8-K 1 a2114668z8-k.htm 8-K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) June 5, 2003

MARKWEST HYDROCARBON, INC.
(Exact name of registrant as specified in its charter)

Delaware   1-11566   84-1352233
(State or other jurisdiction of   (Commission File Number)   (I.R.S. Employer
incorporation or organization)       Identification Number)

155 Inverness Drive West, Suite 200, Englewood, CO       80112-5000
(Address of principal executive offices)       (Zip Code)

Registrant's telephone number, including area code: 303-290-8700

N/A
(Former name or former address, if changed since last report)


ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

        On June 30, 2003, MarkWest Hydrocarbon, Inc. completed the sale of the majority of its San Juan Basin oil and gas properties to XTO Energy Inc. for approximately $50.8 million in cash. MarkWest Hydrocarbon expects to close on the remaining properties, valued at approximately $8.7 million, upon receipt of necessary consents, in the near future. Net proceeds after transaction costs are expected to be approximately $59.5 million, while cash proceeds after various adjustments are expected to be approximately $51.0 million. The proceeds from the sale will be used to expand our Canadian drilling program, to repay debt outstanding under our existing credit facility in the amount of approximately $40.3 million, and for general corporate purposes.

        The disposition is reflected in the Company's unaudited pro forma financial information filed as part of this report in Item 7.


ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

(a)
Financial Statements of Businesses Acquired.

        N/A

(b)
Pro Forma Financial Information.

        The accompanying unaudited pro forma consolidated statements of operations for the year ended December 31, 2002, and the three months ended March 31, 2003, presents the historical operations of MarkWest Hydrocarbon as if the transaction had occurred on January 1, 2002. The accompanying unaudited pro forma balance sheet is presented as if the transaction occurred as of March 31, 2003.

        The unaudited pro forma consolidated financial statements have been prepared by MarkWest Hydrocarbon's management based upon the historical financial statements of MarkWest Hydrocarbon and preliminary estimates of fair values, which are subject to change pending a final analysis of the fair values.    These pro forma statements are not indicative of the results that actually would have occurred if the disposition had been completed on the dates indicated or which may be obtained in the future. The pro forma financial statements and notes thereto should be read in conjunction with the historical financial statements included in MarkWest Hydrocarbon's previous filings with the Securities and Exchange Commission.

1


MARKWEST HYDROCARBON, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

March 31, 2002
(in thousands, except share and per share data)

ASSETS
   MarkWest
Hydrocarbon, Inc.
Historical
   Pro Forma
Adjustments
   MarkWest
Hydrocarbon, Inc.
Pro Forma
  
Current assets:                    
  Cash and cash equivalents   $ 7,908   $ 50,665   (A) $ 16,523  
            (40,807 )(B)      
            (1,243 )(C)      
  Receivables, net     38,446     8,747   (A)   47,193  
  Inventories     3,223           3,223  
  Prepaid replacement natural gas     2,104           2,104  
  Other assets     1,310           1,310  
   
 
 
 
    Total current assets     52,991     17,362     70,353  
Property, plant and equipment:                    
  Gas processing, gathering, storage and marketing equipment     159,614           159,614  
  Oil and gas properties and equipment, full cost method     154,164     (30,976 )(A)   123,188  
  Land, buildings and other equipment     7,627     (517 )(A)   7,110  
  Construction in progress     1,640           1,640  
   
 
 
 
      323,045     (31,493 )   291,552  
  Less: accumulated depreciation, depletion and amortization     (65,469 )   6,150   (A)   (59,319 )
   
 
 
 
    Total property and equipment, net     257,576     (25,343 )   232,233  
Risk management asset     638           638  
Intangible assets, net     2,605           2,605  
Note receivable from employees     271           271  
   
 
 
 
    Total assets   $ 314,081   $ (7,981 ) $ 306,100  
   
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY                    
Current liabilities:                    
  Accounts payable   $ 44,596   $ (796 )(A) $ 43,800  
  Current taxes payable     —     17,740   (F)   17,740  
  Accrued liabilities     8,178     (808 )(A)   7,370  
  Risk management liability     13,960     (307 )(B)   12,485  
            (1,168 )(C)      
   
 
 
