14. Segment Information

The Partnership prepares segment information in accordance with GAAP. However, certain items below Income from operations in the accompanying Condensed Consolidated Statements of Operations, certain compensation expense, certain other non-cash items and any gains (losses) from derivative instruments are not allocated to individual segments. Management does not consider these items allocable to or controllable by any individual segment and therefore excludes these items when evaluating segment performance. Segment results are also adjusted to exclude the portion of operating income attributable to the non-controlling interests. As disclosed in Note 3, Ohio Gathering was deconsolidated effective June 1, 2014 and its financial position as of June 30, 2015 and results of operations are reported under the equity method of accounting. However, the Partnership’s Chief Executive Officer and chief operating decision maker continues to view the Utica Segment inclusive of Ohio Gathering, and reviews its financial information as if it were consolidated. In addition, the Partnership’s Chief Executive Officer and chief operating decision maker views all Partnership operated, non-wholly owned subsidiaries as if they are consolidated, as these subsidiaries are operated by the Partnership.

The tables below present the Partnership’s segment profit measure, Operating income before items not allocated to segments for the three months ended June 30, 2015 and 2014 for the reported segments (in thousands):

Three months ended June 30, 2015:

	Marcellus		Utica		Northeast		Southwest		Elimination (1)		Total

Segment revenue	$	199,311	$	63,942	$	22,595	$	200,210	$	—	$	486,058
Segment purchased product costs	4,568		679		9,743		108,302		—		123,292

Net operating margin	194,743		63,263		12,852		91,908		—		362,766
Segment facility expenses	39,938		15,952		7,584		33,993		—		97,467
Segment portion of operating income attributable to non-controlling interests	—		23,633		—		2,062		—		25,695

Operating income before items not allocated to segments	$	154,805	$	23,678	$	5,268	$	55,853	$	—	$	239,604

Three months ended June 30, 2014:

	Marcellus		Utica		Northeast		Southwest		Elimination (1)		Total
Segment revenue	$	183,734	$	30,826	$	43,777	$	271,140	(900	)	$	528,577
Segment purchased product costs	39,710		7,353		15,169		153,628		—		215,860

Net operating margin	144,024		23,473		28,608		117,512		(900	)	312,717
Segment facility expenses	33,755		12,174		8,509		34,354		(900	)	87,892
Segment portion of operating income (loss) attributable to non-controlling interests	—		4,687		—		6		—		4,693

Operating income (loss) before items not allocated to segments	$	110,269	$	6,612	$	20,099	$	83,152	—		$	220,132

(1)

Amounts represent revenues and expenses associated with the Northeast segment fractionation completed on behalf of the Marcellus segment.

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 June 30, 2015 and 2014 (in thousands):

	Three months ended June 30,
	2015			2014
Total segment revenue	$	486,058		$	528,577
Derivative gain (loss) not allocated to segments	138			(6,753		)
Revenue adjustment for unconsolidated affiliates (1)	(33,016		)	(3,833		)
Revenue deferral adjustment and other (2) (3)	6,448			375

Total revenue	$	459,628		$	518,366


Operating income before items not allocated to segments	$	239,604		$	220,132
Portion of operating income attributable to non-controlling interests	11,495			4,184
Derivative loss not allocated to segments	(2,208		)	(20,762		)
Revenue adjustment for unconsolidated affiliates (1)	(33,016		)	(3,833		)
Revenue deferral adjustment (2)	1,076			375
Compensation expense included in facility expenses not allocated to segments	(942		)	(903		)
Facility expense, operational service fees and purchased product cost adjustments for unconsolidated affiliates (4)	12,543			2,598
Portion of operating income attributable to non-controlling interests of unconsolidated affiliates (5)	14,200			509
Facility expense adjustments (6)	2,688			2,688
Selling, general and administrative expenses	(34,971		)	(27,701		)
Depreciation	(121,909		)	(104,078		)
Amortization of intangible assets	(15,596		)	(15,965		)
Loss on disposal of property, plant and equipment	(2,417		)	(1,450		)
Accretion of asset retirement obligations	(194		)	(168		)

Income from operations	70,353			55,626
Earnings (loss) from unconsolidated affiliates	3,262			(721		)
Interest expense	(52,087		)	(43,391		)
Amortization of deferred financing costs and debt discount (a component of interest expense)	(1,562		)	(1,449		)
Loss on redemption of debt	(117,860		)	—
Miscellaneous income, net	46			43

(Loss) income before provision for income tax	$	(97,848	)	$	10,108

(1)

Revenue adjustment for unconsolidated affiliates relates to revenue of Partnership operated, non-wholly owned subsidiaries (See Note 3).

