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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)



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

For the fiscal year ended September 30, 2009

OR



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

For the transition period from
                     to
                    .

Commission file number: 000-51304





INERGY HOLDINGS,
L.P.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 43-1792470                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

Two Brush Creek Boulevard, Suite 200, Kansas City, Missouri 64112

(Address of principal executive offices) (Zip Code)

(816) 842-8181

(Registrants telephone number including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:



|                                                        |  |                                          
|------------------------------------------------------- |  | -----------------------------------------
|Title of Each Class                                     |  | Name of Each Exchange on Which Registered
|Common Units representing limited partnership interests |  | The NASDAQ Global Select National Market 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None





Indicate by check mark if registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈    No   ̈

Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                                                                       |  |                              |  | 
|---------------------------------------------------------------------- |  | ---------------------------- |  | 
|Large accelerated filer   ̈                                             |  | Accelerated filer  x        
|Non-accelerated filer   ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes   ̈    No  x

The
aggregate market value of the 10,949,824 common units of the registrant held by non-affiliates computed by reference to the $49.38 closing price of such common units on October 30, 2009, was approximately $540.7 million. The aggregate market
value of the 7,811,338 common units of the registrant held by non-affiliates computed by reference to the $30.45 closing price of such common units on March 31, 2009, the last business day of the registrants most recently completed second
fiscal quarter, was approximately $237.9 million. As of November 16, 2009, the registrant had 20,277,361 common units outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents are incorporated by reference into the indicated parts
of this report:

Annual Report on Form 10-K for Inergy, L.P. filed contemporaneously herewith as referenced in Item 11 of this report.









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GUIDE TO READING THIS REPORT

The following information should help you understand some of the conventions used in this report.



| |  |  | Throughout this report,
| | - |  | -----------------------

(1) When we use the terms we, us, our company, Holdings, or Inergy Holdings, L.P., we are referring either to Inergy Holdings, L.P., the
registrant itself, or to Inergy Holdings, L.P. and its operating subsidiaries collectively, as the context requires. The wholly owned subsidiaries of Inergy Holdings, L.P. are Inergy Partners, LLC (Partners), Inergy GP, LLC
(GP), and IPCH Acquisition Corp. (IPCHA).

(2) When we use the terms
Inergy, or Inergy, L.P., we are referring to Inergy L.P., and its wholly owned subsidiaries. Inergy, L.P. is a controlled subsidiary of Inergy Holdings, L.P.

(3) When we use the term Inergy Propane, we are referring to Inergy Propane, LLC itself, or to Inergy Propane,
LLC and its operating subsidiaries collectively, as the context requires. Inergy Propane, LLC is a wholly owned subsidiary of Inergy, L.P.

(4) When we use the term finance company, we are referring to Inergy Finance Corp., a subsidiary of Inergy, L.P., formed on September 21, 2004.

(5) When we use the term general partner, we are referring to Inergy Holdings GP, LLC.



| |  |  | Our general partner is responsible for the management of our company and its operations are governed by a board of directors. Our general partner does
not have economic rights to allocations or distributions from our company and does not receive a management fee, but it is reimbursed for expenses incurred on our behalf.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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INERGY HOLDINGS, L.P.

INDEX TO ANNUAL REPORT ON FORM 10-K



|         |  |                                                                                                                 |  |     
|-------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                 |  | Page
|PART I  
|         |  |                                                                                                                
|Item 1.  |  | Business                                                                                                        |  | 1   
|         |  |                                                                                                                
|Item 1A. |  | Risk Factors                                                                                                    |  | 18  
|         |  |                                                                                                                
|Item 1B. |  | Unresolved Staff Comments                                                                                       |  | 39  
|         |  |                                                                                                                
|Item 2.  |  | Properties                                                                                                      |  | 39  
|         |  |                                                                                                                
|Item 3.  |  | Legal Proceedings                                                                                               |  | 40  
|         |  |                                                                                                                
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                             |  | 40  
|        
|PART II 
|         |  |                                                                                                                
|Item 5.  |  | Market for the Registrants Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities |  | 41  
|         |  |                                                                                                                
|Item 6.  |  | Selected Financial Data                                                                                         |  | 42  
|         |  |                                                                                                                
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 44  
|         |  |                                                                                                                
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                                                      |  | 70  
|         |  |                                                                                                                
|Item 8.  |  | Financial Statements and Supplementary Data                                                                     |  | 71  
|         |  |                                                                                                                
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 71  
|         |  |                                                                                                                
|Item 9A. |  | Controls and Procedures                                                                                         |  | 71  
|         |  |                                                                                                                
|Item 9B. |  | Other Information                                                                                               |  | 72  
|        
|PART III
|         |  |                                                                                                                
|Item 10. |  | Directors, Executive Officers and Corporate Governance                                                          |  | 73  
|         |  |                                                                                                                
|Item 11. |  | Executive Compensation                                                                                          |  | 76  
|         |  |                                                                                                                
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Unitholder
Matters                   |  | 85  
|         |  |                                                                                                                
|Item 13. |  | Certain Relationships, Related Transactions and Director Independence                                           |  | 87  
|         |  |                                                                                                                
|Item 14. |  | Principal Accountant Fees and Services                                                                          |  | 90  
|        
|PART IV 
|         |  |                                                                                                                
|Item 15. |  | Exhibits and Financial Statement Schedules                                                                      |  | 91  



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PART I

Item 1. Business.

Recent Developments

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

The new secured credit facility contains various affirmative and negative covenants and default provisions, as well as
requirements with respect to the maintenance of specified financial ratios and limitations on making investments, permitting liens and entering into other debt obligations. All borrowings under the facility bear interest, at Inergys option,
subject to certain limitations, at a rate equal to the following:



| |  |  | the Alternate Base Rate, which is defined as the higher of i) the federal funds rate plus 0.50%; ii) JP Morgans prime rate; or iii) the Adjusted
LIBO Rate plus 1%; plus a margin varying from 1.50% to 2.75%; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

General

Inergy Holdings, L.P.

Our cash-generating assets consist of our partnership interests, including incentive distribution rights in Inergy, L.P. (NASDAQ: NRGY), a
publicly traded Delaware limited partnership, which operates a growing, geographically diverse retail and wholesale propane supply, marketing and distribution business. In addition to Inergys retail and wholesale propane business, Inergy also
owns and operates a growing midstream business that includes three natural gas storage facilities (Stagecoach, Steuben and Thomas Corners), a liquefied petroleum gas (LPG) storage facility
(Bath), a natural gas liquids (NGL) business and a solution-mining and salt production company (US Salt).

Our primary objective is to increase distributable cash flow to our unitholders through our ownership of partnership interests in Inergy. Our incentive distribution rights in Inergy 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 increasing cash distributions to us. In addition, we may elect to make additional investments in Inergy which would increase our ownership
interest in Inergy. The proceeds of such investments may be used by Inergy to pursue its growth strategy.

Inergys primary objective is
to increase distributable cash flow to its unitholders. Inergy has grown primarily through acquisitions of retail propane and certain midstream operations. Inergy further intends to pursue its growth objectives through acquisitions of both propane
and midstream operations, internally generated expansion, and measures aimed at increasing the profitability of existing operations.

Our
aggregate partnership interests in Inergy as of September 30, 2009, consist of the following:



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



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



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| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our cash flows consist of distributions from Inergy on the partnership interests we own. Inergy is required by its partnership agreement to distribute all of its cash on hand at the end of each quarter, less reserves established by its
managing general partner in its sole discretion to provide for the proper conduct of Inergys business or to provide for future distributions. While we, like Inergy, are structured as a limited partnership, our capital structure and cash
distribution policy differ materially from those of Inergy. Most notably, our general partner does not have an economic interest in us and is not entitled to receive any distributions from us and our capital structure does not include incentive
distribution rights. Therefore, our distributions are allocated exclusively to our common units, which is our only class of security outstanding.

The incentive distribution rights entitle us to receive an increasing percentage of cash distributed by Inergy as certain target distribution levels are reached. They generally entitle us to receive 13.0% of all cash distributed in a
quarter after each Inergy unit has received $0.33 for that quarter, 23.0% of all cash distributed after each Inergy unit has received $0.375 for that quarter and 48.0% of all cash distributed after each Inergy unit has received $0.45 for that
quarter. For the quarter ended September 30, 2009, Inergy declared a distribution of $0.675 per unit, which resulted in our company receiving approximately $18.0 million in distributions comprised of approximately $3.2 million from the limited
partnership units we own of Inergy, approximately $0.4 million from our 0.8% non-managing general partner interest in Inergy and approximately $14.4 million from the incentive distribution rights of Inergy.

On October 26, 2009, we declared a quarterly distribution on our common units of $0.85 per limited partner unit, or $3.40 per limited partner unit on
an annualized basis.

The address of our principal executive offices is Two Brush Creek Boulevard, Suite 200, Kansas City, Missouri, 64112 and
our telephone number at this location is 816-842-8181. Our common units trade on the NASDAQ Global Select National Market under the symbol NRGP. We electronically file certain documents with the SEC. We file annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K (as appropriate), along with any related amendments and supplements. From time-to-time, we also may file registration and related statements pertaining to equity or debt offerings. You may
read and download our SEC filings over the internet from several commercial document retrieval services as well as at the SECs website at www.sec.gov. You may also read and copy our SEC filings at the SECs public reference room located
at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC 1-800-SEC-0330 for further information concerning the public reference room and any applicable copy charges. In addition, our SEC filings are available at no cost after the filing
thereof on our website at www.inergypropane.com. Please note that any internet addresses provided in this Form 10-K are for information purposes only and are not intended to be hyperlinks. Accordingly, no information found and/or provided at such
internet addresses is intended or deemed to be incorporated by reference herein.

Inergy, L.P.

Inergy, L.P., a publicly traded Delaware limited partnership, was formed on March 7, 2001, and closed on its initial public offering on July 31,
2001. Inergy owns and operates, principally through its operating company, Inergy Propane, LLC, a growing, geographically diverse retail and wholesale propane supply, marketing and distribution business. Inergy also owns and operates a growing
midstream business that includes three natural gas storage facilities (Stagecoach, Steuben and Thomas Corners), a liquefied petroleum gas (LPG) storage facility (Bath), a natural gas
liquids (NGL) business and a solution-mining and salt production company (US Salt).

Inergy believes it is the fifth
largest propane retailer in the United States based on retail propane gallons sold. For the fiscal year ended September 30, 2009, Inergy sold and physically delivered approximately 310.0 million



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gallons of propane to retail customers and approximately 380.6 million gallons of propane to wholesale customers. Inergys propane business includes the retail marketing, sale and
distribution of propane, including the sale and lease of propane supplies and equipment, to residential, commercial, industrial and agricultural customers. Inergy markets its propane products under various regional brand names. As of
October 30, 2009, Inergy serves approximately 700,000 retail customers in 28 states from 312 customer service centers which have an aggregate of 31.0 million gallons of above-ground propane storage. In addition to its retail propane
business, Inergy operates a wholesale supply, marketing and distribution business, providing propane procurement, transportation and supply and price risk management services to its customer service centers, as well as to independent dealers,
multistate marketers, petrochemical companies, refinery and gas processors and a number of other NGL marketing and distribution companies in 40 states, primarily in the Midwest, Northeast and South.

Inergy also owns and operates a midstream business which includes the following assets:



| |  |  | the Stagecoach natural gas storage facility, a high performance, multi-cycle natural gas storage facility with 26.25 bcf of working gas capacity, a
maximum withdrawal capability of 500 MMcf/day, and a maximum injection capability of 250 MMcf/day. Located 150 miles northwest of New York City, the Stagecoach facility is the closest natural gas storage facility to the northeastern United States
market. Stagecoach is connected to Tennessee Gas Pipeline Companys 300-Line and the newly constructed Millennium pipeline. The facility is fee-based and is currently 100% contracted primarily with investment grade-rated companies with term
contracts having a weighted average maturity extending to September 2014.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an NGL business near Bakersfield, California, which includes a 25.0 MMcf/day natural gas processing plant, a 12,000 bpd NGL fractionation plant, an
8,000 bpd butane isomerization plant, NGL rail and truck terminals, a 24.0 million gallon NGL storage facility and NGL transportation/marketing operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the Bath LPG Storage Facility, a 1.7 million barrel salt cavern LPG storage facility located near Bath, New York, approximately 210 miles
northwest of New York City and 60 miles from Inergys Stagecoach facility. The facility is supported by both rail and truck terminals capable of loading/unloading 2023 rail cars per day and 17 truck transports per day.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 100% of the membership interests of Arlington Storage Company, LLC (ASC). ASC is the majority owner and operator of the Steuben Gas Storage
Company (Steuben), which owns a 6.2 bcf natural gas storage facility located in Steuben County, New York.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys recently completed development of Thomas Corners, a 7 bcf natural gas storage facility also located in Steuben County, New York. This
facility was placed in service in November 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | US Salt, an industry-leading solution mining and salt production company located in Schuyler County, New York, between Inergys Stagecoach and
Steuben natural gas storage facilities. US Salt produces and sells over 300,000 tons of salt each year. The solution mining process used by US Salt creates salt caverns that can be developed into usable natural gas storage capacity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Inergy has grown primarily through acquisitions and to a lesser extent through organic expansion projects. Since its
predecessors inception in November 1996 through September 30, 2009, Inergy has acquired 84 companies for an aggregate purchase price of approximately $1.8 billion, including working capital, assumed liabilities and acquisition costs. The
acquisitions include the assets of three propane companies acquired during fiscal 2009 for an aggregate purchase price, net of cash acquired, of $11.8 million.

The following chart sets forth information about each business Inergy acquired during the fiscal year ended September 30, 2009, and through the date of this filing:



|                 |  |                            |  |               
|---------------- |  | -------------------------- |  | --------------
|Acquisition Date |  | Company                    |  | Location      
|October 2008     |  | Blu-Gas group of companies |  | Denver, NC    
|April 2009       |  | Newtons Gas Service, Inc. |  | Colchester, VT
|June 2009        |  | F.G. White Company, Inc.   |  | Waitsfield, VT



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Industry Background and Competition

Propane

Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use relative to alternative stand-alone energy sources. Inergys retail propane business consists principally of transporting propane to its customer service centers
and other distribution areas and then to tanks located on its customers premises. Retail propane falls into four broad categories: residential, industrial, commercial, and agricultural. Residential customers use propane primarily for space and
water heating. Industrial customers use propane primarily as fuel for forklifts and stationary engines, to fire furnaces, as a cutting gas, in mining operations and in other process applications. Commercial customers, such as restaurants, motels,
laundries and commercial buildings, use propane in a variety of applications, including cooking, heating and drying. In the agricultural market, propane is primarily used for tobacco curing, crop drying, poultry brooding and weed control.

Propane is extracted from natural gas or oil wellhead gas at processing plants or separated from crude oil during the refining process.
Propane is normally transported and stored in a liquid state under moderate pressure or refrigeration for ease of handling in shipping and distribution. When the pressure is released or the temperature is increased, it is usable as a flammable gas.
Propane is colorless and odorless; an odorant is added to allow its detection. Propane is clean-burning, producing negligible amounts of pollutants when consumed.

The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings. Approximately 70% 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 calendar year.

Propane competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. Propane is more expensive than natural gas on an
equivalent BTU basis in locations served by natural gas, but serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Historically, the expansion of natural gas into
traditional propane markets has been inhibited by the capital costs required to expand pipeline and retail distribution systems. Although the extension of natural gas pipelines tends to displace propane distribution in areas affected, Inergy
believes that new opportunities for propane sales arise as more geographically remote neighborhoods are developed. Propane is generally less expensive to use than electricity for space heating, water heating, clothes drying and cooking. Although
propane is similar to fuel oil in certain applications and market demand, propane and fuel oil compete to a lesser extent than propane and natural gas, primarily because of the cost of converting to fuel oil. The costs associated with switching from
appliances that use fuel oil to appliances that use propane are a significant barrier to switching. By contrast, natural gas can generally be substituted for propane in appliances designed to use propane as a principal fuel source.

In addition to competing with alternative energy sources, Inergy competes with other companies engaged in the retail propane distribution business.
Competition in the propane industry is highly fragmented and generally occurs on a local basis with other large full-service, multi-state propane marketers, smaller local independent marketers and farm cooperatives. Based on industry publications,
Inergy believes that the 10 largest retailers account for 37% of the total retail sales of propane in the United States and that no single marketer has a greater than 10% share of the total retail market in the United States. Most of Inergys
customer service centers compete with several marketers or distributors. Each customer service center operates in its own competitive environment because retail marketers tend to locate in close proximity to customers. Inergys typical customer
service center generally has an effective marketing radius of approximately 25 miles, although in certain rural areas the marketing radius may be extended by a satellite location.

The ability to compete effectively further depends on the reliability of service, responsiveness to customers and the ability to maintain competitive prices. Inergy believes that its safety programs,
policies and procedures are



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more comprehensive than many of its smaller, independent competitors and give Inergy a competitive advantage over such retailers. Inergy also believes that its service capabilities and customer
responsiveness differentiate it from many of these smaller competitors. Inergys employees are on call 24-hours and seven-days-a-week for emergency repairs and deliveries.

Retail propane distributors typically price retail usage based on a per gallon margin over wholesale costs. As a result, distributors generally seek to maintain their operating margins by passing costs
through to customers, thus insulating themselves from volatility in wholesale propane prices.

The propane distribution industry is
characterized by a large number of relatively small, independently owned and locally operated distributors. Each year, a number of these local distributors have sought to sell their business for reasons that include, among others, retirement and
estate planning. In addition, the propane industry faces increasing environmental regulations and escalating capital requirements needed to acquire advanced, customer-oriented technologies. Primarily as a result of these factors, the industry is
undergoing consolidation and Inergy, as well as other national and regional distributors, have been active consolidators in the propane market. In recent years, an active, competitive market has existed for the acquisition of propane assets and
businesses. Inergy expects this acquisition market to continue for the foreseeable future.

The wholesale propane business is highly
competitive. Inergys competitors in the wholesale business include producers and independent regional wholesalers. Inergy believes that its wholesale supply and distribution business provides it with a stronger regional presence and a
reasonably secure, efficient supply base, and positions it well for expansion through acquisitions.

Midstream

Inergy owns, as part of its midstream operations, a high-performance, multi-cycle natural gas storage facility (Stagecoach) in New York that it acquired in
August 2005. Inergy also owns an NGL business in California, which includes a 25.0 MMcf/day natural gas processing plant, a 12,000 bpd NGL fractionation plant, an 8,000 bpd butane isomerization plant, NGL rail and truck terminals, a
24.0 million gallon NGL storage facility and NGL transportation/marketing operations. Inergy also owns a 1.7 million barrel salt cavern liquefied petroleum gas storage facility near Bath, New York. In October 2007, Inergy acquired a
controlling interest in Steuben Gas Storage Company (Steuben), which owns a 6.2 bcf natural gas storage facility located in Steuben County, New York. In August 2008, Inergy acquired US Salt, an industry leading solution mining and salt
production company located in Schuyler County, New York. The solution mining process used by US Salt creates salt caverns that can be developed into usable natural gas storage and LPG storage capacity. In November 2009, Inergy completed its
development of Thomas Corners, a 7 bcf natural gas storage facility located in Steuben County, New York. Inergy believes these businesses complement its existing propane operations and provide it with added long-term strategic benefits.

Natural Gas Storage Business

According
to the Energy Information Administrations consumption data, natural gas supplies approximately 25% of U.S. energy. In recent years, the market for natural gas has experienced increasingly volatile prices, due in part to the following factors:



| |  |  | weather-related demand shifts;
| | - |  | ------------------------------



| |  |  | infrastructure constraints;
| | - |  | ---------------------------



| |  |  | trading impacts on short-term energy markets; and
| | - |  | -------------------------------------------------



| |  |  | supply, demand and other factors affecting alternative fuels.
| | - |  | -------------------------------------------------------------

Underground natural gas storage facilities are a critical component of the North American natural gas transmission and distribution system. They provide an essential reliability cushion against unexpected
disruptions



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in supply, transportation or markets and allow for the warehousing of gas to meet expected seasonal and daily variability in demand. According to the Energy Information Administration, U.S.
natural gas consumption is expected to grow at a compound annual growth rate of 1.0% through 2020.

Most forecasts of North American natural
gas supply and demand suggest a continuation of trends that will result in increased demand for natural gas storage capacity. Seasonal and weather sensitive demand sectors (residential and commercial heating demand and gas-fired power generation
demand) have been growing and are expected to continue to do so, while the less seasonal industrial demand has been declining. Natural gas supply, meanwhile, has become almost entirely non-seasonal, requiring greater reliance on natural gas storage
to respond to demand variability. On average, total North American natural gas consumption levels are approximately 40% higher in the winter months than summer months primarily due to the requirements of residential and commercial market sectors.
These markets are very temperature sensitive with demand being highly variable both on a seasonal and a daily basis thus requiring that storage be capable of providing high maximum daily deliverability on the coldest days when storage due to
infrastructure constraints provides as much as 50% of the markets total requirement. Analysis has shown that seasonal winter demand has continued to show steady growth even though warmer winter temperature trends have muted the full impact of
this increasing demand. Gas storage has facilitated the creation of a natural gas industry that is characterized by a production profile that is largely non-seasonal and a consumption profile that is highly seasonal and weather sensitive. Natural
gas storage is essential in reallocating this inherent supply and demand imbalance.

In the natural gas storage business, there are
significant barriers to entry, particularly in depleted reservoir storage such as the Stagecoach facility. Barriers include:

Geology: rock quality, depth, containment and reservoir size heavily influence development opportunities;

Geography: proximity to existing pipeline infrastructure, surface development, and complicated land ownership all
combine to further increase the difficulty in developing and operating natural gas storage facilities;

Specialized skills: finding and retaining qualified and skilled natural gas storage professionals is a challenge in todays competitive job market in the oil & gas sectors due to the specialized nature of the skills
required; and

Development costs: costs for new natural gas storage capacity development have
continued to increase.

Although there are significant barriers to entry within the natural gas storage industry, competition is robust.
Competition for natural gas storage is primarily based on location, connectivity, and the ability to deliver natural gas in a timely and reliable manner. Inergys natural gas storage facilities compete with other means of natural gas storage,
including other depleted reservoir facilities, salt cavern storage facilities, and liquefied natural gas and pipelines.

Storage capacity is
held by a wide variety of market participants for a variety of purposes such as:

Reliability: local
distribution companies (LDCs) hold the bulk of capacity and tend to use it in a manner relatively insensitive to gas prices, injecting gas into storage during the summer to meet fairly well-defined inventory targets, and
withdrawing it in winter to meet peak load requirements while retaining a sufficient cushion of inventory to meet worst-case, late winter demands. For such customers with an obligation to serve core end use markets, the value of storage may be
significantly greater than the price differential between winter and summer gas. LDCs will pay the price to secure the natural gas storage they need up to the cost of alternatives (i.e., long haul pipeline capacity or above-ground storage).

Efficiency: pipeline operators use storage capacity for system balancing requirements and to manage
maintenance schedules, as well as to provide storage services to shippers on their systems. Producers



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use capacity to minimize production fluctuations and to manage market commitments. Power generators use storage capacity to provide swing capability for their plants that experience high daily
and even hourly variability of requirements.

Arbitrage: energy merchants and other trading entities
use storage for gas price arbitrage purposes, buying and injecting gas at times of low gas prices and withdrawing at times of higher prices as driven by the fundamentals of the natural gas market.

The value of natural gas storage is a reflection of its critical role in providing the North American natural gas market with a degree of supply
reliability, flexibility, and seasonal and daily demand balancing.

NGL Business

In general, natural gas produced at the wellhead contains, along with methane, various NGLs. This raw natural gas is usually not acceptable for
transportation in the nations major natural gas pipeline systems or for commercial use as a fuel. Inergys natural gas processing operation, located near Bakersfield, CA, separates, for the most part, the NGLs from the methane and
delivers the methane to the local natural gas pipelines. The NGLs are retained for further processing within Inergys fractionation facility.

NGL fractionation facilities separate mixed NGL streams into discrete NGL products: propane, normal butane, isobutane and pentanes (sometimes referred to as natural gasoline). The three primary sources of mixed NGLs fractionated in the
United States are (i) domestic natural gas processing plants, (ii) domestic crude oil refineries, and (iii) imports of butane and propane mixtures. The mixed NGLs delivered from domestic natural gas processing plants and crude oil
refineries to our NGL fractionation facility are typically transported by NGL pipelines, railcar and NGL transport truck.

Other businesses
within Inergys NGL operation are butane isomerization and refrigerated storage. Inergys recently constructed isomerization facility chemically changes normal butane to isobutane, which Inergy provides to area refineries for motor fuel
blending.

The purity NGL products (propane, normal butane, isobutane and natural gasoline) are typically used as raw materials by the
petrochemical industry, feedstocks by refiners in the production of motor gasoline and by industrial and residential users as fuel. Propane is used both as a petrochemical feedstock in the production of propylene and as a heating, engine and
industrial fuel. Normal butane is used as a petrochemical feedstock in the production of butadiene (a key ingredient of synthetic rubber), as a blendstock for motor gasoline and to derive isobutane through isomerization. Some more common uses of
isobutane are blendstock in motor gasoline to enhance the octane content and in the production of propylene oxide. Natural gasoline, a mixture of pentanes and heavier hydrocarbons, is primarily used as a blendstock for motor gasoline, denaturant for
ethanol and dilute for heavy crude oil.

Inergys NGL business encounters competition from fully integrated oil companies, and
independent NGL market participants. Each of Inergys competitors has varying levels of financial and personnel resources, and competition generally revolves around price, service and location. The majority of Inergys NGL processing and
fractionation activities are processing mixed NGL streams for third-party customers and to support its NGL marketing activities under contractual and fee-based arrangements. These fees (typically in cents per gallon) are subject to adjustment for
changes in certain fractionation expenses, including natural gas fuel costs. Inergys integrated midstream energy asset system affords it flexibility in meeting customers needs. While many companies participate in the natural gas
processing business, few have a presence in significant downstream activities such as NGL fractionation and transportation and NGL marketing as Inergy does. Inergys competitive position and presence in these downstream businesses allows it to
extract incremental value while offering customers enhanced services, including comprehensive service packages.



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Salt Mining

According to the Salt Institute, a North American based non-profit salt industry trade association, more than 250 million metric tons of salt were produced in the world in 2007. China is the single
largest producer of salt, with 59.8 million metric tons, followed by the United States, with 44.5 million metric tons. Salt is generally categorized into four types based upon the method of production: evaporated salt, solar salt, rock
salt, and salt in brine. Dry salt is produced through the following methods: solution mining and mechanical evaporation, solar evaporation, or deep-shaft mining. The US Salt facility, located in Schuyler County, New York, produces salt using
solution mining and mechanical evaporation. The facility produces and sells over 300,000 tons of salt each year.

In solution mining, wells
are drilled into salt beds or domes and then water is injected into the formation and circulated to dissolve the salt. The salt solution, or brine, is then pumped out and taken to a plant for evaporation. At the plant, the brine is treated to remove
minerals and pumped into vacuum pans, sealed containers in which the brine is boiled and then evaporated until the salt is left behind. Then it is dried and refined. Depending on the type of salt to be produced, iodine and an anti-clumping agent may
be added to the salt. Most food grade table salt is produced in this manner.

After the salt is removed from a solution-mined salt deposit,
the empty cavern can be used to store other substances, like natural gas, LPG or compressed air.

The US Salt facility has existing cavern
space that Inergy is currently developing into a 5 million barrel LPG storage facility that it expects to place into service in the spring of 2010. There is also existing cavern space that Inergy intends to convert to approximately 10 bcf of
natural gas storage. With each new brine well that Inergy drills, it creates additional potential storage capacity.

Business Strategy

Our business strategy is to increase distributable cash flow to our unitholders through our ownership of partnership interests in Inergy. Our
incentive distribution rights in Inergy 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 increasing cash distributions to us.

Inergys Business Strategy

Inergys primary objective is to increase distributable cash flow for its unitholders, while maintaining the highest level of commitment and service to its customers. Inergy has engaged and will continue to engage in its objectives of
further growth through acquisitions both in its propane and midstream operations, internally generated expansion, and measures aimed at increasing the profitability of its existing operations.

Competitive Strengths

Inergy intends to
pursue this objective by capitalizing on what it believes are its competitive strengths as follows:

Proven Acquisition Expertise

Since Inergys predecessors inception and through September 30, 2009, Inergy has acquired and successfully integrated 84
companies78 propane companies and 6 midstream businesses. Inergys executive officers and key employees, who together average more than 15 years experience in the propane and midstream energy-related industries, have developed business
relationships with retail propane owners and businesses as well as midstream industry participants throughout the United States. These significant industry contacts have enabled Inergy to negotiate most of its acquisitions on an exclusive basis.
Inergy believes that this acquisition expertise should allow it to continue to grow through strategic and accretive acquisitions. Inergys acquisition program will continue to seek:



| |  |  | businesses that generate distributable cash flow that is accretive to Inergy common unitholders on a per unit basis;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | propane and midstream businesses in attractive market areas;
| | - |  | ------------------------------------------------------------



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| |  |  | propane businesses with established names and reputations for customer service and reliability;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | propane businesses with high concentration of propane sales to residential customers;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | midstream businesses that generate predictable, stable fee-based cash flow streams;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | midstream businesses with organic expansion opportunities or strategic regional enhancement; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | retention of key employees in acquired businesses.
| | - |  | --------------------------------------------------

Management Experience

Inergys senior management team has extensive experience in the
propane and midstream energy industry. Inergys management team has a proven track record of enhancing the value of the partnership, through the acquisition, integration and optimization of the businesses Inergy owns and operates.

Flexible Financial Structure

Inergy has
a $350 million revolving credit facility for acquisitions and a $75 million revolving working capital facility. These facilities include a provision which allows us to utilize up to $200 million of combined borrowing capacity for working capital as
needed during the winter heating season. Inergy believes its available capacity under these facilities combined with its ability to fund acquisitions and organic expansion projects through the issuance of additional partnership interests will
provide a flexible financial structure that will facilitate its acquisition and organic expansion effort.

As discussed in Item 1, Inergy
now has a $450 million general partnership revolving credit facility for acquisitions, capital expenditures and general partnership purposes and a $75 million revolving working capital facility.

Propane Business Strengths

Focus on
High Percentage of Retail Sales to Residential Customers

Inergys retail propane operations concentrate on sales to residential
customers. Residential customers tend to generate higher margins and are generally more stable purchasers than other customers. For the fiscal year ended September 30, 2009, sales to residential customers represented approximately 70% of
Inergys retail propane gallons sold. Although overall demand for propane is affected by weather and other factors, Inergy believes that residential propane consumption is not materially affected by general economic conditions because most
residential customers consider home space heating to be an essential purchase. In addition, Inergy owns nearly 90% of the propane tanks located at its customers homes. In many states, fire safety regulations restrict the refilling of a leased
tank solely to the propane supplier that owns the tank. These regulations, which require customers to switch propane tanks when they switch suppliers, help enhance the stability of Inergys customer base because of the inconvenience and costs
involved with switching tanks and suppliers.

Regionally Branded Operating Structure

Inergy believes that its success in maintaining customer stability and its low cost operating structure at its customer service centers results from
Inergys decentralized operation under established, locally recognized trade names. Inergy attempts to capitalize on the reputation of the companies it acquires by retaining their local brand names and employees, thereby preserving the goodwill
of the acquired business and fostering employee loyalty and customer retention. Inergy expects its local branch management to continue to manage its marketing programs, new business development, customer service and customer billing and collections.
Inergy believes that its employee incentive programs encourage efficiency and allow it to control costs at the corporate and field levels.



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Operations in Attractive Propane Markets

A majority of Inergys propane operations are concentrated in attractive propane market areas, where natural gas distribution is not cost-effective,
margins are relatively stable, and tank control is relatively high. Inergy intends to pursue acquisitions in similar attractive markets.

Comprehensive Propane Logistics and Distribution Business

One of Inergys distinguishing strengths is its propane
procurement and distribution expertise and capabilities. For the fiscal year ended September 30, 2009, Inergy delivered 380.6 million gallons of propane on a wholesale basis to its various customers. These operations are significantly
larger on a relative basis than the wholesale operations of most publicly-traded propane businesses. Inergy also provides transportation services to these distributors through its fleet of transport vehicles, and price risk management services to
its customers through a variety of financial and other instruments. The presence of Inergys trucks serving its wholesale customers allows Inergy to take advantage of various pricing and distribution inefficiencies that exist in the market from
time to time. Inergy believes its wholesale business enables it to obtain valuable market intelligence and awareness of potential acquisition opportunities. Because Inergy sells on a wholesale basis to many residential and commercial retailers,
Inergy has an ongoing relationship with a large number of businesses that may be attractive acquisition opportunities for it. Inergy believes that it will have an adequate supply of propane to support its growing retail operations at prices that are
generally available only to large wholesale purchasers. This purchasing scale and resulting expertise also helps Inergy avoid shortages during periods of tight supply to an extent not generally available to other retail propane distributors.

Midstream Business Strengths

Strategically Located Assets

Inergys assets are situated close to or within demand based market areas, which positions
Inergy well to leverage the services it offers to its customers relative to its competitors. Inergy owns and operates natural gas storage operations approximately 200 miles northwest of New York City. These assets are among the closest natural gas
storage facilities to the New York City market and have the capability of delivering gas to this market as well as other Northeast and Mid-Atlantic market centers. Inergy also owns and operates US Salt, a salt production company located in Schuyler
County, New York, between the Stagecoach and Steuben natural gas storage facilities, which Inergy believes may add additional gas storage capacity to its operations in the Northeast. Inergy also owns and operates an NGL operation near Bakersfield,
California, strategically situated between the major refining centers of Los Angeles and San Francisco. Inergy believes there are opportunities to further leverage its geographic location, expand its current asset base and to enhance the platform of
services it offers to its customers that will further enhance the value and profitability of these assets.

Ability to Leverage Industry
Relationships

Inergys management team has extensive industry relationships and they have been successful in leveraging these
relationships with both new and existing customers of the midstream operations into profitable opportunities to further grow Inergys operations.

Stable Cash Flows

Inergys midstream operations consist predominantly of fee-based services that generate stable cash
flows. The Stagecoach operations are 100% fee-based with a weighted average contract maturity which extends to September 2014. Steuben and Bath operations are also 100% fee-based with contracted maturities extending out several years. These
contracts are with investment-grade rated customers such as large east coast utilities and major gas marketing firms. In addition, Inergys West Coast NGL operations include fee-based services and have relatively little exposure to fluctuations
in commodity prices. Inergy believes that this further adds to its stable cash flow and enhances its access to the capital markets.



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Operations

Inergys operations reflect two reportable segments: propane operations and midstream operations.

Propane Operations

Retail Propane

Customer Service Centers

At October 30, 2009, Inergy distributes propane to
approximately 700,000 retail customers from 312 customer service centers in 28 states. Inergy markets propane primarily in rural areas, but also has a significant number of customers in suburban areas where energy alternatives to propane such as
natural gas are generally not available. Inergy markets its propane primarily in the eastern half of the United States through its customer service centers using multiple regional brand names. The following table shows Inergys customer service
centers by state:



|               |  |                                
|-------------- |  | -------------------------------
|State          |  | Number ofCustomerServiceCenters
|Alabama        |  | 40                             
|Arkansas       |  | 2                              
|Connecticut    |  | 4                              
|Florida        |  | 20                             
|Georgia        |  | 4                              
|Illinois       |  | 4                              
|Indiana        |  | 25                             
|Kentucky       |  | 2                              
|Maine          |  | 4                              
|Maryland       |  | 6                              
|Massachusetts  |  | 6                              
|Michigan       |  | 31                             
|Mississippi    |  | 29                             
|New Hampshire  |  | 3                              
|New Jersey     |  | 3                              
|New York       |  | 11                             
|North Carolina |  | 11                             
|Ohio           |  | 26                             
|Oklahoma       |  | 3                              
|Pennsylvania   |  | 14                             
|Rhode Island   |  | 1                              
|South Carolina |  | 3                              
|Tennessee      |  | 9                              
|Texas          |  | 27                             
|Vermont        |  | 10                             
|Virginia       |  | 4                              
|West Virginia  |  | 2                              
|Wisconsin      |  | 8                              
|               |  |                                
|Total          |  | 312                            
|               |  |                                

From its customer service centers, Inergy also sells, installs and services equipment related to its
propane distribution business, including heating and cooking appliances. Typical customer service centers consist of an office and service facilities, with one or more 12,000 to 30,000 gallon bulk storage tanks. Some of Inergys customer
service centers also have an appliance showroom. Inergy has several satellite facilities that typically contain only large capacity storage tanks.



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Customer Deliveries

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

During the fiscal year ended September 30, 2009, Inergy delivered
approximately 45% of its propane volume to retail customers and 55% to wholesale customers. Inergys retail volume sold to residential, industrial and commercial, and agricultural customers were as follows:



| |  |  | 70% to residential customers;
| | - |  | -----------------------------



| |  |  | 23% to industrial and commercial customers; and
| | - |  | -----------------------------------------------



| |  |  | 7% to agricultural customers.
| | - |  | -----------------------------

No single retail customer accounted for more than 1% of Inergys revenue during the fiscal year ended September 30, 2009.

Approximately half of Inergys residential customers receive their propane supply under an automatic delivery program. Under the automatic delivery program, Inergy delivers propane to its heating customers approximately six times
during the year. Inergy determines the amount of propane delivered based on weather conditions and historical consumption patterns. Inergys automatic delivery program eliminates the customers need to make an affirmative purchase
decision, promotes customer retention by ensuring an uninterrupted supply and enables Inergy to efficiently route deliveries on a regular basis. Inergy promotes this program by offering level payment billing, discounts, fixed price options and price
caps. In addition, Inergy provides emergency service 24 hours a day, seven days a week, 52 weeks a year.

Seasonality

The retail propane business is seasonal with weather conditions significantly affecting demand for propane. Inergy believes that the geographic diversity of
its areas of operations helps to minimize its exposure to regional weather. Although overall demand for propane is affected by climate, changes in price and other factors, Inergy believes its residential and commercial business to be relatively
stable due to the following characteristics:



| |  |  | residential and commercial demand for propane has not been significantly affected by general economic conditions due to the largely non-discretionary
nature of most propane purchases by Inergys customers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | loss of customers to competing energy sources has been low;
| | - |  | -----------------------------------------------------------



| |  |  | the tendency of customers to remain with Inergy due to the product being delivered pursuant to a regular delivery schedule and to Inergys
ownership of approximately 90% of the storage tanks utilized by its customers; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys ability to offset customer losses through a combination of acquisitions and to a lesser extent, sales to new customers in existing
markets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Since home heating usage is the most sensitive to temperature, residential customers account for the greatest
usage variation due to weather. Variations in the weather in one or more regions in which Inergy operates can significantly affect the total volumes of propane it sells and the margins it realizes and, consequently, its results of operations. Inergy
believes that sales to the commercial and industrial markets, while affected by economic patterns, are not as sensitive to variations in weather conditions as sales to residential and agricultural markets.



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Transportation Assets and Truck Maintenance

Inergys transportation assets are operated by L&L Transportation, LLC, a wholly owned subsidiary of Inergy Propane, LLC. The transportation of
propane requires specialized equipment. Propane trucks carry specialized steel tanks that maintain the propane in a liquefied state. As of September 30, 2009, Inergy owned a fleet of 191 tractors, 571 transports, 1,330 bobtail and rack trucks
and 884 other service vehicles. In addition to supporting its retail and wholesale propane operations, Inergys fleet is also used to deliver butane and ammonia for third parties and to distribute natural gasoline for various processors and
refiners.

Inergy owns truck maintenance facilities located in Indiana, Ohio and Mississippi. Inergy also has a trucking operation located in
California as part of its NGL business. Inergy believes that its ability to build and maintain the trucks it uses in its propane operations significantly reduces the costs Inergy would otherwise incur with third parties in purchasing and maintaining
its fleet of trucks.

Pricing Policy

Inergys pricing policy is an essential element in its successful marketing of propane. Inergy bases its pricing decisions on, among other things, prevailing supply costs, local market conditions and local management input. Inergy
relies on its regional management to set prices based on these factors. Inergys local managers are advised regularly of any changes in the posted prices of its propane suppliers. Inergy believes its propane pricing methods allow it to respond
to changes in supply costs in a manner that protects its customer base and gross margins. In some cases, however, Inergys ability to respond quickly to cost increases could cause its retail prices to rise more rapidly than those of its
competitors, possibly resulting in a loss of customers.

Billing and Collection Procedures

Inergy retains its customer billing and account collection responsibilities at the local level. Inergy believes that this decentralized approach is
beneficial for a number of reasons:



| |  |  | customers are billed on a timely basis;
| | - |  | ---------------------------------------



| |  |  | customers are more likely to pay a local business;
| | - |  | --------------------------------------------------



| |  |  | cash payments are received faster; and
| | - |  | --------------------------------------



| |  |  | local personnel have current account information available to them at all times in order to answer customer inquiries.
| | - |  | ----------------------------------------------------------------------------------------------------------------------

Trademarks and Trade Names

Inergy uses a
variety of trademarks and trade names which it owns, including Inergy and Inergy Services. Inergy believes that its strategy of retaining the names of the companies it has acquired has maintained the local identification of
such companies and has been important to the continued success of the acquired businesses. Inergy regards its trademarks, trade names and other proprietary rights as valuable assets and believes that they have significant value in the marketing of
its products.

Wholesale Supply, Marketing and Distribution Operations

Inergy currently provides wholesale supply, marketing and distribution services to independent dealers, multi-state marketers, petrochemical companies,
refinery and gas processors and a number of other NGL marketing and distribution companies, primarily in the Midwest and Southeast. While its wholesale supply, marketing and distribution operations accounted for 25% of total revenue, this business
represented 4% of Inergys gross profit during the fiscal year ended September 30, 2009.



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Marketing and Distribution

Because of the size of its wholesale operations, one of Inergys distinguishing strengths is its procurement and distribution expertise and capabilities. This is partly the result of the unique
background of Inergys management team, which has significant experience in the procurement aspects of the propane business. Inergy also offers transportation services to these distributors through its fleet of transport trucks and price risk
management services to its customers through a variety of financial and other instruments. Inergys wholesale supply, marketing and distribution business provides Inergy with an additional income stream as well as extensive market intelligence
and acquisition opportunities. In addition, these operations provide Inergy with more secure supplies and better pricing for its customer service centers. Moreover, the presence of Inergys trucks across the Midwest and Southeast allows it to
take advantage of various pricing and distribution inefficiencies that exist in the market from time to time.

Supply

Inergy obtains a substantial majority of its propane from domestic suppliers, with its remaining propane requirements provided by Canadian suppliers. During
the fiscal year ended September 30, 2009, a majority of Inergys sales volume was purchased pursuant to contracts that have a term of one year or less; the balance of Inergys sales volume was purchased on the spot market. The
percentage of Inergys contract purchases varies from year to year. Supply contracts generally provide for pricing in accordance with posted prices at the time of delivery or the current prices established at major storage points, and some
contracts include a pricing formula that typically is based on such market prices. Some of these agreements provide maximum and minimum seasonal purchase guidelines.

Two suppliers, BP Amoco Corp. (12%) and Sunoco, Inc. (11%), accounted for 23% of propane purchases during the past fiscal year. Inergy believes that contracts with these suppliers will enable it to
purchase most of its supply needs at market prices and ensure adequate supply. No other single supplier accounted for more than 10% of propane purchases in the current year.

Propane generally is transported from refineries, pipeline terminals, storage facilities and marine terminals to Inergys approximate 650 bulk storage tank facilities. Inergy accomplishes this by
using its transports and contracting with common carriers, owner-operators and railroad tank cars. Inergys customer service centers and satellite locations typically have one or more 12,000 to 30,000 gallon storage tanks, which are generally
adequate to meet customer usage requirements for seven days during normal winter demand. Additionally, Inergy leases underground storage facilities from third parties under annual lease agreements.

Inergy engages in risk management activities in order to reduce the effect of price volatility on its product costs and to help ensure the availability of
propane during periods of short supply. Inergy is currently a party to propane forward and option contracts with various third parties to purchase and sell propane at fixed prices in the future. Inergy monitors these activities through enforcement
of its risk management policy.

Midstream Operations

Natural Gas Storage Operations

Stagecoach was acquired on August 9, 2005 and
is a high performance, multi-cycle natural gas storage facility with 26.25 bcf of working storage capacity of natural gas, maximum withdrawal capability of 500 MMcf/day, and maximum injection capability of 250 MMcf/day. Located approximately 150
miles northwest of New York City, the Stagecoach facility is currently connected to Tennessee Gas Pipeline Companys 300 Line and the Millennium Pipeline and is a significant participant in the northeast United States natural gas distribution
system. The Stagecoach facility is 100% contracted with predominantly investment-grade rated customers such as large east coast utility companies and major gas marketing firms.



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ASC was acquired in October 2007 and is the majority owner and operator of Steuben, which owns a natural gas
storage facility located in Steuben County, New York, with 6.2 bcf of working gas capacity, maximum withdrawal capability of 60 MMcf/day and maximum injection capability of 30 MMcf/day. The facility was developed and placed in commercial service in
1991. The storage capacity at Steuben is fully contracted under long-term agreements with investment-grade rated customers. Located approximately 30 miles northwest of Corning, New York, the Steuben facility is currently connected to Dominion Gas
Transmissions Woodhull line and is a critical component of the northeast United States natural gas market.

Thomas Corners, a 7 bcf
(working) natural gas storage facility located in Steuben County, New York, was placed into service in November 2009. Beginning in April 2010, the storage capacity at Thomas Corners will be fully contracted under long-term agreements with
investment-grade rated customers. Inergy expects Thomas Corners to generate revenue from interruptible storage contracts during the period November 2009 through March 2010. This facility has maximum withdrawal and injection capabilities of 140
MMcf/day and 70 MMcf/day, respectively. Thomas Corners is connected with the Tennessee Gas Pipeline Companys Line 400 and Columbia Gas Transmissions A-5 line (which was acquired by the Millennium Pipeline and as such the Thomas Corners
facility is also connected with the Millennium Pipeline).

LPG Storage Operations

Inergys Bath LPG Storage Facility, acquired in October 2006, is a 1.7 million barrel salt cavern storage facility located near Bath, New York,
approximately 210 miles northwest of New York City and approximately 60 miles from Inergys Stagecoach facility. The facility is supported by both rail and truck terminals capable of loading and unloading 20-23 rail cars per day and 17 truck
transports per day. The facility is currently fully contracted under long-term agreements for butane and propane storage.

NGL
Operations

Inergys NGL business, acquired in 2003, is located near Bakersfield, California. The facility includes a 25.0
MMcf/day natural gas processing plant, a 12,000 bpd NGL fractionation plant, an 8,000 bpd butane isomerization plant, NGL rail and truck terminals, a 24.0 million gallon NGL storage facility and NGL transportation/marketing operations.

Salt Operations

Inergys US Salt facility, acquired in August 2008, is located in Schuyler County, New York, and produces salt using solution mining and mechanical evaporation. The facility is strategically located between Inergys Stagecoach and
Steuben facilities. The facility produces and sells over 300,000 tons of salt each year. The US Salt facility has existing cavern space that Inergy is currently developing into a 5 million barrel LPG storage facility that it expects to place
into service in the spring of 2010. There is also existing cavern space that Inergy intends to convert to approximately 10 bcf of natural gas storage. With each new brine well that Inergy drills, it creates additional potential storage capacity.

For more information on Inergys reportable business segments, see Note 15 to the consolidated financial statements.

Employees

We have no employees except
through our ownership and control of certain subsidiaries. As of October 30, 2009, Inergy had 2,822 full-time employees and 88 part-time employees. Of the 2,910 employees, 125 were general and administrative and 2,785 were operational. Of the
operational employees, 230 were members of labor unions. Inergy believes that its relationship with its employees is satisfactory.



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##### Table of Contents

Government Regulation

National Fire Protection Association Pamphlets No. 54 and No. 58, which establish rules and procedures governing the safe handling of propane, or comparable regulations, have been adopted as the
law in substantially all of the states in which Inergy operates. In some states these laws are administered by state agencies, and in others they are administered on a county or municipal level. Regarding the transportation of propane, ammonia and
butane by truck, Inergy is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation.
Inergy conducts ongoing training programs to help ensure that its operations are in compliance with applicable regulations. Inergy maintains various permits that are necessary to operate some of its facilities, some of which may be material to its
operations. Inergys management believes that the procedures currently in effect at all of its facilities for the handling, storage and distribution of propane and the transportation of ammonia and butane are consistent with industry standards
and are in compliance in all material respects with applicable laws and regulations.

Inergys midstream operations are subject to
federal, state and local regulatory authorities. Specifically, the Stagecoach, Steuben and Thomas Corners natural gas storage facilities are subject to the regulation of the Federal Energy Regulatory Commission (FERC).

Under the Natural Gas Act of 1938 (NGA), FERC has authority to regulate gas transportation services in interstate commerce, including storage
services. FERCs authority to regulate those services includes the rates charged for the services, terms and conditions of service, certification and construction of new facilities, the extension or abandonment of services and facilities, the
maintenance of accounts and records, the acquisition and disposition of facilities, the initiation and discontinuation of services, relationships with affiliated entities and various other matters. Natural gas companies may not charge rates that,
upon review by FERC, are found to be unjust, unreasonable, or unduly discriminatory. In addition, FERC prohibits natural gas companies from unduly preferring or unreasonably discriminating against any person with respect to pipeline transportation
rates or terms and conditions of service. The rates and terms and conditions for such services are found in the FERC-approved tariff of Central New York Oil and Gas Company, LLC (CNYOG), the owner of the Stagecoach facility, the
FERC-approved tariff of Steuben Gas Storage Company, the owner of the Steuben facility and the FERC-approved tariff of ASC, the owner of the Thomas Corners facility. Pursuant to the NGA, existing interstate transportation and storage rates may be
challenged by complaint and are subject to prospective change by FERC. Additionally, rate increases proposed by the regulated pipeline or storage provider may be challenged by protest and such proposed increases may ultimately be rejected by
FERC. CNYOG and ASC currently hold authority from FERC to charge and collect market-based rates for services provided at the Stagecoach facility and Thomas Corners facility, respectively. Steuben Gas Storage Company currently holds authority from
FERC to charge and collect cost of service rates at the Steuben facility. There can be no guarantee that CNYOG and ASC will be allowed to continue to operate under such a rate structure for the remainder of the Stagecoach and Thomas Corners
facilities operating lives. Any successful complaint or protest against rates charged for CNYOGs or ASCs storage and related services, or CNYOGs or ASCs loss of market-based rate authority, could have an adverse impact
on Inergys revenues.

In addition, CNYOGs or ASCs market-based rate authority would be subject to further review if it
acquires transportation facilities or additional storage capacity, if Inergy or one of its affiliates provides storage or transportation services in the same market area or acquires an interest in another storage field that can link Inergys
facilities to the market area or if Inergy or one of its affiliates acquire an interest in or is acquired by an interstate pipeline.

There
can be no assurance that FERC will continue to pursue its approach of pro-competitive policies as it considers matters such as pipeline rates and rules and policies that may affect rights of access to natural gas transportation capacity,
transportation and storage facilities. Any successful complaint or protest against such rates or loss of market-based rate authority could have an adverse impact on Inergys revenues associated with providing storage services.



