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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-11566
MARKWEST HYDROCARBON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1352233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5613 DTC PARKWAY, SUITE 400, ENGLEWOOD, COLORADO 80111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 303-290-8700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
The registrant had 8,483,598 shares of common stock, $.01 per share par value,
outstanding as of April 30, 1997.
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
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Item 1. Consolidated Financial Statements
Consolidated Statement of Operations
for the Three Months ended March 31,
1997 and 1996.................................. 1
Consolidated Balance Sheet at March 31,
1997 and December 31, 1996..................... 2
Consolidated Statement of Cash Flows
for the three months ended March
31, 1997 and 1996.............................. 3
Notes to the Consolidated Financial Statements.. 4
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition........... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................ 9
Item 6. Exhibits and Reports on Form 8-K................. 9
SIGNATURES................................................ 10
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MARKWEST HYDROCARBON, INC.
(SUCCESSOR TO MARKWEST HYDROCARBON PARTNERS, LTD. )
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000S, EXCEPT PER SHARE DATA)
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<CAPTION>
For the three months
ended March 31,
1997 1996
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Revenues:
Plant revenue................................ $21,289 $11,224
Terminal and marketing revenue............... 6,489 8,407
Oil and gas and other revenue................ 649 67
Interest income.............................. 171 28
Other income................................. 106 134
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Total revenue........................... 28,704 19,860
Costs and expenses:
Plant feedstock purchases.................... 10,269 4,588
Terminal and marketing purchases............. 6,702 7,227
Operating expenses........................... 2,199 1,722
General and administrative expenses.......... 1,935 1,205
Depreciation, depletion and amortization..... 772 652
Interest expense, net of capitilized interest 111 293
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Total costs and expenses................ 21,988 15,687
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Income before minority interest and
income taxes.................................... 6,716 4,173
Minority interest in net loss of subsidiary...... 202 --
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Income before income taxes....................... 6,918 4,173
Provision for income taxes:
Current...................................... 2,373 --
Deferred..................................... 263 --
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Net income....................................... $ 4,282 $ 4,173
========== =========
Earnings per share of common stock (A)........... $0.50 $0.33
========== =========
Weighted average number of outstanding shares
of common stock (A)............................. 8,485 7,908
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Pro forma Net Income (Note 4):
Historical income before income taxes........ $ N/A $ 4,173
Provision for income taxes................... N/A 1,586
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Net income................................... $ N/A $ 2,587
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</TABLE>
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(A) Pro forma for 1996 (See Note 4).
The accompanying notes are an integral part of these financial statements.
1
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MARKWEST HYDROCARBON, INC.
(SUCCESSOR TO MARKWEST HYDROCARBON PARTNERS, LTD.)
CONSOLIDATED BALANCE SHEET
(000S)
<TABLE>
<CAPTION>
March 31,
ASSETS 1997 December 31,
(Unaudited) 1996
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Current assets:
Cash and cash equivalents........... $ 3,080 $ 4,401
Receivables......................... 6,441 9,755
Inventories......................... 2,374 5,632
Prepaid feedstock................... -- 1,831
Other assets........................ 400 458
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Total current assets.............. 12,295 22,077
Property and equipment:
Gas processing, gathering, storage
and marketing...................... 46,443 45,247
Oil and gas properties and equipment 4,981 3,731
Land, buildings and other equipment. 5,103 5,647
Construction in progress............ 4,510 5,831
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61,037 60,456
Less: accumulated depreciation,
depletion and amortization......... (13,061) (12,316)
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Total property and equipment, net. 47,976 48,140
Intangible assets, net of accumulated
amortization of $134 299 380
and $315 respectively...................
