##### Table of Contents

---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



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



For the quarterly period ended June 30, 2005



OR



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



For the transition period from
 to
.



COMMISSION FILE NUMBER:000-51304



Inergy Holdings, L.P.

(Exact name of
registrant as specified in its charter)



|                                                              |  |                                 
|------------------------------------------------------------- |  | --------------------------------
|Delaware                                                      |  | 43-1792470                      
|(State or other jurisdiction ofincorporation or organization) |  | (IRS EmployerIdentification 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 last 90 days.



Yes ̈No x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes x No ̈



The following units were outstanding at August 1, 2005:



|             |  |           
|------------ |  | ----------
|Common Units |  | 20,000,000



---



---

##### 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, 2005 (unaudited) and September 30, 2004                         |  | 3   
|                                                                                                           | 
|Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2005 and 2004 |  | 5   
|                                                                                                           | 
|Unaudited Consolidated Statement of Partners Capital for the Nine Months Ended June 30, 2005              |  | 6   
|                                                                                                           | 
|Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2005 and 2004           |  | 7   
|                                                                                                           | 
|Unaudited Notes to Consolidated Financial Statements                                                       |  | 10  
|                                                                                                           | 
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operation              |  | 26  
|                                                                                                           | 
|Item 3  Quantitative and Qualitative Disclosures About Market Risk                                        |  | 40  
|                                                                                                           | 
|Item 4  Controls and Procedures                                                                           |  | 43  
|                                                                                                           | 
|Part II  Other Information                                                                                |  |     
|                                                                                                           | 
|Item 1  Legal Proceedings                                                                                 |  | 44  
|                                                                                                           | 
|Item 2  Unregistered Sales of Equity Securities and Use of Proceeds                                       |  | 44  
|                                                                                                           | 
|Item 3  Defaults Upon Senior Securities                                                                   |  | 44  
|                                                                                                           | 
|Item 4  Submission of Matters to a Vote of Security Holders                                               |  | 44  
|                                                                                                           | 
|Item 5  Other Information                                                                                 |  | 44  
|                                                                                                           | 
|Item 6  Exhibits                                                                                          |  | 44  
|                                                                                                           | 
|Signatures                                                                                                 |  | 45  



2



---

##### Table of Contents



PART I. FINANCIAL
INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | - | ----------------- | - | ------- | -
|                                                                                                                                             |  | June 30, 2005 (Unaudited) |           |   | September 30,2004 |  
|                                                                                                                                             |  | (In Thousands)            |          
|Assets                                                                                                                                       |  |                           |           |   |                   |   |         |  
|Current assets:                                                                                                                              |  |                           |           |   |                   |   |         |  
|Cash                                                                                                                                         |  | $                         | 22,763    |   |                   | $ | 2,308   |  
|Accounts receivable, less allowance for doubtful accounts of $3,774,000 and $1,078,000 at June 30, 2005 and September 30, 2004,
respectively |  |                           | 57,340    |   |                   |   | 49,441  |  
|Inventories                                                                                                                                  |  |                           | 58,280    |   |                   |   | 56,404  |  
|Prepaid expenses and other current assets                                                                                                    |  |                           | 15,536    |   |                   |   | 5,499   |  
|Assets from price risk management activities                                                                                                 |  |                           | 6,726     |   |                   |   | 23,015  |  
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|Total current assets                                                                                                                         |  |                           | 160,645   |   |                   |   | 136,667 |  
|Property, plant and equipment, at cost:                                                                                                      |  |                           |           |   |                   |   |         |  
|Land and buildings                                                                                                                           |  |                           | 64,683    |   |                   |   | 20,246  |  
|Office furniture and equipment                                                                                                               |  |                           | 15,891    |   |                   |   | 10,173  |  
|Vehicles                                                                                                                                     |  |                           | 68,627    |   |                   |   | 32,719  |  
|Tanks and plant equipment                                                                                                                    |  |                           | 453,837   |   |                   |   | 189,519 |  
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|                                                                                                                                             |  |                           | 603,038   |   |                   |   | 252,657 |  
|Less accumulated depreciation                                                                                                                |  |                           | (61,837   | ) |                   |   | (37,404 | )
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|Property, plant and equipment, net                                                                                                           |  |                           | 541,201   |   |                   |   | 215,253 |  
|Intangible assets:                                                                                                                           |  |                           |           |   |                   |   |         |  
|Covenants not to compete                                                                                                                     |  |                           | 21,959    |   |                   |   | 11,498  |  
|Deferred financing costs                                                                                                                     |  |                           | 19,777    |   |                   |   | 5,500   |  
|Deferred acquisition costs                                                                                                                   |  |                           | 514       |   |                   |   | 104     |  
|Customer accounts                                                                                                                            |  |                           | 205,080   |   |                   |   | 74,154  |  
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|                                                                                                                                             |  |                           | 247,330   |   |                   |   | 91,256  |  
|Less accumulated amortization                                                                                                                |  |                           | (27,297   | ) |                   |   | (17,398 | )
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|Intangible assets, net                                                                                                                       |  |                           | 220,033   |   |                   |   | 73,858  |  
|Goodwill                                                                                                                                     |  |                           | 214,518   |   |                   |   | 85,434  |  
|Other                                                                                                                                        |  |                           | 4,076     |   |                   |   | 529     |  
|                                                                                                                                             |  |                           |           |   |                   |   |         |  
|Total assets                                                                                                                                 |  | $                         | 1,140,473 |   |                   | $ | 511,741 |  
|                                                                                                                                             |  |                           |           |   |                   |   |         |  



3



---

##### Table of Contents



INERGY HOLDINGS, L.P. AND
SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED BALANCE SHEETS (continued)



|                                                                                 |  |                           |           |                   |   |        
|-------------------------------------------------------------------------------- |  | ------------------------- | --------- | ----------------- | - | -------
|                                                                                 |  | June 30, 2005 (Unaudited) |           | September 30,2004
|                                                                                 |  | (In Thousands)           
|Liabilities and partners capital                                                |  |                           |           |                   |   |        
|Current liabilities:                                                             |  |                           |           |                   |   |        
|Accounts payable                                                                 |  | $                         | 61,295    |                   | $ | 54,690 
|Accrued expenses                                                                 |  |                           | 29,317    |                   |   | 15,977 
|Customer deposits                                                                |  |                           | 23,669    |                   |   | 13,998 
|Liabilities from price risk management activities                                |  |                           | 4,499     |                   |   | 29,640 
|Current portion of long-term debt                                                |  |                           | 6,423     |                   |   | 25,017 
|Current portion of promissory notes                                              |  |                           | 3,750     |                   |   | 1,500  
|                                                                                 |  |                           |           |                   |   |        
|Total current liabilities                                                        |  |                           | 128,953   |                   |   | 140,822
|Long-term debt, less current portion                                             |  |                           | 530,091   |                   |   | 128,236
|Long-term promissory notes                                                       |  |                           |          |                   |   | 13,500 
|Deferred income taxes                                                            |  |                           | 20,706    |                   |   | 20,165 
|Interest of non-controlling partners in Inergy, L.P.                             |  |                           | 412,704   |                   |   | 205,951
|Partners equity:                                                                |  |                           |           |                   |   |        
|Common unitholders (20,000,000 units issued and outstanding as of June 30, 2005) |  |                           | 48,019    |                   |   | 2,868  
|Accumulated other comprehensive income                                           |  |                           |          |                   |   | 199    
|                                                                                 |  |                           |           |                   |   |        
|Total partners equity                                                           |  |                           | 48,019    |                   |   | 3,067  
|                                                                                 |  |                           |           |                   |   |        
|Total liabilities and partners equity                                           |  | $                         | 1,140,473 |                   | $ | 511,741
|                                                                                 |  |                           |           |                   |   |        



See accompanying notes.



4



---

##### Table of Contents



INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Unit Data)

(unaudited)



|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                                           |  | Three Months EndedJune 30, |         |   | Nine Months EndedJune 30, |  
|                                                                                                                                                           |  | 2005                       |         |   | 2004                      |   |        | 2005 |  |   | 2004    |  
|Revenue:                                                                                                                                                   |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Propane                                                                                                                                                    |  | $                          | 127,493 |   |                           | $ | 57,540 |      |  | $ | 708,201 |   |  | $ | 345,787 |  
|Other                                                                                                                                                      |  |                            | 46,109  |   |                           |   | 12,175 |      |  |   | 137,294 |   |  |   | 34,578  |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                                                           |  |                            | 173,602 |   |                           |   | 69,715 |      |  |   | 845,495 |   |  |   | 380,365 |  
|Cost of product sold (excluding depreciation and amortization as shown below)                                                                              |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Propane                                                                                                                                                    |  |                            | 86,064  |   |                           |   | 45,788 |      |  |   | 502,109 |   |  |   | 262,163 |  
|Other                                                                                                                                                      |  |                            | 36,934  |   |                           |   | 6,940  |      |  |   | 91,581  |   |  |   | 13,778  |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|                                                                                                                                                           |  |                            | 122,998 |   |                           |   | 52,728 |      |  |   | 593,690 |   |  |   | 275,941 |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Gross profit                                                                                                                                               |  |                            | 50,604  |   |                           |   | 16,987 |      |  |   | 251,805 |   |  |   | 104,424 |  
|Expenses:                                                                                                                                                  |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating and administrative                                                                                                                               |  |                            | 52,111  |   |                           |   | 20,036 |      |  |   | 146,454 |   |  |   | 60,547  |  
|Depreciation and amortization                                                                                                                              |  |                            | 13,904  |   |                           |   | 5,591  |      |  |   | 35,138  |   |  |   | 15,267  |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating income (loss)                                                                                                                                    |  |                            | (15,411 | ) |                           |   | (8,640 | )    |  |   | 70,213  |   |  |   | 28,610  |  
|Other income (expense):                                                                                                                                    |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Interest expense                                                                                                                                           |  |                            | (10,058 | ) |                           |   | (1,444 | )    |  |   | (24,671 | ) |  |   | (5,813  | )
|Write-off of deferred financing costs                                                                                                                      |  |                            | (598    | ) |                           |   |       |      |  |   | (7,588  | ) |  |   | (1,216  | )
|Make whole premium charge                                                                                                                                  |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   | (17,949 | )
|Swap value received                                                                                                                                        |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   | 949     |  
|Gain (loss) on sale of property, plant and equipment                                                                                                       |  |                            | (270    | ) |                           |   | 143    |      |  |   | (170    | ) |  |   | (136    | )
|Finance charges                                                                                                                                            |  |                            | 576     |   |                           |   | 238    |      |  |   | 1,488   |   |  |   | 591     |  
|Other                                                                                                                                                      |  |                            | 90      |   |                           |   | 7      |      |  |   | 246     |   |  |   | 100     |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|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 |  |                            | (25,671 | ) |                           |   | (9,696 | )    |  |   | 39,518  |   |  |   | 5,136   |  
|Gain on issuance of units in Inergy, L.P.                                                                                                                  |  |                            | (5      | ) |                           |   |       |      |  |   | 16,025  |   |  |   | 7,807   |  
|Provision for income taxes                                                                                                                                 |  |                            | 210     |   |                           |   | 289    |      |  |   | (2,081  | ) |  |   | (1,153  | )
|Interest of non-controlling partners in Inergy, L.P.s net (income) loss                                                                                   |  |                            | 20,636  |   |                           |   | 8,210  |      |  |   | (31,812 | ) |  |   | (3,378  | )
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net income (loss)                                                                                                                                          |  | $                          | (4,830  | ) |                           | $ | (1,197 | )    |  | $ | 21,650  |   |  | $ | 8,412   |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total limited partners interest in net income (loss)                                                                                                      |  | $                          | (4,830  | ) |                           | $ | (1,197 | )    |  | $ | 21,650  |   |  | $ | 8,412   |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Pro-forma net income (loss) per limited partner (1) :                                                                                                      |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                                                                                      |  | $                          | (0.24   | ) |                           | $ | (0.09  | )    |  | $ | 1.00    |   |  | $ | 0.67    |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                                                                                    |  | $                          | (0.24   | ) |                           | $ | (0.09  | )    |  | $ | 1.00    |   |  | $ | 0.52    |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Pro-forma weighted average limited partners units outstanding(1):                                                                                         |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                                                                                                      |  |                            | 20,000  |   |                           |   | 12,675 |      |  |   | 21,668  |   |  |   | 12,550  |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                                                                                                    |  |                            | 20,000  |   |                           |   | 16,090 |      |  |   | 21,680  |   |  |   | 16,090  |  
|                                                                                                                                                           |  |                            |         |   |                           |   |        |      |  |   |         |   |  |   |         |  



|(1) | Adjusted to give effect to the conversion transaction and for excess distributions.
|--- | -----------------------------------------------------------------------------------



See accompanying notes.



