-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bFWWkUfVnyrh3lmplfseYMnSH6JYwVSLX+ghztBTQckOoUbdOQKSxbqeAN2/OvNb /QwkKpUpXatxRoj1fPhglw== 0000950109-94-000860.txt : 19940520 0000950109-94-000860.hdr.sgml : 19940520 ACCESSION NUMBER: 0000950109-94-000860 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN GAS RESOURCES INC CENTRAL INDEX KEY: 0000856716 STANDARD INDUSTRIAL CLASSIFICATION: 4922 IRS NUMBER: 841127613 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10389 FILM NUMBER: 94528753 BUSINESS ADDRESS: STREET 1: 12200 N PECOS ST CITY: DENVER STATE: CO ZIP: 80234-3439 BUSINESS PHONE: 3034525603 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1994 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 1-10389 ------- WESTERN GAS RESOURCES, INC. ---------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 84-1127613 ------------------------------- ------------------------ (STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 12200 N. Pecos Street, Denver, Colorado 80234-3439 ---------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (303) 452-5603 ---------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) No Changes ---------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT). 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 . ----- ----- As of May 2, 1994, there were 25,688,116 shares of the Registrant's Common Stock outstanding. Reference is made to the listing beginning on page 24 of all exhibits filed as a part of this report. 1 of 25 WESTERN GAS RESOURCES, INC. INDEX TO FORM 10-Q ------------------
PART I - Financial Information Page - - ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheet - March 31, 1994 and December 31, 1993............. 3 Consolidated Statement of Cash Flows - Three months ended March 31, 1994 and 1993....... 5 Consolidated Statement of Operations - Three months ended March 31, 1994 and 1993....... 7 Consolidated Statement of Changes in Stockholders' Equity - Three months ended March 31, 1994................................... 8 Notes to Consolidated Financial Statements....... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 13 PART II - Other Information - - ----------------------------- Item 1. Legal Proceedings................................ 21 Item 6. Exhibits and Reports on Form 8-K................. 24 Signatures ............................................... 25
2 PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements -------------------- WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET ($000s)
March 31, December 31, ASSETS 1994 1993 ------ ---------- ---------- Current assets: Cash.................................... $ 4,891 $ 4,666 Trade accounts receivable, net.......... 122,982 142,336 Product inventory....................... 9,335 20,850 Parts inventory......................... 2,196 2,161 Other................................... 3,517 1,544 ---------- ---------- Total current assets.................. 142,921 171,557 ---------- ---------- Property and equipment, at cost: Gas gathering, processing, storage and transmission....................... 799,072 684,964 Oil and gas properties and equipment.............................. 138,635 134,638 Construction in progress................ 57,629 148,918 ---------- ---------- 995,336 968,520 Less: Accumulated depreciation, depletion and amortization............. (138,169) (123,351) ---------- ---------- Total property and equipment, net..... 857,167 845,169 ---------- ---------- Other assets: Gas purchase contracts (net of accumulated amortization of $11,759 and $10,756, respectively)............ 36,553 37,556 Other................................... 51,108 60,466 ---------- ---------- Total other assets.................... 87,661 98,022 ---------- ---------- Total assets............................. $1,087,749 $1,114,748 ========== ==========
- Continued on following page - 3 WESTERN GAS RESOURCES, INC. CONSOLIDATED BALANCE SHEET ($000s, except share amounts) - Continued from previous page -
March 31, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993 - - ------------------------------------ ----------- ------------ Current liabilities: Accounts payable........................... $ 136,282 $ 160,956 Accrued expenses........................... 17,627 17,667 Dividends payable.......................... 3,672 2,080 Income taxes payable....................... 177 -- ---------- ---------- Total current liabilities................ 157,758 180,703 Long-term debt............................... 412,700 547,000 Deferred income taxes payable................ 66,853 66,481 Other long-term liabilities.................. 7,723 7,695 ---------- ---------- Total liabilities........................ 645,034 801,879 ---------- ---------- Commitments and contingent liabilities Stockholders' equity: Common stock, par value $.10; 100,000,000 shares authorized; 25,681,985 and 25,651,722 shares issued and outstanding, respectively..... 2,571 2,565 Treasury stock, at cost, 25,016 and no shares, respectively,............. (788) -- Preferred Stock; 10,000,000 shares authorized: $2.625 cumulative convertible preferred stock, par value $.10; 2,760,000 and no shares issued and outstanding, respectively ($138,000 aggregate liquidation preference)................ 276 -- $2.28 cumulative preferred stock, par value $.10; 1,400,000 shares issued and outstanding ($35,000 aggregate liquidation preference)...... 140 140 7.25% cumulative senior perpetual convertible preferred stock, par value $.10; 400,000 shares issued and outstanding ($40,000 aggregate liquidation preference)................ 40 40 Additional paid-in capital................. 337,410 204,176 Notes receivable from key employees secured by common stock.................. (1,479) (1,985) Retained earnings.......................... 104,545 107,933 ---------- ---------- Total stockholders' equity............... 442,715 312,869 ---------- ---------- Total liabilities and stockholders' equity..................................... $1,087,749 $1,114,748 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($000s)
