-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HFWDH+dCKuNQ5q54riD7x2csXelAYsG89ExE4K1EaDlzsTHnFEXFlmclIHl/PK7+ TpDpI3OrQ1ywwFTTdfXrUw== 0000054502-97-000011.txt : 19970815 0000054502-97-000011.hdr.sgml : 19970815 ACCESSION NUMBER: 0000054502-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: K N ENERGY INC CENTRAL INDEX KEY: 0000054502 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 480290000 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06446 FILM NUMBER: 97661504 BUSINESS ADDRESS: STREET 1: 370 VAN GORDON ST STREET 2: PO BOX 281304 CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 BUSINESS PHONE: 3037633318 MAIL ADDRESS: STREET 1: 370 VAN GORDON STREET STREET 2: P O BOX 281304 CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 FORMER COMPANY: FORMER CONFORMED NAME: KN ENERGY INC DATE OF NAME CHANGE: 19920430 FORMER COMPANY: FORMER CONFORMED NAME: KANSAS NEBRASKA NATURAL GAS CO INC DATE OF NAME CHANGE: 19830403 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 -------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ------------------- Commission File Number 1-6446 ----------------------------------------------------- K N ENERGY, INC. - --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Kansas 48-0290000 - --------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 370 Van Gordon Street P.O. Box 281304, Lakewood, Colorado 80228-8304 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (303) 989-1740 - --------------------------------------------------------------------------- (Registrant's telephone number, including area code) - --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, $5 par value; authorized 50,000,000 shares; outstanding 31,352,305 shares as of July 31, 1997. 1 Form 10-Q K N ENERGY, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1997 INDEX PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number Consolidated Balance Sheets (Unaudited)...................... 3 & 4 Consolidated Statements of Income (Unaudited)................ 5 Consolidated Statements of Cash Flows (Unaudited)............ 6 & 7 Notes to Consolidated Financial Statements................... 8 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 11 - 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................... 15 Item 2. Changes in Securities.................................. 15 Item 5. Other Information...................................... 15 Item 6. Exhibit 27 - Financial Data Schedule* SIGNATURE......................................................... 17
*Included In SEC EDGAR Filing Only. 2 Form 10-Q CONSOLIDATED BALANCE SHEETS K N Energy, Inc. and Subsidiaries (Dollars in Thousands)
June 30 December 31 1997 1996 ----------- ------------- (Unaudited) ASSETS Current Assets: Cash and Cash Equivalents............................................. $ 16,819 $ 17,005 Accounts Receivable................................................... 198,983 304,942 Materials and Supplies................................................ 15,013 6,092 Gas in Underground Storage............................................ 24,324 43,511 Prepaid Gas........................................................... 8,871 12,001 Other Prepaid Expenses................................................ 14,190 12,824 Gas Imbalances and Other.............................................. 68,594 65,319 ---------- ---------- 346,794 461,694 Investments: ---------- ---------- Investment in Tom Brown, Inc. ........................................ 45,146 44,331 Other................................................................. 22,947 6,207 ---------- ---------- 68,093 50,538 ---------- ---------- Property, Plant and Equipment, at Cost: Gathering, Processing and Marketing Services.......................... 822,768 683,569 Interstate Transportation and Storage Services........................ 519,751 447,557 Retail Natural Gas Services........................................... 408,204 409,626 ---------- ---------- 1,750,723 1,540,752 Less Accumulated Depreciation and Amortization........................ 528,620 518,451 ---------- ---------- 1,222,103 1,022,301 ---------- ---------- Deferred Charges and Other Assets..................................... 97,181 95,187 ---------- ---------- Total Assets $1,734,171 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 3 Form 10-Q CONSOLIDATED BALANCE SHEETS K N Energy, Inc. and Subsidiaries (Dollars in Thousands)
