<PAGE>
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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, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
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.)
155 INVERNESS DRIVE WEST, SUITE 200, ENGLEWOOD, CO 80112-5004
(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 8,499,890 shares of common stock, $.01 per share par value,
outstanding as of May 8, 1998.
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<PAGE>
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PART I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at March 31, 1998 and December 31,
1997........................................................ 1
Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and 1997............................... 2
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1998 and 1997............................... 3
Notes to the Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 9
Item 6. Exhibits and Reports on Form 8-K................................. 9
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MARKWEST HYDROCARBON, INC.
CONSOLIDATED BALANCE SHEET
(000S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31,
1998 December 31,
ASSETS (Unaudited) 1997
----------- ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents............................................ $ 2,249 $ 1,493
Receivables, net of allowance for doubtful accounts of $120 and $120,
respectively....................................................... 5,819 10,150
Inventories.......................................................... 2,566 5,141
Prepaid feedstock.................................................... -- 2,690
Other assets......................................................... 2,985 2,698
---------- ----------
Total current assets........................................... 13,619 22,172
Property and equipment:
Gas processing, gathering, storage and marketing equipment........... 59,156 58,794
Oil and gas properties and equipment................................. 10,344 7,854
Land, buildings and other equipment.................................. 10,023 9,363
Construction in progress............................................. 5,618 5,258
---------- ----------
85,141 81,269
Less: accumulated depreciation, depletion and amortization........... (16,394) (15,439)
---------- ----------
Total property and equipment, net.............................. 68,747 65,830
Intangible assets, net of accumulated amortization of $299 and $287
respectively......................................................... 577 555
Note receivable and other assets....................................... 10,100 10,100
---------- ----------
Total assets........................................................... $ 93,043 $ 98,657
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................... $ 1,916 $ 3,074
Accrued liabilities.................................................. 5,212 4,339
Current portion of long-term debt.................................... 191 156
---------- ----------
Total current liabilities...................................... 7,319 7,569
Deferred income taxes.................................................. 6,068 5,609
Long-term debt......................................................... 27,141 33,931
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, 8,526,514
and 8,519,724 shares issued, respectively.......................... 85 85
Additional paid-in capital........................................... 42,780 42,729
Retained earnings.................................................... 10,105 9,189
Treasury stock, 27,511 and 27,511 shares, respectively............... (455) (455)
---------- ----------
Total stockholders' equity..................................... 52,515 51,548
---------- ----------
Total liabilities and stockholders' equity............................. $ 93,043 $ 98,657
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
MARKWEST HYDROCARBON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000S, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
-------- --------
Revenues:
<S> <C> <C>
Gathering, processing and marketing revenue....... $19,854 $28,357
Oil and gas revenue............................... 357 172
Interest income................................... 71 171
Other income...................................... 20 75
-------- --------
Total revenue............................... 20,302 28,775
-------- --------
Costs and expenses:
Cost of sales..................................... 13,284 16,971
Operating expenses................................ 2,669 2,222
General and administrative expenses............... 1,522 1,991
Depreciation, depletion and amortization.......... 970 772
Interest expense.................................. 447 103
-------- --------
Total costs and expenses.................... 18,892 22,059
-------- --------
Income before minority interest and income taxes.... 1,410 6,716
Minority interest in net loss of subsidiary......... -- 202
-------- --------
Income before income taxes.......................... 1,410 6,918
Provision for income taxes:
Current........................................... 34 2,373
Deferred.......................................... 459 263
-------- --------
493 2,636
-------- --------
Net income.......................................... $ 917 $ 4,282
======== ========
Basic earnings per share............................ $ 0.11 $ 0.50
======== ========
Earnings per share assuming dilution................ $ 0.11 $ 0.50
======== ========
Weighted average number of outstanding shares of
common stock...................................... 8,496 8,485
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MARKWEST HYDROCARBON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000S)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net income............................................... $ 917 $ 4,282
Add income items that do not affect working capital:
Depreciation, depletion and amortization................ 970 772
Deferred income taxes................................... 459 263
Gain on sale of assets.................................. -- (75)
--------- ---------
2,346 5,242
Adjustments to working capital:
Decrease in accounts receivable......................... 4,331 3,314
Decrease in inventories................................. 2,575 3,258
Decrease in prepaid feedstock and other assets.......... 2,403 1,889
Decrease in accounts payable and accrued liabilities.... (285) (1,625)
--------- ---------
9,024 6,836
Net cash provided by operating activities............ 11,370 12,078
Cash flows from investing activities:
Capital expenditures.................................... (3,880) (595)
Increase in intangible assets, note receivable and other
assets................................................ (30) (1,629)
Other................................................... -- (62)
--------- ---------
Net cash used in investing activities................ (3,910) (2,286)
Cash flows from financing activities:
Proceeds from long-term debt............................ 8,700 --
Repayment of long-term debt............................. (15,455) (11,113)
Other................................................... 51 --
--------- ---------
Net cash used in financing activities................ (6,704) (11,113)
--------- ---------
Net (decrease) increase in cash and cash equivalents...... 756 (1,321)
Cash and cash equivalents at beginning of period.......... 1,493 4,401
--------- ---------
Cash and cash equivalents at end of period................ $ 2,249 $ 3,080
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
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"), MarkWest Michigan, Inc.
