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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2009

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

For the transition period from to .

COMMISSION FILE NUMBER: 0-32453

Inergy, L.P.

(Exact name of registrant as specified in its charter)


Delaware		43-1918951
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)


Two Brush Creek Blvd., Suite 200
Kansas City, Missouri		64112
(Address of principal executive offices)		(Zip code)

(816) 842-8181

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files). Yes ¨ No ¨

The following units were outstanding at January 29, 2010:

Common units 65,664,307

INERGY, L.P.

INDEX TO FORM 10-Q


		Page
Part I – Financial Information

Item 1 – Financial Statements of Inergy, L.P.:
Consolidated Balance Sheets as of December 31, 2009 (unaudited) and September 30, 2009		3
Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2009 and 2008		4
Unaudited Consolidated Statement of Partners’ Capital for the Three Months Ended December 31, 2009		5
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008		6
Unaudited Notes to Consolidated Financial Statements		8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3 – Quantitative and Qualitative Disclosures About Market Risk		34

Item 4 – Controls and Procedures		35

Part II – Other Information

Item 1 – Legal Proceedings		36

Item 1A – Risk Factors		36

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		36

Item 3 – Defaults Upon Senior Securities		36

Item 4 – Submission of Matters to a Vote of Security Holders		36

Item 5 – Other Information		36

Item 6 – Exhibits		37

Signature		39

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements of Inergy L.P.

INERGY L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except unit information)


	December 31, 2009			September 30, 2009
	*(unaudited)*
Assets
Current assets:
Cash and cash equivalents	$	15.8		$	11.6
Accounts receivable, less allowance for doubtful accounts of $2.3 million and $2.7 million at December 31, 2009 and September 30, 2009, respectively		194.6			94.7
Inventories (Note 3)		115.7			96.5
Assets from price risk management activities		22.1			23.8
Prepaid expenses and other current assets		20.5			20.2

Total current assets		368.7			246.8

Property, plant and equipment (Note 3)		1,686.7			1,555.2
Less: accumulated depreciation		357.0			327.9

Property, plant and equipment, net		1,329.7			1,227.3

Intangible assets (Note 3):
Customer accounts		297.4			277.4
Other intangible assets		152.8			133.0

		450.2			410.4
Less: accumulated amortization		136.3			133.1

Intangible assets, net		313.9			277.3

Goodwill		455.0			374.3
Other assets		2.9			7.4

Total assets	$	2,470.2		$	2,133.1


Liabilities and partners’ capital
Current liabilities:
Accounts payable	$	129.6		$	71.7
Accrued expenses		81.6			74.1
Customer deposits		48.3			60.1
Income tax liability (Note 5)		26.3			—
Liabilities from price risk management activities		37.6			29.3
Current portion of long-term debt (Note 8)		21.8			22.0

Total current liabilities		345.2			257.2

Long-term debt, less current portion (Note 8)		1,321.1			1,071.3
Other long-term liabilities		0.9			0.9

Partners’ capital (deficit) (Note 9):
Common unitholders (59,874,587 and 59,807,087 units issued and outstanding as of December 31, 2009 and September 30, 2009, respectively)		799.7			800.0
Non-managing general partner and affiliate		(0.8	)		(0.6	)

Total controlling partners’ capital		798.9			799.4
Interest of non-controlling partners in ASC’s subsidiaries		4.1			4.3

Total partners’ capital		803.0			803.7


Total liabilities and partners’ capital	$	2,470.2		$	2,133.1

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

INERGY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except unit and per unit data)

(unaudited)


	Three Months Ended December 31,
	2009			2008
Revenue:
Propane	$	372.3		$	409.2
Other		129.4			124.8

		501.7			534.0
Cost of product sold (excluding depreciation and amortization as shown below):
Propane		252.3			283.2
Other		74.2			76.5

		326.5			359.7

Gross profit		175.2			174.3
Expenses:
Operating and administrative		68.5			72.8
Depreciation and amortization		37.1			26.3
Loss on disposal of assets		2.0			0.7

Operating income		67.6			74.5
Interest expense, net		(21.1	)		(16.8	)

Income before income taxes		46.5			57.7

Provision for income taxes		0.1			0.1

Net income		46.4			57.6
Net income attributable to non-controlling partners in ASC’s consolidated net income		0.4			0.4

Net income attributable to controlling partners	$	46.0		$	57.2


Partners’ interest information:
Non-managing general partner and affiliate interest in net income	$	16.6		$	11.3


Total limited partners’ interest in net income	$	29.4		$	45.9


Net income per limited partner unit (Note 4):
Basic	$	0.49		$	0.90

Diluted	$	0.49		$	0.90


Weighted average limited partners’ units outstanding (in thousands):
Basic		59,837			51,084
Dilutive units		48			12

Diluted		59,885			51,096

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

INERGY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

(in millions)

(unaudited)


	Common Unit Capital			Non-Managing General Partner and Affiliate			Non- Controlling Partners			Total Partners’ Capital
Balance at September 30, 2009	$	800.0		$	(0.6	)	$	4.3		$	803.7
Net proceeds from common unit options exercised		0.4			—			—			0.4
Unit-based compensation charges		2.1			—			—			2.1
Distributions		(40.4	)		(14.8	)		—			(55.2	)
Distributions paid to non-controlling partners		—			—			(0.6	)		(0.6	)
Other		(0.1	)		—			—			(0.1	)
Comprehensive income:
Net income		31.4			14.6			0.4			46.4
Change in unrealized fair value on cash flow hedges		6.3			—			—			6.3

Comprehensive income											52.7

Balance at December 31, 2009	$	799.7		$	(0.8	)	$	4.1		$	803.0

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

INERGY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Three Months Ended December 31,
	2009			2008
Operating activities
Net income attributable to controlling partners	$	46.0		$	57.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		30.4			19.7
Amortization		6.7			6.6
Amortization of deferred financing costs and net bond discount		1.9			0.6
Unit-based compensation charges		2.1			0.6
Interest of non-controlling partners in ASC’s consolidated net income		0.4			0.4
Provision for doubtful accounts		(0.9	)		(0.4	)
Loss on disposal of assets		2.0			0.7
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable		(83.6	)		(54.1	)
Inventories		(13.2	)		35.2
Prepaid expenses and other current assets		0.5			(1.4	)
Other liabilities		(0.3	)		(0.3	)
Accounts payable		54.2			20.6
Accrued expenses		0.9			(1.3	)
Customer deposits		(14.1	)		(22.1	)
Net assets (liabilities) from price risk management activities		16.1			(50.6	)

Net cash provided by operating activities		49.1			11.4

Investing activities
Acquisitions, net of cash acquired		(192.5	)		(1.3	)
Purchases of property, plant and equipment		(34.8	)		(47.0	)
Proceeds from sale of assets		2.2			2.3

Net cash used in investing activities		(225.1	)		(46.0	)

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

INERGY, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in millions)

(unaudited)


	Three Months Ended December 31,
	2009			2008
Financing activities
Proceeds from the issuance of long-term debt	$	429.1		$	200.4
Principal payments on long-term debt		(187.8	)		(121.1	)
Distributions		(55.2	)		(43.1	)
Payments for deferred financing costs		(9.9	)		—
Net proceeds from common unit options exercised		0.4			—
Proceeds from swap settlement		4.3			—
Distributions paid to non-controlling partners		(0.6	)		—
Other		(0.1	)		—

Net cash provided by financing activities		180.2			36.2

Net increase in cash		4.2			1.6
Cash at beginning of period		11.6			17.3


Cash at end of period	$	15.8		$	18.9


Supplemental schedule of noncash investing and financing activities
Additions to intangible assets through the issuance of noncompetition agreements and notes to former owners of businesses acquired	$	—		$	2.7


Net change to property, plant and equipment through accounts payable and accrued expenses	$	(3.2	)	$	2.7


Change in the fair value of interest rate swap liability and related long-term debt	$	(0.6	)	$	6.4


Acquisitions, net of cash acquired:
Current assets	$	22.1		$	0.3
Property, plant and equipment		104.5			5.9
Intangible assets		35.3			1.8
Goodwill		80.8			0.9
Other assets		0.1			—
Current liabilities		(50.3	)		(0.9	)
Issuance of equity		—			(6.7	)

Total acquisitions, net of cash acquired	$	192.5		$	1.3

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1 – Partnership Organization and Basis of Presentation

Organization

The consolidated financial statements of Inergy, L.P. (“Inergy”, the “Partnership” or the “Company”) include the accounts of Inergy and its subsidiaries, including Inergy Propane, LLC (“Inergy Propane”), Inergy Midstream, LLC (collectively, the “Operating Companies”) and Inergy Finance Corp.

Inergy Partners, LLC (“Inergy Partners” or the “Non-Managing General Partner”), a subsidiary of Inergy Holdings, L.P. (“Holdings”), owns the Non-Managing General Partner interest in the Company. Inergy GP, LLC (“Inergy GP” or the “Managing General Partner”), a wholly-owned subsidiary of Holdings, has sole responsibility for conducting the Company’s business and managing its operations. Holdings is a holding company whose principal business, through its subsidiaries, is its management of and ownership in the Company. Holdings also directly owns the incentive distribution rights (“IDRs”) with respect to Inergy.

