Crestwood Midstream Partners LP

4. EARNINGS PER LIMITED PARTNER UNIT AND DISTRIBUTIONS

     Earnings Per Limited Partner Unit. Our net income attributable to CMLP is allocated to the General Partner and the limited partners, in accordance with their respective ownership percentages, after giving effect to incentive distributions paid to the General Partner. To the extent cash distributions exceed net income attributable to CMLP, the excess distributions are allocated proportionately to all participating units outstanding based on their respective ownership percentages. Basic earnings per unit are computed by dividing net income attributable to limited partner unitholders by the weighted-average number of limited partner units outstanding during each period. Diluted earnings per unit are computed using the treasury stock method, which considers the impact to net income attributable to CMLP and limited partner units from the potential issuance of limited partner units.

     The tables below show the (i) allocation of net income attributable to limited partners and the (ii) net income attributable to CMLP per limited partner unit based on the number of basic and diluted limited partner units outstanding for the three and nine months ended September 30, 2013 and 2012.

Allocation of Net Income Attributable to CMLP to General Partner and Limited Partners

Earnings Per Limited Partner Unit

     We exclude potentially dilutive securities from the determination of diluted earnings per unit (as well as their related income statement impacts) when their impact on net income attributable to CMLP per limited partner unit is anti-dilutive. For the three and nine months ended September 30, 2013, we excluded 3,262,275 and 1,099,375 preferred security units issued by our consolidated subsidiary, Crestwood Niobrara LLC (Crestwood Niobrara), from our diluted earnings per unit. There were no units excluded from our diluted earnings per unit as we did not have any anti-dilutive units for the three and nine months ended September 30, 2012. Our potentially dilutive securities for the three and nine months ended September 30, 2013 and 2012 consist of unvested phantom units.

     Distributions. Our Second Amended and Restated Agreement of Limited Partnership, dated February 19, 2008, as amended (Partnership Agreement), requires that, within 45 days after the end of each quarter, we distribute all of our Available Cash (as defined therein) to unitholders of record on the applicable record date, as determined by our General Partner. As a result of the Merger on October 7, 2013 described in Note 1. Organization and Description of Business, there were no distributions to CMLP's unitholders for the three months ended September 30, 2013. Under the merger agreement, CMLP unitholders received 1.07 units of NRGM units for each unit of CMLP they owned and such unitholders will receive a distribution for the three months ended September 30, 2013 as determined by Crestwood Midstream's board of directors.

The following table presents distributions for 2013 and 2012 (In millions, except per unit data):

     Our Class D units are substantially similar in all respects to our existing common units, representing limited partner interests, except that we have the option to pay distributions to our Class D unitholders with cash or by issuing additional Paid-In-Kind Class D units, based upon the volume weighted-average price of our common units for the 10 trading days immediately preceding the date the distribution is declared. We issued 151,238 and 141,422 additional Class D units in lieu of paying cash quarterly distributions on our Class D units attributable to the quarters ended March 31, 2013 and June 30, 2013.

     On April 1, 2013, our outstanding Class C units converted to common units on a one-for-one basis. Prior to the conversion of our Class C units to common, we had the option to pay distributions to our Class C unitholders with cash or by issuing additional Paid-In-Kind Class C units, based upon the volume weighted-average price of our common units for the 10 trading days immediately preceding the date the distribution is declared. The unitholders of the converted units received a quarterly cash distribution for the period ended March 31, 2013 although the Class C units were not converted until April 1, 2013. We issued 136,128, 138,731 and 174,230 additional Class C units in lieu of paying cash quarterly distributions on our Class C units attributable to the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012.

     On March 22, 2013, we completed a public offering of 4,500,000 common units, representing limited partner interests in us, at a price of $23.90 per common unit ($23.00 per common unit, net of underwriting discounts) providing net proceeds of approximately $103.5 million. We granted the underwriters a 30-day option to purchase up to 675,000 additional common units if the underwriters sold more than 4,500,000 common units in the offering. The underwriters exercised this option on April 5, 2013 providing net proceeds of approximately $15.5 million. The unitholders of these common units received a quarterly distribution for the period ended March 31, 2013.