Note receivable and other assets........ 9,367 7,657
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Total assets............................ $ 69,937 $ 78,254
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.............. $ 2,112 $ 5,382
Accrued liabilities................. 3,915 1,629
Income taxes payable................ 2,373 3,014
Current portion of long-term debt... 156 156
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Total current liabilities......... 8,556 10,181
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Deferred income taxes................... 4,253 3,977
Long-term debt.......................... 144 11,257
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Total liabilities........ 12,953 25,415
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Minority interest....................... 9,038 9,175
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Stockholders' equity:
Preferred stock, par value $0.01,
5,000,000 shares authorized,
0 shares issued and outstanding.... -- --
Common stock, par value $0.01,
20,000,000 shares authorized,
8,485,000 shares issued and
outstanding........................ 85 85
Additional paid-in capital.......... 42,237 42,237
Retained earnings................... 5,624 1,342
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Total stockholders'
equity.................. 47,946 43,664
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Total liabilities and stockholders'
equity................................. $ 69,937 $ 78,254
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</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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MARKWEST HYDROCARBON, INC.
(SUCCESSOR TO MARKWEST HYDROCARBON PARTNERS, LTD. )
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000S)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1997 1996
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Reconciliation of net income to net
cash provided by operating activities:
Net income........................... $ 4,282 $ 4,173
Add income items that do not affect
working capital:
Depreciation, depletion and
amortization................... 772 652
Deferred income taxes........... 263 --
Gain on sale of assets.......... (75) --
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5,242 4,825
Adjustments to working capital to
arrive at net cash provided by
operating activities:
Decrease in accounts receivable. 3,314 1,343
Decrease in inventories......... 3,258 1,038
Decrease in prepaid feedstock
and other assets............... 1,889 1,709
(Decrease) increase in accounts
payable and accrued liabilities (1,625) 305
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Net cash provided by operating
activities.......................... 12,078 9,220
Cash flows from investing activities:
Capital expenditures................. (595) (931)
Other................................ (62) --
(Increase) decrease on note receivable
and other assets.................... (1,629) 66
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Net cash used in investing activities (2,286) (865)
Cash flows from financing activities:
Repayments of long-term debt......... (11,113) (5,500)
Partners' distributions.............. -- (557)
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Net cash used in financing activities (11,113) (6,057)
Net (decrease) increase in cash and
cash equivalents.................... (1,321) 2,298
Cash and cash equivalents at beginning
of period.............................. 4,401 761
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Cash and cash equivalents at end of
period................................. $ 3,080 $ 3,059
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</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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MARKWEST HYDROCARBON, INC.
(SUCCESSOR TO MARKWEST HYDROCARBON PARTNERS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. GENERAL
The consolidated financial statements include the accounts of MarkWest
Hydrocarbon, Inc. ("MarkWest" or the "Company") and its wholly-owned
subsidiaries, MarkWest Resources, Inc. ("Resources") and MarkWest Michigan, Inc.
("Michigan"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and note disclosures required by generally accepted accounting
principles for complete financial statements. The interim consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto for the year ended December 31, 1996 included in
the Company's Form 10-K, as filed with the Securities and Exchange Commission.
In the opinion of management, all adjustments necessary for a fair statement of
the results for the unaudited interim periods have been made. These adjustments
consist only of normal recurring adjustments.
The effective corporate tax rate for interim periods is based on the estimated
annual effective corporate tax rate, excluding certain nonrecurring or unusual
events. The effective tax rate varies from statutory rates due primarily to tax
credits and intangible development costs.
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
NOTE 2. REORGANIZATION
The Company was incorporated in June 1996 to act as the successor to MarkWest
Hydrocarbon Partners, Ltd. (the "Partnership"). Effective October 7, 1996, the
Partnership reorganized (the "Reorganization") and the existing general and
limited partners exchanged 100% of their interests in the Partnership for
5,725,000 common shares of the Company. An additional 2,400,000 shares of
common stock were offered for public sale, totaling 8,125,000 shares outstanding
as of October 15, 1996. The over-allotment of 360,000 shares was also exercised
during October, resulting in a total of 8,485,000 shares outstanding at October
31, 1996. This transaction was a reorganization of entities under common
control, and accordingly, it was accounted for at historical cost.
