<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 11-K
---------------
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 1-6446
---------------
K N Energy, Inc.
Profit Sharing and Savings Plan
K N Energy, Inc.
P.O. Box 281304
Lakewood, Colorado 80228-8304
<PAGE> 2
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
INDEX
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Statement of Net Assets Available for Plan Benefits with Fund
Information as of December 31, 1998 F-3
Statement of Net Assets Available for Plan Benefits with Fund
Information as of December 31, 1997 F-4
Statement of Changes in Net Assets Available for Plan
Benefits with Fund Information for the Year Ended December 31, 1998 F-5
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES F-6 - F-11
SUPPLEMENTAL SCHEDULES:
Schedule I - Item 27a - Schedule of Assets Held for Investment Purposes
as of December 31, 1998 F-12
Schedule II - Item 27d - Schedule of Reportable Transactions for the Year Ended
December 31, 1998 F-13
</TABLE>
F-1
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator,
K N Energy, Inc. Profit Sharing
and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits with fund information of the K N ENERGY, INC. PROFIT SHARING AND
SAVINGS PLAN (the "Plan"), as of December 31, 1998 and 1997, and the related
statement of changes in net assets available for plan benefits with fund
information for the year ended December 31, 1998. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As further discussed in Note 1 of the financial statements, the MidCon Corp.
Savings Plan merged into the Plan effective May 1, 1998.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998 and 1997, and the changes in net assets available for benefits
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. The fund information
in the statements of net assets available for plan benefits and the statement of
changes in net assets available for plan benefits is presented for additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for plan benefits of each fund. The supplemental
schedules and fund information have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Denver, Colorado,
April 23, 1999.
F-2
<PAGE> 4
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
K N Putnam Putnam Putnam
Energy, Inc. Asset Asset Asset
Common Putnam Putnam New Allocation- Allocation- Allocation-
ASSETS Stock Voyager Opportunities Growth Balanced Conservative
------ Fund Fund Fund Portfolio Portfolio Portfolio
----------- ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at market value
(Notes 1 and 2):
K N Energy, Inc. common stock $60,903,758 $ - $ - $ - $ - $ -
Registered investment companies - 65,982,049 4,971,186 8,486,500 10,726,925 801,637
Money market funds - - - - - -
Participant loans - - - - - -
----------- ----------- ---------- ---------- ----------- --------
Total investments 60,903,758 65,982,049 4,971,186 8,486,500 10,726,925 801,637
----------- ----------- ---------- ---------- ----------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $60,903,758 $65,982,049 $4,971,186 $8,486,500 $10,726,925 $801,637
=========== =========== ========== ========== =========== ========
<CAPTION>
Putnam Putnam Putnam
Fund for Putnam International Money
ASSETS Growth and Income Growth Market Loan
------ Income Fund Fund Fund Fund Total
----------- ---------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at market value
(Notes 1 and 2):
K N Energy, Inc. common stock $ - $ - $ - $ - $ - $ 60,903,758
Registered investment companies 62,624,146 7,816,328 17,109,746 - - 178,518,517
Money market funds - - - 51,487,203 - 51,487,203
Participant loans - - - - 4,769,204 4,769,204
----------- ---------- ----------- ----------- ---------- ------------
Total investments 62,624,146 7,816,328 17,109,746 51,487,203 4,769,204 295,678,682
----------- ---------- ----------- ----------- ---------- ------------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $62,624,146 $7,816,328 $17,109,746 $51,487,203 $4,769,204 $295,678,682
=========== ========== =========== =========== ========== ============
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-3
<PAGE> 5
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Putnam Putnam Putnam
K N Asset Asset Asset Putnam