Pursuant to a partnership agreement, Inergy GP or any of its affiliates is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of Inergy and all other necessary or appropriate expenses allocable to Inergy or otherwise reasonably incurred by Inergy GP in connection with operating the Company’s business. These costs, which totaled $1.0 million and $1.2 million for the three months ended December 31, 2009 and 2008, respectively, include compensation, bonuses and benefits paid to officers and employees of Inergy GP and its affiliates.

As of December 31, 2009, Holdings owns an aggregate 8.6% interest in Inergy, L.P., inclusive of ownership of all of the non-managing general partner and the managing general partner. This ownership is comprised of an approximate 0.8% general partnership interest and an approximate 7.8% limited partnership interest.

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, South and West regions of the United States.

Basis of Presentation

The financial information contained herein as of December 31, 2009, and for the three-month periods ended December 31, 2009 and 2008, is unaudited. The Company believes this information has been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. The Company also believes this information includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods then ended. The retail distribution business is largely seasonal due to propane’s primary use as a heating source in residential and commercial buildings. Accordingly, the results of operations for the three-month period ended December 31, 2009, are not indicative of the results of operations that may be expected for the entire fiscal year.

The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements of Inergy, L.P. and subsidiaries and the notes thereto included in Form 10-K as filed with the Securities and Exchange Commission for the fiscal year ended September 30, 2009.

Note 2 – Summary of Significant Accounting Policies

Financial Instruments and Price Risk Management

Inergy utilizes certain derivative financial instruments to (i) manage its exposure to commodity price risk, specifically, the related change in the fair value of inventories, as well as the variability of cash flows related to forecasted transactions; (ii) ensure adequate physical supply of commodity will be available; and (iii) manage its exposure to interest rate risk associated with fixed rate

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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 sheets as price risk management assets or liabilities and the related change in fair value is recorded to earnings in the current period as cost of product sold.

Inergy also enters into derivative financial instruments that qualify as cash flow hedges, which hedge the exposure of variability in expected future cash flows predominantly attributable to forecasted purchases to supply fixed price sale contracts. These derivatives are recorded on the balance sheet at fair value as price risk management assets or liabilities. The effective portion of the gain or loss on these cash flow hedges is recorded in other comprehensive income in partner’s capital and reclassified into earnings as a component of cost of product sold in the same period in which the hedged transaction affects earnings. Any ineffective portion of the gain or loss is recognized as cost of product sold in the current period. Accumulated other comprehensive income was $17.2 million and $11.0 million at December 31, 2009 and September 30, 2009, respectively. Approximately $17.8 million is expected to be reclassified to earnings from other comprehensive income over the next twelve months.

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

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

Revenue Recognition

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

Expense Classification

Cost of product sold consists of tangible products sold including all propane and other natural gas liquids, salt and all propane related appliances. Operating and administrative expenses consist of all expenses incurred by Inergy other than those described above in cost of product sold and depreciation and amortization. Certain of Inergy’s operating and administrative expenses and depreciation and amortization are incurred in the distribution of product and storage sales but are not included in cost of product sold. These amounts were $42.6 million and $33.7 million for the three months ended December 31, 2009 and 2008, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Inventories

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

Shipping and Handling Costs

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

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows:


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

Salt deposits are depleted on a unit of production method.

Identifiable Intangible Assets

The Company has recorded certain identifiable intangible assets, including customer accounts, covenants not to compete, trademarks, deferred financing costs and deferred acquisition costs. Customer accounts, covenants not to compete and trademarks have arisen from the various acquisitions by Inergy. Deferred financing costs represent financing costs incurred in obtaining financing and are being amortized over the term of the related debt. Deferred acquisition costs represent costs incurred on acquisitions that Inergy is actively pursuing. Additionally, an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer’s intent to do so.

Certain intangible assets are amortized on a straight-line basis over their estimated economic lives, as follows:


		Years
Customer accounts		15
Covenants not to compete		2–10
Deferred financing costs		1–10

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

Goodwill

Goodwill is recognized for various acquisitions by Inergy as the excess of the cost of the acquisitions over the fair value of the related net assets at the date of acquisition. Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test.

In connection with the goodwill impairment evaluation, the Company 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, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Income Taxes

Inergy is a publicly-traded master limited partnership. Partnerships are generally not subject to federal income tax, although publicly-traded partnerships are treated as corporations for federal income tax purposes and therefore are subject to federal income tax, unless the partnership generates at least 90% of its gross income from qualifying sources. If the qualifying income requirement is satisfied, the publicly-traded partnership will be treated as a partnership for federal income tax purposes. Inergy Sales and Service, Inc. (“Services”), a subsidiary of Inergy, does not generate at least 90% of its gross income from qualifying sources, and as such, federal and state income taxes are provided on the taxable income of Services. The remaining Inergy subsidiaries generate at least 90% of gross income from qualifying sources. As a result, except for the operations of Services, Inergy’s net earnings for federal income tax purposes are allocated to the individual partners for inclusion in their income tax returns. Legislation in certain states allows for taxation of partnerships. As such, certain state taxes for Inergy have also been included in the accompanying financial statements as income taxes due to the nature of the tax in those particular states. 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

Inergy accounts for the collection and remittance of sales tax on a net tax basis. As a result, these amounts are not reflected in the consolidated statements of operations.

Income Per Unit

The Company calculates basic net income per unit by dividing net income, after considering the Non-Managing General Partner’s interest, including priority distributions, by the weighted average number of limited partner units outstanding. Under this method, the calculation of net income per unit reflects an allocation of earnings to each class of units that is consistent with the partnership agreement’s treatment of the respective classes’ capital accounts. Diluted net income per limited partner unit is computed by dividing net income, after considering the Non-Managing General Partner’s interest, by the sum of weighted average number of common units and the effect of other dilutive units.

Accounting for Unit-Based Compensation

Inergy has a unit-based employee compensation plan and all share-based payments to employees, including grants of employee stock options, are recognized in the consolidated statements of operations based on their fair values.

The amount of compensation expense recorded by the Company during the three months ended December 31, 2009 and 2008 was $2.1 million and $0.6 million, respectively. The compensation expense for the three months ended December 31, 2009 and 2008, includes $1.6 million and $0.3 million 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 11 for disclosures related to Inergy’s propane and midstream segments.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Fair Value

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

Recently Issued Accounting Pronouncements

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

FASB Accounting Standards Codification Subtopic 260-10 (“260-10”), originally issued as EITF Issue No. 07-4, “Application of the Two-Class Method under FASB Statement No. 128 to Master Limited Partnerships”, was ratified in March 2008 and applies to Master Limited Partnerships (“MLP”) that are required to make incentive distributions when certain thresholds have been met regardless of whether the IDR is a separate limited partner (“LP”) interest or embedded in the general partner interest. 260-10 addresses how the current period earnings of an MLP should be allocated to the general partner, LP’s and, when applicable, IDRs. The Company adopted 260-10 on October 1, 2009, and the impact on its earnings per unit calculation has been retrospectively applied (see Note 4).

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

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 3 – Certain Balance Sheet Information

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


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

Total inventory	$	115.7	$	96.5

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


	December 31, 2009		September 30, 2009
Tanks and plant equipment	$	1,035.6	$	916.7
Buildings and improvements		371.7		323.6
Vehicles		121.2		107.7
Construction in process		86.3		136.0
Salt deposits		41.6		41.6
Office furniture and equipment		30.3		29.6

		1,686.7		1,555.2
Less: accumulated depreciation		357.0		327.9

Total property, plant and equipment, net	$	1,329.7	$	1,227.3

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

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


	December 31, 2009		September 30, 2009
Customer accounts	$	297.4	$	277.4
Covenants not to compete		80.3		72.5
Deferred financing and other costs		43.3		34.3
Trademarks		29.2		26.2

		450.2		410.4
Less: accumulated amortization		136.3		133.1

Total intangible assets, net	$	313.9	$	277.3

Note 4 – Income Per Unit

On October 1, 2009, the Company adopted the provisions of FASB Accounting Standards Codification Subtopic 260-10 (“260-10”), which provides that for master limited partnerships (“MLPs”), current period earnings be reduced by the amount of available cash that will be distributed with respect to that period for purposes of calculating earnings per unit. Any residual amount representing undistributed earnings is assumed to be allocated to the various ownership interests in accordance with the contractual provisions of the partnership agreement. In addition, IDRs, which represent a limited partnership ownership interest, are considered to be participating securities because they have the right to participate in earnings with common equity holders.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Under the Partnership’s partnership agreement, for any quarterly period, IDRs participate in net income only to the extent of the amount of cash distributions actually declared, thereby excluding the IDRs from participating in undistributed earnings or losses. Accordingly, undistributed net income is assumed to be allocated to the other ownership interests on a pro-rata basis.

The adoption of the provisions of this standard has been retrospectively applied and had the following impact on the earnings per unit for the three-month period ended December 31, 2008:


	Original Value		Adjustment			Adjusted Value
Basic	$	0.91	$	(0.01	)	$	0.90
Diluted	$	0.91	$	(0.01	)	$	0.90

The above adjustment is attributable to the requirement of 260-10 to calculate the general partner’s interest in net income based on the IDRs earned during the period. The IDRs earned for the three month period ended December 31, 2009, will be paid in February 2010. The Company previously calculated the general partner’s interest in net income based on the IDRs paid during the period.

