=====================================================================
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, 1994
_________________________
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 1-6446
_______________________________________________
K N ENERGY, INC.
______________________________________________________________________
(Exact name of registrant as specified in its charter)
Kansas 48-0290000
______________________________________________________________________
(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
______________________________________________________________________
(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 25,000,000 shares; outstanding
______________________________________________________________________
15,308,462 shares as of April 30, 1994.
______________________________________________________________________
______________________________________________________________________
<PAGE>
Form 10-Q
K N ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1994
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Page Number
___________
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. . . 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 10-12
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 13-14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 14
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE>
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
March December
31, 1994 31, 1993
___________________________________________________________________
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents. . . . . . . . . $ 10,453 $ 4,760
Accounts Receivable. . . . . . . . . . . . 96,980 88,491
Contract Demand Receivables. . . . . . . . -- 38,732
Material and Supplies, at Average Cost . . 9,097 8,603
Gas in Underground Storage . . . . . . . . 2,073 5,836
Prepaid Gas. . . . . . . . . . . . . . . . 6,393 11,689
Exchange Gas and Other . . . . . . . . . . 28,638 28,707
---------- ----------
153,634 186,818
---------- ----------
Property, Plant and Equipment, at cost:
Gas Services . . . . . . . . . . . . . . . 857,221 842,638
Gas and Oil Production . . . . . . . . . . 63,248 34,381
---------- ----------
920,469 877,019
Less-Accumulated Depreciation, Deple-
tion and Amortization. . . . . . . . . . 377,730 369,957
---------- ----------
542,739 507,062
---------- ----------
Deferred Charges and Other Assets. . . . . 27,583 37,389
---------- ----------
$ 723,956 $ 731,269
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
March December
31, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 47,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,022 73,713
Accrued Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,322 10,299
Exchange Gas and Other . . . . . . . . . . . . . . . . . . . . . . . . 29,679 27,447
---------- ----------
142,094 161,959
---------- ----------
Deferred Liabilities, Credits and Reserves:
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . 59,708 60,444
Deferred Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . 48,270 43,692
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,148 21,879
---------- ----------
133,126 126,015
---------- ----------
Long-Term Debt:
Sinking Fund Debentures. . . . . . . . . . . . . . . . . . . . . . . . 99,550 99,543
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,341 132,338
---------- ----------
226,891 231,881
---------- ----------
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 15,278,661 and 15,035,031 Shares, Respectively . . . . 76,393 75,177
Additional Paid-In Capital . . . . . . . . . . . . . . . . . . . . . 32,995 28,907
Retained Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 103,334 97,472
---------- ----------
212,722 201,556
Treasury Stock, at Cost (6,800 and 0 shares, Respectively). . . . . . (163) --
---------- ----------
Total Common Stockholders' Equity . . . . . . . . . . . . . . . . . . 212,559 201,556
---------- ----------
219,559 208,556
---------- ----------
$ 723,956 $ 731,269
========== ==========
</TABLE>
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31,
________________________
1994 1993
________________________________________________________________________________________________
(Dollars in Thousands
Except Per Share Amounts)
<S> <C> <C>
Operating Revenues:
Gas Services. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,429 $ 150,223
Gas and Oil Production. . . . . . . . . . . . . . . . . . . . . . 2,943 1,043
---------- ----------
Total Operating Revenues. . . . . . . . . . . . . . . . . . . . . 189,372 151,266
---------- ----------
Operating Costs and Expenses:
Gas Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 122,795 81,701
Operations and Maintenance. . . . . . . . . . . . . . . . . . . . 35,557 33,351
Depreciation, Depletion and Amortization. . . . . . . . . . . . . 7,691 6,219
Taxes, Other Than Income Taxes. . . . . . . . . . . . . . . . . . 3,091 2,975
---------- ----------
Total Operating Costs and Expenses. . . . . . . . . . . . . . . . 169,134 124,246
---------- ----------
Operating Income. . . . . . . . . . . . . . . . . . . . . . . . . 20,238 27,020
---------- ----------
Other Income and (Deductions):
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . (5,251) (5,642)
Other, Net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 (91)
---------- ----------
Total Other Income and (Deductions) . . . . . . . . . . . . . . . (5,155) (5,733)
---------- ----------
Income Before Income Taxes. . . . . . . . . . . . . . . . . . . . 15,083 21,287
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,398 7,981
---------- ----------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,685 13,306
Less-Preferred Stock Dividends. . . . . . . . . . . . . . . . . . 157 203
---------- ----------
