The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these estimates.

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Inventories of products consist of natural gas and NGLs. The Company reports these assets at the lower of cost or market.

Property, plant and equipment consist of intrastate gas transmission systems, gas gathering systems, NGL pipelines, natural gas processing plants and NGL fractionation plants. Gas required to maintain pipeline minimum pressures is capitalized and classified as property, plant and equipment. Other property and equipment is primarily comprised of computer software and equipment, furniture, fixtures, leasehold improvements and office equipment. Property, plant and equipment are recorded at cost. Repairs and maintenance are charged against income when incurred. Renewals and betterments, which extend the useful life of the properties, are capitalized. Interest costs are capitalized to property, plant and equipment during the period the assets are undergoing preparation for intended use. Interest costs totaling $0.9 million, $0.1 million and $1.1 million were capitalized for the years ended December 31, 2011, 2010 and 2009, respectively.

Depreciation is provided using the straight-line method based on the estimated useful life of each asset, as follows:

		Useful Lives
Transmission assets		20-30 years
Gathering systems		15-20 years
Gas processing plants		20 years
Other property and equipment		3-15 years

Depreciation expense of $77.8 million, $75.7 million and $82.5 million was recorded for the years ended December 31, 2011, 2010 and 2009, respectively. Depreciation expense also includes the amortization of assets classified as capital lease assets.

FASB ASC 360-10-05-4 requires long-lived assets to be reviewed whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. In order to determine whether an impairment has occurred, the Company compares the net book value of the asset to the undiscounted expected future net cash flows. If an impairment has occurred, the amount of such impairment is determined based on the expected future net cash flows discounted using a rate commensurate with the risk associated with the asset.

When determining whether impairment of one of our long-lived assets has occurred, we must estimate the undiscounted cash flows attributable to the asset. The Company's estimate of cash flows is based on assumptions regarding the purchase and resale margins on natural gas, volume of gas available to the asset, markets available to the asset, operating expenses, and future natural gas prices and NGL product prices. The amount of availability of gas to an asset is sometimes based on assumptions regarding future drilling activity, which may be dependent in part on natural gas prices. Projections of gas volumes and future commodity prices are inherently subjective and contingent upon a number of variable factors. Any significant variance in any of the above assumptions or factors could materially affect our cash flows, which could require us to record an impairment of an asset.

The Company recorded impairments to long-lived assets of $1.3 million and $2.9 million during the years ended December 31, 2010 and 2009, respectively. See Note 4(c) for further details on the long-lived assets impaired.

Intangible assets consist of customer relationships and the value of the dedicated and non-dedicated acreage attributable to pipeline, gathering and processing systems. Intangible assets associated with customer relationships are amortized on a straight-line basis over the expected period of benefits of the customer relationships, which range from three to 15 years. The intangible assets associated with dedicated and non-dedicated acreage attributable to pipeline, gathering and processing systems are being amortized using the units of throughput method of amortization.

The following table represents the Partnership's total purchased intangible assets at years ended December 31, 2011 and 2010 (in thousands):


		Gross Carrying		Accumulated		Net Carrying
		Amount		Amortization		Amount
2011
Customer relationships		$	255,058	$	(101,762)	$	153,296
Dedicated and non-dedicated acreage			395,652		(97,486)		298,166
	Total	$	650,710	$	(199,248)	$	451,462
2010
Customer relationships		$	255,058	$	(86,524)	$	168,534
Dedicated and non-dedicated acreage			395,652		(65,211)		330,441
	Total	$	650,710	$	(151,735)	$	498,975

The weighted average amortization period for intangible assets is 18.0 years. Amortization expense for intangibles was approximately $47.5 million, $35.9 million and $36.6 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The following table summarizes the Company's estimated aggregate amortization expense for the next five years (in thousands):

2012	$	44,995
2013		41,786
2014		40,578
2015		41,296
2016		41,880
Thereafter		240,927
Total	$	451,462

The Partnership owns a majority interest in Crosstex Denton County Joint Venture (CDC) and consolidates its investment in CDC pursuant to FASB ASC 810-10-05-8. The Partnership manages the business affairs of CDC, which owns a small gas gathering system in north Texas. The other joint venture partner (the CDC partner) is an unrelated third party who owns and operates a natural gas field located in Denton County, Texas.

