<PAGE>
================================================================================
UNITED STATES 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, 1996 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
----- -----
On August 1, 1996, there were 25,776,187 shares of the registrant's Common Stock
outstanding.
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1
<PAGE>
WESTERN GAS RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
<S> <C> <C>
Consolidated Balance Sheet - June 30, 1996 and December 31, 1995............ 3
Consolidated Statement of Cash Flows - Six months ended June 30, 1996
and 1995.................................................................... 4
Consolidated Statement of Operations - Three and Six months ended
June 30, 1996 and 1995...................................................... 5
Consolidated Statement of Changes in Stockholders' Equity - Six months ended
June 30, 1996............................................................... 6
Notes to Consolidated Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 8
PART II - Other Information
- -----------------------------
Item 1. Legal Proceedings........................................................... 16
Item 6. Exhibits and Reports on Form 8-K............................................ 17
Signatures............................................................................. 18
</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,
1996 1995
----------- -------------
ASSETS (Unaudited)
-----------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 21,221 $ 5,795
Trade accounts receivable, net............................................... 188,849 204,426
Product inventory............................................................ 13,481 28,154
Parts inventory.............................................................. 2,224 2,427
Other........................................................................ 3,098 1,524
---------- ----------
Total current assets........................................................ 228,873 242,326
---------- ----------
Property and equipment:
Gas gathering, processing, storage and transmission.......................... 901,375 882,801
Oil and gas properties and equipment......................................... 142,919 140,691
Construction in progress..................................................... 25,941 26,314
---------- ----------
1,070,235 1,049,806
Less: Accumulated depreciation, depletion and amortization.................. (227,212) (200,203)
---------- ----------
Total property and equipment, net........................................... 843,023 849,603
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $21,798 and
$19,273, respectively)...................................................... 51,733 54,637
Other........................................................................ 43,623 47,431
---------- ----------
Total other assets.......................................................... 95,356 102,068
---------- ----------
Total assets.................................................................. $1,167,252 $1,193,997
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 222,067 $ 199,513
Short-term debt.............................................................. 75,000 75,000
Accrued expenses............................................................. 24,182 19,204
Dividends payable............................................................ 3,898 3,898
---------- ----------
Total current liabilities.................................................. 325,147 297,615
Long-term debt................................................................ 385,000 454,500
Deferred income taxes payable................................................. 77,296 69,973
---------- ----------
Total liabilities........................................................... 787,443 822,088
---------- ----------
Commitments and contingent liabilities........................................ - -
Stockholders' equity:
Preferred Stock, par value $.10; 10,000,000 shares authorized:
$2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding
($35,000 aggregate liquidation preference)................................. 140 140
$2.625 cumulative convertible preferred stock; 2,760,000 shares issued and
outstanding ($138,000 aggregate liquidation preference).................... 276 276
Common stock, par value $.10; 100,000,000 shares authorized; 25,800,633 and
25,794,728 shares issued, respectively...................................... 2,580 2,580
Additional paid-in capital................................................... 301,271 301,234
Retained earnings............................................................ 78,216 70,348
Treasury stock, at cost, 25,016 shares in treasury........................... (788) (788)
Notes receivable from key employees secured by common stock.................. (1,886) (1,881)
---------- ----------
Total stockholders' equity.................................................. 379,809 371,909
---------- ----------
Total liabilities and stockholders' equity.................................... $1,167,252 $1,193,997
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(000s)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income.................................................................... $ 15,665 $ 1,538
Add income items that do not affect working capital:
Depreciation, depletion and amortization..................................... 31,425 33,915
Deferred income taxes........................................................ 7,323 530
Gain on the sale of property and equipment................................... (2,113) -
Distributions in excess of equity income, net................................ 3,224 40
Other non-cash items......................................................... 461 29
--------- ---------
55,985 36,052
Adjustments to working capital to arrive at net cash provided by
operating activities:
Decrease in trade accounts receivable........................................ 15,577 10,391
Decrease in product inventory................................................ 14,673 12,612
Decrease (increase) in parts inventory....................................... 203 (101)
Increase in other current assets............................................. (1,439) (1,723)
Decrease in other assets and liabilities, net................................ 71 188
Increase (decrease) in accounts payable...................................... 22,554 (1,798)
Increase in accrued expenses................................................. 4,628 9,629
Decrease in income taxes payable............................................. - (520)
--------- ---------
Total adjustments........................................................... 56,267 28,678
--------- ---------
Net cash provided by operating activities..................................... 112,252 64,730
--------- ---------
Cash flows from investing activities:
Payments for business acquisitions........................................... (159) (39)
Payments for additions to property and equipment............................. (22,022) (26,945)
Proceeds from the dispositions of property and equipment..................... 3,394 6,260
Contributions to equity investees............................................ (317) (5,847)
Gas purchase contracts acquired.............................................. - (2,641)
--------- ---------
Net cash used in investing activities......................................... (19,104) (29,212)
--------- ---------
Cash flows from financing activities:
Net proceeds from exercise of common stock options........................... 27 90
Debt issue costs paid........................................................ (452) (411)
Payments on revolving credit facility........................................ (485,400) (211,300)
Borrowings under revolving credit facility................................... 415,900 225,300
Dividends paid to holders of common stock.................................... (2,577) (2,573)
Dividends paid to holders of preferred stock................................. (5,220) (6,428)
Redemption of 7.25% Cumulative Senior Perpetual Convertible Preferred Stock.. - (42,030)
--------- ---------
Net cash used in financing activities......................................... (77,722) (37,352)
--------- ---------
Net increase (decrease) in cash and cash equivalents.......................... 15,426 (1,834)
Cash and cash equivalents at beginning of period.............................. 5,795 8,708
--------- ---------
Cash and cash equivalents at end of period.................................... $ 21,221 $ 6,874
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sale of residue gas................................. $ 316,160 $ 212,011 $ 663,667 $ 420,000
