Segment Information (Tables)

9 Months Ended

Sep. 30, 2013

Segment Information

Schedule of operating income and capital expenditures of reportable segments

The tables below present the Partnership’s segment profit measure, Operating income before items not allocated to segments, for the three and nine months ended September 30, 2013 and 2012 and capital expenditures for the nine months ended September 30, 2013 and 2012 for the reported segments (in thousands):

Three months ended September 30, 2013:

	Marcellus		Utica			Northeast		Southwest		Total
Segment revenue	$	147,290	$	8,373		$	48,829	$	247,885	$	452,377
Purchased product costs	36,995		—			15,330		139,347		191,672
Net operating margin	110,295		8,373			33,499		108,538		260,705
Facility expenses	29,621		9,858			7,359		32,559		79,397
Portion of operating loss attributable to non-controlling interests	—		(599		)	—		40		(559		)
Operating income (loss) before items not allocated to segments	$	80,674	$	(886	)	$	26,140	$	75,939	$	181,867

Three months ended September 30, 2012:

	Marcellus		Utica			Northeast		Southwest (1)		Total
Segment revenue	$	78,707	$	145		$	39,987	$	199,394	$	318,233
Purchased product costs	16,203		—			11,054		92,112		119,369
Net operating margin	62,504		145			28,933		107,282		198,864
Facility expenses	18,933		1,308			6,267		28,870		55,378
Portion of operating (loss) income attributable to non-controlling interests	—		(627		)	—		67		(560		)
Operating income (loss) before items not allocated to segments	$	43,571	$	(536	)	$	22,666	$	78,345	$	144,046

(1) Amounts have been restated to reflect the deconsolidation of MarkWest Pioneer as discussed in Note 3 of these Condensed Consolidated Financial Statements.

Reconciliation of segment revenue to total revenue and operating income before items not allocated to segments to income before provision for income tax

The following is a reconciliation of segment revenue to total revenue and operating income before items not allocated to segments to income before provision for income tax for the three months ended September 30, 2013 and 2012 (in thousands):

	Three months ended September 30,
	2013			2012 (3)
Total segment revenue	$	452,377		$	318,233
Derivative loss not allocated to segments	(30,318		)	(36,400		)
Revenue deferral adjustment and other (1)	(1,543		)	(1,257		)
Total revenue	$	420,516		$	280,576
Operating income before items not allocated to segments	$	181,867		$	144,046
Portion of operating loss attributable to non-controlling interests	(559		)	(560		)
Derivative loss not allocated to segments	(52,884		)	(52,071		)
Revenue deferral adjustment and other (1)	(1,543		)	(1,257		)
Compensation expense included in facility expenses not allocated to segments	(833		)	(193		)
Facility expenses adjustments (2)	2,688			2,688
Selling, general and administrative expenses	(26,647		)	(21,723		)
Depreciation	(76,323		)	(46,554		)
Amortization of intangible assets	(16,003		)	(14,988		)
Loss on disposal of property, plant and equipment	(1,840		)	(655		)
Accretion of asset retirement obligations	(160		)	(140		)
Income from operations	7,763			8,593
Earnings from unconsolidated affiliates	896			706
Interest income	27			64
Interest expense	(38,889		)	(30,621		)
Amortization of deferred financing costs and discount (a component of interest expense)	(1,584		)	(1,428		)
Miscellaneous income, net	1,504			1
Loss before provision for income tax	$	(30,283	)	$	(22,685	)

(1) Amount relates primarily to certain contracts in which the cash consideration that the Partnership receives for providing service is greater during the initial years of the contract compared to the later years. In accordance with GAAP, the revenue is recognized evenly over the term of the contract as the Partnership will perform a similar level of service for the entire term. Therefore, the revenue recognized in the current reporting period is less than the cash received. However, the Partnership’s chief operating decision maker and management evaluate the segment performance based on the cash consideration received and therefore, the impact of the revenue deferrals is excluded for segment reporting purposes. For the three months ended September 30, 2013, approximately $0.2 million and $1.5 million of the revenue deferral adjustment is attributable to the Southwest segment and Northeast segment, respectively. In comparison, for the three months ended September 30, 2012, approximately $0.2 million and $1.4 million of the revenue deferral adjustment was attributable to the Southwest segment and Northeast segment, respectively. Beginning in 2015, the cash consideration received from these contracts will decline and the reported segment revenue will be less than the revenue recognized for GAAP purposes.  Other consists of management fee revenues from an unconsolidated affiliate of $0.2 million for the three months ended September 30, 2013 compared to $0.3 million for three months ended September 30, 2012.

(2) Facility expenses adjustments consist of the reallocation of the interest expense related to the SMR, which is included in facility expenses for the purposes of evaluating the performance of the Southwest segment.

(3) Amounts have been restated to reflect the deconsolidation of MarkWest Pioneer as discussed in Note 3 of these Condensed Consolidated Financial Statements.

