<PAGE>
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 June 30, 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 August 1, 1994, there were 25,697,352 shares of the Registrant's Common
Stock outstanding.
Reference is made to the listing beginning on page 25 of all exhibits filed as a
part of this report.
1 of 26
<PAGE>
WESTERN GAS RESOURCES, INC.
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
PART I - Financial Information Page
- - ------------------------------ ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet -
June 30, 1994 and December 31, 1993............ 3
Consolidated Statement of Cash Flows -
Six months ended June 30, 1994 and 1993........ 5
Consolidated Statement of Operations -
Quarters and six months ended
June 30, 1994 and 1993......................... 7
Consolidated Statement of Changes in
Stockholders' Equity - Six months ended
June 30, 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.............................. 22
Item 6. Exhibits and Reports on Form 8-K............... 25
Signatures ............................................... 26
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
--------------------
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
($000s)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
------ ----------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash................................... $ 18,693 $ 4,666
Trade accounts receivable, net......... 110,407 142,336
Product inventory...................... 42,170 20,850
Parts inventory........................ 2,531 2,161
Other.................................. 3,392 1,544
---------- ----------
Total current assets................. 177,193 171,557
---------- ----------
Property and equipment, at cost:
Gas gathering, processing, storage
and transmission..................... 809,737 684,964
Oil and gas properties and
equipment............................ 141,712 134,638
Construction in progress............... 63,082 148,918
---------- ----------
1,014,531 968,520
Less: Accumulated depreciation,
depletion and amortization............ (151,837) (123,351)
---------- ----------
Total property and equipment, net.... 862,694 845,169
---------- ----------
Other assets:
Gas purchase contracts (net of
accumulated amortization of $12,858
and $10,756, respectively)........... 35,454 37,556
Other.................................. 45,826 60,466
---------- ----------
Total other assets................... 81,280 98,022
---------- ----------
Total assets............................. $1,121,167 $1,114,748
========== ==========
</TABLE>
- Continued on following page -
3
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
($000s, except share amounts)
- Continued from previous page -
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
- - ------------------------------------ ----------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable............................ $ 138,871 $ 160,956
Accrued expenses............................ 18,043 17,667
Dividends payable........................... 3,894 2,080
Income taxes payable........................ 311 -
---------- ----------
Total current liabilities................. 161,119 180,703
Long-term debt................................ 448,000 547,000
Deferred income taxes payable................. 66,850 66,481
Other long-term liabilities................... 7,097 7,695
---------- ----------
Total liabilities......................... 683,066 801,879
---------- ----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, par value $.10;
100,000,000 shares authorized;
25,695,957 and 25,651,722 shares
issued and outstanding, respectively...... 2,572 2,565
Treasury stock, at cost, 25,016
and no shares in treasury, 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.................. 337,233 204,176
Notes receivable from key employees
secured by common stock................... (1,479) (1,985)
Retained earnings........................... 100,107 107,933
---------- ----------
Total stockholders' equity................ 438,101 312,869
---------- ----------
Total liabilities and stockholders'
equity...................................... $1,121,167 $1,114,748
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($000s)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Reconciliation of net income to net cash
- - ----------------------------------------
provided by operating activities
--------------------------------
Net income................................ $ 1,192 $18,580
Add income items that do not affect
working capital:
Depreciation, depletion and
amortization..................... 32,584 14,999
Deferred income taxes............... 368 3,282
Other non-cash items................ (394) 638
-------- -------
