WGR Western Gas Res

DENVER, Nov. 21 /PRNewswire-FirstCall/ -- Western Gas Resources, Inc. ("Western" or the "Company") (NYSE:WGR) today announced that its management and its audit committee have completed the previously announced review of the accounting treatment of the Company's gas storage and gas transportation contracts and determined that these contracts do not meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). Accordingly, the Company will restate its audited financial statements for the years from 2001 through 2004 and its unaudited financial statements for the first two quarters of 2005 as well as all three quarters of 2004. The adjustments arising from the change in treatment of the gas storage and gas transportation contracts are non-cash changes in mark-to-market valuations and will not affect cash flow before working capital adjustments or cash flow from operating activities. While the impact of this change on a quarterly or annual period may be material; over time, the total earnings from the transactions utilizing storage and transportation capacity will not change. Accordingly, while the earnings in individual periods change, Total equity at December 31, 2004 after the restatements is expected to be $684.8 million as compared to the originally reported amount of $682.0 million. Further, Total equity at September 30, 2005 after the restatements is expected to be $720.1 million as compared to the originally reported amount of $783.4 million; this difference will be eliminated through earnings in future quarters. Upon adoption of FAS 133 in 2001, the Company analyzed its storage and transportation contracts in detail, and determined that these contracts had the characteristics of a derivative as described in FAS 133. The treatment of these contracts as derivatives has been consistently applied to these contracts since adoption as reflected in our audited and unaudited financial statements. On November 8, 2005, after the release of the Company's third quarter 2005 results and prior to the filing of the Form 10-Q for the quarter ended September 30, 2005, it came to the Company's attention that these contracts may not meet the definition of a derivative. After a detailed review of the contracts and the market for those contracts, the Company determined that these contracts do not meet the definition of a derivative as required under FAS 133, specifically as it relates to the net settlement provisions. Historically, the non-cash mark-to-market valuation by the Company of these contracts as derivatives effectively offset non-cash mark-to-market changes to the future sale derivatives for stored or transported natural gas. Without this offsetting valuation, the non-cash mark-to-market of these economic hedges of the sale of gas will fluctuate through earnings with changes in market prices. As the stored or transported natural gas is sold and the future sale derivatives are settled, the Company will realize the benefit of the storage and transportation transactions through earnings. For future transactions, the Company will consider various alternatives to minimize the earnings volatility from these economic hedges including utilizing hedge accounting. The expected unaudited impact of the restatement for each of the years ended December 31, 2001 through 2004 is as follows (amounts in thousands, except per share calculations): Year Ended December 31, 2001 2002 As As As As Reported Restated Reported Restated Total revenues $3,353,162 $3,363,659 $2,489,698 $2,464,105 Income before taxes 152,126 162,623 80,703 55,110 Net income 95,637 102,249 50,589 34,330 Earnings per share- assuming dilution 1.24 1.33 0.62 0.37 Cash flow before working capital adjustments $173,506 $173,506 $161,071 $161,071 Current assets 365,963 364,563 370,940 354,420 Total assets 1,267,942 1,264,139 1,302,144 1,285,540 Current liabilities 305,173 291,114 332,771 331,263 Total liabilities 794,590 784,174 819,076 812,119 Total equity $473,352 $479,965 $483,068 $473,421 Year Ended December 31, 2003 2004 As As As As Reported Restated Reported Restated Total revenues $2,874,010 $2,879,951 $3,069,713 $3,083,168 Income before taxes 144,536 150,477 183,268 196,723 Net income 84,219 88,061 119,215 127,759 Earnings per share- assuming dilution 1.13 1.18 1.61 1.73 Cash flow before working capital adjustments $215,666 $215,666 $278,927 $278,927 Current assets 387,303 