----- | ---------- |  | - | ---------- | - |  | ----- | --
|                                                                                     |  | Three Months EndedDecember 31, |       |   | Change |  
|                                                                                     |  | 2009                           |       |   | 2008   |   |       | In Dollars |  |   | Percentage |  
|Revenue                                                                              |  | $                              | 501.7 |   |        | $ | 534.0 |            |  | $ | (32.3      | ) |  | (6.0  | )%
|Cost of product sold                                                                 |  |                                | 326.5 |   |        |   | 359.7 |            |  |   | (33.2      | ) |  | (9.2  | ) 
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|Gross profit                                                                         |  |                                | 175.2 |   |        |   | 174.3 |            |  |   | 0.9        |   |  | 0.5   |   
|Operating and administrative expenses                                                |  |                                | 68.7  |   |        |   | 73.0  |            |  |   | (4.3       | ) |  | (5.9  | ) 
|Depreciation and amortization                                                        |  |                                | 37.1  |   |        |   | 26.3  |            |  |   | 10.8       |   |  | 41.1  |   
|Loss on disposal of assets                                                           |  |                                | 2.0   |   |        |   | 0.7   |            |  |   | 1.3        |   |  | 185.7 |   
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|Operating income                                                                     |  |                                | 67.4  |   |        |   | 74.3  |            |  |   | (6.9       | ) |  | (9.3  | ) 
|Interest expense, net                                                                |  |                                | (21.3 | ) |        |   | (17.2 | )          |  |   | (4.1       | ) |  | (23.8 | ) 
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|Income before gain on issuance of units in Inergy and income taxes                   |  |                                | 46.1  |   |        |   | 57.1  |            |  |   | (11.0      | ) |  | (19.3 | ) 
|Gain on issuance of units in Inergy                                                  |  |                                |      |   |        |   | 0.3   |            |  |   | (0.3       | ) |  | *     |   
|Provision for income taxes                                                           |  |                                | (0.3  | ) |        |   | (0.5  | )          |  |   | 0.2        |   |  | 40.0  |   
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|Net income                                                                           |  |                                | 45.8  |   |        |   | 56.9  |            |  |   | (11.1      | ) |  | (19.5 | ) 
|Net income attributable to non-controlling partners in Inergys net income           |  |                                | 28.9  |   |        |   | 42.1  |            |  |   | (13.2      | ) |  | (31.4 | ) 
|Net income attributable to non-controlling partners in ASCs consolidated net income |  |                                | 0.4   |   |        |   | 0.4   |            |  |   |           |   |  |      |   
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   
|Net income attributable to controlling partners                                      |  | $                              | 16.5  |   |        | $ | 14.4  |            |  | $ | 2.1        |   |  | 14.6  | % 
|                                                                                     |  |                                |       |   |        |   |       |            |  |   |            |   |  |       |   



|* | not meaningful
|- | --------------

The following table summarizes
revenues, including associated volume of gallons sold, for the three months ended December 31, 2009 and 2008, respectively (in millions):