Three Months Ended March 31, ----------------- 1994 1993 ------- ------- Reconciliation of net income to net cash - - ---------------------------------------- provided by operating activities -------------------------------- Net income................................ $ 1,011 $10,116 Add income items that do not affect working capital: Depreciation, depletion and amortization........................ 16,626 7,329 Deferred income taxes................. 372 1,839 Other non-cash items.................. (123) 325 ------- ------- 17,886 19,609 ------- ------- Adjustments to working capital to arrive at net cash provided by operating activities: Decrease in trade accounts receivable.......................... 19,354 20,397 Decrease in product inventory......... 11,515 8,473 (Increase) decrease in parts inventory........................... (35) 58 Increase in other current assets...... (1,973) (72) Increase in other assets.............. (91) (2,074) Increase (decrease) in accounts payable............................. (24,674) 422 Decrease in accrued expense........... (40) (933) Increase in income taxes payable...... 177 1,738 ------- ------- Total adjustments......................... 4,233 28,009 ------- ------- Net cash provided by operating activities.......................... $22,119 $47,618 ======= =======
- Continued on following page - 5 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CASH FLOWS ($000s) - Continued from previous page -
Three Months Ended March 31, ------------------- 1994 1993 --------- -------- Net cash provided by operating activities............................ $ 22,119 $ 47,618 --------- -------- Cash flows from investing activities: Payments for business acquisitions... (59) -- Payments for additions to property and equipment....................... (22,373) (23,179) Dispositions of property and equipment........................... 1,389 112 Distributions from (contributions to) equity investments.................. 3,022 (87) --------- -------- Net cash used in investing activities........................ (18,021) (23,154) --------- -------- Cash flows from financing activities: Proceeds from issuance of preferred stock..................... 133,016 -- Proceeds from exercise of common stock options....................... 498 570 Notes receivable from key employees secured by common stock............. 506 (447) Acquisition of treasury stock........ (788) -- Net payments under revolving credit facility............................ (134,300) (12,000) Dividends paid to holders of common stock............................... (1,282) (1,276) Dividends paid to holders of preferred stock..................... (1,523) (1,097) --------- -------- Net cash used in financing activities........................ (3,873) (14,250) --------- -------- Net increase in cash................... 225 10,214 Cash at beginning of period............ 4,666 13,160 --------- -------- Cash at end of period.................. $ 4,891 $ 23,374 ========= ========
The accompanying notes are an integral part of the consolidated financial statements. 6 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF OPERATIONS ($000s, except share and per share amounts)
Three Months Ended March 31, ------------------------ 1994 1993 ----------- ----------- Revenues: Sale of residue gas.................. $ 191,374 $ 98,087 Sale of natural gas liquids.......... 72,837 87,662 Processing and transportation revenues........................... 7,278 4,722 Other, net........................... 4,215 3,007 ----------- ----------- Total revenues..................... 275,704 193,478 ----------- ----------- Costs and expenses: Product purchases.................... 223,680 148,422 Plant operating expense.............. 16,415 13,075 Oil and gas exploration and production costs.................... 1,272 630 Selling and administrative expense............................. 8,257 7,131 Depreciation, depletion and amortization........................ 16,626 7,329 Interest expense..................... 7,880 2,078 ----------- ----------- Total costs and expenses........... 274,130 178,665 ----------- ----------- Income before taxes.................... 1,574 14,813 Provision for income taxes: Current.............................. 191 2,858 Deferred............................. 372 1,839 ----------- ----------- 563 4,697 ----------- ----------- Net income............................. $ 1,011 $ 10,116 =========== =========== Weighted average shares of common stock outstanding.................... 25,687,707 25,567,150 =========== =========== Earnings (loss) per share of common stock......................... $ (.05) $ .34 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 7 WESTERN GAS RESOURCES, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY ($000s, except share amounts)
Shares of Common 7.25% $2.28 $2.625 Shares Stock Convertible Cumulative Convertible of Common in Preferred Preferred Preferred Common Treasury Stock Treasury Stock Stock Stock Stock Stock ---------- -------- ----------- ---------- ----------- ------ -------- Balance at December 31, 1993................ 25,651,722 -- 400,000 1,400,000 -- $2,565 $ -- Net income for the three months ended March 31, 1994....................... -- -- -- -- -- -- -- Stock options exercised..................... 55,279 -- -- -- -- 6 -- Treasury stock, at cost..................... (25,016) 25,016 -- -- -- -- (788) Proceeds from issuance of $2.625 Convertible Preferred Stock................ -- -- -- -- 2,760,000 -- -- Dividends declared on Common Stock.......... -- -- -- -- -- -- -- Dividends declared on 7.25% Convertible Preferred Stock................ -- -- -- -- -- -- -- Dividends declared on $2.28 Cumulative Preferred Stock................. -- -- -- -- -- -- -- Dividends declared on $2.625 Convertible Preferred Stock............... -- -- -- -- -- -- -- ---------- ------ ------- --------- --------- ------ ------ Balance, at March 31, 1994................. 25,681,985 25,016 400,000 1,400,000 2,760,000 $2,571 $ (788) ========== ====== ======= ========= ========= ====== ======