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In August, 2005, Congress enacted legislation that, among other matters, amends the NGA to make it unlawful
for any entity to use any deceptive or manipulative device or contrivance in connection with the purchase or sale of natural gas or the purchase or sale of transportation services, including storage services such as those provided by the
Stagecoach facility, subject to FERC regulation, in contravention of rules prescribed by FERC. On January 20, 2006, FERC issued rules implementing this provision. The rules make it unlawful for any entity, in connection with the purchase or
sale of natural gas subject to the jurisdiction of FERC, or the purchase or sale of FERC-regulated transportation services, directly or indirectly, to use or employ any device, scheme or artifice to defraud; to make any untrue statement of material
fact or omit to make any such statement necessary to make the statements made not misleading; or to engage in any act or practice that operates as a fraud or deceit upon any entity. The new legislation also amends the NGA to give FERC authority to
impose civil penalties for violations of the NGA up to $1,000,000 per day per violation. The new anti-manipulation rule does not apply to activities that relate only to intrastate or other non-jurisdictional sales, gas processing, or gathering, but
does apply to activities of interstate gas pipelines and storage providers, as well as otherwise non-jurisdictional entities, such as gas processors, to the extent the activities are conducted in connection with gas sales, purchases or
transportation subject to FERC jurisdiction. It therefore reflects an expansion of FERCs NGA enforcement authority.

Certain aspects of
Inergys midstream operations are also subject to the Pipeline Safety Act of 2002, as amended by the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006, which provides guidelines in the area of testing, education, training and
communication. In addition to pipeline integrity tests, pipeline and storage companies are required to implement a qualification program to make certain that employees are properly trained. The United States Department of Transportation has approved
Inergys qualification program. Inergy believes that it is in substantial compliance with these requirements and has integrated appropriate aspects of the law into its Operator Qualification Program, which is in place and functioning.

Additionally, Inergy is subject to stringent federal, state and local environmental, health and safety laws and environmental regulations
governing its operations. These laws and regulations impose limitations on the discharge and emission of pollutants and establish standards for the handling of solid and hazardous wastes. Applicable laws include the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Clean Air Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and
comparable state or local statutes. CERCLA, also known as the Superfund law, imposes joint and several liability without regard to fault or the legality of the original conduct on certain classes of persons that are considered to have
contributed to the release or threatened release of a hazardous substance into the environment. While propane is not a hazardous substance within the meaning of CERCLA, other chemicals used in Inergys operations may be classified as hazardous
substances. Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties, the imposition of remedial liabilities and the issuance of injunctions restricting or prohibiting
Inergys activities. Inergy has not received any notices that it has violated these environmental laws and regulations in any material respect and it has not otherwise incurred any material liability or capital expenditure thereunder.

For acquisitions that involve the purchase of real estate, Inergy conducts due diligence investigations to assess whether any material or
waste has been sold from, or stored on, or released or spilled from any of that real estate prior to its purchase. This due diligence includes questioning the seller, obtaining representations and warranties concerning the sellers compliance
with environmental laws and performing site assessments. During these due diligence investigations, Inergys employees, and, in certain cases, independent environmental consulting firms, review historical records and databases and conduct
physical investigations of the property to look for evidence of contamination, compliance violations and the existence of underground storage tanks.

Recent scientific studies have suggested that emissions of certain gases, commonly referred to as greenhouse gas and including methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of fuels
such as propane and natural gas, may be contributing to warming of the Earths atmosphere. In response



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to such studies, the U.S. Congress is actively considering legislation to reduce emissions of greenhouse gases. In addition, at least 17 states have already taken legal measures to reduce
emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and/or regional greenhouse gas cap and trade programs. Also, as a result of the U.S. Supreme Courts decision on April 2, 2007
in Massachusetts, et al. v. EPA, the U.S. Environmental Protection Agency or EPA may be required to regulate greenhouse gas emissions from mobile sources (e.g., cars and trucks) even if Congress does not adopt new
legislation specifically addressing emissions of greenhouse gases. The Courts holding in Massachusetts that greenhouse gases fall under the federal Clean Air Acts definition of air pollutant may also result in future
regulation of greenhouse gas emissions from stationary sources under certain Clean Air Act programs. Passage of climate control legislation or other regulatory initiatives by Congress or various states of the U.S. or the adoption of regulations by
the EPA or analogous state agencies that restrict emissions of greenhouse gases in areas in which Inergy conducts business could have an adverse affect on its operations and demand for its services.

In addition, the Department of Homeland Security Appropriations Act of 2007 requires the Department of Homeland Security or DHS to issue
regulations establishing risk-based performance standards for the security of chemical and industrial facilities, including oil and gas facilities that are deemed to present high levels of security risk. The DHS issued an interim final
rule in April 2007 regarding risk-based performance standards to be attained pursuant to the act and the DHS has adopted Appendix A to the interim rules that establish the chemicals of concern and their respective threshold quantities that will
trigger compliance with the interim rules.

Future developments, such as stricter environmental, health or safety laws and regulations, or
more stringent enforcement of existing requirements could affect Inergys operations. Inergy does not anticipate that its compliance with or liabilities under environmental, health and safety laws and regulations, including CERCLA, will require
any material increase in its capital expenditures or otherwise have a material adverse effect on Inergy. To the extent that any environmental liabilities, or environmental, health or safety laws, or regulations are made more stringent, there can be
no assurance that Inergys results of operations will not be materially and adversely affected.

Item 1A. Risk Factors.

Risks Inherent in Our Dependence on Distributions from Inergy, L.P.

Our only cash-generating assets are our partnership interests in Inergy, L.P., and our cash flow is therefore completely dependent
upon the ability of Inergy to make distributions to its partners.

The amount of cash that Inergy can distribute to its partners each
quarter, including us, principally depends upon the amount of cash Inergy generates from its operations, which amounts of cash will fluctuate from quarter to quarter based on, among other things:



| |  |  | the weather in Inergys operating areas;
| | - |  | ----------------------------------------



| |  |  | the cost to Inergy of the propane it buys for resale;
| | - |  | -----------------------------------------------------



| |  |  | the level of competition from other propane companies, natural gas storage providers, natural gas processors and other energy providers; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the prevailing economic conditions.
| | - |  | -----------------------------------

In addition, the actual amount of cash Inergy will have available for distribution will depend on other factors, some of which are beyond its control, including:



| |  |  | the level of capital expenditures Inergy makes;
| | - |  | -----------------------------------------------



| |  |  | the cost of acquisitions or expansions, if any;
| | - |  | -----------------------------------------------



| |  |  | debt service requirements;
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| |  |  | the price and availability of debt and equity financing;
| | - |  | --------------------------------------------------------



| |  |  | fluctuations in working capital needs;
| | - |  | --------------------------------------



| |  |  | restrictions on distributions contained in Inergys credit facility and senior notes;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | Inergys ability to borrow under its working capital facility to make distributions;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | prevailing economic conditions; and
| | - |  | -----------------------------------



| |  |  | the amount, if any, of cash reserves established by Inergys managing general partner in its discretion for the proper conduct of business.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

If Inergy reduced its per unit distribution, we would have less cash available for distribution and would probably be
required to reduce our per unit distribution. Furthermore, the amount of cash that Inergy has available for distribution depends primarily upon its cash flow, including cash flow from financial reserves and working capital borrowings, and is not
solely a function of profitability, which will be affected by non-cash items. As a result, Inergy may be able to make cash distributions during periods when Inergy records losses and may not be able to make cash distributions during periods when
Inergy records net income.

To the extent we purchase additional units from Inergy, our rate of growth may be reduced.

Our business strategy includes supporting the growth of Inergy by purchasing Inergy securities or lending funds to Inergy to provide
funding for the acquisition of a business or asset or for an internal growth project. To the extent we purchase common units, the rate of our distribution growth may be reduced, at least in the short term, as less of our cash distributions will come
from our ownership of Inergy incentive distribution rights, which distributions increase at a faster rate than those of our other securities.

The managing general partner of Inergy has the ability to limit or modify the incentive distributions we are entitled to receive in order to facilitate the growth strategy of Inergy.

We hold incentive distribution rights in Inergy that 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. A substantial portion of the cash flows we receive from Inergy is provided by these incentive distributions. There may be instances in which
the amount of cash we receive from the incentive distributions could limit Inergys growth through acquisitions or expansions. This is because a potential acquisition or expansion might not be accretive to Inergys unitholders as a result
of the significant portion of the cash flows attributable to such acquisition or expansion which would be paid as incentive distributions to us. By limiting the level of incentive distributions in connection with a particular acquisition, expansion
or issuance of units of Inergy, the cash flows associated with that acquisition or expansion could be accretive to Inergys unitholders as well as substantially beneficial to us. Accordingly, in order to facilitate acquisitions and expansions
by Inergy, the managing general partner of Inergy may elect to limit the incentive distributions we are entitled to receive in all instances or with respect to a particular acquisition, expansion or unit issuance contemplated by Inergy. In doing so,
the board of directors of the managing general partner of Inergy would be required to consider both its fiduciary obligations to investors in Inergy as well as to us as its sole member. Our partnership agreement specifically permits our general
partner to authorize the managing general partner of Inergy to limit or modify the incentive distribution rights held by us without approval by our unitholders, if our general partner determines that such limitation or modification does not
adversely affect our limited partners in any material respect. If distributions on the incentive distribution rights were reduced for the benefit of the Inergy common units, the total amount of cash distributions we would receive from Inergy, and
therefore the amount of cash distributions we could pay to our unitholders, would be reduced.



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A reduction in Inergys distributions will disproportionately affect the amount of cash
distributions to which we are currently entitled.

Our ownership of the incentive distribution rights in Inergy entitles us to receive
our pro rata share of specified percentages of total cash distributions made by Inergy with respect to any particular quarter only in the event that Inergy distributes more than $0.33 per unit for such quarter. As a result, the holders of
Inergys common units have a priority over the holders of Inergys incentive distribution rights to the extent of cash distributions by Inergy up to and including $0.33 per unit for any quarter.

Our incentive distribution rights entitle us to receive increasing percentages, up to 48%, of all cash distributed by Inergy. Because the incentive
distribution rights currently participate at the maximum 48% target cash distribution level in all distributions made by Inergy above the current distribution level, future growth in distributions we receive from Inergy will not result from an
increase in the target cash distribution level associated with the incentive distribution rights.

Furthermore, a decrease in the amount of
distributions by Inergy to less than $0.45 per common unit per quarter would reduce our percentage of the incremental cash distributions above $0.375 per common unit per quarter from 48% to 23%. As a result, any such reduction in quarterly cash
distributions from Inergy would have the effect of disproportionately reducing the amount of all distributions that we receive from Inergy based on our ownership interest in the incentive distribution rights in Inergy as compared to cash
distributions we receive from Inergy on our approximate 0.8% general partner interest in Inergy and our Inergy common units.

The amount
of cash distributions from Inergy that we will be able to distribute to unitholders will be reduced by general and administrative expenses and debt service, and reserves that our general partner believes prudent to maintain for the proper conduct of
our business and for future distributions.

Before we can pay distributions to our unitholders, we must first pay or reserve funds for
our expenses, including debt service. We may also establish reserves for future distributions during periods of limited cash flows. In addition, we may reserve funds to meet the right of our wholly owned subsidiary, Inergy Partners, LLC, to maintain
its approximate 0.8% general partner interest in Inergy by making a capital contribution to Inergy when Inergy issues additional Inergy common units.

Risks Inherent in Inergy, L.P.s Business

Because we are substantially dependent on the distributions we receive from
Inergy, risks to Inergys operations are also risks to us. We have set forth below risks to Inergys business and operations, the occurrence of which could negatively impact Inergys financial performance and decrease the amount of
cash it is able to distribute to us.

Inergys future acquisitions and completion of its expansion projects will require
significant amounts of debt and equity financing which may not be available to Inergy on acceptable terms, or at all.

Inergy plans to
fund its acquisitions and expansion capital expenditures, including any future expansions it may undertake, with proceeds from sales of its debt and equity securities and borrowings under its revolving credit facility; however, Inergy cannot be
certain that it will be able to issue its debt and equity securities on terms or in the proportions that it expects, or at all, and Inergy may be unable refinance its revolving credit facility when it expires. In addition, Inergy may be unable to
obtain adequate funding under its current revolving credit facility because its lending counterparties may be unable to meet their funding obligations.

Global financial markets and economic conditions have been, and continue to be, disrupted and volatile. The debt and equity capital markets have been distressed. These issues, along with significant
write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions may make it difficult to obtain funding.



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The cost of raising money in the debt and equity capital markets has increased while the availability of
funds from those markets generally has diminished. Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets generally has
increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at maturity or on terms similar to Inergys current debt and reduced and, in some cases,
ceased to provide funding to borrowers.

A significant increase in Inergys indebtedness, or an increase in Inergys indebtedness
that is proportionately greater than its issuances of equity, as well as the credit market and debt and equity capital market conditions discussed above could negatively impact Inergys credit ratings or its ability to remain in compliance with
the financial covenants under its revolving credit agreement which could have a material adverse effect on Inergys financial condition, results of operations and cash flows. If Inergy is unable to finance acquisitions or our expansion projects
as expected, Inergy could be required to seek alternative financing, the terms of which may not be attractive, or to revise or cancel its expansion plans.

If Inergy does not continue to make acquisitions on economically acceptable terms, its future financial performance may be limited.

Due to increased competition from alternative energy sources the propane industry is not a growth industry. In addition, as a result of long-standing
customer relationships that are typical in the retail home propane industry, the inconvenience of switching tanks and suppliers and propanes higher cost as compared to other energy sources, Inergy may have difficulty in increasing its retail
customer base other than through acquisitions. Therefore, while Inergys operating objectives include promoting internal growth, its ability to grow will depend principally on acquisitions. Inergys future financial performance depends on
its ability to continue to make acquisitions at attractive prices. We cannot assure our unitholders that Inergy will be able to continue to identify attractive acquisition candidates in the future or that it will be able to acquire businesses on
economically acceptable terms. In particular, competition for acquisitions in the propane business has intensified and become more costly. Inergy may not be able to grow as rapidly as it expects through its acquisition of additional businesses for
various reasons, including the following:



| |  |  | Inergy will use its cash from operations primarily to service its debt and for distributions to unitholders and reinvestment in its business.
Consequently, the extent to which Inergy is unable to use cash or access capital to pay for additional acquisitions may limit its growth and impair its operating results. Further, Inergy is subject to certain debt incurrence covenants under its bank
credit agreement and the indentures that govern its senior notes that may restrict its ability to incur additional debt to finance acquisitions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although Inergy intends to use its own securities as acquisition currency, some prospective sellers may not be willing to accept its securities as
consideration.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergy will use cash for capital expenditures related to expansion projects, which will reduce its cash available to pay for additional acquisitions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

Moreover, acquisitions involve potential risks, including:



| |  |  | Inergys inability to integrate the operations of recently acquired businesses;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the diversion of managements attention from other business concerns;
| | - |  | ---------------------------------------------------------------------



| |  |  | customer or key employee loss from the acquired businesses; and
| | - |  | ---------------------------------------------------------------



| |  |  | a significant increase in Inergys indebtedness.
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Inergys growth strategy includes acquiring entities with lines of business that are distinct and
separate from its existing operations which could subject Inergy to additional business and operating risks.

Consistent with
Inergys announced growth strategy and its acquisition of the US Salt facility and related assets, Inergy may acquire assets that have operations in new and distinct lines of business from its existing operations. Integration of new business
segments is a complex, costly and time-consuming process and may involve assets in which Inergy has limited operating experience. Failure to timely and successfully integrate acquired entities new lines of business with Inergys existing
operations may have a material adverse effect on its business, financial condition or results of operations. The difficulties of integrating new business segments with existing operations include, among other things:



| |  |  | operating distinct business segments that require different operating strategies and different managerial expertise;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | the necessity of coordinating organizations, systems and facilities in different locations;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | integrating personnel with diverse business backgrounds and organizational cultures; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | consolidating corporate and administrative functions.
| | - |  | -----------------------------------------------------

In addition, the diversion of Inergys attention and any delays or difficulties encountered in connection with the integration of the new business segments, such as unanticipated liabilities or
costs, could harm its existing business, results of operations, financial condition or prospects. Furthermore, new lines of business will subject Inergy to additional business and operating risks which could have a material adverse effect on its
financial condition or results of operations.

Inergy may be unable to successfully integrate its recent acquisitions.

One of Inergys primary business strategies is to grow through acquisitions. We cannot assure our unitholders that Inergy will
successfully integrate acquisitions into its operations or that it will achieve the desired profitability from its acquisitions. Failure to successfully integrate these substantial acquisitions could adversely affect Inergys operations. The
difficulties of combining the acquired operations include, among other things:



| |  |  | operating a significantly larger combined organization and integrating additional retail and wholesale distribution operations to Inergys
existing supply, marketing and distribution operations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | coordinating geographically disparate organizations, systems and facilities;
| | - |  | ----------------------------------------------------------------------------



| |  |  | integrating personnel from diverse business backgrounds and organizational cultures;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | consolidating corporate technological and administrative functions;
| | - |  | -------------------------------------------------------------------



| |  |  | integrating internal controls, compliance under the Sarbanes-Oxley Act of 2002 and other corporate governance matters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | the diversion of managements attention from other business concerns;
| | - |  | ---------------------------------------------------------------------



| |  |  | customer or key employee loss from the acquired businesses;
| | - |  | -----------------------------------------------------------



| |  |  | a significant increase in Inergys indebtedness; and
| | - |  | ----------------------------------------------------



| |  |  | potential environmental or regulatory liabilities and title problems.
| | - |  | ---------------------------------------------------------------------

In addition, Inergy may not realize all of the anticipated benefits from its acquisitions, such as cost savings and revenue enhancements, for various reasons, including difficulties integrating operations
and personnel, higher costs, unknown liabilities and fluctuations in markets.



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Inergys indebtedness may limit its ability to borrow additional funds, make distributions to its
unitholders, or capitalize on acquisition or other business opportunities, in addition to impairing its ability to fulfill its debt obligation under its senior notes.

As of September 30, 2009, Inergy had $1.1 billion of total outstanding indebtedness. Inergys leverage, various limitations in its credit facility, other restrictions governing its indebtedness
and the indentures governing Inergys senior notes may reduce its ability to incur additional indebtedness, to engage in some transactions and to capitalize on acquisition or other business opportunities.

Inergys indebtedness and other financial obligations could have important consequences to unitholders. For example, they could:



| |  |  | make it more difficult for Inergy to make distributions to its unitholders;
| | - |  | ---------------------------------------------------------------------------



| |  |  | impair Inergys ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general partnership
purposes or other purposes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | result in higher interest expense in the event of increases in interest rates since some of Inergys debt is, and will continue to be, at variable
rates of interest;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | have a material adverse effect on Inergy if it fails to comply with financial and restrictive covenants in its debt agreements and an event of default
occurs as a result of that failure that is not cured or waived;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require Inergy to dedicate a substantial portion of its cash flow to payments of Inergys indebtedness and other financial obligations, thereby
reducing the availability of Inergys cash flow to fund working capital, capital expenditures and other general partnership requirements;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit Inergys flexibility in planning for, or reacting to, changes in its business and the propane industry; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | place Inergy at a competitive disadvantage compared to its competitors that have proportionately less debt.
| | - |  | -----------------------------------------------------------------------------------------------------------

If Inergy is unable to meet its debt service obligations and other financial obligations, it could be forced to restructure or refinance its indebtedness
and other financial transactions, seek additional equity capital or sell its assets. Inergy may then be unable to obtain such financing or capital or sell its assets on satisfactory terms, if at all.

A change of control could result in Inergy facing substantial repayment obligations under its credit facility and its senior notes.

Inergys bank credit agreement and the indentures governing its senior notes contain provisions relating to change of control of
Inergys managing general partner, the partnership, and Inergys operating company. If these provisions are triggered, Inergys outstanding bank indebtedness may become due. In such an event, there is no assurance that Inergy would be
able to pay the indebtedness, in which case the lenders under Inergys credit facility would have the right to foreclose on Inergys assets, which would have a material adverse effect on Inergy. There is no restriction on the ability of
Inergys general partners to enter into a transaction which would trigger the change of control provisions.

Restrictive covenants
in the agreements governing Inergys indebtedness may reduce its operating flexibility.

The indentures governing Inergys
outstanding senior notes and agreements governing Inergys revolving credit facilities and other future indebtedness contain or may contain various covenants limiting Inergys ability and the ability of specified subsidiaries of Inergy to,
among other things:



| |  |  | pay distributions on, redeem or repurchase Inergys equity interests or redeem or repurchase Inergys subordinated debt;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | make investments;
| | - |  | -----------------



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| |  |  | incur or guarantee additional indebtedness or issue preferred securities;
| | - |  | -------------------------------------------------------------------------



| |  |  | create or incur certain liens;
| | - |  | ------------------------------



| |  |  | enter into agreements that restrict distributions or other payments from Inergys restricted subsidiaries to Inergy;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | consolidate, merge or transfer all or substantially all of Inergys assets;
| | - |  | ---------------------------------------------------------------------------



| |  |  | engage in transactions with affiliates;
| | - |  | ---------------------------------------



| |  |  | create unrestricted subsidiaries; and
| | - |  | -------------------------------------



| |  |  | create non-guarantor subsidiaries.
| | - |  | ----------------------------------

These restrictions could limit Inergys ability and the ability of its subsidiaries to obtain future financings, make needed capital expenditures, withstand a future downturn in Inergys business or the economy in general, conduct
operations or otherwise take advantage of business opportunities that may arise. Inergys bank credit agreement contains covenants requiring it to maintain specified financial ratios and satisfy other financial conditions. Inergy may be unable
to meet those ratios and conditions. Any future breach of these covenants and Inergys failure to meet any of those ratios and conditions could result in a default under the terms of Inergys bank credit agreement, which could result in
the acceleration of Inergys debt and other financial obligations. If Inergy were unable to repay these amounts, the lenders could initiate a bankruptcy proceeding or liquidation proceeding or proceed against the collateral.

Inergy is subject to operating and litigation risks that could adversely affect its operating results to the extent not covered by insurance.

Inergys operations are subject to all operating hazards and risks incident to handling, storing, transporting and providing customers
with combustible products such as propane and natural gas. As a result, Inergy has been, and likely will be, a defendant in legal proceedings and litigation arising in the ordinary course of business. Inergy maintains insurance policies with
insurers in such amounts and with such coverages and deductibles as it believes are reasonable and prudent. However, Inergys insurance may not be adequate to protect it from all material expenses related to potential future claims for personal
injury and property damage. In addition, the occurrence of a serious accident, whether or not Inergy is involved, may have an adverse effect on the publics desire to use its products.

Inergys operations are subject to compliance with environmental laws and regulations that can adversely affect Inergys results of
operations and financial condition.

Inergys operations are subject to stringent environmental laws and regulations of federal,
state, and local authorities. Such environmental laws and regulations impose numerous obligations, including the acquisition of permits to conduct regulated activities, the incurrence of capital expenditures to comply with applicable laws, and
restrictions on the generation, handling, treatment, storage, disposal, and transportation of certain materials and wastes. Failure to comply with such environmental laws and regulations can result in the assessment of substantial administrative,
civil, and criminal penalties, the imposition of remedial liabilities and even the issuance of injunctions restricting or prohibiting Inergys activities. Certain environmental laws impose strict, joint and several liability for costs required
to clean up and restore sites where hazardous substances have been disposed or otherwise released. In the course of Inergys operations, materials or wastes may have been spilled or released from properties owned or leased by Inergy or on or
under other locations where these materials or wastes have been taken for disposal. In addition, many of the properties owned or leased by Inergy were previously operated by third parties whose management, disposal, or release of materials and
wastes was not under Inergys control. Accordingly, Inergy may be liable for the costs of cleaning up or remediating contamination arising out of its operations or as a result of activities by others who previously occupied or operated on
properties now owned or leased by Inergy. It is also possible that adoption of stricter environmental laws and regulations or more stringent interpretation of existing environmental laws and regulations in the future could result in additional costs
or liabilities to Inergy as well as the industry in general.



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Cost reimbursements due Inergys managing general partner may be substantial and will reduce the
cash available for principal and interest on Inergys outstanding indebtedness.

Inergy reimburses its managing general partner
and its affiliates, including officers and directors of its managing general partner, for all expenses they incur on Inergys behalf. The reimbursement of expenses could adversely affect Inergys ability to make payments of principal and
interest on our outstanding indebtedness. Inergys managing general partner has sole discretion to determine the amount of these expenses. In addition, Inergys managing general partner and its affiliates provide Inergy with services for
which Inergy is charged reasonable fees as determined by Inergys managing general partner in its sole discretion.

Failure to
maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could cause Inergy to incur additional expenditures of time and financial resources.

Inergy has completed the process of documenting and testing its internal control procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which requires annual management assessments of the effectiveness of its internal controls over financial reporting and a report by its independent registered public accounting firm on its controls over financial reporting. If,
in the future, Inergy fails to maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, it may not be able to ensure that it can conclude on an ongoing basis that it has effective
internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain an effective internal control environment could cause Inergy to incur substantial expenditures of management
time and financial resources to identify and correct any such failure.

Climate change legislation, regulatory initiatives and
litigation may adversely affect Inergys operations.

On April 17, 2009, the EPA issued a notice of its proposed finding and
determination that emissions of carbon dioxide, methane and other greenhouse gases presented an endangerment to human health and the environment because emissions of such gases are, according to EPA, contributing to warming of the
earths atmosphere and other climatic changes. Once finalized, EPAs finding and determination would allow the agency to begin regulating emissions of greenhouse gases under existing provisions of the federal Clean Air Act. In late
September 2009, EPA proposed two sets of regulations in anticipation of finalizing its findings and determination, one rule to reduce emissions of greenhouse gases from motor vehicles and the other to control emissions of greenhouse gases from
stationary sources. Although the motor vehicle rules are expected to be adopted in March 2010, it may take EPA several years to adopt and impose regulations limiting emissions of greenhouse gases from stationary sources. Any limitation on emissions
of greenhouse gases from Inergys equipment and operations could require it to incur costs to reduce emissions of greenhouse gases associated with its operations.

Also, on June 26, 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009, or ACESA, which would establish an economy-wide
cap-and-trade program to reduce U.S. emissions of greenhouse gases including carbon dioxide and methane that may contribute to warming of the Earths atmosphere and other climatic changes. ACESA would require a 17% reduction in
greenhouse gas emissions from 2005 levels by 2020 and just over an 80% reduction of such emissions by 2050. Under this legislation, the EPA would issue a capped and steadily declining number of tradable emissions allowances to major sources of
greenhouse gas emissions, including producers of NGLs (i.e., natural gas fractionators), local distribution companies and certain industrial facilities, so that such sources could continue to emit greenhouse gases into the atmosphere. These
allowances would be expected to escalate significantly in cost over time. The U.S. Senate has begun work on its own legislation for restricting domestic greenhouse gas emissions and President Obama has indicated his support of legislation to reduce
greenhouse gas emissions through an emission allowance system. Although it is not possible at this time to predict when the Senate may act on climate change legislation or how any bill passed by the Senate would be reconciled with ACESA, any future
federal laws or implementing regulations that may be adopted to address greenhouse gas emissions could require Inergy to incur increased operating costs and could adversely affect demand for the natural gas and NGL products and services Inergy
provides.



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Risks Related to Inergys Propane Operations

Since weather conditions may adversely affect the demand for propane, Inergys financial condition and results of operations are vulnerable to,
and will be adversely affected by, warm winters.

Weather conditions have a significant impact on the demand for propane because
Inergys customers depend on propane principally for heating purposes. As a result, warm weather conditions will adversely impact Inergys operating results and financial condition. Actual weather conditions can substantially change from
one year to the next. Furthermore, warmer than normal temperatures in one or more regions in which Inergy operates can significantly decrease the total volume of propane it sells. Consequently, Inergys operating results may vary significantly
due to actual changes in temperature. During seven of the last ten fiscal years temperatures were significantly warmer than normal in Inergys areas of operation (based on the 30-year average consisting of years 1976 through 2005 published by
the National Oceanic and Atmospheric Administration). We believe that Inergys results of operations during these periods were adversely affected as a result of this warm weather.

Sudden and sharp propane price increases that cannot be passed on to customers may adversely affect Inergys profit margins.

The propane industry is a margin-based business in which gross profits depend on the excess of sales prices over supply costs. As a result,
Inergys profitability is 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 changes in 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 its retail customers to conserve or convert to alternative energy sources.

The highly competitive nature
of the retail propane business could cause Inergy to lose customers or affect its ability to acquire new customers, thereby reducing its revenues.

Inergy has competitors and potential competitors who are larger and have substantially greater financial resources than it does. Also, because of relatively low barriers to entry into the retail propane
business, numerous small retail propane distributors, as well as companies not engaged in retail propane distribution, may enter Inergys markets and compete with it. Most of Inergys propane retail branch locations compete with several
marketers or distributors. The principal factors influencing competition with other retail marketers are:



| |  |  | price;
| | - |  | ------



| |  |  | reliability and quality of service;
| | - |  | -----------------------------------



| |  |  | responsiveness to customer needs;
| | - |  | ---------------------------------



| |  |  | safety concerns;
| | - |  | ----------------



| |  |  | long-standing customer relationships;
| | - |  | -------------------------------------



| |  |  | the inconvenience of switching tanks and suppliers; and
| | - |  | -------------------------------------------------------



| |  |  | the lack of growth in the industry.
| | - |  | -----------------------------------

We can make no assurances that Inergy will be able to compete successfully on the basis of these factors. If a competitor attempts to increase market share by reducing prices, Inergy may lose customers,
which would reduce its revenues.



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If Inergy is not able to purchase propane from its principal suppliers, Inergys results of
operations would be adversely affected.

Most of Inergys total volume purchases are made under supply contracts that have a term
of one year, are subject to annual renewal, and provide various pricing formulas. Two of Inergys suppliers, BP Amoco Corp. (12%) and Sunoco, Inc. (11%), accounted for 23% of propane purchases during the fiscal year ended
September 30, 2009. In the event that Inergy is unable to purchase propane from its significant suppliers, Inergys failure to obtain alternate sources of supply at competitive prices and on a timely basis may hurt its ability to satisfy
customer demand, reduce its revenues and adversely affect its results of operations.

Competition from other energy sources may cause
Inergy to lose customers, thereby reducing its revenues.

Competition from other energy sources, including natural gas and electricity,
has been increasing as a result of reduced regulation of many utilities, including natural gas and electricity. Propane is generally not competitive with natural gas in areas where natural gas pipelines already exist because natural gas is a less
expensive source of energy than propane. The gradual expansion of natural gas distribution systems and availability of natural gas in many areas that previously depended upon propane could cause Inergy to lose customers, thereby reducing its
revenues.

Inergys business would be adversely affected if service at its principal storage facilities or on the common carrier
pipelines it uses is interrupted.

Historically, a substantial portion of the propane purchased to support Inergys operations has
originated at Conway, Kansas, Hattiesburg, Mississippi and Mont Belvieu, Texas and has been shipped to it through major common carrier pipelines. Any significant interruption in the service at these storage facilities or on the common carrier
pipelines Inergy uses would adversely affect its ability to obtain propane.

If Inergy is not able to sell propane that it has purchased
through wholesale supply agreements to either its own retail propane customers or to other retailers and wholesalers, the results of its operations would be adversely affected.

Inergy currently is party to propane supply contracts and expects to enter into additional propane supply contracts which require it to purchase substantially all the propane production from certain
refineries. Inergys inability to sell the propane supply in its own propane distribution business, to other retail propane distributors or to other propane wholesalers would have a substantial adverse impact on its operating results and could
adversely impact its capital liquidity. Inergy is also a party to fixed price sale contracts with certain customers that are backed-up by propane supply contracts. If a significant number of Inergys customers default under these fixed price
contracts, the results of Inergys operations would be adversely affected.

Energy efficiency and new technology may reduce the
demand for propane and adversely affect Inergys operating results.

Increased conservation and technological advances, including
installation of improved insulation and the development of more efficient furnaces and other heating devices, have adversely affected the demand for propane by retail customers. Future conservation measures or technological advances in heating,
conservation, energy generation or other devices might reduce demand for propane and adversely affect Inergys operating results.

Due to Inergys limited asset diversification, adverse developments in its propane business could adversely affect Inergys operating results and reduce its ability to make distributions to its unitholders.

Inergy relies substantially on the revenues generated from its propane business. Due to Inergys limited asset diversification,
an adverse development in this business would have a significantly greater impact on Inergys financial condition and results of operations than if it maintained more diverse assets.



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Risks Related to Inergys Midstream Operations

Federal, state or local regulatory measures could adversely affect Inergys business.

Inergys operations are subject to federal, state and local regulatory authorities. Specifically, Inergys natural gas storage facilities are
subject to the regulation of the Federal Energy Regulatory Commission, or FERC.

Under the Natural Gas Act of 1938 (NGA), FERC has
authority to regulate Inergys natural gas facilities that provide natural gas transportation services in interstate commerce, including storage services. FERCs authority to regulate those services includes the rates charged for the
services, terms and conditions of service, certification and construction of new facilities, the extension or abandonment of services and facilities, the maintenance of accounts and records, the acquisition and disposition of facilities, the
initiation and discontinuation of services, relationships with affiliated entities, and various other matters. Natural gas companies may not charge rates that, upon review by FERC, are found to be unjust and unreasonable or unduly discriminatory. In
addition, FERC prohibits natural gas companies from unduly preferring or unreasonably discriminating against any person with respect to pipeline transportation rates or terms and conditions of service. The rates and terms and conditions for
interstate services provided by the Steuben facility are found in the FERC-approved tariff of Steuben Gas Storage Company. The rates and terms and conditions for interstate services provided by Stagecoach are found in the FERC-approved tariff of
Central New York Oil and Gas Company, LLC (CNYOG), Inergys subsidiary and owner of the Stagecoach facility. The rates and terms and conditions for interstate services provided by the Thomas Corners facility are found in the
FERC-approved tariff of Arlington Storage Company, LLC (ASC), Inergys subsidiary and owner of the Thomas Corners facility.

Pursuant to the NGA, existing interstate transportation and storage rates may be challenged by complaint and are subject to prospective change by FERC. Additionally, rate increases proposed by the regulated pipeline or storage provider may
be challenged by protest and such increases may ultimately be rejected by FERC. CNYOG and ASC currently hold authority from FERC to charge and collect market-based rates for services provided at the Stagecoach facility and the Thomas Corners
facility, respectively. There can be no guarantee that CNYOG and ASC will be allowed to continue to operate under such a rate structure for the remainder of the Stagecoach and Thomas Corners facilities operating lives. Any successful complaint
or protest against rates charged for CNYOGs and ASCs storage and related services, or CNYOGs or ASCs loss of market-based rate authority, could have an adverse impact on Inergys revenues

In addition, CNYOG or ASCs market-based rate authority would be subject to further review if it acquires transportation facilities or additional
storage capacity, if Inergy or one of its affiliates provides storage or transportation services in the same market area or acquires an interest in another storage field that can link Inergys facilities to the market area or if Inergy or one
of its affiliates acquire an interest in or is acquired by an interstate pipeline.

There can be no assurance that FERC will continue to
pursue its approach of pro-competitive policies as it considers matters such as pipeline rates and rules and policies that may affect rights of access to natural gas transportation capacity, transportation and storage facilities. Any successful
complaint or protest against Inergys rates or loss of our market-based rate authority could have an adverse impact on Inergys revenues associated with providing storage services. Failure to comply with applicable regulations under the
NGA, Natural Gas Policy Act of 1978, Pipeline Safety Act of 1968 and certain other laws, and with implementing regulations associated with these laws could result in the imposition of administrative and criminal remedies and civil penalties of up to
$1,000,000 per day, per violation.

Inergys storage business depends on neighboring pipelines to transport natural gas.

Inergys Stagecoach natural gas storage business depends on Tennessee Gas Pipeline Companys 300-Line and the Millennium Pipeline,
currently the only pipelines to which it is interconnected, the Steuben natural gas storage facility depends on the Dominion Transmission System and the Thomas Corners natural gas storage



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facility depends on Tennessee Gas Pipeline Companys 400-Line and the Millennium Pipeline. These pipelines are owned by parties not affiliated with Inergy. Any interruption of service on the
pipeline or lateral connections or adverse change in the terms and conditions of service could have a material adverse effect on Inergys ability, and the ability of Inergys customers, to transport natural gas to and from Inergys
facilities and have a corresponding material adverse effect on Inergys storage revenues. In addition, the rates charged by the interconnected pipelines for transportation to and from Inergys facilities affect the utilization and value of
our storage services. Significant changes in the rates charged by these pipelines or the rates charged by other pipelines with which the interconnected pipelines compete could also have a material adverse effect on Inergys storage revenues.

Inergy expects to derive a significant portion of its revenues from its natural gas and LPG storage operations from a limited number of
customers, and the loss of one or more of these customers could result in a significant loss of revenues and cash flow.

Inergy expects
to derive a significant portion of its revenues and cash flow in connection with its natural gas and LPG storage operations from a limited number of customers. The loss, nonpayment, nonperformance, or impaired creditworthiness of one of these
customers could have a material adverse effect on Inergys business, results of operations and financial condition.

Inergy
competes with other natural gas storage companies and services that can substitute for storage services.

Inergys principal
competitors in its natural gas storage market include other storage providers including among others Dominion Resources, Inc., NiSource Inc., and El Paso Corporation. These major natural gas transmission companies have existing storage facilities
connected to their systems that compete with certain of Inergys facilities. FERC has adopted policy that favors authorization of new storage projects, and there are numerous natural gas storage options in the New York/Pennsylvania geographic
market. Pending and future construction projects, if and when brought on line, may also compete with Inergys natural gas storage operations. Such projects may include FERC-certificated storage expansions and greenfield construction projects.
Inergy also competes with the numerous alternatives to storage available to customers, including pipeline balancing/no-notice services, seasonal/swing services provided by pipelines and marketers, and on-system LNG facilities.

Expanding Inergys business by constructing new midstream assets subjects Inergy to risks.

One of the ways Inergy may grow its business is through the expansion of its existing assets, such as the Thomas Corners development, the West Coast
expansion project and the Watkins Glenn LPG storage facility. The construction of additional storage facilities or new pipeline interconnects involves numerous regulatory, environmental, political and legal uncertainties beyond Inergys control
and may require the expenditure of significant amounts of capital. If Inergy undertakes these projects, they may not be completed on schedule or at all or at the budgeted cost. Moreover, Inergys revenues may not increase immediately upon the
expenditure of funds on a particular project. For instance, if Inergy builds a new midstream asset, the construction will occur over an extended period of time, and Inergy will not receive material increases in revenues until after the project is
placed in service. Moreover, Inergy may construct facilities to capture anticipated future growth in production and/or demand in a region in which such growth does not materialize. As a result, new facilities may not be able to attract enough
throughput to achieve Inergys expected investment return, which could adversely affect Inergys results of operations and financial condition.

Inergy may not be able to retain existing customers or acquire new customers, which would reduce Inergys revenues and limit our future profitability.

The renewal or replacement of existing contracts with Inergys customers at rates sufficient to maintain current revenues and cash flows depends on a
number of factors beyond Inergys control, including competition from



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other pipelines and storage providers, and the price of, and demand for, natural gas in the markets Inergy serves. The inability to renew or replace its current contracts as they expire and to
respond appropriately to changing market conditions could have a negative effect on Inergys profitability.

The fees charged by
Inergy to third parties under transmission, transportation and storage agreements may not escalate sufficiently to cover increases in costs and the agreements may not be renewed or may be suspended in some circumstances.

Inergys costs may increase at a rate greater than the rate that the fees Inergy charges to third parties increase pursuant to our contracts with them.
Furthermore, third parties may not renew their contracts with Inergy. Additionally, some third parties obligations under their agreements with Inergy may be permanently or temporarily reduced upon the occurrence of certain events, some of
which are beyond Inergys control, including force majeure events wherein the supply of either natural gas are curtailed or cut off. Force majeure events include (but are not limited to) revolutions, wars, acts of enemies, embargoes, import or
export restrictions, strikes, lockouts, fires, storms, floods, acts of God, explosions, mechanical or physical failures of Inergys equipment or facilities or those of third parties. If the escalation of fees is insufficient to cover increased
costs, if third parties do not renew or extend their contracts with Inergy or if any third party suspends or terminates its contracts with Inergy, Inergys financial results would be negatively impacted.

Inergys business would be adversely affected if operations at any of its facilities were interrupted.

Inergys operations are dependent upon the infrastructure that it has developed, including, storage facilities and various means of transportation. Any
significant interruption at these facilities or pipelines or Inergys or its customers inability to transmit natural gas to or from these facilities or pipelines for any reason would adversely affect Inergys results of operations.

Risks Inherent in an Investment in Us

We are largely dependent on Inergy, L.P. for our growth. As a result of the fiduciary obligations of Inergys managing general partner, which is our wholly owned subsidiary, to the unitholders
of Inergy, our ability to pursue business opportunities independently will be limited.

We currently intend to grow primarily through
the growth of Inergy. While we are not precluded from pursuing business opportunities independent of Inergy, Inergys managing general partner, which is our wholly owned subsidiary, has fiduciary duties to Inergy unitholders which would make it
difficult for us to engage in any business activity that is competitive with Inergy. Those fiduciary duties are applicable to us because we control the managing general partner through our ability to elect all of its directors. While there may be
circumstances in which these fiduciary duties may be satisfied while allowing us to pursue business opportunities independent of Inergy, we expect such opportunities to be limited. Accordingly, we may be unable to diversify our sources of revenue in
order to increase cash distributions to our unitholders.

A substantial portion of our partnership interests in Inergy are restricted
and some are not publicly traded, which may limit our ability to sell these interests as well as interests in other subsidiaries that we own.

We own 4,706,689 Inergy common units, the majority of which are unregistered and restricted securities, within the meaning of Rule 144 under the Securities Act of 1933. We therefore face restrictions on the volume of Inergy common units we
can sell in any three-month period. In addition, our investment in Inergys general partners and our ability to sell such interests is limited because there is no market for them.

Cost reimbursements due our general partner may be substantial and will reduce our cash available for distribution to holders of our common units.

Prior to making any distribution on our common units, we reimburse our general partner for expenses it incurs on our behalf. The reimbursement of expenses
could adversely affect our ability to pay cash distributions to holders



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of our common units. Our general partner has sole discretion to determine the amount of these expenses. In addition, our general partner and its affiliates may perform other services for us for
which we will be charged fees as determined by our general partner.

The President and Chief Executive Officer of our general partner
effectively controls us and Inergy through his control of our general partner and Inergys managing general partner.

The
president and chief executive officer of both our general partner and Inergys managing general partner owns an economic interest of 57.03% in our general partner and has voting control of our general partner. He therefore controls our general
partner and through it, the managing general partner of Inergy and may be able to influence unitholder votes. Control over these entities gives our president and chief executive officer substantial control over our and Inergys business and
operations.

The control of our general partner may be transferred to a third party, and that party could replace our current management
team, in each case without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a
merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of the owners of our general partner to transfer their ownership
interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices and to control the decisions taken by the
board of directors and officers.

Our unitholders cannot easily remove our general partner.

Unlike the holders of common stock in a corporation, our unitholders have only limited voting rights on matters affecting our business and, therefore,
limited ability to influence managements decisions regarding our business. Our unitholders did not elect our general partner or the directors of our general partner and will have no right to elect our general partner or the directors of our
general partner on an annual or other continuing basis in the future.

Furthermore, if our unitholders are dissatisfied
with the performance of our general partner, they will have little ability to remove our general partner. Our general partner may not be removed except upon the vote of the holders of at least 662/3% of the outstanding units voting together as a single class.
Because affiliates of our general partner own more than one-third of our outstanding units, our general partner currently cannot be removed without the consent of our general partner and its affiliates.

Our unitholders voting rights are further restricted by the provision in our partnership agreement stating that any units held by a person that owns
20% or more of any class of units then outstanding, other than our general partner and its affiliates, cannot be voted on any matter. In addition, our partnership agreement contains provisions limiting the ability of our unitholders to call meetings
or to acquire information about our operations, as well as other provisions limiting our unitholders ability to influence the manner or direction of our management.

As a result of these provisions, the price at which our common units trade may be lower because of the absence or reduction of a takeover premium in the trading price.

Inergys unitholders have the right to remove Inergys general partner with the approval of the holders of 662/3% of all units, which would cause us to lose our
general partner interest in Inergy and the ability to manage Inergy.

We currently manage Inergy through Inergy GP, LLC,
Inergys managing general partner and our wholly owned subsidiary. Inergys partnership agreement, however, gives unitholders of Inergy the right to remove the



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managing general partner of Inergy upon the affirmative vote of holders of 662/3% of Inergys outstanding units. If Inergy GP, LLC were removed as managing general partner of Inergy, Inergy Partners, LLC, Inergys non-managing
general partner and our wholly owned subsidiary, would receive cash or common units in exchange for its approximate 0.8% general partner interest and Inergy GP, LLC would lose its ability to manage Inergy. While the common units or cash we would
receive are intended under the terms of Inergys partnership agreement to fully compensate us in the event such an exchange is required, the value of these common units or investments we make with the cash over time may not be equivalent to the
value of the general partner interest had we retained it.

Inergy may issue additional Inergy common units, which may increase
the risk that Inergy will not have sufficient available cash to maintain or increase the per Inergy unit distribution level.

Inergy
has wide latitude to issue additional Inergy common units, including Inergy common units that rank senior to the incentive distributions rights as to quarterly cash distributions, on the terms and conditions established by Inergys managing
general partner. The payment of distributions on these additional Inergy common units may increase the risk that Inergy will be unable to maintain or increase the per Inergy unit distribution level.

If in the future we cease to manage and control Inergy through our direct and indirect ownership of the general partner interests in Inergy, we may be
deemed to be an investment company under the Investment Company Act of 1940.

If we cease to manage and control Inergy and are deemed
to be an investment company under the Investment Company Act of 1940, we would either have to register as an investment company under the Investment Company Act of 1940, obtain exemptive relief from the SEC or modify our organizational structure or
our contract rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of
certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or our affiliates.

Restrictions in our credit facility could limit our ability to make distributions to our unitholders.

Our credit facility contains covenants limiting our ability to incur indebtedness, grant liens, engage in transactions with affiliates and make distributions
to our unitholders. This facility also contains covenants requiring us to maintain certain financial ratios. We are prohibited from making any distribution to unitholders if such distribution would cause an event of default or otherwise violate a
covenant under this facility.

We may issue an unlimited number of limited partner interests without the consent of our unitholders,
which will dilute a unitholders ownership interest in us and may increase the risk that we will not have sufficient available cash to maintain or increase our per unit distribution level .

Our general partner may cause us to issue an unlimited number of limited partner interests of any type, on terms and conditions established by our general
partner, without unitholder approval. Such issuances may occur in connection with acquisitions or capital improvements by us or by Inergy or as a result of grants made under our Long Term Incentive Plan.

The issuance of additional common units or other equity securities of equal rank will have the following effects:



| |  |  | our unitholders proportionate ownership interest in us will decrease;
| | - |  | ----------------------------------------------------------------------



| |  |  | the amount of cash available for distribution on each common unit may decrease;
| | - |  | -------------------------------------------------------------------------------



| |  |  | the relative voting strength of each previously outstanding common unit may be diminished;
| | - |  | ------------------------------------------------------------------------------------------



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| |  |  | the ratio of taxable income to distributions may increase; and
| | - |  | --------------------------------------------------------------



| |  |  | the market price of the common units may decline.
| | - |  | -------------------------------------------------

Furthermore, our partnership agreement does not give our unitholders the right to approve our issuance of equity securities ranking junior to the common units at any time.

Our cash distribution policy limits our ability to grow.

Because we distribute all of our available cash, our growth may not be as rapid as businesses that reinvest their available cash to expand ongoing operations. In fact, our growth initially will be
completely dependent upon Inergys ability to increase its quarterly distribution per unit because currently our only cash-generating assets are partnership interests in Inergy. If we issue additional units or incur debt to fund acquisitions
and growth capital expenditures, the payment of distributions on those additional units or interest on that debt could increase the risk that we will be unable to maintain or increase our per unit distribution level.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse
results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse affect on our financial results and the market price of our common units.

Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 require annual review and evaluation of our internal control systems,
and attestation of these systems by our independent auditors. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the market price of our common units. In addition, to the extent we or our independent registered public accounting firm identify a significant deficiency in our internal control over financial
reporting, the resources and costs required to remediate such deficiency could have an adverse impact on our future results of operations.

Risks Related to Conflicts of Interest

Although we control Inergy through our ownership of its managing general partner,
Inergys managing general partner owes fiduciary duties to Inergy and Inergys unitholders, which may conflict with our interests.

Conflicts of interest exist and may arise in the future as a result of the relationships between us and our affiliates, including Inergys managing general partner, on the one hand, and Inergy and its limited partners, on the other
hand. The directors and officers of Inergy GP, LLC have fiduciary duties to manage Inergy in a manner beneficial to us, its owner. At the same time, the managing general partner has a fiduciary duty to manage Inergy in a manner beneficial to Inergy
and its limited partners. The board of directors of Inergy GP, LLC will resolve any such conflict and has broad latitude to consider the interests of all parties to the conflict. The resolution of these conflicts may not always be in our best
interest or that of our unitholders.

For example, conflicts of interest may arise in the following situations:



| |  |  | the allocation of shared overhead expenses to Inergy and us;
| | - |  | ------------------------------------------------------------



| |  |  | the interpretation and enforcement of contractual obligations between us and our affiliates, on the one hand, and Inergy, on the other hand;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the determination of the amount of cash to be distributed to Inergys partners and the amount of cash to be reserved for the future conduct of
Inergys business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the determination of whether Inergy should use cash on hand, borrow or issue equity to raise cash to finance acquisitions or expansion capital
projects, repay indebtedness, meet working capital needs, pay distributions to Inergys partners or otherwise;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the determination of the terms and purchase price applicable to any class of units sold in a private placement between us and Inergy; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any decision we make in the future to engage in business activities independent of Inergy.
| | - |  | ------------------------------------------------------------------------------------------

The fiduciary duties of our general partners officers and directors may conflict with those of Inergy GP, LLC, Inergys managing general
partner.

Conflicts of interest may arise because of the relationships between Inergy GP, LLC, Inergy and us. Our general
partners directors and officers have fiduciary duties to manage our business in a manner beneficial to us and our unitholders. Simultaneously, a majority of our general partners directors and all of its officers are also directors and
officers of Inergy GP, LLC, Inergys managing general partner, and have fiduciary duties to manage the business of Inergy in a manner beneficial to Inergy and Inergys unitholders. The resolution of these conflicts may not always be in our
best interest or that of our unitholders.

Our general partner has conflicts of interest and limited fiduciary responsibilities to us,
which may allow it to favor its own interests to the detriment of our unitholders.

Our general partner owns a non-economic general
partner interest in us and certain named executive officers and directors of our general partner and certain named executive officers and directors of the managing general partner of Inergy own an approximate 46.00% limited partner interest in us.
In addition, certain officers of our general partner and certain officers and directors of the managing general partner of Inergy own approximately 65.79% of our general partner.