Note 5 – Business Acquisitions

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

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


	December 31, 2009
Accounts receivable, less allowance for doubtful accounts of $0.5 million	$	15.2
Inventory		6.1
Prepaid expenses and other current assets		0.8
Property, plant and equipment		104.5
Customer accounts		20.0
Covenants not to compete		12.3
Trademarks		3.0
Other		0.1

Total identifiable assets acquired		162.0

Current liabilities		15.9
Income tax liability		26.3
Current portion of long-term debt		1.9
Notes payable		6.2

Total liabilities assumed		50.3


Net identifiable assets acquired		111.7
Goodwill		80.8

Net assets acquired	$	192.5

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

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

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


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

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Liberty to reflect the depreciation and amortization that would have been charged assuming the preliminary fair value adjustments to property, plant and equipment and intangible assets had been made at the beginning of the respective period.

The purchase price allocation for this acquisition has been prepared on a preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available. Changes to reflect final asset valuation of prior fiscal year acquisitions have been included in the Company’s consolidated financial statements but are not material.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 6 – Risk Management

The Company 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. The Company utilizes derivative instruments to manage its exposure to fluctuations in commodity prices, which is discussed more fully below. The Company also utilizes derivative instruments to manage its exposure to fluctuations in interest rates, which is discussed more fully in Note 8. Additional information related to derivatives is provided in Note 2 and Note 7.

Commodity Derivative Instruments and Price Risk Management

Risk Management Activities

Inergy sells propane and other commodities to energy related businesses and may use a variety of financial and other instruments including forward contracts involving physical delivery of propane. Inergy will enter into offsetting positions to hedge against the exposure its customer contracts create. Inergy does not designate these instruments as hedging instruments. These instruments are marked to market with the changes in the market value reflected in cost of product sold. Inergy attempts to balance its contractual portfolio in terms of notional amounts and timing of performance and delivery obligations. This balance in the contractual portfolio significantly reduces the volatility in cost of product sold related to these instruments. However, immaterial net unbalanced positions can exist or are established based on assessment of anticipated short-term needs or market conditions.

Cash Flow Hedging Activity

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

Fair Value Hedging Activity

Inergy will enter into derivative instruments to hedge its exposure to fluctuating commodity prices that results from maintaining its wholesale inventory. The instruments hedging wholesale inventory qualify to be treated as fair value hedges. This accounting treatment requires the fair value changes in both the derivative instruments and the hedged inventory to be recorded in cost of product sold.

A significant amount of inventory held in bulk storage facilities is hedged as it is not expected to be sold in the immediate future and is therefore exposed to fluctuations in commodity prices. Commodity inventory held at retail locations is not hedged as this inventory is expected to be sold in the immediate future and is therefore not exposed to fluctuations in commodity prices over an extended period of time.

Commodity Price and Credit Risk

Notional Amounts and Terms

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


	December 31, 2009		September 30, 2009
	Fixed Price Payor	Fixed Price Receiver	Fixed Price Payor	Fixed Price Receiver
Propane, crude and heating oil (barrels)	3.6	3.6	6.8	6.5
Natural gas (MMBTU’s)	0.5	—	—	—

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Notional amounts reflect the volume of transactions, but do not represent the amounts exchanged by the parties to the financial instruments. Accordingly, notional amounts do not reflect the Company’s monetary exposure to market or credit risks.

Fair Value of Derivative Instruments

The following tables detail the amount and location on the Company’s consolidated balance sheets and consolidated statements of operations related to all of its commodity derivatives (in millions):


	Amount of Gain (Loss) Recognized in Net Income from Derivatives			Amount of Gain (Loss) Recognized in Net Income on Item Being Hedged
	Three Months Ended December 31, 2009
Derivatives in fair value hedging relationships:
Commodity ^(a)	$	(9.9	)	$	10.2
Debt^(b)		(0.6	)		0.6

Total fair value of derivatives	$	(10.5	)	$	10.8


	Amount of Gain (Loss) Recognized in OCI on Effective Portion of Derivatives		Amount of Gain (Loss) Reclassified from OCI to Net Income		Amount of Gain (Loss) Recognized in Net Income on Ineffective Portion of Derivatives & Amount Excluded from Testing
	Three Months Ended December 31, 2009
Derivatives in cash flow hedging relationships:
Commodity ^(c)	$	11.6	$	5.3	$	—


	Amount of Gain (Loss) Recognized in Net Income from Derivatives
	Three Months Ended December 31, 2009
Derivatives not designated as hedging instruments:
Commodity^(d)	$	3.0

(a)	The gain (loss) on both the derivative and the item being hedged are located in cost of product sold in the consolidated statements of operations.

(b)	The gain (loss) on both the derivative and the item being hedged are located in interest expense in the consolidated statements of operations.

(c)	The gain (loss) on the amount reclassified from 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.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Credit Risk

Inherent in the Company’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. The Company attempts to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as through customer deposits, letters of credit and entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. The counterparties associated with assets from price risk management activities as of December 31, 2009 and September 30, 2009 were propane retailers, resellers, energy marketers and dealers.

Certain of the Company’s derivative instruments have credit limits that require the Company 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 the Company’s established credit limit with the respective counterparty. If the Company’s credit rating were to change, the counterparties could require the Company 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 the Company’s credit rating as well as the requirements of the individual counterparty. The aggregate fair value of all commodity derivative instruments with credit-risk-related contingent features that are in a liability position on December 31, 2009, is $18.1 million for which the Company has posted collateral of $4.1 million, in the normal course of business. The Company has received collateral of $14.7 million in the normal course of business. All collateral amounts have been netted against the asset or liability with the respective counterparty.

Note 7 – Fair Value Measurements

FASB Accounting Standards Codification Subtopic 820-10 (“820-10”) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the fair value hierarchy are as follows:

•

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and US government treasury securities.

•

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over the counter (“OTC”) forwards, options and physical exchanges.

•

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

As of December 31, 2009, the Company held certain assets and liabilities that are required to be measured at fair value on a recurring basis. These included the Company’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. The Company’s derivative instruments consist of forwards, swaps, futures, physical exchanges and options.

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Company’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.

The Company’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.

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

The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2009 (in millions). The assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	Fair Value of Derivatives
	Level 1		Level 2		Level 3		Total		Designated as Hedges		Not Designated as Hedges		Netting Agreements^(a)			Total
Assets
Assets from price risk management	$	1.7	$	58.0	$	0.9	$	60.6	$	16.4	$	44.2	$	(38.5	)	$	22.1
Inventory		—		58.8		—		58.8		—		—		—			58.8
Interest rate swap		—		0.7		—		0.7		0.7		—		—			0.7

Total assets at fair value	$	1.7	$	117.5	$	0.9	$	120.1	$	17.1	$	44.2	$	(38.5	)	$	81.6


Liabilities
Liabilities from price risk management	$	4.6	$	51.8	$	3.2	$	59.6	$	15.3	$	44.3	$	(22.0	)	$	37.6

^(a)	Amounts represent the impact of legally enforceable master netting agreements that allow the Company 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 Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months Ended December 31, 2009
Beginning balance	$	(0.2	)
Beginning balance recognized during the period		(0.1	)
Change in value of contracts executed during the period		(2.0	)

Ending balance	$	(2.3	)

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 8 – Long-Term Debt

Long-term debt consisted of the following at December 31, 2009 and September 30, 2009, respectively (in millions):


	December 31, 2009			September 30, 2009
Credit agreement	$	270.0		$	27.2
Senior unsecured notes		1,050.0			1,050.0
Fair value hedge adjustment on senior unsecured notes		5.0			5.6
Bond premium		3.1			3.3
Bond discount		(18.7	)		(19.7	)
ASC credit agreement		7.7			8.3
Obligations under noncompetition agreements and notes to former owners of businesses acquired		25.8			18.6

Total debt		1,342.9			1,093.3
Less: current portion		21.8			22.0

Total long-term debt	$	1,321.1		$	1,071.3

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

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

•

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

•

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

At December 31, 2009, the balance outstanding under the new Credit Agreement was $270.0 million, including $245.0 million borrowed for acquisitions and growth capital expenditures and $25.0 million borrowed for working capital purposes. At September 30, 2009, the balance outstanding under the previous Credit Agreement was $27.2 million, with the entire balance borrowed for working capital purposes. The interest rates of these revolvers are based on prime rate and LIBOR plus the applicable spreads, which were between 3.24% and 5.25% at December 31, 2009, and between 2.0% and 3.5% at September 30, 2009, for all outstanding debt under the Credit Agreement. Availability under the Credit Agreement amounted to $238.6 million and $381.1 million at December 31, 2009 and September 30, 2009, respectively. Outstanding standby letters of credit under the Credit Agreement amounted to $16.4 million and $16.7 million at December 31, 2009 and September 30, 2009, respectively.

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

Steuben Gas Storage Company, a majority-owned subsidiary of Arlington Storage Company (“ASC”), had a debt agreement in place at the time of the Company’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 the Company. The ASC Credit Agreement is scheduled to mature in December 2015. The interest rate on approximately half of the ASC Credit Agreement is at a fixed rate, while the other portion is based on LIBOR plus the applicable spreads.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

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

Note 9 – Partners’ Capital

Quarterly Distributions of Available Cash

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


	Three Months Ended December 31,
	2009		2008
Record date		November 6, 2009		November 7, 2008
Payment date		November 13, 2009		November 14, 2008
Per unit rate	$	0.675	$	0.635
Distribution amount (in millions)	$	55.2	$	43.1

On January 25, 2010, Inergy declared a distribution of $0.685 per limited partner unit to be paid on February 12, 2010 to unitholders of record on February 5, 2010 for a total distribution of $61.8 million with respect to the first fiscal quarter of 2010. On February 13, 2009, a quarterly distribution of $0.645 per limited partner unit was paid to unitholders of record on February 6, 2009, with respect to the first fiscal quarter of 2009, for a total distribution of $44.4 million.

