<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, 1995
--------------------
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 50,000,000 shares; outstanding 27,856,904
--------------------------------------------------------------------------------
shares as of July 31, 1995.
---------------------------
--------------------------------------------------------------------------------
<PAGE> 2
Form 10-Q
K N ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1995
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 & 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 14
Item 6. Exhibit 27 - Financial Data Schedule *
SIGNATURE................................................................. 15
</TABLE>
* Included In SEC EDGAR Filing Only.
2
<PAGE> 3
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N ENERGY, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1995 1994
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents....................................................... $ 20,091 $ 20,613
Accounts Receivable............................................................. 150,184 151,834
Material and Supplies, at Average Cost.......................................... 11,844 12,687
Gas in Underground Storage...................................................... 10,795 31,695
Prepaid Gas..................................................................... 15,247 12,456
Exchange Gas and Other.......................................................... 46,923 50,029
---------- ----------
255,084 279,314
---------- ----------
INVESTMENTS..................................................................... 13,571 9,186
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Retail Natural Gas Services..................................................... 355,415 358,337
Interstate Transportation and Storage Services.................................. 310,031 371,253
Gathering, Processing and Marketing Services.................................... 629,792 533,226
Gas and Oil Production.......................................................... 51,435 49,578
---------- ----------
1,346,673 1,312,394
Less - Accumulated Depreciation, Depletion and Amortization..................... 483,487 461,745
---------- ----------
863,186 850,649
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS............................................... 19,552 33,235
---------- ----------
$1,151,393 $1,172,384
========== ==========
</TABLE>
3
<PAGE> 4
Form 10-Q
CONSOLIDATED BALANCE SHEETS
K N ENERGY, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1995 1994
---- ----
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Preferred Stock and Long-Term Debt........................ $ 29,261 $ 30,384
Notes Payable................................................................... 45,500 60,000
Accounts Payable................................................................ 115,892 108,755
Accrued Taxes................................................................... 1,011 6,197
Exchange Gas and Other.......................................................... 40,008 50,434
---------- ----------
231,672 255,770
---------- ----------
DEFERRED LIABILITIES, CREDITS AND RESERVES:
Deferred Income Taxes........................................................... 100,017 96,054
Deferred Revenues............................................................... 41,456 42,090
Other........................................................................... 27,911 28,194
---------- ----------
169,384 166,338
---------- ----------
LONG-TERM DEBT.................................................................. 321,602 334,644
---------- ----------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES.................................... 14,514 13,231
---------- ----------
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION................................. 1,143 1,715
---------- ----------
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 Stockholders' Equity
Common Stock -
Authorized - 50,000,000 Shares, Par Value $5 Per Share
Outstanding - 27,825,304 and 27,617,531 Shares, Respectively............ 139,127 138,088
Additional Paid-in Capital................................................. 173,925 170,932
Retained Earnings........................................................... 93,347 86,032
Deferred Compensation....................................................... (277) (378)
Treasury Stock, at Cost, (1,633 and 44,417 Shares, Respectively)............ (44) (988)
---------- ----------
Total Common Stockholders' Equity............................................... 406,078 393,686
---------- ----------
Total Stockholders' Equity...................................................... 413,078 400,686
---------- ----------
$1,151,393 $1,172,384
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
Form 10-Q
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
K N ENERGY, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Retail Natural Gas Services.......................... $ 36,925 $ 35,463 $111,262 $112,306
Interstate Transportation and Storage Services....... 5,179 4,664 12,396 10,315
Gathering, Processing and Marketing Services......... 189,457 192,759 396,158 454,194
Gas and Oil Production............................... 2,328 2,917 4,419 5,860
-------- -------- -------- --------
Total Operating Revenues............................. 233,889 235,803 524,235 582,675
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Gas Purchases........................................ 157,135 165,379 353,517 426,015
Operations and Maintenance........................... 40,574 41,646 85,507 84,713
Depreciation, Depletion and Amortization............. 12,539 14,164 24,877 26,982
Taxes, Other Than Income Taxes....................... 4,728 4,204 9,929 8,615
-------- -------- -------- --------
Total Operating Costs and Expenses................... 214,976 225,393 473,830 546,325
-------- -------- -------- --------
OPERATING INCOME..................................... 18,913 10,410 50,405 36,350