Net Income Available For Common Stock . . . . . . . . . . . . . . $ 9,528 $ 13,103
========== ==========
Average Common Shares Outstanding (In Thousands). . . . . . . . . 15,193 14,757
========== ==========
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . $ 0.63 $ 0.88
========== ==========
Dividends Per Common Share. . . . . . . . . . . . . . . . . . . . $ 0.24 $ 0.22
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31,
________________________
1994 1993
_____________________________________________________________________________________________________________
(Dollars in Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,685 $ 13,306
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Depreciation, Depletion and Amortization. . . . . . . . . . . . . . . . . . . . 7,691 6,219
Provisions for Losses on Accounts Receivable. . . . . . . . . . . . . . . . . . 274 476
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 921
Deferred Purchased Gas Costs. . . . . . . . . . . . . . . . . . . . . . . . . . 6,579 1,428
Other Funds Used During Construction. . . . . . . . . . . . . . . . . . . . . . (73) (33)
Changes in Other Working Capital Items. . . . . . . . . . . . . . . . . . . . . . 54,567 7,662
Changes in Other Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . 6,681 18,233
---------- ----------
Net Cash Flows Provided By Operating Activities . . . . . . . . . . . . . . . . . 85,611 48,212
---------- ----------
Cash Flows From Investing Activities:
Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,653) (12,761)
Other Funds Used During Construction. . . . . . . . . . . . . . . . . . . . . . . 73 33
Proceeds from Sale of Facilities. . . . . . . . . . . . . . . . . . . . . . . . . 73 80
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (27)
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,730) (18,644)
---------- ----------
Net Cash Flows Used In Investing Activities . . . . . . . . . . . . . . . . . . . (40,234) (31,319)
---------- ----------
Cash Flows From Financing Activities:
Short-Term Debt (Net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,000) (2,000)
Long-Term Debt - Retired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,000) (4,015)
Common Stock Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,304 3,417
Treasury Stock - Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254 --
- Acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . (417) --
Cash Dividends - Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,666) (3,265)
- Preferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . (157) (203)
Premium on Debt Reacquisition and Issue Costs . . . . . . . . . . . . . . . . . . (2) (77)
---------- ----------
Net Cash Flows Used In Financing Activities . . . . . . . . . . . . . . . . . . . (39,684) (6,143)
---------- ----------
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . 5,693 10,750
Cash and Cash Equivalents at Beginning of Period. . . . . . . . . . . . . . . . . 4,760 7,962
---------- ----------
Cash and Cash Equivalents at End of Period. . . . . . . . . . . . . . . . . . . . $ 10,453 $ 18,712
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
K N Energy, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
March 31,
________________________
1994 1993
_____________________________________________________________________________________________________________
(Dollars in Thousands)
<S> <C> <C>
Changes in Other Working Capital Items Summary:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (8,763) $ 8,838
Contract Demand Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,732 --
Material and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (494) (978)
Gas in Underground Storage. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,763 (624)
Accounts Payable, Accrued Taxes and Other Current Liabilities . . . . . . . . . . 16,480 305
Exchange Gas, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (511) (975)
Other Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,360 1,096
---------- ----------
$ 54,567 $ 7,662
========== ==========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest (Net of Amount Capitalized). . . . . . . . . . . . . . . . . . . . . . $ 8,197 $ 8,823
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28 $ 2,262
</TABLE>
<PAGE>
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. Reclassification of 1993 Amounts
________________________________
Certain 1993 amounts have been reclassified to conform to the 1994
presentation.
3. Regulatory Matters
__________________
On March 11, 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.
Pursuant to the request of the CPUC, on April 28, 1994, RMNGD filed
a continuation of the March 11, 1994 application, supplementing its
request for the $2.5 million "make whole" rate increase.
4. Restructuring and Reorganization
________________________________
As reported in the Company's 1993 Annual Report on Form 10-K, on April
8, 1992, the Federal Energy Regulatory Commission ("FERC") issued
Order No. 636 ("Order 636") which requires a fundamental restructuring
of interstate natural gas pipelines. K N implemented Order 636
restructured services on October 1, 1993. As a result of Order 636,
K N 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.
5. Merger
______
On March 24, 1994, K N announced that it had executed a definitive
merger agreement with American Oil and Gas Corporation ("AOG"). Under
the terms of the merger agreement, 0.47 of a share of K N common stock
would be exchanged tax-free for each outstanding share of AOG common
stock. The proposed merger is expected to be accounted for as a
pooling of interests, and will require certain approvals by the
shareholders of both companies, as well as specific regulatory and
lender approvals. Closing is anticipated within 90 to 120 days of the
date of the announcement.
