UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
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
------
KINDER MORGAN, INC.
-------------------
(Exact name of registrant as specified in its charter)
Kansas 48-0290000
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1301 McKinney, Suite 3400, Houston, Texas 77010
- ---------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 844-9500
---------------
- ------------------------------------------------------------------------------
(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
--- ---
The number of shares outstanding for each of the registrant's
classes of common stock, as of the latest practicable date was:
Common Stock, $5 par value; outstanding 114,154,007 shares as of
April 26, 2000.
<PAGE> 2
KINDER MORGAN, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
Contents
PART I. FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements (Unaudited) -------
Consolidated Balance Sheets.............................. 3 - 4
Consolidated Statements of Income........................ 5
Consolidated Statements of Cash Flows.................... 6
Notes to Consolidated Financial Statements............... 7 - 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 20 - 30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 31
Item 6. Exhibits and Reports on Form 8-K............................ 31
SIGNATURE............................................................. 32
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
Kinder Morgan, Inc. and Subsidiaries
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents $ 19,714 $ 26,378
Restricted Deposits 51 51
Accounts Receivable 366,232 306,451
Receivable from ONEOK, Inc. 163,856 -
Receivable from Kinder Morgan Energy Partners - 330,000
Inventories 31,072 50,328
Gas Imbalances 152,701 172,501
Other 13,061 19,154
Net Current Assets of Discontinued Operations 87,926 58,991
----------- -----------
834,613 963,854
----------- -----------
Investments:
Kinder Morgan Energy Partners 1,802,243 1,791,768
Other 132,091 126,103
----------- -----------
1,934,334 1,917,871
----------- -----------
Property, Plant and Equipment 6,151,253 6,167,251
Less Accumulated Depreciation and Amortization 371,672 377,687
----------- -----------
5,779,581 5,789,564
----------- -----------
Deferred Charges and Other Assets 226,278 209,758
Net Non-current Assets of Discontinued Operations 74,127 659,236
----------- -----------
Total Assets $ 8,848,933 $ 9,540,283
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 4
CONSOLIDATED BALANCE SHEETS (Unaudited)
Kinder Morgan, Inc. and Subsidiaries
(Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current Maturities of Long-term Debt $ 7,167 $ 7,167
Notes Payable 437,100 574,400
Accounts Payable 248,299 224,625
Accrued Taxes 43,425 36,075
Gas Imbalances 148,866 196,469
Payable for Purchase of Thermo Companies 44,882 44,320
Reserve for Loss on Disposal of Discontinued Operations 41,626 535,630
Other 160,109 206,620
----------- -----------
1,131,474 1,825,306
----------- -----------
Other Liabilities and Deferred Credits:
Deferred Income Taxes 2,167,142 2,228,553
Other 258,137 242,926
----------- -----------
2,425,279 2,471,479
----------- -----------
Long-term Debt 3,293,168 3,293,326
----------- -----------
Kinder Morgan-Obligated Mandatorily Redeemable Preferred Capital Trust
Securities of Subsidiary Trusts Holding Solely Debentures of Kinder Morgan 275,000 275,000
----------- -----------
Minority Interests in Equity of Subsidiaries 7,333 9,331
----------- -----------
Stockholders' Equity:
Common Stock-
Authorized - 150,000,000 Shares, Par Value $5 Per Share
Outstanding - 113,120,002 and 112,665,977 Shares, Respectively,
After Deducting 172,402 and 172,402 Shares Held in Treasury 566,462 564,192
Additional Paid-in Capital 1,209,535 1,203,008
Retained Earnings Deficit (55,175) (95,615)
Other (4,143) (5,744)
----------- -----------
Total Stockholders' Equity 1,716,679 1,665,841
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,848,933 $ 9,540,283
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Kinder Morgan, Inc. and Subsidiaries
(In Thousands except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
2000 1999
---- ----
<S> <C> <C>
Operating Revenues:
Natural Gas Sales $ 287,441 $ 210,134
Natural Gas Transportation and Storage 165,276 199,776
Other 27,795 17,357
---------- ----------
Total Operating Revenues 480,512 427,267
---------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 276,577 205,905
Operations and Maintenance 41,678 45,286
General and Administrative 14,293 20,349
Depreciation and Amortization 26,761 44,140
Taxes, Other Than Income Taxes 6,807 8,511
Merger-related Costs - 2,916
---------- ----------
Total Operating Costs and Expenses 366,116 327,107
---------- ----------
Operating Income 114,396 100,160