Sale of natural gas liquids......................... 113,897 79,517 233,575 163,768
Processing, transportation and storage revenue...... 10,560 10,869 21,774 21,422
Other, net.......................................... 5,606 2,011 7,921 2,919
----------- ----------- ----------- -----------
Total revenues..................................... 446,223 304,408 926,937 608,109
----------- ----------- ----------- -----------
Costs and expenses:
Product purchases................................... 388,572 251,943 800,695 500,256
Plant operating expense............................. 16,438 16,825 35,035 35,004
Oil and gas exploration and production expense...... 1,421 1,258 2,530 2,819
Selling and administrative expense.................. 7,412 7,019 15,137 13,538
Depreciation, depletion and amortization............ 15,763 16,711 31,425 33,915
Interest expense.................................... 8,695 9,223 18,149 18,091
Restructuring charges............................... - 2,065 - 2,065
----------- ----------- ----------- -----------
Total costs and expenses........................... 438,301 305,044 902,971 605,688
----------- ----------- ----------- -----------
Income (loss) before taxes........................... 7,922 (636) 23,966 2,421
Provision (benefit) for income taxes:
Current............................................. (153) (144) 978 353
Deferred............................................ 2,643 (89) 7,323 530
----------- ----------- ----------- -----------
2,490 (233) 8,301 883
----------- ----------- ----------- -----------
Net income (loss).................................... 5,432 (403) 15,665 1,538
Preferred stock requirements......................... (2,610) (6,876) (5,220) (10,210)
----------- ----------- ----------- -----------
Income (loss) attributable to common stock........... $ 2,822 $ (7,279) $ 10,445 $ (8,672)
=========== =========== =========== ===========
Income (loss) per share of common stock.............. $.11 $(.28) $.41 $(.34)
=========== =========== =========== ===========
Weighted average shares of common stock outstanding.. 25,774,538 25,752,832 25,773,233 25,745,305
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(000s, except share amounts)
<TABLE>
<CAPTION>
Shares of
Shares of $2.625 $2.625
$2.28 Cumulative Shares $2.28 Cumulative
Cumulative Convertible Shares of Common Cumulative Convertible
Preferred Preferred of Common Stock Preferred Preferred
Stock Stock Stock in Treasury Stock Stock
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,400,000 2,760,000 25,769,712 25,016 $ 140 $ 276
Net income............................. - - - - - -
Stock options exercised................ - - 5,905 - - -
Dividends declared on common stock..... - - - - - -
Dividends declared on $2.28 cumulative
preferred stock...................... - - - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock.......... - - - - - -
--------- --------- ---------- ---------- --------- --------
Balance at June 30, 1996 1,400,000 2,760,000 25,775,617 25,016 $ 140 $ 276
========= ========= ========== ========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Notes Total
Additional Receivable Stock-
Common Paid-in Retained Treasury From Key holders'
Stock Capital Earnings Stock Employees Equity
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 2,580 $ 301,234 $ 70,348 $ (788) $ (1,881) $371,909
Net income............................. - - 15,665 - - 15,665
Stock options exercised................ - 37 - - (5) 32
Dividends declared on common stock..... - - (2,577) - - (2,577)
Dividends declared on $2.28 cumulative
preferred stock...................... - - (1,597) - - (1,597)
Dividends declared on $2.625 cumulative
convertible preferred stock.......... - - (3,623) - - (3,623)
--------- --------- ---------- ---------- --------- --------
Balance at June 30, 1996 $ 2,580 $ 301,271 $ 78,216 $ (788) $ (1,886) $379,809
========= ========= ========== ========== ========= ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GENERAL
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, 1995. The
interim consolidated financial statements as of June 30, 1996 and for the
three and six month periods ended June 30, 1996 and 1995 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 year amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1996.
ASSET SALE
In May of 1996, the Company sold its Temple facility for $2.3 million which
resulted in the recognition of a pre-tax gain of $1.9 million, net of a $400,000
reclamation reserve. The carrying value of the Temple facility had been reduced
to zero in connection with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of," during the year ended December 31,
1995.
RESTRUCTURING CHARGES
In May 1995, the Company implemented a cost reduction program to reduce
operating and selling and administrative expenses. As a result of this
program, a $2.1 million restructuring charge was incurred, primarily related to
employee severance costs. This cost reduction program has not affected
adversely the overall operations of the Company.
EARNINGS PER SHARE OF COMMON STOCK
Earnings (loss) per share of common stock is computed by dividing net income
(loss) attributable to shares of common stock by the weighted average number of
shares of common stock outstanding. Net income (loss) attributable to shares of
common stock is net income less preferred stock requirements. The Company
declared preferred stock dividends of $2.6 million and $5.2 million for the
three and six month periods ended June 30, 1996, respectively, and $3.1 million
and $6.4 million for the three and six month periods ended June 30, 1995,
respectively. In addition, 1995 net loss attributable to common stock was
reduced by the $2.0 million redemption premium and up-front cost of $1.8 million
paid on the 7.25% Cumulative Senior Perpetual Convertible Preferred Stock. The
computation of fully diluted earnings per share of common stock for the three
and six month periods ended June 30, 1996 and 1995 was not dilutive; therefore,
only primary earnings per share of common stock is presented.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was $19.0 million and $18.7 million, respectively, for the six
months ended June 30, 1996 and 1995.
Income taxes paid were $4.2 million and $1.6 million, respectively, for the six
months ended June 30, 1996 and 1995.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," with an effective date for fiscal
years beginning after December 15, 1995. As permitted under SFAS No. 123, the
Company has elected to continue to measure compensation costs for stock-based
employee compensation plans as prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." The Company will comply
with the pro forma disclosure requirements of SFAS No. 123 in 1996 as required
under the pronouncement.
LEGAL PROCEEDINGS
Reference is made to Item 1. Legal Proceedings, of Part II, Other Information,
of this Form 10-Q.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis relates to factors which have affected the
consolidated financial condition and results of operations of the Company for
the three and six month periods ended June 30, 1996 and 1995. Certain prior
year amounts have been reclassified to conform to the presentation used in 1996.
Reference should also be made to the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this document.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1995 (000s, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ Percent ---------------- Percent
1996 1995 Change 1996 1995 Change
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS:
Revenues................................. $446,223 $304,408 47 $926,937 $608,109 52
Gross profit............................. 24,029 17,671 36 57,252 36,115 59
Net income (loss)........................ 5,432 (403) - 15,665 1,538 919
Income (loss) per share of common stock.. .11 (.28) - .41 (.34) -
Net cash provided by operating
activities............................. $ 38,402 $ 25,971 48 $112,252 $ 64,730 73
OPERATING DATA:
Average gas sales (MMcf/D)............... 1,698 1,569 8 1,778 1,573 13
Average NGL sales (MGal/D)............... 3,420 2,759 24 3,545 2,885 23
Average gas prices ($/Mcf)............... $ 2.05 $ 1.49 38 $ 2.06 $ 1.47 40
Average NGL prices ($/Gal)............... $ .36 $ .31 16 $ .36 $ .31 16
</TABLE>
Net income increased $5.8 million and net cash provided by operating activities
increased $12.4 million for the quarter ended June 30, 1996 compared to the same
period in 1995. Net income increased $14.1 million and net cash provided by
operating activities increased $47.5 million for the six months ended June 30,
1996 compared to the same prior period. The increases in net income for the two
periods were primarily due to higher residue gas and NGL volumes and prices.