377,010 523,476 521,130 Total assets 1,460,524 1,450,231 1,840,112 1,837,397 Current liabilities 358,981 357,843 475,947 469,169 Total liabilities 898,015 893,527 1,158,084 1,152,630 Total equity $562,509 $556,704 $682,028 $684,767 The expected unaudited impact of the restatement for each of the quarters ended March 31, June 30 and September 30, 2004 and 2005 is as follows (amounts in thousands, except per share calculations): Quarter Ended, March 31, 2004 June 30, 2004 As As As As Reported Restated Reported Restated Total revenues $771,216 $779,680 $726,303 $725,838 Income before taxes 38,382 46,846 26,591 26,126 Net income 29,088 34,434 13,975 13,649 Earnings per share- assuming dilution 0.39 0.48 0.19 0.18 Cash flow before working capital adjustments $60,925 $60,925 $55,113 $55,113 Current assets 329,552 327,853 389,047 386,571 Total assets 1,425,393 1,423,694 1,499,837 1,497,361 Current liabilities 378,811 377,808 388,937 387,910 Total liabilities 837,029 835,789 901,749 900,058 Total equity $588,364 $587,905 $598,088 $597,303 Quarter Ended, September 30, 2004 As As Reported Restated Total revenues $718,255 $693,679 Income before taxes 55,511 30,935 Net income 35,118 19,465 Earnings per share- assuming dilution 0.47 0.26 Cash flow before working capital adjustments $68,689 $68,689 Current assets 397,184 372,157 Total assets 1,553,926 1,528,899 Current liabilities 361,503 362,542 Total liabilities 922,633 914,044 Total equity $631,293 $614,855 Quarter Ended, March 31, 2005 June 30, 2005 As As As As Reported Restated Reported Restated Total revenues $854,315 $834,107 $861,196 $868,026 Income before taxes 51,342 31,134 52,668 59,498 Net income 32,628 19,706 33,318 37,629 Earnings per share- assuming dilution 0.43 0.26 0.44 0.50 Cash flow before working capital adjustments $80,620 $80,620 $73,402 $73,402 Current assets 473,357 455,334 458,331 447,169 Total assets 1,875,677 1,857,542 1,918,055 1,906,894 Current liabilities 480,818 478,591 436,308 434,225 Total liabilities 1,171,952 1,163,999 1,179,825 1,174,535 Total equity $703,725 $693,543 $738,230 $732,359 Quarter Ended, September 30, 2005 As As Reported * Revised * Total revenues $1,052,123 $962,317 Income before taxes 105,531 15,725 Net income 67,678 10,278 Earnings per share- assuming dilution 0.88 0.14 Cash flow before working capital adjustments $111,110 $111,110 Current assets 851,165 746,648 Total assets 2,393,383 2,288,867 Current liabilities 746,651 741,018 Total liabilities 1,610,009 1,568,763 Total equity $783,374 $720,104 * Information for the quarter ended September 30, 2005 is as reported in the earnings release dated November 8, 2005. Until the Form 10-Q for the quarter ended September 30, 2005 is filed, the results for the third quarter of 2005 may also be adjusted for any revisions to estimates used in preparing the earnings release or for new information that affects the third quarter results. The unaudited, expected amounts presented in the tables above may be adjusted until the restated financial statements are filed. The audit committee has discussed the proposed restatements with the Company's independent registered public accounting firm, PricewaterhouseCoopers LLP ("PWC\"). Western will file the amended reports, together with its Quarterly Report on Form 10-Q for the period ended September 30, 2005 as soon as practicable. The audit committee has determined that the previously filed financial statements should not be relied upon. The guidance set forth in Auditing Standard No. 2 ("AS2") of the Public Company Accounting Oversight Board states that restatement of previously issued financial statements to reflect the correction of a misstatement should be regarded as a strong indicator that a material weakness in internal control over financial reporting exists. In the Company's Annual Report on Form 10-K for the year ended December 31, 2004, filed on March 14, 2005, the Company concluded that the Company's internal controls over financial reporting were effective as of December 31, 2004. As described herein, the Company identified a material weakness in internal control over financial reporting with respect to the correct application of FAS 133 as it applies to the net settlement provision in relation to storage and transportation contracts. As a result, the Company has concluded that Management's Report on Internal Control Over Financial Reporting set forth