<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, 1996
------------------------------------------------
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 28,450,664
shares as of July 31, 1996.
<PAGE> 2
Form 10-Q
K N ENERGY, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1996
INDEX
<TABLE>
<S> <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 - 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 6. Exhibit 4 - Amended and Restated Credit Agreement*
Exhibit 27 - Financial Data Schedule*
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</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
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 25,611 $ 22,571
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 181,363 214,963
Material and Supplies, at Average Cost . . . . . . . . . . . . . . . . . 9,942 10,515
Gas in Underground Storage . . . . . . . . . . . . . . . . . . . . . . . 3,573 9,762
Prepaid Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,765 7,800
Other Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 12,857 13,536
Gas Imbalances and Other . . . . . . . . . . . . . . . . . . . . . . . . 31,688 23,880
---------- ----------
272,799 303,027
---------- ----------
INVESTMENTS:
Investment in Tom Brown, Inc. . . . . . . . . . . . . . . . . . . . . . 40,342 --
Investment in Gas and Oil Properties, Net . . . . . . . . . . . . . . . -- 36,451
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,802 15,784
---------- ----------
46,144 52,235
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Retail Natural Gas Services . . . . . . . . . . . . . . . . . . . . . . 393,366 373,347
Interstate Transportation and
Storage Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,934 315,686
Gathering, Processing and Marketing
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682,672 663,754
---------- ----------
1,400,972 1,352,787
Less Accumulated Depreciation, Depletion
and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 514,826 489,812
---------- ----------
886,146 862,975
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS . . . . . . . . . . . . . . . . . . . 46,146 39,220
---------- ----------
$1,251,235 $1,257,457
========== ==========
</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
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Preferred Stock
and Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,043 $ 28,197
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,500 88,000
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,340 157,340
Accrued Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,173 5,423
Gas Imbalances and Other . . . . . . . . . . . . . . . . . . . . . . . . 58,644 50,878
---------- ----------
312,700 329,838
---------- ----------
DEFERRED LIABILITIES, CREDITS AND RESERVES:
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 117,598 112,267
Deferred Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,629 20,823
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,477 30,356
---------- ----------
158,704 163,446
---------- ----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307,907 315,564
---------- ----------
MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES . . . . . . . . . . . . . . 17,738 14,277
---------- ----------
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION . . . . . . . . . . . . -- 572
---------- ----------
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 - 50,000,000 Shares, Par Value $5 Per Share,
Outstanding 28,441,014 and 28,097,749 Shares, Respectively . . . . . 142,205 140,489
Additional Paid-in Capital . . . . . . . . . . . . . . . . . . . . . . 185,529 176,910
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 121,300 109,895
Deferred Compensation . . . . . . . . . . . . . . . . . . . . . . . . (538) (222)
Treasury Stock, at Cost (38,761 and 10,739) Shares, . . . . . . . . . (1,310) (312)
---------- ----------
Respectively)
Total Common Stockholders' Equity . . . . . . . . . . . . . . . . . . 447,186 426,760
---------- ----------
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . 454,186 433,760
---------- ----------
$1,251,235 $1,257,457
========== ==========
</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
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Retail Natural Gas Services . . . . . . . . . . . . . . . . . . . . . $ 39,204 $ 38,895 $126,235 $115,073
Interstate Transportation and Storage Services . . . . . . . . . . . 5,066 5,165 11,527 12,316
Gathering, Processing and Marketing Services . . . . . . . . . . . . 232,878 191,717 525,237 400,355
Gas and Oil Production . . . . . . . . . . . . . . . . . . . . . . . -- 2,328 -- 4,419
-------- -------- -------- --------
Total Operating Revenues . . . . . . . . . . . . . . . . . . . . . . 277,148 238,105 662,999 532,163
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Gas Purchases and Other Costs of Sales . . . . . . . . . . . . . . . 194,345 162,411 482,679 363,174
Operations and Maintenance . . . . . . . . . . . . . . . . . . . . . 42,899 39,161 86,736 83,136
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . 12,631 12,539 24,830 24,877
Taxes, Other Than Income Taxes . . . . . . . . . . . . . . . . . . . 5,189 4,728 10,894 9,929
-------- -------- -------- --------
Total Operating Costs and Expenses . . . . . . . . . . . . . . . . . 255,064 218,839 605,139 481,116
-------- -------- -------- --------
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 22,084 19,266 57,860 51,047
-------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS):
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . (8,337) (8,516) (16,888) (17,470)