-------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Interest Expense..................................... (8,516) (7,388) (17,470) (14,690)
Minority Interests................................... (254) (53) (831) (238)
Other, Net........................................... 619 1,565 1,188 1,720
-------- -------- -------- --------
Total Other Income and (Deductions).................. (8,151) (5,876) (17,113) (13,208)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES........................... 10,762 4,534 33,292 23,142
Income Taxes......................................... 3,840 1,624 11,852 8,273
-------- -------- -------- --------
NET INCOME ......................................... 6,922 2,910 21,440 14,869
Less - Preferred Stock Dividends..................... 123 158 246 315
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK.................. $ 6,799 $ 2,752 $ 21,194 $ 14,554
======== ======== ======== ========
Number of Shares Used in Computing
Earnings Per Common Share........................ 28,353 27,855 28,243 27,792
======== ======== ======== ========
EARNINGS PER COMMON SHARE............................ $ 0.24 $ 0.10 $ 0.75 $ 0.52
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE........................... $ 0.25 $ 0.13 $ 0.50 $ 0.27
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements of income.
5
<PAGE> 6
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
K N ENERGY, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................................... $ 21,440 $ 14,869
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Depreciation, Depletion and Amortization..................................... 24,877 26,982
Minority Interests........................................................... 831 238
Provisions for Losses on Accounts Receivable................................. 600 592
Gain on Sale of Facilities................................................... -- (1,357)
Executive Stock Compensation................................................. 101 647
Deferred Income Taxes........................................................ 4,266 1,512
Deferred Purchased Gas Costs................................................. 5,806 8,813
Changes in Other Working Capital Items....................................... 18,536 53,998
Changes in Deferred Revenues................................................. (634) 1,900
Other, Net................................................................... 9,406 5,039
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES........................................ 85,229 113,233
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures............................................................ (33,818) (43,828)
Acquisitions, Net of Cash Acquired ............................................. (13,369) (29,683)
Other Funds Used During Construction............................................ 18 117
Investments..................................................................... (4,385) (181)
Proceeds from Sale of Facilities................................................ 2,595 4,432
(Payments) Collections Under Basket Agreement................................... 1,204 (495)
-------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES..................................... (47,755) (69,638)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt (Net)........................................................... (14,500) (21,500)
Long-Term Debt - Issued................................................... -- 1,100
- Retired.................................................. (14,764) (18,987)
Common Stock Issued............................................................. 4,032 6,859
Treasury Stock - Issued................................................... 1,213 417
- Acquired................................................. (269) (417)
Cash Dividends - Common................................................... (13,879) (7,344)
- Preferred................................................ (246) (315)
Minority Interests - Contributions............................................ 1,031 933
- Distributions............................................ (579) (1,003)
Premium on Debt Reacquisition and Issue Costs................................... (35) --
--------- --------
NET CASH FLOWS USED IN FINANCING ACTIVITIES..................................... (37,996) (40,257)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents............................ (522) 3,338
Cash and Cash Equivalents at Beginning of Year.................................. 20,613 14,353
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 20,091 $ 17,691
======== ========
</TABLE>
The accompanying notes are an integral part of these statements of cash flows.
6
<PAGE> 7
Form 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
K N ENERGY, INC. AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
1995 1994
---- ----
<S> <C> <C>
CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY
(NET OF ACQUISITION EFFECTS):
Accounts Receivable............................................................. $ 1,050 $36,969
Contract Demand Receivables ................................................... -- 38,732
Material and Supplies........................................................... 843 487
Gas in Underground Storage...................................................... 20,900 (812)
Accounts Payable, Accrued Taxes and Other Current Liabilities................... (4,573) (25,474)
Other Current Assets............................................................ 316 4,096
------- -------
$18,536 $53,998
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest (Net of Amount Capitalized)............................................ $16,418 $14,286
======= =======
Income Taxes.................................................................... $ 6,519 $ 7,430
======= =======
</TABLE>
7
<PAGE> 8
Form 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The consolidated financial statements include the amounts of K N Energy, Inc.
