"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, 2012. Unless the context indicates otherwise, the terms "Inergy," "we," "us," "our," "ours" and similar terms refer to Inergy, L.P. and its subsidiaries.

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

• statements that are not historical in nature, including, but not limited to: (i) our expectation that Inergy Midstream will grow its business in the near term through both organic growth projects and acquisitions; (ii) our belief that anticipated cash from operations and borrowing capacity under our Credit Agreement will be sufficient to meet our liquidity needs for the foreseeable future; (iii) our belief that we do not have material potential liability in connection with legal proceedings that would have a significant financial impact on its consolidated financial condition, results of operations or cash flows; (iv) our expectation to grow our Tres Palacios operations through development projects, such as the Copano header extension project, (v) our belief that Inergy Midstream's pipelines and storage assets will continue to benefit from the development of the Marcellus shale as a significant supply basin; and

• statements preceded by, followed by or that contain forward-looking terminology including the words "believe," "expect," "may," "will," "should," "could," "anticipate," "estimate," "intend" or the negation thereof, or similar expressions.

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

• our ability to successfully implement our business plan for our assets and operations;

• governmental legislation and regulations;

• industry factors that influence the supply of, and demand for, crude oil, natural gas and NGLs;

• weather conditions;

• industry factors that influence the demand for natural gas and NGL storage and transportation capacity, particularly in the Northeast and Texas markets;

• industry factors that influence the demand for crude oil loading and storage services in the Bakken;

• economic conditions;

• the availability of crude oil, natural gas and NGLs, and the price of those commodities, to consumers relative to the price of alternative and competing fuels;

• costs or difficulties related to the integration of our existing businesses and acquisitions;

• environmental claims;

• operating hazards and other risks incidental to transporting and storing crude oil, natural gas and NGLs;

• interest rates; and

• the price and availability of debt and equity financing.

Overview

We are a publicly-traded master limited partnership that owns and operates energy midstream infrastructure and a marketing, supply and logistics business. We own and operate the Tres Palacios natural gas storage facility in Texas; a proprietary NGL business that specializes in providing supply, logistics and marketing services predominantly to producers and refiners; and approximately 66% ownership interest in Inergy Midstream, a publicly-traded, growth-oriented master limited partnership with midstream assets located in the Northeast region of the United States and in North Dakota.

Our Company

We are a midstream energy company with significant investments in the crude oil, natural gas and NGL sectors of the energy value chain. Our Tres Palacios facility is located near the liquids-rich Eagle Ford shale and Texas demand markets, and through Inergy Midstream, we have significant investments in natural gas storage and transportation facilities located near the Marcellus shale and the Northeast demand market, and crude oil loading and storage facilities located in the heart of the

Bakken shale. We believe our marketing, supply and logistics business complements our infrastructure investments, and the combination of the expertise and proprietary knowledge developed by our marketing, supply, transportation and risk management professionals and our fleet of transportation assets provides a competitive advantage over our competitors. Inergy Midstream's acquisition of the COLT Hub assets in December 2012 is a natural extension of our refinery and producer-services business, expands Inergy Midstream's shale-focused infrastructure portfolio and diversifies Inergy Midstream's revenue mix. Our primary business objective is to increase the cash distributions that we pay to our unitholders by growing our investment in Inergy Midstream and, to a lesser extent, growing our Texas infrastructure footprint and our marketing, supply and logistics business. We intend to position Inergy Midstream to be able to increase its cash distributions by providing strong general partner support (including, if applicable, selling assets to Inergy Midstream) and using it as the primary vehicle through which we grow our midstream business. We expect to grow our Tres Palacios operations through development projects, such as the Copano header extension project, and we believe the facility's strategic location to the Eagle Ford shale play and interconnections with 10 interstate and intrastate pipelines will allow us to capture greater revenue opportunities as natural gas prices and volatility increase. We anticipate growing our marketing, supply, and logistics business by continuing to leverage our industry knowledge, expertise and relationships to develop and harvest business opportunities, including opportunities involving the COLT Hub, and to expand our service offerings.

Our business segments include (i) storage and transportation, which includes our Tres Palacios natural gas storage facility and Inergy Midstream's natural gas and NGL storage and transportation assets (discussed below), and (ii) marketing, supply and logistics reporting segment, which includes our NGL business and Inergy Midstream's COLT Hub (discussed below). The cash flows from our Tres Palacios facility are predominantly fee-based under one to three year contracts with creditworthy counterparties. The cash flows from our NGL business represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be seasonal in nature due to our customer profiles and their tendencies to purchase NGLs during peak winter periods.