Conflicts of interest may arise between our general partner and us. As a result of these conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests
of our unitholders. These conflicts include, among others, the following situations:

Conflicts Relating to Control:



| |  |  | our general partner is allowed to take into account the interests of parties other than us, including Inergy and its affiliates and any other
businesses acquired in the future, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our general partner may limit its liability and reduce its fiduciary duties, while also restricting the remedies available to our unitholders for
actions that, without the limitations, might constitute breaches of fiduciary duty. As a result of purchasing units, our unitholders consent to some actions and conflicts of interest that might otherwise constitute a breach of fiduciary or other
duties under applicable state law;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | our partnership agreement gives our general partner broad discretion in establishing financial reserves for the proper conduct of our business. These
reserves also affect the amount of cash available for distribution.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Conflicts Relating to Costs:



| |  |  | our general partner determines the amount and timing of investment transactions, asset purchases and sales, capital expenditures, borrowings, issuance
of additional partnership securities and reserves, each of which can affect the amount of cash that is distributed to our unitholders;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our general partner determines which of the costs incurred by our general partner and its affiliates are reimbursable by us; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered on terms that are
fair and reasonable to us or entering into additional contractual arrangements with any of these entities on our behalf.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our general partner may not be fully reimbursed for the use of its officers and employees by Inergys managing general partner.

Our general partner shares officers and administrative personnel with Inergys managing general partner to operate both our business and Inergys business. In that case, our general
partners officers, who are also the officers of Inergys managing general partner, allocate, in their reasonable and sole discretion, the time its employees spend on our behalf and on behalf of Inergy. These allocations may not
necessarily be the result of arms-length negotiations between Inergys managing general partner and our general partner. Although our general partner intends to be reimbursed for its employees activities, due to the nature of the
allocations, this reimbursement may not exactly match the actual time and overhead spent.

Our partnership agreement contains provisions
that reduce the remedies available to unitholders for actions that might otherwise constitute a breach of fiduciary duty by our general partner. It will be difficult for a unitholder to challenge a resolution of a conflict of interest by our general
partner or by its conflicts committee.

Whenever our general partner makes a determination or takes or declines to take any other
action in its capacity as our general partner, it will be obligated to act in good faith, which means it must reasonably believe that the determination or other action is in our best interests. Whenever a potential conflict of interest exists
between us and our general partner, our general partner may resolve such conflict of interest. If our general partner determines that its resolution of the conflict of interest is on terms no less favorable to us than those generally being provided
to or available from unrelated third parties or is fair and reasonable to us, taking into account the totality of the relationships between us and our general partner, then it shall be presumed that in making this determination, our general partner
acted in good faith. A unitholder seeking to challenge this resolution of the conflict of interest would bear the burden of overcoming such presumption. This is different from the situation with Delaware corporations, where a conflict resolution by
an interested party would be presumed to be unfair and the interested party would have the burden of demonstrating that the resolution was fair.

Furthermore, if our general partner obtains the approval of our conflicts committee, the resolution will be conclusively deemed to be fair and reasonable to us and not a breach by our general partner of any duties it may owe to us or our
unitholders. This is different from the situation with Delaware corporations, where a conflict resolution by a committee consisting solely of independent directors would merely shift the burden of demonstrating unfairness to the plaintiff. As a
result, unitholders will effectively not be able to challenge a decision by the conflicts committee.

Unlike Inergy and most other master
limited partnerships, which require at least two independent members of the conflicts committee, our partnership agreement provides that a conflicts committee may be comprised of one or more directors. If we establish a conflicts committee with only
one director, your interests may not be as well served as if we had a conflicts committee with at least two independent directors. A single member committee would not have the benefit of discussion with and input from other independent directors.

Our general partner has a limited call right that may require unitholders to sell common units at an undesirable time or price.

If at any time more than 85% of the outstanding common units are owned by our general partner and its affiliates, our general partner
will have the right, but not the obligation, which it may assign to any of its affiliates



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or to us, to acquire all, but not less than all, of the remaining common units held by unaffiliated persons at a price not less than their then-current market price. As a result, our unitholders
may be required to sell common units at an undesirable time or price and may not receive any return on their investment. A unitholder may also incur a tax liability upon a sale of common units.

Tax Risks to Our Common Unitholders

The tax treatment of publicly traded partnerships is subject to potential legislative, judicial or administrative changes. If we or Inergy were treated as a corporation for federal income tax purposes, or if legislation is passed that
may preclude us from qualifying for treatment as a partnership, or if we or Inergy were to become subject to a material amount of entity-level taxation for state tax purposes, then our cash available for distribution to our unitholders would be
substantially reduced.

The value of our investment in Inergy depends largely on Inergy being treated as a partnership for federal
income tax purposes, which requires that 90% or more of Inergys gross income for every taxable year consist of qualifying income, as defined in Section 7704 of the Internal Revenue Code. Inergy may not meet this requirement or current law
may change so as to cause, in either event, Inergy to be treated as a corporation for federal income tax purposes or otherwise subject to federal income tax. Moreover, the anticipated after-tax benefit of an investment in our common units depends
largely on our being treated as a partnership for federal income tax purposes.

If we or Inergy were treated as a corporation for federal
income tax purposes, we or Inergy would pay federal income tax on our taxable income at the corporate tax rate. Distributions to us would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would
flow through to us. As a result, there would be a material reduction in our anticipated cash flow and distributions to our unitholders, likely causing a substantial reduction in the value of our units.

Current law may change, causing us or Inergy to be treated as a corporation for federal income tax purposes or otherwise subjecting us or Inergy to entity
level taxation. In response to recent public offerings of interests of private equity funds and hedge funds, Congress is considering changes to Internal Revenue Code section 7704(d) (definition of qualifying income). We are unable to predict whether
legislation will be enacted or have any impact on us.

Because of widespread state budget deficits and other reasons, several states are
evaluating ways to subject partnerships to entity level taxation through the imposition of state income, franchise or other forms of taxation. For instance, Inergy will be subject to a new entity-level tax on the portion of its income that is
generated in Texas beginning in 2007. Imposition of such a tax upon us or Inergy as an entity will reduce, our cash available for distribution to our unitholders.

Inergys partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects Inergy to taxation as a corporation or otherwise subjects Inergy
to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on Inergy. Likewise, if we or Inergy is
subjected to any such form of an entity-level taxation the cash available for distribution to our unitholders will be reduced.

If the
IRS contests the federal income tax positions we or Inergy take, the market for our common units or Inergy units may be adversely impacted, and the costs of any contest will reduce cash available for distribution to our unitholders.

The IRS may adopt positions that differ from the positions we or Inergy take. It may be necessary to resort to administrative or court
proceedings to sustain some or all of the positions we or Inergy take. A court may disagree with some or all of the positions we or Inergy take. Any contest with the IRS may materially and



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adversely impact the market for our common units or Inergy units and the price at which they trade. In addition, the cost of any contest between Inergy and the IRS will result in a reduction in
cash available for distribution to Inergy unitholders and thus indirectly by us, as a unitholder and as the owner of the general partners of Inergy. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash
available for distribution to our unitholders and thus will be borne indirectly by our unitholders.

Our unitholders may be required to
pay taxes on income from us even if they do not receive any cash distributions from us.

Because our unitholders will be treated as
partners to whom we will allocate taxable income, which could be different in amount than the cash we distribute, our unitholders are required to pay any federal income taxes and, in some cases, state and local income taxes on their share of our
taxable income, whether or not they receive cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the tax liability that results from the taxation of their
share of our taxable income.

Tax gain or loss on disposition of our common units could be more or less than expected.

A unitholder who sells common units will recognize a gain or loss equal to the difference between the amount realized and his adjusted
tax basis in those common units. Prior distributions to a unitholder in excess of the total net taxable income allocated to that unitholder, which decreased the tax basis in that unitholders common unit, will, in effect, become taxable income
to that unitholder if the common unit is sold at a price greater than that unitholders tax basis in that common unit, even if the price is less than the original cost. A substantial portion of the amount realized, whether or not representing
gain, may be ordinary income to that unitholder. In addition, if a unitholder sells units, the unitholder may incur a tax liability in excess of the amount of cash received from the sale.

Tax-exempt entities, regulated investment companies and foreign persons face unique tax issues from owning common units that may result in adverse tax
consequences to them.

Investment in common units by tax-exempt entities, including employee benefit plans and individual retirement
accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax, including individual retirement accounts and other retirement plans,
will be unrelated business taxable income and will be taxable to such a unitholder. Distributions to non-U.S. persons will be reduced by withholding taxes imposed at the highest effective applicable tax rate, and non-U.S. persons will be required to
file United States federal income tax returns and pay tax on their share of our taxable income.

The sale or exchange of 50% or more of
our capital and profits interests within a twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have terminated our partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a
twelve-month period. Likewise, Inergy will be considered to have terminated its partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in Inergys capital and profits within a
twelve-month period. A termination would, among other things, result in the closing of our or Inergys taxable year for all unitholders and could result in a deferral of depreciation deductions allowable in computing our taxable income for the
year in which the termination occurs. Thus, if this occurs our unitholders will be allocated an increased amount of federal taxable income for the year in which we are considered to be terminated as a percentage of the cash distributed to
unitholders with respect to that period. Although the amount of increase cannot be estimated because it depends upon numerous factors including the timing of the termination, the amount could be material. Our termination, or the termination of
Inergy, currently would not affect our classification, or the classification of



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Inergy, as a partnership for federal income tax purposes, but instead, we or Inergy would be treated as a new partnership for tax purposes. If treated as a new partnership, we must make new tax
elections and could be subject to penalties if we are unable to determine that a termination occurred.

Our unitholders will likely be
subject to state and local taxes and return filing requirements in states where they do not live as a result of investing in our common units.

In addition to federal income taxes, our unitholders will likely be subject to other taxes, including foreign taxes, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the
various jurisdictions in which we or Inergy do business or own property and in which they do not reside. We and Inergy own property and conduct business in numerous states in the United States. Unitholders may be required to file state and local
income tax returns and pay state and local income taxes in many or all of the jurisdictions in which we or Inergy do business or own property. Further, unitholders may be subject to penalties for failure to comply with those requirements. It is our
unitholders responsibility to file all United States federal, state, local and foreign tax returns.

Inergy has adopted certain
valuation methodologies and monthly conventions that may result in a shift of income, gain, loss and deduction between us and the public unitholders of Inergy. The IRS may challenge this treatment, which could adversely affect the value of
Inergys common units and our common units.

When we or Inergy issue additional units or engage in certain other transactions,
Inergy determines the fair market value of its assets and allocates any unrealized gain or loss attributable to such assets to the capital accounts of Inergys public unitholders and us. The adopted methodology may be viewed as understating the
value of Inergys assets. In that case, there may be a shift of income, gain, loss and deduction between certain Inergy public unitholders and us, which may be unfavorable to such Inergy unitholders. Moreover, subsequent purchasers of our
common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to Inergys intangible assets and a lesser portion allocated to Inergys tangible assets. The IRS may challenge the adopted
valuation methods, or our or Inergys allocation of the Section 743(b) adjustment attributable to Inergys tangible and intangible assets, and allocations of income, gain, loss and deduction between us and certain of Inergys
public unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss
being allocated to our unitholders or Inergy unitholders. It also could affect the amount of gain on the sale of common units by our unitholders or Inergys unitholders and could have a negative impact on the value of our common units or those
of Inergy or result in audit adjustments to the tax returns of our or Inergys unitholders without the benefit of additional deductions.

We treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could result in a unitholder owing more tax and may adversely
affect the value of the common units.

To maintain the uniformity of the economic and tax characteristics of our common units, we have
adopted certain depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. These positions may result in an understatement of deductions and an overstatement of income to our unitholders. For
example, we do not amortize certain goodwill assets, the value of which has been attributed to certain of our outstanding units. A subsequent holder of those units may be entitled to an amortization deduction attributable to that goodwill under
Internal Revenue Code Section 743(b). But, because we cannot identify these units once they are traded by the initial holder, we do not allocate any subsequent holder of a unit any such amortization deduction. This approach may understate
deductions available to those unitholders who own those units and may result in those unitholders believing that they have a higher tax basis in their units than would be the case if the IRS strictly applied certain Treasury Regulations. This, in
turn, may result in those unitholders reporting less gain or more loss on a sale of their units than would be the case if the IRS strictly applied certain Treasury Regulations.



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The IRS may challenge the manner in which we calculate our unitholders basis adjustment under
Section 743(b). If so, because neither we nor a unitholder can identify the units to which this issue relates once the initial holder has traded them, the IRS may assert adjustments to all unitholders selling units within the period under audit
as if all unitholders owned such units.

A successful IRS challenge to this position or other positions Inergy may take could adversely affect
the amount of taxable income or loss allocated to Inergys unitholders. It also could affect the gain from a unitholders sale of common units and could have a negative impact on the value of the common units or result in audit adjustments
to Inergys unitholders tax returns without the benefit of additional deductions.

We prorate our items of income, gain, loss
and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this
treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

Under the terms of
our Partnership Agreement, we prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date
a particular unit is transferred. The use of this proration method may not be permitted under Treasury Regulations. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation of
items of income, gain, loss and deduction among our unitholders.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We do not own or lease any properties. However, as of October 30, 2009,
Inergy owned 204 of its 312 retail propane customer service centers and leased the remaining centers. For more information concerning the location of Inergys customer service centers, see Retail Propane under Item 1. Inergy
leases its Kansas City, Missouri headquarters. Inergy leases underground storage facilities with an aggregate capacity of 19.4 million gallons of propane at nine locations under annual lease agreements. In addition, Inergy owns two underground
storage facilities with an aggregate capacity of 23.4 million gallons of propane and butane. Inergy also leases capacity in several pipelines pursuant to annual lease agreements.

Tank ownership and control at customer locations are important components to Inergys retail propane operations and customer retention. As of September 30, 2009, Inergy owned the following:



| |  |  | 1,250 bulk storage tanks at approximately 650 locations with typical capacities of 12,000 to 30,000 gallons;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | 600,000 stationary customer storage tanks with typical capacities of 100 to 1,200 gallons; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | 170,000 portable propane cylinders with typical capacities of up to 35 gallons.
| | - |  | -------------------------------------------------------------------------------

Inergy believes that it has satisfactory title or valid rights to use all of its material properties. Although some of these properties are subject to
liabilities and leases, liens for taxes not yet due and payable, encumbrances securing payment obligations under non-competition agreements entered in connection with acquisitions and immaterial encumbrances, easements and restrictions, Inergy does
not believe that any of these burdens will materially interfere with its continued use of these properties in Inergys business, taken as a whole. Inergys obligations under its credit facility are secured by liens and mortgages on
Inergys real and personal property.



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In addition, Inergy believes that it has, or is in the process of obtaining, all required material
approvals, authorizations, orders, licenses, permits, franchises and consents of, and has obtained or made all required material registrations, qualifications and filings with, the various state and local governmental and regulatory authorities that
relate to ownership of its properties or the operation of its business.

Item 3. Legal Proceedings.

We are not a party to any litigation. However, 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 the 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.

On September 26, 2008, Inergy executed a Consent Agreement and Final Order (CAFO) that was filed by the United States Environmental
Protection Agency, Region 1 (New England Region), in November 2008. The CAFO relates to violations of the Clean Water Act and the Oil Pollution Prevention regulations (i.e., the Spill Prevention Control and Countermeasure requirements for bulk
oil storage facilities). Specifically, the CAFO relates to four facilities in New Hampshire (two of which Inergy no longer operates). Although there were no significant releases or actual environmental damages alleged by EPA, a
standard civil penalty of $157,500 was assessed for the various non-compliance issues at the facilities. Compliance strategies, including revised SPCC Plans, replacement and locking of valves, installation of fencing, lighting and
upgraded alarms and secondary containment, have been developed and are being implemented. The initial compliance deadline was July 1, 2009. While some of the facilities were brought into full compliance by that date, other facilities
required additional time due to various issues ranging from the unavailability of certain uniquely qualified media-specific contractors to difficulty negotiating with the facility owner to improve the facility, and in some situations Inergy made the
decision to terminate operations at a specific facility. Upon receipt of Inergys request for extension, EPA agreed to extend the CAFO compliance schedules until December 31, 2009.

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

No matter was submitted to a vote of the holders of our common units during the fourth quarter of the fiscal year ended September 30, 2009.



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PART II

Item 5. Market for Registrants Common Equity, Related Unitholder Matters, and Issuer Purchases of Equity Securities.

Since June 21, 2005 our common units representing limited partner interests have been traded on NASDAQs Global Select National
Market under the symbol NRGP. The following table sets forth the range of high and low bid prices of the common units, as reported by NASDAQ, as well as the amount of cash distributions declared per common unit for the periods indicated.



|                   |  |     |       |      |   |                          |  |   |      
|------------------ |  | --- | ----- | ---- | - | ------------------------ |  | - | -----
|Quarters Ended:    |  | Low |       | High |   | CashDistributionPer Unit
|Fiscal 2009:       |  |     |       |      |   |                          |  |   |      
|September 30, 2009 |  | $   | 38.27 |      | $ | 47.29                    |  | $ | 0.850
|June 30, 2009      |  |     | 29.49 |      |   | 41.62                    |  |   | 0.780
|March 31, 2009     |  |     | 21.43 |      |   | 31.32                    |  |   | 0.750
|December 31, 2008  |  |     | 14.35 |      |   | 30.69                    |  |   | 0.675
|                   |  |     |      
|Fiscal 2008:       |  |     |       |      |   |                          |  |   |      
|September 30, 2008 |  | $   | 25.04 |      | $ | 37.34                    |  | $ | 0.650
|June 30, 2008      |  |     | 35.69 |      |   | 41.44                    |  |   | 0.610
|March 31, 2008     |  |     | 34.25 |      |   | 46.97                    |  |   | 0.585
|December 31, 2007  |  |     | 40.99 |      |   | 50.00                    |  |   | 0.560
|                   |  |     |      
|Fiscal 2007:       |  |     |       |      |   |                          |  |   |      
|September 30, 2007 |  | $   | 41.84 |      | $ | 53.75                    |  | $ | 0.535
|June 30, 2007      |  |     | 45.50 |      |   | 56.09                    |  |   | 0.510
|March 31, 2007     |  |     | 38.35 |      |   | 46.28                    |  |   | 0.480
|December 31, 2006  |  |     | 32.80 |      |   | 41.88                    |  |   | 0.400

As of November 16, 2009, we had issued and outstanding 20,277,361 common units, which were held
by approximately 3,840 unitholders of record.

Our company makes quarterly distributions to its limited partners within approximately 50 days
after the end of each fiscal quarter in an aggregate amount equal to its available cash (as defined) for such quarter. Available cash generally means, with respect to each fiscal quarter, all cash on hand at the end of the quarter less the amount of
cash that the general partner determines in its reasonable discretion is necessary or appropriate to:



| |  |  | provide for the proper conduct of our business;
| | - |  | -----------------------------------------------



| |  |  | comply with applicable law, any of our debt instruments, or other agreements; or
| | - |  | --------------------------------------------------------------------------------



| |  |  | provide funds for distributions to unitholders for any one or more of the next four quarters;
| | - |  | ---------------------------------------------------------------------------------------------

plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the
quarter. Working capital borrowings are generally borrowings that are made under Inergys working capital facility and in all cases are used solely for working capital purposes or to pay distributions to partners. The full definition of
available cash is set forth in our partnership agreement, which is incorporated by reference herein as an exhibit to this report. For a discussion of restrictions on our ability to distribute cash, please see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations.

There is no guarantee that we will pay a quarterly
distribution on our common units in any quarter, and we will be prohibited from making any distributions to unitholders if it would cause an event of default under our credit



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facility. The information concerning restrictions on distributions required by this Item 5 is incorporated herein by reference to Managements Discussion and Analysis of Financial
Condition and Results of OperationsDescription of Credit Facilities under Item 7 and Note 7 to our Consolidated Financial Statements.

The following table sets forth in tabular format, a summary of our companys equity compensation plan information as of September 30, 2009:

Equity Compensation Plan Information



|                                                           |  |                                                                                       |  |                                                                       |       |                                                                                                                                       |          
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Plan category                                              |  | Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand
rights |  | Weighted-averageexerciseprice ofoutstandingoptions,warrantsand
rights |       | Number of securitiesremaining available forfuture issuance underequity compensationplans
(excludingsecurities reflected incolumn (a))
|                                                           |  | (a)                                                                                   |  | (b)                                                                   |       | (c)                                                                                                                                  
|Equity compensation plans approved by security holders     |  |                                                                                      |  | $                                                                     |      |                                                                                                                                       |         
|Equity compensation plans not approved by security holders |  | 588,000                                                                               |  |                                                                       | 25.22 |                                                                                                                                       | 1,158,605
|                                                           |  |                                                                                       |  |                                                                       |       |                                                                                                                                       |          
|Total                                                      |  | 588,000                                                                               |  | $                                                                     | 25.22 |                                                                                                                                       | 1,158,605
|                                                           |  |                                                                                       |  |                                                                       |       |                                                                                                                                       |          

Item 6. Selected Financial Data.

The following table sets forth selected consolidated financial data for Inergy Holdings, L.P., in each case for the periods and as of the dates indicated.
The selected historical consolidated financial data as of and for the years ended September 30, 2009, 2008, 2007, 2006 and 2005 are derived from our audited financial statements. These financial statements include the results of operations of
Inergys acquisitions from the effective date of the respective acquisitions.

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. Accordingly, the selected historical consolidated financial data set forth in the following table primarily reflects the operating
activities and results of operations of Inergy. 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 interest owned by non-controlling partners in Inergy is reflected as a liability on our balance sheet and the non-controlling partners share of income for Inergy is reflected as
an expense in our results of operations.

We derived the data in the following table from, and it should be read together with and is
qualified in its entirety by reference to, the historical consolidated financial statements and the accompanying notes included in this report. The table should also be read together with Managements Discussion and Analysis of Financial
Condition and Results of Operations under Item 7.



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|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | ----
|                                                                                                                                      |  | Years Ended September 30,           |        
|                                                                                                                                      |  | 2009                                |         |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |        
|                                                                                                                                      |  | (in millions, except per unit data) |        
|Statement of Operations Data:                                                                                                         |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Revenues                                                                                                                              |  | $                                   | 1,570.6 |   |      | $ | 1,878.9 |      |  | $ | 1,483.1 |   |  | $    | 1,390.2 |   |  | $ | 1,051.9 |     
|Cost of product sold (excluding depreciation and amortization as shown below)                                                         |  |                                     | 996.9   |   |      |   | 1,376.7 |      |  |   | 1,026.1 |   |  |      | 993.3   |   |  |   | 726.2   |     
|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Gross profit                                                                                                                          |  |                                     | 573.7   |   |      |   | 502.2   |      |  |   | 457.0   |   |  |      | 396.9   |   |  |   | 325.7   |     
|Expenses:                                                                                                                             |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Operating and administrative                                                                                                          |  |                                     | 280.5   |   |      |   | 266.6   |      |  |   | 248.6   |   |  |      | 246.6   |   |  |   | 195.6   |     
|Depreciation and amortization                                                                                                         |  |                                     | 115.8   |   |      |   | 98.0    |      |  |   | 83.4    |   |  |      | 76.8    |   |  |   | 50.4    |     
|Loss on disposal of assets                                                                                                            |  |                                     | 5.2     |   |      |   | 11.5    |      |  |   | 8.0     |   |  |      | 11.5    |   |  |   | 0.7     |     
|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Operating income                                                                                                                      |  |                                     | 172.2   |   |      |   | 126.1   |      |  |   | 117.0   |   |  |      | 62.0    |   |  |   | 79.0    |     
|Other income (expense):                                                                                                               |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Interest expense, net                                                                                                                 |  |                                     | (70.5   | ) |      |   | (62.6   | )    |  |   | (54.4   | ) |  |      | (55.8   | ) |  |   | (36.1   | )   
|Interest expense related to write-off of deferred financing costs                                                                     |  |                                     |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (7.6    | )(b)
|Other income                                                                                                                          |  |                                     | 0.1     |   |      |   | 1.0     |      |  |   | 1.9     |   |  |      | 0.8     |   |  |   | 0.3     |     
|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Income before gain on issuance of units in Inergy, L.P., income taxes and interest of non-controlling partners in Inergy, L.P and
ASC |  |                                     | 101.8   |   |      |   | 64.5    |      |  |   | 64.5    |   |  |      | 7.0     |   |  |   | 35.6    |     
|Gain on issuance of units in Inergy, L.P. (Note 10)                                                                                   |  |                                     | 8.0     |   |      |   |        |      |  |   | 80.6    |   |  |      |        |   |  |   |        |     
|Provision for income taxes                                                                                                            |  |                                     | (1.7    | ) |      |   | (1.4    | )    |  |   | (6.5    | ) |  |      | (0.6    | ) |  |   | (0.5    | )   
|Interest of non-controlling partners in Inergy, L.P.s net (income) loss                                                              |  |                                     | (49.6   | ) |      |   | (26.2   | )    |  |   | (36.0   | ) |  |      | 8.0     |   |  |   | (26.8   | )   
|Interest of non-controlling partners in ASCs consolidated net income                                                                 |  |                                     | (1.4    | ) |      |   | (1.4    | )    |  |   |        |   |  |      |        |   |  |   |        |     
|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Net income                                                                                                                            |  | $                                   | 57.1    |   |      | $ | 35.5    |      |  | $ | 102.6   |   |  | $    | 14.4    |   |  | $ | 8.3     |     
|                                                                                                                                      |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Net income per limited partner unit:                                                                                                  |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Basic                                                                                                                                 |  | $                                   | 2.82    |   |      | $ | 1.75    |      |  | $ | 5.13    |   |  | $    | 0.72    |   |  | $ | 0.49    | (c) 
|Diluted                                                                                                                               |  | $                                   | 2.80    |   |      | $ | 1.73    |      |  | $ | 5.06    |   |  | $    | 0.71    |   |  | $ | 0.48    | (c) 
|Weighted average limited partners units outstanding (in thousands):                                                                  |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Basic                                                                                                                                 |  |                                     | 20,032  |   |      |   | 20,011  |      |  |   | 20,003  |   |  |      | 20,000  |   |  |   | 17,140  | (c) 
|Diluted                                                                                                                               |  |                                     | 20,149  |   |      |   | 20,222  |      |  |   | 20,258  |   |  |      | 20,167  |   |  |   | 17,186  | (c) 
|Cash distributions paid per unit                                                                                                      |  | $                                   | 2.86    |   |      | $ | 2.29    |      |  | $ | 1.77    |   |  | $    | 1.23    |   |  | $ | 0.02    |     
|                                                                                                                                      |  |                                     |         |   |     
|Balance Sheet Data (end of period):                                                                                                   |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Total assets(d)                                                                                                                       |  | $                                   | 2,154.1 |   |      | $ | 2,098.5 |      |  | $ | 1,741.9 |   |  | $    | 1,614.7 |   |  | $ | 1,493.7 |     
|Total debt, including current portion                                                                                                 |  |                                     | 1,124.8 |   |      |   | 1,139.2 |      |  |   | 742.2   |   |  |      | 690.0   |   |  |   | 587.8   |     
|Partners capital (deficiency)(a)                                                                                                     |  |                                     | 40.5    |   |      |   | 36.9    |      |  |   | 50.9    |   |  |      | (18.7   | ) |  |   | (6.7    | )   
|                                                                                                                                      |  |                                     |         |   |     
|Other Financial Data:                                                                                                                 |  |                                     |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |     
|Net cash provided by operating activities                                                                                             |  |                                     | 237.2   |   |      |   | 180.2   |      |  |   | 163.5   |   |  |      | 99.9    |   |  |   | 84.1    |     
|Net cash used in investing activities                                                                                                 |  |                                     | (230.6  | ) |      |   | (386.7  | )    |  |   | (187.8  | ) |  |      | (210.9  | ) |  |   | (840.7  | )   
|Net cash provided by (used in) financing activities                                                                                   |  |                                     | (12.3   | ) |      |   | 216.0   |      |  |   | 20.1    |   |  |      | 113.5   |   |  |   | 763.8   |     



|(a) | We were formed as a Delaware limited liability company in November 1996. On April 28, 2005, Inergy Holdings, LLC converted from a Delaware limited
liability company into a Delaware limited partnership and changed its name to Inergy Holdings, L.P.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Reflects amounts recognized as expense in the year ended September 30, 2005, incurred in connection with the retirement of Inergys 364-day
credit facility used to fund a portion of the Star Gas Propane Acquisition, and deferred financing costs written off with the retirement of Inergys previous credit facility.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | On April 28, 2005, the Company converted from a Delaware limited liability company to a Delaware limited partnership. The net income (loss) per
limited partner unit and units outstanding gives effect to the Companys reorganization as a limited partnership as if it occurred at the beginning of the period presented.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | These amounts differ from those previously presented as a result of our adoption of FASB Accounting Standards Codification Subtopic 210-20
(210-20), on October 1, 2008. In conjunction with the adoption of this standard, we elected to change our accounting policy for derivative instruments executed with the same counterparty under a master netting agreement. This change
in accounting policy has been presented retroactively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations.

Forward-Looking Statements

This report, including information included or incorporated by reference in this report, contains forward-looking statements concerning the financial condition, results of operations, plans, objectives,
future performance and business of our company and its subsidiaries. These forward-looking statements include:



| |  |  | statements that are not historical in nature, but not limited to, our belief that our acquisition expertise should allow us to continue to grow through
acquisitions; our belief that we will have adequate propane supply to support our retail operations; and our belief that our diversification of suppliers will enable us to meet supply needs; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | statements preceded by, followed by or that contain forward-looking terminology including the words believe, expect,
may, will, should, could, anticipate, estimate, intend or similar expressions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the
forward-looking statements due to, among others, the following factors:



| |  |  | weather conditions;
| | - |  | -------------------



| |  |  | price and availability of propane, and the capacity to transport to market areas;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the ability to pass the wholesale cost of propane through to our customers;
| | - |  | ---------------------------------------------------------------------------



| |  |  | costs or difficulties related to the integration of the business of our company and its acquisition targets may be greater than expected;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | governmental legislation and regulations;
| | - |  | -----------------------------------------



| |  |  | local economic conditions;
| | - |  | --------------------------



| |  |  | the demand for high deliverability natural gas storage capacity in the Northeast;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the availability of natural gas and the price of natural gas to the consumer compared to the price of alternative and competing fuels;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys ability to successfully implement its business plan for its natural gas storage facilities;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | labor relations;
| | - |  | ----------------



| |  |  | environmental claims;
| | - |  | ---------------------



| |  |  | competition from the same and alternative energy sources;
| | - |  | ---------------------------------------------------------



| |  |  | operating hazards and other risks incidental to transporting, storing and distributing propane;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | energy efficiency and technology trends;
| | - |  | ----------------------------------------



| |  |  | interest rates;
| | - |  | ---------------



| |  |  | the price and availability of debt and equity financing; and
| | - |  | ------------------------------------------------------------



| |  |  | large customer defaults.
| | - |  | ------------------------

We have described under Factors That May Affect Future Results of Operations, Financial Condition or Business additional factors that could cause actual results to be materially different from those described in the
forward-looking statements. Other factors that we have not identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speaks only as of the date it was made.



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General

Our cash-generating assets consist of our partnership interests, including incentive distribution rights, in Inergy, L.P. 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.

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

Both of Inergys operating segments, propane and midstream, are supported by business development personnel groups
employed by the Partnership. These groups daily responsibilities include research, sourcing, financial analysis and due diligence of potential acquisition targets and organic growth opportunities. These employees work closely with the
operators of both of Inergys segments in the course of their work to ensure the appropriate growth opportunities are pursued. During fiscal 2009, they evaluated approximately 100 potential acquisitions.

Inergy has grown primarily through acquisitions. Since the inception of Inergys predecessor in November 1996 through September 30, 2009, Inergy
has acquired 78 propane companies and 6 midstream businesses, for an aggregate purchase price of approximately $1.8 billion, including working capital, assumed liabilities and acquisition costs.

In October 2008, Inergy acquired the assets of the Blu-Gas group of companies (Blu-Gas), in April 2009, it acquired the assets of Newtons
Gas Service, Inc. (Newtons Gas) and on June 30, 2009, it acquired the assets of F.G. White Company, Inc. (F.G. White). The aggregate purchase price of these acquisitions, net of cash acquired, was $11.8 million.
The purchase price allocation for these acquisitions has been prepared on a preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available.Changes to final
asset valuation of prior fiscal year acquisitions have been included in our consolidated financial statements but are not material.

For the
fiscal year ended September 30, 2009, Inergy sold 310.0 million gallons of propane to retail customers and sold 380.6 million gallons of propane to wholesale customers.

Our aggregate partnership interests in Inergy as of September 30, 2009, consist of the following:



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



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



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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) loss.
Accordingly, the discussion of our financial position and results of operations in this Managements Discussion and Analysis of Financial Condition and Results of Operations reflects the operating activities and results of
operations of Inergy.

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

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

In determining actual and
normal weather for a given period of time, Inergy compares the actual number of heating degree days for such period to the average number of heating degree days for a longer, historical time period assumed to more accurately reflect the average
normal weather, in each case as such information is published by the National Oceanic and Atmospheric Administration, for each measuring point in each of its regions. When Inergy discusses normal weather in its results of operations
presented below, Inergy is referring to a 30-year average consisting of the years 1979 through 2009. Inergy then calculates weighted averages, based on retail volumes attributable to each measuring point, of actual and normal heating degree days
within each region. Based on this information, Inergy calculates a ratio of actual heating degree days to normal heating degree days, first on a regional basis consistent with our operational structure and then on a partnership-wide basis.

The retail propane business is a margin-based business where the level of profitability is largely dependent on the difference
between sales prices and product costs. Propane prices have continued to be volatile during 2009. At the main pricing hub of Mount Belvieu Texas during the fiscal year ended September 30, 2009, propane prices ranged from a low of $0.53 per
gallon to a high of $1.41 per gallon and a price of $0.94 per gallon at September 30, 2009. Inergys ability to pass on price increases to its customers and its hedging program limits the impact that such volatility has had on its results
from operations. In the future, Inergy will continue to hedge virtually 100% of its exposure from fixed price sales. While Inergy has historically been successful in passing on any price increases to its customers, there can be no
guarantees that this trend will continue in the future. In periods of increasing costs, Inergy has experienced a decline in its gross profit as a percentage of revenues. In addition, during those periods Inergy has historically experienced
conservation of propane gallons used by its



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

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

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



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



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



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

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

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

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

The majority of Inergys operating cash flows in its
midstream operations are generated by its natural gas storage operations. Most of Inergys natural gas storage revenues are based on regulated market-based tariff rates, which are driven in large part by competition and demand for its storage
capacity and deliverability. Demand for storage in Inergys key midstream market in the northeastern United States is projected to continue to be strong, driven by a shortage in storage capacity and a higher than average annual growth in
natural gas demand. This demand growth is primarily driven by the natural gas-fired electric generation sector. The natural gas industry is currently experiencing a significant shift in the sources of supply, and this dramatic change could affect
Inergys



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

As
Inergy executes on its strategic objectives, capital expansion projects will continue to be an important part of its growth plan. Inergy has committed capital and investment expenditures at September 30, 2009, of $10.4 million in its midstream
operations. These capital requirements, along with the refinancings of normal maturities of existing debt, will require Inergy to continue long-term borrowings. An inability to access capital at competitive rates could adversely affect Inergys
ability to implement its strategy. Market disruptions or a downgrade in Inergys credit ratings may increase the cost of borrowing or adversely affect its ability to access one or more sources of liquidity. During the past several years,
capital expansion projects have been exposed to cost pressures associated with the availability of skilled labor and the pricing of materials. Although certain costs have begun to decrease, there will be continual focus on project management
activities to address these pressures as Inergy moves forward with planned expansion opportunities. Significant cost increases could negatively affect the returns ultimately earned on current and future expansions.

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

Results of Operations

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



| |  |  | Our recognition of gain on issuance of units in Inergy. In accordance with FASB Accounting Standards Codification Subtopic 505-10
(originally issued as Staff Accounting Bulletin No. 51 Accounting for Sales of Stock by a Subsidiary), in certain circumstances, we can recognize an increase in the value of our investment in Inergy when Inergy issues additional
common units to third parties at a unit price that exceeds the current carrying value of our investment in Inergy common units. This gain recognition, however, is not permitted if Inergy sells a class of equity securities that has distribution
rights over any other class of equity interests. Since Inergy had both subordinated and special units, we could not recognize the gains until these units converted to common units, and as such, we had previously reflected these deferred gains from
issuance of Inergy common units as a minority interest in our financial statements. As of April 25, 2007, all subordinated and special units had converted to common units, resulting in our recognition of all previously deferred gains during the
quarter ended June 30, 2007. This gain is now 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Interest of Non-Controlling Partners in Inergys Net (Income) Loss. We adjust our net income by excluding the earnings allocated to
Inergy limited partner units that are not directly or indirectly owned by us. At September 30, 2009, we owned an approximate 7.8% limited partner interest in Inergy together with a 0.8% non-managing general partner interest; and the
non-affiliated unitholders owned a 91.4% limited partner interest in Inergy.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fiscal Year Ended September 30, 2009
Compared to Fiscal Year Ended September 30, 2008

The following table summarizes the consolidated income statement components for the
fiscal years ended September 30, 2009 and 2008, respectively (in millions):



|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ------ | - | ------- | --------- |  | - | ---------- | - |  | ----- | --
|                                                                                                                           |  | Year EndedSeptember 30, |         |   | Change |  
|                                                                                                                           |  | 2009                    |         |   | 2008   |   |         | InDollars |  |   | Percentage |  
|Revenue                                                                                                                    |  | $                       | 1,570.6 |   |        | $ | 1,878.9 |           |  | $ | (308.3     | ) |  | (16.4 | )%
|Cost of product sold                                                                                                       |  |                         | 996.9   |   |        |   | 1,376.7 |           |  |   | (379.8     | ) |  | (27.6 | ) 
|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   
|Gross profit                                                                                                               |  |                         | 573.7   |   |        |   | 502.2   |           |  |   | 71.5       |   |  | 14.2  |   
|Operating and administrative expenses                                                                                      |  |                         | 280.5   |   |        |   | 266.6   |           |  |   | 13.9       |   |  | 5.2   |   
|Depreciation and amortization                                                                                              |  |                         | 115.8   |   |        |   | 98.0    |           |  |   | 17.8       |   |  | 18.2  |   
|Loss on disposal of assets                                                                                                 |  |                         | 5.2     |   |        |   | 11.5    |           |  |   | (6.3       | ) |  | (54.8 | ) 
|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   
|Operating income                                                                                                           |  |                         | 172.2   |   |        |   | 126.1   |           |  |   | 46.1       |   |  | 36.6  |   
|Interest expense, net                                                                                                      |  |                         | (70.5   | ) |        |   | (62.6   | )         |  |   | (7.9       | ) |  | (12.6 | ) 
|Other income                                                                                                               |  |                         | 0.1     |   |        |   | 1.0     |           |  |   | (0.9       | ) |  | (90.0 | ) 
|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   
|Income before gain on issuance of units in Inergy, income taxes and interest of non-controlling partners in Inergy and
ASC |  |                         | 101.8   |   |        |   | 64.5    |           |  |   | 37.3       |   |  | 57.8  |   
|Gain on issuance of units in Inergy                                                                                        |  |                         | 8.0     |   |        |   |        |           |  |   | 8.0        |   |  | *     |   
|Provision for income taxes                                                                                                 |  |                         | (1.7    | ) |        |   | (1.4    | )         |  |   | (0.3       | ) |  | (21.4 | ) 
|Interest of non-controlling partners in Inergys net income                                                                |  |                         | (49.6   | ) |        |   | (26.2   | )         |  |   | (23.4      | ) |  | (89.3 | ) 
|Interest of non-controlling partners in ASCs consolidated net income                                                      |  |                         | (1.4    | ) |        |   | (1.4    | )         |  |   |           |   |  |      |   
|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   
|Net income                                                                                                                 |  | $                       | 57.1    |   |        | $ | 35.5    |           |  | $ | 21.6       |   |  | 60.8  | % 
|                                                                                                                           |  |                         |         |   |        |   |         |           |  |   |            |   |  |       |   



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

The following table summarizes
revenues, including associated volume of gallons sold, for the years ended September 30, 2009 and 2008, respectively (in millions):



|                                           |  |                         |         |        |         |           |                         |   |         |   |  |       |    |      |       |         |       |  |         |   |  |      |   
|------------------------------------------ |  | ----------------------- | ------- | ------ | ------- | --------- | ----------------------- | - | ------- | - |  | ----- | -- | ---- | ----- | ------- | ----- |  | ------- | - |  | ---- | --
|                                           |  | Revenues                |         |        | Gallons |          
|                                           |  | Year EndedSeptember 30, |         | Change |         |           | Year EndedSeptember 30, |   | Change  |  
|                                           |  | 2009                    |         | 2008   |         | InDollars |                         |   | Percent |   |  | 2009  |    | 2008 |       | InUnits |       |  | Percent |  
|Retail propane                             |  | $                       | 736.7   |        | $       | 840.7     |                         | $ | (104.0  | ) |  | (12.4 | )% |      | 310.0 |         | 331.9 |  | (21.9   | ) |  | (6.6 | )%
|Wholesale propane                          |  |                         | 387.7   |        |         | 546.1     |                         |   | (158.4  | ) |  | (29.0 | )  |      | 380.6 |         | 358.5 |  | 22.1    |   |  | 6.2  |   
|Other retail                               |  |                         | 209.2   |        |         | 223.0     |                         |   | (13.8   | ) |  | (6.2  | )  |      |      |         |      |  |        |   |  |     |   
|Storage, fractionation and other midstream |  |                         | 237.0   |        |         | 269.1     |                         |   | (32.1   | ) |  | (11.9 | )  |      |      |         |      |  |        |   |  |     |   
|                                           |  |                         |         |        |         |           |                         |   |         |   |  |       |    |      |       |         |       |  |         |   |  |      |   
|Total                                      |  | $                       | 1,570.6 |        | $       | 1,878.9   |                         | $ | (308.3  | ) |  | (16.4 | )% |      | 690.6 |         | 690.4 |  | 0.2     |   |  |     | % 
|                                           |  |                         |         |        |         |           |                         |   |         |   |  |       |    |      |       |         |       |  |         |   |  |      |   



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Volume. During fiscal 2009, we sold 310.0 million retail gallons of propane, a decrease of
21.9 million gallons or 6.6% from the 331.9 million retail gallons of propane sold during fiscal 2008. Gallons sold during fiscal 2009 declined compared to fiscal 2008 as a result of lower volumes sold at our existing locations of
35.1 million gallons partially offset by a 13.2 million gallon increase from acquisition-related volume. Although the weather in our areas of operations was 7% colder than the prior year period when compared to our calculations using
degree day data provided by NOAA, the increase in gallon sales associated with this colder weather was more than offset by (1) continued customer conservation, which we believe resulted primarily from the lingering effects of the higher cost of
propane that existed at the end of our fiscal year 2008, as well as the overall weak United States economic environment, and (2) volume declines from net customer losses during the periods of high propane costs, including low margin and less
profitable customers.

Wholesale gallons delivered increased 22.1 million gallons, or 6.2%, to 380.6 million gallons in fiscal 2009
from 358.5 million gallons in fiscal 2008. The increase was due primarily to greater volumes sold to existing customers and addition of new customers.

The total natural gas liquid gallons sold or processed by our West Coast NGL operations increased 10.8 million gallons, or 4.2%, to 269.9 million gallons in fiscal 2009 from 259.1 million
gallons in fiscal 2008. This increase was primarily attributable to renewal of certain customer contracts and the addition of new contracts.

During fiscal 2009 and 2008, our Northeast natural gas and LPG storage facilities were 100% contracted.

Revenues. Revenues in
fiscal 2009 were $1,570.6 million, a decrease of $308.3 million, or 16.4% from $1,878.9 million in fiscal 2008.

Revenues from retail propane
sales were $736.7 million for the year ended September 30, 2009, a decrease of $104.0 million, or 12.4%, compared to $840.7 million for the year ended September 30, 2008. This decrease resulted primarily from a combination of a lower
overall average selling price of propane due to a reduction in the wholesale cost of propane and a decline in gallons sold to existing customers as described above, which together contributed to a $136.3 million revenue decline, partially offset by
acquisition-related sales, which resulted in higher revenues of $32.3 million.

Revenues from wholesale propane sales were $387.7 million in
fiscal 2009, a decrease of $158.4 million or 29.0%, from $546.1 million in fiscal 2008. This decrease resulted primarily from the lower average selling price of propane, which contributed $192.0 million to the decrease in revenues. The lower selling
price for our wholesale propane sales in fiscal 2009 compared to fiscal 2008 was the result of the lower cost of propane. This decrease was partially offset by increases in volume sold to existing and new customers.

Revenues from other retail sales, which primarily include distillates, service, rental, appliance sales and transportation services, were $209.2 million in
fiscal 2009, a decrease of $13.8 million, or 6.2% from $223.0 million in fiscal 2008. Revenues from other retail sales decreased $56.0 million due to lower distillate sales from existing locations and a decline in other revenues of $5.9 million,
partially offset by higher revenues of $48.1 million attributable to acquisitions. The decrease in distillate revenues at existing locations was the result of lower volume sold coupled with a decline in the comparable average selling price of the
distillates resulting from a lower wholesale cost.

Revenues from storage, fractionation and other midstream activities were $237.0 million in
fiscal 2009, a decrease of $32.1 million or 11.9% from $269.1 million in fiscal 2008. Revenues from our West Coast NGL operations decreased $81.3 million primarily as a result of decreases in commodity cost and expected changes in the variety of
natural gas liquid products sold. Partially offsetting this decrease was a $44.2 million increase due to the acquisition of US Salt. In addition, revenues at our Bath LPG Storage Facility and Stagecoach Storage Facility increased due to an increase
in contractual rates and the commencement of operations on the Stagecoach North Lateral connecting to Millennium Pipeline in December 2008.



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Cost of Product Sold.Cost of product sold for fiscal 2009 was $996.9 million, a decrease of $379.8
million, or 27.6%, from $1,376.7 million in fiscal 2008.

Retail propane cost of product sold was $373.6 million for the year ended
September 30, 2009, compared to $527.9 million for the year ended September 30, 2008. This $154.3 million, or 29.2%, decrease in retail propane cost of product sold was driven by an approximate 25% decline in the average per gallon cost of
propane along with lower volume sales at our existing locations as discussed above, which together reduced costs $169.7 million. These factors were partially offset by a $14.1 million increase in the cost of product sold associated with
acquisition-related volume and a $1.3 million increase in cost of product sold related to changes in non-cash charges on derivative contracts associated with retail propane fixed price sales contracts.

Wholesale propane cost of product sold in fiscal 2009 was $363.8 million, a decrease of $161.3 million or 30.7%, from wholesale cost of product sold of
$525.1 million in fiscal 2008. These lower costs were primarily a result of a $193.6 million decrease due to the lower average cost of propane. This decrease was partially offset by increases in volume sold to existing and new customers.

Other retail cost of product sold was $124.8 million for the year ended September 30, 2009, compared to $146.6 million for the year ended
September 30, 2008. This $21.8 million, or 14.9%, decrease was primarily due to a $57.1 million reduction in cost of product sold related to distillate sales at existing locations due to both declines in volumes sold and the average cost of
product. Also contributing to the decline in other retail cost of product sold was a reduction in costs related to other products and services of $1.9 million. These factors were partially offset by higher costs associated with acquisitions of $37.2
million.

Storage, fractionation and other midstream cost of product sold was $134.7 million, a decrease of $42.4 million, or 23.9%, from
$177.1 million in fiscal 2008. Costs from our West Coast NGL operations were $76.0 million lower primarily as a result of decreases in commodity cost and expected changes in the variety of natural gas liquid products sold. Partially offsetting this
decrease was a $28.2 million increase in cost due to the acquisition of US Salt.

Our retail and wholesale cost of product sold consists
primarily of tangible products sold including all propane, distillates and other natural gas liquids sold and all propane-related appliances sold. Other costs incurred in conjunction with the distribution of these products are included in operating
and administrative expenses and consist primarily of wages to delivery personnel, delivery vehicle costs consisting of fuel costs, repair and maintenance and lease expense. Costs associated with delivery vehicles amounted to $62.0 million and $67.0
million for fiscal 2009 and 2008, respectively. In addition, the depreciation expense associated with the delivery vehicles and customer tanks is reported within depreciation and amortization expense and amounted to $33.0 million in fiscal 2009 and
2008. Since we include these costs in our operating and administrative expense and depreciation and amortization expense rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they
include these costs in cost of product sold.

Our storage, fractionation and other midstream cost of product sold consists primarily of
commodity and transportation costs. Other costs incurred in conjunction with these services are included in operating and administrative expense and depreciation and amortization expense and consist primarily of depreciation, vehicle costs
consisting of fuel costs and repair and maintenance and wages. Depreciation expense for storage, fractionation and other midstream amounted to $36.9 million and $27.7 million for fiscal 2009 and 2008, respectively. Vehicle costs combined with wages
for personnel directly involved in providing midstream services amounted to $2.7 million and $3.3 million for fiscal 2009 and 2008, respectively. Since we include these costs in our operating and administrative expense and depreciation and
amortization expense rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Gross Profit.Gross profit for fiscal 2009 was $573.7 million, an increase of $71.5 million, or 14.2%, from $502.2 million during fiscal 2008.



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Retail propane gross profit was $363.1 million in fiscal 2009, an increase of $50.3 million, or 16.1%,
compared to $312.8 million in fiscal 2008. This increase in retail propane gross profit was mostly attributable to a higher cash margin per gallon, which contributed an increase to gross profit of $66.5 million, and an increase of $18.2 million
associated with acquisitions, partially offset by a $33.1 million decline in gross profit resulting from lower retail gallon sales at existing locations as discussed above and a $1.3 million decline related to changes in non-cash charges on
derivative contracts associated with retail propane fixed price sales contracts. The increase in cash margin per gallon was primarily the result of our selling price of propane declining at a slower rate in certain markets than the underlying cost
of propane declined.

Wholesale propane gross profit was $23.9 million in fiscal 2009 compared to $21.0 million in fiscal 2008, an increase of
$2.9 million or 13.8%. This increase was primarily the result of both increased volumes sold and higher margins that we were able to attain in certain regions where supply disruption occurred in 2009.

Other retail gross profit was $84.4 million for the year ended September 30, 2009, compared to $76.4 million for the year ended September 30,
2008. This $8.0 million, or 10.5%, increase was due primarily to a $10.9 million increase from acquisitions and a $1.1 million increase in distillate gross profit, partially offset by a $4.0 million decline in gross profit for other products and
services.

Storage, fractionation and other midstream gross profit was $102.3 million in fiscal 2009 compared to $92.0 million in fiscal 2008,
an increase of $10.3 million, or 11.2%. Approximately $16.0 million of this increase was due to the acquisition of US Salt, which was partially offset by a decrease in gross profit from our West Coast NGL operations. The decrease in West Coast gross
profit is partially attributable to losses taken on certain commodity contracts due to a brief delay in our butane isomerization unit being placed in service. The aforementioned isomerization unit was placed in service in July 2009. The decrease is
also attributable to the non-renewal of certain customer contracts.

Operating and Administrative Expenses. Operating and
administrative expenses were $280.5 million in fiscal 2009 compared to $266.6 million in fiscal 2008. This $13.9 million, or 5.2%, increase in operating expenses was due primarily to acquisitions and incentive compensation, which increased $16.1
million and $8.5 million, respectively. Offsetting these increases were lower operating expenses from existing operations of $10.7 million comprised predominantly of lower salaries, vehicle expenses and other operating expenses.