---------- ----------
Other Income and (Deductions):
Kinder Morgan Energy Partners:
Equity in Earnings 29,583 -
Amortization of Excess Investment (7,577) -
Equity in Earnings of Other Equity Investments (2,899) 6,573
Interest Expense, Net (60,399) (62,917)
Minority Interests (5,965) (5,979)
Other, Net 9,672 1,357
---------- ----------
Total Other Income and (Deductions) (37,585) (60,966)
---------- ----------
Income from Continuing Operations
Before Income Taxes 76,811 39,194
Income Taxes 30,727 15,286
---------- ----------
Income from Continuing Operations 46,084 23,908
Loss from Discontinued Operations, Net of Tax - (16,786)
---------- ----------
Net Income 46,084 7,122
Less - Preferred Dividends - 88
---------- ----------
Earnings Available For Common Stock $ 46,084 $ 7,034
========== ==========
Number of Shares Used in Computing
Basic Earnings Per Common Share (Thousands) 113,058 69,486
========== ==========
Basic Earnings (Loss) Per Common Share:
Continuing Operations $ 0.41 $ 0.34
Discontinued Operations - (0.24)
---------- ----------
Total Basic Earnings Per Common Share $ 0.41 $ 0.10
========== ==========
Number of Shares Used in Computing
Diluted Earnings Per Common Share (Thousands) 113,456 69,578
========== ==========
Diluted Earnings (Loss) Per Common Share:
Continuing Operations $ 0.41 $ 0.34
Discontinued Operations - (0.24)
---------- ----------
Total Diluted Earnings Per Common Share $ 0.41 $ 0.10
========== ==========
Dividends Per Common Share $ 0.05 $ 0.20
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Kinder Morgan, Inc. and Subsidiaries
Increase (Decrease) in Cash and Cash Equivalents
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from Continuing Operations $ 46,084 $ 23,908
Adjustments to Reconcile Income from Continuing Operations to Net Cash Flows
from Operating Activities:
Depreciation and Amortization 26,761 44,140
Deferred Income Taxes 27,561 1,735
Equity in Earnings of Kinder Morgan Energy Partners (22,006) -
Distributions from Kinder Morgan Energy Partners 15,919 -
Deferred Purchased Gas Costs 2,236 3,297
Net Gains on Sales of Facilities (1,343) (179)
Changes in Other Working Capital Items (Note 7) (64,958) (93,006)
Changes in Deferred Revenues (1,393) (3,455)
Other Non-cash Charges and Credits to Income (5,692) (10,924)
Other, Net (6,886) (10,045)
---------- ----------
Net Cash Flows Provided by (Used in) Continuing Operations 16,283 (44,529)
Net Cash Flows Provided by (Used in) Discontinued Operations (132,042) 82,762
---------- ----------
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES (115,759) 38,233
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (24,103) (18,998)
Proceeds from Sales to Kinder Morgan Energy Partners 330,000 -
Acquisitions (19,412) (15,000)
Investments (19,367) (2,056)
Sale of Tom Brown, Inc. Common Stock 13,350 -
Sale of U.S. Government Securities - 1,092,415
Proceeds from Sales of Other Assets 854 1,045
---------- ----------
Net Cash Flows Provided by Continuing Investing Activities 281,322 1,057,406
Net Cash Flows Used in Discontinued Investing Activities (49,333) (21,824)
---------- ----------
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 231,989 1,035,582
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term Debt, Net (137,300) 325,236
Repayment of Substitute Note - (1,394,846)
Long-term Debt Retired (317) (3,317)
Common Stock Issued 8,797 5,925
Other Borrowings 11,818 -
Treasury Stock Issued - 25
Treasury Stock Acquired - (43)
Cash Dividends, Common and Preferred (5,645) (14,007)
Minority Interests, Net (247) -
---------- ----------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (122,894) (1,081,027)
---------- ----------
Net Decrease in Cash and Cash Equivalents (6,664) (7,212)
Cash and Cash Equivalents at Beginning of Period 26,378 16,247
---------- ----------
Cash and Cash Equivalents at End of Period $ 19,714 $ 9,035
========== ==========
For supplemental cash flow information, see Note 7.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
-------
Effective with K N Energy, Inc.'s October 1999 acquisition of
Kinder Morgan, Inc., a Delaware corporation ("Kinder Morgan
Delaware"), K N Energy, Inc. changed its name to Kinder Morgan,
Inc. As used herein, "Kinder Morgan" refers to Kinder Morgan,
Inc. (a Kansas corporation and formerly K N Energy, Inc.) and its
consolidated subsidiaries unless the context otherwise requires
(see Note 2). In the opinion of Management, all adjustments
necessary for a fair presentation of the results for the
unaudited interim periods have been made. Amounts shown in the
Consolidated Balance Sheets for December 31, 1999 were derived
from the audited balance sheet included in Kinder Morgan's 1999
Annual Report on Form 10-K. Certain amounts for prior periods
have been reclassified to conform to the current presentation.
