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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) January 30, 1998
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K N ENERGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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KANSAS 1-6446 48-0290000
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
370 VAN GORDON STREET
P.O. BOX 281304
LAKEWOOD, COLORADO
(Address of Principal 80228-8304
Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 989-1740
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ITEM 7. FINANCIAL STATEMENTS.
(a) UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited pro forma condensed statements of income for the year ended
December 31, 1997 and the three months ended March 31, 1998 and related notes
are included herein.
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2
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.
Dated: June 4, 1998 By: /s/ Martha B. Wyrsch
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Martha B. Wyrsch
Vice President, General Counsel
and Secretary
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to (i)
K N's January 30, 1998 acquisition of MidCon Corp. ("MidCon") from Occidental
Petroleum Corporation ("Occidental") (the "Acquisition"), (ii) the March 1998
sale by K N of 12.5 million shares of common stock in an underwritten public
offering (the "Equity Offering"), (iii) the March 1998 underwritten public
offering of an aggregate principal amount of $2.35 billion of senior notes of
varying maturities (the "Debt Offerings") and (iv) the April 1998 underwritten
public offering of $175 million aggregate liquidation amount of 7.63% Capital
Securities (the "Capital Securities Offering" and, together with the Equity
Offering and the Debt Offerings, the "Prior Offerings"). The unaudited pro
forma condensed statement of income for the year ended December 31, 1997
assumes that the Acquisition and the Prior Offerings occurred at January 1,
1997. The unaudited pro forma condensed statement of income for the three
months ended March 31, 1998 assumes that the Acquisition and the Prior
Offerings occurred at January 1, 1998. A pro forma balance sheet has not been
included because K N's March 31, 1998 balance sheet included in its first-
quarter 1998 Report on Form 10-Q reflects the impact of the Acquisition. The
Acquisition was recorded as a purchase for accounting purposes and,
accordingly, the assets acquired and liabilities assumed have been reflected
at their estimated respective fair market values.
The unaudited pro forma financial statements should be read in conjunction
with the historical financial statements of K N and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of K N included
in K N's 1997 Annual Report on Form 10-K and first-quarter 1998 Report on Form
10-Q and the historical financial statements of MidCon included in K N's Report
on Form 8-K/A dated February 12, 1998. The unaudited pro forma condensed
statements of income are not necessarily indicative of the financial results
that would have occurred had the Acquisition been consummated on the date
indicated, nor are they necessarily indicative of future financial results.
The pro forma adjustments are based on preliminary assumptions and
estimates made by K N's management and do not reflect adjustments for
anticipated operating efficiencies and cost savings which K N expects to
achieve as a result of the Acquisition. The actual allocation of the
consideration paid by K N for MidCon may differ from that reflected in the
unaudited pro forma combined condensed financial statements after a more
extensive review of the fair market values of the assets acquired and
liabilities assumed has been completed.
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ----------------------------
K N ENERGY MIDCOM ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Revenues .......................... $2,145,118 $3,045,081 $5,190,199
---------- ---------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales .... 1,724,671 2,540,928 4,265,599
Operationg and Maintenance ................ 198,274 111,824 $ (4,800)(a) 305,298
Depreciation and Amortization ............. 55,994 149,599 (2,167)(b) 203,426
Taxes, Other Than Income Taxes ............ 23,930 30,297 54,227
---------- ---------- --------- ----------
Total Operating Costs and
Expenses ......................... 2,002,869 2,832,648 (6,967) 4,828,550
---------- ---------- --------- ----------
Operating Income ............................ 142,249 212,433 6,967 361,649
---------- ---------- --------- ----------
Other Income and (Deductions):
Interest Expense .......................... (43,495) (241,838) 16,056 (c) (255,740)
13,537 (d)
Minority Interests ........................ (8,706) -- (8,706)
Other, Net ................................ 23,110 23,469 (13,507)(d) 51,538
(726)(e)
(63)(f)
(13,353)(f)
8,915 (f)
23,693 (g)
---------- ---------- --------- ----------
Total Other Income and (Deductions) ......... (29,091) (218,369) 34,552 (212,908)
---------- ---------- --------- ----------
Income Before Income Taxes .................. 113,158 (5,936) 41,519 148,741
Income Taxes ................................ 35,661 (1,426) 14,167 (h) 48,402
---------- ---------- --------- ----------
Net Income .................................. 77,497 (4,510) 27,352 100,339
Less -- Preferred Stock Dividends ........... 350 -- 350
---------- ---------- --------- ----------
Earnings Available For Common Stock ......... $ 77,147 $ (4,510) $ 27,352 $ 99,989
========== ========== ========= ==========
Diluted Earnings Per Common Share ........... $ 2.45 $ 2.27
Number of Shares Used in Computing
Diluted Earnings Per Common Share ......... 31,538 12,500 (g) 44,038
Dividends Per Common Share .................. $ 1.09 $ 1.09*
</TABLE>
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* Represents K N's historical dividends per common share
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
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UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
Three Months Ended March 31, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- --------------------------
K N ENERGY MIDCON(1) ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Operating Revenues ......................... $1,164,450 $268,055 $1,432,505
---------- -------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales .... 953,647 194,382 1,148,029
Operations and Maintenance ................ 78,661 28,200 $ (400)(a) 106,461
Depreciation and Amortization ............. 41,453 13,174 (254)(b) 54,373
Taxes, Other Than Income Taxes ............ 12,148 3,754 15,902
Merger-related Costs ...................... 4,353 -- -- 4,353
