<PAGE>
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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 MARCH 31, 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 April 1, 1996, there were 25,773,553 shares of the registrant's Common Stock
outstanding.
Reference is made to the listing beginning on page 16 of all exhibits filed as a
part of this report.
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1
<PAGE>
WESTERN GAS RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet - March 31, 1996 and
December 31, 1995........................................... 3
Consolidated Statement of Cash Flows - Three
months ended March 31, 1996 and 1995........................ 4
Consolidated Statement of Operations - Three
months ended March 31, 1996 and 1995........................ 5
Consolidated Statement of Changes in
Stockholders' Equity - Three months ended
March 31, 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............................................. 15
Item 6. Exhibits and Reports on Form 8-K.............................. 16
Signatures............................................................... 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(000s)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -------------
ASSETS (unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 15,200 $ 5,795
Trade accounts receivable, net............................................... 206,658 204,426
Product inventory............................................................ 7,345 28,154
Parts inventory.............................................................. 3,012 2,427
Other........................................................................ 2,791 1,524
---------- ----------
Total current assets....................................................... 235,006 242,326
---------- ----------
Property and equipment, at cost:
Gas gathering, processing, storage and transmission.......................... 895,140 882,801
Oil and gas properties and equipment......................................... 140,875 140,691
Construction in progress..................................................... 23,180 26,314
---------- ----------
1,059,195 1,049,806
Less: Accumulated depreciation, depletion and amortization................. (213,694) (200,203)
---------- ----------
Total property and equipment, net.......................................... 845,501 849,603
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $20,601 and
$19,273, respectively)..................................................... 53,309 54,637
Other........................................................................ 44,631 47,431
---------- ----------
Total other assets......................................................... 97,940 102,068
---------- ----------
Total assets................................................................... $1,178,447 $1,193,997
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 219,218 $ 199,513
Short-term debt.............................................................. 75,000 75,000
Accrued expenses............................................................. 22,282 19,204
Dividends payable............................................................ 3,899 3,898
Income taxes payable......................................................... 1,131 -
---------- ----------
Total current liabilities.................................................. 321,530 297,615
Long-term debt................................................................. 404,000 454,500
Deferred income taxes payable.................................................. 74,653 69,973
---------- ----------
Total liabilities.......................................................... 800,183 822,088
---------- ----------
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; 25,798,569 and
25,794,728 shares issued, respectively.................................... 2,580 2,580
Additional paid-in capital.................................................. 301,259 301,234
Retained earnings........................................................... 76,683 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................................................ 378,264 371,909
---------- ----------
Total liabilities and stockholders' equity.................................... $1,178,447 $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>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Reconciliation of net income to net cash provided by operating activities:
Net income................................................................................. $ 10,233 $ 1,941
Add income items that do not affect working capital:
Depreciation, depletion and amortization................................................. 15,662 17,204
Deferred income taxes.................................................................... 4,680 619
Gain on the sale of property and equipment............................................... (101) -
Distribution of retained earnings from investees, net.................................... 2,798 -
Other non-cash items..................................................................... 75 342
-------- --------
33,347 20,106
-------- --------
Adjustments to working capital to arrive at net cash provided by
operating activities:
(Increase) decrease in trade accounts receivable......................................... (2,286) 19,320
Decrease in product inventory............................................................ 20,809 16,573
Decrease in parts inventory.............................................................. (585) 9
Increase in other current assets......................................................... (1,267) (1,729)
Increase (decrease) in other assets and liabilities, net................................. (82) 164
Increase (decrease) in accounts payable.................................................. 19,705 (18,271)
Increase in accrued expenses............................................................. 3,078 3,147
Increase (decrease) in income taxes payable.............................................. 1,131 (560)
-------- --------
Total adjustments..................................................................... 40,503 18,653
-------- --------
Net cash provided by operating activities.................................................. 73,850 38,759
-------- --------
Cash flows from investing activities:
Payments for business acquisitions....................................................... - (25)
Payments for additions to property and equipment......................................... (9,893) (17,606)