ASSETS Energy, Inc. Putnam Putnam New Allocation- Allocation- Allocation- Fund for
------ Common Stock Voyager Opportunities Growth Balanced Conservative Growth and
Fund Fund Fund Portfolio Portfolio Portfolio Income
------------ ----------- ------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at market value
(Notes 1 and 2):
K N Energy, Inc. common stock $90,067,779 $ - $ - $ - $ - $ - $ -
Registered investment companies - 30,096,655 1,099,091 131,650 465,983 107,473 22,844,812
Money market funds - - - - - - -
Participant loans - - - - - - -
----------- ----------- ---------- -------- -------- -------- -----------
Total investments 90,067,779 30,096,655 1,099,091 131,650 465,983 107,473 22,844,812
----------- ----------- ---------- -------- -------- -------- -----------
CASH - - - - - - -
RECEIVABLES:
K N Energy, Inc. (Notes 1 and 2) - - - - - - -
----------- ----------- ---------- -------- -------- -------- -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $90,067,779 $30,096,655 $1,099,091 $131,650 $465,983 $107,473 $22,844,812
=========== =========== ========== ======== ======== ======== ===========
<CAPTION>
Putnam Putnam
ASSETS Putnam International Money
------ Income Growth Market Loan
Fund Fund Fund Fund Other Total
---------- ------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS, at market value
(Notes 1 and 2):
K N Energy, Inc. common stock $ - $ - $ - $ - $ - $ 90,067,779
Registered investment companies 6,713,632 12,505,454 - - - 73,964,750
Money market funds - - 10,596,482 - - 10,596,482
Participant loans - - - 1,898,521 - 1,898,521
---------- ----------- ----------- ---------- ---------- ------------
Total investments 6,713,632 12,505,454 10,596,482 1,898,521 - 176,527,532
---------- ----------- ----------- ---------- ---------- ------------
CASH - - - - 4,140 4,140
RECEIVABLES:
K N Energy, Inc. (Notes 1 and 2) - - - - 5,755,990 5,755,990
---------- ----------- ----------- ---------- ---------- ------------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $6,713,632 $12,505,454 $10,596,482 $1,898,521 $5,760,130 $182,287,662
========== =========== =========== ========== ========== ============
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-4
<PAGE> 6
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR
PLAN BENEFITS WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
K N Putnam
Energy, Inc. Oxy Asset
Common Common Putnam Putnam New Allocation-
Stock Stock Voyager Opportunities Growth
Fund Fund Fund Fund Portfolio
------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONTRIBUTIONS (Notes 1 and 2):
Employer $ 3,315,636 $ - $ 762,937 $ 66,713 $ 4,048
Employee 1,308,633 - 2,433,615 699,020 373,705
------------ ------------ ----------- ---------- ----------
Total contributions 4,624,269 - 3,196,552 765,733 377,753
------------ ------------ ----------- ---------- ----------
LOAN ACTIVITY, net 69,097 - 168,668 7,307 57,333
------------ ------------ ----------- ---------- ----------
EARNINGS (LOSSES) FROM INVESTMENTS:
Net appreciation (depreciation) in
market value of investments (28,850,805) (183,669) - - -
Net investment gain from registered
investment companies - - 10,492,249 795,021 399,634
Interest - - - - -
Dividends 1,908,815 - - - -
------------ ------------ ----------- ---------- ----------
Total earnings (losses) from
investments (26,941,990) (183,669) 10,492,249 795,021 399,634
------------ ------------ ----------- ---------- ----------
DISTRIBUTIONS:
Directly to participants (5,740,667) - (5,372,740) (86,673) (848,828)
To insurance company for provision
of benefits, net of policy dividends (4,735) - (3,342) (34) (1)
Administration fees (2,083) - (3,094) (260) (205)
Excess contributions (14,997) - (19,243) (853) (38)
------------- ------------ ----------- ---------- ----------
Total distributions (5,762,482) - (5,398,419) (87,820) (849,072)
------------- ------------ ----------- ---------- ----------
INTERFUND TRANSFERS AND
FORFEITURES, net (1,152,915) (11,057,733) (1,157,552) 2,391,854 124,659
MERGER OF THE MSA PLAN (Note 1) - 11,241,402 28,583,896 - 8,244,543
------------ ------------ ----------- ---------- ----------
NET INCREASE (DECREASE) (29,164,021) - 35,885,394 3,872,095 8,354,850
NET ASSETS AVAILABLE FOR
PLAN BENEFITS:
Beginning of year 90,067,779 - 30,096,655 1,099,091 131,650
------------ ------------ ----------- ---------- ----------
End of year $ 60,903,758 $ - $65,982,049 $4,971,186 $8,486,500
============ ============ =========== ========== ==========
<CAPTION>
Putnam Putnam
Asset Asset Putnam Putnam
Allocation- Allocation- Fund for Putnam International
Balanced Conservative Growth and Income Growth
Portfolio Portfolio Income Fund Fund
----------- -------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONTRIBUTIONS (Notes 1 and 2):
Employer $ 5,043 $ 1,062 $ 369,177 $ 110,798 $ 283,832
Employee 336,971 27,331 1,811,549 261,026 710,508
----------- -------- ----------- ---------- -----------
Total contributions 342,014 28,393 2,180,726 371,824 994,340
----------- -------- ----------- ---------- -----------
LOAN ACTIVITY, net 25,989 4,156 183,936 10,314 5,688
----------- -------- ----------- ---------- -----------
EARNINGS (LOSSES) FROM INVESTMENTS:
Net appreciation (depreciation) in
market value of investments - - - - -
Net investment gain from registered
investment companies 332,955 43,942 5,241,831 267,159 2,274,591
Interest - - - - -
Dividends - - - - -
----------- -------- ----------- ---------- -----------
Total earnings (losses) from
investments 332,955 43,942 5,241,831 267,159 2,274,591
----------- -------- ----------- ---------- -----------
DISTRIBUTIONS:
Directly to participants (913,927) (2,509) (5,788,029) (929,900) (1,217,565)
To insurance company for provision
of benefits, net of policy dividends (153) (2) (3,253) (1,039) (1,562)
Administration fees (224) (11) (2,656) (502) (896)
Excess contributions (224) - (8,012) (3,372) (8,025)
----------- -------- ----------- ---------- -----------
Total distributions (914,528) (2,522) (5,801,950) (934,813) (1,228,048)
----------- -------- ----------- ---------- -----------
INTERFUND TRANSFERS AND
FORFEITURES, net (1,472,544) 620,195 (2,074,874) 1,388,212 179,196
MERGER OF THE MSA PLAN (Note 1) 11,947,056 - 40,049,665 - 2,378,525
----------- -------- ----------- ---------- -----------
NET INCREASE (DECREASE) 10,260,942 694,164 39,779,334 1,102,696 4,604,292
NET ASSETS AVAILABLE FOR
PLAN BENEFITS:
Beginning of year 465,983 107,473 22,844,812 6,713,632 12,505,454
----------- -------- ----------- ---------- -----------
End of year $10,726,925 $801,637 $62,624,146 $7,816,328 $17,109,746
=========== ======== =========== ========== ===========
<CAPTION>
Putnam
Money
Market Loan
Fund Fund Other Total
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
CONTRIBUTIONS (Notes 1 and 2):
Employer $ 836,744 $ - $(5,755,990) $ -
Employee 904,130 - - 8,866,488
----------- ---------- ----------- ------------
Total contributions 1,740,874 - (5,755,990) 8,866,488
----------- ---------- ----------- ------------
LOAN ACTIVITY, net 222,012 (754,500) - -
----------- ---------- ----------- ------------
EARNINGS (LOSSES) FROM INVESTMENTS:
Net appreciation (depreciation) in
market value of investments - - - (29,034,474)
Net investment gain from registered
investment companies - - - 19,847,382
Interest 2,529,923 320,199 - 2,850,122
Dividends - - - 1,908,815
----------- ---------- ----------- ------------
Total earnings (losses) from
investments 2,529,923 320,199 - (4,428,155)
----------- ---------- ----------- ------------
DISTRIBUTIONS:
Directly to participants (7,107,876) (647,659) - (28,656,373)
To insurance company for provision
of benefits, net of policy dividends (1,680) - - (15,801)
Administration fees (3,365) - - (13,296)
Excess contributions (3,139) - - (57,903)
----------- ---------- ----------- ------------
Total distributions (7,116,060) (647,659) - (28,743,373)
----------- ---------- ----------- ------------
INTERFUND TRANSFERS AND
FORFEITURES, net 12,215,642 - (4,140) -
MERGER OF THE MSA PLAN (Note 1) 31,298,330 3,952,643 - 137,696,060
----------- ---------- ----------- ------------
NET INCREASE (DECREASE) 40,890,721 2,870,683 (5,760,130) 113,391,020
NET ASSETS AVAILABLE FOR
PLAN BENEFITS:
Beginning of year 10,596,482 1,898,521 5,760,130 182,287,662
----------- ---------- ----------- ------------
End of year $51,487,203 $4,769,204 $ - $295,678,682
=========== ========== =========== ============
</TABLE>
The accompanying notes to financial statements are
an integral part of this statement.