2. Business Combinations
---------------------
On October 7, 1999, K N Energy, Inc. completed the acquisition of
Kinder Morgan Delaware, the sole stockholder of the general
partner of Kinder Morgan Energy Partners L.P. Kinder Morgan
Energy Partners is the nation's largest pipeline master limited
partnership. It owns and operates one of the largest product
pipeline systems in the United States, serving customers in
sixteen states with more than 5,000 miles of pipeline and over
twenty associated terminals. Kinder Morgan Energy Partners also
operates 25 bulk terminal facilities which transload over 40
million tons of coal, petroleum coke and other products annually.
In addition, Kinder Morgan Energy Partners currently owns 51
percent of Plantation Pipe Line Company and 100 percent of Shell
CO2 Company, Ltd. For additional information regarding the
business and assets of Kinder Morgan Energy Partners, the reader
is directed to Kinder Morgan Energy Partners' 1999 Annual Report
on Form 10-K.
To effect this business combination, K N Energy, Inc. issued
approximately 41.5 million shares of its common stock in exchange
for all of the outstanding shares of Kinder Morgan Delaware.
This acquisition was accounted for as a purchase for accounting
purposes and, accordingly, the assets acquired and liabilities
assumed were recorded at their respective estimated fair market
values as of the acquisition date. The allocation of the
purchase price resulted in an excess of the purchase price over
Kinder Morgan Delaware's share of the underlying equity in the
net assets of Kinder Morgan Energy Partners totaling $1.3
billion. This excess has been fully allocated to Kinder Morgan
Delaware's indirect investment in Kinder Morgan Energy Partners
(through its 100% ownership of Kinder Morgan G.P., Inc., owner of
the general partner interest) and reflects the estimated fair
market value of this investment. This excess investment is being
amortized over 44 years, approximately the estimated remaining
useful life of Kinder Morgan Energy Partners' assets, and is
shown in the accompanying Consolidated Statements of Income as
"Amortization of Excess Investment" under the sub-heading "Kinder
Morgan Energy Partners" within "Other Income and (Deductions)."
The assets, liabilities and results of operations of Kinder
Morgan Delaware are included with those of Kinder Morgan
beginning with the October 1999 acquisition.
The following pro forma information gives effect to the
acquisition of Kinder Morgan Delaware as if the business
combination had occurred at the beginning of each period
presented. The pro forma adjustments that have been made are
based on a preliminary allocation of the purchase price to assets
acquired and liabilities assumed. This unaudited pro forma
information should be read in conjunction with the accompanying
consolidated financial statements and with the financial
statements and other financial information included in Kinder
Morgan's 1999 Annual Report on Form 10-K. This pro forma
information is
<PAGE> 8
not necessarily indicative of the financial
results that would have occurred had this acquisition taken place
on the dates indicated, nor is it necessarily indicative of
future financial results.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Unaudited Pro Forma Financial Information 1999 1998
- ----------------------------------------- ---- ----
(Dollars In Millions Except
Per Share Amounts)
<S> <C> <C>
Operating Revenues $ 1,745.5 $ 1,660.9
Net Income (Loss) $ (233.9) $ 62.5
Diluted Earnings (Loss) Per Common Share $ (2.09) $ 0.58
Number of Shares Used in Computing Diluted Earnings
Per Common Share (In Thousands) 112,334 106,319
</TABLE>
On February 22, 1999, Sempra Energy and Kinder Morgan announced
that their respective boards of directors had unanimously
approved a definitive agreement under which Sempra and Kinder
Morgan would combine in a stock-and-cash transaction valued in
the aggregate at $6.0 billion. During the first quarter of 1999,
Kinder Morgan incurred approximately $2.9 million of costs
associated with the then-pending merger, reported in the
accompanying Consolidated Statements of Income as "Merger-related
Costs". On June 21, 1999, Sempra and Kinder Morgan announced
that they had mutually agreed to terminate the merger agreement.
