-----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, FL/SPb40iF5k0RCnIC8Dxhgoyz4RkH97GQlC+T4OrQv4lPvltiWOHOHaX1Y5dREq AlQQQqT5vnIvwc8PAMX8hg== 0000950134-97-003785.txt : 19970514 0000950134-97-003785.hdr.sgml : 19970514 ACCESSION NUMBER: 0000950134-97-003785 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 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: 97603045 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 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1997 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 March 31, 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 30,674,899 shares as of April 30, 1997. 2 Form 10-Q K N ENERGY, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED March 31, 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 & 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................ 10-12 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................................................................... 13 Item 2. Changes in Securities ....................................................................................... 13 & 14 Item 4. Submission of Matters to a Vote of Security Holders ......................................................... 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)
MARCH 31 DECEMBER 31 1997 1996 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS: Cash and Cash Equivalents ....................... $ 21,795 $ 17,005 Accounts Receivable ............................. 202,607 298,072 Materials and Supplies .......................... 5,689 6,092 Gas in Underground Storage ...................... 15,211 43,511 Prepaid Gas ..................................... 9,946 12,001 Other Prepaid Expenses .......................... 14,443 12,824 Gas Imbalances and Other ........................ 54,973 65,319 ---------- ---------- 324,664 454,824 ---------- ---------- INVESTMENTS: Investment in Tom Brown, Inc. ................... 43,248 44,331 Other ........................................... 21,236 6,207 ---------- ---------- 64,484 50,538 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Gathering, Processing and Marketing Services .... 794,951 683,569 Interstate Transportation and Storage Services .. 511,610 454,427 Retail Natural Gas Services ..................... 392,035 409,626 ---------- ---------- 1,698,596 1,547,622 Less Accumulated Depreciation and Amortization .. 523,455 518,451 ---------- ---------- 1,175,141 1,029,171 ---------- ---------- DEFERRED CHARGES AND OTHER ASSETS ............... 95,555 95,187 ---------- ---------- TOTAL ASSETS $1,659,844 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 3 4 Form 10-Q CONSOLIDATED BALANCE SHEETS K N Energy, Inc. and Subsidiaries (Dollars in Thousands)
MARCH 31 DECEMBER 31 1997 1996 ---------- ----------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current Maturities of Long-Term Debt ............................... $ 29,971 $ 26,971 Notes Payable ...................................................... 262,000 129,300 Accounts Payable ................................................... 138,179 241,187 Accrued Taxes ...................................................... 26,882 16,045 Gas Imbalances and Other ........................................... 64,808 85,113 ---------- ---------- 521,840 498,616 ---------- ---------- DEFERRED LIABILITIES, CREDITS AND RESERVES: Deferred Income Taxes .............................................. 126,566 122,371 Other .............................................................. 29,029 31,930 ---------- ---------- 155,595 154,301 ---------- ---------- LONG-TERM DEBT ..................................................... 414,689 423,676 ---------- ---------- MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES ....................... 26,640 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 - 30,659,195 and 30,295,792 Shares, Respectively ...... 153,296 151,479 Additional Paid-in Capital. ........................................ 236,002 228,902 Retained Earnings .................................................. 154,593 142,578 Deferred Compensation .............................................. (9,535) (2,908) Treasury Stock, at Cost - 7,620 and 7,216 Shares, Respectively ..... (276) (257) ---------- ---------- Total Common Stockholders' Equity .................................. 534,080 519,794 ---------- ---------- Total Stockholders' Equity ......................................... 541,080 526,794 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,659,844 $1,629,720 ========== ==========