("Michigan") and 155 Inverness, Inc. ("155 Inverness"). 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, 1997 included in
the Company's Annual Report on 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 1998
presentation.
NOTE 2. SUBSEQUENT EVENT
Effective May 6, 1998, the Company amended its existing credit agreement. The
amended credit agreement provides for a maximum borrowing amount of $85 million,
$50 million of which is available pursuant to a term loan commitment and the
remaining $35 million pursuant to a revolving loan commitment. Actual borrowing
limits may be a lesser amount, depending on trailing cash flow, as defined in
the agreement. The term loan commitment period will terminate on October 20,
1999. Any outstanding balance thereunder will be payable in eight equal
quarterly installments, beginning June 30, 2002. The revolving loan commitment
converts to a reducing loan commitment on May 6, 2000. The reducing loan
commitment reduces ratably on a quarterly basis to zero by May 6, 2004.
Interest rates are based on either the agent bank's base rate or the London
Interbank Offered Rate (LIBOR), plus an applicable margin of between 0% and
0.75% or 0.625% and 2.25%, respectively, based upon a certain Company debt to
earnings ratio.
The debt is secured by a first mortgage on the Company's major assets. The loan
agreement restricts certain activities and requires the maintenance of certain
financial ratios and other conditions.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933 ("Section 27A") and
Section 21E of the Securities and Exchange Act of 1934 ("Section 21E"). All
forward-looking statements involve risks and uncertainties. The forward-looking
statements in this document are intended to be subject to the safe harbor
protection provided by Sections 27A and 21E. Factors that most typically impact
the Company's operating results and financial condition include (i) changes in
general economic conditions in regions in which the Company's products are
located, (ii) the availability and prices of natural gas liquids ("NGLs") and
competing commodities, (iii) the availability and prices of raw natural gas
supply, (iv) the ability of the Company to negotiate favorable marketing
agreements, (v) the risks that natural gas exploration and production activities
will not be successful, (vi) the Company's dependence on certain significant
customers, gatherers and transporters of natural gas, (vii) competition from
other NGL processors, including major energy companies, and (viii) the Company's
ability to identify and consummate acquisitions complementary to its business.
For discussions identifying other important factors that could cause actual
results to differ materially from those anticipated in the forward-looking
statements, see the Company's Securities and Exchange Commission filings.
GENERAL
MarkWest Hydrocarbon, Inc. (the "Company" or "MarkWest") is engaged in natural
gas processing and related services. The Company, which has grown substantially
since its founding in 1988, is the largest processor of natural gas in
Appalachia, and in 1996, established a venture to provide natural gas
transportation and processing services in western Michigan. The independent gas
processing industry has expanded rapidly in the last 10 years, and the Company
believes there will be significant opportunities to grow its gas processing
operations within these existing core regions and in new markets. The Company
provides compression, gathering, treatment and 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 and conducts strategic exploration for
new natural gas sources for its processing and fractionation activities.
The Company's processing and marketing operations are concentrated in two core
areas: the significant gas-producing basin in the southern Appalachian region of
eastern Kentucky, southern West Virginia, and southern Ohio (the "Appalachian
Core Area") and the developing basin in western Michigan (the "Michigan Core
Area"). At the Company's processing plants, natural gas is treated to remove
contaminants and NGLs are extracted and fractionated into propane, normal
butane, isobutane and natural gasoline. The Company then markets the
fractionated NGLs to refiners, petrochemical companies, gasoline blenders,
multistate and independent propane dealers and propane resellers. In addition
to processing and NGL marketing, the company engages in terminalling and storage
of NGLs in a number of NGL storage complexes in the central and eastern United
States and operates propane terminals in Arkansas and Tennessee.
