<PAGE> 1
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
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, 1994
-----------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-6446
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K N ENERGY, INC.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 48-0290000
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 Van Gordon Street
P.O. Box 281304, Lakewood, Colorado 80228-8304
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(Address of principal executive offices) (Zip Code)
(303) 989-1740
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- - --------------------------------------------------------------------------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $5 par value; authorized 50,000,000 shares;
- - ---------------------------------------------------------
outstanding 27,581,393 shares as of July 31, 1994.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
Form 10-Q
K N ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1994
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Consolidated Balance Sheets (Unaudited) . . . . . . . . . . . . . . 3 & 4
Consolidated Statements of Income
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . 6 & 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . 8 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 11 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 16
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE> 3
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
JUNE DECEMBER
30, 1994 31, 1993
- - ------------------------------------------------------------------------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents............... $ 9,007 $ 4,760
Accounts Receivable..................... 66,281 88,491
Contract Demand Receivables............. -- 38,732
Material and Supplies, at Average Cost.. 8,952 8,603
Gas in Underground Storage.............. 6,708 5,836
Prepaid Gas............................. 12,935 11,689
Exchange Gas and Other.................. 28,073 28,707
---------- ----------
131,956 186,818
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Gas Services............................ 873,378 842,638
Gas and Oil Production.................. 62,946 34,381
---------- ----------
936,324 877,019
Less--Accumulated Depreciation, Deple-
tion and Amortization................ 384,138 369,957
---------- ----------
552,186 507,062
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS....... 26,697 37,389
---------- ----------
$ 710,839 $ 731,269
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
JUNE DECEMBER
30, 1994 31, 1993
- - ---------------------------------------------------------------------------------------------------------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Preferred Stock
and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,071 $ 3,500
Notes Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,500 47,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,569 73,713
Accrued Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,047 10,299
Exchange Gas and Other . . . . . . . . . . . . . . . . . . . . . . . . . 30,059 27,447
---------- ----------
128,246 161,959
---------- ----------
DEFERRED LIABILITIES, CREDITS AND RESERVES:
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 61,383 60,444
Deferred Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,592 43,692
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,906 21,879
---------- ----------
133,881 126,015
---------- ----------
LONG-TERM DEBT:
Sinking Fund Debentures . . . . . . . . . . . . . . . . . . . . . . . . . 99,557 99,543
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,343 132,338
---------- ----------
226,900 231,881
---------- ----------
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION . . . . . . . . . . . . . 2,286 2,858
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock-
Authorized - Class A, 200,000 Shares; Class B,
2,000,000 Shares, All Without Par Value
Redeemable Solely at Option of Company at
$105 Per Share - Class A, $5.00 Cumulative
Series; 70,000 Shares . . . . . . . . . . . . . . . . . . . . . . 7,000 7,000
---------- ----------
Common Stock-
Authorized - 25,000,000 Shares, Par Value $5 Per Share,
Outstanding 15,329,106 and 15,035,031
Shares, Respectively . . . . . . . . . . . . . . . . . . . . . . . . 76,646 75,177
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 33,811 28,907
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,069 97,472
---------- ----------
Total Common Stockholders' Equity . . . . . . . . . . . . . . . . . . . 212,526 201,556
---------- ----------
219,526 208,556
---------- ----------
$ 710,839 $ 731,269
========== ==========
</TABLE>
4
<PAGE> 5
Form 10-Q
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------
1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gas Services . . . . . . . . . . . . . . . . . . . . . . . . . . $ 122,763 $ 90,341 $ 309,192 $ 240,565
Gas and Oil Production . . . . . . . . . . . . . . . . . . . . . 2,917 1,495 5,860 2,538
--------- --------- --------- ---------
Total Operating Revenues . . . . . . . . . . . . . . . . . . . . 125,680 91,836 315,052 243,103
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Gas Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 75,554 48,869 202,274 132,931