5



---

##### Table of Contents



INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED STATEMENT OF PARTNERS CAPITAL

(In Thousands)

(unaudited)



|                                                                              |  |                         |         |   |                                     |   |      |                      |  |   |         |  
|----------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ----------------------------------- | - | ---- | -------------------- |  | - | ------- | -
|                                                                              |  | PartnersCommonInterest |         |   | AccumulatedOtherComprehensiveIncome |   |      | TotalPartnersEquity | 
|Balance at September 30, 2004                                                 |  | $                       | 2,868   |   |                                     | $ | 199  |                      |  | $ | 3,067   |  
|Partner contributions                                                         |  |                         | 5,576   |   |                                     |   |      |                      |  |   | 5,576   |  
|Proceeds from issuance of units                                               |  |                         | 80,089  |   |                                     |   |     |                      |  |   | 80,089  |  
|Partners distributions paid                                                  |  |                         | (59,177 | ) |                                     |   |      |                      |  |   | (59,177 | )
|Redemption of Partners interest                                              |  |                         | (2,987  | ) |                                     |   |      |                      |  |   | (2,987  | )
|Comprehensive income:                                                         |  |                         |         |   |                                     |   |      |                      |  |   |         |  
|Net income                                                                    |  |                         | 21,650  |   |                                     |   |      |                      |  |   | 21,650  |  
|Unrealized gain on investments in marketable securities that were distributed |  |                         |         |   |                                     |   | (199 | )                    |  |   | (199    | )
|                                                                              |  |                         |         |   |                                     |   |      |                      |  |   |         |  
|Comprehensive income                                                          |  |                         |         |   |                                     |   |      |                      |  |   | 21,451  |  
|                                                                              |  |                         |         |   |                                     |   |      |                      |  |   |         |  
|Balance at June 30, 2005                                                      |  | $                       | 48,019  |   |                                     | $ |     |                      |  | $ | 48,019  |  
|                                                                              |  |                         |         |   |                                     |   |      |                      |  |   |         |  



See accompanying notes.



6



---

##### Table of Contents



INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(unaudited)



|                                                                                  |  |                           |          |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                  |  | Nine Months EndedJune 30, |         
|                                                                                  |  | 2005                      |          |   | 2004 |  
|Operating activities                                                              |  |                           |          |   |      |   |         |  
|Net income                                                                        |  | $                         | 21,650   |   |      | $ | 8,412   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |   |         |  
|Depreciation                                                                      |  |                           | 25,238   |   |      |   | 10,925  |  
|Amortization                                                                      |  |                           | 9,901    |   |      |   | 4,342   |  
|Amortization of deferred financing costs                                          |  |                           | 1,437    |   |      |   | 1,197   |  
|Write-off of deferred financing costs                                             |  |                           | 7,588    |   |      |   | 1,216   |  
|Provision for doubtful accounts                                                   |  |                           | 1,944    |   |      |   | 484     |  
|Make whole premium charge                                                         |  |                           |         |   |      |   | 17,949  |  
|(Gain) loss on disposal of property, plant and equipment                          |  |                           | 169      |   |      |   | 136     |  
|Gain on issuance of units in Inergy, L.P.                                         |  |                           | (16,025  | ) |      |   | (7,807  | )
|Interest of non-controlling partners in Inergy, L.P.s net income (loss)          |  |                           | 31,812   |   |      |   | 3,378   |  
|Deferred income taxes                                                             |  |                           | 541      |   |      |   | (465    | )
|Net asset (liabilities) from price risk management activities                     |  |                           | (7,832   | ) |      |   | 424     |  
|Changes in operating assets and liabilities, net of effects from acquisitions:    |  |                           |          |   |      |   |         |  
|Accounts receivable                                                               |  |                           | 17,837   |   |      |   | (10,543 | )
|Inventories                                                                       |  |                           | 24,863   |   |      |   | 11,524  |  
|Prepaid expenses and other current assets                                         |  |                           | 7,625    |   |      |   | (1,266  | )
|Other assets                                                                      |  |                           | (2,386   | ) |      |   | 43      |  
|Accounts payable                                                                  |  |                           | (23,528  | ) |      |   | 15,225  |  
|Accrued expenses                                                                  |  |                           | 3,337    |   |      |   | 768     |  
|Customer deposits                                                                 |  |                           | (26,387  | ) |      |   | (7,238  | )
|                                                                                  |  |                           |          |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                           | 77,784   |   |      |   | 48,704  |  
|Investing activities                                                              |  |                           |          |   |      |   |         |  
|Acquisitions, net of cash acquired                                                |  | $                         | (588,863 | ) |      | $ | (56,698 | )
|Purchases of property, plant and equipment                                        |  |                           | (25,049  | ) |      |   | (10,005 | )
|Deferred acquisition costs incurred                                               |  |                           | (411     | ) |      |   | (4      | )
|Proceeds from sale of property, plant and equipment                               |  |                           | 2,721    |   |      |   | 1,572   |  
|                                                                                  |  |                           |          |   |      |   |         |  
|Net cash used in investing activities                                             |  |                           | (611,602 | ) |      |   | (65,135 | )



7



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)

(In Thousands)

(unaudited)



|                                                           |  |                           |            |   |      |   |          |  
|---------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | -------- | -
|                                                           |  | Nine Months EndedJune 30, |           
|                                                           |  | 2005                      |            |   | 2004 |  
|Financing activities                                       |  |                           |            |   |      |   |          |  
|Proceeds from issuance of long-term debt                   |  | $                         | 1,418,461  |   |      | $ | 268,718  |  
|Principal payments on long-term debt                       |  |                           | (1,054,331 | ) |      |   | (287,364 | )
|Deferred financing costs incurred                          |  |                           | (23,303    | ) |      |   | (897     | )
|Payment of make whole premium charge                       |  |                           |           |   |      |   | (17,949  | )
|Purchase of subordinated units of Inergy, L.P.             |  |                           | (3,079     | ) |      |   | (501     | )
|Net proceeds from partners contributions                  |  |                           | 5,576      |   |      |   | 1,500    |  
|Net proceeds from issuance of Common Units                 |  |                           | 80,089     |   |      |   |         |  
|Net proceeds from issuance of Common Units of Inergy, L.P. |  |                           | 230,122    |   |      |   | 83,290   |  
|Redemption of partners interest                           |  |                           | (2,987     | ) |      |   | (2,250   | )
|Distributions to non-controlling partners in Inergy, L.P.  |  |                           | (37,113    | ) |      |   | (21,499  | )
|Distributions                                              |  |                           | (59,177    | ) |      |   | (4,925   | )
|                                                           |  |                           |            |   |      |   |          |  
|Net cash provided by financing activities                  |  |                           | 554,258    |   |      |   | 18,123   |  
|                                                           |  |                           |            |   |      |   |          |  
|Effect of foreign exchange rate changes on cash            |  |                           | 15         |   |      |   | (84      | )
|                                                           |  |                           |            |   |      |   |          |  
|Net increase (decrease) in cash                            |  |                           | 20,455     |   |      |   | 1,608    |  
|Cash at beginning of period                                |  |                           | 2,308      |   |      |   | 6,436    |  
|                                                           |  |                           |            |   |      |   |          |  
|Cash at end of period                                      |  | $                         | 22,763     |   |      | $ | 8,044    |  
|                                                           |  |                           |            |   |      |   |          |  
|Supplemental disclosure of cash flow information           |  |                           |            |   |      |   |          |  
|Cash paid during the period for interest                   |  | $                         | 22,238     |   |      | $ | 4,776    |  
|                                                           |  |                           |            |   |      |   |          |  
|Cash paid during the year for taxes                        |  | $                         | 1,419      |   |      | $ | 1,092    |  
|                                                           |  |                           |            |   |      |   |          |  



8



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)

(In Thousands)

(unaudited)



|                                                                                           |  |                           |          |   |      |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                           |  | Nine Months EndedJune 30, |         
|                                                                                           |  | 2005                      |          |   | 2004 |  
|Supplemental schedule of non-cash investing and financing activities                       |  |                           |          |   |      |   |         |  
|Additions to covenants not to compete through the issuance of noncompete obligations       |  | $                         | 7,881    |   |      | $ | 2,096   |  
|                                                                                           |  |                           |          |   |      |   |         |  
|Increase (decrease) in the fair value of long-term debt and the related interest rate swap |  | $                         | 801      |   |      | $ | (316    | )
|                                                                                           |  |                           |          |   |      |   |         |  
|Acquisition of NGL business through the issuance of obligations                            |  |                           |         |   |      | $ | 1,970   |  
|                                                                                           |  |                           |          |   |      |   |         |  
|Unrealized investment holding gain (loss)                                                  |  | $                         | (199     | ) |      | $ | 90      |  
|                                                                                           |  |                           |          |   |      |   |         |  
|Partner notes payable issued in connection with the payment of distributions               |  | $                         | 15,000   |   |      |   |        |  
|                                                                                           |  |                           |          |   |      |   |         |  
|Acquisitions of retail propane companies, net of cash acquired:                            |  |                           |          |   |      |   |         |  
|Current assets                                                                             |  | $                         | (72,081  | ) |      | $ | (4,997  | )
|Property, plant and equipment                                                              |  |                           | (329,028 | ) |      |   | (42,072 | )
|Intangible assets                                                                          |  |                           | (141,387 | ) |      |   | (13,798 | )
|Goodwill                                                                                   |  |                           | (129,085 | ) |      |   | (5,483  | )
|Other assets                                                                               |  |                           | (1,359   | ) |      |   |        |  
|Current liabilities                                                                        |  |                           | 76,196   |   |      |   | 7,556   |  
|Non-compete liabilities                                                                    |  |                           | 7,881    |   |      |   | 2,096   |  
|                                                                                           |  |                           |          |   |      |   |         |  
|                                                                                           |  | $                         | (588,863 | ) |      | $ | (56,698 | )
|                                                                                           |  |                           |          |   |      |   |         |  



See accompanying notes.



9



---

##### Table of Contents



INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

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. (formerly Inergy Holdings, LLC) (referred to as Holdings or the Company), its wholly owned subsidiaries, Inergy Partners, LLC (Partners), New Inergy Propane, LLC (NIP), Inergy GP,
LLC (GP), IPCH Acquisition Corp. (IPCHA), Wilson Oil Company of Johnston County, Inc. (Wilson), Rolesville Gas & Oil Company, Inc. (Rolesville) and its controlled subsidiary Inergy, L.P. IPCHA,
Wilson and Rolesville are all subsidiaries created as a result of transactions with Inergy, L.P. All significant intercompany transactions, including distribution income, and balances have been eliminated in consolidation.



Basis of Presentation



The consolidated financial statements of the Company include the accounts of Inergy, L.P. and its subsidiaries Inergy
Propane, LLC and Inergy Acquisition Company, LLC which, collectively, are referred to as Inergy, or the partnership. Inergy Partners, LLC (the Non-Managing General Partner), a subsidiary of Inergy Holdings, L.P.,
owns the Non-Managing General Partner interest representing an approximate 1.4% unsubordinated general partners interest in Inergy. Inergy GP, LLC (the Managing General Partner), a wholly owned subsidiary of Holdings, 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, L.P. Holdings also
directly owns the incentive distribution rights with respect to Inergy, L.P.



The financial information as of June 30, 2005 and for the nine-month periods ended June 30, 2005 and 2004 contained herein 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 nine month periods ended June 30, 2005 and 2004 are not indicative of the results of operations that may be expected for the entire year.



The accompanying 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 S-1 as filed with the Securities and Exchange Commission for the year ended September 30, 2004.



Conversion Transaction



On April 28, 2005, the Company converted from a Delaware limited liability company (Inergy Holdings, LLC) to a Delaware
limited partnership and changed its name to Inergy Holdings, L.P. The pro forma data presented in the consolidated statements of operations gives effect to the Companys reorganization as a limited partnership as if it occurred at the beginning
of the period presented.



