KENETECH CORP, 10-Q, 1999-11-12

KENETECH CORP
10-Q, 1999-11-12
COGENERATION SERVICES & SMALL POWER PRODUCERS

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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 September 30, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 33-53132

KENETECH CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 94-3009803
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

500 Sansome Street, Suite 410
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (415)
398-3825

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

On October 30, 1999, there were 41,919,218 shares of the issuer's Common
Stock, $.0001 par value outstanding.

2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

KENETECH Corporation Consolidated Financial Statements Page

Consolidated Statements of Operations for the
Quarters ended September 30, 1999 and 1998 4

Consolidated Statements of Operations for the
nine months ended September 30, 1999 and 1998 5

Consolidated Balance Sheets, as of September 30, 1999 and
December 31, 1998 6

Consolidated Statement of Stockholders' Equity (Deficiency) for
the nine months ended September 30, 1999 7

Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 8

Notes to Consolidated Financial Statements 9-15

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 16-20

Part II - OTHER INFORMATION

Item 1. Legal Proceedings. 22

Item 4. Submission of Matters to a Vote of Security Holders. 22

Item 5. Other Information. 22

Item 6. Exhibits and Reports on Form 8-K. 22

3
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

KENETECH CORPORATION
--------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
for the quarterly periods ended September 30, 1999 and 1998
(unaudited, in thousands, except per share amounts)

September 30, September 30,
1999 1998
----------- -----------
Revenues:
Sale of EcoElectrica Interest .................... $ 5,000 $ --
Construction services ............................ -- --
Maintenance, management fees and other ........... -- 16
Energy sales ..................................... -- --
--------- ---------
Total revenues ................................. 5,000 16

Costs of revenues:
Construction services ............................ -- --
Energy plant operations .......................... -- --
--------- ---------

Total costs of revenues ........................ -- --

Gross margin ....................................... 5,000 16

Project development and marketing expenses ......... 4 318
General and administrative expenses ................ 823 1,293
--------- ---------

Income (Loss) from operations ...................... 4,173 (1,595)

Interest income .................................... 679 130
Interest expense ................................... -- (4,606)
Equity income of unconsolidated affiliates ......... -- 71
Loss on sale of securities ......................... (60) --
Gain on disposition of subsidiaries and assets ..... 57 213
Gain on accounts payable settlement and other income 2,934 --
--------- ---------

Gain (Loss) before taxes ........................... 7,783 (5,787)
Income tax benefit ................................. 19,573 --
--------- ---------

Net income (loss) ............................ $ 27,356 $ (5,787)
========= =========

Net income (loss) per common share: Basic and Diluted $ 0.65 $ (0.14)

Weighted average number of common shares used in
computing per share amounts: Basic and Diluted 41,934 41,954

The accompanying notes are an integral part of these consolidated financial
statements.

4
<PAGE>

KENETECH CORPORATION
--------------------

CONSOLIDATED STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1999 and 1998
(unaudited, in thousands, except per share amounts)

September 30, September 30,
1999 1998
----------- -----------
Revenues:
Sale of EcoElectrica Interest ................... $ 5,000 $ --
Construction services ............................ 410 3,382
Maintenance, management fees and other ........... 21 1,000
Energy sales ..................................... -- 472
----------- -----------
Total revenues ................................. 5,431 4,854

Costs of revenues:
Construction services ............................ 56 2,543
Energy plant operations .......................... -- 2,218
----------- -----------

Total costs of revenues ........................ 56 4,761

Gross margin ....................................... 5,375 93

Project development and marketing expenses ......... 84 700
General and administrative expenses ................ 3,662 2,893
----------- -----------

Income (Loss) from operations ...................... 1,629 (3,500)

Interest income .................................... 2,058 514
Interest expense ................................... -- (12,924)
Equity income of unconsolidated affiliates ......... 27 15
Loss on sale of securities ......................... (60) --
Gain on disposition of subsidiaries and assets ..... 4,965 170
Gain on accounts payable settlement and other income 3,995 --
----------- -----------

Gain (Loss) before taxes ........................... 12,614 (15,725)
Income tax benefit ................................. 19,573 --
----------- -----------

Net income (loss) ............................ $ 32,187 $ (15,725)
=========== ===========

Net income (loss) per common share: Basic and Diluted $ 0.77 $ (0.48)

Weighted average number of common shares used in
computing per share amounts: Basic and Diluted 41,952 39,430

The accompanying notes are an integral part of these consolidated financial
statements.

5
<PAGE>

KENETECH CORPORATION
--------------------
CONSOLIDATED BALANCE SHEETS
as of September 30, 1999 and December 31, 1998
(unaudited, in thousands, except share amounts)

ASSETS
September 30, December 31,
1999 1998
--------- ------------
Current assets:
Cash and cash equivalents ......................... $ 5,601 $ 67,424
Funds in escrow, net .............................. 336 478
Accounts receivable ............................... 110 1,079
Available-for-sale debt securities ................ 44,208 --
Interest receivable ............................... 711 --
Investment in Chateaugay Project .................. -- 15,480
--------- ------------
Total current assets ................................. 50,966 84,461

Property, plant and equipment, net ................... 59 24
Accounts receivable .................................. 10 --
Investment in Chateaugay OSB Project ................. 59 --
--------- ------------
Total assets ................................... $ 51,094 $ 84,485
========= ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Accounts payable .................................. $ 641 $ 4,002
Accrued liabilities ............................... 4,020 8,871
Current taxes payable ............................. 129 2,100
Chateaugay Project debt ........................... -- 15,620
Other notes payable ............................... 6 1,071
Accrued dividends on PRIDES ....................... -- 21,408
--------- ------------
Total current liabilities ....................... 4,796 53,072

Accrued liabilities .................................. 1,186 893
Deferred benefit for deconsolidated
subsidiary losses ................................... 16,305 33,900
--------- ------------
Total liabilities ................................ 22,287 87,865

Commitments and contingencies

Stockholders' equity (deficiency):
Common stock - 110,000,000 shares authorized,
$.0001 par value; 41,919,218 issued and
outstanding at September 30, 1999, and
41,954,218 at December 31, 1998 ................... 4 4
Additional paid-in capital ........................ 224,007 224,007
Accumulated deficit ............................... (195,204) (227,391)
--------- ------------
Total stockholders' equity (deficiency) .......... 28,807 (3,380)
--------- ------------
Total liabilities and stockholders'
equity (deficiency) .......................... $ 51,094 $ 84,485
========= ============

The accompanying notes are an integral part of these consolidated financial
statements.