Operations and Maintenance . . . . . . . . . . . . . . . . . . . 29,757 30,071 61,006 61,062
Depreciation, Depletion and Amortization . . . . . . . . . . . . 8,024 6,577 15,715 12,796
Taxes, Other Than Income Taxes . . . . . . . . . . . . . . . . . 3,207 2,984 6,681 5,959
--------- --------- --------- ---------
Total Operating Costs and Expenses . . . . . . . . . . . . . . . 116,542 88,501 285,676 212,748
--------- --------- --------- ---------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . 9,138 3,335 29,376 30,355
--------- --------- --------- ---------
OTHER INCOME AND (DEDUCTIONS):
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . (5,152) (5,092) (10,403) (10,734)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 161 117 70
--------- --------- --------- ---------
Total Other Income and (Deductions) . . . . . . . . . . . . . . . (5,131) (4,931) (10,286) (10,664)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . . . . . . . . . . . 4,007 (1,596) 19,090 19,691
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,436 (596) 6,834 7,385
--------- --------- --------- ---------
NET INCOME (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . 2,571 (1,000) 12,256 12,306
Less--Preferred Stock Dividends . . . . . . . . . . . . . . . . . 158 202 315 405
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK . . . . . . . . . . 2,413 $ (1,202) $ 11,941 $ 11,901
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING (IN THOUSANDS) . . . . . . . . 15,310 14,901 15,252 14,829
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE . . . . . . . . . . . . . . . . $ 0.15 $ (0.08) $ 0.78 $ 0.80
========= ========= ========= =========
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.22 $ 0.48 $ 0.44
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,256 $ 12,306
Adjustments to Reconcile Net Income to Net Cash From Operating Activities:
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . . . 15,715 12,796
Provisions for Losses on Accounts Receivable . . . . . . . . . . . . . . . . 342 533
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,512 3,105
Deferred Purchased Gas Costs . . . . . . . . . . . . . . . . . . . . . . . . 8,813 (3,706)
Other Funds Used During Construction . . . . . . . . . . . . . . . . . . . . (117) (103)
Changes in Other Working Capital Items . . . . . . . . . . . . . . . . . . . . 44,383 16,256
Changes in Other Assets and Liabilities . . . . . . . . . . . . . . . . . . . . 5,806 8,255
---------- -------------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . . . . 88,710 49,442
---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,202) (29,366)
Other Funds Used During Construction . . . . . . . . . . . . . . . . . . . . . 117 103
Proceeds From Sale of Facilities . . . . . . . . . . . . . . . . . . . . . . . 272 220
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (181) (12)
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,683) (22,451)
---------- -------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . (58,677) (51,506)
---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt (Net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,500) 6,500
Long-Term Debt - Retired . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (4,015)
Common Stock Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,373 4,944
Treasury Stock - Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417 --
- Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . (417) --
Cash Dividends - Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,344) (6,549)
- Preferred . . . . . . . . . . . . . . . . . . . . . . . . . . (315) (405)
Premium on Debt Reacquisition and Issue Costs . . . . . . . . . . . . . . . . . -- (98)
---------- -------------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . . . . . . . . . (25,786) 377
---------- -------------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . 4,247 (1,687)
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . . . 4,760 7,962
---------- -------------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . $ 9,007 $ 6,275
========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C>
CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,868 $ 17,075
Contract Demand Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,732 --
Material and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (349) (2,314)
Gas in Underground Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (872) (271)
Accounts Payable, Accrued Taxes and Other Current Liabilities . . . . . . . . . . . . . . (15,506) (1,068)
Exchange Gas, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (414) 2,800
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924 34
-------------- -----------
$ 44,383 $ 16,256
============== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest (Net of Amount Capitalized) . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,035 $ 10,415
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,730 $ 6,946
</TABLE>
7
<PAGE> 8
Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
In the opinion of management, all adjustments necessary for a fair statement of
the results for the unaudited interim periods have been made. These adjustments
consist only of normal recurring accruals.