F-5
<PAGE> 7
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1998 AND 1997
(1) DESCRIPTION OF THE PLAN
General
The Employees Retirement Fund Trust Profit Sharing Plan (the "Profit Sharing
Plan") of K N Energy, Inc. (the "Company"), was established in 1945 for the
benefit of eligible employees (as defined in the Profit Sharing Plan indenture).
The Profit Sharing Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA").
The Profit Sharing Plan is the surviving plan of a merger effective July 1, 1994
of the 401(k) Retirement Savings Plan and Trust (the "401(k) Plan") into the
Profit Sharing Plan. The surviving Profit Sharing Plan was amended and restated,
including the name change to the Profit Sharing and Savings Plan (the "Plan").
In connection with the acquisition of MidCon Corp. by the Company, the MidCon
Corp. Savings Plan (the "MSA Plan") was merged into the Plan effective May 1,
1998 . All assets in the MSA Plan, which totaled approximately $138 million,
were liquidated and invested in the Plan pursuant to the participants'
direction. This transfer is shown in the Statement of Changes in Net Assets
Available for Plan Benefits with Fund Information for the year ended December
31, 1998 as the Merger of the MSA Plan. All MidCon employees whose employment
terminated as a result of the MidCon acquisition became 100% vested in their
account balances due to a partial termination of the MSA Plan.
Benefits under the Plan are not guaranteed by the Pension Benefit Guarantee
Corporation. Reference should be made to the Plan agreement for a more complete
description of the Plan's provisions.
Contributions
Participants may elect to make pretax contributions totaling from 1% to 15% of
their annual compensation, limited by requirements of the Internal Revenue Code
("IRC"). Participants may discontinue their election to contribute at any time.
F-6
<PAGE> 8
For each Plan year, the Company contributes to the Plan a maximum of 10% of the
total compensation (excluding bonuses) paid to eligible employees during that
year, based on the Company's attainment of financial targets set by the
Company's Board of Directors for that fiscal year. The 1998 and 1997
contributions were based on eligible net income. The total Company contribution
was $0 and $5,755,990 in 1998 and 1997, respectively.
Beginning with the Company contribution in 1990, 50% of each participant's
portion of the annual Company contribution must be designated to the fund
consisting of the Company's common stock, (the "K N Energy, Inc. Common Stock
Fund"). Participants are not allowed to transfer their employer contribution
portion of their investments in Company common stock until age 55. The
participant can invest the remaining 50% in other investment elections.
Under IRS regulations, annual additions under the Plan and all other plans
sponsored by the Company are limited to the lesser of 25% of eligible
compensation or $30,000. Annual additions are defined as employer contributions
and employee contributions.
Investment Programs
Participants may designate their allocated portion of the contribution, in
percentage increments divisible by five, to one or more of the eligible
investment programs. New Plan participants may elect to transfer investments
from other qualified plans into the Plan.
The investment programs of the Plan and the number of participants in each
program at December 31, 1998 and 1997 are briefly described as follows:
K N ENERGY, INC. COMMON STOCK FUND--This program consists of
shares of the Company's common stock. At December 31, 1998,
2,493 participants held 2,511,495 shares with a cost of
$27,698,020 and a market value of $60,903,758. At December 31,
1997, 1,834 participants held 1,667,922 shares with a cost of
$19,590,675 and a market value of $90,067,779.
PUTNAM VOYAGER FUND--This program consists of investments in
common stocks of small companies and is managed by Putnam
Investment Management, Inc. At December 31, 1998, 2,576
participants held 3,010,130 shares with a cost of $53,122,542
and a market value of $65,982,049. At December 31, 1997, 1,402
participants held 1,579,877 shares with a cost of $22,189,313
and a market value of $30,096,655.