June 30 December 31 1997 1996 ------------ ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current Maturities of Long-Term Debt.................................. $ 19,055 $ 26,971 Notes Payable......................................................... 200,300 129,300 Accounts Payable...................................................... 157,283 241,187 Accrued Expenses...................................................... 29,250 34,696 Accrued Taxes......................................................... 17,090 16,045 Gas Imbalances and Other.............................................. 48,831 50,417 ---------- ---------- 471,809 498,616 ---------- ---------- Deferred Liabilities, Credits and Reserves: Deferred Income Taxes................................................. 128,392 122,371 Other................................................................. 35,579 31,930 ---------- ---------- 163,971 154,301 ---------- ---------- Long-Term Debt........................................................ 412,912 423,676 ---------- ---------- K N-Obligated Mandatorily Redeemable Capital Trust Pass-through Securities of Subsidiary Trust................... 100,000 -- ---------- ---------- Minority Interests in Equity of Subsidiaries.......................... 27,512 26,333 ---------- ---------- Stockholders' Equity: Preferred Stock- Authorized - Class A, 200,000 Shares: Class B, 2,000,000 Shares, Without Par Value Redeemable Solely at Option of Company at $105 Per Share - Class A, $5.00 Cumulative Series; 70,000 Shares.............................. 7,000 7,000 Common Stock- ---------- ---------- Authorized - 50,000,000 Shares, Par Value $5 Per Share Outstanding - 31,343,368 and 30,295,792 Shares, Respectively......... 156,717 151,479 Additional Paid-in Capital............................................ 247,357 228,902 Retained Earnings..................................................... 156,852 142,578 Deferred Compensation................................................. (8,979) (2,908) Treasury Stock, at Cost - 26,533 and 7,216 Shares, Respectively....... (980) (257) ---------- ---------- Total Common Stockholders' Equity..................................... 550,967 519,794 ---------- ---------- Total Stockholders' Equity............................................ 557,967 526,794 ---------- ---------- Total Liabilities and Stockholders' Equity $1,734,171 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 4 Form 10-Q CONSOLIDATED STATEMENTS OF INCOME (Unaudited) K N Energy, Inc. and Subsidiaries (In Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended June 30 June 30 -------------------- ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Operating Revenues: Gathering, Processing and Marketing Services..................... $ 311,058 $ 232,129 $ 706,721 $ 523,826 Interstate Transportation and Storage Services................... 4,116 5,066 12,425 11,527 Retail Natural Gas Services...................................... 42,673 39,204 128,174 126,235 --------- --------- --------- --------- Total Operating Revenues......................................... 357,847 276,399 847,320 661,588 --------- --------- --------- --------- Operating Costs and Expenses: Gas Purchases and Other Costs of Sales........................... 262,774 193,596 643,187 481,268 Operations and Maintenance....................................... 51,571 42,899 100,379 86,736 Depreciation and Amortization.................................... 13,691 12,631 27,991 24,830 Taxes, Other Than Income Taxes................................... 5,879 5,189 11,926 10,894 --------- --------- --------- --------- Total Operating Costs and Expenses............................... 333,915 254,315 783,483 603,728 --------- --------- --------- --------- Operating Income................................................. 23,932 22,084 63,837 57,860 --------- --------- --------- --------- Other Income and (Deductions): Interest Expense................................................. (10,518) (8,337) (20,174) (16,888) Minority Interests............................................... (2,442) (1,119) (2,945) (1,665) Other, Net....................................................... 4,867 1,196 7,181 1,871 --------- --------- --------- --------- Total Other Income and (Deductions).............................. (8,093) (8,260) (15,938) (16,682) --------- --------- --------- --------- Income Before Income Taxes....................................... 15,839 13,824 47,899 41,178 Income Taxes..................................................... 4,967 4,976 16,669 14,823 --------- --------- --------- --------- Net Income....................................................... 10,872 8,848 31,230 26,355 Less-Preferred Stock Dividends................................... 87 99 175 199 --------- --------- --------- --------- Earnings Available For Common Stock.............................. $ 10,785 $ 8,749 $ 31,055 $ 26,156 ========= ========= ========= ========= Number of Shares Used in Computing Earnings Per Common Share....................................... 31,377 29,181 31,265 29,055 ========= ========= ========= ========= Earnings Per Common Share........................................ $ 0.34 $ 0.30 $ 0.99 $ 0.90 ========= ========= ========= ========= Dividends Per Common Share....................................... $ 0.27 $ 0.26 $ 0.54 $ 0.52 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 5 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) K N Energy, Inc. and Subsidiaries (In Thousands)