|                                     |  |                                |       |        |         |            |                                |   |         |   |  |       |    |      |       |          |       |  |         |   |  |      |   
|------------------------------------ |  | ------------------------------ | ----- | ------ | ------- | ---------- | ------------------------------ | - | ------- | - |  | ----- | -- | ---- | ----- | -------- | ----- |  | ------- | - |  | ---- | --
|                                     |  | Revenues                       |       |        | Gallons |           
|                                     |  | Three Months EndedDecember 31, |       | Change |         |            | Three Months EndedDecember 31, |   | Change  |  
|                                     |  | 2009                           |       | 2008   |         | In Dollars |                                |   | Percent |   |  | 2009  |    | 2008 |       | In Units |       |  | Percent |  
|Retail propane                       |  | $                              | 221.3 |        | $       | 267.7      |                                | $ | (46.4   | ) |  | (17.3 | )% |      | 102.5 |          | 104.4 |  | (1.9    | ) |  | (1.8 | )%
|Wholesale propane                    |  |                                | 151.0 |        |         | 141.5      |                                |   | 9.5     |   |  | 6.7   |    |      | 140.1 |          | 119.9 |  | 20.2    |   |  | 16.8 |   
|Other retail                         |  |                                | 56.1  |        |         | 69.3       |                                |   | (13.2   | ) |  | (19.0 | )  |      |      |          |      |  |        |   |  |     |   
|Storage, fractionation and midstream |  |                                | 73.3  |        |         | 55.5       |                                |   | 17.8    |   |  | 32.1  |    |      |      |          |      |  |        |   |  |     |   
|                                     |  |                                |       |        |         |            |                                |   |         |   |  |       |    |      |       |          |       |  |         |   |  |      |   
|Total                                |  | $                              | 501.7 |        | $       | 534.0      |                                | $ | (32.3   | ) |  | (6.0  | )% |      | 242.6 |          | 224.3 |  | 18.3    |   |  | 8.2  | % 
|                                     |  |                                |       |        |         |            |                                |   |         |   |  |       |    |      |       |          |       |  |         |   |  |      |   

Volume.During the three months ended December 31, 2009, we sold 102.5 million
retail gallons of propane, a decrease of 1.9 million gallons or 1.8% from the 104.4 million retail gallons sold during the same three-month period in 2008. Gallons sold during the three months ended December 31, 2009, declined as
compared to the same prior year period as a result of lower volumes sold at our existing locations of 3.4 million gallons partially offset by a 1.5 million gallon increase from acquisition-related volume. The primary cause of the declining
volumes at existing locations was (1) continued customer conservation, which we believe has resulted from the overall weak United States economic environment and to a lesser extent the lingering effects of propane cost, which had been at record
high prices the past several years, and (2) volume declines from net customer losses that we believe were primarily the result



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of relatively high propane costs. Also contributing to the decline was the weather in our areas of operations, which was approximately 2% warmer than the prior year period and near normal by our
calculations using degree day data provided by NOAA. We believe, however, that it takes an approximate full winter season (i.e., October through March) to assess the impact of the winter weather on retail propane gallon sales for that same six-month
period.

Wholesale gallons delivered increased 20.2 million gallons, or 16.8%, to 140.1 million gallons in the three months ended
December 31, 2009, from 119.9 million gallons in the three months ended December 31, 2008. The increase was due primarily to greater volumes sold to existing customers and the addition of new customers.

The total natural gas liquid gallons sold or processed by our West Coast NGL operations increased 16.6 million gallons, or 25.5%, to 81.6 million
gallons during the three months ended December 31, 2009, from 65.0 million gallons during the same three-month period in 2008. This increase was partially attributed to the renewal of certain customer contracts and the addition of new
contracts.

During the three months ended December 31, 2009 and 2008, our Northeast natural gas and LPG storage facilities were 100%
contracted.

Revenues. Revenues for the three months ended December 31, 2009, were $501.7 million, a decrease of $32.3 million, or
6.0%, from $534.0 million during the same three-month period in 2008.

Revenues from retail propane sales were $221.3 million for the three
months ended December 31, 2009, compared to $267.7 million during the same three-month period in 2008. This $46.4 million, or 17.3%, decrease resulted primarily from a combination of a lower overall average selling price of propane due to a
reduction in the wholesale cost of propane and a decline in gallons sold to existing customers as described above, which contributed to a $40.7 million and $8.9 million revenue decline, respectively, partially offset by acquisition-related sales,
which resulted in higher revenues of $3.2 million.

Revenues from wholesale propane sales were $151.0 million in the three months ended
December 31, 2009, an increase of $9.5 million or 6.7%, from $141.5 million in the three months ended December 31, 2008. This increase resulted primarily from greater volumes of propane sold which contributed $23.8 million to the increase
in revenues. This increase was offset by the lower average sales price of propane. The lower selling price for our wholesale propane sales in the three months ended December 31, 2009, compared to the three months ending December 31, 2008,
was the result of the lower cost of propane.