6
<PAGE>

KENETECH CORPORATION
--------------------

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the nine months ended September 30, 1999
(unaudited, in thousands, except share amounts)

Common Stock Additional
Paid-In Accumulated
Shares Amount Capital Deficit Total

Balance, December 31, 1998 41,954,218 $4 $224,007 $(227,391) $ (3,380)
Shares cancelled and retired (35,000) - -- -- --
Net income -- - -- 32,187 32,187
---------- -- -------- --------- ---------
Balance, September 30, 1999 41,919,218 $4 $224,007 $ (195,204) $ 28,807
========== == ======== ========= =========

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

7
<PAGE>

KENETECH CORPORATION
--------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(unaudited, in thousands)

September 30, September 30,
1999 1998
--------- ---------

Cash flows from operating activities:
Net income (loss) .............................. $ 32,187 $ (15,725)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation, amortization and other ........ 28 2,446
Gain on sale of EcoElectrica Project ........ (5,000) --
Gain on disposition of subsidiaries
and assets ................................. (4,965) (170)
Gain on settlement of accounts payable
and other income ........................... (3,891) --
Accrued, but not paid, interest ............. -- 15,711
Deferred benefit for subsidiary losses ...... (19,573) --
Changes in assets and liabilities:
Funds in escrow, net ....................... 142 1,519
Accounts and interest receivable ........... 248 2,896
Accounts payable, accrued liabilities,
and accrued interest ...................... (2,472) (12,756)
--------- ---------
Net cash provided by (used in) operating
activities ............................ (3,296) (6,079)

Cash flows from investing activities:
Investment in available-for-sale debt
securities ................................. (44,208) --
Capital expenditures ........................ (64) --
Proceeds from sale of EcoElectrica Project .. 5,000 --
Net proceeds on disposition of subsidiaries
and assets ................................. 3,277 7,901
Expenditures on EcoElectrica Project ........ -- (1,484)
Investment in Chateaugay OSB Project ........ (59) --
--------- ---------
Net cash provided by (used in) investing
activities ............................ (36,054) 6,417

Cash flows from financing activities:
Borrowings on Hartford Hospital Project debt -- 3,011
Payments on other notes payable ............. (1,065) (108)
Payments of PRIDES dividends ................ (21,408) --
--------- ---------
Net cash provided by (used in) financing
activities ............................ (22,473) 2,903
--------- ---------

Increase (Decrease) in cash and cash equivalents (61,823) 3,241
Cash and cash equivalents at
beginning of period ....................... 67,424 7,294
--------- ---------

Cash and cash equivalents at end of period .. $ 5,601 $ 10,535
========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

8
<PAGE>

1. General

The interim consolidated financial statements presented herein include the
accounts of KENETECH Corporation ("KENETECH") and its consolidated
subsidiaries (the "Company"), but exclude KENETECH Windpower, Inc. ("KWI").

These interim consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and the
notes thereto for the year ended December 31, 1998. These interim
consolidated financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary (consisting of items of a
normal recurring nature) for a fair presentation of the Company's interim
financial position, results of operations and cash flows. Results of
operations for interim periods are not necessarily indicative of those for
a full year.

KWI filed for protection under Chapter 11 of the Federal Bankruptcy Code on
May 29, 1996, reporting an excess of liabilities over its assets. As of May
29, 1996, KWI ceased to be accounted for as a consolidated subsidiary of
the Company and the Company's financial statements exclude all KWI activity
after that date. KWI's Plan of Reorganization was confirmed by the
Bankruptcy Court on January 27, 1999 and became effective, as later
amended, on April 8, 1999. Although the Company continues to own the common
stock of KWI, the Company believes it will not realize any value from its
remaining interests in KWI other than certain tax attributes. KWI continues
to be a member of the Company's consolidated group for income tax purposes.

The deferred benefit of $16.3 million as of September 30, 1999 and $33.9
million as of December 31, 1998 consists of various tax benefits
attributable to KWI. These benefits have been deferred for financial
statement purposes until the availability of such benefits have been
confirmed under various provisions of the Internal Revenue and Bankruptcy
codes. It is possible that some or all of the deferred benefit will be
realized in the future as the tax benefits are confirmed. The Company
reduced the balance of the deferred benefit, resulting in an income tax
benefit of $19.6 million. The reduction in the deferred benefit is due to
additional losses being available for carryback which are primarily
attributable to a KWI 1999 bankruptcy distriubtion.

2. Significant Accounting Policies

Revenues: Revenues from construction services are recognized on the
percentage-of-completion, cost-to-cost method. Costs of such revenues
include all direct material and labor costs and those indirect costs
related to contract performance such as indirect labor, supplies and tool
costs that can be attributed to specific contracts. Indirect costs not
specifically allocable to contracts and general and administrative expenses
are charged to operations as incurred. Revisions to contract revenue and
cost estimates are recognized in the accounting period in which they are
determined. Provision for estimated losses on uncompleted contracts is made
in the period in which such losses are determined.

Maintenance and management fees are recognized as earned under various
long-term agreements to manage or operate and maintain certain energy
production facilities. Other revenues include development fees earned in
connection with various independent power plant development activities.

Energy sales revenue is recognized when electrical power or steam is
supplied to a purchaser, generally the local utility company or site host,
at the contract rate in place at the time of delivery.

