-----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, CEqtRyyH/qk2p52G/lj0uGrscbQPfGYRqnzxIw2kLJhDDB10z0lwRr6ofXx75PhQ YsKyq+NE1r7lVKuLgB0LVw== 0000054502-97-000019.txt : 19971114 0000054502-97-000019.hdr.sgml : 19971114 ACCESSION NUMBER: 0000054502-97-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 001-06446 FILM NUMBER: 97714921 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 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 September 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 changes 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 31,461,818 shares as of October 31, 1997. - ---------------------------------------------------------------- 2 Form 10-Q K N ENERGY, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 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 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 12 - 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................... 16 Item 6. Exhibits and Reports on Form 8-K.......................... 16 SIGNATURE............................................................ 17
3 Form 10-Q CONSOLIDATED BALANCE SHEETS K N Energy, Inc. and Subsidiaries (Dollars in Thousands)
September 30 December 31 1997 1996 ------------- ----------- (Unaudited) ASSETS Current Assets: Cash and Cash Equivalents........................... $ 25,267 $ 17,005 Accounts Receivable................................. 192,523 304,942 Materials and Supplies.............................. 14,998 6,092 Gas in Underground Storage.......................... 23,660 43,511 Prepaid Gas......................................... 9,572 12,001 Other Prepaid Expenses.............................. 14,983 12,824 Gas Imbalances and Other............................ 70,995 65,319 ---------- ---------- 351,998 461,694 ---------- ---------- Investments......................................... 75,197 50,538 ---------- ---------- Property, Plant and Equipment, at Cost: Gathering, Processing and Marketing Services........ 856,637 683,569 Interstate Transportation and Storage Services...... 583,475 447,557 Retail Natural Gas Services......................... 421,567 409,626 ---------- ---------- 1,861,679 1,540,752 Less Accumulated Depreciation and Amortization...... 542,905 518,451 ---------- ---------- 1,318,774 1,022,301 ---------- ---------- Deferred Charges and Other Assets................... 106,488 95,187 ---------- ---------- Total Assets $1,852,457 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 4 Form 10-Q CONSOLIDATED BALANCE SHEETS K N Energy, Inc. and Subsidiaries (Dollars in Thousands)
September 30 December 31 1997 1996 ------------ ----------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current Maturities of Long-Term Debt................ $ 19,055 $ 26,971 Notes Payable....................................... 285,000 129,300 Accounts Payable.................................... 173,070 241,187 Accrued Expenses.................................... 25,952 34,696 Accrued Taxes....................................... 26,673 16,045 Gas Imbalances and Other............................ 51,045 50,417 ---------- ---------- 580,795 498,616 ---------- ---------- Deferred Liabilities, Credits and Reserves: Deferred Income Taxes............................... 131,567 122,371 Other............................................... 26,628 31,930 ---------- ---------- 158,195 154,301 ---------- ---------- Long-Term Debt...................................... 410,498 423,676 ---------- ---------- K N-Obligated Mandatorily Redeemable Capital Trust Pass-through Securities of Subsidiary Trust............................. 100,000 -- ---------- ---------- Minority Interests in Equity of Subsidiaries........ 31,160 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 - 31,446,326 and 30,295,792 Shares, Respectively.................................... 157,232 151,479 Additional Paid-in Capital.......................... 252,030 228,902 Retained Earnings................................... 166,099 142,578 Deferred Compensation............................... (9,667) (2,908) Treasury Stock, at Cost - 24,942 and 7,216 Shares, Respectively....................................... (885) (257) ---------- ---------- Total Common Stockholders' Equity................... 564,809 519,794 ---------- ---------- Total Stockholders' Equity.......................... 571,809 526,794 ---------- ---------- Total Liabilities and Stockholders' Equity $1,852,457 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 5 Form 10-Q CONSOLIDATED STATEMENTS OF INCOME (Unaudited) K N Energy, Inc. and Subsidiaries (In Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended September 30 September 30 1997 1996 1997 1996 ---- ---- ---- ---- Operating Revenues: Gathering, Processing and Marketing Services.................... $ 468,599 $ 264,894 $1,175,320 $ 788,719 Interstate Transportation and Storage Services.................. 5,223 6,092 17,648 17,619 Retail Natural Gas Services..................................... 41,315 32,647 169,489 158,882 --------- --------- ---------- --------- Total Operating Revenues........................................ 