NOTE 3. SIGNIFICANT BUSINESS ACQUISITIONS
Prior to July 1, 1996, the Partnership owned 49% of MarkWest Coalseam
Development Company LLC (formerly MarkWest Coalseam Joint Venture) ("Coalseam"),
a natural gas development venture, and MW Gathering LLC ("Gathering"), a natural
gas gathering venture. Effective July 1, 1996, Gathering was merged into
Coalseam. Simultaneously, the Partnership formed MarkWest Resources Inc.
("Resources"), and Coalseam distributed 49% of its assets to Resources and 51%
to MAK-J Energy Partners, Ltd. (formerly MarkWest Energy Partners, Ltd.)
("Energy"), a partnership whose general partner is a corporation owned and
controlled by the President of the Company. The consolidated financial
statements reflect Resources' 49% proportionate share of the underlying oil and
gas assets, liabilities, revenues and expenses.
Effective May 6, 1996, the Partnership acquired the right to earn up to a 60%
interest for $16.8 million in a newly formed venture, West Shore Processing, LLC
("West Shore"). The most significant asset of West Shore is Basin Pipeline LLC,
which was contributed by the Partnership's venture partner, Michigan Energy
Company, LLC. The West Shore agreement is structured so that the Company's
ownership interest increases as capital expenditures for the benefit of West
Shore are made by the Company. As of March 31, 1997, the Company had made
contributions of approximately $13.4 million to, and owned a 55% ownership
interest in, West Shore. The Company is committed to make capital expenditures
of approximately $20.0 million in 1996 and 1997 in conjunction with the first
two phases of the agreement. The Company expects to complete the first phase
of the Michigan Project, which will cost approximately $11.0 million, in the
first half of 1997. The Company currently anticipates that the second phase of
the Michigan Project, which is expected to cost approximately $9.0 million, will
be completed by the end of the fourth quarter of 1997.
4
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MARKWEST HYDROCARBON, INC.
(SUCCESSOR TO MARKWEST HYDROCARBON PARTNERS, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. PRO FORMA INFORMATION
Prior to the Reorganization, the Company was organized as a partnership and
consequently, was not subject to income tax. A pro forma provision for income
taxes and pro forma net income for the quarter ended March 31, 1996 have been
presented for purposes of comparability as if the Company had been a taxable
entity. In addition, the Company's historical capital structure is not
indicative of its current structure and, accordingly, historical net income per
common share has not been presented. Pro forma net income per common share for
the quarter ended March 31, 1996 has been computed using the weighted average
number of common and common equivalent shares outstanding for the fourth quarter
of 1996 following the Company's initial public offering.
NOTE 5. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings Per Share". This Statement is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
adoption is not permitted. SFAS 128 requires dual presentation of basic and
diluted EPS for entities with complex capital structures. The impact of
adopting SFAS 128 will not have a material effect on the Company's earnings per
share calculation.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
MarkWest Hydrocarbon, Inc. ("MarkWest" or the "Company") provides compression,
gathering, treatment, processing and natural gas liquids ("NGL") extraction
services to natural gas producers and pipeline companies and fractionates NGLs
into marketable products for sale to third parties. The Company also purchases,
stores and markets natural gas and NGLs. The majority of the Company's
operating income is derived from gas processing and NGL fractionation. NGL
prices and the volume of liquids extracted, fractionated, and sold are the
primary determinants of revenues. Prices of NGLs typically do not vary directly
with natural gas prices, but more closely follow the prices of crude oil. In
addition to sales of NGLs processed by the Company, the Company generates income
from the purchase and resale of NGLs as part of its terminal and marketing
activities, and provides marketing activities in support of its company-owned
facilities and production. The Company also currently operates two propane
terminals.
In May 1996, the Company entered into arrangements for the establishment of West
Shore Processing Company LLC ("West Shore"), a company jointly owned with
Michigan Energy Company, LLC ("MEC"). At that time, the most significant assets
of West Shore consisted of a 31-mile sour gas pipeline (the "Basin Pipeline")
that is situated in Manistee and Mason Counties, Michigan, the rights to obtain
a sour gas treatment plant located in Manistee County and various agreements
that dedicate natural gas production to West Shore for processing. West Shore
has completed a 30-mile extension to provide access to existing shut-in wells
owned by Michigan Production Company ("MPC").