Revenues from the sale of residue gas increased approximately $104.1 million for
the quarter ended June 30, 1996 compared to the same period in 1995. Average
gas sales volumes increased 129 MMcf per day to 1,698 MMcf per day for the
quarter ended June 30, 1996 compared to the same period in 1995, largely as a
result of an increase of approximately 160 MMcf per day in the sale of residue
gas purchased from third-parties, partially offset by decreased sales at the
Company's facilities. Average gas prices increased $.56 per Mcf to $2.05 per
Mcf for the quarter ended June 30, 1996 compared to the same period in 1995.
Revenues from the sale of residue gas increased approximately $243.7 million for
the six months ended June 30, 1996 compared to the same period in 1995. Average
gas sales volumes increased 205 MMcf per day to 1,778 MMcf per day for the six
months ended June 30, 1996 compared to the same period in 1995, due to an
increase of approximately 230 MMcf per day in the sale of residue gas purchased
from third-parties, partially offset by decreased sales at the Company's
facilities. Average gas prices increased $.59 per Mcf to $2.06 per Mcf for the
six months ended June 30, 1996 compared to the same period in 1995. The effect
of the increase in residue gas prices on the Company's net margin from equity
production was partially offset by approximately $2.4 million and $11.3 million,
respectively, of loss recognized in the three and six month periods ended June
30, 1996 related to futures positions. The hedging positions resulted in equity
gas being sold at levels in excess of the Company's budget. See further
discussion in "Liquidity and Capital Resources - Hedging."
Revenues from the sale of NGLs increased approximately $34.4 million for the
quarter ended June 30, 1996 compared to 1995. Average NGL sales volumes
increased 661 MGal per day to 3,420 MGal per day, primarily due to an
approximate 600 MGal per day increase in the sale of NGLs purchased from third-
parties and increased production at the Company's facilities mainly resulting
from ethane production at the Granger facility. Average NGL prices increased
$.05 per gallon to $.36 per gallon for the quarter ended June 30, 1996 compared
to 1995. Revenues from the sale of NGLs increased approximately $69.8 million
for the six months ended June 30, 1996 compared to 1995. Average NGL sales
volumes increased 660 MGal per day to 3,545 MGal per day, primarily due to an
approximate 500 MGal per day increase in the sale of NGLs purchased from third-
parties for this same period and increased production at the
8
<PAGE>
Company's facilities mainly resulting from ethane production at the Granger
facility. Average NGL prices increased $.05 per gallon to $.36 per gallon for
the six months ended June 30, 1996 compared to 1995. The effect of the increase
in NGL prices on the Company's net margin from equity production was partially
offset by approximately $2.5 million of loss recognized primarily in the three
month period ended June 30, 1996 related to futures positions. The hedging
positions resulted in equity NGL production being sold at levels in excess of
the Company's budget. See further discussion in "Liquidity and Capital
Resources - Hedging."
Other net revenue increased $3.6 million and $5.0 million for the three and six
months ended June 30, 1996 compared to the same periods in 1995. The increases
are primarily due to a $1.9 million gain recognized on the sale of the Temple
facility and recognition of $1.2 million of revenue associated with electric
power marketing for both periods. Also, partnership income increased $514,000
and $1.4 million, respectively, for the three and six months ended June 30,
1996.
The increase in product purchases corresponds to the increase in third-party
product sales. Combined product purchases as a percentage of residue gas and
NGL sales increased four percentage points to 90% and three percentage points to
89% for the three and six months ended June 30, 1996, respectively, as compared
to 1995. The increased product purchase percentage is a continuing trend based
upon the growth of third-party sales, which typically have lower margins than
sales of the Company's equity production. Until recently, the Company had
experienced narrowing margins related to third-party sales due to the increasing
availability of pricing information in the natural gas industry. The Company
believes, by targeting end-use markets, these margins will continue to
stabilize. These sales are highly competitive and there is no assurance that
the Company will be able to expand its current end-use business.
Selling and administrative expense increased $393,000 and $1.6 million for the
three and six months ended June 30, 1996, respectively, primarily as a result of
growth in the Company's marketing operations and higher benefit accruals.
Depreciation, depletion and amortization decreased $948,000 and $2.5 million
for the three and six months ended June 30, 1996 compared to the prior
corresponding periods. The decrease was attributable to decreases in production
related to the Company's oil and gas properties which resulted in lower
depletion expense. In addition, the Company recorded a $17.6 million write-down
of certain oil and gas assets and plant facilities in the fourth quarter of 1995
in connection with its adoption of Statement of Financial Accounting Standards
No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The lower asset values contributed to the reduction
in depreciation, depletion and amortization expense for the 1996 three and six
month periods. These decreases were partially offset by increases related to
property additions, primarily the Northern acquisition in December 1995.
The provision for income taxes for the three and six months ended June 30, 1996
increased $2.7 million and $7.4 million, respectively, primarily due to the
increases in pre-tax income for the periods.
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 its needs and finance the growth of the
Company's business. The Company can give no assurance that the historical
sources of liquidity and capital resources will be available for future
development and acquisition projects, and it may be required to investigate
alternative financing sources. Net cash provided by operating activities is
primarily affected by product prices and sales of inventory, the Company's
success in increasing the number and efficiency of its facilities and the
volumes of natural gas processed by such facilities, as well as the margin on
third-party product purchased for resale. The Company's continued growth will
be dependent upon success in the areas of marketing, additions to dedicated
plant reserves, acquisitions and new project development.
The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility, together with cash provided by operating activities,
will provide it with sufficient funds to connect new reserves, maintain its
existing facilities and complete its current capital improvement projects. The
Company also believes that cash provided by operating activities will be
sufficient to meet its debt service and preferred stock dividend requirements in
1996.