("K N") and its majority-owned subsidiaries (the "Company"). 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.
Certain prior year amounts have been reclassified to conform with the 1995
presentation.
2. Merger
On July 13, 1994, pursuant to the Agreement of Merger dated March 24, 1994,
American Oil and Gas Corporation ("AOG") was merged into the Company. 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. 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 was accounted for as a pooling of interests and, accordingly, the
historical consolidated financial statements for periods prior to consummation
of the merger have been restated as though the companies had been combined for
all periods reported herein.
3. Merger and Restructuring Costs
The Company recorded merger and restructuring costs totaling $25.9 million in
the third quarter of 1994. Total expected cash expenditures relating to these
charges are $23.4 million, of which $2.2 million had not yet been paid as of
June 30, 1995.
Merger expenses include $12.4 million in investment bankers' and other
professional fees, $7.7 million for severance and employee benefit costs for
approximately 230 employees who have been or will be terminated through
consolidation of administrative and operational staff, and $4.6 million in costs
to eliminate duplicative space requirements and equipment, and to write-off the
cost of information systems not required subsequent to the merger.
Restructuring costs related to the formal restructuring plan of the Company's
retail distribution operations total $1.2 million, representing severance and
employee benefit costs for terminating approximately 90 retail distribution
employees as a result of the restructuring and centralization of customer
service functions.
4. Acquisitions
On February 16, 1995, the Company acquired natural gas transmission pipeline and
storage assets in Texas. The assets include two West Texas pipeline systems,
comprised of 347 miles of pipeline and related facilities, which are currently
connected to K N's core pipeline system. In addition, surface facilities, lease
rights and approximately 10.8 Bcf of natural gas in storage in a leased, Gulf
Coast storage field were acquired. K N also acquired the remaining 50 percent
interest it did not previously own in a 90-mile joint venture pipeline near
Midland, Texas.
8
<PAGE> 9
Form 10-Q
The total price was $80.1 million, subject to closing adjustments. The Company
utilized an operating lease and short-term debt financing arrangements to fund
the acquisition.
5. Regulatory Matters
In January 1995, as a result of an agreement reached with its customers, the
Company filed an application with the Federal Energy Regulatory Commission
("FERC") to transfer three storage fields, including approximately 45 Bcf of
cushion gas held by K N Interstate Gas Transmission Co. ("KNI"), to a newly
created nonjurisdictional affiliate, K N Natural Gas, Inc. ("KNNG"). On May 2,
1995, FERC issued an order approving the storage reorganization filing. With the
approval of this transfer, KNI owns only the Huntsman, Nebraska storage
facilities, which will remain as jurisdictional facilities and continue to
provide storage services. Jurisdictional rates were restated to reflect this
transfer. KNNG began marketing its gas at market rates from the three storage
facilities which were transferred, effective June 1, 1995.
6. Treasury Stock
In April 1995, K N's Board of Directors authorized the purchase on the open
market of up to 500,000 shares of the Company's common stock through December
31, 1996. Any such purchases will be used to fund Company benefit plans and the
Company's dividend reinvestment plan. Such a program is in the ordinary course
of K N's business and is a continuation of a similar share purchasing program
that K N has used in the past. As of June 30, 1995, the Company had purchased
10,000 shares under this authorization.