PUTNAM NEW OPPORTUNITIES FUND--This program consists of
investments in a portfolio of stocks in certain emerging
industry groups that Putnam believes offer above-average
long-term growth. At December 31, 1998, 583 participants held
85,079 shares with a cost of $4,242,746 and a market value of
$4,971,186. At December 31, 1997, 225 participants held 22,592
shares with a cost of $1,018,263 and a market value of
$1,099,091.
F-7
<PAGE> 9
PUTNAM ASSET ALLOCATION-GROWTH PORTFOLIO--This program uses a
strategic allocation percentage between equity securities and
fixed income securities. At December 31, 1998, 667
participants held 622,634 shares with a cost of $8,227,554 and
a market value of $8,486,500. At December 31, 1997, 19
participants held 10,677 shares with a cost of $142,479 and a
market value of $131,650.
PUTNAM ASSET ALLOCATION-BALANCED PORTFOLIO--This program uses
a strategic allocation percentage between equity securities
and fixed income securities. At December 31, 1998, 646
participants held 893,166 shares with a cost of $10,598,121
and a market value of $10,726,925. At December 31, 1997, 23
participants held 41,867 shares with a cost of $488,011 and a
market value of $465,983.
PUTNAM ASSET ALLOCATION-CONSERVATIVE PORTFOLIO--This program
uses a strategic allocation percentage between equity
securities and fixed income securities. At December 31, 1998,
69 participants held 77,229 shares with a cost of $784,271 and
a market value of $801,637. At December 31, 1997, 13
participants held 10,780 shares with a cost of $112,134 and a
market value of $107,473.
PUTNAM FUND FOR GROWTH AND INCOME--This program seeks capital
growth and current income by investing primarily in a
portfolio of common stocks that offer the potential for
capital growth, current income or both. At December 31, 1998,
2,419 participants held 3,056,327 shares with a cost of
$59,348,919 and a market value of $62,624,146. At December 31,
1997, 1,189 participants held 1,169,131 shares with a cost of
$19,136,721 and a market value of $22,844,812.
PUTNAM INCOME FUND--This program invests primarily in
corporate bonds from credit worthy companies. At December 31,
1998, 726 participants held 1,129,527 shares with a cost of
$7,746,353 and a market value of $7,816,328. At December 31,
1997, 601 participants held 944,252 shares with a cost of
$6,419,215 and a market value of $6,713,632.
PUTNAM INTERNATIONAL GROWTH FUND--This program seeks capital
appreciation by investing in a diversified portfolio of stocks
of companies located outside the United States. At December
31, 1998, 1,309 participants held 889,742 shares with a cost
of $14,517,963 and a market value of $17,109,746. At December
31, 1997, 999 participants held 750,177 shares with a cost of
$11,519,079 and a market value of $12,505,454.
PUTNAM MONEY MARKET FUND--This program invests primarily in
money market investments. At December 31, 1998, 2,283
F-8
<PAGE> 10
participants held 51,487,203 shares with a cost and a market
value of $51,487,203. At December 31, 1997, 852 participants
held 10,596,482 shares with a cost and a market value of
$10,596,482.
Prior to January 1, 1987, participants had the option of purchasing life
insurance through the Plan. Thereafter, the segment of the Plan allowing for the
purchase of a life insurance policy on the life of the participant was frozen so
that no new policies could be written. Participants with policies at December
31, 1986, had the following options: 1) allow the policy to remain in force with
a frozen face value and fixed premium payments, 2) elect to use the cash
surrender value ("CSV") of the policy to purchase paid-up life insurance or 3)
reinvest the CSV of the policy in another fund.
The value of life insurance in force is not recorded in these financial
statements.
Benefits/Vesting
Obligations for distributions to participants who terminated from the Plan prior
to December 31, 1998 and 1997, but were not paid until subsequent to yearend
were $99,192 and $0, respectively.