Note 10 – Commitments and Contingencies

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

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

Note 11 – Segments

Inergy’s financial statements reflect two operating and reportable segments: propane operations and midstream operations. Inergy’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. Inergy’s midstream operations include storage of natural gas for third parties, fractionation of natural gas liquids, processing of natural gas, distribution of natural gas liquids and the production and sale of salt.

The identifiable assets associated with each reportable segment include accounts receivable and inventories. Goodwill, property, plant and equipment and expenditures for property, plant and equipment are also presented for each segment. The net asset/liability from price risk management, as reported in the accompanying consolidated balance sheets, is primarily related to the propane segment.

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Revenues, gross profit, identifiable assets, goodwill, property, plant and equipment and expenditures for property, plant and equipment for each of Inergy’s reportable segments are presented below (in millions):


	Three Months Ended December 31, 2009
	Propane Operations		Midstream Operations		Intersegment Operations			Corporate Assets		Total
Retail propane revenues	$	221.3	$	—	$	—		$	—	$	221.3
Wholesale propane revenues		143.3		7.7		—			—		151.0
Storage, fractionation and other midstream revenues		—		68.9		(0.4	)		—		68.5
Transportation revenues		4.2		4.8		—			—		9.0
Propane-related appliance sales revenues		7.1		—		—			—		7.1
Retail service revenues		5.0		—		—			—		5.0
Rental service and other revenues		6.7		—		—			—		6.7
Distillate revenues		33.1		—		—			—		33.1
Gross profit		142.1		33.5		(0.4	)		—		175.2
Identifiable assets		253.2		57.1		—			—		310.3
Goodwill		358.7		96.3		—			—		455.0
Property, plant and equipment		801.3		874.3		—			11.1		1,686.7
Expenditures for property, plant and equipment		4.3		27.2		—			0.1		31.6

	Three Months Ended December 31, 2008
	Propane Operations		Midstream Operations		Intersegment Operations			Corporate Assets		Total
Retail propane revenues	$	267.7	$	—	$	—		$	—	$	267.7
Wholesale propane revenues		135.4		6.1		—			—		141.5
Storage, fractionation and other midstream revenues		—		51.2		(0.2	)		—		51.0
Transportation revenues		4.6		4.5		—			—		9.1
Propane-related appliance sales revenues		7.1		—		—			—		7.1
Retail service revenues		6.1		—		—			—		6.1
Rental service and other revenues		8.2		—		—			—		8.2
Distillate revenues		43.3		—		—			—		43.3
Gross profit		152.3		22.2		(0.2	)		—		174.3
Identifiable assets		221.1		26.4		—			—		247.5
Goodwill		275.1		168.9		—			—		444.0
Property, plant and equipment		695.3		620.8		—			10.7		1,326.8
Expenditures for property, plant and equipment		4.0		45.2		—			0.5		49.7

Note 12 – Subsequent Events

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

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

INERGY, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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

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

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

Overview

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

Both of our 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 our segments in the course of their work to ensure the appropriate growth opportunities are pursued.

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

On December 31, 2009, we acquired the partnership interests of Liberty Propane, LP (“Liberty”) headquartered in Overland Park, Kansas. Liberty delivers propane to nearly 100,000 customers from 38 customer service centers in the Northeast, Mid-Atlantic and Western regions of the United States. The purchase price allocation for this acquisition has been prepared on a preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available. Changes to final asset valuation of prior fiscal year acquisitions have been included in our consolidated financial statements but are not material.

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 our propane is used in the weather-sensitive residential markets, the temperatures realized in our areas of operations, particularly during the six-month peak heating season of October through March, have a significant effect on our 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, we use information on normal temperatures in understanding how historical results of operations are affected by temperatures that are colder or warmer than normal and in preparing forecasts of future operations, which are based on the assumption that normal weather will prevail in each of our operating regions. “Heating degree days” are a general indicator of 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 our propane is used by our customers for heating needs, our propane operations are geographically diversified and not all of our propane sales are weather sensitive. Together, these factors may make it difficult to draw definitive conclusions as to the correlation of our gallon sales to weather calculations comparing weather in a year to normal or to the prior year.

The retail propane business is a “margin-based” business where the level of profitability is largely dependent on the difference between sales prices and product costs. Propane prices continued to be volatile during 2009. At the main pricing hub of Mount Belvieu Texas during the three-month period ended December 31, 2009, propane prices ranged from a low of $0.93 per gallon to a high of $1.32 per gallon and a price of $1.31 per gallon at December 31, 2009. Our ability to pass on price increases to our customers and our hedging program limits the impact that such volatility has had on our results from operations. In the future, we will continue to hedge virtually 100% of our exposure from fixed price sales. While we have historically been successful in passing on any price increases to our customers, there can be no guarantees that this trend will continue in the future. In periods of increasing costs, we have experienced a decline in our gross profit as a percentage of revenues. In addition, during those periods we have historically experienced conservation of propane gallons used by our customers which has resulted in a decline in gross profit. In periods of decreasing costs, we have experienced an increase in our 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 we’ve 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, our selling prices of propane have been at higher levels in order to attempt to maintain our historical gross margin per gallon. We do not attempt to predict or control the underlying commodity prices; however, we monitor these prices daily and adjust our operations and retail prices to maintain expected margins by passing on the wholesale costs to end users of our product. We believe that volatility in commodity prices will continue, and our ability to adjust to and manage our operations in response to this volatility may impact our operations and financial results.

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

We believe our wholesale supply, marketing and distribution business complements our retail distribution business. Through our wholesale operations, we distribute propane and also offer price risk management services to propane retailers, resellers and other related businesses as well as energy marketers and dealers, through a variety of financial and other instruments, including:

•

forward contracts involving the physical delivery of propane;

•

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

•

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

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

Our 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.

We believe our 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 our control and could impair our ability to meet our long-term goals. However, we also believe that the contractual fee-based nature of our midstream operations may serve to mitigate this potential risk.

The majority of our operating cash flows in our midstream operations are generated by our natural gas storage operations. Most of our natural gas storage revenues are based on regulated market-based tariff rates, which are driven in large part by competition and demand for our storage capacity and deliverability. Demand for storage in our key midstream market in the northeastern United States is projected to continue to be strong, driven by a shortage in storage capacity and a higher than average annual growth in natural gas demand. This demand growth is primarily driven by the natural gas-fired electric generation sector and conversion from petroleum based fuels. The natural gas industry is currently experiencing a significant shift in the sources of supply, and this dramatic change could affect our operations. Traditionally, supply to our 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 we serve. These supply shifts and other changes to the natural gas market may have an impact on our storage operations and our development plans in the northeastern United States and may ultimately drive the need for more domestic capacity for natural gas storage. Currently, we have committed to capital expansion projects at our Finger Lakes LPG storage expansion. The Finger Lakes LPG storage expansion project relates to the development of certain caverns acquired in the acquisition of US Salt in August 2008. The solution mining process creates caverns that can be developed into LPG or natural gas storage after the salt has been extracted. The Finger Lakes LPG expansion project is expected to convert certain of the caverns at US Salt into LPG storage with a capacity of up to 5 million barrels. This project is expected to be completed in summer 2010.

As we execute on our strategic objectives, capital expansion projects will continue to be an important part of our growth plan. We have committed capital and investment expenditures at December 31, 2009 of $8.1 million in our midstream operations. These capital requirements, along with the refinancings of normal maturities of existing debt, will require us to continue long-term borrowings. An inability to access capital at competitive rates could adversely affect our ability to implement our strategy. Market disruptions or a downgrade in our credit ratings may increase the cost of borrowing or adversely affect our 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 we move forward with planned expansion opportunities. Significant cost increases could negatively affect the returns ultimately earned on current and future expansions.

Our 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 our midstream operations and the manner in which they operate. Changes to regulations are ongoing and we cannot predict the future course of changes in the regulatory environment or the ultimate effect that any future changes will have on our midstream operations.