7.25% $2.28 $2.625 Notes Total Convertible Cumulative Convertible Additional Receivable Stock- Preferred Preferred Preferred Paid-In from Key Retained holders' Stock Stock Stock Capital Employees Earnings Equity ----------- ---------- ----------- ---------- ---------- -------- -------- Balance at December 31, 1993................ $ 40 $ 140 $ -- $204,176 $(1,985) $107,933 $312,869 Net income for the three months ended March 31, 1994....................... -- -- -- -- -- 1,011 1,011 Stock options exercised..................... -- -- -- 492 (282) -- 216 Treasury stock, at cost..................... -- -- -- -- 788 -- -- Proceeds from issuance of $2.625 Convertible Preferred Stock................ -- -- 276 132,742 -- -- 133,018 Dividends declared on Common Stock.......... -- -- -- -- -- (1,284) (1,284) Dividends declared on 7.25% Convertible Preferred Stock................ -- -- -- -- -- (725) (725) Dividends declared on $2.28 Cumulative Preferred Stock................. -- -- -- -- -- (798) (798) Dividends declared on $2.625 Convertible Preferred Stock............... -- -- -- -- -- (1,592) (1,592) ----- ----- ------ -------- ------- -------- -------- Balance, at March 31, 1994................. $ 40 $ 140 $ 276 $337,410 $(1,479) $104,545 $442,715 ===== ===== ====== ======== ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 8 WESTERN GAS RESOURCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The interim consolidated financial statements presented herein should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Form 10-K for the year ended December 31, 1993. The interim consolidated financial statements as of March 31, 1994 and for the quarters ended March 31, 1994 and 1993 included herein are unaudited, but reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly present the results for such periods. Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the presentation used in 1994. Earnings Per Share of Common Stock ----------------------------------- Earnings per share of common stock is computed by dividing the net income available to shares of common stock by the weighted average number of shares of common stock outstanding. Net income available to shares of common stock is net income less dividends declared and attributable to the corresponding period on the 7.25% Convertible Preferred Stock, $2.28 Cumulative Preferred Stock and $2.625 Convertible Preferred Stock. The computation of fully diluted earnings per share of common stock for the quarters ended March 31, 1994 and 1993 was antidilutive, therefore, only primary earnings per share of common stock is presented. Supplementary Cash Flow Information ------------------------------------ Interest paid was $8.4 million and $3.0 million, respectively, for the quarters ended March 31, 1994 and 1993. Income taxes paid were approximately $15,000 during the quarter ended March 31, 1994. No income taxes were paid during the quarter ended March 31, 1993. Financing Activities -------------------- On November 12, 1993, the Company's Registration Statement with the Securities and Exchange Commission (the "Registration") on Form S-3 (Registration No. 33- 66516) was declared effective. The Registration provides for the sale of up to $200 million of debt securities and preferred stock and up to 4 million shares of common stock. On February 28, 1994, the Company closed the sale of, pursuant to the Registration, 2,760,000 shares of $2.625 Convertible Preferred Stock for net proceeds of $133.5 million, which have been used to repay a portion of the debt incurred under 9 the Company's Revolving Credit facility to acquire Mountain Gas Resources, Inc. ("Mountain Gas") and the Black Lake gas processing plant and related reserves ("Black Lake"). Treasury Stock -------------- During July 1990, the Company loaned Bill M. Sanderson, President, Chief Operating Officer and a Director $748,000 to purchase 294,524 shares of Common Stock in the Company. In February 1994, the loan and all accrued interest was repaid in full by Mr. Sanderson who surrendered 25,016 shares of the Company's Common Stock, which were valued at $31.50 per share based upon the February 22, 1994 closing price. Legal Proceedings ----------------- Edgewood On January 16, 1991, problems at the Company's Edgewood Plant relating to both equipment that removes hydrogen sulfide from unprocessed natural gas and the monitoring equipment owned by the purchaser of the residue gas, Enserch Corporation, doing business as Lone Star Gas Company ("Lone Star"), allowed residue gas containing hydrogen sulfide to enter Lone Star's transmission line supplying residue gas to Emory, Texas. The Company has been named as a co-defendant, along with Lone Star, in the following complaints relating to the incident: Gary Prather, et al. v. Enserch ------------------------------- Corporation, et al., filed March 15, 1993, Barbara Rogers, et al., v. Enserch ------------------- ---------------------------------- Corporation, et al. filed March 16, 1993, Judy Silvey, et al. v. Enserch, et ------------------- ---------------------------------- al., filed May 13, 1993, Floyd Rogers, et al. v. Enserch, et al., filed May --- --------------------------------------- 14, 1993, Blair Schamlain, et al. v. Enserch, et al., filed May 25, 1993, ------------------------------------------ Betty Adair v. Enserch, et al., filed on July 14, 1993, Doris Hass v. Enserch ------------------------------ --------------------- Corporation, et al., filed on December 17, 1993, Allie Ruth Harris v. Enserch ------------------- ---------------------------- Corporation, et al., filed on December 17, 1993, Sandra Parker, et al. v ------------------- ----------------------- Enserch Corporation, et al., filed on January 13, 1994, and Carma Brumit v. --------------------------- --------------- Enserch, et al., filed on January 18, 1994. --------------- All the cases have been filed in the District Court, Rains County, Texas, 354th Judicial District, and make similar claims, asserting, among other things, that the defendants breached an implied warranty of merchantability, falsely represented that the residue gas was safe, were negligent and are liable under a strict liability theory. The plaintiffs have alleged a variety of respiratory and neurological illnesses and are seeking treble damages, exemplary damages and attorneys' fees. Prior to the filing of the complaints, the Company received demand letters from the plaintiffs that sought, in the aggregate, approximately $36 million. Damages claimed in the lawsuits are in excess of $13.5 million. 