9
<PAGE>
The Company's sources and uses of funds for the six months ended June 30, 1996
are summarized as follows (000s):
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
<S> <C>
Borrowings under long-term debt agreements..... $415,900
Net cash provided by operating activities...... 112,252
Other.......................................... 3,421
--------
Total sources of funds....................... $531,573
========
USES OF FUNDS:
Payments related to long-term debt agreements.. $485,852
Capital expenditures........................... 22,498
Payment of preferred stock dividends........... 5,220
Payment of common stock dividends.............. 2,577
--------
Total uses of funds.......................... $516,147
========
</TABLE>
Additional sources of liquidity available to the Company are volumes of residue
gas and NGLs in storage facilities. The Company stores residue gas and NGLs
primarily to ensure an adequate supply for long-term sales contracts and for
resale during periods when prices are favorable. The Company held residue gas
in storage for such purposes of approximately 4.9 Bcf at an average cost of
$1.88 per Mcf at June 30, 1996 as compared to 12.8 Bcf at an average cost of
$1.65 per Mcf at December 31, 1995, primarily at the Katy Facility. At June 30,
1996, the Company had hedging contracts in place for anticipated sales of
approximately 4.0 Bcf of stored gas at a weighted average price of $2.00 per
Mcf. The Company also held NGLs in storage of approximately 14,650 MGal at an
average cost of $.29 per gallon and approximately 11,600 MGal at an average cost
of $.30 per gallon at June 30, 1996 and December 31, 1995, respectively, at
various third-party storage facilities.
The Company has effective shelf registration statements filed with the
Securities and Exchange Commission for an aggregate of: (i) $200 million of
debt securities and preferred stock (along with the shares of common stock, if
any, into which such securities are convertible); (ii) four million shares of
common stock; and (iii) $100 million of debt securities, preferred stock or
common stock.
Hedging
In order to reduce the impact of commodity price fluctuations on its operating
results, the Company enters into futures contracts and basis positions to hedge
a portion of its equity production. The Company has entered into weighted
average futures positions for approximately 60% of its equity residue gas and
45% of its equity NGL production for the remainder of 1996 at prices chosen by
management because they are in excess of the Company's 1996 operating budget.
The following table summarize the Company's hedged equity positions at June 30,
1996:
<TABLE>
<CAPTION>
Residue Gas NGLs
- ------------------------------------------------- -------------------------------------
MMBtu Weighted Average Volumes Weighted Average
Basin Hedged Price (MMBtu)(1) Product Hedged Price(2)
- ------------------ ----------- ----------------- ------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Permian 15,000/D $1.84 Ethane 150 MGal/D $ .20/Gal
Rocky Mountain 800/D 1.50 Propane 170 MGal/D .34/Gal
Gulf Coast 17,400/D 1.91 Butane - -
Mid-Continent 5,800/D $1.81 Crude 3,400 Bbl/D $18.35/Bbl
</TABLE>
(1) This price represents a net price to the producing area which approximates
the Henry Hub price less the basis differential for such basin.
(2) This price approximates a Mt. Belview price for NGLs and a West Texas
Intermediate price for crude oil.
10
<PAGE>
Property and Equipment
In May of 1996, the Company sold its Temple facility for $2.3 million which
resulted in the recognition of a pre-tax gain of $1.9 million, net of a $400,000
reclamation reserve. The carrying value of the Temple facility had been reduced
to zero in connection with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of," during the year ended December 31,
1995.
The Company has experienced unexpected water production in one of the wells at
its Black Lake Field. Management has retained an independent reservoir
engineering firm to perform an evaluation of the reserves. The Company is
currently unable to determine what impact, if any, the independent evaluation
will have upon the estimated reserves of the field.
Capital Investment Program
Capital expenditures related to existing operations are expected to be
approximately $76.1 million during 1996 consisting of the following: capital
expenditures related to gathering, processing and pipeline assets are expected
to be $63.2 million, of which $47.6 million will be used for new connects,
system expansions and asset consolidations and $15.6 million for maintaining
existing facilities. The Company expects capital expenditures on the Katy
Facility, exploration and production activities and miscellaneous items to be
$4.8 million, $3.8 million and $4.3 million, respectively. As of June 30, 1996,
the Company had expended $22.0 million consisting of the following: (i) $12.3
million for new connects, system expansions and asset consolidations; (ii) $3.5
million for maintaining existing facilities; (iii) $2.9 million for exploration
and production activities; (iv) $450,000 related to the Katy Facility; and (v)
$2.9 million of miscellaneous expenditures.
In addition to the $76.1 million of anticipated capital expenditures discussed
above, the Company's current business plan assumes that it will spend $25
million in 1996 on acquisitions, unbudgeted expansion of existing facilities and
projects that complement its current asset base. As of June 30, 1996, no such
expenditures had been made.
The Company continually monitors the economic performance of each of its
operating facilities to ensure that a desired cash flow objective is achieved.
If an operating facility is not generating desired cash flows or does not fit in
with the Company's strategic plans, the Company will explore various options,
such as consolidation with other Company-owned facilities, dismantlement, asset
swap or outright sale.
Depending on the timing of the Company's future projects, it may be required to
seek additional sources of capital. The Company's ability to secure such
capital is restricted by its credit facilities, although it may request
additional borrowing capacity from the banks, seek waivers from the banks to
permit it to borrow funds from third-parties, seek replacement credit facilities
from other lenders, use stock as a currency for an acquisition, issue
additional equity securities, sell existing assets or a combination of such
alternatives. While the Company believes that it would be able to secure
additional financing, if required, no assurance can be given that it will be
able to do so or as to the terms of any such financing.
Financing Facilities
Revolving Credit Facility. The Company's variable rate Revolving Credit
Facility, as restated on September 2, 1994 and subsequently amended, with a
syndicate of eight banks, provides for a maximum borrowing base of $300 million,
of which $68 million was outstanding at June 30, 1996. If the facility is not
renewed, its commitment period will terminate on October 1, 1997. Any
outstanding balance thereunder at such time will convert to a three-year term
loan, which will be payable in 12 equal quarterly installments, commencing
January 1, 1998. The Revolving Credit Facility bears interest, at the Company's
option, at certain spreads over the Eurodollar rate, at the Federal Funds rate
plus .50%, or at the agent bank's prime rate. The interest rate spreads are
adjusted based on the Company's debt to capitalization ratio. At June 30, 1996,
the spread was 1.25% over the Eurodollar rate, resulting in an interest rate of
6.69%.
The Company pays a commitment fee on the unused commitment ranging from .15% to
.375% based on the debt to capitalization ratio. At June 30, 1996, the
Company's debt to capitalization ratio was .56 to 1 resulting in a commitment
fee rate of .375%.