Minority Interests . . . . . . . . . . . . . . . . . . . . . . . . . (1,119) (254) (1,665) (831)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,196 266 1,871 546
-------- -------- -------- --------
Total Other Income and (Deductions) . . . . . . . . . . . . . . . . . (8,260) (8,504) (16,682) (17,755)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . 13,824 10,762 41,178 33,292
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,976 3,840 14,823 11,852
-------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,848 6,922 26,355 21,440
Less Preferred Stock Dividends . . . . . . . . . . . . . . . . . . . 99 123 199 246
-------- -------- -------- --------
EARNINGS AVAILABLE FOR COMMON STOCK . . . . . . . . . . . . . . . . . $ 8,749 $ 6,799 $ 26,156 $ 21,194
======== ======== ======== ========
Number of Shares Used in Computing
Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . 29,181 28,353 29,055 28,243
-------- -------- -------- --------
EARNINGS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . $ 0.30 $ 0.24 $ 0.90 $ 0.75
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ 0.25 $ 0.52 $ 0.50
======== ======== ======== ========
</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
-------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,355 $ 21,440
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Depreciation, Depletion and Amortization . . . . . . . . . . . . . . . . 24,830 24,877
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 5,147 4,266
Deferred Purchased Gas Costs . . . . . . . . . . . . . . . . . . . . . . 7,844 5,806
Provisions for Losses on Accounts Receivable . . . . . . . . . . . . . . 123 600
Changes in Other Working Capital Items . . . . . . . . . . . . . . . . . 34,665 18,536
Changes in Deferred Revenues . . . . . . . . . . . . . . . . . . . . . . (14,194) (634)
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,453) 10,338
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . . . . . . . 83,317 85,229
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,967) (33,818)
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,439) (13,369)
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,192) (4,385)
Proceeds from Sale of Facilities . . . . . . . . . . . . . . . . . . . . . 4,590 2,595
Collections Under Basket Agreement . . . . . . . . . . . . . . . . . . . . 6 1,204
Other Funds Used During Construction . . . . . . . . . . . . . . . . . . . - 18
-------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES . . . . . . . . . . . . . . . . (41,002) (47,755)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt (Net) . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,500) (14,500)
Long-Term Debt - Retired . . . . . . . . . . . . . . . . . . . . . . . . . (11,411) (14,764)
Common Stock Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,859 4,032
Treasury Stock - Issued . . . . . . . . . . . . . . . . . . . . . . . . . . 4,819 1,213
- Acquired . . . . . . . . . . . . . . . . . . . . . . . . . (5,817) (269)
Cash Dividends - Common . . . . . . . . . . . . . . . . . . . . . . . . . (14,751) (13,879)
- Preferred . . . . . . . . . . . . . . . . . . . . . . . (199) (246)
Minority Interests - Contributions . . . . . . . . . . . . . . . . . . . - 1,031
- Distributions . . . . . . . . . . . . . . . . . . . (2,275) (579)
Premium on Debt Re-acquisition and Issue Costs . . . . . . . . . . . . . . - (35)
-------- --------
NET CASH FLOWS USED IN FINANCING ACTIVITIES . . . . . . . . . . . . . . . . (39,275) (37,996)
-------- --------
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . 3,040 (522)
Cash and Cash Equivalents at Beginning of Year . . . . . . . . . . . . . . 22,571 20,613
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . $ 25,611 $ 20,091
======== ========
</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
-------------------------
1996 1995
------- -------
<S> <C> <C>
CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY
(NET OF ACQUISITION EFFECTS):
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,477 $ 1,050
Material and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . 572 843
Gas in Underground Storage. . . . . . . . . . . . . . . . . . . . . . . . . 6,189 20,900
Accounts Payable, Accrued Taxes and Other Current Liabilities . . . . . . . 1,521 (4,573)
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,094) 316
------- -------
$34,665 $18,536
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest (Net of Amount Capitalized) . . . . . . . . . . . . . . . . . . . $16,902 $16,418
======= =======
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,056 $ 6,519
======= =======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On February 16, 1995, K N's gas transmission affiliate, AOG Gas Transmission
Company, L.P., acquired natural gas transmission pipeline and storage assets in
Texas. In conjunction with the acquisition, liabilities were assumed as
follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Fair Value of Assets Acquired . . . . . . . . . . . . . . . . . . . . . . . $ 13,440
Cash Paid for Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,369)
--------
Liabilities Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,071
========
</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.
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
2. Financing
(A) Debt
On July 26, 1996, K N sold publicly $125 million of 30-year 7.35% debentures at
an all-in cost to the company of 7.40 percent. This debt was issued from the
$200 million shelf registration filed with the Securities and Exchange
Commission in November 1993. Net proceeds from this financing were used to
reduce short-term indebtedness and fund capital expenditures, including costs
of acquiring the Pony Express Pipeline (See Note 3(A)).
