<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 80112-5000
(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 8,491,156 shares of common stock, $.01 per share par value,
outstanding as of May 4, 1999.
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PART I--FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MARKWEST HYDROCARBON, INC.
CONSOLIDATED BALANCE SHEET
(000s, except share data)
<TABLE>
<CAPTION>
March 31,
1999 December 31,
ASSETS (Unaudited) 1998
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Current assets:
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 512 $ 2,055
Receivables, net of allowance for doubtful accounts of $120 and $120,
respectively.................................................................. 10,030 7,738
Inventories........................................................................ 1,591 4,583
Prepaid feedstock.................................................................. -- 1,957
Income taxes receivable............................................................ 2,233 2,763
Other assets....................................................................... 365 289
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Total current assets........................................................... 14,731 19,385
Property and equipment:
Gas processing, gathering, storage and marketing equipment......................... 77,397 78,018
Oil and gas properties and equipment............................................... 10,284 9,207
Land, buildings and other equipment................................................ 11,427 11,240
Construction in progress........................................................... 5,075 4,466
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104,183 102,931
Less: accumulated depreciation, depletion and amortization......................... (20,854) (19,609)
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Total property and equipment, net.............................................. 83,329 83,322
Intangible assets, net of accumulated amortization of $227 and $169, respectively...... 847 924
-------------- ------------
Total assets........................................................................... $ 98,907 $103,631
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................................................. $ 1,382 $ 2,765
Accrued liabilities................................................................ 6,530 5,094
Current portion of long-term debt.................................................. 64 63
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Total current liabilities...................................................... 7,976 7,922
Deferred income taxes.................................................................. 7,077 7,077
Long-term debt......................................................................... 33,582 38,597
Stockholders' equity:
Preferred stock, par value $0.01, 5,000,000 shares authorized, 0 shares outstanding -- --
Common stock, par value $0.01, 20,000,000 shares authorized, 8,531,206 and
8,531,206 shares issued, respectively............................................. 85 85
Additional paid-in capital......................................................... 42,580 42,693
Retained earnings.................................................................. 8,083 7,978
Treasury stock, 41,430 and 60,300 shares, respectively............................. (476) (721)
-------------- ------------
Total stockholders' equity.............................................. 50,272 50,035
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Total liabilities and stockholders' equity............................................. $ 98,907 $103,631
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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MARKWEST HYDROCARBON, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(000s, except per share data)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1999 1998
------------------------ ------------------------
Revenues:
<S> <C> <C>
Gathering, processing and marketing revenue.............. $21,828 $19,854
Oil and gas revenue, net of transportation and taxes..... 265 357
Interest income.......................................... 14 71
Other income (expense)................................... (16) 20
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Total revenue.................................... 22,091 20,302
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Costs and expenses:
Cost of sales............................................ 15,265 13,284
Operating expenses....................................... 2,985 2,669
General and administrative expenses...................... 1,580 1,522
Depreciation, depletion and amortization................. 1,303 970
Interest expense......................................... 800 447
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Total costs and expenses......................... 21,933 18,892
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Income before income taxes................................... 158 1,410
Provision for income taxes:
Current.................................................. 51 34
Deferred................................................. (4) 459
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47 493
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Net income................................................... $ 111 $ 917
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Basic earnings per share..................................... $ 0.01 $ 0.11
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Earnings per share assuming dilution......................... $ 0.01 $ 0.11
======================== ========================
Weighted average number of outstanding shares of common stock
8,478 8,496
======================== ========================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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MARKWEST HYDROCARBON, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(000s)
<TABLE>
<CAPTION>
For the three months
ended March 31,
1999 1998
-------------------- -------------------
Cash flows from operating activities:
<S> <C> <C>
Net income...................................................................... $ 111 $ 917
Add income items that do not affect working capital:
Depreciation, depletion and amortization..................................... 1,303 970
Deferred income taxes........................................................ (4) 459
Gain on sale of assets....................................................... (12) --
-------------------- -------------------
1,398 2,346
Adjustments to working capital:
(Increase) decrease in receivables.......................................... (2,292) 4,331
Decrease in inventories..................................................... 2,992 2,575
Decrease in prepaid expenses and other assets............................... 2,411 2,403
Increase (decrease) in accounts payable and accrued liabilities............. 545 (285)
-------------------- -------------------
3,656 9,024
Net cash provided by operating activities....................................... 5,054 11,370
Cash flows from investing activities:
Capital expenditures........................................................ (2,153) (3,880)
Proceeds from sale of assets.................................................. 420 --
Change in intangible assets................................................. 18 (30)
-------------------- -------------------
Net cash used in investing activities...................................... (1,715) (3,910)
Cash flows from financing activities:
Proceeds from long-term debt................................................ 4,798 8,700
Repayment of long-term debt................................................. (9,812) (15,455)
Net reissuance of treasury stock............................................ 132 --
Other....................................................................... -- 51
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Net cash used in financing activities........................................... (4,882) (6,704)
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Net (decrease) increase in cash and cash equivalents............................ (1,543) 756
Cash and cash equivalents at beginning of period................................ 2,055 1,493
-------------------- -------------------
Cash and cash equivalents at end of period...................................... $ 512 $ 2,249
==================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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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.; MarkWest Michigan, Inc.; and 155
Inverness, Inc. 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, 1998, 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 1999
presentation.