Sempra reimbursed Kinder Morgan $5.95 million for expenses
incurred in connection with the proposed merger.
During the third quarter of 1998, Kinder Morgan completed its
acquisition (accounted for as a purchase) of interests in four
independent power plants in Colorado from the Denver-based Thermo
Companies ("Thermo"), representing approximately 380 megawatts of
electric generation capacity. The final payment for this
acquisition ($30 million) was made April 20, 2000 with 961,153
shares of Kinder Morgan common stock.
3. Change in Accounting Estimate
-----------------------------
Pursuant to a study of the useful lives of the underlying assets
by an independent third party, in July 1999, Kinder Morgan changed
the depreciation rates associated with the gas plant acquisition
adjustment recorded in conjunction with the acquisition of MidCon
Corp. (see Note 2 of Notes to Consolidated Financial Statements
included in Kinder Morgan's 1999 Annual Report on Form 10-K).
This change had the effect of decreasing "Depreciation and
Amortization" by approximately $9.7 million and increasing
"Income from Continuing Operations" and "Net Income" for the
quarter ended March 31, 2000 by approximately $5.8 million ($0.05
per diluted share) in comparison to the amounts which would have
been recorded utilizing the previous depreciation rates.
4. Investments and Sales
---------------------
See Note 5 for information regarding sales of assets and
businesses included in discontinued operations.
In the first quarter of 2000, Kinder Morgan sold the 918,367
shares of Tom Brown, Inc. Common Stock it had held since early
1996 (see the discussion of the sale of Tom Brown Preferred Stock
following). Kinder Morgan recorded a pre-tax gain of $1.3
million ($0.8 million after tax or approximately $0.01 per
diluted share), included in the accompanying Consolidated
Statements of Income under the caption "Other, Net".
On December 30, 1999, Kinder Morgan entered into a contribution
agreement among Kinder Morgan, several of its wholly owned
subsidiaries and Kinder Morgan Energy Partners. As a result,
effective as of
<PAGE> 9
December 31, 1999, Kinder Morgan contributed all
of its interest in the following to Kinder Morgan Energy
Partners: (i) Kinder Morgan Interstate Gas Transmission LLC,
formerly K N Interstate Gas Transmission Co., a wholly owned
subsidiary which is referred to as "KMIGT" in these Notes, (ii)
Kinder Morgan Trailblazer LLC (formerly NGPL-Trailblazer, Inc.),
a wholly owned subsidiary and owner of a one-third interest in
Trailblazer Pipeline Company and (iii) Red Cedar Gathering
Company (a 49% interest). In exchange, Kinder Morgan Energy
Partners (i) issued to Kinder Morgan 9,810,000 common units
representing an incremental limited partnership interest in
Kinder Morgan Energy Partners and (ii) during the first quarter
of 2000, made a distribution to Kinder Morgan of $330 million in
cash. Kinder Morgan recorded a pre-tax gain of $158.8 million
(approximately $100.9 million after tax or $1.25 per diluted
share) in conjunction with the transfer of interests.
On September 30, 1999, Kinder Morgan sold (to an unaffiliated
party) its interests in Stingray Pipeline Company, L.L.C., an
offshore pipeline that gathers natural gas, and West Cameron
Dehydration Company, L.L.C., which dehydrates natural gas for
shippers on the Stingray Pipeline. Kinder Morgan received
approximately $24 million in cash from the sale and recorded a
pre-tax gain of $11.4 million (approximately $6.9 million after
tax or $0.10 per diluted share). With this sale, Kinder Morgan
completed divestiture of its major offshore interests.
On September 3, 1999, Kinder Morgan sold 1,000,000 shares of Tom
Brown, Inc. Preferred Stock for approximately $29 million in
cash, realizing a pre-tax gain of $2.2 million (approximately
$1.3 million after tax or $0.02 per diluted share). The
preferred stock was originally issued to Kinder Morgan in 1996 as
part of Tom Brown, Inc.'s acquisition of K N Production Company.