(B) Equity
On August 6, 1996, K N sold publicly 1,715,000 million shares of its common
stock at $32.25 per share, less offering expenses. The Company applied
approximately $8 million of the net proceeds from the offering to redeem and
cancel outstanding warrants to purchase a total of 545,200 shares of K N's
common stock. The balance of the net proceeds from the offering were used in
the same manner as the net proceeds from the debt financing described above in
Note 2(A).
In connection with the sale of K N common stock described above, Cabot
Corporation sold 1,850,000 shares of K N common stock. K N did not receive any
of the proceeds from the sale of K N common stock by Cabot Corporation. After
the sale, Cabot Corporation owned 2,990,186 shares, or 9.9 percent of the
common stock of K N, including 642,232 shares of common stock underlying
warrants expiring on September 30, 1999.
8
<PAGE> 9
Form 10-Q
3. Merger and Acquisition
(A) Pony Express Pipeline
On May 8, 1996, K N Energy, Inc. ("K N") entered into a definitive agreement to
purchase a 900-mile crude oil pipeline owned by Amoco Pipeline Company for
conversion to natural gas service. Also in May, the Company's regulated
interstate pipeline, K N Interstate Gas Transmission Co. ("KNI"), filed with
the Federal Energy Regulatory Commission ("FERC") requesting authority to
purchase from K N the portion of the line, renamed the Pony Express Pipeline,
from Lost Cabin, Wyoming in central Wyoming to Freeman, Missouri near Kansas
City. KNI also requested authority to convert the pipeline to natural gas
service, install compression and construct additional pipeline facilities. The
total cost of the project, including the purchase price, costs to convert the
pipeline to natural gas service and to construct a lateral to Rockport,
Colorado is expected to be less than $160 million. The pipeline is expected to
be in limited service during the first quarter of 1997.
(B) Gas and Oil Properties
On January 31, 1996, K N and Tom Brown, Inc. ("TBI") closed a transaction
pursuant to which K N transferred its stock in K N Production Company, a
wholly owned subsidiary of K N, to TBI in exchange for common and convertible
preferred stock of TBI. The transaction represents a non-monetary exchange
(valued at approximately $36.3 million) of oil and gas assets for accounting
purposes. In conjunction with this transaction, K N and TBI formed a limited
liability company, owned 55 percent by K N and 45 percent by TBI which performs
certain gathering, processing, field, marketing and storage services in a
defined area of mutual interest.
4. TransColorado Project
Agreements have been executed providing for the construction and operation of a
new unregulated gas treating plant in southwestern Colorado to be owned by
affiliates of K N and El Paso Natural Gas Company. The treating plant will tie
into Phase I (New Mexico pre-build) of the TransColorado pipeline. A filing
has been made with the FERC requesting approval to construct Phase I of the
project which consists of 22.5 miles of 24-inch pipeline together with 2.5
miles of 16-inch lateral pipeline. Both the pipeline and plant, which have a
combined capital cost of approximately $30 million and a design capacity to
handle up to 120,000 MMBtu per day, are expected to be in service by the end of
1996.
9
<PAGE> 10
Form 10-Q
5. Regulatory Matters
On February 16, 1996, the Wyoming Public Service Commission issued an order
authorizing K N to implement a program to allow approximately 10,500
residential and commercial customers to choose their energy provider from a
qualified list of suppliers. This new service commenced on June 1, 1996. K N
continues to provide all other utility services and manages the gas supplies
for customers in the program.
10
<PAGE> 11
Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CONSOLIDATED EARNINGS
The Company reported second quarter 1996 net income of $8.8 million, or $0.30
per common share after payment of preferred dividends, compared with 1995
second quarter net income of $6.9 million, or $0.24 per common share. For the
first six months of 1996, net income was $26.4 million or $0.90 per common
share, a 23 percent increase in earnings over 1995's first six month net income
of $21.4 million, or $0.75 per common share.
The 1996 improvement in earnings, for both the second quarter and the first six
months, is attributable to business expansion, particularly in its interstate
pipeline system and gathering and processing activities, corporate
restructuring in 1995 and higher prices of natural gas liquids ("NGLs").