10



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies



Financial Instruments and Price Risk Management



Inergy, through its wholesale operations, holds propane inventory, sells propane to various propane users, retailers, and
resellers and offers price risk management services to these customers as part of its marketing and distribution operations. Inergys wholesale operations also sell propane to energy marketers and dealers and therefore Inergy enters into fixed
price forward purchase and sales contracts. Derivative financial instruments used in connection with these activities are accounted for using the mark-to-market method in accordance with Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. Inergys overall objective for entering into such derivative financial instruments, including those designated as fair value hedges of Inergys inventory positions,
is to manage its exposure to fluctuations in commodity prices and changes in the fair market value of its inventories as well as to ensure an adequate physical supply will be available.



SFAS No. 133 requires recognition of all derivative instruments in the balance sheets and measures them at fair value.
Certain of Inergys commodity derivative financial instruments have been designated as hedges of selected inventory positions, and qualify as fair value or cash flow hedges, as defined in SFAS No. 133. For derivative instruments designated as
hedges, Inergy uses regression analysis and the dollar offset method to formally assess, both at the hedge contracts inception and on an ongoing basis, whether the hedge contract is highly effective in offsetting changes in fair value or
variability in cash flow of hedged items. Changes in the fair value of derivative instruments designated as fair value or cash flow hedges are reported in the balance sheet as price risk management assets or liabilities. Changes in the fair value of
derivatives that qualify as cash flow hedges are recorded in accumulated other comprehensive income until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portions of hedging derivatives are
recognized immediately in cost of product sold.



During the
three months and nine months ended June 30, 2005, Inergy recognized a net loss of $0.1 million and a net loss of $0.8 million, respectively, related to the ineffective portion of its hedging instruments and net losses of $0.7 million and $0.8
million, respectively, related to the portion of the hedging instruments Inergy excluded from its assessment of hedge effectiveness. Changes in the fair value of derivative instruments that are not designated as hedges are recorded in current period
earnings in accordance with SFAS No. 133.



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



Furthermore, Inergy has elected to use the special hedge accounting rules in SFAS No. 133 and hedge the fair value of certain of its inventory positions,
whereby the hedged inventory is marked to market. Changes in the fair value of the hedge and the hedged item are recorded as a component of costs of products sold.



11



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies (continued)



Revenue Recognition



Propane sales are recognized at the time product is shipped or delivered to the customer. Other revenues include: gas processing and fractionation fees
that are recognized upon delivery of the product; other liquids that are recognized at the time product is shipped or delivered to the customer; the sale of propane appliances and equipment that is recognized at the time of sale or installation; and
revenue from repairs and maintenance that is recognized upon completion of the service. All revenue is recognized pursuant to existing arrangements and fixed prices. Collectibility is reasonably assured as deliveries cease on past due accounts.



Expense Classification



Cost of product sold consists of tangible products sold including all
propane and other natural gas liquids sold and all propane-related appliances sold. Operating and administrative expenses consist of all expenses incurred by us other than those described in cost of products sold and depreciation and amortization.
Certain of our operating and administrative expenses and depreciation and amortization are incurred in the distribution of our product sales, but are not included in cost of product sold.



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 or on a first-in, first-out basis. Wholesale propane inventories are stated at the lower of cost, determined by either using the average-cost or
first-in, first-out method versus the market unless designated as being hedged by forward sales contracts. Wholesale propane inventories being hedged and carried at market at June 30, 2005 and September 30, 2004 amount to $33.6 million and $40.7
million, respectively.



Inventories consist of (in thousands):



|                               |  |              |        |                   |   |       
|------------------------------ |  | ------------ | ------ | ----------------- | - | ------
|                               |  | June 30,2005 |        | September 30,2004
|Propane gas and other liquids  |  | $            | 49,846 |                   | $ | 53,295
|Appliances, parts and supplies |  |              | 8,434  |                   |   | 3,109 
|                               |  |              |        |                   |   |       
|                               |  | $            | 58,280 |                   | $ | 56,404
|                               |  |              |        |                   |   |       



12



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies (continued)



Pro-forma Income Per Unit



Basic net income per limited partner unit is computed by dividing net income applicable to partners common interest by
the weighted average number of units outstanding. Diluted net income per limited partner unit is computed by dividing net income by the weighted average number of units outstanding and the dilutive effect of unit options granted under the long-term
incentive plan. The following table presents the calculation of basic and dilutive net income per limited partner unit on a pro-forma basis as if the conversion transaction had occurred at the beginning of the period presented (in thousands, except
per unit data):



|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|--------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | ---- | ------ |  | - | ------
|                                                                |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30,
|                                                                |  | 2005                       |        |   | 2004                      |   |        | 2005 |  | 2004
|Numerator:                                                      |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Net income                                                      |  | $                          | (4,830 | ) |                           | $ | (1,197 | )    |  | $    | 21,650 |  | $ | 8,412 
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Limited partners interest in net income  basic and diluted    |  | $                          | (4,830 | ) |                           | $ | (1,197 | )    |  | $    | 21,650 |  | $ | 8,412 
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Denominator:                                                    |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Weighted average limited partners units outstanding            |  |                            | 20,000 |   |                           |   | 12,550 |      |  |      | 20,000 |  |   | 12,550
|Effect of distributions in excess of earnings                   |  |                            |       |   |                           |   | 125    |      |  |      | 1,668  |  |   |      
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Weighted average limited partners units outstanding-basic      |  |                            | 20,000 |   |                           |   | 12,675 |      |  |      | 21,668 |  |   | 12,550
|Effect of dilutive unit options outstanding                     |  |                            |       |   |                           |   |       |      |  |      | 12     |  |   | 3,540 
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Weighted average limited partners units outstanding  dilutive |  |                            | 20,000 |   |                           |   | 12,675 |      |  |      | 21,680 |  |   | 16,090
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Pro-forma net income(loss) per limited partner unit:            |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Basic                                                           |  | $                          | (0.24  | ) |                           | $ | (0.09  | )    |  | $    | 1.00   |  | $ | 0.67  
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       
|Diluted                                                         |  | $                          | (0.24  | ) |                           | $ | (0.09  | )    |  | $    | 1.00   |  | $ | 0.52  
|                                                                |  |                            |        |   |                           |   |        |      |  |      |        |  |   |       



Distributions during
the nine months ended June 30, 2005 exceeded earnings by $37.5 million. On June 30, 2005 our units closed at $27.30, an additional 1,668 units have been reflected in the pro forma per unit calculation. Distributions did not exceed earnings during
the nine months ended June 30, 2004.



13



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies (continued)



Accounting for Unit-Based Compensation



The Company has a unit-based employee compensation plan, and Inergy, L.P. has a separate unit-based employee compensation
plan. These plans are accounted for under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees for all periods presented and presents the fair value method pro forma disclosures
required under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148 Accounting for Stock-Based CompensationTransition and Disclosure. No percentage interest or unit-based
employee compensation cost is reflected in net income (loss), as all options granted under the plans had an exercise price equal to the market value of the underlying equities on the date of measurement. The following table illustrates the effect on
net income (loss) as if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to percentage interest or unit-based employee compensation. For purposes of pro forma
disclosures, the estimated fair value of an option is amortized to expense over the options vesting period. Pro forma information for the three months and nine months ended June 30, 2005 and 2004 is as follows (in thousands, except per unit
data):



|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | -- | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                                                                                         |  | Three Month EndedJune 30, |        |    | Nine months endedJune 30, |  
|                                                                                                         |  | 2005                      |        |    | 2004                      |   |        | 2005 |  |   | 2004   |  
|Net income (loss) as reported                                                                            |  | $                         | (4,830 | )  |                           | $ | (1,197 | )    |  | $ | 21,650 |   |  | $ | 8,412 |  
|Deduct: Total unit-based employee compensation expense determined under fair value method for all awards |  |                           | 7      |    |                           |   | 9      |      |  |   | 21     |   |  |   | 26    |  
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Pro forma net income (loss)                                                                              |  | $                         | (4,837 | )  |                           | $ | (1,206 | )    |  | $ | 21,629 |   |  | $ | 8,386 |  
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Net income (loss) per limited partner unit:                                                              |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Basic  as reported                                                                                      |  | $                         | (0.24  | )  |                           | $ | (0.10  | )    |  | $ | 1.08   |   |  | $ | 0.67  |  
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Diluted  as reported                                                                                    |  | $                         | (0.24  | )  |                           | $ | (0.10  | )    |  | $ | 1.08   |   |  | $ | 0.52  |  
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Pro forma net income (loss) per limited partner unit:                                                    |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Basic  as reported                                                                                      |  | $                         | ([0.24 | ]) |                           | $ | ([0.07 | ])   |  | $ | [1.00  | ] |  | $ | [0.67 | ]
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  
|Diluted  as reported                                                                                    |  | $                         | ([0.24 | ]) |                           | $ | ([0.07 | ])   |  | $ | [1.00  | ] |  | $ | [0.52 | ]
|                                                                                                         |  |                           |        |    |                           |   |        |      |  |   |        |   |  |   |       |  



14



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies (continued)



As the effects of including the incremental units associated with options are antidilutive for the
quarters ended June 30, 2005 and 2004, both basic earnings per unit and diluted earnings per unit reflect the same calculation. Weighted average antidilutive unit options outstanding totaled 11,907 and 3,539,800 for the quarters ended June 30, 2005
and 2004, respectively.



Recently Issued Accounting Pronouncements



On December 16, 2004, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion No.
25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R)
requiresall share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.



SFAS No. 123(R) must be adopted no later than October 1, 2005. Early
adoptions will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS No. 123(R) on October 1, 2005.



SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:



A modified prospective method in which
compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted
to employees prior to effective date of SFAS No. 123(R) that remain unvested as of the effective date.



A modified retrospective method which includes the requirements of the modified prospective described above, but also permits
entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.



The company plans to adopt SFAS No. 123(R) using the modified prospective
method.



15



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 2  Accounting Policies (continued)



As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees
using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)s fair value method will not have a significant impact on our
results of operations, and it will not have a significant impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the
future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share in the footnotes to the
consolidated financial statements.



SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43, Chapter 4, amends the existing standard that provides guidance on accounting for inventory costs and specifically clarifies that abnormal amounts of costs should be recognized as period costs.
This statement is effective for the fiscal year beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material effect on the Companys consolidated financial statements.



SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB
Opinion No. 29, Accounting for Nonmonetary Transactions eliminates the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have
commercial substance. Further, the amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Previously, Opinion No. 29 required that the
accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. The statement is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges in fiscal periods beginning after the date of issuance. The provisions of this statement shall be
applied prospectively. The adoption of SFAS No. 153 is not expected to have a material effect on the Companys consolidated financial statements.



SFAS No. 154, Accounting Changes and Error Corrections is a replacement of APB Opinion No. 20, Accounting Changes, and
FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Statement 145 applies to all voluntary changes in accounting principle and changes the accounting for and the reporting of a change in accounting principle.
Statement 154 requires retrospective application to the prior periods financial statements of a voluntary change in accounting principal unless it is impracticable. Statement 154 is effective for the accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS no. 154 is not expected to have a material effect of the Companys consolidated financial statements.



16



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 3  Long-Term Debt



On September 3, 2004, the Company declared a distribution to members, and in lieu of cash, distributed promissory notes to
members in the aggregate amount of $15.0 million. The notes are due in quarterly principal installments of $375 thousand beginning on February 15, 2005 and bear interest at the rate of 3%. The notes mature on November 15, 2014. The notes are
subordinate to the bank debt.