Term Loan Facility. The Company also has a Term Loan Facility with four banks
for $25 million which bears interest at 9.87%. Payments on the Term Loan
Facility of $12.5 million are due in each of September 1996 and September 1997.
The Company intends to finance the $12.5 million payment due in 1996 through
amounts available under the Revolving Credit Facility.
11
<PAGE>
The agreements governing the Company's Revolving Credit and Term Loan Facilities
(the "Credit Facilities Agreement") contain certain mandatory prepayment terms.
If funded debt of the Company, which has a final maturity on or before October
1, 2000, exceeds four times (4.0 to 1.0) the sum of the Company's last four
quarters' cash flow (as defined in the agreement) less preferred stock dividends
projected to be paid during the next four quarters, 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 3.5 to 1.0 at September
1, 1998. At June 30, 1996, taking into account all the covenants contained in
the Credit Facilities Agreement and expected maturities of long-term debt during
1996, the Company had approximately $90 million of available borrowing capacity.
The Term Loan and Revolving Credit Facilities are unsecured. Pursuant to the
Credit Facilities Agreement, the Company is required to maintain a current ratio
(as defined therein) of at least 1.0 to 1.0, a minimum tangible net worth equal
to the sum of $345.0 million plus 50% of consolidated net income earned after
June 30, 1995 plus 75% of the net proceeds received after June 30, 1995 from the
sale of equity securities, a debt to capitalization ratio (as defined therein)
of no more than 60% through October 31, 1996 and 55% thereafter, and an EBITDA
to interest ratio of not less than 3.00 to 1.0 through October 31, 1996, 3.25 to
1.0 from November 1, 1996 through October 31, 1997 and 3.75 to 1.0 thereafter.
The Company is prohibited from declaring or paying dividends on or after
December 31, 1995, that in the aggregate exceed the sum of $10 million plus 50%
of consolidated net income earned after December 31, 1995 plus 50% of the
cumulative net proceeds received by the Company after December 31, 1995 from the
sale of any equity securities. The dividends declared in the fourth quarter of
1995, paid in 1996, are excluded from this calculation. At June 30, 1996, $10
million was available under this limitation, which is sufficient to pay required
preferred stock dividends in 1996. The Company generally utilizes excess daily
funds to reduce any outstanding revolving credit balances and associated
interest expense and it intends to continue such practice. The $21 million cash
balance at June 30, 1996 is due to the timing of cash receipts and the balance
is considered temporary.
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
"Master Notes"). Any such Master Notes will mature in no more than 12 years,
with an average life not in excess of 10 years, and are unsecured. The Master
Shelf contains certain financial covenants which substantially conform with
those contained in the Revolving Credit Facility, as restated and amended. In
July 1993 and July 1995, Prudential and the Company amended the Master Shelf to
provide for additional borrowing capacity (for a total borrowing capacity of
$200 million) and to extend the term of the Master Shelf to October 31, 1995.
The Master Shelf Agreement, as restated and amended, is fully utilized, as
indicated in the following table (000s):
<TABLE>
<CAPTION>
Interest Final
Issue Date Amount Rate Maturity Principal Payments Due
- -------------------- -------- --------- ------------------ -----------------------------------------------
<S> <C> <C> <C> <C>
October 27, 1992 $ 25,000 7.51% October 27, 2000 $8,333 on each of October 27, 1998 through 2000
October 27, 1992 25,000 7.99% October 27, 2003 $8,333 on each of October 27, 2001 through 2003
September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity
December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity
October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity
October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity
July 28, 1995 50,000 7.61% July 28, 2007 $10,000 on each of July 28, 2003 through 2007
--------
$200,000
========
</TABLE>
1993 Senior Notes. On April 28, 1993 the Company sold $50 million of 7.65%
Senior Notes ("1993 Senior Notes") due 2003 to a group of insurance companies.
Annual principal payments of $7.1 million on the 1993 Senior Notes are due on
April 30 of each year from 1997 through 2002, with any remaining principal and
interest outstanding due on April 30, 2003. The 1993 Senior Notes contain
certain financial covenants that substantially conform with those contained in
the Master Shelf Agreement, as restated and amended.
1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a group
of insurance companies in the fourth quarter of 1995, with an interest rate of
8.16% per annum and principal due in a single payment in December 2005. The
1995 Senior Notes contain certain financial covenants that conform with those
contained in the Master Shelf Agreement, as restated and amended.
Receivables Facility. In April 1995, the Company entered into an agreement with
Receivables Capital Corporation ("RCC"), as purchaser, and Bank of America
National Trust and Savings Association ("BA"), as agent, pursuant to which the
Company will sell to RCC at face value on a revolving basis an undivided
interest in certain of the Company's trade receivables. As part of the sale,
the Company granted to RCC a security interest in such receivables. The Company
may sell up to $75 million of trade receivables under the Receivables Facility,
at a rate equal to RCC's commercial paper rate plus .375%, of which $75 million
was funded at a
12
<PAGE>
rate of 5.78% as of June 30, 1996. The Receivables Facility has
a 364-day term and contains financial covenants similar to those in the Credit
Facilities Agreement, as restated and amended, along with certain covenants
regarding the quality of the trade receivables pool. The parties have renewed
the facility through May 29, 1997.
COVENANT COMPLIANCE. At June 30, 1996, the Company was in compliance with all
covenants in its loan agreements.