RESULTS OF OPERATIONS
Operating results by business segment, consolidated other income and
(deductions) and income taxes are discussed below. In January 1996, K N
transferred its stock in a gas and oil subsidiary to Tom Brown, Inc. ("TBI"),
in exchange for common and convertible preferred stock of TBI. Accordingly,
operating results for the gas and oil segment are excluded from the following
discussion; this segment reported operating income of $0.5 million in the first
six months of 1995. 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
--------------- ------------------
RETAIL NATURAL GAS SERVICES 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues -
Gas Sales $32.6 $34.4 $113.4 $106.3
Transportation and Other 7.2 4.7 13.6 9.1
----- ----- ------ ------
39.8 39.1 127.0 115.4
----- ----- ------ ------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sale 18.2 18.9 70.3 64.3
Operations and Maintenance 13.6 14.2 28.7 28.1
Depreciation, Depletion and Amortization 3.4 3.1 6.8 6.3
Taxes, Other Than Income Taxes 2.0 1.3 3.8 3.2
----- ----- ------ ------
37.2 37.5 109.6 101.9
----- ----- ------ ------
Operating Income $ 2.6 $ 1.6 $ 17.4 $ 13.5
===== ===== ====== ======
Systems Throughput (Trillion Btus) -
Gas Sales 4.9 6.3 19.7 19.6
Transportation 7.4 5.0 14.3 11.2
----- ----- ------ ------
12.3 11.3 34.0 30.8
===== ===== ====== ======
System-Wide Degree Days 802 1,018 4,177 3,841
===== ===== ====== ======
</TABLE>
Operating results during the second quarter of 1996 were favorably impacted by
expense reductions made during the 1995 corporate restructuring. During the
first quarter of 1996, the effect of 1995 cost savings programs was largely
offset by the expense impact of higher systems throughput.
<TABLE>
<CAPTION>
Second Quarter First Six Months
--------------- -----------------
INTERSTATE TRANSPORTATION AND STORAGE SERVICES 1996 1995 1996 1995
---- ---- ------ ------
<S> <C> <C> <C> <C>
Operating Revenues -
Transportation and Storage $14.3 $14.0 $ 30.6 $ 29.3
Natural Gas Liquids and Other 1.5 1.4 3.5 2.7
----- ----- ------ ------
15.8 15.4 34.1 32.0
----- ----- ------ ------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sales 2.0 1.6 4.0 3.2
Operations and Maintenance 5.7 6.6 12.7 13.4
Depreciation, Depletion and Amortization 1.8 1.8 3.6 3.9
Taxes, Other Than Income Taxes 0.8 0.7 1.6 1.5
----- ----- ------ ------
10.3 10.7 21.9 22.0
----- ----- ------ ------
Operating Income $ 5.5 $ 4.7 $ 12.2 $ 10.0
===== ===== ====== ======
Systems Throughput (Trillion Btus) 34.1 33.4 87.6 72.3
===== ===== ====== ======
Natural Gas Liquids (Millions of Gallons) 3.9 5.0 7.5 8.5
===== ===== ====== ======
</TABLE>
12
<PAGE> 13
Form 10-Q
Firm storage service rates were reduced, effective June 1, 1995, with the
transfer of three storage fields to a non-regulated subsidiary. However, this
revenue impact was more than offset by increased 1996 systems throughput
volumes and customers converting to firm transport from interruptible service.
Higher 1996 prices for natural gas liquids offset the second quarter 1996
decline in NGLs recoveries due to plant maintenance. The effect of the 1995
corporate restructuring is reflected in the lower second quarter 1996
operations and maintenance costs.
<TABLE>
<CAPTION>
Second Quarter First Six Months
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
GATHERING, PROCESSING AND MARKETING SERVICES
Operating Revenues -
Gas Sales $183.6 $160.5 $435.6 $338.9
Natural Gas Liquids 41.6 28.1 82.2 55.4
Transportation, Gathering and Other 21.1 16.5 37.7 32.6
------ ------ ------ ------
246.3 205.1 555.5 426.9
------ ------ ------ ------
Operating Costs and Expenses -
Gas Purchases and Other Costs of Sales 198.6 165.0 461.3 341.9
Operations and Maintenance 23.9 18.5 46.0 41.0
Depreciation, Depletion and Amortization 7.4 6.4 14.4 12.3
Taxes, Other Than Income Taxes 2.4 2.4 5.5 4.7
------ ------ ------ ------
232.3 192.3 527.2 399.9
------ ------ ------ ------
Operating Income $ 14.0 $ 12.8 $ 28.3 $ 27.0
====== ====== ====== ======
Systems Throughput (Trillion Btus) -
Gas Sales 89.9 105.4 205.6 194.5
Transportation and Gathering 82.4 65.2 171.3 146.8
------ ------ ------ ------
172.3 170.6 376.9 341.3
====== ====== ====== ======
Natural Gas Liquids (Millions of Gallons) 121.6 91.0 237.6 183.8
====== ====== ====== ======
</TABLE>
This segment's improved 1996 second quarter and six month operating income
largely result from higher prices for NGLs and growth in gathering volumes and
NGLs recovered due to the October 1995 acquisition of a processing plant and
gathering facilities. Average per gallon prices of NGLs were 11 percent and 15
percent higher during the 1996 second quarter and first six months,
respectively, than the comparable 1995 periods. The decline in second quarter
1996 gas sales volumes primarily reflects lower sales to power plants and
irrigation customers caused by milder temperatures and wet weather in June. The
higher level of 1996 operations and maintenance expenses result from the 1995
acquisition discussed previously.