Our natural gas storage revenues are driven in large part by competition and demand for our storage capacity and deliverability, although demand for firm storage service in Texas remains depressed due to low natural gas prices and low seasonal spreads. Our NGL business revenues are driven in large part by our ability to optimize NGL assets that we own or control, and provide services to producers, refiners and other customers which effectively provide flow assurance to our customers. These services offer customers certainty of NGL and crude oil supply volumes flowing without interruption and at attractive economic value.

Our long-term profitability will be influenced primarily by (i) Inergy Midstream's ability to execute on its growth strategy, including both development projects and strategic acquisitions, and to increase cash available for distribution; (ii) our ability to execute growth strategies for our Tres Palacios facility and NGL business; (iii) our ability to contract and re-contract with customers; and (iv) our ability to manage increasingly difficult regulatory processes, particularly in permitting and approval proceedings at the federal and state levels.

With respect to market trends, the assets comprising our storage and transportation segment (including the infrastructure assets of Inergy Midstream) 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 crude oil, natural gas and NGLs, all of which are beyond our control and could impair our ability to meet our long-term goals. At the same time, we believe that the contractual fee-based nature of these assets should help to reduce this risk. Development projects over the past few years have also been exposed to increased cost pressures associated with a shortage availability of skilled labor and the pricing of materials, even though we have seen some of these pressures begin to decrease in certain geographic areas. Moreover, although it has become more difficult to obtain the authorizations required to develop or expand natural gas and NGL infrastructure, we remain confident that the incremental time and money required to pursue and complete market-driven facilities will deliver meaningful value to our unitholders. The regulatory environment, combined with the location of our assets relative to both high-demand markets and prolific shale basins, effectively provides a significant barrier to entry that other market participants may find difficult to overcome.

Inergy Midstream

Inergy Midstream is a predominantly fee-based, growth-oriented limited partnership that develops, acquires, owns and operates midstream energy assets. It owns and operates natural gas and NGL storage and transportation facilities, the COLT Hub and a salt production business. Inergy Midstream owns and operates four natural gas storage facilities that have an aggregate working gas storage capacity of approximately 41.0 Bcf; natural gas pipeline facilities with 905 MMcf/d of transportation capacity; a 1.5 million barrel NGL storage facility; the COLT Hub; and US Salt, a leading solution mining and salt production company.

Inergy Midstream's primary business objective is to increase the cash distributions that it pays to unitholders by growing its business through the development, acquisition and operation of additional midstream assets near production and demand centers. An integral part of its growth strategy is the continued development of Inergy Midstream's platform of interconnected natural gas assets in the Northeast that can be operated as an integrated storage and transportation hub. For example, because Inergy Midstream believes that storage and transportation customers value operating flexibility, it expects to increase the interconnectivity between its natural gas assets and third-party pipelines, thereby resulting in increased demand for its services. Its growth strategy is expected to reflect Inergy Midstream's desire to diversify its operations, in terms of both its geographic footprint and the type of midstream services it provides to customers. The acquisition of the COLT Hub in December 2012 diversifies Inergy Midstream's cash flow and expands its geographic footprint.

Organic growth projects, including both expansions and greenfield development projects, have recently provided cost-effective options for Inergy Midstream to grow its infrastructure base. In general, purchasers of midstream infrastructure have paid relatively high prices (measured in terms of a multiple of EBITDA or another financial metric) to acquire midstream assets and operations in recent arms-length transactions. Although the prices paid for certain types of midstream assets are likely to remain robust for the foreseeable future, acquisitions will continue to permit Inergy Midstream to gain access to new markets (with respect to geographic footprint and product offerings) and develop the scale required to grow its business quickly and successfully. We therefore expect Inergy Midstream to grow its business in the near term through both organic growth projects and acquisitions.

Inergy Midstream's operations include (i) the storage and transportation of natural gas and NGLs, (ii) US Salt's production and wholesale distribution of evaporated salt products, and (iii) the loading, storage and transportation operations conducted at or through the COLT Hub. The cash flows from its storage and transportation operations are predominantly fee-based under one to ten year contracts with creditworthy counterparties and, therefore, are generally economically stable and not significantly affected in the short term by changing commodity prices, seasonality or weather fluctuations. The cash flows from its salt operations represent sales to creditworthy customers typically under contracts that are less than one year in duration, and these cash flows tend to be relatively stable and not subject to seasonal or cyclical variation due to the use of, and demand for salt products in everyday life. The cash flows from its crude oil segment are predominantly fee-based under multi-year contracts with creditworthy counterparties and, therefore, are generally economically stable and not significantly affected in the short term by changing commodity prices, seasonality or weather fluctuations.

The majority of Inergy Midstream's operating cash flows are generated by its natural gas storage operations. Its natural gas storage revenues are driven in large part by competition and demand for storage capacity and deliverability. Demand for storage in the Northeast 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. Due to the high percentage of its cash flows generated by its natural gas storage operations, Inergy Midstream has attempted to diversify its asset base recently by developing natural gas transportation and NGL storage assets and acquiring the COLT Hub.