Proceeds from the dispositions of property and equipment................................. 353 94
Contributions to equity investees........................................................ (165) (391)
Gas purchase contracts acquired.......................................................... - (1,641)
-------- --------
Net cash used in investing activities...................................................... (9,705) (19,569)
-------- --------
Cash flows from financing activities:
Net proceeds from exercise of common stock options....................................... 16 19
Debt issue costs paid.................................................................... (357) (181)
Payments on revolving credit facility.................................................... (339,800) (129,450)
Borrowings under revolving credit facility............................................... 289,300 113,450
Dividends paid to holders of common stock................................................ (1,289) (1,286)
Dividends paid to holders of preferred stock............................................. (2,610) (3,335)
-------- --------
Net cash used in financing activities...................................................... (54,740) (20,783)
-------- --------
Net increase (decrease) in cash and cash equivalents....................................... 9,405 (1,593)
Cash and cash equivalents at beginning of period........................................... 5,795 8,708
-------- --------
Cash and cash equivalents at end of period................................................. $ 15,200 $ 7,115
======== ========
</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
March 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Sale of residue gas................................ $ 347,507 $ 207,989
Sale of natural gas liquids........................ 119,678 84,251
Processing, transportation and storage revenue..... 11,214 10,553
Other, net......................................... 2,315 908
---------- ----------
Total revenues................................... 480,714 303,701
---------- ----------
Costs and expenses:
Product purchases.................................. 412,123 248,313
Plant operating expense............................ 18,597 18,179
Oil and gas exploration and production expense..... 1,109 1,561
Selling and administrative expense................. 7,725 6,519
Depreciation, depletion and amortization........... 15,662 17,204
Interest expense................................... 9,454 8,868
---------- ----------
Total costs and expenses......................... 464,670 300,644
---------- ----------
Income before taxes.................................. 16,044 3,057
Provision for income taxes:
Current............................................ 1,131 497
Deferred........................................... 4,680 619
---------- ----------
5,811 1,116
---------- ----------
Net income........................................... 10,233 1,941
Preferred stock requirements......................... (2,610) (3,335)
---------- ----------
Income (loss) attributable to common stock........... $ 7,623 $ (1,394)
========== ==========
Income (loss) per share of common stock.............. $ .30 $ (.05)
========== ==========
Weighted average shares of common stock outstanding.. 25,771,928 25,737,777
========== ==========
</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
(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.... - - 3,841 - - -
Dividends declared on
common stock.............. - - - - - -
Dividends declared on
$2.28 cumulative
preferred stock........... - - - - - -
Dividends declared on
$2.625 cumulative
convertible
preferred stock........... - - - - - -
---------- --------- ----------- ----------- ---------- -----------
Balance at March 31, 1996.. 1,400,000 2,760,000 25,773,553 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................. - - 10,233 - - 10,233
Stock options exercised.... - 25 - - (5) 20
Dividends declared on
common stock.............. - - (1,289) - - (1,289)
Dividends declared on
$2.28 cumulative
preferred stock........... - - (798) - - (798)
Dividends declared on
$2.625 cumulative
convertible
preferred stock........... - - (1,811) - - (1,811)
---------- --------- ----------- ----------- ---------- -----------
Balance at March 31, 1996.. $ 2,580 $ 301,259 $ 76,683 $ (788) $ (1,886) $ 378,264
========== ========= =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<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 March 31, 1996 and for the three
month period ended March 31, 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 years' amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1996.
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 dividends. The Company declared
preferred stock dividends of $2.6 million and $3.3 million for the three months
ended March 31, 1996 and 1995, respectively. The computation of fully diluted
earnings per share of common stock for the three months ended March 31, 1996 and
1995 was not dilutive; therefore, only primary earnings per share of common
stock is presented.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was $9.2 million and $8.9 million, respectively, for the three
months ended March 31, 1996 and 1995.
No income taxes were paid during the three months ended March 31, 1996. Income
taxes paid during the three months ended March 31, 1995 were approximately
$900,000.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("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 months ended March 31, 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 MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------- Percent
1996 1995 Change
-------- ---------- -------
<S> <C> <C> <C>
FINANCIAL RESULTS:
Revenues................................... $480,714 $303,701 58
Gross profit............................... 33,223 18,444 80
Net income................................. 10,233 1,941 427
Income (loss) per share of common stock.... .30 (.05) 700
Net cash provided by operating activities.. $ 73,850 $ 38,759 91
OPERATING DATA:
Average gas sales (MMcf/D)................. 1,858 1,578 18
Average NGL sales (MGal/D)................. 3,670 3,013 22
Average gas prices ($/Mcf)................. $ 2.07 $ 1.46 42
Average NGL prices ($/Gal)................. $ .35 $ .31 13
</TABLE>
Net income increased $8.3 million and net cash provided by operating activities
increased $35.1 million for the three months ended March 31, 1996 compared to
1995. The increase in net income for the three months was primarily due to
higher residue gas and NGL volumes and prices.