10 The Company believes that it has meritorious defenses to the claims and intends to defend vigorously against any such claims. The Company is currently conducting extensive pre-trial discovery. The underwriters of the Company's general liability insurance policy have indicated preliminarily that the Company's policy appears to cover the types of claims that have been asserted, subject to the underwriters' right to deny coverage based upon, among other things, final determination of causation and the exact nature of the damages. Granger On December 6, 1993, Green River Gathering Company ("Green River") and Mountain Gas filed a complaint against Washington Energy Exploration, Inc. ("Washington Energy") in District Court in Arapahoe County, Colorado seeking the payment of certain outstanding receivables from Washington Energy and a declaratory judgment that the gathering agreement between Washington Energy and Green River is in full force and effect. Mountain Gas is a wholly-owned subsidiary of the Company and Green River is a partnership owned by the Company and Mountain Gas. Washington Energy is the operator of wells producing approximately 33% of the natural gas transported through the Green River Gathering system to Mountain Gas' Granger facility. On December 27, 1993, Washington Energy filed an answer, counterclaim, crossclaim and request for trial by jury, denying the substance of the allegations and asserting certain affirmative defenses. Washington Energy has also made certain counterclaims seeking monetary damages relating to Green River's performance under the gathering agreement and under a processing agreement between the parties, along with a declaratory judgment that both agreements have been terminated. In addition, Washington Energy has made a crossclaim against two unaffiliated entities, each of which owned a portion of Green River during a portion of the period in question. The Company believes that Green River is in compliance with the gathering agreement and the processing agreement and that both are in full force and effect. The Company believes that it has meritorious defenses to the counterclaims and intends to defend vigorously against any such claims. The Company is currently conducting extensive pre-trial discovery. Katy Commencing in March 1993 and continuing through July 1993, Western Gas Resources Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company, filed a total of 165 condemnation actions in the County Court at Law No. 1 and No. 2 of Fort Bend County, Texas to obtain certain storage rights and rights- of-way relating to its Katy Gas Storage Facility ("Katy"). The County Court appointed 11 panels of Special Commissioners that have awarded compensation to the owners whose rights were condemned. Certain of the land and mineral owners are seeking in County Court a declaration that Storage does not possess the right to condemn, or, in the alternative, that they should be awarded more compensation than previously awarded by the Special Commissioners. The Company believes that the outcome of such proceedings will not materially affect operation of Katy. The likelihood of any particular result, however, cannot be determined because the condemnation law under which the proceedings are being brought has never been interpreted by the courts. The Company is involved in various other litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims will not, individually or in the aggregate, have a material adverse effect on the Company's financial position or results of operations. 12 ITEM 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- General ------- The Company owns and operates natural gas gathering, processing and storage facilities and markets and transports natural gas and NGLs. Its gathering systems, processing and storage facilities are located in major gas-producing basins in the Rocky Mountain, Gulf Coast and Southwestern regions of the United States. The following discussion and analysis relates to factors which have affected the consolidated financial condition and results of operations of the Company for the quarters ended March 31, 1994 and 1993. Certain prior year amounts have been reclassified to conform to the presentation used in 1994. Reference should also be made to the Company's Consolidated Financial Statements and related Notes thereto included elsewhere in this document.
Quarter Ended March 31, -------------------- Percent 1994 1993 Change ---------- -------- -------- FINANCIAL RESULTS ($000S, EXCEPT PER SHARE AMOUNTS): Revenues.............................. $275,704 $193,478 42.5 Gross profit.......................... 17,711 24,022 (26.3) Net income............................ 1,011 10,116 (90.0) Earnings per share of common stock.... (.05) .34 -- Net cash provided by operating activities.......................... 22,119 47,618 (53.5) OPERATING DATA: Average gas sales (MMcf/D)............ 1,002.1 553.6 81.0 Average NGL sales (MGal/D)............ 3,052.7 2,781.2 9.8 Average gas prices ($/Mcf)............ $ 2.12 $ 1.96 8.2 Average NGL prices ($/Gal)............ $ .26 $ .35 (25.7)
Quarter ended March 31, 1994 compared to quarter ended March 31, 1993. ---------------------------------------------------------------------- Net income and net cash provided by operating activities decreased $9.1 million and $25.5 million, respectively, for the quarter ended March 31, 1994 compared to the same period in 1993. Revenues from the sale of residue gas increased $93.3 million for the quarter ended March 31, 1994 compared to the same period in 1993 due to an increase in residue gas prices of $.16 per Mcf and an increase in sales volumes of approximately 450 MMcf per day. The increase in average gas prices was primarily due to higher spot prices in the Midwest and East Coast markets. The Rocky Mountain 13 and West Texas markets, in which many of the Company's facilities are located, did not experience the same level of price increases, and the Company's gas prices were also somewhat limited by the Company's natural gas hedge positions. Of the volume increase, approximately 350 MMcf per day is attributable to an increase in the sale of residue gas purchased from third parties, primarily due to the acquisition of the assets of Citizens National Gas Company. The remaining volume increase is the result of increased production volumes at the Company's facilities, primarily due to the Mountain Gas and Black Lake acquisitions in 1993, new well connect activity and consolidations