9
<PAGE> 10
Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED FINANCIAL RESULTS
The Company reported second quarter 1995 net income of $6.9 million, or $0.24
per common share, after payment of preferred dividends, compared with 1994
second quarter net income of $2.9 million, or $0.10 per common share. The
significant improvement in 1995 results is attributable to the realized benefits
from the July 1994 merger with American Oil and Gas Corporation, favorable
weather for space heating load in K N's northern region, the impact of 1994 rate
increases (subsequent to the 1994 second quarter), and improved natural gas
liquids prices. These positive factors more than offset weak natural gas prices
and cool, wet June weather primarily in K N's southern region which affected gas
sales to agricultural and electric generation markets.
For the first six months of 1995, net income was $21.4 million or $0.75 per
common share, which reflects a 44 percent increase in earnings over the 1994 six
months' net income of $14.9 million, or $0.52 per common share. Expense savings
from the merger, contributions from the February 1995 acquisition of
transmission and storage assets in Texas, and the impact of 1994 rate increases
were key factors in the 1995 earnings improvement.
RESULTS OF OPERATIONS
Comparative operating results by business segment and consolidated other income
and (deductions) and income taxes are discussed below. Segment operating
revenues, gas purchases, operations and maintenance expenses and volumetric data
cited below are before intersegment eliminations (dollars in millions).
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
------------------ --------------------
RETAIL NATURAL GAS SERVICES 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues -
Gas Sales $34.4 $34.4 $106.3 $109.9
Transportation and Other 2.8 2.7 5.3 4.7
----- ----- ------ ------
37.2 37.1 111.6 114.6
----- ----- ------ ------
Operating Costs and Expenses -
Gas Purchases 17.6 19.0 61.6 67.2
Operations and Maintenance 14.0 12.4 27.6 27.0
Depreciation, Depletion and Amortization 3.1 3.0 6.3 5.9
Taxes, Other Than Income Taxes 1.3 1.2 3.2 2.6
----- ----- ------ ------
36.0 35.6 98.7 102.7
----- ----- ------ ------
Operating Income $ 1.2 $ 1.5 $ 12.9 $ 11.9
===== ===== ====== ======
Systems Throughput (Trillion Btus) -
Gas Sales 6.3 6.8 19.6 21.7
Transportation 5.0 4.5 11.2 8.6
----- ----- ------ ------
11.3 11.3 30.8 30.3
===== ===== ====== ======
System-Wide Degree Days 1,018 581 3,841 3,718
===== ===== ====== ======
</TABLE>
10
<PAGE> 11
Form 10-Q
Second quarter 1995 gas sales and transportation margins exceeded 1994 margins
by $2.2 million due to rate increases on the Rocky Mountain distribution system
during the 1994 second quarter and increased deliveries to space heating markets
reflecting cooler temperatures. Second quarter 1994 operations and maintenance
expenses were reduced by $1.7 million due to favorable resolutions of certain
regulatory and environmental matters. For the 1995 six-month period, operations
and maintenance expenses reflect savings realized by centralization of its
customer service operations.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
------------------- ------------------
INTERSTATE TRANSPORTATION AND STORAGE SERVICES 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues -
Transportation and Storage $14.0 $12.3 $29.3 $27.6
Natural Gas Liquids and Other 1.5 0.8 2.8 1.7
----- ----- ----- -----
15.5 13.1 32.1 29.3
----- ----- ----- -----
Operating Costs and Expenses -
Gas Purchases 1.5 0.6 2.9 1.4
Operations and Maintenance 6.8 7.3 13.8 13.0
Depreciation, Depletion and Amortization 1.8 2.1 3.9 4.2
Taxes, Other Than Income Taxes 0.7 1.0 1.5 2.1
----- ----- ----- -----
10.8 11.0 22.1 20.7
----- ----- ----- -----
Operating Income $ 4.7 $ 2.1 $10.0 $ 8.6
===== ===== ===== =====
Systems Throughput (Trillion Btus) 33.4 27.9 72.3 69.2
===== ===== ===== =====
Natural Gas Liquids (Millions of Gallons) 5.0 3.1 8.5 6.3
===== ===== ===== =====
</TABLE>
The significant increase in 1995 second quarter operating income primarily
reflects higher rates resulting from the late 1994 rate case settlement.
