UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 14, 2011

AMERICAN MIDSTREAM PARTNERS, LP
(Exact name of registrant as specified in its charter)

 
					
Delaware	 	001-35257	 	27-0855785	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(I.R.S. Employer
Identification No.)	

1614 15th Street, Suite 300
Denver, Colorado 80202	 	80202	
(Address of principal executive offices)	 	(Zip Code)	
Registrant’s telephone number, including area code: (720) 457-6060
Not applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

Item 2.02	Results of Operations and Financial Condition	
On November 14, 2011, American Midstream Partners, LP issued a press release announcing its financial results for the third quarter period ended September 30, 2011. A copy of the press release covering such announcement and certain other matters is attached hereto as Exhibit 99.1.
The information in this report, including the Exhibit attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, or the Exchange Act, except as specifically identified therein as being incorporated by reference.
 
Item 9.01	Financial Statements and Exhibits	
(d) Exhibits. See “Index to Exhibits” attached to this Current Report on Form 8-K, which is incorporated by reference herein.

SIGNATURES
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 hereunto duly authorized.

	 		 	American Midstream Partners, LP	
				
	 		 	By :	 	American Midstream GP, LLC,
its General Partner	

Date: November 17, 2011	 		 	By:	 	/s/ Sandra M. Flower	
	 		 	Name:	 	Sandra M. Flower	
	 		 	Title:	 	Vice President of Finance	

Exhibit Index

Exhibit Number	  	Description	
99.1	  	American Midstream Partners, LP press release dated November 14, 2011.	

Exhibit 99.1

American Midstream Partners LP Reports Financial Results for the 2011 Third Quarter
DENVER, CO –November 14, 2011– American Midstream Partners LP (NYSE: AMID) today reported financial results for the third quarter period ended September 30, 2011.
Total revenue for the third quarter of 2011 was $58.0 million, an increase of $5.0 million or 9% compared to $53.0 million for the prior year period. The increase was largely attributable to higher NGL prices and higher NGL and natural gas sales volumes in our Gathering and Processing segment. This increase was partially offset by lower natural gas sales volumes in our Transmission segment and lower natural gas prices in our Gathering and Processing segment.
Gross margin for the third quarter of 2011 was $9.6 million, an increase of $1.2 million or 14% compared to $8.4 million for the prior year period. This increase was primarily due to higher throughput volumes, plant inlet volumes and NGL prices in the Gathering and Processing segment.
Adjusted EBITDA for the third quarter of 2011 was $3.8 million, an increase of $0.2 million or 4% compared to $3.6 million for the prior year period.
Net loss for the third quarter of 2011 was $4.2 million compared to net loss of $3.4 million for the prior year period. Net loss to common units for the third quarter of 2011 was $0.53 per unit compared to net loss per unit of $0.66 per unit for the prior year period.
Distributable cash flow for the third quarter of 2011 was $2.4 million.
Commenting on the quarter, Brian Bierbach, President and Chief Executive Officer said, “The third quarter was a busy and productive one for our company. We successfully completed our initial public offering on August 1, 2011. We actively pursued a number of projects in and around our systems including an agreement with a large producer to bring natural gas from a Tuscaloosa Marine Shale well to our Midla system.”