33,750 37,499
-------- -------
Adjustments to working capital
to arrive at net cash provided
by operating activities:
Decrease in trade accounts
receivable....................... 31,929 22,270
(Increase) decrease in product
inventory........................ (21,320) 380
(Increase) decrease in parts
inventory........................ (370) 193
Increase in other current assets.... (1,848) (1,424)
Increase in other assets and
liabilities, net................. (262) (3,106)
Increase (decrease) in accounts
payable.......................... (22,085) 6,943
Increase in accrued expense......... 376 4,262
Increase in income taxes payable.... 311 487
-------- -------
Total adjustments......................... (13,269) 30,005
-------- -------
Net cash provided by operating
activities....................... $ 20,481 $67,504
======== =======
</TABLE>
- Continued on following page -
5
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($000s)
- Continued from previous page -
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Net cash provided by operating
activities.......................... $ 20,481 $ 67,504
-------- --------
Cash flows from investing activities:
Payments for business acquisitions.. (163) (1,729)
Payments for additions to property
and equipment.................... (42,806) (60,137)
Dispositions of property and
equipment........................ 10,458 224
Contributions to equity investments. (797) (92)
-------- --------
Net cash used in investing
activities.................... (33,308) (61,734)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of
preferred stock.................. 132,731 -
Proceeds from exercise of common
stock options.................... 609 687
Notes receivable from key employees
secured by common stock, net..... 506 (461)
Acquisition of treasury stock....... (788) -
Net payments under revolving credit
facility......................... (99,000) (5,000)
Dividends paid to holders of common
stock............................ (2,568) (2,555)
Dividends paid to holders of
preferred stock.................. (4,636) (2,620)
-------- --------
Net cash provided by (used in)
financing activities.......... 26,854 (9,949)
-------- --------
Net increase (decrease) in cash........ 14,027 (4,179)
Cash at beginning of period............ 4,666 13,160
-------- --------
Cash at end of period.................. $ 18,693 $ 8,981
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
($000s, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1994 1993 1994 1993
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Sale of residue gas.......... $ 157,897 $ 85,702 $ 349,271 $ 183,789
Sale of natural gas liquids 75,702 80,892 148,539 168,554
Processing and transportation
revenues.................. 8,342 4,929 15,620 9,651
Other, net................... 2,529 2,323 6,744 5,330
----------- ----------- ----------- -----------
Total revenues............ 244,470 173,846 520,174 367,324
----------- ----------- ----------- -----------
Costs and expenses:
Product purchases............ 195,779 130,757 419,459 279,179
Plant operating expense...... 15,615 13,890 32,030 26,965
Oil and gas exploration and
production costs.......... 1,148 558 2,420 1,188
Selling and administrative
expense................... 9,191 6,075 17,448 13,206
Depreciation, depletion and
amortization.............. 15,958 7,670 32,584 14,999
Interest expense............. 6,467 2,183 14,347 4,261
----------- ----------- ----------- -----------
Total costs and expenses.. 244,158 161,133 518,288 339,798
----------- ----------- ----------- -----------
Income before taxes............ 312 12,713 1,886 27,526
Provision for income taxes:
Current...................... 135 2,806 326 5,664
Deferred..................... (4) 1,443 368 3,282
----------- ----------- ----------- -----------
131 4,249 694 8,946
----------- ----------- ----------- -----------
Net income..................... $ 181 $ 8,464 $ 1,192 $ 18,580
=========== =========== =========== ===========
Weighted average shares of
common stock outstanding..... 25,690,658 25,603,045 25,689,183 25,585,097
=========== =========== =========== ===========
Earnings (loss) per share
of common stock.............. $(.12) $.27 $(.17) $.61
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(Unaudited)
($000s, except share amounts)
<TABLE>
<CAPTION>
Shares of
7.25%
Shares Cumulative Shares of
of Senior Shares of $2.625
Common Perpetual $2.28 Cumulative
Shares Stock Convertible Cumulative Convertible
of Common in Preferred Preferred Preferred Common Treasury
Stock Treasury Stock Stock Stock Stock Stock
---------- -------- ----------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 25,651,722 - 400,000 1,400,000 - $2,565 $ -
Net income for the six