Six Months Ended June 30 ----------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................................. $ 31,230 $ 26,355 Adjustments to Reconcile Net Income to Net Cash Flows From Operating Activities: Depreciation and Amortization............................................. 27,991 24,830 Deferred Income Taxes..................................................... 5,741 5,147 Deferred Purchased Gas Costs.............................................. (7,624) 7,844 Provisions for Losses on Accounts Receivable.............................. 133 123 Changes in Gas in Underground Storage..................................... 4,710 5,288 Changes in Other Working Capital Items.................................... 2,016 28,476 Changes in Deferred Revenues.............................................. (9,186) (14,194) Other, Net................................................................ 5,742 (552) -------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES........................... 60,753 83,317 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures....................................................... (113,495) (36,967) Acquisitions............................................................... (95,601) (7,439) Investments................................................................ (9,725) (1,186) Proceeds From Sales of Assets.............................................. 9,671 4,590 -------- -------- NET CASH FLOWS USED IN INVESTING ACTIVITIES................................ (209,150) (41,002) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-Term Debt (Net)...................................................... 71,000 (15,500) Long-Term Debt Retired..................................................... (18,708) (11,411) Other Mandatorily Redeemable Securities Issued............................. 100,000 -- Common Stock Issued........................................................ 13,795 5,859 Treasury Stock Issued...................................................... 879 4,819 Treasury Stock Acquired.................................................... (1,602) (5,817) Cash Dividends - Common.................................................... (16,781) (14,751) - Preferred................................................. (175) (199) Minority Interests Distributions........................................... (197) (2,275) -------- -------- NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES.................. 148,211 (39,275) -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents....................... (186) 3,040 Cash and Cash Equivalents at Beginning of Year............................. 17,005 22,571 -------- -------- Cash and Cash Equivalents at End of Period................................. $ 16,819 $ 25,611 ======== ========
The accompanying notes are an integral part of these statements. 6 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) K N Energy, Inc. and Subsidiaries (In Thousands)
Six Months Ended June 30 ------------------ 1997 1996 ---- ---- CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY (Net of Effects from Acquisitions): Accounts Receivable........................................................ $105,826 $ 33,477 Materials and Supplies..................................................... (3,346) 572 Other Current Assets....................................................... (1,511) (7,094) Accounts Payable........................................................... (83,904) (11,995) Other Current Liabilities.................................................. (15,049) 13,516 -------- -------- $ 2,016 $ 28,476 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest (Net of Amount Capitalized)...................................... $ 20,636 $ 16,902 ======== ======== Income Taxes.............................................................. $ 15,635 $ 8,056 ======== ========
7 Form 10-Q NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General ------- In the opinion of management, all adjustments necessary for a fair statement of the results for the unaudited interim periods have been made. These adjustments consist only of normal recurring accruals. Certain prior year amounts have been reclassified to conform with the 1997 presentation. 2. Acquisition ----------- In March 1997, K N completed its purchase of several Enron Corporation subsidiaries that owned or operated the Bushton natural gas processing facility located in Ellsworth County, Kansas, and other Hugoton Basin gathering assets located in Kansas and Oklahoma. The Bushton facility processes approximately 825 MMcf of natural gas and produces approximately 1.2 million gallons of natural gas liquids and approximately 1.7 MMcf of crude helium per day. The gathering assets gather approximately 475 MMcf per day of natural gas through approximately 2,200 miles of pipeline. The Company assumed operation of these facilities effective April 1, 1997. A wholly owned subsidiary of K N leases the processing facilities at Bushton under operating leases requiring semi-annual payments averaging $23.1 million per annum for the remaining term of the leases. Under the terms of these leases, the lessee has the option of terminating the leases and/or buying the assets at any time after November 2003, and extending the leases beyond May 2012, the scheduled termination date. In addition, the lessee may purchase the processing facilities upon termination of the leases. 