Investments: The Company accounts for investments in marketable equity
securities in accordance with FAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under FAS No. 115, publicly
traded equity securities are classified as available-for-sale. Publicly
traded available-for-sale securities are stated at their fair value, with
the unrealized gains and losses, net of taxes, reported in stockholders'
equity. Realized gains and losses and declines in value judged to be other
than temporary on available-for-sale securities are included in results of
operations.

Depreciation: Depreciation is recorded on a straight-line basis over the
estimated useful life of the asset.

Gains or losses on disposition of subsidiaries and projects (net of costs)
are recognized at closing, when proceeds from the sale are received.

Income Taxes: The Company accounts for income taxes using the liability
method under which deferred income taxes arise from temporary differences
between the tax basis of assets and liabilities and their reported amounts
in the consolidated financial statements. Changes in deferred tax assets
and liabilities include the impact of any tax rate changes enacted during
the year and changes in the valuation allowance.

<PAGE>

3. Business Activities

As of September 30, 1999, the Company had completed its activities to raise
funds for working capital purposes, had disposed of substantially all its
operating assets and had repaid substantially all of its indebtedness. The
Company currently has substantial cash invested and substantial net
operating income tax losses to carry forward to future years. During the
third quarter, management continued to evaluate different businesses that
the Company might pursue, through acquisition or otherwise. In addition,
the Company is evaluating all strategic alternatives available to it. The
Company retained professionals to assist it in such evaluations. The
Company has committed to fund the development of a building products
manufacturing facility, as described in Note 8. In October 1999, the
Company committed to fund up to $3 million for development of an
independent power project in Astoria, New York, as described in Note 8.

In addition, the Court of Chancery of the State of Delaware entered
judgment in favor of the Company in an action brought by former holders of
its PRIDES stock and the United States District Court for the Northern
District of California granted summary judgment for the Company in a
securities class action (see Note 11).

4. Net Income (Loss) Per Share

Net income (loss) per share amounts for the periods ended September 30,
1999 and 1998 were calculated as follows:

<TABLE>
Basic and Diluted
(in thousands, except per share amounts)

Quarters Ended Nine months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------- --------- --------- ---------

Net income (loss) $ 27,356 $ (5,787) $ 32,187 $ (15,725)
Less PRIDES stock dividends -- -- -- (3,188)
--------- --------- --------- ---------
Net income (loss) used in per
share calculations $ 27,356 $ (5,787) 32,187 (18,913)
========= ========== ========= =========
Weighted average shares used in per share
calculations 41,934 41,954 41,952 39,430
========= ========== ========= =========
Net income (loss) per share $ 0.65 $ (0.14) $ 0.77 $ (0.48)
========= ========== ========= =========
</TABLE>

PRIDES (as defined in Note 11) dividends are added to the September year to
date 1998 net loss. The Company incurred net losses after PRIDES dividends
for the nine months ended September 30, 1998, therefore common stock
equivalents are not included in weighted average shares used in the loss
per share calculation because they would be anti-dilutive (reduce the loss
per share). On May 14, 1998, the PRIDES were mandatorily converted into
5,124,600 shares of common stock, $.0001 par value, and dividends on the
PRIDES ceased to accrue.

5. Preferred Stock Rights

On May 4, 1999, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $.0001 per share, of the Company (the
"Common Stock"). The dividend was paid on May 13, 1999 to the stockholders
of record on May 5, 1999 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Stock") at a price of $10 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"),
subject to adjustment.

<PAGE>

The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (with certain exceptions, an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding shares of
Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called
the "Distribution Date"). The Rights will expire on May 4, 2009 (the "Final
Expiration Date"), unless the Final Expiration Date is advanced or extended
or unless the Rights are earlier redeemed or exchanged by the Company, in
each case as described below.

Shares of Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of the
greater of (a) $10 per share, or (b) an amount equal to 1,000 times the
dividend declared per share of Common Stock. In the event of liquidation,
dissolution or winding up of the Company, the holders of the Preferred
Stock will be entitled to a minimum preferential payment of the greater of
(a) $10 per share (plus any accrued but unpaid dividends), or (b) an amount
equal to 1,000 times the payment made per share of Common Stock. Each share
of Preferred Stock will have 1,000 votes, voting together with the Common
Stock. Finally, in the event of any merger, consolidation or other
transaction in which outstanding shares of Common Stock are converted or
exchanged, each share of Preferred Stock will be entitled to receive 1,000
times the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions.

In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become
void), will thereafter have the right to receive upon exercise of a Right
that number of shares of Common Stock having a market value of two times
the exercise price of the Right.

In the event that, after a person or group has become an Acquiring Person,
the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, proper provisions will be made so that each holder of a Right (other
than Rights beneficially owned by an Acquiring Person which will have
become void) will thereafter have the right to receive upon the exercise of
a Right that number of shares of common stock of the person with whom the
Company has engaged in the foregoing transaction (or its parent) that at
the time of such transaction have a market value of two times the exercise
price of the Right.

At any time after any person or group becomes an Acquiring Person and prior
to the earlier of one of the events described in the previous paragraph or
the acquisition by such Acquiring Person of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such Acquiring Person which will
have become void), in whole or in part, for shares of Common Stock or
Preferred Stock (or a series of the Company's preferred stock having
equivalent rights, preferences and privileges), at an exchange ratio of one
share of Common Stock, or a fractional share of Preferred Stock (or other
preferred stock) equivalent in value thereto, per Right.

At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price") payable, at the
option of the Company, in cash, shares of Common Stock or such other form
of consideration as the Board of Directors of the Company shall determine.
The redemption of the Rights may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights,
the right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.

<PAGE>

Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.