Participants are fully and immediately vested in their elective deferral
contributions and rollover contributions. Employees hired after January 1, 1995
are subject to a four-year vesting provision (25% per year of service) for
Company contributions. Contributions may be withdrawn, with the approval of the
Advisory Committee, in the event of unusual expenses connected with illness or
disability, in the event that the money is necessary for children's college
expenses, or for the purchase of a primary residence, as defined in the Plan
document. If not withdrawn earlier, a participant's account will be distributed
in the event of termination of employment, death, or termination of the Plan. If
a participant's account is less than $3,500, a lump-sum distribution will
generally be made. If a participant's account is greater than $3,500, the
participant's distribution options are: lump-sum distribution, monthly or yearly
installments, or purchase of an annuity.
Retirees may continue to leave their account in the Plan.
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100 percent vested in their accounts.
Participants may borrow from the deferral portion of their fund accounts, a
minimum of $500 up to a maximum equal to the lesser of $50,000 or 50 percent of
their vested deferral account balance. The loans are subject to certain
restrictions, as defined in the Plan document and applicable restrictions under
the IRC.
Forfeitures
Forfeited balances of terminated participants' non-vested accounts are used to
reduce Company contributions or administrative expenses. Forfeitures for the
Plan years ended 1998 and 1997 were immaterial.
F-9
<PAGE> 11
(2) SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Valuation
The financial statements of the Plan are prepared on the accrual basis of
accounting. The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's management to use
estimates and assumptions that affect the accompanying financial statements and
disclosures. Actual results could differ from these estimates. Investments are
accounted for at yearend fair market values. Participant loans are valued at
cost, which approximates fair market value. Unrealized appreciation is the
difference between the fair value at the end of the current year and the cost of
the investment, if acquired during the Plan year, or the fair value at the
beginning of the Plan year. The accompanying supplemental Schedule I reflects
cost basis determined utilizing an original cost approach as required by ERISA.
Other
The Company's annual contribution is determined when annual net income and
payroll amounts are known. The contribution is allocated to participants
subsequent to yearend.
The Company provides certain administrative and accounting services to the Plan
at no cost and also pays the cost of certain outside services provided to the
Plan. Such outside services paid by the Company were approximately $94,000 and
$98,000 for 1998 and 1997, respectively.
Payment of Benefits
Benefits are recorded when paid.
(3) TAX STATUS
The Plan is qualified under the IRC as exempt from federal income taxes and the
Plan received a favorable determination letter from the Internal Revenue Service
(the "IRS") on August 23, 1996. The Plan has been amended since receiving this
determination, however, the Plan administrator believes that the Plan is
currently designed and being operated in compliance with the applicable
requirements of the IRC. Therefore, the administrator believes that the Plan was
tax exempt as of the financial statement dates.
Employer contributions to the Plan and all earnings from Plan investments are
not taxable to participants until a partial or complete distribution of such
contributions or earnings is made.
(4) PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of K N Energy, Inc. common stock. Certain
Plan investments are shares of mutual funds and money market funds managed by
Putnam Investments, Inc. Putnam Fiduciary Trust Company (the Trustee of the
Plan) is a subsidiary of Putnam Investments, Inc. and therefore, these
transactions qualify as party-in-interest.
F-10
<PAGE> 12
(5) INVESTMENTS
Investments that represent 5% or more of the Plan's net assets as of December
31, 1998 and 1997, are separately identified in the accompanying Statements of
Net Assets Available for Plan Benefits with Fund Information.
(6) RISKS AND UNCERTAINTIES
The Plan provides for various investment options in mutual funds, money market
funds and Company common stock. Investments, in general, are exposed to various
risks, such as interest rate, credit and overall market volatility risk. Due to
the level of risk associated with certain investments, it is reasonably possible
that changes in the values of investments will occur in the near term and that
such changes could materially affect participants' account balances and the
amounts shown in the Statements of Net Assets Available for Plan Benefits with
Fund Information.
