0000950134-95-002020.txt : 19950816 0000950134-95-002020.hdr.sgml : 19950816 ACCESSION NUMBER: 0000950134-95-002020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563833 BUSINESS ADDRESS: STREET 1: 370 VAN GORDON STREET STREET 2: PO BOX 281304 CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 BUSINESS PHONE: 3039891740 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 FORM 10-Q FOR PERIOD ENDED 6/30/95 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, 1995 -------------------- 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 27,856,904 -------------------------------------------------------------------------------- shares as of July 31, 1995. --------------------------- -------------------------------------------------------------------------------- 2 Form 10-Q K N ENERGY, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1995 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 & 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 10 - 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 14 Item 6. Exhibit 27 - Financial Data Schedule * SIGNATURE................................................................. 15
* Included In SEC EDGAR Filing Only. 2 3 Form 10-Q CONSOLIDATED BALANCE SHEETS K N ENERGY, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31 1995 1994 ---- ---- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and Cash Equivalents....................................................... $ 20,091 $ 20,613 Accounts Receivable............................................................. 150,184 151,834 Material and Supplies, at Average Cost.......................................... 11,844 12,687 Gas in Underground Storage...................................................... 10,795 31,695 Prepaid Gas..................................................................... 15,247 12,456 Exchange Gas and Other.......................................................... 46,923 50,029 ---------- ---------- 255,084 279,314 ---------- ---------- INVESTMENTS..................................................................... 13,571 9,186 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Retail Natural Gas Services..................................................... 355,415 358,337 Interstate Transportation and Storage Services.................................. 310,031 371,253 Gathering, Processing and Marketing Services.................................... 629,792 533,226 Gas and Oil Production.......................................................... 51,435 49,578 ---------- ---------- 1,346,673 1,312,394 Less - Accumulated Depreciation, Depletion and Amortization..................... 483,487 461,745 ---------- ---------- 863,186 850,649 ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS............................................... 19,552 33,235 ---------- ---------- $1,151,393 $1,172,384 ========== ==========
3 4 Form 10-Q CONSOLIDATED BALANCE SHEETS K N ENERGY, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31 1995 1994 ---- ---- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current Maturities of Preferred Stock and Long-Term Debt........................ $ 29,261 $ 30,384 Notes Payable................................................................... 45,500 60,000 Accounts Payable................................................................ 115,892 108,755 Accrued Taxes................................................................... 1,011 6,197 Exchange Gas and Other.......................................................... 40,008 50,434 ---------- ---------- 231,672 255,770 ---------- ---------- DEFERRED LIABILITIES, CREDITS AND RESERVES: Deferred Income Taxes........................................................... 100,017 96,054 Deferred Revenues............................................................... 41,456 42,090 Other........................................................................... 27,911 28,194 ---------- ---------- 169,384 166,338 ---------- ---------- LONG-TERM DEBT.................................................................. 321,602 334,644 ---------- ---------- MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES.................................... 14,514 13,231 ---------- ---------- PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION................................. 1,143 1,715 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred Stock - Authorized - Class A, 200,000 Shares; Class B, 2,000,000 Shares, All 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 Stockholders' Equity Common Stock - Authorized - 50,000,000 Shares, Par Value $5 Per Share Outstanding - 27,825,304 and 27,617,531 Shares, Respectively............ 139,127 138,088 Additional Paid-in Capital................................................. 173,925 170,932 Retained Earnings........................................................... 93,347 86,032 Deferred Compensation....................................................... (277) (378) Treasury Stock, at Cost, (1,633 and 44,417 Shares, Respectively)............ (44) (988) ---------- ---------- Total Common Stockholders' Equity............................................... 406,078 393,686 ---------- ---------- Total Stockholders' Equity...................................................... 413,078 400,686 ---------- ---------- $1,151,393 $1,172,384 ========== ==========
