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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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

For the quarterly period ended June 30, 2007

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: 0-32453



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Inergy Holdings, L.P.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The following units were outstanding at August 1, 2007:

Common Units                    20,006,016



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##### Table of Contents

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 June 30, 2007 (unaudited) and September 30, 2006                         |  | 3
|                               |  |                                                                                                | 
|                               |  |                                                                                                |  | Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2007 and 2006 |  | 4
|                               |  |                                                                                                | 
|                               |  |                                                                                                |  | Unaudited Consolidated Statement of Partners Capital for the Nine Months Ended June 30, 2007              |  | 5
|                               |  |                                                                                                | 
|                               |  |                                                                                                |  | Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2007 and 2006           |  | 6
|                               |  |                                                                                                | 
|                               |  |                                                                                                |  | Unaudited Notes to Consolidated Financial Statements                                                       |  | 8
|                               |  |                                                                                               
|                               |  | Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 20                                                                                                        
|                               |  |                                                                                               
|                               |  | 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                                                                              |  | 35                                                                                                        
|                               |  |                                                                                               
|                               |  | Signature                                                                                      |  | 37                                                                                                        



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##### Table of Contents

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)



|                                                                                                                                                 |  |               |         |                    |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | ------------------ | - | ------- | -
|                                                                                                                                                 |  | June 30, 2007 |         | September 30, 2006 |  
|                                                                                                                                                 |  | (unaudited)   |         |                    |  
|Assets                                                                                                                                           |  |               |         |                    |   |         |  
|Current assets:                                                                                                                                  |  |               |         |                    |   |         |  
|Cash                                                                                                                                             |  | $             | 6.8     |                    | $ | 12.1    |  
|Accounts receivable, less allowance for doubtful accounts of $5.9 million and $2.9 million at June 30, 2007 and September 30, 2006,
respectively |  |               | 87.7    |                    |   | 99.5    |  
|Inventories                                                                                                                                      |  |               | 79.1    |                    |   | 108.1   |  
|Assets from price risk management activities                                                                                                     |  |               | 27.2    |                    |   | 46.2    |  
|Prepaid expenses and other current assets                                                                                                        |  |               | 15.8    |                    |   | 30.0    |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Total current assets                                                                                                                             |  |               | 216.6   |                    |   | 295.9   |  
|                                                                                                                                                 |  |              
|Property, plant and equipment                                                                                                                    |  |               | 933.6   |                    |   | 847.9   |  
|Less: accumulated depreciation                                                                                                                   |  |               | 163.8   |                    |   | 124.4   |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Property, plant and equipment, net                                                                                                               |  |               | 769.8   |                    |   | 723.5   |  
|                                                                                                                                                 |  |              
|Intangible assets:                                                                                                                               |  |               |         |                    |   |         |  
|Customer accounts                                                                                                                                |  |               | 233.8   |                    |   | 226.0   |  
|Covenants not to compete                                                                                                                         |  |               | 62.9    |                    |   | 54.2    |  
|Trademarks                                                                                                                                       |  |               | 32.8    |                    |   | 32.8    |  
|Deferred financing and other costs                                                                                                               |  |               | 23.5    |                    |   | 23.6    |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|                                                                                                                                                 |  |               | 353.0   |                    |   | 336.6   |  
|Less: accumulated amortization                                                                                                                   |  |               | 72.9    |                    |   | 52.9    |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Intangible assets, net                                                                                                                           |  |               | 280.1   |                    |   | 283.7   |  
|Goodwill                                                                                                                                         |  |               | 372.6   |                    |   | 339.7   |  
|Other assets                                                                                                                                     |  |               | 2.1     |                    |   | 4.0     |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Total assets                                                                                                                                     |  | $             | 1,641.2 |                    | $ | 1,646.8 |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Liabilities and partners capital                                                                                                                |  |               |         |                    |   |         |  
|Current liabilities:                                                                                                                             |  |               |         |                    |   |         |  
|Accounts payable                                                                                                                                 |  | $             | 66.4    |                    | $ | 81.5    |  
|Accrued expenses                                                                                                                                 |  |               | 51.3    |                    |   | 63.0    |  
|Customer deposits                                                                                                                                |  |               | 41.9    |                    |   | 98.0    |  
|Liabilities from price risk management activities                                                                                                |  |               | 26.5    |                    |   | 49.0    |  
|Current portion of long-term debt                                                                                                                |  |               | 4.1     |                    |   | 16.9    |  
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Total current liabilities                                                                                                                        |  |               | 190.2   |                    |   | 308.4   |  
|                                                                                                                                                 |  |              
|Long-term debt, less current portion                                                                                                             |  |               | 663.6   |                    |   | 673.1   |  
|Other long-term liabilities                                                                                                                      |  |               | 12.0    |                    |   | 11.8    |  
|Deferred income taxes                                                                                                                            |  |               | 20.9    |                    |   | 15.8    |  
|Interest of non-controlling partners in Inergy, L.P.                                                                                             |  |               | 698.0   |                    |   | 656.4   |  
|                                                                                                                                                 |  |              
|Partners capital                                                                                                                                |  |               |         |                    |   |         |  
|Common unitholders (20,006,016 and 20,000,000 units issued and outstanding as of June 30, 2007 and September 30, 2006, respectively)             |  |               | 55.5    |                    |   | (18.0   | )
|Accumulated other comprehensive income (loss)                                                                                                    |  |               | 1.0     |                    |   | (0.7    | )
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Total partners capital (deficiency)                                                                                                             |  |               | 56.5    |                    |   | (18.7   | )
|                                                                                                                                                 |  |               |         |                    |   |         |  
|Total liabilities and partners capital                                                                                                          |  | $             | 1,641.2 |                    | $ | 1,646.8 |  
|                                                                                                                                                 |  |               |         |                    |   |         |  

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except unit and per unit data)

(unaudited)



|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                                          |  | Three Months Ended June 30, |        |   | Nine Months EndedJune 30, |  
|                                                                                                                                                          |  | 2007                        |        |   | 2006                      |   |        | 2007 |  |   | 2006    |  
|Revenue:                                                                                                                                                  |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Propane                                                                                                                                                   |  | $                           | 168.3  |   |                           | $ | 143.7  |      |  | $ | 956.2   |   |  | $ | 900.0   |  
|Other                                                                                                                                                     |  |                             | 78.5   |   |                           |   | 71.9   |      |  |   | 251.0   |   |  |   | 242.7   |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                                                          |  |                             | 246.8  |   |                           |   | 215.6  |      |  |   | 1,207.2 |   |  |   | 1,142.7 |  
|Cost of product sold (excluding depreciation and amortization as shown below)                                                                             |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Propane                                                                                                                                                   |  |                             | 122.7  |   |                           |   | 101.3  |      |  |   | 666.7   |   |  |   | 650.9   |  
|Other                                                                                                                                                     |  |                             | 48.3   |   |                           |   | 48.9   |      |  |   | 152.2   |   |  |   | 162.7   |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                                                          |  |                             | 171.0  |   |                           |   | 150.2  |      |  |   | 818.9   |   |  |   | 813.6   |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Gross profit                                                                                                                                              |  |                             | 75.8   |   |                           |   | 65.4   |      |  |   | 388.3   |   |  |   | 329.1   |  
|Expenses:                                                                                                                                                 |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating and administrative                                                                                                                              |  |                             | 63.4   |   |                           |   | 63.3   |      |  |   | 195.3   |   |  |   | 190.0   |  
|Depreciation and amortization                                                                                                                             |  |                             | 21.4   |   |                           |   | 20.6   |      |  |   | 60.9    |   |  |   | 58.7    |  
|Loss on disposal of assets                                                                                                                                |  |                             | 0.7    |   |                           |   | 1.7    |      |  |   | 1.6     |   |  |   | 2.4     |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating income (loss)                                                                                                                                   |  |                             | (9.7   | ) |                           |   | (20.2  | )    |  |   | 130.5   |   |  |   | 78.0    |  
|                                                                                                                                                          |  |                             |        |  
|Other income (expense):                                                                                                                                   |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Interest expense, net                                                                                                                                     |  |                             | (12.6  | ) |                           |   | (14.1  | )    |  |   | (40.9   | ) |  |   | (42.6   | )
|Finance charge income                                                                                                                                     |  |                             | 0.9    |   |                           |   | 0.7    |      |  |   | 2.4     |   |  |   | 2.2     |  
|Other income                                                                                                                                              |  |                             | 0.2    |   |                           |   | 0.2    |      |  |   | 1.4     |   |  |   | 0.6     |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Income (loss) before gain on issuance of units in Inergy, L.P., income taxes and interest of non-controlling partners in Inergy, L.P.s
net (income) loss |  |                             | (21.2  | ) |                           |   | (33.4  | )    |  |   | 93.4    |   |  |   | 38.2    |  
|Gain on issuance of units in Inergy, L.P.                                                                                                                 |  |                             | 80.6   |   |                           |   |       |      |  |   | 80.6    |   |  |   |        |  
|Provision for income taxes                                                                                                                                |  |                             | (5.5   | ) |                           |   |       |      |  |   | (6.5    | ) |  |   | (1.2    | )
|Interest of non-controlling partners in Inergy, L.P.s net (income) loss                                                                                  |  |                             | 25.5   |   |                           |   | 33.1   |      |  |   | (68.8   | ) |  |   | (24.6   | )
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                                                                                                         |  | $                           | 79.4   |   |                           | $ | (0.3   | )    |  | $ | 98.7    |   |  | $ | 12.4    |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss) applicable to limited partners units                                                                                                   |  | $                           | 79.4   |   |                           | $ | (0.3   | )    |  | $ | 98.7    |   |  | $ | 12.4    |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss) per limited partner:                                                                                                                    |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                                                                                     |  | $                           | 3.97   |   |                           | $ | (0.02  | )    |  | $ | 4.94    |   |  | $ | 0.62    |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                                                                                   |  | $                           | 3.91   |   |                           | $ | (0.02  | )    |  | $ | 4.88    |   |  | $ | 0.62    |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Weighted average limited partners units outstanding (in thousands):                                                                                      |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                                                                                     |  |                             | 20,004 |   |                           |   | 20,000 |      |  |   | 20,002  |   |  |   | 20,000  |  
|Dilutive units                                                                                                                                            |  |                             | 303    |   |                           |   |       |      |  |   | 242     |   |  |   | 176     |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                                                                                   |  |                             | 20,307 |   |                           |   | 20,000 |      |  |   | 20,244  |   |  |   | 20,176  |  
|                                                                                                                                                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  

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

CONSOLIDATED STATEMENT OF PARTNERS CAPITAL

(in millions)

(unaudited)



|                                                |  |                                    |       |   |                                             |   |      |                                     |  |   |       |  
|----------------------------------------------- |  | ---------------------------------- | ----- | - | ------------------------------------------- | - | ---- | ----------------------------------- |  | - | ----- | -
|                                                |  | Partners CommonInterest (Deficit) |       |   | Accumulated OtherComprehensiveIncome (Loss) |   |      | Total PartnersCapital (Deficiency) | 
|Balance at September 30, 2006                   |  | $                                  | (18.0 | ) |                                             | $ | (0.7 | )                                   |  | $ | (18.7 | )
|Net proceeds from issuance of common units      |  |                                    | 75.6  |   |                                             |   |     |                                     |  |   | 75.6  |  
|Redemption of partners interests               |  |                                    | (75.8 | ) |                                             |   |     |                                     |  |   | (75.8 | )
|Net proceeds from common unit options exercised |  |                                    | 0.1   |   |                                             |   |     |                                     |  |   | 0.1   |  
|Distributions                                   |  |                                    | (25.1 | ) |                                             |   |     |                                     |  |   | (25.1 | )
|Comprehensive income:                           |  |                                    |       |   |                                             |   |      |                                     |  |   |       |  
|Net income                                      |  |                                    | 98.7  |   |                                             |   |     |                                     |  |   | 98.7  |  
|Unrealized gain on cash flow hedges             |  |                                    |      |   |                                             |   | 1.7  |                                     |  |   | 1.7   |  
|                                                |  |                                    |       |   |                                             |   |      |                                     |  |   |       |  
|Comprehensive income                            |  |                                    |       |   |                                             |   |      |                                     |  |   | 100.4 |  
|                                                |  |                                    |       |   |                                             |   |      |                                     |  |   |       |  
|Balance at June 30, 2007                        |  | $                                  | 55.5  |   |                                             | $ | 1.0  |                                     |  | $ | 56.5  |  
|                                                |  |                                    |       |   |                                             |   |      |                                     |  |   |       |  