On June 22, 2011, the Partnership entered into a limited liability agreement with Howard Energy Partners (“HEP”) for an initial capital contribution of $35.0 million in exchange for an individual ownership interest in HEP of approximately 35.0%. In addition to the Partnership's contribution, an unrelated party also provided a capital contribution of $35.0 million for a 35.0% ownership interest in HEP with HEP management and a few private investors owning the remaining 30.0% interest. HEP owns assets and provides midstream and construction services to Eagle Ford Shale producers in south Texas. This investment in HEP is accounted for under the equity method of accounting and is reflected on the balance sheet as “Investment in limited liability company.” Per the terms of the agreement, the Partnership will not recognize any income from this investment until HEP's income exceeds approximately $9.9 million on an inception to date basis due to preferred interests owned by HEP management. If HEP has losses on an inception to date basis, the Partnership will recognize 39.3% of the losses.

Unamortized debt issuance costs totaling $24.2 million and $26.7 million as of December 31, 2011 and 2010, respectively, are included in other assets, net. Debt issuance costs are amortized into interest expense using the straight-line method over the terms of the debt.

Quantities of natural gas and NGLs over-delivered or under-delivered related to imbalance agreements are recorded monthly as receivables or payables using weighted average prices at the time of the imbalance. These imbalances are typically settled with deliveries of natural gas or NGLs. The Company had imbalance payables of $2.3 million and $1.9 million at December 31, 2011 and 2010, respectively, which approximate the fair value of these imbalances. The Company had imbalance receivables of $1.7 million and $2.9 million at December 31, 2011 and 2010, which are carried at the lower of cost or market value.

FASB ASC 410-20-25-16 was issued in March 2005, which became effective at December 31, 2005. FASB ASC 410-20-25-16 clarifies that the term “conditional asset retirement obligation” as used in FASB ASC 410-20, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Since the obligation to perform the asset retirement activity is unconditional, FASB ASC 410-20-25-16 provides that a liability for the fair value of a conditional asset retirement activity should be recognized if that fair value can be reasonably estimated, even though uncertainty exists about the timing and/or method of settlement. FASB ASC 410-20-25-16 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation under FASB ASC 410-20. The Company did not provide any asset retirement obligations as of December 31, 2011 and 2010 because it does not have sufficient information as set forth in FASB ASC 410-20-25-16 to reasonably estimate such obligations, and the Company has no current intention of discontinuing use of any significant assets.

The Company recognizes revenue for sales or services at the time the natural gas or NGLs are delivered or at the time the service is performed. The Company generally accrues one month of sales and the related gas purchases and reverses these accruals when the sales and purchases are actually invoiced and recorded in the subsequent months. Actual results could differ from the accrual estimates. Purchase and sale arrangements are generally reported in revenues and costs on a gross basis in the consolidated statement of operations in accordance with FASB ASC 605-45-45-1. Except for fee based arrangements, the Partnership acts as the principal in these purchase and sale transactions, has the risk and reward of ownership as evidenced by title transfer, schedules the transportation and assumes credit risk. The Partnership conducts “off-system” gas marketing operations as a service to producers on systems that it does not own. It refers to these activities as part of energy trading activities. In some cases, the Partnership earns an agency fee from the producer for arranging the marketing of the producer's natural gas. In other cases, the Partnership purchases the natural gas from the producer and enters into a sales contract with another party to sell the natural gas. The revenue and cost of sales for these activities are included in revenue on a net basis in the consolidated statement of operations.

The Company accounts for taxes collected from customers attributable to revenue transactions and remitted to government authorities on a net basis (excluded from revenues).

The Partnership uses derivatives to hedge against changes in cash flows related to product price, as opposed to their use for trading purposes. FASB ASC 815 requires that all derivatives be recorded on the balance sheet at fair value. It generally determines the fair value of futures contracts and swap contracts based on the difference between the derivative's fixed contract price and the underlying market price at the determination date. The asset or liability related to the derivative instruments is recorded on the balance sheet in fair value of derivative assets or liabilities.