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



|                                                                                                           |  |              |         |                   |   |        
|---------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ----------------- | - | -------
|                                                                                                           |  | June 30,2005 |         | September 30,2004
|Inergy, L.P. Credit agreement                                                                              |  | $            | 100,800 |                   | $ | 132,153
|Inergy, L.P. Senior unsecured notes                                                                        |  |              | 425,801 |                   |   |       
|Inergy, L.P. Obligations under noncompetition agreements and notes to former owners of businesses acquired |  |              | 9,913   |                   |   | 5,446  
|Other                                                                                                      |  |              |        |                   |   | 2      
|Inergy Holdings, L.P. bank facility                                                                        |  |              |        |                   |   | 15,652 
|                                                                                                           |  |              |         |                   |   |        
|                                                                                                           |  |              | 536,514 |                   |   | 153,253
|Less current portion                                                                                       |  |              | 6,423   |                   |   | 25,017 
|                                                                                                           |  |              |         |                   |   |        
|                                                                                                           |  | $            | 530,091 |                   | $ | 128,236
|                                                                                                           |  |              |         |                   |   |        



On April 28, 2005 we
entered into a $69.0 million term loan with a bank (Term Loan). The maturity date of the Term Loan was December 31, 2005 and was collateralized by all of our interests in Inergy. In addition, the Term Loan was guaranteed by each of our
wholly-owned subsidiaries. Borrowings under the Term Loan bore interest at our option at a floating rate equal to either the prime rate plus 1.50% or LIBOR (preadjusted for reserves) plus 2.50%. Borrowings under the Term Loan were used to refinance
the credit agreement described below, to repurchase certain interests from our partners and to make distributions to our pre-initial public offering owners. On June 24, 2005 a portion of the proceeds from the 3,910,000 common unit offering was used
to repay all amounts borrowed under the Term Loan and the Term Loan was terminated.



Effective August 30, 2004, the Company executed a credit agreement (Bank Facility) with a bank. The Bank Facility consisted of a $15 million term loan and a $5 million working capital revolver and had an
original expiration of August 30, 2009. The obligation under the Bank Facility was secured by certain common units, senior subordinated units and junior subordinated units in Inergy, L.P. held by the Company and its wholly owned subsidiaries. The
Bank Facility was also guaranteed by IPCH Acquisition Corp. and New Inergy Propane, LLC. On April 28, 2005, we retired all outstanding indebtedness on the Bank Facility using the proceeds from the Term Loan.



17



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 3  Long-Term Debt (continued)



Effective in December 2004, Inergy, L.P. executed a new credit agreement with its existing lenders in
addition to others. The credit agreement consists of a $250.0 million revolving acquisition facility and a $75.0 million working capital facility. Inergy has the option to utilize up to $25.0 million of available borrowing capacity from its
revolving acquisition facility for working capital purposes. The credit agreement expires in December 2009 and is guaranteed by all of Inergys domestic subsidiaries. The proceeds of the new credit agreement were used to repay the outstanding
balance of the existing credit agreement. This resulted in the write off of deferred financing costs associated with the existing credit agreement of $1.5 million.



Inergy is required to reduce the principal outstanding on the revolving working capital line of credit to $5 million or less
for a minimum of 30 consecutive days during the period commencing March 1 and ending September 30. At September 30, 2004, Inergy was required to reduce the principal outstanding on the revolving working capital line of credit to $4 million or less
for a minimum of 30 consecutive days during the period commencing March 1 and ending September 30. As such $4 million of the outstanding balance at September 30, 2004 has been classified as long-term liabilities in the accompanying consolidated
balance sheets. At June 30, 2005 and September 30, 2004, the total balance outstanding under the existing credit agreements was $100.8 million and $132.2 million, respectively, including $8.5 million and $26.4 million, respectively, under the
working capital facilities. The prime rate and Eurodollar plus the applicable spreads were between 5.76% and 7.25% at June 30, 2005, and between 3.77% and 4.75% at September 30, 2004, for all outstanding debt under the credit agreement.



The credit agreements contain 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. Unused borrowings under the credit
agreements amounted to $209.7 million and $162.2 million at June 30, 2005 and September 30, 2004, respectively.



In December 2004, Inergy, L.P. entered into a 364-day credit facility and borrowed $375.0 million under this facility. The borrowings under this facility
were used to finance part of the Star Gas Propane acquisition and related expenses. The 364-day credit facility was guaranteed by all of Inergy L.P.s domestic subsidiaries and was secured on an equal basis with its revolving credit facilities.
The borrowings under this facility were permanently repaid with the net proceeds from Inergys offering of senior unsecured notes and the 364-day facility was terminated. This resulted in the write off of deferred financing costs associated
with the 364-day facility of $5.5 million.



18



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 3  Long-Term Debt (continued)



On December 22, 2004, Inergy, L.P. and its wholly-owned subsidiary, Inergy Finance Corp., completed a
private placement of $425 million in aggregate principal amount of the Issuers 6.875% senior unsecured notes due 2014 (the Senior Notes). The senior unsecured notes contain covenants similar to the credit agreement. Inergy, L.P.
used the net proceeds from the $425 million private placement of Senior Notes to repay all amounts drawn under the 364-day credit facility, with the $39.9 million balance of the net proceeds being applied to the revolving acquisition credit
facility.



The notes represent senior unsecured obligations and
rank pari passu in right of payment with all of our other present and future senior indebtedness. The senior unsecured notes are jointly and severally guaranteed by all current domestic subsidiaries. The notes have certain call features which allow
us to redeem the notes at specified prices based on date redeemed.



In the quarter ending March 2005, Inergy entered into four 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, require the counterparty to pay Inergy an amount based on the stated fixed interest rate on the notes 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 1.95% and 2.20% applied
to the same notional amount of $100 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. Inergy recognized the approximate $0.8 million increase in the fair market value of the related senior unsecured notes at June 30, 2005 with a corresponding increase in the fair value of its interest rate swaps, which are recorded in other
assets.



The aggregate amounts of principal to be paid on the
outstanding promissory notes and long-term debt during the next five years ending June 30 and thereafter, are as follows, in thousands of dollars:



|           |  |   |        
|---------- |  | - | -------
|2006       |  | $ | 6,423  
|2007       |  |   | 2,257  
|2008       |  |   | 2,020  
|2009       |  |   | 960    
|2010       |  |   | 97,961 
|Thereafter |  |   | 426,893
|           |  |   |        
|           |  | $ | 536,514
|           |  |   |        



19



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 3  Long-Term Debt (continued)



In June 2002, Inergy Propane, LLC entered into a note purchase agreement with a group of
institutional lenders pursuant to which it issued $85.0 million aggregate principal amount of senior secured notes with a weighted average interest rate of 9.07% and a weighted average maturity of 5.9 years. The senior secured notes consisted of the
following: $35 million principal amount of 8.85% senior secured notes with a 5-year maturity, $25.0 million principal amount of 9.10% senior secured notes with a 6-year maturity, and $25.0 million principal amount of 9.34% senior secured notes with
a 7-year maturity. The net proceeds from these senior secured notes were used to repay a portion of the amount outstanding under the credit facility. The funds from a public unit offering, together with net new borrowings under the revolving credit
facility were used to repay in full $85.0 million aggregate principal amount of senior secured notes, plus a make whole premium charge of approximately $17.9 million in January 2004. All interest rate swap agreements were cancelled in conjunction
with the repayment of $85 million of senior secured notes. The make whole premium charge of $17.9 million was recorded as a charge to earnings in the quarter ended March 31, 2004 together with the write-off of the $1.2 million deferred financing
costs associated with the senior secured notes, partially offset by a $0.9 million gain from the cancellation of the interest rate swaps.



In August 2002, Inergy Propane, LLC (the Operating Company) entered into two interest rate swap agreements each designed to hedge $10 million
in underlying fixed rate senior secured notes, in order to manage interest rate risk exposure and reduce overall interest expense. In October 2002, the Operating Company entered into three additional interest rate swap agreements each designed to
hedge $5 million in underlying fixed rate senior secured notes. In January 2004, all interest rate swap agreements were cancelled in conjunction with the repayment of $85 million of senior secured notes.



At June 30, 2005, the Company was in compliance with all of its debt
covenants.



Note 4  Partners Equity



Distributions paid by the Company to its partners amounted to $59.2 million
for the nine months ended June 30, 2005. During November 2004, the Company received cash contributions of $5.6 million as a result of the exchange of employee options for membership interest agreements and the subsequent exercise of those
agreements. In April 2005, the Company exercised a call option to purchase a portion of a Partners interest for $3.0 million. In June 2005, the Company issued 3,910,000 common units of Inergy Holdings, L.P. to the public for net proceeds of
approximately $80.1 million.



On July 27, 2005 the board of
directors of Inergy Holdings GP, LLC declared a distribution of $0.225 per limited partner unit for the quarter ended June 30, 2005. This distribution will be prorated for the portion of the third fiscal quarter Inergy Holdings, L.P. was a public
company and is expected to be paid on or about November 18, 2005. For the portion of the quarter ended June 30, 2005 that we were not public, distributions in the amount of $4.2 million will be paid to pre-initial public offering owners on August
19, 2005.



20



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 6  Commitments and Contingencies



Inergy periodically enters into agreements to purchase fixed quantities of propane at fixed prices with suppliers. At June
30, 2005, the total of these firm purchase commitments was approximately $88.2 million.



At June 30, 2005, Inergy was contingently liable for letters of credit outstanding totaling $14.5 million, which guarantee various transactions.



During the three months ended December 31, 2004, Inergys subsidiary, Star Gas Propane, L.P. was a named defendant in
multiple federal securities class action lawsuits alleging that public disclosures made by its former parent, Star Gas Partners, L.P., were in violation of various securities laws including Rule 10b-5. Star Gas Partners, L.P has agreed to indemnify
Inergy for this liability. We do not expect this lawsuit to have a material effect on our results of operations or financial condition because we believe that the claim is without merit. However, if the lawsuit was decided adversely to Star Gas
Propane, L.P. and Star Gas Partners, L.P. was unable to fulfill its indemnification obligation to Inergy, this lawsuit could have a material effect on our results of operations or financial condition.



We are not currently a party to any material litigation. Inergys operations are subject
to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane. As a result, at any given time Inergy is a defendant in various legal
proceedings and litigation arising in the ordinary course of business. Inergy maintains insurance policies with insurers in amounts and with coverages and deductibles as its managing general partner believes are reasonable and prudent. However,
Inergy cannot assure that this insurance will be adequate to protect it from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical
prices. In addition, the occurrence of an explosion may have an adverse effect on the publics desire to use Inergys products.



Note 7  Segments



The Companys financial statements reflect two reportable segments: retail sales operations and wholesale sales operations. Retail sales operations
include all retail operations and transportation services. Wholesale sales operations include wholesale supply, marketing and distribution, and natural gas processing and NGL fractionation operations. Results of operations for acquisitions that
occurred during the nine months ended June 30, 2005 are included in the retail sales operations reportable segment. Revenues, gross profit and identifiable assets for each of our reportable segments are presented below.



The identifiable assets associated with each reportable segment include
accounts receivable and inventories. The net asset/liability from price risk management, as reported in the accompanying consolidated balance sheets, is related to the wholesale segment.



21



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 7  Segments (continued)



The following segment information is presented in thousands of dollars:



|                                           |  |                                  |        |                          |   |                          |  |   |         |   |  |   |        
|------------------------------------------ |  | -------------------------------- | ------ | ------------------------ | - | ------------------------ |  | - | ------- | - |  | - | -------
|                                           |  | Three Months Ended June 30, 2005
|                                           |  | RetailSalesOperations            |        | WholesaleSalesOperations |   | IntersegmentEliminations |  |   | Total  
|Propane revenues                           |  | $                                | 80,987 |                          | $ | 77,889                   |  | $ | (31,383 | ) |  | $ | 127,493
|Distillate revenues                        |  |                                  | 14,644 |                          |   |                         |  |   |        |   |  |   | 14,644 
|Fractionation and other midstream revenues |  |                                  |       |                          |   | 19,448                   |  |   |        |   |  |   | 19,448 
|Transportation revenues                    |  |                                  | 3,033  |                          |   |                         |  |   |        |   |  |   | 3,033  
|Propane-related appliance sales revenues   |  |                                  | 2,950  |                          |   |                         |  |   |        |   |  |   | 2,950  
|Retail service revenues                    |  |                                  | 3,236  |                          |   |                         |  |   |        |   |  |   | 3,236  
|Rental service and other revenues          |  |                                  | 2,798  |                          |   |                         |  |   |        |   |  |   | 2,798  
|Gross profit                               |  |                                  | 46,162 |                          |   | 5,024                    |  |   | (582    | ) |  |   | 50,604 
|Identifiable assets                        |  |                                  | 51,661 |                          |   | 63,959                   |  |   |        |   |  |   | 115,620