on page 73 of the Company's 2004 Annual Report should be restated and should no longer be relied upon. The Company has not yet completed its analysis of the impact, if any, of the aforementioned issue with these derivatives on the Company's other internal controls over financial reporting. The Company has discussed this conclusion with its audit committee and PWC. The Company will provide the plan of remediation in its restated Form 10-K for the year ended December 31, 2004. Western has received waivers from lenders under its revolving credit facility and master shelf agreement to extend the date of delivery of its unaudited financial statements and compliance certificates for the third quarter of 2005 to December 14, 2005. The Company does not anticipate any violations of financial covenants as a result of these adjustments. Update to Operational Guidance. The results of operations for the quarters ended March 31, June 30 and September 30, 2005 were affected by fluctuations in commodity prices. The price fluctuations in the third quarter were more significant primarily as a consequence of hurricane damage in the Gulf of Mexico. Assuming the prices on November 18, 2005 and the settlement date of the economic hedges of the future sales of stored or transported natural gas, the Company anticipates that of the $57.4 million decrease in net income in the third quarter of 2005 as shown above, approximately $37.4 million of the non-cash reduction in Net income for the quarter ended September 30, 2005 will be reported as an increase in Net income in the fourth quarter of 2005, and approximately $19.0 million will be reflected as an increase in Net income in the first quarter of 2006. These amounts, however, are estimates and will fluctuate as commodity prices change. Company Description. Western is an independent natural gas explorer, producer, gatherer, processor, transporter and energy marketer. The Company's producing properties are located primarily in Wyoming, including the developing Powder River Basin coal bed methane play, where Western is a leading acreage holder and producer, and the rapidly growing Pinedale Anticline. The Company also owns and operates natural gas gathering, processing and treating facilities in major gas-producing basins in the Rocky Mountain, Mid-Continent and West Texas regions of the United States. For additional Company information, visit Western's web site at http://www.westerngas.com/. This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding financial results, absence of changes in commodity prices, compliance with financial covenants to the Company's lenders and the timing of filing of the above referenced amended reports and the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2005. Although the Company believes that its expectations are based on reasonable assumptions, Western can give no assurances that its projections are accurate. These statements are subject to a number of risks and uncertainties, which may cause actual results to differ materially. These risks and uncertainties include, among other things, the nature of the Company's derivative contracts, commodity prices, the finalization of the financial statements for the indicated period, the time required to restate financial information and complete amended and as yet unfiled required reports and other factors as discussed in the Company's 10-K and 10-Q Reports and other filings with the Securities and Exchange Commission. Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) 2001 2002 As As As As Reported Restated Reported Restated Net Income $95,637 $102,249 $50,589 $34,330 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 64,162 64,162 77,005 77,005 Deferred income taxes 42,815 46,700 19,614 10,280 Distributions (less than) equity income, net (29) (29) (2,906) (2,906) (Gain) loss on sale of assets (10,748) (10,748) 948 948 Non-cash change in fair value of derivatives (19,906) (30,403) 13,788 39,381 Compensation expense from common stock options and restricted stock 170 170 224 224 Foreign currency translation adjustments 476 476 283 283 Cumulative effect of changes in accounting principles -- -- -- -- Other non-cash items, net 929 929 1,526 1,526 Cash flow before working capital adjustments $173,506 $173,506 $161,071 $161,071 Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) 2003 2004 As As As As Reported Restated Reported