Revenues from the sale of residue gas increased approximately $139.5 million for
the three months ended March 31, 1996 compared to 1995. Average gas sales
volumes increased 280 MMcf per day to 1,858 MMcf per day for the three months
ended March 31, 1996 compared to 1995, due to an increase of approximately 300
MMcf per day in the sale of residue gas purchased from third-parties. Average
gas prices increased $.61 per Mcf to $2.07 per Mcf for the three months ended
March 31, 1996 compared to 1995. The effect of the increase in residue gas
prices on the Company's net margin from equity production was partially offset
by approximately $8.8 million of loss recognized in the three month period ended
March 31, 1996 related to futures positions. This loss was offset by gains
realized in the physical gas market. The Company has entered into futures
positions for approximately 55% of its equity gas for 1996.
Revenues from the sale of NGLs increased approximately $35.4 million for the
three months ended March 31, 1996 compared to 1995. Average NGL sales volumes
increased 657 MGal per day to 3,670 MGal per day, primarily due to a 400 MGal
per day increase in the sale of NGLs purchased from third-parties. Average NGL
prices increased $.04 per gallon to $.35 per gallon for the three months ended
March 31, 1996 compared to 1995. The Company has entered into futures positions
for approximately 35% of its equity NGL production for 1996.
Other net revenue increased $1.4 million for the three months ended March 31,
1996 compared to 1995. The difference was primarily attributable to an $896,000
increase in income from the Company's partnership interests. Approximately
$592,000 of the partnership income increase relates to the Company's interest in
the Redman Smackover Joint Venture, which commenced operations in June 1995.
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 three percentage points to 88% for the three months ended March
31, 1996 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
8
<PAGE>
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 stabilize. However,
there is no assurance that the Company will be successful in capturing
additional end-use markets.
Selling and administrative expense increased $1.2 million, primarily as a result
of growth in the Company's marketing operations and higher benefit accruals.
Depreciation, depletion and amortization decreased $1.5 million for the three
months ended March 31, 1996 compared to the prior corresponding period. The
decrease was attributable to decreases in production related to the Company's
oil and gas production which resulted in lower depletion expense. In addition,
the Company recorded a $17.4 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 month period.
The provision for income taxes for the three months ended March 31, 1996
increased $4.7 million primarily due to the increases in pre-tax income for the
quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities, funds available under its financing
facilities and proceeds from offerings of equity securities. In the past, these
sources have been sufficient to meet the needs and finance the growth of the
Company's business. 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.
The Company's sources and uses of funds for the three months ended March 31,
1996 are summarized as follows (000s):
SOURCES OF FUNDS:
Borrowings under long-term debt agreements..... $289,300
Net cash provided by operating activities...... 73,850
Other.......................................... 369
--------
Total sources of funds......................... $363,519
========
USES OF FUNDS:
Payments related to long-term debt agreements.. $340,157
Capital expenditures........................... 10,058
Payment of preferred dividends................. 2,610
Payment of common stock dividends.............. 1,289
--------
Total uses of funds............................ $354,114
========
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 3.2 Bcf at an average cost of
$1.65 per Mcf at March 31, 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. The Company
also held NGLs in storage of 6,712 MGal at an average cost of $.30 per gallon
and 11,600 MGal at an average cost of $.30 per gallon at March 31, 1996 and
December 31, 1995, respectively, at various third party storage facilities.
9
<PAGE>
At March 31, 1996, the Company had hedging contracts in place for anticipated
sales for approximately 3.0 Bcf of stored gas at a weighted average price of
$1.71 per Mcf for the stored inventory.