2. Merger
On July 13, 1994, pursuant to the Agreement of Merger dated March 24, 1994,
among K N, KNE Acquisition Corporation and American Oil and Gas Corporation
("AOG"), KNE Acquisition Corporation was merged with and into AOG. KNE
Acquisition Corporation had been formed by K N in February 1994, as its
wholly-owned subsidiary, for the purpose of participating in the merger.
As a result of the merger, each outstanding share of common stock of AOG was
converted into 0.47 of a share of common stock of K N and the right to receive
in cash the value of any fractional share of K N. In connection with the
merger, all the outstanding shares of AOG common stock were converted into
approximately 12.2 million shares of K N stock, and the authorized number of
shares of K N common stock was increased to 50 million shares.
The merger will be accounted for as a pooling of interests. Merger expenses
are expected to be approximately $20 million. These expenses, which primarily
consist of financial advisory fees, outside legal, accounting and environmental
professional fees and one-time costs of consolidating certain operational and
administrative functions of the companies, will be expensed in 1994.
The combined pro forma revenues, net income, earnings per share and number of
shares used in computing earnings per common share, assuming the merger had
occurred on January 1, 1994, are as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues . . . . $ 236,554 $ 217,595 $ 583,273 $ 503,996
========= ========= ========= =========
Net Income . . . . . . . . $ 2,910 $ 1,020 $ 14,869 $ 17,642
========= ========= ========= =========
Earnings Per Common Share. $ 0.09 $ 0.03 $ 0.52 $ 0.63
========= ========= ========= =========
Number of Shares Used in
Computing Per Common Share 27,855 27,545 27,789 27,322
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
Form 10-Q
3. Regulatory Matters
(A) Rate Matters
In March 1994, Rocky Mountain Natural Gas Division of K N Energy, Inc.
("RMNGD") filed an application for a "make whole" rate increase of $2.5 million
on an annual basis with the Colorado Public Utilities Commission ("CPUC"). The
CPUC approved interim rate relief of $1.5 million which became effective,
subject to refund, on April 2, 1994, pending further hearings. Settlement has
been reached with all parties on all issues and was filed with the
Administrative Law Judge on July 22, 1994. RMNGD will receive a $2.0 million
annual rate increase under terms of the settlement; $1.5 million effective
April 2, 1994, and the remainder to become effective upon final CPUC approval
which is expected in August.
(B) Restructuring and Reorganization
As reported in the Company's 1993 Annual Report on Form 10-K, in April 1992,
the Federal Energy Regulatory Commission ("FERC") issued Order No. 636 ("Order
636") which requires an unbundling of services offered by interstate natural
gas pipelines. K N implemented Order 636 restructured services on October 1,
1993. K N also requested, and subsequently received FERC approval to transfer
substantially all of its gathering and processing facilities to K N Gas
Gathering, Inc., a nonjurisdictional wholly-owned subsidiary of K N. The
transfer was effective January 1, 1994.
(C) Buffalo Wallow Market Center
On July 25, 1994, K N Interstate Gas Transmission Co., a wholly-owned
subsidiary of K N, filed with the FERC to implement market center services on
the Buffalo Wallow system located in Texas and Oklahoma. The filing requests
authority for, among other things, aggregation pooling service and market-based
rates. An October 1, 1994 effective date was proposed.
4. Acquisition
On February 1, 1994, the Company's gas and oil development subsidiaries, K N
Production Company and GASCO, Inc., acquired gas reserves and production
properties located near existing K N operations in western Colorado and in the
Moxa Arch region of southwestern Wyoming for a total purchase price of
approximately $30 million. The acquired properties have total net reserves of
approximately 50 billion cubic feet equivalent of natural gas. On April 20,
1994, the Company entered into a letter of intent to sell a 50 percent interest
in substantially all the acquired properties. It is expected this transaction
will close in the third quarter. No gain or loss will be recognized on the
sale.
