Business Context and Reporting Period
Western Gas Equity Partners, LP (WES) filed this Form 8-K on January 27, 2016, to disclose a material accounting error discovered during the preparation of its 2015 Annual Report. The error relates to the impairment test calculation for the quarter ended March 31, 2015, specifically concerning the Red Desert gathering system and processing complex in southwestern Wyoming.
Key Financial Metrics and Restatement Impact
The filing details a required restatement of financial statements for the quarters ended March 31, June 30, and September 30, 2015. The primary adjustment is a non-cash impairment charge of approximately $264.4 million recognized in the first quarter of 2015.
| Metric | Previously Reported (Q1 2015) | Restated (Q1 2015) |
|---|---|---|
| Operating Income (Loss) | $109.1 million | ($155.3 million) |
| Net Income (Loss) | $86.0 million | ($177.4 million) |
| Net Income (Loss) per Common Unit (Diluted) | $0.25 | ($0.19) |
The filing explicitly states that this impairment charge does not impact net cash flows from operating, investing, or financing activities. Furthermore, liquidity, Adjusted EBITDA, and distributable cash flow previously reported for these periods remain unchanged.
Material Changes Versus Prior Period
The material change is the reversal of previously reported profitability for the first quarter of 2015 due to the error in the impairment assessment. The error involved the incorrect inclusion of commodity price swap agreements with Anadarko Petroleum Corporation when identifying a triggering event for impairment testing. This resulted in a material understatement of impairment expense in the original filings.
Guidance, Outlook, and Risks
WES is reassessing its conclusions regarding the effectiveness of internal controls over financial reporting and disclosure controls and procedures. The Audit Committee has concluded that the unaudited consolidated financial statements for the first three quarters of 2015 should no longer be relied upon. The company expects to file amended reports as quickly as practicable but cannot predict specific filing dates. Management anticipates filing the 2015 Annual Report on Form 10-K in a timely manner. The restatements will not impact financial compliance covenants in the company's senior unsecured revolving credit facility or senior notes indentures.
Investor Verification Checklist
- Verify the timing and content of the upcoming amended Forms 10-Q for Q1, Q2, and Q3 2015.
- Confirm the final impact on the 2015 Annual Report (Form 10-K) once filed.
- Review the updated assessment of internal controls over financial reporting.
- Monitor for any additional changes to financial statements that the company notes may occur during the restatement process.