Revenues from other retail sales, which primarily includes distillates, service, rental,
appliance sales and transportation services, were $56.1 million for the three months ended December 31, 2009, a decrease of $13.2 million, or 19.0%, from $69.3 million during the same three-month period in 2008. Revenue from other retail sales
declined $10.7 million as a result of lower distillate revenues at existing locations and $3.2 million due to a decline in revenues from other products and services, partially offset by a $0.7 million increase from acquisition-related sales.
Distillate revenues from existing locations decreased as a result of lower volume sold coupled with a decline in the comparable average selling price of the distillates resulting from a lower wholesale cost.

Revenues from storage, fractionation and other midstream activities were $73.3 million for the three months ended December 31, 2009, an increase of
$17.8 million or 32.1% from $55.5 million during the same three-month period in 2008. Revenues from our West Coast NGL operations increased $15.0 million primarily as a result of expected changes in the variety of natural gas liquid products sold
and processed. Additionally, revenues from our US Salt operations increased $1.7 million due to price increases and product mix management. Stagecoach revenues increased $0.6 million due to having the North Lateral in service for the entire three
months ended December 31, 2009. The North Lateral was placed in service in December 2008.

Cost of Product Sold.Cost of product
sold for the three months ended December 31, 2009 was $326.5 million, a decrease of $33.2 million, or 9.2%, from $359.7 million during the same three-month period in 2008.



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Retail propane cost of product sold was $109.3 million for the three months ended December 31, 2009,
compared to $147.4 million for the same three-month period in 2008. This $38.1 million, or 25.8%, decrease in retail cost of product sold was driven by a 24% decline in the average per gallon cost of propane along with lower volume sales at our
existing locations as discussed above, which reduced costs by $32.7 million and $4.8 million, respectively. Also contributing to the decline in retail propane cost of product sold was a $2.4 million decrease due to changes in non-cash charges on
derivative contracts associated with retail propane fixed price sales contracts. These factors were partially offset by a $1.8 million increase in retail propane cost of product sold associated with acquisition-related volume.

Wholesale propane cost of product sold in the three months ended December 31, 2009, was $143.0 million, an increase of $7.2 million or 5.3%, from
wholesale cost of product sold of $135.8 million in the three months ended December 31, 2008. This increase resulted primarily from greater volumes of propane sold which contributed $22.8 million to the increase in cost of product sold. This
increase was partially offset by the lower average purchase price of propane.

Other retail cost of product sold was $33.4 million for the
three months ended December 31, 2009, compared to $43.0 million during the same three-month period in 2008. This $9.6 million, or 22.3%, decrease was primarily due to lower costs from distillate sales at existing locations of $9.2 million and a
decline in costs for other products and services of $0.9 million, partially offset by a $0.5 million increase in the cost of product sold associated with acquisition-related volume. The cost of product sold for distillates declined as a result of
lower volume sales at existing locations coupled with a 12% decline in the average cost per gallon of distillates.

Storage, fractionation and
other midstream cost of product sold was $40.8 million for the three months ended December 31, 2009, an increase of $7.3 million, or 21.8%, from $33.5 million during the same three-month period in 2008. Costs from our West Coast NGL operations
were $9.5 million higher primarily as a result of expected changes in the variety of natural gas liquid products sold and processed due to additional contracts. This increase was partially offset by favorable energy efficiencies from our US Salt
operations resulting in a $0.7 million decrease in cost of product sold.