|                                           |  |                                  |        |                          |   |                          |  |   |         |   |  |   |       
|------------------------------------------ |  | -------------------------------- | ------ | ------------------------ | - | ------------------------ |  | - | ------- | - |  | - | ------
|                                           |  | Three Months Ended June 30, 2004
|                                           |  | RetailSalesOperations            |        | WholesaleSalesOperations |   | IntersegmentEliminations |  |   | Total  
|Propane revenues                           |  | $                                | 25,271 |                          | $ | 42,633                   |  | $ | (10,364 | ) |  | $ | 57,540
|Distillate revenues                        |  |                                  | 698    |                          |   |                         |  |   |        |   |  |   | 698   
|Fractionation and other midstream revenues |  |                                  |       |                          |   | 6,572                    |  |   |        |   |  |   | 6,572 
|Transportation revenues                    |  |                                  | 2,038  |                          |   |                         |  |   |        |   |  |   | 2,038 
|Propane-related appliance sales revenues   |  |                                  | 965    |                          |   |                         |  |   |        |   |  |   | 965   
|Retail service revenues                    |  |                                  | 714    |                          |   |                         |  |   |        |   |  |   | 714   
|Rental service and other revenues          |  |                                  | 1,188  |                          |   |                         |  |   |        |   |  |   | 1,188 
|Gross profit                               |  |                                  | 14,672 |                          |   | 2,315                    |  |   |        |   |  |   | 16,987
|Identifiable assets                        |  |                                  | 19,103 |                          |   | 41,979                   |  |   |        |   |  |   | 61,082



|                                           |  |                                 |         |                          |   |                          |  |   |          |   |  |   |        
|------------------------------------------ |  | ------------------------------- | ------- | ------------------------ | - | ------------------------ |  | - | -------- | - |  | - | -------
|                                           |  | Nine Months Ended June 30, 2005
|                                           |  | RetailSalesOperations           |         | WholesaleSalesOperations |   | IntersegmentEliminations |  |   | Total   
|Propane revenues                           |  | $                               | 451,654 |                          | $ | 397,782                  |  | $ | (141,235 | ) |  | $ | 708,201
|Distillate revenues                        |  |                                 | 59,269  |                          |   |                         |  |   |         |   |  |   | 59,269 
|Fractionation and other midstream revenues |  |                                 |        |                          |   | 41,725                   |  |   |         |   |  |   | 41,725 
|Transportation revenues                    |  |                                 | 8,229   |                          |   |                         |  |   |         |   |  |   | 8,229  
|Propane-related appliance sales revenues   |  |                                 | 7,309   |                          |   |                         |  |   |         |   |  |   | 7,309  
|Retail service revenues                    |  |                                 | 11,494  |                          |   |                         |  |   |         |   |  |   | 11,494 
|Rental service and other revenues          |  |                                 | 9,268   |                          |   |                         |  |   |         |   |  |   | 9,268  
|Gross profit                               |  |                                 | 237,695 |                          |   | 15,103                   |  |   | (993     | ) |  |   | 251,805
|Identifiable assets                        |  |                                 | 51,661  |                          |   | 63,959                   |  |   |         |   |  |   | 115,620



22



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 7  Segments (continued)



|                                           |  |                                 |         |                          |   |                          |  |   |         |   |  |   |        
|------------------------------------------ |  | ------------------------------- | ------- | ------------------------ | - | ------------------------ |  | - | ------- | - |  | - | -------
|                                           |  | Nine Months Ended June 30, 2004
|                                           |  | RetailSalesOperations           |         | WholesaleSalesOperations |   | IntersegmentEliminations |  |   | Total  
|Propane revenues                           |  | $                               | 170,900 |                          | $ | 261,108                  |  | $ | (86,221 | ) |  | $ | 345,787
|Distillate revenues                        |  |                                 | 1,572   |                          |   |                         |  |   |        |   |  |   | 1,572  
|Fractionation and other midstream revenues |  |                                 |        |                          |   | 17,886                   |  |   |        |   |  |   | 17,886 
|Transportation revenues                    |  |                                 | 5,903   |                          |   |                         |  |   |        |   |  |   | 5,903  
|Propane-related appliance sales revenues   |  |                                 | 3,701   |                          |   |                         |  |   |        |   |  |   | 3,701  
|Retail service revenues                    |  |                                 | 2,628   |                          |   |                         |  |   |        |   |  |   | 2,628  
|Rental service and other revenues          |  |                                 | 2,888   |                          |   |                         |  |   |        |   |  |   | 2,888  
|Gross profit                               |  |                                 | 91,223  |                          |   | 13,811                   |  |   | (610    | ) |  |   | 104,424
|Identifiable assets                        |  |                                 | 19,103  |                          |   | 41,979                   |  |   |        |   |  |   | 61,082 



Note 8  Business Acquisitions



In November 2004, Inergy acquired the propane assets of
Moulton Gas Service, Inc., headquartered in Wapakoneta, OH. In December 2004, Inergy acquired Star Gas Propane, L.P. headquartered in Stamford, CT and the propane assets of Northwest Propane, Inc, headquartered in Holly, MI. In May 2005, Inergy
acquired the assets of three other retail propane companies. The aggregate purchase price for these acquisitions, net of cash acquired was $588.9 million.



The operating results for these acquisitions are included in our consolidated results of operations from the dates of acquisition through June 30, 2005.



23



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 8  Business Acquisitions (continued)



The purchase price of Star Gas Propane, L.P. approximated $487.7 million, net of cash acquired. In
connection with the acquisition, Inergy entered into a 364-day credit facility and borrowed $375.0 million under this facility on December 17, 2004. On December 22, 2004, Inergy and its wholly-owned subsidiary, Inergy Finance Corp., completed a
private placement of $425 million in aggregate principal amount of 6.875% senior unsecured notes due 2014 (the Senior Notes). Inergy used the net proceeds from the $425 million private placement of Senior Notes to repay all amounts drawn
under the 364-day credit facility, with the $39.9 million balance of the net proceeds being applied to the revolving acquisition credit facility. Inergy also issued 3,568,139 Common Units to unrelated third parties to partially fund the acquisition.
The allocation of the total consideration for the Star Gas Propane, L.P. acquisition is as follows (in millions):



|                                     |  |   |       |  
|------------------------------------ |  | - | ----- | -
|Current assets, net of cash acquired |  | $ | 54.6  |  
|Property, plant and equipment        |  |   | 285.7 |  
|Intangible assets                    |  |   | 108.6 |  
|Goodwill                             |  |   | 90.5  |  
|Other assets                         |  |   | 1.4   |  
|Current liabilities                  |  |   | (52.0 | )
|Non-compete liabilities              |  |   | (1.1  | )
|                                     |  |   |       |  
|                                     |  | $ | 487.7 |  
|                                     |  |   |       |  



The purchase price
allocation has been prepared on a preliminary basis, and changes are expected when the appraisals are completed and additional information becomes available.



The following unaudited pro forma data summarizes the results of operations for the periods indicated as if the Star Gas Propane, L.P. acquisition had
been completed October 1, 2003 and 2004, the beginning of the 2004 and 2005 fiscal years. Star Gas Propane, L.P. meets the criteria of a significant subsidiary. Pro forma information is not presented for other acquisitions as they do not qualify as
significant subsidiaries. The pro forma data give effect to actual operating results prior to the acquisition and adjustments to interest expense, customers accounts amortization expense and depreciation expense. These pro forma amounts do not
purport to be indicative of the results that would have been obtained if the acquisitions had occurred on October 1, 2003 and 2004 or that will be obtained in the future.



|                                                      |  |                          |         |   |                         |   |         |              |  |               |         |  |   |        
|----------------------------------------------------- |  | ------------------------ | ------- | - | ----------------------- | - | ------- | ------------ |  | ------------- | ------- |  | - | -------
|                                                      |  | Three month period ended |         |   | Nine month period ended
|                                                      |  | June 30,2005             |         |   | June 30, 2004           |   |         | June 30,2005 |  | June 30, 2004
|Revenue                                               |  | $                        | 173,602 |   |                         | $ | 119,528 |              |  | $             | 904,217 |  | $ | 675,746
|Net income (loss)                                     |  |                          | (4,830  | ) |                         |   | (15,711 | )            |  |               | 12,624  |  |   | 21,853 
|Pro forma net income (loss) per limited partner unit: |  |                          |         |   |                         |   |         |              |  |               |         |  |   |        
|Basic - pro forma                                     |  | $                        | (0.24   | ) |                         | $ | (1.24   | )            |  | $             | 0.58    |  | $ | 1.74   
|                                                      |  |                          |         |   |                         |   |         |              |  |               |         |  |   |        
|Diluted - pro forma                                   |  | $                        | (0.24   | ) |                         | $ | (1.24   | )            |  | $             | 0.58    |  | $ | 1.36   
|                                                      |  |                          |         |   |                         |   |         |              |  |               |         |  |   |        



24



---

##### Table of Contents

INERGY HOLDINGS, L.P. AND SUBSIDIARIES

(FORMERLY INERGY HOLDINGS, LLC)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



Note 9  Subsequent Events



On July 11, 2005, Inergy announced it has executed an agreement to purchase the membership interests of the entities
that own the Stagecoach natural gas storage facility located in Tioga county, New York, for approximately $205 million. Stagecoach is a high performance, multi-cycle natural gas storage facility. In addition to the approximate $205 million purchase
price for the in-service Stagecoach facility, Inergy will also purchase the rights to the Phase II expansion project of Stagecoach for $25 million. Inergy intends to fund the approximate $230 million purchase price initially through bank borrowings
of approximately $205 million and a $25 million capital contribution from Inergy Holdings, L.P. Inergy expects to refinance the $205 million portion of the purchase price with longer-term capital through a combination of equity and debt issuances.
In exchange for the $25 million capital contribution, Inergy is expected to issue special units to Inergy Holdings, L.P. The special units will provide for a 12% paid-in-kind return until the Phase II expansion project is complete and operational
(not to exceed three years) at which time the special units will convert to common units.



On July 22, 2005, the Company executed a credit agreement (the 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
dollar working capital revolver for one of our wholly owned subsidiaries, IPCH Acquisition Corp. The obligation under the Bank Facility is secured by certain common and senior subordinated units in Inergy, L.P. held by the Company and its wholly
owned subsidiaries.



Note 10Issuance of Subsidiary Units



In December 2004, Inergy, L.P. issued 3,568,139 common
units to unrelated third parties resulting in proceeds of $91.0 million, net of underwriters discounts, commissions, and offering expenses. These proceeds were obtained to partially fund the acquisition of Star Gas Propane, L.P. This resulted
in a gain of approximately $7.3 million to the Company.



Also
in December 2004, Inergy, L.P. issued 4,400,000 common units in a public offering, resulting in proceeds of $121.3 million, net of underwriters discounts, commissions, and offering expenses. These funds were used to repay borrowings under its
credit agreement. This resulted in a gain of approximately $7.8 million to the Company.



In January 2005, Inergy, L.P. issued 660,000 common units in a follow-on offering, resulting in proceeds of approximately $17.9 million, net of underwriters discounts, commissions, and offering expenses. This
resulted in a gain of approximately $0.9 million to the Company.



25



---

##### Table of Contents

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



Our 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 included in Form S-1 filed with the Securities and Exchange
Commission.



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 protection 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., a
publicly traded Delaware limited partnership, which operates a rapidly growing, geographically diverse retail and wholesale propane supply, marketing and distribution business. 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 1.4% general partner interest in Inergy;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



26



---

##### Table of Contents

| |  |  | 1,243,388 Inergy common units, 1,568,028 Inergy senior subordinated units and 975,924 Inergy junior subordinated units, representing an aggregate limited partner interest in Inergy
of approximately 11.4%; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 rapidly growing retail and wholesale propane marketing and distribution business. Inergy also owns, as part of our wholesale and supply
operations, an 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 1996, Inergy has acquired 48 propane businesses. 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.



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 historical results of our
operations do not reflect the incremental expenses we expect to incur as a result of being a public entity.



In November 2004, Inergy acquired the propane assets of Moulton Gas Service, Inc., headquartered in Wapakoneta, OH. In December 2004, Inergy acquired Star
Gas Propane, L.P. headquartered in Stamford, CT and the propane assets of Northwest Propane, Inc, headquartered in Holly, MI.



The operating results for Star Gas Propane, L.P. from December 1, 2004 are included in our consolidated results of operations. The operating results of
Moulton Gas Service, Inc. and Northwest Propane, Inc. are included in our consolidated results of operations from the dates of acquisition.