---------- -------- -------- ---------
Total Operating Costs and
Expenses .............................. 1,090,262 239,510 (654) 1,329,118
---------- -------- -------- ----------
Operating Income ........................... 74,188 28,545 654 103,387
---------- -------- -------- ----------
Other Income and (Deductions):
Interest Expense .......................... (52,304) (22,443) (15,680)(c) (89,299)
1,128 (d)
Minority Interests ........................ (2,829) (162) (2,991)
Other, Net ................................ 16,702 1,250 (1,126)(d) 19,499
(137)(e)
(16)(f)
(3,338)(f)
1,685 (f)
4,479 (g)
---------- -------- -------- ----------
Total Other Income and (Deductions) ........ (38,431) (21,355) (13,005) (72,791)
---------- -------- -------- ----------
Income Before Income Taxes ................. 35,757 7,190 (12,351) 30,596
Income Taxes ............................... 13,249 2,660 (4,664)(h) 11,245
---------- -------- -------- ----------
Net Income ................................. 22,508 4,530 (7,687) 19,351
Less -- Preferred Stock Dividends .......... 88 -- 88
---------- -------- -------- ----------
Earnings Available For Common Stock ........ $ 22,420 $ 4,530 $ (7,687) $ 19,263
---------- -------- -------- ----------
Diluted Earnings Per Common Share .......... $ 0.63 $ 0.43
Number of Shares Used in Computing
Diluted Earnings Per Common Share ......... 35,619 9,583 (g) 45,202
Dividends Per Common Share ................. $ 0.28 $ 0.28(2)
</TABLE>
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(1) MidCon's results of operations for January 1998.
(2) Represents K N's historical dividends per common share.
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
S-24
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(a) Gives pro forma effect to the termination of MidCon's Employee Stock
Ownership Plan instituted in November 1996, including cancellation of
the related debt and removal of the associated administrative
expenses.
(b) The pro forma adjustments to depreciation and amortization consist of
the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 (Thousands)
---------------------------- -----------
<S> <C>
Elimination of MidCon's historical depreciation and amortization................................................. $(149,599)
K N's recomputed depreciation and amortization................................................................... 147,432
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Total....................................................................................................... (2,167)
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Three Months Ended March 31, 1998
---------------------------------
Elimination of MidCon's historical depreciation and amortization................................................. $(13,174)
K N's recomputed depreciation and amortization................................................................... 12,920
-----------
Total....................................................................................................... $(254)
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</TABLE>
(c) The pro forma adjustments to interest expense consist of the
following:
<TABLE>
<CAPTION>
Year Ended December 31, 1997 (Thousands)
---------------------------- -----------
<S> <C>
Elimination of MidCon's historical interest expense on its ESOP Note............................................. $(110,500)
Elimination of MidCon's historical interest expense on its $1.6 billion payable to Occidental.................... (128,200)
Interest Expense on the Debt Offerings at 6.78%.................................................................. 159,330
Interest Expense at 5.80% on the Substitute Note................................................................. 80,873
Interest savings associated with the repayment of $329.2 million outstanding under
K N's previous short-term credit facility...................................................................... (22,320)
Fee for letter of credit at 0.625% used to collateralize the Substitute Note..................................... 4,761
-----------
Total....................................................................................................... $(16,056)
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Three Months Ended March 31, 1998
---------------------------------
Elimination of MidCon's historical interest expense on its ESOP Note............................................. $(9,183)
Elimination of MidCon's historical interest expense on its $1.6 billion payable to Occidental.................... (10,533)
Interest expense on the Debt Offerings at 6.78%.................................................................. 30,120
Interest expense at 5.80% on the Substitute Note................................................................. 6,739
Interest savings associated with the repayment of $329.2 million outstanding under
K N's previous short-term credit facility...................................................................... (1,860)
Fee for letter of credit at 0.625% used to collateralize the Substitute Note..................................... 397
-----------
Total....................................................................................................... $15,680
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</TABLE>
(d) To eliminate facility fees and interest income associated with
MidCon's participation in a sale of receivables facility, which
participation terminated concurrently with the closing of the
Acquisition.
(e) To record amortization of debt issuance cost associated with the Debt
Offerings.
(f) To record the Capital Securities Offering and application of the net
proceeds of $173.1 million to purchase U.S. government securities to
replace a portion of the letters of credit that collateralized the
Substitute Note. Distributions on the Capital Securities are payable
at an annual rate of 7.63%. The U.S. government securities are assumed
to earn interest at 5.15%. Interest income related to the U.S.
government securities is based on a portfolio of $633.2 million of
such securities held during each period presented.
(g) To record the Equity Offering and application of the net proceeds of
$623.9 million to reduce short term borrowings and purchase $460.1
million of U.S. government securities as a portion of the collateral
for the Substitute Note.
(h) Represents the tax effect at the effective rate (equal to (i) the
statutory federal income tax rate plus (ii) the statutory state income
tax rate, net of federal income benefit) for all pre-tax pro forma
adjustments not representing permanent book/tax differences.