The accompanying notes are an integral part of these statements. 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 MARCH 31 ------------------- 1997 1996 -------- -------- OPERATING REVENUES: Gathering, Processing and Marketing Services .... $396,203 $292,359 Interstate Transportation and Storage Services .. 8,309 6,461 Retail Natural Gas Services ..................... 85,501 87,031 -------- -------- Total Operating Revenues ........................ 490,013 385,851 -------- -------- OPERATING COSTS AND EXPENSES: Gas Purchases and Other Costs of Sales .......... 380,953 288,334 Operations and Maintenance ...................... 48,808 43,837 Depreciation and Amortization ................... 14,300 12,199 Taxes, Other Than Income Taxes .................. 6,047 5,705 -------- -------- Total Operating Costs and Expenses .............. 450,108 350,075 -------- -------- OPERATING INCOME ................................ 39,905 35,776 -------- -------- OTHER INCOME AND (DEDUCTIONS): Interest Expense ................................ (9,656) (8,551) Minority Interests .............................. (503) (546) Other, Net ...................................... 2,314 675 -------- -------- Total Other Income and (Deductions) ............. (7,845) (8,422) -------- -------- INCOME BEFORE INCOME TAXES ...................... 32,060 27,354 Income Taxes .................................... 11,702 9,847 -------- -------- NET INCOME ...................................... 20,358 17,507 Less Preferred Stock Dividends .................. 88 100 -------- -------- EARNINGS AVAILABLE FOR COMMON STOCK ............. $ 20,270 $ 17,407 ======== ======== Number of Shares Used in Computing Earnings Per Common Share ...................... 31,169 28,945 ======== ======== EARNINGS PER COMMON SHARE ....................... $ 0.65 $ 0.60 ======== ======== DIVIDENDS PER COMMON SHARE ...................... $ 0.27 $ 0.26 ======== ========
The accompanying notes are an integral part of these statements. 5 6 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) K N Energy, Inc. and Subsidiaries (In Thousands)
THREE MONTHS ENDED MARCH 31 -------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income ............................................................... $ 20,358 $ 17,507 Adjustments to Reconcile Net Income to Net Cash Flows From Operating Activities: Depreciation and Amortization .......................................... 14,300 12,199 Deferred Income Taxes .................................................. 4,042 3,393 Deferred Purchased Gas Costs ........................................... (11,297) 6,605 Provisions for Losses on Accounts Receivable ........................... 233 162 Changes in Other Working Capital Items ................................. 13,984 22,232 Changes in Deferred Revenues ........................................... 506 (2,084) Other, Net ............................................................. 4,156 1,738 --------- -------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES .......................... 46,282 61,752 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures ..................................................... (51,723) (10,968) Acquisitions ............................................................. (93,729) (5,828) Investments .............................................................. (16,127) (3,108) Proceeds From Sale of Facilities ......................................... 407 4,628 --------- -------- NET CASH FLOWS USED IN INVESTING ACTIVITIES .............................. (161,172) (15,276) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-Term Debt (Net) .................................................... 132,700 (17,500) Long-Term Debt- Retired .................................................. (6,001) (9,686) Common Stock Issued ...................................................... 1,544 3,815 Treasury Stock- Issued ................................................... 567 3,997 - Acquired ................................................. (586) (4,303) Cash Dividends- Common ................................................... (8,259) (7,367) - Preferred ................................................ (88) (100) Minority Interests- Contributions ........................................ -- 5 - Distributions ........................................ (197) (1,926) --------- -------- NET CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES ................ 119,680 (33,065) --------- -------- Net Increase in Cash and Cash Equivalents ................................ 4,790 13,411 Cash and Cash Equivalents at Beginning of Year ........................... 17,005 22,571 --------- -------- Cash and Cash Equivalents at End of Year ................................. $ 21,795 $ 35,982 ========= ========
The accompanying notes are an integral part of these statements. 6 7 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) K N Energy, Inc. and Subsidiaries (In Thousands)