West Shore has entered into agreements to construct approximately 27 miles of
additional pipeline to provide access to processing services to existing shut-in
wells. West Shore will also construct a new 50 million cubic feet per day plant
to extract NGLs, with start-up expected in the fourth quarter. In addition, the
Company expects either to construct a new treatment plant or to expand Shell's
existing plant capacity to treat the sour gas predominant in the Michigan Core
Area.
The Company maintains a strategic gas exploration effort intended to permit the
Company to gain a foothold position in production areas that have strong
potential to create demand for its processing services. The Company, through
its MarkWest Resources, Inc. subsidiary, currently owns interests in several
exploration and production assets. Such assets include a 49% undivided interest
in exploration and production projects in La Plata County, Colorado; a 5.4%
working interest in a 66 well drilling program on well sites in Oklahoma,
Nevada, Kansas and Texas; a 25% working interest in a 31,000 acre project to be
developed in the Piceance Basin of Colorado; and a 17.5% working interest in the
drilling program of the Niagran Reef Trend in the Michigan Core Area.
The Company's results of operations fluctuate substantially from quarter to
quarter as a result of changes in availability of, and prices for, natural gas,
and changes in demand for gas and NGLs because of weather and variability in
demand for NGLs used as feedstocks in petrochemical and other industries. The
Company's principal NGL product, propane, is used primarily as home heating
fuel. Sales volume and prices of propane usually increase during the winter
season and decrease during the summer season. However, demand for, and prices
of, propane also depend, to a large extent, upon the severity of the weather in
the Company's operating areas during the winter months. To meet the needs of
the marketplace, the Company seasonally stores product to meet anticipated
winter demand and also increases its third party purchases to meet wintertime
needs. As a result, the Company recognizes the greatest proportion of its
operating income during the first and fourth quarters of the year. Because of
the foregoing factors, the Company's operating results for any particular
quarterly period may not be indicative of results for future periods.
Management's Discussion and Analysis of Financial Condition and Results of
Operations include forward-looking statements (within the meaning of Section 21E
of the Securities Exchange Act of 1934) reflecting the expectations, plans and
objectives of management for operations of the Company. Such statements are
based on current expectations that involve numerous risks and uncertainties.
Assumptions relating to these expectations involve judgments with respect to,
among other things, future economic, competitive and market conditions,
including the price of natural gas, all of which are difficult or impossible to
predict accurately and many of which are beyond the
6
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control of the Company. Accordingly, there can be no assurance that the forward-
looking statements included in the Form 10-Q will prove to be accurate.
Inclusion of such information should not be regarded as a representation by the
Company or any other person that the expectations, plans and objectives of the
Company will be realized.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
The Company reported net income of $4.3 million or $0.50 per share on revenues
of $28.7 million for the first quarter of 1997. This compares to pro forma net
income of $2.6 million or $0.33 per share on revenues of $19.9 million for the
same period in 1996. This 66% increase in net income is primarily due to the
strength of the Company's Appalachian core area, where both volumes of natural
gas liquids sold and margins increased, more than offsetting the effect of
warmer winter weather on the Company's terminal operations.
Revenues
The Company's first quarter 1997 plant revenues increased $10.1 million, or 90%,
to $21.3 million, compared to $11.2 million for the first quarter of 1996. An
increase in NGL production and sales volumes of 25% accounted for approximately
$2.5 million of the revenue increase, with higher selling prices per gallon for
all NGL products accounting for a $1.1 million increase. The remaining $6.5
million increase resulted from NGL exchange contracts and hedging positions put
in place during the fourth quarter of 1996. NGL recoveries were greater for the
first quarter of 1997 at the Company's Kenova plant, due to reduced down time,
compared to operations during the plant's start-up period in the first quarter
of 1996. Richer gas streams were also available during the first quarter of
1997 due to a temporary maintenance shutdown of a competitor's plant upstream of
Kenova. In addition, increased processing of third party feedstocks occurred.