Additionally, improved 1995 throughput volumes and NGL recoveries, due to colder
weather, and cost controls enhanced 1995 results. Comparing operating income for
the six-month periods, the impact of the 1994 rate increase on 1995 results was
partially offset by lower customer nominations for firm storage service.
Additionally, first quarter 1994 operations and maintenance expense was reduced
by $1.3 million, due to favorable resolution of certain environmental and legal
contingencies.
11
<PAGE> 12
Form 10-Q
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
------------------- ------------------
GATHERING, PROCESSING AND MARKETING SERVICES 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues -
Gas Sales $160.5 $160.9 $338.9 $397.6
Transportation and Gathering 11.2 11.5 22.6 23.0
Natural Gas Liquids and Other 31.2 30.6 61.2 57.6
------ ------ ------ ------
202.9 203.0 422.7 478.2
------ ------ ------ ------
Operating Costs and Expenses -
Gas Purchases 161.3 165.7 335.3 402.1
Operations and Maintenance 20.0 22.0 43.4 44.5
Depreciation, Depletion and Amortization 6.4 7.2 12.3 13.5
Taxes, Other Than Income Taxes 2.4 1.6 4.7 3.2
------ ------ ------ ------
190.1 196.5 395.7 463.3
------ ------ ------ ------
Operating Income $ 12.8 $ 6.5 $ 27.0 $ 14.9
====== ====== ====== ======
System Throughput (Trillion Btus) -
Gas Sales 105.4 82.7 194.5 183.0
Transportation and Gathering 75.6 78.1 157.2 157.0
------ ------ ------ ------
181.0 160.8 351.7 340.0
====== ====== ====== ======
Natural Gas Liquids (Millions of Gallons) 91.0 93.9 183.8 183.4
====== ====== ====== ======
</TABLE>
Although 1995 second quarter gas sales to agricultural and electric generation
markets were adversely impacted by cool, wet weather in June, this decline in
sales volumes was more than offset by sales to lower margin, short-term local
distribution and industrial markets. Further, the earnings impact of low
agricultural and electric load was more than offset by higher 1995 NGL prices
and cost savings resulting from the merger. Additionally, 1995 results have
benefited from the February acquisition of natural gas transmission and storage
assets in Texas. Second quarter 1994 depreciation, depletion and amortization
included a $1.0 million write-down of a Texas gathering system.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
----------------- -------------------
GAS AND OIL PRODUCTION 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues -
Gas and Oil Sales $2.2 $3.3 $4.5 $6.7
Other 0.8 0.8 1.3 1.2
---- ---- ---- ----
3.0 4.1 5.8 7.9
---- ---- ---- ----
Operating Costs and Expenses -
Operations and Maintenance 1.2 1.6 2.4 2.9
Depreciation, Depletion and Amortization 1.3 1.8 2.4 3.4
Taxes, Other Than Income Taxes 0.3 0.3 0.5 0.6
---- ---- ---- ----
2.8 3.7 5.3 6.9
---- ---- ---- ----
Operating Income $0.2 $0.4 $0.5 $1.0
==== ==== ==== ====
Gas and Oil Production (Equivalent Bcf) 1.7 1.9 3.0 3.7
==== ==== ==== ====
</TABLE>
12
<PAGE> 13
Form 10-Q
The decline in 1995 operating income reflects low natural gas prices
which also resulted in shut-in production. Additionally, 1994 results included
production from gas and oil reserves acquired in February 1994. In October 1994,
the Company sold a 50 percent interest in these properties.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
----------------- ------------------
OTHER INCOME AND (DEDUCTIONS) 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Expense $(8.5) $(7.4) $(17.5) $(14.7)
Minority Interests and Other, Net 0.3 1.5 0.4 1.5
----- ----- ------ ------
$(8.2) $(5.9) $(17.1) $(13.2)
===== ===== ====== ======
</TABLE>
The increase in first quarter 1995 interest expense is due to the October 1994
sale of $75 million of 8.75% debentures. In the second quarter of 1994, a gain
of $1.5 million was realized on the sale of a south Texas gathering system.