 
    Total current liabilities     66,734     14,661     81,395  
Deferred income taxes     33,666     210   (B)   30,164  
            472   (C)      
            (4,184 )(F)      
Long-term debt     105,824     (40,256 )(B)   65,568  
Risk management liability     1,761     (244 )(B)   1,442  
            (75 )(C)      
Other long-term liabilities     6,646           6,646  
Minority interest in consolidated subsidiary     45,345           45,345  
Commitments and contingencies                    
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, 8,561,374 shares issued,     87           87  
  Additional paid-in capital     42,747           42,747  
  Retained earnings     18,651     35,673   (A)   38,974  
            (551 )(B)      
            (1,243 )(C)      
            (13,556 )(F)      
  Accumulated other comprehensive income (loss), net of tax     (6,987 )   341   (B)   (5,875 )
            771(C )      
  Treasury stock, 64,561 shares     (393 )         (393 )
   
 
 
 
    Total stockholders' equity     54,105     21,435     75,540  
   
 
 
 
    Total liabilities and stockholders' equity   $ 314,081   $ (7,981 ) $ 306,100  
   
 
 
 

The accompanying notes are an integral part of these financial statements.

2


MARKWEST HYDROCARBON, INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31, 2002
(in thousands, except per share data)

 
   MarkWest
Hydrocarbon,
Inc.
Historical
   Pro Forma
Adjustments
   MarkWest
Hydrocarbon,
Inc.
Pro Forma
  
Revenues:                    
  Gathering, processing and marketing revenue   $ 154,338   $     $ 154,338  
  Exploration and production revenue     32,923     (8,849 )(D)   24,074  
   
 
 
 
    Total revenues     187,261     (8,849 )   178,412  
   
 
 
 
Operating expenses:                    
  Purchased gas costs     127,526           127,526  
  Plant operating expenses     16,257           16,257  
  Lease operating     7,912     (2,030 )(D)   5,882  
  Transportation costs     1,680     (1,129 )(D)   551  
  Production taxes     2,044     (520 )(D)   1,524  
  Selling, general and administrative expenses     11,885           11,885  
  Depreciation and depletion     21,388     (2,193 )(D)   19,195  
  Gain on sale of oil and gas properties     —     (35,673 )(A)   (35,673 )
   
 
 
 
    Total operating expenses     188,692     (41,545 )   147,147  
   
 
 
 
    Income (loss) from operations     (1,431 )   32,696     31,265  
Other income and (expense):                    
  Interest income     65           65  
  Interest expense     (3,840 )   1,964   (E)   (1,876 )
  Write-down of deferred financing costs     (2,977 )         (2,977 )
  Gain on sale of non-operating assets     5,454           5,454  
  Gain on sale of non-operating asset to a related party     141           141  
  Minority interest in net income of consolidated subsidiary     (1,947 )         (1,947 )
  Other expense, net     (73 )         (73 )
   
 
 
 
    Income (loss) before income taxes     (4,608 )   34,660     30,052  
  Provision (benefit) for income taxes     (1,812 )   13,171   (F)   11,359  
   
 
 
 
    Net income (loss)   $ (2,796 ) $ 21,489   $ 18,693  
   
 
 
 
Basic earnings (loss) per share of common stock   $ (0.33 )       $ 2.20  
   
       
 
Earnings (loss) per share assuming dilution   $ (0.33 )       $ 2.20  
   
       
 
Weighted average number of outstanding shares of common stock:                    
  Basic     8,500           8,500  
   
       
 
  Assuming dilution     8,513           8,513  
   
       
 

The accompanying notes are an integral part of these financial statements.

3


MARKWEST HYDROCARBON, INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2003
(in thousands, except per share data)

 
   MarkWest
Hydrocarbon,
Inc.
Historical
   Pro Forma
Adjustments
   MarkWest
Hydrocarbon,
Inc.
Pro Forma
  
Revenue:                    
  Gathering, processing and marketing   $ 50,651   $     $ 50,651  
  Exploration and production     10,659     (3,615 )(D)   7,044  
   
 
 
 
    Total revenue     61,310     (3,615 )   57,695  
Operating expenses:                    
  Purchased gas costs     46,003           46,003  
  Plant operating expenses     4,506           4,506  
  Lease operating expenses     1,608     (622 )(D)   986  
  Transportation costs     513     (344 )(D)   169  
  Production taxes     728     (305 )(D)   423  
  Selling, general and administrative expenses     3,137           3,137  
  Depreciation, depletion and amortization     5,098     (669 )(D)   4,429  
   
 
 
 
    Total operating expenses     61,593     (1,940 )   59,653  
   
 
 