THREE MONTHS ENDED MARCH 31 --------------------- 1997 1996 ---- ---- CHANGES IN OTHER WORKING CAPITAL ITEMS SUMMARY (NET OF EFFECTS FROM ACQUISITIONS): Accounts Receivable ............................................ $ 95,232 $ 1,901 Materials and Supplies ......................................... 403 248 Gas in Underground Storage ..................................... 28,300 6,837 Accounts Payable, Accrued Taxes and Other Current Liabilities .. (120,733) 16,645 Other Current Assets ........................................... 10,782 (3,399) --------- ------- $ 13,984 $22,232 ========= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest (Net of Amount Capitalized) .......................... $ 13,199 $11,126 ========= ======= Income Taxes .................................................. $ 1,559 $ 308 ========= =======
7 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. Acquisition In March 1997, K N completed its purchase of several Enron Corporation subsidiaries that own or operate 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. One of the former Enron subsidiaries 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. 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 will be 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 "Company-Obligated Mandatorily Redeemable Capital Trust Pass-through Securities of Subsidiary Trust." 4. Joint Venture In January 1997, K N and PacifiCorp formed a joint venture named en*able that will provide 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 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, a limited liability company. 5. 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 8 9 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 MARCH 31 ------------------ 1997 1996 ------ ------ Basic Earnings Per Share ..................... $0.66 $0.62 Diluted Earnings Per Share ................... $0.65 $0.60
9 10 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED FINANCIAL RESULTS Consolidated net income for the first quarter of 1997 totaled $20.4 million, reflecting a 16 percent increase over the 1996 first quarter earnings of $17.5 million. After deduction for preferred dividends, the respective quarters' earnings per common share were $0.65 and $0.60. The 1997 earnings improvement results from higher prices for natural gas liquids ("NGLs"), positive contributions from 1996 acquisitions and investments and sales of storage gas. Operating results for 1997 were somewhat dampened by the effects of milder winter weather compared to 1996 and compression of margins in nonregulated marketing, transportation and storage activities. RESULTS OF OPERATIONS First quarter 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).
1997 1996 ------ ------ GATHERING, PROCESSING AND MARKETING SERVICES Operating Revenues - Gas Sales $323.6 $250.5 Natural Gas Liquids Sales 64.5 40.6 Gathering, Transportation and Other 32.3 18.1 ------ ------ 420.4 309.2 ------ ------ Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 364.3 262.7 Operations and Maintenance 25.2 21.5 Depreciation and Amortization 9.0 7.5 Taxes, Other Than Income Taxes 3.4 3.2 ------ ------ 401.9 294.9 ------ ------ Operating Income $ 18.5 $ 14.3 ====== ====== Systems Throughput (Trillion Btus) - Gas Sales 123.9 115.7 Transportation and Gathering 80.1 88.9 ------ ------ 204.0 204.6 ====== ====== Natural Gas Liquids Sales (Million Gallons) 150.4 116.0 ====== ======
The $4.2 million increase in 1997 operating income over the 1996 first quarter is primarily attributable to higher NGLs prices, the fourth quarter 1996 acquisition of gathering and processing assets by the Company's Wildhorse joint venture with Tom Brown, Inc. and the sale of gas held in storage. This segment continues to experience compression of margins in its gas sales, transportation and storage activities due to competitive factors and high gas costs. The average per gallon sales price for NGLs processed in the 1997 first quarter was $0.41, compared with $0.35 in the comparable 1996 quarter. The 1997 NGLs sales gallons reported above include 42.7 million gallons of NGLs sold on behalf of other processors. Marketing of third-party NGLs has grown significantly during the last year with the 1997 volumes exceeding first quarter 1996 volumes by 30.6 million gallons. The increase in 1997 gathering, transportation and other revenues is primarily attributable to sales of electricity and a 10 11 Form 10-Q higher level of field services activities, including compressor installation and maintenance services resulting from the August 1996 acquisition of Compressor Pump & Engine Machine, Inc. The decline in first quarter 1997 transportation and gathering volumes results primarily from the sale of the south Texas Webb-Duval gathering system in the fourth quarter of 1996; in the absence of this divestment, 1997 volumes would have exceeded 1996 volumes by 5%. Although 1997 operations and maintenance expenses were $3.7 million higher than 1996 (primarily due to the acquisitions discussed above), these expenses declined as a percent of revenues from 6.9% to 5.9% during this period.