The accompanying notes are an integral part of these balance sheets. 4 5 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 ------------------- ------------------ 1995 1994 1995 1994 ---- ---- ---- ---- OPERATING REVENUES: Retail Natural Gas Services.......................... $ 36,925 $ 35,463 $111,262 $112,306 Interstate Transportation and Storage Services....... 5,179 4,664 12,396 10,315 Gathering, Processing and Marketing Services......... 189,457 192,759 396,158 454,194 Gas and Oil Production............................... 2,328 2,917 4,419 5,860 -------- -------- -------- -------- Total Operating Revenues............................. 233,889 235,803 524,235 582,675 -------- -------- -------- -------- OPERATING COSTS AND EXPENSES: Gas Purchases........................................ 157,135 165,379 353,517 426,015 Operations and Maintenance........................... 40,574 41,646 85,507 84,713 Depreciation, Depletion and Amortization............. 12,539 14,164 24,877 26,982 Taxes, Other Than Income Taxes....................... 4,728 4,204 9,929 8,615 -------- -------- -------- -------- Total Operating Costs and Expenses................... 214,976 225,393 473,830 546,325 -------- -------- -------- -------- OPERATING INCOME..................................... 18,913 10,410 50,405 36,350 -------- -------- -------- -------- OTHER INCOME AND (DEDUCTIONS): Interest Expense..................................... (8,516) (7,388) (17,470) (14,690) Minority Interests................................... (254) (53) (831) (238) Other, Net........................................... 619 1,565 1,188 1,720 -------- -------- -------- -------- Total Other Income and (Deductions).................. (8,151) (5,876) (17,113) (13,208) -------- -------- -------- -------- INCOME BEFORE INCOME TAXES........................... 10,762 4,534 33,292 23,142 Income Taxes......................................... 3,840 1,624 11,852 8,273 -------- -------- -------- -------- NET INCOME ......................................... 6,922 2,910 21,440 14,869 Less - Preferred Stock Dividends..................... 123 158 246 315 -------- -------- -------- -------- EARNINGS AVAILABLE FOR COMMON STOCK.................. $ 6,799 $ 2,752 $ 21,194 $ 14,554 ======== ======== ======== ======== Number of Shares Used in Computing Earnings Per Common Share........................ 28,353 27,855 28,243 27,792 ======== ======== ======== ======== EARNINGS PER COMMON SHARE............................ $ 0.24 $ 0.10 $ 0.75 $ 0.52 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE........................... $ 0.25 $ 0.13 $ 0.50 $ 0.27 ======== ======== ======== ========
The accompanying notes are an integral part of these statements of income. 5 6 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) K N ENERGY, INC. AND SUBSIDIARIES (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 ---------------------- 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income...................................................................... $ 21,440 $ 14,869 Adjustments to Reconcile Net Income to Net Cash from Operating Activities: Depreciation, Depletion and Amortization..................................... 24,877 26,982 Minority Interests........................................................... 831 238 Provisions for Losses on Accounts Receivable................................. 600 592 Gain on Sale of Facilities................................................... -- (1,357) Executive Stock Compensation................................................. 101 647 Deferred Income Taxes........................................................ 4,266 1,512 Deferred Purchased Gas Costs................................................. 5,806 8,813 Changes in Other Working Capital Items....................................... 18,536 53,998 Changes in Deferred Revenues................................................. (634) 1,900 Other, Net................................................................... 9,406 5,039 -------- -------- NET CASH FLOWS FROM OPERATING ACTIVITIES........................................ 85,229 113,233 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures............................................................ (33,818) (43,828) Acquisitions, Net of Cash Acquired ............................................. (13,369) (29,683) Other Funds Used During Construction............................................ 18 117 Investments..................................................................... (4,385) (181) Proceeds from Sale of Facilities................................................ 