Depreciation and Amortization. Depreciation and amortization increased to $115.8 million in fiscal 2009 from $98.0 million in fiscal 2008. This $17.8
million, or 18.2%, increase was primarily the result of acquisitions and completed expansion projects being placed into service in our midstream segment.

Loss on Disposal of Assets. Loss on disposal of assets decreased $6.3 million, or 54.8%, to $5.2 million in fiscal 2009 compared to $11.5 million in fiscal 2008. The losses recognized in fiscal
2009 and 2008 include losses of $4.9 million and $11.5 million, respectively, related to assets held for sale, which have been written down to their estimated selling price. In addition, we had other losses in fiscal 2009 of $0.3 million. These
assets, both those sold and those held for sale, consist primarily of vehicles, tanks and real estate deemed to be excess, redundant or underperforming assets. In fiscal 2009 and 2008, these assets were identified primarily as a result of losses due
to disconnecting customer installations of unprofitable accounts due to low margins, poor payment history or low volume usage.

Interest
Expense. Interest expense increased to $70.5 million in fiscal 2009 compared to $62.6 million in fiscal 2008. This $7.9 million, or 12.6%, increase was due to a $219.8 million increase in average debt outstanding associated with acquisitions and
capital improvement projects, partially offset by lower average interest rates associated with our floating rate debt and benefits from our interest rate swap agreements. Additionally, during fiscal 2009 and 2008, we capitalized $14.8 million and
$5.5 million, respectively, of interest related to certain capital improvement in our midstream segment as further described below in the Liquidity and Sources of CapitalCapital Resource Activities section.



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Gain on Issuance of Units in Inergy. We recorded a gain of $8.0 million in fiscal 2009, whereas
no gain was recorded in fiscal 2008. This increase was primarily attributable to Inergys 4,000,000 common unit issuance in March 2009 and its 3,500,000 common unit issuance in August 2009.

Provision for Income Taxes. The provision for income taxes for fiscal 2009 was $1.7 million compared to $1.4 million for fiscal 2008. This $0.3
million, or 21.4%, increase was due primarily to higher income earned by IPCHA. The provision for income taxes of $1.7 million in fiscal 2009 was composed of $1.3 million of current income tax expense together with $0.4 million of deferred income
tax expense.

Interest of Non-controlling Partners in Inergys Net Income. We recorded an expense of $49.6 million in fiscal
2009, as compared to an expense of $26.2 million in fiscal 2008 associated with the interests of non-controlling partners in Inergy. The $23.4 million, or 89.3%, change resulted primarily from a $36.3 million increase in Inergys net income,
which had the effect of increasing the interest of non-controlling partners in Inergys net income. Also contributing to the change was a $10.7 million increase in incentive distribution rights received by the Company from Inergy, to which the
non-controlling partners are not entitled.

Interest of non-controlling partners in ASCs consolidated net income. Inergy acquired
a majority interest in the operations of Steuben when it acquired 100% of the membership interest in ASC in October 2007. ASC holds a majority interest in the operations of Steuben.

Net Income. Net income was $57.1 million for fiscal 2009 compared to net income of $35.5 million for fiscal 2008. The $21.6 million, or 60.8%, increase in net income was primarily attributable
to the higher net income at Inergy in fiscal 2009 and the increase in the gain on issuance of units in Inergy, partially offset by the increase in expense related to the interest of non-controlling partners in Inergys net income.

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007

The following table summarizes the consolidated income statement components for the fiscal years ended September 30, 2008 and 2007, respectively (in
millions):



|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   
|------------------------------------------------------------------------------------------------------------------ |  | ----------------------- | ------- | - | ------ | - | ------- | --------- |  | - | ---------- | - |  | ------ | --
|                                                                                                                   |  | Year EndedSeptember 30, |         |   | Change |  
|                                                                                                                   |  | 2008                    |         |   | 2007   |   |         | InDollars |  |   | Percentage |  
|Revenue                                                                                                            |  | $                       | 1,878.9 |   |        | $ | 1,483.1 |           |  | $ | 395.8      |   |  | 26.7   | % 
|Cost of product sold                                                                                               |  |                         | 1,376.7 |   |        |   | 1,026.1 |           |  |   | 350.6      |   |  | 34.2   |   
|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   
|Gross profit                                                                                                       |  |                         | 502.2   |   |        |   | 457.0   |           |  |   | 45.2       |   |  | 9.9    |   
|Operating and administrative expenses                                                                              |  |                         | 266.6   |   |        |   | 248.6   |           |  |   | 18.0       |   |  | 7.2    |   
|Depreciation and amortization                                                                                      |  |                         | 98.0    |   |        |   | 83.4    |           |  |   | 14.6       |   |  | 17.5   |   
|Loss on disposal of assets                                                                                         |  |                         | 11.5    |   |        |   | 8.0     |           |  |   | 3.5        |   |  | 43.8   |   
|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   
|Operating income                                                                                                   |  |                         | 126.1   |   |        |   | 117.0   |           |  |   | 9.1        |   |  | 7.8    |   
|Interest expense, net                                                                                              |  |                         | (62.6   | ) |        |   | (54.4   | )         |  |   | (8.2       | ) |  | (15.1  | ) 
|Other income                                                                                                       |  |                         | 1.0     |   |        |   | 1.9     |           |  |   | (0.9       | ) |  | (47.4  | ) 
|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   
|Income before gain on issuance of units in Inergy, income taxes and interest of non-controlling partners in
Inergy |  |                         | 64.5    |   |        |   | 64.5    |           |  |   |           |   |  |       |   
|Gain on issuance of units in Inergy                                                                                |  |                         |        |   |        |   | 80.6    |           |  |   | (80.6      | ) |  | (100.0 | ) 
|Provision for income taxes                                                                                         |  |                         | (1.4    | ) |        |   | (6.5    | )         |  |   | 5.1        |   |  | 78.5   |   
|Interest of non-controlling partners in Inergys net income                                                        |  |                         | (26.2   | ) |        |   | (36.0   | )         |  |   | 9.8        |   |  | 27.2   |   
|Interest of non-controlling partners in ASCs consolidated net income                                              |  |                         | (1.4    | ) |        |   |        |           |  |   | (1.4       | ) |  | *      |   
|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   
|Net income                                                                                                         |  | $                       | 35.5    |   |        | $ | 102.6   |           |  | $ | (67.1      | ) |  | (65.4  | )%
|                                                                                                                   |  |                         |         |   |        |   |         |           |  |   |            |   |  |        |   



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



53



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##### Table of Contents

The following table summarizes revenues, including associated volume of gallons sold, for the years ended
September 30, 2008 and 2007, respectively (in millions):



|                                           |  |                         |         |        |         |           |                         |         |        |  |      |   |      |       |         |       |  |         |   |  |      |   
|------------------------------------------ |  | ----------------------- | ------- | ------ | ------- | --------- | ----------------------- | ------- | ------ |  | ---- | - | ---- | ----- | ------- | ----- |  | ------- | - |  | ---- | --
|                                           |  | Revenues                |         |        | Gallons |          
|                                           |  | Year EndedSeptember 30, |         | Change |         |           | Year EndedSeptember 30, |         | Change | 
|                                           |  | 2008                    |         | 2007   |         | InDollars |                         | Percent |        |  | 2008 |   | 2007 |       | InUnits |       |  | Percent |  
|Retail propane                             |  | $                       | 840.7   |        | $       | 733.2     |                         | $       | 107.5  |  | 14.7 | % |      | 331.9 |         | 362.2 |  | (30.3   | ) |  | (8.4 | )%
|Wholesale propane                          |  |                         | 546.1   |        |         | 417.2     |                         |         | 128.9  |  | 30.9 |   |      | 358.5 |         | 383.9 |  | (25.4   | ) |  | (6.6 | ) 
|Other retail                               |  |                         | 223.0   |        |         | 168.8     |                         |         | 54.2   |  | 32.1 |   |      |      |         |      |  |        |   |  |     |   
|Storage, fractionation and other midstream |  |                         | 269.1   |        |         | 163.9     |                         |         | 105.2  |  | 64.2 |   |      |      |         |      |  |        |   |  |     |   
|                                           |  |                         |         |        |         |           |                         |         |        |  |      |   |      |       |         |       |  |         |   |  |      |   
|Total                                      |  | $                       | 1,878.9 |        | $       | 1,483.1   |                         | $       | 395.8  |  | 26.7 | % |      | 690.4 |         | 746.1 |  | (55.7   | ) |  | (7.5 | )%
|                                           |  |                         |         |        |         |           |                         |         |        |  |      |   |      |       |         |       |  |         |   |  |      |   

Volume. During fiscal 2008, we sold 331.9 million retail gallons of propane compared to
362.2 million retail gallons of propane during fiscal 2007. This 30.3 million gallon, or 8.4%, net decline was due primarily to customer conservation, which we believe has resulted, in large part, from the higher average cost of Mt.
Belvieu propane. The average cost of Mt. Belvieu propane increased 49% during fiscal 2008 as compared to fiscal 2007. To a lesser extent, volume declines arising from a loss of less profitable customers and fewer gallon sales to lower margin
customers, including agricultural sales, contributed to the decline in gallons sold during the year. Also contributing to the decline was the warmer weather during fiscal 2008, which, on average for our operating areas, was slightly warmer than
fiscal 2007 and 7% warmer than normal. These factors that resulted in a decrease in comparable gallon sales were partially offset by acquisition-related volume, which resulted in an increase of 12.2 million gallons during fiscal 2008 compared
to fiscal 2007.

Wholesale gallons delivered decreased 25.4 million gallons, or 6.6%, to 358.5 million gallons in fiscal 2008 from
383.9 million gallons in fiscal 2007. This change was primarily attributable to decreased sales volumes to existing customers.

The total
natural gas liquid gallons sold or processed by our West Coast NGL operations increased 68.8 million gallons, or 36.2%, to 259.1 million gallons in fiscal 2008 from 190.3 million gallons in fiscal 2007. This increase was attributable
to the addition of natural gas liquid marketing and processing contracts in fiscal 2008.

Stagecoach had 26.25 bcf of working gas storage
capacity during fiscal year 2008. Stagecoach had 13.25 bcf of working gas storage capacity for the first six months in fiscal 2007, 17.45 bcf of working gas storage capacity for the following five months and 26.25 bcf of working gas storage capacity
during September 2007. Stagecoachs storage services were 100% contracted during each of the periods noted above. Steuben, which we acquired a controlling interest in October 2007, had 6.2 bcf of working gas storage capacity and the storage
services were 100% contracted during fiscal 2008. The Bath LPG Storage Facility had a storage capacity of 1.7 million barrels and storage services were 100% contracted during fiscal 2008 and fiscal 2007.

Revenues. Revenues in fiscal 2008 were $1,878.9 million, an increase of $395.8 million, or 26.7% from $1,483.1 million in fiscal 2007.

Revenues from retail propane sales were $840.7 million for the year ended September 30, 2008, an increase of $107.5 million, or 14.7%, compared to
$733.2 million for the year ended September 30, 2007. These higher retail propane revenues were primarily the result of the higher average selling price of propane and acquisition-related sales, which contributed $162.8 million and $30.8
million, respectively, to the year over year increase. These factors were partially offset by an $86.1 million reduction in retail propane revenues arising from lower retail volume sales at our existing locations as discussed above.



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##### Table of Contents

Revenues from wholesale propane sales were $546.1 million in fiscal 2008, an increase of $128.9 million or
30.9%, from $417.2 million in fiscal 2007. Approximately $156.4 million of this increase was attributable to the higher sales price of propane partially offset by lower sales volumes to existing customers. The higher selling price in our wholesale
division in 2008 compared to 2007 is the result of the increased cost of propane.

Revenues from other retail sales, which primarily include
distillates, service, rental, appliance sales and transportation services, were $223.0 million in fiscal 2008, an increase of $54.2 million, or 32.1% from $168.8 million in fiscal 2007. This increase was primarily related to $39.3 million of
acquisition-related sales, a $13.3 million increase in distillate revenues from existing locations and a $4.1 million increase in transportation revenues. Distillate revenues increased during fiscal 2008 due primarily to a 35% increase in the
average selling price. These increases were partially offset by a $2.5 million decline related to other products and services, primarily appliances and retail services.

Revenues from storage, fractionation and other midstream activities were $269.1 million in fiscal 2008, an increase of $105.2 million or 64.2% from $163.9 million in fiscal 2007. Revenues from our West
Coast NGL operations were $67.1 million higher as a result of increases in commodity cost and expected changes in the variety of natural gas liquid products sold due to additional contracts and $7.8 million was due to increased transportation and
processing activities. Additionally, $30.3 million of this increase was due to the acquisitions of US Salt and ASC, the Stagecoach Phase II expansion being placed into partial service in April 2007 and full service in September 2007, and increased
contractual rates on the Stagecoach Storage Facility and Bath LPG Storage Facility.

Cost of Product Sold.Cost of product sold for
fiscal 2008 was $1,376.7 million, an increase of $350.6 million, or 34.2%, from $1,026.1 million in fiscal 2007.

Retail propane cost of
product sold was $527.9 million for the year ended September 30, 2008 compared to $419.3 million for the year ended September 30, 2007. This $108.6 million, or 25.9%, increase in retail propane cost of product sold was driven by a 37%
higher average per gallon cost of propane, which resulted in a $137.1 million increase in cost. Also contributing to the higher cost of product sold during fiscal 2008 was an increase of $20.1 million associated with acquisition-related volume and a
$0.7 million increase due to changes in non-cash charges related to derivative contracts associated with retail propane fixed price sales contracts. These factors, which increased retail propane cost of product sold, were partially offset by lower
volume sales at our existing locations as discussed above, which reduced costs by $49.3 million.

Wholesale propane cost of product sold in
fiscal 2008 was $525.1 million, an increase of $124.4 million or 31.0%, from wholesale cost of product sold of $400.7 million in fiscal 2007. Contributing to these higher costs was a $150.9 million increase due to the higher average cost of propane
partially offset by lower volumes sold to existing customers.

Other retail cost of product sold was $146.6 million for the year ended
September 30, 2008 compared to $100.0 million for the year ended September 30, 2007. This $46.6 million, or 46.6% increase was primarily due to higher costs of $31.9 million related to acquisitions, an increase of $13.4 million associated
with distillate sales from existing locations and a $3.0 million increase in transportation costs. These increases to cost of product sold were partially offset by a $1.7 million decline in costs for other products and services, primarily appliances
sales.

Storage, fractionation and other midstream cost of product sold was $177.1 million, an increase of $71.0 million, or 66.9%, from
$106.1 million in fiscal 2007. Costs from our West Coast NGL operations were $64.4 million higher as a result of increases in commodity cost and expected changes in the variety of natural gas liquid products sold due to additional contracts and $5.6
million was due to increased transportation and processing activities. The remaining increase resulted from the acquisitions of ASC and US Salt, partially offset by lower power and transportation costs at our Stagecoach facility.



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Our retail cost of product sold consists primarily of tangible products sold including all propane,
distillates and other natural gas liquids sold and all propane-related appliances sold. Other costs incurred in conjunction with the distribution of these products are included in operating and administrative expense and consist primarily of wages
to delivery personnel, delivery vehicle costs consisting of fuel costs, repair and maintenance and lease expense. Costs associated with delivery vehicles amounted to $67.0 million and $63.1 million in 2008 and 2007, respectively. In addition, the
depreciation expense associated with the delivery vehicles and customer tanks is reported within depreciation and amortization expense and amounted to $33.0 million and $32.3 million in 2008 and 2007, respectively. Since we include these costs in
our operating and administrative expenses and depreciation and amortization expenses rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product
sold.

Our storage, fractionation and other midstream cost of product sold consists primarily of commodity and transportation costs. Other
costs incurred in conjunction with these services consist primarily of depreciation, vehicle costs consisting of fuel costs and repair and maintenance and wages are included in operating and administrative expense and depreciation and amortization
expense. Depreciation expense for storage, fractionation and other midstream amounted to $27.7 million and $17.4 million in 2008 and 2007, respectively. Vehicle costs combined with wages for personnel directly involved in providing midstream
services amounted to $3.3 million and $1.9 million in 2008 and 2007, respectively. Since we include these costs in our operating and administrative expenses and depreciation and amortization expenses rather than in cost of product sold, our results
may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Gross Profit.Gross profit for fiscal 2008 was $502.2 million, an increase of $45.2 million, or 9.9%, from $457.0 million during fiscal 2007.

Retail
propane gross profit was $312.8 million in fiscal 2008, a decline of $1.1 million, or 0.4%, compared to $313.9 million in fiscal 2007. During fiscal 2008, gross profit declined by $36.8 million primarily as a result of lower retail gallon sales at
existing locations as discussed above. This decline in gross profit was partially offset by an increase in gross profit of $25.7 million relating to a higher cash margin per gallon and an increase of $10.7 million due to acquisitions. The increase
in cash margin per gallon was primarily the result of our ability to raise selling prices in certain markets in excess of the increased cost of propane.

Wholesale propane gross profit was $21.0 million in fiscal 2008 compared to $16.5 million in fiscal 2007, an increase of $4.5 million or 27.3%. Approximately $5.5 million of this increase was the result
of a higher margin per gallon from our existing business partially offset by decreased wholesale volumes from our existing business. The improved margin per gallon is primarily the result of a higher average selling price in excess of our increased
cost of propane.

Other retail gross profit was $76.4 million for the year ended September 30, 2008 compared to $68.8 million for the
year ended September 30, 2007. This $7.6 million, or 11.0%, increase was due primarily to acquisitions and higher transportation sales, which together resulted in an increase to other retail gross profit of $8.5 million. These increases were
partially offset by a combined decrease in gross profit for distillate sales, appliance sales and other retail services of $0.9 million.

Storage, fractionation and other midstream gross profit was $92.0 million in fiscal 2008 compared to $57.8 million in fiscal 2007, an increase of $34.2 million, or 59.2%. Approximately $29.3 million of this increase was due to the
acquisitions of US Salt and ASC, the Stagecoach Phase II expansion being placed into partial service in April 2007 and full service in September 2007, and increased contractual rates on the Stagecoach Storage Facility and Bath LPG Storage Facility.
The remaining $4.9 million increase relates to increases in transportation, processing activities and natural gas liquids gross profit at our West Coast NGL operations.

Operating and Administrative Expenses. Operating and administrative expenses were $266.6 million in fiscal 2008 compared to $248.6 million in fiscal 2007. This $18.0 million, or 7.2%, increase in
operating expenses was



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primarily the result of higher expenses of $15.7 million arising from acquisitions. The remaining increase resulted from higher vehicle, insurance and other operating expenses, partially offset
by lower wages and other personnel expenses due to integration efficiencies and lower expenses as a result of lesser volumes sold at existing locations.

Depreciation and Amortization. Depreciation and amortization increased to $98.0 million in fiscal 2008 from $83.4 million in fiscal 2007. This $14.6 million, or 17.5%, increase was primarily the
result of acquisitions and the completion of the Stagecoach Phase II expansion project in our midstream segment.

Loss on Disposal of
Assets. Loss on disposal of assets increased $3.5 million, or 43.8%, to $11.5 million in fiscal 2008 compared to $8.0 million in fiscal 2007. The losses recognized in fiscal 2008 and 2007 include losses of $11.5 million and $6.2 million,
respectively, related to assets held for sale, which have been written down to their estimated selling price. In addition, we had other losses in fiscal 2007 of $1.8 million. These assets, both those sold and those held for sale, consist primarily
of vehicles, tanks and real estate deemed to be excess, redundant or underperforming assets. In fiscal 2008, these assets were identified primarily as a result of losses due to disconnecting customer installations of unprofitable accounts due to low
margins, poor payment history or low volume usage. In fiscal 2007, these assets were identified primarily as the result of the integration of the larger retail propane acquisitions closed since November 2004 as we focused on eliminating duplicity in
vehicles, operations, tanks and real estate.

Interest Expense. Interest expense increased to $62.6 million in fiscal 2008 compared to
$54.4 million in fiscal 2007. This $8.2 million, or 15.1%, increase was due to a $213.2 million increase in average debt outstanding associated with acquisitions and capital improvement projects, partially offset by a lower average interest rate in
2008 (6.96%) compared to 2007 (7.71%). During fiscal 2008 and 2007, we capitalized $5.5 million and $3.1 million, respectively, of interest related to certain capital improvement projects at our West Coast NGL and Stagecoach facilities as
further described below in the Liquidity and Sources of CapitalCapital Resource Activities section.

Gain on Issuance of
Units in Inergy. As discussed above, during fiscal 2007, we recognized all previously deferred gains resulting from issuances of additional Inergy common units at a price per unit greater than our equivalent carrying value. As such, a gain
of approximately $80.6 million was recognized during fiscal 2007, and no such gain was recorded in fiscal 2008.

Provision for Income
Taxes. The provision for income taxes for fiscal 2008 was $1.4 million compared to $6.5 million for fiscal 2007. This $5.1 million, or 78.5%, decrease was due to lower income earned by IPCHA. The provision for income taxes of $1.4 million
in fiscal 2008 was composed entirely of current income tax expense.

Interest of Non-controlling Partners in Inergys Net
Income. We recorded an expense of $26.2 million in fiscal 2008, as compared to an expense of $36.0 million in fiscal 2007 associated with the interests of non-controlling partners in Inergy. The $9.8 million, or 27.2%, change resulted
primarily from an $8.7 million increase in incentive distribution rights received by the Company from Inergy, to which the non-controlling partners are not entitled.

Interest of non-controlling partners in ASCs consolidated net income. Inergy acquired a majority interest in the operations of Steuben when it acquired 100% of the membership interest in ASC
in October 2007. ASC holds a majority interest in the operations of Steuben.

Net Income. Net income was $35.5 million for fiscal
2008 compared to net income of $102.6 million for fiscal 2007. The $67.1 million, or 65.4%, decrease in net income was primarily attributable to the 2007 gain recognition of $80.6 million on the issuance of Inergy units. Partially offsetting this
decrease in net income was a decrease in the expense related to the interest of non-controlling partners in Inergys net income as well as a decrease in the provision for income taxes in fiscal 2008.



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Liquidity and Sources of Capital

Capital Resource Activities

On July 31, 2006, we filed a shelf registration statement
(File No. 333-136200) for the periodic sale of up to $200 million of common units. Pursuant to the shelf registration statement, we are permitted to issue these securities from time to time for general partnership purposes, which may include
debt repayment, future acquisitions, capital expenditures, purchases of limited partnership units of Inergy, L.P. and additions to working capital. In May 2007, we sold 1,500,000 common units in a public offering and received net proceeds of
approximately $75.5 million. Immediately following the closing of this offering, we redeemed from certain of our original investors, including certain members of our management, 1,500,000 common units for a per unit amount equal to the net proceeds
per common unit we received in this offering before expenses. We immediately canceled the common units we redeemed from the original investors so that they are no longer outstanding.

On March 23, 2006, Inergys shelf registration statement (File No. 333-132287) was declared effective by the Securities and Exchange Commission for the periodic sale by Inergy of up to $1.0
billion of common units, partnership securities and debt securities, or any combination thereof. Pursuant to the shelf registration statement, Inergy is permitted to issue these securities from time to time for general business purposes, including
debt repayment, future acquisitions, capital expenditures and working capital, or for other potential uses identified in a prospectus supplement. In June 2006 and February 2007, Inergy issued 4,312,500 common units (which included 562,500 common
units issued as a result of the underwriters exercising their over-allotment provision) and 3,450,000 common units (which included 450,000 common units issued as result of the underwriters exercising their over-allotment provision), respectively. In
March 2009 Inergy issued 4,000,000 common units and in April 2009 it issued an additional 418,000 common units as result of the underwriters exercising their over-allotment provision. In August 2009 Inergy issued 3,500,000 common units and in
September 2009 it issued an additional 525,000 common units as a result of the underwriters exercising their over-allotment provision. The proceeds from these issuances were primarily utilized to pay down borrowings under Inergys credit
facility.

On September 10, 2009, Inergys new shelf registration statement (File No. 333-158066) was declared effective by the
Securities and Exchange Commission for the periodic sale by Inergy of up to $1.0 billion of common units, partnership securities and debt securities, or any combination thereof.

Cash Flows and Contractual Obligations

Net operating cash inflows were $237.2 million and
$180.2 million for fiscal years ending September 30, 2009 and 2008, respectively. The $57.0 million increase in operating cash flows was primarily attributable to increases in cash components of net income as well as net changes in working
capital balances.

Net investing cash outflows were $230.6 million and $386.7 million for the fiscal years ending September 30, 2009 and
2008, respectively. Net cash outflows were primarily impacted by a $203.0 million decrease in cash outlays related to acquisitions, partially offset by a $22.3 million decrease in proceeds from the sale of assets and a $24.7 million increase in
capital expenditures.

Net financing cash inflows (outflows) were $(12.3) million and $216.0 million for the fiscal years ending
September 30, 2009 and 2008, respectively. The net change was primarily impacted by a $399.2 million decrease in proceeds related to the issuance of long-term debt, net of payments on long-term debt, a $16.7 million increase in distributions to
non-controlling partners in Inergy, L.P., and an $11.5 million increase in distributions, partially offset by a $201.2 million increase in the proceeds from issuance of Inergy common units.

Net operating cash inflows were $180.2 million and $163.5 million for fiscal years ending September 30, 2008 and 2007, respectively. The $16.7 million
increase in operating cash flows was primarily attributable to increases in cash components of net income as well as net changes in working capital balances.



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Net investing cash outflows were $386.7 million and $187.8 million for the fiscal years ending
September 30, 2008 and 2007, respectively. Net cash outflows were primarily impacted by a $115.5 million increase in cash outlays related to acquisitions and a $99.2 million increase in capital expenditures, partially offset by a $16.2 million
increase in proceeds from the sale of assets.

Net financing cash inflows were $216.0 million and $20.1 million for the fiscal years ending
September 30, 2008 and 2007, respectively. Net cash inflows were primarily impacted by a $329.3 million increase in proceeds related to the issuance of long-term debt, net of payments on long-term debt, a $104.5 million decrease in the proceeds
from issuance of Inergy common units, a $3.5 million increase in payments for deferred financing costs, an $11.5 million increase in distributions to non-controlling partners in Inergy, L.P., and an $11.0 million increase in distributions.

At September 30, 2009 and 2008, we had goodwill of $394.5 million and $463.2 million, respectively, representing 18% and 22% of total
assets in each year, respectively. This goodwill is attributable to Inergys acquisitions. The net decrease in goodwill is attributable to certain purchase accounting adjustments made during 2009.

At September 30, 200, we were in compliance with all debt covenants to our credit facilities.

The following table summarizes our Companys obligations as of September 30, 2009 (in millions):



|                                                                                           |  |       |         |                 |   |           |  |           |       |              |   |       |  |   |        
|------------------------------------------------------------------------------------------ |  | ----- | ------- | --------------- | - | --------- |  | --------- | ----- | ------------ | - | ----- |  | - | -------
|                                                                                           |  | Total |         | Less than1 year |   | 1-3 years |  | 4-5 years |       | After5 years
|Aggregate amount of principal and interest to be paid on the outstanding long-term debt(a) |  | $     | 1,585.6 |                 | $ | 101.2     |  | $         | 205.7 |              | $ | 160.8 |  | $ | 1,117.9
|Future minimum lease payments under noncancelable operating leases                         |  |       | 38.8    |                 |   | 10.1      |  |           | 14.0  |              |   | 8.5   |  |   | 6.2    
|Fixed price purchase commitments(c)                                                        |  |       | 225.3   |                 |   | 220.1     |  |           | 5.2   |              |   |      |  |   |       
|Standby letters of credit                                                                  |  |       | 16.7    |                 |   | 16.4      |  |           | 0.3   |              |   |      |  |   |       
|Purchase commitments of identified growth projects(b)                                      |  |       | 10.4    |                 |   | 10.4      |  |           |      |              |   |      |  |   |       
|                                                                                           |  |       |         |                 |   |           |  |           |       |              |   |       |  |   |        
|Total contractual obligations                                                              |  | $     | 1,876.8 |                 | $ | 358.2     |  | $         | 225.2 |              | $ | 169.3 |  | $ | 1,124.1
|                                                                                           |  |       |         |                 |   |           |  |           |       |              |   |       |  |   |        



|(a) | $212.9 million of our long-term debt, including interest rate swaps, is variable interest rate debt at prime rate or LIBOR plus an applicable spread.
These rates plus their applicable spreads were between 1.76% and 3.50% at September 30, 2009. These rates have been applied for each period presented in the table.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Identified growth projects related to the Thomas Corners and Finger Lakes midstream assets.
|--- | -------------------------------------------------------------------------------------------

|(c) | Fixed price purchase commitments are offset by sale contracts that are included in Inergys cash flow hedging program as discussed in Note 2, and
the remainder are offset volumetrically with fixed price sale contracts.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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Description of Credit Facilities

Holdings

On August 9, 2005, we entered into a $25 million term loan with a bank
(Term Loan). The maturity date of the Term Loan was August 9, 2008. In January 2008, we amended the Term Loan to extend the maturity date to 2011. The amended Term Loan continues to be collateralized by certain of our interests in
Inergy, L.P. and is guaranteed by IPCH Acquisition Corp. The proceeds from the original loan were used to acquire 769,941 special units in Inergy, L.P. in connection with the acquisition of the rights to the Phase II expansion project of the
Stagecoach acquisition. The Term Loan contains several covenants which, among other things, require the maintenance of various financial performance ratios, restrict the payment of distributions to unitholders, and require financial reports to be
submitted periodically to the financial institutions.

On July 22, 2005, we executed a credit agreement (Bank Facility) with
a bank that consisted of a $15 million working capital revolver for Inergy Holdings, L.P. and a $5 million working capital revolver for IPCH Acquisition Corp. The maturity date of the Bank Facility was July 22, 2008. In January 2008, we amended
the Bank Facility to extend the maturity date to 2011. The aggregate borrowing capacity under the amended Bank Facility remains at $20 million, but now consists of a $14 million revolver for Inergy Holdings, L.P. and a $6 million revolver for IPCH
Acquisition Corp. The Bank Facility also continues to be collateralized by certain of our interests in Inergy, L.P. and is guaranteed by Inergy Partners, LLC. The interest rates of these revolvers are based on prime rate and LIBOR plus the
applicable spreads, which was 1.76% at September 30, 2009 for all outstanding debt under the Bank Facility. At September 30, 2009, borrowings outstanding under the Bank Facility were $6.5 million. The Bank Facility contains several
covenants which, among other things, require the maintenance of various financial performance ratios, restrict the payment of distributions to unitholders, and require financial reports to be submitted periodically to the financial institutions.

Inergy

On December 17,
2004, Inergy entered into a 5-Year Credit Agreement (the Credit Agreement) with its existing lenders in addition to others. The Credit Agreement consists of a $75 million revolving working capital facility (Working Capital
Facility) and a $350 million revolving acquisition facility (Acquisition Facility). The effective amount of working capital borrowing capacity available to Inergy under the two facilities is $200 million utilizing capacity under
the acquisition credit facility for working capital needed during the winter heating season. Lehman Commercial Paper, Inc. (Lehman CP), a subsidiary of Lehman Brothers Holdings, Inc., holds a $25 million lender commitment within the
Credit Agreement, and filed for Chapter 11 Bankruptcy on October 5, 2008. Inergy does not plan for the Lehman lender commitment to be available for the remainder of the term of the Credit Agreement. The Credit Agreement accrues interest at
either prime rate or LIBOR plus applicable spreads, resulting in interest rates between 2.0% and 3.5% at September 30, 2009. At September 30, 2009, borrowings outstanding under the Credit Agreement were $27.2 million, with the entire
balance borrowed for working capital purposes. The Credit Agreement is guaranteed by each of Inergys wholly-owned domestic subsidiaries.

During each fiscal year beginning October 1, the outstanding balance of the Working Capital Facility must be reduced to $10.0 million or less for a minimum of 30 consecutive days during the period commencing March 1 and ending
September 30 of each calendar year. Inergy met this provision of the Credit Agreement in May 2009.

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

Inergy is required to use 50% of the net cash proceeds (that are not applied to
purchase replacement assets) from asset dispositions (other than the sale of inventory and motor vehicles in the ordinary course of business, sales of assets among Inergy and its domestic subsidiaries, and the sale or disposition of obsolete or
worn-out equipment)



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to reduce borrowings under the Credit Agreement during any fiscal year in which unapplied net cash proceeds are in excess of $50 million. Any such mandatory prepayments are first applied to
reduce borrowings under the Acquisition Facility and then under the Working Capital Facility.

In addition, the Credit Agreement contains
various covenants limiting the ability of Inergy and its subsidiaries to (subject to various exceptions), among other things:



| |  |  | grant or incur liens;
| | - |  | ---------------------



| |  |  | incur other indebtedness (other than permitted debt as defined in the Credit Agreement);
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | make investments, loans and acquisitions;
| | - |  | -----------------------------------------



| |  |  | enter into a merger, consolidation or sale of assets;
| | - |  | -----------------------------------------------------



| |  |  | enter into any sale-leaseback transaction or enter into any new business;
| | - |  | -------------------------------------------------------------------------



| |  |  | enter into any agreement that conflicts with the credit facility or ancillary agreements;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | make any change in its principles and methods of accounting as currently in effect, except as such changes are permitted by GAAP;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into certain affiliate transactions;
| | - |  | ------------------------------------------



| |  |  | pay dividends or make distributions if we are in default under the Credit Agreement or in excess of available cash;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | permit operating lease obligations to exceed $20 million in any fiscal year ($40 million under the new facility discussed in Item 1);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into any debt (other than permitted junior debt) that contains covenants more restrictive than those of the Credit Agreement or enter into any
permitted junior debt that contains negative covenants more restrictive than those of the Credit Agreement;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into hedge agreements that do not hedge or mitigate risks to which Inergy or its subsidiaries have actual exposure;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | enter into put agreements granting put rights with respect to equity interests of Inergy or its subsidiaries;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | prepay, redeem, defease or otherwise acquire any permitted junior debt or make certain amendments to permitted junior debt; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | modify organizational documents.
| | - |  | --------------------------------

Permitted junior debt consists of:



| |  |  | Inergys $425 million 6.875% senior notes due December 15, 2014 that were issued on December 22, 2004;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Inergys $200 million 8.25% senior notes due March 1, 2016 that were issued on January 11, 2006;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Inergys $200 million 8.25% senior notes due March 1, 2016 that were issued on April 29, 2008;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Inergys $225 million 8.75% senior notes due March 1, 2015 that were issued on February 2, 2009;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | other debt that is substantially similar to the 6.875% senior notes; and
| | - |  | ------------------------------------------------------------------------



| |  |  | other debt of Inergy and its subsidiaries that is either unsecured debt, or second lien debt that is subordinated to the obligations under the Credit
Agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

Permitted junior debt may be incurred under the Credit Agreement so long as:



| |  |  | there is no default under the Credit Agreement;
| | - |  | -----------------------------------------------



| |  |  | the ratio of Inergys total funded debt to consolidated EBITDA is less than 5.0 to 1.0 on a pro forma basis;
| | - |  | ------------------------------------------------------------------------------------------------------------



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| |  |  | the debt does not mature, and no installments of principal are due and payable on the debt, prior to the maturity date of the Credit Agreement; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | other than in connection with the 6.875%, 8.25% and 8.75% senior notes and other substantially similar debt, the debt does not contain covenants more
restrictive than those in the Credit Agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Credit Agreement contains the following financial covenants:



| |  |  | the ratio of Inergys total funded debt (as defined in the Credit Agreement) to consolidated EBITDA (as defined in the Credit Agreement) for the
four fiscal quarters most recently ended must be no greater than 5.25 to 1.0 for any period of two consecutive fiscal quarters immediately following an acquisition with a purchase price in excess of $100 million and 4.75 to 1.0 at all other times;
and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the ratio of Inergys consolidated EBITDA to consolidated interest expense (as defined in the Credit Agreement), for the four fiscal quarters then
most recently ended, must not be less than 2.5 to 1.0.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At September 30, 2009, Inergys ratio of total funded debt
to consolidated EBITDA was 3.60 to 1.0, and the ratio of consolidated EBITDA to consolidated interest expense was 4.59 to 1.0.

Each of the
following is an event of default under the Credit Agreement:



| |  |  | default in payment of principal when due;
| | - |  | -----------------------------------------



| |  |  | default in payment of interest, fees or other amounts within three days of their due date;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | violation of specified affirmative and negative covenants;
| | - |  | ----------------------------------------------------------



| |  |  | default in performance or observance of any term, covenant, condition or agreement contained in the Credit Agreement or any ancillary document related
to the credit facility for 30 days;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | specified cross-defaults;
| | - |  | -------------------------



| |  |  | bankruptcy and other insolvency events of Inergy or its material subsidiaries;
| | - |  | ------------------------------------------------------------------------------



| |  |  | impairment of the enforceability or the validity of agreements relating to the Credit Agreement;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | judgments exceeding $2.5 million (to the extent not covered by insurance) against Inergy or any of its subsidiaries are undischarged or unstayed for 30
consecutive days;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | certain defaults under ERISA that could reasonably be expected to result in a material adverse effect on Inergy; or
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the occurrence of certain change of control events with respect to Inergy.
| | - |  | --------------------------------------------------------------------------

As discussed in Item 1, Inergy now has a $450 million general partnership revolving credit facility for acquisitions, capital expenditures and general
partnership purposes and a $75 million revolving working capital facility.

Senior Unsecured Notes

2014 Senior Notes

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 2014 Senior Notes). Inergy used the net proceeds from the 2014 Senior Notes to repay all amounts drawn under a 364-day credit facility which was entered into in order to fund the acquisition of Star
Gas and is no longer available to Inergy, with the $39.9 million remaining balance of the net proceeds applied to the Acquisition Facility.



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The 2014 Senior Notes represent senior unsecured obligations of Inergy and rank pari passu in right
of payment with all other present and future senior indebtedness of Inergy. The 2014 Senior Notes are effectively subordinated to all of Inergys secured indebtedness to the extent of the value of the assets securing the indebtedness and to all
existing and future indebtedness and liabilities, including trade payables, of Inergys non-guarantor subsidiaries. The 2014 Senior Notes rank senior in right of payment to all of Inergys future subordinated indebtedness.

The 2014 Senior Notes are fully, unconditionally, jointly and severally guaranteed by all of Inergys wholly-owned domestic subsidiaries. The
subsidiaries guarantees rank equally in right of payment with all of the existing and future senior indebtedness of our guarantor subsidiaries. The subsidiaries guarantees are effectively subordinated to all existing and future secured indebtedness
of our guarantor subsidiaries to the extent of the value of the assets securing that indebtedness and to all existing and future indebtedness and other liabilities, including trade payables, of our non-guarantor subsidiaries (other than indebtedness
and other liabilities owed to Inergy). The subsidiaries guarantees rank senior in right of payment to all of Inergys future subordinated indebtedness.

In October 2005, Inergy completed an offer to exchange our existing 2014 Senior Notes for $425 million of 6.875% senior notes due 2014 (the 2014 Exchange Notes) that are registered and do not
carry transfer restrictions, registration rights and provisions for additional interest. The 2014 Exchange Notes did not provide us with any additional proceeds and satisfied our obligations under the registration rights agreement.

The 2014 Senior Notes are redeemable, at Inergys option, in whole or in part, at any time on or after December 15, 2009, in each case at the
redemption prices described in the table below, together with any accrued and unpaid interest to the date of the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2009                |  | 103.438    | %
|2010                |  | 102.292    | %
|2011                |  | 101.146    | %
|2012 and thereafter |  | 100.000    | %

2016 Senior Notes

On January 11, 2006, Inergy and its wholly owned subsidiary, Inergy Finance Corp, issued $200 million aggregate principal amount of 8.25% senior unsecured notes due 2016 (the 2016 Senior
Notes) in a private placement to eligible purchasers.

The 2016 Senior Notes contain covenants similar to the existing senior unsecured
notes due 2014. Inergy used the net proceeds of the offering to repay outstanding indebtedness under its revolving acquisition credit facility. The 2016 Senior Notes represent senior unsecured obligations of Inergy and rank pari passuin
right of payment with all other present and future senior indebtedness of Inergy. The 2016 Senior Notes are fully, unconditionally, jointly and severally guaranteed by all of Inergys wholly-owned domestic subsidiaries.

On May 18, 2006, Inergy completed an offer to exchange its existing 8.25% 2016 Senior Notes for $200 million of 8.25% senior notes due 2016 (the
2016 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and provisions for additional interest. The 2016 Exchange Notes did not provide Inergy with any additional proceeds and satisfied its
obligations under the registration rights agreement.



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The 2016 Senior Notes are redeemable, at Inergys option, in whole or in part, at any time on or after
March 1, 2011, in each case at the redemption prices described in the table below, together with any accrued and unpaid interest to the date of the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2011                |  | 104.125    | %
|2012                |  | 102.750    | %
|2013                |  | 101.375    | %
|2014 and thereafter |  | 100.000    | %

In April 2008, Inergy issued an additional $200 million of senior unsecured notes as an add-on to its
existing 8.25% Senior Unsecured Notes due 2016 under Rule 144A to eligible purchasers. The notes mature on March 1, 2016. The proceeds from the bond issuance were $204 million, representing a 2% premium to par value. On September 16, 2008,
Inergy completed an offer to exchange the additional $200 million of 8.25% senior notes due 2016 for $200 million of 8.25% senior notes due 2016 (the Additional 2016 Exchange Notes) that are registered and do not carry transfer
restrictions, registration rights and provisions for additional interest. The Additional 2016 Exchange Notes did not provide Inergy with any additional proceeds and satisfied its obligations under the registration rights agreement.

2015 Senior Notes

On February 2,
2009, Inergy and its wholly-owned subsidiary, Inergy Finance Corp, issued $225 million aggregate principal amount of 8.75% senior unsecured notes due 2015 (the 2015 Senior Notes) under Rule 144A to eligible purchasers. The 8.75% notes
mature on March 1, 2015, and were issued at 90.191% of the principle amount to yield 11%.

The 2015 Senior Notes contain covenants
similar to Inergys existing senior unsecured notes due 2014 and 2016. Inergy used the net proceeds of the offering to repay outstanding indebtedness under its revolving acquisition credit facility. The 2015 Senior Notes represent senior
unsecured obligations of Inergy and rank pari passuin right of payment with all other present and future senior indebtedness of Inergy. The 2015 Senior Notes are fully, unconditionally, jointly and severally guaranteed by all of
Inergys wholly-owned domestic subsidiaries.

On October 7, 2009, Inergy completed an offer to exchange its existing 8.75% 2015 Senior
Notes for $225 million of 8.75% senior notes due 2015 (the 2015 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and provisions for additional interest. The 2015 Exchange Notes did not
provide Inergy with any additional proceeds and satisfied its obligations under the registration rights agreement.

The 2015 Senior Notes are
redeemable, at Inergys option, in whole or in part, at any time on or after March 1, 2013, in each case at the redemption prices described in the table below, together with any accrued and unpaid interest to the date of the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2013                |  | 104.375    | %
|2014 and thereafter |  | 100.000    | %

The indentures governing Inergys senior unsecured notes discussed above are substantially
similar and contain covenants that, among other things, will limit its ability and the ability of its restricted subsidiaries to:



| |  |  | sell assets;
| | - |  | ------------



| |  |  | pay distributions on, redeem or repurchase Inergy units or redeem or repurchase its subordinated debt;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | make investments;
| | - |  | -----------------



| |  |  | incur or guarantee additional indebtedness or issue preferred units;
| | - |  | --------------------------------------------------------------------



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| |  |  | create or incur certain liens;
| | - |  | ------------------------------



| |  |  | enter into agreements that restrict distributions or other payments from Inergys restricted subsidiaries to it;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | consolidate, merge or transfer all or substantially all of Inergys assets;
| | - |  | ---------------------------------------------------------------------------



| |  |  | engage in transactions with affiliates; and
| | - |  | -------------------------------------------



| |  |  | create unrestricted subsidiaries.
| | - |  | ---------------------------------

These covenants are subject to important exceptions and qualifications, and if the notes achieve an investment grade rating from either Moodys or Standard & Poors, many of these covenants will terminate.

In addition, the indentures governing Inergys senior notes restrict its ability to pay cash distributions. Before Inergy can pay a distribution to its
unitholders, it must demonstrate that the fixed charge coverage ratio (as defined in the senior notes indentures) is at least 1.75 to 1.0.

Recent Accounting Pronouncements

FASB Accounting Standards Codification Subtopic 825-10 (825-10), originally
issued as SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities was issued in February 2007 to permit entities to choose to measure many financial instruments and certain other items at fair value at
specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The Company adopted 825-10 on October 1,
2008. The adoption of 825-10 did not have an impact on the Companys financial statements.

FASB Accounting Standards Codification
Subtopic 820-10 (820-10), originally issued as SFAS No. 157, Fair Value Measurements was issued in September 2006 to define fair value, establish a framework for measuring fair value according to generally accepted
accounting principles, and expand disclosures about fair value measurements. The Company adopted 820-10 on October 1, 2008. The adoption of 820-10 required certain additional footnote disclosures, however, it did not have a significant impact
on any amounts comprising the consolidated balance sheets, consolidated statements of operations, consolidated statements of partners capital or the consolidated statements of cash flows.

FASB Accounting Standards Codification Subtopic 210-20 (210-20), originally issued as FASB Staff Position No. FIN 39-1, Amendment of
FASB Interpretation No. 39 was issued in April 2007 to permit companies to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable), or the obligation to return cash collateral (a payable), against fair
value amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement. In addition, upon the adoption, companies are permitted to change their accounting policy to offset or not offset fair value
amounts recognized for derivative instruments under master netting arrangements. The Company adopted 210-20 on October 1, 2008 and elected to change its accounting policy for derivative instruments executed with the same counterparty under a
master netting agreement. Inergys policy is to offset fair value amounts of derivative instruments and cash collateral paid or received with the same counterparty under a master netting arrangement. This change in accounting policy has been
presented retroactively. The adoption of 210-20 had the following impact on the September 30, 2008 consolidated balance sheet (in millions):



|                                                  |  |                |      |            |   |       |                |  |   |     
|------------------------------------------------- |  | -------------- | ---- | ---------- | - | ----- | -------------- |  | - | ----
|                                                  |  | Original Value |      | Adjustment |   |       | Adjusted Value
|Assets from price risk management activities      |  | $              | 79.2 |            | $ | (45.9 | )              |  | $ | 33.3
|Prepaid expenses and other current assets         |  |                | 46.9 |            |   | (24.2 | )              |  |   | 22.7
|Accrued expenses                                  |  |                | 89.6 |            |   | (20.6 | )              |  |   | 69.0
|Customer deposits                                 |  |                | 96.5 |            |   | (8.8  | )              |  |   | 87.7
|Liabilities from price risk management activities |  |                | 97.7 |            |   | (40.7 | )              |  |   | 57.0



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FASB Accounting Standards Codification Subtopic 815-10 (815-10), originally issued as SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 was issued in March 2008 and applies to all derivative instruments and related hedged items. 815-10 requires
entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged
items affect an entitys financial position, results of operations and cash flows. The Company adopted 815-10 on March 31, 2009. The adoption of 815-10 required certain additional disclosures, however, it did not impact any amounts
comprising the consolidated balance sheets, consolidated statements of operations, consolidated statements of partners capital or the consolidated statements of cash flows.

FASB Accounting Standards Codification Subtopic 805-10 (805-10), originally issued as SFAS No. 141 (revised 2007), Business Combinations was issued in December 2007 and
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. 805-10
also establishes disclosure requirements designed to enable users to evaluate the nature and financial effects of the business combination. 805-10 is required to be adopted by the Company for business combinations for which the acquisition date is
on or after October 1, 2009.

FASB Accounting Standards Codification Subtopic 810-10 (810-10), originally issued as SFAS
No. 160, Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB No. 51, was issued in December 2007 and requires that accounting and reporting for minority interests will be recharacterized as
non-controlling interests and classified as a component of equity. 810-10 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the
non-controlling owners. 810-10 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding non-controlling interest in one or more
subsidiaries or that deconsolidate a subsidiary. 810-10 is required to be adopted by the Company for the fiscal quarter ended December 31, 2009. The Company is evaluating the potential financial statement impact of 810-10 to its consolidated
financial statements.

FASB Accounting Standards Codification Subtopic 260-10 (260-10), originally issued as FSP EITF Issue
No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities was ratified in June 2008 and applies to the calculation of earnings per share (EPS) under FASB
Accounting Standards Codification Subtopic 260-10 (260-10), originally issued as SFAS 128, Earnings Per Share for share-based payment awards with rights to dividends or dividend equivalents. 260-10 states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the computation of EPS pursuant to the two-class method. 260-10 is required to be adopted by the
Company for the fiscal quarter ended December 31, 2009. The Company is evaluating the potential financial statement impact of 260-10 to its consolidated financial statements.

In May 2009, the FASB issued FASB Accounting Standards Codification Subtopic 855-10 (855-10), originally issued as SFAS No. 165, Subsequent Events. 855-10 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted 855-10 on June 30, 2009. The adoption of
855-10 required the Company to disclose the date through which subsequent events have been evaluated and the basis for that date. The adoption of 855-10 did not impact any amounts comprising the consolidated balance sheets, consolidated statements
of operations, consolidated statements of partners capital or the consolidated statements of cash flows.

In June 2009, the FASB issued
FASB Accounting Standards Codification Subtopic 105-10 (105-10), originally issued as SFAS 168, The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles, to supersede FASB Statement
No. 162, The Hierarchy of Generally Accepted Accounting Principles, and reorganize the standards applicable to financial statements of nongovernmental



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entities that are presented in conformity with GAAP. The purpose of the codification was to provide a single source of authoritative nongovernmental GAAP literature. The codification was not
intended to create new accounting standards or guidance. While the codification includes portions of SEC content related to matters within the basic financial statements for user convenience, it does not contain all SEC guidance on accounting
topics, and does not replace any SEC rules or regulations. The Company adopted 105-10 on September 30, 2009. The adoption of 105-10 did not impact any amounts comprising the consolidated balance sheets, consolidated statements of operations,
consolidated statements of partners capital or the consolidated statements of cash flows.

Critical Accounting Policies

Accounting for Price Risk Management.Inergy utilizes certain derivative financial instruments to (i) manage its exposure to
commodity price risk, specifically, the related change in the fair value of inventories, as well as the variability of cash flows related to forecasted transactions; (ii) ensure adequate physical supply of propane and heating oil will be
available; and (iii) manage its exposure to interest rate risk. Inergy records all derivative instruments on the balance sheet as either assets or liabilities measured at estimated fair value.

Inergy determines fair value of its derivative financial instruments according to the following hierarchy: (1) comparable market prices to the extent
available; (2) internal valuation models that utilize market data (observable inputs) as input variables; and lastly, (3) internal valuation models that use managements assumptions about the assumptions that market participants would
use in pricing the instruments (unobservable inputs) to the extent (1) and (2) are unavailable. Because the majority of the instruments Inergy enters into are traded in liquid markets, Inergy values these instruments based on prices
indicative of exiting the position. As a consequence, the majority of the values of Inergys derivative financial instruments are based upon actual prices of like kind trades that are obtained from on-line trading systems and verified with
broker quotes. Changes in the fair value of these derivative financial instruments, primarily resulting from variability in supply and demand, are recorded either through current earnings or as other comprehensive income, depending on the type of
transaction.