The purchase price of Star Gas Propane, L.P. approximated $487.7 million, net of cash acquired. In connection with the acquisition, Inergy entered into a
364-day credit facility and borrowed $375.0 million under this facility on December 17, 2004. On December 22, 2004, Inergy, together with its wholly-owned subsidiary, Inergy Finance Corp., completed a private placement of $425 million in aggregate
principal amount of the Issuers 6.875% senior unsecured notes due 2014 (the Senior Notes). Inergy used the net proceeds from the $425 million private placement of Senior Notes to repay all amounts drawn under the 364-day credit
facility, with the $39.9 million balance of the net proceeds



27



---

##### Table of Contents

being applied to the revolving acquisition credit facility. Inergy, L.P. also issued 3,568,139 common units to unrelated third parties to partially fund the
acquisition.



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. As a result, operating
income is highest October through March, and Inergy generally experiences net losses from April through September. 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 our operating regions. Heating degree days are a general indicator of weather impacting 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 cost. 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 our
customers and have historically maintained or increased our gross margin per gallon in periods of rising costs.



Inergy believes its wholesale supply, marketing and distribution business complements our 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. Inergy engages in
derivative transactions to reduce the effect of price volatility on our product costs and to help ensure the availability of propane during periods of short supply.



Results of Operations



The results of operations discussed below principally reflect the activities of Inergy on and after July 31, 2001, the closing date of its initial public
offering, and of its predecessor, Inergy Partners, LLC prior to July 31, 2001. 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 adjustments to the income statement:



| |  |  | Our recognition of gain on issuance of units in Inergy. In accordance with Staff Accounting Bulletin No. 51, we 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 is 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
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### Table of Contents

| | 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 certain of our wholly owned corporate subsidiaries.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Interest of non-controlling partners in Inergys net income (loss). We adjust our net income by excluding the cash flows distributed on Inergy limited partner units that
are not directly or indirectly owned by us. We own an 11.4% limited partner interest in Inergy and the non-affiliated unitholders own an 87.2% limited partner interest in Inergy.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004



Volume. During the three months ended June 30,
2005, we sold 48.6 million retail gallons of propane, an increase of 30.4 million gallons, or 166% over the 18.2 million retail gallons sold during the same three-month period in 2004. The increase in retail sales volume was principally due to the
December 2004 acquisition of Star Gas Propane, L.P. and the eleven other retail propane companies for which results are only included in the 2004 period subsequent to the date of acquisition. Acquisition-related volume accounted for approximately
32.2 million gallons of this increase, with this increase partially offset by approximately 1.8 million lesser gallon sales primarily as a result of customer conservation due to higher propane sales prices. Higher selling prices were a result of an
approximate 23% higher propane cost per gallon on average for the three months ended June 30, 2005 compared to the same three-month period in 2004.



Wholesale gallons delivered during the three months ended June 30, 2005 were 57.3 million gallons, as compared to 53.7 million gallons during the same
three-month period in 2004. This increase was primarily attributable to increased sales volumes to new and existing customers.



Revenues. Revenues in the three months ended June 30, 2005 were $173.6 million, an increase of $103.9 million, or 149%, from $69.7 million during
the same three-month period in 2004.



Revenues from retail
sales were $106.0 million in the three months ended June 30, 2005 (after elimination of sales to our wholesale operations), an increase of $76.3 million, or 256%, compared to $29.7 million during the same three-month period in 2004. Retail propane
revenues accounted for approximately $55.2 million of this increase comprised of an increase of approximately $52.7 million from acquisition-related volume and an increase of approximately $5.6 million as a result of higher selling prices with these
increases partially offset approximately $3.1 from the lower sales volumes at our existing locations. In addition to retail propane sales, these revenues consist of transportation revenues, distillate sales, tank rentals, appliance sales and service
income with these revenues increasing by approximately $21.1 primarily due to acquisitions.



Revenues from wholesale sales were $67.6 million in the three months ended June 30, 2005 (after elimination of sales to our retail operations), an increase of $27.6 million, or 69%, compared to $40.0 million during
the same three-month period in 2004. Approximately $11.8 million of this increase was attributable to the higher per gallon selling price of propane, due to its higher cost, with the balance of the increase, approximately $15.8 million, the result
of volume increases generated in our wholesale operations.



29



---

##### Table of Contents

Cost of Product Sold. Retail cost of product sold in the three months ended June 30, 2005 was
$60.4 million, an increase of $45.3 million, or 301%, compared to $15.1 million during the same three-month period in 2004. Approximately $27.9 million of this increase was attributable to acquisition-related retail propane sales. In addition, the
higher average cost of propane resulted in increased cost of product of approximately $2.0 million offset by $3.1 million lesser cost of product as a result of the lower propane volume sales at our existing locations. Other retail cost of product
sales increased as a result of acquisitions and were $20.6 million in the three months ended June 30, 2005, an increase of $18.5 million, compared to only $2.1 million in the prior year. The other retail cost of product sales is primarily distillate
products which is substantially a result of the acquisition of Star Gas Propane, L.P. Wholesale cost of product sold in the three months ended June 30, 2005 was $62.6 million, an increase of $24.9 million or 66%, from wholesale cost of product sold
of $37.7 million during the same three-month period in 2004. Approximately $10.6 million of this increase was primarily related to the increased average cost of propane in the three months ended June 30, 2005, with the balance of the increase,
approximately $14.3 million, the result of the increased volumes experienced in our wholesale operations. Our cost of product sold consists of tangible products sold including all propane 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 consisting of fuel
costs, repair and maintenance and lease expense. These costs approximated $12.4 million and $5.6 million in the three months ended June 30, 2005 and 2004, respectively. In addition, the depreciation expense associated with the delivery vehicles is
reported within depreciation and amortization expense and amounted to $3.0 million and $1.2 million in the three months ended June 30, 2005 and 2004, 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.



Gross Profit. Retail gross profit was $45.6 million in the three months ended June 30, 2005 compared to $14.7 million during the same three-month
period in 2004. This increase of approximately $30.9 million was primarily attributable to an increase of approximately $28.3 million in retail propane gross profit. This retail propane gross profit increase was the result of an increase in retail
gallons sold as a result of acquisitions which accounted for approximately $24.8 million of the increase in addition to an increase in margin per gallon at our existing locations which amounted to an increase of approximately $3.7 million. The
volume decrease at our existing locations partially offset these increases by approximately $0.2 million. Other retail gross profits increased by approximately $2.6 million with the increase attributable to acquisitions. Wholesale gross profit was
$5.0 and $2.3 million, respectively, (after elimination of gross profit attributable to our retail operations) in the three months ended June 30, 2005 and 2004. This increase was primarily attributable to increased margins per gallon, and an
increase in volume.



Operating and Administrative
Expenses. Operating and administrative expenses increased to $52.1 million in the three months ended June 30, 2005 as compared to $20.0 million in the same three-month period in 2004. The increase in our operating and administrative expenses
were attributable to increases in personnel expenses of $19.0 million, general operating expenses of $9.9 million including insurance, professional services and facility costs, and increased vehicle costs of $3.2 million resulting primarily from
acquisitions.



30



---

##### Table of Contents

Depreciation and Amortization. Depreciation and amortization increased to $13.9 million in the
three months ended June 30, 2005 from $5.6 million during the same three-month period in 2004 as a result of retail propane acquisitions.



Interest Expense. Interest expense increased to $10.1 million in the three month period ended June 30, 2005 as compared to $1.4 million during the
same three-month period in 2004. Interest expense increased primarily due to an increase in the average debt outstanding including the additional financing related to the acquisition of Star Gas Propane, L.P. and higher average interest rates.



Make Whole Premium Charge, Write-off of Deferred Financing
Costs, and Swap Value Received. In June 2005, we repaid $69.0 million term loan with Lehman Commercial Paper, Inc. with proceeds from our 3,910,000 common unit offering resulting in a write off of $0.4 million in deferred finance costs. In April
2004, we repaid all amounts drawn under our bank credit facility with proceeds from the $69.0 million term loan with Lehman Commercial Paper, Inc. As a result of terminating the bank credit facility, we wrote off deferred finance cost of $0.2
million. In January 2004, we repaid in full our $85.0 million senior secured notes before their scheduled maturity dates. As such, we were required to pay an additional amount of approximately $17.9 million as a make whole payment which was recorded
as a charge to earnings in the quarter ended June 30, 2004. We used proceeds from our January 2004 common unit offering and borrowings from our bank credit facility for this repayment. In addition, we also recorded a charge to earnings of
approximately $1.2 million in the quarter ended June 30, 2004, to write-off deferred financing costs associated with the senior secured notes. Partially offsetting these charges was a $0.9 million gain from the cancellation of interest rate swap
agreements also associated with the Senior Notes.



Provision
for Income Taxes. The provision for income taxes is primarily related to certain of our corporate subsidiaries. The provision (benefit)for income taxes increased to ($0.2) million in the period ended June 30, 2005 from ($0.3) million in the same
three-month period in 2004. The provision (benefit) for income taxes of ($0.2) million in the three months ended June 30, 2005 is composed of $0.4 million of current income tax and ($0.6) million of deferred income tax benefit. The 2004 provision
(benefit) for income taxes of ($0.3) million is composed of ($0.1) million of current income tax benefit and ($0.2) million of deferred income tax benefit.



Interest of non-controlling partners in Inergys net income (loss). We recorded income of $20.6 million in the three month period ended June
30, 2005 as compared to $8.2 million in the same three month period of 2004 associated with the interests of non-controlling partners in Inergy. The increase of $12.4 million in income is primarily the result of increased net loss reported by Inergy
of $24.1 million in the three-month period ended June 30, 2005 as compared to $9.8 million in the same three-month period in 2004.



Net Income (loss). Net loss increased to $(4.8) million for the three months ended June 30, 2005 from the net loss of $(1.2) million in the same
three-month period in 2004. The increase in net loss was attributable to an increase in operating and administrative expenses, depreciation and amortization, and interest expense, partially offset by increases in retail and wholesale gross profit,
all primarily the result of acquisitions.



31



---

##### Table of Contents

Nine Months Ended June 30, 2005 Compared to Nine Months Ended June 30, 2004



Volume. During the nine months ended June 30, 2005, we sold 269.7
million retail gallons of propane, an increase of 152.3 million gallons, or 130% over the 117.4 million retail gallons sold during the same nine-month period in 2004. The increase in retail sales volume was principally due to the December 2004
acquisition of Star Gas Propane, L.P. and the eighteen other retail propane companies for which results are only included in the 2004 period subsequent to the date of acquisition. Acquisition-related volume accounted for approximately 168.0 million
gallons of this increase, partially offset by approximately 15.7 million lesser gallon sales as a result of customer conservation due to higher propane sales prices and warmer weather. Higher selling prices were a result of an approximate 23% higher
propane cost per gallon on average for the nine months ended June 30, 2005 compared to the same nine-month period in 2004 and the weather in our areas of operations was approximately 1% warmer in the nine months ended June 30, 2005 compared to the
same period in 2004.



Wholesale gallons delivered during the
nine months ended June 30, 2005 was 325.9 million gallons, as compared to 290.1 million gallons during the same nine-month period in 2004. This increase was primarily attributable to increased sales volumes and to a lesser extent, the acquisitions
of Star Gas Propane, L.P., and one other retail propane company where wholesale volumes exist.



Revenues. Revenues in the nine months ended June 30, 2005 were $845.5 million, an increase of $465.1 million, or 122%, from $380.4 million during the same nine-month period in 2004.



Revenues from retail sales were $539.3 million in the nine months ended June
30, 2005 (after elimination of sales to our wholesale operations), an increase of $357.6 million, or 197%, compared to $181.7 million during the same nine-month period in 2004. Retail propane revenues accounted for approximately $278.7 million of
this increase with approximately $277.4 million of this increase the result of the acquisition-related volume and an increase of approximately $28.2 million the result higher selling prices with these increases partially offset approximately $26.9
million from the lower sales volumes at our existing locations. In addition to retail propane sales, these revenues consist of transportation revenues, distillate sales, tank rentals, appliance sales and service income with these revenues increasing
by approximately $78.9 million primarily due to acquisitions.



Revenues from wholesale sales were $306.2 million in the nine months ended June 30, 2005 (after elimination of sales to our retail operations), an increase of $107.5 million, or 54%, compared to $198.7 million during the same nine-month
period in 2004. Approximately $54.7 million of this increase was attributable to the higher per gallon selling price of propane, due to its higher cost, an increase of approximately $14.8 million due to two retail acquisitions with wholesale
operations, with the balance of the increase, approximately $38.0 million, the result of volume increases generated in our existing wholesale operations.