with smaller gathering systems. Revenues from the sale of NGLs decreased $14.8 million for the quarter ended March 31, 1994 compared to the same period in 1993 due to a $.09 per gallon decrease in the price of NGLs somewhat offset by an increase in NGL sales volumes of approximately 275 MGal per day. Of the volume increase, approximately 110 MGal per day is attributable to an increase in the sale of NGLs purchased from third parties. The remaining volume increase is primarily attributable to the 1993 acquisitions of Mountain Gas and Black Lake, new well connect activity and consolidations with smaller gathering systems. This increased was somewhat offset by the unfavorable economics of ethane and propane extraction and by limited NGL volumes at the Granger facility resulting primarily from the December 1993 fire. Other revenue remained relatively constant for the quarter ended March 31, 1994 compared to the same period in 1993, as insurance proceeds of approximately $1.7 million from the December 1993 fire at the Granger facility partially offset a gain of approximately $2.6 million from the terminiation of certain interest rate swap agreements. Historically, product purchases as a percentage of residue gas and NGL sales from the Company's plant production approximated 70%. Product purchases as a percentage of residue gas and NGL sales from third-party purchases is substantially higher and approximates 95%. The increase in the Company's combined percentage is primarily due to a significantly larger increase in the sales volume of products purchased from third parties compared to the sales volume sold from the Company's facilities. As a result, total product purchases as a percentage of residue gas and NGL sales increased approximately 5% to 85% for the quarter ended March 31, 1994 compared to the same period in 1993. Plant operating expense increased $3.3 million for the quarter ended March 31, 1994 compared to the same period in 1993 primarily due to the Mountain Gas and Black Lake acquisitions. Depreciation, depletion and amortization expense increased $9.3 million for the quarter ended March 31, 1994 compared to the same period in 1993 due primarily to the Mountain Gas and Black Lake 14 acquisitions and Katy, which commenced operations in January 1994. Interest expense increased $5.8 million for the quarter ended March 31, 1994 compared to the same period in 1993 primarily due to additional borrowings related to the Mountain Gas and Black Lake acquisitions and the construction of Katy and the recognition of an approximate $320,000 loss on an interest rate swap agreement (an additional $684,000 loss related to this agreement is included in other revenues). Liquidity and Capital Resources The Company's sources of liquidity and capital resources historically have been net cash provided by operating activities, funds available under its financing facilities and proceeds from offerings of equity securities. In the past, these sources have been sufficient to meet the needs and finance the growth of the Company's business. Net cash provided by operating activities has been primarily affected by product prices, the Company's success in increasing the number and efficiency of its facilities, the volumes of natural gas processed by such facilities and the margin on third party residue gas purchased for resale. The Company's continued growth will be dependent upon success in the areas of additions to dedicated plant reserves, acquisitions, new project development and marketing. For the quarter ended March 31, 1994, the Company's total sources of funds aggregated $156.7 million and was comprised of net proceeds from the issuance of the $2.625 Convertible Preferred Stock of $133.0 million, net cash provided by operating activities of $22.1 million, net proceeds received from the disposition of property and equipment of $1.4 million and net proceeds received from the exercise of common stock options of $210,000. During the same period, the Company's use of such funds aggregated $156.5 million which were used primarily to make payments of $134.3 million under its revolving credit facility, to make capital investments of $19.4 million, to pay dividends to holders of 7.25% Convertible Preferred Stock, $2.28 Cumulative Preferred Stock and $2.625 Convertible Preferred Stock of $1.5 million and to pay dividends to holders of Common Stock of $1.3 million. On November 12, 1993, the Company's Registration on Form S-3 (Registration No. 33-66516) was declared effective. The Registration provides for the sale of up to $200 million of debt securities and preferred stock and up to 4 million shares of common stock. On February 28, 1994, the Company closed the sale of, pursuant to the Registration, 2,760,000 shares of $2.625 Convertible Preferred Stock for net proceeds of $133.5 million, which have been used to repay a portion of the debt incurred under the Company's Revolving Credit facility in the Mountain Gas and Black Lake acquisitions. 15 An additional source of liquidity to the Company is volumes of residue gas and NGLs in storage facilities. The Company stores volumes of residue gas and NGLs primarily to assure an adequate supply for long-term sales contracts and for resale during periods of favorable prices. At March 31, 1994, the Company held in storage approximately 16.2 million gallons of NGLs at an average cost of $.30 per gallon and approximately 3.0 Bcf of residue gas at an average cost of $1.48 per Mcf ($1.36 per MMbtu). From time to time, the Company contracts on the futures market for the purchase and/or sale of stored residue gas and NGL products as a hedge against price changes. At March 31, 1994, 42 net contracts (10,000 MMbtus per contract) for the sale of residue gas in May 1994 through March 1995 at prices ranging from $1.885 per Mcf to $2.56 per Mcf were outstanding. At March 31, 1994, no such contracts for NGLs were outstanding. Capital Investment Program The Company has substantially completed the construction of Katy. Lease acquisition and construction costs incurred through March 31, 1994, including pad gas, approximated $90 million, excluding capitalized pre- operating costs. Katy commenced operations in January 1994 and the Company will inject working gas until the third quarter of 1994 after which time