The Preliminary Form S-4, Joint Proxy Statement/Prospectus was filed
by K N with the Securities and Exchange Commission on April 25, 1994.
Early termination of the waiting period required under the Hart-Scott-
Rodino Antitrust Improvements Act was received by K N and AOG on April
26, 1994.
<PAGE>
Form 10-Q
6. 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.
7. 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
gas sales agreements associated with these receivables pending final
disposition of related gas purchase contracts.
8. 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 materal effect
on the Company's financial position or results of operation.
9. 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 Part II of this report and Notes 5 and 6, above.
<PAGE>
Form 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED FINANCIAL RESULTS
First quarter 1994 net income was $9.7 million, or $0.63 per common
share after payment of preferred dividends, compared with 1993 first
quarter net income of $13.3 million, or $0.88 per common share. The
$0.25 per share decline in 1994 earnings was anticipated by the
Company and is primarily the result of implementing Federal Energy
Regulatory Commission ("FERC") Order No. 636 ("Order 636") and the
resultant impact of this order's mandated straight fixed-variable rate
design. This rate methodology has little impact on total year
earnings; it only affects the timing of earnings during the year.
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).
<TABLE>
<CAPTION>
Gas Services 1994 1993
________ ________
<S> <C> <C>
Operating Revenues -
Gas Sales. . . . . . . . . . . . . . . . . . $ 161.4 $ 133.2
Transportation . . . . . . . . . . . . . . . 13.7 5.0
Natural Gas Liquids and Other. . . . . . . . 11.3 12.0
________ ________
$ 186.4 $ 150.2
________ ________
Operating Costs and Expenses -
Gas Purchases. . . . . . . . . . . . . . . . $ 123.4 $ 82.3
Operations and Maintenance . . . . . . . . . 34.5 32.9
Depreciation, Depletion and Amortization . . 6.1 5.5
Taxes, Other Than Income Taxes . . . . . . . 2.8 2.8
________ ________
$ 166.8 $ 123.5
________ ________
Operating Income . . . . . . . . . . . . . . . $ 19.6 $ 26.7
======== ========
Systems Throughput (Trillion Btus)
Gas Sales. . . . . . . . . . . . . . . . . . 51.6 38.7
Transportation . . . . . . . . . . . . . . . 42.0 20.7
________ ________
93.6 59.4
======== ========
Natural Gas Liquids (Millions of Gallons). . . 51.7 35.6
======== ========
</TABLE>
This business segment includes the combined operating results of the
gas service segment and the gas marketing and gathering segment, which
were previously reported separately. Due to the 1994 effects of 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 specific
revenue and expense line items.
Positive 1994 operating results from recent acquisitions were
substantially offset by the impact of milder 1994 winter weather and
<PAGE>
Form 10-Q
lower natural gas liquids prices. The $7.1 million decline in 1994
operating income is largely due to the effects of Order 636
implementation.
<TABLE>
<CAPTION>
Gas and Oil Production 1994 1993
________ ________
<S> <C> <C>
Operating Revenues -
Gas and Oil Sales. . . . . . . . . . . . . . $ 3.4 $ 1.6
Other. . . . . . . . . . . . . . . . . . . . 0.4 0.3
________ ________
$ 3.8 $ 1.9
________ ________
Operating Costs and Expenses -
Operations and Maintenance . . . . . . . . . $ 1.3 $ 0.7
Depreciation, Depletion and Amortization . . 1.6 0.7
Taxes, Other Than Income Taxes . . . . . . . 0.3 0.2
________ ________
$ 3.2 $ 1.6
________ ________
Operating Income . . . . . . . . . . . . . . . $ 0.6 $ 0.3
======== ========
Gas and Oil Production (Equivalent Bcf). . . . 1.8 0.8
======== ========
</TABLE>
Higher 1994 operating revenues, expenses, income and production result
from the February 1994 acquisition of gas reserves and production.
<TABLE>
<CAPTION>
Other Income and (Deductions) 1994 1993
________ ________
<S> <C> <C>
Interest Expense . . . . . . . . . . . . . . $ (5.3) $ (5.6)
Other, Net . . . . . . . . . . . . . . . . . 0.1 (0.1)
________ ________
$ (5.2) $ (5.7)
======== ========
</TABLE>
Despite higher levels of short- and long-term debt outstanding during
the 1994 first quarter, interest expense declined as a result of the
1993 refinancing of high coupon sinking fund debentures.