FIRST QUARTER 1998 SUMMARY
For the three months ended March 31, 1998, net income was $917,000, compared to
net income of $4.3 million for the same period in 1997. The decrease in net
income resulted from lower gross margins on NGL sales at MarkWest's Appalachian
plants, a function of weak NGL prices. Last year's first quarter gross margin
on a per-unit basis was approximately 80 percent above MarkWest's last ten
years' average, benefiting 1997 results by about $2.4 million after tax. In
contrast, this year's gross margin was approximately 40 percent below MarkWest's
ten year average, reducing 1998 results by about $1.4 million after tax. NGL
prices are closely correlated with crude oil prices, which fell to an average
spot price of about $15 per barrel for West Texas Intermediate in the first
quarter of 1998 compared to $22 per barrel in the first quarter of 1997.
Results in the first quarter of 1997 benefited from hedged positions put in
place in late 1996 when processing margins were at extremely high levels.
Terminal operating income improved by $500,000 in the first quarter of 1998, the
result of improved margins.
APPALACHIAN CORE AREA
NGL production volumes of 26.9 million gallons in the first quarter of 1998 were
down three percent from the first quarter of 1997. Production volumes returned
to more normal levels as compared to the unusually rich gas streams processed at
MarkWest's Kenova plant in the first quarter of 1997. MarkWest continues to
work with producers to increase volumes through its systems and is pursuing
consolidation of area plants, acquisitions and new grassroots facilities.
5
<PAGE>
MICHIGAN CORE AREA
MarkWest's new NGL extraction plant started operations in December 1997, adding
significantly to the revenue MarkWest generated in the first quarter of 1998.
Before this plant came on-line, an outside plant was receiving the revenue from
the propane and other liquids extracted. The volume of gas transported and
processed more than tripled to 12.1 million cubic feet per day ("mmcfd") in the
first quarter of 1998, compared with 3.8 mmcfd in the first quarter of 1997.
EXPLORATION AND PRODUCTION
On March 31, 1998, the Company announced the acquisition of 40 producing wells
from an undisclosed seller for $2.4 million. The acquisition includes
approximately 6.6 billion cubic feet of natural gas net to the Company located
in the northern San Juan Basin of southwest Colorado. This acquisition will
augment the Company's existing gathering and compression operations in the San
Juan Basin and provide opportunities for new well completions and well operating
efficiencies.
OUTLOOK
NGL prices in the first quarter of 1998 were below historical levels and are
expected to remain so in the second quarter of 1998. These prices are often
correlated with and driven by the price of crude oil, which has not fully
recovered from its decline over the fourth quarter of 1997 and the first quarter
of 1998.
A majority of the Company's revenues, and as a result, its gross margins, remain
dependent upon the sales price of NGLs, particularly propane, which fluctuates
with the winter weather conditions and other supply and demand determinants.
The strongest demand for propane and the highest propane sales margins generally
occur during the winter heating season. As a result, the Company recognizes the
greatest proportion of its annual income during the first and fourth quarters of
the year. Currently, MarkWest has an annual sensitivity to NGL prices equal to
$1 million in pretax income for every $0.01/gallon change in NGL prices and an
annual sensitivity to natural gas prices equal to $1 million in pretax income
for every $0.10/mmbtu change in natural gas prices.
MarkWest is progressing in its program to extend its Michigan pipeline by 27
miles to connect additional production. Permitting for the first one third of
the southern extension was completed in the first quarter of 1998. Construction
began in March 1998, which will allow for the connection of an eight mmcfd well
early in the third quarter. The permit for the remaining two thirds of the
extension is expected in the second quarter of 1998, allowing for an additional
15 mmcfd to be connected by early fourth quarter of 1998. When completed, the
project's initial 35 mmcfd capacity will be full. For an additional $3 million,
MarkWest can expand the project's capacity to 50 mmcfd. The timing of project
expansion will depend on exploration success in the area.
Drilling activities are increasing considerably along the MarkWest pipeline in
Michigan. MarkWest is participating in exploration activities in the region,
holding a 17.5 percent working interest in a recently completed seismic program.
Drilling of the first of three to four wells in this program is expected early
in the third quarter of 1998. Two drilling programs by other companies are also
underway. One of these programs recently confirmed drilling success of a two
mmcfd well, has drilled two other wells, and has plans for more seismic work and
additional well drilling this year. Another program plans to drill four new
wells by year-end. Drilling successes in any of these three programs could add
significantly to pipeline and NGL throughput for MarkWest.