months ended June 30,
1994...................... - - - - - - -
Stock options exercised.... 69,251 - - - - 7 -
Treasury stock, at cost.... (25,016) 25,016 - - - - (788)
Issuance of $2.625
Cumulative Convertible
Preferred Stock........... - - - - 2,760,000 - -
Dividends declared on
Common Stock.............. - - - - - - -
Dividends declared on
7.25% Cumulative Senior
Perpetual Convertible
Preferred Stock........... - - - - - - -
Dividends declared on $2.28
Cumulative Preferred
Stock.................... - - - - - - -
Dividends declared on
$2.625 Cumulative
Convertible Preferred
Stock..................... - - - - - - -
---------- ------ ------- --------- --------- ------ -----
Balance, at June 30, 1994.. 25,695,957 25,016 400,000 1,400,000 2,760,000 $2,572 $(788)
========== ====== ======= ========= ========= ====== =====
<CAPTION>
7.25%
Cumulative
Senior $2.625
Perpetual $2.28 Cumulative Notes Total
Convertible Cumulative Convertible Additional Receivable Stock-
Preferred Preferred Preferred Paid-In from Key Retained holders'
Stock Stock Stock Capital Employees Earnings Equity
----------- ---------- ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... $ 40 $ 140 $ - $204,176 $(1,985) $107,933 $312,869
Net income for the six
months ended June 30,
1994...................... - - - - - 1,192 1,192
Stock options exercised.... - - - 602 (282) - 327
Treasury stock, at cost.... - - - - 788 - -
Issuance of $2.625
Cumulative Convertible
Preferred Stock........... - - 276 132,455 - - 132,731
Dividends declared on
Common Stock.............. - - - - - (2,569) (2,569)
Dividends declared on
7.25% Cumulative Senior
Perpetual Convertible
Preferred Stock........... - - - - - (1,450) (1,450)
Dividends declared on $2.28
Cumulative Preferred
Stock.................... - - - - - (1,596) (1,596)
Dividends declared on
$2.625 Cumulative
Convertible Preferred
Stock..................... - - - - - (3,403) (3,403)
----- ----- ------ -------- ------- -------- --------
Balance, at June 30, 1994.. $ 40 $ 140 $ 276 $337,233 $(1,479) $100,107 $438,101
===== ===== ====== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
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 June 30, 1994 and for the
quarters and six months ended June 30, 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 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
periods on the 7.25% Cumulative Senior Perpetual Convertible Preferred Stock,
$2.28 Cumulative Preferred Stock and $2.625 Cumulative Convertible Preferred
Stock. The computation of fully diluted earnings per share of common stock for
the quarters and six months ended June 30, 1994 and 1993 was antidilutive,
therefore, only primary earnings per share of common stock is presented.
Supplementary Cash Flow Information
- - ------------------------------------
Interest paid for the six months ended June 30, 1994 and 1993 was
approximately $14.8 million and $5.5 million, respectively.
Income taxes paid during the six months ended June 30, 1993 were approximately
$4.1 million. No income taxes were paid during the six months ended June 30,
1994.
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. Pursuant to the Registration, on February 28, 1994,
the Company sold 2,760,000 shares of $2.625 Convertible Preferred Stock for
net proceeds of $132.7 million, which have been used to repay
9
<PAGE>
a portion of the debt incurred under 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 con-taining 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, which have subsequently been consolidated, were 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
10
<PAGE>
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 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.
Mountain Gas
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.
On July 28, 1994, the Company and its wholly-owned subsidiary Mountain Gas
filed a complaint in United States District Court, Denver, Colorado against
Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Leveraged Equity
Fund II, Inc., Morgan Stanley & Co., Incorporated and certain former directors
and officers of Mountain Gas seeking money damages. The complaint alleges
certain acts and omissions that violated federal and state securities laws
11
<PAGE>
by the defendants in connection with the Company's July 1993 purchase of the
stock of Mountain Gas from Morgan Stanley Leveraged Equity Fund II, L.P. The
acts and omissions set forth in the complaint relate primarily to defendants'
failure to disclose adequately the nature and scope of the dispute between
Mountain Gas and Washington Energy. In addition, the Company and Mountain Gas
have raised fraud, misrepresentation and breach of contract claims against
certain of the defendants.