<TABLE>
<CAPTION>
Second Quarter First Six Months
----------------- -----------------
1996 1995 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
OTHER INCOME AND (DEDUCTIONS)
Interest Expense $ (8.3) $ (8.5) $(16.9) $(17.5)
Minority Interests and Other, Net - - 0.2 (0.3)
------ ------ ------ -----
$ (8.3) $ (8.5) $(16.7) $(17.8)
====== ====== ====== ======
</TABLE>
13
<PAGE> 14
Form 10-Q
The decline in 1996 interest expense results from a lower amount of long-term
debt outstanding. The positive amount for minority interests and other, net in
the first six months of 1996 primarily reflects preferred dividends received
from TBI. Common and convertible preferred stock was received from TBI in
exchange for the Company's gas and oil subsidiary.
<TABLE>
<CAPTION>
Second Quarter First Six Months
------------------ -----------------
INCOME TAXES 1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Provisions $ 5.0 $ 3.8 $ 14.8 $ 11.9
====== ====== ====== ======
Effective Tax Rate 36.0% 35.7% 36.0% 35.6%
====== ====== ====== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The increase in 1996 net cash flows primarily results from the improved
operating results. Net cash flows from operations (excluding $8.2 million of
gas purchase contract buyouts) for the first six months of 1996 were $91.5
million, or $6.3 million greater than net operating cash flows for the
comparable 1995 period. Short-term debt was $72.5 million at June 30, 1996,
compared to $88.0 million and $45.5 million at December 31, 1995 and June 30,
1995, respectively.
In July 1996, the Company consummated the first phase of its purchase of a
900-mile pipeline from Amoco Pipeline Company. The second and final phases of
this purchase are expected to close during the third and fourth quarters. The
total net cost of the Pony Express Pipeline is estimated at $155 million;
approximately 75 percent of the costs will be incurred in 1996, with the
remainder in 1997.
K N sold $125 million of debentures in July, bearing an interest rate of 7.35
percent with a 30-year maturity. In August, K N sold 1.715 million shares of
its common stock in a public offering. The proceeds of these two financings,
net to K N, will be used to finance capital expenditures, including the Pony
Express Pipeline, and to reduce short-term debt.
14
<PAGE> 15
Form 10-Q
OTHER INFORMATION
Item 1. Legal Proceedings
Grynberg v. K N, et al.
As reported in the Company's Annual Report on Form 10-K, on October 9, 1992,
Jack J. Grynberg filed suit in the United States District Court for the
District of Colorado against the Company, Rocky Mountain Natural Gas Company
and GASCO, Inc. (the "K N Entities") alleging that the K N Entities as well as
K N Production Company ("KNPC") and K N Gas Gathering, Inc., have violated
federal and state antitrust laws. In essence, Grynberg asserts that the
companies have engaged in an illegal exercise of monopoly power, have illegally
denied him economically feasible access to essential facilities to transport
and distribute gas produced from fewer than 20 wells located in northwest
Colorado, and illegally have attempted to monopolize or to enhance or maintain
an existing monopoly. Grynberg also asserts certain causes of action relating
to a gas purchase contract. No specific monetary damages have been claimed,
although Grynberg has requested that any actual damages awarded be trebled. In
addition, Grynberg has requested that the K N Entities be ordered to divest all
interests in natural gas exploration, development and production properties,
all interests in distribution and marketing operations, and all interests in
natural gas storage facilities, separating these interests from the Company's
natural gas gathering and transportation system in northwest Colorado. In an
unrelated transaction, K N's exploration, production and development properties
owned by KNPC were transferred to a third party in January 1996. The Company
has indemnified the third party for any potential claims by Grynberg related to
this litigation.
On August 13, 1993, the United States District Court, District of Colorado,
stayed this proceeding pending exhaustion of appeals in a related state court
action involving the same plaintiff. The related state court action, which
primarily involves a gas contract pricing dispute, was remanded to the state
district court by the state court of appeals on June 13, 1996. The United
States District Court lifted the stay in the above captioned case on July 11,
1996. Discovery is ongoing. No trial date has been set. The Company believes
it has a meritorious position in these matters, and does not expect these
lawsuits to have a material adverse effect on the Company's financial position
or results of operations.
15
<PAGE> 16
Form 10-Q
Environmental Matters
As reported in the Company's Annual Report on Form 10-K, pursuant to certain
acquisition agreements in 1989 and 1992, The Maple Gas Corporation and Cabot
Corporation ("Cabot"), the Company's largest stockholder, indemnified the
Company for certain environmental liabilities. Issues have arisen concerning
Cabot's indemnification obligations; however, in conjunction with the merger,
the Company and Cabot entered into a standstill agreement pertaining to these
and other matters, which was set to expire in June 1996. The parties have
agreed to extend the standstill agreement to December 31, 1996. The Company is
in the process of performing additional environmental audits on the affected
properties, and is unable to estimate its potential exposure for such
liabilities at this time. The Company believes it will be able to reach
agreement with Cabot and does not expect this matter to have a material adverse
impact on the Company's financial position or results of operations.