Cost of Product Sold. Retail cost of product sold in the nine months ended June 30, 2005 was $302.6 million, an increase of $211.5 million, or
232%, compared to $91.1 million during the same nine-month period in 2004. Approximately $150.4 million of this increase was attributable to acquisition-related retail propane sales. In addition, the higher average cost of propane resulted in
increased cost of product of approximately $19.6 million partially offset by $13.1 million lesser cost of product as a result of the lower propane volume sales at our existing locations. Other retail cost of product sales increased as a result of
acquisitions and were $59.6 million in the nine months ended June 30, 2005,



32



---

##### Table of Contents

an increase of $54.6 million compared to only $5.0 million in the prior year. The other retail cost of product sales is primarily distillate products which
is substantially a result of the acquisition of Star Gas Propane, L.P. Wholesale cost of product sold in the nine months ended June 30, 2005 was $291.1 million, an increase of $106.3 million or 58%, from wholesale cost of product sold of $184.8
million during the same nine-month period in 2004. Approximately $54.8 million of this increase was primarily related to the increased average cost of propane in the nine months ended June 30, 2005, an increase of $13.5 million due to two retail
acquisitions with wholesale operations, with the balance of the increase, approximately $38.0 million, the result of the increased volumes experienced in our wholesale operations. Our cost of product sold consists of tangible products sold including
all propane 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 consisting of fuel costs, repair and maintenance and lease expense. These costs approximated $32.1 million and $16.5 million in the nine months ended June 30, 2005 and 2004, respectively. In addition,
the depreciation expense associated with the delivery vehicles is reported within depreciation and amortization expense and amounted to $7.6 million and $3.3 million in the nine months ended June 30, 2005 and 2004, 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.



Gross Profit. Retail gross profit was $236.7 million in the nine months ended June 30, 2005 compared to $90.6 million
during the same nine-month period in 2004. This increase of approximately $146.1 million was primarily attributable to an increase of approximately $122.0 million in retail propane gross profit. This retail propane gross profit increase was the
result of an increase in retail gallons sold as a result of acquisitions which accounted for approximately $127.0 million of the increase as well as an increase in margin per gallon at our existing locations which amounted to an increase of
approximately $8.6 million. The volume decrease at our existing locations discussed above partially offset these increases by approximately $13.6 million. The remaining $24.1 million increase is a result of an increase in other retail product sales
attributable to acquisitions. Wholesale gross profit was $15.1 and $13.8 million, respectively, (after elimination of gross profit attributable to our retail operations) in the nine months ended June 30, 2005 and 2004. This $1.3 million increase is
primarily attributable to two retail acquisitions with wholesale operations as discussed above, and to a lesser extent, increased gross margin per gallon.



Operating and Administrative Expenses. Operating and administrative expenses increased to $146.5 million in the nine months ended June 30, 2005 as
compared to $60.5 million in the same nine-month period in 2004. The increase in our operating and administrative expenses were attributable to increases in personnel expenses of $50.9 million, general operating expenses of $25.7 million, including
insurance, professional services and facility costs, and increased vehicle costs of $9.4 million resulting primarily from acquisitions.



33



---

##### Table of Contents

Depreciation and Amortization. Depreciation and amortization increased to $35.1 million in the
nine months ended June 30, 2005 from $15.3 million during the same nine-month period in 2004 as a result of retail propane acquisitions.



Interest Expense. Interest expense increased to $24.7 million in the nine month period ended June 30, 2005 including amortization of deferred
finance costs of $1.3 million as compared to $5.8 million during the same nine-month period in 2004 which included amortization of deferred finance costs of $1.2 million. Interest expense increased primarily due to an increase in the average debt
outstanding including the additional financing related to the acquisition of Star Gas Propane, L.P. and higher average interest rates.



Make Whole Premium Charge, Write-off of Deferred Financing Costs, and Swap Value Received. In June 2005, we repaid $69.0 million term loan with
Lehman Commercial Paper, Inc. with proceeds from our 3,910,000 common unit offering resulting in a write off of $0.4 million in deferred finance costs. In April 2004, we repaid all amounts drawn under our bank credit facility with proceeds from the
$69.0 million term loan with Lehman Commercial Paper, Inc. As a result of terminating the bank credit facility, we wrote off deferred finance cost of $0.2 million. In December 2004, a charge of $7.0 million was recorded as a result of the write-off
of deferred financing costs associated with the repayment of Inergys previously existing credit agreement and Inergys 364-day facility. In January 2004, Inergy repaid in full its $85.0 million senior secured notes before their scheduled
maturity dates. As such, Inergy was required to pay an additional amount of approximately $17.9 million as a make whole payment which was recorded as a charge to earnings in the quarter ended June 30, 2004. Inergy used proceeds from its January 2004
common unit offering and borrowings from its bank credit facility for this repayment. In addition, Inergy also recorded a charge to earnings of approximately $1.2 million in the quarter ended June 30, 2004, to write-off deferred financing costs
associated with the senior secured notes. Partially offsetting these charges was a $0.9 million gain from the cancellation of interest rate swap agreements also associated with the Senior Notes.



Gain on issuance of units in Inergy. As a result of issuances of
additional Inergy common units at a price per unit greater than our equivalent carrying value, our share of the net assets of Inergy increases. Inergy issued additional common units in three separate transactions in the nine-month period ended June
30, 2005, all of which were in connection with the Star Gas Propane Acquisition. On December 17, 2004, Inergy issued 3,568,139 units to unrelated third parties resulting in net proceeds of approximately $91 million. On December 22, 2004 Inergy
issued 4,400,000 common units in a public offering resulting in net proceeds of $121.3 million, and on January 4, 2005, in connection with the exercise of the underwriters over-allotment option granted by Inergy in the December public unit offering,
Inergy issued 660,000 common units resulting in net proceeds of $17.9 million. These issuances resulted in a gain of $16.0 million for the nine months ended June 30, 2005 as compared to $7.8 million for the same period last year.



Provision for Income Taxes. The provision for income taxes is
primarily related to certain of our corporate subsidiaries. The provision for income taxes increased to $2.1 million in the period ended June 30, 2005 from $1.2 million in the same nine-month period in 2004. The provision for income taxes of $2.1
million in the nine months ended June 30, 2005 is composed of $1.5 million of current income tax and $0.6 million of deferred income taxes. The 2004 provision for income taxes of $1.2 million is composed of $1.6 million of current income tax expense
partially offset by $0.4 million of deferred income tax benefit.



34



---

##### Table of Contents

Interest of non-controlling partners in Inergys net income (loss). We recorded an expense of
$31.8 million in the nine month period ended June 30, 2005 as compared to $3.4 million in the same nine month period of 2004 associated with the interests of non-controlling partners in Inergy. The increase of $28.4 million in expense is primarily
the result of increased net income reported by Inergy of $41.8 million in the nine-month period ended June 30, 2005 as compared to $5.0 million in the same nine-month period in 2004.



Net Income. Net income increased to $21.7 million for the nine months ended June 30, 2005 from $8.4 million in the
same nine-month period in 2004. The increase in net income was attributable to the increase in retail gross profit together with the non-recurrence of the make whole premium charge in the 2004 period and the gain on the issuance of units in Inergy,
partially offset by increases in operating and administrative expenses, depreciation and amortization, and interest expense, all primarily the result of acquisitions and a higher expense reported for both the interest in non-controlling
partners in Inergys net income and the provision for income taxes.



Liquidity and Sources of Capital



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.



In June 2005, the Company issued
3,910,000 common units in an initial public offering, resulting in proceeds of $80.1 million net of underwriting discounts commissions and offering expenses. The proceeds from this offering were used to repay the term loan.



In December 2004, Inergy issued 3,568,139 common units to unrelated third
parties resulting in proceeds of $91.0 million. These proceeds were obtained to partially fund the acquisition of Star Gas Propane, L.P.



Also in December 2004, Inergy issued 4,400,000 common units in a public offering, resulting in proceeds of $121.3 million, net of underwriters
discount, commission, and offering expenses. These funds were used to repay borrowings under Inergys credit agreement.



In January 2005, the underwriters of the December 2004, 4,400,000 common unit offering exercised their over-allotment provision and Inergy issued 660,000
common units in a follow-on offering, resulting in proceeds of approximately $17.9 million, net of underwriters discounts, commissions, and offering expenses. These funds were used to repay borrowings under Inergys credit agreement.



Cash flows provided by operating activities of $77.8 million
for the nine months ended June 30, 2005 consisted primarily of: net income of $21.7 million; net non-cash charges of $78.6 million relating to the interest of non-controlling partners in Inergys net income of $31.8 million, depreciation and
amortization of $36.6 million, $7.6 million in write-offs of deferred financing costs related to the repayment of Inergys previously existing credit agreement and the 364-day credit facility, $0.5 million in deferred income taxes, and $2.1
million of other non-cash charges; offset by a decrease in cash flows



35



---

##### Table of Contents

of $22.5 million relating to changes in operating assets and liabilities and net liabilities from price risk management activities of $7.8 million and $16.0
million relating to the gain on issuance of common units in Inergy. The cash provided by the changes in operating assets and liabilities is primarily due to a decrease in accounts receivable of $17.8 million, a decrease in inventory of $24.9
million, and an decrease of prepaid expenses of $7.6 million due to the seasonal nature of the business, offset by a decrease in customer deposits of $26.4 million, accounts payable of $23.5 million, as well as other miscellaneous net changes of
$1.0 million related to the seasonal nature of the business. Cash flows provided by operating activities of $48.7 million in the same nine-month period in 2004 consisted primarily of: net income of $8.4 million, net non-cash charges of $39.2 million
relating to the interest of non-controlling partners in Inergys net income of $3.4 million, depreciation and amortization of $16.5 million, a make whole premium charge of $17.9 million associated with the early repayment of the senior secured
notes and other net non-cash charges of $1.4 million; and a increase in cash flows of $8.4 million associated with the changes in operating assets and liabilities, including net liabilities from price risk management activities and $7.8 million
relating to the gain on issuance of common units in Inergy The source of cash associated with the changes in operating assets and liabilities is primarily due to an increase in accounts payable and a reduction in inventory, partially offset by an
increase in accounts receivable and prepaid expenses and other current assets, and a decrease in customer deposits. These changes are attributable to the seasonal nature of the business and our retail and wholesale growth.



Cash used in investing activities was $611.6 million in the nine months ended
June 30, 2005 as compared to $66.0 million in the same nine month period in 2004. Investing activities for the nine months ended June 30, 2005 included a use of cash of $588.9 million, net of cash acquired, for the acquisition of six retail propane
companies, including Star Gas Propane, L.P. Investing activities during the same six-month period in 2004 included a use of cash of $56.7 million for the acquisitions of EOTT Energy, L.P.s west coast NGL business and other retail propane
companies. Additionally, in the nine months ended June 30, 2005 and 2004, we expended $25.0 million and $10.0 million, respectively for additions of property, plant and equipment to accommodate our growing operations, and we expended $0.4 million
and less than $0.1 million for deferred acquisition costs for prospective acquisitions. Offsetting these uses of cash in investing activities were the proceeds from sale of property, plant and equipment of $2.7 million and $1.6 million received in
the nine months ended June 30, 2005 and 2004, respectively.



Cash provided by financing activities was $554.3 million in the nine months ended June 30, 2005 and $19.0 million in the same nine-month period in 2004. These included net borrowings of $364.1 million and net payments of $(18.6) million,
for nine month periods ended June 30, 2005 and 2004, respectively, under debt agreements, including borrowings and repayments of our revolving working capital and acquisition credit facility and the issuance of our senior unsecured notes. Deferred
financing costs of $23.3 million were incurred in the nine months ended June 30, 2005 related to debt incurred to complete the acquisitions. A payment of a make-whole premium charge of $17.9 million was incurred in the nine month period ended June
30, 2004. In addition, net proceeds were received from the issuance of Inergy common units of $310.2 million and $83.3 million and from partner contributions of $5.6 million and $1.5 million in the nine months ended June 30, 2005 and 2004,
respectively. Offsetting these cash sources were $96.3 million and $26.4 million of distributions in the nine months ended June 30, 2005 and 2004, respectively, purchases of subordinated units in Inergy of $3.1 million and $0.5 million in the nine
months ended June 30, 2005 and 2004, respectively. A redemption of partners interests of $3.0 million in the nine months ended June 30, 2005 as compared to $2.3 million the year prior.