“In spite of some operational issues we and some of our customers experienced this summer that reduced volumes across a few of our G&P assets, we still increased our revenue and gross margin in the quarter and on a year-over-year basis.”
Bierbach added, “Favorable oil and NGL prices are driving further drilling activity across many of our systems. We have already seen the benefit through increased volumes and revenues. We continue to focus our strategy on pursuing organic growth opportunities that will support this drilling activity as well as expanding our asset footprint through development projects and acquisitions.”
For the nine month period ended September 30, 2011, total revenue was $187.4 million compared to $155.5 million in the prior year period, an increase of $31.9 million or 21%. The increase was primarily due to higher NGL sales volume from owned processing plants, higher NGL prices and higher natural gas sales volumes in both the gathering and processing and transmission segments. The increase was partially offset by lower realized natural gas prices in the Gathering and Processing and Transmission segments.
Gross margin in the nine month period ended September 30, 2011 was $32.6 million compared to $27.1 million in the prior year period, an increase of $5.5 million or 20%. The increase was primarily due to higher throughput volumes, plant inlet volumes and realized NGL prices in our Gathering and Processing segment.
Adjusted EBITDA for the nine month period ended September 30, 2011 was $15.6 million compared to $12.8 million in the prior year period, an increase of $2.8 million or 22%.
Distributable cash flow for the nine month period ended September 30, 2011 was $10.6 million.
REVIEW OF SEGMENT PERFORMANCE
Gross margin for Gathering and Processing and Transmission increased to $9.6 million in the third quarter of 2011 from $8.4 million in the prior year period. For the nine month period ended September 30, 2011, gross margin was $32.6 million compared to $27.1 million in the prior year period.
Gathering and Processing – The Gathering and Processing segment includes natural gas transportation and gathering, natural gas processing and treating, and selling or delivering natural gas and NGLs to various markets and pipeline systems.
Segment gross margin for Gathering and Processing was $6.8 million for the third quarter of 2011 and $23.0 million for the nine month period, compared to $5.7 million and $17.5 million for the prior year third quarter and nine month period, respectively.
Total throughput volumes for the Gathering and Processing segment averaged 209.0 MMcf per day of natural gas and processed NGLs averaged 52.0 thousand gallons per day for the third quarter of 2011, compared to 170.3 MMcf per day of natural gas and 31.9 thousand gallons per day of processed NGLs for the prior year period. Total throughput volumes for the nine-month period averaged 227.6 MMcf per day compared to 167.2 MMcf per day in the prior year period, and processed NGLs averaged 51.7 thousand gallons per day compared to 29.9 thousand gallons per day for the prior year period.

The increase in segment gross margin for the 2011 third quarter and nine month periods was primarily due to higher throughput volumes on our Quivira system from the connection of additional production in the third quarter of 2010, increased plant inlet volumes at our Bazor Ridge plant due to the completion of the Winchester lateral in the fourth quarter 2010, and higher realized NGL prices on both our Bazor Ridge and Gloria systems.
Transmission – The Transmission segment transports and delivers natural gas from producing wells, receipt points or pipeline interconnects for shippers and other customers.
Segment gross margin for Transmission was $2.8 million for the third quarter of 2011 and $9.7 million for the nine month period, compared to $2.7 million and $9.7 million for the prior year third quarter and nine month period, respectively.
Conference Call
American Midstream will conduct a conference call and webcast to discuss its third quarter financial results on Monday, November 14, 2011, at 2:00 p.m. Eastern Time. The call may be accessed live at the investor relations section of the American Midstream website at www.AmericanMidstream.com. The live call may also be accessed by dialing 866-271-6130 for domestic users or 617-213-8894 for international users. The passcode for both phone numbers is 82194279.
A replay of the audio webcast will be available shortly after the call on American Midstream’s website. A telephonic replay will be available through December 31, 2011 by dialing 888-286-8010 for domestic users or 617-801-6888 for international users. The passcode for both phone numbers is 41005317.
Non-GAAP Financial Measures
This press release, and the accompanying tables, include both financial measures in accordance with U.S. generally accepted accounting principles, or GAAP, as well as non-GAAP financial measures, including “ Adjusted EBITDA ,” “ gross margin ” and “ distributable cash flow .” The tables attached to this press release include reconciliations of these non-GAAP financial measures to the nearest GAAP financial measures. In addition an “Explanation of Non-GAAP Financial Measures” is set forth in Appendix A attached to this press release.
About American Midstream Partners
Denver-based American Midstream Partners is a growth-oriented limited partnership formed to own, operate, develop and acquire a diversified portfolio of natural gas midstream energy assets. The company provides midstream services in the Gulf Coast and Southeast regions of the United States. For more information about American Midstream Partners, visit www.AmericanMidstream.com.