Nine months ended September 30, 2013:

	Marcellus		Utica			Northeast		Southwest		Total
Segment revenue	$	375,844	$	12,590		$	151,530	$	684,093	$	1,224,057
Purchased product costs	72,781		—			50,118		376,689		499,588
Net operating margin	303,063		12,590			101,412		307,404		724,469
Facility expenses	74,529		20,232			20,538		91,027		206,326
Portion of operating (loss) income attributable to non-controlling interests	—		(3,081		)	—		157		(2,924		)
Operating income (loss) before items not allocated to segments	$	228,534	$	(4,561	)	$	80,874	$	216,220	$	521,067
Capital expenditures	$	1,097,440	$	961,538		$	3,418	$	108,440	$	2,170,836
Capital expenditures not allocated to segments										5,883
Total capital expenditures										$	2,176,719

Nine months ended September 30, 2012:

	Marcellus		Utica			Northeast		Southwest (1)		Total
Segment revenue	$	213,761	$	145		$	168,956	$	641,321	$	1,024,183
Purchased product costs	48,856		—			49,662		288,137		386,655
Net operating margin	164,905		145			119,294		353,184		637,528
Facility expenses	44,544		1,591			17,577		92,964		156,676
Portion of operating (loss) income attributable to non-controlling interests	—		(740		)	—		98		(642		)
Operating income (loss) before items not allocated to segments	$	120,361	$	(706	)	$	101,717	$	260,122	$	481,494
Capital expenditures	$	937,008	$	82,366		$	70,206	$	145,213	$	1,234,793
Capital expenditures not allocated to segments										4,912
Total capital expenditures										$	1,239,705

(1) Amounts have been restated to reflect the deconsolidation of MarkWest Pioneer as discussed in Note 3 of these Condensed Consolidated Financial Statements.

The following is a reconciliation of segment revenue to total revenue and operating income before items not allocated to segments to income before provision for income tax for the nine months ended September 30, 2013 and 2012 (in thousands):

	Nine months ended September 30,
	2013			2012 (3)
Total segment revenue	$	1,224,057		$	1,024,183
Derivative gain not allocated to segments	(10,804		)	50,952
Revenue deferral adjustment and other (1)	(4,344		)	(4,474		)
Total revenue	$	1,208,909		$	1,070,661
Operating income before items not allocated to segments	$	521,067		$	481,494
Portion of loss income attributable to non-controlling interests	(2,924		)	(642		)
Derivative (loss) gain not allocated to segments	(2,702		)	70,952
Revenue deferral adjustment and other(1)	(4,344		)	(4,474		)
Compensation expense included in facility expenses not allocated to segments	(1,587		)	(826		)
Facility expenses adjustments (2)	8,064			8,064
Selling, general and administrative expenses	(77,388		)	(68,471		)
Depreciation	(215,902		)	(127,472		)
Amortization of intangible assets	(47,925		)	(38,280		)
Gain (loss) on disposal of property, plant and equipment	35,758			(2,983		)
Accretion of asset retirement obligations	(669		)	(536		)
Income from operations	211,448			316,826
Earnings from unconsolidated affiliates	1,561			2,254
Interest income	238			295
Interest expense	(114,180		)	(86,855		)
Amortization of deferred financing costs and discount (a component of interest expense)	(5,198		)	(3,943		)
Loss on redemption of debt	(38,455		)	—
Miscellaneous income, net	1,510			63
Income before provision for income tax	$	56,924		$	228,640

(1) Amount relates primarily to certain contracts in which the cash consideration that the Partnership receives for providing service is greater during the initial years of the contract compared to the later years. In accordance with GAAP, the revenue is recognized evenly over the term of the contract as the Partnership will perform a similar level of service for the entire term. Therefore, the revenue recognized in the current reporting period is less than the cash received. However, the Partnership’s chief operating decision maker and management evaluate the segment performance based on the cash consideration received and, therefore, the impact of the revenue deferrals is excluded for segment reporting purposes. For the nine months ended September 30, 2013, approximately $0.6 million and $4.5 million of the revenue deferral adjustment is attributable to the Southwest segment and Northeast segment, respectively. In comparison, for the nine months ended September 30, 2012, approximately $0.6 million and $5.0 million of the revenue deferral adjustment was attributable to the Southwest segment and Northeast segment, respectively. Beginning in 2015, the cash consideration received from these contracts will decline and the reported segment revenue will be less than the revenue recognized for GAAP purposes.  The other consists of management fee revenues from an unconsolidated affiliate of $0.8 million for the nine months ended September 30, 2013 compared to $1.1 million for the nine months ended September 30, 2012.

(2) Facility expenses adjustments consist of the reallocation of the interest expense related to the SMR, which is included in facility expenses for the purposes of evaluating the performance of the Southwest segment.

(3) Amounts have been restated to reflect the deconsolidation of MarkWest Pioneer as discussed in Note 3 of these Condensed Consolidated Financial Statements.

Schedule of assets by segment

The table below presents information about segment assets as of September 30, 2013 and December 31, 2012 (in thousands):

	September 30, 2013		December 31, 2012 (2)
Marcellus	$	4,143,180	$	3,172,144
Utica	1,379,200		439,987
Northeast	580,788		578,122
Southwest	2,371,539		2,086,215
Total segment assets	8,474,707		6,276,468
Assets not allocated to segments:
Certain cash and cash equivalents	250,133		261,473
Fair value of derivatives	20,265		30,382
Investment in unconsolidated affiliate	68,193		63,054
Other (1)	104,418		96,985
Total assets	$	8,917,716	$	6,728,362

(1) Includes corporate fixed assets, deferred financing costs, income tax receivable, receivables and other corporate assets not allocated to segments.

(2) Amounts have been restated to reflect the deconsolidation of MarkWest Pioneer as discussed in Note 3 of these Condensed Consolidated Financial Statements.