For information relating to other legal proceedings see Notes 4 and 5 of Notes
to Consolidated Financial Statements on Pages 41-44 of the 1995 Annual Report
on Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
4 - Amended and Restated Credit Agreement
27 - Financial Data Schedule
(B) Reports on Form 8-K
On July 26, 1996, a Current Report on Form 8-K was filed to report that on that
date K N Energy, Inc. sold $125 million of its 7.35% Debentures due August 1,
2026 pursuant to an underwritten public offering.
On August 6, 1996, a Current Report on Form 8-K was filed to report that on
that date K N Energy, Inc. sold up to 1,715,000 shares of its common stock
pursuant to an underwritten public offering, and that Cabot Corporation sold an
additional 1,850,000 shares of K N Energy, Inc. common stock pursuant to such
offering.
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 12, 1996 /s/ Clyde E. McKenzie
--------------------------------------------
Clyde E. McKenzie
Vice President and Chief Financial Officer
(On Behalf of the Registrant and as
Principal Financial and Accounting Officer)
17
<PAGE> 18
Form 10-Q
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
4 - Amended and Restated Credit Agreement
27 - Financial Data Schedule
<PAGE> 1
CONFORMED COPY
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 19,
1996 among K N ENERGY, INC. (the "Borrower"), the BANKS listed on the signature
pages hereof (the "Banks") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Agent (the "Agent").
W I T N E S S E T H :
WHEREAS, certain of the parties hereto have heretofore entered
into a Credit Agreement dated as of December 1, 1994 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement as
set forth herein and to restate the Agreement in its entirety to read as set
forth in the Agreement with the amendments specified below;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; References. Unless otherwise
specifically defined herein, each term used herein which is defined in the
Agreement shall have the meaning assigned to such term in the Agreement. Each
reference to "hereof", "hereunder", "herein" and "hereby" and each other
similar reference and each reference to "this Agreement" and each other similar
reference contained in the Agreement shall from and after the date hereof refer
to the Agreement as amended and restated hereby. The term "Notes" defined in
the Agreement shall include from and after the date hereof the New Notes (as
defined below).
SECTION 2. Amendment of Termination Date. The definition of
"Termination Date" in Section 1.01 of the Agreement is amended to read in its
entirety as follows:
"Termination Date" means July 1, 2001, or, if such day is not
a Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case
the Termination Date shall be the next preceding Euro-Dollar Business Day.
<PAGE> 2
SECTION 3. Amendment of Pricing Schedule. The Pricing
Schedule is amended to read in its entirety as set forth in Exhibit A to this
Amendment and Restatement.
SECTION 4. Changes in Commitments. With effect from and
including the date this Amendment and Restatement becomes effective in
accordance with Section 7 hereof, (i) each Person listed on the signature pages
hereof which is not a party to the Agreement (a "New Bank") shall become a Bank
party to the Agreement and (ii) the Commitment of each Bank shall be the amount
set forth opposite the name of such Bank on the signature pages hereof. Any
Bank whose Commitment is changed to zero shall upon such effectiveness cease to
be a Bank party to the Agreement, and all accrued fees and other amounts
payable under the Agreement for the account of such Bank shall be due and
payable on such date; provided that the provisions of Sections 8.03 and 9.03 of
the Agreement shall continue to inure to the benefit of each such Bank.
SECTION 5. Representations and Warranties. The Borrower
hereby represents and warrants that as of the date hereof and after giving
effect thereto:
(a) no Default has occurred and is continuing;
(b) each representation and warranty of the Borrower set
forth in the Agreement is true and correct as though made on and as of this
date; and
(c) since March 31, 1996 there has been no material
adverse change in the business, financial position or result of operations of
the Borrower and its Consolidated Subsidiaries, considered as a whole.
SECTION 6. Governing Law. This Amendment and Restatement
shall be governed by and construed in accordance with the laws of the State of
New York.