NOTE 2. LONG-TERM DEBT
Effective May 3, 1999, the Company amended its existing credit agreement. The
amended credit agreement provides for a maximum borrowing amount of $50 million,
$5 million of which is available pursuant to a term loan commitment and the
remaining $45 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 credit facility permits the Company to borrow money using
either a base rate loan or a London Interbank Offered Rate ("Libor") loan
option, plus an applicable margin of between 0% and 3%, based on a certain
Company debt to earnings ratio.
NOTE 3. COMMITMENTS AND CONTINGENCIES
MarkWest filed arbitration proceedings in February 1998 to resolve issues with
Columbia Gas Transmission Corporation ("Columbia") regarding three Appalachia
natural gas plants. These plants are governed by several contracts, the most
important of which extends through the year 2010. In this arbitration, MarkWest
requests a declaration of rights and status to clarify agreements between the
companies and certain monetary relief. 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.
In April 1998, Columbia 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 NGLs 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. In the third quarter of 1998, the District
Court judge stayed proceedings pending the binding arbitration noted above.
Arbitration hearings initially scheduled to commence in March 1999 were vacated
because of the need to replace a member of the arbitration panel. The new
arbitrator has been named, and MarkWest anticipates that new hearing dates will
be promptly established. Management believes it will prevail in its position
and, accordingly, the outcome of this dispute is not likely to have a material
effect on the financial condition, results of operations or prospects of
MarkWest.
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NOTE 4. SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Company's operations are classified
into two reportable segments, as follows:
(1) Processing and Related Services--provides compression, gathering,
treatment and NGL extraction, and fractionation services; also
purchases and markets natural gas and NGLs; and
(2) Exploration and Production--explores for and produces natural gas.
MarkWest evaluates the performance of its segments and allocates resources to
them based on gross operating income. There are no intersegment revenues.
MarkWest's business is conducted solely in the United States.
The table below presents information about gross operating income for the
reported segments for the quarters ended March 31, 1999 and 1998. Asset
information by reportable segment is not reported, since MarkWest does not
produce such information internally.
<TABLE>
<CAPTION>
Processing and Related
Services Exploration and Production Total
----------------------------- ---------------------------- ---------------------
For the Quarter ended March 31, 1999 (in
000s):
<S> <C> <C> <C>
Revenues.................................. $21,828 $265 $22,093
Gross operating income.................... $ 3,700 $143 $ 3,843
For the Quarter ended March 31, 1998 (in
000s):
Revenues.................................. $19,854 $357 $20,211
Gross operating income.................... $ 3,978 $280 $ 4,258
</TABLE>
A reconciliation of total segment revenues to total consolidated revenues and of
total segment gross operating income to total consolidated income, for the
quarters ended March 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
1999 1998
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Revenues:
<S> <C> <C>
Total segment revenues..................................... $22,093 $20,211
Interest income............................................ 14 71
Other income (expense)..................................... (16) 20
Total consolidated revenues.......................... $22,091 $20,302
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Gross operating income:
Total segment gross operating income....................... $ 3,843 $ 4,258
General and administrative expenses........................ (1,580) (1,522)
Depreciation and amortization.............................. (1,303) (970)
Interest expense........................................... (800) (447)
Interest income............................................ 14 71
Other income (expense)..................................... (16) 20
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Consolidated income before taxes..................... $ 158 $ 1,410
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</TABLE>
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