withdrawals are expected to begin for the 1994-1995 winter heating season. The complex consists of a partially depleted natural gas reservoir with over 17 Bcf of working gas and the capability to deliver up to 400 MMcf/D of natural gas as well as a pipeline header system currently connecting seven pipelines with plans to connect six additional pipelines. Financing Facilities REVOLVING CREDIT FACILITY. The Company's Variable Rate Revolving Credit Facility, with a syndicate of eight banks, provides for a maximum borrowing of $400 million, of which $212.7 million was outstanding at March 31, 1994. If the facility is not renewed, on August 31, 1996 any outstanding balance thereunder converts to a four-year term during which such balance will be repaid in equal quarterly installments. At the Company's option, the Revolving Credit Facility bears interest at certain spreads over the Eurodollar rate or at the agent bank's prime rate. The interest rate spreads were adjusted based on the Company's earnings ratio (earnings before interest and taxes divided by interest expense). At March 31, 1994, the spread was 1.0% for the Eurodollar rate resulting in an interest rate of 4.35% at March 31, 1994. The Company pays a commitment fee on the unused commitment of .25% if the earnings ratio is greater than or equal to 4.5 to 1.0 or .375% if the ratio is less than 4.5 to 1.0. For the quarter ended 16 March 31, 1994, the Company's earnings ratio was approximately 2.83 to 1.0. TERM LOAN FACILITY. The Company also has a Term Loan Facility with four banks for $50 million which bears interest at 9.87%. Payments on the Term Loan Facility of $25 million, $12.5 million and $12.5 million are due in September 1995, 1996 and 1997, respectively. The Company's Revolving Credit and Term Loan Facilities are subject to certain mandatory prepayment terms. If funded debt under these facilities exceeds four times the sum of the Company's last four quarters' cash flow (as defined in the agreement), the overage must be repaid in no more than six monthly payments commencing 90 days from notification. This mandatory prepayment threshold will be reduced to 3.75 to 1.00 at December 31, 1994 and 3.50 to 1.00 at December 31, 1995. The Term Loan Facility and Revolving Credit Facility are unsecured. The Company is required to maintain a current ratio of at least 1.0 to 1.0 (as defined in the agreement), a tangible net worth of at least $247 million, a debt to capitalization ratio of no more than 65% through March 31, 1994, 60% from April 1, 1994 through October 31, 1995 and 55% thereafter and an earnings ratio of not less than 2.0 to 1.0. The Company is prohibited from declaring or paying dividends that exceed the sum of $25 million plus 50% of consolidated net income earned after March 31, 1993 plus 50% of the cumulative net proceeds received from the sale of any equity securities sold after March 31, 1993. At March 31, 1994, this threshold amounted to $93.4 million. The Company generally utilizes excess daily funds to reduce any outstanding revolving credit balances to minimize interest expense and intends to continue such practice. MASTER SHELF AGREEMENT. In December 1991, the Company entered into a Master Shelf Agreement (the "Master Shelf") with The Prudential Insurance Company of America ("Prudential") pursuant to which Prudential agreed to quote, from time-to-time, an interest rate at which Prudential or its nominee would be willing to purchase up to $100 million of the Company's senior promissory notes (the "Senior Notes"). Any such Senior Notes must mature in no more than 12 years, with an average life not in excess of 10 years, and will be unsecured. On October 27, 1992, the Company sold $25 million of 7.51% Senior Notes due 2000 and $25 million of 7.99% Senior Notes due 2003. Principal payments on the $50 million of Senior Notes of $8.3 million will be due on October 27 of each year from 1998 through 2003. On September 22, 1993, the Company sold $25 million of 6.77% Senior Notes due in a single payment on September 22, 2003 and on December 27, 1993, the Company sold $25 million of 7.23% Senior Notes due in a single payment on December 27, 2003. The Master Shelf contains certain financial covenants which conform with those contained in the Revolving Credit Facility. In July 1993, Prudential and the Company amended the Master Shelf to 17 provide for an additional $50 million of borrowing capacity (for a total borrowing capacity of $150 million) and to extend the term of the Master Shelf to October 31, 1995. SENIOR NOTES. On April 28, 1993 the Company sold $50 million of 7.65% Senior Notes due 2003 to a group of insurance companies led by Connecticut General Life Insurance Company. Principal payments on the $50 million of Senior Notes of $7.1 million will be due on April 30th of each year from 1997 through 2002 with any remaining principal and interest outstanding due on April 30, 2003. The Senior Notes contain certain financial covenants which conform with those contained in the Revolving Credit Facility. COVENANT COMPLIANCE. At March 31, 1994, the Company was not in compliance with its current ratio covenant under its Revolving Credit and Term Loan Facilities. The Company has requested waivers from its banks and anticipates no difficulty in receiving such waivers. The Company is in compliance with all other debt covenants. INTEREST RATE SWAP AGREEMENTS. From time to time, the Company enters into interest rate swap agreements to manage exposure to changes in interest rates. The transactions generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. The Company believes that the amounts available to be borrowed under the Revolving Credit Facility and the Master Shelf together with cash provided from operations, will provide it with sufficient financing to connect new reserves, maintain its existing facilities and complete its current capital improvement projects. The Company also believes that cash provided from operations will be sufficient to meet its debt service and preferred stock dividend requirements. 18 Principal Facilities The following table provides information concerning the Company's principal facilities. The Company also owns and operates several smaller treating and processing facilities located in the same areas as its other facilities.