3. Pony Express Pipeline --------------------- In 1996, K N purchased a 900-mile crude oil pipeline owned by Amoco Pipeline Company for conversion to natural gas service. In May 1996, one of K N's regulated interstate pipeline subsidiaries, K N Interstate Gas Transmission Co. ("KNI"), filed with the Federal Energy Regulatory Commission ("FERC") requesting authority to purchase from K N the portion of the line, renamed the Pony Express Pipeline, from Lost Cabin, Wyoming in central Wyoming to Freeman, Missouri near Kansas City. KNI also requested authority to convert the pipeline to natural gas service, install compression and construct additional pipeline facilities. On May 30, 1997, the FERC issued an order granting KNI's requested authority to proceed with the project. The pipeline is expected to begin free flow operations in the third quarter of 1997, and full-flow service in October 1997. 4. Financing --------- On April 24, 1997, the Company sold $100 million of 8.56% Capital Trust Pass-through Securities (the "Capital Securities") maturing on April 15, 2027. The sale was effected through a wholly owned business trust named K N Capital Trust I (the "Trust"). The Company used the net proceeds from the sale to reduce short-term indebtedness. The financial statements of the Trust are consolidated into the Company's consolidated financial statements, with the Capital Securities treated as a minority interest and shown in the Company's consolidated balance sheet as "K N-Obligated Mandatorily Redeemable Capital Trust Pass-through Securities of Subsidiary Trust." 8 Form 10-Q 5. Common Stock Issuance --------------------- On June 11, 1997, Cabot Corporation exercised warrants held by it and purchased, in an unregistered offering, 642,232 shares of K N's Common Stock which were issued to Cabot Specialty Chemicals, Inc., in exchange for Cabot's payment price of $11.3 million. 6. Joint Venture ------------- In January 1997, K N and PacifiCorp formed a joint venture named en*able, L.L.C. ("en*able") that provides a broad portfolio of branded products and services that local utilities can offer to their customers under the Simple Choice(SM) brand. All Simple Choice(SM) products and services are supported through a customer service center in Scottsbluff, Nebraska. Subsidiaries of K N and PacifiCorp each own 50 percent of en*able. 7. Accounting Pronouncements Issued But Not Yet Effective ------------------------------------------------------ In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This new statement is effective December 15, 1997; early adoption is not permitted. SFAS 128 provides computation, presentation and disclosure requirements for earnings per share. When adopted, the Company will restate reported earnings per share for all prior periods presented. Had this standard been effective for the periods presented herein, the following earnings per share would have been reported:
Three Months Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 ---- ---- ---- ---- Basic Earnings Per Share.......... $ 0.35 $ 0.31 $ 1.01 $ 0.92 Diluted Earnings Per Share........ $ 0.34 $ 0.30 $ 0.99 $ 0.90
8. Risk Management --------------- The Company uses two types of risk management instruments - energy financial instruments and interest rate swaps - which are discussed below. The Company is exposed to credit-related losses in the event of nonperformance by counterparties to these financial instruments, but does not expect any counterparties to fail to meet their obligations given their existing credit ratings. The fair value of these risk management instruments reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses on open contracts. Market quotes are available for substantially all instruments used by the Company. (A) Energy Financial Instruments The Company uses energy financial instruments to minimize its risk of price changes in the spot and fixed price natural gas and natural gas liquids ("NGLs") markets. Energy risk management products include commodity futures and options contracts, fixed price swaps and basis swaps. Pursuant to its Board of Directors' approved guidelines, the Company is to engage in these activities only as a hedging mechanism against pre-existing or anticipated physical gas and condensate sales, gas purchases, system use, and storage in order to protect profit margins, and is prohibited from 9 Form 10-Q engaging in speculative trading. The activities of the risk management group are monitored by the Company's Risk Management Committee which is charged with the review and enforcement of the Board of Directors' risk management guidelines. All energy futures, swaps and options are recorded at fair value. Gains and losses on hedging positions are deferred and recognized as gas purchases expenses in the periods the underlying physical transactions occur. The differences between the current market value and the original physical contracts' value, associated with hedging activities, are reflected, depending on maturity, as deferred charges or credits and other current assets or