The preferred stock was convertible into 1,666,000 shares of Tom
Brown, Inc. Common Stock, and paid dividends quarterly at an
annual rate of $1.75 per share.
In September 1999, Thunder Creek Gas Services, LLC, a joint
venture owned 25 percent by Kinder Morgan and 75 percent by Devon
Energy Corporation, placed into service a 126-mile-long-trunkline
natural gas gathering system extending from Glenrock, Wyoming to
approximately 12 miles north of Gillette, Wyoming. The trunkline
has an initial capacity of 450 million cubic feet of natural gas
per day. The gathering system is located in the Powder River
Basin of northeast Wyoming. The total forecasted cost of the
system is approximately $111 million.
On June 30, 1999, Kinder Morgan sold its interests in the HIOS
and UTOS offshore pipeline systems and related laterals to
Leviathan Gas Pipeline Partners, L. P. Kinder Morgan received
approximately $51 million in cash in conjunction with the sale
and recorded a pre-tax gain of $17.5 million (approximately $10.7
million after tax or $0.15 per diluted share).
In May 1999, Kinder Morgan announced plans to build the Horizon
Pipeline which, through its wholly owned subsidiary Natural Gas
Pipeline Company of America, referred to as "Natural" in these
notes, planned to own jointly with one or more other partners.
An open season closed in June 1999 with service requests from
shippers of more than 800 MMcf of natural gas per day, including
300 MMcf per day from Nicor Gas. In February 2000, Nicor, Inc.
announced that it had signed an agreement to become an equal
partner in the planned Horizon Pipeline with Natural. The
Horizon Pipeline is a $75 million natural gas pipeline that will
originate in Joliet, Illinois and extend 74 miles into northern
Illinois, connecting the emerging supply hub at Joliet with Nicor
Gas' distribution system and an existing Natural pipeline.
Construction is expected to be completed by the spring of 2002.
The initial capacity of the pipeline is proposed to be 380 MMcf
of natural gas per day. The project is expected to be funded
through a combination of non-recourse debt securities and equity
contributions.
<PAGE> 10
On March 31, 1999, the TransColorado Gas Transmission Company
("TransColorado"), an enterprise jointly owned by Kinder Morgan
and Questar Corp., placed in service a 280-mile-long natural gas
pipeline. This pipeline includes two compressor stations and
extends from near Rangely, Colorado, to its southern terminus at
the Blanco Hub near Aztec, New Mexico. The pipeline has a design
transmission capacity of approximately 300 million cubic feet of
natural gas per day. On October 14, 1998, TransColorado entered
into a $200 million revolving credit agreement with a group of
commercial banks. Kinder Morgan provides a corporate guarantee
for one-half of all amounts borrowed under the agreement.
Beginning 24 months after the in-service date, Questar has the
right, for a 12-month period, to require that Kinder Morgan
purchase Questar's ownership interest in TransColorado for $121
million. It is not currently known whether Questar will exercise
its right.
5. Discontinued Operations
-----------------------
During the third quarter of 1999, Kinder Morgan adopted and
implemented a plan to discontinue the direct marketing of non-
energy products and services (principally under the "Simple
Choice" brand), which activities had been carried on largely
through Kinder Morgan's e*nable joint venture with PacifiCorp.
During the fourth quarter of 1999, Kinder Morgan adopted and
implemented plans to discontinue the following lines of business:
gathering and processing natural gas and providing field services
to natural gas producers, commodity marketing of natural gas and
natural gas liquids, international operations and West Texas
intrastate pipelines.
As further described in Note 6 of Notes to Consolidated Financial
Statements included in Kinder Morgan's 1999 Annual Report on Form
10-K, as of December 31, 1999, in accordance with the provisions
of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," Kinder Morgan (i)
restated its consolidated financial statements to reflect these
businesses as discontinued operations and (ii) recorded an
estimate of the loss expected to result from the discontinuance
and disposal of these businesses, including both the estimated
losses to be incurred upon sale and the estimated operating
losses to be incurred prior to the projected disposal dates.