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 and the related underground
reservoir ("Katy"). The County Court appointed panels of Special Commissioners
which awarded compensation to the owners whose rights were condemned.
Condemnation awards are a capital cost of the Katy project.
A majority of the land and mineral owners involved in the condemnation
proceedings appealed to County Court, seeking a declaration that Storage did
not possess the right to condemn, or, in the alternative, that they should be
awarded more compensation than previously awarded by the Special
Commissioners. In all but one of those appeals, the right to condemn issue has
been resolved in favor of Storage although factual issues in individual cases
remain open as to whether that right was exercised properly.
On August 10, 1994, in the only appeal in which the compensation issue has been
determined, a jury awarded a landowner adjacent to the 82 acre site where the
compression facilities are located a total of $214,000 for storage rights and
damages to property not taken. The special commissioners has previously awarded
this landowner a total of approximately $2,000. The Company does not believe
that this jury verdict is representative of what will occur in subsequent
trials, although there is no assurance of this. In addition, the Company
believes that several reversible errors were committed at trial and it intends
to appeal the award.
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
<PAGE>
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 and six months ended June 30, 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.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
% %
1994 1993 Change 1994 1993 Change
--------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial results ($000s
except per share amounts):
Revenues........................ $244,470 $173,846 40.6 $520,174 $367,324 41.6
Gross profit.................... 15,970 20,971 (23.8) 33,681 44,993 (25.1)
Net income...................... 181 8,464 (97.9) 1,192 18,580 (93.6)
Earnings per share of common
stock........................ (.12) .27 - (.17) .61 -
Net cash provided by (used in)
operating activities.......... (1,638) 19,886 - 20,481 67,504 (69.7)
Operating data:
Average gas sales (MMcf/D)...... 956.4 456.2 109.6 979.1 504.6 94.0
Average NGL sales (MGal/D)...... 2,988.1 2,669.4 11.9 2,999.0 2,725.0 10.1
Average gas prices ($/Mcf)...... $ 1.81 $ 2.02 (10.4) $ 1.97 $ 1.97 -
Average NGL prices ($/Gal)...... $ .27 $ .33 (18.2) $ .27 $ .34 (20.6)
</TABLE>
Net income decreased $8.3 million and $17.4 million, respectively, and net cash
provided by operating activities decreased $21.5 million and $47.0 million,
respectively, for the quarter and six months ended June 30, 1994 compared to the
same periods in 1993. Overall, throughput and sales volumes at the Company's
existing facilities have remained comparable to historical levels. The Company's
decrease in net income and net cash provided by operating activities is
primarily attributable to a decline in NGL and residue gas prices and higher
interest and depreciation costs associated with Katy and the Company's 1993
acquisitions. In addition, no significant revenues from Katy are expected to
offset the related interest, depreciation and operating costs until the upcoming
winter heating season. The aforementioned items are discussed in further detail
below.
Revenues from the sale of residue gas increased approximately $72.2 million
for the quarter ended June 30, 1994 compared to the same period in 1993 due to
an increase in sales volumes of approximately 500 MMcf per day. This volume
increase was somewhat offset by a decrease in average residue gas sales prices
of $.21 per Mcf. Of the volume increase, approximately 390 MMcf per day is
13
<PAGE>
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 ("Citizens") in July 1993. 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, new well connect activity
and consolidations with smaller gathering systems.
Revenues from the sale of residue gas increased approximately $165.5 million
for the six months ended June 30, 1994 compared to the same period in 1993 due
to an increase in sales volumes of approximately 475 MMcf per day. Average
residue gas sales prices remained constant at $1.97 per Mcf for the six months
ended June 30, 1994 when compared to the same period in 1993. Of the volume
increase, approximately 370 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. 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, new well connect activity
and consolidations with smaller gathering systems.
Revenues from the sale of NGLs decreased approximately $5.2 million for the
quarter ended June 30, 1994 compared to the same period in 1993 due to a $.06
per gallon decrease in the average NGL sales price. This price decrease
offset an increase in NGL sales volumes of approximately 320 MGal per day. Of
the volume increase, approximately 225 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 acquisition of Mountain Gas
and Black Lake, new well connect activity and consolidations with smaller
gathering systems.