Terminal and marketing revenue for the first quarter of 1997 decreased $1.9
million, or 23%, to $6.5 million, compared to $8.4 million for the first quarter
of 1996. This decrease was the result of a $2.5 million volume decrease at the
Company's West Memphis terminal, partially offset by $0.6 million worth of
price-related increases. Warmer winter months in 1997 resulted in decreased
sales volumes, compared to the first quarter of 1996.
Oil and gas and other revenue increased to $649,000 for the first quarter of
1997 as compared to $67,000 for the first quarter of 1996, an increase of
$582,000. This increase was due principally to an additional $122,000 in
revenues from the Company's oil and gas properties, an additional $210,000 in
transportation and compression revenues from the Company's Basin Pipeline
subsidiary, and an additional $250,000 in processing revenues from the
Company's West Shore operations for the first quarter of 1997.
Interest income
Interest income increased $143,000 from $28,000 for the first quarter of 1996 to
$171,000 for the first quarter of 1997. This increase resulted primarily from
the interest income earned in the first quarter of 1997 on long-term notes
receivable, which bears an interest rate of 5.98%.
Costs and expenses
Plant feedstock costs increased to $10.3 million for the first quarter of 1997,
compared to $4.6 million for the first quarter of 1996, an increase of $5.7
million, or 124%. Of this $5.7 million increase, $1.4 million was attributable
to NGL production volumes which was partially offset by increased pricing, and
$4.3 million of the increase was due to NGL exchange contracts and hedging
positions put in place during the fourth quarter of 1996.
Terminal and marketing purchases decreased $0.5 million, from $7.2 million in
the first quarter of 1996, to $6.7 million for the first quarter of 1997, a
decrease of 7%. This decrease was primarily a result of a $2.1 million volume
decrease, which was significantly offset by an increase in propane pricing of
$1.6 million.
7
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Operating expenses increased $0.5 million or 29% from $1.7 million to $2.2
million for the first quarter of 1997, as compared to the first quarter of 1996.
The increase was principally driven by the Company's operations in Michigan,
which commenced in May 1996.
General and administrative expenses increased $0.7 million or 58%, to $1.9
million for the first quarter of 1997 from $1.2 million for the first quarter of
1996. The increase was attributable to administrative support activities
related to the West Shore operations in Michigan, to costs incurred in
connection with the Partnership reorganization and being a public company in
1997.
Depreciation and amortization increased to $772,000 from $652,000 for the first
quarter of 1997 compared to the first quarter of 1996, an increase of $120,000,
or 18%. This increase was principally due to increased depreciation
attributable to the Company's West Shore facilities.
Interest expense
Interest expense decreased $182,000 or 62% from interest expense of $293,000 for
the first quarter of 1996 to interest expense of $111,000 for the first quarter
of 1997. This decrease resulted primarily from the decrease in average
outstanding long-term debt to $3.6 million for the first quarter of 1997
compared to $13.8 million for the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities; proceeds from issuance of long-term
debt; and in 1996, an initial public offering of equity. The Company's
principal uses of cash have been to fund operations, capital expenditures and
acquisitions.
For the first quarter of 1997, net cash provided by operating activities
increased by $2.9 million to $12.1 million compared to the first quarter of
1996. This increase resulted primarily from an increase in revenue of $8.8
million, which was offset by a $6.4 million increase in feedstock purchases,
operating expenses and general and administrative expenses.
Cash used in investing activities increased $1.4 million for the first quarter
of 1997 to $2.3 million, as compared to the first quarter of 1996, mainly due to
West Shore's financing of a 31-mile extension to the Basin Pipeline, which West
Shore is building on behalf of Michigan Production Company.
Financing activities during the first quarter of both 1997 and 1996 principally
consisted of payments on long-term debt.
Financing Facilities
At March 31, 1997, the Company had $47.5 million of available credit and
working capital of $3.7 million. The Company believes that cash flows generated
by its operations and existing credit facilities will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for the next
12 months.
Resources Revolver Loan The Company had a revolving facility with Colorado
National Bank with a maximum borrowing base of $5.8 million as of March 31,
1997. As of March 31, 1997, there were no outstanding borrowings on this
facility. This facility was canceled by the Company, effective April 25, 1997.