13
<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 the six months ended
June 30, 1996
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 /Benedum........... 1955 2,074 135 140 94 843
Giddings Gathering System.. 1979 652 80 68 57 92
Edgewood(5)(8)............. 1964 93 65 30 11 79
Perkins.................... 1975 2,565 40 21 12 144
MiVida (5)................. 1972 287 150 55 52 -
Gomez...................... 1971 302 280 164 160 -
Mitchell Puckett........... 1972 86 140 80 79 -
Crockett Gathering System.. 1973 3 - 13 13 -
Rosita Treating System..... 1973 - 60 53 53 -
Katy(6).................... 1994 17 - - - -
Louisiana
Black Lake................. 1966 56 75 37 24 86
Toca(7)(8)................. 1958 - 160 106 - 65
NORTHERN REGION:
Oklahoma
Chaney Dell/Lamont......... 1966 2,008 180 81 62 232
Arkoma..................... 1985 38 8 3 2 -
Westana System(9).......... 1986 252 45 58 53 57
Wyoming
Granger(8)................. 1987 240 210 119 102 309
Red Desert(8).............. 1979 111 42 25 22 41
Lincoln Road(10)........... 1988 146 50 30 28 37
Hilight Complex(5)(8)...... 1969 616 80 35 29 85
Kitty/Amos Draw(8)......... 1969 304 17 11 8 46
Newcastle(8)............... 1981 144 5 2 1 17
Reno Junction(11).......... 1991 - - - - 51
New Mexico
San Juan River(5).......... 1955 126 60 31 28 1
North Dakota
Williston(12).............. 1981 381 - 7 5 25
Temple(13)................. 1984 - - 2 2 7
Teddy Roosevelt(12)........ 1979 332 - 2 2 12
Utah
Four Corners............... 1988 97 15 4 3 8
Montana
Baker(5)(8)................ 1981 8 3 1 1 10
------ ----- ----- --- -----
Total..................... 10,938 1,900 1,178 903 2,247
====== ===== ===== === =====
</TABLE>
- ---------------------------
Footnotes on following page
14
<PAGE>
(1) The Company's interest in all facilities is 100% except for Midkiff/Benedum
(72%); Black Lake (69%); Lincoln Road (72%); Williston (50%); Westana (50%)
and Newcastle (50%). 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,
1996.
(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) Hub and gas storage facility.
(7) Straddle plant (a plant located near a transmission pipeline which
processes gas dedicated to or gathered by the pipeline company or another
third-party).
(8) Fractionation facility (capable of fractionating raw NGLs into end-use
products).
(9) Gas throughput and gas production in excess of gas throughput capacity is
unprocessed gas delivered directly to an unaffiliated pipeline.
(10) Commencing in March 1996, the Company and its joint venture partner at the
Lincoln Road gas plant temporarily suspended processing operations at the
Lincoln Road plant and began processing the related gas at the Company's
Granger facility. If volumes increase substantially beyond Granger's
capacity, the Lincoln Road plant might be re-started. The Company
anticipates that this consolidation will result in lower overall plant
operating expenses for the combined systems.
(11) NGL production represents conversion of third-party feedstock to iso-
butane.
(12) Processing facility has been shut-in since August 1993. The gas dedicated
to these facilities is processed by a third-party under a contractual
arrangement. In January 1996, Koch Hydorcarbon Company, which operates the
Teddy Roosevelt and Williston Gas Company's assets under a lease agreement,
exercised its option to purchase certain gas gathering assets located in
North Dakota from the Company and Williston. The closing of the sale is
expected to occur on or before January 1, 1997.
(13) The Temple facility was sold effective May 1, 1996.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Katy Condemnation
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
of those appeals, the right to condemn issue has now been resolved in favor of
Storage, although factual issues in individual cases remain as to whether that
right was exercised properly.
Trials in four of the appeals to County Court have now been concluded. The
first trial involved a parcel adjacent to the 82 acre site where the compression
facilities are located, the second trial involved a parcel within 1,000 feet of
the 82 acre site, and the third and fourth trials involved parcels further than
one mile from the 82 acre site. The jury verdicts compared with the awards of
the Special Commissioners were, respectively, as follows: $214,000 versus
$2,000; $38,000 versus $600; $553 versus $553; and $1,000 versus $500. The
Company believes that several reversible errors were committed in the first two
trials and appeals of those cases are now pending in the Texas Court of Appeals.
JN Exploration and Production Litigation
JN Exploration and Production ("JN") is a producer of oil and natural gas that
sold unprocessed natural gas to the Company on a percentage-of-proceeds basis.
The Company processed the gas at its Teddy Roosevelt plant, which is no longer
in operation. In JN Exploration and Production v. Western Gas Resources, Inc.
------------------------------------------------------------
United States District Court for the District of North Dakota, Southwestern
Division, Civil Action Nos. A1-93-53 and 903-CV-60, JN sued the Company,
alleging that JN was entitled to a portion of a $15 million amendment fee the
Company received in the years 1987 through 1989 from Williston Basin Interstate
Pipeline Company ("WBI"), which had an agreement with the Company to purchase
natural gas. On April 15, 1996, the Court issued a Memorandum and Order
granting JN's summary judgment motion on the issue of liability. On July 11,
1996, the Court issued a Memorandum and Order setting forth the manner in which
damages are to be calculated. The Court has not entered a final judgment in
this matter. The Company intends to appeal the decision after final judgment is
entered. If JN were to prevail on appeal, other producers who sold natural gas
which was processed at the Teddy Roosevelt Plant during the time period in
question may be able to assert similar claims. At the present time, it is not
possible to predict the outcome of this litigation or any other producer
litigation which might raise similar issues or to estimate the amount of
potential damages.
Other
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.
16
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
10.57 Amendment No. 2 to Receivables Purchase Agreement dated as of February
28, 1995, by and among Western Gas Resources, Inc., as Seller,
Receivable Capital Corporation, as Purchaser, and Bank of America
National Trust and Savings Association, as Agent.
(b) Reports on Form 8-K:
None.
17
<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, 1996 By: /s/ LANNY F. OUTLAW
--------------------------------------------
Lanny F. Outlaw
President and Chief Operating Officer
Date: August 12, 1996 By: /s/ WILLIAM J. KRYSIAK
--------------------------------------------
William J. Krysiak
Vice President - Finance
(Principal Financial and Accounting Officer)
18
<PAGE>
AMENDMENT NO. 2 TO
RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO RECEIVABLES PURCHASE AGREEMENT, dated as of May 31,
1996 (herein called this "Amendment"), is by and among RECEIVABLES CAPITAL
---------
CORPORATION, a Delaware corporation (herein called the "Purchaser"), WESTERN GAS
---------
RESOURCES, INC., a Delaware corporation (the "Seller"), and Bank of America
------
National Trust and Savings Association, a national banking association, as Agent
for the Purchaser (the "Agent").
-----
W I T N E S S E T H:
-------------------
WHEREAS, the Purchaser, the Seller and the Agent have heretofore entered
into a certain Receivables Purchase Agreement, dated as of February 28, 1995, as
amended by that certain Amendment No. 1 to Receivables Purchase Agreement dated
as of July 1, 1995 and as extended by that certain letter agreement dated April
17, 1996 by and among the Purchaser, the Seller and the Agent (collectively, the
"Original Purchase Agreement"); and
---------------------------
WHEREAS, the Purchaser, the Seller and the Agent now desire to further
amend the Original Purchase Agreement in certain respects, as hereinafter
provided,
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Purchaser, the Seller and the Agent hereby agree as
follows:
SECTION 1. Defined Terms. Terms defined in the Original Purchase
-------------
Agreement are used herein with the meanings given them therein, unless otherwise
defined or the context otherwise requires.