liabilities in the accompanying consolidated balance sheets. These deferrals will be offset by the corresponding underlying physical transactions. In the event energy financial instruments do not meet the criteria for hedge accounting, the deferred gains or losses associated with the corresponding financial instruments would be included in the results of operations in the current period. In the event energy financial instruments are terminated prior to the period of physical delivery of the items being hedged, the gains or losses on the energy financial instruments at the time of termination remain deferred until the period of physical delivery unless both the energy financial instruments and the items being hedged result in a loss. If this occurs, the loss is recorded immediately. (B) Interest Rate Swaps The Company has entered into various interest rate swap and cap agreements for the purpose of managing interest rate exposure. Settlement amounts payable or receivable under these agreements are recorded as interest expense or income in the accounting period they are incurred. 10 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED FINANCIAL RESULTS Consolidated net income for the second quarter of 1997 was $10.9 million, or $0.34 per common share after payment of preferred dividends, compared with 1996 second quarter net income of $8.8 million, or $0.30 per common share. For the first six months of 1997, net income totaled $31.2 million ($0.99 per common share), an increase of 18 percent over the 1996 first six months' net income of $26.4 million ($0.90 per common share). Shares used in computing earnings per share increased by 7.5 percent for the three month comparison and by 7.6 percent for the year to date. The improvement in 1997 second quarter earnings was attributable to contributions from the acquisition of the Bushton processing complex and Hugoton Basin gathering assets which was effective April 1, 1997, colder weather positively impacting Interstate Pipeline and Retail throughput, earnings from the Company's en*able joint venture, and lower effective income tax rates. These positive factors more than offset the impact of lower margins from gas marketing activities, reduced pipeline throughput on the Texas intrastate system due to unfavorable basin differentials and low demand for wholesale irrigation deliveries in Texas due to heavy rainfall. Comparing the six month earnings for 1997 and 1996, the improvement in 1997 results also reflect higher prices for NGLs and sales of storage gas. RESULTS OF OPERATIONS Operating results by business segment, consolidated other income and (deductions) and income taxes are discussed below. Segment operating revenues, gas purchases, operations and maintenance expenses and volumetric data cited below are before intersegment eliminations (dollars in millions).
Second Quarter First Six Months 1997 1996 1997 1996 ---- ---- ---- ---- Gathering, Processing and Marketing Services Operating Revenues - Gas Sales $204.6 $186.1 $528.3 $436.6 Natural Gas Liquids Sales 70.4 41.6 134.8 82.2 Gathering, Transportation and Other 42.9 17.9 74.7 35.3 ------ ------ ------ ------ 317.9 245.6 737.8 554.1 ------ ------ ------ ------ Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 262.9 198.0 626.6 459.9 Operations and Maintenance 30.1 23.3 55.2 44.9 Depreciation and Amortization 8.7 7.9 18.0 15.4 Taxes, Other Than Income Taxes 3.7 2.4 7.1 5.6 ------ ------ ------ ------ 305.4 231.6 706.9 525.8 ------ ------ ------ ------ Operating Income $ 12.5 $ 14.0 $ 30.9 $ 28.3 ====== ====== ====== ====== Systems Throughput (Trillion Btus) - Gas Sales 95.7 89.9 219.6 205.6 Transportation and Gathering 119.8 78.8 197.3 164.5 ------ ------ ------ ------ 215.5 168.7 416.9 370.1 ====== ====== ====== ====== Natural Gas Liquids Sales (Million Gallons) - Company-Owned and Processed 165.9 110.7 304.8 214.1 Third Party Marketed 26.9 10.9 38.4 23.5 ------ ------ ------ ------ 192.8 121.6 343.2 237.6 ====== ====== ====== ======
11 Form 10-Q The significant increases in second quarter 1997 operating revenues, costs and expenses result from the acquisition of the Bushton processing complex and Hugoton Basin gathering assets at the end of March; this acquisition contributed incremental revenues of $36.1 million and operating costs and expenses of $30.6 million; 1997 second quarter gathering and NGLs volumes include 39.1 trillion Btus and 54.1 million gallons, respectively, from these facilities. The decline in this segment's second quarter 1997 operating income is attributable to lower gas marketing margins resulting from low wholesale irrigation demand and reduced sales to electric plants on the southern system. Second quarter 1997 transportation and storage revenues were adversely impacted by these reduced sales loads and by unfavorable price differentials between supply basins. Comparing the 1997 and 1996 six months periods, the positive contribution from the Bushton and Hugoton acquisition and slightly higher NGLs prices were partially offset by reduced 1997 margins, resulting in part from unfavorable weather, and by price differentials.