6. Investment In Chateaugay Project and Chateaugay Project Debt

The Company, through KENETECH Energy Systems, Inc., owned a 50% indirect
interest in a partnership (the "Chateaugay Partnership"), which owned a
17.8 MW wood-fired electric generating station developed and constructed by
the Company in Chateaugay, New York (the "Chateaugay Project"). The
remaining 50% equity interest was owned by affiliates of CMS Generation
Company. The Chateaugay Project delivered electric energy to New York State
Electric & Gas Corporation under a long-term power purchase agreement. Debt
associated with the Chateaugay Project consisted primarily of tax-exempt
bonds. In July 1991, the Chateaugay Partnership entered into an agreement
with the County of Franklin (New York) Industrial Development Authority
(the "Authority") whereby the Authority loaned the Chateaugay Partnership
the proceeds of the Authority's Series 1991A Bonds issued in the principal
amount of $34,800,000 to finance the construction of the Chateaugay
Project. In October 1998, the Chateaugay Partnership and the Authority
signed a Cooperation and Termination Agreement with respect to the proposed
termination of the power purchase agreement, the payment or defeasance of
the Series 1991A Bonds, and the disposition of the Chateaugay Project.

On March 24, 1999, the Chateaugay Partnership entered into and consummated
a number of agreements under which the Chateaugay Partnership (i)
terminated the power purchase agreement, (ii) received a payment from an
affiliate of Citizens Power LLC, a Delaware limited liability company, in
connection with such termination, (iii) sold substantially all its rights
in the Chateaugay Project to an affiliate of Boralex, Inc., a Quebec
corporation, (iv) terminated its relationship with the Authority pursuant
to the Termination Agreement, (v) satisfied in full all of its obligations
with respect to the Series 1991A Bonds, and (vi) terminated certain
agreements entered into in connection with the Chateaugay Project relating,
among other matters, to the operation and administration of the project.

The Company has been released from the Chateaugay Project debt, and the
liabilities relating to the Chateaugay Project included in other notes
payable of $1,060,000 at December 31, 1998 have been paid in full. The
Company received net cash of approximately $2,391,000, included in Gain on
disposition of subsidiaries and assets. Of that gain, $311,000 was
recognized in the second quarter of 1999.

7. Investment in Partnership and Settlement of Accounts Payable
and Other Income

The Company owned a 50% interest in the general partner of a Dutch limited
partnership that owned a windplant in the Netherlands. In addition, a
subsidiary of the Company had a payable to the co-general partner of the
partnership of approximately $1,549,000. On January 14, 1999, the Company
transferred its 50% general partner interest to its partner, paid $200,000
to the partner and was released from the remainder of the payable. The
transaction accounted for approximately $1,349,000 of the gain on
disposition of subsidiaries and assets.

In 1999, the Company recognized $942 thousand of gains on accounts payable
settlements. One transaction resulted in a gain of $924,000 on settlement
of a $1,074,000 payable to a German vendor related to the Dutch windplant.
The Company recorded other income of $2.9 million for the quarter ended
September 30, 1999, because the Company reduced its accrued liabilities
related to various legal matters.

<PAGE>

8. Active Development Projects

The Company entered into a project funding agreement to provide funding,
not to exceed $1.25 million, to OSB Chateaugay LLC ("OSB"). The funding
will be used by OSB to pursue the development and financing of an oriented
strand-board project (the "Project") in Chateaugay, New York. The funding
made to OSB is scheduled to be repaid upon the financial closing or sale of
the Project. In exchange for providing funding the Company will receive
certain equity distributions made by OSB which are contingent upon the
success of the project. The Company is currently capitalizing all direct
costs of the Project. For the quarter ended September 30, 1999, the Company
capitalized $59,000 of costs relating to the Project.

In October 1999 the Company agreed to fund up to $3.0 million of bridge
financing for the development of a 1,000 megawatt independent power plant
to be located in Astoria, Queens, New York. In exchange for the funding,
the Company will be repaid the funding plus certain equity distributions
which are contingent upon the success of the project. The Company has
advanced $1.9 million to date.

9. Other Notes Payable

Other notes payable at September 30, 1999 and December 31, 1998 consisted
of the following:

September 30, December 31,
1999 1998
--------- ------------
(in thousands)
Borrowings under a $1,200,000 loan agreement,
due in 1999 bearing interest at prime plus 3%
(10.75% at December 31, 1998).................... $ -- $ 1,060(1)

Note bearing interest at 7.0% due in 1999........ 6 6

Other obligations bearing interest at 9.9%
due through 1999, collateralized by equipment.... -- 5
--------- ----------
$ 6 $ 1,071
========= ==========
(1) Repaid in full in March 1999.

10. Income Taxes

At September 30, 1999 and December 31, 1998, the Company had substantial
net deferred tax assets for which a valuation allowance of an equal amount
has been recognized.

11. Contingencies

Preferred Stock Litigation: On May 6, 1998, Quadrangle Offshore (Cayman)
LLC, and Cerberus Partners, L.P. ("Plaintiffs"), filed a Verified Complaint
for Declaratory Judgment and Injunctive Relief, in the Court of Chancery of
the State of Delaware In and For New Castle County (Civil Action No.
16362-NC). Plaintiffs allege that they were beneficial owners of Preferred
Redeemable Increased Dividend Equity Securities, 8-1/4% PRIDES, Convertible
Preferred Stock, par value $0.01 per share (the "PRIDES") of the Company,
that mandatorily converted, on May 14, 1998, into Common Stock, par value
$0.0001 per share ("Common Stock") of the Company.

<PAGE>

Plaintiffs filed an amended complaint on July 7, 1998. Generally, the
amended complaint alleged that the Company was currently in liquidation and
was in liquidation prior to May 14, 1998, that the plaintiffs were entitled
to receive the liquidation preference of $1,012.50 per share set forth in
the Company's Certificate of Designations, Preferences, Rights and
Limitations of PRIDES (the "Certificate of Designations") in any
distribution of assets the Company might make notwithstanding that the
PRIDES mandatorily converted and ceased to be outstanding on May 14, 1998,
and that the Company breached an implied covenant of good faith and fair
dealing under the Certificate of Designations. Plaintiffs sought, among
other things, (i) a declaration that they were entitled to receive the
liquidation preference in any distribution of assets before any
distribution was made to holders of Common Stock and that the mandatory
conversion of the PRIDES did not operate to eliminate their right to
receive the liquidation preference, (ii) related injunctive relief, and
(iii) other unspecified damages.