Our retail and wholesale cost of product sold consists primarily of
tangible products sold including all propane, distillates and other natural gas liquids sold and all propane-related appliances sold. Other costs incurred in conjunction with the distribution of these products are included in operating and
administrative expenses and consist primarily of wages to delivery personnel, delivery vehicle costs consisting of fuel costs, repair and maintenance and lease expense. Costs associated with delivery vehicles approximated $16.5 million and $17.3
million for the three months ended December 31, 2009 and 2008, respectively. In addition, the depreciation expense associated with the delivery vehicles and customer tanks is reported within depreciation and amortization expense and amounted to
$7.6 million and $8.2 million for the three months ended December 31, 2009 and 2008, respectively. Since we include these costs in our operating and administrative expense and depreciation and amortization expense rather than in cost of product
sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Our
storage, fractionation and other midstream cost of product sold consists primarily of commodity and transportation costs. Other costs incurred in conjunction with these services are included in operating and administrative expense and depreciation
and amortization expense and consist primarily of depreciation, vehicle costs consisting of fuel costs and repair and maintenance and wages. Depreciation expense for storage, fractionation and other midstream amounted to $17.9 million and $7.4
million for the three months ended December 31, 2009 and 2008, respectively. Vehicle costs and wages for personnel directly involved in providing midstream services amounted to $0.6 million and $0.8 million for the three months ended
December 31, 2009 and 2008, respectively. Since we include these costs in our operating and administrative expense and depreciation and amortization expense rather than in cost of product sold, our results may not be comparable to other
entities in our lines of business if they include these costs in cost of product sold.

Gross Profit.Gross profit for the three months
ended December 31, 2009, was $175.2 million, an increase of $0.9 million, or 0.5%, from $174.3 million during the same three-month period in 2008.

Retail propane gross profit was $112.0 million for the three months ended December 31, 2009, compared to $120.3 million in the same three-month period in 2008. This $8.3 million, or 6.9%, decrease in
retail propane gross profit was mostly attributable to a slightly lower cash margin per gallon, which contributed $8.0 million of decline coupled with a $4.1 million decline resulting from lower retail gallon sales at existing locations as discussed
above. These declines were partially offset by a $1.4 million increase associated with acquisitions and a $2.4 million increase related to changes in non-cash charges on derivative contracts associated with retail propane fixed price sales contracts
as discussed above. The decline in cash margin per gallon was primarily the result of the unusually favorable market conditions in the prior year period, which led to higher than usual margins per gallon during that prior period.



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Wholesale propane gross profit was $8.0 million in the three months ended December 31, 2009, compared
to $5.7 million in the three months ended December 31, 2008, an increase of $2.3 million or 40.4%. This increase was primarily the result of increased volumes sold, higher margins that we were able to attain in certain regions where supply
disruption occurred in 2009 and increased agricultural demand.

Other retail gross profit was $22.7 million for the three months ended
December 31, 2009, compared to $26.3 million for the same three-month period in 2008. This $3.6 million, or 13.7%, decrease was due primarily to lower gross profit on other products and services and distillates of $2.3 million and $1.5 million,
respectively, partially offset by a $0.2 million increase in related gross profit from acquisitions.

Storage, fractionation and other
midstream gross profit was $32.5 million in the three months ended December 31, 2009, compared to $22.0 million in the same three-month period in 2008, an increase of $10.5 million, or 47.7%. This increase is primarily due to additional West
Coast NGL contracts and margin improvement and product mix management at US Salt, resulting in a $5.5 million and $2.4 million increase in gross profit, respectively. Gross profit also increased due to the North Lateral being in service for the
entire three months ended December 31, 2009. The North Lateral was placed in service in December 2008.

Operating and Administrative
Expenses.Operating and administrative expenses were $68.7 million for the three months ended December 31, 2009 compared to $73.0 million in the same three-month period in 2008. This $4.3 million, or 5.9%, decrease in operating expenses was
due primarily to lower operating expenses from existing operations of $4.9 million comprised predominantly of lower personnel expenses, vehicle expenses and other operating expenses. Partially offsetting these decreases was an increase of $0.6
million due to acquisitions.