On the date the derivative contract is entered into, Inergy generally designates specific derivatives as either a hedge of the
fair value of a recognized asset or liability (fair value hedge), or a hedge of a forecasted transaction (cash flow hedge). Inergy documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. Inergy uses regression analysis or the dollar offset method to assess, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair value or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that is has ceased to be a highly effective hedge, Inergy discontinues hedge accounting
prospectively. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective hedge, Inergy continues to carry the derivative on the balance sheet at its fair value, and recognize changes in
the fair value of the derivative through current-period earnings.

Inergy is party to certain commodity derivative financial instruments that
are designated as hedges of selected inventory positions, and qualify as fair value hedges. Inergy is also party to certain interest rate swap agreements designed to manage interest rate risk exposure. Inergys overall objective for entering
into fair value hedges is to manage its exposure to fluctuations in commodity prices and changes in the fair market value of its inventories. These derivatives are recorded at fair value on the balance sheet as price risk management assets or
liabilities and the related change in fair value is recorded to earnings in the current period as cost of product sold. Any ineffective portion of the fair value hedges is recognized as cost of product sold in the current period. Inergy recognized a
$0.2 million net gain in the year ended September 30, 2009, related to the ineffective portion of its fair value hedging instruments. In addition, for the year ended September 30, 2009, Inergy recognized a net loss of $0.1 million related
to the portion of fair value hedging instruments that it excluded from its assessment of hedge effectiveness.



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Inergy also enters into derivative financial instruments that qualify as cash flow hedges, which hedge the
exposure of variability in expected future cash flows predominantly attributable to forecasted purchases to supply fixed price sale contracts. These derivatives are recorded on the balance sheet at fair value as price risk management assets or
liabilities. The effective portion of the gain or loss on these cash flow hedges is recorded in other comprehensive income in partners capital and reclassified into earnings in the same period in which the hedge transaction affects earnings.
Any ineffective portion of the gain or loss is recognized as cost of product sold in the current period. Inergys accumulated other comprehensive income (loss) was $11.0 million and $(25.3) million at September 30, 2009 and 2008,
respectively. Approximately $11.7 million is expected to be reclassified to earnings from Inergys other comprehensive income over the next twelve months.

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

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

If managements assumptions related to unobservable inputs used in the pricing models for Inergys financial instruments, which include swaps,
forwards, futures and options, are inaccurate or if Inergy had used an alternative valuation methodology, the estimated fair value may have been different, and Inergy may be exposed to unrealized losses or gains. A hypothetical 10% difference in the
assumptions made for Inergys unobservable inputs would have impacted its estimated fair value of these derivatives at September 30, 2009, and would have affected net income by an immaterial amount for the year ended September 30,
2009.

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

Impairment of Long-Lived Assets.Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Additionally, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirers intent to do
so.

Inergy completed the valuation of each of its reporting units and determined no impairment existed as of September 30, 2009. The
valuation of Inergys reporting units requires Inergy to make certain assumptions as it relates to future operating performance. When considering operating performance, various factors are considered such as current and changing economic
conditions and the commodity price environment, among others. Due to the economic uncertainty, Inergy adjusted its assumptions underlying its discounted cash flow approach to valuing enterprise value. Projected cash flows for 2010 reflect the
deteriorating economic conditions that began in the latter half of 2008. The discount rate used in the current year reflects an increase in Inergys cost of capital due to the dislocation of worldwide credit markets. If the growth assumptions
embodied in the current year impairment testing prove inaccurate, Inergy could incur an impairment charge. A 10% decrease in the estimated future cash flows and a 1% increase in the discount rate used in Inergys impairment analysis would not
have indicated a potential impairment of any of its intangible assets. To date, Inergy has not recognized any impairment on assets it has acquired.

The value of assets to be disposed of is estimated at the date a commitment to dispose the asset is made. Inergys estimate of any loss associated with an asset sale is dependent on certain assumptions its makes with respect to the net
realizable value of the particular asset. A 10% decrease in the estimated net realizable value would have resulted in an additional loss of $0.2 million at September 30, 2009.



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Self Insurance. Inergy is insured by third parties, subject to varying retention levels of
self-insurance, which management considers prudent. Such self-insurance relates to losses and liabilities primarily associated with medical claims, workers compensation claims, general, product and vehicle liability, and environmental
exposures. Losses are accrued based upon managements estimates of the aggregate liability for claims incurred using certain assumptions followed in the insurance industry and based on past experience. The primary assumption utilized is
actuarially determined loss development factors. The loss development factors are based primarily on historical data. Inergys self insurance reserves could be affected if future claims development differs from the historical trends. Inergy
believes changes in health care costs, trends in health care claims of its employee base, accident frequency and severity and other factors could materially affect the estimate for these liabilities. Inergy continually monitors changes in employee
demographics, incident and claim type and evaluates its insurance accruals and adjusts its accruals based on its evaluation of these qualitative data points. At September 30, 2009 and 2008, Inergys self-insurance reserves were $19.3
million and $17.4 million, respectively.

Factors That May Affect Future Results of Operations, Financial Condition or Business



| |  |  | Inergy may not be able to generate sufficient cash from operations to allow it to pay the minimum quarterly distribution.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys future acquisitions and completion of its expansion projects will require significant amounts of debt and equity financing which may not
be available to Inergy on acceptable terms, or at all.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Since weather conditions may adversely affect the demand for propane, Inergys financial condition and results of operations are vulnerable to,
and will be adversely affected by, warm winters.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If Inergy does not continue to make acquisitions on economically acceptable terms, Inergys future financial performance will be reliant upon
internal growth and efficiencies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergy cannot assure you that it will be successful in integrating its recent acquisitions.
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Sudden and sharp propane price increases that cannot be passed on to customers may adversely affect Inergys profit margins.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys indebtedness may limit its ability to borrow additional funds, make distributions to unitholders or capitalize on acquisition or other
business opportunities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The highly competitive nature of the retail propane business could cause Inergy to lose customers, thereby reducing Inergys revenues.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If Inergy is not able to purchase propane from its principal suppliers, its results of operations would be adversely affected.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Competition from alternative energy sources may cause Inergy to lose customers, thereby reducing its revenues.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | Inergys business would be adversely affected if service at its principal storage facilities or on the common carrier pipelines it uses is
interrupted.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergy is subject to operating and litigation risks that could adversely affect its operating results to the extent not covered by insurance.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inergys results of operations and financial condition may be adversely affected by governmental regulation and associated environmental
regulatory costs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Energy efficiency and new technology may reduce the demand for propane.
| | - |  | -----------------------------------------------------------------------



| |  |  | Due to Inergys lack of asset diversification, adverse developments in its propane business would reduce its ability to make distributions to its
unitholders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

See Item 1ARisk Factors for further discussion of factors that could impact our
business.



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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

Together
with Inergy, we have long-term debt and revolving lines of credit subject to the risk of loss associated with movements in interest rates. At September 30, 2009, we had floating rate obligations totaling $212.9 million including amounts
borrowed under our credit agreements and interest rate swaps, which convert a portion of Inergys fixed rate senior unsecured notes due 2014 to floating with aggregate notional amounts of $150 million. The floating rate obligations expose us to
the risk of increased interest expense in the event of increases in short-term interest rates.

If the floating rate were to fluctuate by 100
basis points from September 2009 levels, our combined interest expense would change by a total of approximately $2.1 million per year.

Certain counterparties have elected to call their respective interest rate swap positions. The aggregate notional amount associated with these swaps amounts to $125 million. These swaps will be called in December 2009 and we are currently
evaluating our options to manage our interest rate risk.

Commodity Price, Market and Credit Risk

Inherent in Inergys contractual portfolio are certain business risks, including market risk and credit risk. Market risk is the risk that the value of
the portfolio will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Inergy takes an active role
in managing and controlling market and credit risk and has established control procedures, which are reviewed on an ongoing basis. Inergy monitors market risk through a variety of techniques, including daily reporting of the portfolios
position to senior management. Inergy attempts to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as through customer deposits, letters of credit and entering into netting agreements that allow for
offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. The counterparties associated with assets from price risk management activities as of September 30, 2009 and 2008 were propane
retailers, resellers, energy marketers and dealers.

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

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



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Fair Value

The fair value of the derivatives and inventory exchange contracts related to price risk management activities as of September 30, 2009 and September 30, 2008, was assets of $23.8 million and
$33.3 million, respectively, and liabilities of $29.3 million and $57.0 million, respectively.

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

Sensitivity Analysis

A theoretical change of 10% in the underlying commodity value would
result in a negligible change in the market value of the contracts as there were (0.1) million gallons of net unbalanced positions at September 30, 2009.

Item 8. Financial Statements and Supplementary Data.

Reference is made to the financial statements and report of independent registered public accounting firm included later in this report under Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

We maintain controls and procedures designed to provide a reasonable assurance that information required to be disclosed in our reports that we file or
submit under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC, and that information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation was performed under the supervision and with the participation of our management, including the Chief
Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that
evaluation, management, including the Chief Executive Officer and the Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of September 30, 2009 at the reasonable assurance level. There have been no
changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act) or in other factors during the fiscal year covered by this report that has materially affected, or is reasonably likely to
materially affect, the internal controls over financial reporting.

Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, pursuant to Exchange
Act Rules 13a-15(f). Our internal control system was designed to provide reasonable assurance to management and our board of directors regarding the preparation and fair presentation of published financial statements in accordance with generally
accepted accounting principles.

Management recognizes that there are inherent limitations in the effectiveness of any system of internal
control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and fair presentation. Further, because of changes in conditions, the effectiveness of internal control
may vary over time.



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Managements assessment of and conclusion on the effectiveness of internal control over financial
reporting did not include the operations resulting from the three acquisitions (collectively the Acquisitions) which were acquired during fiscal 2009 and are included in the 2009 consolidated financial statements. The financial reporting
systems of the Acquisitions were integrated into the companys financial reporting systems throughout 2009. Therefore, the company did not have the practical ability to perform an assessment of their internal controls in time for this current
year-end. The company fully expects to include the Acquisitions in next years assessment. The Acquisitions constituted $14.4 million and $10.5 million in total assets and revenues, respectively, in the consolidated financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
assessed the effectiveness of the companys internal control over financial reporting as of September 30, 2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework. Based upon our assessment, we conclude that, as of September 30, 2009, our internal control over financial reporting is effective, in all material respects, based upon those criteria.

Our independent registered public accounting firm, Ernst & Young LLP, issued an attestation report dated November 30, 2009 on
the effectiveness of our internal control over financial reporting, which is included herein.

Item 9B.
Other Information.

None.



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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our General Partner Manages Inergy Holdings, L.P.

Inergy Holdings GP, LLC, our general partner, manages our operations and activities. Our general partner is not elected by our unitholders and will not be subject to re-election on a regular basis in the
future. Our general partner may not be removed unless that removal is approved by the vote of the holders of not less than 662/3% of the outstanding units, including units held by the general partner and its affiliates, and we receive an opinion of counsel regarding limited liability and tax
matters. Any removal of the general partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units. Unitholders do not directly or indirectly participate in our
management or operation. Our general partner owes a fiduciary duty to the unitholders. Our general partner is liable, as a general partner, for all of our debts (to the extent not paid from our assets), except for specific nonrecourse indebtedness
or other obligations. Our general partner intends to incur indebtedness or other obligations that are nonrecourse whenever we incur such indebtedness or other obligations.

Directors and Executive Officers

The following table sets forth certain information with
respect to the executive officers and members of the board of directors of our general partner, Inergy Holdings GP, LLC. Executive officers and directors will serve until their successors are duly appointed or elected.



|                       |  |     |  |                                                         
|---------------------- |  | --- |  | --------------------------------------------------------
|Name                   |  | Age |  | Position with our General Partner                       
|John J. Sherman        |  | 54  |  | President, Chief Executive Officer and Director         
|Phillip L. Elbert      |  | 51  |  | President and Chief Operating OfficerPropane Operations
|R. Brooks Sherman, Jr. |  | 44  |  | Executive Vice President and Chief Financial Officer    
|Laura L. Ozenberger    |  | 51  |  | Senior Vice PresidentGeneral Counsel and Secretary     
|Warren H. Gfeller      |  | 57  |  | Director                                                
|Arthur B. Krause       |  | 68  |  | Director                                                
|Richard T. OBrien     |  | 55  |  | Director                                                

John J. Sherman has served as President, Chief Executive Officer and a director of Inergy
Holdings GP, LLC since April 2005 and has also served as President, Chief Executive Officer and a director of Inergy GP, LLC since March 2001, and of Inergys predecessor from 1997 until July 2001. Prior to joining Inergys predecessor, he
was a vice president with Dynegy Inc. from 1996 through 1997. He was responsible for all downstream propane marketing operations, which at the time were the countrys largest. From 1991 through 1996, Mr. Sherman was the president of LPG
Services Group, Inc., a company he co-founded and grew to become one of the nations largest wholesale marketers of propane before Dynegy acquired LPG Services in 1996. From 1984 through 1991, Mr. Sherman was a vice president and member of
the management committee of Ferrellgas, which is one of the countrys largest retail propane marketers. He also serves as a director of Great Plains Energy, Inc.

Phillip L. Elbert has served as President and Chief Operating OfficerPropane Operations since September 2007 and Executive Vice PresidentPropane Operations of Inergy Holdings GP, LLC
since February 2006. He has also served as President and Chief Operating OfficerPropane Operations since September 2007 and Executive Vice PresidentPropane Operations and director of Inergy GP, LLC since March 2001. He joined
Inergys predecessor as Executive Vice PresidentOperations in connection with its acquisition of the Hoosier Propane Group in January 2001. Mr. Elbert joined the Hoosier Propane Group in 1992 and was responsible for overall
operations, including Hoosiers retail, wholesale, and transportation divisions. From 1987 through 1992, he was employed by Ferrellgas, serving in a number of management positions relating to retail, transportation and supply. Prior to joining
Ferrellgas, he was employed by Buckeye Gas Products, a large propane marketer, from 1981 to 1987.



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R. Brooks Sherman, Jr. (no relation to Mr. John Sherman) has served as Executive Vice President
and Chief Financial Officer since September 2007 and Senior Vice President and Chief Financial Officer of Inergy Holdings GP, LLC since April 2005. He has also served as Senior Vice President since September 2002 and Chief Financial Officer of
Inergy GP, LLC since March 2001. Mr. Sherman previously served as Vice President from March 2001 until September 2002. He joined Inergys predecessor in December 2000 as Vice President and Chief Financial Officer. From 1999 until joining
Inergys predecessor, he served as chief financial officer of MCM Capital Group. From 1996 through 1999, Mr. Sherman was employed by National Propane Partners, a publicly traded master limited partnership, first as its controller and chief
accounting officer and subsequently as its chief financial officer. From 1995 to 1996, Mr. Sherman served as chief financial officer for Berthel Fisher & Co. Leasing Inc. and prior to 1995, Mr. Sherman was in public accounting
with Ernst & Young and KPMG Peat Marwick.

Laura L. Ozenberger has served as Senior Vice PresidentGeneral Counsel and
Secretary since September 2007 and Vice PresidentGeneral Counsel and Secretary of Inergy Holdings GP, LLC since April 2005 and has also served as Vice PresidentGeneral Counsel and Secretary of Inergy GP, LLC since February 2003. From
1990 to 2003, Ms. Ozenberger worked for Sprint Corporation. While at Sprint, Ms. Ozenberger served in a number of management roles in the Legal and Finance departments. Prior to 1990, Ms. Ozenberger was in a private legal practice.

Warren H. Gfeller has been a member of Inergy Holdings GP, LLCs board of directors since April 2005 and has been a member of
Inergy GP, LLCs board of directors since March 2001. He was a member of Inergys predecessors board of directors since January 2001 until July 2001. He has engaged in private investments since 1991. From 1984 to 1991,
Mr. Gfeller served as president and chief executive officer of Ferrellgas, Inc., a retail and wholesale marketer of propane and other natural gas liquids. Mr. Gfeller began his career with Ferrellgas in 1983 as an executive vice president
and financial officer. Prior to joining Ferrellgas, Mr. Gfeller was the Chief Financial Officer of Energy Sources, Inc. and a CPA at Arthur Young & Co.

Arthur B. Krause has been a member of Inergy Holdings GP, LLCs board of directors since April 2005 and has been a member of Inergy GP, LLCs board of directors since May 2003.
Mr. Krause retired from Sprint Corporation in 2002, where he served as Executive Vice President and Chief Financial Officer from 1988 to 2002. He was President of United Telephone-Eastern Group from 1986 to 1988. From 1980 to 1986, he was
Senior Vice President of United Telephone System. He also serves as a director of Westar Energy.

Richard T. OBrien has been a
member of Inergy Holdings GP, LLCs board of directors since May 2006. Mr. OBrien currently serves as the President and Chief Executive Officer and a director of Newmont Mining Corporation, one of the worlds largest gold
producers, based in Denver, Colorado. From April 2001 until September 2005, Mr. OBrien served as the Executive Vice President and Chief Financial Officer of AGL Resources, a natural gas distributor headquartered in Atlanta, Georgia. He
also serves as a director of Vulcan Materials Company.

Independent Directors

Messrs. Gfeller, Krause and OBrien qualify as independent in accordance with the published listing requirements of the NASDAQ Global Select
National Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not an employee of the company and has not engaged in various types of business dealings with the company. In addition, as further
required by the NASDAQ rules, the board of directors has made a subjective determination as to each independent director that no relationships exist which, in the opinion of the board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.



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Board Committees

Audit Committee

Our general partners board of directors has established an audit
committee. The members of the audit committee must meet the independence standards established by the NASDAQ Global Select National Market. Members of the audit committee are Arthur B. Krause, Warren H. Gfeller and Richard T. OBrien. The board
of directors of our general partner has determined that Mr. Gfeller is (i) independent under applicable NASDAQ rules and (ii) an audit committee financial expert based upon the experience stated in his biography. The audit
committees primary responsibilities are to monitor: (a) the integrity of our financial reporting process and internal control system; (b) the independence and performance of the independent registered public accounting firm; and
(c) the disclosure controls and procedures established by management.

Conflicts Committee

Our general partners board of directors has the ability to establish a conflicts committee under our partnership agreement. The conflicts committee
will consist of one or more members and will be charged with reviewing specific matters that our general partners board of directors believes may involve conflicts of interest. A conflicts committee will determine if the resolution of any
conflict of interest submitted to it is fair and reasonable to us. In addition to satisfying certain other requirements, the members of the conflicts committee must meet the independence standards for service on an audit committee of a board of
directors, which standards are established by the NASDAQ Global Select National Market. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our unitholders, and not a breach
by us of any duties we may owe to our unitholders.

Compensation Committee

Our general partners board of directors has established a compensation committee of at least two independent directors. The compensation committee will
oversee compensation decisions and benefits for the officers of our general partner and will administer our Long Term Incentive Plan and the Employee Unit Purchase Plan described below. Members of the Compensation Committee are Warren H. Gfeller and
Arthur B. Krause.

Other Committees

Our general partners board of directors may establish other committees from time to time to facilitate our management.

Election of our Directors

Our general partners limited liability company agreement establishes a board of directors that
will be responsible for the oversight of our business and operations. Our general partners board of directors will be elected by a voting member majority, as defined in the limited liability company agreement. For so long as John Sherman and
his permitted transferees own 33% of our general partner, Mr. Sherman and such transferees will comprise the voting member majority and will be the only voting member of our general partner. Accordingly, Mr. Sherman and his permitted
transferees will have the authority to elect all of the directors of our general partner.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our companys directors and executive
officers, and persons who own more than 10% of any class of equity securities of our company registered under Section 12 of the Exchange Act, to file with the Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership in such securities and other equity securities of our company. Securities and Exchange Commission regulations require directors, executive officers and greater than 10%



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unitholders to furnish our company with copies of all Section 16(a) reports they file. To our knowledge, based solely on review of the reports furnished to us and written representations
that no other reports were required during fiscal year ended September 30, 2009, and all section 16(a) filing requirements applicable to our directors, executive officers and greater than 10% unitholders, were met.

Code of Ethics

We have adopted a code of
ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, as well as to all of our other employees. This code of ethics may be found on
our website at www.inergypropane.com.

Item 11. Executive Compensation.

Compensation Discussion and Analysis

Introduction

We do not directly employ any of the persons responsible for managing our business. Inergy Holdings GP, LLC, our
general partner, manages our operations and activities, and its board of directors and executive officers make decisions on our behalf. All of our executive officers also serve in the same capacities as executive officers of Inergy GP, LLC, the
managing general partner of Inergy, and the compensation of the named executive officers discussed below reflects total compensation for services to all Inergy entities. These shared officers receive no salary, benefits or other cash
compensation for their service to us. However, as discussed in greater detail below, from time to time they do receive awards of equity in us pursuant to the Inergy Holdings Long Term Incentive Plan.

A full discussion of the compensation programs for Inergys executive officers and the policies and philosophy of the compensation committee of the
board of directors of Inergy will be set forth in Inergys annual report on Form 10-K under the heading Executive Compensation, and we incorporate by reference that section of Inergys annual report into this Item 11.
Inergys annual report on Form 10-K will be available upon its filing on the SECs website at http://www.sec.govand on Inergys website at http://www.inergypropane.comunder the heading Investor CentralSEC
Filings.

For more information about Inergy GP, LLCs compensation philosophy and policies please refer to the Compensation
Discussion and Analysis in the Annual Report on Form 10-K of Inergy, L.P. filed contemporaneously herewith and incorporated herein by reference.

Long-Term Incentive Plan Awards

As mentioned above, our executive officers may receive awards pursuant the Inergy Holdings
Long Term Incentive Plan. These awards are designed to promote the achievement of our primary long-term strategic business objective of increasing distributable cash flow and increasing unitholder value. The Inergy Holdings Long Term Incentive Plan
is designed to align the economic interests of our executive officers and directors with those of our common unitholders and to provide an incentive to our executive officers for continuous employment with Inergys managing general partner and
its affiliates. Long-term incentive compensation is based upon the common units representing limited partnership interests in us and may consist of unit options or restricted units. We have no policy regarding the allocation of different types of
equity awards; rather, we determine which type of award will be granted due to a number of different factors, including, cost to the company, perceived value to the employee and economic conditions.

We do not make systematic annual awards to the named executive officers. Generally, we believe that a two- to five-year grant cycle (and complete vesting
over five years) under either the Inergy Long Term Incentive Plan or the Inergy Holdings Long Term Incentive Plan provides a balance between a meaningful retention period for us



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and a visible, reachable reward for the executive officers. New awards are generally synchronized with the remaining time-vesting requirements of outstanding awards in a manner designed to
encourage extended retention of the named executive officers.

In determining the size of the equity awards, the compensation committee
primarily considers the grant date value and vesting schedule of the awards as both a retention tool and performance incentive, the experience and skills of the executive officers as well as their contributions to our operational and financial
performance, the economic and retention value of outstanding equity awards held by the executives for both our company and for Inergy, the amount of cash distributions that would be received by the executives and cost to our company. These factors
are not given any specific weight; rather, they were subjectively evaluated by the compensation committee.

Prior equity awards were made
under the Inergy Long Term Incentive Plan in fiscal 2002 and fiscal 2005 and under the Inergy Holdings Long Term Incentive Plan in fiscal 2008. Consistent with our general policy of not making systematic annual awards, no equity awards were made to
the named executive officers in fiscal 2009.

Inergy Holdings Long Term Incentive Plan

Our general partner sponsors the Inergy Holdings Long Term Incentive Plan for our directors, consultants and employees and the employees and consultants of
its affiliates who perform services for us. The plan is administered by the compensation committee of our general partners board of directors.

Unit Options

The Inergy Holdings Long Term Incentive Plan currently permits, and our general partner has made, grants of
options covering common units. Unit options will have an exercise price equal to the fair market value of the units on the date of grant. In general, unit options granted will become exercisable over a five-year period. In addition, the unit options
will become exercisable upon a change of control of Inergys managing general. Generally, unit options will expire after 10 years.

Upon
exercise of a unit option, our general partner will acquire common units in the open market, or directly from us or any other person, or use common units already owned by our general partner, or any combination of the foregoing. Our general partner
will be entitled to reimbursement by us for the difference between the cost incurred by our general partner in acquiring these common units and the proceeds received by our general partner from an optionee at the time of exercise. If we issue new
common units upon exercise of the unit options, the total number of common units outstanding will increase and our general partner will pay us the proceeds it received from the optionee upon exercise of the unit options. The unit option plan has
been designed to furnish additional compensation to employees and directors and to align their economic interests with those of our common unitholders.

Restricted Units

The Inergy Holdings Long Term Incentive Plan currently permits, and our
general partner has made, grants of restricted units. Restricted units are subject to a restricted period the terms of which are set forth in a restricted unit award agreement. In general, restricted units vest over a five-year period. The
individual award agreement also sets forth the conditions under which the restricted units may become vested or forfeited, which may include, without limitation, the accelerated vesting upon the achievement of specified performance goals, or the
forfeiture for failing to achieve specified performance goals and such other terms and conditions as the committee may establish. Unless otherwise specifically provided for in an award agreement, distributions are paid to the holder of the
restricted units without restriction. Restricted units are designed to furnish additional compensation to employees and directors and to align their economic interests with those of our common unitholders.



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Termination and Amendment

Our general partners board of directors in its discretion may terminate the Inergy Holdings Long Term Incentive Plan at any time with respect to any common units for which a grant has not yet been
made. Our general partners board of directors also has the right to alter or amend the Inergy Holdings Long Term Incentive Plan or any part of the plan from time to time, including increasing the number of common units with respect to which
awards may be granted subject to unitholder approval as required by the exchange upon which our common units are listed at that time. However, no change in any outstanding grant may be made that would materially impair the rights of the participant
without the consent of the participant.

Inergy Long Term Incentive Plan

Inergys managing general partner sponsors the Inergy Long Term Incentive Plan for its directors, consultants and employees and the employees and
consultants of its affiliates who perform services for us. The plan is administered by the compensation committee of the managing general partners board of directors of Inergy.

Unit Options

The Inergy Long Term Incentive Plan currently permits, and the managing
general partner of Inergy has made, grants of options covering common units. Unit options will have an exercise price equal to the fair market value of the units on the date of grant. In general, unit options, as reflected in the table, will become
exercisable over a five-year period. In addition, the unit options will become exercisable upon a change of control of the managing general partner or Inergy. Generally, unit options will expire after 10 years.

Upon exercise of a unit option, Inergys managing general partner will acquire common units in the open market, or directly from Inergy or any other
person, or use common units already owned by the managing general partner of Inergy, or any combination of the foregoing. The managing general partner of Inergy will be entitled to reimbursement by Inergy for the difference between the cost incurred
by the managing general partner in acquiring these common units and the proceeds received by the managing general partner from an optionee at the time of exercise. Thus, the cost of the unit options will be borne by Inergy. If Inergy issues new
common units upon exercise of the unit options, the total number of common units outstanding will increase and the managing general partner of Inergy will pay Inergy the proceeds it received from the optionee upon exercise of the unit options. The
unit option plan has been designed to furnish additional compensation to employees and directors of Inergy and to align their economic interests with those of Inergys common unitholders.

Restricted Units

The Inergy Long Term
Incentive Plan currently permits, and Inergys managing general partner has made, grants of restricted units. Restricted units are subject to a restricted period the terms of which are set forth in a restricted unit award agreement. In general,
restricted units vest over a five-year period. The individual award agreement also sets forth the conditions under which the restricted units may become vested or forfeited, which may include, without limitation, the accelerated vesting upon the
achievement of specified performance goals, or the forfeiture for failing to achieve specified performance goals and such other terms and conditions as the committee may establish. Unless otherwise specifically provided for in an award agreement,
distributions are paid to the holder of the restricted units without restriction. Restricted units are designed to furnish additional compensation to Inergys employees and directors and to align their economic interests with those of
Inergys common unitholders.

Termination and Amendment

The managing general partners board of directors of Inergy in its discretion may terminate the Inergy Long Term Incentive Plan at any time with respect to any common units for which a grant has not
yet been made. The



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managing general partners board of directors of Inergy also has the right to alter or amend the Inergy Long Term Incentive Plan or any part of the plan from time to time, including
increasing the number of common units with respect to which awards may be granted subject to unitholder approval as required by the exchange upon which the common units are listed at that time. However, no change in any outstanding grant may be made
that would materially impair the rights of the participant without the consent of the participant.

Other Compensation Related Matters

Retirement and Health Benefits

We do not offer any health, welfare or retirement programs to our executive officers. All such benefits are provided by Inergy.

Perquisites and Other Compensation

We do not provide perquisites or other personal benefits to any of our executive officers.

Severance Benefits

The
Inergy Holdings Long Term Incentive Plan provides for accelerated vesting triggered upon a change of control.

Compensation
Committee Report

We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review
and discussion with management, we have recommended that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for the year ended September 30, 2009.

Warren H. Gfeller

Arthur B. Krause

Members of the Compensation Committee



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Summary Compensation Table

All of our executive officers serve in the same capacities as executive officers of Inergy GP, LLC, the managing general partner of Inergy. All of the information in the following table with respect to
compensation of our executive officers describes the total compensation earned for the years ended September 30, 2009, September 30, 2008, and September 30, 2007, by those officers in all capacities for us, Inergy GP, LLC and
their respective subsidiaries. In this report, we refer to these four individuals as the named executive officers.



|                                                                            |      |            |         |           |        |          |         |                   |  |        |                    |         |                                         |         |                             |         |         
|--------------------------------------------------------------------------- | ---- | ---------- | ------- | --------- | ------ | -------- | ------- | ----------------- |  | ------ | ------------------ | ------- | --------------------------------------- | ------- | --------------------------- | ------- | --------
|Name and Principal Position                                                 |      | FiscalYear |         | Salary($) |        | Bonus($) |         | StockAwards($)(1) |  |        | OptionAwards($)(1) |         | Non-EquityIncentive PlanCompensation($) |         | All OtherCompensation($)(3) |         | Total($)
|John. J. Sherman President and Chief Executive Officer                      |      | 2009       |         | 350,000   |        |         |         |                  |  |        |                   |         | 350,000                                 |         | 7,137                       |         | 707,137 
|                                                                            | 2008 |            | 350,000 |           |       |          | 350,000 | (2)               |  |       |                    |        |                                         | 5,504   |                             | 705,504
|                                                                            | 2007 |            | 300,000 |           |       |          |        |                   |  |       |                    | 300,000 |                                         | 7,888   |                             | 607,888
|                                                                            |      |            |         |           |        |          |         |                  
|R. Brooks Sherman, Jr. Executive Vice President and Chief Financial Officer |      | 2009       |         | 225,000   |        |         |         | 138,619           |  |        | 33,464             |         | 225,000                                 |         | 105,047                     |         | 727,130 
|                                                                            | 2008 |            | 225,000 |           |       |          | 364,000 | (2)               |  | 13,628 |                    |        |                                         | 86,404  |                             | 689,032
|                                                                            | 2007 |            | 200,000 |           |       |          |        |                   |  | 12,316 |                    | 200,000 |                                         | 6,060   |                             | 418,376
|                                                                            |      |            |         |           |        |          |         |                  
|Phillip L. Elbert President and Chief Operating OfficerPropane Operations  |      | 2009       |         | 275,000   |        |         |         | 198,027           |  |        | 20,868             |         | 275,000                                 |         | 148,388                     |         | 917,283 
|                                                                            | 2008 |            | 275,000 |           |       |          | 473,570 | (2)               |  | 20,925 |                    |        |                                         | 123,029 |                             | 892,524
|                                                                            | 2007 |            | 240,000 |           |       |          |        |                   |  | 20,859 |                    | 240,000 |                                         | 3,690   |                             | 504,549
|                                                                            |      |            |         |           |        |          |         |                  
|Laura L. Ozenberger Senior Vice President, General Counsel and Secretary    |      | 2009       |         | 200,000   |        |         |         | 99,014            |  |        | 33,464             |         | 200,000                                 |         | 73,512                      |         | 605,990 
|                                                                            | 2008 |            | 200,000 |           |       |          | 99,285  |                   |  | 16,339 |                    | 200,000 |                                         | 64,104  |                             | 579,728
|                                                                            | 2007 |            | 175,000 |           | 50,000 |          |        |                   |  | 16,225 |                    | 175,000 |                                         | 5,944   |                             | 422,169



|(1) | The amounts included in the Stock Awards and Option Awards columns reflect the dollar amount of compensation expense recognized
with respect to these awards for the fiscal year ended September 30, 2009, and thus include amounts attributable to awards granted in and prior to fiscal 2009. Assumptions used in the calculation of these amounts are discussed in Note 11 to our
consolidated financial statements. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by the named executive officers. The material terms of our outstanding LTIP awards to
our executive officers are described in Compensation Discussion and AnalysisLong-Term Incentive Plans.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | John J. Sherman, R. Brooks Sherman, Jr. and Phillip L. Elbert were awarded Inergy, L.P. restricted units in an amount equal to $350,000, $225,000 and
$275,000, respectively, for their fiscal 2008 annual incentive. The restricted units were granted on December 1, 2008, with the actual number of restricted units granted based on the closing price of an Inergy, L.P common unit on such date. The
restricted units were fully vested 60 days from the grant date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consists of: (i) distributions paid on restricted units granted under the Long-Term Incentive Plan (R. Brooks Sherman, Jr.$99,925, Phillip
L. Elbert$142,750 and Laura L. Ozenberger$71,375); (ii) matching contributions to Inergys 401(k) Plan for each named executive officer; and (iii) Inergys payment for the benefit of the named executive officers under
Inergys group term life insurance policy. The partnership does not provide perquisites and other personal benefits exceeding a total value of $10,000 to any named executive officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Grants of Plan Based Awards Table

The
following table provides information concerning each grant of an award made by Inergy to our named executive officers in the last completed fiscal year under any plan, including awards that have been transferred.



|                       |  |                                                     |  |                             |  |                                                      |  |        |  |        
|---------------------- |  | --------------------------------------------------- |  | --------------------------- |  | ---------------------------------------------------- |  | ------ |  | -------
|                       |  | Estimated Future Payouts UnderIncentive
Plan Awards |  | All Other StockAwards(#)(2) |  | Grant Date FairValue of Stockand OptionAwards ($)(2)
|Name                   |  | Threshold($)                                        |  | Target($)                   |  | Maximum($)(1)                                        |  |       
|John J. Sherman        |  | 0                                                   |  | 350,000                     |  | 350,000                                              |  | 22,846 |  | 350,000
|R. Brooks Sherman, Jr. |  | 0                                                   |  | 225,000                     |  | 225,000                                              |  | 14,687 |  | 225,000
|Phillip L. Elbert      |  | 0                                                   |  | 275,000                     |  | 275,000                                              |  | 17,950 |  | 275,000
|Laura L. Ozenberger    |  | 0                                                   |  | 200,000                     |  | 200,000                                              |  |       |  |       



|(1) | The Maximum amount may be increased by the discretion of the compensation committee as described above in the Compensation Discussion
and AnalysisIncentive Awards.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | The compensation committee awarded John J. Sherman, R. Brooks Sherman, Jr. and Phillip L. Elbert their fiscal 2008 incentive award in Inergy, L.P.
restricted units. Although granted in fiscal 2009, these awards are reported in the Summary Compensation Table in fiscal 2008 because they are part of the named executive officers fiscal 2008 incentive compensation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The following is a discussion of other material factors necessary to an understanding of the information disclosed in the Summary Compensation Table.

Employment Agreements

The named executive officers have not entered into employment agreements with our general partner. However, the following named executive officers have entered into employment agreements with Inergy GP, LLC, the managing general partner of
Inergy, L.P.:



| |  |  | John J. Sherman, President and Chief Executive Officer;
| | - |  | -------------------------------------------------------



| |  |  | R. Brooks Sherman, Jr., Executive Vice PresidentChief Financial Officer;
| | - |  | -------------------------------------------------------------------------



| |  |  | Phillip L. Elbert, President and Chief Operating OfficerPropane Operations; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | Laura L. Ozenberger, Senior Vice PresidentGeneral Counsel and Secretary;
| | - |  | -------------------------------------------------------------------------

The following is a summary of the material provisions of these employment agreements, each of which is incorporated by reference herein as an exhibit to
this report.

All of these employment agreements are substantially similar, with certain exceptions as set forth below. The employment
agreements are for terms of either three or five years. During the fiscal year, the annual salaries for these individuals are as follows:



| |  |  | John J. Sherman$350,000
| | - |  | ------------------------



| |  |  | R. Brooks Sherman, Jr.$225,000
| | - |  | -------------------------------



| |  |  | Phillip L. Elbert$275,000
| | - |  | --------------------------



| |  |  | Laura L. Ozenberger$200,000
| | - |  | ----------------------------

These employees are reimbursed for all expenses in accordance with Inergys policies. They are also eligible for fringe benefits normally provided to other employees of Inergy.

All of the individuals are eligible for annual performance bonuses from Inergy upon meeting certain established criteria for each year during the term of
his or her employment.

Generally, unless waived by the managing general partner of Inergy, in order for any of these individuals to receive
any benefits under (i) the Inergy Long Term Incentive Plan and Inergy Holdings Long Term Incentive Plan, or (ii) the performance bonus, the individual must have been continuously employed by the managing general partner of Inergy or one of
our affiliates from the date of his or her employment agreement up to the date for determining eligibility to receive such amounts.

Each
employment agreement contains confidentiality and noncompetition provisions. Also, each employment agreement contains a disclosure and assignment of inventions clause that requires the employee to disclose the existence of any invention and assign
such employees right in such invention to the managing general partner of Inergy.

With respect to each of the named executive officers,
in the event such persons employment is terminated by Inergy without cause, Inergy will be required to continue making payments to such person for the remainder of the term of such persons employment agreement.



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Outstanding Equity Awards at Fiscal Year-End Table

The following table summarizes the options and restricted units outstanding as of September 30, 2009 for the named executive officers. The table
includes unit options and restricted units of Inergy, L.P. (NASDAQ: NRGY) granted under the Inergy Long Term Incentive Plan and unit options and restricted units of Inergy Holdings, L.P. (NASDAQ: NRGP) granted under the Inergy Holdings Long Term
Incentive Plan.



|                       |      |          |                                                                |               |     |                                                                  |     |  |                        |       |                      |          |                                       |   |                                               |  
|---------------------- | ---- | -------- | -------------------------------------------------------------- | ------------- | --- | ---------------------------------------------------------------- | --- |  | ---------------------- | ----- | -------------------- | -------- | ------------------------------------- | - | --------------------------------------------- | -
|                       |      | Security |                                                                | OPTION AWARDS |     | UNIT AWARDS                                                     
|Name                   |      |          | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable |               |     | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |     |  | OptionExercisePrice($) |       | OptionExpirationDate |          | Number ofUnits ThatHave NotVested (#) |   | MarketValue ofUnits ThatHave NotVested ($)(4)
|John J. Sherman        |      |         |                                                                |              |     |                                                                  |    |  |                        |      |                      |         |                                       |  |                                               | 
|R. Brooks Sherman, Jr. |      | NRGY     |                                                                |              |     |                                                                  |    |  |                        |      |                      |         |                                       |  |                                               | 
|                       | NRGP |          | 20,000                                                         | (2)           |     | 20,000                                                           | (2) |  | 22.50                  |       | 06/19/15             |          | 35,000                                |   | 1,624,000                                    
|Phillip L. Elbert      |      | NRGY     |                                                                |              |     |                                                                  |    |  |                        |      |                      |         |                                       |  |                                               | 
|                       | NRGP |          |                                                               |               |     | 40,000                                                           | (3) |  | 22.50                  |       | 06/19/15             |          | 50,000                                |   | 2,320,000                                    
|Laura L. Ozenberger    |      | NRGY     |                                                                | 22,400        | (1) |                                                                  |    |  |                        | 15.70 |                      | 02/09/13 |                                       |  |                                               | 
|                       | NRGP |          | 18,000                                                         | (2)           |     | 20,000                                                           | (2) |  | 22.50                  |       | 06/19/15             |          | 25,000                                |   | 1,160,000                                    



|(1) | Option vested in full on February 10, 2008 (5 years from the grant
date).
|--- | -------------------------------------------------------------------------

|(2) | 10,000 vested on June 20, 2009 and 20,000 will vest June 20, 2010.
|--- | ------------------------------------------------------------------

|(3) | Option will vest in full on June 20, 2010 (5 years from the grant
date).
|--- | ------------------------------------------------------------------------

|(4) | Market value for NRGY units based on the NASDAQ closing price of $29.78 on
September 30, 2009, and market value of NRGP units based on the NASDAQ closing price of $46.40 on September 30, 2009.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Option Exercises and Stock Vested Table

The following table provides information regarding option exercises and restricted
unit vesting during the fiscal year ended September 30, 2009, for the named executive officers.



|                       |  |          |                                        |               |                              |              |                                       |        |     |                             |        
|---------------------- |  | -------- | -------------------------------------- | ------------- | ---------------------------- | ------------ | ------------------------------------- | ------ | --- | --------------------------- | -------
|                       |  | Security |                                        | Option Awards |                              | Stock Awards
|Name                   |  |          | Number ofUnits AcquiredOn Exercise (#) |               | ValueRealized onExercise ($) |              | Number ofUnits AcquiredOn Vesting (#) |        |     | ValueRealized onVesting ($)
|John J. Sherman        |  | NRGY     |                                        |              |                              |             |                                       | 22,846 | (1) |                             | 538,480
|R. Brooks Sherman, Jr. |  | NRGY     |                                        | 20,000        |                              | 213,740      |                                       | 14,687 | (1) |                             | 346,173
|Phillip L. Elbert      |  | NRGY     |                                        |              |                              |             |                                       | 17,950 | (1) |                             | 423,081
|Laura L. Ozenberger    |  | NRGY     |                                        | 25,000        |                              | 248,288      |                                       |       |     |                             |       



|(1) | Messrs. Sherman, Sherman and Elbert took their fiscal 2008 annual incentive
award payouts in Inergy, L.P. restricted units with the number based on the cash value of their respective annual incentive awards divided by the NASDAQ closing price of NRGY common units on such date (December 1, 2008), which units fully vested on
February 4, 2009 (60 days from the grant date).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Pension Benefits Table

We do not offer any pension benefits.

Nonqualified Deferred Compensation Table

We have no non-qualified deferred compensation plans.



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Potential Payments upon a Change in Control or Termination

Employment Agreements

Under the named
executive officers employment agreement with Inergy, Inergy may be required to pay certain amounts upon the employment termination of the named executive officer in certain circumstances. Upon the termination of employment of a named executive
officer without Cause, the employment agreements entered into between Inergy GP, LLC and each of the named executive officers provide for salary continuation at the rate in effect at termination of the employee through the remaining term of the
employment agreement. Consequently, no severance is payable in the event of any termination (i) as a result of death, disability, or legal incompetence, (ii) as a result of Inergy GP, LLC ceasing to carry on its business without assigning
the employment agreement, (iii) as a result of Inergy GP, LLC becoming bankrupt, (iv) for Cause or (v) by the employee for any or no reason. For purposes of the employment agreements:

Cause will generally be determined to have occurred in the event the:



| |  |  | employee has failed to perform his or her duties as an employee of Inergy GP, LLC, to perform any obligation under the employment agreement or to
observe and abide by Inergy GP, LLCs policies and decisions, provided that Inergy GP, LLC has given employee reasonable notice of that failure and employee is unsuccessful in correcting that failure or in preventing its reoccurrence;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee has refused to comply with specific directions of his/her supervisor or other superior, provided that such directions are consistent with the
employees position of employment;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee has engaged in misconduct that is injurious to Inergy GP, LLC or any subsidiary, parent or affiliate of Inergy GP, LLC;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee has been convicted of, or has entered a plea of nolo contendere to, any crime involving the theft or willful destruction of money or other
property, any crime involving moral turpitude or fraud, or any crime constituting a felony;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee has engaged in acts or omissions against Inergy GP, LLC or any subsidiary, parent or affiliate of Inergy GP, LLC constituting dishonesty,
breach of fiduciary obligation, or intentional wrongdoing or misfeasance; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee has used alcohol or drugs on the job, or has engaged in excessive absenteeism from the performance of his/her duties as Inergy GP, LLCs
employee, other than for reasons of illness.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If a termination of a named executive officer by Inergy GP, LLC without Cause
were to have occurred as of September 30, 2009, our named executive officers would have been entitled to the following:



| |  |  | John J. Sherman would have received $320,833, representing base salary for the remaining 11 months of the term of his employment agreement (payable
bi-monthly in arrears). For two years following the termination of Mr. Shermans employment he will continue to be subject to the non-competition provisions of his employment agreement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | R. Brooks Sherman, Jr. would have received $168,750, representing base salary for the remaining 9 months of the term of his employment agreement
(payable bi-monthly in arrears). For two years following termination of Mr. Shermans employment he will continue to be subject to the non-competition provisions of his employment agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phillip L. Elbert would have received $68,750, representing base salary for the remaining 3 months of the term of his employment agreement (payable
bi-monthly in arrears). In addition, to receiving severance payments upon a termination of employment without Cause, Mr. Elbert is entitled to the same benefits if he terminates his employment for Good Reason which is defined as
(i) Inergy GP, LLC requiring, as a condition of employees employment, that employee commit a felony or engage in conduct that is a crime under the Securities Act of 1933, as amended, or the Securities Exchange Act of
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 1934, as amended; and (ii) employee being required by Inergy GP, LLC to be based at any office or location that is more than 35 miles from the location where employee was employed
immediately preceding the date of the voluntary or involuntary termination of employees employment. For up to two years following termination of Mr. Elberts employment he will continue to be subject to the non-competition provisions
of his employment agreement.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Laura L. Ozenberger would have received $200,000 representing base salary for the remaining 12 months of the term of her employment agreement (payable
bi-monthly in arrears). For a minimum of one year following termination of employment Ms. Ozenberger will continue to be subject to the non-competition provisions of her employment agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Inergy Long Term Incentive Plan and Inergy Holdings Long Term Incentive Plan

Upon a change in control, all unit options and restricted units will automatically vest and become payable or exercisable, as the case may be, in full and any restricted periods or performance criteria
will terminate or be deemed to have been achieved at the maximum level. For purposes of the Inergy Long Term Incentive Plan and Inergy Holdings Long Term Incentive Plan, a change in control means, and shall be deemed to have occurred
upon one of the following events: (i) any sale, lease, exchange or other transfer (in one or a series of related transactions) of all or substantially all of the assets of Inergy Partners, LLC or Inergy, L.P. to any person or its affiliates,
other than Inergy GP, LLC, the Partnership or any of their affiliates, or (ii) any merger, reorganization, consolidation or other transaction pursuant to which more than 50% of the combined voting power of the equity interests in Inergy GP, LLC
or Inergy Partners, LLC ceases to be controlled by Inergy Holdings, L.P.

If a change in control were to have occurred as of
September 30, 2009, all unvested awards held by the named executive officers under the Inergy Long Term Incentive Plan as well as the Inergy Holdings Long Term Incentive Plan would have automatically vested and become exercisable, as follows:



|                       |  |                                                      |  |                                                           |  |                                                                  |  |                                                                    |  |                                                         |  |                                                                 |  |            
|---------------------- |  | ---------------------------------------------------- |  | --------------------------------------------------------- |  | ---------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | ------------------------------------------------------- |  | --------------------------------------------------------------- |  | -----------
|Name                   |  | OptionAwardsunder theInergyLongTermIncentivePlan (#) |  | ExercisePrice PerShare underthe LongTermIncentivePlan ($) |  | Option Awardsunder the InergyHoldings LongTerm IncentivePlan (#) |  | ExercisePrice PerShare underthe HoldingsLong TermIncentivePlan ($) |  | RestrictedUnitsunder theInergyLongTermIncentivePlan (#) |  | RestrictedUnitsUnder theInergyHoldingsLongTermIncentivePlan (#) |  | Total($)(1)
|John J. Sherman        |  |                                                     |  |                                                          |  |                                                                 |  |                                                                   |  |                                                        |  |                                                                |  |           
|R. Brooks Sherman, Jr. |  |                                                     |  |                                                          |  | 20,000                                                           |  | 22.50                                                              |  |                                                        |  | 35,000                                                          |  | 2,102,000  
|Phillip L. Elbert      |  |                                                     |  |                                                          |  | 40,000                                                           |  | 22.50                                                              |  |                                                        |  | 50,000                                                          |  | 3,276,000  
|Laura L. Ozenberger    |  |                                                     |  |                                                          |  | 20,000                                                           |  | 22.50                                                              |  |                                                        |  | 25,000                                                          |  | 1,638,000  



|(1) | For options, the amounts included in the Total column are
calculated by subtracting the per share exercise price under the options from the closing per share price of our common units on September 30, 2009 ($46.40), or the closing per share price of the common units of Inergy ($29.78), as applicable,
and multiplying the difference by the number of units subject to the option. For restricted units the amounts included in the Total column are calculated by multiplying the number of restricted units by the closing per share price of our
common units on September 30, 2009 ($46.40), or the closing per share price of the common units of Inergy ($29.78), as applicable.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Director Compensation Table

The following table sets forth the cash and non-cash compensation earned for the year ended September 30, 2009 by each person who served as a non-employee director of Inergy Holdings GP, LLC.



|                   |  |                               |  |                  |  |                    |  |                             |  |         
|------------------ |  | ----------------------------- |  | ---------------- |  | ------------------ |  | --------------------------- |  | --------
|Name               |  | Fees Earnedor Paid inCash ($) |  | UnitAwards($)(1) |  | OptionAwards($)(1) |  | All OtherCompensation($)(2) |  | Total($)
|Warren H. Gfeller  |  | 37,000                        |  | 14,514           |  | 16,732             |  | 3,061                       |  | 71,307  
|Arthur B. Krause   |  | 41,000                        |  | 14,514           |  | 16,732             |  | 3,061                       |  | 75,307  
|Richard T. OBrien |  | 30,000                        |  | 14,529           |  | 18,038             |  | 4,019                       |  | 66,586  



|(1) | The amounts included in the Unit Awards and Option Awards columns reflect the dollar amount of compensation expense we
recognized with respect to these awards for the fiscal year ended September 30, 2009, and thus include amounts attributable to awards granted in and prior to fiscal 2009. Assumptions used in the calculation of these amounts are discussed in
Note 11 to our consolidated financial statements. These amounts reflect our accounting expense for these awards, and do not correspond to the actual value that will be recognized by the directors.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Dollar value of distributions paid on restricted units during the fiscal year ended September 30, 2009.
|--- | -------------------------------------------------------------------------------------------------------

Compensation of Directors

An officer of
our general partner who also serves as director will not receive additional compensation. Each director receives cash compensation of $25,000 per year for attending our regularly scheduled quarterly board meetings. Each non-employee director also
receives $1,000 for each special meeting of the board of directors attended. Non-employee directors receive $1,000 per compensation, audit, or conflicts committee meeting attended. The chairman of the audit committee receives an annual fee of $5,000
per year and the chairman of the compensation committee receives an annual fee of $1,000 per year. In addition, each non-employee director receives an annual grant of restricted units under the Inergy Holdings Long Term Incentive Plan equal to
$25,000 in value. Accordingly, on January 2, 2009, Messrs. Gfeller, Krause and OBrien each received 1,068 units under the Inergy Holdings Long Term Incentive Plan. These units vest ratably over three years beginning one year from the
grant date. Each non-employee director is reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director is fully indemnified for actions associated with being a director to the
extent permitted under Delaware law. Messrs. Krause and Gfeller also receive compensation for their service on the board of directors of Inergy GP, LLC, which is not reflected in the table above.