As of March 31, 1996, the Company had shelf registrations available providing
for the sale of up to $200 million of debt securities and preferred stock and up
to four million shares of common stock. On February 13, 1996, the Company filed
a registration statement registering an additional $100 million of debt
securities or preferred or common stock. On May 8, 1996, the Company filed
Amendment No. 1 to the S-3, which the Company believes will be declared
effective in May 1996.
The Company has been successful overall in replacing production with new
reserves. However, volumes of natural gas dedicated to some of the Company's
plants have declined in recent years because additions to dedicated plant
reserves have not fully offset production. On a Company-wide basis, dedicated
reserves, including certain proved undeveloped properties and revisions to
previous estimates, increased from 2.3 Tcf as of December 31, 1994 to
approximately 2.7 Tcf (as revised) at December 31, 1995. The increase is
primarily due to the Company's Northern Acquisition in December 1995 in West
Texas.
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 March 31, 1996,
the Company had expended $9.9 million consisting of the following: (i) $1.9
million for new connects, system expansions and asset consolidations; (ii) $5.8
million for maintaining existing facilities; (iii) $600,000 for exploration and
production activities; (iv) $400,000 related to the Katy Facility; and (v) $1.2
million of miscellaneous expenditures.
In addition to the $76.1 million of anticipated capital expenditures discussed
above, the Company's business plan assumes that it will spend $50 million in
1996 on acquisitions and projects that complement its current asset base. As of
March 31, 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 or issue additional equity securities. 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 $87 million was outstanding at March 31, 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 March 31,
1996, the spread was 1.25% over the Eurodollar rate, resulting in an interest
rate of 6.65%.
The Company pays a commitment fee on the unused commitment ranging from .15% to
.375% based on the debt to capitalization ratio. At March 31, 1996, the
Company's debt to capitalization ratio was .56 to 1 resulting in a commitment
fee rate of .375%.
10
<PAGE>
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.
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 March 31, 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 $80 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 March 31, 1996, $11
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 $15 million cash
balance at March 31, 1996 is due to the timing of cash receipts on the last day
of the month.
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.
11
<PAGE>
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 rate of 5.7% as of March 31, 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. Pending final negotiation
of the renewal of the facility, the Company and BA extended the existing
facility until June 28, 1996. The Company intends to extend the facility for a
new 364-day period at that time.
Covenant Compliance. At March 31, 1996, the Company was in compliance with all
covenants in its loan agreements.
12
<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 three months ended
March 31, 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 2,073 135 136 94 817
Giddings Gathering System.. 1979 652 80 65 55 92
Edgewood(5)(8)............. 1964 85 65 30 11 78
Perkins.................... 1975 2,566 40 21 12 139
MiVida (5)................. 1972 286 150 42 39 -
Gomez...................... 1971 302 280 175 170 -
Mitchell Puckett........... 1972 86 140 79 78 -
Crockett Gathering System.. 1973 136 - 15 15 -
Rosita Treating System..... 1973 - 60 56 56 -
Katy(6).................... 1994 17 - - - -
Louisiana
Black Lake................. 1966 56 75 38 25 81
Toca(7)(8)................. 1958 - 160 106 - 65
NORTHERN REGION:
Oklahoma
Chaney Dell/Lamont......... 1966 2,007 180 82 62 234
Arkoma..................... 1985 38 8 3 2 -
Westana System(9).......... 1986 252 45 57 51 50
Wyoming
Granger(8)................. 1987 239 210 122 104 320
Red Desert(8).............. 1979 110 42 26 23 42
Lincoln Road(10)........... 1988 146 50 31 28 40
Hilight Complex(5)(8)...... 1969 619 80 35 29 81
Kitty/Amos Draw(8)......... 1969 304 17 11 8 45
Newcastle(8)............... 1981 144 5 2 1 17
Reno Junction(11).......... 1991 - - - - 41
New Mexico
San Juan River(5).......... 1955 126 60 32 28 2
North Dakota
Williston(12).............. 1981 381 - 7 5 24
Temple(5).................. 1984 65 7 3 2 8
Teddy Roosevelt(12)........ 1979 332 - 2 1 11
Utah
Four Corners............... 1988 97 15 4 3 8
Montana
Baker(5)(8)................ 1981 8 3 2 1 9
------ ----- ----- --- -----
Total.................... 11,127 1,907 1,182 903 2,204
====== ===== ===== === =====
</TABLE>
Footnotes on following page
13
<PAGE>
(1) The Company's interest in all facilities is 100% except for Midkiff/Benedum
(74%); 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 March 31,
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 August 1, 1996.