This total estimated loss is subject to uncertainty with respect
to the ultimate proceeds to be received from the sale and pre-
disposal operation of these assets (among other factors) and,
accordingly, the actual loss may differ materially from the
estimate recorded as of December 31, 1999. Any such difference
will be recognized in the period in which it is reasonably
estimable, and will be classified in the same manner as the
original estimated loss.
<PAGE> 11
Summarized financial data of discontinued operations are as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
Income Statement Data
- ---------------------
Operating Revenues:
Commodity Marketing $ 580,148 $ 629,001
Gathering and Processing $ 163,833 $ 117,427
West Texas Intrastate Pipelines $ 8,336 $ 18,098
International Operations $ 1,042 $ 486
Income (Loss) From Discontinued Operations, Net of Tax:
Commodity Marketing, net of $(2,001) of tax - $ (3,129)
Gathering and Processing, net of $(4,690) of tax - $ (7,336)
West Texas Intrastate Pipelines, net of $(2,889) of tax - $ (4,519)
International Operations, net of $(45) of tax - $ (71)
en*able/Orcom, net of $(1,107) of tax - $ (1,731)
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
-------------------------------------------
Gathering and International
Processing Operations Total
---------- ---------- -----
<S> <C> <C> <C>
Balance Sheet Data (In Thousands)
- ------------------
Net Current Assets of Discontinued Operations:
Cash and Cash Equivalents $ 6,671 $ 1,170 $ 7,841
Restricted Deposits 4,218 - 4,218
Accounts Receivable 19,182 3,725 22,907
Inventories 14,128 363 14,491
Gas Imbalances Receivable 16,030 - 16,030
Other Current Assets 13,167 43 13,210
Accounts Payable (8,964) (1,871) (10,835)
Accrued Taxes 26,456 338 26,794
Gas Imbalances Payable (5,139) - (5,139)
Other Current Liabilities (1,545) (46) (1,591)
---------- --------- ----------
$ 84,204 $ 3,722 $ 87,926
========== ========= ==========
Net Non-current Assets of Discontinued Operations:
Investments $ 14,542 $ 10,040 $ 24,582
Property, Plant and Equipment, Net 139,284 8,933 148,217
Deferred Charges (4,059) 4,826 767
Deferred Income Taxes (47,242) 780 (46,462)
Minority Interests in Equity of Subsidiaries (52,210) (767) (52,977)
---------- --------- ----------
$ 50,315 $ 23,812 $ 74,127
========== ========= ==========
</TABLE>
Kinder Morgan has essentially completed the disposition of its
investment in en*able/Orcom. Kinder Morgan sold its businesses
involved in providing field services to natural gas producers
(K N Field Services, Inc. and Compressor Pump and Engine, Inc.) and
MidCon Gas Products of New Mexico Corp., a wholly owned
subsidiary providing natural gas gathering, prior to the end of
1999. Kinder Morgan received $23.3 million in cash as
consideration for these sales. Effective with the first quarter
of 2000, Kinder Morgan completed its previously announced
transaction with ONEOK, Inc. in which ONEOK purchased Kinder
Morgan's gathering and processing businesses in Oklahoma, Kansas
and West Texas. In addition, ONEOK purchased Kinder Morgan's
marketing and trading business, as well as certain storage and
transmission pipelines in the Mid-continent region. As
consideration, ONEOK paid Kinder Morgan approximately $108
million plus
<PAGE> 12
approximately $56 million for estimated net working
capital at closing (subject to post-closing adjustment). In
addition, ONEOK assumed (i) the operating lease associated with
the Bushton, Kansas processing plant and (ii) long-term capacity
commitments on Natural and KMIGT. The remaining assets
associated with discontinued operations, representing a
relatively small percent of the total operations discontinued as
of December 31, 1999, are in various stages of the disposition
process. The process of divestiture is expected to be completed
during 2000.
6. Accounts Receivable Sales Facility
----------------------------------
As more fully discussed in Kinder Morgan's 1999 Annual Report on
Form 10-K, in September 1999, certain wholly owned subsidiaries
of Kinder Morgan entered into a five-year agreement to sell all of
their accounts receivable in a transaction accounted for as a
sale of receivables in accordance with Statement of Financial
Accounting Standards No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities."