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)



|                                                                                  |  |                            |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Nine Months Ended June 30, |       
|                                                                                  |  | 2007                       |        |   | 2006 |  
|Operating activities                                                              |  |                            |        |   |      |   |        |  
|Net income                                                                        |  | $                          | 98.7   |   |      | $ | 12.4   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                            |        |   |      |   |        |  
|Depreciation                                                                      |  |                            | 42.7   |   |      |   | 45.2   |  
|Amortization                                                                      |  |                            | 18.2   |   |      |   | 13.5   |  
|Amortization of deferred financing costs                                          |  |                            | 1.8    |   |      |   | 1.8    |  
|Unit based compensation charges                                                   |  |                            | 0.5    |   |      |   | 0.5    |  
|Provision for doubtful accounts                                                   |  |                            | 3.5    |   |      |   | 3.1    |  
|Loss on disposal of assets                                                        |  |                            | 1.6    |   |      |   | 2.4    |  
|Gain on issuance of units in Inergy, L.P.                                         |  |                            | (80.6  | ) |      |   |       |  
|Interest of non-controlling partners in Inergy, L.P.s net income                 |  |                            | 68.8   |   |      |   | 24.6   |  
|Deferred income taxes                                                             |  |                            | 5.1    |   |      |   | (0.6   | )
|Net assets from price risk management activities                                  |  |                            | 15.5   |   |      |   | 2.9    |  
|Changes in operating assets and liabilities, net of effects from acquisitions:    |  |                            |        |   |      |   |        |  
|Accounts receivable                                                               |  |                            | 7.8    |   |      |   | 17.6   |  
|Inventories                                                                       |  |                            | 29.5   |   |      |   | 62.4   |  
|Prepaid expenses and other current assets                                         |  |                            | 14.3   |   |      |   | 7.6    |  
|Other assets (liabilities)                                                        |  |                            | 2.1    |   |      |   | (0.9   | )
|Accounts payable                                                                  |  |                            | (20.1  | ) |      |   | (51.1  | )
|Accrued expenses                                                                  |  |                            | (13.1  | ) |      |   | 0.5    |  
|Customer deposits                                                                 |  |                            | (56.2  | ) |      |   | (33.3  | )
|                                                                                  |  |                            |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                            | 140.1  |   |      |   | 108.6  |  
|                                                                                  |  |                           
|Investing activities                                                              |  |                            |        |   |      |   |        |  
|Acquisitions, net of cash acquired                                                |  | $                          | (87.7  | ) |      | $ | (177.0 | )
|Purchases of property, plant and equipment                                        |  |                            | (48.8  | ) |      |   | (19.5  | )
|Deferred acquisition costs incurred                                               |  |                            | (0.4   | ) |      |   | (0.5   | )
|Proceeds from sale of assets                                                      |  |                            | 4.8    |   |      |   | 8.4    |  
|                                                                                  |  |                            |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                            | (132.1 | ) |      |   | (188.6 | )

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



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INERGY HOLDINGS, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in millions)

(unaudited)



|                                                                                          |  |                            |        |   |      |   |        |  
|----------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                          |  | Nine Months Ended June 30, |       
|                                                                                          |  | 2007                       |        |   | 2006 |  
|Financing activities                                                                      |  |                            |        |   |      |   |        |  
|Proceeds from the issuance of long-term debt                                              |  | $                          | 289.9  |   |      | $ | 687.2  |  
|Principal payments on long-term debt                                                      |  |                            | (313.6 | ) |      |   | (617.4 | )
|Net proceeds from the issuance of Inergy, L.P. common units                               |  |                            | 104.5  |   |      |   | 127.7  |  
|Net proceeds from issuance of common units                                                |  |                            | 75.6   |   |      |   |       |  
|Redemption of partners interest                                                          |  |                            | (75.8  | ) |      |   |       |  
|Distributions to non-controlling partners in Inergy, L.P.                                 |  |                            | (72.2  | ) |      |   | (58.0  | )
|Distributions                                                                             |  |                            | (25.1  | ) |      |   | (17.9  | )
|Deferred financing costs incurred                                                         |  |                            |       |   |      |   | (5.0   | )
|Net proceeds from unit options exercised of Inergy, L.P.                                  |  |                            | 3.3    |   |      |   |       |  
|Net proceeds from unit options exercised                                                  |  |                            | 0.1    |   |      |   |       |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                                       |  |                            | (13.3  | ) |      |   | 116.6  |  
|                                                                                          |  |                           
|Net increase (decrease) in cash                                                           |  |                            | (5.3   | ) |      |   | 36.6   |  
|Cash at beginning of period                                                               |  |                            | 12.1   |   |      |   | 9.6    |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Cash at end of period                                                                     |  | $                          | 6.8    |   |      | $ | 46.2   |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Supplemental disclosure of cash flow information                                          |  |                            |        |   |      |   |        |  
|Cash paid during the period for interest                                                  |  | $                          | 43.2   |   |      | $ | 43.9   |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Cash paid during the period for taxes                                                     |  | $                          | 1.1    |   |      | $ | 0.8    |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Supplemental schedule of noncash investing and financing activities                       |  |                            |        |   |      |   |        |  
|Additions to covenants not to compete through the issuance of noncompete obligations      |  | $                          | 3.6    |   |      | $ | 6.8    |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Net change to property, plant and equipment through accounts payable and accrued expenses |  | $                          | (1.0   | ) |      | $ | 0.4    |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Decrease in the fair value of long-term debt and related interest rate swap liability     |  | $                          | 2.1    |   |      | $ | 5.5    |  
|                                                                                          |  |                            |        |   |      |   |        |  
|Acquisitions, net of cash acquired:                                                       |  |                            |        |   |      |   |        |  
|Current assets                                                                            |  | $                          | 0.1    |   |      | $ | 32.3   |  
|Property, plant and equipment                                                             |  |                            | 47.6   |   |      |   | 127.3  |  
|Intangible assets                                                                         |  |                            | 16.0   |   |      |   | 15.7   |  
|Goodwill                                                                                  |  |                            | 32.9   |   |      |   | 39.9   |  
|Other assets                                                                              |  |                            |       |   |      |   | 0.7    |  
|Current liabilities                                                                       |  |                            | (5.3   | ) |      |   | (32.1  | )
|Non-compete liabilities                                                                   |  |                            | (3.6   | ) |      |   | (6.8   | )
|                                                                                          |  |                            |        |   |      |   |        |  
|                                                                                          |  | $                          | 87.7   |   |      | $ | 177.0  |  
|                                                                                          |  |                            |        |   |      |   |        |  

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  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 (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. 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 June 30, 2007, Holdings owns an aggregate 10.3% interest in Inergy, inclusive of ownership of the Non-Managing General Partner and Managing General Partner. This ownership is comprised of an approximate 0.9% general partnership
interest and an approximate 9.4% 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 propane market is seasonal because propane is used primarily for heating in residential and commercial buildings, as well as for agricultural purposes. Inergys
retail operations are primarily concentrated in the Midwest, Northeast, and South regions of the United States.

Basis of Presentation

The financial information contained herein as of June 30, 2007 and for the three-month and nine-month periods ended June 30, 2007 and 2006 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 and nine-month periods ended June 30, 2007 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, 2006.

Reclassifications

Certain prior period amounts have been
reclassified to conform to the current period presentation. These reclassifications had no effect on net income.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 2  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. Inergy records all derivative instruments on the balance sheet as either assets or liabilities measured at fair value under the provisions of Statement of
Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), as amended. Changes in the fair value of these derivative financial instruments are recorded either through current
earnings or as other comprehensive income, depending on the type of transaction.

Inergy is party to certain commodity derivative financial instruments
that are designated as hedges of selected inventory positions, and qualify as fair value hedges, as defined in SFAS 133. 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. 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. Any ineffective portion of the fair value hedges is recognized as cost of product sold in the current period. Inergy recognized an immaterial net gain in both the three and nine months ended June 30,
2007, related to the ineffective portion of its fair value hedging instruments. In addition, during the three and nine months ended June 30, 2007, Inergy recognized a net loss of $0.3 million and a net gain of $0.9 million, respectively,
related to the portion of fair value hedging instruments that Inergy excluded from its assessment of hedge effectiveness.

Inergy also enters into
derivative financial instruments that qualify as cash flow hedges, which hedge the exposure of variability in expected future cash flows predominantly attributable to forecasted purchases to supply fixed price sale contracts. These derivatives are
recorded on the balance sheet at fair value as price risk management assets or liabilities. The effective portion of the gain or loss on these cash flow hedges is recorded in other comprehensive income in partners capital and reclassified into
earnings in the same period in which the hedge transaction affects earnings. 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 $2.4
million and $7.9 million at June 30, 2007 and 2006, respectively.

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 and other liquids are recognized at the later of the time the product is shipped or delivered to the customer. 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, distillates and natural gas liquids sold and all propane related appliances sold. 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 its product sales but are not included in cost of product sold. These amounts were $19.5 million and $18.6 million for the three months ended June 30, 2007 and 2006, respectively, and $62.6
million and $60.0 million for the nine months ended June 30, 2007 and 2006, respectively.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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. All wholesale propane and other
liquids inventories being hedged and carried at market value at June 30, 2007 and September 30, 2006 amount to $44.4 million and $67.8 million, respectively. Inventories for midstream operations are stated at the lower of cost or market
determined using the first-in-first-out method.

Shipping and Handling Costs

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

Property, Plant and Equipment

Property, plant and equipment are
stated at 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 

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 amortized over the term of the related debt. Additionally, an acquired
intangible asset is 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.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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, after considering priority distributions, by the weighted average number of units outstanding. Diluted net income per limited partner unit is computed by dividing net income, after considering priority
distributions, by the weighted average number of units outstanding and the effect of dilutive units granted under the long-term incentive plan.

As the
effects of including incremental units associated with options were antidilutive for the three months ended June 30, 2006 due to the net loss reported for that period, no unit options or other dilutive units were reflected in the applicable dilutive
earning per unit computations. As a result, both basic earnings per unit and diluted earnings per unit reflect the same calculation for the period ended June 30, 2006. Weighted average antidilutive unit options outstanding totaled approximately
131,015 for the three months ended June 30, 2006.

Accounting for Unit-Based Compensation

The Company and Inergy each have a unit-based employee compensation plan, which is accounted for under the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and amends SFAS No. 95,
Statement of Cash Flows.SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.

The Company adopted SFAS 123(R) on October 1, 2005 using the modified prospective method. Under the modified prospective method, compensation cost is recognized
beginning with the effective date (a) for all share-based payments granted after the effective date and (b) for all awards granted to employees prior to effective date of SFAS 123(R) that remain unvested as of the effective date. Under
this method, SFAS 123(R) applies to new awards and to awards modified, repurchased, or cancelled after the adoption date of October 1, 2005. The compensation cost for the portion of awards for which the requisite service has not been rendered
that are outstanding as of October 1, 2005 will be recognized as the requisite service is rendered. The compensation cost for that portion of awards is based on the fair value of those awards as of the grant-date and was calculated for pro
forma disclosures under SFAS 123. The compensation cost for those earlier awards is attributed to periods beginning on or after October 1, 2005 using the attribution method that was used under SFAS 123.

The amount of compensation expense recorded by the Company under the provisions of SFAS 123(R) was approximately $0.5 million for each of the nine month periods ended
June 30, 2007 and 2006.

Segment Information

SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) establishes standards for reporting information about operating segments, as well as related disclosures about products and
services, geographic areas, and major customers. Further, SFAS 131 defines 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 reportable segments under the provisions of SFAS 131, Inergy examined the way it organizes its business internally for making operating decisions and assessing business
performance. See Note 8 for disclosures related to Inergys propane and midstream segments.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Recently Issued Accounting Pronouncements

SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) was issued in February 2007 to permit entities to choose to measure many financial instruments
and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159
is required to be adopted by Inergy for the fiscal year ended September 30, 2009. The Company will be evaluating the potential financial statement impact of SFAS 159 to its consolidated financial statements.

SFAS No. 157, Fair Value Measurements (SFAS 157) was issued in September 2006 to define fair value, establish a framework for measuring fair
value according to generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS 157 is required to be adopted by Inergy for the fiscal year ended September 30, 2009. The Company will be evaluating the
potential financial statement impact of SFAS 157 to its consolidated financial statements.

SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments (SFAS 155) amends SFAS 133, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. SFAS 155 permits fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. It also establishes a requirement to evaluate securitized financial assets to identify interests that are freestanding derivatives or that are
hybrid financial instruments that contain an embedded derivative requiring bifurcation. For Inergy, SFAS 155 is effective for all financial instruments acquired or issued on or after October 1, 2006. The adoption of SFAS 155 has not had a
material impact on the Companys consolidated financial statements.