<TABLE>
<CAPTION>
1994 1993
________ ________
<S> <C> <C>
Income Taxes . . . . . . . . . . . . . . . . . $ 5.4 $ 8.0
======== ========
Effective Tax Rate . . . . . . . . . . . . . . 35.8% 37.5%
</TABLE>
The lower 1994 effective tax rate reflects greater tax credits on
production from gas wells qualifying for non-conventional fuel credit
under Section 29 of the Internal Revenue Code.
LIQUIDITY AND CAPITAL RESOURCES
Excluding the sale of contract demand receivables, net cash flows from
operating activities were $44.6 million for the 1994 first quarter
compared with $48.2 million for the 1993 period. The decline in 1994
net operating cash flows is primarily attributable to the impact of
the Order 636 implementation discussed above.
In January 1994, the Company received $41.0 million from the sale of
contract demand receivables to a financial institution. The demand
receivables resulted from gas sales contracts between certain of K N's
former wholesale customers and a K N subsidiary. The proceeds from
<PAGE>
Form 10-Q
this sale were used to reduce short-term borrowings. In February
1994, K N's gas and oil subsidiaries completed an acquisition of gas
reserves and production in western Colorado and southwestern Wyoming
for a total purchase price of approximately $30 million. In April
1994, the Company entered into a letter of intent to sell a 50 percent
interest in substantially all the acquired properties. The Company
does not currently anticipate the issuance of any long-term debt in
1994.
MERGER
On March 24, 1994, K N and American Oil and Gas Corporation ("AOG")
of Houston, Texas, jointly announced they had signed a definitive
merger agreement to combine the two companies. K N will be the
surviving company, with AOG becoming a subsidiary of K N as a result
of the transaction involving a tax-free exchange of 0.47 of a share
of K N common stock for each outstanding share of AOG. The proposed
merger will require certain approvals by the shareholders of both
companies and certain regulatory and lender approvals, and is
anticipated to close within the next 60 days. The Preliminary Form
S-4, Joint Proxy Statement/Prospectus was filed by K N with the
Securities and Exchange Commission on April 25, 1994. Early
termination of the waiting period required under the Hart-Scott-Rodino
Antitrust Improvements Act was received by K N and AOG on April 26,
1994. Shareholders of K N and AOG are expected to benefit as a result
of the new company's strong financial position and expected
improvements in operating results and cash flows.
<PAGE>
Form 10-Q
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
_____________________
As reported in the Company's 1993 Annual Report on Form 10-K,
environmental audits performed by the Company revealed that a grease
known as Rockwell 860 had been used as a valve sealant at several of
the Company's locations in Nebraska and Colorado. Rockwell 860 is a
solid clay-like material which does not easily spill into the
environment, but contains approximately ten percent polychlorinated
biphenyls ("PCBs"). Based on the Company's studies, the PCBs are
contained within the pipeline and valves at the subject locations.
PCBs are regulated by the Environmental Protection Agency ("EPA")
under the Toxic Substances Control Act.
On March 31, 1993, the Company filed suit against Rockwell
International Corporation, manufacturer of the valve sealant, and two
other related defendants, claiming under contractual, statutory, tort
and strict liability theories that the defendants share responsibility
for the Company's environmental expenses and commercial losses
resulting from any EPA or state required PCBs cleanup or mitigation.
The Company reached final settlement with Rockwell, et al. in March
1994 which resolved all disputes between the parties.
During February 1994, the Company submitted its Phase I Report and
PCBs Work Plan to EPA Region VII (covering Nebraska) and EPA Region
VIII (covering Colorado). During March 1994, EPA Region VIII accepted
both the Phase I Report and the PCBs Work Plan as administratively
complete. EPA Region VIII also granted the Company permission to
proceed with implementation of the PCBs management and remediation
activities described in its Work Plan to address sites in Colorado.
EPA Region VII has not yet formally responded to the Company's Phase
I Report and PCBs Work Plan.
For information relating to other 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 its Annual Meeting of Shareholders on
March 24, 1994.
(b) Proxies for the meeting were solicited pursuant to
Regulation 14 of the Securities Exchange Act of 1934. There
was no solicitation in opposition to management's nominees
for directors as listed in the Proxy Statement and all such
nominees were elected.
(c) A proposal to adopt the K N Energy, Inc. Long-Term
Incentive Plan was voted upon at the Annual Meeting and the
<PAGE>
Form 10-Q
number of affirmative votes, negative votes and abstentions
with respect to this matter were as follows:
For 10,644,714
Against 2,866,140
Abstain 397,034
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
On March 25, 1994, the Company filed a Form 8-K which disclosed that
on March 24, 1994, the Company and American Oil and Gas Corporation
signed a definitive merger agreement to combine the two companies.
<PAGE>
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)
May 12, 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)