A bench trial in the action was held February 16-19, 1999 before the Court
of Chancery and on October 13, 1999, the Court entered judgment in favor of
the Company on all counts and denied the relief requested by Plaintiffs.
The Court of Chancery also vacated the Temporary Restraining Order
previously entered in the action that restrained the Company from making
payments from the proceeds of the sale of the EcoElectrica Project interest
in satisfaction of any obligations not previously disclosed in the
Company's 10-K or 10-Q or their attached exhibits (except to the extent
necessary for ordinary, customary and reasonable expenses) without first
providing five business days advance notice to Plaintiffs. On October 26,
1999, plaintiffs filed a Notice of Appeal with the Delaware Supreme Court.
The Company intends to defend the appeal vigorously.

Shareholders' Class Action: On September 28, 1995, a class action complaint
was filed against the Company and certain of its officers and directors
(namely, Stanley Charren, Maurice E. Miller, Joel M. Canino and Gerald R.
Alderson), in the United States District Court for the Northern District of
California, alleging federal securities laws violations. On November 2,
1995, a First Amended Complaint was filed naming additional defendants,
including underwriters of the Company's securities and certain other
officers and directors of the Company (namely, Charles Christenson, Angus
M. Duthie, Steven N. Hutchinson, Howard W. Pifer III and Mervin E. Werth).
Subsequent to the Court's partial grant of the Company's and the
underwriter defendants' motions to dismiss, a Second Amended Complaint was
filed on March 29, 1996. The amended complaint alleged claims under
sections 11 and 15 of the Securities Act of 1933, and sections 10(b) and
20(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder,
based on alleged misrepresentations and omissions in the Company's public
statements, on behalf of a class consisting of persons who purchased the
Company's Common Stock during the period from September 21, 1993 (the date
of the Company's initial public offering) through August 8, 1995 and
persons who purchased the Company's PRIDES (depository shares) during the
period from April 28, 1994 (the public offering date of the PRIDES) through
August 8, 1995. The amended complaint alleged that the defendants
misrepresented the Company's progress on the development of its latest
generation of wind turbines and the Company's future prospects. The amended
complaint sought unspecified damages and other relief.

The Court certified a plaintiff class consisting of all persons or entities
who purchased Common Stock between September 21, 1993 and August 8, 1995 or
depositary shares between April 28, 1994 and August 8, 1995, appointed
representatives of the certified plaintiff class, appointed counsel for the
certified class and certified a plaintiff and defendant underwriter class
as to the section 11 claim.

On August 9, 1999, the Court granted Defendants' motion for summary
judgment and ordered that Plaintiffs take nothing and that the action be
dismissed on the merits. The plaintiffs have appealed the Court's order and
the parties have been assigned by the Court to a mediation program while
the appeal is pending. The Company intends to defend the appeal vigorously.

<PAGE>

Insurance Litigation: On January 29, 1999, Travelers Insurance Company
filed a complaint against KENETECH and CNF Industries, Inc. ("CNF") in the
Superior Court, Judicial District of Hartford, Connecticut. The complaint
alleges that the defendants failed to pay premiums and other charges for
insurance coverage and services. Damages are alleged to be in excess of
$1,268,246. On April 13, 1999, the Company filed a Motion to Dismiss
challenging the exercise of personal jurisdiction and also filed a Request
to Revise. A hearing on the Motion and Request is pending. The Company
intends to defend this action vigorously.

Annual Meeting Litigation: On July 30, 1999, Campus, LLC and Joseph A.
Wagda filed a complaint against the Company and its directors (namely,
Angus M. Duthie, Mark D. Lerdal, Gerald R. Alderson and Charles
Christenson) in the Court of Chancery of the State of Delaware In and For
New Castle County. The plaintiffs in this action purport to be stockholders
of the Company. The complaint alleges, among other things, that plaintiffs
were deprived of the opportunity to nominate directors for election at the
Company's annual meeting which took place on August 18, 1999. Plaintiffs
are seeking, among other things, (i) a declaration that the annual meeting
was illegally and inequitably scheduled and that any actions taken at the
annual meeting are null and void and (ii) an order requiring the defendants
to schedule a meeting, allowing stockholders an opportunity to nominate
directors, file solicitation materials with the Securities and Exchange
Commission and conduct a proxy solicitation. The parties have agreed to
stay the litigation until January 2000. In the event that the litigation
resumes, the Company intends to defend this action vigorously.

Other: The Company is also a party to various other legal proceedings
normally incident to its business activities. The Company intends to defend
itself vigorously against these actions.

The Company does not believe that the ultimate outcome of the
above-described matters will have a material adverse effect on the
Company's financial position.

12. PRIDES Dividend

On March 23, 1999, the Board of Directors of the Company determined,
pursuant to the terms of the Certificate of Incorporation of the Company,
to pay cash in an amount equal to all accrued and unpaid dividends on each
share of PRIDES, to and including May 14, 1998 (the "Mandatory Conversion
Date"), which resulted in a payment of $4.1775 per depositary share. The
payment was made on April 14, 1999, to the persons in whose names
depositary receipts evidencing the depositary shares were registered on the
books of the Depositary, ChaseMellon Shareholder Services, L.L.C., on the
Mandatory Conversion Date. The total payment by the Company was
$21,408,016.

13. Available-for-Sale Securities

As of September 30, 1999, the first quarter in which the Company owned
available-for-sale securities, the aggregate fair value by major security
type of available-for-sale secruities is summarized (in thousands) in the
following table:

Aggregate Fair Value
(which approximates costs)
----------

Debt securities issued by the
U.S. Treasury and other U.S.
government corporations and agencies ..... $ 28,831

Mortgage-backed securities ................. 10,153

Corporate debt securities .................. 3,869

Debt securities issued by states of
the United States and political
subdivisions of the states ............... 1,355
----------
$44,208
==========

The fair value of the available-for-sale securities approximates cost.