2,595 4,432 (Payments) Collections Under Basket Agreement................................... 1,204 (495) -------- -------- NET CASH FLOWS USED IN INVESTING ACTIVITIES..................................... (47,755) (69,638) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-Term Debt (Net)........................................................... (14,500) (21,500) Long-Term Debt - Issued................................................... -- 1,100 - Retired.................................................. (14,764) (18,987) Common Stock Issued............................................................. 4,032 6,859 Treasury Stock - Issued................................................... 1,213 417 - Acquired................................................. (269) (417) Cash Dividends - Common................................................... (13,879) (7,344) - Preferred................................................ (246) (315) Minority Interests - Contributions............................................ 1,031 933 - Distributions............................................ (579) (1,003) Premium on Debt Reacquisition and Issue Costs................................... (35) -- --------- -------- NET CASH FLOWS USED IN FINANCING ACTIVITIES..................................... (37,996) (40,257) -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents............................ (522) 3,338 Cash and Cash Equivalents at Beginning of Year.................................. 20,613 14,353 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................................... $ 20,091 $ 17,691 ======== ========
The accompanying notes are an integral part of these statements of cash flows. 6 7 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) K N ENERGY, INC. AND SUBSIDIARIES (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 ---------------------- 1995 1994 ---- ---- CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY (NET OF ACQUISITION EFFECTS): Accounts Receivable............................................................. $ 1,050 $36,969 Contract Demand Receivables ................................................... -- 38,732 Material and Supplies........................................................... 843 487 Gas in Underground Storage...................................................... 20,900 (812) Accounts Payable, Accrued Taxes and Other Current Liabilities................... (4,573) (25,474) Other Current Assets............................................................ 316 4,096 ------- ------- $18,536 $53,998 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest (Net of Amount Capitalized)............................................ $16,418 $14,286 ======= ======= Income Taxes.................................................................... $ 6,519 $ 7,430 ======= =======
7 8 Form 10-Q NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General The consolidated financial statements include the amounts of K N Energy, Inc. ("K N") and its majority-owned subsidiaries (the "Company"). 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 1995 presentation. 2. Merger On July 13, 1994, pursuant to the Agreement of Merger dated March 24, 1994, American Oil and Gas Corporation ("AOG") was merged into the Company. As a result of the merger, each outstanding share of common stock of AOG was converted into 0.47 of a share of common stock of K N. In connection with the merger, all the outstanding shares of AOG common stock were converted into approximately 12.2 million shares of K N stock, and the authorized number of shares of K N common stock was increased to 50 million shares. The merger was accounted for as a pooling of interests and, accordingly, the historical consolidated financial statements for periods prior to consummation of the merger have been restated as though the companies had been combined for all periods reported herein. 3. Merger and Restructuring Costs The Company recorded merger and restructuring costs totaling $25.9 million in the third quarter of 1994. Total expected cash expenditures relating to these charges are $23.4 million, of which $2.2 million had not yet been paid as of June 30, 1995. Merger expenses include $12.4 million in investment bankers' and other professional fees, $7.7 million for severance and employee benefit costs for approximately 230 employees who have been or will be terminated through consolidation of administrative and operational staff, and $4.6 million in costs to eliminate duplicative space requirements and equipment, and to write-off the cost of information systems not required subsequent to the merger. Restructuring costs related to the formal restructuring plan of the Company's retail distribution operations total $1.2 million, representing severance and employee benefit costs for terminating approximately 90 retail distribution employees as a result of the restructuring and centralization of customer service functions. 