Inergy Midstream's ability to market available transportation capacity is impacted by supply and demand for natural gas, competition from other pipelines, natural gas price volatility, the price differential between physical locations on its pipeline systems (basis spreads), economic conditions, and other factors. Its transportation facilities have benefited from, and Inergy Midstream expects its pipelines to continue to benefit from, the development of the Marcellus shale as a significant supply basin. As LDCs and other customers increasingly utilize short-haul transportation options to satisfy their transportation needs, the location of its transportation assets relative to the Marcellus shale will enable Inergy Midstream to realize additional benefits.

Inergy Midstream's long-term profitability will be influenced primarily by (i) successfully executing its existing development projects and continuing to develop new organic growth projects in its markets; (ii) pursuing strategic acquisitions from third parties, including us, to grow its business; (iii) contracting and re-contracting storage and transportation capacity with its customers; and (iv) managing increasingly difficult regulatory processes, particularly in permitting and approval proceedings at the federal and state levels.

How We Evaluate Our Operations

We evaluate our business performance on the basis of the following key measures:

• cash available for distribution to our unitholders;

• distributions received from Inergy Midstream;

• revenues derived from our Tres Palacios natural gas storage facility;

• gross profit (excluding depreciation and amortization) derived from our marketing, supply and logistics business;

• EBITDA and Adjusted EBITDA.

We do not utilize depreciation, depletion and amortization expense in our key measures because we focus our performance management on cash flow generation and our assets have long useful lives.

Results of Operations

Three Months Ended December 31, 2012 Compared to Three Months Ended December 31,
2011

The following table summarizes the consolidated statement of operations
components for the three months ended December 31, 2012 and 2011, respectively
(in millions):
                                         Three Months Ended December 31,                   Change
                                             2012                  2011           In Dollars      Percentage
Revenue                              $          438.6                 668.6          (230.0 )        (34.4 )%
Cost of product sold                            358.6                 487.8          (129.2 )        (26.5 )
Gross profit (excluding depreciation
and amortization)                                80.0                 180.8          (100.8 )        (55.8 )
Operating and administrative
expenses                                         32.5                  82.6           (50.1 )        (60.7 )
Depreciation and amortization                    36.3                  48.7           (12.4 )        (25.5 )
Loss on disposal of assets                        0.8                   1.4            (0.6 )        (42.9 )
Operating income (loss)                          10.4                  48.1           (37.7 )         78.4
Interest expense, net                            (8.1 )               (28.0 )          19.9           71.1
Early extinguishment of debt                        -                 (24.9 )          24.9          100.0
Other income                                      0.6                   1.3            (0.7 )        (53.8 )
Income (loss) before income taxes                 2.9                  (3.5 )           6.4          182.9
Provision for income taxes                        0.1                   0.1               -              -
Net income (loss)                                 2.8                  (3.6 )           6.4          177.8
Net (income) loss attributable to
non-controlling partners                         (1.5 )                (0.4 )          (1.1 )       (275.0 )
Net income (loss) attributable to

Volume. We did not report retail gallons sold for the three months ended December 31, 2012, compared to 89.3 million retail gallons sold during the three months ended December 31, 2011 due to the contribution of our retail business to Suburban Propane Partners, L.P. ("SPH") on August 1, 2012. Gallons sold or processed related to our marketing, supply and logistics business increased 172.5 million gallons, or 76.9%, to 396.9 million gallons in the three months ended December 31, 2012, from 224.4 million gallons in the same three-month period in 2011. This increase in gallons sold or processed was driven by an increase relating to gallons sold to new and existing customers, including volumes sold to SPH, and an increase in Y-grade sales during the three months ended December 31, 2012 as a result of increased production at certain facilities for which we marketed 100% of the production during both the three months ended December 31, 2012 and 2011, respectively. Also contributing to this increase was higher throughput and fractionated volumes processed at our West Coast NGL operations of approximately 70.1 million gallons, which was partially a result of operational expansion of that facility in fiscal 2012.

For our storage and transportation business, the available capacity at Inergy Midstream's Stagecoach, Steuben and Thomas Corners storage facilities was 100% sold on a firm basis during the three month periods ended December 31, 2012 and 2011, respectively. The Seneca Lake storage facility was 100% and 72% contracted on a firm basis during the three months ended December 31, 2012 and 2011, respectively. The MARC I Pipeline, which was placed into service on December 1, 2012, was 82% contracted during the period in which it was in service and the Bath NGL storage facility was approximately 100% contracted (for storage or forward sales) during both the three month periods ended December 31, 2012 and 2011, respectively. Our Tres Palacios storage facility was approximately 53% contracted on a firm basis (87% and 83% contracted on a firm and interruptible basis) during the three months ended December 31, 2012 and 2011, respectively. As of December 31, 2012, 59% of the COLT Hub's rail loading capacity (or, giving effect to contracted throughput increases described below, 89%) was sold under long-term take-or-pay contracts with minimum throughput commitments. A majority of customer contracts for rail loading capacity increase through the duration of the contracts to where contractual rail loading commitments approximate the rail loading capacity of the facility.