Forward Looking Statements
This press includes forward-looking statements. These statements relate to, among other things, projections of operational volumetrics and improvements, growth projects, cash flows and capital expenditures. We have used the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “should”, “will”, “potential” and similar terms and phrases to identify forward-looking statements in this press release. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. Our operations involve risks and uncertainties, many of which are outside our control, and any one of which, or a combination of which, could materially affect our results of operations and whether the forward-looking statements ultimately prove to be correct. Actual results and trends in the future may differ materially from those suggested or implied by the forward-looking statements depending on a variety of factors which are described in greater detail in our filings with the SEC. Please see our Risk Factor disclosures included in our prospectus dated July 26, 2011 that was filed with the SEC on July 27, 2011. All future written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the previous statements. We undertake no obligation to update any information contained herein or to publicly release the results of any revisions to any forward-looking statements that may be made to reflect events or circumstances that occur, or that we become aware of, after the date of this press release.

American Midstream Partners, LP and Subsidiaries
Unaudited Consolidated Balance Sheets
(In thousands except unit amounts)

 	  	September 30,	 	  	December 31,	 	
 	  	2011	 	  	2010	 	
Assets	  				  				
Current assets	  				  				
Cash and cash equivalents	  	$	530	  	  	$	63	  	
Accounts receivable	  	 	1,192	  	  	 	656	  	
Unbilled revenue	  	 	18,086	  	  	 	22,194	  	
Risk management assets	  	 	906	  	  	 	—  	  	
Other current assets	  	 	1,696	  	  	 	1,523	  	
	  	 	 	 	  	 	 	 	
Total current assets	  	 	22,410	  	  	 	24,436	  	
Property, plant and equipment, net	  	 	137,590	  	  	 	146,808	  	
Risk management assets — long term	  	 	247	  	  	 	—  	  	
Other assets	  	 	3,170	  	  	 	1,985	  	
	  	 	 	 	  	 	 	 	
Total assets	  	$	163,417	  	  	$	173,229	  	
	  	 	 	 	  	 	 	 	
Liabilities and Partners’ Capital	  				  				
Current liabilities	  				  				
Accounts payable	  	$	1,225	  	  	$	980	  	
Accrued gas purchases	  	 	15,309	  	  	 	18,706	  	
Current portion of long-term debt	  	 	—  	  	  	 	6,000	  	
Other loans	  	 	—  	  	  	 	615	  	
Risk management liabilities	  	 	502	  	  	 	—  	  	
Accrued expenses and other current liabilities	  	 	5,393	  	  	 	2,676	  	
	  	 	 	 	  	 	 	 	
Total current liabilities	  	 	22,429	  	  	 	28,977	  	
Risk management liabilities — long term	  	 	—  	  	  	 	—  	  	
Other liabilities	  	 	8,352	  	  	 	8,078	  	
Long-term debt	  	 	29,350	  	  	 	50,370	  	
	  	 	 	 	  	 	 	 	
Total liabilities	  	 	60,131	  	  	 	87,425	  	
	  	 	 	 	  	 	 	 	
Commitments and contingencies	  				  				
Partners’ capital	  				  				
General partner interest (0.2 and 0.1 million units outstanding as of September 30, 2011 and December 31, 2010, respectively)	  	 	1,771	  	  	 	2,124	  	
	  				  				
Limited partner interest (9.1 and 5.4 million units outstanding as of September 30, 2011 and December 31, 2010, respectively)	  	 	101,376	  	  	 	83,624	  	
Accumulated other comprehensive income	  	 	139	  	  	 	56	  	
	  	 	 	 	  	 	 	 	
Total partners’ capital	  	 	103,286	  	  	 	85,804	  	
	  	 	 	 	  	 	 	 	
Total liabilities and partners’ capital	  	$	163,417	  	  	$	173,229	  	

American Midstream Partners, LP and Subsidiaries
Unaudited Consolidated Statements of Operations
(In thousands, except per unit amounts)