4. Acquisitions On February 16, 1995, the Company acquired natural gas transmission pipeline and storage assets in Texas. The assets include two West Texas pipeline systems, comprised of 347 miles of pipeline and related facilities, which are currently connected to K N's core pipeline system. In addition, surface facilities, lease rights and approximately 10.8 Bcf of natural gas in storage in a leased, Gulf Coast storage field were acquired. K N also acquired the remaining 50 percent interest it did not previously own in a 90-mile joint venture pipeline near Midland, Texas. 8 9 Form 10-Q The total price was $80.1 million, subject to closing adjustments. The Company utilized an operating lease and short-term debt financing arrangements to fund the acquisition. 5. Regulatory Matters In January 1995, as a result of an agreement reached with its customers, the Company filed an application with the Federal Energy Regulatory Commission ("FERC") to transfer three storage fields, including approximately 45 Bcf of cushion gas held by K N Interstate Gas Transmission Co. ("KNI"), to a newly created nonjurisdictional affiliate, K N Natural Gas, Inc. ("KNNG"). On May 2, 1995, FERC issued an order approving the storage reorganization filing. With the approval of this transfer, KNI owns only the Huntsman, Nebraska storage facilities, which will remain as jurisdictional facilities and continue to provide storage services. Jurisdictional rates were restated to reflect this transfer. KNNG began marketing its gas at market rates from the three storage facilities which were transferred, effective June 1, 1995. 6. Treasury Stock In April 1995, K N's Board of Directors authorized the purchase on the open market of up to 500,000 shares of the Company's common stock through December 31, 1996. Any such purchases will be used to fund Company benefit plans and the Company's dividend reinvestment plan. Such a program is in the ordinary course of K N's business and is a continuation of a similar share purchasing program that K N has used in the past. As of June 30, 1995, the Company had purchased 10,000 shares under this authorization. 9 10 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED FINANCIAL RESULTS The Company reported second quarter 1995 net income of $6.9 million, or $0.24 per common share, after payment of preferred dividends, compared with 1994 second quarter net income of $2.9 million, or $0.10 per common share. The significant improvement in 1995 results is attributable to the realized benefits from the July 1994 merger with American Oil and Gas Corporation, favorable weather for space heating load in K N's northern region, the impact of 1994 rate increases (subsequent to the 1994 second quarter), and improved natural gas liquids prices. These positive factors more than offset weak natural gas prices and cool, wet June weather primarily in K N's southern region which affected gas sales to agricultural and electric generation markets. For the first six months of 1995, net income was $21.4 million or $0.75 per common share, which reflects a 44 percent increase in earnings over the 1994 six months' net income of $14.9 million, or $0.52 per common share. Expense savings from the merger, contributions from the February 1995 acquisition of transmission and storage assets in Texas, and the impact of 1994 rate increases were key factors in the 1995 earnings improvement. RESULTS OF OPERATIONS Comparative operating results by business segment and 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 ------------------ -------------------- RETAIL NATURAL GAS SERVICES 1995 1994 1995 1994 ---- ---- ---- ---- Operating Revenues - Gas Sales $34.4 $34.4 $106.3 $109.9 Transportation and Other 2.8 2.7 5.3 4.7 ----- ----- ------ ------ 37.2 37.1 111.6 114.6 ----- ----- ------ ------ Operating Costs and Expenses - Gas Purchases 17.6 19.0 61.6 67.2 Operations and Maintenance 14.0 12.4 27.6 27.0 Depreciation, Depletion and Amortization 3.1 3.0 6.3 5.9 Taxes, Other Than Income Taxes 1.3 1.2 3.2 2.6 ----- ----- ------ ------ 36.0 35.6 98.7 102.7 ----- ----- ------ ------ Operating Income $ 1.2 $ 1.5 $ 12.9 $ 11.9 ===== ===== ====== ====== Systems Throughput (Trillion Btus) - Gas Sales 6.3 6.8 19.6 21.7 Transportation 5.0 4.5 11.2 8.6 ----- ----- ------ ------ 11.3 11.3 30.8 30.3 ===== ===== ====== ====== System-Wide Degree Days 1,018 581 3,841 3,718 ===== ===== ====== ======
10 11 Form 10-Q Second quarter 1995 gas sales and transportation margins exceeded 1994 margins by $2.2 million due to rate increases on the Rocky Mountain distribution system during the 1994 second quarter and increased deliveries to space heating markets reflecting cooler temperatures. Second quarter 1994 operations and maintenance expenses were reduced by $1.7 million due to favorable resolutions of certain regulatory and environmental matters. For the 1995 six-month period, operations and maintenance expenses reflect savings realized by centralization of its customer service operations.