SECTION 7. Counterparts; Effectiveness. This Amendment and
Restatement may be signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Amendment and Restatement shall become
effective as of the date hereof when (i) the Agent shall have received duly
executed counterparts hereof signed by each of the parties hereto (or, in the
case of any party as to which an executed counterpart shall not have
2
<PAGE> 3
been received, the Agent shall have received telegraphic, telex or other
written confirmation from such party of execution of a counterpart hereof by
such party); (ii) the Agent shall have received a duly executed Note for each
Bank (a "New Note"), dated on or before the date of effectiveness hereof and
otherwise in compliance with Section 2.05 of the Agreement; (iii) the Agent
shall have received an opinion of the Deputy General Counsel of the Borrower,
substantially in the form of Exhibit B-1 hereto, and an opinion of Kansas
counsel for the Borrower substantially in the form of Exhibit B-2 hereto, each
with reference to the New Notes, this Amendment and Restatement and the
Agreement as amended and restated hereby; and (iv) the Agent shall have
received all documents it may reasonably request relating to the existence of
the Borrower, the corporate authority for and the validity of the Agreement as
amended and restated hereby, the New Notes and any other matters relevant
hereto, all in form and substance satisfactory to the Agent. Promptly upon the
receipt of its New Note, each Bank shall cancel the old Note currently held by
it.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
K N ENERGY,
By /s/ E. Wayne Lundhagen
-----------------------------------
Title: Vice President- Finance &
Accounting
4
<PAGE> 5
Commitments
- -----------
$45,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ John Kowalczuk
-----------------------
Title: Vice President
$35,000,000 THE CHASE MANHATTAN BANK
(as successor to the CHASE
MANHATTAN BANK, N.A. and
CHEMICAL BANK)
By /s/ Mary Jo Woodford
-------------------------------
Title: Vice President
$35,000,000 NATIONSBANK OF TEXAS, N.A.
By /s/ Malcolm C. Turner
-------------------------------
Title: Senior Vice President
$25,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Gary M. Tsuyuki
-------------------------------
Title: Vice President
5
<PAGE> 6
Commitments
- -----------
$20,000,000 THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ Holly Poolman
-------------------------------
Title: Assistant Vice
President
$20,000,000 THE NORTHERN TRUST COMPANY
By /s/ Michelle D. Griffin
-------------------------------
Title: Vice President
$20,000,000 NORWEST BANK COLORADO, N.A.
By /s/ J.T. Reagan
-------------------------------
Title: Vice President
$0 CITIBANK, N.A
By /s/ Arezoo Jafari
-------------------------------
Title: Assistant Vice
President
- -----------------
Total Commitments
$200,000,000
=================
6
<PAGE> 7
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By /s/ John Kowalczuk
---------------------------
Title: Vice President
7
<PAGE> 8
EXHIBIT A
PRICING SCHEDULE
The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for
any day are the respective percentages set forth below in the applicable row
under the column corresponding to the Status that exists on such day:
<TABLE>
<CAPTION>
===================================================================================================================
Level Level Level Level Level Level
Status I II III IV V VI
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Euro-Dollar 0.1400% 0.1450% 0.1600% 0.2000% 0.2500% 0.3125%
Margin
- -------------------------------------------------------------------------------------------------------------------
CD Margin 0.2650% 0.2700% 0.2850% 0.3250% 0.3750% 0.4375%
- -------------------------------------------------------------------------------------------------------------------
Facility Fee Rate 0.0600% 0.0800% 0.0900% 0.1000% 0.1250% 0.1875%
===================================================================================================================
</TABLE>
For purposes of this Schedule, the following terms have the
following meanings:
"Level I Status" exists at any date if, at such date, the
Borrower's senior unsecured long-term debt is rated AA- or higher by S&P
and Aa3 or higher by Moody's.
"Level II Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated A or higher by S&P and
A2 or higher by Moody's and (ii) Level I Status does not exist.
"Level III Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated A- or higher by S&P and
A3 or higher by Moody's and (ii) neither Level I Status nor Level II
Status exists.
"Level IV Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is rated BBB+ or higher by S&P
and Baa1 or higher by Moody's and (ii) none of Level I Status, Level II
Status and Level III Status exists.
"Level V Status" exists at any date if, at such date, (i) the
Borrower's senior unsecured long-term debt is
<PAGE> 9
rated BBB or higher by S&P and Baa2 or higher by Moody's and (ii) none of
Level I status, Level II Status, Level III Status and Level IV Status
exists.
"Level VI Status" exists at any date if, at such date, no other
Status exists.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Status" refers to the determination of which of Level I Status,
Level II Status, Level III Status, Level IV Status, Level V Status or
Level VI Status exists at any date.
The credit ratings to be utilized for purposes of this Schedule
are those assigned to the senior unsecured long-term debt securities of the
Borrower without third-party credit enhancement, and any rating assigned to
any other debt security of the Borrower shall be disregarded. The rating
in effect at any date is that in effect at the close of business on such
date.
