<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 30, 1998
(Date of earliest event reported)
K N Energy, Inc.
(Exact Name of Registrant as specified in charter)
Kansas 1-6446 48-0290000
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
370 Van Gordon Street
P.O. Box 281304
Lakewood, Colorado 80228-8304
(Address of principal executive offices, including Zip code)
(303) 989-1740
(Registrant's telephone number, including area code)
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Item 7. Financial Statements.
(b) Unaudited Pro Forma Consolidated Financial Statement
An unaudited pro forma condensed statement of income for the year ended
December 31, 1998 and related notes are included herein.
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 hereunto duly authorized.
K N Energy, Inc.
By: /s/ Martha B. Wyrsch
-----------------------------
Name: Martha B. Wyrsch
Title: Vice President, General Counsel
and Secretary
Date: April 16, 1999
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma financial statement gives effect to
(i) KN Energy, Inc's ("K N") 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"), (iv) the April 1998
underwritten public offering of $175 million principal amount of 7.63% capital
securities (the "Capital Securities Offering"), (v) the November 1998
underwritten public offering of $400 million senior notes (the "Senior Notes
Offering") and (vi) the November 1998 underwritten public offering of 9,310,000
units of Premium Equity Participating Units (the "PEPS Units Offering"). The
unaudited pro forma condensed statement of income for the year ended December
31, 1998 assumes that the Acquisition, the Equity Offering, the Debt Offerings,
the Capital Securities Offering, the Senior Notes Offering and the PEPS Units
Offering occurred at January 1, 1998. A pro forma balance sheet has not been
included because K N's December 31, 1998 consolidated balance sheet included in
its 1998 Annual Report on Form 10-K reflects the impact of the events indicated
above. 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 statement 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"
included in K N's 1998 Annual Report on Form 10-K 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 is not necessarily
indicative of the financial results that would have occurred had the
Acquisition, the Equity Offering, the Debt Offerings, the Capital Securities
Offering, the Senior Notes Offering and the PEPS Units Offering 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
after December 31, 1998 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, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------- ---------------------------
K N ENERGY MIDCON* ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Operating Revenues........................ $4,387,843 $268,055 $4,655,898
---------- -------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of
Sales................................ 3,400,044 194,382 3,594,426
Operations and Maintenance.............. 390,883 28,200 $ (400)(b) 418,683
Depreciation and Amortization........... 195,916 13,174 (254)(c) 208,836
Taxes, Other Than Income Taxes.......... 50,686 3,754 54,440
Merger-related Costs.................... 5,763 5,763
---------- -------- -------- ----------
Total Operating Costs and
Expenses...................... 4,043,292 239,510 (654) 4,282,148
---------- -------- -------- ----------
Operating Income.......................... 344,551 28,545 654 373,750
---------- -------- -------- ----------
Other Income and (Deductions):
Interest Expense........................ (247,180) (22,443) (17,263)(d) (278,421)
1,128(e)
4,479(f)
2,858(g)
Minority Interests...................... (16,167) (162) (4,280)(g) (20,609)
Other, Net.............................. 17,057 1,250 (1,126)(e) 16,390
(137)(h)
(20)(g)
(634)(a)
---------- -------- -------- ----------
Total Other Income and (Deductions)....... (246,290) (21,355) (14,995) (282,640)
---------- -------- -------- ----------
Income Before Income Taxes................ 98,261 7,190 (14,341) 91,110
Income Taxes.............................. 38,272 2,660 (5,677)(i) 35,255
---------- -------- -------- ----------
Net Income................................ 59,989 4,530 (8,664) 55,855
Less -- Preferred Stock Dividends......... 350 -- 350
---------- -------- -------- ----------
Earnings Available For Common Stock....... $ 59,639 $ 4,530 $ (8,664) $ 55,505
========== ======== ======== ==========
Diluted Earnings Per Common Share......... $ 0.92 $ 0.81
Number of Shares Used in Computing Diluted
Earnings Per Common Share............... 64,636 3,544(f) 68,180
Dividends Per Common Share................ $ 0.76 $ 0.76**
</TABLE>
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* Represents MidCon's results of operations for January 1998. MidCon's results
of operations for the eleven months ended December 31, 1998 are included in
K N's historical results of operations.
** Represents K N's historical dividends per common share
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
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NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
(a) To record the amortization of issuance costs of the Senior Notes
Offering.
(b) To record the pro forma effect of the removal of the administrative
expenses associated with the termination of MidCon's Employee Stock
Ownership Plan instituted in November 1996.
(c) The pro forma adjustment to depreciation and amortization consists of
the following (in thousands):
<TABLE>
<S> <C>
Elimination of MidCon's historical
depreciation and amortization............ $(13,174)
K N's recomputed depreciation and
amortization*............................ 12,920
--------
Total............................... $ (254)
========
</TABLE>
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* The depreciation and amortization is calculated on a property, plant and
equipment balance that includes a gas plant acquisition adjustment of
approximately $3.9 billion which represents the excess of the estimated fair
market value of MidCon's interstate pipeline assets over their recorded
historical cost for regulatory purposes, amortized over 36 years
(approximately the estimated remaining life of MidCon's interstate pipeline
assets).
(d) The pro forma adjustment to interest expense consists of the following
(in thousands):
<TABLE>
<S> <C>
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 at 6.78% on the Debt Offerings......... 30,120
Interest Expense at 5.8% on the Substitute Note......... 6,739
Interest Expense at 6.45% on $400 million of long-term
debt from the Senior Notes Offering.................. 22,831
Interest savings associated with the repayment of $329.2
million outstanding under the 1997 Credit
Agreement............................................ (1,860)
Interest savings associated with repayment of short-term
borrowings using proceeds from the Senior Notes
Offering............................................. (21,248)
Fee for letter of credit at .625% used to collateralize
the Substitute Note.................................. 397
--------
Total........................................... $ 17,263
========
</TABLE>
(e) To eliminate facility fees and interest income associated with MidCon's
participation in a sale of receivables facility, which participation
terminated concurrently with closing of the Acquisition.
(f) To record the issuance of 18,750,000 shares of Common Stock and the
interest income associated with the U.S. government securities
purchased with the net proceeds from the Equity Offering.
(g) To record distribution expense, amortization of issuance costs and the
interest income associated with the U.S. government securities
purchased with the net proceeds from the Capital Securities Offering.
(h) To record the amortization of issuance costs of the Debt Offerings.
(i) 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 tax benefit) for all pre-tax pro forma
adjustments not representing permanent book/tax differences.