Average for Quarter Ended March 31, 1994 ------------------------------------------ Gas Gas Gathering Throughput Gas Gas NGL Year Placed Systems Capacity Throughput Production Production Facility(1) In Service Miles(2) (MMcf/D)(2) (MMcf/D)(3) (MMcf/D)(4) (MGal/D)(4) - - ---------------------------- ----------- --------- ----------- ----------- ----------- ----------- SOUTHERN REGION: Texas Midkiff and Benedum.......... 1955 1,919 135 114.8 75.1 744.5 Giddings Gathering System.... 1979 622 80 75.8 65.5 127.0 Edgewood(5).................. 1964 85 65 33.9 15.5 79.5 Perkins and Noel............. 1975 2,530 55 22.7 12.6 147.7 Walnut Bend.................. 1978 402 8 3.2 1.1 18.9 Katy(7)...................... 1994 -- -- -- -- -- MID-CONTINENT REGION: Louisiana Black Lake(8)................ 1966 55 180 80.2 62.4 117.7 Toca(6)(9)................... 1958 -- 160 108.3 -- 63.8 Sligo(6)(9)(10).............. 1961 8 70 36.6 -- 28.5 Pointe a la Hache(6)(15)..... 1962 -- 20 -- -- -- Cox Bay(6)(15)............... 1962 -- 20 -- -- -- Oklahoma Chaney Dell/Lamont........... 1966 1,985 158 96.7 66.0 324.7 Westana...................... 1986 228 37 60.8 55.4 53.2 ROCKY MOUNTAIN REGION: Wyoming Granger(9)(11)............... 1987 206 230 142.6 137.9 69.6 Red Desert(11)............... 1979 102 40 34.5 30.9 50.2 Lincoln Road................. 1988 144 50 49.5 45.4 45.7 Hilight Complex(9)(12)....... 1969 589 80 27.8 20.8 40.4 Amos Draw.................... 1983 79 30 6.3 4.9 20.5 Kitty(9)..................... 1969 225 17 6.5 4.3 35.1 Newcastle(9)................. 1981 141 5 2.3 1.6 17.8 Reno Junction(13)............ 1991 -- -- -- -- 25.1 New Mexico San Juan River(5)............ 1955 122 60 24.3 20.8 .5 North Dakota Williston(5)(9)(14).......... 1981 381 -- 12.0 9.1 31.6 Temple(5).................... 1984 65 7 3.2 1.9 10.2 Teddy Roosevelt(5)(9)(14).... 1979 236 -- 2.0 1.1 8.4 Alexander Gathering System(17) 1984 96 -- 1.4 1.0 6.0 Utah Four Corners................. 1988 95 15 4.8 4.0 11.1 Montana Baker(5)(9).................. 1981 8 3 1.6 1.0 11.2 ------ ----- ----- ----- ------- Total...................... 10,323 1,525 951.8 638.3 2,138.9 ====== ===== ===== ===== =======
- - ------------- Footnotes on following page 19 (1) The Company's interest in all facilities is 100% except for Midkiff and Benedum (77%); Black Lake (69%); Lincoln Road (72%); Williston (50%); Westana (Chester) (50%); Newcastle (50%) and Walnut Bend (67%). All facilities are operated by the Company and all data include interests of the Company, other joint interest owners and producers of gas volumes dedicated to the facility. (2) Gas gathering systems miles and gas throughput capacity are as of March 31, 1994. (3) Aggregate wellhead natural gas volumes collected by a gathering system. (4) Volumes of residue gas and NGLs are allocated to a facility when a well is dedicated to that facility; volumes exclude NGLs fractionated for third parties. (5) Sour gas facility (capable of processing gas containing hydrogen sulfide). (6) Straddle plant. (7) Operations commenced in January 1994. (8) Acquired in the Black Lake acquisition. (9) Fractionation facility (capable of fractionating raw NGLs). (10) The Company expects to close the sale of this facility on May 31, 1994. (11) Acquired in the Mountain Gas acquisition. (12) Includes production volumes from the Hartzog and Spearhead Ranch facilities. (13) NGL production represents conversion of third-party feedstock to iso- butane. (14) Processing facility was shut-in during August 1993. The gas dedicated to these facilities is processed by a third-party under a contractual arrangement. (15) Temporarily shut-in during 1993. 20 PART II -- OTHER INFORMATION Item 1. Legal Proceedings ----------------- Edgewood On January 16, 1991, problems at the Company's Edgewood Plant relating to both equipment that removes hydrogen sulfide from unprocessed natural gas and the monitoring equipment owned by the purchaser of the residue gas, Enserch Corporation, doing business as Lone Star Gas Company ("Lone Star"), allowed residue gas containing hydrogen sulfide to enter Lone Star's transmission line supplying residue gas to Emory, Texas. The Company has been named as a co-defendant, along with Lone Star, in the following complaints relating to the incident: Gary Prather, et al. v. Enserch ------------------------------- Corporation, et al., filed March 15, 1993, Barbara Rogers, et al., v. Enserch ------------------- ---------------------------------- Corporation, et al. filed March 16, 1993, Judy Silvey, et al. v. Enserch, et ------------------- ---------------------------------- al., filed May 13, 1993, Floyd Rogers, et al. v. Enserch, et al., filed May --- --------------------------------------- 14, 1993, Blair Schamlain, et al. v. Enserch, et al., filed May 25, 1993, ------------------------------------------ Betty Adair v. Enserch, et al., filed on July 14, 1993, Doris Hass v. Enserch ------------------------------ --------------------- Corporation, et al., filed on December 17, 1993, Allie Ruth Harris v. Enserch ------------------- ---------------------------- Corporation, et al., filed on December 17, 1993, Sandra Parker, et al. v ------------------- ----------------------- Enserch Corporation, et al., filed on January 13, 1994, and Carma Brumit v. --------------------------- --------------- Enserch, et al., filed on January 18, 1994. --------------- All the cases have been filed in the District Court, Rains County, Texas, 354th Judicial District, and make similar claims, asserting, among other things, that the