OPERATING STATISTICS Three Months Ended March 31,
1998 1997 % Change
---------- ---------- --------
Appalachia:
NGL production--Siloam plant (gallons) 26,899,179 27,822,619 (3%)
NGLs marketed--Siloam plant (gallons) 28,665,330 30,480,920 (6%)
Fee gas processed (mmbtu) 11,636,374 12,882,403 (10%)
Terminal throughput (gallons) 10,403,555 10,358,249 -
6
<PAGE>
Michigan:
Pipeline throughput (mcf) 1,085,540 346,324 213%
NGLs marketed (gallons) 1,858,381 -- --
Gas production (mcf) 173,246 80,850 114%
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997
Three months ended March 31,
1998 1997 $ Change % Change
-------- -------- -------- --------
Revenue $20,302 $28,775 $(8,473) (29%)
Gross profit (a) 3,308 8,841 (5,533) (63%)
Income before income taxes 1,410 6,918 (5,508) (80%)
Provision for income taxes 493 2,636 (2,143) (81%)
-------- -------- -------- --------
Net income 917 4,282 (3,365) (79%)
======== ======== ======== ========
(a) Excludes interest income, general and administrative expense and interest
expense.
REVENUES
Gathering, processing and marketing revenue. Gathering, processing and
marketing revenue decreased $8.5 million or 30% for the three months ended March
31, 1998, compared to the same period in 1997, due to a variety of reasons. The
Company's Appalachian operations accounted for the majority of the overall
revenue decrease, primarily as a result of weak prices in the first quarter of
1998 compared to the same time period in 1997.
The above factor was partially offset by a 213% increase in the volume of gas
processed in the Company's Michigan operations during the three months ended
March 31, 1998 compared to the three months ended March 31, 1997. Gas processed
in the Company's Michigan operations contributed both fee-based processing
income and, for the first time in 1998, revenues from the sale of propane and
other liquids extracted at the Company's new NGL extraction plant, which began
operations in December 1997.
Oil and gas revenue. Oil and gas revenue increased $185,000 or 108% for the
three months ended March 31, 1998, compared to the same time period in 1997.
This increase was directly attributable to a 114% increase in gas production
from the prior year.
COSTS AND EXPENSES
Cost of sales. Cost of sales decreased $3.7 million or 22% for the three months
ended March 31, 1998 compared to the same time period in 1997. The Company's
Appalachian operations accounted for the majority of the decrease, primarily as
a result of a decrease in unit costs and volumes sold at the Company's Siloam
plant. Appalachian cost of sales was also impacted by a decrease in unit costs
at the Company's terminals. These factors were partially offset by an increase
in cost of sales at the Company's Michigan operations, where the Company's new
NGL extraction plant was operational during the first quarter of 1998.
Operating expenses. Operating expenses increased $447,000 or 20% for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
The majority of the increase was driven by the Company's Michigan operations,
where the Company's new NGL extraction plant was operational during the first
quarter of 1998. This increase was partially offset by lower operating
expenses at the Company's Siloam plant in the first quarter of 1998 compared to
the same period in 1997.
General and administrative expenses. General and administrative expenses
decreased $469,000 or 24% for the three months ended March 31, 1998 compared to
the same time period in 1997. General and administrative expenses incurred
during the three months ended March 31, 1997 included many initial costs,
including significant professional service fees, incurred in connection with its
reorganization into a public company.
7
<PAGE>
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. In the past, these
sources have been sufficient to meet its needs and finance the growth of its
business.
The following summary table reflects comparative cash flows for the Company for
the three months ended March 31, 1998 and 1997 (in thousands):
For the three months ended March 31,
1998 1997
--------- ---------
Net cash provided by operating activities
before change in working capital $ 2,346 $ 5,242
Net cash provided by operating activities
from change in working capital 9,024 6,836
Net cash used in investing activities (3,910) (2,286)
Net cash used financing activities (6,704) (11,113)
For the three months ended March 31, 1998, net cash provided by operating
activities before adjustments for working capital decreased $2.9 million from
the same period in 1997, primarily as a result of a decrease in gross profit
since 1997. This was partially offset by a $9.0 million decrease in the
Company's working capital accounts, excluding cash, for the three months ended
March 31, 1998, compared to a $6.8 million decrease in working capital accounts,
excluding cash, for the three months ended March 31, 1997. The change in
working capital was principally driven by greater decreases in accounts
receivable, prepaid feedstock and other current assets in the first quarter of
1998, compared to the first quarter of 1997. These changes were partially
offset by a smaller decrease in inventories and accounts payable in the first
quarter of 1998, compared to the first quarter of 1997.