 
    Income (loss) from operations     (283 )   (1,675 )   (1,958 )
Other income and (expenses):                    
  Interest income     24           24  
  Interest expense     (1,087 )   505   (E)   (582 )
  Minority interest in net income of consolidated subsidiary     (874 )         (874 )
  Other income (expense)     (15 )         (15 )
   
 
 
 
    Income (loss) before income taxes     (2,235 )   (1,170 )   (3,405 )
  Provision (benefit) for income taxes     (1,222 )   (445 )(F)   (1,667 )
   
 
 
 
    Income (loss) from continuing operations   $ (1,013 ) $ (725 ) $ (1,738 )
   
 
 
 
Basic earnings (loss) per share of common stock   $ (0.12 )       $ (0.20 )
   
       
 
Earnings (loss) per share assuming dilution   $ (0.12 )       $ (0.20 )
   
       
 
Weighted average number of outstanding shares of common stock:                    
    Basic     8,511           8,511  
   
       
 
    Assuming dilution     8,514           8,514  
   
       
 

The accompanying notes are an integral part of these financial statements.

4


MARKWEST HYDROCARBON, INC.

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

    Basis of Presentation

        The accompanying unaudited pro forma consolidated balance sheet as of March 31, 2003, adjusts MarkWest Hydrocarbon, Inc.'s balance sheet for the disposition of its San Juan Basin oil and gas properties as if the disposition had occurred on March 31, 2003. The accompanying unaudited pro forma consolidated statements of operations for the year ended December 31, 2002, and the three months ended March 31, 2003, adjusts the historical operations of MarkWest Hydrocarbon, Inc. for the disposition of its San Juan Basin properties as if the transaction had occurred on January 1, 2002.

        These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future.

    Adjustments

(A)
This entry records the disposition of the San Juan Basin properties. In addition to recording cash received and the removal of the net book value of the properties sold:

•
Accounts receivable increased primarily due to the recording of an $8.7 million receivable for a portion of the sale proceeds held in escrow awaiting (a) response from a third party who holds a right of first refusal on a portion of the properties and (b) title and other resolution.

•
Related revenue held in suspense was settled thereby reducing accounts payable.

•
Related accrued ad valorem taxes were settled thereby reducing accrued liabilities.

        The gain on sale is calculated as follows (in thousands):

Sales price   $ 60,455  
Plus:        
  Pipeline imbalance receivable (payable)     (43 )
  Revenue held in suspense     796  
  Ad valorem taxes accrued     808  
Less:        
  Net book value of properties and equipment sold     (25,343 )
  Transaction costs     (1,000 )
   
 
Gain on sale   $ 35,673  
   
 
(B)
With a portion of the proceeds, MarkWest Hydrocarbon paid down debt. Also, related float-for-fixed interest rate swaps were settled.

(C)
With the sale of the San Juan oil and gas properties, related hedges of anticipated sales of production were settled.

(D)
This entry eliminates the operating results of the San Juan Basin properties.

(E)
Interest expense decreases as a result of MarkWest Hydrocarbon paid down debt with a portion of the proceeds.

(F)
This entry records the tax implications of the sale.

5

    Earnings Per Share

        Pro forma basic earnings per share are computed by dividing pro forma net income by the weighted average number of shares outstanding during the period. Pro forma diluted earnings per share are computed by dividing pro forma net income by all shares and dilutive potential shares outstanding during the period.

6

(c)
Exhibits.

Exhibit No.
   Exhibit Description
10   Purchase and Sale Agreement, dated as of June 5, 2003, by and among MarkWest Hydrocarbon, Inc., MarkWest Resources, Inc. and XTO Energy Inc.

7


SIGNATURES

        Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
MARKWEST HYDROCARBON, INC.
                (Registrant)

Date: July 15, 2003
 
By:
 
/s/  DONALD C. HEPPERMANN      
Donald C. Heppermann,
Senior Vice President and Chief
Financial Officer

8


EXHIBIT INDEX

Exhibit No.
   Exhibit Description
10   Purchase and Sale Agreement, dated as of June 5, 2003, by and among MarkWest Hydrocarbon, Inc., MarkWest Resources, Inc. and XTO Energy Inc.

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MARKWEST HYDROCARBON, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARKWEST HYDROCARBON, INC. PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
MARKWEST HYDROCARBON, INC. PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
MARKWEST HYDROCARBON, INC. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
SIGNATURES
EXHIBIT INDEX