Restated Net Income $84,219 $88,061 $119,215 $127,759 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 73,906 73,906 95,536 95,536 Deferred income taxes 49,326 51,425 66,289 71,200 Distributions (less than) equity income, net 1,076 1,076 127 127 (Gain) loss on sale of assets (156) (156) 1,288 1,288 Non-cash change in fair value of derivatives (1,235) (7,176) (1,572) (15,027) Compensation expense from common stock options and restricted stock 376 376 646 646 Foreign currency translation adjustments 1,238 1,238 816 816 Cumulative effect of changes in accounting principles 6,724 6,724 (4,714) (4,714) Other non-cash items, net 192 192 1,296 1,296 Cash flow before working capital adjustments $215,666 $215,666 $278,927 $278,927 Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) Quarter ended March 31, 2005 June 30, 2005 As As As As Reported Restated Reported Restated Net Income $32,628 $19,706 $33,318 $37,629 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 29,078 29,078 30,799 30,799 Deferred income taxes 11,364 4,078 13,178 15,697 Distributions (less than) equity income, net (279) (279) (264) (264) (Gain) loss on sale of assets 28 28 (1) (1) Non-cash change in fair value of derivatives 8,469 28,677 (4,233) (11,063) Compensation expense from common stock options and restricted stock 273 273 653 653 Foreign currency translation adjustments (2,271) (2,271) (239) (239) Cumulative effect of changes in accounting principles Other non-cash items, net 1,330 1,330 191 191 Cash flow before working capital adjustments $80,620 $80,620 $73,402 $73,402 Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) Quarter ended September 30, 2005 As As Reported Revised Net Income $67,678 $10,278 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 32,462 32,462 Deferred income taxes 24,039 (8,367) Distributions (less than) equity income, net (2,118) (2,118) (Gain) loss on sale of assets 187 187 Non-cash change in fair value of derivatives (15,062) 74,744 Compensation expense from common stock options and restricted stock 1,754 1,754 Foreign currency translation adjustments 1,303 1,303 Cumulative effect of changes in accounting principles Other non-cash items, net 867 867 Cash flow before working capital adjustments $111,110 $111,110 Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) Quarter ended March 31, 2004 June 30, 2004 As As As As Reported Restated Reported Restated Net Income $29,088 $34,434 $13,975 $13,649 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 22,626 22,626 22,348 22,348 Deferred income taxes 10,465 13,583 13,624 13,485 Distributions (less than) equity income, net (1,460) (1,460) 1,795 1,795 (Gain) loss on sale of assets -- -- 1,639 1,639 Non-cash change in fair value of derivatives 6,219 (2,245) (1,523) (1,058) Compensation expense from common stock options and restricted stock 181 181 295 295 Foreign currency translation adjustments (1,528) (1,528) 424 424 Cumulative effect of changes in accounting principles (4,714) (4,714) -- -- Other non-cash items, net 48 48 2,536 2,536 Cash flow before working capital adjustments $60,925 $60,925 $55,113 $55,113 Reconciliation of Net Income to Cash Flow before Working Capital Adjustments: (Dollars in thousands) Quarter ended September 30, 2004 As As Reported Restated Net Income $35,118 $19,465 Add income items that do not affect operating cash flows: Depreciation, depletion and amortization 22,039 22,039 Deferred income taxes 18,444 9,521 Distributions (less than) equity income, net (1,077) (1,077) (Gain) loss on sale of assets (230) (230) Non-cash change in fair value of derivatives (6,859) 17,717 Compensation expense from common stock options and restricted stock 6 6 Foreign currency translation adjustments 1,248 1,248 Cumulative effect of changes in accounting principles -- -- Other non-cash items, net -- -- Cash flow before working capital adjustments $68,689 $68,689 Cash Flow before Working Capital Adjustments is not a measure determined pursuant to generally accepted accounting principles, or GAAP, nor is it an alternative to GAAP income. The Company is presenting this information, as it is an important measure of financial performance used by equity analysts. DATASOURCE: Western Gas Resources, Inc. CONTACT: Investors, Ron Wirth, Director of Investor Relations of Western Gas Resources, Inc., +1-800-933-5603, or +1-303-252-6090, Web site: http://www.westerngas.com/

Copyright