Revenues from the sale of NGLs decreased approximately $20.0 million for the
six months ended June 30, 1994 compared to the same period in 1993 due to a
$.07 per gallon decrease in the average NGL sales price. This price decrease
offset an increase in NGL sales volumes of approximately 275 MGal per day. Of
the volume increase, approximately 170 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 acquisition of Mountain Gas
and Black Lake, new well connect activity and consolidations with smaller
gathering systems. This volume increase 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.
Processing and transportation revenues increased approximately $3.4 million
and $6.0 million, respectively, for the quarter and six months ended June 30,
1994 compared to the same periods in 1993 due to additional gathering revenue
associated with the Company's
14
<PAGE>
Granger gathering system acquired in the Mountain Gas acquisition in July
1993.
Historically, product purchases as a percentage of residue gas and NGL sales
from the Company's plant production approximates 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 84% for the quarter and six months ended June 30, 1994 compared to the
same periods in 1993.
Plant operating expense increased approximately $1.7 million and $5.1 million,
respectively, for the quarter and six months ended June 30, 1994 compared to
the same periods in 1993. This increase was primarily due to the additional
operating costs associated with three gas processing facilities acquired from
Mountain Gas and Black Lake in July 1993, and Katy, which commenced operations
in January 1994. This increase was somewhat offset by the Company's
contribution of the Chester facility to the Westana joint venture in August
1993, the net operating results of which are reported in other revenue.
Selling and administrative expense increased approximately $3.1 million and
$4.2 million, respectively, for the quarter and six months ended June 30, 1994
compared to the same periods in 1993 primarily due to administrative expenses
necessitated by the 1993 acquisitions and overall increased insurance
expenditures.
Depreciation, depletion and amortization expense increased approximately $8.3
million and $17.6 million, respectively, for the quarter and six months ended
June 30, 1994 compared to the same periods in 1993. This increase is
primarily due to the acquisition of Mountain Gas and Black Lake in July 1993
and Katy, which commenced operations in January 1994.
Interest expense increased approximately $4.3 million and $10.1 million,
respectively, for the quarter and six months ended June 30, 1994 compared to
the same periods in 1993, primarily due to additional borrowings related to
the Mountain Gas and Black Lake acquisitions and completion of Katy, a related
reduction in the amount of interest capitalized to the Katy project and an
increase in the Company's variable borrowing rate.
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
15
<PAGE>
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 six months ended June 30, 1994, the Company's total sources of funds
aggregated $164.8 million and was comprised of net proceeds from the issuance
of the $2.625 Convertible Preferred Stock of $132.7 million, net cash provided
by operating activities of $20.5 million, net proceeds received from the
disposition of property and equipment of $10.5 million (including an
approximate $500,000 net loss on the sale of the Company's Sligo facility
which closed in May 1994), net proceeds received from the exercise of common
stock options of $609,000 and net repayment of notes receivable from key
employees of $506,000. During the same period, the Company's use of such
funds aggregated $150.8 million which were used primarily to make payments of
$99.0 million under its revolving credit facility, to make capital investments
of $43.8 million, to pay dividends to holders of 7.25% Convertible Preferred
Stock, $2.28 Cumulative Preferred Stock and $2.625 Convertible Preferred Stock
of $4.6 million, to pay dividends to holders of Common Stock of $2.6 million
and to acquire treasury stock for $788,000.
On November 12, 1993, the Company's Registration Statement (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 four million shares of common
stock. Pursuant to the Registration, on February 28, 1994, the Company sold
2,760,000 shares of $2.625 Cumulative Convertible Preferred Stock for net
proceeds of $132.7 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. On July 26, 1994 the Company filed a
Registration Statement on Form S-3 (Registration No. 33-54741) which provides
for the sale of up to $138 million of debt securities and preferred stock.