Second Quarter First Six Months 1997 1996 1997 1996 ---- ---- ---- ---- Interstate Transportation and Storage Services Operating Revenues - Transportation and Storage $15.8 $14.3 $35.0 $30.6 Other 2.1 1.5 4.7 3.5 ----- ----- ----- ----- 17.9 15.8 39.7 34.1 ----- ----- ----- ----- Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 1.2 2.0 4.5 4.0 Operations and Maintenance 6.9 5.5 15.3 12.3 Depreciation and Amortization 2.0 1.9 4.0 3.8 Taxes, Other Than Income Taxes 1.2 0.9 2.1 1.7 ----- ----- ----- ----- 11.3 10.3 25.9 21.8 ----- ----- ----- ----- Operating Income $ 6.6 $ 5.5 $13.8 $12.3 ===== ===== ===== ===== Systems Throughput (Trillion Btus) 38.5 34.1 88.1 87.6 ===== ===== ===== =====
Second quarter 1997 operating results and systems throughput volumes were significantly higher than 1996 due principally to colder weather in the geographic areas served by the pipeline. Additionally, second quarter results were impacted by improved controls over shippers who deliver less volumes into the system than nominated; 1997 second quarter gas costs were favorably impacted by these actions. The increases in 1997 second quarter and six months operations and maintenance expenses reflect higher infrastructure costs due to the Pony Express Pipeline. Six months 1997 operating results reflect a 12 percent increase over 1996 due primarily to increased shippers' conversion from lower priced interruptible service to firm service. 12 Form 10-Q
Second Quarter First Six Months 1997 1996 1997 1996 ---- ---- ---- ---- Retail Natural Gas Services Operating Revenues - Gas Sales $ 34.9 $ 32.6 $111.2 $113.4 Transportation and Other 8.3 7.2 17.8 13.6 ------ ------ ------ ------ 43.2 39.8 129.0 127.0 ------ ------ ------ ------ Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 19.7 18.3 71.2 70.7 Operations and Maintenance 14.7 14.2 30.0 29.8 Depreciation and Amortization 3.0 2.8 6.0 5.6 Taxes, Other Than Income Taxes 1.0 1.9 2.7 3.6 ------ ------ ------ ------ 38.4 37.2 109.9 109.7 ------ ------ ------ ------ Operating Income $ 4.8 $ 2.6 $ 19.1 $ 17.3 ====== ====== ====== ====== Systems Throughput (Trillion Btus) - Gas Sales 6.9 4.9 21.8 19.7 Transportation 8.6 7.4 16.8 14.3 ------ ------ ------ ------ 15.5 12.3 38.6 34.0 ====== ====== ====== ======
Second quarter 1997 operating results were positively impacted by increased sales and transport deliveries resulting from colder weather than the 1996 period; second quarter 1997 heating degree days in the markets served were 19 percent higher than 1996. Additionally, 1997 operating results were favorably impacted by higher seasonal demand fees received from irrigators. First quarter 1997 operating results were essentially flat with the comparable 1996 quarter.
Second Quarter First Six Months 1997 1996 1997 1996 ---- ---- ---- ---- Other Income and (Deductions) Interest Expense $(10.5) $ (8.3) $(20.2) $(16.9) Minority Interests and Other, Net 2.4 - 4.3 0.2 ------ ------ ------ ------ $ (8.1) $ (8.3) $(15.9) $(16.7) ====== ====== ====== ======
Higher 1997 interest expense results from increased levels of short and long-term debt incurred to finance acquisitions and to construct the Pony Express Pipeline. During the first six months of 1997, the Company capitalized $3.7 million of interest costs and $2.2 million of equity financing costs (included in Minority Interests and Other, Net) primarily related to the Pipeline construction. In addition to the capitalization of equity financing costs, Minority Interests and Other, Net includes the Company's 50 percent interest in the earnings of en*able and of Orcom Systems - two joint venture investments.