<TABLE>
<CAPTION>
SECOND QUARTER FIRST SIX MONTHS
----------------- ------------------
INCOME TAXES 1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Provisions $ 3.8 $ 1.6 $ 11.9 $ 8.3
===== ===== ====== ======
Effective Tax Rate 35.6% 35.7%
====== ======
</TABLE>
The effective tax rates for both 1995 and 1994 reflect 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
Net cash flows from operations for the first six months of 1995 were $85.2
million, or $10.7 million above net operating cash flows for the comparable 1994
period, excluding the $41 million of proceeds received from the February 1994
sale of contract demand receivables. The improvement in 1995 net cash flows
results from the positive 1995 earnings factors.
Short-term debt was $45.5 million at June 30, 1995, compared with short-term
borrowings of $60.0 million and $25.5 million at December 31, 1994 and June 30,
1994, respectively. In February 1995, the Company completed the $80.1 million
acquisition of natural gas transmission and storage assets in Texas.
Approximately $66 million of the acquisition was financed by an operating lease.
The Company expects to issue approximately $75 million of long-term debt in the
fourth quarter of 1995. Proceeds of this debt issue will be used to pay down
short-term borrowings and fund capital expenditures.
13
<PAGE> 14
Form 10-Q
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Scott City, Kansas Helium Plant Environmental Matters.
As reported in the Company's 1994 Annual Report on Form 10-K, in May
1994, the Company discovered that use of a lubricating oil containing
PCBs had caused contamination in certain equipment, soils, and liquids
at the Company's Scott City, Kansas helium extraction facility. A work
plan for remediation was approved by the EPA, and the clean-up has been
completed. Total cost for remediation did not exceed the $600,000
estimate and normal operations at the Plant were not affected.
Westerman, et al. vs. K N Energy, Inc., et al.
As reported in the Company's 1994 Annual Report on Form 10-K, on
December 8, 1994, K N and its wholly-owned subsidiary K N Gas Supply
Services, Inc. ("KNGSS") were sued by gas producers under claims
arising from two gas purchase contracts covering gas purchases from
wells in the Niobrara Field, Colorado. On June 29, 1995, the U.S.
District Court for the Northern District of Texas, Dallas Division,
ruled that it has jurisdiction over K N Energy, Inc. and that venue is
proper in that court. The court has not yet ruled on whether it has
jurisdiction over KNGSS.
For information relating to other legal proceedings, see Notes 5 and 6
of Notes to Consolidated Financial Statements on Pages 42-46 of the
1994 Annual Report on Form 10-K; Item 3: Legal Proceedings on Pages
16-20 of the 1994 Annual Report on Form 10-K; and Item 1: Legal
Proceedings on page 13 of the Form 10-Q for the First Quarter 1995.
Item 6. Exhibits
27 - Financial Data Schedule
14
<PAGE> 15
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 14, 1995 /s/ E. Wayne Lundhagen
---------------------------------
E. Wayne Lundhagen
Vice President and Treasurer
(On Behalf of the Registrant and as
Principal Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE
----------- ------------------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 20,091
<SECURITIES> 0
<RECEIVABLES> 150,184
<ALLOWANCES> 0
<INVENTORY> 22,639
<CURRENT-ASSETS> 255,084
<PP&E> 1,346,673
<DEPRECIATION> 483,487
<TOTAL-ASSETS> 1,151,393
<CURRENT-LIABILITIES> 231,672
<BONDS> 321,602
<COMMON> 139,127
1,143
7,000
<OTHER-SE> 266,951
<TOTAL-LIABILITY-AND-EQUITY> 1,151,393
<SALES> 524,235
<TOTAL-REVENUES> 524,235
<CGS> 353,517
<TOTAL-COSTS> 473,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,470
<INCOME-PRETAX> 33,292
<INCOME-TAX> 11,852
<INCOME-CONTINUING> 21,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,440
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0
</TABLE>