 	  	Three Months Ended	 	 	Nine Months Ended	 	
 	  	September 30,	 	 	September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
Revenue	  	$	57,005	  	 	$	53,158	  	 	$	190,374	  	 	$	155,686	  	
Realized gain (loss) on early termination of commodity derivatives	  	 	—  	  	 	 	—  	  	 	 	(2,998	) 	 	 	—  	  	
Unrealized gain (loss) on commodity derivatives	  	 	953	  	 	 	(205	) 	 	 	(19	) 	 	 	(231	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	  	 	57,958	  	 	 	52,953	  	 	 	187,357	  	 	 	155,455	  	
Operating expenses:	  				 				 				 				
Purchases of natural gas, NGLs and condensate	  	 	47,359	  	 	 	44,516	  	 	 	157,725	  	 	 	128,323	  	
Direct operating expenses	  	 	3,385	  	 	 	3,097	  	 	 	9,548	  	 	 	9,370	  	
Selling, general and administrative expenses	  	 	2,497	  	 	 	1,803	  	 	 	7,649	  	 	 	5,061	  	
Advisory services agreement termination fee	  	 	2,500	  	 	 	—  	  	 	 	2,500	  	 	 	—  	  	
Equity compensation expense	  	 	331	  	 	 	464	  	 	 	2,989	  	 	 	1,255	  	
Depreciation expense	  	 	5,261	  	 	 	5,014	  	 	 	15,468	  	 	 	14,962	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total operating expenses	  	 	61,333	  	 	 	54,894	  	 	 	195,879	  	 	 	158,971	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating income (loss)	  	 	(3,375	) 	 	 	(1,941	) 	 	 	(8,522	) 	 	 	(3,516	) 	
Other income (expenses):	  				 				 				 				
Interest expense	  	 	(1,378	) 	 	 	(1,419	) 	 	 	(3,923	) 	 	 	(4,151	) 	
Gain (loss) on sale of assets, net	  	 	586	  	 	 	—  	  	 	 	586	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	  	$	(4,167	) 	 	$	(3,360	) 	 	$	(11,859	) 	 	$	(7,667	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General partner’s interest in net income (loss)	  	 	(83	) 	 	 	(67	) 	 	 	(237	) 	 	 	(153	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Limited partners’ interest in net income (loss)	  	$	(4,084	) 	 	$	(3,293	) 	 	$	(11,622	) 	 	$	(7,514	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Limited partners’ net income (loss) per unit	  	$	(0.53	) 	 	$	(0.66	) 	 	$	(1.85	) 	 	$	(1.51	) 	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of units used in computation of limited partners’ net income (loss) per unit	  	 	7,774	  	 	 	5,001	  	 	 	6,296	  	 	 	4,982	  	

American Midstream Partners, LP and Subsidiaries
Reconciliation of Adjusted EBITDA to Net Income
(In thousands)

 	  	Three Months  Ended
September 30,	 	 	Nine Months Ended
September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(in thousands)	 	
Reconciliation of Adjusted EBITDA to Net Income (Loss)	  				 				 				 				
Net income	  	$	(4,167	) 	 	$	(3,360	) 	 	$	(11,859	) 	 	$	(7,667	) 	
Add:	  				 				 				 				
Depreciation expense	  	 	5,261	  	 	 	5,014	  	 	 	15,468	  	 	 	14,962	  	
Interest expense	  	 	1,378	  	 	 	1,419	  	 	 	3,923	  	 	 	4,151	  	
Realized loss on early termination of commodity derivatives	  	 	—  	  	 	 	—  	  	 	 	2,998	  	 	 	—  	  	
Unrealized (gain) loss on commodity derivatives	  	 	(953	) 	 	 	205	  	 	 	19	  	 	 	231	  	
Non-cash equity compensation expense	  	 	331	  	 	 	307	  	 	 	1,234	  	 	 	864	  	
Advisory services agreement termination fee	  	 	2,500	  	 	 	—  	  	 	 	2,500	  	 	 	—  	  	
Special distribution to holders of LTIP phantom units	  	 	—  	  	 	 	—  	  	 	 	1,624	  	 	 	—  	  	
Transaction costs	  	 	—  	  	 	 	21	  	 	 	281	  	 	 	228	  	
Deduct:	  				 				 				 				
Gain (loss) on sale of assets, net	  	 	586	  	 	 	—  	  	 	 	586	  	 	 	—  	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Adjusted EBITDA	  	$	3,764	  	 	$	3,606	  	 	$	15,602	  	 	$	12,769	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reconciliation of Distributable Cash Flow to Net Income
(In thousands)