Note 3  Certain Balance Sheet Information

Inventories consist of the following at June 30, 2007 and September 30, 2006, respectively (in millions):



|                               |  |               |      |                    |   |      
|------------------------------ |  | ------------- | ---- | ------------------ | - | -----
|                               |  | June 30, 2007 |      | September 30, 2006
|Propane gas and other liquids  |  | $             | 66.5 |                    | $ | 96.1 
|Appliances, parts and supplies |  |               | 12.6 |                    |   | 12.0 
|                               |  |               |      |                    |   |      
|                               |  | $             | 79.1 |                    | $ | 108.1
|                               |  |               |      |                    |   |      

Property, plant and equipment consists of the following at June 30, 2007 and September 30, 2006,
respectively (in millions):



|                                   |  |               |       |                    |   |      
|---------------------------------- |  | ------------- | ----- | ------------------ | - | -----
|                                   |  | June 30, 2007 |       | September 30, 2006
|Tanks and plant equipment          |  | $             | 593.8 |                    | $ | 578.4
|Land and buildings                 |  |               | 185.8 |                    |   | 135.5
|Vehicles                           |  |               | 94.7  |                    |   | 89.3 
|Construction in process            |  |               | 38.3  |                    |   | 24.7 
|Office furniture and equipment     |  |               | 21.0  |                    |   | 20.0 
|                                   |  |               |       |                    |   |      
|                                   |  |               | 933.6 |                    |   | 847.9
|Less: accumulated depreciation     |  |               | 163.8 |                    |   | 124.4
|                                   |  |               |       |                    |   |      
|Property, plant and equipment, net |  | $             | 769.8 |                    | $ | 723.5
|                                   |  |               |       |                    |   |      

At June 30, 2007 and September 30, 2006, the Company had capitalized interest of $2.4 million and $0.4
million, respectively, related to certain midstream asset expansion projects. These amounts are reflected in construction in process.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 4  Long-Term Debt

Long-term debt consisted of the following (in millions):



|                                                                                                     |  |               |       |                    |   |      
|---------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ------------------ | - | -----
|                                                                                                     |  | June 30, 2007 |       | September 30, 2006
|Inergy credit agreement                                                                              |  | $             | 1.3   |                    | $ | 22.7 
|Inergy senior unsecured notes                                                                        |  |               | 619.3 |                    |   | 621.4
|Inergy obligations under noncompetition agreements and notes to former owners of businesses acquired |  |               | 15.7  |                    |   | 15.6 
|Holdings bank facility                                                                               |  |               | 6.4   |                    |   | 5.3  
|Holdings term loan                                                                                   |  |               | 25.0  |                    |   | 25.0 
|                                                                                                     |  |               |       |                    |   |      
|                                                                                                     |  |               | 667.7 |                    |   | 690.0
|Less current portion                                                                                 |  |               | 4.1   |                    |   | 16.9 
|                                                                                                     |  |               |       |                    |   |      
|                                                                                                     |  | $             | 663.6 |                    | $ | 673.1
|                                                                                                     |  |               |       |                    |   |      

The Companys bank facility (the Bank Facility) consists of a $15 million working capital
revolver for Holdings and a $5 million working capital revolver for IPCHA. The maturity date of the Bank Facility is July 22, 2008 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 7.07% at June 30, 2007 for all outstanding debt under the Bank Facility. 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

Inergys credit
agreement (the Credit Agreement) consists of a $75 million revolving working capital facility (the Working Capital Facility) and a $350 million revolving acquisition facility (the Acquisition Facility). On
October 1, 2006, Inergy amended the Credit Agreement with existing lenders primarily to increase the effective amount of working capital borrowings available through the utilization of the Acquisition Facility from $75 million to $125 million.
Other terms, conditions, and covenants remained materially unchanged. The Credit Agreement is guaranteed by each of Inergys domestic subsidiaries.

At June 30, 2007 and September 30, 2006, the balance outstanding under the Credit Agreement was $1.3 million and $22.7 million, respectively, all drawn under the Working Capital Facility. The interest rates of these revolvers are
based on prime rate and LIBOR plus the applicable spreads, which was 8.25% at June 30, 2007, and between 7.08% and 8.50% at September 30, 2006, for all outstanding debt under the Credit Agreement. Unused borrowings under the Credit
Agreement amounted to $397.2 million and $369.4 million at June 30, 2007 and September 30, 2006, respectively. Outstanding standby letters of credit under the Credit Agreement amounted to $26.5 million and $32.9 million at June 30,
2007 and September 30, 2006, respectively.

Inergy is party to five interest rate swap agreements scheduled to mature in December 2014, each designed
to hedge $25 million in underlying fixed rate senior unsecured notes in order to manage interest rate risk exposure. These swap agreements, which expire on the same date as the maturity date of the related senior unsecured notes due 2014 and contain
call provisions consistent with the underlying senior unsecured notes, require the counterparty to pay the Company 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 notional amount of $125 million. The swap agreements have
been recognized as fair value hedges. Amounts to be received or paid under the agreements are accrued and recognized over the life of the agreements as an adjustment to interest expense. At June 30, 2007, Inergy had recorded an approximate $5.7
million reduction in the fair market value of the related senior unsecured notes with a corresponding change in the fair value of its interest rate swaps, which are recorded in other long-term liabilities.

At June 30, 2007, the Company was in compliance with all of its debt covenants.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Note 5  Business Acquisitions

During October 2006, Inergy closed the following three asset acquisitions: a natural gas liquids storage facility located near Bath, New York (the Bath Storage Facility), Columbus Butane Company, Inc., and
Hometown Propane, Inc. In November 2006, Inergy acquired the propane assets of Mideastern Oil Company, Inc. Additionally, in December 2006, Inergy acquired the assets of the Jacksonville, Florida location of Sun Belt Energy of Florida, LLC and
Stevens Gas Service, Inc. In February 2007, Inergy completed the acquisition of the 24-mile lateral pipeline (South Lateral Pipeline) connecting its Stagecoach natural gas storage facility to Tennessee Gas Pipeline Companys Line
300.In May 2007, Inergy acquired the propane assets of The F&S Oil Company located in Waterbury, Connecticut. In June 2007, Inergy acquired the propane assets of two retail locations in Alabama. The aggregate purchase price of these nine
acquisitions, net of cash acquired, was approximately $87.0 million. Inergy has allocated $32.5 million to goodwill and $16.2 million to intangible assets, consisting primarily of customer accounts and non-compete agreements, as a result of the
above acquisitions. The purchase price allocation for these acquisitions 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 the Companys consolidated financial statements but are not material.

Regulation S-X of the Securities and Exchange Commission requires that for any significant subsidiary, which is defined as any significant business combination or disposition of assets, pro-forma information must be
disclosed. None of the fiscal 2007 acquisitions were, individually or in the aggregate, considered a significant subsidiary. Therefore, no pro-forma results from operations are provided.

The operating results for these acquisitions are included in the consolidated results of operations from the dates of acquisition through June 30, 2007.

Note 6  Partners Capital

Common Unit Offering

In May 2007, the Company sold 1,500,000 common units in a public offering. Immediately following the closing of this offering, the Company redeemed from
certain of its original investors, including certain members of its management, 1,500,000 common units for a per unit amount equal to the net proceeds per common unit the Company received in this offering before expenses. The Company immediately
canceled the common units it redeemed from the original investors so that they are no longer outstanding.

Gain on Issuance of Units in Inergy

On April 25, 2007, the Inergy special units that were issued in August 2005 to Inergy Holdings, L.P. were converted into 919,349 common units as a
result of the commercial operation of the Phase II expansion of the Stagecoach Natural Gas Storage Facility. Upon this conversion, Inergy no longer had a class of equity securities that had distribution rights over any other class of equity
interests. As a result, according to Staff Accounting Bulletin No. 51, the Company recognized the previously deferred gains resulting from issuances of Inergy common units to third parties at a unit price that exceeds the current carrying value
of the Companys investment in Inergy common units. Accordingly, the Company recorded a gain of approximately $80.6 million, which is reflected as a separate item in our consolidated statements of operations.



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Quarterly Distributions of Available Cash

A summary of the Companys limited partner quarterly distributions for the nine months ended June 30, 2007 and 2006 is presented below:



|                                |  |                   |  |               |       |                                   |   |     
|------------------------------- |  | ----------------- |  | ------------- | ----- | --------------------------------- | - | ----
|Nine Months Ended June 30,
2007
|Record Date                     |  | Payment Date      |  | Per Unit Rate |       | Distribution Amount (in millions)
|November 7, 2006                |  | November 14, 2006 |  | $             | 0.375 |                                   | $ | 7.5 
|February 7, 2007                |  | February 14, 2007 |  | $             | 0.400 |                                   |   | 8.0 
|May 8, 2007                     |  | May 15, 2007      |  | $             | 0.480 |                                   |   | 9.6 
|                                |  |                   |  |               |       |                                   |   |     
|                                |  |                   |  |               |       |                                   | $ | 25.1
|                               
|Nine Months Ended June 30,
2006
|Record Date                     |  | Payment Date      |  | Per Unit Rate |       | Distribution Amount (in millions)
|November 7, 2005                |  | November 14, 2005 |  | $             | 0.270 |                                   | $ | 5.7 
|February 7, 2006                |  | February 14, 2006 |  | $             | 0.290 |                                   |   | 5.8 
|May 8, 2006                     |  | May 15, 2006      |  | $             | 0.320 |                                   |   | 6.4 
|                                |  |                   |  |               |       |                                   |   |     
|                                |  |                   |  |               |       |                                   | $ | 17.9

On July 25, 2007, the Company declared a distribution of $0.51 per limited partner unit to be paid on
August 14, 2007 to unitholders of record on August 7, 2007 for a total distribution of $10.2 million with respect to its third fiscal quarter of 2007. On August 14, 2006, a quarterly distribution of $0.35 per limited partner unit was
paid to unitholders of record on August 7, 2006 with respect to the third fiscal quarter of 2006, for a total distribution of $7.0 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.

Inergy Holdings, L.P. Long-Term Incentive Plan

Inergy Holdings GP, LLC sponsors the Inergy Holdings Long-Term Incentive Plan (Holdings LTIP) for the employees, directors, and consultants of the general partner and employees, directors, and consultants
of the Companys affiliates which perform services for the Company. The Holdings LTIP consists of four components: restricted units, phantom units, unit appreciation rights and unit options. The Company has not granted phantom units or unit
appreciation rights under the Holdings LTIP as of June 30, 2007. The Holdings LTIP limits the aggregate number of units that may be delivered pursuant to awards to 2,000,000 units. As of June 30, 2007, the Company had 675,000 unit options
outstanding and 1,016 restricted units outstanding pursuant to the long-term incentive plan. The Holdings LTIP is administered by the compensation committee of the board of directors of the general partner.

Restricted Units

On April 27, 2007, the Company granted 1,016
restricted units. The restricted units vest ratably over a three year period from the grant date, subject to the provisions as outlined in the restricted unit award agreement. Inergy recognizes expense on these units each quarter by multiplying the
closing price of the Companys common units on the date of grant by the number of units granted, and expensing that amount over the vesting period.

Unit Options

Unit options issued under the Holdings LTIP have an exercise price equal to the fair market value of the units on the date of
the grant. In general, unit options granted under the Holdings LTIP will become exercisable over a period determined by the compensation committee. In addition, the unit options will become exercisable upon a Change in Control. If a grantees
employment, consulting or membership on the board of directors terminates for any reason, the grantees unvested unit options will be automatically forfeited unless, and to the extent, the option agreement or the compensation committee provide
otherwise.