36



---

##### Table of Contents

The following table summarizes our long-term debt, promissory note, and operating lease obligations as of
June 30, 2005 in thousands of dollars:



|                                                                                        |  |       |         |                 |   |           |  |           |        |               |   |         |  |   |        
|--------------------------------------------------------------------------------------- |  | ----- | ------- | --------------- | - | --------- |  | --------- | ------ | ------------- | - | ------- |  | - | -------
|                                                                                        |  | Total |         | Less than1 year |   | 1-3 years |  | 4-5 years |        | After 5 years
|Aggregate amount of principal and interest to be paid on the outstanding long-term debt |  | $     | 860,022 |                 | $ | 46,199    |  | $         | 75,120 |               | $ | 166,314 |  | $ | 572,389
|Future minimum lease payments under noncancelable operating leases                      |  |       | 16,474  |                 |   | 5,520     |  |           | 6,295  |               |   | 2,723   |  |   | 1,936  
|Standby letters of credit                                                               |  |       | 14,460  |                 |   | 11,586    |  |           | 2,174  |               |   | 700     |  |   |       



37



---

##### Table of Contents

The following table summarizes the change in the unrealized fair value of our energy contracts related to
Inergys risk management activities for the nine months ended June 30, 2005 and the same nine-month period in 2004 where settlement has not yet occurred (in thousands of dollars):



|                                                                                                |  |                   |        |   |               |   |        |  
|----------------------------------------------------------------------------------------------- |  | ----------------- | ------ | - | ------------- | - | ------ | -
|                                                                                                |  | Nine Months Ended |       
|                                                                                                |  | June 30, 2005     |        |   | June 30, 2004 |  
|Net unrealized gains and (losses) in fair value of contracts outstanding at beginning of period |  | $                 | (6,626 | ) |               | $ | 3,104  |  
|Initial recorded value of new contracts entered into during the period                          |  |                   |       |   |               |   | 2,723  |  
|Net unrealized gain/(loss) acquired through acquisition during the period                       |  |                   | 1,881  |   |               |   |       |  
|Change in fair value of contracts attributable to market movement during the year               |  |                   | 9,627  |   |               |   | (4,054 | )
|Realized (gains)/losses recognized                                                              |  |                   | (2,655 | ) |               |   | 907    |  
|                                                                                                |  |                   |        |   |               |   |        |  
|Net unrealized gains in fair value of contracts outstanding at June 30, 2005                    |  | $                 | 2,227  |   |               | $ | 2,680  |  
|                                                                                                |  |                   |        |   |               |   |        |  



Of the outstanding
unrealized gain as of June 30, 2005, all contracts had a maturity of less than one year.



We believe that anticipated cash from operations and borrowings under our credit facility and Inergys amended and restated 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 any acquisitions, we may need to raise additional capital. We may not be able to raise additional funds or may not be able to raise such funds on favorable terms.



Seasonality



The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings.
Approximately three-quarters of Inergys 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.



Description of Indebtedness



Inergy Holdings, L.P.



Term Loan



On April 28, 2005 we entered into a $69.0 million term loan with a bank
(Term Loan). The maturity date of the Term Loan is December 31, 2005 and is collateralized by all of our interests in Inergy. In addition, the Term Loan is guaranteed by each of our wholly-owned subsidiaries. Borrowings under the Term
Loan bears interest at our option at a floating rate equal to either the prime rate plus 1.50% or LIBOR (preadjusted for reserves) plus 2.50%. Borrowings under the Term Loan were used to refinance the credit agreement described below, to repurchase
certain interests from our partners and to



38



---

##### Table of Contents

make distributions to owners of our general partner. A portion of the proceeds from the 3,910,000 common unit offering as discussed was used to repay all
amounts borrowed under the Term Loan.



Credit Agreement



On August 30, 2004, we entered into a Credit Agreement
with Enterprise Bank & Trust, which we refer to as the Credit Agreement. Pursuant to the terms of the Credit Agreement, we obtained a $15 million five-year term loan and a $5.0 million working capital facility.



The loans under the Credit Agreement bear interest at LIBOR (adjusted for any
reserve requirements), plus an applicable margin. The applicable margin varies quarterly based on our leverage ratio and may range from 2.25% to 3.50%. The outstanding balance of the term loan is payable in five installments as follows: $750,000 on
August 30, 2005; $1,500,000 on August 30, 2006; $3,000,000 on August 30, 2007; $3,750,000 on August 30, 2008; and $6,000,000 at maturity of the term loan on August 30, 2009.



The Credit Agreement was repaid on April 28, 2005 with proceeds from the Term Loan discussed above. Upon the repayment of
the amounts outstanding under our existing credit agreement, we terminated such credit agreement.



On July 22, 2005, we entered into a new credit agreement with Enterprise Bank & Trust providing for a $15 million revolving line of credit with a 36
month maturity. The facility also includes a $5 million revolving line of credit in favor of one of our wholly-owned subsidiaries. The Credit Agreement has terms substantially similar to those existing in the old Enterprise credit facility. The
Credit Agreement is secured by certain of our ownership interests in Inergy, L.P. We used borrowings under this credit agreement to repay in full the promissory notes entered into in favor of our existing owners.



Promissory Notes



On November 5, 2004, Inergy Holdings, LLC, our predecessor, entered into a
series of promissory notes totaling $15 million in favor of its members as of August 30, 2004. At June 30, 2005, the outstanding balance of the promissory notes was $3.8 million. Each of the promissory notes, as amended, bears interest at a rate of
3.0% per annum. Interest accrues from November 16, 2004 and is payable quarterly on February 15, May 15, August 15 and November 15 each year, commencing on February 15, 2005 and continuing until November 15, 2014, the maturity date. The promissory
notes were issued in payment of a distribution declared on September 3, 2004 to existing members. Accordingly, no cash was contributed to us in exchange for the issuance of the promissory notes. The promissory notes were subordinated to our
outstanding indebtedness under the terms of our credit agreement and were subordinated to our indebtedness under our Term Loan. Subsequent to June 30, 2005 the outstanding balance on the promissory notes was repaid in full and the promissory notes
were discharged.



Inergy, L.P.



5-Year Credit Agreement



Effective in December 2004, Inergy executed a new credit agreement with our
existing lenders in



39



---

##### Table of Contents

addition to others. The credit agreement consists of a $250.0 million revolving acquisition facility and a $75.0 million working capital facility. We have
the option to use up to $25.0 million of available borrowing capacity from our revolving acquisition facility for working capital purposes. The credit agreement expires in December 2009 and carries terms, conditions, and covenants substantially
similar to the previous credit agreement as described in the Form 10-K for the year ended September 30, 2004. The credit agreement is guaranteed by all of Inergys domestic subsidiaries.



This credit agreement accrues interest at either prime rate or Eurodollar
plus applicable spreads, resulting in interest rates of 5.76% to 7.25% at June 30, 2005. At June 30, 2005, borrowings outstanding under the credit facility were $100.8 million, including $8.5 million outstanding under the revolving working capital
facility. Of the entire outstanding credit facility balance of $100.8 million, $97.3 million is classified as long term in the accompanying June 30, 2005 consolidated balance sheet.



Senior Notes due 2014



On December 22, 2004, Inergy and its wholly owned subsidiary, Inergy Finance Corp. (Finance Corp. and together with Inergy, the
Issuers), completed a private placement of $425 million in aggregate principal amount of the Issuers 6.875% senior unsecured notes due 2014 (the Senior Notes). Inergy used the net proceeds from the $425 million private
placement of Senior Notes to repay substantially all amounts drawn under the 364-day credit facility, with the $39.9 million balance of the net proceeds being applied to the revolving acquisition credit facility.



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



Interest Rate Risk



We have long-term debt and a revolving line of credit subject to the risk of loss associated with movements in interest rates. At June 30, 2005, we had
floating rate obligations totaling approximately $100.8 million for amounts borrowed under our credit agreement and an additional $100.0 million of floating rate obligations as a result of interest rate swap agreements as discussed below.



In the quarter ending March 2005, Inergy entered into four
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 and contain call provisions consistent with the underlying senior unsecured notes, require the counterparty to pay Inergy an amount based on the stated fixed interest rate on the notes
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 1.95% and
2.20% applied to the same notional amount of $100 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. Inergy recognized the approximate $0.8 million increase in the fair market value of the related senior unsecured notes at June 30, 2005 with a corresponding increase in the fair value of its interest rate swaps, which are
recorded in other assets.



If the floating rate were to
increase by 100 basis points from June 2005 levels, our interest expense would increase by a total of approximately $2.0 million per year.



40



---

##### Table of Contents

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 have 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. The counterparties associated with assets from price risk management
activities as of June 30, 2005 and 2004 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, thus our, 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 Inergys 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 transactions, including various types of forward contracts, options, swaps and future contracts, to reduce the effect of price
volatility on Inergys product costs, protect the value of our 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 Inergy has a matching purchase commitment from its wholesale customers. However, Inergy may experience net unbalanced positions from time to time which Inergy 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 purchase obligations and its sales commitments.



Notional Amounts and Terms



The notional amounts and terms of these financial instruments as of June 30, 2005 and September 30, 2004 include fixed price payor for 8.8 million and 4.9
million barrels of propane, respectively, and fixed price receiver for 9.6 million and 6.5 million barrels of propane, respectively. Notional amounts reflect the volume of transactions, but do not represent the amounts exchanged by the parties to
the financial instruments. Accordingly, notional amounts do not accurately measure Inergys exposure to market or credit risks.



Fair Value



The fair value of the derivative financial instruments related to price risk management activities as of June 30, 2005, and September 30, 2004 was assets
of $6.7 million and $23.0 million, respectively, and liabilities of $4.5 million and $29.6 million, respectively. All intercompany transactions have been



41



---

##### Table of Contents

appropriately eliminated. The market prices used to value these transactions reflect managements best estimate considering various factors including
closing exchange and over-the-counter quotations, recent transactions, time value and volatility factors underlying the commitments.



Sensitivity Analysis



A theoretical change of 10% in the underlying commodity value would result in a change of approximately $0.2 million in the market value of the contracts
as there were approximately 2.7 million gallons of net unbalanced positions at June 30, 2005.



42



---

##### Table of Contents

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



We maintain controls and procedures designed to ensure that information required to be disclosed in our reports that are filed or submitted under the
Securities Exchange Act of 1934 is 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 the Companys 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 the Companys disclosure controls and procedures were adequate and effective as of June 30, 2005. There have been no change in the
Companys internal controls over financial reporting (as defined in Rule 13(e)-15 or Rule 15d-15(f) of the Exchange Act) or in other factors during the fiscal quarter covered by this report that has materially affected, or is reasonably likely
to materially affect, our internal controls over financial reporting, and there have been no corrective actions with respect to significant deficiencies and material weaknesses in our internal controls.



43



---

##### Table of Contents



PART II  OTHER
INFORMATION



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



A federal securities class action was filed in October 2004 against Star Gas Partners, L.P. and certain of its executive officers (Star
Defendants) in the United States District Court for the District of Connecticut. The allegations are that Star Gas Defendants purportedly violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Securities and
Exchange Commission Rule 10b-5. Following the initiation of this claim, 17 additional class action complaints were filed including White v. Star Gas, et al,, which was filed in October 2004 in the United States District Court for the District
of Connecticut. Star Gas Propane, L.P. was named as a defendant in the White case. The Court ruled on April 8, 2005 that the cases should be consolidated and it appointed lead counsel to prepare a Consolidated Amended Complaint. On June 20,
2005 the Consolidated Amended Complaint was filed. The Consolidated Amended Complaint did not name Star Gas Propane, L.P. as a defendant.



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



None.



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



31.1

Certification of Chief Executive Officer of Inergy, L.P. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2

Certification of Chief Financial Officer of Inergy, L.P. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer of Inergy, 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, L.P. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.




44



---

##### 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 9, 2005 |  |  |  | By:                   |  | /s/    R. Brooks Sherman, Jr.
|                     |  |  |  |                       |  |                               |  | R. Brooks Sherman, Jr.                                       
|                     |  |  |  |                       |  |                               |  | Senior Vice President and Chief Financial Officer            
|                     |  |  |  |                       |  |                               |  | (Principal Financial Officer and PrincipalAccounting Officer)



45