1997 1996 ---- ---- INTERSTATE TRANSPORTATION AND STORAGE SERVICES Operating Revenues - Transportation and Storage $19.2 $16.3 Other 2.7 2.0 ----- ----- 21.9 18.3 ----- ----- Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 3.4 2.0 Operations and Maintenance 8.2 6.9 Depreciation and Amortization 2.4 1.9 Taxes, Other Than Income Taxes 0.9 0.8 ----- ----- 14.9 11.6 ----- ----- Operating Income $ 7.0 $ 6.7 ===== ===== Systems Throughput (Trillion Btus) 49.6 53.5 ===== =====
Operating results of the interstate pipeline segment increased by 4.4% over 1996, as more customers converted their requirements from interruptible to firm transportation and storage services. The decline in 1997 systems throughput volumes reflects milder winter weather resulting in lower customer storage withdrawals, and reduced transport volumes on the Buffalo Wallow pipeline in Oklahoma and Texas due to unfavorable price differentials between supply basins. The increase in 1997 gas purchases and other costs of sales is primarily due to higher shrink and fuel costs related to increased NGLs recoveries at the Casper processing plant. Costs related to facility expansions on the western end of the interstate pipeline, which came on line in mid-1996, account for the 1997 increases in operations and maintenance and depreciation and amortization. 1997 1996 ---- ---- RETAIL NATURAL GAS SERVICES Operating Revenues - Gas Sales $76.3 $80.8 Transportation and Other 9.5 6.4 ----- ----- 85.8 87.2 ----- ----- Operating Costs and Expenses - Gas Purchases and Other Costs of Sales 51.5 52.1 Operations and Maintenance 15.3 15.8 Depreciation and Amortization 2.9 2.8 Taxes, Other Than Income Taxes 1.7 1.7 ----- ----- 71.4 72.4 ----- ----- Operating Income $14.4 $14.8 ===== ===== Systems Throughput (Trillion Btus) - Gas Sales 13.3 14.8 Transportation 8.2 6.9 ----- ----- 21.5 21.7 ===== =====
11 12 Form 10-Q This segment's 1997 operating results were moderately impacted by milder weather, but expense controls and increased transportation volumes on the Company's Colorado intrastate pipeline mitigated reduced throughput. The 1.5 trillion Btus decline in 1997 gas sales volumes is equally due to weather and the conversion to transportation service by Wyoming customers under the Choice Gas program. As a result of the fourth quarter 1996 Wildhorse acquisition of gathering and processing assets in western Colorado and eastern Utah, 1997 transportation volumes on the Colorado intrastate pipeline increased by 0.7 trillion Btus. 1997 1996 ---- ---- OTHER INCOME AND (DEDUCTIONS) Interest Expense $(9.7) $(8.5) Minority Interests and Other, Net 1.9 0.1 ----- ----- $(7.8) $(8.4) ===== =====
The increase in 1997 interest expense results from higher levels of short and long-term debt due to financing acquisitions and the construction of the Pony Express Pipeline. In connection with the Pony Express construction, the Company capitalized $1.5 million of interest costs and $1.0 million of equity financing costs (reflected in Minority Interests and Other, Net) during the first quarter of 1997. The Company's 50 percent share of earnings of the Coyote Gulch Treating Plant (which commenced operations in December 1996) largely accounts for the remaining increase in 1997 Minority Interests and Other, Net. 1997 1996 ----- ----- INCOME TAXES Provisions $11.7 $9.8 ===== ===== Effective Tax Rate 36.5% 36.0% ===== =====
LIQUIDITY AND CAPITAL RESOURCES First quarter 1997 net cash flows from operations were $ 46.3 million, compared with $61.8 million during the 1996 first quarter. The decline in 1997 net operating cash flows principally results from significantly higher costs of gas purchased for retail customers, particularly during the first two months of 1997. Under purchased gas adjustment clauses in substantially all of the Company's retail jurisdictions, the high gas costs will be recovered through filings later this year. In March 1997, the Company completed the purchase of the Bushton natural gas processing facility and other gathering assets located in the Hugoton Basin of Kansas and Oklahoma. The transaction was closed using funds from short-term borrowings and included the assumption of operating leases on the Bushton processing facility. The Company assumed operation of these facilities effective April 1, 1997. In April 1997, the Company sold $100 million of Capital Trust Pass-through Securities. The securities bear an annual distribution rate of 8.56% and mature on April 15, 2027. The proceeds of the securities issue were used to reduce short-term borrowings. 