Depreciation and Amortization.Depreciation and amortization was $37.1 million for the three months ended
December 31, 2009 compared to $26.3 million during the same three-month period in 2008. This $10.8 million, or 41.1%, increase resulted primarily from acquisitions and the expansion projects completed in Inergys midstream segment.

Interest Expense.Interest expense was $21.3 million for the three months ended December 31, 2009 compared to $17.2 million
during the same three-month period in 2008. This $4.1 million, or 23.8%, increase was primarily due to higher average interest rates associated with our fixed rate debt. Additionally, during the three months ended December 31, 2009 and 2008,
Inergy capitalized $1.5 million and $2.3 million, respectively, of interest related to certain capital improvement projects in its midstream segment as further described below in the Liquidity and Sources of Capital section.

Gain on Issuance of Units in Inergy. We recorded a gain of $0.3 million for the three months ended December 31, 2008, whereas no gain
was recorded during the same period of the current year.

Provision for Income Taxes.The provision for income taxes for the three
months ended December 31, 2009 was $0.3 million compared to $0.5 million in the same three-month period in 2008. The provision for income taxes for the three months ended December 31, 2009 was composed of $0.2 million of current income tax
expense together with $0.1 million of deferred income tax expense.

Interest of Non-controlling Partners in Inergys Net
Income. We recorded expense of $28.9 million in the three months ended December 31, 2009, as compared to an expense of $42.1 million in the same three-month period of 2008 associated with the interests of non-controlling partners in
Inergy. This $13.2 million, or 31.4%, change resulted primarily from an $11.2 million decrease in Inergys net income, which had the effect of decreasing the interest of non-controlling partners in Inergys net income. Also contributing to
the change was a $1.5 million increase in incentive distribution rights received by the Company from Inergy, to which the non-controlling partners are not entitled.

Net Income Attributable to Controlling Partners.Net income was $16.5 million for the three months ended December 31, 2009 compared to net income of $14.4 million for the same three-month
period in 2008. The $2.1 million, or 14.6%, increase in net income was primarily attributable to the decrease in expense related to the interest of non-controlling partners in Inergys net income.



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Seasonality

The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings. Approximately three-quarters of our retail propane volume is sold during the
peak heating season from October through March. Consequently, sales and operating profits are generated mostly in the first and fourth calendar quarters of each year.

Liquidity and Sources of Capital

Cash Flows and Contractual Obligations

Historically, we have relied on distributions from Inergy and on borrowings under our existing credit agreement to fund any cash requirements for our
operations. We are, and have been for all periods presented, in compliance with all material financial covenants.

Net operating cash inflows
were $49.1 million and $10.7 million for the three-month periods ending December 31, 2009 and 2008, respectively. The $38.4 million increase in operating cash flows was primarily attributable to increases in cash components of net income as
well as net changes in working capital balances.

Net investing cash outflows were $225.1 million and $46.0 million for the three-month
periods ending December 31, 2009 and 2008, respectively. Net cash outflows were primarily impacted by a $191.2 million increase in cash outlays related to acquisitions, partially offset by a $12.2 million decrease in capital expenditures.

Net financing cash inflows were $180.2 million and $36.9 million for the three-month periods ending December 31, 2009 and 2008,
respectively. Net cash inflows were primarily impacted by a $160.5 million increase in proceeds from the issuance of long-term debt, net of payments on long-term debt, partially offset by a $7.9 million increase in distributions to non-controlling
partners in Inergy, L.P., a $4.0 million increase in distributions paid, and a $9.9 million increase in payments for deferred financing costs.