515,137 303,633 1,362,457 965,220 --------- --------- ---------- --------- Operating Costs and Expenses: Gas Purchases and Other Costs of Sales.......................... 416,656 210,935 1,060,884 693,006 Operations and Maintenance...................................... 46,771 44,384 146,109 130,316 Depreciation and Amortization................................... 13,110 13,602 41,101 38,432 Taxes, Other Than Income Taxes.................................. 6,218 4,555 18,144 15,449 --------- --------- ---------- --------- Total Operating Costs and Expenses.............................. 482,755 273,476 1,266,238 877,203 --------- -------- ---------- --------- Operating Income................................................ 32,382 30,157 96,219 88,017 --------- --------- ---------- --------- Other Income and (Deductions): Interest Expense................................................ (10,817) (9,321) (30,991) (26,209) Minority Interests.............................................. (2,736) (581) (5,681) (2,246) Other, Net...................................................... 7,798 1,141 14,979 3,012 --------- --------- ---------- --------- Total Other Income and (Deductions)............................. (5,755) (8,761) (21,693) (25,443) --------- --------- ---------- --------- Income Before Income Taxes...................................... 26,627 21,396 74,526 62,574 Income Taxes.................................................... 8,819 7,703 25,488 22,526 --------- --------- ---------- --------- Net Income...................................................... 17,808 13,693 49,038 40,048 Less - Preferred Stock Dividends................................ 88 99 263 298 --------- --------- ---------- --------- Earnings Available For Common Stock............................ $ 17,720 $ 13,594 $ 48,775 $ 39,750 ========= ========= ========== ========= Number of Shares Used in Computing Earnings Per Common Share...................................... 31,709 30,046 31,397 29,216 ========= ========= ========== ========= Earnings Per Common Share....................................... $ 0.56 $ 0.46 $ 1.55 $ 1.36 ========= ========= ========== ========= Dividends Per Common Share...................................... $ 0.27 $ 0.26 $ 0.81 $ 0.78 ========= ========= ========== =========
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)
Nine Months Ended September 30 --------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income......................................... $ 49,038 $ 40,048 Adjustments to Reconcile Net Income to Net Cash Flows From Operating Activities: Depreciation and Amortization..................... 41,101 38,432 Deferred Income Taxes............................. 8,781 7,823 Deferred Purchased Gas Costs...................... (14,736) 1,939 Provisions for Losses on Accounts Receivable...... 808 284 Changes in Gas in Underground Storage............. 5,409 (3,359) Changes in Other Working Capital Items............ 30,418 15,591 Changes in Deferred Revenues...................... (11,699) (16,898) Other, Net........................................ (6,721) (13,680) -------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES.... 102,399 70,180 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures............................... (213,320) (73,602) Acquisitions....................................... (102,918) (64,234) Investments........................................ (10,796) (3,320) Proceeds From Sales of Assets...................... 9,938 5,016 -------- -------- NET CASH FLOWS USED IN INVESTING ACTIVITIES........ (317,096) (136,140) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-Term Debt (Net).............................. 155,700 (73,000) Long-Term Debt Issued.............................. -- 125,000 Long-Term Debt Retired............................. (21,136) (13,935) Capital Trust Pass-through Securities Issued....... 100,000 -- Common Stock Issued................................ 15,802 52,685 Treasury Stock Issued.............................. 974 4,858 Treasury Stock Acquired............................ (1,602) (5,997) Cash Dividends - Common............................ (25,254) (22,594) - Preferred......................... (263) (298) Minority Interests Contributions................... -- 21 Minority Interests Distributions................... -- (2,339) Securities Issuance Costs.......................... (1,262) (938) -------- -------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES....................................... 222,959 63,463 -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents............................. 8,262 (2,497) Cash and Cash Equivalents at Beginning of Year............................. 17,005 22,571 -------- -------- Cash and Cash Equivalents at End of Period......... $ 25,267 $ 20,074 ======== ========
The accompanying notes are an integral part of these statements. 7 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) K N Energy, Inc. and Subsidiaries (In Thousands)