Cash used in investing activities increased $1.6 million for the three months
ended March 31, 1998 compared to the three months ended March 31, 1997,
primarily related to higher capital expenditures made in 1997 (see further
discussion under "Capital Investment Program").
For the three months ended March 31, 1998, cash used in financing activities was
$6.7 million, a decrease of $4.4 million compared to the same time period in
1997, as less debt repayments occurred.
Financing Facilities
At March 31, 1998, the Company had $36.5 million of available credit and working
capital of $6.3 million. The Company believes that cash provided by operating
activities, together with amounts available to be borrowed under its financing
facilities, will provide sufficient funds to maintain its existing facilities
and fund its capital expenditure program. Depending on the timing and amount of
the Company's future projects, it may be required to seek additional sources of
capital. While the Company believes that it would be able to secure additional
financing, if required, no assurance can be given that it will be able to do so.
Capital Investment Program
The Company's capital investment program for 1998 is estimated at $18 million,
down from the $24 million previously estimated. The new estimate includes $11
million in Michigan to fund a further extension of the pipeline and expansion of
the current system capacity. The remaining capital programs include $3 million
for various projects in Appalachia, including a new compressor at the Company's
Kenova facility and $4 million in exploration and production activities. For
the three months ended March 31, 1998, the Company made capital expenditures
totaling approximately $3.9 million, including $2.4 million in an acquisition of
40 producing wells located in the northern San Juan Basin of southwest Colorado.
RISK MANAGEMENT ACTIVITIES
During the three months ended March 31, 1998 and 1997, a $0 and $1.0 million
gain, respectively, were 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.
8
<PAGE>
At March 31, 1998 and 1997, the Company had no material notional quantities of
NGL, natural gas, or crude oil futures, swaps or options.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, MarkWest filed arbitration proceedings in February 1998
to resolve issues with Columbia Gas Transmission Corporation regarding three
Appalachia natural gas processing plants, which are governed by several
contracts, one of which extends through the year 2010. In this arbitration,
MarkWest requests a declaration of rights and status to clarify agreements
between the companies. Issues arose during ongoing negotiations between MarkWest
and Columbia to finalize terms of a 1997 preliminary agreement in which, among
other things, Columbia agreed to sell its Cobb plant to MarkWest and to transfer
from Columbia to MarkWest the operation of the Boldman plant. These issues also
include matters regarding operations at the Kenova plant. MarkWest owns the
Boldman and Kenova plants.
On April 28, 1998, MarkWest was advised by Columbia that Columbia had filed a
Complaint against MarkWest in the United States District Court for the Southern
District of West Virginia. The Complaint seeks declaratory relief that certain
agreements, or certain specified provisions thereof, are void and that MarkWest
is in breach of the Federal Energy Regulatory Commission-approved settlement
agreement under which MarkWest was to acquire the Cobb plant and operate the
Boldman plant. The certain agreements concern, among other matters, Columbia's
obligation to guarantee the delivery of natural gas or natural gas liquids to
MarkWest. In the Complaint, Columbia also seeks injunctive relief to enjoin
MarkWest from interfering with arrangements Columbia may seek to undertake with
natural gas producers and suppliers and with negotiations Columbia may pursue
with third parties to terminate its interests in the products extraction
business. MarkWest believes that the contract issues underlying Columbia's
Complaint are already subject to the binding arbitration noted above. MarkWest
intends to vigorously defend its position that Columbia is not entitled to any
legal or equitable relief under the Complaint. Management believes that it will
prevail in this position and that the outcome of this dispute is not likely to
have a material effect on the financial condition, results of operations or
prospects of MarkWest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement regarding computation of earnings per share.
27 - Financial Data Schedule.
(b) Reports on Form 8-K
(i) A report on Form 8-K dated February 24, 1998 was filed during the
first quarter of 1998 to announce the Company's arbitration with
Columbia Gas Transmission Corporation to resolve issues regarding
three natural gas processing plants in Appalachia.
9
<PAGE>
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 11, 1998 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
<PAGE>
EXHIBIT 11
MARKWEST HYDROCARBON, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(000s, except per share data)
For the quarter ended
March 31, 1998
---------------------
Net income 917
Weighted average number of outstanding shares of
common stock 8,496
Basic earnings per share $ 0.11
=====================
Net income 917
Weighted average number of outstanding shares of
common stock 8,496
Dilutive stock options 154
---------------------
8,650
Earnings per share assuming dilution $ 0.11
=====================
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,249
<SECURITIES> 0
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0
0
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</TABLE>