We believe that anticipated cash from operations and borrowings under the credit facilities described below will be sufficient to meet our liquidity needs for the foreseeable future. If our plans or assumptions change or are inaccurate, or
we make acquisitions, we may need to raise additional capital. We give no assurance that we can raise additional capital to meet these needs. Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. The
debt and equity capital markets have been distressed, but Inergy has successfully raised over $200 million in long-term unsecured debt, entered into a secured credit facility providing borrowing capacity up to $525 million, and raised over $200
million in two separate equity transactions during 2009 and approximately $180 million in a 2010 equity transaction. Inergy has identified capital expansion project opportunities in its midstream operations. As of December 31, 2009, Inergy has
firm purchase commitments totaling approximately $8.1 million related to certain of these projects. Additional commitments or expenditures, if any, Inergy may make toward any one or more of these projects is at the discretion of the Partnership. Any
discontinuation of the construction of these projects will likely result in less future cash flow and earnings than we have previously indicated.

Description of Credit Facilities

Inergy Holdings, L.P.

Our bank facility (the Bank Facility) consists of a $14 million working capital revolver for Holdings and a $6 million working capital revolver for IPCHA. The maturity date of the Bank
Facility is July 22, 2011 and is collateralized by certain of our interests in Inergy. In addition, the Bank Facility is guaranteed by Inergy Partners, LLC. The interest rates of these revolvers are based on prime rate and LIBOR plus the
applicable spreads, which were 1.74% at December 31, 2009 for all outstanding debt under the Bank Facility. Unused borrowings under the Bank Facility amounted to $14.8 million and $13.5 million at December 31, 2009 and September 30,
2009, respectively. The Bank Facility contains several covenants which, among other things, require the maintenance of various financial performance ratios, restrict the payment of distributions to unitholders, and require financial reports to be
submitted periodically to the financial institutions.



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Inergy, L.P.

On November 24, 2009, Inergy entered into a secured credit facility (Credit Agreement) which provides borrowing capacity of up to $525 million in the form of a $450 million revolving
general partnership credit facility (General Partnership Facility) and a $75 million working capital credit facility (Working Capital Facility). This facility replaces Inergys former senior credit facility due 2010.
This new facility will mature on November 22, 2013. The Credit Agreement accrues interest at either prime rate or LIBOR plus applicable spreads, resulting in interest rates between 3.24% and 5.25% at December 31, 2009. At December 31,
2009, borrowings outstanding under the Credit Agreement were $270.0 million, including $245.0 million borrowed for acquisitions and growth capital expenditures and $25.0 million borrowed for working capital purposes. The Credit Agreement is
guaranteed by each of Inergys wholly-owned domestic subsidiaries.

During each fiscal year beginning October 1, the outstanding
balance of the Working Capital Facility must be reduced to $10.0 million or less for a minimum of 30 consecutive days during the period commencing March 1 and ending September 30 of each calendar year.

At Inergys option, loans under the Credit Agreement bear interest at either the prime rate or LIBOR (preadjusted for reserves), plus, in each case, an
applicable margin. The applicable margin varies quarterly based on its leverage ratio. Inergy also pays a fee based on the average daily unused commitments under the Credit Agreement.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Interest Rate Risk

Together with Inergy, we have long-term debt and revolving lines of
credit subject to the risk of loss associated with movements in interest rates. At December 31, 2009, we had floating rate obligations totaling $329.5 million including amounts borrowed under credit agreements and the interest rate swap, which
converts a portion of Inergys fixed rate senior unsecured notes due 2014 to floating, with a notional amount of $25 million. The floating rate obligations expose us to the risk of increased interest expense in the event of increases in
short-term interest rates.

If the floating rate were to fluctuate by 100 basis points from December 2009 levels, our interest expense would
change by a total of approximately $3.3 million per year.

Commodity Price, Market and Credit Risk

Inherent in Inergys contractual portfolio are certain business risks, including market risk and credit risk. Market risk is the risk that the value of
the portfolio will change, either favorably or unfavorably, in response to changing market conditions. 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 and controlling market and credit risk and has established control procedures, which are reviewed on an ongoing basis. Inergy monitors market risk through a variety of techniques, including daily reporting of the portfolios
position to senior management. Inergy 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, 2009 and 2008, were propane
retailers, resellers, energy marketers and dealers.