5. Deferred Revenues
In January 1994, contract demand receivables with a face amount of $41 million
were sold to a financial institution. No gain or loss was recorded on the
sale. The Company is deferring revenues from certain
9
<PAGE> 10
Form 10-Q
gas sales agreements associated with these receivables pending final
disposition of related gas purchase contracts.
6. Postemployment Benefits
In November 1992, FASB issued SFAS 112, which establishes standards of
financial accounting and reporting for the estimated cost of benefits provided
by an employer to former or inactive employees after employment but before
retirement. The Company adopted SFAS 112 on January 1, 1994. Implementation
of SFAS 112 had no material effect on the Company's financial position or
results of operations.
7. Commitments and Contingent Liabilities
See Notes 5, 8 and 11 of Notes to Consolidated Financial Statements on Pages
41-43, 46, 47 and 51 of the 1993 Annual Report on Form 10-K. There have been
no material changes to these disclosures except as disclosed in Notes 2 and 4,
above.
8. Reclassification of 1993 Amounts
Certain 1993 amounts have been reclassified to conform to the 1994
presentation.
10
<PAGE> 11
Form 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERGER
On July 13, 1994, K N completed the merger with American Oil and Gas
Corporation ("AOG"). The merger was structured as a tax-free pooling of
interests. Pursuant to the merger, all outstanding AOG shares were converted
into approximately 12.2 million shares of K N common stock. The merger
combines two complementary companies that are competitively positioned to meet
the needs of customers in the evolving natural gas industry.
Since the merger was completed after the end of the second quarter, only K N
stand-alone financial results are included in this report. Pro forma financial
statements of the combined companies are included in the Company's supplemental
report on Form 8-K, dated July 13, 1994. The effects of the merger on 1994 and
1993 second quarter and first six months' operating revenues, net income and
earnings per share are shown in Note 2 of Notes to Consolidated Financial
Statements.
CONSOLIDATED FINANCIAL RESULTS
Second quarter 1994 net income was $2.6 million, or $0.15 per common share
after payment of preferred dividends, compared with a second quarter 1993 net
loss of $1.0 million, or $0.08 per common share. Second quarter earnings
reflected the continued positive 1994 results from nonregulated gas gathering
and processing operations. The 1994 second quarter's earnings were also
favorably impacted by the change in timing of revenues resulting from
implementation of FERC Order 636 on October 1, 1993.
RESULTS OF OPERATIONS
Discussion of operating results by business segment and consolidated other
income and (deductions) and income taxes follows. Segment operating revenues,
gas purchases, operations and maintenance expenses, and volumetric data cited
below are before intersegment eliminations (dollars in millions).
11
<PAGE> 12
Form 10-Q
<TABLE>
<CAPTION>
Second Quarter First Six Months
----------------------- ------------------------
GAS SERVICES 1994 1993 1994 1993
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Gas Sales . . . . . . . . . . $ 95.4 $ 68.5 $ 256.8 $ 201.7
Transportation . . . . . . . 13.6 10.5 27.2 15.5
Natural Gas Liquids
and Other . . . . . . . . . 13.7 11.4 25.2 23.4
-------- -------- ------- --------
122.7 90.4 309.2 240.6
-------- -------- ------- --------
Operating Costs and Expenses
Gas Purchases . . . . . . . . 76.5 51.7 203.8 133.9
Operations and Maintenance . 28.4 27.2 58.6 60.1
Depreciation, Depletion
and Amortization. . . . . . 6.2 5.7 12.3 11.2
Taxes, Other Than Income
Taxes . . . . . . . . . . . 2.9 2.8 6.1 5.6
-------- -------- ------- --------
114.0 87.4 280.8 210.8
-------- -------- ------- --------
Operating Income $ 8.7 $ 3.0 $ 28.4 $ 29.8
======== ======== ======= ========
Systems Throughput (Trillion Btus)
Gas Sales . . . . . . . . . . 38.5 21.4 90.1 60.1
Transportation . . . . . . . 55.5 51.0 97.5 71.7
-------- -------- ------- --------
94.0 72.4 187.6 131.8
======== ======== ======= ========
Natural Gas Liquids
(Millions of Gallons) . . . . 51.3 35.3 103.0 70.9
======== ======== ======= ========
</TABLE>
Due to the 1994 effects of FERC Order 636 implementation (the change in rate
methodology and a reduction in the Company's merchant role to former wholesale
customers) and the April 1993 acquisition of the Wattenberg gathering and
transmission system, there is limited comparability between 1994 and 1993
revenue and expense line items.