15
<PAGE>

The contractual maturities of the available for sale securities at
September 30, 1999 are as follows (in thousands):

Fair Value
Maturity Period (which approximates cost)
---------------- -------------

Less than one year .................... $ 5,271

After one year through 5 years ........ 32,948

After 5 years through 10 years ........ 4,181

After 10 years ........................ 1,808
-------------
$ 44,208
=============

16
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

OVERVIEW

KENETECH Corporation ("KENETECH"), a Delaware corporation, is a holding
company which participated through its subsidiaries in the electric utility
market. As used in this document, "Company" refers to KENETECH and its
wholly-owned subsidiaries (including KENETECH Windpower, Inc. ("KWI") only
through May 29, 1996). Historically, the Company developed, constructed,
financed, operated, managed and sold independent power projects and
manufactured wind turbines.

The Company experienced severe constraints on its liquidity beginning in
late 1995. In an effort to relieve such constraints, KWI filed for
protection under Chapter 11 of the Federal Bankruptcy Code on May 29, 1996,
reporting an excess of liabilities over its assets. The Chapter 11 filing
of KWI materially adversely affected the Company's ability to procure new
business. As a result of liquidity constraints, the Company limited its new
development activities and focused all of its activities on raising funds
for working capital and to repay debt. As of May 29, 1996, KWI ceased to be
accounted for as a consolidated subsidiary of the Company and the Company's
financial statements exclude all KWI activity after that date. KWI's Plan
of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999
and became effective, as later amended, April 8, 1999. Although the Company
continues to own the common stock of KWI, the Company believes it will not
realize any value from its remaining interests in KWI other than certain
tax attributes.

In December 1998, the Company sold its EcoElectrica Project interest for
$247,000,000. An additional payment of $5 million in cash, which was
contingent on the successful conversion of the local tax status of
EcoElectrica, L.P., was received July 27, 1999.

The Company, through KENETECH Energy Systems, Inc. ("KES"), owned a 50%
indirect interest in a partnership (the "Chateaugay Partnership"), which
owned a 17.8 MW wood-fired electric generating station developed and
constructed by the Company in Chateaugay, New York (the "Chateaugay
Project"). The remaining 50% equity interest was owned by affiliates of CMS
Generation Company. The Chateaugay Project delivered electric energy to New
York State Electric & Gas Corporation under a long-term power purchase
agreement. Debt associated with the Chateaugay Project consisted primarily
of tax-exempt bonds. In July 1991, the Chateaugay Partnership entered into
an agreement with the County of Franklin (New York) Industrial Development
Authority (the "Authority") whereby the Authority loaned the Chateaugay
Partnership the proceeds of the Authority's Series 1991A Bonds issued in
the principal amount of $34,800,000 to finance the construction of the
Chateaugay Project. In October 1998, the Chateaugay Partnership and the
Authority signed a Cooperation and Termination Agreement with respect to
the proposed termination of the power purchase agreement, the payment or
defeasance of the Series 1991A Bonds, and the disposition of the Chateaugay
Project.

The Company has been released from the Chateaugay Project debt. The
liabilities relating to the Chateaugay Project included in other notes
payable of $1,060,000 at December 31, 1998 have been paid in full. The
Company received net cash of approximately $2,391,000.

17
<PAGE>

As of September 30, 1999, the Company had completed its activities to raise
funds for working capital purposes, had disposed of substantially all its
operating assets and had repaid substantially all of its indebtedness. The
Company currently has substantial cash balances and substantial net
operating income tax losses to carry forward to future years. During the
third quarter, management continued to evaluate different businesses that
the Company might pursue, through acquisition or otherwise. In addition,
the Company is evaluating all strategic alternatives available to it. The
Company retained professionals to assist it in such evaluations. The
Company has committed to fund the development of a building products
manufacturing facility, as described in Note 8. In October 1999, the
Company committed to fund up to $3 million for development of an
independent power project in Astoria, New York, as described in Note 8.

CAUTIONARY STATEMENT

Certain information included in this report contains forward looking
statements within the meaning of the Securities Act of 1933, as amended,
and the Securities Act of 1934, as amended. Such forward looking
information is based on information available when such statements are made
and is subject to risks and uncertainties that could cause actual results
to differ materially from those expressed in the statements.

Results of Operations
---------------------

The Company recognized net income for the third quarter of 1999 of $27.3
million as compared to a net loss incurred for the third quarter of 1998 of
$5.8 million.

On July 27, 1999, KENETECH Energy Systems, Inc. received $5.0 million in
cash, upon the successful conversion of the local tax status of
EcoElectrica, L.P. No other proceeds are expected from the sale of the
Company's indirect interests in EcoElectrica, L.P.

There were no revenues or costs from active construction projects for the
quarter ended September 30, 1999 or the comparable period in 1998. The
Company's construction subsidiary is not working on any construction
projects, has no employees and is in the process of disposing of its
remaining assets and liabilities.

There were no maintenance, management fees and other revenues or associated
costs in the third quarter of 1999, compared with $16 thousand during the
third quarter of 1998. KENETECH Facilities Management, Inc. (KFM), a
wholly-owned subsidiary of the Company which performed operations and
maintenance of thermal power plants, has no further business activity or
employees and will be wound up in due course.

<PAGE>

There were no energy sales or associated costs for the quarter ended
September 30, 1999, or the comparable period in 1998.

Project development and marketing expenses decreased to $4 thousand for the
quarter ended September 30, 1999 from $318 thousand for the comparable
period in 1998. Project development and marketing expenses incurred in the
third quarter of 1999 related to the indirect costs of development of the
Chateaugay OSB Project. In 1998 project development and marketing costs
related primarily to the EcoElectrica Project.

General and administrative expenses decreased to $823 thousand for the
quarter ended September 30, 1999 from $1.3 million for the comparable
period in 1998 due principally to reduced personnel and premises expenses.
General and administrative expenses have not been reduced further primarily
due to the cost of the PRIDES litigation to the Company. (See Note 11).