Compensation Committee Interlocks and Insider Participation

The compensation committee of the board of directors of our managing general partner oversees the compensation of our executive officers. Warren H. Gfeller and Arthur B. Krause serve as the members of the
compensation committee, and neither of them was an officer or employee of our company or any of its subsidiaries during fiscal 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters.

Inergy Holdings, L.P.

The following table sets forth certain information as of October 30, 2009, regarding the beneficial ownership of our units by:



| |  |  | each person who beneficially owned more than 5% of such units then outstanding;
| | - |  | -------------------------------------------------------------------------------



| |  |  | each of the named executive officers of our general partner;
| | - |  | ------------------------------------------------------------



| |  |  | each of the directors of our general partner; and
| | - |  | -------------------------------------------------



| |  |  | all of the directors and named executive officers of our general partner and the managing general partner of Inergy as a group.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

All information with respect to beneficial ownership has been furnished by the respective directors,
officers or 5% or more unitholders, as the case may be.



|                                                                                                                                                                         |  |           |  |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- |  | ------- | -
|Name of Beneficial Owner(1)                                                                                                                                              |  | Units     |  | Percent |  
|John J. Sherman(2)                                                                                                                                                       |  | 7,938,879 |  | 39.15   | %
|Swank Capital, LLC                                                                                                                                                       |  | 1,164,584 |  | 5.74    | %
|Andrew L. Atterbury                                                                                                                                                      |  | 1,095,085 |  | 5.40    | %
|William C. Gautreaux(3)                                                                                                                                                  |  | 1,065,132 |  | 5.25    | %
|Phillip L. Elbert(4)                                                                                                                                                     |  | 905,732   |  | 4.47    | %
|R. Brooks Sherman, Jr.                                                                                                                                                   |  | 397,558   |  | 1.96    | %
|Laura L. Ozenberger                                                                                                                                                      |  | 32,769    |  | *       |  
|Warren H. Gfeller                                                                                                                                                        |  | 13,970    |  | *       |  
|Arthur B. Krause                                                                                                                                                         |  | 11,576    |  | *       |  
|Richard T. OBrien                                                                                                                                                       |  | 1,709     |  | *       |  
|All directors and named executive officers of our general partner and directors and named executive officers of Inergys
managing general partner as a group (9 persons) |  | 9,327,537 |  | 46.00   | %



|* | Less than 1%
|- | ------------

|(1) | The address of each person listed above is Two Brush Creek Boulevard, Suite 200, Kansas City, Missouri 64112.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Mr. Sherman may be deemed to beneficially own 7,936,826 common units held through various trusts, of which Mr. Sherman serves as either the
trustee or co-trustee, and 2,053 units through the Employee Unit Purchase Plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Gautreaux may be deemed to beneficially own 969,471 common units held through various trusts of which Mr. Gautreaux serves as either the
trustee or co-trustee.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Elbert may be deemed to beneficially own 855,732 common units held through various trusts of which Mr. Elbert serves as either the
trustee or co-trustee.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Inergy Holdings GP, LLC

The following table shows the beneficial ownership of Inergy Holdings GP, LLC, as of October 30, 2009.



|                                                                                                                                                                         |  |                                |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------ | -
|Name of Beneficial Owner(1)                                                                                                                                              |  | BeneficialOwnershipPercent (2) |  
|John J. Sherman(3)                                                                                                                                                       |  | 57.03                          | %
|David G. Dehaemers, Jr.                                                                                                                                                  |  | 6.24                           | %
|Phillip L. Elbert                                                                                                                                                        |  | 6.16                           | %
|Paul E. McLaughlin                                                                                                                                                       |  | 7.18                           | %
|Andrew L. Atterbury                                                                                                                                                      |  | 7.08                           | %
|William C. Gautreaux(4)                                                                                                                                                  |  | 6.98                           | %
|Carl A. Hughes(5)                                                                                                                                                        |  | 6.74                           | %
|R. Brooks Sherman, Jr.                                                                                                                                                   |  | 2.60                           | %
|All directors and named executive officers of our general partner and directors and named executive officers of Inergys
managing general partner as a group (9 persons) |  | 65.79                          | %



|(1) | The address of each person listed above is Two Brush Creek Boulevard, Suite 200, Kansas City, Missouri 64112.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Voting rights currently attach only to Mr. John Shermans ownership interest. In the event Mr. John Shermans ownership fails to
exceed 33%, the remaining owners of our general partner will acquire voting rights in proportion to their ownership interest.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Sherman may be deemed to beneficially own all of the common units held by the John J. Sherman Revocable Trust dated May 4, 1994, and the
John J. Sherman 2005 Grantor Retained Annuity Trust I under trust indenture dated March 31, 2005, of which Mr. Sherman serves as the trustee or co-trustee.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Mr. Gautreaux may be deemed to beneficially own all of the common units, through various trusts, of which Mr. Gautreaux serves as the trustee
or co-trustee.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Mr. Hughes may be deemed to beneficially own all of the common units held by the Carl A. Hughes Revocable Trust dated September 13, 2002, and
the Carl A. Hughes 2005 Grantor Retained Annuity Trust under trust indenture dated March 31, 2005, of which Mr. Hughes serves as the trustee or co-trustee.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Item 13. Certain Relationships, Related Transactions and Director
Independence.

Our Relationship with Inergy

General.Our cash-generating assets consist of our partnership interests, including incentive distribution rights, in Inergy. Our incentive distribution rights in Inergy entitle us to receive
an increasing percentage of total cash distributions made by Inergy as it reaches certain target distribution levels and have resulted in significantly increasing cash distributions to us.

Our aggregate partnership interests in Inergy consist of the following:



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



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

Our Relationship with Inergys General Partners

Inergy GP, LLC, Inergys managing general partner, manages the
operations and activities of Inergy. Inergy Partners, LLC, Inergys non-managing general partner, owns an approximate 0.8% general partner interest in Inergy. Distributions and payments are made by Inergy to its non-managing general partner and
its affiliates in connection with the ongoing operations of Inergy. These distributions and payments are determined by and among affiliated entities and are not the result of arms length negotiations.

Cash distributions from Inergy are generally made approximately 99% to Inergy unitholders, including affiliates of its managing general partner as holders
of Inergy common units, and approximately 1% to its non-managing general partner. In addition, if distributions exceed certain target distribution levels, we are entitled to receive increasing percentages of the distributions (incentive distribution
rights), up to a maximum of 48.0% of the distributions above the highest target level.

During fiscal 2009, we received $48.1 million in
distributions related to our approximate 0.8% general partner interest and incentive distribution rights and $12.3 million related to our approximate 7.8% limited partner interest.

Inergys managing general partner and its affiliates do not receive any management fee or other compensation for the management of Inergy. Its managing general partner and its affiliates are
reimbursed, however, for direct and indirect expenses incurred on Inergys behalf. The expense reimbursement to Inergys managing general partner and its affiliates was $3.1 million for the fiscal year ended September 30, 2009, and
$3.5 million for the fiscal years ended September 30, 2008 and 2007, with the reimbursement related primarily to personnel costs.

If
Inergys managing general partner withdraws in violation of Inergys partnership agreement or is removed for cause, a successor general partner has the option to buy the general partner interests and incentive distribution rights of Inergy
from the non-managing general partner of Inergy for a cash price equal to fair market value. If Inergys managing general partner withdraws or is removed under any other circumstances, Inergys non-managing general partner has the option
to require the successor general partner to buy its general partner interests and incentive distribution rights for a cash price equal to fair market value.

If either of these options is not exercised, the general partner interests and incentive distribution rights of Inergy will automatically convert into common units of Inergy equal to the fair market value
of those interests. In addition, Inergy will be required to pay the departing general partner for expense reimbursements.



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##### Table of Contents

Upon Inergys liquidation, the partners, including Inergys non-managing general partner, will be
entitled to receive liquidating distributions according to their particular capital account balances.

Indemnification of Directors and
Officers

Under our limited partnership agreement and subject to specified limitations, we will indemnify to the fullest extent permitted
by Delaware law, from and against all losses, claims, damages or similar events any director or officer, or while serving as a director or officer, any person who is or was serving as a tax matters member or as a director, officer, tax matters
member, employee, partner, manager, fiduciary or trustee of our partnership or any of our affiliates. Additionally, we will indemnify to the fullest extent permitted by law, from and against all losses, claims, damages or similar events any person
who is or was an employee (other than an officer) or agent of our partnership.

Any indemnification under our limited partnership agreement
will only be out of our assets. We are authorized to purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against
liabilities under our limited partnership agreement.

Related Party Transactions Involving Inergy

On occasion, Holdings reimburses Inergy for expenses paid on our behalf. The expenses that we reimburse predominantly include insurance and professional
fees. These expenses for the years ended September 30, 2009, 2008 and 2007, amounted to $0.5 million, $0.2 million and $0.4 million, respectively. At September 30, 2009 and 2008, Holdings had an amount due to Inergy of $0.1 million and
$0.2 million, respectively.

Review, Approval or Ratification of Transactions with Related Persons

Our Related Person Transactions Policy applies to any transaction since the beginning of our fiscal year (or currently proposed transaction) in which we or
any of our subsidiaries was or is to be a participant, the amount involved exceeds $120,000 and any director, director nominee, executive officer, 5% or greater unitholder (or their immediate family members) had, has or will have a direct or
indirect material interest. A transaction that would be covered by this policy would include, but not be limited to, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of
similar transactions, arrangements or relationships.

Under our Related Person Transactions Policy, related person transactions may be entered
into or continue only if the transaction is deemed to be fair and reasonable to us, in accordance with the terms of our Partnership Agreement. Under our Partnership Agreement, transactions that represent a conflict of
interest may be approved in one of three ways and, if approved in any of those ways, will be considered fair and reasonable to us and the holders of our common units. The three ways enumerated in our Related Person Transactions
Policy for reaching this conclusion include:



| | (i) | approval by the Conflicts Committee of the Board (the Conflicts Committee) under Section 7.9 of the Partnership Agreement (Special
Approval);
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | approval by our Chief Executive Officer applying the criteria specified in Section 7.9 of the Partnership Agreement if the transaction is in the normal course of
the Partnerships business and is (a) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (b) fair to the Partnership, taking into account the totality of
the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership); and
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | approval by an independent committee of the Board (either the Audit Committee or a Special Committee) applying the criteria in Section 7.9 of the Partnership
Agreement.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



88



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##### Table of Contents

Once a transaction is approved in any of these ways, it is fair and reasonable and accordingly
deemed (i) approved by all of our partners and (ii) not to be a breach of any fiduciary duties of general partner.

Our general
partner determines in its discretion which method of approval is required depending on the circumstances.

A related person transaction that
is approved by the conflicts committee is, as discussed in greater detail above, conclusively deemed to be fair and reasonable to us. When approving a related party transaction, the conflicts committee considers all factors it considers relevant,
reasonable or appropriate under the circumstances, including the relative interests of any party to the transaction, customary industry practices and generally accepted accounting principles.

Under our Partnership Agreement, in the absence of bad faith by the general partner, the resolution, action or terms so made, taken or provided by the
general partner with respect to approval of the related party transaction will not constitute a breach of the Partnership Agreement or any standard of fiduciary duty.

Under our Related Person Transactions Policy, as well as under our Partnership Agreement, there is no obligation to take any particular conflict to the conflicts committeeempanelling that committee
is entirely at the discretion of the general partner. In many ways, the decision to engage the conflicts committee can be analogized to the kinds of transactions for which a Delaware corporation might establish a special committee of independent
directors. The general partner considers the specific facts and circumstances involved. Relevant facts would include:



| |  |  | the nature and size of the transaction (e.g., transaction with a controlling unitholder, magnitude of consideration to be paid or received, impact of
proposed transaction on the general partner and holders of common units);
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the related persons interest in the transaction;
| | - |  | -------------------------------------------------



| |  |  | whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar
circumstances;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if applicable, the availability of other sources of comparable services or products; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | the financial costs involved, including costs for separate financial, legal and possibly other advisors at our expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

When determining whether a related person transaction is in the normal course of our business and is (a) on terms no less favorable to us than those
generally being provided to or available from unrelated third parties or (b) fair to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or
advantageous to us), the general partner considers any facts and circumstances that it deems to be relevant, including:



| |  |  | the terms of the transaction, including the aggregate value;
| | - |  | ------------------------------------------------------------



| |  |  | the business purpose of the transaction;
| | - |  | ----------------------------------------



| |  |  | the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | whether the terms of the transaction are comparable to the terms that would exist in a similar transaction with an unaffiliated third party;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any customary or accepted industry practices;
| | - |  | ---------------------------------------------



| |  |  | any applicable generally accepted accounting practices or principles; and
| | - |  | -------------------------------------------------------------------------



| |  |  | such additional factors as the general partner or the conflicts committee determines in its sole discretion to be relevant, reasonable or appropriate
under the circumstances.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



89



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##### Table of Contents

Material Provisions of Our General Partners Limited Liability Company Agreement

Our general partners management and operations are governed by its limited liability company agreement. The limited liability company agreement
establishes a board of directors that will be responsible for the oversight of our business and operations. Our general partners board of directors will be elected by a voting member majority, as defined in the limited liability company
agreement. For so long as John J. Sherman and his trusts and their permitted transferees own at least 33% of the original ownership interests held by our owners prior to our initial public offering, Mr. John Shermans revocable trust will
comprise the voting member majority and will be the only voting member of our general partner. Accordingly, Mr. John Sherman will have the authority to elect all of the directors of our general partner, as well as vote on any other actions
required to be presented to the owners of our general partner. If Mr. John Shermans ownership fails to exceed 33% of the original ownership interests, the remaining owners of our general partner will acquire voting rights in proportion to
their ownership interest of such original ownership interests. Further, these owners will lose their voting rights in proportion to any sales of original ownership interests in us. Our general partner and the owners of our general partner, whether
or not voting, have a right of first refusal to purchase any interests in our general partner proposed to be sold to a third party. In addition, in the event Mr. John Sherman elects to sell his interest in our general partner, Mr. John
Sherman will have the right to cause all other members of our general partner to sell their interests on the same terms. Likewise, if Mr. John Sherman elects to sell his interest in our general partner, all other members of our general partner
will also have the ability to participate in the sale on the same terms.

Restrictions on the Ability of Certain Executive Officers and
Certain Unitholders who Beneficially Own More than 5% of Our Outstanding Units

Various agreements among certain executive officers and
certain unitholders (including certain executive officers of our general partner and the managing general partner of Inergy) restrict their ability to transfer their interests in us. We hold a right of first refusal on the transfer of the interests
in us by these executive officers and these certain unitholders.

Item 14. Principal Accountant Fees and
Services.

The following table presents fees billed for professional audit services rendered by Ernst & Young LLP for the audit of
our and Inergys annual financial statements and for other services rendered for the years ended September 30, 2009 and 2008 (in millions):



|                                        |  |      |     |      |   |    
|--------------------------------------- |  | ---- | --- | ---- | - | ---
|For the fiscal year ended September 30, |  | 2009 |     | 2008
|Inergy Holdings, L.P.:                  |  |      |     |      |   |    
|Audit fees(1)                           |  | $    | 0.1 |      | $ | 0.1
|Audit-related fees(2)                   |  |      |    |      |   |   
|                                        |  |      |     |      |   |    
|Total                                   |  | $    | 0.1 |      | $ | 0.1
|                                        |  |      |     |      |   |    
|Inergy, L.P.                            |  |      |     |      |   |    
|Audit fees(1)                           |  | $    | 2.5 |      | $ | 2.2
|Audit-related fees(2)                   |  |      |    |      |   | 0.6
|                                        |  |      |     |      |   |    
|Total                                   |  | $    | 2.5 |      | $ | 2.8
|                                        |  |      |     |      |   |    



|(1) | Audit fees consist of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements.
This category includes fees related to the review of our quarterly and other SEC filings and services related to internal control assessments.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit-related fees consist of due diligence fees associated with acquisition transactions, financial accounting and reporting consultations and benefit
plan audits.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

Following the establishment of the audit committee of our general partner, the audit committee reviewed and
approved all audit and non-audit services provided to us by Ernst & Young during fiscal year 2009 prior to the commencement of such services. For information regarding the audit committees pre-approval policies and procedures related
to the engagement by us of an independent accountant, see our audit committee charter on our website at www.inergypropane.com.



90



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##### Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules.



| | (a) | Exhibits, Financial Statements and Financial Statement Schedules:
| | --- | -----------------------------------------------------------------



| | 1. | Financial Statements:
| | -- | ---------------------

See Index Page for Financial Statements located on page 95.



| | 2. | Financial Statement Schedules:
| | -- | ------------------------------

Schedule I: Parent Only Financial Statements located on page 139

Schedule II: Valuation and Qualifying Accounts located on page 141

Other financial statement schedules have been omitted because
they either are not required, are immaterial or are not applicable or because equivalent information has been included in the financial statements, the notes thereto or elsewhere herein.



| | 3. | Exhibits:
| | -- | ---------



|              |  |                                                                                                                                                                                                                                                                                                                                 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                     
|*2.1          |  | Purchase Agreement dated as of July 8, 2005, among Inergy Acquisition Company, LLC, Inergy Storage, Inc., Inergy Stagecoach II, LLC, Stagecoach Holding, LLC, Stagecoach Energy,
LLC and Stagecoach Holding II, LLC (incorporated herein by reference to Exhibit 2.1 to Inergy Holdings, L.P.s Form 8-K filed on July 12, 2005)
|              | 
|*3.1          |  | Certificate of Conversion of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.1 to Inergy Holdings L.P.s Registration Statement on Form S-1/A (Registration
No. 333-122466) filed on April 29, 2005)                                                                                                       
|              | 
|*3.2          |  | Agreement of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.2 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on June 2, 2005)                                                                                                 
|              | 
|*3.3          |  | Certificate of Formation of Inergy Holdings GP, LLC (incorporated herein by reference to Exhibit 3.3 to Inergy Holdings L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on April 29, 2005)                                                                                                      
|              | 
|*3.4          |  | Limited Liability Company Agreement of Inergy Holdings GP, LLC (incorporated herein by reference to Exhibit 3.4 to Inergy Holdings L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on March 14, 2005)                                                                                           
|              | 
|*3.5          |  | Certificate of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 3.5 to Inergy Holdings, L.P.s Registration Statement on Form
S-1/A (Registration No. 333-122466) filed on April 29, 2005)                                                                                             
|              | 
|*3.6          |  | Amended and Restated Agreement of Limited Partnership of Inergy Holdings, L.P. (incorporated herein by reference to Exhibit A to Inergy Holdings L.P.s Prospectus (Registration
No. 333-122466) filed on June 21, 2005)                                                                                                        
|              | 
|*4.1          |  | Specimen Certificate representing common units (filed as Exhibit 4.1 to the registrants Registration Statement on Form S-1 (Reg. No. 333-122466) and incorporated herein by
reference).                                                                                                                                        
|              | 
|*4.2          |  | Second Amended and Restated Agreement of Limited Partnership of Inergy, L.P. (incorporated herein by reference to Exhibit 3.2B to Inergy, L.P.s Annual Report on Form 10-K
filed on December 7, 2004)                                                                                                                          



91



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*4.3   |  | Amendment No. 1 to Second Amended and Restated Agreement of Limited Partnership of Inergy, L.P. (incorporated herein by reference to Exhibit 3.2C to Inergy, L.P.s Annual
Report on Form 10-K filed on December 7, 2004)                                                                                                                                                                                                                                                                                                                 
|       | 
|*4.4   |  | Amendment No. 2 to Second Amended and Restated Agreement of Limited Partnership of Inergy, L.P. (incorporated herein by reference to Exhibit 3.1 to Inergy, L.P.s Current
Report on Form 8-K filed on January 24, 2005)                                                                                                                                                                                                                                                                                                                  
|       | 
|*4.5   |  | Registration Rights Agreement dated as of August 9, 2005 by and between Inergy, L.P. and Inergy Holdings, L.P (incorporated herein by reference to Exhibit 4.1 to Inergy Holdings,
L.P.s Current Report on Form 8-K filed on August 12, 2005)                                                                                                                                                                                                                                                                                            
|       | 
|*10.1  |  | Amended and Restated Inergy Holdings, L.P. Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to Inergy Holdings, L.P.s Current Report on Form 8-K
filed on August 18, 2008)***                                                                                                                                                                                                                                                                                                                                  
|       | 
|*10.2  |  | Credit Agreement dated as of July 22, 2005 among Inergy Holdings, L.P., IPCH Acquisition Corp. and Enterprise Bank and Trust (incorporated herein by reference to Exhibit 10.1 to
Inergy Holdings, L.P.s Quarterly Report on Form 10-Q filed on August 9, 2006)                                                                                                                                                                                                                                                                          
|       | 
|*10.2A |  | Second Amendment to Credit Agreement among Inergy Holdings, L.P., IPCH Acquisition Corp. and Enterprise Bank and Trust (incorporated herein by reference to Exhibit 10.2 to Inergy
Holdings, L.P.s Current Report on Form 8-K filed on January 31, 2008)                                                                                                                                                                                                                                                                                 
|       | 
|*10.3  |  | 5-Year Credit Agreement dated as of December 17, 2004, among Inergy, L.P., the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Lehman Commercial
Paper, Inc. and Wachovia Bank, National Association, as Co-Syndication Agents, and Fleet National Bank and Bank of Oklahoma, National Association, as Co-Documentation Agents (incorporated herein by reference to Exhibit 10.1 to Inergy, L.P.s
Current Report on Form 8-K filed on December 22, 2004)                                                      
|       | 
|*10.3A |  | Amendment to the 5-Year Credit Agreement dated as of December 17, 2004, among Inergy, L.P., the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Lehman
Commercial Paper, Inc. and Wachovia Bank, National Association, as Co-Syndication Agents, and Fleet National Bank and Bank of Oklahoma, National Association, as Co-Documentation Agents (incorporated herein by reference to Exhibit 10.2 to Inergy,
L.P.s Form 8-K filed on November 14, 2005)                                                       
|       | 
|*10.4  |  | Guaranty dated as of December 17, 2004 among Inergy Propane, LLC, L & L Transportation, LLC, Inergy Transportation, LLC, Inergy Sales & Service, Inc., Inergy Finance Corp.,
Inergy Acquisition Company, LLC, Stellar Propane Service, LLC and Inergy Gas, LLC in favor of JPMorgan Chase Bank, N.A., as Administrative Agent for the benefit of the Holders of Secured Obligations under the Credit Agreements (incorporated herein
by reference to Exhibit 10.3 to Inergy, L.P.s Current Report on Form 8-K filed on December 22, 2004)
|       | 
|*10.5  |  | Pledge and Security Agreement dated as of December 17, 2004 among Inergy, L.P. and the other Subsidiaries of Inergy, L.P. listed on the signature pages thereto, and JPMorgan Chase
Bank, N.A., as administrative agent for the lenders party to the Credit Agreements (incorporated herein by reference to Exhibit 10.4 to Inergy, L.P.s Current Report on Form 8-K filed on December 22, 2004)                                                                                                                                         
|       | 
|*10.6  |  | Trademark Security Agreement dated as of December 17, 2004 among Inergy, L.P. and the subsidiaries of Inergy, L.P. listed on the signature page attached thereto and JPMorgan Chase
Bank, N.A., as administrative agent on behalf of itself and on behalf of the Holders of Secured Obligation under the Credit Agreements (incorporated herein by reference to Exhibit 10.5 to Inergy, L.P.s Current Report on Form 8-K filed on
December 22, 2004)                                                                                     
|       | 
|*10.7  |  | Interest Purchase Agreement, dated November 18, 2004, among Star Gas Partners, L.P., Star Gas LLC, Inergy Propane, LLC and Inergy, L.P. (incorporated herein by reference to Exhibit
2.1 to Inergy, L.P.s Current Report)                                                                                                                                                                                                                                                                                                                



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|        |  |                                                                                                                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.8   |  | Registration Rights Agreement dated December 22, 2004, among Inergy, L.P., Inergy Finance Corp., the Guarantors named therein and the Initial Purchasers named therein (incorporated
herein by reference to Exhibit 4.1 to Inergy, L.P.s Current Report on Form 8-K filed on December 27, 2004)
|        | 
|*10.9   |  | Indenture dated as of December 22, 2004, among Inergy, L.P., Inergy Finance Corp., the Guarantors named therein and US Bank National Association, as Trustee (incorporated herein by
reference to Exhibit 4.2 to Inergy, L.P.s Current Report on Form 8-K filed on December 27, 2004)          
|        | 
|*10.10  |  | Inergy Long Term Incentive Plan (as amended and restated August 14, 2008) (incorporated herein by reference to Exhibit 10.1 to Inergy, L.P.s Form 8-K filed on August 18,
2008)***                                                                                                             
|        | 
|*10.11  |  | Promissory Note (incorporated herein by reference to Exhibit 10.13 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A (Registration No. 333-122466) filed on April
11, 2005)                                                                                                       
|        | 
|*10.12  |  | Form of Interest Purchase Agreement (incorporated herein by reference to Exhibit 10.14 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A (Registration No.
333-122466) filed on March 14, 2005)                                                                                   
|        | 
|*10.13  |  | Form of Inergy Holdings, L.P. Employee Unit Purchase Plan (incorporated herein by reference to Exhibit 10.15 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A
(Registration No. 333-122466) filed on April 11, 2005)                                                             
|        | 
|*10.14  |  | First Amendment to Interest Purchase Agreement (incorporated herein by reference to Exhibit 10.16 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A (Registration
No. 333-122466) filed on April 11, 2005)                                                                        
|        | 
|*10.15  |  | Form of Unit Option Grant (incorporated herein by reference to Exhibit 10.17 to Inergy Holdings, L.P.s Registration Statement on Form S-1/A (Registration No. 333-122466) filed
on June 2, 2005)***                                                                                            
|        | 
|*10.16  |  | Unitholder Agreement dated as of April 14, 2005 among Inergy Holdings, LLC and the unitholders named therein (incorporated herein by reference to Exhibit 10.18 to Inergy Holdings,
L.P.s Registration Statement on Form S-1/A (Registration No. 333-122466) filed on June 2, 2005)            
|        | 
|*10.17  |  | Special Unit Purchase Agreement dated as of August 9, 2005 between Inergy, L.P. and Inergy Holdings, L.P. (incorporated herein by reference to Exhibit 10.1 to Inergy Holdings,
L.P.s Current Report on Form 8-K filed on August 12, 2005)                                                     
|        | 
|*10.18  |  | Registration Rights Agreement dated January 17, 2006, among Inergy, L.P., Inergy Finance Corp., the Guarantors named therein and the Initial Purchasers named therein (incorporated
herein by reference to Exhibit 4.1 to Inergy L.P.s Form 8-K filed on January 18, 2006)                     
|        | 
|*10.19  |  | Indenture dated as of January 17, 2006 among Inergy, L.P., Inergy Finance Corp., the Guarantors named therein and US Bank National Association (incorporated herein by reference to
Exhibit 4.2 to Inergy L.P.s Form 8-K filed on January 18, 2006)                                            
|        | 
|*10.20  |  | Credit Agreement, dated as of August 9, 2005, between Inergy Holdings, L.P. and Southwest Bank of St. Louis (incorporated herein by reference to Exhibit 10.2 to Inergy Holdings,
L.P.s Current Report on Form 8-K filed on August 12, 2005)                                                   
|        | 
|*10.20A |  | Second Amendment to Credit Agreement between Inergy Holdings, L.P. and Southwest Bank of St. Louis (incorporated herein by reference to Exhibit 10.1 to Inergy Holdings, L.P.s
Current Report on Form 8-K filed on January 31, 2008)                                                           
|        | 
|*10.21  |  | Common Unit Purchase Agreement (incorporated by reference to Exhibit 10.1 to Inergy Holdings, L.P.s Current Report on Form 8-K filed on May 25, 2007)                                                                                                                                          
|        | 
|*10.22  |  | Form of Restricted Unit Award Agreement (incorporated by reference to Exhibit 10.22 to Inergy Holdings, L.P.s Annual Report on Form 10-K filed on November 29,
2007)                                                                                                                           



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|       |  |                                                                                                                                                                                                                                               
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*10.23 |  | Summary of Non-Employee Director Compensation (incorporated herein by reference to Exhibit 10.1 to Inergy Holdings, L.P.s Current Report on Form 8-K filed on February 14,
2006)***                                                          
|       | 
|*10.24 |  | Indenture dated as of February 2, 2009 among Inergy, L.P., Inergy Finance Corp., the Guarantors named therein and US Bank National Association (incorporated by reference to Exhibit
4.1 to Inergy, L.P.s Form 8-K filed on February 3, 2009)
|       | 
|*14.1  |  | Inergy Holdings Code of Business Ethics and Conduct (incorporated herein by reference to Exhibit 14.1 to Inergy Holdings, L.P.s Annual Report on Form 10-K filed on
December 19, 2005)                                                      
|       | 
|**21.1 |  | List of subsidiaries of Inergy Holdings, L.P.                                                                                                                                                                                                 
|       | 
|**23.1 |  | Consent of Ernst & Young LLP                                                                                                                                                                                                                  
|       | 
|**31.1 |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended                                                                                                         
|       | 
|**31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended                                                                                                             
|       | 
|**32.1 |  | Certification of the Chief Executive Officer 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 the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                         
|       | 
|**99.1 |  | Audited balance sheet of Inergy Holdings GP, LLC                                                                                                                                                                                              



|* | Previously filed
|- | ----------------

|** | Filed herewith
|-- | --------------

|*** | Management contracts or compensatory plans or arrangements required to be identified by Item 15(a).
|--- | ---------------------------------------------------------------------------------------------------



| | (b) | Exhibits.
| | --- | ---------

See
exhibits identified above under Item 15(a)3.



| | (c) | Financial Statement Schedules.
| | --- | ------------------------------

See financial statement schedules identified above under Item 15(a)2.



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Financial Statements

September 30, 2009 and 2008 and each of the

Three Years in the
Period Ended

September 30, 2009

Contents



|                                                                             |  |    
|---------------------------------------------------------------------------- |  | ---
|Report of Independent Registered Public Accounting Firm                      |  | 96 
|                                                                             | 
|Report of Independent Registered Public Accounting Firm on Internal Controls |  | 97 
|                                                                             | 
|Audited Consolidated Financial Statements:                                   |  |    
|                                                                             | 
|Consolidated Balance Sheets                                                  |  | 98 
|                                                                             | 
|Consolidated Statements of Operations                                        |  | 99 
|                                                                             | 
|Consolidated Statements of Partners Capital                                 |  | 100
|                                                                             | 
|Consolidated Statements of Cash Flows                                        |  | 101
|                                                                             | 
|Notes to Consolidated Financial Statements                                   |  | 103



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Unitholders of Inergy Holdings, L.P.

We have audited the accompanying consolidated balance sheets of Inergy Holdings, L.P. and Subsidiaries (the Company) as of September 30, 2009 and 2008, and the related consolidated statements of
operations, partners capital, and cash flows for each of the three years in the period ended September 30, 2009. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements
and schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Inergy Holdings,
L.P. and Subsidiaries at September 30, 2009 and 2008, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2009, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Inergy Holdings,
L.P. and Subsidiaries internal control over financial reporting as of September 30, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated November 30, 2009 expressed an unqualified opinion thereon.

/s/
ERNST & YOUNG LLP

Kansas City, Missouri

November 30, 2009



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Report of Independent Registered Public Accounting Firm

The Board of Directors and Unitholders of Inergy Holdings, L.P.

We have audited Inergy Holdings, L.P. and Subsidiaries internal control over financial reporting as of September 30, 2009, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Inergy Holdings, L.P. and Subsidiaries management is responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Managements Report on Internal Control over Financial Reporting, managements assessment of and conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of its fiscal 2009 acquisitions, which are included in the 2009 consolidated financial statements of Inergy Holdings, L.P. and Subsidiaries and constituted $14.4 million of total assets as of
September 30, 2009, and $10.5 million of revenues, for the year then ended. Our audit of internal control over financial reporting of Inergy Holdings, L.P. and Subsidiaries also did not include an evaluation of the internal control over
financial reporting of its fiscal 2009 acquisitions.

In our opinion, Inergy Holdings, L.P. and Subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of September 30, 2009, based on the COSO criteria.

We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2009 consolidated financial statements of Inergy Holdings, L.P. and Subsidiaries and our report dated November 30, 2009 expressed an
unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Kansas City, Missouri

November 30, 2009



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Balance Sheets

(in millions, except unit information)



|                                                                                                                                        |  |               |         |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---- | - | ------- | -
|                                                                                                                                        |  | September 30, |        
|                                                                                                                                        |  | 2009          |         | 2008 |  
|Assets                                                                                                                                  |  |               |         |      |   |         |  
|Current assets:                                                                                                                         |  |               |         |      |   |         |  
|Cash and cash equivalents                                                                                                               |  | $             | 11.7    |      | $ | 17.4    |  
|Accounts receivable, less allowance for doubtful accounts of $2.7 million and $6.4 million at September 30, 2009 and 2008,
respectively |  |               | 94.7    |      |   | 139.4   |  
|Inventories (Note 4)                                                                                                                    |  |               | 96.5    |      |   | 99.9    |  
|Assets from price risk management activities                                                                                            |  |               | 23.8    |      |   | 33.3    |  
|Prepaid expenses and other current assets                                                                                               |  |               | 20.8    |      |   | 22.7    |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Total current assets                                                                                                                    |  |               | 247.5   |      |   | 312.7   |  
|                                                                                                                                        |  |              
|Property, plant and equipment (Note 4)                                                                                                  |  |               | 1,555.2 |      |   | 1,275.0 |  
|Less: accumulated depreciation                                                                                                          |  |               | 327.9   |      |   | 244.7   |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Property, plant and equipment, net                                                                                                      |  |               | 1,227.3 |      |   | 1,030.3 |  
|                                                                                                                                        |  |              
|Intangible assets (Note 4):                                                                                                             |  |               |         |      |   |         |  
|Customer accounts                                                                                                                       |  |               | 277.4   |      |   | 266.7   |  
|Other intangible assets                                                                                                                 |  |               | 133.4   |      |   | 127.4   |  
|                                                                                                                                        |  |               |         |      |   |         |  
|                                                                                                                                        |  |               | 410.8   |      |   | 394.1   |  
|Less: accumulated amortization                                                                                                          |  |               | 133.4   |      |   | 105.8   |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Intangible assets, net                                                                                                                  |  |               | 277.4   |      |   | 288.3   |  
|                                                                                                                                        |  |              
|Goodwill                                                                                                                                |  |               | 394.5   |      |   | 463.2   |  
|Other assets                                                                                                                            |  |               | 7.4     |      |   | 4.0     |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Total assets                                                                                                                            |  | $             | 2,154.1 |      | $ | 2,098.5 |  
|                                                                                                                                        |  |               |         |      |   |         |  
|                                                                                                                                        |  |              
|Liabilities and partners capital                                                                                                       |  |               |         |      |   |         |  
|Current liabilities:                                                                                                                    |  |               |         |      |   |         |  
|Accounts payable                                                                                                                        |  | $             | 71.8    |      | $ | 114.9   |  
|Accrued expenses                                                                                                                        |  |               | 74.2    |      |   | 69.0    |  
|Customer deposits                                                                                                                       |  |               | 60.1    |      |   | 87.7    |  
|Liabilities from price risk management activities                                                                                       |  |               | 29.3    |      |   | 57.0    |  
|Current portion of long-term debt (Note 7)                                                                                              |  |               | 22.0    |      |   | 60.5    |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Total current liabilities                                                                                                               |  |               | 257.4   |      |   | 389.1   |  
|                                                                                                                                        |  |              
|Long-term debt, less current portion (Note 7)                                                                                           |  |               | 1,102.8 |      |   | 1,078.7 |  
|Other long-term liabilities                                                                                                             |  |               | 0.9     |      |   | 1.0     |  
|Deferred income taxes                                                                                                                   |  |               | 21.0    |      |   | 20.6    |  
|Interest of non-controlling partners in Inergy, L.P.                                                                                    |  |               | 727.2   |      |   | 568.6   |  
|Interest of non-controlling partners in ASCs subsidiaries                                                                              |  |               | 4.3     |      |   | 3.6     |  
|                                                                                                                                        |  |              
|Partners capital (deficit) (Note 10)                                                                                                   |  |               |         |      |   |         |  
|Common unitholders (20,276,611 and 20,239,657 units issued and outstanding as of September 30, 2009 and 2008, respectively)             |  |               | 38.8    |      |   | 38.8    |  
|Accumulated other comprehensive income (loss)                                                                                           |  |               | 1.7     |      |   | (1.9    | )
|                                                                                                                                        |  |               |         |      |   |         |  
|Total partners capital                                                                                                                 |  |               | 40.5    |      |   | 36.9    |  
|                                                                                                                                        |  |               |         |      |   |         |  
|Total liabilities and partners capital                                                                                                 |  | $             | 2,154.1 |      | $ | 2,098.5 |  
|                                                                                                                                        |  |               |         |      |   |         |  

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



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Statements of Operations

(in millions, except per unit data)



|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                       |  | Year Ended September 30, |        
|                                                                                                                                       |  | 2009                     |         |   | 2008 |   |         | 2007 | 
|Revenue:                                                                                                                               |  |                          |         |   |      |   |         |      |  |   |         |  
|Propane                                                                                                                                |  | $                        | 1,124.4 |   |      | $ | 1,386.8 |      |  | $ | 1,150.4 |  
|Other                                                                                                                                  |  |                          | 446.2   |   |      |   | 492.1   |      |  |   | 332.7   |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|                                                                                                                                       |  |                          | 1,570.6 |   |      |   | 1,878.9 |      |  |   | 1,483.1 |  
|Cost of product sold (excluding depreciation and amortization as shown below)                                                          |  |                          |         |   |      |   |         |      |  |   |         |  
|Propane                                                                                                                                |  |                          | 737.4   |   |      |   | 1,053.0 |      |  |   | 820.0   |  
|Other                                                                                                                                  |  |                          | 259.5   |   |      |   | 323.7   |      |  |   | 206.1   |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|                                                                                                                                       |  |                          | 996.9   |   |      |   | 1,376.7 |      |  |   | 1,026.1 |  
|                                                                                                                                       |  |                          |        
|Gross profit                                                                                                                           |  |                          | 573.7   |   |      |   | 502.2   |      |  |   | 457.0   |  
|Expenses:                                                                                                                              |  |                          |         |   |      |   |         |      |  |   |         |  
|Operating and administrative                                                                                                           |  |                          | 280.5   |   |      |   | 266.6   |      |  |   | 248.6   |  
|Depreciation and amortization                                                                                                          |  |                          | 115.8   |   |      |   | 98.0    |      |  |   | 83.4    |  
|Loss on disposal of assets                                                                                                             |  |                          | 5.2     |   |      |   | 11.5    |      |  |   | 8.0     |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Operating income                                                                                                                       |  |                          | 172.2   |   |      |   | 126.1   |      |  |   | 117.0   |  
|Other income (expense):                                                                                                                |  |                          |         |   |      |   |         |      |  |   |         |  
|Interest expense, net                                                                                                                  |  |                          | (70.5   | ) |      |   | (62.6   | )    |  |   | (54.4   | )
|Other income                                                                                                                           |  |                          | 0.1     |   |      |   | 1.0     |      |  |   | 1.9     |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Income before gain on issuance of units in Inergy, L.P., income taxes and interest of non-controlling partners in Inergy, L.P.
and ASC |  |                          | 101.8   |   |      |   | 64.5    |      |  |   | 64.5    |  
|Gain on issuance of units in Inergy, L.P.                                                                                              |  |                          | 8.0     |   |      |   |        |      |  |   | 80.6    |  
|Provision for income taxes                                                                                                             |  |                          | (1.7    | ) |      |   | (1.4    | )    |  |   | (6.5    | )
|Interest of non-controlling partners in Inergy, L.P.s net income                                                                      |  |                          | (49.6   | ) |      |   | (26.2   | )    |  |   | (36.0   | )
|Interest of non-controlling partners in ASCs consolidated net income                                                                  |  |                          | (1.4    | ) |      |   | (1.4    | )    |  |   |        |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                                             |  | $                        | 57.1    |   |      | $ | 35.5    |      |  | $ | 102.6   |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Partners interest information:                                                                                                        |  |                          |         |   |      |   |         |      |  |   |         |  
|Less distribution paid on restricted units                                                                                             |  | $                        | 0.6     |   |      | $ | 0.5     |      |  | $ |        |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income available to limited partners units                                                                                        |  | $                        | 56.5    |   |      | $ | 35.0    |      |  | $ | 102.6   |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Net income per limited partner unit:                                                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Basic                                                                                                                                  |  | $                        | 2.82    |   |      | $ | 1.75    |      |  | $ | 5.13    |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                                                                                |  | $                        | 2.80    |   |      | $ | 1.73    |      |  | $ | 5.06    |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Weighted average limited partners units outstanding (in thousands):                                                                   |  |                          |         |   |      |   |         |      |  |   |         |  
|Basic                                                                                                                                  |  |                          | 20,032  |   |      |   | 20,011  |      |  |   | 20,003  |  
|Dilutive units                                                                                                                         |  |                          | 117     |   |      |   | 211     |      |  |   | 255     |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  
|Diluted                                                                                                                                |  |                          | 20,149  |   |      |   | 20,222  |      |  |   | 20,258  |  
|                                                                                                                                       |  |                          |         |   |      |   |         |      |  |   |         |  

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



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Statements of Partners Capital

(in millions)



|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|-------------------------------------------------------------------------------- |  | -------------------------------- | ----- | - | ------------------------------------------ | - | ---- | --------------------------------- |  | - | ----- | -
|                                                                                 |  | PartnersCommonInterest(Deficit) |       |   | AccumulatedOtherComprehensiveIncome (Loss) |   |      | TotalPartnersCapital(Deficiency) | 
|Balance at September 30, 2006                                                    |  | $                                | (18.0 | ) |                                            | $ | (0.7 | )                                 |  | $ | (18.7 | )
|Net proceeds from issuance of common units                                       |  |                                  | 75.5  |   |                                            |   |     |                                   |  |   | 75.5  |  
|Redemption of partners interests                                                |  |                                  | (75.8 | ) |                                            |   |     |                                   |  |   | (75.8 | )
|Net proceeds from common unit options exercised                                  |  |                                  | 0.2   |   |                                            |   |     |                                   |  |   | 0.2   |  
|Distributions                                                                    |  |                                  | (35.3 | ) |                                            |   |     |                                   |  |   | (35.3 | )
|Comprehensive income:                                                            |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Net income                                                                       |  |                                  | 102.6 |   |                                            |   |     |                                   |  |   | 102.6 |  
|Allocation of Inergy, L.P.s change in unrealized fair value on cash flow hedges |  |                                  |      |   |                                            |   | 2.4  |                                   |  |   | 2.4   |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Comprehensive income                                                             |  |                                  |       |   |                                            |   |      |                                   |  |   | 105.0 |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Balance at September 30, 2007                                                    |  |                                  | 49.2  |   |                                            |   | 1.7  |                                   |  |   | 50.9  |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Net proceeds from common unit options exercised                                  |  |                                  | 0.4   |   |                                            |   |     |                                   |  |   | 0.4   |  
|Distributions                                                                    |  |                                  | (46.3 | ) |                                            |   |     |                                   |  |   | (46.3 | )
|Comprehensive income:                                                            |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Net income                                                                       |  |                                  | 35.5  |   |                                            |   |     |                                   |  |   | 35.5  |  
|Allocation of Inergy, L.P.s change in unrealized fair value on cash flow hedges |  |                                  |      |   |                                            |   | (3.6 | )                                 |  |   | (3.6  | )
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Comprehensive income                                                             |  |                                  |       |   |                                            |   |      |                                   |  |   | 31.9  |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Balance at September 30, 2008                                                    |  |                                  | 38.8  |   |                                            |   | (1.9 | )                                 |  |   | 36.9  |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Net proceeds from common unit options exercised                                  |  |                                  | 0.7   |   |                                            |   |     |                                   |  |   | 0.7   |  
|Distributions                                                                    |  |                                  | (57.8 | ) |                                            |   |     |                                   |  |   | (57.8 | )
|Comprehensive income:                                                            |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Net income                                                                       |  |                                  | 57.1  |   |                                            |   |     |                                   |  |   | 57.1  |  
|Allocation of Inergy, L.P.s change in unrealized fair value on cash flow hedges |  |                                  |      |   |                                            |   | 3.6  |                                   |  |   | 3.6   |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Comprehensive income                                                             |  |                                  |       |   |                                            |   |      |                                   |  |   | 60.7  |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  
|Balance at September 30, 2009                                                    |  | $                                | 38.8  |   |                                            | $ | 1.7  |                                   |  | $ | 40.5  |  
|                                                                                 |  |                                  |       |   |                                            |   |      |                                   |  |   |       |  

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



100



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)



|                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                  |  | Year Ended September 30, |       
|                                                                                  |  | 2009                     |        |   | 2008 |   |        | 2007 | 
|Operating activities                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Net income                                                                        |  | $                        | 57.1   |   |      | $ | 35.5   |      |  | $ | 102.6  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |        |   |      |   |        |      |  |   |        |  
|Depreciation and depletion                                                        |  |                          | 88.8   |   |      |   | 73.7   |      |  |   | 59.7   |  
|Amortization                                                                      |  |                          | 27.0   |   |      |   | 24.3   |      |  |   | 23.7   |  
|Amortization of deferred financing costs and net bond discount                    |  |                          | 5.2    |   |      |   | 2.3    |      |  |   | 2.5    |  
|Unit-based compensation charges                                                   |  |                          | 3.1    |   |      |   | 3.5    |      |  |   | 0.7    |  
|Provision for doubtful accounts                                                   |  |                          | 3.7    |   |      |   | 5.7    |      |  |   | 3.3    |  
|Loss on disposal of assets                                                        |  |                          | 5.2    |   |      |   | 11.5   |      |  |   | 8.0    |  
|Gain on issuance of units in Inergy, L.P.                                         |  |                          | (8.0   | ) |      |   |       |      |  |   | (80.6  | )
|Interest of non-controlling partners in Inergy, L.P.s net income (loss)          |  |                          | 49.6   |   |      |   | 26.2   |      |  |   | 36.0   |  
|Interest of non-controlling partners in ASCs consolidated net income             |  |                          | 1.4    |   |      |   | 1.4    |      |  |   |       |  
|Deferred income taxes                                                             |  |                          | 0.4    |   |      |   | (0.1   | )    |  |   | 4.8    |  
|Changes in operating assets and liabilities, net of effects from acquisitions:    |  |                          |        |   |      |   |        |      |  |   |        |  
|Accounts receivable                                                               |  |                          | 41.4   |   |      |   | (18.2  | )    |  |   | (19.2  | )
|Inventories                                                                       |  |                          | 3.9    |   |      |   | 8.2    |      |  |   | 8.4    |  
|Prepaid expenses and other current assets                                         |  |                          | 1.6    |   |      |   | (1.3   | )    |  |   | (5.7   | )
|Other assets (liabilities)                                                        |  |                          | 0.1    |   |      |   | (0.8   | )    |  |   | 3.0    |  
|Accounts payable                                                                  |  |                          | (44.8  | ) |      |   | 7.2    |      |  |   | 16.4   |  
|Accrued expenses                                                                  |  |                          | 11.0   |   |      |   | (6.8   | )    |  |   | (1.7   | )
|Customer deposits                                                                 |  |                          | (27.5  | ) |      |   | 18.6   |      |  |   | (17.9  | )
|Net assets (liabilities) from price risk management activities                    |  |                          | 18.0   |   |      |   | (10.7  | )    |  |   | 19.5   |  
|                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Net cash provided by operating activities                                         |  |                          | 237.2  |   |      |   | 180.2  |      |  |   | 163.5  |  
|                                                                                  |  |                          |       
|Investing activities                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Acquisitions, net of cash acquired                                                |  |                          | (12.1  | ) |      |   | (215.1 | )    |  |   | (99.6  | )
|Purchases of property, plant and equipment                                        |  |                          | (224.8 | ) |      |   | (200.1 | )    |  |   | (100.9 | )
|Proceeds from sale of assets                                                      |  |                          | 7.0    |   |      |   | 29.3   |      |  |   | 13.1   |  
|Other                                                                             |  |                          | (0.7   | ) |      |   | (0.8   | )    |  |   | (0.4   | )
|                                                                                  |  |                          |        |   |      |   |        |      |  |   |        |  
|Net cash used in investing activities                                             |  |                          | (230.6 | ) |      |   | (386.7 | )    |  |   | (187.8 | )

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



101



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Inergy Holdings, L.P. and Subsidiaries

Consolidated Statements of Cash Flows (continued)

(in millions)



|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                                                                                   |  | Year Ended September 30, |       
|                                                                                                                                   |  | 2009                     |        |   | 2008 |   |         | 2007 | 
|Financing activities                                                                                                               |  |                          |        |   |      |   |         |      |  |   |        |  
|Proceeds from the issuance of long-term debt                                                                                       |  | $                        | 884.9  |   |      | $ | 1,033.4 |      |  | $ | 434.0  |  
|Premium on issuance of long-term debt                                                                                              |  |                          |       |   |      |   | 4.0     |      |  |   |       |  
|Principal payments on long-term debt                                                                                               |  |                          | (909.1 | ) |      |   | (662.4  | )    |  |   | (388.3 | )
|Net proceeds from issuance of Inergy, L.P. common units                                                                            |  |                          | 201.2  |   |      |   |        |      |  |   | 104.5  |  
|Net proceeds from issuance of common units                                                                                         |  |                          |       |   |      |   |        |      |  |   | 75.5   |  
|Redemption of partners interests                                                                                                  |  |                          |       |   |      |   |        |      |  |   | (75.8  | )
|Distributions to non-controlling partners in Inergy, L.P.                                                                          |  |                          | (126.8 | ) |      |   | (110.1  | )    |  |   | (98.6  | )
|Distributions to non-controlling partners in ASC                                                                                   |  |                          | (0.7   | ) |      |   | (0.8    | )    |  |   |       |  
|Distributions                                                                                                                      |  |                          | (57.8  | ) |      |   | (46.3   | )    |  |   | (35.3  | )
|Payments for deferred financing costs                                                                                              |  |                          | (5.5   | ) |      |   | (3.5    | )    |  |   |       |  
|Net proceeds from unit options exercised of Inergy, L.P.                                                                           |  |                          | 0.8    |   |      |   | 1.3     |      |  |   | 3.9    |  
|Net proceeds from unit options exercised                                                                                           |  |                          | 0.7    |   |      |   | 0.4     |      |  |   | 0.2    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Net cash provided by (used in) financing activities                                                                                |  |                          | (12.3  | ) |      |   | 216.0   |      |  |   | 20.1   |  
|                                                                                                                                   |  |                          |       
|Net increase (decrease) in cash                                                                                                    |  |                          | (5.7   | ) |      |   | 9.5     |      |  |   | (4.2   | )
|Cash at beginning of period                                                                                                        |  |                          | 17.4   |   |      |   | 7.9     |      |  |   | 12.1   |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Cash at end of period                                                                                                              |  | $                        | 11.7   |   |      | $ | 17.4    |      |  | $ | 7.9    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Supplemental disclosure of cash flow information                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Cash paid during the year for interest                                                                                             |  | $                        | 66.7   |   |      | $ | 65.4    |      |  | $ | 55.4   |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Cash paid during the year for income taxes                                                                                         |  | $                        | 1.7    |   |      | $ | 1.7     |      |  | $ | 1.4    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Supplemental schedule of noncash investing and financing activities                                                                |  |                          |        |   |      |   |         |      |  |   |        |  
|Additions to intangible assets through the issuance of noncompetition agreements and notes to former owners of businesses
acquired |  | $                        | 4.3    |   |      | $ | 5.3     |      |  | $ | 5.5    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Net change to property, plant and equipment through accounts payable and accrued expenses                                          |  | $                        | (6.2   | ) |      | $ | 11.3    |      |  | $ | 0.5    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Increase in the fair value of interest rate swap and related long-term debt                                                        |  | $                        | 3.7    |   |      | $ | 4.5     |      |  | $ | 1.1    |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Goodwill related to the conversion of Inergy, L.P. special units                                                                   |  | $                        |       |   |      | $ |        |      |  | $ | 10.8   |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Acquisitions, net of cash acquired:                                                                                                |  |                          |        |   |      |   |         |      |  |   |        |  
|Current assets                                                                                                                     |  | $                        | 0.7    |   |      | $ | 21.1    |      |  | $ | 0.4    |  
|Property, plant and equipment                                                                                                      |  |                          | 79.4   |   |      |   | 111.8   |      |  |   | 76.5   |  
|Intangible assets, net                                                                                                             |  |                          | 8.7    |   |      |   | 28.1    |      |  |   | 13.4   |  
|Goodwill (Note 3)                                                                                                                  |  |                          | (68.8  | ) |      |   | 95.8    |      |  |   | 14.9   |  
|Other assets                                                                                                                       |  |                          |       |   |      |   | 0.7     |      |  |   |       |  
|Current liabilities                                                                                                                |  |                          | (1.2   | ) |      |   | (6.0    | )    |  |   | (5.6   | )
|Issuance of equity                                                                                                                 |  |                          | (6.7   | ) |      |   | (20.1   | )    |  |   |       |  
|Other liabilities                                                                                                                  |  |                          |       |   |      |   | (16.3   | )    |  |   |       |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  
|Total acquisitions, net of cash acquired                                                                                           |  | $                        | 12.1   |   |      | $ | 215.1   |      |  | $ | 99.6   |  
|                                                                                                                                   |  |                          |        |   |      |   |         |      |  |   |        |  

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



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

Organization

Inergy Holdings, L.P. (formerly Inergy Holdings, LLC) (the Company or Holdings) was formed on November 12, 1996 as a Delaware
limited liability company. The Company shall exist as a separate legal entity until the cancellation of the certificate of conversion and the certificate of limited partnership as provided in the Delaware Revised Uniform Limited Partnership Act (the
Delaware Act). The limited partners have no liability in excess of contributions to the Company. The general partner of the Company is Inergy Holdings GP, LLC. The Company has no operations of its own but is engaged in the investment in propane and
other natural gas liquids companies. The voting partners of the Company holding the majority of the common interest conduct the business affairs of the Company. Inergy Partners, LLC, the non-managing general partner of Inergy, L.P. and holder of the
approximate 0.8% general partner interest therein, and Inergy GP, LLC, the managing general partner of Inergy, L.P. (Inergy or the Partnership), are both wholly owned subsidiaries of the Company.