(2)

Revenue deferral adjustment 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. In March 2015, the cash consideration received from the Southwest segment contract declined and the reported segment revenue was less than the revenue recognized for GAAP purposes. For the three months ended June 30, 2015, approximately $0.2 million of the revenue deferral adjustment is attributable to the Southwest segment. Beginning in the second quarter of 2015, the cash consideration received from the Northeast segment contract declined and the reported segment revenue is less than the revenue recognized for GAAP purposes. For the three months ended June 30, 2015, approximately $0.9 million of the revenue deferral adjustment is attributable to the Northeast segment. In comparison, for the three months ended June 30, 2014, approximately $0.2 million and $1.5 million of the revenue deferral adjustment was attributable to the Southwest segment and Northeast segment, respectively.

(3)

Other consists of Operational Service revenues from unconsolidated affiliates of $5.4 million for the three months ended June 30, 2015 compared to $2.1 million for three months ended June 30, 2014.

(4)

Facility expense, operational service fees and purchased product cost adjustments for unconsolidated affiliates consist of the facility expenses and purchased product costs related to Partnership operated, non-wholly owned subsidiaries (See note (1) above and Note 3).

(5)

Portion of operating income attributable to non-controlling interests of unconsolidated affiliates amount relates to the Partnership’s joint venture partners’ proportionate share of operating income in Partnership operated, non-wholly owned subsidiaries, which is included in segment operating income calculation as if the Partnership operated, non-wholly owned subsidiaries are consolidated (See note (1) above and Note 3).

(6)

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.

The tables below present the Partnership’s segment profit measure, Operating income before items not allocated to segments for the six months ended June 30, 2015 and 2014 for the reported segments (in thousands):

Six months ended June 30, 2015:

	Marcellus		Utica (1)		Northeast		Southwest (1)		Elimination (2)			Total

Segment revenue	$	396,487	$	122,853	$	52,616	$	396,477	$	(44	)	$	968,389
Segment purchased product costs	11,070		860		22,261		212,585		—			246,776

Net operating margin	385,417		121,993		30,355		183,892		(44		)	721,613
Segment facility expenses	83,320		32,590		14,462		67,910		(44		)	198,238
Segment portion of operating income attributable to non-controlling interests	—		43,740		—		3,609		—			47,349

Operating income before items not allocated to segments	$	302,097	$	45,663	$	15,893	$	112,373	$	—		$	476,026


Capital expenditures	$	584,067	$	290,106	$	1,854	$	122,081	$			$	998,108
Capital expenditures for Partnership operated, non-wholly owned subsidiaries (1)												(170,442		)
Capital expenditures not allocated to segments												5,396

Total capital expenditures												$	833,062

Six months ended June 30, 2014:

	Marcellus		Utica(1)		Northeast		Southwest		Elimination (2)		Total
Segment revenue	$	358,893	$	54,592	$	105,030	$	530,470	(2,471	)	$	1,046,514
Segment purchased product costs	74,000		11,488		35,624		306,312		—		427,424

Net operating margin	284,893		43,104		69,406		224,158		(2,471	)	619,090
Segment facility expenses	69,228		24,026		15,623		66,876		(2,471	)	173,282
Segment portion of operating income attributable to non-controlling interests	—		7,823		—		5		—		7,828

Operating income before items not allocated to segments	$	215,665	$	11,255	$	53,783	$	157,277	—		$	437,980


Capital expenditures	$	792,927	$	433,615	$	1,300	$	78,588	—		$	1,306,430
Capital expenditures for Ohio Gathering after deconsolidation (1)											(40,013		)
Capital expenditures not allocated to segments											8,906

Total capital expenditures											$	1,275,323

(1)

The Utica segment for the six months ended June 30, 2015 includes $167.2 million of capital expenditures related to Partnership operated, non-wholly owned subsidiaries’ capital expenditures. The Southwest segment for the six months ended June 30, 2015 includes $3.2 million related to Partnership operated, non-wholly owned subsidiaries. The Utica segment for the six months ended June 30, 2014 includes $40.0 million related to Ohio Gathering capital expenditures after deconsolidation on June 1, 2014.