15



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



A summary of the Companys unit option activity for the nine months ended June 30, 2007 is as follows:



|                                  |  |                         |  |                               |  |                |  
|--------------------------------- |  | ----------------------- |  | ----------------------------- |  | -------------- | -
|                                  |  | Range ofExercise Prices |  | Weighted-AverageExercisePrice |  | Number ofUnits |  
|Outstanding at September 30, 2006 |  | $ 22.50 - $ 35.35       |  | $ 24.38                       |  | 674,500        |  
|Granted                           |  | $ 34.43 - $ 50.85       |  | $ 38.98                       |  | 17,500         |  
|Exercised                         |  | $ 22.50                 |  | $ 22.50                       |  | (5,000         | )
|Forfeited                         |  | $ 22.50                 |  | $ 22.50                       |  | (12,000        | )
|                                  |  |                         |  |                               |  |                |  
|Outstanding at June 30, 2007      |  | $ 22.50 - $ 50.85       |  | $ 24.80                       |  | 675,000        |  
|                                  |  |                         |  |                               |  |                |  
|Exercisable at June 30, 2007      |  |                         |  |                               |  |               |  
|                                  |  |                         |  |                               |  |                |  

The weighted-average remaining contract life for outstanding options at June 30, 2007 was approximately 8.1
years. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option pricing model using the assumptions outlined in the table below. Expected volatility was based on a combination of historical and implied
volatilities of the Companys units over a period at least as long as the options expected term. The expected life represents the period of time that the options granted are expected to be outstanding. The risk-free rate is based on the
applicable U.S. Treasury yield curve in effect at the time of the grant of the unit options.



|                                               |  |   |       |  
|---------------------------------------------- |  | - | ----- | -
|Weighted-average fair value of options granted |  | $ | 3.24  |  
|Expected volatility                            |  |   | 0.229 |  
|Distribution yield                             |  |   | 3.8   | %
|Expected life of option in years               |  |   | 5     |  
|Risk-free interest rate                        |  |   | 4.9   | %

The aggregate intrinsic value of outstanding options at June 30, 2007 was $17.6 million. The aggregate
intrinsic value of unit options exercised during the nine months ended June 30, 2007 was $0.1 million. There were no options exercised during the nine months ended June 30, 2006. Aggregate intrinsic value represents the difference between
the Companys closing unit price on the last trading day of the fiscal period, which was $50.88 on June 29, 2007, and the exercise price multiplied by the number of options outstanding.

Inergy, L.P. Long-Term Incentive Plan

Inergy GP, LLC sponsors the
Inergy Long-Term Incentive Plan (Inergy LTIP) for its employees, consultants, and directors and the employees of its affiliates that perform services for Inergy. The Inergy LTIP currently permits the grant of awards covering an aggregate
of 1,735,100 common units, which can be granted in the form of unit options and/or restricted units; however, not more than 565,600 restricted units may be granted under the plan.

Restricted Units

During the 2006 fiscal year, Inergy granted 58,756 restricted units. During the current fiscal
year, Inergy has granted an additional 44,020 restricted units. The majority of the restricted units are 100% vested on the fifth anniversary of the grant date, subject to the provisions as outlined in the restricted unit award agreement. Some of
these units are subject to the achievement of certain specified performance objectives and failure to meet the performance objectives will result in forfeiture and cancellation of the restricted units. Inergy recognizes expense on these units each
quarter by multiplying the closing price of Inergys common units on the date of grant by the number of units granted, and expensing that amount over the vesting period.

The compensation expense recorded by Inergy related to these restricted unit awards was insignificant for the three and nine months ended June 30, 2007 and 2006.



16



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Unit Options

Unit options issued under the Inergy LTIP have an exercise price equal to the fair market value of the units on the date of the grant. In general, unit options will expire after 10 years and are subject to the vesting provisions as outlined
in the unit option agreement. In addition, most unit option grants made under the plan provide that the unit options will become exercisable upon a change of control of the managing general partner or Inergy.

A summary of Inergys unit option activity for the nine months ended June 30, 2007 is as follows:



|                                  |  |                          |  |                               |  |                 |  
|--------------------------------- |  | ------------------------ |  | ----------------------------- |  | --------------- | -
|                                  |  | Range of Exercise Prices |  | Weighted-AverageExercisePrice |  | Number of Units |  
|Outstanding at September 30, 2006 |  | $   8.19 - $ 31.32       |  | $ 16.37                       |  | 711,964         |  
|Granted                           |  |                         |  |                              |  |                |  
|Exercised                         |  | $   8.19 - $ 27.14       |  | $ 11.53                       |  | (290,464        | )
|Canceled                          |  | $ 15.11                  |  | $ 15.11                       |  | (4,000          | )
|                                  |  |                          |  |                               |  |                 |  
|Outstanding at June 30, 2007      |  | $ 13.75 - $ 31.32        |  | $ 19.75                       |  | 417,500         |  
|                                  |  |                          |  |                               |  |                 |  
|Exercisable at June 30, 2007      |  |                         |  |                              |  |                |  
|                                  |  |                          |  |                               |  |                 |  

The weighted-average remaining contract life for outstanding options at June 30, 2007 was approximately six
years. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option pricing model using the assumptions outlined in the table below. Expected volatility was based on a combination of historical and implied
volatilities of Inergys units over a period at least as long as the options expected term. The expected life represents the period of time that the options granted are expected to be outstanding. The risk-free rate is based on the
applicable U.S. Treasury yield curve in effect at the time of the grant of the unit options.



|                                               |  |   |       |  
|---------------------------------------------- |  | - | ----- | -
|Weighted-average fair value of options granted |  | $ | 1.02  |  
|Expected volatility                            |  |   | 0.229 |  
|Distribution yield                             |  |   | 6.4   | %
|Expected life of option in years               |  |   | 5     |  
|Risk-free interest rate                        |  |   | 4.9   | %

The aggregate intrinsic value of outstanding options at June 30, 2007 was $6.9 million. The aggregate
intrinsic value of unit options exercised during the nine months ended June 30, 2007 was $5.2 million. There were no options exercised during the nine months ended June 30, 2006. Aggregate intrinsic value represents the positive difference
between Inergys closing unit price on the last trading day of the fiscal period, which was $36.20 on June 29, 2007, and the exercise price multiplied by the number of options outstanding.

As of June 30, 2007, there was $4.6 million of total unrecognized compensation cost related to unvested unit-based compensation awards granted to employees under
the restricted unit and unit option plans, including approximately $1.8 million related to Holdings unvested unit-based compensation awards. That cost is expected to be recognized over a five-year period.

Note 7  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 June 30, 2007, the total of these firm purchase commitments was approximately $183.6 million. Inergy also
enters into 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 Stagecoach and West Coast NGL midstream assets. At June 30, 2007, the total of these firm
purchase commitments was approximately $37.8 million.



17



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



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. At June 30, 2007 and September 30, 2006, Inergys self-insurance reserves were $14.2
million and $11.2 million, respectively.

Note 8  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, and the distribution of natural gas liquids. Results of operations for acquisitions that occurred
during the three and nine months ended June 30, 2007, excluding the Bath Storage Facility and the South Lateral Pipeline, are included in the propane segment. The results of operations for the Bath Storage Facility and the South Lateral
Pipeline are included in the midstream segment.

The identifiable assets associated with each reportable segment include accounts receivable and
inventories. Goodwill is 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.

Revenues, gross profit, identifiable assets and goodwill for each of the Companys reportable segments are presented below (in millions):



|                                                    |  |                                  |       |                     |   |                          |  |       |   |  |   |      
|--------------------------------------------------- |  | -------------------------------- | ----- | ------------------- | - | ------------------------ |  | ----- | - |  | - | -----
|                                                    |  | Three Months Ended June 30, 2007
|                                                    |  | PropaneOperations                |       | MidstreamOperations |   | IntersegmentEliminations |  | Total
|Retail propane revenues                             |  | $                                | 102.5 |                     | $ |                         |  | $     |  |  | $ | 102.5
|Wholesale propane revenues                          |  |                                  | 61.8  |                     |   | 4.0                      |  |       |  |  |   | 65.8 
|Storage, fractionation and other midstream revenues |  |                                  |      |                     |   | 43.4                     |  |       |  |  |   | 43.4 
|Transportation revenues                             |  |                                  | 3.9   |                     |   |                         |  |       |  |  |   | 3.9  
|Propane-related appliance sales revenues            |  |                                  | 4.9   |                     |   |                         |  |       |  |  |   | 4.9  
|Retail service revenues                             |  |                                  | 3.6   |                     |   |                         |  |       |  |  |   | 3.6  
|Rental service and other revenues                   |  |                                  | 5.4   |                     |   |                         |  |       |  |  |   | 5.4  
|Distillate revenues                                 |  |                                  | 17.3  |                     |   |                         |  |       |  |  |   | 17.3 
|Gross profit                                        |  |                                  | 60.7  |                     |   | 15.1                     |  |       |  |  |   | 75.8 
|Identifiable assets                                 |  |                                  | 145.4 |                     |   | 21.4                     |  |       |  |  |   | 166.8
|Goodwill                                            |  |                                  | 267.3 |                     |   | 105.3                    |  |       |  |  |   | 372.6



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##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



|                                                    |  |                                  |       |                     |   |                          |  |       |   |  |   |      
|--------------------------------------------------- |  | -------------------------------- | ----- | ------------------- | - | ------------------------ |  | ----- | - |  | - | -----
|                                                    |  | Three Months Ended June 30, 2006
|                                                    |  | PropaneOperations                |       | MidstreamOperations |   | IntersegmentEliminations |  | Total
|Retail propane revenues                             |  | $                                | 91.2  |                     | $ |                         |  | $     |  |  | $ | 91.2 
|Wholesale propane revenues                          |  |                                  | 47.4  |                     |   | 5.1                      |  |       |  |  |   | 52.5 
|Storage, fractionation and other midstream revenues |  |                                  |      |                     |   | 38.7                     |  |       |  |  |   | 38.7 
|Transportation revenues                             |  |                                  | 2.8   |                     |   |                         |  |       |  |  |   | 2.8  
|Propane-related appliance sales revenues            |  |                                  | 5.2   |                     |   |                         |  |       |  |  |   | 5.2  
|Retail service revenues                             |  |                                  | 3.6   |                     |   |                         |  |       |  |  |   | 3.6  
|Rental service and other revenues                   |  |                                  | 5.0   |                     |   |                         |  |       |  |  |   | 5.0  
|Distillate revenues                                 |  |                                  | 16.6  |                     |   |                         |  |       |  |  |   | 16.6 
|Gross profit                                        |  |                                  | 55.3  |                     |   | 10.1                     |  |       |  |  |   | 65.4 
|Identifiable assets                                 |  |                                  | 147.7 |                     |   | 13.4                     |  |       |  |  |   | 161.1
|Goodwill                                            |  |                                  | 273.1 |                     |   | 23.2                     |  |       |  |  |   | 296.3



|                                                    |  |                                 |       |                     |   |                          |  |   |       |   |  |   |      
|--------------------------------------------------- |  | ------------------------------- | ----- | ------------------- | - | ------------------------ |  | - | ----- | - |  | - | -----
|                                                    |  | Nine Months Ended June 30, 2007
|                                                    |  | PropaneOperations               |       | MidstreamOperations |   | IntersegmentEliminations |  |   | Total
|Retail propane revenues                             |  | $                               | 634.6 |                     | $ |                         |  | $ |      |   |  | $ | 634.6
|Wholesale propane revenues                          |  |                                 | 303.9 |                     |   | 17.7                     |  |   |      |   |  |   | 321.6
|Storage, fractionation and other midstream revenues |  |                                 |      |                     |   | 113.4                    |  |   | (0.4  | ) |  |   | 113.0
|Transportation revenues                             |  |                                 | 9.4   |                     |   |                         |  |   |      |   |  |   | 9.4  
|Propane-related appliance sales revenues            |  |                                 | 17.7  |                     |   |                         |  |   |      |   |  |   | 17.7 
|Retail service revenues                             |  |                                 | 13.1  |                     |   |                         |  |   |      |   |  |   | 13.1 
|Rental service and other revenues                   |  |                                 | 17.4  |                     |   |                         |  |   |      |   |  |   | 17.4 
|Distillate revenues                                 |  |                                 | 80.4  |                     |   |                         |  |   |      |   |  |   | 80.4 
|Gross profit                                        |  |                                 | 342.9 |                     |   | 45.4                     |  |   |      |   |  |   | 388.3
|Identifiable assets                                 |  |                                 | 145.4 |                     |   | 21.4                     |  |   |      |   |  |   | 166.8
|Goodwill                                            |  |                                 | 267.3 |                     |   | 105.3                    |  |   |      |   |  |   | 372.6



|                                                    |  |                                 |       |                     |   |                          |  |   |       |   |  |   |      
|--------------------------------------------------- |  | ------------------------------- | ----- | ------------------- | - | ------------------------ |  | - | ----- | - |  | - | -----
|                                                    |  | Nine Months Ended June 30, 2006
|                                                    |  | PropaneOperations               |       | MidstreamOperations |   | IntersegmentEliminations |  |   | Total
|Retail propane revenues                             |  | $                               | 603.1 |                     | $ |                         |  | $ |      |   |  | $ | 603.1
|Wholesale propane revenues                          |  |                                 | 281.6 |                     |   | 15.3                     |  |   |      |   |  |   | 296.9
|Storage, fractionation and other midstream revenues |  |                                 |      |                     |   | 109.1                    |  |   | (0.3  | ) |  |   | 108.8
|Transportation revenues                             |  |                                 | 7.6   |                     |   |                         |  |   |      |   |  |   | 7.6  
|Propane-related appliance sales revenues            |  |                                 | 18.6  |                     |   |                         |  |   |      |   |  |   | 18.6 
|Retail service revenues                             |  |                                 | 13.1  |                     |   |                         |  |   |      |   |  |   | 13.1 
|Rental service and other revenues                   |  |                                 | 15.0  |                     |   |                         |  |   |      |   |  |   | 15.0 
|Distillate revenues                                 |  |                                 | 79.6  |                     |   |                         |  |   |      |   |  |   | 79.6 
|Gross profit                                        |  |                                 | 297.9 |                     |   | 31.2                     |  |   |      |   |  |   | 329.1
|Identifiable assets                                 |  |                                 | 147.7 |                     |   | 13.4                     |  |   |      |   |  |   | 161.1
|Goodwill                                            |  |                                 | 273.1 |                     |   | 23.2                     |  |   |      |   |  |   | 296.3



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##### Table of Contents

|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, 2006.