The propane industry is a margin-based business in which gross profits depend
on the excess of sales prices over supply costs. As a result, Inergys profitability will be sensitive to changes in wholesale prices of propane caused by changes in supply or other market conditions. When there are sudden and sharp increases
in the wholesale cost of propane, Inergy may not be able to pass on these increases to its customers through retail or wholesale prices. Propane is a commodity and the price Inergy pays for it can fluctuate significantly in response to supply or
other market conditions. Inergy has no control over supply or market conditions. In addition, the timing of cost pass-throughs can significantly affect margins. Sudden and extended wholesale price increases could reduce gross profits and could, if
continued over an extended period of time, reduce demand by encouraging Inergys retail customers to conserve or convert to alternative energy sources.



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Inergy engages in hedging and risk management transactions, including various types of forward contracts,
options, swaps and futures contracts, to reduce the effect of price volatility on Inergys product costs, protect the value of its inventory positions, and to help ensure the availability of propane during periods of short supply. Inergy
attempts to balance its contractual portfolio by purchasing volumes only when it has a matching purchase commitment from its wholesale customers. However, Inergy may experience net unbalanced positions from time to time which it believes to be
immaterial in amount. In addition to Inergys ongoing policy to maintain a balanced position, for accounting purposes Inergy is required, on an ongoing basis, to track and report the market value of its derivative portfolio.

Fair Value

The fair value of the
derivatives and inventory exchange contracts related to price risk management activities as of December 31, 2009 and September 30, 2009 was assets of $22.1 million and $23.8 million, respectively, and liabilities of $37.6 million and $29.3
million, respectively.

Inergy uses observable market values for determining the fair value of its trading instruments. In cases where
actively quoted prices are not available, other external sources are used which incorporate information about commodity prices in actively quoted markets, quoted prices in less active markets and other market fundamental analysis. Inergys risk
management department regularly compares valuations to independent sources and models on a quarterly basis.

Sensitivity Analysis

A theoretical change of 10% in the underlying commodity value would result in a $0.2 million change in the market value of the contracts
as there were 1.5 million gallons of net unbalanced positions at December 31, 2009.



|Item 4. | Controls and Procedures
|------- | -----------------------

We maintain
controls and procedures designed to provide a reasonable assurance that information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the
time periods specified by the rules and forms of the SEC, and that information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, management, including the Chief Executive Officer and the Chief Financial Officer, concluded that our
disclosure controls and procedures were effective as of December 31, 2009 at the reasonable assurance level. There have been no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the
Exchange Act) during the period ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Changes in Internal Control Over Financial Reporting

On December 31, 2009, the
Company completed its acquisition of Liberty. See Note 4 Business Acquisitions to the Consolidated Financial Statements included in Item 1 for discussion of the acquisition and related financial data.

The Company is currently in the process of evaluating the internal controls and procedures of Liberty. Further, the Company is in the process of integrating
Liberty operations. Management will continue to evaluate its internal control over financial reporting as it executes integration activities, however, integration activities could materially affect the Companys internal control over financial
reporting in future periods.

Except for the Liberty acquisition, there were no other material changes in the Companys internal control
over financial reporting during the first quarter of 2009 that have materially affected or are reasonably likely to materially affect the Companys internal controls over financial reporting.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Part
I, Item 1. Financial Statements, Note 9 to the Consolidated Financial Statements of this Form 10-Q is hereby incorporated herein by reference.



|Item 1A. | Risk Factors
|-------- | ------------

There have
been no material changes to the risk factors disclosed in Item 1A, Risk Factors in the Companys Annual Report on Form 10-K for the fiscal year ended September 30, 2009.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

None.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|Item 5. | Other Information
|------- | -----------------

On
February 1, 2010, Inergy GP and R. Brooks Sherman, Jr., Executive Vice President  Chief Financial Officer, entered into an Amended and Restated Employment Agreement. Pursuant to the agreement, the term of Mr. Shermans employment was
extended until February 1, 2015. During the term of the agreement Mr. Sherman is entitled to receive an annual salary of $225,000 and a discretionary annual cash bonus.