This Registration Statement has not been declared effective as of the date of
this filing. The amount provided for in this filing, in addition to the
unused portion of the previous filing, allows for the sale of up to a total of
$200 million of debt securities and preferred stock and up to four million
shares of common stock.
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
16
<PAGE>
supply for long-term sales contracts and for resale during periods of
favorable prices. At June 30, 1994, the Company held in storage approximately
12.6 million gallons of NGLs at an average cost of $.27 per gallon and
approximately 17.5 Bcf of residue gas (of which 14.2 Bcf is stored at Katy) at
an average cost of $2.21 per Mcf ($1.96 per MMbtu).
From time to time, the Company contracts on the futures market for the
purchase and/or sale of residue gas and NGL products as a hedge against
price changes. At June 30, 1994, 1,057 net contracts (10,000 MMbtus per
contract) for the sale of residue gas in August 1994 through July 1995 at
prices ranging from $1.94 per Mcf to $2.56 per Mcf were outstanding. At June
30, 1994, no such contracts for NGLs were outstanding.
Capital Investment Program
The Company anticipates spending approximately $90 million in 1994 for
maintenance capital, new well connections, the completion of the Katy project
and small consolidating acquisitions. Through June 30, 1994 approximately
$43.8 million has been expended.
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 $248 million was outstanding at June 30, 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 June 30, 1994, the spread was 1.0% for the Eurodollar
rate resulting in an interest rate of 6.0% at June 30, 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 six months ended June 30, 1994, the Company's
earnings ratio was approximately 2.07 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 of the Company exceeds
four times the sum of the Company's last four
17
<PAGE>
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. At June 30, 1994,
the Company's funded debt was $49.2 million (or, $30.5 million after the
application of available cash) in excess of the limitations provided for in
the loan agreement. The Company is negotiating an amendment to its Revolving
Credit and Term Loan Facilities which is anticipated to be completed by August
31, 1994. Under the terms of the amended agreement, the Company will have
additional availability under the mandatory prepayment limitation, and,
repayment according to the foregoing schedule would not be required.
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 June 30, 1994, this threshold amounted to $88.9 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 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.
18
<PAGE>
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 June 30, 1994, the Company was in compliance with all
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.
19
<PAGE>
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.
<TABLE>
<CAPTION>
Average for Six Months Ended
June 30, 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)
- - ------------------------- ----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Southern Region:
Texas
Midkiff and Benedum............ 1955 1,919 135 118.4 75.9 764.7
Giddings Gathering System...... 1979 628 80 75.6 65.8 118.8
Edgewood(5).................... 1964 85 65 33.7 15.5 77.3
Perkins and Noel............... 1975 2,534 55 22.8 12.2 148.3
Walnut Bend.................... 1978 402 8 3.6 1.6 20.5
Katy(7)........................ 1994 - - - - -
Mid-Continent Region:
Louisiana
Black Lake(8).................. 1966 55 180 77.7 57.7 131.4
Toca(6)(9)..................... 1958 - 160 97.1 - 62.8
Pointe a la Hache(6)(14)....... 1962 - 20 - - -
Cox Bay(6)(14)................. 1962 - 20 - - -
Oklahoma
Chaney Dell/Lamont............. 1966 1,994 158 96.7 70.8 317.2
Westana........................ 1986 239 37 63.3 57.5 54.2
Rocky Mountain Region:
Wyoming
Granger(9)(10)................. 1987 216 230 146.1 139.5 115.4
Red Desert(10)................. 1979 102 40 33.2 30.0 47.1
Lincoln Road................... 1988 144 50 49.4 45.8 44.4
Hilight Complex(9)(11)......... 1969 589 80 19.6 12.8 97.1
Amos Draw...................... 1983 79 30 6.1 4.9 19.9
Kitty(9)....................... 1969 225 17 7.0 4.6 37.0
Newcastle(9)................... 1981 141 5 2.6 1.7 18.8
Reno Junction(12).............. 1991 - - - - 31.9
New Mexico
San Juan River(5).............. 1955 122 60 24.3 20.9 .4
North Dakota
Williston(5)(9)(13)............ 1981 381 - 12.3 9.3 32.2
Temple(5)...................... 1984 65 7 3.1 2.0 10.1
Teddy Roosevelt(5)(9)(13)...... 1979 236 - 2.3 1.1 9.7
Alexander Gathering System(13). 1984 96 - 1.2 1.0 5.6
Utah
Four Corners................... 1988 95 15 4.9 4.0 10.8
Montana
Baker(5)(9).................... 1981 8 3 1.5 1.0 11.2
------ ----- ----- ----- -------
Total........................ 10,355 1,455 902.5 635.6 2,186.8
====== ===== ===== ===== =======
</TABLE>
- - -------------
Footnotes on following page
20
<PAGE>
(1) The Company's interest in all facilities is 100% except for Midkiff and
Benedum (76%); 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 June
30, 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) Acquired in the Mountain Gas acquisition.