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. 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 0.9% general partner interest in Inergy;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 4,706,689 Inergy common units, representing an aggregate limited partner interest in Inergy of approximately 9.4%;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | 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 operation, including a high performance, multicycle natural gas storage facility (Stagecoach) and a natural gas liquids
(NGL) business in California, which includes natural gas processing, NGL fractionation, NGL rail and truck terminals, bulk storage, trucking and marketing operations. Inergy has grown primarily through acquisitions of retail propane
operations. Since the inception of Inergys predecessor in November 1996 through June 30, 2007, Inergy has acquired 68 companies, 64 propane companies and 4 midstream businesses for an aggregate purchase price of approximately $1.5
billion, including working capital, assumed liabilities and acquisition costs. Inergy further intends to pursue its growth objectives through, among other things, future acquisitions, maintaining a high percentage of retail sales to residential
customers, operating in attractive markets and focusing its operations under established, and locally recognized trade names.



20



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##### Table of Contents

During October 2006, Inergy closed the following three asset acquisitions: a natural gas liquids storage facility located near Bath, New York (the Bath
Storage Facility), Columbus Butane Company, Inc., and Hometown Propane, Inc. In November 2006, Inergy acquired the propane assets of Mideastern Oil Company, Inc. Additionally, in December 2006, Inergy acquired the assets of the Jacksonville,
FL location of Sun Belt Energy of Florida, LLC and Stevens Gas Service, Inc. In February 2007, Inergy completed the acquisition of the 24-mile lateral pipeline (South Lateral Pipeline) connecting its Stagecoach natural gas storage
facility to Tennessee Gas Pipeline Companys Line 300. In May 2007, Inergy acquired the propane assets of The F&S Oil Company located in Waterbury, Connecticut. In June 2007, Inergy acquired the propane assets of two retail locations in
Alabama. The aggregate purchase price of these nine acquisitions, net of cash acquired, was approximately $87.0 million. The purchase price allocation for these acquisitions 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 gains on the issuance of Inergy common units, 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,
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).

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. The unit cost of propane is subject to volatile changes as a result of product supply or other market conditions. Propane unit
cost changes can occur rapidly over a short period of time and can impact margins as sales prices may not change as rapidly. There is no assurance that Inergy will be able to fully pass on product cost increases, particularly when product costs
increase rapidly. Inergy has generally been successful in passing on higher propane costs to its customers and has historically maintained or increased its gross margin per gallon in periods of rising costs.

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;
| | - |  | -------------------------------------------------------------



| |  |  | swap agreements which require payments to (or receipt of payments from) counterparties 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.
| | - |  | --------------------------------------------------------------------------------------------------



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##### Table of Contents

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.

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:



| |  |  | Our recognition of gain on issuance of units in Inergy. In accordance with Staff Accounting Bulletin No. 51, in certain circumstances, we can
recognize an increase in the value of our investment in Inergy when Inergy issues additional common units to third parties at a unit price that exceeds the current carrying value of our investment in Inergy common units. This gain recognition,
however, is not permitted if Inergy sells a class of equity securities that has distribution rights over any other class of equity interests. Since Inergy had both subordinated and special units, we could not recognize the gains until these units
converted to common units, and as such, we had previously reflected the proceeds from issuance of Inergy common units as a minority interest in our financial statements. As of April 25, 2007, all subordinated and special units had converted to
common units, resulting in our recognition of all previously deferred gains during the quarter ended June 30, 2007. Going forward, this gain will be recognized as income in the period in which the sale to third parties occurs. Historically,
Inergy has grown through acquisitions funded in part through the issuance of equity. Because we expect Inergys acquisition and related financing activity to continue for the foreseeable future, it is likely that we will continue to recognize
gains as a result of future equity issuances by Inergy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provision for Income Taxes. Our provision for income taxes is primarily related to cash flows received by IPCH Acquisition Corp., a wholly owned
subsidiary of the Company.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest of Non-Controlling Partners in Inergys Net (Income) Loss. 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 June 30, 2007, we owned an approximate 9.4% limited partner interest in Inergy together with a 0.9% non-managing general partner interest; and the non-affiliated unitholders
owned an 89.7% limited partner interest in Inergy.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

The following table summarizes the consolidated income statement components for the three months ended June 30, 2007 and 2006, respectively (in millions):



|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ------ | - | ----- | ---------- |  | - | ---------- | - |  | ------ | -
|                                                                                                                            |  | Three Months Ended June 30, |       |   | Change |  
|                                                                                                                            |  | 2007                        |       |   | 2006   |   |       | In Dollars |  |   | Percentage |  
|Revenue                                                                                                                     |  | $                           | 246.8 |   |        | $ | 215.6 |            |  | $ | 31.2       |   |  | 14.5   | %
|Cost of product sold                                                                                                        |  |                             | 171.0 |   |        |   | 150.2 |            |  |   | 20.8       |   |  | 13.8   |  
|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  
|Gross profit                                                                                                                |  |                             | 75.8  |   |        |   | 65.4  |            |  |   | 10.4       |   |  | 15.9   |  
|Operating and administrative expenses                                                                                       |  |                             | 63.4  |   |        |   | 63.3  |            |  |   | 0.1        |   |  | 0.2    |  
|Depreciation and amortization                                                                                               |  |                             | 21.4  |   |        |   | 20.6  |            |  |   | 0.8        |   |  | 3.9    |  
|Loss on disposal of assets                                                                                                  |  |                             | 0.7   |   |        |   | 1.7   |            |  |   | (1.0       | ) |  | (58.8  | )
|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  
|Operating loss                                                                                                              |  |                             | (9.7  | ) |        |   | (20.2 | )          |  |   | 10.5       |   |  | 52.0   |  
|Interest expense, net                                                                                                       |  |                             | (12.6 | ) |        |   | (14.1 | )          |  |   | 1.5        |   |  | 10.6   |  
|Finance charge income                                                                                                       |  |                             | 0.9   |   |        |   | 0.7   |            |  |   | 0.2        |   |  | 28.6   |  
|Other income                                                                                                                |  |                             | 0.2   |   |        |   | 0.2   |            |  |   |           |   |  |       |  
|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  
|Loss before gain on issuance of units in Inergy, income taxes and interest of non-controlling partners in Inergys net
loss |  |                             | (21.2 | ) |        |   | (33.4 | )          |  |   | 12.2       |   |  | 36.5   |  
|Gain on issuance of units in Inergy                                                                                         |  |                             | 80.6  |   |        |   |      |            |  |   | 80.6       |   |  | 100.0  |  
|Provision for income taxes                                                                                                  |  |                             | (5.5  | ) |        |   |      |            |  |   | (5.5       | ) |  | (100.0 | )
|Interest of non-controlling partners in Inergys net loss                                                                   |  |                             | 25.5  |   |        |   | 33.1  |            |  |   | (7.6       | ) |  | (23.0  | )
|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  
|Net income (loss)                                                                                                           |  | $                           | 79.4  |   |        | $ | (0.3  | )          |  | $ | 79.7       |   |  | *      |  
|                                                                                                                            |  |                             |       |   |        |   |       |            |  |   |            |   |  |        |  

---

|* | Not meaningful
|- | --------------

The following table summarizes revenues, including
associated volume of gallons sold, for the three months ended June 30, 2007 and 2006, respectively (in millions):



|                                     |  |                            |       |        |         |            |                             |            |        |  |      |   |      |       |          |       |            |     |  |     |  
|------------------------------------ |  | -------------------------- | ----- | ------ | ------- | ---------- | --------------------------- | ---------- | ------ |  | ---- | - | ---- | ----- | -------- | ----- | ---------- | --- |  | --- | -
|                                     |  | Revenues                   |       |        | Gallons |           
|                                     |  | Three MonthsEnded June 30, |       | Change |         |            | Three Months Ended June 30, |            | Change | 
|                                     |  | 2007                       |       | 2006   |         | In Dollars |                             | Percentage |        |  | 2007 |   | 2006 |       | In Units |       | Percentage |    
|Retail propane                       |  | $                          | 102.5 |        | $       | 91.2       |                             | $          | 11.3   |  | 12.4 | % |      | 50.0  |          | 46.6  |            | 3.4 |  | 7.3 | %
|Wholesale propane                    |  |                            | 65.8  |        |         | 52.5       |                             |            | 13.3   |  | 25.3 |   |      | 58.6  |          | 53.8  |            | 4.8 |  | 8.9 |  
|Other retail                         |  |                            | 35.1  |        |         | 33.2       |                             |            | 1.9    |  | 5.7  |   |      |      |          |      |            |    |  |    |  
|Storage, fractionation and midstream |  |                            | 43.4  |        |         | 38.7       |                             |            | 4.7    |  | 12.1 |   |      |      |          |      |            |    |  |    |  
|                                     |  |                            |       |        |         |            |                             |            |        |  |      |   |      |       |          |       |            |     |  |     |  
|Total                                |  | $                          | 246.8 |        | $       | 215.6      |                             | $          | 31.2   |  | 14.5 | % |      | 108.6 |          | 100.4 |            | 8.2 |  | 8.2 | %
|                                     |  |                            |       |        |         |            |                             |            |        |  |      |   |      |       |          |       |            |     |  |     |  

Volume.During the three months ended June 30, 2007, we sold 50.0 million retail gallons of
propane, an increase of 3.4 million gallons or 7.3% from the 46.6 million retail gallons sold during the same three-month period in 2006. The increase was principally due to acquisition-related volume, which resulted in an increase of
3.0 million gallons in the quarter ended June 30, 2007, as well as colder weather in the 2007 period.

Wholesale gallons delivered during the
three months ended June 30, 2007 were 58.6 million gallons compared to 53.8 million gallons during the same three-month period in 2006. The increase of 4.8 million gallons was primarily attributable to the colder weather
experienced in the 2007 period.



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##### Table of Contents

The total natural gas liquid gallons sold by our midstream operations increased 4.2 million gallons, or 27.5%, to
19.5 million gallons during the three months ended June 30, 2007 from 15.3 million gallons during the same three-month period in 2006. This increase was primarily attributable to a new product sales agreement. Stagecoach had 17.45 and
13.25 bcf of working gas storage capacity during each of the three months ended June 30, 2007 and 2006, respectively.

Revenues. Revenues for
the three months ended June 30, 2007 were $246.8 million, an increase of $31.2 million, or 14.5%, from $215.6 million during the same three-month period in 2006.

Revenues from retail propane sales were $102.5 million for the three months ended June 30, 2007, an increase of $11.3 million, or 12.4%, from $91.2 million during the same three-month period in 2006. These higher
revenues were primarily the result of increased sales of approximately $4.9 million due to higher selling prices of propane, $5.5 million in acquisition-related sales, and the higher retail volume sales of $0.9 million at our existing locations.

Revenues from wholesale propane sales for the three months ended June 30, 2007 were $65.8 million compared to $52.5 million during the same
three-month period in 2006. This $13.3 million, or 25.3%, increase was primarily due to higher selling prices, which contributed approximately $8.6 million of the increase, and the higher sales volume, which contributed the remaining $4.7 million
increase.

Revenues from other retail sales, primarily service, appliance, transportation, and distillates, were $35.1 million for the three months ended
June 30, 2007, an increase of $1.9 million or 5.7% from $33.2 million during the same three-month period in 2006. Approximately $1.1 million of this increase was due to higher transportation sales and higher volume sales of distillates, with
the remaining $0.8 million due to acquisition-related sales.