Results of Operations

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

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


	Three Months Ended December 31,						Change
	2009			2008			In Dollars			Percentage
Revenue	$	501.7		$	534.0		$	(32.3	)	(6.0	)%
Cost of product sold		326.5			359.7			(33.2	)	(9.2	)

Gross profit		175.2			174.3			0.9		0.5
Operating and administrative expenses		68.5			72.8			(4.3	)	(5.9	)
Depreciation and amortization		37.1			26.3			10.8		41.1
Loss on disposal of assets		2.0			0.7			1.3		185.7

Operating income		67.6			74.5			(6.9	)	(9.3	)
Interest expense, net		(21.1	)		(16.8	)		(4.3	)	(25.6	)

Income before income taxes		46.5			57.7			(11.2	)	(19.4	)
Provision for income taxes		0.1			0.1			—		—

Net income		46.4			57.6			(11.2	)	(19.4	)
Net income attributable to non-controlling partners in ASC’s consolidated net income		0.4			0.4			—		—

Net income attributable to controlling partners	$	46.0		$	57.2		$	(11.2	)	(19.6	)%

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


	Revenues									Gallons
	Three Months Ended December 31,				Change					Three Months Ended December 31,		Change
	2009		2008		In Dollars			Percent		2009	2008	In Units		Percent
Retail propane	$	221.3	$	267.7	$	(46.4	)	(17.3	)%	102.5	104.4	(1.9	)	(1.8	)%
Wholesale propane		151.0		141.5		9.5		6.7		140.1	119.9	20.2		16.8
Other retail		56.1		69.3		(13.2	)	(19.0	)	—	—	—		—
Storage, fractionation and midstream		73.3		55.5		17.8		32.1		—	—	—		—

Total	$	501.7	$	534.0	$	(32.3	)	(6.0	)%	242.6	224.3	18.3		8.2	%

Volume. During the three months ended December 31, 2009, we sold 102.5 million retail gallons of propane, a decrease of 1.9 million gallons or 1.8% from the 104.4 million retail gallons sold during the same three-month period in 2008. Gallons sold during the three months ended December 31, 2009, declined as compared to the same prior year period as a result of lower volumes sold at our existing locations of 3.4 million gallons partially offset by a 1.5 million gallon increase from acquisition-related volume. The primary cause of the declining volumes at existing locations was (1) continued customer conservation, which we believe has resulted from the overall weak United States economic environment and to a lesser extent the lingering effects of propane cost, which had been at record high prices the past several years, and (2) volume declines from net customer losses that we believe were primarily the result of relatively high propane costs. Also contributing to the decline was the weather in our areas of operations, which was approximately 2% warmer than the prior year period and near normal by our calculations using degree day data provided by NOAA. We believe, however, that it takes an approximate full winter season (i.e., October through March) to assess the impact of the winter weather on retail propane gallon sales for that same six-month period.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Operating and Administrative Expenses. Operating and administrative expenses were $68.5 million for the three months ended December 31, 2009, compared to $72.8 million in the same three-month period in 2008. This $4.3 million, or 5.9%, decrease in operating expenses was due primarily to lower operating expenses from existing operations of $4.9 million comprised predominantly of lower personnel expenses, vehicle expenses and other operating expenses. Partially offsetting these decreases was an increase of $0.6 million due to acquisitions.

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

Interest Expense. Interest expense was $21.1 million for the three months ended December 31, 2009, compared to $16.8 million during the same three-month period in 2008. This $4.3 million, or 25.6%, increase was primarily due to higher average interest rates associated with our fixed rate debt. Additionally, during the three months ended December 31, 2009 and 2008, we capitalized $1.5 million and $2.3 million, respectively, of interest related to certain capital improvement projects in our midstream segment as further described below in the “Liquidity and Sources of Capital” section.

Net Income Attributable to Controlling Partners. Net income was $46.0 million for the three months ended December 31, 2009, compared to net income of $57.2 million for the same three-month period in 2008. The $11.2 million, or 19.6%, decrease in net income was primarily attributable to increased depreciation and amortization and interest expense in the 2009 period, partially offset by a higher gross profit.

EBITDA and Adjusted EBITDA. The following table summarizes EBITDA and Adjusted EBITDA for the three months ended December 31, 2009 and 2008, respectively (in millions):


	Three Months Ended December 31,
	2009			2008
EBITDA:
Net income attributable to controlling partners	$	46.0		$	57.2
Interest of non-controlling partners in ASC’s consolidated ITDA ^(a)		(0.1	)		(0.1	)
Interest expense, net		21.1			16.8
Provision for income taxes		0.1			0.1
Depreciation and amortization		37.1			26.3

EBITDA	$	104.2		$	100.3

Non-cash (gain) loss on derivative contracts		(2.0	)		0.4
Long-term incentive and equity compensation expense		2.1			0.6
Loss on disposal of assets		2.0			0.7

Adjusted EBITDA	$	106.3		$	102.0

(a)	ITDA – Interest, taxes, depreciation and amortization.


	Three Months Ended December 31,
	2009			2008
EBITDA:
Net cash provided by operating activities	$	49.1		$	11.4
Net changes in working capital balances		39.5			74.0
Provision for doubtful accounts		0.9			0.4
Amortization of deferred financing costs and net bond discount		(1.9	)		(0.6	)
Long-term incentive and equity compensation expense		(2.1	)		(0.6	)
Loss on disposal of assets		(2.0	)		(0.7	)
Interest of non-controlling partners in ASC’s consolidated EBITDA		(0.5	)		(0.5	)
Interest expense, net		21.1			16.8
Provision for income taxes		0.1			0.1

EBITDA	$	104.2		$	100.3

Non-cash (gain) loss on derivative contracts		(2.0	)		0.4
Long-term incentive and equity compensation expense		2.1			0.6
Loss on disposal of assets		2.0			0.7

Adjusted EBITDA	$	106.3		$	102.0

EBITDA is defined as income before taxes, plus net interest expense and depreciation and amortization expense. For the three months ended December 31, 2009 and 2008, EBITDA was $104.2 million and $100.3 million, respectively. This $3.9 million improvement in EBITDA was primarily attributable to a decrease in operating and administrative expenses during the three months ended December 31, 2009. As indicated in the table, Adjusted EBITDA represents EBITDA excluding the gain or loss on derivative contracts associated with retail propane fixed price sales contracts, the gain or loss on the disposal of assets and long-term incentive and equity compensation expenses. Adjusted EBITDA was $106.3 million for the three months ended December 31, 2009, compared to $102.0 million in the same three-month period in 2008. EBITDA and Adjusted EBITDA should not be considered an alternative to net income, income before income taxes, cash flows from operating activities, or any other measure of financial performance calculated in accordance with generally accepted accounting principles as those items are used to measure operating performance, liquidity or the ability to service debt obligations. We believe that EBITDA and Adjusted EBITDA provide additional information for evaluating our financial performance without regard to our financing methods, capital structure and historical cost basis. Further, we believe that EBITDA and Adjusted EBITDA provide additional information for evaluating our ability to make the minimum quarterly distribution and are presented solely as supplemental measures. EBITDA and Adjusted EBITDA, as we define them, may not be comparable to EBITDA and Adjusted EBITDA or similarly titled measures used by other corporations or partnerships.

Seasonality

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

Liquidity and Sources of Capital

Cash Flows and Contractual Obligations

Net operating cash inflows were $49.1 million and $11.4 million for the three-month periods ending December 31, 2009 and 2008, respectively. The $37.7 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.

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

Net financing cash inflows were $180.2 million and $36.2 million for the three-month periods ending December 31, 2009 and 2008, respectively. The net change was primarily impacted by a $162.0 million increase in proceeds related to the issuance of long-term debt, net of payments on long-term debt, partially offset by a $12.1 million increase in total distributions paid and a $9.9 million increase in payments for deferred financing costs.

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

Description of Credit Facility

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

At our 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. We also pay a fee based on the average daily unused commitments under the Credit Agreement.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We have long-term debt and a revolving line of credit subject to the risk of loss associated with movements in interest rates. At December 31, 2009, we had floating rate obligations totaling $299.4 million including amounts borrowed under our Credit Agreement, the ASC Credit Agreement and our interest rate swap, which converts a portion of our fixed rate senior unsecured notes due 2014 to floating, with a notional amount of $25 million. The floating rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates.

If the floating rate were to fluctuate by 100 basis points from December 2009 levels, our interest expense would change by a total of approximately $3.0 million per year.

Commodity Price, Market and Credit Risk

Inherent in our 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. We take an active role in managing and controlling market and credit risk and have established control procedures, which are reviewed on an ongoing basis. We monitor market risk through a variety of techniques, including daily reporting of the portfolio’s position to senior management. We attempt to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as through customer deposits, letters of credit and entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. The counterparties associated with assets from price risk management activities as of December 31, 2009 and 2008, were propane retailers, resellers, energy marketers and dealers.

The propane industry is a “margin-based” business in which gross profits depend on the excess of sales prices over supply costs. As a result, our profitability will be sensitive to changes in wholesale prices of propane caused by changes in supply or other market conditions. When there are sudden and sharp increases in the wholesale cost of propane, we may not be able to pass on these increases to our customers through retail or wholesale prices. Propane is a commodity and the price we pay for it can fluctuate significantly in response to supply or other market conditions. We have 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 our gross profits and could, if continued over an extended period of time, reduce demand by encouraging our retail customers to conserve or convert to alternative energy sources.

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

Fair Value

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

We use observable market values for determining the fair value of our 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. Our risk management department regularly compares valuations to independent sources and models on a quarterly basis.

Sensitivity Analysis

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

Item 4.

Controls and Procedures

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

Changes in Internal Control Over Financial Reporting

On December 31, 2009, the Company completed its acquisition of Liberty. See Note 5 “Business Acquisitions” to the Consolidated Financial Statements included in Item 1 for discussion of the acquisition and related financial data.

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

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

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

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

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

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

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

A copy of the Amended and Restated Employment Agreement is included herewith as Exhibit 10.1.

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

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

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

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

A copy of the Second Amended and Restated Employment Agreement is included herewith as Exhibit 10.2.

Item 6.

Exhibits


3.1		Certificate of Limited Partnership of Inergy, L.P. (incorporated herein by reference to Exhibit 3.1 to Inergy, L.P.’s Registration Statement on Form S-1 (Registration No. 333-56976) filed on March 14, 2001).