Realized and unrealized gains and losses on commodity related derivatives that are not designated as hedges, as well as the ineffective portion of hedge derivatives, are recorded as gain or loss on derivatives in the consolidated statement of operations. Realized and unrealized gains and losses on interest rate derivatives that are not designated as hedges are included in interest expense in the consolidated statement of operations. Unrealized gains and losses on effective cash flow hedge derivatives are recorded as a component of accumulated other comprehensive income. When the hedged transaction occurs, the realized gain or loss on the hedge derivative is transferred from accumulated other comprehensive income to earnings. Realized gains and losses on commodity hedge derivatives are recognized in revenues, and realized gains and losses on interest hedge derivatives are recorded as adjustments to interest expense. Settlements of derivatives are included in cash flows from operating activities.

Comprehensive income includes net income (loss) and other comprehensive income, which includes unrealized gains and losses on derivative financial instruments. Pursuant to FASB ASC 815, the Company records deferred hedge gains and losses on its derivative financial instruments that qualify as cash flow hedges as other comprehensive income.

Legal costs incurred in connection with a loss contingency are expensed as incurred.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of trade accounts receivable and derivative financial instruments. Management believes the risk is limited since the Company's customers represent a broad and diverse group of energy marketers and end users. In addition, the Company continually monitors and reviews credit exposure to its marketing counter-parties and letters of credit or other appropriate security are obtained as considered necessary to limit the risk of loss. The Company records reserves for uncollectible accounts on a specific identification basis since there is not a large volume of late paying customers. The Company had a reserve for uncollectible receivables as of December 31, 2011, 2010 and 2009 of $0.4 million, $0.2 million and $0.4 million, respectively.

During the year ended December 31, 2011, the Company had only one customer that represented greater than 10.0% individually of its revenue. The customer is located in the LIG segment and represented 12.3% of the consolidated revenue for the year ended December 31, 2011. During the year ended December 31, 2010, three customers accounted for 14.5%, 10.6%, 10.2% of consolidated revenue. During the year ended December 31, 2009, one customer accounted for 12.2% of the consolidated revenue including discontinued operations. As the Company continues to grow and expand, the relationship between individual customer sales and consolidated total sales is expected to continue to change. While these customers represent a significant percentage of revenues, the loss of these customers would not have a material adverse impact on the Company's results of operations because the gross operating margin received from transactions with these customers are not material to the Company's gross operating margin.

Environmental expenditures are expensed or capitalized as appropriate, depending on the nature of the expenditures and their future economic benefit. Expenditures that related to an existing condition caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities for these expenditures are recorded on an undiscounted basis (or a discounted basis when the obligation can be settled at fixed and determinable amounts) when environmental assessments or clean-ups are probable and the costs can be reasonably estimated. For the years ended December 31, 2011, 2010 and 2009, such expenditures were not significant.

The Company recognizes compensation cost related to all stock-based awards, including stock options, in its consolidated financial statements in accordance with FASB ASC 718. The Partnership and CEI each have similar unit or share-based payment plans for employees, which are described below. Share-based compensation associated with the CEI share-based compensation plans awarded to officers and employees of the Partnership are recorded by the Partnership since CEI has no operating activities other than its interest in the Partnership. Amounts recognized in the consolidated financial statements with respect to these plans are as follows (in thousands):


		Years Ended December 31,
		2011		2010		2009
Cost of share-based compensation charged to general and administrative
	expense	$	6,405	$	8,246	$	7,075
Cost of share-based compensation charged to operating expense			1,151		1,323		1,667
Total amount charged to income		$	7,556	$	9,569	$	8,742
Interest of non-controlling partners in share-based compensation		$	3,052	$	3,900	$	3,729
Amount of related income tax benefit recognized in income		$	1,670	$	2,038	$	1,871

We have reviewed recently issued accounting pronouncements that became effective during the year ended December 31, 2011, and have determined that none would have a material impact on our Consolidated Financial Statements.