14
<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
residue gas. On April 15, 1996, the Court issued a Memorandum and Order granting
JN's summary judgment motion on the issue of liability. The parties have not yet
tried the issue of damages. The Company has filed a Motion for Reconsideration
in regard to the summary judgment ruling. If the Court does not grant such
motion, the Company intends to appeal the decision. If JN were to prevail on
appeal, other producers who sold gas which was processed at the Teddy Roosevelt
complex 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.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
10.56 Extension of Receivables Purchase Agreement dated as of February 28,
1995, 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.
16
<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: May 13, 1996 By: /s/ LANNY F. OUTLAW
------------------------
Lanny F. Outlaw
President and Chief Operating Officer
Date: May 13, 1996 By: /s/ WILLIAM J. KRYSIAK
------------------------
William J. Krysiak
Vice President - Finance
(Principal Financial and Accounting
Officer)
17
<PAGE>
April 17, 1996
Western Gas Resources, Inc
12200 North Pecos Street
Denver, Colorado 80234
Attn: Vice President-Finance
Re: Receivables Purchase Agreement dated as of February
28, 1995, among Western Gas Resources, Inc., as
Seller, Receivable Capital Corporation, as Purchaser,
and Bank of America National Trust and Savings
Association, as Agent
Gentlemen:
Reference is hereby made to that certain Receivables Purchase Agreement
dated as of February 28, 1995 (as amended, the "Receivables Purchase Agreement")
among Western Gas Resources, Inc. as Seller (the "Seller"), Receivables Capital
Corporation, as Purchaser (the "Purchaser") and Bank of America National Trust
and Savings Association, as Agent (the "Agent"). Terms used herein are used
with the meanings given to them in the Receivables Purchase Agreement unless
otherwise indicated.
The Agent and the Purchaser hereby consent to the extension of the
Scheduled Commitment Termination Date. The Scheduled Commitment Termination
Date is hereby extended until, and only until, June 28, 1996. By its signature
below, the Seller hereby acknowledges that the Agent shall have no obligation
whatsoever to agree to or to grant any subsequent request for any extension of
the Scheduled Commitment Termination Date.
This letter agreement may be executed in several counterparts, all of which
when taken together shall constitute but one and the same agreement. This
letter agreement shall be governed by the internal laws of the State of New
York.
Exhibit 10.56
<PAGE>
Western Gas Resources, Inc.
April 17, 1996
Page Two
If the foregoing is acceptable to the Seller, please indicate the Seller's
acceptance by your signature in the appropriate space below.
Very truly yours,
RECEIVABLES CAPITAL CORPORATION
By: /s/ Susan Wisialko
-----------------------------------
Name: Susan Wisialko
-----------------------------------
Title: Vice President
-----------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, As the
Agent
By: /s/ Mark G. Wegoyer
---------------------------------
Name: Mark G. Wegoyer
---------------------------------
Title: Attorney-in-fact
---------------------------------
Accepted and Agreed to:
WESTERN GAS RESOURCES, INC.
By: /s/ William J. Krysiak
---------------------------
Name: William J. Krysiak
---------------------------
Title: VP - Finance
-------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,200
<SECURITIES> 0
<RECEIVABLES> 206,658
<ALLOWANCES> 0
<INVENTORY> 10,357
<CURRENT-ASSETS> 235,006
<PP&E> 1,059,195
<DEPRECIATION> (213,694)
<TOTAL-ASSETS> 1,178,447
<CURRENT-LIABILITIES> 321,530
<BONDS> 404,000
<COMMON> 2,580
0
416
<OTHER-SE> 375,268
<TOTAL-LIABILITY-AND-EQUITY> 1,178,447
<SALES> 478,399
<TOTAL-REVENUES> 480,714
<CGS> 412,123
<TOTAL-COSTS> 412,123
<OTHER-EXPENSES> 43,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,454
<INCOME-PRETAX> 16,044
<INCOME-TAX> 5,811
<INCOME-CONTINUING> 10,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,233
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