3.1A		Certificate of Correction of Certificate of Limited Partnership of Inergy, L.P. (incorporated herein by reference to Exhibit 3.1 to Inergy, L.P.’s Form 10-Q (Registration No. 000-32543) filed on May 12, 2003).

3.2		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 Form 10-Q (Registration No. 000-32453) filed on February 13, 2004).

3.2A		Amendment No. 1 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 Form 10-Q (Registration No. 000-32453) filed on May 14, 2004).

3.2B		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 Form 8-K filed on January 24, 2005).

3.2C		Amendment No. 3 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 Form 8-K/A filed on August 17, 2005).

3.3		Certificate of Formation as relating to Inergy Propane, LLC, as amended (incorporated herein by reference to Exhibit 3.3 to Inergy, L.P.’s Registration Statement on Form S-1/A (Registration No. 333-56976) filed on May 7, 2001).

3.4		Third Amended and Restated Limited Liability Company Agreement of Inergy Propane, LLC, dated as of July 31, 2001 (incorporated herein by reference to Exhibit 3.4 to Inergy, L.P.’s Registration Statement on Form S-1 (Registration No. 333-89010 filed on May 24, 2002).

3.5		Certificate of Formation of Inergy GP, LLC (incorporated herein by reference to Exhibit 3.5 to Inergy, L.P.’s Registration Statement on Form S-1/A (Registration No. 333-56976) filed on May 7, 2001).

3.6		Limited Liability Company Agreement of Inergy GP, LLC (incorporated herein by reference to Exhibit 3.6 to Inergy, L.P.’s Registration Statement on Form S-1/A (Registration No. 333-56976) filed on May 7, 2001).

3.7		Certificate of Formation as relating to Inergy Partners, LLC, as amended (incorporated herein by reference to Exhibit 3.7 to Inergy, L.P.’s Registration Statement on Form S-1/A (Registration No. 333-56976) filed on May 7, 2001).


3.8		Second Amended and Restated Limited Liability Company Agreement of Inergy Partners, LLC, dated as of July 31, 2001 (incorporated herein by reference to Exhibit 3.8 to Inergy, L.P.’s Registration Statement on Form S-1 (Registration No. 333-89010) filed on May 24, 2002).

*10.1		Amended and Restated Employment Agreement dated February 1, 2010, between Inergy GP, LLC and R. Brooks Sherman, Jr.

*10.2		Second Amended and Restated Employment Agreement dated February 1, 2010, between Inergy GP, LLC and Phillip L. Elbert.

*31.1		Certification of Chief Executive Officer of Inergy, L.P. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Chief Financial Officer of Inergy, L.P pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

*	Filed herewith

SIGNATURE

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


	INERGY, L.P.

	By:	INERGY GP, LLC
		(its managing general partner)

Date: February 3, 2010	By:	/s/ R. Brooks Sherman, Jr.
		R. Brooks Sherman, Jr.
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial Officer and Principal Accounting Officer)

Amended and Restated Employment Agreement

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of February 1, 2010 between Inergy GP, LLC, a Delaware limited liability company (the “Company”), and R. Brooks Sherman, Jr., an individual (“Employee”).

The Company and Employee hereby agree as follows:

1. Employment. Employee is being employed by the Company as the Company’s Executive Vice President—Chief Financial Officer upon and subject to the terms and conditions of this Agreement. During the term of his employment under this Agreement, Employee shall report to the Company’s President and Chief Executive Officer (currently John J. Sherman) or to such other person or persons as the Company may designate from time to time. Employee will begin his employment with the Company under this Agreement on February 1, 2010.

2. Duties. During the term of his employment under this Agreement, Employee will perform his duties hereunder at such time or times as the Company may reasonably request. Employee’s duties may be varied by the Company from time to time without violating the terms of this Agreement and shall include: (i) devoting his best efforts and his entire business time to further properly the interests of the Company to the satisfaction of the Company, (ii) being subject to the Company’s direction and control at all times with respect to his activities on behalf of the Company, (iii) complying with all rules, orders, regulations, policies, practices and decisions of the Company, (iv) truthfully and accurately maintaining and preserving all records and making all reports as the Company may require, and (v) fully accounting for all monies and other property of the Company of which he may from time to time have custody and delivering the same to the Company whenever and however directed to do so.

3. Compensation. For all services rendered by Employee to the Company, the Company shall pay Employee a salary (the “Salary”) at the annual rate of Two Hundred Twenty Five Thousand Dollars ($225,000), payable in arrears in accordance with the Company’s general payroll practices. All payments and benefits provided pursuant to this Agreement are subject to income tax withholding and other applicable tax and withholding requirements.

4. Expenses. The Company shall reimburse Employee for all ordinary and necessary out-of-pocket expenses incurred and paid by Employee in the course of the performance of Employee’s duties pursuant to this Agreement and consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses, and subject to the Company’s requirements with respect to the manner of approval and reporting of such expenses.

5. Additional Benefits.

(a) Employee shall be eligible for such fringe benefits, if any, by way of insurance, hospitalization and vacations normally provided to employees of the Company generally and such additional benefits as may be from time to time agreed upon in writing between Employee and the Company.

(b) Employee will receive cash bonuses as determined by the Company in its sole discretion, payable in such amounts and at such times as the Company may determine.

6. Covenant Not to Disclose Confidential Information. Employee acknowledges that during the course of his employment with the Company Employee has had and will continue to have access to and knowledge of certain information and data that the Company or any subsidiary, parent or affiliate of the Company considers confidential and that the release of such information or data to unauthorized persons or entities would be extremely detrimental to the Company. As a consequence, Employee hereby agrees and acknowledges that he owes a duty to the Company not to disclose, and agrees that, during and after the term of his employment, without the prior written consent of the Company, he will not communicate, publish or disclose, to any person or entity anywhere or use (for his own benefit or the benefit of others) any Confidential Information (as defined below) for any purpose other than carrying out his duties as contemplated by this Agreement. Employee will use his best efforts at all times to hold in confidence and to safeguard any Confidential Information to ensure that any unauthorized persons and entities do not gain possession of any Confidential Information and, in particular, will not permit any Confidential Information to be read, duplicated or copied. Employee will return to the Company all originals and copies of documents and other materials, whether in printed or electronic format or otherwise, containing or derived from Confidential Information in Employee’s possession or under Employee’s control when the duties of Employee no longer require Employee’s possession thereof, or whenever the Company requests, and in any event will return all such Confidential Information within ten days if the employment relationship with the Company is terminated for any or no reason and will not retain any copies thereof. Employee acknowledges that Employee is obligated to protect the Confidential Information from disclosure or use even after termination of the employment relationship. For purposes of this Agreement, the term “Confidential Information” means any information or data used by or belonging or relating to the Company or any subsidiary, parent or affiliate of the Company, or any party to whom the Company owes a duty of confidentiality that is not known generally to the industry in which the Company or any subsidiary, parent or affiliate of the Company, or any party to whom the Company owes a duty of confidentiality is or may be engaged, including, but not limited to, any and all trade secrets, proprietary data and information relating to the Company’s or any subsidiary, parent or affiliate of the Company’s, or any party to whom the Company owes a duty of confidentiality past, present or future business and products, price lists, customer lists, acquisition candidates, processes, procedures or standards, know-how, manuals, hardware, software, source code, business strategies, records, marketing plans, drawings, technical information, specifications, designs, patent information, financial information, whether or not reduced to writing, or information or data that the Company or any subsidiary, parent or affiliate of the Company or any party to whom the Company owes a duty of confidentiality advises Employee should be treated as confidential information. Confidential Information does not include any information that:

(i) is rightfully known to Employee prior to Employee’s employment, and independent of any disclosure or access to the information via the Company as evidenced by Employee’s written records; or (ii) is or later becomes part of the public domain and known within the relevant industry through no fault of Employee.

7. Disclosure and Assignment of Intellectual Property.

(a) Employee agrees that the Company shall become the owner of all inventions, discoveries, developments, ideas, writings, and expressions, including, but not limited to, any and all concepts, improvements, techniques, know-how, innovations, systems, processes, machines, current or proposed products, works, information, reports, papers, logos, computer programs, designs, marketing materials, and methods of manufacture, distribution, management or other methods (whether or not reduced to writing and whether or not patentable or protectable by copyright), that Employee conceives, develops, creates, makes, perfects or reduces to practice in whole or in part while employed by the Company or within one year after termination of Employee’s employment for any or no reason, and that: (i) directly or indirectly relate to or arise out of Employee’s job responsibilities for the Company or the performance of the duties of Employee’s employment by the Company; (ii) result from research, development, or other activities of the Company; or (iii) relate or pertain in any way to the existing or reasonably anticipated scope, business or products of the Company or any subsidiary, parent or affiliate of the Company (collectively, the “Intellectual Property”). All of the right, title and interest in and to the Intellectual Property shall become exclusively owned by the Company or its nominee regardless of whether or not the conception, development, creation, making, perfection or reduction to practice of such Intellectual Property involved the use of the Company’s time, facilities or materials and regardless of where such Intellectual Property may be conceived, made or perfected.

(b) Employee agrees to promptly and fully disclose in writing to the Company all inventions, discoveries, developments, ideas, writings, and expressions conceived, developed, created, made, perfected or reduced to practice, in whole or in part, while employed by the Company or within one year after termination of Employee’s employment for any or no reason, regardless of whether Employee believes the invention, discovery, development, writing, expression or idea should be considered Intellectual Property of the Company under any provision of this Agreement, in order to enable the Company to make a determination as to its rights with respect to the same.