Interest income increased to $679 thousand for the quarter ended September
30, 1999 from $130 thousand for the comparable period in 1998 due
principally to investment of the Company's cash balances.

Interest expense decreased to zero for the quarter ended September 30, 1999
from $4.6 million for the comparable period in 1998 primarily due to the
repayment in December 1998 of the Company's Senior Secured Notes (including
accrued interest) and the EcoElectrica Project development loan payable in
conjunction with the Company's sale of its interest in the EcoElectrica
Project.

Equity earnings of unconsolidated affiliates decreased to zero for the
quarter ended September 30, 1999, compared to $71 thousand for the
comparable period in 1998.

The Company recorded a $60 thousand loss on the sale of securities it had
invested in for the quarter ended September 30, 1999. No such securities
sales occurred during the comparable quarter in 1998.

The Company recorded a $57 thousand gain on the disposition of subsidiaries
and assets for the quarter ended September 30, 1999, a decrease from $213
thousand for the comparable quarter in 1998.

The Company recorded other income of $2.9 million for the quarter ended
September 30, 1999 because the Company reduced its accrued liabilities for
various legal matters.

The Company reduced the balance of the deferred benefit, resulting in an
income tax benefit of $19.6 million. The reduction in the deferred benefit
is due to additional losses being available for carryback which are
primarily attributable to a KWI 1999 bankruptcy distriubtion.

Nine months ended September 30, 1999 and September 30, 1998
<TABLE>
<CAPTION>

Nine months Ended
September 30, 1999 September 30, 1998
------------------------ ------------------------
(in thousands)
Gross Gross
Revenues Costs Margins Revenues Costs Margins
-------- ----- ------- -------- ------ -------
<S> ............................ <C> <C> <C> <C> <C> <C>
Sale of EcoElectrica Project
Interest ..........................$ 5,000 $ -- $ 5,000 $ -- $ -- $ --

Construction services .............. 410 56 354 3,382 2,543 839

Maintenance, management
fees and other .................... 21 -- 21 1,000 697 303

Energy sales ....................... -- -- -- 472 1,521 (1,049)
-------- ----- ------- -------- ------ -------
Total ...............................$ 5,431 $ 56 $ 5,375 $ 4,854 $4,761 $ 93
======== ===== ======= ======== ====== =======

</TABLE>

On July 27, 1999, KENETECH Energy Systems, Inc. received $5.0 million in
cash, upon the successful conversion of the local tax status of
EcoElectrica, L.P. No other proceeds will be received from the sale of the
Company's indirect interests in EcoElectrica, L.P.

<PAGE>

The revenues and costs for construction services recorded during the nine
months ended September 30, 1999, represent revenue realized and expenses
incurred upon the settlement of certain disputes involving construction
projects. There were no revenues from active construction projects for the
nine months ended September 30, 1999, a decrease from approximately $3.4
million revenue and $2.6 million expense for the comparable period in 1998.
The Company's construction subsidiary is not working on any construction
projects, has no employees and is in the process of disposing of its
remaining assets and liabilities.

Maintenance, management fees and other revenues totalled $21 thousand in
the first nine months of 1999, a decrease from approximately $1.0 million
of revenues during the first nine months of 1998. Associated costs declined
to zero for the nine months ended September 30, 1999, from $697 thousand
for the comparable period in 1998. KENETECH Facilities Management, Inc.
(KFM), a wholly-owned subsidiary of the Company which performed operations
and maintenance of thermal power plants, has no further business activity
or employees and will be wound up in due course.

There were no energy sales or associated costs in 1999 because the Company
sold the Hartford Hospital Project in June 1998. Energy sales experienced
an excess of expenses over revenues of approximately $1.0 million for the
first nine months of 1998 due to the sporadic operation of the Hartford
Hospital Project turbines.

Project development and marketing expenses decreased to $84 thousand for
the nine months ended September 30, 1999 from $700 thousand for the
comparable period in 1998. Project development and marketing expenses
incurred in the first nine months of 1999 related principally to the
Chateaugay Project and the development of the Chateaugay OSB Project. In
1998, project development and marketing costs related primarily to the
EcoElectrica Project.

General and administrative expenses increased to $3.7 million for the
thirty-nine weeks ended September 30, 1999 from $2.9 million for the
comparable period in 1998 due principally to (i) an increase in legal
expenses associated with the PRIDES Litigation, (ii) severance of several
senior personnel, (iii) additional expense due to preparation of the
federal income tax return earlier in the year than is customary, and (iv) a
change of accounting system and costs related to archiving files from a
non-Y2K compliant system.

Interest income increased to $2.1 million for the nine months ended
September 30, 1999 from $514 thousand for the comparable period in 1998 due
principally to investment of cash proceeds from the sale of the Company's
EcoElectrica Project interest.

Interest expense decreased to zero for the nine months ended September 30,
1999 from $12.9 million for the comparable period in 1998 primarily due to
the repayment in December 1998 of the Company's Senior Secured Notes
(including accrued interest) and the EcoElectrica Project development loan
payable following the Company's sale of its interest in the EcoElectrica
Project.

Equity income from unconsolidated affiliates increased to $27 thousand for
the nine-month period ended September 30, 1999, compared with $15 thousand
for the comparable period in 1998.

The Company recorded a $60 thousand loss on the sale of securities it had
invested in for the nine months ended September 30, 1999. No such
securities sales occurred during the comparable period in 1998.

The Company recorded a $5.0 million gain on disposition of subsidiaries and
assets for the nine-month period ended September 30, 1999, compared with a
$170 thousand gain for the comparable period in 1998. The $5.0 million gain
in 1999 represents primarily the gain on sale of the Chateaugay Project and
Dutch limited partnership (see Notes 6 and 7, Item 1).