 	  	Three Months Ended	 	 	Nine Months Ended	 	
 	  	September 30,	 	 	September 30,	 	
 	  	2011	 	 	2010	 	 	2011	 	 	2010	 	
 	  	(in thousands)	 	
Reconciliation of Distributable Cash to Net Cash Flows from Operating Activities:	  				
Net cash provided / (used) in operating activities	  	$	1,331	  	 	$	6,149	  	 	$	7,099	  	 	$	14,563	  	
Add:	  				 				 				 				
Change in operating assets and liabilities	  	 	(713	) 	 	 	(3,776	) 	 	 	(1,702	) 	 	 	(5,558	) 	
Interest expense	  	 	646	  	 	 	1,212	  	 	 	2,802	  	 	 	3,536	  	
Advisory services agreement termination fee	  	 	2,500	  	 	 	—  	  	 	 	2,500	  	 	 	—  	  	
Realized (gain) loss on early termination of commodity derivatives	  	 	—  	  	 	 	—  	  	 	 	2,998	  	 	 	—  	  	
Special distribution to holders of LTIP phantom units	  	 	—  	  	 	 	—  	  	 	 	1,624	  	 	 	—  	  	
Transaction costs	  	 	—  	  	 	 	21	  	 	 	281	  	 	 	228	  	
Deduct:	  				 				 				 				
Cash interest expense (1)	  	 	646	  	 	 	1,212	  	 	 	2,802	  	 	 	3,536	  	
Maintenance capital expenditures (2)	  	 	750	  	 	 	750	  	 	 	2,250	  	 	 	2,250	  	
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Distributable Cash Flow	  	$	2,368	  	 	$	1,644	  	 	$	10,550	  	 	$	6,983	  	

(1)	Excludes amortization of debt issuance costs and mark-to-market adjustments related to interest rate derivatives.	
 
(2)	Amounts noted represent average estimated annual maintenance capital expenditures of $3.0 million which is what we expect to be required to maintain our assets over the long-term.	

Reconciliation of Gross Margin to Net Income
(In thousands)

 	  	Gathering	 	  	 	 	  	 	 	
 	  	and	 	  	 	 	  	 	 	
 	  	Processing	 	  	Transmission	 	  	Total	 	
 	  	(in thousands)	 	
Three months ended September 30, 2011	  				  				  				
Revenue	  	$	41,218	  	  	$	15,787	  	  	$	57,005	  	
Segment gross margin (a),(b)	  	 	6,821	  	  	 	2,825	  	  	 	9,646	  	
Realized gain (loss) on early termination of commodity derivatives	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Unrealized gain (loss) on commodity derivatives	  	 	953	  	  	 	—  	  	  	 	953	  	
Direct operating expenses	  				  				  	 	3,385	  	
Selling, general and administrative expenses	  				  				  	 	2,497	  	
Advisory services agreement termination fee	  				  				  	 	2,500	  	
Equity compensation expense	  				  				  	 	331	  	
Depreciation expense	  				  				  	 	5,261	  	
Interest expense	  				  				  	 	1,378	  	
Gain on sale of assets, net	  				  				  	 	586	  	
Net income (loss)	  				  				  	 	(4,167	) 	