Accordingly, the accompanying Consolidated Balance Sheets reflect
the portion of receivables transferred to the financial
institution as a reduction of Accounts Receivable. Losses from
the sale of these receivables are included in "Other, Net" in the
accompanying Consolidated Statements of Income. Cash flows
associated with this program are included with "Accounts
Receivable" under "Cash Flows from Operating Activities" in the
accompanying Consolidated Statements of Cash Flows. Kinder
Morgan received compensation for servicing that was approximately
equal to the amount an independent servicer would receive.
Accordingly, no servicing assets or liabilities have been
recorded. The full amount of the allowance for possible losses
has been retained by Kinder Morgan. The fair value of this
recourse liability approximated the allocated allowance for
doubtful accounts given the short-term nature of the transferred
receivables. Kinder Morgan received $150 million in proceeds
from the sale of receivables on September 30, 1999. In the first
quarter of 2000, Kinder Morgan reduced its participation in this
receivable sale program by $124.9 million, principally as a
result of its then-pending disposition of its wholesale gas
marketing business, see Note 5. On April 25, 2000, Kinder Morgan
repaid the residual balance and terminated the agreement.
7. Supplemental Cash Flow Information
----------------------------------
Kinder Morgan considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. "Other, Net," presented as a component of "Net Cash
Flows Provided by (Used in) Operating Activities" in the
accompanying Consolidated Statements of Cash Flows includes,
among other things, equity in undistributed earnings of
unconsolidated subsidiaries (other than Kinder Morgan Energy
Partners) and joint ventures.
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
CHANGES IN OTHER WORKING CAPITAL ITEMS
(Net of Effects of Acquisitions and Sales)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Accounts Receivable $ (22,453) $ 16,604
Materials and Supplies Inventory (1,022) 400
Gas in Underground Storage - Current 10,099 (13,133)
Other Current Assets 25,893 388
Accounts Payable (32,044) (49,164)
Other Current Liabilities (45,431) (48,101)
--------- ---------
$ (64,958) $ (93,006)
========= =========
CASH FLOW INFORMATION
Cash Paid During the Period for:
Interest, Net of Amount Capitalized $ 99,222 $ 120,097
========= =========
Distributions on Preferred Capital Trust Securities $ 121 $ 349
========= =========
Income Taxes $ - $ -
========= =========
</TABLE>
8. Business Segments
-----------------
In accordance with the manner in which Kinder Morgan currently
manages its businesses, including the allocation of capital and
evaluation of business unit performance, Kinder Morgan reports
its operations in the following segments: (1) Natural and certain
associated entities, referred to as "NGPL," a major interstate
natural gas pipeline system; (2) Kinder Morgan Texas Pipeline and
certain associated entities, referred to as "KMTP," a major
intrastate natural gas pipeline system; (3) "Retail," the
(largely regulated) distribution of natural gas to retail
customers and (4) "Power and Other", the generation and sale of
electric power and various other activities not constituting
business segments. Prior to its December 31, 1999 sale to Kinder
Morgan Energy Partners (see Note 4), Kinder Morgan also owned and
operated KMIGT.
The accounting policies applied in the generation of segment
information are generally the same as those described in Note 1
of Notes to Consolidated Financial Statements included in Kinder
Morgan's 1999 Annual Report on Form 10-K, except that items below
the "Operating Income" line are either not allocated to business
segments or are not considered by Management in its evaluation of
business unit performance. In addition, certain items included
in operating income (such as general and administrative expenses)
are not allocated to individual business segments. With
adjustment for these items, Kinder Morgan currently evaluates
business segment performance primarily based on operating income
in relation to the level of capital employed. Intersegment sales
are accounted for at market prices, while asset transfers are
made at either market value or, in some instances, book value.
As necessary for comparative purposes, prior period results and
balances have been reclassified to conform to the current
presentation.
<PAGE> 14
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Quarter Ended March 31, 2000
-------------------------------------------------------------------------
Power
NGPL KMIGT (1) Retail KMTP and Other Consolidated
---- ----- ------ ---- --------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from External Customers $ 147,994 $ - $ 68,423 $ 249,919 $ 14,176 $ 480,512
=========
Intersegment Revenues $ 60 $ - $ - $ - $ - $ 60
=========
Operating Income Before
Corporate Costs $ 91,950 $ - $ 19,787 $ 11,330 $ 5,622 $ 128,689
General and Administrative
Expenses (14,293)
---------
Operating Income 114,396
Other Income and (Deductions) (37,585)
---------
Income from Continuing
Operations, Before Income Taxes $ 76,811
=========
</TABLE>
(1) KMIGT was sold to Kinder Morgan Energy Partners effective
December 31, 1999.