Revenues from storage, fractionation and other midstream activities were $43.4 million for
the three months ended June 30, 2007, an increase of $4.7 million, or 12.1%, from $38.7 million during the same three-month period in 2006. Of the $4.7 million increase, $3.4 million represents an increase due to the acquisition of the Bath
Storage Facility and the initial Stagecoach Phase II expansion placed into service in April 2007. The remaining $1.3 million is attributable to increases in the recurring Stagecoach operations and the West Coast operations.

Cost of Product Sold.Retail propane cost of product sold for the three months ended June 30, 2007 was $58.7 million compared to $50.9 million during the
same three-month period in 2006. This $7.8 million, or 15.3%, increase resulted from an approximate 9% higher average per gallon cost of propane, which contributed $4.9 million of the increase, a $3.3 million increase due to acquisition-related
sales and a $0.5 million increase resulting from higher retail volume sales at our existing locations. These increases to cost of product sold were partially offset by an approximate $0.9 million decrease due to changes in non-cash charges from
derivative contracts associated with retail propane fixed price sales contracts. The Company recorded a $0.5 million non-cash gain during the three months ended June 30, 2007 as compared to a non-cash charge of $0.4 million recorded in the same
three-month period in 2006.

Wholesale propane cost of product sold for the three months ended June 30, 2007 was $64.0 million, an increase of $13.6
million or 27.0%, from $50.4 million during the same three-month period in 2006. Approximately $9.1 million of this increase resulted from the higher average cost of propane, with the remaining $4.5 million resulting from higher volumes sold by our
wholesale propane operations.

Other retail cost of product sold was $20.1 million for the three months ended June 30, 2007 compared to $20.4 million
during the same three-month period in 2006. This $0.3 million decline resulted from a $0.4 decrease due primarily to lower appliance sales partially offset by a $0.1 million increase in acquisition-related sales.

Fractionation, storage, and other midstream cost of product sold was $28.2 million for the three months ended June 30, 2007 compared to $28.5 million during the
same three-month period in 2006. This $0.3 million decline was primarily related to lower transportation expense associated with the acquisition of the Stagecoach Lateral, partially offset by increased cost of sales in the West Coast operations and
Stagecoach Phase II placed in service in April 2007.

Our retail 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 and delivery vehicle costs, including fuel costs, repair and maintenance and lease expense. These costs approximated



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##### Table of Contents

$15.8 million and $14.8 million for the three months ended June 30, 2007 and 2006, respectively. In addition, depreciation expense associated with the
delivery vehicles is reported within depreciation and amortization expense and amounted to $3.7 million and $3.8 million for the three months ended June 30, 2007 and 2006, respectively. Since we include these costs in our operating and
administrative expenses 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.Retail propane gross profit was $43.8 million for the three months ended June 30, 2007 compared to $40.3 million in the same three-month period
in 2006. This $3.5 million, or 8.7%, increase was attributable to several factors, including $0.4 million of higher volume sales from existing locations and $2.2 million in acquisition-related sales. Also contributing to higher gross profit was the
$0.9 million decrease in cost of product sold relating to the change in non-cash charges from derivative contracts associated with retail propane fixed price sales contracts.

Wholesale propane gross profit decreased $0.3 million, or 14.3%, to $1.8 million for the three months ended June 30, 2007 compared to $2.1 million in the same three-month period in 2006. This decrease was
attributable to a $0.5 million decline due to lower margins, partially offset by an increase of $0.2 million due to higher volume sales.

Other retail
gross profit increased $2.2 million, or 17.2%, to $15.0 million for the three months ended June 30, 2007 compared to $12.8 million in the same three-month period in 2006. The higher gross profit was due primarily to a $1.5 million increase
resulting from higher transportation sales and distillate volume sales and a $0.7 million increase in acquisition-related sales.

Fractionation, storage,
and other midstream gross profit was $15.2 million for the three months ended June 30, 2007 compared to $10.2 million in the same three-month period in 2006. Of this $5.0 million, or 49% increase, $3.9 million represents an increase due to the
acquisition of the Bath Storage Facility, the initial Stagecoach Phase II expansion placed into service in April 2007, and the acquisition of the Stagecoach Lateral. The remaining $1.1 million is attributable to increases in the recurring Stagecoach
operations and the West Coast operations.

Operating and Administrative Expenses.Operating and administrative expenses were $63.4 million for the
three months ended June 30, 2007 compared to $63.3 million during the same three-month period in 2006. This $0.1 million increase resulted from acquisitions, which contributed a $2.3 million increase, and slightly higher costs from existing
businesses of approximately $0.1 million. Additionally in the 2006 period, Inergy accrued a one-time charge of $2.3 million for long-term incentive compensation related to the conversion of subordinated units to common units.

Depreciation and Amortization.Depreciation and amortization increased to $21.4 million for the three months ended June 30, 2007 from $20.6 million during
the same three-month period in 2006, with the change primarily a result of acquisitions and the expansion of our midstream segment.

Interest Expense.Interest expense decreased to $12.6 million for the three months ended June 30, 2007 compared to $14.1 million during the same three-month period in 2006. This $1.5 million decline resulted from lower average debt outstanding and more
capitalized interest during the three-month period ended June 30, 2007 partially offset by higher overall interest rates. During the three months ended June 30, 2007 and 2006, Inergy capitalized $0.6 million and $0.2 million, respectively,
of interest related to certain capital improvement projects at our West Coast NGL and Stagecoach facilities as further described below in Liquidity and Sources of Capital  Capital Resource Activities.

Gain on Issuance of Units in Inergy. As discussed above, during the quarter ended June 30, 2007, we recognized all previously deferred gains resulting
from issuances of additional Inergy common units at a price per unit greater than our equivalent carrying value. As such, a gain of approximately $80.6 million was recognized during the three months ended June 30, 2007, and no such gain was
recorded in the three months ended June 30, 2006.

Provision (benefit) for Income Taxes.The provision for income taxes for the quarter
ended June 30, 2007 was $5.5 million compared to a negligible benefit in the same three-month period in 2006. The provision for income taxes for the three months ended June 30, 2007 was composed of $0.5 million of current income tax
expense together with $5.0 million of deferred income tax expense.



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##### Table of Contents

Interest of Non-Controlling Partners in Inergys Net Loss. We recorded income of $25.5 million in the
three months ended June 30, 2007, as compared to income of $33.1 million in the same three-month period of 2006 associated with the interests of non-controlling partners in Inergy. The $7.6 million change resulted primarily from an $11.8
million decrease in Inergys net loss, which had the effect of increasing the interest of non-controlling partners in Inergys net loss. Also contributing to the change was a $2.7 million increase in incentive distribution rights received
by the Company from Inergy, to which the non-controlling partners are not entitled, together with an approximate $1.5 million increase in other related income from minority interests in Inergy.

Net Income (Loss).Net income was $79.4 million for the three months ended June 30, 2007 compared to a net loss of $(0.3) million for the same three-month
period in 2006. The $79.7 million increase in net income was primarily attributable to the gain recognition of $80.6 million on the issuance of Inergy units together with a higher gross profit at Inergy in the three months ended June 30, 2007.
Partially offsetting these increases in net income was the decrease in income related to the interest of non-controlling partners in Inergys net loss, as well as small increases in operating and administrative expenses and depreciation and
amortization.

Nine Months Ended June 30, 2007 Compared to Nine Months Ended June 30, 2006

The following table summarizes the consolidated income statement components for the nine months ended June 30, 2007 and 2006, respectively (in millions):



|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  
|------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------ | - | ------- | ---------- |  | - | ---------- | - |  | ------ | -
|                                                                                                                                |  | Nine Months Ended June 30, |         |   | Change |  
|                                                                                                                                |  | 2007                       |         |   | 2006   |   |         | In Dollars |  |   | Percentage |  
|Revenue                                                                                                                         |  | $                          | 1,207.2 |   |        | $ | 1,142.7 |            |  | $ | 64.5       |   |  | 5.6    | %
|Cost of product sold                                                                                                            |  |                            | 818.9   |   |        |   | 813.6   |            |  |   | 5.3        |   |  | 0.7    |  
|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  
|Gross profit                                                                                                                    |  |                            | 388.3   |   |        |   | 329.1   |            |  |   | 59.2       |   |  | 18.0   |  
|Operating and administrative expenses                                                                                           |  |                            | 195.3   |   |        |   | 190.0   |            |  |   | 5.3        |   |  | 2.8    |  
|Depreciation and amortization                                                                                                   |  |                            | 60.9    |   |        |   | 58.7    |            |  |   | 2.2        |   |  | 3.7    |  
|Loss on disposal of assets                                                                                                      |  |                            | 1.6     |   |        |   | 2.4     |            |  |   | (0.8       | ) |  | (33.3  | )
|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  
|Operating income                                                                                                                |  |                            | 130.5   |   |        |   | 78.0    |            |  |   | 52.5       |   |  | 67.3   |  
|Interest expense, net                                                                                                           |  |                            | (40.9   | ) |        |   | (42.6   | )          |  |   | 1.7        |   |  | 4.0    |  
|Finance charge income                                                                                                           |  |                            | 2.4     |   |        |   | 2.2     |            |  |   | 0.2        |   |  | 9.1    |  
|Other income                                                                                                                    |  |                            | 1.4     |   |        |   | 0.6     |            |  |   | 0.8        |   |  | 133.3  |  
|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  
|Income before gain on issuance of units in Inergy, income taxes and interest of non-controlling partners in Inergys net
income |  |                            | 93.4    |   |        |   | 38.2    |            |  |   | 55.2       |   |  | 144.5  |  
|Gain on issuance of units in Inergy                                                                                             |  |                            | 80.6    |   |        |   |        |            |  |   | 80.6       |   |  | 100.0  |  
|Provision for income taxes                                                                                                      |  |                            | (6.5    | ) |        |   | (1.2    | )          |  |   | (5.3       | ) |  | (441.7 | )
|Interest of non-controlling partners in Inergys net income                                                                     |  |                            | (68.8   | ) |        |   | (24.6   | )          |  |   | (44.2      | ) |  | (179.7 | )
|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  
|Net income                                                                                                                      |  | $                          | 98.7    |   |        | $ | 12.4    |            |  | $ | 86.3       |   |  | 696.0  | %
|                                                                                                                                |  |                            |         |   |        |   |         |            |  |   |            |   |  |        |  



26



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##### Table of Contents

The following table summarizes revenues, including associated volume of gallons sold, for the nine months ended
June 30, 2007 and 2006, respectively (in millions):



|                                     |  |                            |         |        |         |            |                            |            |        |  |      |   |      |       |          |       |            |      |  |     |  
|------------------------------------ |  | -------------------------- | ------- | ------ | ------- | ---------- | -------------------------- | ---------- | ------ |  | ---- | - | ---- | ----- | -------- | ----- | ---------- | ---- |  | --- | -
|                                     |  | Revenues                   |         |        | Gallons |           
|                                     |  | Nine Months Ended June 30, |         | Change |         |            | Nine Months Ended June 30, |            | Change | 
|                                     |  | 2007                       |         | 2006   |         | In Dollars |                            | Percentage |        |  | 2007 |   | 2006 |       | In Units |       | Percentage |     
|Retail propane                       |  | $                          | 634.6   |        | $       | 603.1      |                            | $          | 31.5   |  | 5.2  | % |      | 313.7 |          | 310.5 |            | 3.2  |  | 1.0 | %
|Wholesale propane                    |  |                            | 321.6   |        |         | 296.9      |                            |            | 24.7   |  | 8.3  |   |      | 304.9 |          | 296.0 |            | 8.9  |  | 3.0 |  
|Other retail                         |  |                            | 138.0   |        |         | 133.9      |                            |            | 4.1    |  | 3.1  |   |      |      |          |      |            |     |  |    |  
|Storage, fractionation and midstream |  |                            | 113.0   |        |         | 108.8      |                            |            | 4.2    |  | 3.9  |   |      |      |          |      |            |     |  |    |  
|                                     |  |                            |         |        |         |            |                            |            |        |  |      |   |      |       |          |       |            |      |  |     |  
|Total                                |  | $                          | 1,207.2 |        | $       | 1,142.7    |                            | $          | 64.5   |  | 5.6  | % |      | 618.6 |          | 606.5 |            | 12.1 |  | 2.0 | %
|                                     |  |                            |         |        |         |            |                            |            |        |  |      |   |      |       |          |       |            |      |  |     |  

Volume.During the nine months ended June 30, 2007, we sold 313.7 million retail gallons of
propane as compared to 310.5 million retail gallons sold during the same nine-month period in 2006. The 3.2 million gallon increase was principally due to 17.5 million gallons of acquisition-related volume and higher volumes due to
the colder weather in the 2007 period (approximately 4% colder in the 2007 period as compared to the 2006 period). These increases were partially offset by a decline of 14.3 million gallons due primarily to the sale of certain branches during
fiscal 2006 and expected volume losses from recent acquisitions.