(11) Includes production volumes from the Hartzog and Spearhead Ranch
facilities.
(12) NGL production represents conversion of third-party feedstock to iso-
butane.
(13) Processing facility was shut-in during August 1993. The gas dedicated to
these facilities is processed by a third-party under a contractual
arrangement.
(14) Temporarily shut-in during 1993.
21
<PAGE>
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, which have subsequently been consolidated, were 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 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.
22
<PAGE>
Mountain Gas
On December 6, 1993, Green River Gathering Company ("Green River") and
Mountain Gas Resources, Inc. ("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.
On July 28, 1994, the Company and its wholly-owned subsidiary Mountain Gas
filed a complaint in United States District Court, Denver, Colorado against
Morgan Stanley Leveraged Equity Fund II, L.P., Morgan Stanley Leveraged Equity
Fund II, Inc., Morgan Stanley & Co., Incorporated and certain former directors
and officers of Mountain Gas seeking money damages. The complaint alleges
certain acts and omissions that violated federal and state securities laws by
the defendants in connection with the Company's July 1993 purchase of the
stock of Mountain Gas from Morgan Stanley Leveraged Equity Fund II, L.P. The
acts and omissions set forth in the complaint relate primarily to defendants'
failure to disclose adequately the nature and scope of the dispute between
Mountain Gas and Washington Energy. In addition, the Company and Mountain Gas
have raised fraud, misrepresentation and breach of contract claims against
certain of the defendants.
23
<PAGE>
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 and the related underground
reservoir ("Katy"). The County Court appointed panels of Special Commissioners
which awarded compensation to the owners whose rights were condemned.
Condemnation awards are a capital cost of the Katy project.
A majority of the land and mineral owners involved in the condemnation
proceedings appealed to County Court, seeking a declaration that Storage did
not possess the right to condemn, or, in the alternative, that they should be
awarded more compensation than previously awarded by the Special
Commissioners. In all but one of those appeals, the right to condemn issue
has been resolved in favor of Storage although factual issues in individual
cases remain open as to whether that right was exercised properly.
On August 10, 1994, in the only appeal in which the compensation issue has been
determined, a jury awarded a landowner adjacent to the 82 acre site where the
compression facilities are located a total of $214,000 for storage rights and
damages to property not taken. The Special Commissioners had previously awarded
this landowner a total of approximately $2,000. The Company does not believe
that this jury verdict is representative of what will occur in subsequent
trials, although there is no assurance of this. In addition, the Company
believes that several reversible errors were committed at trial and it intends
to appeal the award.
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.
24
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- - --------------------------------
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None
25
<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.
WESTERN GAS RESOURCES, INC.
---------------------------
Registrant
Date: August 12, 1994 By: /s/ BILL M. SANDERSON
-------------------------
Bill M. Sanderson
President and Chief
Operating Officer
Date: August 12, 1994 By: /s/ WILLIAM J. KRYSIAK
-----------------------
William J. Krysiak
Vice President - Controller
(Principal Financial and
Accounting Officer)
26