Capital Investment Program
The Company expects to spend in excess of $20.0 million during 1997, including
approximately $12.0 million in the Michigan Core Area in order to complete
construction of a pipeline and a new liquids facility, with the balance being
allocated for projects in the Appalachian Core Area and exploration projects.
For the three months ended
8
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March 31, 1997, the Company made capital expenditures totaling approximately
$600,000, and funded $1.6 million to complete the 30-mile extension of the Basin
Pipeline.
RISK MANAGEMENT ACTIVITIES
The Company's primary hedging objectives are to meet or exceed budgeted gross
margins by locking in budgeted or above-budgeted prices in the financal
derivatives markets and to protect margins from precipitous declines. Under
internal guidelines, speculative positions are prohibited.
The Company's hedging activities generally fall into three categories - 1)
contracting for future purchases of natural gas at a predetermined BTU
differential based upon a basket of Gulf Coast NGL prices (or a substitute for
propane such as crude oil), 2) the fixing of margins between propane sales
prices and natural gas reimbursement costs by purchasing natural gas contracts
and simultaneously selling propane contracts of approximately the same BTU
value, and 3) the purchase of propane futures contracts to hedge future sales of
propane at the Company's terminals or gas plants. The Company enters into
futures transactions on the New York Mercantile Exchange ("NYMEX"). Future gas
purchases are based on predetermined BTU differentials and are negotiated with
natural gas suppliers and structured to provide similar risk protections as
NYMEX futures.
The Company maintains a three-person committee that oversees all hedging
activity of the Company. This committee reports monthly to management regarding
recommended hedging transactions and positions. Gains and losses related to
qualifying hedges, as defined by Statement of Financial Accounting Standards No.
80, "Accounting for Futures Contracts", of firm commitments or anticipated
transactions are recognized in plant revenue and feedstock purchases upon
execution of the hedged physical transaction.
During the three months ended March 31, 1997, a $1,018,000 gain was recognized
in operating income on the settlement of propane and natural gas futures.
Financial instrument gains and losses on hedging activities were generally
offset by amounts realized from the sale of the underlying products in the
physical market.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("SFAS 128"), "Earnings Per Share". This Statement is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
adoption is not permitted. SFAS 128 requires dual presentation of basic and
diluted EPS for entities with complex capital structures. The impact of
adopting SFAS 128 will not have a material effect on Company's earnings per
share calculation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1997, Domain Energy Corporation and EnCap Investments, L.C. informed
the Company that they had purported to transfer their interests in MEC and
Michigan Production Company to Energy Acquisition Corp. MEC holds a minority
interest in West Shore. The Company believes that the transfer of the interest
in MEC would be in violation of the arrangements for the establishment and
operation of West Shore, and is, therefore, invalid. Accordingly, the Company
has not recognized the purported transfer and has commenced arbitration
proceedings pursuant to the Participation, Ownership and Operating Agreement for
West Shore.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement regarding computation of earnings per share
9
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27 - Financial Data Schedule
(a) Reports on Form 8-K
A report on Form 8-K dated April 28, 1997, was submitted announcing the
hiring of Gerald A. Tywoniuk as Chief Financial Officer and Vice President
of Finance.
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 thereunto duly authorized.
MarkWest Hydrocarbon, Inc.
(Registrant)
Date: May 12, 1997 By: /s/ GERALD A. TYWONIUK
--------------------------
Gerald A. Tywoniuk
Chief Financial Officer and Vice
President of Finance
(On Behalf of the Registrant and
as Principal Financial and
Accounting Officer)
10
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Exhibit 11
MARKWEST HYDROCARBON, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
1997 1996
--------------------------------------
<S> <C> <C>
Net income (pro forma for 1996) $4,282 $2,587
Weighted average common
shares outstanding (pro forma for 1996) 8,485 7,908
Earnings per common share (pro forma
for 1996) $ .50 $ .33
</TABLE>
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statements of operations on pages 1
and 2 of the Company's 1997 Form 10-Q for the three months ended March 31, 1997,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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0
0
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