Inergy was formed on March 7, 2001 as a Delaware limited partnership. Inergy and its subsidiary Inergy Propane, LLC (Inergy Propane or the
Operating Company) were formed to acquire, own and operate the propane business and substantially all the assets and liabilities (other than a portion of the cash and deferred income tax liabilities) of Inergy Partners, LLC and
subsidiaries. In addition, Inergy Sales and Service, Inc. (Services), a subsidiary of Inergy Propane, was formed to acquire and operate the service work and appliance parts and sales business of Inergy Propane. The Partnership, the
Operating Company, and Services are collectively referred to hereinafter as the Partnership Entities. In order to simplify the Partnerships obligations under the laws of several jurisdictions in which the Partnership will conduct business, the
Partnerships activities are conducted primarily through Inergy Propane.

Inergy is managed by Inergy GP, LLC. Pursuant to the
Partnership Agreement, Inergy GP, LLC or any of its affiliates is entitled to reimbursement for all direct and indirect expenses incurred or payments made on behalf of Inergy and all other necessary or appropriate expenses allocable to Inergy or
otherwise reasonably incurred by Inergy GP, LLC in connection with operating Inergys business. These costs, which totaled $3.1 million for the fiscal year ended September 30, 2009, and $3.5 million for each of the fiscal years ended
September 30, 2008 and 2007, include compensation, bonuses and benefits paid to officers and employees of Inergy GP and its affiliates.

As of September 30, 2009, Holdings owns an aggregate 8.6% interest in Inergy, inclusive of ownership of the Non-Managing General Partner and Managing General Partner. This ownership is comprised of an approximate 0.8% general
partnership interest and a 7.8% limited partnership interest. The Company also owns all of the incentive distribution rights provided for in the Inergy partnership agreement, which entitles Holdings to receive increasing percentages, up to 48%, of
any cash distributed by Inergy in excess of $0.33 per unit in any quarter.

Nature of Operations

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

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Inergy Holdings, L.P., its wholly owned subsidiaries, Inergy Partners, LLC (Partners), Inergy GP, LLC
(GP), IPCH Acquisition Corp.



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



(IPCHA) and its controlled subsidiary, Inergy. IPCHA is a subsidiary created as a result of transactions with Inergy. All significant intercompany transactions, including distribution
income, and balances have been eliminated in consolidation.

Reclassifications

The consolidated balance sheet for the year ended September 30, 2008 reflects an increase to both accounts receivable and accounts payable of $9.8
million. Certain other prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on net income.

Note 2. Summary of Significant Accounting Policies

Financial Instruments and Price Risk
Management

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

Inergy is party to certain
commodity derivative financial instruments that are designated as hedges of selected inventory positions, and qualify as fair value hedges. Inergy is also party to certain interest rate swap agreements designed to manage interest rate risk exposure.
Inergys overall objective for entering into fair value hedges is to manage its exposure to fluctuations in commodity prices and changes in the fair market value of its inventories and fixed rate borrowings. These derivatives are recorded at
fair value on the balance sheet as price risk management assets or liabilities and the related change in fair value is recorded to earnings in the current period as cost of product sold. Any ineffective portion of the fair value hedges is recognized
as cost of product sold in the current period. Inergy recognized a $0.2 million net gain in the year ended September 30, 2009, related to the ineffective portion of its fair value hedging instruments. In addition, for the year ended
September 30, 2009, Inergy recognized a net loss of $0.1 million related to the portion of fair value hedging instruments that it excluded from its assessment of hedge effectiveness.

Inergy also enters into derivative financial instruments that qualify as cash flow hedges, which hedge the exposure of variability in expected future cash
flows predominantly attributable to forecasted purchases to supply fixed price sale contracts. These derivatives are recorded on the balance sheet at fair value as price risk management assets or liabilities. The effective portion of the gain or
loss on these cash flow hedges is recorded in other comprehensive income in partners capital and reclassified into earnings in the same period in which the hedge transaction affects earnings. Any ineffective portion of the gain or loss is
recognized as cost of product sold in the current period. The Companys Accumulated other comprehensive income (loss) related to its investment in Inergy was $1.7 million and $(1.9) million at September 30, 2009 and 2008, respectively.

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

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



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



Revenue Recognition

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

Expense Classification

Cost of product sold consists of tangible products sold including all propane and other natural gas liquids, salt and all propane related appliances.
Operating and administrative expenses consist of all expenses incurred by the Company other than those described above in cost of product sold and depreciation and amortization. Certain of Inergys operating and administrative expenses and
depreciation and amortization are incurred in the distribution of its product sales and storage sale but are not included in cost of product sold. These amounts were $134.6 million, $131.0 million and $114.7 million during the years ended
September 30, 2009, 2008 and 2007, respectively.

Credit Risk and Concentrations

Inergy is both a retail and wholesale supplier of propane gas. Inergy generally extends unsecured credit to its wholesale customers in the United States and
Canada. In addition, Inergy collects margin payments from its customers to mitigate risk. Credit is generally extended to retail customers through delivery into Company and customer owned propane gas storage tanks. Provisions for doubtful accounts
receivable are based on specific identification and historical collection results and have generally been within managements expectations.

Inergy enters into netting agreements with certain wholesale customers to mitigate its credit risk. Realized gains and losses reflected in the Companys receivables and payables are reflected at a net balance to the extent a netting
agreement is in place and Inergy intends to settle on a net basis. Unrealized gains and losses reflected in the Companys assets and liabilities from price risk management activities are reflected on a net basis to the extent a netting
agreement is in place.

Two suppliers, BP Amoco Corp. (12%) and Sunoco, Inc. (11%), accounted for 23% of propane purchases during the
past fiscal year. Inergy believes that contracts with these suppliers will enable it to purchase most of its supply needs at market prices and ensure adequate supply. No other single supplier accounted for more than 10% of propane purchases in the
current year.

No single customer represents 10% or more of consolidated revenues. In addition, nearly all of Inergys revenues are
derived from sources within the United States, and all of its long-lived assets are located in the United States.

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.

Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of less than 3 months.



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



Inventories

Inventories for retail operations, which mainly consist of propane gas and other liquids, are stated at the lower of cost or market and are computed using the average cost method. Wholesale propane and
other liquids inventories are designated under a fair value hedge program and are consequently marked to market. Propane and other liquids inventories being hedged and carried at market value at September 30, 2009 and 2008 amount to $53.7
million and $36.4 million, respectively. Inventories for midstream operations are stated at the lower of cost or market and are computed predominantly using the average cost method.

Shipping and Handling Costs

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

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, as follows:



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

Salt deposits are depleted on a unit of production method.

Inergy reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. If such events or changes in circumstances are present, a loss is recognized if the carrying value of the asset is in excess of the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual
disposition. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. Inergy has determined that no impairment exists as of September 30, 2009. See Note 4 for a discussion of
assets held for sale at September 30, 2009 and 2008.

Identifiable Intangible Assets

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

Certain intangible assets are amortized on a straight-line basis over their estimated economic lives, as follows:



|                         |  |       
|------------------------ |  | ------
|                         |  | Years 
|Customer accounts        |  | 15    
|Covenants not to compete |  | 2  10
|Deferred financing costs |  | 1  10



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



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

Estimated amortization, including amortization of deferred financing costs reported as interest expense,
for the next five years ending September 30, is as follows (in millions):



|                          |  |   |     
|------------------------- |  | - | ----
|Year Ending September 30,
|2010                      |  | $ | 30.0
|2011                      |  |   | 27.5
|2012                      |  |   | 25.8
|2013                      |  |   | 25.6
|2014                      |  |   | 25.4

Goodwill

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

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

Inergy has completed the impairment test for each of its reporting units and determined that no impairment existed as of September 30, 2009.

Income Taxes

The earnings of the
Company, its limited liability subsidiaries and Inergy are included in the Federal and state income tax returns of the individual members or partners. However, legislation in certain states allows for taxation of partnerships, and as such, certain
state taxes for Inergy have been included in the accompanying financial statements as income taxes due to the nature of the tax in those particular states. In addition, Federal and state income taxes are provided on the earnings of the subsidiaries
incorporated as taxable entities (IPCHA and Services). The Company is required to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities using expected rates in effect for the year in which differences are expected to
reverse.

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

Sales Tax

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



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



Customer Deposits

Customer deposits primarily represent cash received by Inergy from wholesale and retail customers for propane purchased under contract that will be delivered at a future date.

Computer Software Costs

The Company
includes costs associated with the acquisition of computer software in property, plant and equipment. Inergy amortizes computer software costs on a straight-line basis over expected periods of benefit, which generally are five years.

Fair Value

Cash and cash equivalents,
accounts receivable (net of reserve for bad debts) and payables are carried at cost, which approximates fair value due to their liquid and short-term nature. As of September 30, 2009, the estimated fair value of Inergys fixed-rate Senior
Notes, based on available trading information, totaled $1,041.3 million compared with the aggregate principal amount at maturity of $1,050.0 million. Inergys credit agreement (Credit Agreement) consists of a $75 million revolving
working capital facility (Working Capital Facility) and a $350 million revolving acquisition facility (Acquisition Facility). The carrying value of amounts outstanding under the Credit Agreement of $27.2 million at
September 30, 2009, approximate fair value due primarily to the floating interest rate associated with the Credit Agreement.

Holdings credit agreement (Bank Facility) consists of a $14 million revolver for Inergy Holdings, L.P. and a $6 million revolver for IPCH Acquisition Corp. The carrying value of amounts outstanding under the Bank Facility
of $6.5 million at September 30, 2009, approximate fair value due primarily to the floating interest rate associated with the Bank Facility. The carrying value of Holdings $25 million term loan with a bank (Term Loan) at
September 30, 2009, approximates fair value due primarily to the floating interest rate associated with the Term Loan.

Comprehensive
Income (Loss)

Comprehensive income includes net income and other comprehensive income, which is solely comprised of the Companys
allocation of Inergys unrealized gains and losses on derivative financial instruments. Accumulated other comprehensive income (loss) at September 30, 2009, 2008 and 2007 was $1.7 million, $(1.9) million and $1.7 million, respectively, and
consisted entirely of the allocation of Inergys unrealized gains (losses) on derivative instruments.

Inergy records the effective
portion of the unrealized gains and losses on its derivative financial instruments that qualify as cash flow hedges as other comprehensive income.

Interest of Non-controlling Partners in Inergy, L.P.

Cash investments by third parties are recorded as an increase in the
interest of non-controlling partners in Inergy, L.P. in the consolidated balance sheets. Gains are recognized at the dates cash investments are made unless the third-party investors are entitled to a preferential return on their investments.

Income Per Unit

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



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Notes to Consolidated Financial Statements(Continued)



Diluted net income per limited partner unit is computed by dividing net income, after considering priority distributions, by the weighted average number of units outstanding and the effect of
dilutive units granted under the Long Term Incentive Plan.

Accounting for Unit-Based Compensation

The Company and Inergy each have a unit-based employee compensation plan and all share-based payments to employees, including grants of employee stock
options, are recognized in the income statement based on their fair values.

The amount of compensation expense recorded by Inergy during the
years ended September 30, 2009, 2008 and 2007 was $3.1 million, $3.5 million and $0.7 million, respectively. The compensation expense for the years ended September 30, 2009, 2008 and 2007, includes $1.4 million, $1.1 million and $0.3
million, respectively, of unit-based compensation expense on Inergy Holdings, L.P. units.

Segment Information

There are certain accounting requirements that establish standards for reporting information about operating segments, as well as related disclosures about
products and services, geographic areas, and major customers. Further, they define operating segments as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and assessing performance. In determining its reportable segments, Inergy examined the way it organizes its business internally for making operating decisions and assessing business performance.
See Note 15 for disclosures related to the Companys propane and midstream segments.

Recently Issued Accounting Pronouncements

FASB Accounting Standards Codification Subtopic 825-10 (825-10), originally issued as SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities was issued in February 2007 to permit entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is
required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The Company adopted 825-10 on October 1, 2008. The adoption of 825-10 did not have an impact
on the Companys financial statements.

FASB Accounting Standards Codification Subtopic 820-10 (820-10), originally issued as
SFAS No. 157, Fair Value Measurements was issued in September 2006 to define fair value, establish a framework for measuring fair value according to generally accepted accounting principles, and expand disclosures about fair value
measurements. The Company adopted 820-10 on October 1, 2008. The adoption of 820-10 required certain additional footnote disclosures (Note 6), however, it did not have a significant impact on any amounts comprising the consolidated
balance sheets, consolidated statements of operations, consolidated statements of partners capital or the consolidated statements of cash flows.

FASB Accounting Standards Codification Subtopic 210-20 (210-20), originally issued as FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation No. 39 was issued in April 2007 to permit companies
to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable), or the obligation to return cash collateral (a payable), against fair value amounts recognized for derivative instruments executed with the same
counterparty under a master netting agreement. In addition, upon the adoption, companies are permitted to change their accounting policy to offset or not offset fair value amounts recognized for derivative instruments



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Notes to Consolidated Financial Statements(Continued)



under master netting arrangements. The Company adopted 210-20 on October 1, 2008 and elected to change its accounting policy for derivative instruments executed with the same counterparty
under a master netting agreement. Inergys policy is to offset fair value amounts of derivative instruments and cash collateral paid or received with the same counterparty under a master netting arrangement. This change in accounting policy has
been presented retroactively. The adoption of 210-20 had the following impact on the September 30, 2008 consolidated balance sheet (in millions):



|                                                  |  |                |      |            |   |       |                |  |   |     
|------------------------------------------------- |  | -------------- | ---- | ---------- | - | ----- | -------------- |  | - | ----
|                                                  |  | Original Value |      | Adjustment |   |       | Adjusted Value
|Assets from price risk management activities      |  | $              | 79.2 |            | $ | (45.9 | )              |  | $ | 33.3
|Prepaid expenses and other current assets         |  |                | 46.9 |            |   | (24.2 | )              |  |   | 22.7
|Accrued expenses                                  |  |                | 89.6 |            |   | (20.6 | )              |  |   | 69.0
|Customer deposits                                 |  |                | 96.5 |            |   | (8.8  | )              |  |   | 87.7
|Liabilities from price risk management activities |  |                | 97.7 |            |   | (40.7 | )              |  |   | 57.0

FASB Accounting Standards Codification Subtopic 815-10 (815-10), originally issued as
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133 was issued in March 2008 and applies to all derivative instruments and related hedged items. 815-10
requires entities to provide greater transparency about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related
hedged items affect an entitys financial position, results of operations and cash flows. The Company adopted 815-10 on March 31, 2009. The adoption of 815-10 required certain additional disclosures (Note 5), however, it did not
impact any amounts comprising the consolidated balance sheets, consolidated statements of operations, consolidated statements of partners capital or the consolidated statements of cash flows.

FASB Accounting Standards Codification Subtopic 805-10 (805-10), originally issued as SFAS No. 141 (revised 2007), Business
Combinations was issued in December 2007 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquiree and the goodwill acquired. 805-10 also establishes disclosure requirements designed to enable users to evaluate the nature and financial effects of the business combination. 805-10 is required to be adopted by the Company
for business combinations for which the acquisition date is on or after October 1, 2009.

FASB Accounting Standards Codification Subtopic
810-10 (810-10), originally issued as SFAS No. 160, Non-controlling Interests in Consolidated Financial Statementsan amendment of ARB No. 51, was issued in December 2007 and requires that accounting and
reporting for minority interests will be recharacterized as non-controlling interests and classified as a component of equity. 810-10 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling owners. 810-10 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an
outstanding non-controlling interest in one or more subsidiaries or that deconsolidate a subsidiary. 810-10 is required to be adopted by the Company for the fiscal quarter ended December 31, 2009. The Company is evaluating the potential
financial statement impact of 810-10 to its consolidated financial statements.

FASB Accounting Standards Codification Subtopic 260-10
(260-10), originally issued as FSP EITF Issue No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities was ratified in June 2008 and applies to the calculation
of earnings per share (EPS) under FASB Accounting Standards Codification Subtopic 260-10 (260-10), originally issued as SFAS 128, Earnings Per Share for share-based payment awards with rights to dividends or
dividend equivalents. 260-10 states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are



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participating securities and shall be included in the computation of EPS pursuant to the two-class method. 260-10 is required to be adopted by the Company for the fiscal quarter ended
December 31, 2009. The Company is evaluating the potential financial statement impact of 260-10 to its consolidated financial statements.

In May 2009, the FASB issued FASB Accounting Standards Codification Subtopic 855-10 (855-10), originally issued as SFAS No. 165, Subsequent Events. 855-10 establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted 855-10 on June 30, 2009. The adoption of 855-10 required the Company to disclose the
date through which subsequent events have been evaluated and the basis for that date (Note 19). The adoption of 855-10 did not impact any amounts comprising the consolidated balance sheets, consolidated statements of operations, consolidated
statements of partners capital or the consolidated statements of cash flows.

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

Note 3. Acquisitions

During the fiscal year ended September 30, 2009, Inergy made
three retail acquisitions, including the Blu-Gas group of companies (Blu-Gas), Newtons Gas Service, Inc. (Newtons Gas) and F.G. White Company, Inc. (F.G. White). The aggregate purchase price of these
acquisitions, net of cash acquired, was $11.8 million. This amount does not include $0.3 million paid in fiscal 2009 for acquisitions that closed in the previous year. The purchase price allocation for these acquisitions has been prepared on a
preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available.The Company finalized its purchase price allocation of the 2008 US Salt acquisition during
2009. This allocation resulted in an increase to property, plant and equipment of $69.4 million and an increase to intangible assets of $3.6 million, with a corresponding decrease to goodwill of $73.0 million. Other purchase accounting adjustments
recorded in fiscal 2009 resulted in a net increase to goodwill of $4.3 million. Changes to reflect final asset valuation of other prior fiscal year acquisitions have been included in the Companys consolidated financial statements but are not
material.

U.S. GAAP requires that for any material business combination or disposition of assets, pro-forma information must be disclosed.
The fiscal 2009 acquisitions were not considered material.

The operating results for these acquisitions are included in the consolidated
results of operations from the dates of acquisition through September 30, 2009.



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As a result of the fiscal 2009 acquisitions, Inergy acquired $0.7 million of goodwill and $9.5 million
of intangible assets, consisting of the following (in millions):



|                          |  |   |    
|------------------------- |  | - | ---
|Customer accounts         |  | $ | 6.8
|Noncompetition agreements |  |   | 2.7
|                          |  |   |    
|Total intangible assets   |  | $ | 9.5
|                          |  |   |    

The amounts provided above relate solely to acquisitions that closed in fiscal 2009. The amounts
disclosed in the supplemental schedule of noncash investing and financing activities in the consolidated statement of cash flows relate to amounts recorded during 2009, which related to acquisitions that closed in fiscal 2009 and 2008.

The weighted average amortization period of amortizable intangible assets acquired during the year ended September 30, 2009, is approximately
thirteen years.

Note 4. Certain Balance Sheet Information

Inventories

Inventories consist of the following at September 30, 2009 and 2008,
respectively (in millions):



|                               |  |               |      |      |   |     
|------------------------------ |  | ------------- | ---- | ---- | - | ----
|                               |  | September 30,
|                               |  | 2009          |      | 2008
|Propane gas and other liquids  |  | $             | 81.3 |      | $ | 83.9
|Appliances, parts and supplies |  |               | 14.8 |      |   | 15.3
|Salt finished goods            |  |               | 0.4  |      |   | 0.7 
|                               |  |               |      |      |   |     
|Total inventory                |  | $             | 96.5 |      | $ | 99.9
|                               |  |               |      |      |   |     

Property, Plant and Equipment

Property, plant and equipment consists of the following at September 30, 2009 and 2008, respectively (in millions):



|                                         |  |               |         |      |   |        
|---------------------------------------- |  | ------------- | ------- | ---- | - | -------
|                                         |  | September 30,
|                                         |  | 2009          |         | 2008
|Tanks and plant equipment                |  | $             | 916.7   |      | $ | 713.8  
|Buildings and improvements               |  |               | 323.6   |      |   | 265.6  
|Vehicles                                 |  |               | 107.7   |      |   | 104.5  
|Construction in process                  |  |               | 136.0   |      |   | 166.5  
|Salt deposits                            |  |               | 41.6    |      |   |       
|Office furniture and equipment           |  |               | 29.6    |      |   | 24.6   
|                                         |  |               |         |      |   |        
|                                         |  |               | 1,555.2 |      |   | 1,275.0
|Less: accumulated depreciation           |  |               | 327.9   |      |   | 244.7  
|                                         |  |               |         |      |   |        
|Total property, plant and equipment, net |  | $             | 1,227.3 |      | $ | 1,030.3
|                                         |  |               |         |      |   |        

Depreciation expense totaled $88.6 million, $73.7 million, and $59.7 million for the years ended
September 30, 2009, 2008 and 2007, respectively. Depletion expense totaled $0.2 million for the year ended September 30, 2009.



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The tanks and plant equipment balances above include tanks owned by the Company that reside at customer
locations. The leases associated with these tanks are accounted for as operating leases. These tanks have a value of $424.0 million with an associated accumulated depreciation balance of $89.3 million at September 30, 2009.

At September 30, 2009 and 2008, Inergy capitalized interest of $14.8 million and $5.5 million, respectively, related to certain midstream asset
expansion projects.

The property, plant and equipment balances above at September 30, 2009 and 2008 include $2.0 million and $4.5
million, respectively, of propane operations assets deemed held for sale. These assets were identified primarily as a result of losses due to disconnecting customer installations of unprofitable accounts due to low margins, poor payment history or
low volume usage. As a result, the carrying value of these assets was reduced to their estimated recoverable value less anticipated disposition costs, resulting in losses of $4.9 million and $11.5 million for the years ended September 30, 2009
and 2008, respectively. The $4.9 million and $11.5 million charges are included as components of operating income as losses on disposal of assets. When aggregated with other realized losses, such amounts totaled $5.2 million and $11.5 million,
respectively.

Intangible Assets

Intangible assets consist of the following at September 30, 2009 and 2008, respectively (in millions):



|                                                    |  |      |       |   |      |   |       |  
|--------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                    |  | 2009 |       |   | 2008 |  
|Customer accounts                                   |  | $    | 277.4 |   |      | $ | 266.7 |  
|(accumulated amortizationcustomer accounts)        |  |      | (82.6 | ) |      |   | (64.8 | )
|Covenants not to compete                            |  |      | 72.5  |   |      |   | 72.2  |  
|(accumulated amortizationcovenants not to compete) |  |      | (35.5 | ) |      |   | (29.9 | )
|Deferred financing and other costs                  |  |      | 34.7  |   |      |   | 28.9  |  
|(accumulated amortizationdeferred financing costs) |  |      | (15.3 | ) |      |   | (11.1 | )
|Trademarks                                          |  |      | 26.2  |   |      |   | 26.3  |  
|                                                    |  |      |       |   |      |   |       |  
|Total intangible assets, net                        |  | $    | 277.4 |   |      | $ | 288.3 |  
|                                                    |  |      |       |   |      |   |       |  

Amortization and interest expense associated with the above described intangible assets at
September 30, 2009, 2008 and 2007 amounted to $30.3 million, $26.8 million and $26.2 million, respectively.

Note 5. Risk Management

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

Commodity Derivative Instruments and Price Risk Management

Risk Management Activities

Inergy sells propane and other commodities to energy related businesses and may use a variety of financial and other instruments including
forward contracts involving physical delivery of propane. Inergy will enter into offsetting positions to hedge against the exposure its customer contracts create. Inergy does not designate these



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instruments as hedging instruments. These instruments are marked to market with the changes in the market value reflected in cost of product sold. Inergy attempts to balance its contractual
portfolio in terms of notional amounts and timing of performance and delivery obligations. This balance in the contractual portfolio significantly reduces the volatility in cost of product sold related to these instruments. However, immaterial net
unbalanced positions can exist or are established based on assessment of anticipated short-term needs or market conditions.

Cash Flow
Hedging Activity

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

Fair Value Hedging Activity

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

Commodity inventory held in bulk storage
facilities is not expected to be sold in the immediate future and is hedged in order to minimize exposure to fluctuations in commodity prices. Commodity inventory held at retail locations is not hedged as this inventory is expected to be sold in the
immediate future and is therefore not exposed to fluctuations in commodity prices over an extended period of time.

Commodity Price and
Credit Risk

Notional Amounts and Terms

The notional amounts and terms of Inergys derivative financial instruments include the following at September 30, 2009, and September 30, 2008 (in millions):



|                                         |  |                    |  |                     |  |                  |  |                    
|---------------------------------------- |  | ------------------ |  | ------------------- |  | ---------------- |  | -------------------
|                                         |  | September 30, 2009 |  | September 30, 2008 
|                                         |  | Fixed PricePayor   |  | Fixed PriceReceiver |  | Fixed PricePayor |  | Fixed PriceReceiver
|Propane, crude and heating oil (barrels) |  | 6.8                |  | 6.5                 |  | 8.9              |  | 7.5                
|Natural gas (MMBTUs)                    |  |                   |  |                    |  | 0.7              |  |                   

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



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Notes to Consolidated Financial Statements(Continued)



Fair Value of Derivative Instruments

The following tables detail the amount and location on the Companys consolidated balance sheets and consolidated statements of operations related to
all of its derivatives (in millions):



|                                                   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|-------------------------------------------------- |  | -------------------------------------------------------------------------------- | ----- | - | ---------------------------------------------------------------- | - | ----- | ------------------------------------------------------------------------------------------------------------- |  | - | -
|                                                   |  | Amount of Gain(Loss) Recognized inNet Income fromDerivatives                     |       |   | Amount of Gain(Loss) Recognizedin Net Income onItem Being Hedged |   |       |                                                                                                              
|                                                   |  | Year EndedSeptember 30, 2009                                                     |       |   |                                                                 
|Derivatives in fair value hedging relationships:   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|Commodity(a)                                       |  | $                                                                                | (12.3 | ) |                                                                  | $ | 12.5  |                                                                                                               |  |   |  
|Debt(b)                                            |  |                                                                                  | 3.7   |   |                                                                  |   | (3.7  | )                                                                                                             |  |   |  
|                                                   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|Total fair value of derivatives                    |  | $                                                                                | (8.6  | ) |                                                                  | $ | 8.8   |                                                                                                               |  |   |  
|                                                   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|                                                   |  |                                                                                  |      
|                                                   |  | Amount of Gain(Loss) Recognized inInergys OCI onEffective Portion ofDerivatives |       |   | Amount of Gain(Loss) Reclassifiedfrom Inergys OCIto Net Income  |   |       | Amount of Gain(Loss) Recognizedin Net Income onIneffective Portionof
Derivatives &Amount Excludedfrom Testing
|                                                   |  | Year EndedSeptember 30, 2009                                                    
|Derivatives in cash flow hedging relationships:    |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|Commodity(c)                                       |  | $                                                                                | 11.8  |   |                                                                  | $ | (24.5 | )                                                                                                             |  | $ | 
|                                                   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|                                                   |  |                                                                                  |      
|                                                   |  | Amount of Gain(Loss) Recognized inNet Income fromDerivatives                     |       |   |                                                                  |   |       |                                                                                                              
|                                                   |  | Year EndedSeptember 30, 2009                                                     |       |   |                                                                  |   |       |                                                                                                              
|Derivatives not designated as hedging instruments: |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  
|Commodity(d)                                       |  | $                                                                                | 15.0  |   |                                                                  |   |       |                                                                                                               |  |   |  
|                                                   |  |                                                                                  |       |   |                                                                  |   |       |                                                                                                               |  |   |  



|(a) | The gain (loss) on both the derivative and the item being hedged are located in cost of product sold in the consolidated statements of operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The gain (loss) on both the derivative and the item being hedged are located in interest expense in the consolidated statements of operations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(c) | The gain (loss) on the amount reclassified from Inergys OCI into income, the ineffective portion and the amount excluded from effectiveness
testing are included in cost of product sold.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | The gain (loss) is recognized in cost of product sold.
|--- | ------------------------------------------------------



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Notes to Consolidated Financial Statements(Continued)



The following table summarizes the change in the unrealized fair value of energy derivative contracts
related to risk management activities for the years ended September 30, 2009 and 2008 where settlement has not yet occurred (in millions):



|                                                                                    |  |                         |       |   |      |   |       |  
|----------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | -
|                                                                                    |  | Year EndedSeptember 30, |      
|                                                                                    |  | 2009                    |       |   | 2008 |  
|Net fair value gain (loss) of contracts outstanding at beginning of period          |  | $                       | (23.7 | ) |      | $ | 0.7   |  
|Net change in physical exchange contracts                                           |  |                         | 1.8   |   |      |   | (0.1  | )
|Net changes in cash paid against outstanding positions                              |  |                         | (10.1 | ) |      |   | (0.5  | )
|Change in fair value of contracts attributable to market movement during the period |  |                         | 8.9   |   |      |   | (9.9  | )
|Realized gains (losses)                                                             |  |                         | 17.6  |   |      |   | (13.9 | )
|                                                                                    |  |                         |       |   |      |   |       |  
|Net fair value of contracts outstanding at end of period                            |  | $                       | (5.5  | ) |      | $ | (23.7 | )
|                                                                                    |  |                         |       |   |      |   |       |  

All contracts subject to price risk had a maturity of twenty-one months or less, however, the
majority of contracts expire within twelve months.

Credit Risk

Inherent in Inergys contractual portfolio are certain credit risks. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Inergy
takes an active role in managing credit risk and has established control procedures, which are reviewed on an ongoing basis. Inergy attempts to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as
through customer deposits, letters of credit and entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. The counterparties associated with
assets from price risk management activities as of September 30, 2009 and 2008, were propane retailers, resellers, energy marketers and dealers.

Certain of Inergys derivative instruments have credit limits that require Inergy to post collateral. The amount of collateral required to be posted is a function of the net liability position of the derivative as well as Inergys
established credit limit with the respective counterparty. If Inergys credit rating were to change, the counterparties could require it to post additional collateral. The amount of additional collateral that would be required to be posted
would vary depending on the extent of change in Inergys credit rating as well as the requirements of the individual counterparty. The aggregate fair value of all commodity derivative instruments with credit-risk-related contingent features
that are in a liability position on September 30, 2009, is $17.3 million for which Inergy has posted collateral of $5.4 million in the normal course of business. Inergy has received collateral of $9.6 million in the normal course of business on
contracts with a gross value of $60.6 million. All collateral amounts have been netted against the asset or liability with the respective counterparty.

Note 6. Fair Value Measurements

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



| |  |  | Level 1Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in
which transactions for the asset or liability occur in sufficient
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and US government
treasury securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

As of September 30,
2009, Inergy held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included Inergys derivative instruments related to propane, heating oil, crude oil, natural gas, natural gas liquids
and interest rates as well as the portion of inventory that is hedged in a qualifying fair value hedge. Inergys derivative instruments consist of forwards, swaps, futures, physical exchanges and options.

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

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

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

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



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The following table sets forth by level within the fair value hierarchy Inergys assets and
liabilities that were accounted for at fair value on a recurring basis as of September 30, 2009 (in millions). The assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair
value measurement. Inergys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value
hierarchy levels.



|                                       |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|-------------------------------------- |  | ------------------------- | --- | ------ | - | ------ |  | ----- | --- | ------------------- | - | ---------------------- |  | -------------------- | ---- |  | ----- | ---- |  | - | ----- | - |  | - | ----
|                                       |  | Fair Value of Derivatives |     |        |   |        | 
|                                       |  | Level1                    |     | Level2 |   | Level3 |  | Total |     | Designatedas Hedges |   | NotDesignatedas Hedges |  | NettingAgreements(a) |      |  | Total
|Assets                                 |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Assets from price risk management      |  | $                         | 1.2 |        | $ | 58.5   |  | $     | 0.9 |                     | $ | 60.6                   |  | $                    | 12.8 |  | $     | 47.8 |  | $ | (36.8 | ) |  | $ | 23.8
|Inventory                              |  |                           |    |        |   | 53.7   |  |       |    |                     |   | 53.7                   |  |                      |     |  |       |     |  |   |      |   |  |   | 53.7
|Interest rate swap                     |  |                           |    |        |   | 5.6    |  |       |    |                     |   | 5.6                    |  |                      | 5.6  |  |       |     |  |   |      |   |  |   | 5.6 
|                                       |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Total assets at fair value             |  | $                         | 1.2 |        | $ | 117.8  |  | $     | 0.9 |                     | $ | 119.9                  |  | $                    | 18.4 |  | $     | 47.8 |  | $ | (36.8 | ) |  | $ | 83.1
|                                       |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|                                       |  |                           |     |        |   |        |  |      
|Liabilities                            |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     
|Liabilities from price risk management |  | $                         | 5.7 |        | $ | 44.0   |  | $     | 1.1 |                     | $ | 50.8                   |  | $                    | 8.1  |  | $     | 42.7 |  | $ | (21.5 | ) |  | $ | 29.3
|                                       |  |                           |     |        |   |        |  |       |     |                     |   |                        |  |                      |      |  |       |      |  |   |       |   |  |   |     



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

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



|                                                        |  |                                                                     |      |  
|------------------------------------------------------- |  | ------------------------------------------------------------------- | ---- | -
|                                                        |  | Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3) |     
|                                                        |  | Year EndedSeptember 30, 2009                                        |     
|Beginning balance of OTC options                        |  | $                                                                   | 1.8  |  
|Beginning balance recognized during the period          |  |                                                                     | (1.8 | )
|Change in value of contracts executed during the period |  |                                                                     | (0.2 | )
|                                                        |  |                                                                     |      |  
|Ending balance of OTC options                           |  | $                                                                   | (0.2 | )
|                                                        |  |                                                                     |      |  



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Note 7. Long-Term Debt

Long-term debt consisted of the following at September 30, 2009 and 2008, respectively (in millions):



|                                                                                                     |  |               |         |   |      |   |        
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---- | - | -------
|                                                                                                     |  | September 30,
|                                                                                                     |  | 2009          |         |   | 2008
|Inergy credit agreement                                                                              |  | $             | 27.2    |   |      | $ | 247.0  
|Inergy senior unsecured notes                                                                        |  |               | 1,050.0 |   |      |   | 825.0  
|Inergy fair value hedge adjustment on senior unsecured notes                                         |  |               | 5.6     |   |      |   | 1.9    
|Inergy bond premium                                                                                  |  |               | 3.3     |   |      |   | 3.8    
|Inergy bond discount                                                                                 |  |               | (19.7   | ) |      |   |       
|ASC credit agreement                                                                                 |  |               | 8.3     |   |      |   | 10.9   
|Inergy obligations under noncompetition agreements and notes to former owners of businesses acquired |  |               | 18.6    |   |      |   | 18.0   
|Holdings bank facility                                                                               |  |               | 6.5     |   |      |   | 7.6    
|Holdings term loan                                                                                   |  |               | 25.0    |   |      |   | 25.0   
|                                                                                                     |  |               |         |   |      |   |        
|Total debt                                                                                           |  |               | 1,124.8 |   |      |   | 1,139.2
|Less: current portion                                                                                |  |               | 22.0    |   |      |   | 60.5   
|                                                                                                     |  |               |         |   |      |   |        
|Total long-term debt                                                                                 |  | $             | 1,102.8 |   |      | $ | 1,078.7
|                                                                                                     |  |               |         |   |      |   |        

On August 9, 2005, the Company entered into a $25 million term loan with a bank (Term
Loan). The maturity date of the Term Loan was August 9, 2008. In January 2008, the Company amended the Term Loan to extend the maturity date to 2011. The amended Term Loan continues to be collateralized by certain of the Companys
interests in Inergy and is guaranteed by IPCHA. The proceeds from the original loan were used to acquire 769,941 special units in Inergy in connection with the acquisition of the rights to the Phase II expansion project of the Stagecoach
acquisition. The Term Loan contains several covenants which, among other things, require the maintenance of various financial performance ratios, restrict the payment of distributions to unitholders, and require financial reports to be submitted
periodically to the financial institutions.

On July 22, 2005, the Company executed a credit agreement (Bank Facility) with a
bank that consisted of a $15 million working capital revolver for Holdings and a $5 million working capital revolver for IPCHA. The maturity date of the Bank Facility was July 22, 2008. In January 2008, the Company amended the Bank Facility to
extend the maturity date to 2011. The aggregate borrowing capacity under the amended Bank Facility remains at $20 million, but now consists of a $14 million revolver for Holdings and a $6 million revolver for IPCHA. The Bank Facility also continues
to be collateralized by certain of the Companys interests in Inergy and is guaranteed by Partners. The interest rates of these revolvers are based on prime rate and LIBOR plus the applicable spreads, which was 1.76% at September 30, 2009
for all outstanding debt under the Bank Facility. At September 30, 2009, borrowings outstanding under the Bank Facility were $6.5 million. The Bank Facility contains several covenants which, among other things, require the maintenance of
various financial performance ratios, restrict the payment of distributions to unitholders, and require financial reports to be submitted periodically to the financial institutions.

Inergys Credit Agreement

Inergys Credit Agreement consists of a $75 million
revolving Working Capital Facility and a $350 million revolving Acquisition Facility. The effective amount of working capital borrowing capacity available to Inergy under the two facilities is $200 million utilizing capacity under the acquisition
credit facility for working capital needed during the winter heating season. The Credit Agreement is guaranteed by each of Inergys wholly-owned domestic subsidiaries. Inergys obligations under this Credit Agreement are secured by liens
and mortgages on their real and personal property. This Credit Agreement matures on November 10, 2010.



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Notes to Consolidated Financial Statements(Continued)



Inergy is required to reduce the principal outstanding on the Working Capital Facility to $10 million or
less for a minimum of 30 consecutive days during the period commencing March 1 and ending September 30. As such, $10 million of the outstanding balance at September 30, 2009 and 2008 have been classified as a long-term liability in
the accompanying consolidated balance sheets. At September 30, 2009, the balance outstanding under the Credit Agreement was $27.2 million, with the entire balance borrowed for working capital purposes. At September 30, 2008, the balance
outstanding under the Credit Agreement was $247.0 million, including $182.0 million borrowed for acquisitions and growth capital expenditures and $65.0 million borrowed for working capital purposes. Lehman Commercial Paper, Inc. (Lehman
CP), a subsidiary of Lehman Brothers Holdings, Inc., holds a $25 million lender commitment within Inergys Credit Agreement and filed for Chapter 11 Bankruptcy on October 5, 2008. Inergy does not plan for the Lehman lender commitment
to be available for the remainder of the term of the Credit Agreement. The interest rates of these revolvers are based on prime rate and LIBOR plus the applicable spreads, which were between 2.0% and 3.5% at September 30, 2009, and between
4.24% and 5.46% at September 30, 2008, for all outstanding debt under the Credit Agreement. Unused borrowings under the Credit Agreement amounted to $381.1 million and $154.4 million at September 30, 2009 and 2008, respectively.
Outstanding standby letters of credit under the Credit Agreement amounted to $16.7 million and $23.6 million at September 30, 2009 and 2008, respectively.

As discussed in Note 19, Inergy now has a $450 million general partnership revolving credit facility for acquisitions, capital expenditures and general partnership purposes and a $75 million revolving
working capital facility.

At September 30, 2009, the Company was in compliance with all of its debt covenants.

Senior Unsecured Notes

2014 Senior
Notes

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 6.875% senior unsecured notes due 2014 (the 2014 Senior Notes). The 2014 Senior Notes contain covenants similar to the
Credit Agreement. The net proceeds were used to repay outstanding indebtedness.

The 2014 Senior Notes represent senior unsecured obligations
and rank pari passu in right of payment with all of Inergys other present and future senior indebtedness. The 2014 Senior Notes are fully, unconditionally, jointly and severally guaranteed by all of Inergys wholly-owned
current domestic subsidiaries. Also, Inergy has no independent assets or operations, and subsidiaries not guaranteeing the indenture are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not
presented.

On October 26, 2005, Inergy completed an offer to exchange the 2014 Senior Notes for $425 million of 6.875% senior notes due
2014 (the 2014 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and provisions for additional interest. The 2014 Exchange Notes did not provide Inergy with any additional proceeds and
satisfied its obligations under the registration rights agreement.

The 2014 Senior Notes are redeemable, at Inergys option, in whole or
in part, at any time on or after December 15, 2009, in each case at the redemption prices described in the table below, together with any accrued and unpaid interest to the date of the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2009                |  | 103.438    | %
|2010                |  | 102.292    | %
|2011                |  | 101.146    | %
|2012 and thereafter |  | 100.000    | %



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Notes to Consolidated Financial Statements(Continued)



Interest Rate Swaps

Inergy is party to six interest rate swap agreements scheduled to mature in December 2014, each designed to hedge $25 million in underlying fixed rate senior unsecured notes in order to manage interest
rate risk exposure. These swap agreements, which expire on the same date as the maturity date of the related senior unsecured notes due 2014 and contain call provisions consistent with the underlying senior unsecured notes, require the counterparty
to pay the Company an amount based on the stated fixed interest rate due every six months. In exchange, Inergy is required to make semi-annual floating interest rate payments on the same dates to the counterparty based on an annual interest rate
equal to the 6-month LIBOR interest rate plus spreads between 0.92% and 2.20% applied to the same notional amount of $150 million. The swap agreements have been accounted for 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. The change in the market value of the interest rate swaps for the year ended September 30, 2009, was recorded as a $3.7 million decrease to
interest expense. This amount was offset by a $3.7 million increase to interest expense that was recorded as a result of a change in the fair value of the hedged fixed rate debt.

2016 Senior Notes

On January 11, 2006, Inergy and its wholly owned subsidiary, Inergy
Finance Corp, issued $200 million aggregate principal amount of 8.25% senior unsecured notes due 2016 (2016 Senior Notes) in a private placement to eligible purchasers.

The 2016 Senior Notes contain covenants similar to the 2014 Senior Notes. Inergy used the net proceeds of the offering to repay outstanding indebtedness under its revolving acquisition credit facility.
The 2016 Senior Notes represent senior unsecured obligations of Inergy and rank pari passuin right of payment with all other present and future senior indebtedness of Inergy. The 2016 Senior Notes are fully, unconditionally, jointly and
severally guaranteed by all of Inergys wholly-owned current domestic subsidiaries. Also, Inergy has no independent assets or operations, and subsidiaries not guaranteeing the indenture are minor. Accordingly, condensed consolidating financial
information for the parent and subsidiaries is not presented.

On May 18, 2006, Inergy completed an offer to exchange its existing 8.25%
2016 Senior Notes for $200 million of 8.25% senior notes due 2016 (the 2016 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and provisions for additional interest. The 2016 Exchange Notes
did not provide Inergy with any additional proceeds and satisfied Inergys obligations under the registration rights agreement.

The 2016
Senior Notes are redeemable, at Inergys option, in whole or in part, at any time on or after March 1, 2011, in each case at the redemption prices described in the table below, together with any accrued and unpaid interest to the date of
the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2011                |  | 104.125    | %
|2012                |  | 102.750    | %
|2013                |  | 101.375    | %
|2014 and thereafter |  | 100.000    | %

In April 2008, Inergy issued an additional $200 million of senior unsecured notes as an add-on to its
existing 8.25% Senior Unsecured Notes due 2016 under Rule 144A to eligible purchasers. The notes mature on March 1, 2016. The proceeds from the bond issuance were $204 million, representing a 2% premium to par value. On September 16, 2008,
Inergy completed an offer to exchange the additional $200 million of 8.25% senior notes



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Notes to Consolidated Financial Statements(Continued)



due 2016 for $200 million of 8.25% senior notes due 2016 (the Additional 2016 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and
provisions for additional interest. The Additional 2016 Exchange Notes did not provide Inergy with any additional proceeds and satisfied its obligations under the registration rights agreement.

2015 Senior Notes

On February 2,
2009, Inergy and its wholly-owned subsidiary, Inergy Finance Corp, issued $225 million aggregate principal amount of 8.75% senior unsecured notes due 2015 (the 2015 Senior Notes) under Rule 144A to eligible purchasers. The 8.75% notes
mature on March 1, 2015, and were issued at 90.191% of the principle amount to yield 11%.

The 2015 Senior Notes contain covenants
similar to the 2014 and 2016 Senior Notes. Inergy used the net proceeds of the offering to repay outstanding indebtedness under the revolving acquisition credit facility. The 2015 Senior Notes represent senior unsecured obligations of Inergy and
rank pari passuin right of payment with all other present and future senior indebtedness of Inergy. The 2015 Senior Notes are fully, unconditionally, jointly and severally guaranteed by all of Inergys wholly-owned current domestic
subsidiaries. Also, Inergy has no independent assets or operations, and subsidiaries not guaranteeing the indenture are minor. Accordingly, condensed consolidating financial information for the parent and subsidiaries is not presented.

On October 7, 2009, Inergy completed an offer to exchange its existing 8.75% 2015 Senior Notes for $225 million of 8.75% senior notes due 2015 (the
2015 Exchange Notes) that are registered and do not carry transfer restrictions, registration rights and provisions for additional interest. The 2015 Exchange Notes did not provide Inergy with any additional proceeds and satisfied
Inergys obligations under the registration rights agreement.

The 2015 Senior Notes are redeemable, at Inergys option, in whole or
in part, at any time on or after March 1, 2013, in each case at the redemption prices described in the table below, together with any accrued and unpaid interest to the date of the redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2013                |  | 104.375    | %
|2014 and thereafter |  | 100.000    | %

ASC Credit Agreement

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

Notes Payable and Other Obligations

Non-interest bearing obligations due under noncompetition agreements and other note payable agreements consist of agreements between
Inergy and certain sellers of retail propane companies acquired from fiscal years 2003 through 2009 with payments due through 2019 and imputed interest ranging from 8.0% to 9.0%. Noninterest-bearing obligations consist of $24.4 million and $22.4
million in total payments due under agreements, less unamortized discount based on imputed interest of $5.8 million and $4.4 million at September 30, 2009 and 2008, respectively.



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Notes to Consolidated Financial Statements(Continued)



The aggregate amounts of principal to be paid on the outstanding long-term debt and notes payable during
the next five years ending September 30 and thereafter are as follows (in millions):



|           |  |                                |        
|---------- |  | ------------------------------ | -------
|           |  | Long-Term Debtand NotesPayable
|2010       |  | $                              | 22.0   
|2011       |  |                                | 46.1   
|2012       |  |                                | 4.0    
|2013       |  |                                | 3.5    
|2014       |  |                                | 3.2    
|Thereafter |  |                                | 1,046.0
|           |  |                                |        
|Total debt |  | $                              | 1,124.8
|           |  |                                |        

Note 8. Leases

Inergy has certain noncancelable operating leases, mainly for office space and vehicles, which expire at various times over the next ten years. Certain of these leases contain terms that provide that the
rental payment be indexed to published information.

Future minimum lease payments under noncancelable operating leases for the next five
years ending September 30 and thereafter consist of the following (in millions):



|                             |  |   |     
|---------------------------- |  | - | ----
|Year Ending September 30,    |  |  
|2010                         |  | $ | 10.1
|2011                         |  |   | 7.7 
|2012                         |  |   | 6.3 
|2013                         |  |   | 4.9 
|2014                         |  |   | 3.6 
|Thereafter                   |  |   | 6.2 
|                             |  |   |     
|Total minimum lease payments |  | $ | 38.8
|                             |  |   |     

Rent expense for operating leases for the years ending September 30, 2009, 2008, and 2007,
totaled $11.7 million, $10.6 million, and $9.7 million, respectively.



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Notes to Consolidated Financial Statements(Continued)



Note 9. Income Taxes

The provision for income taxes for the years ended September 30, 2009, 2008, and 2007 consists of the following (in millions):



|                           |  |                          |     |      |   |      |  |   |    
|-------------------------- |  | ------------------------ | --- | ---- | - | ---- |  | - | ---
|                           |  | Year Ended September 30,
|                           |  | 2009                     |     | 2008 |   | 2007
|Current:                   |  |                          |     |      |   |      |  |   |    
|Federal                    |  | $                        | 0.5 |      | $ | 0.4  |  | $ | 0.9
|State                      |  |                          | 0.8 |      |   | 1.0  |  |   | 0.8
|                           |  |                          |     |      |   |      |  |   |    
|Total current              |  |                          | 1.3 |      |   | 1.4  |  |   | 1.7
|                           |  |                          |    
|Deferred:                  |  |                          |     |      |   |      |  |   |    
|Federal                    |  |                          | 0.4 |      |   |     |  |   | 4.3
|State                      |  |                          |    |      |   |     |  |   | 0.5
|                           |  |                          |     |      |   |      |  |   |    
|Total deferred             |  |                          | 0.4 |      |   |     |  |   | 4.8
|                           |  |                          |     |      |   |      |  |   |    
|Provision for income taxes |  | $                        | 1.7 |      | $ | 1.4  |  | $ | 6.5
|                           |  |                          |     |      |   |      |  |   |    

The effective rate differs from the statutory rate because the income tax provision for the years
ended September 30, 2009, 2008 and 2007, relates to taxable income of the corporations as discussed in Note 2.