The Company recorded a $942 thousand net gain on settlement of accounts
payable plus $3.1 million of other income in the nine month period ended
September 30, 1999, compared to zero in the comparable period in 1998.
Included in the $3.1 million of other income is $2.9 million of gain
because the Company reduced its accrued liabilities related to various
legal matters.

<PAGE>

Liquidity and Capital Resources
-------------------------------

Operating activities

During the first nine months of 1999, operating activities used cash of
$3.3 million, principally from general and administrative expenses but
offset by favorable settlement of accounts payable associated with disputed
contracts.

Investing activities

During the first nine months of 1999, investment activities used cash of
$36.1 million, consisting primarily of the investment of $44.2 million in
cash in marketable securities reduced by the proceeds from the sale of the
Chateaugay Project, and from the sale of the EcoElectrica Project and from
the disposition of subsidiaries and assets.

Financing activities

During the first nine months of 1999 the Company repaid $1.1 million of
notes payable, related to the Chateaugay Project (see Note 6 of Item 1) and
paid $21.4 million of PRIDES dividends (see Note 12 of Item 1).

Status

As of September 30, 1999, the Company had completed its activities to raise
funds for working capital purposes, had disposed of substantially all its
operating assets and had repaid substantially all of its indebtedness. The
Company currently has substantial cash balances and substantial net
operating income tax losses to carry forward to future years. During the
third quarter, management continued to evaluate different businesses that
the Company might pursue, through acquisition or otherwise. In addition,
the Company is evaluating all strategic alternatives available to it. The
Company retained professionals to assist it in such evaluations. The
Company has committed to fund the development of a building products
manufacturing facility, as described in Note 8. In October 1999, the
Company committed to fund up to $3 million for development of an
independent power project in Astoria, New York, as described in Note 8.

Effect of Year 2000

The Company recently upgraded its accounting system and other systems to be
Year 2000 compliant. The Company's historical tax and accounting systems
were not Year 2000 compliant and the Company undertook a project in the
second quarter to archive historical tax and accounting records on a Year
2000 compliant system. That work is complete at a cost of approximately
$600 thousand. The Company has not assessed and cannot predict to what
extent its results of operations, financial condition or business may be
adversely affected if third parties with whom the Company has a material
relationship are not compliant.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring
that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at a fair value.

FASB Statement No. 137, "Accounting for Derivatives, Instruments, and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133, and amendment of FASB Statement No. 133," issued in June 1999, defers
the effective date of Statement No. 133. Statement No. 133, as amended, is
now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000.

SFAS No. 133 should not have any impact upon the Company's consolidated
financial statements because the Company owns neither derivative
instruments nor engages in hedging activities.

21
<PAGE>

Part II OTHER INFORMATION

Item 1. Legal Proceedings.

See discussion under Note 11 of Item 1 incorporated herein by
reference.

Item 4. Submission of Matters to a Vote of Security Holders.

(a) The 1999 Annual Meeting of Stockholders of the Company was held August
18, 1999.

(b) The meeting involved the election of one Class I Director for a
one-year term, one Class II Director for a two-year term and one Class
III Director for a three-year term. The following individuals were
elected to the respective classes named:

Charles Christenson Class I Term Expires on the Date of the
Annual Stockholder Meeting in 2000

Gerald R. Morgan, Jr. Class II Term Expires on the Date of the
Annual Stockholder Meeting in 2001

Mark D. Lerdal Class III Term Expires on the Date of the
Annual Stockholder Meeting in 2002

(1) Election of Directors:

Charles Christenson In Favor 35,786,929
Against 0
Withheld 2,160,685
Abstentions 0
Broker Non-Voters 0

Gerald R. Morgan, Jr. In Favor 35,896,829
Against 0
Withheld 2,050,785
Abstentions 0
Broker Non-Voters 0

Mark D. Lerdal In Favor 35,318,053
Against 0
Withheld 2,629,561
Abstentions 0
Broker Non-Voters 0

(2) Ratification of the selection of KPMG LLP as the independent
auditors of the Company for its fiscal year ending December 31,
1999.

In Favor 36,882,301
Against 1,028,128
Abstentions 37,185
Broker Non-Voters 0

(d) Not applicable.

Item 5. Other Information.

On November 3, 1999, the Board of Directors of the Company voted to
increase the number of directors on the Board from three to four and
elected Michael D. Winn to fill the newly created Class I
directorship. Mr. Winn is the President of Terrasearch, Inc., a
company which provides investment research on mining and petroleum
companies and financial services and the manager of a company that
invests in exploration oriented companies in the energy and mining
sectors.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

27 Financial Data Schedule.

(b) Reports on Form 8-K

On October 14, 1999, the Company filed a Report on Form 8-K under Item
5, Other Events, announcing that the Delaware Chancery Court entered
judgment in favor of the Company in the action captioned "Quadrangle
Offshore (Cayman) LLC and Cerebus Partners, L.P. v. KENETECH
Corporation."

<PAGE>

SIGNATURES

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.

KENETECH Corporation

By:
Date: November 12, 1999 Mark D. Lerdal
President, Chief Executive Officer
and Principal Accounting Officer

23
<PAGE>

SIGNATURES

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.

KENETECH Corporation

By: /s/ Mark D. Lerdal
Date: November 12, 1999 Mark D. Lerdal
President, Chief Executive Officer
and Principal Accounting Officer

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM KENETECH CORPORATION'S SEPTEMBER 30, 1999 CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000807708
<NAME> KENETECH CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,601
<SECURITIES> 44,208
<RECEIVABLES> 110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,966
<PP&E> 122
<DEPRECIATION> (63)
<TOTAL-ASSETS> 51,094
<CURRENT-LIABILITIES> 4,796
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 51,094
<SALES> 5,431
<TOTAL-REVENUES> 5,431
<CGS> 56
<TOTAL-COSTS> 56
<OTHER-EXPENSES> (3,746)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,614
<INCOME-TAX> (19,573)
<INCOME-CONTINUING> 32,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,187
<EPS-BASIC> 0.77
<EPS-DILUTED> 0.77

</TABLE>