Wholesale gallons delivered during the nine months ended June 30, 2007 were
304.9 million gallons compared to 296.0 million gallons during the same nine-month period in 2006. The increase of 8.9 million gallons was primarily attributable to increased sales to new and existing customers and colder weather in
the 2007 period. Although the weather was only 4% colder in the 2007 period compared to the 2006 period, we experienced erratic weather during the months of February and April of 2007 (approximately 20% and 40% colder, respectively) compared to the
same months in 2006.

The total natural gas liquid gallons sold by our midstream operations increased 0.2 million gallons to 46.3 million gallons
during the nine months ended June 30, 2007 from 46.1 million gallons during the same nine-month period in 2006. During the nine months ended June 30, 2007, Stagecoach had 13.25 bcf of working gas storage capacity for the first six
months and 17.45 working gas storage capacity for the last three months, compared to 13.25 bcf working gas storage capacity throughout the nine months ended June 30, 2006. The working gas storage capacity was 100% contracted during each of the
periods noted above.

Revenues. Revenues for the nine months ended June 30, 2007 were $1,207.2 million, an increase of $64.5 million, or 5.6%,
from $1,142.7 million during the same nine-month period in 2006.

Revenues from retail propane sales were $634.6 million for the nine months ended
June 30, 2007, an increase of $31.5 million, or 5.2%, from $603.1 million during the same nine-month period in 2006. These higher revenues were primarily the result of $34.8 million in acquisition-related sales and increased sales of $24.4
million due to higher selling prices of propane. Partially offsetting these increases to revenues was a decrease of approximately $27.7 million due to lower retail volume sales at our existing locations.

Revenues from wholesale propane sales for the nine months ended June 30, 2007 were $321.6 million compared to $296.9 million during the same nine-month period in
2006. This $24.7 million, or 8.3%, increase was primarily due to higher selling prices, which contributed approximately $15.7 million of the increase, and higher sales volume, which contributed the remaining $9.0 million.

Revenues from other retail sales, primarily service, appliance, transportation, and distillates, were $138.0 million for the nine months ended June 30, 2007, an
increase of $4.1 million or 3.1% from $133.9 million during the same nine-month period in 2006. Approximately $3.4 million of this increase was due to acquisition-related sales with the remaining $0.7 million primarily attributable to higher
transportation sales, rental sales and distillate volume sales.



27



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##### Table of Contents

Revenues from storage, fractionation and other midstream activities were $113.0 million for the nine months ended
June 30, 2007, an increase of $4.2 million, or 3.9%, from $108.8 million during the same nine-month period in 2006. Of this $4.2 million increase, $9.6 million represents an increase due to the acquisition of the Bath Storage Facility, the
initial Stagecoach Phase II expansion placed into service in April 2007, and increased contractual rates on the Stagecoach Storage Facility. Additionally, increased revenues of $2.6 million is attributable to increases in the West Coast operations.
Offsetting these increases was an $8.0 million decline in revenues due to changes in the mix of natural gas liquid products sold.

Cost of Product Sold.Retail propane cost of product sold for the nine months ended June 30, 2007 was $357.8 million compared to $361.8 million during the same nine-month period in 2006. This $4.0 million, or 1.1%, decrease resulted from an approximate $20.1
million decrease due to changes in non-cash charges from derivative contracts associated with retail propane fixed price sales contracts. The Company recorded a $0.5 million non-cash gain during the nine months ended June 30, 2007 as compared
to a non-cash charge of $19.6 million recorded in the same nine-month period in 2006. Lower retail volume sales at our existing locations also contributed $15.7 million of the decrease. Partially offsetting these decreases to cost of product sold
was $20.4 million in acquisition-related sales together with an approximate 4% higher average per gallon cost of propane, which contributed to an increase of $11.4 million.

Wholesale propane cost of product sold for the nine months ended June 30, 2007 was $308.9 million, an increase of $19.8 million or 6.8%, from $289.1 million during the same nine-month period in 2006.
Approximately $11.0 million of this increase was attributable to the higher average cost of propane with the remaining $8.8 million increase related to higher volumes sold by our wholesale propane operations.

Other retail cost of product sold was $84.0 million for the nine months ended June 30, 2007, a decrease of $0.7 million or 0.8%, from $84.7 million during the same
nine-month period in 2006. This decline was primarily due to lower appliance sales of approximately $1.5 million partially offset by an $0.8 million increase due to acquisition-related sales.

Fractionation, storage, and other midstream cost of product sold was $68.2 million for the nine months ended June 30, 2007, a decrease of $9.8 million, or 12.6%,
from $78.0 million during the same nine-month period in 2006. Of this $9.8 million decrease, $9.1 million was related to lower cost of product sold associated with the change in mix of natural gas liquid products sold. Additionally, a $1.4 million
decrease was attributable to lower transportation expense associated with the acquisition of the Stagecoach Lateral. This was offset by a $0.7 million increase primarily from increased cost of sales in the West Coast operations.

Our retail 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 and delivery vehicle costs,
including fuel costs, repair and maintenance and lease expense. These costs approximated $51.2 million and $48.7 million for the nine months ended June 30, 2007 and 2006, respectively. In addition, depreciation expense associated with the
delivery vehicles is reported within depreciation and amortization expense and amounted to $11.4 million and $11.3 million for the nine months ended June 30, 2007 and 2006, respectively. Since we include these costs in our operating and
administrative expenses 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.Retail propane gross profit was $276.8 million for the nine months ended June 30, 2007 compared to $241.3 million in the same nine-month period
in 2006. This $35.5 million, or 14.7%, increase was attributable to several factors, including $14.4 million in acquisition-related sales and $13.0 million related to a higher cash margin per gallon. Also contributing to higher gross profit was the
$20.1 million decrease in cost of product sold relating to the change in non-cash charges from derivative contracts associated with retail propane fixed price sales contracts. Partially offsetting these increases was a decrease of approximately
$12.0 million related to lower volume sales at our existing locations.

Wholesale propane gross profit increased $4.9 million, or 62.8%, to $12.7 million
for the nine months ended June 30, 2007 compared to $7.8 million in the same nine-month period in 2006. Approximately $4.7 million of this increase was attributable to higher margins with the remaining $0.2 million due to higher volume sales.



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Other retail gross profit increased $4.8 million, or 9.8%, to $54.0 million for the nine months ended June 30, 2007
compared to $49.2 million in the same nine-month period in 2006. The higher gross profit was due to approximately $2.6 million in acquisition-related sales together with a $2.2 million increase primarily attributable to higher transportation sales,
rental sales and distillate volume sales.

Fractionation, storage, and other midstream gross profit was $44.8 million for the nine months ended
June 30, 2007 compared to $30.8 million in the same nine-month period in 2006. Of this $14.0 million, or 45% increase, $10.9 million represents an increase due to increased contractual rates on the Stagecoach Storage Facility, the acquisition
of the Bath Storage Facility, the acquisition of the Stagecoach Lateral, and the initial Stagecoach Phase II expansion placed into service in April 2007. Additionally, $3.1 million relates to increases in transportation and natural gas liquids gross
profit at the West Coast operations.

Operating and Administrative Expenses.Operating and administrative expenses were $195.3 million for the nine
months ended June 30, 2007 compared to $190.0 million during the same nine-month period in 2006. This $5.3 million increase in operating expenses was primarily the result of expenses of approximately $9.3 million arising from acquisitions,
partially offset by lower expenses of approximately $1.7 million due to integration efficiencies and lower variable expenses as a result of lesser volumes sold at existing locations. Also partially offsetting the increase was the impact of the
one-time long-term incentive compensation charge of $2.3 million accrued during the three months ended June 30, 2006 as discussed above.

Depreciation and Amortization.Depreciation and amortization increased to $60.9 million for the nine months ended June 30, 2007 from $58.7 million during the same nine-month period in 2006, with the change primarily a result of
acquisitions and the expansion of our midstream segment.

Interest Expense.Interest expense decreased to $40.9 million for the nine months ended
June 30, 2007, compared to $42.6 million during the same nine-month period in 2006. This $1.7 million decline resulted from lower average debt outstanding and more capitalized interest during the nine-month period ended June 30, 2007
partially offset by higher overall interest rates. During the nine months ended June 30, 2007 and 2006, Inergy capitalized $2.0 million and $0.2 million, respectively, of interest related to certain capital improvement projects at our West
Coast NGL and Stagecoach facilities as further described below in Liquidity and Sources of Capital  Capital Resource Activities.

Gain
on Issuance of Units in Inergy. As discussed above, during the quarter ended June 30, 2007, we recognized all previously deferred gains resulting from issuances of additional Inergy common units at a price per unit greater than our
equivalent carrying value. As such, a gain of approximately $80.6 million was recognized during the nine months ended June 30, 2007, and no such gain was recorded in the nine months ended June 30, 2006.

Provision for Income Taxes. The provision for income taxes for the nine months ended June 30, 2007 was $6.5 million compared to a provision of $1.2
million in the same nine-month period in 2006. The provision for income taxes for the nine months ended June 30, 2007 was composed of $1.4 million of current income tax expense together with $5.1 million of deferred income tax expense. The 2006
provision for income taxes of $1.2 million was composed of $1.8 million of current income tax expense and $0.6 million of deferred income tax benefit.

Interest of Non-Controlling Partners in Inergys Net (Income) Loss. We recorded expense of $68.8 million in the nine months ended June 30, 2007, as compared to an expense of $24.6 million in the same nine-month period
of 2006 associated with the interests of non-controlling partners in Inergy. The $44.2 million change resulted primarily from a $55.1 million increase in Inergys net income, which had the effect of increasing the interest of non-controlling
partners in Inergys net income. Also contributing to the change was a $6.6 million increase in incentive distribution rights received by the Company from Inergy, to which the non-controlling partners are not entitled, together with a $4.3
million increase in other related income from minority interests in Inergy.

Net Income.Net income was $98.7 million for the nine months ended
June 30, 2007 compared to net income of $12.4 million for the same nine-month period in 2006. The $86.3 million increase in net income was primarily attributable to the recognition of $80.6 million in gains on the issuance of Inergy units
together with a higher gross profit at Inergy in the nine months ended June 30, 2007. Partially offsetting these increases in net income was the higher expense recognized related to the interest of non-controlling partners in Inergys net
income, as well as small increases in operating and administrative expenses and depreciation and amortization.



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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.

Regulatory Matters

Recent scientific studies have suggested that emissions of certain gases, commonly referred to as greenhouse gases, may be contributing to
warming of the Earth's atmosphere. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of fuels such as propane and natural gas, are examples of greenhouse gases. In response to such studies, the U.S. Congress
is actively considering legislation to reduce emissions of greenhouse gases. In addition, at least nine states in the Northeast and five states in the West have declined to wait on Congress to develop and implement climate control legislation and
have already taken legal measures to reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Also, as a result of the U.S. Supreme
Courts decision on April 2, 2007 in Massachusetts, et al. v. EPA, the U.S. Environmental Protection Agency or EPA may be required to regulate greenhouse gas emissions from mobile sources (e.g., cars and trucks)
even if Congress does not adopt new legislation specifically addressing emissions of greenhouse gases. The Court's holding in Massachusetts that greenhouse gases fall under the federal Clean Air Act's definition of "air pollutant" may also
result in future regulation of greenhouse gas emissions from stationary sources under certain Clean Air Act programs. Passage of climate control legislation or other regulatory initiatives by Congress or various states of the U.S. or the adoption of
regulations by the EPA or analogous state agencies that restrict emissions of greenhouse gases in areas in which Inergy conducts business could have an adverse affect on its operations and demand for its services.