SECOND QUARTER FIRST SIX MONTHS ------------------- ------------------ INTERSTATE TRANSPORTATION AND STORAGE SERVICES 1995 1994 1995 1994 ---- ---- ---- ---- Operating Revenues - Transportation and Storage $14.0 $12.3 $29.3 $27.6 Natural Gas Liquids and Other 1.5 0.8 2.8 1.7 ----- ----- ----- ----- 15.5 13.1 32.1 29.3 ----- ----- ----- ----- Operating Costs and Expenses - Gas Purchases 1.5 0.6 2.9 1.4 Operations and Maintenance 6.8 7.3 13.8 13.0 Depreciation, Depletion and Amortization 1.8 2.1 3.9 4.2 Taxes, Other Than Income Taxes 0.7 1.0 1.5 2.1 ----- ----- ----- ----- 10.8 11.0 22.1 20.7 ----- ----- ----- ----- Operating Income $ 4.7 $ 2.1 $10.0 $ 8.6 ===== ===== ===== ===== Systems Throughput (Trillion Btus) 33.4 27.9 72.3 69.2 ===== ===== ===== ===== Natural Gas Liquids (Millions of Gallons) 5.0 3.1 8.5 6.3 ===== ===== ===== =====
The significant increase in 1995 second quarter operating income primarily reflects higher rates resulting from the late 1994 rate case settlement. Additionally, improved 1995 throughput volumes and NGL recoveries, due to colder weather, and cost controls enhanced 1995 results. Comparing operating income for the six-month periods, the impact of the 1994 rate increase on 1995 results was partially offset by lower customer nominations for firm storage service. Additionally, first quarter 1994 operations and maintenance expense was reduced by $1.3 million, due to favorable resolution of certain environmental and legal contingencies. 11 12 Form 10-Q
SECOND QUARTER FIRST SIX MONTHS ------------------- ------------------ GATHERING, PROCESSING AND MARKETING SERVICES 1995 1994 1995 1994 ---- ---- ---- ---- Operating Revenues - Gas Sales $160.5 $160.9 $338.9 $397.6 Transportation and Gathering 11.2 11.5 22.6 23.0 Natural Gas Liquids and Other 31.2 30.6 61.2 57.6 ------ ------ ------ ------ 202.9 203.0 422.7 478.2 ------ ------ ------ ------ Operating Costs and Expenses - Gas Purchases 161.3 165.7 335.3 402.1 Operations and Maintenance 20.0 22.0 43.4 44.5 Depreciation, Depletion and Amortization 6.4 7.2 12.3 13.5 Taxes, Other Than Income Taxes 2.4 1.6 4.7 3.2 ------ ------ ------ ------ 190.1 196.5 395.7 463.3 ------ ------ ------ ------ Operating Income $ 12.8 $ 6.5 $ 27.0 $ 14.9 ====== ====== ====== ====== System Throughput (Trillion Btus) - Gas Sales 105.4 82.7 194.5 183.0 Transportation and Gathering 75.6 78.1 157.2 157.0 ------ ------ ------ ------ 181.0 160.8 351.7 340.0 ====== ====== ====== ====== Natural Gas Liquids (Millions of Gallons) 91.0 93.9 183.8 183.4 ====== ====== ====== ======
Although 1995 second quarter gas sales to agricultural and electric generation markets were adversely impacted by cool, wet weather in June, this decline in sales volumes was more than offset by sales to lower margin, short-term local distribution and industrial markets. Further, the earnings impact of low agricultural and electric load was more than offset by higher 1995 NGL prices and cost savings resulting from the merger. Additionally, 1995 results have benefited from the February acquisition of natural gas transmission and storage assets in Texas. Second quarter 1994 depreciation, depletion and amortization included a $1.0 million write-down of a Texas gathering system.
SECOND QUARTER FIRST SIX MONTHS ----------------- ------------------- GAS AND OIL PRODUCTION 1995 1994 1995 1994 ---- ---- ---- ---- Operating Revenues - Gas and Oil Sales $2.2 $3.3 $4.5 $6.7 Other 0.8 0.8 1.3 1.2 ---- ---- ---- ---- 3.0 4.1 5.8 7.9 ---- ---- ---- ---- Operating Costs and Expenses - Operations and Maintenance 1.2 1.6 2.4 2.9 Depreciation, Depletion and Amortization 1.3 1.8 2.4 3.4 Taxes, Other Than Income Taxes 0.3 0.3 0.5 0.6 ---- ---- ---- ---- 2.8 3.7 5.3 6.9 ---- ---- ---- ---- Operating Income $0.2 $0.4 $0.5 $1.0 ==== ==== ==== ==== Gas and Oil Production (Equivalent Bcf) 1.7 1.9 3.0 3.7 ==== ==== ==== ====
12 13 Form 10-Q The decline in 1995 operating income reflects low natural gas prices which also resulted in shut-in production. Additionally, 1994 results included production from gas and oil reserves acquired in February 1994. In October 1994, the Company sold a 50 percent interest in these properties.