 	  	Gathering	 	  	 	 	  	 	 	
 	  	and	 	  	 	 	  	 	 	
 	  	Processing	 	  	Transmission	 	  	Total	 	
 	  	(in thousands)	 	
Three months ended September 30, 2010	  				  				  				
Revenue	  	$	34,974	  	  	$	18,184	  	  	$	53,158	  	
Segment gross margin (a)	  	 	5,720	  	  	 	2,717	  	  	 	8,437	  	
Direct operating expenses	  				  				  	 	3,097	  	
Selling, general and administrative expenses	  				  				  	 	1,803	  	
Equity compensation expense	  				  				  	 	464	  	
Depreciation expense	  				  				  	 	5,014	  	
Interest expense	  				  				  	 	1,419	  	
Net income (loss)	  				  				  	 	(3,360	) 	

 	  	Gathering	 	 	 	 	  	 	 	
 	  	and	 	 	 	 	  	 	 	
 	  	Processing	 	 	Transmission	 	  	Total	 	
 	  	(in thousands)	 	
Nine months ended September 30, 2011	  				 				  				
Revenue	  	$	138,487	  	 	$	51,887	  	  	$	190,374	  	
Segment gross margin (a),(b)	  	 	22,988	  	 	 	9,661	  	  	 	32,649	  	
Realized gain (loss) on early termination of commodity derivatives	  	 	(2,998	) 	 	 	—  	  	  	 	(2,998	) 	
Unrealized gain (loss) on commodity derivatives	  	 	(19	) 	 	 	—  	  	  	 	(19	) 	
Direct operating expenses	  				 				  	 	9,548	  	
Selling, general and administrative expenses	  				 				  	 	7,649	  	
Advisory services agreement termination fee	  				 				  	 	2,500	  	
Equity compensation expense	  				 				  	 	2,989	  	
Depreciation expense	  				 				  	 	15,468	  	
Interest expense	  				 				  	 	3,923	  	
Gain on sale of assets, net	  				 				  	 	586	  	
Net income (loss)	  				 				  	 	(11,859	) 	

Reconciliation of Gross Margin to Net Income (continued)
(In thousands)

 	  	Gathering	 	  	 	 	  	 	 	
 	  	and	 	  	 	 	  	 	 	
 	  	Processing	 	  	Transmission	 	  	Total	 	
 	  	(in thousands)	 	
Nine months ended September 30, 2010	  				  				  				
Revenue	  	$	119,663	  	  	$	36,023	  	  	$	155,686	  	
Segment gross margin (a)	  	 	17,457	  	  	 	9,675	  	  	 	27,132	  	
Direct operating expenses	  				  				  	 	9,370	  	
Selling, general and administrative expenses	  				  				  	 	5,061	  	
Equity compensation expense	  				  				  	 	1,255	  	
Depreciation expense	  				  				  	 	14,962	  	
Interest expense	  				  				  	 	4,151	  	
Net income (loss)	  				  				  	 	(7,667	) 	
 
(a)	Segment gross margin for our Gathering and Processing segment consists of total revenue less purchases of natural gas, NGLs and condensate. Segment gross margin for our Transmission segment consists of total revenue, less purchases of natural gas. Gross margin consists of the sum of the segment gross margin amounts for each of these segments. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income or cash flow from operations as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.	
 
(b)	Realized gains (losses) from the early termination of commodity derivatives and unrealized gains (losses) from derivative mark-to-market adjustments are included in total revenue and segment gross margin in our Gathering and Processing segment for the three and nine months ended September 30, 2010. Effective January 1, 2011, we changed our segment gross margin measure to exclude unrealized noncash mark-to-market adjustments related to our commodity derivatives. For the three and nine months ended September 30, 2011, $1.0 million and less than ($0.1) million, respectively, in unrealized gains (losses) on commodity derivatives were excluded from our Gathering and Processing segment gross margin. Effective April 1, 2011 we changed our segment gross margin measure to exclude realized early termination costs on commodity derivatives. For the three and nine months ended September 30, 2011, zero dollars and ($3.0) million in realized (losses) on early termination of commodity derivatives were excluded from our Gathering and Processing segment gross margin.	