On December 21, 2006, Central New York Oil and Gas Company LLC (CNYOG), Inergys regulated subsidiary and owner of the Stagecoach natural gas
storage facility, was granted certificate authority by the Federal Energy Regulatory Commission (FERC) to own and operate the Stagecoach Lateral, a 23.7 mile, 30-inch diameter pipeline connecting CNYOGs Stagecoach natural gas
storage field with Tennessee Gas Pipeline Companys mainline system (300-Line) in Bradford County, Pennsylvania. FERC authorized Tennessee, the former owner of the pipeline, to abandon the lateral by sale to CNYOG, and the acquisition was
completed in February 2007. FERC has permitted CNYOG to incorporate the Stagecoach Lateral into its storage operations and to charge market-based storage rates under previously existing storage rate schedules for storage injections and withdrawals
made through the newly acquired Stagecoach Lateral. In authorizing acquisition of the Stagecoach Lateral, FERC affirmed CNYOGs continuing general authority, after the acquisition of the Stagecoach Lateral, to charge and collect market-based
rates. However, FERC may review that market-based rate authorization in the event CNYOG expands the facilitys storage capacity, acquires transportation facilities or additional storage capacity, if CNYOG or one of its affiliates provide
storage or transportation services in the same market area or acquire an interest in another storage field that can link CNYOG facilities to the market area or if CNYOG or one of its affiliates acquire an interest in or is acquired by an interstate
pipeline.

FERCs Order No. 2004, which sets forth standards of conduct applicable to public utilities and interstate transporters of gas,
including interstate storage providers, was vacated and remanded by the United States Court of Appeals for the District of Columbia Circuit on November 17, 2006. Less restrictive interim rules were put in place by FERC on January 9, 2007.
FERC has requested comment on the interim rules, and no final rule on remand has yet been issued by FERC. By FERC order, CNYOG was found to be exempt from the Order No. 2004 standards of conduct. The interim rules continue to exempt most
natural gas storage providers authorized to charge market-based rates, and there is no reason to believe that CNYOG would not continue to be so exempt from the applicable standards of conduct established under the interim rules.

On June 19, 2006, FERC revised its regulations governing criteria for obtaining market-based rates for interstate natural gas storage services. Order No. 678
adopts new regulations which are intended to make it easier for storage providers to obtain authority to charge market-based rates, and which are intended to facilitate the development of new natural gas storage capacity. Although CNYOG already
holds market-based rate authority for storage services performed at its Stagecoach natural gas storage facility, these new rules might facilitate the efforts of other prospective storage providers, including potential competitors with the Stagecoach
storage facility, to obtain market-based rate authority.



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The Internal Revenue Service (IRS) mailed a Notice of Beginning of Administrative Proceeding to
Inergy dated June 26, 2007 (NBAP) stating that the IRS is commencing an audit of Inergys 2004 partnership tax return. A copy of the NBAP is available on our website at www.inergypropane.com. Inergy understands this to
be a routine audit of various items of partnership income, gain, deductions, losses and credits. The audit is in its preliminary stages so it is not known whether the IRS will propose any adjustments to Inergys tax returns, whether such
adjustments would be material, or how such adjustments would affect unitholders.

Inergy, through its Tax Matters Partner, will cooperate with the IRS
examiners auditing this return. Unitholders should consult their tax advisers if they have any questions.

Liquidity and Sources of Capital

Capital Resource Activities

In May 2007, we sold
1,500,000 common units in a public offering. Immediately following the closing of this offering, we redeemed from certain of our original investors, including certain members of our management, 1,500,000 common units for a per unit amount equal to
the net proceeds per common unit we received in this offering before expenses. We immediately canceled the common units we redeemed from the original investors so that they are no longer outstanding.

Inergy has identified growth projects related to its Stagecoach and West Coast NGL midstream assets that are expected to require a capital investment of approximately
$261 million to complete. Through June 30, 2007, Inergy has invested approximately $53.8 million toward completion of these projects. In April 2007, a portion of the Phase II expansion of the Stagecoach natural gas storage was placed in
commercial operation, which increased working gas capacity to 17.45 bcf from 13.25 bcf. The expansion project is expected to be in full commercial operation in September 2007, which will increase total working gas capacity to 26.25 bcf. The
expanded facility is 100% contracted with long term firm storage contracts that commence service upon full commercial operation. Stagecoach is also expected to construct a pipeline to interconnect with the proposed Millennium Pipeline, which will
enhance and further diversify Inergys supply sources and provide interruptible wheeling services to the shipper community. The West Coast project consists of the construction of a butane isomerization unit and related ancillary facilities, as
well as the expansion of butane storage capacity. The isomerization unit is projected to have a capacity of 10,000 barrels per day and provide isobutane supplies to refiners or wholesale distributors for gasoline blending. This project is subject to
regulatory approval by state and county agencies and is expected to be in service by July 2008.

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 $140.1 million and
$108.6 million for the nine-month periods ending June 30, 2007 and 2006, respectively. The $31.5 million increase in operating cash flows was primarily attributable to higher operating income and net changes in working capital balances.

Net investing cash outflows were $132.1 million and $188.6 million for the nine-month periods ending June 30, 2007 and 2006, respectively. Net cash
outflows were primarily impacted by an $89.3 million decrease in cash outlays related to acquisitions and a $29.3 million increase in capital expenditures.

Net financing cash inflows (outflows) were $(13.3) million and $116.6 million for the nine-month periods ending June 30, 2007 and 2006, respectively. Net cash outflows were primarily impacted by a $93.5 million decrease in proceeds
from the issuance of long-term debt, net of payments on long-term debt, a $19.9 million decrease in proceeds related to the issuance of Inergy common units and Inergy unit option exercises, a $14.2 million increase in distributions to
non-controlling partners in Inergy, L.P., and a $7.2 million increase in distributions.



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The following table summarizes our contractual obligations as of June 30, 2007 (in millions):



|                                                                                            |  |       |         |                 |   |           |  |           |       |              |   |      |  |   |      
|------------------------------------------------------------------------------------------- |  | ----- | ------- | --------------- | - | --------- |  | --------- | ----- | ------------ | - | ---- |  | - | -----
|                                                                                            |  | Total |         | Less than1 year |   | 1-3 years |  | 4-5 years |       | After5 years
|Aggregate amount of principal and interest to be paid on the outstanding long-term debt (a) |  | $     | 1,045.1 |                 | $ | 53.9      |  | $         | 130.8 |              | $ | 98.2 |  | $ | 762.2
|Amount of principal and interest to be paid on other long-term obligations                  |  |       | 9.5     |                 |   | 3.0       |  |           | 6.5   |              |   |     |  |   |     
|Future minimum lease payments under noncancelable operating leases                          |  |       | 18.4    |                 |   | 6.2       |  |           | 7.2   |              |   | 2.6  |  |   | 2.4  
|Fixed price purchase commitments                                                            |  |       | 183.6   |                 |   | 182.3     |  |           | 1.3   |              |   |     |  |   |     
|Standby letters of credit                                                                   |  |       | 26.5    |                 |   | 25.8      |  |           | 0.3   |              |   | 0.4  |  |   |     
|Purchase commitments of identified growth projects (b)                                      |  |       | 37.8    |                 |   | 37.8      |  |           |      |              |   |     |  |   |     

---

|(a) | $157.7 million of our long-term debt, including interest rate swaps, is variable interest rate debt at prime rate or LIBOR plus an applicable spread. These rates plus their
applicable spreads were between 7.07% and 8.25% at June 30, 2007. These rates have been applied for each period presented in the table.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Identified growth projects related to the Stagecoach and West Coast NGL midstream assets.
|--- | -----------------------------------------------------------------------------------------

We believe that anticipated cash from operations and borrowing capacity under our credit facility and Inergys credit facility 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.

Description of Credit Facilities

Inergy Holdings, L.P.

On July 22, 2005, we
executed a credit agreement (Bank Facility) with a bank. The Bank Facility consists of a $15 million working capital revolver for Inergy Holdings, L.P. and a $5 million working capital revolver for IPCH Acquisition Corp. The maturity
date of the Bank Facility is July 22, 2008, 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 7.07% at June 30, 2007, for all outstanding debt under the Bank Facility. The Bank Facility contains several covenants which, among other things, require the maintenance of various financial
performance ratios, restrict the payment of distributions to unit holders, and require financial reports to be submitted periodically to the financial institutions.

Inergy, L.P.

Inergy maintains borrowing capacity under a credit facility (Credit Agreement), which
consists of a $75 million revolving working capital facility (Working Capital Facility) and a $350 million revolving acquisition facility (Acquisition Facility). The Credit Agreement accrues interest at either prime rate or
LIBOR plus applicable spreads, resulting in an interest rate of 8.25% at June 30, 2007. At June 30, 2007, borrowings outstanding under the Credit Agreement were $1.3 million, all drawn under the Working Capital Facility. On October 1,
2006, Inergy amended the Credit Agreement with existing lenders primarily to increase the effective amount of working capital borrowings available through the utilization of the Acquisition Facility from $75 million to $125 million. Other terms,
conditions, and covenants remained materially unchanged. The Credit Agreement is guaranteed by each of Inergys 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. Inergy met this provision of the Credit Agreement on March 30, 2007.

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.



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|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 June 30, 2007, we had floating rate obligations totaling approximately $157.7 million for amounts borrowed under credit agreements and interest rate swaps, which convert a portion of our fixed rate senior
unsecured notes due 2014 to floating rate debt. 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 June 2007 levels, our interest expense would change by a total of approximately $1.6 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 June 30, 2007 and 2006 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.

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.

Notional Amounts and Terms

The notional amounts and terms of
Inergys derivative financial instruments include the following at June 30, 2007 and September 30, 2006 (in millions):



|                                         |  |                  |  |                      |  |                  |  |                    
|---------------------------------------- |  | ---------------- |  | -------------------- |  | ---------------- |  | -------------------
|                                         |  | June 30, 2007    |  | September 30, 2006  
|                                         |  | Fixed PricePayor |  | Fixed Price Receiver |  | Fixed PricePayor |  | Fixed PriceReceiver
|Propane, crude and heating oil (barrels) |  | 3.8              |  | 3.8                  |  | 8.0              |  | 7.5                
|Natural gas (MMBTUs)                    |  | 1.4              |  | 1.4                  |  | 5.5              |  | 5.4                

Notional amounts reflect the volume of transactions, but do not accurately measure our exposure to market or
credit risks.



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Fair Value

The fair
value of the derivatives and inventory exchange contracts related to price risk management activities as of June 30, 2007 and September 30, 2006 was assets of $27.2 million and $46.2 million, respectively, and liabilities of $26.5 million
and $49.0 million, respectively. All intercompany transactions have been appropriately eliminated.

The following table summarizes the change in the
unrealized fair value of energy derivative contracts related to Inergys risk management activities for the nine months ended June 30, 2007 and 2006 where settlement has not yet occurred (in millions):



|                                                                                    |  |                           |       |   |      |   |      |  
|----------------------------------------------------------------------------------- |  | ------------------------- | ----- | - | ---- | - | ---- | -
|                                                                                    |  | Nine Months EndedJune 30, |      
|                                                                                    |  | 2007                      |       |   | 2006 |  
|Net fair value gain (loss) of contracts outstanding at beginning of period          |  | $                         | (2.8  | ) |      | $ | 8.8  |  
|Net change in physical exchange contracts                                           |  |                           | (1.9  | ) |      |   | 2.4  |  
|Initial recorded value of new contracts entered into during the period              |  |                           | 1.4   |   |      |   |     |  
|Change in fair value of contracts attributable to market movement during the period |  |                           | 21.9  |   |      |   | 2.1  |  
|Realized gains                                                                      |  |                           | (17.9 | ) |      |   | (4.9 | )
|                                                                                    |  |                           |       |   |      |   |      |  
|Net fair value of contracts outstanding at end of period                            |  | $                         | 0.7   |   |      | $ | 8.4  |  
|                                                                                    |  |                           |       |   |      |   |      |  

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.

Of the outstanding fair value as of June 30, 2007, all
contracts had a maturity of eighteen months or less.

Sensitivity Analysis

A theoretical change of 10% in the underlying commodity value would result in a negligible change in the market value of the contracts as there were approximately 0.4 million gallons of net unbalanced positions
at June 30, 2007.



|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 June 30, 2007 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) or in other
factors during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



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

Part I, Item 1. Financial
Statements, Note 7 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, 2006 and in the Companys Form 10-Q for the quarter ended March 31, 2007.



|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
|------- | -----------------

Reference is made to Part 1,
Item 2. Regulatory Matters, with regards to the commencement of an audit of Inergys 2004 partnership tax return.



|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).            



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##### Table of Contents

|     |  |                                                                                                                                                                            
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|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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##### Table of Contents

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: August 8, 2007 |  | By:                   |  | /s/ R. Brooks Sherman, Jr.                                                                
|                     |  |                       |  | R. Brooks Sherman, Jr.                                                                    
|                     |  |                       |  | Senior Vice President and Chief Financial Officer                                         
|                     |  |                       |  | (Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer)



37