Nine Months Ended September 30 ------------------- 1997 1996 ---- ---- CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY (Net of Effects from Acquisitions): Accounts Receivable................................ $113,822 $ 55,219 Materials and Supplies............................. (3,331) 2,533 Other Current Assets............................... (5,406) (26,980) Accounts Payable................................... (68,117) (42,978) Other Current Liabilities.......................... (6,550) 27,797 -------- -------- $ 30,418 $ 15,591 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest (Net of Amount Capitalized).............. $ 35,050 $ 25,939 ======== ======== Income Taxes...................................... $ 15,496 $ 8,955 ======== ========
8 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. Acquisitions (A) Bushton 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 ("NGLs") 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. (B) Interenergy On August 25, 1997, K N signed a binding agreement to acquire Interenergy Corporation ("Interenergy"), a diversified energy company involved with natural gas gathering, processing and marketing in the Rocky Mountain and mid-continent states. K N will exchange K N common stock and assume Interenergy's debt in a transaction to be accounted for as a purchase. Interenergy's assets to be acquired include approximately 615 miles of natural gas gathering pipeline and two natural gas liquids processing facilities - one in Wyoming and one 50 percent jointly owned in North Dakota. Interenergy's gathering capacity is 53 million cubic feet of natural gas per day, with plant capacity totaling 35 million cubic feet per day. Interenergy has its headquarters in Denver and employs 65 people. 3. Sale of Kansas Distribution Properties On October 1, 1997, K N entered into a letter of intent to sell its retail natural gas distribution properties in Kansas to Midwest Energy, Inc., a customer-owned cooperative based in Hays, Kansas. K N will sell its natural gas distribution systems in 58 Kansas communities, serving approximately 30,000 residential, commercial and industrial customers. The transaction, expected to close by year end, is subject to final approval by both companies, in addition to all applicable state and federal regulatory authorities. 9 Form 10-Q 4. 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 began free flow operations in August 1997, and full service at its designated capacity of 255 MMcf per day is expected by early December 1997. 5. Financing On October 27, 1997, the Company sold $150 million of 6.67% debentures maturing on November 1, 2027. The debentures are callable by the Company any time after November 1, 2004 and are redeemable at the option of the registered holders on November 1, 2004. The Company used the net proceeds from the sale to reduce short-term indebtedness. 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." 6. 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 of $11.3 million. 7. 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 owned and operated by en*able. Subsidiaries of K N and PacifiCorp each own 50 percent of en*able. 8. 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 10 Form 10-Q 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 Nine Months Ended September 30 September 30 1997 1996 1997 1996 ---- ---- ---- ---- Basic Earnings Per Share................ $ 0.56 $ 0.46 $ 1.58 $ 1.38 Diluted Earnings Per Share.............. $ 0.56 $ 0.46 $ 1.55 $ 1.36
9. 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 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 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. 11 Form 10-Q 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. 12 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED FINANCIAL RESULTS Consolidated net income for the third quarter of 1997 was $17.8 million, or $0.56 per common share after the payment of preferred dividends, compared with 1996 third quarter net income of $13.7 million, or $0.46 per common share. For the first nine months of 1997, net income totaled $49.0 million or $1.55 per common share, representing a 22 percent increase over the comparable 1996 period's net income of $40.0 million or $1.36 per common share. Third quarter 1997 earnings were positively impacted by contributions from the Bushton-related assets acquired on April 1, 1997, earnings from the Company's equity investment in the TransColorado Pipeline, income related to the sale of fifty percent of en*able, the mid-August startup of the Pony Express Pipeline, and tight expense controls. These positive factors more than offset a loss incurred in power marketing, lower gas margins (marketing, transportation and storage) due to competitive pressures and low demand for wholesale irrigation load resulting from heavy rainfall in the Texas intrastate market area, and lower NGLs prices compared to 1996 prices. In addition to the net third quarter positives, the improvement in 1997 year-to-date earnings reflects the favorable impact of colder weather during the first four months of 1997 on the Interstate Pipeline and Retail throughput, and a lower effective income tax rate. 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).