defendants breached an implied warranty of merchantability, falsely represented that the residue gas was safe, were negligent and are liable under a strict liability theory. The plaintiffs have alleged a variety of respiratory and neurological illnesses and are seeking treble damages, exemplary damages and attorneys' fees. Prior to the filing of the complaints, the Company received demand letters from the plaintiffs that sought, in the aggregate, approximately $36 million. Damages claimed in the lawsuits are in excess of $13.5 million. The Company believes that it has meritorious defenses to the claims and intends to defend vigorously against any such claims. The Company is currently conducting extensive pre-trial discovery. The underwriters of the Company's general liability insurance policy have indicated preliminarily that the Company's policy appears to cover the types of claims that have been asserted, subject to the underwriters' right to deny coverage based upon, among other things, final determination of causation and the exact nature of the damages. 21 Granger On December 6, 1993, Green River Gathering Company ("Green River") and Mountain Gas filed a complaint against Washington Energy Exploration, Inc. ("Washington Energy") in District Court in Arapahoe County, Colorado seeking the payment of certain outstanding receivables from Washington Energy and a declaratory judgment that the gathering agreement between Washington Energy and Green River is in full force and effect. Mountain Gas is a wholly-owned subsidiary of the Company and Green River is a partnership owned by the Company and Mountain Gas. Washington Energy is the operator of wells producing approximately 33% of the natural gas transported through the Green River Gathering system to Mountain Gas' Granger facility. On December 27, 1993, Washington Energy filed an answer, counterclaim, crossclaim and request for trial by jury, denying the substance of the allegations and asserting certain affirmative defenses. Washington Energy has also made certain counterclaims seeking monetary damages relating to Green River's performance under the gathering agreement and under a processing agreement between the parties, along with a declaratory judgment that both agreements have been terminated. In addition, Washington Energy has made a crossclaim against two unaffiliated entities, each of which owned a portion of Green River during a portion of the period in question. The Company believes that Green River is in compliance with the gathering agreement and the processing agreement and that both are in full force and effect. The Company believes that it has meritorious defenses to the counterclaims and intends to defend vigorously against any such claims. The Company is currently conducting extensive pre-trial discovery. Katy Commencing in March 1993 and continuing through July 1993, Western Gas Resources Storage, Inc. ("Storage"), a wholly-owned subsidiary of the Company, filed a total of 165 condemnation actions in the County Court at Law No. 1 and No. 2 of Fort Bend County, Texas to obtain certain storage rights and rights- of-way relating to its Katy Gas Storage Facility ("Katy"). The County Court appointed panels of Special Commissioners that have awarded compensation to the owners whose rights were condemned. Certain of the land and mineral owners are seeking in County Court a declaration that Storage does not possess the right to condemn, or, in the alternative, that they should be awarded more compensation than previously awarded by the Special Commissioners. The Company believes that the outcome of such proceedings will not materially affect operation of Katy. The likelihood of any particular result, however, cannot be determined because the condemnation law under 22 which the proceedings are being brought has never been interpreted by the courts. The Company is involved in various other litigation and administrative proceedings arising in the normal course of business. In the opinion of management, any liabilities that may result from these claims will not, individually or in the aggregate, have a material adverse effect on the Company's financial position or results of operations. 23 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: A report on Form 8-K was filed on January 31, 1994 to notify the Securities and Exchange Commission (the "Commission") and the Company's stockholders of a lawsuit filed by the Company against Washington Energy Exploration, Inc. seeking the payment of certain outstanding receivables and a declaratory judgment that a gathering agreement is in full force and effect. A report on Form 8-K was filed on February 10, 1994 to notify the Commission and the Company's stockholders of the Company's financial and operating results for the year and quarter ended December 31, 1993 as well as provide and update on certain outstanding litigation. A report on Form 8-K was filed on February 24, 1994 to provide the Commission and the Company's stockholders with the Certificate of Designation of the $2.65 Cumulative Convertible Preferred Stock of the Company. 24 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. WESTERN GAS RESOURCES, INC. --------------------------- Registrant Date: May 13, 1994 By: /s/ BILL M. SANDERSON ------------------------- Bill M. Sanderson President and Chief Operating Officer Date: May 13, 1994 By: /s/ WILLIAM J. KRYSIAK ----------------------- William J. Krysiak Vice President - Controller (Principal Financial and Accounting Officer) 25 -----END PRIVACY-ENHANCED MESSAGE-----