In the event that Mr. Shermans employment is terminated by Inergy GP without Cause (as defined in the agreement) prior to the
expiration of the term, Inergy GP will be required to continue making payments to Mr. Sherman for the remainder of the term.

Mr. Shermans agreement contains non-competition provisions applicable for a two year period following termination of his employment and confidentiality provisions prohibiting Mr. Sherman from disclosing the Companys
confidential information.

In connection with the agreement, on February 1, 2010, Mr. Sherman was granted 55,000
restricted units under the Inergy, L.P. Long Term Incentive Plan and 55,000 restricted units under the Inergy Holdings, L.P. Long Term Incentive Plan.

Also on February 1, 2010, Inergy GP and Phillip L. Elbert., Chief Operating Officer and President  Propane Operations, entered into a Second Amended and Restated Employment Agreement. Pursuant to
the agreement, the term of Mr. Elberts employment was extended until February 1, 2015. During the term of the agreement Mr. Elbert is entitled to receive an annual salary of $275,000 and a discretionary annual cash bonus.

In the event that Mr. Elberts employment is terminated by Inergy GP without Cause (as defined in the agreement)
prior to the expiration of the term, Inergy GP will be required to continue making payments to Mr. Elbert for the remainder of the term.



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Mr. Elberts agreement contains non-competition provisions applicable for a two
year period following termination of his employment and confidentiality provisions prohibiting Mr. Elbert from disclosing the Companys confidential information.

In connection with the agreement, on February 1, 2010, Mr. Elbert was granted 70,000 restricted units under the Inergy, L.P. Long Term Incentive Plan and 70,000 restricted units under the Inergy
Holdings, L.P. Long Term Incentive Plan.



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                                       
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certificate of Conversion of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.1 to Inergy Holdings, L.P.s Registration Statement on Forms S-1/A
(Registration No. 333-122466) filed on April 29, 2005).          
|     | 
|3.2  |  | Agreement of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.2 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on June 2, 2005).      
|     | 
|3.3  |  | Certificate of Formation of Inergy Holdings GP, LLC (incorporated herein by reference to Exhibit 3.3 to Inergy Holdings L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on April 29, 2005).           
|     | 
|3.4  |  | Limited Liability Company Agreement of Inergy Holdings GP, LLC (incorporated herein by reference to Exhibit 3.4 to Inergy Holdings L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on March 14, 2005).
|     | 
|3.5  |  | Certificate of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.5 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on April 29, 2005).  
|     | 
|3.6  |  | Amended and Restated Agreement of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit A to Inergy Holdings L.P.s Prospectus (Registration
No. 333-122466) filed on June 21, 2005).             
|     | 
|31.1 |  | Certification of Chief Executive Officer of Inergy Holdings, L.P. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|     | 
|31.2 |  | Certification of Chief Financial Officer of Inergy Holdings, L.P pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                           
|     | 
|32.1 |  | Certification of Chief Executive Officer of Inergy Holdings, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                           
|     | 
|32.2 |  | Certification of Chief Financial Officer of Inergy Holdings, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                           



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                       |  |                       |  |                                                                                           
|---------------------- |  | --------------------- |  | ------------------------------------------------------------------------------------------
|                       |  | INERGY HOLDINGS, L.P.
|                       |  |                      
|                       |  | By:                   |  | INERGY HOLDINGS GP, LLC                                                                   
|                       |  |                       |  | (its general partner)                                                                     
|                       |  |                      
|Date: February 3, 2010 |  | By:                   |  | /s/ R. Brooks Sherman, Jr.                                                                
|                       |  |                       |  | R. Brooks Sherman, Jr.                                                                    
|                       |  |                       |  | Executive Vice President and Chief Financial Officer                                      
|                       |  |                       |  | (Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer)



37