Third Quarter First Nine Months ------------- ---------------- 1997 1996 1997 1996 ---- ---- ---- ---- Gathering, Processing and Marketing Services Operating Revenues - Gas Sales $330.9 $212.8 $ 859.2 $649.3 Natural Gas Liquids Sales 67.7 42.3 202.5 124.5 Gathering, Transportation and Other 83.2 22.5 157.9 57.9 ------- ------ ------- ------ 481.8 277.6 1,219.6 831.7 ------ ------ ------- ------ Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 421.7 219.7 1,048.3 679.6 Operations and Maintenance 25.9 23.1 81.1 68.0 Depreciation and Amortization 8.0 8.3 26.0 23.7 Taxes, Other Than Income Taxes 3.8 3.2 10.9 8.8 ------ ------ ------- ------ 459.4 254.3 1,166.3 780.1 ------ ------ ------- ------ Operating Income $ 22.4 $ 23.3 $ 53.3 $ 51.6 ====== ====== ======= ====== Systems Throughput (Trillion Btus) - Gas Sales 144.2 106.9 363.8 312.5 Transportation and Gathering 92.7 78.1 290.0 242.6 ------ ------ ------- ------ 236.9 185.0 653.8 555.1 ====== ====== ======= ====== Natural Gas Liquids Sales (Million Gallons) - Company-Owned and Processed 153.1 100.0 457.9 314.1 Third Party Marketed 29.3 8.5 67.7 32.0 ------ ------ ------- ------ 182.4 108.5 525.6 346.1 ====== ====== ======= ======
13 Form 10-Q The significant increases in 1997 operating revenues, costs and expenses largely reflect the contributions of the Bushton- related assets acquired on April 1, 1997, and power marketing activities. The Bushton acquisition provided incremental 1997 third quarter and nine months operating revenues of $35.4 million and $71.5 million and operating income of $5.1 million and $10.6 million, respectively. However, certain power marketing transactions were structured in a way that was not in compliance with the Company's risk management policies, and losses of $4.0 million were incurred. Power marketing activities have been suspended until the Company either owns, or has a power marketing partner that owns, electric generating assets. Third quarter 1997 operating results were also adversely impacted by lower gas marketing and transportation and storage margins due to the impact of abundant rainfall on wholesale irrigation loads in the Texas intrastate market area. Gas margins were also impacted by increasing competitive pressures prevalent in the gas marketing industry. Finally, NGLs prices during the 1997 third quarter averaged $0.035 per gallon below the comparable 1996 quarter. Offsetting these circumstances, tight expense control initiatives implemented earlier in the year are now fully functional. Contrasting the first nine months of 1997 with 1996, the positive contributions from the Bushton acquisition have more than offset reduced margins resulting from a combination of unfavorable weather and competitive pressures, and the power marketing loss.
Third Quarter First Nine Months ------------- ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Interstate Transportation and Storage Services Operating Revenues - Transportation and Storage $18.3 $15.5 $53.3 $46.1 Other 0.7 2.3 5.4 5.8 ----- ----- ----- ----- 19.0 17.8 58.7 51.9 ----- ----- ----- ----- Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 0.6 2.6 5.1 6.6 Operations and Maintenance 8.0 6.6 23.3 18.9 Depreciation and Amortization 2.1 2.7 6.1 6.5 Taxes, Other Than Income Taxes 0.6 0.6 2.7 2.3 ----- ----- ----- ----- 11.3 12.5 37.2 34.3 ----- ----- ----- ----- Operating Income $ 7.7 $ 5.3 $21.5 $17.6 ===== ===== ===== ===== Systems Throughput (Trillion Btus) 38.7 34.5 126.8 122.1 ===== ===== ===== =====
Operating results for the third quarter of 1997 were positively impacted by the startup of the Pony Express Pipeline and an irrigation load that was somewhat higher than the 1996 third quarter in the areas served by the Interstate system. In mid- August 1997, the Pony Express Pipeline commenced transporting volumes on a "free-flow" basis; transport volumes totaled 3.1 Trillion Btus during the third quarter. The decline in third quarter 1997 other operating revenues and gas purchases and other cost of sales results from the transfer of the Casper processing plant, effective August 31, 1997, to an unregulated subsidiary included in the Gathering, Processing and Marketing segment. In addition to the third quarter's contributions, the nine months 1997 operating results exceed the comparable period in 1996 due to shippers' conversion from lower priced interruptible service to firm service. The results from implementation of expense controls in this segment were substantially offset by the additional costs of the Pony Express Pipeline. 14 Form 10-Q
Third Quarter First Nine Months ------------- ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Retail Natural Gas Services Operating Revenues - Gas Sales $ 32.3 $ 22.6 $143.5 $136.0 Transportation and Other 9.4 10.3 27.2 23.9 ------ ------ ------ ------ 41.7 32.9 170.7 159.9 ------ ------ ------ ------ Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 21.3 13.4 93.5 84.5 Operations and Maintenance 13.3 14.6 42.3 44.1 Depreciation and Amortization 3.0 2.7 9.0 8.2 Taxes, Other Than Income Taxes 1.8 0.7 4.5 4.3 ------ ------ ------ ------ 39.4 31.4 149.3 141.1 ------ ------ ------ ------ Operating Income $ 2.3 $ 1.5 $ 21.4 $ 18.8 ====== ====== ====== ====== Systems Throughput (Trillion Btus) - Gas Sales 7.2 4.8 29.0 24.5 Transportation 9.1 10.7 25.9 25.0 ------ ------ ------ ------ 16.3 15.5 54.9 49.5 ====== ====== ====== ======
Although the Retail segment's third quarter 1997 irrigation deliveries were below normal customer requirements for the season (due to abundant rainfall), throughput volumes to irrigators did exceed 1996 deliveries by 0.8 Trillion Btus. This benefit, combined with the implementation of effective expense controls, caused third quarter 1997 operating income to exceed 1996's third quarter operating income by $0.8 million. Year-to-date 1997 earnings were 14 percent above the comparable 1996, due principally to colder winter weather during the first four months of 1997.