12 13 Form 10-Q OTHER INFORMATION Item 1. Legal Proceedings Grynberg v. Alaska Pipeline Company, et al. As reported in the Company's 1996 Annual Report on Form 10-K, on July 26, 1996 K N and Rocky Mountain Natural Gas Company ("RMNG"), along with over 70 other natural gas pipeline companies, were served by Jack J. Grynberg, acting on behalf of the Government of the United States, with a Civil False Claims Act lawsuit alleging mismeasurement of the heating content and volume of natural gas resulting in underpayment of royalties to the federal government. No specific claims were made against K N or RMNG, and no specific monetary damages were claimed. The Court dismissed Mr. Grynberg's complaint, without prejudice, as to K N and RMNG, and 54 other defendants on March 27, 1997. Take-or-Pay Matters As reported in the Company's 1996 Annual Report on Form 10-K, certain of the companies acquired from Cabot Corporation when the Company acquired the Westar System were parties to a number of lawsuits or were subject to asserted claims by natural gas purchase contracts containing take-or-pay provisions which require the purchaser to either take a minimum amount of gas or to pay for such minimum quantities. All of these lawsuits and claims were resolved under terms which the Company considers favorable, and most gas suppliers of the Company have entered into excess gas purchase contracts with one of the Company's gas marketing subsidiaries. These excess gas purchases contracts are generally credited against take-or-pay gas volumes, which minimizes take-or-pay exposure. All matters pertaining to the Basket Agreement between the Company and Cabot, which provided for an equal sharing between the Company and Cabot of certain gas contract take-or-pay liabilities of the companies acquired from Cabot for periods prior to the closing date of the acquisition from Cabot and for certain other potential gas contract claims, were settled in April 1997, and all final payments required thereby have been made. The Company's final liability under the Basket Agreement was $5.6 million, as was reported in the Company's 1996 Annual Report on Form 10-K, and which was previously recorded in connection with the acquisition of the natural gas pipeline business from Cabot Corporation. 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 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 of K N called K N Capital Trust I (the "Trust"). The lead underwriter was Salomon Brothers Inc, with Merrill Lynch, Pierce, Fenner & Smith Incorporated also underwriting the sale. These initial purchasers contemplated offering or selling the Capital Securities to qualified institutional buyers under Rule 144A, and to institutional investors that are accredited investors within the meaning of subparagraph (a)(1), (2), (3) or 13 14 Form 10-Q (7) of Rule 501 under the Securities Act of 1933 (the "Securities Act"). The Capital Securities were sold for an aggregate offering price of $100 million and for an underwriting commission of 1%. The sale of the Capital Securities by the Trust was an unregistered offering pursuant to Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering. Item 4. Submission of Matters to a Vote of Security Holders (a) The Registrant held its Annual Meeting of Shareholders on April 10, 1997. (b) Proxies for the meeting were solicited pursuant to Regulation 14 of the Securities Exchange Act of 1934. There was no solicitation in opposition to management's nominees for directors as listed in the Proxy Statement and all such nominees were elected. Item 6. Exhibits 27 - Financial Data Schedule 14 15 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) May 13, 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) 15 16 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 21,795 0 202,607 0 20,900 324,664 1,698,596 523,455 1,659,844 521,840 414,689 0 7,000 153,296 380,784 1,659,844 490,013 490,013 380,953 450,108 0 0 9,656 32,060 11,702 20,358 0 0 0 20,358 0.65 0
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