SECTION 2. Amendment to Section 1.05. Section 1.05 of the Original
-------------------------
Purchase Agreement is hereby amended by deleting clause (a) thereof and
substituting the following in lieu thereof:
"(a) The "Commitment Termination Date" shall be the earlier to
---------------------------
occur of (i) May 29, 1997 (herein, as the same may be extended, called the
"Scheduled Commitment Termination Date"), and (ii) the date of termination
-------------------------------------
of the Commitment pursuant to Sections 1.07 or 10.02."
------------- -----
SECTION 3. Amendment to Section 2.04. Section 2.04 of the Original
-------------------------
Purchase Agreement is hereby amended by deleting clause (c) thereof and
substituting the following in lieu thereof:
Exhibit 10.57
<PAGE>
"(c) "Special Concentration Limit" (i) as the Seller may from time to
---------------------------
time designate, either (a) means 5% of the Unpaid Balance of all
Receivables of the Investment Grade Obligors (Group A) or (b) means 10% of
the Unpaid Balance of all Receivables of the Investment Grade Obligor
(Group B) and (ii) for any other Obligor means the amount designated as
such by the Agent in a writing delivered to Seller; it being understood and
agreed that the Agent, in setting any Special Concentration Limit for any
Obligor, shall be entitled to consider, among other things, the credit
exposure of the Purchaser and any Program Support Provider to such Obligor
arising in connection with this Agreement and other agreements to which
Purchaser is a party."
SECTION 4. Amendments of Section 7.03. Section 7.03 of the Original
--------------------------
Purchase Agreement is further amended by deleting clause (j) thereof and
substituting the following in lieu thereof:
"(j) Restricted Payments. Except for payments by Seller to its
-------------------
stockholders which are permitted under the following sentences of this
subsection and do not otherwise violate any provisions of this Agreement
and except for dividends paid to Seller by its Subsidiaries or to MIGC,
Inc., a Delaware corporation, by MGTC, Inc., a Wyoming corporation, none of
the Seller and its Subsidiaries will declare or pay any dividends on, or
make any other distribution in respect of, any class of its capital stock
or any partnership or other interest in it, other than the distribution of
common stock pursuant to the conversion or exchange of Preferred Stock, nor
will any of Seller and its Subsidiaries directly or indirectly make any
capital contribution to or purchase, redeem, acquire or retire any shares
of the capital stock of or partnership interest in any of Seller and its
Subsidiaries (whether such interests are now or hereafter issued,
outstanding or created), or cause or permit any reduction or retirement of
the capital stock of or partnership interest in any of Seller and its
Subsidiaries. Seller may make any of the payments, distributions, capital
contributions or purchases described above in this Section 7.03(j) so long
---------------
as (i) no Unmatured Termination Event or Termination Event has occurred and
is continuing at the time such dividends are declared and paid and (ii)
such repurchases and dividends declared or paid by Seller since December
31, 1995, together with all investments Seller has made in accordance with
the provisions of Section 6.2(f)(v) of the Revolving Loan Agreement as in
effect on the date hereof, do not, in the aggregate, exceed the sum of (A)
$50,000,000; plus (B) fifty percent (50.0%) of Seller's Consolidated
----
cumulative net income earned after December 31, 1995 if such figure is
positive (zero percent, if negative); plus (C) fifty percent (50.0%) of the
----
cumulative net proceeds received by Seller and its Subsidiaries at any time
after December 31, 1995 from the sale of any equity securities issued by
Seller or any of its Subsidiaries. All dividends declared in the fourth
fiscal quarter of 1995, payable in 1996 with respect to any class of stock
of Seller, shall be permitted and excluded from the preceding calculation."
2
<PAGE>
SECTION 5. Amendment of Section 14.05. Section 14.05 of the Original
--------------------------
Purchase Agreement is hereby amended by deleting clause (a) thereof and
substituting the following in lieu thereof:
"(a) all costs and expenses incurred by the Agent, Purchaser, Bank
of America, each Program Support Provider and their respective Affiliates
in connection with the negotiation, preparation, execution and delivery,
the administration (including periodic auditing, one collateral audit to
have been completed within three months after February 28, 1995 (or such
other date as the Agent shall determine) and semi-annual collateral audits
of Seller and including the syndication of this Agreement as set forth in
that certain letter from the Agent to the Seller dated as of February 28,
1996) or the enforcement of, or any actual or claimed breach of, this
Agreement, the Certificate of Assignments and the other Agreement
Documents, including, without limitation (i) the reasonable fees and
expenses of counsel (including allocated costs of staff counsel) to any of
such Persons incurred in connection with any of the foregoing or in
advising such Persons as to their respective rights and remedies under any
of the Agreement Documents, and (ii) all reasonable out-of-pocket expenses
(including reasonable fees and expenses of independent accountants)
incurred in connection with any review of Seller's books and records either
prior to the execution and delivery hereof or pursuant to Section 7.01(c);
---------------
and"
SECTION 6. Amendments of Appendix A. Appendix A to the Original Purchase
------------------------
Agreement is hereby amended by deleting the definition of the term "Redemption
Amount" in its entirety. Appendix A to the Original Purchase Agreement is
hereby further amended by deleting the definitions of "Change of Control,"
"Investment Grade Obligor" and "Preferred Stock" and substituting the following
in lieu thereof:
""Change of Control" means any of the following: (i) the occurrence of
-----------------
a Founders Ownership Change; or (ii) Brion G. Wise ceases to be a director
of Seller for reasons other than death or disability. For purposes of this
definition, a "Founders Ownership Change" shall be deemed to have occurred
at any point in time at which a Person or Persons acting in concert (such
Person or Persons herein referred to as an "Acquiring Person") obtain legal
or beneficial ownership (within the meaning of Rule 13d-3, promulgated by
the Securities and Exchange Commission and now in effect under the
Securities Exchange Act of 1934, as amended) of a number of Voting Shares
greater than or equal to the Voting Shares owned by the Founders at the
time of calculation. For purposes of calculating the number of Voting
Shares of any Founder for purposes of this definition, the Voting Shares
owned legally or beneficially by such Founder shall be included in the
Voting Shares of an Acquiring Person (and excluded from the Voting Shares
of the remaining Founders) if such Founder votes his Voting Shares in
concert with an Acquiring Person against the remaining Founders in (A) an
election for the Board of Directors or (B) the modification of the Seller's
certificate of incorporation or by-laws.