Approximately one-half of the second quarter 1994's improved operating income
over 1993 is attributable to the change in timing of revenues due to FERC Order
636's straight fixed-variable rate design. This rate methodology reduces the
seasonal weather effects on revenues and earnings. The remaining increase in
second quarter 1994 earnings is due to improved operating performance, largely
reflecting enhanced throughput volumes of the nonregulated gathering and
processing operations.
Operating income for the first six months of 1994 was adversely affected by the
FERC Order 636's rate design and milder weather than 1993. However, these
factors were substantially offset by improved gathering and processing results,
including six months of 1994 operations of the Wattenberg gathering and
transmission system versus three months of 1993 operating results.
12
<PAGE> 13
Form 10-Q
<TABLE>
<CAPTION>
Second Quarter First Six Months
----------------------- -------------------------
GAS AND OIL PRODUCTION 1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Gas and Oil Sales . . . . . . $ 3.3 $ 1.9 $ 6.7 $ 3.5
Other . . . . . . . . . . . . 0.8 0.3 1.2 0.6
-------- -------- -------- --------
4.1 2.2 7.9 4.1
-------- -------- -------- --------
Operating Costs and Expenses
Operations and Maintenance. . 1.6 0.8 2.9 1.5
Depreciation, Depletion
and Amortization. . . . . . 1.8 0.9 3.4 1.6
Taxes, Other Than Income
Taxes . . . . . . . . . . . 0.3 0.2 0.6 0.4
-------- -------- -------- --------
3.7 1.9 6.9 3.5
-------- -------- -------- --------
Operating Income . . . . . . . $ 0.4 $ 0.3 $ 1.0 $ 0.6
======== ======== ======== ========
Gas and Oil Production
(Equivalent Bcf). . . . . . . 1.9 0.9 3.7 1.7
======== ======== ======== ========
</TABLE>
Higher 1994 operating revenues, expenses, operating income and production
reflect the positive contributions of the February 1994 acquisition of gas
reserves and production.
<TABLE>
<CAPTION>
Second Quarter First Six Months
------------------------ -------------------------
OTHER INCOME AND (DEDUCTIONS) 1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Expense. . . . . . . $ (5.1) $ (5.1) $ (10.4) $ (10.8)
Other, Net. . . . . . . . . . -- 0.2 0.1 0.1
-------- -------- --------- --------
$ (5.1) $ (4.9) $ (10.3) $ (10.7)
======== ======== ======== ========
</TABLE>
Although 1994 short- and long-term borrowings were higher than the comparable
1993 periods, interest expense in 1994 was positively impacted by lower
interest rates (primarily due to the September 1993 refunding of high coupon
sinking fund debentures).
<TABLE>
<CAPTION>
Second Quarter First Six Months
------------------------ -------------------------
1994 1993 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
INCOME TAXES. . . . . . . . . . $ 1.4 $ (0.6) $ 6.8 $ 7.4
======== ======== ======== =======
Effective Tax Rate. . . . . . . 35.8% 37.5%
======== =======
</TABLE>
The lower 1994 effective tax rate reflects greater tax credits on gas
production from wells qualifying for non-conventional fuel credit under Section
29 of the Internal Revenue Code.
LIQUIDITY AND CAPITAL RESOURCES
Excluding the $41 million of proceeds from the January 1994 sale of contract
demand receivables, net cash flows from operating activities were $47.7 million
for the first six months of 1994 compared with $49.4 million for the 1993
period. The decline in 1994 net operating cash flows is primarily attributable
to the impact of FERC Order 636 implementation and mild weather discussed
above.