(7) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for plan benefits per
the financial statements to the Form 5500 as of December 31, 1997:
<TABLE>
<S> <C>
Net assets available for plan benefits
per the financial statements $182,287,662
Adjustment for employer contribution receivable
not recorded in the Form 5500 (423,788)
------------
Net assets available for plan benefits per
the Form 5500 $181,863,874
============
</TABLE>
The following is a reconciliation of employer contributions per the financial
statements to the Form 5500 for the year ended December 31, 1998:
<TABLE>
<S> <C>
Employer contributions per the
financial statements $ -
Add: Employer contribution receivable not recorded
in the Form 5500 as of December 31, 1997 423,788
--------
Employer contributions per the Form 5500 $423,788
========
</TABLE>
(8) SUBSEQUENT EVENTS
In connection with the acquisition of MidCon Corp. by the Company, the MidCon
Retirement Plan ("MRA Plan") was merged into the Plan effective February 1,
1999. All assets in the MRA Plan, which totaled approximately $96 million, were
liquidated and invested in the Plan pursuant to the participants' direction.
F-11
<PAGE> 13
SCHEDULE I
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
ITEM 27a--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of
Issue, Borrower, Lessor Shares or Current
or Similar Party Description of Investment Units Cost* Value
----------------------- ------------------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
**K N Energy, Inc. common stock Company Common Stock 2,511,495 $ 27,698,020 $ 60,903,758
**Putnam Investments:
Putnam Voyager Fund Registered Investment Company 3,010,130 53,122,542 65,982,049
Putnam New Opportunities Fund Registered Investment Company 85,079 4,242,746 4,971,186
Asset Allocation-Growth Portfolio Registered Investment Company 622,634 8,227,554 8,486,500
Asset Allocation-Balanced Portfolio Registered Investment Company 893,166 10,598,121 10,726,925
Asset Allocation-Conservative
Portfolio Registered Investment Company 77,229 784,271 801,637
Putnam Fund for Growth and Income Registered Investment Company 3,056,327 59,348,919 62,624,146
Putnam Income Fund Registered Investment Company 1,129,527 7,746,353 7,816,328
Putnam International Growth Fund Registered Investment Company 889,742 14,517,963 17,109,746
Putnam Money Market Fund Money Market Fund 51,487,203 51,487,203 51,487,203
------------ ------------
237,773,692 290,909,478
------------ ------------
Participant Loans Interest rates ranging from 5.0% to 10.36% 4,769,204 4,769,204
------------ ------------
Total investments $242,542,896 $295,678,682
============ ============
</TABLE>
* Determined using original historical cost
** Party-in-interest (Note 4)
The accompanying notes to financial statements are
an integral part of this schedule.
F-12
<PAGE> 14
SCHEDULE II
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
ITEM 27d--SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Number of
Transactions
Identity of Description of ------------------- *Purchase *Sales Cost Net
Party Involved Transaction Purchases Sales Price Price Basis Gain
-------------- -------------- --------- ----- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Series of transactions involving securities of the same issue that in the aggregate exceed five percent of the net Plan assets at
the beginning of the year:
Putnam Investments **K N Energy, Inc.
common stock 286 466 $12,441,933 $12,755,135 $6,536,751 $6,218,384
Putnam Investments **Putnam Voyager Fund 286 558 11,648,180 10,876,608 9,839,801 1,036,807
Putnam Investments **Putnam Fund for Growth
and Income 250 528 11,019,055 11,726,361 11,551,228 175,133
Putnam Investments **Putnam Money Market
Fund 425 517 26,213,811 16,983,504 16,983,504 -
Single transactions involving securities that exceed five percent of the net Plan assets at the beginning of the year:
Putnam Investments **Putnam Money Market
Fund 1 - 11,057,733 - - -
</TABLE>
* The current value of the assets on the transaction date is equal to the
purchase/sales price on that date.
** Party-in-interest (Note 4)
The accompanying notes to financial statements are
an integral part of this schedule.
F-13
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed by the undersigned
hereunto duly authorized.
K N ENERGY, INC.
PROFIT SHARING AND SAVINGS PLAN
By: /s/ Martha B. Wyrsch
---------------------------------------
Name: Martha B. Wyrsch
---------------------------------------
Title: Vice President, General Counsel & Secretary
-------------------------------------------
Date: June 29, 1999
<PAGE> 16
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ------- -----------
23.2 Consent dated June 28, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 23, 1999, included in this Form 11-K, into
the Company's previously filed Form S-8 Registration Statement File No.
33-24934.
/s/ Arthur Andersen LLP
Denver, Colorado,
June 28, 1999.