2
<PAGE> 10
EXHIBIT B-1
OPINION OF
DEPUTY GENERAL COUNSEL OF THE BORROWER
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
I am Deputy General Counsel of K N Energy, Inc. (the "Borrower"),
and I have represented the Borrower in connection with the Amended and Restated
Credit Agreement dated as of July 19, 1996 (the "Amendment and Restatement")
relating to the Credit Agreement dated as of December 1, 1994 among the
Borrower, the banks listed on the signature pages thereof and Morgan Guaranty
Trust Company of New York, as Agent (as amended and restated by the Amendment
and Restatement, the "Credit Agreement"). Terms defined in the Credit
Agreement are used herein as therein defined. This opinion is being rendered
to you at the request of my client pursuant to Section 7 of the Amendment and
Restatement.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower has all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
<PAGE> 11
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the New Notes require no action by or in respect of, or
filing with, any governmental body, agency or official of the State of Colorado
or, to the best of my knowledge, any other jurisdiction (other than (i)
approval by the Public Service Commission of the State of Wyoming, which
approval has been obtained and is in full force and effect, and (ii) filings of
the Credit Agreement and the New Notes with the Securities and Exchange
Commission pursuant to the reporting requirements of the Securities Exchange
Act of 1934) and do not contravene, or constitute a default under, any
provision of applicable law or regulation of the State of Colorado or, to the
best of my knowledge, any other jurisdiction or of any agreement, judgment,
injunction, order, decree or other instrument binding upon the Borrower or any
of its Subsidiaries or result in the creation or imposition of any, Lien on any
asset of the Borrower or any of its Subsidiaries.
3. There is no action, suit or proceeding pending against, or to
the best of my knowledge threatened against or affecting, the Borrower or any
of its Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole, or which in any manner
draws into question the validity of the Credit Agreement or the New Notes.
4. Each of the Borrower's corporate Material Subsidiaries is a
corporation validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
5. The Credit Agreement constitutes a valid and binding agreement
of the Borrower and each New Note constitutes a valid and binding obligation of
the Borrower, in each case enforceable against the Borrower in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and by general principles of
equity.
2
<PAGE> 12
I am a member of the Bar of the State of Colorado and the
foregoing opinion is limited to the laws of the State of Colorado, the federal
laws of the United States of America and the General Corporation Law of the
State of Delaware. Insofar as paragraph 2 above addresses the laws of other
jurisdictions, I have relied upon my familiarity with advice given by counsel
admitted to practice in those jurisdictions, in connection with this and other
transactions. Insofar as paragraph 5 above addresses issues of New York law, I
have assumed with your consent that such law is the same as Colorado law.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be
relied upon by you or any Assignee or Participant for any other purpose or
relied upon by any other person without my prior written consent.
Very truly yours,
3
<PAGE> 13
EXHIBIT B-2
OPINION OF
KANSAS COUNSEL FOR THE BORROWER
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel in the State of Kansas for K N Energy,
Inc. (the "Borrower") in connection with the Amended and Restated Credit
Agreement dated as of July 19, 1996 (the "Amendment and Restatement") relating
to the Credit Agreement dated as of December 1, 1994 among the Borrower, the
banks listed on the signature pages thereof and Morgan Guaranty Trust Company
of New York, as Agent (as amended and restated by the Amendment and
Restatement, the "Credit Agreement"). Terms defined in the Credit Agreement
are used herein as therein defined. This opinion is being rendered to you at
the request of our client pursuant to Section 7 of the Amendment and
Restatement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under
<PAGE> 14
the laws of Kansas, and has all corporate powers required to carry on its
business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the New Notes are within the Borrower's corporate powers,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
of the State of Kansas and do not contravene, or constitute a default under,
any provision of applicable law or regulation of the State of Kansas.
We are members of the Bar of the State of Kansas and the foregoing
opinion is limited to the laws of the State of Kansas.
This opinion is rendered solely to you and any Assignee or
Participant in connection with the above matter. This opinion may not be
relied upon by you or any Assignee or Participant for any other purpose or
relied upon by any other person without our prior written consent.
Very truly yours,
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 25,611
<SECURITIES> 0
<RECEIVABLES> 181,363
<ALLOWANCES> 0
<INVENTORY> 13,515
<CURRENT-ASSETS> 272,799
<PP&E> 1,400,972
<DEPRECIATION> 514,826
<TOTAL-ASSETS> 1,251,235
<CURRENT-LIABILITIES> 312,700
<BONDS> 307,907
<COMMON> 142,205
0
7,000
<OTHER-SE> 304,981
<TOTAL-LIABILITY-AND-EQUITY> 1,251,235
<SALES> 662,999
<TOTAL-REVENUES> 662,999
<CGS> 482,679
<TOTAL-COSTS> 605,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,888
<INCOME-PRETAX> 41,178
<INCOME-TAX> 14,823
<INCOME-CONTINUING> 26,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,355
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0
</TABLE>