3
<PAGE>
"Investment Grade Obligor (Class A)" means any two Obligors from time
----------------------------------
to time designated by the Seller and not disapproved by the Agent the long
term senior debt of which (or of whose Parent Company) is rated BBB or
better by Standard & Poor's Corporation or Baa2 or better by Moody's
Investors Service, Inc.; provided that the Agent may at any time upon three
(3) days prior written notice declare any Obligor previously accepted as an
Investment Grade Obligor (Class A) not to be an Investment Grade Obligor
(Class A).
"Investment Grade Obligor (Class B)" means any one Obligor from time
----------------------------------
to time designated by the Seller and not disapproved by the Agent the long
term senior debt of which (or of whose Parent Company) is rated A or better
by Standard & Poor's Corporation or A2 or better by Moody's Investors
Service, Inc.; provided that the Agent may at any time upon three (3) days
prior written notice declare any Obligor previously accepted as an
Investment Grade Obligor (Group B) not to be an Investment Grade Obligor
(Group B).
"Preferred Stock" means all issued and outstanding preferred stock of
---------------
Seller, including but not limited to (i) the 1,400,000 shares of $2.28
Cumulative Preferred Stock of Seller and (ii) 2,760,000 shares of $2.625
Cumulative Convertible Preferred Stock of Seller."
SECTION 7. Amendment of Credit and Collection Policy. Schedule 6.01(p)-2
-----------------------------------------
to the Original Purchase Agreement is hereby amended in its entirety to read as
Annex I hereto.
SECTION 8. Certain Representations and Warranties of Seller. The Seller
------------------------------------------------
hereby represents and warrants as follows:
a. The representations and warranties contained in Section 6.01
of the Original Purchase Agreement are correct on and as of the date
hereof as though made on and as of the date hereof and shall be deemed
to have been made on the date hereof;
b. No event has occurred and is continuing that constitutes a
Termination Event or an Unmatured Termination Event;
c. Seller (i) has all necessary power, authority and legal right
to execute, deliver and perform this Amendment and (ii) has duly authorized
by all necessary corporate action the execution, delivery and performance
of this Amendment.
d. This Amendment and the Original Purchase Agreement, as amended
hereby, when duly executed and delivered by Purchaser and the Agent,
constitute the legal, valid and binding obligations of Seller enforceable
in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or
4
<PAGE>
other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
e. The consummation of the transaction contemplated by this
Amendment and the fulfillment of the terms hereof will not (i) conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under, the certificate of incorporation or by-laws of Seller, or any
indenture, loan agreement, receivables purchase agreement, mortgage, deed
of trust, or other agreement or instrument to which Seller is a party or by
which it or any of its properties is bound, (ii) result in the creation or
imposition of any Adverse Claim upon any of Seller's properties pursuant to
the terms of any such indenture, loan agreement, receivables purchase
agreement, mortgage, deed of trust, or other agreement or instrument, or
(iii) violate any law or any order, rule, or regulation applicable to
Seller of any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over Seller or any of its properties.
f. There are no proceedings pending or to the best of Seller's
knowledge threatened and to the best of Seller's knowledge there are no
investigations pending, or threatened, before any court, regulatory body,
administrative agency, or other tribunal or governmental instrumentality
asserting the invalidity of this Amendment or seeking any determination or
ruling that might materially and adversely affect the performance by Seller
of its obligations under this Amendment or the validity or enforceability
of this Amendment.
g. No authorization or approval or other action by, and no
notices to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Seller of this
Amendment.
SECTION 9. References. All references to the "Receivables Purchase
----------
Agreement" or to the "Agreement" in the Original Purchase Agreement or any other
document, instrument, agreement or writing shall hereafter be deemed to refer to
the Original Purchase Agreement as amended hereby.
SECTION 10. Effectiveness. This Amendment shall be effective as of the
-------------
date hereof; provided, however, that its effectiveness is conditioned upon: (i)
-------- -------
Seller having paid to Agent for its own account the renewal fee contemplated by
that certain letter from the Agent to the Seller dated as of February 28, 1996;
(ii) the General Counsel for the Seller having delivered an opinion to the Agent
in form and substance satisfactory to the Agent; and (iii) receipt by the Agent
of duly executed Financing Statement Amendments (Form UCC-3), in form and
substance satisfactory to the Agent amending the financing statements delivered
pursuant to the Original Purchase Agreement.
5
<PAGE>
SECTION 11. GOVERNING LAW; COUNTERPARTS. THIS AMENDMENT SHALL BE GOVERNED
---------------------------
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any party
hereto may execute this Amendment by signing one or more counterparts.
SECTION 12. Ratification. Except as expressly amended hereby, the Original
------------
Purchase Amendment shall remain in full force and effect as heretofore entered
into. The parties hereby ratify and confirm the Original Purchase Agreement as
hereby amended.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
PURCHASER:
---------
RECEIVABLES CAPITAL CORPORATION
By: /S/ George Roller
--------------------------------------
Name: George Roller
------------------------------------
Title:
-----------------------------------
SELLER:
------
WESTERN GAS RESOURCES, INC.
By: /S/ Vance S. Blalock
--------------------------------------
Name: Vance S. Blalock
------------------------------------
Title: Treasurer
-----------------------------------
AGENT:
-----
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By: /S/ Mark A. Wegner
---------------------------------------
Name: Mark A. Wegner
-------------------------------------
Title: Attorney-in-fact
-----------------------------------
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,221
<SECURITIES> 0
<RECEIVABLES> 188,849
<ALLOWANCES> 0
<INVENTORY> 15,705
<CURRENT-ASSETS> 228,873
<PP&E> 1,070,235
<DEPRECIATION> (227,212)
<TOTAL-ASSETS> 1,167,252
<CURRENT-LIABILITIES> 325,147
<BONDS> 385,000
0
416
<COMMON> 2,580
<OTHER-SE> 376,813
<TOTAL-LIABILITY-AND-EQUITY> 1,167,252
<SALES> 919,016
<TOTAL-REVENUES> 926,937
<CGS> 803,225
<TOTAL-COSTS> 803,225
<OTHER-EXPENSES> 81,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,149
<INCOME-PRETAX> 23,966
<INCOME-TAX> 8,301
<INCOME-CONTINUING> 15,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,665
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