Second Quarter First Six Months 1997 1996 1997 1996 ---- ---- ---- ---- Income Taxes Provisions $ 5.0 $ 5.0 $16.7 $14.8 ===== ===== ===== ===== Effective Tax Rate 34.8% 36.0% ===== =====
The lower 1997 effective tax rate results from closure on certain issues in prior years'income tax filings. 13 Form 10-Q LIQUIDITY AND CAPITAL RESOURCES For the six month period ended June 30, 1997, net cash flows from operations totaled $60.8 million, compared with $83.3 million for the 1996 period. A material cause of the decline in 1997 operating cash flows is higher incurred costs of gas than that currently being collected in rates in the Company's Retail gas services segment. The Company has or will be making revised purchased gas cost adjustment filings in all of its jurisdictions to recover these gas costs. In March 1997, the Company completed the purchase of the Bushton processing complex and Hugoton Basin gathering assets. The cash portion of the purchase was initially funded by short-term debt. In April 1997, the Company sold $100 million of Capital Trust Pass-through Securities, bearing an annual distribution rate of 8.56 percent, callable in ten years and maturing in 2027. The proceeds of this financing were used to reduce short-term borrowings. Depending on market conditions and need, the Company may issue long-term debt during the second half of 1997. 14 Form 10-Q OTHER INFORMATION Item 1. Legal Proceedings Cabot Environmental Matters - --------------------------- As reported in the Company's Annual Report on Form 10-K, pursuant to certain acquisition agreements in 1989 and 1992, The Maple Gas Corporation and Cabot Corporation (collectively, "Cabot"), the Company's largest stockholder, indemnified the Company for certain environmental liabilities. Contractual and procedural issues have arisen concerning Cabot's indemnification obligations, however, in conjunction with the AOG merger, the Company and Cabot entered into a standstill agreement pertaining to these and other matters. This Standstill Agreement has been extended to August 15, 1997 and settlement discussions are ongoing. The Company believes it will be able to reach agreement with Cabot and is unable to estimate its potential exposure for such liabilities at this time, but does not expect them to have a material adverse impact on the Company's financial position or results of operations. For information relating to other legal proceedings, see Note 5 of Notes to Consolidated Financial Statements on pages 33-34 of the 1996 Annual Report on Form 10-K and the subsection entitled "Litigation and Environmental" on pages 24-25 of the 1996 Annual Report on Form 10-K. Item 2. Changes in Securities On June 11, 1997, Cabot Corporation exercised warrants held by it and purchased, in an unregistered offering, 642,232 shares of K N's Common Stock which were issued to Cabot Specialty Chemicals, Inc., in exchange for Cabot's payment price of $11.3 million. Item 5. Other Information TransColorado - ------------- On June 30, 1997, the Company, El Paso Energy Corporation and Questar Corporation announced the restructuring of TransColorado Gas Transmission Co. This venture was an equal one-third partnership among affiliates of each of these corporations for Phase I of the project; whereas, Phase II of the project will become an equal one-half partnership between affiliates of the Company and of Questar Corporation. Front Runner Pipeline - --------------------- On August 5, 1997, K N Wattenberg Transmission Limited Liability Company ("Wattenberg"), a wholly owned subsidiary of K N, announced plans to construct a natural gas pipeline that would extend approximately 100 miles from the Rockport Hub, a confluence of several pipelines south of Cheyenne, Wyoming to just north of the Denver International Airport. The pipeline will access additional natural gas supplies directly north of Denver, Colorado, near the Wyoming border. The pipeline is expected to be in service for the late 1998-1999 heating season, and will carry up to 250 million cubic feet of natural gas per day. Wattenberg announced an open season for firm capacity on this pipeline for the period August 5 - 31, 1997, and expects to file for approval of this project with the FERC by the end of August 1997. 15 Form 10-Q Item 6. Exhibits 27 - Financial Data Schedule 16 Form 10-Q SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. K N ENERGY, INC. (Registrant) August 14, 1997 /s/ Clyde E. McKenzie ------------------------------------------- Clyde E. McKenzie Vice President and Chief Financial Officer (On Behalf of the Registrant and as Principal Financial and Accounting Officer) 17 EX-27 2
5 1000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 16,819 0 198,983 0 39,337 346,794 1,750,723 528,620 1,734,171 471,809 412,912 0 7,000 156,717 394,250 1,734,171 847,320 847,320 643,187 783,483 0 0 20,174 47,899 16,669 31,230 0 0 0 31,230 0.99 0
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