Appendix A
Note About Non-GAAP Financial Measures
Gross margin, adjusted EBITDA and distributable cash flows are all non-GAAP financial measures. Each has important limitations as an analytical tool because it excludes some, but not all, items that affect the most directly comparable GAAP financial measures. Management compensates for the limitations of these non-GAAP measures as analytical tools by reviewing the comparable GAAP measures, understanding the differences between the measures and incorporating these data points into management’s decision-making process.
You should not consider any of gross margin, adjusted EBITDA or distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because gross margin, adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Adjusted EBITDA is a measure used by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:
 
 	•	 	the financial performance of our assets without regard to financing methods, capital structure or historical cost basis;	
 
 	•	 	the ability of our assets to generate cash sufficient to support our indebtedness and make cash distributions to our unitholders and general partner;	
 
 	•	 	our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and	
 
 	•	 	the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.	
We define adjusted EBITDA as net income, plus interest expense, income tax expense, depreciation expense, certain non-cash charges such as non-cash equity compensation, unrealized losses on commodity derivative contracts and selected charges that are unusual or non-recurring, less interest income, income tax benefit, unrealized gains on commodity derivative contracts and selected gains that are unusual or nonrecurring. The GAAP measure most directly comparable to adjusted EBITDA is net income.
Distributable cash flow is a significant performance metric used by us and by external users of our financial statements, such as investors, commercial banks and research analysts, to compare basic cash flows generated by us to the cash distributions we expect to pay our unitholders. Using this metric, management and external users of our financial statements can
quickly compute the coverage ratio of estimated cash flows to planned cash distributions.

Distributable cash flow is also an important financial measure for our unitholders since it serves as an indicator of our success in providing a cash return on investment. Specifically, this financial measure indicates to investors whether or not we are generating cash flow at a level that can sustain or support an increase in our quarterly distribution rates. Distributable cash flow is also a quantitative standard used throughout the investment community with respect to publicly-traded partnerships and limited liability companies because the value of a unit of such an entity is generally determined by the unit’s yield (which in turn is based on the amount of cash distributions the entity pays to a unitholder). Distributable cash flow will not reflect changes in working capital balances.
We define distributable cash flow as adjusted EBITDA plus interest income, less cash paid for interest expense and maintenance capital expenditures. The GAAP measure most directly comparable to distributable cash flow is net cash flows from operating activities.
Gross margin and segment gross margin are metrics that we use to evaluate our performance. We define segment gross margin in our Gathering and Processing segment as revenue generated from gathering and processing operations less the cost of natural gas, NGLs and condensate purchased. Revenue includes revenue generated from fixed fees associated with the gathering and treating of natural gas and from the sale of natural gas, NGLs and condensate resulting from gathering and processing activities under fixed-margin and percent-of-proceeds arrangements. The cost of natural gas, NGLs and condensate includes volumes of natural gas, NGLs and condensate remitted back to producers pursuant to percent-of-proceeds arrangements and the cost of natural gas purchased for our own account, including pursuant to fixed-margin arrangements.
We define segment gross margin in our Transmission segment as revenue generated from firm and interruptible transportation agreements and fixed-margin arrangements, plus other related fees, less the cost of natural gas purchased in connection with fixed-margin arrangements. Substantially all of our gross margin in this segment is fee-based or fixed-margin, with little to no direct commodity price risk.
Effective January 1, 2011, we changed our gross margin and segment gross margin measure to exclude unrealized mark-to-market adjustments related to our commodity derivatives. For the three months and nine months ended September 30, 2011, $1.0 million and less than $(0.1) million, respectively, of unrealized gains (losses) were excluded from gross margin and the Gathering and Processing segment gross margin.
Effective April 1, 2011, we changed our gross margin and segment gross margin measure to exclude realized gains and losses associated with the early termination of commodity derivative contracts. For the three months and nine months ended September 30, 2011, zero dollars and $3.0 million, respectively, in realized losses were excluded from gross margin and the Gathering and Processing segment gross margin.