13
<PAGE> 14
Form 10-Q
In February 1994, K N's gas and oil subsidiaries completed a $30 million
acquisition of gas reserves and production in western Colorado and southwestern
Wyoming. The Company expects to finalize the sale of a 50 percent interest in
these acquired properties to a third party in the third quarter of 1994.
The Company expects to issue between $50-$70 million of long-term debt in the
fourth quarter of 1994. Proceeds from this debt issue will be used to pay down
short-term commercial paper issued to retire AOG long-term debt and fund
capital expenditures.
14
<PAGE> 15
Form 10-Q
PART II OTHER INFORMATION
Item 1. Legal Proceedings
For information relating to legal proceedings, see Notes 2, 3, 4 and 5 of Notes
to Consolidated Financial Statements on Pages 39-43 of the 1993 Annual Report
on Form 10-K and Item 3: Legal Proceedings on Pages 18-20 of the 1993 Annual
Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant held a Special Meeting of Stockholders on July 13, 1994.
Proxies for the meeting were solicited pursuant to Section 14 of the
Securities Exchange Act of 1934.
(i) A proposal to adopt an amendment to K N's Restated
Articles of Incorporation, as amended, increasing the
maximum number of directors of K N from 14 to 15 was voted
upon at the Special Meeting and the number of affirmative
votes, negative votes and abstentions with respect to this
matter were as follows:
For 12,220,356
Against 503,554
Abstain 166,354
(ii) A proposal to adopt an amendment to K N's Restated
Articles of Incorporation, as amended, increasing its
authorized Common Stock from 25,000,000 shares to
50,000,000 shares was voted upon at the Special Meeting
and the number of affirmative votes, negative votes,
abstentions and broker non-votes with respect to this
matter were as follows:
For 12,333,211
Against 315,871
Abstain 181,948
Broker Non-votes 59,234
(iii) A proposal to issue and reserve for issuance by K N up
to 14,000,000 shares of its Common Stock pursuant to an
Agreement of Merger dated as of March 24, 1994, among
K N, KNE Acquisition Corporation and AOG, providing for the
merger of KNE Acquisition Corporation with and into AOG,
and pursuant to which each outstanding share of AOG Common
Stock would be converted into 0.47 of a share of K N
Common Stock was voted upon at the Special Meeting and the
number of affirmative votes, negative votes, abstentions
and broker non-votes with respect to this matter were as
follows:
For 12,187,911
Against 222,090
Abstain 212,204
Broker Non-votes 268,059
15
<PAGE> 16
Form 10-Q
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On July 13, 1994, the Company filed an interim report on Form 8-K
which contained supplemental financial statements of K N Energy,
Inc. and subsidiaries, and Exhibits 23.1, Report of Independent Public
Accountants and 23.2, Consent of K N Independent Public Accountants.
The supplemental financial statements give retroactive effect to the
merger with American Oil and Gas Corporation on July 13, 1994. These
financial statements and the Report of Independent Public Accountants
were, in accordance with the terms set forth in the Form S-3
Registration Statement (No. 33-53255) of K N Energy, Inc.,
incorporated by reference into said Registration Statement.
On July 28, 1994, the Company filed an interim report on Form 8-K
which disclosed the completion of the merger with AOG on July 13,
1994, and incorporated by reference the supplemental financial
statements filed in the Form 8-K dated July 13, 1994, as well as the
Agreement of Merger dated as of March 24, 1994, and certain other
documents.
16
<PAGE> 17
Form 10-Q
SIGNATURE
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.
K N ENERGY, INC.
(Registrant)
August 11, 1994
/s/ E. WAYNE LUNDHAGEN
_______________________________________
E. Wayne Lundhagen
Vice President - Finance and Accounting
(On Behalf of the Registrant and as
Principal Financial and Accounting Officer)
17