Deferred income taxes
related to IPCHA reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the deferred income taxes at
September 30, 2009 and 2008 are as follows (in millions):



|                                              |  |               |       |   |      |   |       |  
|--------------------------------------------- |  | ------------- | ----- | - | ---- | - | ----- | -
|                                              |  | September 30, |      
|                                              |  | 2009          |       |   | 2008 |  
|Deferred tax liabilities:                     |  |               |       |   |      |   |       |  
|Basis difference in stock of acquired company |  | $             | (21.0 | ) |      | $ | (20.6 | )
|                                              |  |               |       |   |      |   |       |  
|Total deferred tax liability                  |  | $             | (21.0 | ) |      | $ | (20.6 | )
|                                              |  |               |       |   |      |   |       |  

Note 10. Partners Capital

Quarterly Distributions of Available Cash

The partners of the Company receive a portion of
the distributions earned. A summary of the distributions paid by the Company to its partners is presented below:



|                              |  |                   |  |               |  |                                  
|----------------------------- |  | ----------------- |  | ------------- |  | ---------------------------------
|Year Ended September 30, 2009
|Record Date                   |  | Payment Date      |  | Per Unit Rate |  | Distribution Amount (in millions)
|November 7, 2008              |  | November 14, 2008 |  | $0.650        |  | $13.1                            
|February 6, 2009              |  | February 13, 2009 |  | $0.675        |  | 13.7                             
|May 8, 2009                   |  | May 15, 2009      |  | $0.750        |  | 15.2                             
|August 7, 2009                |  | August 14, 2009   |  | $0.780        |  | 15.8                             
|                              |  |                   |  |               |  |                                  
|                              |  |                   |  | $2.860        |  | $57.8                            
|                              |  |                   |  |               |  |                                  



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Notes to Consolidated Financial Statements(Continued)



|                              |  |                   |  |               |  |                                  
|----------------------------- |  | ----------------- |  | ------------- |  | ---------------------------------
|Year Ended September 30, 2008
|Record Date                   |  | Payment Date      |  | Per Unit Rate |  | Distribution Amount (in millions)
|November 7, 2007              |  | November 14, 2007 |  | $0.535        |  | $10.8                            
|February 7, 2008              |  | February 14, 2008 |  | $0.560        |  | 11.3                             
|May 8, 2008                   |  | May 15, 2008      |  | $0.585        |  | 11.9                             
|August 7, 2008                |  | August 14, 2008   |  | $0.610        |  | 12.3                             
|                              |  |                   |  |               |  |                                  
|                              |  |                   |  | $2.290        |  | $46.3                            
|                              |  |                   |  |               |  |                                  
|                             
|Year Ended September 30, 2007
|Record Date                   |  | Payment Date      |  | Per Unit Rate |  | Distribution Amount (in millions)
|November 7, 2006              |  | November 14, 2006 |  | $0.375        |  | $7.5                             
|February 7, 2007              |  | February 14, 2007 |  | $0.400        |  | 8.0                              
|May 8, 2007                   |  | May 15, 2007      |  | $0.480        |  | 9.6                              
|August 7, 2007                |  | August 14, 2007   |  | $0.510        |  | 10.2                             
|                              |  |                   |  |               |  |                                  
|                              |  |                   |  | $1.765        |  | $35.3                            
|                              |  |                   |  |               |  |                                  

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

Common Unit Offerings

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

Gain on Issuance of Units in Inergy

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

In
March 2009, Inergy issued 4,000,000 common units representing Inergy limited partner interests. In April 2009, the underwriters exercised their option to purchase additional units and Inergy issued 418,000 common units representing limited partner
interests. In August 2009, Inergy issued 3,500,000 common units representing Inergy limited partner interests. In September 2009, the underwriters exercised their option to purchase additional units and Inergy issued 525,000 common units
representing limited partner interests. As permitted by FASB Accounting Standards Codification Subtopic 505-10 (originally issued as Staff Accounting Bulletin No. 51 Accounting for Sales of Stock by a Subsidiary), the Company
recorded a gain of $8.0 million for fiscal 2009 to recognize the increase in value of its investment in Inergy.



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Notes to Consolidated Financial Statements(Continued)



Note 11. Long Term Incentive Plan

Inergy Holdings, L.P. Long Term Incentive Plan

The Companys general partner sponsors
the Inergy Holdings Long Term Incentive Plan (Holdings LTIP) for the employees, directors and consultants of our general partner and employees, directors and consultants of our affiliates who perform services for the Company. The
Holdings LTIP consists of four components: restricted units, phantom units, unit appreciation rights and unit options. The Company has not granted phantom units or unit appreciation rights under the Holdings LTIP as of September 30, 2009. The
Holdings LTIP permits the grant of awards covering an aggregate of 2,023,966 units. Through September 30, 2009, we have granted an aggregate of 780,000 unit options and 219,861 restricted units pursuant to the Holdings LTIP. The Holdings LTIP
is administered by the compensation committee of the board of directors of our general partner.

Restricted Units

A restricted unit is a common unit that participates in distributions and vests over a period of time yet during such time is subject to forfeiture. The
compensation committee may make grants of restricted units under the plan to employees, directors and consultants containing such terms as the compensation committee determines. The compensation committee will determine the period over which
restricted units granted to participants will vest. The compensation committee, in its discretion, may base its determination upon the achievement of specified financial objectives or other events. In addition, the restricted units will vest upon a
Change in Control, as defined in the plan. Distributions made on restricted units may be subjected to the same vesting provisions as the restricted unit. If a grantees employment, consulting or membership on the board of directors terminates
for any reason, the grantees restricted units will be automatically forfeited unless, and to the extent, the compensation committee or the terms of the award agreement provide otherwise.

The Company granted 3,204, 215,641 and 1,016 restricted units during the years ended September 30, 2009, 2008 and 2007, respectively. The units fully
vest after five years from the grant date, subject to the provisions as outlined in the restricted unit award agreement. Some of these units are subject to the achievement of certain specified performance objectives and failure to meet the
performance objectives will result in forfeiture and cancellation of the restricted units.

A summary of the Companys weighted-average
grant date fair value for restricted units for the year ended September 30, 2009, is as follows:



|                                                     |  |                                       |       |                 |        
|---------------------------------------------------- |  | ------------------------------------- | ----- | --------------- | -------
|                                                     |  | Weighted-AverageGrant Date Fair Value |       | Number of Units
|Non-vested at October 1, 2008                        |  | $                                     | 46.67 |                 | 216,317
|Granted during the period ended September 30, 2009   |  | $                                     | 23.41 |                 | 3,204  
|Vested during the period ended September 30, 2009    |  | $                                     | 45.21 |                 | 551    
|Forfeited during the period ended September 30, 2009 |  | $                                     |      |                 |       
|                                                     |  |                                       |       |                 |        
|Non-vested at September 30, 2009                     |  | $                                     | 46.34 |                 | 218,970

The weighted-average grant date fair value of restricted units granted during the year ended
September 30, 2008, amounted to $46.67. The weighted-average grant date fair value of restricted units granted during the year ended September 30, 2007, amounted to $49.13. No restricted units vested during the years ended
September 30, 2008 and 2007. The fair value of restricted units vested during the year ended September 30, 2009, was negligible.



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Notes to Consolidated Financial Statements(Continued)



Phantom Units

A phantom unit entitles the grantee to receive a common unit upon the vesting of the phantom unit or, in the discretion of the compensation committee, cash equivalent to the value of a common unit. The
Company has not granted phantom units under the Holdings LTIP. The compensation committee will determine the period over which phantom units granted to employees and members of our board will vest. The committee, in its discretion, may base its
determination upon the achievement of specified financial objectives or other events. In addition, the phantom units will vest upon a Change in Control. If a grantees employment, consulting or membership on the board of directors terminates
for any reason, the grantees phantom units will be automatically forfeited unless, and to the extent, the compensation committee or the terms of the award agreement provide otherwise.

Unit Appreciation Rights

The Holdings LTIP
permits the grant of unit appreciation rights. A unit appreciation right is an award that, upon exercise, entitles the participant to receive the excess of the fair market value of a unit on the exercise date over the exercise price established for
the unit appreciation right. Such excess will be paid in common units or, at the discretion of the compensation committee, in cash. The Company has not granted unit appreciation rights under the Holdings LTIP. In the future, the compensation
committee may determine to make grants of unit appreciation rights under the plan to employees and members of our board of directors containing such terms as the committee determines. Unit appreciation rights will have an exercise price that may be
greater or less than the fair market value of the common units on the date of grant, at the discretion of the compensation committee. In general, unit appreciation rights granted will become exercisable over a period determined by the compensation
committee. In addition, the unit appreciation rights will become exercisable upon a Change in Control. If a grantees employment, consulting or membership on the board of directors terminates for any reason, the grantees unvested unit
appreciation rights will be automatically forfeited unless, and to the extent, the grant agreement or compensation committee provides otherwise.

Distribution Equivalent Rights

The compensation committee may, in its discretion, grant distribution equivalent rights
(DERs) with respect to awards other than restricted units. DERs entitle the participant to receive cash equal to the amount of any cash distributions made by the Company during the period the Award is outstanding. Payment of a DER may be
subject to the same vesting terms as the Award to which it relates.

Unit Options

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



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Notes to Consolidated Financial Statements(Continued)



A summary of the Companys unit option activity for the years ended September 30, 2009, 2008
and 2007 is as follows:



|                                  |  |                         |  |                               |       |                |        
|--------------------------------- |  | ----------------------- |  | ----------------------------- | ----- | -------------- | -------
|                                  |  | Range ofExercise Prices |  | Weighted-AverageExercisePrice |       | Numberof Units
|Outstanding at September 30, 2006 |  | $22.50  $35.35         |  | $                             | 24.38 |                | 674,500
|Granted                           |  | $34.43  $50.85         |  | $                             | 39.73 |                | 20,000 
|Exercised                         |  | $22.50                  |  | $                             | 22.50 |                | 8,000  
|Canceled                          |  | $22.50                  |  | $                             | 22.50 |                | 16,500 
|                                  |  |                         |  |                               |       |                |        
|Outstanding at September 30, 2007 |  | $22.50  $50.85         |  | $                             | 24.90 |                | 670,000
|Granted                           |  | $38.50  $40.17         |  | $                             | 39.61 |                | 7,500  
|Exercised                         |  | $22.50                  |  | $                             | 22.50 |                | 15,000 
|Canceled                          |  | $22.50                  |  | $                             | 22.50 |                | 14,250 
|                                  |  |                         |  |                               |       |                |        
|Outstanding at September 30, 2008 |  | $22.50  $50.85         |  | $                             | 25.18 |                | 648,250
|Granted                           |  |                        |  | $                             |      |                |       
|Exercised                         |  | $22.50                  |  | $                             | 22.50 |                | 34,500 
|Canceled                          |  | $22.50  $31.91         |  | $                             | 27.83 |                | 25,750 
|                                  |  |                         |  |                               |       |                |        
|Outstanding at September 30, 2009 |  | $22.50  $49.28         |  | $                             | 25.22 |                | 588,000
|                                  |  |                         |  |                               |       |                |        
|Exercisable at September 30, 2009 |  | $22.50  $33.41         |  | $                             | 24.74 |                | 183,875
|                                  |  |                         |  |                               |       |                |        

Information regarding options outstanding and exercisable as of September 30, 2009 is as
follows:



|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      
|------------------------ |  | ------------------ |  | ---------------------------------------------- |  | ----------------------------- | ----- | ------------------ | ------- | ----------------------------- | - | -----
|                         |  | Outstanding        |  | Exercisable                                   
|Range of Exercise Prices |  | OptionsOutstanding |  | Weighted-AverageRemainingContractedLife(years) |  | Weighted-AverageExercisePrice |       | OptionsExercisable |         | Weighted-AverageExercisePrice
|$22.50  $25.42          |  | 450,500            |  | 5.7                                            |  | $                             | 22.50 |                    | 142,000 |                               | $ | 22.50
|$25.43  $30.51          |  | 12,500             |  | 5.8                                            |  |                               | 29.15 |                    | 6,250   |                               |   | 29.15
|$30.52  $35.59          |  | 110,000            |  | 6.3                                            |  |                               | 33.41 |                    | 35,625  |                               |   | 32.90
|$35.60  $40.68          |  | 7,500              |  | 8.6                                            |  |                               | 39.61 |                    |        |                               |   |     
|$40.69  $45.76          |  | 2,500              |  | 7.9                                            |  |                               | 44.98 |                    |        |                               |   |     
|$45.77  $50.85          |  | 5,000              |  | 7.6                                            |  |                               | 49.28 |                    |        |                               |   |     
|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      
|                         |  | 588,000            |  | 5.9                                            |  | $                             | 25.22 |                    | 183,875 |                               | $ | 24.74
|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      



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Notes to Consolidated Financial Statements(Continued)



The weighted-average remaining contract life for options outstanding and exercisable at
September 30, 2009 was approximately 6 years. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option pricing model using the assumptions outlined in the table below. Expected volatility was based
on a combination of historical and implied volatilities of the Companys stock over a period at least as long as the options expected term. The expected life represents the period of time that the options granted are expected to be
outstanding. The risk-free rate is based on the applicable U.S. Treasury yield curve in effect at the time of the grant of the share options.



|                                               |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                               |  | 2009 |       |   | 2008 |   |       | 2007 | 
|Weighted average fair value of options granted |  | $    |      |   |      | $ | 3.99  |      |  | $ | 7.34  |  
|Expected volatility                            |  |      | 0.389 |   |      |   | 0.231 |      |  |   | 0.234 |  
|Distribution yield                             |  |      | 6.7   | % |      |   | 9.6   | %    |  |   | 4.3   | %
|Expected life of option in years               |  |      | 5     |   |      |   | 5     |      |  |   | 5     |  
|Risk-free interest rate                        |  |      | 2.3   | % |      |   | 3.0   | %    |  |   | 4.2   | %

The aggregate intrinsic values of options outstanding and exercisable at September 30, 2009 were
$12.5 million and $4.0 million, respectively. The aggregate intrinsic value of unit options exercised during the year ended September 30, 2009 was $0.6 million. Aggregate intrinsic value represents the positive difference between the
Companys closing stock price on the last trading day of the fiscal period, which was $46.40 on September 30, 2009, and the exercise price multiplied by the number of options outstanding.

Inergy Holdings, L.P. Unit Purchase Plan

The Companys general partner sponsors a common unit purchase plan for its employees and the employees of its affiliates. The common unit purchase plan permits participants to purchase common units in market transactions from the
Company, the general partner or any other person at the end of each fiscal quarter. The Company has reserved 100,000 of its common units for purchase under the common unit purchase plan. As determined by the compensation committee, the general
partner may match each participants cash base pay or salary deferrals by an amount up to 10% of such deferrals and have such amount applied toward the purchase of additional common units. The general partner has also agreed to pay the
brokerage commissions, transfer taxes and other transaction fees associated with a participants purchase of the Companys common units under the plan. The maximum amount that a participant may elect to have withheld from his or her salary
or cash base pay with respect to common unit purchases in any calendar year may not exceed 10% of his or her base salary or wages for the year. The common units purchased on behalf of a participant under the common unit purchase plan generally are
to be held by the participant for at least one year. To the extent a participant desires to sell or dispose of such common units prior to the end of this one-year holding period, the participant will be ineligible to participate in the common unit
purchase plan again until the one-year anniversary of the date of such sale. The Companys common unit purchase plan is intended to serve as a means for encouraging participants to invest in its common units. Common units purchased through the
unit purchase plan for the fiscal years ended September 30, 2009, 2008 and 2007 were 5,505 units, 5,387 units and 2,667 units, respectively.

Inergy, L.P. Long Term Incentive Plan

Inergys managing general partner sponsors the Long Term Incentive Plan
(Inergy LTIP) for its employees, consultants, and directors and the employees of its affiliates that perform services for Inergy. The Inergy LTIP currently permits the grant of awards covering an aggregate of 5,000,000 Inergy common
units, which can be granted in the form of unit options, phantom units and/or restricted units. With the exception of 56,000 unit options (exercise prices from $1.92 to $5.34) granted to non-executive employees in exchange for option grants



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Notes to Consolidated Financial Statements(Continued)



made by the predecessor in fiscal 1999, all of which have been grandfathered into the Inergy LTIP and are presented as grants in the table below, all units granted under the plan will vest in
accordance with the Unit Option Agreements, which typically provide that unit options begin vesting five years from the anniversary date of the applicable grant date. Shares issued as a result of unit option exercises are newly issued shares.

Restricted Units

A
restricted unit is a common unit that participates in distributions and vests over a period of time yet during such time is subject to forfeiture. The compensation committee may make grants of restricted units to employees, directors and consultants
containing such terms as the compensation committee determines. The compensation committee will determine the period over which restricted units granted to participants will vest. The compensation committee, in its discretion, may base its
determination upon the achievement of specified financial objectives or other events. In addition, the restricted units will vest upon a change in control of the managing general partner of Inergy. If a grantees employment, consulting
arrangement or membership on the board of directors terminates for any reason, the grantees restricted units will be automatically forfeited unless, and to the extent, the compensation committee or the terms of the award agreement provide
otherwise.

Inergy intends the restricted units to serve as a means of incentive compensation for performance and not primarily as an
opportunity to participate in the equity appreciation of the common units. Therefore, plan participants will not pay any consideration for the common units they receive, and Inergy will receive no cash remuneration for the units.

Inergy granted 326,910, 60,064 and 69,520 restricted units during the years ended September 30, 2009, 2008 and 2007, respectively. The majority of the
restricted units are 100% vested on the fifth anniversary of the grant date, subject to the provisions as outlined in the restricted unit award agreement. Some of these units are subject to the achievement of certain specified performance objectives
and failure to meet the performance objectives will result in forfeiture and cancellation of the restricted units. Inergy recognizes expense on these units each quarter by multiplying the closing price of Inergys common units on the date of
grant by the number of units granted, and expensing that amount over the vesting period.

A summary of Inergys weighted-average grant
date fair value for restricted units for the year ended September 30, 2009, is as follows:



|                                                     |  |                                      |       |                |        
|---------------------------------------------------- |  | ------------------------------------ | ----- | -------------- | -------
|                                                     |  | Weighted-AverageGrant DateFair Value |       | Numberof Units
|Non-vested at October 1, 2008                        |  | $                                    | 29.46 |                | 171,828
|Granted during the period ended September 30, 2009   |  | $                                    | 19.45 |                | 326,910
|Vested during the period ended September 30, 2009    |  | $                                    | 16.50 |                | 120,615
|Forfeited during the period ended September 30, 2009 |  | $                                    | 29.27 |                | 1,707  
|                                                     |  |                                      |       |                |        
|Non-vested at September 30, 2009                     |  | $                                    | 24.92 |                | 376,416

The weighted-average grant date fair value of restricted units granted during the year ended
September 30, 2008, amounted to $28.71. No restricted units vested during the year ended September 30, 2008. The weighted-average grant date fair value of restricted units granted and vested during the year ended September 30, 2007,
amounted to $32.16 and $26.62, respectively. The fair value of restricted units vested during the year ended September 30, 2009, was $2.0 million. The fair value of restricted units vested during the year ended September 30, 2007, was
negligible.



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Notes to Consolidated Financial Statements(Continued)



The compensation expense recorded by Inergy related to these restricted stock awards was $1.6 million,
$2.4 million and $0.4 million for the years ended September 30, 2009, 2008 and 2007, respectively.

Unit Options

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

A summary of Inergys unit option activity for the years ended September 30, 2009, 2008,
and 2007, is as follows:



|                                  |  |                         |                |                               |   |                |  |        
|--------------------------------- |  | ----------------------- | -------------- | ----------------------------- | - | -------------- |  | -------
|                                  |  | Range of ExercisePrices |                | Weighted-AverageExercisePrice |   | Numberof Units
|Outstanding at September 30, 2006 |  | $                       | 8.19  $31.32  |                               | $ | 16.37          |  | 711,964
|Granted                           |  |                         |               |                               |   |               |  |       
|Exercised                         |  | $                       | 8.19  $27.14  |                               | $ | 11.89          |  | 325,464
|Canceled                          |  | $                       | 13.75  $20.13 |                               | $ | 19.54          |  | 56,000 
|                                  |  |                         |                |                               |   |                |  |        
|Outstanding at September 30, 2007 |  | $                       | 13.75  $31.32 |                               | $ | 20.25          |  | 330,500
|Granted                           |  |                         |               |                               |   |               |  |       
|Exercised                         |  | $                       | 13.75  $16.90 |                               | $ | 15.34          |  | 89,135 
|Canceled                          |  | $                       | 26.51  $27.14 |                               | $ | 26.87          |  | 3,500  
|                                  |  |                         |                |                               |   |                |  |        
|Outstanding at September 30, 2008 |  | $                       | 14.72  $31.32 |                               | $ | 21.99          |  | 237,865
|Granted                           |  |                         |               |                               | $ |               |  |       
|Exercised                         |  | $                       | 14.72  $16.90 |                               | $ | 15.46          |  | 50,965 
|Canceled                          |  | $                       | 27.14  $31.31 |                               | $ | 28.81          |  | 5,000  
|                                  |  |                         |                |                               |   |                |  |        
|Outstanding at September 30, 2009 |  | $                       | 14.95  $31.32 |                               | $ | 23.63          |  | 181,900
|                                  |  |                         |                |                               |   |                |  |        
|Exercisable at September 30, 2009 |  | $                       | 14.95  $31.32 |                               | $ | 20.36          |  | 110,900
|                                  |  |                         |                |                               |   |                |  |        

Information regarding options outstanding and exercisable as of September 30, 2009 is as
follows:



|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      
|------------------------ |  | ------------------ |  | ---------------------------------------------- |  | ----------------------------- | ----- | ------------------ | ------- | ----------------------------- | - | -----
|                         |  | Outstanding        |  | Exercisable                                   
|Range of Exercise Prices |  | OptionsOutstanding |  | Weighted-AverageRemainingContractedLife(years) |  | Weighted-AverageExercisePrice |       | OptionsExercisable |         | Weighted-AverageExercisePrice
|$14.95 - $15.66          |  | 23,500             |  | 2.9                                            |  | $                             | 14.95 |                    | 23,500  |                               | $ | 14.95
|$15.67 - $18.79          |  | 22,400             |  | 3.4                                            |  |                               | 15.70 |                    | 22,400  |                               |   | 15.70
|$18.80 - $21.92          |  | 25,000             |  | 4.0                                            |  |                               | 20.96 |                    | 25,000  |                               |   | 20.96
|$21.93 - $25.06          |  | 30,000             |  | 4.5                                            |  |                               | 23.94 |                    | 30,000  |                               |   | 23.94
|$25.07 - $28.19          |  | 23,500             |  | 5.3                                            |  |                               | 26.94 |                    |        |                               |   |     
|$28.20 - $31.20          |  | 37,500             |  | 5.9                                            |  |                               | 29.17 |                    |        |                               |   |     
|$31.21 - $31.32          |  | 20,000             |  | 5.7                                            |  |                               | 31.32 |                    | 10,000  |                               |   | 31.32
|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      
|                         |  | 181,900            |  | 4.6                                            |  | $                             | 23.63 |                    | 110,900 |                               | $ | 20.36
|                         |  |                    |  |                                                |  |                               |       |                    |         |                               |   |      



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Notes to Consolidated Financial Statements(Continued)



The weighted-average remaining contract lives for options outstanding and exercisable at
September 30, 2009 were approximately five years and four years, respectively. The fair value of each option grant was estimated as of the grant date using the Black-Scholes option pricing model using the assumptions outlined in the table
below. Expected volatility was based on a combination of historical and implied volatilities of Inergys stock over a period at least as long as the options expected term. The expected life represents the period of time that the options
granted are expected to be outstanding. The risk-free rate is based on the applicable U.S. Treasury yield curve in effect at the time of the grant of the share options.



|                                               |  |       |   |  |       |   |  |       |  
|---------------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                               |  | 2009  |   |  | 2008  |   |  | 2007  |  
|Weighted average fair value of options granted |  |      |   |  |      |   |  |      |  
|Expected volatility                            |  | 0.336 |   |  | 0.204 |   |  | 0.231 |  
|Distribution yield                             |  | 8.9   | % |  | 11.6  | % |  | 7.4   | %
|Expected life of option in years               |  | 5     |   |  | 5     |   |  | 5     |  
|Risk-free interest rate                        |  | 2.3   | % |  | 3.0   | % |  | 4.2   | %

The aggregate intrinsic values of options outstanding and exercisable at September 30, 2009 were $1.2
million and $1.1 million, respectively. The aggregate intrinsic value of unit options exercised during the year ended September 30, 2009 was $0.5 million. Aggregate intrinsic value represents the positive difference between Inergys closing
stock price on the last trading day of the fiscal period, which was $29.78 on September 30, 2009, and the exercise price multiplied by the number of options outstanding.

As of September 30, 2009, there was $16.4 million of total unrecognized compensation cost related to unvested share-based compensation awards granted to employees under the restricted stock and unit
option plans, including approximately $9.3 million related to Holdings unvested share-based compensation awards. That cost is expected to be recognized over a five-year period.

Inergy, L.P. Unit Purchase Plan

Inergys managing general partner sponsors a unit
purchase plan for its employees and the employees of its affiliates. The unit purchase plan permits participants to purchase common units in market transactions from Inergy, the general partners or any other person. All purchases made have been in
market transactions, although the plan allows Inergy to issue additional units. Inergy has reserved 100,000 units for purchase under the unit purchase plan. As determined by the compensation committee, the managing general partner may match each
participants cash base pay or salary deferrals by an amount up to 10% of such deferrals and have such amount applied toward the purchase of additional units. The managing general partner has also agreed to pay the brokerage commissions,
transfer taxes and other transaction fees associated with a participants purchase of common units. The maximum amount that a participant may elect to have withheld from his or her salary or cash base pay with respect to unit purchases in any
calendar year may not exceed 10% of his or her base salary or wages for the year. Units purchased on behalf of a participant under the unit purchase plan generally are to be held by the participant for at least one year. To the extent a participant
desires to sell or dispose of such units prior to the end of this one year holding period, the participant will be ineligible to participate in the unit purchase plan again until the one year anniversary of the date of such sale. The unit purchase
plan is intended to serve as a means for encouraging participants to invest in common units. Units purchased through the unit purchase plan by Inergy and its employees for the fiscal years ended September 30, 2009, 2008, and 2007 were 11,298 units,
11,670 units, and 8,681 units, respectively.

Note 12. Employee Benefit Plans

A 401(k) plan is available to all of Inergys employees after meeting certain requirements. The plan permits employees to make contributions up to 75%
of their salary, up to statutory limits, which was $16,500 in 2009.



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Notes to Consolidated Financial Statements(Continued)



The plan provides for matching contributions by Inergy for employees completing one year of service of at least 1,000 hours. Aggregate matching contributions made by Inergy were $2.1 million in
fiscal 2009 and 2008, and $1.9 million in fiscal 2007.

Of Inergys 2,910 employees, 8% are subject to collective bargaining agreements.
For the years ended September 30, 2009, 2008 and 2007, Inergy made contributions on behalf of its union employees to union sponsored defined benefit plans of $2.9 million, $2.7 million and $2.6 million, respectively.

Note 13. Commitments and Contingencies

Inergy periodically enters into agreements with suppliers to purchase fixed quantities of propane, distillates, natural gas and liquids at fixed prices. At September 30, 2009, the total of these firm purchase commitments was $225.3
million of which $220.1 million will occur over the course of the next twelve months with the balance of $5.2 million occurring over the following twelve months. Inergy also enters into non-binding agreements with suppliers to purchase quantities of
propane, distillates, natural gas and liquids at variable prices at future dates at the then prevailing market prices.

Inergy has entered
into certain purchase commitments in connection with the identified growth projects related to the Thomas Corners and Finger Lakes midstream assets. At September 30, 2009, the total of these firm purchase commitments was $10.4 million and the
purchases associated with these commitments will occur over the course of the next twelve months.

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

Inergy utilizes third-party insurance subject
to varying retention levels of self-insurance, which management considers prudent. Such self-insurance relates to losses and liabilities primarily associated with medical claims, workers compensation claims and general, product, vehicle and
environmental liability. Losses are accrued based upon managements estimates of the aggregate liability for claims incurred using certain assumptions followed in the insurance industry and based on past experience. The primary assumption
utilized is actuarially determined loss development factors. The loss development factors are based primarily on historical data. Inergys self insurance reserves could be affected if future claims development differs from the historical
trends. Inergy believes changes in health care costs, trends in health care claims of its employee base, accident frequency and severity and other factors could materially affect the estimate for these liabilities. Inergy continually monitors
changes in employee demographics, incident and claim type and evaluates its insurance accruals and adjusts its accruals based on its evaluation of these qualitative data points. At September 30, 2009 and 2008, Inergys self-insurance
reserves were $19.3 million and $17.4 million, respectively.

Note 14. Related Party Transactions

On occasion, Holdings reimburses Inergy for expenses paid on Holdings behalf. The expenses that are reimbursed predominantly include insurance and
professional fees. These expenses for the years ended September 30, 2009, 2008 and 2007, amounted to $0.5 million, $0.2 million and $0.4 million, respectively. At September 30, 2009 and 2008, Inergy had $0.1 million and $0.2 million,
respectively, due from Holdings.

During fiscal 2009, Holdings received $48.1 million in distributions from Inergy related to its 0.8% general
partner interest and incentive distribution rights and $12.3 million related to its 7.8% limited partner interest.



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Notes to Consolidated Financial Statements(Continued)



Note 15. Segments

The Companys financial statements reflect two operating and reportable segments: propane operations and midstream operations. The Companys propane operations include propane sales to end
users, the sale of propane-related appliances and service work for propane-related equipment, the sale of distillate products and wholesale distribution of propane and marketing and price risk management services to other users, retailers and
resellers of propane. The Companys midstream operations include storage of natural gas for third parties, fractionation of natural gas liquids, processing of natural gas, distribution of natural gas liquids and the production and sale of salt.
Results of operations for acquisitions that occurred during the year ended September 30, 2009, are included in the propane segment.

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

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



|                                                    |  |                               |       |                     |   |                        |  |   |                 |   |       |   |      |  |   |        
|--------------------------------------------------- |  | ----------------------------- | ----- | ------------------- | - | ---------------------- |  | - | --------------- | - | ----- | - | ---- |  | - | -------
|                                                    |  | Year Ended September 30, 2009
|                                                    |  | PropaneOperations             |       | MidstreamOperations |   | IntersegmentOperations |  |   | CorporateAssets |   | Total
|Retail propane revenues                             |  | $                             | 736.7 |                     | $ |                       |  | $ |                |   |       | $ |     |  | $ | 736.7  
|Wholesale propane revenues                          |  |                               | 368.2 |                     |   | 19.7                   |  |   | (0.2            | ) |       |   |     |  |   | 387.7  
|Storage, fractionation and other midstream revenues |  |                               |      |                     |   | 220.8                  |  |   | (0.7            | ) |       |   |     |  |   | 220.1  
|Transportation revenues                             |  |                               | 16.8  |                     |   | 16.9                   |  |   |                |   |       |   |     |  |   | 33.7   
|Propane-related appliance sales revenues            |  |                               | 21.4  |                     |   |                       |  |   |                |   |       |   |     |  |   | 21.4   
|Retail service revenues                             |  |                               | 17.8  |                     |   |                       |  |   |                |   |       |   |     |  |   | 17.8   
|Rental service and other revenues                   |  |                               | 27.5  |                     |   |                       |  |   |                |   |       |   |     |  |   | 27.5   
|Distillate revenues                                 |  |                               | 125.7 |                     |   |                       |  |   |                |   |       |   |     |  |   | 125.7  
|Gross profit                                        |  |                               | 471.0 |                     |   | 103.4                  |  |   | (0.7            | ) |       |   |     |  |   | 573.7  
|Identifiable assets                                 |  |                               | 139.6 |                     |   | 51.6                   |  |   |                |   |       |   |     |  |   | 191.2  
|Goodwill                                            |  |                               | 277.9 |                     |   | 96.4                   |  |   |                |   |       |   | 20.2 |  |   | 394.5  
|Property, plant and equipment                       |  |                               | 697.0 |                     |   | 847.1                  |  |   |                |   |       |   | 11.1 |  |   | 1,555.2
|Expenditures for property, plant and equipment      |  |                               | 14.0  |                     |   | 203.7                  |  |   |                |   |       |   | 0.9  |  |   | 218.6  
|                                                    | 
|                                                    |  | Year Ended September 30, 2008
|                                                    |  | PropaneOperations             |       | MidstreamOperations |   | IntersegmentOperations |  |   | CorporateAssets |   | Total
|Retail propane revenues                             |  | $                             | 840.7 |                     | $ |                       |  | $ |                |   |       | $ |     |  | $ | 840.7  
|Wholesale propane revenues                          |  |                               | 509.1 |                     |   | 37.0                   |  |   |                |   |       |   |     |  |   | 546.1  
|Storage, fractionation and other midstream revenues |  |                               |      |                     |   | 252.3                  |  |   | (0.5            | ) |       |   |     |  |   | 251.8  
|Transportation revenues                             |  |                               | 16.4  |                     |   | 17.3                   |  |   |                |   |       |   |     |  |   | 33.7   
|Propane-related appliance sales revenues            |  |                               | 22.2  |                     |   |                       |  |   |                |   |       |   |     |  |   | 22.2   
|Retail service revenues                             |  |                               | 17.6  |                     |   |                       |  |   |                |   |       |   |     |  |   | 17.6   
|Rental service and other revenues                   |  |                               | 27.7  |                     |   |                       |  |   |                |   |       |   |     |  |   | 27.7   
|Distillate revenues                                 |  |                               | 139.1 |                     |   |                       |  |   |                |   |       |   |     |  |   | 139.1  
|Gross profit                                        |  |                               | 409.8 |                     |   | 92.9                   |  |   | (0.5            | ) |       |   |     |  |   | 502.2  
|Identifiable assets                                 |  |                               | 193.0 |                     |   | 46.3                   |  |   |                |   |       |   |     |  |   | 239.3  
|Goodwill                                            |  |                               | 275.9 |                     |   | 167.1                  |  |   |                |   |       |   | 20.2 |  |   | 463.2  
|Property, plant and equipment                       |  |                               | 689.3 |                     |   | 575.5                  |  |   |                |   |       |   | 10.2 |  |   | 1,275.0
|Expenditures for property, plant and equipment      |  |                               | 13.8  |                     |   | 196.2                  |  |   |                |   |       |   | 1.5  |  |   | 211.5  



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



|                                                    |  |                               |       |                     |   |                        |  |   |                 |   |       |   |      |  |   |        
|--------------------------------------------------- |  | ----------------------------- | ----- | ------------------- | - | ---------------------- |  | - | --------------- | - | ----- | - | ---- |  | - | -------
|                                                    |  | Year Ended September 30, 2007
|                                                    |  | PropaneOperations             |       | MidstreamOperations |   | IntersegmentOperations |  |   | CorporateAssets |   | Total
|Retail propane revenues                             |  | $                             | 733.2 |                     | $ |                       |  | $ |                |   |       | $ |     |  | $ | 733.2  
|Wholesale propane revenues                          |  |                               | 393.8 |                     |   | 23.4                   |  |   |                |   |       |   |     |  |   | 417.2  
|Storage, fractionation and other midstream revenues |  |                               |      |                     |   | 152.7                  |  |   | (0.5            | ) |       |   |     |  |   | 152.2  
|Transportation revenues                             |  |                               | 12.3  |                     |   | 11.7                   |  |   |                |   |       |   |     |  |   | 24.0   
|Propane-related appliance sales revenues            |  |                               | 23.0  |                     |   |                       |  |   |                |   |       |   |     |  |   | 23.0   
|Retail service revenues                             |  |                               | 16.7  |                     |   |                       |  |   |                |   |       |   |     |  |   | 16.7   
|Rental service and other revenues                   |  |                               | 24.7  |                     |   |                       |  |   |                |   |       |   |     |  |   | 24.7   
|Distillate revenues                                 |  |                               | 92.1  |                     |   |                       |  |   |                |   |       |   |     |  |   | 92.1   
|Gross profit                                        |  |                               | 398.8 |                     |   | 58.7                   |  |   | (0.5            | ) |       |   |     |  |   | 457.0  
|Identifiable assets                                 |  |                               | 187.7 |                     |   | 27.5                   |  |   |                |   |       |   |     |  |   | 215.2  
|Goodwill                                            |  |                               | 261.5 |                     |   | 85.7                   |  |   |                |   |       |   | 18.1 |  |   | 365.3  
|Property, plant and equipment                       |  |                               | 672.4 |                     |   | 319.1                  |  |   |                |   |       |   | 8.8  |  |   | 1,000.3
|Expenditures for property, plant and equipment      |  |                               | 13.9  |                     |   | 86.5                   |  |   |                |   |       |   | 1.0  |  |   | 101.4  

Note 16. Quarterly Financial Data (Unaudited)

Inergys business is seasonal due to weather conditions in its service areas. Propane sales to residential and commercial customers are affected by
winter heating season requirements, which generally results in higher operating revenues and net income during the period from October through March of each year and lower operating revenues and either net losses or lower net income during the
period from April through September of each year. Sales to industrial and agricultural customers are much less weather sensitive. Summarized unaudited quarterly financial data is presented below (in millions, except per unit information):



|                                        |  |               |       |          |   |         |  |   |              |   |  |   |       |  
|--------------------------------------- |  | ------------- | ----- | -------- | - | ------- |  | - | ------------ | - |  | - | ----- | -
|                                        |  | Quarter Ended |      
|                                        |  | December 31   |       | March 31 |   | June 30 |  |   | September 30 |  
|Fiscal 2009                             |  |               |       |          |   |         |  |   |              |   |  |   |       |  
|Revenues                                |  | $             | 534.0 |          | $ | 570.1   |  | $ | 235.0        |   |  | $ | 231.5 |  
|Gross profit                            |  |               | 174.3 |          |   | 212.1   |  |   | 97.3         |   |  |   | 90.0  |  
|Operating income (loss)                 |  |               | 74.3  |          |   | 109.5   |  |   | 3.2          |   |  |   | (14.8 | )
|Net income                              |  |               | 14.4  |          |   | 20.8    |  |   | 9.4          |   |  |   | 12.5  |  
|Net income per limited partner unit:(a) |  |               |       |          |   |         |  |   |              |   |  |   |       |  
|Basic                                   |  | $             | 0.71  |          | $ | 1.03    |  | $ | 0.46         |   |  | $ | 0.61  |  
|Diluted                                 |  | $             | 0.71  |          | $ | 1.03    |  | $ | 0.46         |   |  | $ | 0.61  |  
|                                        |  |               |       |         
|Fiscal 2008                             |  |               |       |          |   |         |  |   |              |   |  |   |       |  
|Revenues                                |  | $             | 514.6 |          | $ | 648.2   |  | $ | 375.2        |   |  | $ | 340.9 |  
|Gross profit                            |  |               | 137.2 |          |   | 188.6   |  |   | 88.7         |   |  |   | 87.7  |  
|Operating income (loss)                 |  |               | 52.1  |          |   | 96.9    |  |   | (5.2         | ) |  |   | (17.7 | )
|Net income                              |  |               | 10.2  |          |   | 15.0    |  |   | 5.6          |   |  |   | 4.7   |  
|Net income per limited partner unit:    |  |               |       |          |   |         |  |   |              |   |  |   |       |  
|Basic                                   |  | $             | 0.51  |          | $ | 0.74    |  | $ | 0.27         |   |  | $ | 0.23  |  
|Diluted                                 |  | $             | 0.50  |          | $ | 0.73    |  | $ | 0.27         |   |  | $ | 0.23  |  



|(a) | The accumulation of basic and diluted net income per limited partner unit does not total the amount for the fiscal year due to changes in ownership percentages
throughout the year.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



Note 17. Issuance of Subsidiary Units

On March 23, 2006, Inergys shelf registration statement (File No. 333-132287) was declared effective by the Securities and Exchange
Commission for the periodic sale by Inergy of up to $1.0 billion of common units, partnership securities and debt securities, or any combination thereof. Pursuant to the shelf registration statement, Inergy is permitted to issue these securities
from time to time for general business purposes, including debt repayment, future acquisitions, capital expenditures and working capital, or for other potential uses identified in a prospectus supplement.

On September 10, 2009, Inergys new shelf registration statement (File No. 333-158066) was declared effective by the Securities and Exchange
Commission for the periodic sale by Inergy of up to $1.0 billion of common units, partnership securities and debt securities, or any combination thereof.

In June 2006, Inergy issued 4,312,500 common units, under the shelf registration statement, in a public offering, which included 562,500 common units issued as result of the underwriters exercising their
over-allotment provision. The issuance of these common units resulted in net proceeds of $102.7 million, after deducting underwriters discounts, commissions and other offering expenses. These proceeds were partially used to repay indebtedness
under Inergys Credit Agreement with the remainder used to fund capital expenditures made in connection with internal growth projects related to Inergys midstream assets.

In February 2007, Inergy issued 3,450,000 common units, under the shelf registration statement, which included 450,000 common units issued as a result of the underwriters exercising their over-allotment
provision. The issuance of these common units resulted in net proceeds of $104.5 million, after deducting underwriters discounts, commissions and other offering expenses. The net proceeds from this offering were used to repay indebtedness
under Inergys Credit Agreement.

In August 2008, Inergy issued 809,389 common units in conjunction with the acquisition of US Salt, and
in October 2008, Inergy issued 309,194 common units to Blu-Gas in a private placement as a portion of the purchase price.

In March 2009,
Inergy issued 4,000,000 common units, under the shelf registration statement, and in April 2009, the underwriters exercised their option to purchase 418,000 additional Inergy common units. Net proceeds from the aforementioned issuances amounted to
$94.3 million.

In August 2009, Inergy issued 3,500,000 common units, under the shelf registration statement, and in September 2009, the
underwriters exercised their option to purchase 525,000 additional Inergy common units. Net proceeds from the aforementioned issuances amounted to $106.9 million.

Note 18. Distributions from Inergy, L.P.

Quarterly Distributions of Available Cash

Inergy is expected to make quarterly cash distributions of all of its Available Cash, generally defined as income (loss) before income taxes
plus depreciation and amortization, less maintenance capital expenditures and net changes in reserves established by the General Partner for future requirements. These reserves are retained to provide for the proper conduct of Inergys
business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters.

Distributions by Inergy in
an amount equal to 100% of its Available Cash will generally be made 99% to the common and subordinated unitholders and 1% to the General Partner, subject to the payment of incentive



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Inergy Holdings, L.P. and Subsidiaries

Notes to Consolidated Financial Statements(Continued)



distributions to the holders of Incentive Distribution Rights to the extent that certain target levels of cash distributions are achieved. To the extent there is sufficient Available Cash, the
holders of common units had the right to receive the Minimum Quarterly Distribution ($0.30 per Unit), plus any arrearages, prior to any distribution of Available Cash to the holders of subordinated units.

Inergy is expected to make distributions of its Available Cash within 45 days after the end of each fiscal quarter ending December, March, June and
September to holders of record on the applicable record date. Inergy made distributions to unitholders, including the non-managing general partner, totaling $187.2 million, $158.9 million, and $136.8 million for the years ended September 30,
2009, 2008 and 2007, respectively.

The Company owns all of the incentive distribution rights provided for in Inergy L.P.s
partnership agreement, which entitles it to receive increasing percentages, up to 48%, of any cash distributed by Inergy in excess of $0.33 per unit in any quarter. In addition, at September 30, 2009, the Company and its subsidiaries own
4,706,689 common units, which approximates a 7.8% limited partner interest.

Note 19. Subsequent Events

The Company has identified subsequent events requiring disclosure through November 30, 2009, the date of the filing of this Form 10-K.

On November 13, 2009 a quarterly distribution of $0.85 per limited partner unit was paid to unitholders of record on November 6, 2009 with respect
to the fourth fiscal quarter of 2009, which totaled $17.2 million.

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

The new secured credit facility contains various affirmative and negative covenants
and default provisions, as well as requirements with respect to the maintenance of specified financial ratios and limitations on making investments, permitting liens and entering into other debt obligations. All borrowings under the facility bear
interest, at Inergys option, subject to certain limitations, at a rate equal to the following:



| |  |  | the Alternate Base Rate, which is defined as the higher of i) the federal funds rate plus 0.50%; ii) JP Morgans prime rate; or iii) the Adjusted
LIBO Rate plus 1%; plus a margin varying from 1.50% to 2.75%; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Certain counterparties have elected to call their respective interest rate swap positions. The aggregate notional amount associated with these swaps amounts
to $125 million. These swaps will be called in December 2009 and the Company is currently evaluating its options to manage its interest rate risk.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)     
|                         |  |                           
|Dated: November 30, 2009 |  | By                         |  | /s/    JOHN J.
SHERMAN    
|                         |  |                            |  | John J. Sherman, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following officers and directors of Inergy Holdings GP, LLC, as general partner of Inergy Holdings, L.P., the registrant, in the capacities and on the dates indicated.



|                  |  |                                                                                                                                                                          
|----------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date              |  | Signature and Title                                                                                                                                                      
|November 30, 2009 |  | /s/    JOHN J.
SHERMAN John J. Sherman, President, Chief Executive Officer
and Director (Principal Executive Officer)                                                    
|                  | 
|November 30, 2009 |  | /s/    R. BROOKS SHERMAN,
JR. R. Brooks Sherman, Jr., Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|                  | 
|November 30, 2009 |  | /s/    WARREN H.
GFELLER Warren H. Gfeller, Director                                                                                                                     
|                  | 
|November 30, 2009 |  | /s/    ARTHUR B.
KRAUSE Arthur B. Krause, Director                                                                                                                       
|                  | 
|November 30, 2009 |  | Richard T. OBrien, Director                                                                                                                                             



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Schedule I

Inergy Holdings, L.P.

Parent Only

Balance Sheets

(in millions, except unit information)



|                                                                                                                            |  |               |      |      |   |      |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---- | ---- | - | ---- | -
|                                                                                                                            |  | September 30, |     
|                                                                                                                            |  | 2009          |      | 2008 |  
|Assets                                                                                                                      |  |               |      |      |   |      |  
|Current assets:                                                                                                             |  |               |      |      |   |      |  
|Cash and cash equivalents                                                                                                   |  | $             | 0.1  |      | $ |     |  
|Prepaid expenses and other current assets                                                                                   |  |               | 0.1  |      |   | 0.2  |  
|                                                                                                                            |  |               |      |      |   |      |  
|Total current assets                                                                                                        |  |               | 0.2  |      |   | 0.2  |  
|Intangible assets, net                                                                                                      |  |               | 0.1  |      |   | 0.1  |  
|Goodwill                                                                                                                    |  |               | 20.2 |      |   | 20.2 |  
|Investment in subsidiaries                                                                                                  |  |               | 45.7 |      |   | 43.7 |  
|Notes receivable due from related parties                                                                                   |  |               | 2.9  |      |   | 2.9  |  
|                                                                                                                            |  |               |      |      |   |      |  
|Total assets                                                                                                                |  | $             | 69.1 |      | $ | 67.1 |  
|                                                                                                                            |  |               |      |      |   |      |  
|Liabilities and partners capital                                                                                           |  |               |      |      |   |      |  
|Current liabilities:                                                                                                        |  |               |      |      |   |      |  
|Accrued interest                                                                                                            |  | $             | 0.1  |      | $ | 0.1  |  
|                                                                                                                            |  |               |      |      |   |      |  
|Total current liabilities                                                                                                   |  |               | 0.1  |      |   | 0.1  |  
|Long-term debt                                                                                                              |  |               | 27.2 |      |   | 28.8 |  
|Notes payable due to related parties                                                                                        |  |               | 1.3  |      |   | 1.3  |  
|Partners capital                                                                                                           |  |               |      |      |   |      |  
|Common unitholders (20,276,611 and 20,239,657 units issued and outstanding as of September 30, 2009 and 2008, respectively) |  |               | 38.8 |      |   | 38.8 |  
|Accumulated other comprehensive income (loss)                                                                               |  |               | 1.7  |      |   | (1.9 | )
|                                                                                                                            |  |               |      |      |   |      |  
|Total partners capital                                                                                                     |  |               | 40.5 |      |   | 36.9 |  
|                                                                                                                            |  |               |      |      |   |      |  
|Total liabilities and partners capital                                                                                     |  | $             | 69.1 |      | $ | 67.1 |  
|                                                                                                                            |  |               |      |      |   |      |  



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Schedule I

Inergy Holdings, L.P.

Parent Only

Statements of Operations

(in millions)



|                                          |  |                          |      |   |      |   |      |      |  |   |       |  
|----------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | ---- |  | - | ----- | -
|                                          |  | Year Ended September 30, |     
|                                          |  | 2009                     |      |   | 2008 |   |      | 2007 | 
|Equity in earnings of subsidiaries        |  | $                        | 57.1 |   |      | $ | 38.1 |      |  | $ | 104.7 |  
|Expenses:                                 |  |                          |      |   |      |   |      |      |  |   |       |  
|Operating and administrative              |  |                          | 0.9  |   |      |   | 1.0  |      |  |   | 0.8   |  
|                                          |  |                          |      |   |      |   |      |      |  |   |       |  
|Operating income                          |  |                          | 56.2 |   |      |   | 37.1 |      |  |   | 103.9 |  
|Other income (expense):                   |  |                          |      |   |      |   |      |      |  |   |       |  
|Gain on issuance of units in Inergy, L.P. |  |                          | 1.7  |   |      |   |     |      |  |   | 0.9   |  
|Interest expense, net                     |  |                          | (0.8 | ) |      |   | (1.6 | )    |  |   | (2.2  | )
|                                          |  |                          |      |   |      |   |      |      |  |   |       |  
|Net income                                |  | $                        | 57.1 |   |      | $ | 35.5 |      |  | $ | 102.6 |  
|                                          |  |                          |      |   |      |   |      |      |  |   |       |  



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Schedule II

Inergy Holdings, L.P. and Subsidiaries

Valuation
and Qualifying Accounts

(in millions)



|                                |  |                              |     |                            |   |                |  |                        |     |  |                       |      |   |  |   |    
|------------------------------- |  | ---------------------------- | --- | -------------------------- | - | -------------- |  | ---------------------- | --- |  | --------------------- | ---- | - |  | - | ---
|Year Ended September 30,        |  | Balance atbeginningof period |     | Chargedto costsandexpenses |   | OtherAdditions |  | Deductions(write-offs) |     |  | Balanceat endofperiod
|Allowance for doubtful accounts |  |                              |     |                            |   |                |  |                        |     |  |                       |      |   |  |   |    
|2009                            |  | $                            | 6.4 |                            | $ | 3.7            |  | $                      | 0.3 |  | $                     | (7.7 | ) |  | $ | 2.7
|2008                            |  |                              | 3.4 |                            |   | 5.7            |  |                        | 0.5 |  |                       | (3.2 | ) |  |   | 6.4
|2007                            |  |                              | 2.9 |                            |   | 3.3            |  |                        | 0.5 |  |                       | (3.3 | ) |  |   | 3.4



141