Revenues. Revenues for the three months ended December 31, 2012, were $438.6 million, a decrease of $230.0 million, or 34.4%, from $668.6 million during the same three-month period in 2011.

We did not report revenue from retail sales for the three months ended December 31, 2012, compared to $295.0 million during the same three-month period in 2011 due to the contribution of our retail business to SPH on August 1, 2012. As a result, there were no retail revenues for the current year period.

Marketing, supply and logistics revenues were $370.8 million for the three months ended December 31, 2012, an increase of $56.4 million, or 17.9%, from $314.4 million during the same three-month period in 2011. This increase was driven by several factors, including the following: (i) an increase of $116.2 million resulting from increased volumes sold to new and existing marketing customers, including SPH, and increased natural gas liquid gallons sold or processed at our West Coast NGL operations; (ii) an increase in Y-grade sales of $15.8 million during the three months ended December 31, 2012 as a result of increased production at certain facilities for which we marketed 100% of the production; (iii) an increase of approximately $9.2 million arising from acquisition related revenues; and (iv) an increase of approximately $5.8 million in our legacy transportation business, a portion of which related to additional sales to SPH after the close of the contribution of our retail propane business to SPH and a portion related to increased shale activity, including the Marcellus and Utica shales. These increases were partially offset by a decrease of $90.6 million due to lower commodity market prices during the three months ended December 31, 2012 compared to the same prior year period.

Revenues from storage and transportation were $67.8 million for the three months ended December 31, 2012, an increase of $8.6 million or 14.5% from $59.2 million during the same three-month period in 2011. Storage and transportation revenues increased $2.8 million and $1.8 million, respectively, due to the placement into service of the MARC I Pipeline and North-South Facilities. Additionally, revenues at Tres Palacios increased $1.3 million due to an increase in demand for hub services at the facility partially offset by a decrease in firm storage services related to non-renewal of certain firm storage contracts. Revenues also increased approximately $8.5 million due to higher commodity sales at the Bath facility. These increases in storage and transportation revenues were partially offset by a $4.0 million reduction derived from changes in the amount of capacity held on TGP's 300 Line and a $1.8 million decrease arising from lesser interruptible wheeling services, lower storage revenues at certain of our storage facilities and a reduction in salt revenues.

Cost of Product Sold. Cost of product sold for the three months ended December 31, 2012, was $358.6 million, a decrease of $129.2 million, or 26.5%, from $487.8 million during the same three-month period in 2011.

We did not report retail cost of product sold for the three months ended December 31, 2012, compared to $178.8 million during the same three-month period in 2011 due to the contribution of our retail business as discussed above.

Marketing, supply and logistics cost of product sold was $338.8 million for the three months ended December 31, 2012, an increase of $43.7 million, or 14.8%, from $295.1 million during the same three-month period in 2011. Costs increased approximately $128.7 million due to the higher sales volumes discussed above related to additional volumes sold to new and existing marketing customers, including SPH, and increased volume sold or processed at our West Coast NGL operations and the Y-Grade business at certain production facilities. Also contributing to the higher cost of product sold were costs related to acquisitions of $4.8 million and higher costs in our transportation business of $3.2 million related to the increased trucking business as discussed above. These increases were partially offset by a $93.0 million decrease due to lower commodity purchase prices during the three months ended December 31, 2012 as compared to the three months ended December 31, 2011.

Storage and transportation cost of product sold was $19.8 million for the three months ended December 31, 2012, an increase of $5.9 million or 42.4% from $13.9 million during the same three-month period in 2011. Storage and transportation cost of product sold increased approximately $5.7 million primarily as a result of commodity sold from the Bath facility as discussed above. Also contributing to the increase was higher power costs at the Tres Palacios facility, which were directly related to the increased hub services as discussed above.

Our retail and marketing, supply and logistics cost of product sold consists primarily of tangible products sold including all propane, distillates and other NGLs 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 $3.3 million and $19.2 million for the three months ended December 31, 2012 and 2011, respectively. In addition, the depreciation expense associated with the delivery vehicles, customer tanks and other plant equipment is reported within depreciation and amortization expense and amounted to $12.0 million and $17.1 million for the three months ended December 31, 2012 and 2011, 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. The decrease in these costs compared to the prior period is primarily due to the contribution of our retail propane operations to SPH on August 1, 2012.

Our storage and transportation 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, . . .