(c) Any and all information relating to Intellectual Property shall be considered Confidential Information and shall not be disclosed by Employee to any person or entity outside of the Company.

(d) Any Intellectual Property that is the subject of copyright shall be considered a “work made for hire” within the meaning of the Copyright Act of 1976, as amended, and shall be the sole property of the Company or its nominee. To the extent that the Company does not automatically own any such Intellectual Property as a work made for hire, Employee shall assign all right, title and interest in and to such Intellectual Property to the Company. All right, title and interest in and to any other Intellectual

Property, including, but not limited to, patent, industrial design, trademark, trade dress and trade secret rights shall be assigned and is hereby assigned exclusively to the Company or its nominee. Employee further agrees to execute and deliver all documents and do all acts that the Company considers necessary or desirable to secure to the Company or its nominee the entire right, title and interest in and to the Intellectual Property, including, but not limited to, executing applications for any United States and/or foreign patents or copyright registrations, disclosing relevant prior art, reviewing office actions and providing technical input to assist the Company in overcoming any rejections. Any document prepared and filed pursuant to this Section 7(d) shall be prepared and filed at the Company’s expense. Employee further agrees to cooperate with the Company as reasonably necessary to maintain or enforce the Company’s rights in the Intellectual Property. Employee hereby irrevocably appoints the President of the Company as Employee’s attorney-in-fact with authority to execute for Employee and on Employee’s behalf any and all assignments, patent or copyright applications, or other instruments and documents required to be executed by Employee pursuant to this Section 7(d), if Employee is unwilling or unable to execute same.

(e) The Company shall have no obligation to use, attempt to protect by patent or copyright, or promote any of the Intellectual Property; provided, however, that the Company, in its sole discretion, may reward Employee for any especially meritorious contributions in any manner it deems appropriate or may provide Employee with full or partial releases as to any subject matter contributed by Employee in which the Company is not interested.

8. Legal Proceedings to Compel Disclosure. In the event that Employee is requested pursuant to, or required by, applicable law, regulation, or legal process, to disclose any Confidential Information or Intellectual Property, Employee shall notify the Company of such request within five days of such request being made and shall enable the Company or any subsidiary, parent or affiliate of the Company to seek an appropriate protective order. In the event that such a protective order or other protective remedy is not obtained, Employee shall furnish only that portion of the Confidential Information or Intellectual Property that, in the opinion of Employee’s counsel, is legally required and will exercise Employee’s best efforts to obtain reliable assurances that confidential treatment will be accorded the Confidential Information or Intellectual Property.

9. Covenant Not to Compete. Employee acknowledges that during his employment with the Company he, at the expense of the Company, has been and will continue to be specially trained in the business of the Company, has established and will continue to establish favorable relations with the customers, clients and accounts of the Company or any subsidiary, parent or affiliate of the Company and has had and will continue to have access to the Intellectual Property, trade secrets and Confidential Information of the Company or any subsidiary, parent or affiliate of the Company. Therefore, in consideration of such training and relations, and in consideration of his employment with the Company and the additional benefits provided by this Agreement, and in consideration of the restricted units awarded to Employee on the same date of this Agreement, and to further protect the Intellectual Property, trade secrets and Confidential Information of the Company or any subsidiary, parent or affiliate of the Company, Employee agrees that during the term of his employment by the Company and for a period of two (2) years from and after the voluntary or involuntary

termination of such employment for any or no reason, he will not, directly or indirectly, without the express written consent of the Company, except when and as requested to do in and about the performing of his duties under this Agreement:

(a) own, manage, operate, control or participate in the ownership, management, operation or control of, or have any interest, financial or otherwise, in or act as an officer, director, partner, manager, member, principal, employee, agent, representative, consultant or independent contractor of, or in any way assist, any individual or entity in the conduct of any business that trades, markets, sells or distributes propane gas (at retail, wholesale or otherwise), gathers, processes, stores, transports, trades, markets or distributes natural gas or liquefied by-products of natural gas or petroleum (at retail, wholesale or otherwise) or sells, services and installs parts, appliances or supplies related thereto,;

(b) divert or attempt to divert clients or customers (whether or not such persons have done business with the Company or any subsidiary, parent or affiliate of the Company once or more than once) or accounts of the Company or any subsidiary, parent or affiliate of the Company; or

(c) entice or induce or in any manner influence any person who is or shall be in the employ or service of the Company or any subsidiary, parent or affiliate of the Company to leave such employ or service for the purpose of engaging in a business that may be in competition with any business now or at any time during the period hereof engaged in by the Company or any subsidiary, parent or affiliate of the Company.

Notwithstanding the foregoing provisions, Employee may (i) take action for, on behalf of, and at the direction of the Company pursuant to a written agreement with the Company or otherwise, and (ii) own up to 5% of the outstanding equity securities in any corporation or entity (including, but not limited to, units in a master limited partnership) that is listed upon a national stock exchange or actively traded in the over-the-counter market.

10. Specific Performance. Recognizing that irreparable damage will result to the Company in the event of the breach or threatened breach of any of the foregoing covenants and assurances by Employee contained in Sections 6, 7, 8 or 9, and that the Company’s remedies at law for any such breach or threatened breach will be inadequate, the Company and its successors and assigns, in addition to such other remedies which may be available to them, shall be entitled to an injunction, including a mandatory injunction, to be issued by any court of competent jurisdiction ordering compliance with this Agreement or enjoining and restraining Employee, and each and every person and entity acting in concert or participation with him, from the continuation of such breach and, in addition thereto, he shall pay to the Company all ascertainable damages, including, but not limited to, costs and reasonable attorneys’ fees sustained by the Company by reason of the breach or threatened breach of such covenants and assurances. The covenants and obligations of Employee set forth in Sections 6, 7, 8 and 9 are in addition to and not in lieu of or exclusive of any other obligations and duties of Employee to the Company, whether express or implied in fact or in law.

11. Company Policies. Employee agrees to affirmatively support the Company’s policies and practices as they may from time to time be adopted by the Company, including, but not limited to, policies against discrimination and harassment in the workplace.

12. Term and Termination.

(a) Subject to earlier termination as provided in Sections 12(b), 12(c), 12(d) and 12(e), the term of Employee’s employment under this Agreement will be through and including February 1, 2015 and will automatically be extended for consecutive one year periods thereafter unless either party elects to terminate such employment and notifies the other party of such election at least 30 days prior to the end of the then-current term.

(b) Notwithstanding Section 12(a), Employee’s employment with the Company will terminate immediately upon the death, disability or adjudication of legal incompetence of Employee, or upon the Company’s ceasing to carry on its business without assigning this Agreement pursuant to Section 18 or becoming bankrupt. For purposes of this Agreement, Employee will be deemed to be disabled when Employee has become unable, by reason of physical or mental disability, to satisfactorily perform the essential functions of his job and there is no reasonable accommodation that can be provided to enable him to perform satisfactorily those essential functions. Such matters will be determined by, or to the reasonable satisfaction of, the Company.

(c) Notwithstanding Section 12(a), the Company may terminate Employee’s employment at any time for Cause or without Cause. “Cause” means (i) the Employee has repeatedly failed to perform the duties assigned to him, (ii) the Employee has been convicted of a felony or misdemeanor involving moral turpitude, (iii) the Employee has engaged in acts or omissions against the Company constituting dishonesty, breach of fiduciary obligation, or intentional wrongdoing or misfeasance, (iv) the Employee has acted intentionally or in bad faith in a manner which results in a material detriment to the assets, business or prospects of the Company, (v) the Employee has been guilty of habitual absenteeism, chronic alcoholism or other form of addiction, or (vi) the Employee has breached any obligation under this Agreement.

(d) If Employee’s employment with the Company is terminated (1) as a result of the death, disability, adjudication of legal incompetence of Employee, (2) as a result of the Company ceasing to carry on its business without assigning this Agreement pursuant to Section 18, (3) as a result of the Company becoming bankrupt, (4) by the Company for Cause, or (5) by Employee for any or no reason, the Company shall pay or provide to Employee:

(i) such Salary as Employee has earned and not yet received through the date of such employment termination, determined on a pro rata basis based on the number of work days in the month of termination;

(ii) such other fringe benefits (other than any bonus, severance pay benefit or participation in the Company’s 401(k) employee benefit plan) normally provided to employees of the Company as Employee has earned and not yet received through the date of such employment termination, determined on a pro rata basis based on the number of work days in the month of termination.

(e) If Employee’s employment with the Company is terminated by the Company without Cause (and not due to the death, disability, adjudication of legal incompetence of Employee, or as a result of the Company ceasing to carry on its business without assigning this Agreement pursuant to Section 18, or becoming bankrupt), the Company shall pay or provide to Employee:

(i) the unpaid amount of Employee’s Salary for the remainder of the then-current term of this Agreement, payable bi-monthly in arrears;

13. Survival of Obligations. All obligations of Employee that by their nature involve performance, in any particular, after the expiration or termination of Employee’s employment with the Company, or that cannot be ascertained to have been fully performed until after the expiration or termination of Employee’s employment with the Company, shall survive the expiration or termination of this Agreement. Except as otherwise specifically provided in this Agreement, all of the Company’s obligations under this Agreement will terminate at the time this Agreement or Employee’s employment with the Company is terminated for any reason.