SECOND QUARTER FIRST SIX MONTHS ----------------- ------------------ OTHER INCOME AND (DEDUCTIONS) 1995 1994 1995 1994 ---- ---- ---- ---- Interest Expense $(8.5) $(7.4) $(17.5) $(14.7) Minority Interests and Other, Net 0.3 1.5 0.4 1.5 ----- ----- ------ ------ $(8.2) $(5.9) $(17.1) $(13.2) ===== ===== ====== ======
The increase in first quarter 1995 interest expense is due to the October 1994 sale of $75 million of 8.75% debentures. In the second quarter of 1994, a gain of $1.5 million was realized on the sale of a south Texas gathering system.
SECOND QUARTER FIRST SIX MONTHS ----------------- ------------------ INCOME TAXES 1995 1994 1995 1994 ---- ---- ---- ---- Provisions $ 3.8 $ 1.6 $ 11.9 $ 8.3 ===== ===== ====== ====== Effective Tax Rate 35.6% 35.7% ====== ======
The effective tax rates for both 1995 and 1994 reflect tax credits on production from gas wells qualifying for non-conventional fuel credit under Section 29 of the Internal Revenue Code. LIQUIDITY AND CAPITAL RESOURCES Net cash flows from operations for the first six months of 1995 were $85.2 million, or $10.7 million above net operating cash flows for the comparable 1994 period, excluding the $41 million of proceeds received from the February 1994 sale of contract demand receivables. The improvement in 1995 net cash flows results from the positive 1995 earnings factors. Short-term debt was $45.5 million at June 30, 1995, compared with short-term borrowings of $60.0 million and $25.5 million at December 31, 1994 and June 30, 1994, respectively. In February 1995, the Company completed the $80.1 million acquisition of natural gas transmission and storage assets in Texas. Approximately $66 million of the acquisition was financed by an operating lease. The Company expects to issue approximately $75 million of long-term debt in the fourth quarter of 1995. Proceeds of this debt issue will be used to pay down short-term borrowings and fund capital expenditures. 13 14 Form 10-Q PART II OTHER INFORMATION Item 1. Legal Proceedings Scott City, Kansas Helium Plant Environmental Matters. As reported in the Company's 1994 Annual Report on Form 10-K, in May 1994, the Company discovered that use of a lubricating oil containing PCBs had caused contamination in certain equipment, soils, and liquids at the Company's Scott City, Kansas helium extraction facility. A work plan for remediation was approved by the EPA, and the clean-up has been completed. Total cost for remediation did not exceed the $600,000 estimate and normal operations at the Plant were not affected. Westerman, et al. vs. K N Energy, Inc., et al. As reported in the Company's 1994 Annual Report on Form 10-K, on December 8, 1994, K N and its wholly-owned subsidiary K N Gas Supply Services, Inc. ("KNGSS") were sued by gas producers under claims arising from two gas purchase contracts covering gas purchases from wells in the Niobrara Field, Colorado. On June 29, 1995, the U.S. District Court for the Northern District of Texas, Dallas Division, ruled that it has jurisdiction over K N Energy, Inc. and that venue is proper in that court. The court has not yet ruled on whether it has jurisdiction over KNGSS. For information relating to other legal proceedings, see Notes 5 and 6 of Notes to Consolidated Financial Statements on Pages 42-46 of the 1994 Annual Report on Form 10-K; Item 3: Legal Proceedings on Pages 16-20 of the 1994 Annual Report on Form 10-K; and Item 1: Legal Proceedings on page 13 of the Form 10-Q for the First Quarter 1995. Item 6. Exhibits 27 - Financial Data Schedule 14 15 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, 1995 /s/ E. Wayne Lundhagen --------------------------------- E. Wayne Lundhagen Vice President and Treasurer (On Behalf of the Registrant and as Principal Financial and Accounting Officer) 15 16 EXHIBIT INDEX EXHIBIT NO. EXHIBIT DESCRIPTION PAGE ----------- ------------------- ---- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 20,091 0 150,184 0 22,639 255,084 1,346,673 483,487 1,151,393 231,672 321,602 139,127 1,143 7,000 266,951 1,151,393 524,235 524,235 353,517 473,830 0 0 17,470 33,292 11,852 21,440 0 0 0 21,440 0.75 0