(2)

Amounts represent revenues and expenses associated with the Northeast segment fractionation completed on behalf of the Marcellus segment.

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 six months ended June 30, 2015 and 2014 (in thousands):

	Six months ended June 30,
	2015			2014
Total segment revenue	$	968,389		$	1,046,514
Derivative gain (loss) not allocated to segments	7,506			(10,720		)
Revenue adjustment for unconsolidated affiliates (1)	(60,547		)	(3,833		)
Revenue deferral adjustment and other (2) (3)	11,610			(1,119		)

Total revenue	$	926,958		$	1,030,842


Operating income before items not allocated to segments	$	476,026		$	437,980
Portion of operating income attributable to non-controlling interests	22,909			7,319
Derivative gain (loss) not allocated to segments	620			(16,663		)
Revenue adjustment for unconsolidated affiliates (1)	(60,547		)	(3,833		)
Revenue deferral adjustment (2)	154			(1,119		)
Compensation expense included in facility expenses not allocated to segments	(2,049		)	(1,906		)
Facility expense, operational service fees and purchased product cost adjustments for unconsolidated affiliates (4)	26,001			2,598
Portion of operating income attributable to non-controlling interests of unconsolidated affiliates (5)	24,440			509
Facility expense adjustments (6)	5,376			5,376
Selling, general and administrative expenses	(69,606		)	(62,991		)
Depreciation	(241,501		)	(206,007		)
Amortization of intangible assets	(31,422		)	(31,943		)
Impairment expense	(25,523		)	—
Loss on disposal of property, plant and equipment	(1,606		)	(1,357		)
Accretion of asset retirement obligations	(387		)	(336		)

Income from operations	122,885			127,627
Earnings (loss) from unconsolidated affiliates	3,774			(471		)
Interest expense	(102,144		)	(84,375		)
Amortization of deferred financing costs and debt discount (a component of interest expense)	(3,197		)	(4,273		)
Loss on redemption of debt	(117,860		)	—
Miscellaneous income, net	94			62

(Loss) income before provision for income tax	$	(96,448	)	$	38,570

(1)

Revenue adjustment for unconsolidated affiliates relates to revenue of Partnership operated, non-wholly owned subsidiaries (See note (1) above and Note 3).

(2)

Revenue deferral 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. In March 2015, the cash consideration received from the Southwest segment contract declined and the reported segment revenue was less than the revenue recognized for GAAP purposes. For the six months ended June 30, 2015, approximately $0.1 million of the revenue deferral adjustment is attributable to the Southwest segment. Beginning in the second quarter of 2015, the cash consideration received from the Northeast segment contract started to decline and the reported segment revenue will be less than the revenue recognized for GAAP purposes. For the six months ended June 30, 2015, approximately $0.1 million of the revenue deferral adjustment is attributable to the Northeast segment. In comparison, for the six months ended June 30, 2014, approximately $0.4 million and $3.4 million of the revenue deferral adjustment was attributable to the Southwest segment and Northeast segment, respectively.

(3)

Other consists of Operational Service revenues from unconsolidated affiliates of $11.5 million for the six months ended June 30, 2015 compared to $2.7 million for six months ended June 30, 2014.

(4)

(5)

(6)

The table below presents information about segment assets as of June 30, 2015 and December 31, 2014 (in thousands):

	June 30, 2015		December 31, 2014
Marcellus	$	6,106,353	$	5,749,932
Utica (1)	2,270,379		2,163,025
Northeast	398,221		445,911
Southwest (1)	2,409,091		2,362,113
Total segment assets	11,184,044		10,720,981
Assets not allocated to segments:
Certain cash and cash equivalents	1		—
Fair value of derivatives	23,127		37,428
Investment in unconsolidated affiliates	57,777		108,849
Other (2)	94,610		113,520
Total assets	$	11,359,559	$	10,980,778

(1)

The June 30, 2015 and December 31, 2014 amounts exclude assets related to the Partnership’s unconsolidated joint ventures. The amounts include the investments in unconsolidated affiliates.

(2)

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