14. Notice. Any notice, request, consent or communication under this Agreement is effective only if it is in writing and personally delivered or sent by certified mail, return receipt requested, postage prepaid, or by a nationally recognized overnight delivery service, with delivery confirmed, addressed as follows:


If to the Company:

Name: Attn: John J. Sherman Inergy GP, LLC Two Brush Creek Blvd., Suite 200 Kansas City, Missouri 64112		With Copy To: Attn: Laura L. Ozenberger Inergy GP, LLC Two Brush Creek Blvd., Suite 200 Kansas City, Missouri 64112

If to Employee:

Name: R. Brooks Sherman, Jr.
4011 W. 140th St.
Leawood, KS 66224

or such other persons and/or addresses as shall be furnished in writing by any party to the other party, and shall be deemed to have been given only upon its delivery in accordance with this Section 14.

15. No Conflicts. Employee represents and warrants to the Company that neither the execution nor delivery of this Agreement, nor the performance of Employee’s obligations hereunder will conflict with, or result in a breach of, any term, condition, or provision of, or constitute a default under, any obligation, contract, agreement, covenant or instrument to which Employee is a party or under which Employee is bound, including the breach by Employee of a fiduciary duty to any former employers.

16. Entire Agreement; Amendment; Termination of Previous Agreement. This Agreement cancels and supersedes all previous agreements relating to the subject matter of this Agreement, written or oral, between the parties hereto (including the Employment Agreement dated September 11, 2002 between Employee and Company, as amended by the First Amendment to Employment Agreement, dated June 21, 2005) and contains the entire understanding of the parties hereto with respect to the subject matter hereof and shall not be amended, modified or supplemented in any manner whatsoever except as otherwise provided herein or in writing signed by each of the parties hereto.

17. Potential Unenforceability of Any Provision. If a final judicial determination is made that any provision of this Agreement is an unenforceable restriction against Employee, the provisions of this Agreement will be rendered void only to the extent that such judicial determination finds such provisions unenforceable, and such unenforceable provisions will automatically be reconstituted and become a part of this Agreement, effective as of the date of this Agreement, to the maximum extent in favor of the Company that is lawfully enforceable. A judicial determination that any provision of this Agreement is unenforceable will not render the entire Agreement unenforceable, but rather this Agreement will continue in full force and effect absent any unenforceable provision to the maximum extent permitted by law.

18. Assignment. This Agreement is personal and not assignable by Employee but it may be assigned by the Company without notice to or consent of Employee to, and shall thereafter be binding upon and enforceable by, any affiliate of the Company and any person or entity who acquires or succeeds to substantially all of the business or assets of the Company or substantially all of the business or assets of the principal operating unit that Employee oversees or to which Employee is assigned (and such person or entity will be deemed included in the definition of the “Company” for all purposes of this Agreement) but is not otherwise assignable by the Company.

19. Waiver of Breach. Failure of the Company to demand strict compliance with any of the terms, covenants or conditions hereof shall not be deemed a waiver of the term, covenant or condition, nor will any waiver or relinquishment by the Company of any right or power hereunder at any one time or more times be deemed a waiver or relinquishment of the right or power at any other time or times.

20. Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party is entitled to receive reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

21. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and do not restrict or otherwise modify any of the terms or provisions hereof.

22. Governing Law. This Agreement and all rights and obligations of the parties hereunder are governed by the laws of the State of Missouri applicable to agreements made and to be performed entirely within the State, including all matters of enforcement, validity and performance.

23. Counterparts. This Agreement may be executed in any number of counterparts, each of which are deemed to be an original and all of which constitute one agreement that is binding upon both of the parties hereto, notwithstanding that both parties are not signatories to the same counterpart.

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The parties have executed this Amended and Restated Employment Agreement as of the date set forth in the introductory clause.


INERGY GP, LLC

By:	/s/ John J. Sherman
	Name:	John J. Sherman
	Title:	President

/s/ R. Brooks Sherman, Jr.
R. BROOKS SHERMAN, JR.

Second Amended and Restated Employment Agreement

Exhibit 10.2

SECOND AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of February 1, 2010 between Inergy GP, LLC, a Delaware limited liability company (the “Company”), and Phillip L. Elbert, an individual (“Employee”).

The Company and Employee hereby agree as follows:

1. Employment. Employee is being employed by the Company as the Company’s Chief Operating Officer and President – Propane Operations upon and subject to the terms and conditions of this Agreement. During the term of his employment under this Agreement, Employee shall report to the Company’s President and Chief Executive Officer (currently John J. Sherman) or to such other person or persons as the Company may designate from time to time. Employee will begin his employment with the Company under this Agreement on February 1, 2010.

3. Compensation. For all services rendered by Employee to the Company, the Company shall pay Employee a salary (the “Salary”) at the annual rate of Two Hundred Seventy Five Thousand Dollars ($275,000), payable in arrears in accordance with the Company’s general payroll practices. All payments and benefits provided pursuant to this Agreement are subject to income tax withholding and other applicable tax and withholding requirements.

5. Additional Benefits.

(b) Employee will receive cash bonuses as determined by the Company in its sole discretion, payable in such amounts and at such times as the Company may determine.

7. Disclosure and Assignment of Intellectual Property.

(c) Any and all information relating to Intellectual Property shall be considered Confidential Information and shall not be disclosed by Employee to any person or entity outside of the Company.

12. Term and Termination.

(c) Notwithstanding Section 12(a), the Company may terminate Employee’s employment at any time for Cause or without Cause. “Cause” means: (i) Employee has engaged in negligence (through act or omission) or misconduct that is injurious to the Company or any subsidiary, parent or affiliate of the Company; (ii) 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; (iii) Employee has engaged in acts or omissions against the Company or any subsidiary, parent or affiliate of the Company constituting dishonesty, breach of fiduciary obligation, or intentional wrongdoing or misfeasance; or (iv) Employee has engaged in the use of alcohol or drugs on the job, or has engaged in excessive absenteeism from the performance of his duties as the Company’s employee, other than for reasons of illness.

(i) the unpaid amount of Employee’s Salary for the remainder of the then-current term of this Agreement, payable bi-monthly in arrears;


If to the Company:

Name:		With Copy To:
Attn: John J. Sherman		Attn: Laura L. Ozenberger
Inergy GP, LLC		Inergy GP, LLC
Two Brush Creek Blvd., Suite 200		Two Brush Creek Blvd., Suite 200
Kansas City, Missouri 64112		Kansas City, Missouri 64112

If to Employee:

Name:
Phillip L. Elbert
1456 Leech Lane
P.O. Box 372
Eastport, Michigan 49627

16. Entire Agreement; Amendment; Termination of Previous Agreement. This Agreement cancels and supersedes all previous agreements relating to the subject matter of this Agreement, written or oral, between the parties hereto (including the Amended and Restated Employment Agreement dated February 8, 2005 between Employee and Company, the Employment Agreement, dated January 12, 2001, between Employee and Inergy Partners, LLC, as amended by the First Amendment to Employment Agreement, dated July 19, 2001, between Employee and Inergy Partners, LLC, each of which was assigned by Inergy Partners, LLC to the Company on July 31, 2001) and contains the entire understanding of the parties hereto with respect to the subject matter hereof and shall not be amended, modified or supplemented in any manner whatsoever except as otherwise provided herein or in writing signed by each of the parties hereto.

right or power hereunder at any one time or more times be deemed a waiver or relinquishment of the right or power at any other time or times.

21. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and do not restrict or otherwise modify any of the terms or provisions hereof.

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The parties have executed this Second Amended and Restated Employment Agreement as of the date set forth in the introductory clause.


INERGY GP, LLC

By:	/s/ John J. Sherman
	Name:	John J. Sherman
	Title:	President

/s/ Phillip L. Elbert
PHILLIP L. ELBERT

Certification of Chief Executive Officer pursuant to Section 302

Exhibit 31.1

CERTIFICATIONS

I, John J. Sherman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Inergy, L.P. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over the financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 3, 2010

/s/ John J. Sherman

John J. Sherman

President and Chief Executive Officer

Certification of Chief Financial Officer pursuant to Section 302

Exhibit 31.2

CERTIFICATIONS

I, R. Brooks Sherman, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Inergy, L.P. (the “registrant”);

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 3, 2010

/s/ R. Brooks Sherman, Jr.

R. Brooks Sherman, Jr.

Executive Vice President and Chief Financial Officer

Certification of Chief Executive Officer pursuant to Section 1350

Exhibit 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

In connection with the Quarterly Report of Inergy, L.P. (the “Company”) on Form 10-Q for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Sherman, Chief Executive Officer of Inergy, L.P., certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John J. Sherman

John J. Sherman

Chief Executive Officer

February 3, 2010

A signed original of this written statement required by Section 906, or other document authenticating,

acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written

statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished

to the Securities and Exchange Commission or its staff upon request.

Certification of Chief Financial Officer pursuant to Section 1350

Exhibit 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

In connection with the Quarterly Report of Inergy, L.P. (the “Company”) on Form 10-Q for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Brooks Sherman, Jr., Chief Financial Officer of Inergy, L.P., certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ R. Brooks Sherman, Jr.

R. Brooks Sherman, Jr.

Chief Financial Officer

February 3, 2010

A signed original of this written statement required by Section 906, or other document authenticating,

acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written

statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished

to the Securities and Exchange Commission or its staff upon request.

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