Third Quarter First Nine Months ------------- ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Other Income and (Deductions) Interest Expense $(10.8) $ (9.3) $(31.0) $(26.2) Minority Interests and Other, Net 5.0 0.5 9.3 0.8 ------ ------ ------ ------ $( 5.8) $ (8.8) $(21.7) $(25.4) ====== ====== ====== ======
The increase in 1997 interest expense, net of capitalized interest costs of $2.2 million in the 1997 third quarter and $5.9 million for the 1997 nine month period, reflects higher levels of borrowings to fund construction of the Pony Express Pipeline and acquisitions. During the third quarter of 1997, as a result of the decision to proceed with the construction of Phase II of the TransColorado Pipeline Project, K N and its TransColorado partner elected to capitalize financing costs retroactive to the date of the formation of the joint venture. K N's share of capitalized financing costs totaled approximately $4.0 million. Phase II construction is expected to commence in early 1998. Also, income related to the sale of fifty percent of the Company's one hundred percent interest in en*able, recognized in the 1997 third quarter and first six months, is included in Minority Interest and Other, Net.
Third Quarter First Nine Months ------------- ----------------- 1997 1996 1997 1996 ---- ---- ---- ---- Income Taxes Provisions $ 8.8 $ 7.7 $ 25.5 $ 22.5 ===== ===== ====== ====== Effective Tax Rate 34.2% 36.0% ====== ======
The lower 1997 effective tax rate results from resolution of certain issues from prior years' income tax filings. 15 Form 10-Q LIQUIDITY AND CAPITAL RESOURCES Net cash flows from operations, for the nine months ended September 30, 1997, aggregated $102.4 million compared with $70.2 million during the first nine months of 1996. In addition to the impact of improved operating results in 1997, net cash flows were positively impacted by a significant improvement in the management of accounts receivable; the Company has adjusted billings and payment dates to more closely align the timing of collections with the payment for the related commodity. Short-term debt was $285.0 million at the end of the 1997 third quarter, compared to $129.3 million and $15.0 million at December 31, 1996 and September 30, 1996, respectively. On October 27, 1997, K N publicly sold $150 million of 30-year debentures with a coupon rate of 6.67%. Net proceeds of this financing were used to reduce short-term borrowings. 16 Form 10-Q OTHER INFORMATION Item 1. Legal Proceedings Cabot Environmental Matters As reported in the Company's 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 arose concerning Cabot's indemnification obligations, however, in conjunction with the AOG merger, the Company and Cabot entered into a standstill agreement pertaining to these environmental and certain other matters. This Standstill Agreement was last extended to November 3, 1997. The Company engaged in mediated settlement discussions with Cabot but was unable to reach agreement with Cabot. Consequently, on November 3, 1997, the Company filed suit against Cabot in State District Court in Potter County, Texas alleging breaches of contractual obligations and seeking recovery for costs incurred or to be incurred in connection with environmental remediation of the properties acquired pursuant to the 1989 and 1992 agreements. The Company believes it has a meritorious position in this matter, and does not expect the outcome of this lawsuit to have a material adverse impact on the Company's financial position or results of operations. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits 27 - Financial Data Schedule (B) Reports on Form 8-K On October 27, 1997, a Current Report on Form 8-K was filed to report that on that date K N Energy, Inc. sold $150 million of its 6.67% debentures due November 1, 1997 pursuant to an underwritten public offering. 17 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) November 12, 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) EX-27 2
5 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 25,267 0 192,523 0 38,658 351,998 1,861,679 542,905 1,852,457 580,795 410,498 0 7,000 157,232 407,577 1,852,457 1,362,457 1,362,457 1,060,884 1,266,238 0 0 30,991 74,526 25,488 49,038 0 0 0 49,038 1.55 0
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