<TABLE>
<CAPTION>
Quarter Ended March 31, 1999
-------------------------------------------------------------------------
Power
NGPL KMIGT Retail KMTP and Other Consolidated
---- ----- ------ ---- --------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from External Customers $ 152,907 $ 25,114 $ 69,842 $ 164,327 $ 15,077 $ 427,267
=========
Intersegment Revenues $ 592 $ 1,283 $ 20 $ - $ 49 $ 1,944
=========
Operating Income Before
Corporate Costs $ 78,464 $14,352 $ 15,328 $ 8,987 $ 6,294 $ 123,425
General and Administrative
Expenses (20,349)
Merger-related costs (2,916)
---------
Operating Income 100,160
Other Income and (Deductions) (60,966)
---------
Income from Continuing
Operations, Before Income Taxes $ 39,194
===========
</TABLE>
There has been no material change in assets by segment for Kinder
Morgan's continuing businesses in comparison to the amounts
reported in Note 19 of Notes to Consolidated Financial Statements
included in Kinder Morgan's 1999 Annual Report on Form 10-K.
There have been material changes in assets associated with
discontinued operations, see Note 5.
GEOGRAPHIC INFORMATION
All but an insignificant amount of Kinder Morgan's assets and
operations are located in the continental United States.
9. Financing
---------
Kinder Morgan has available a $550 million 364-day credit
facility dated November 18, 1999, and a $400 million amended and
restated five-year revolving credit agreement dated January 30,
1998. These bank facilities can be used for general corporate
purposes, including backup for Kinder Morgan's commercial paper
program and include covenants which are common in such
arrangements (see Note 12 of Notes to Consolidated Financial
Statements included in Kinder Morgan's 1999 Annual Report on Form
10-K for
<PAGE> 15
additional information concerning these covenants).
Under these bank facilities, Kinder Morgan is required to pay a
facility fee based on the total commitment, whether used or
unused, at a rate which varies based on Kinder Morgan's senior
debt rating. There were no borrowings under the bank facilities
at March 31, 2000 or at April 17, 2000.
Commercial paper issued by Kinder Morgan and supported by the
bank facilities are unsecured short-term notes with maturities
not to exceed 270 days from the date of issue. During 1999, all
commercial paper was redeemed within 182 days, with interest
rates ranging from 4.25 percent to 7.25 percent. Commercial
paper outstanding at March 31, 2000 and April 17, 2000, was
$437.1 million and $250.3 million, respectively. The weighted-
average interest rates on short-term borrowings outstanding at
March 31, 2000 was 6.45 percent. Average short-term borrowings
outstanding during the first quarter of 2000 were $515.9 million
and the weighted-average interest rate was 6.18 percent.
On April 20, 2000, the Kinder Morgan board of directors declared
a common stock dividend of $0.05 per share payable on May 15,
2000 to shareholders of record as of April 30, 2000.
10. Regulatory Matters
------------------
On March 29, 2000, Kinder Morgan announced that it had reached a
settlement with the Federal Energy Regulatory Commission ("FERC")
regarding issues surrounding the interpretation of FERC Order No.
497 (which governs the conduct of interstate pipelines and
affiliated gas marketers on their systems) relative to KMIGT,
NGPL and Westar Transmission Company. KMIGT has been sold to
Kinder Morgan Energy Partners, and Westar has been sold to ONEOK,
see Notes 4 and 5. Combined, Kinder Morgan agreed to pay a civil
penalty and refunds totaling $5.75 million in conjunction with
the settlement, which also eliminated the potential for any civil
action or prolonged regulatory proceedings. The matters resolved
related to periods prior to the October 1999 K N Energy-Kinder
Morgan merger and, to some extent, periods prior to K N Energy's
January 1998 acquisition of MidCon Corp. The payment had no
detrimental effect on Kinder Morgan's earnings due to the
existence of previously established reserves.
In April 2000, Kinder Morgan filed appeals against 11 Nebraska
municipalities that have adopted rate ordinances prohibiting the
collection of a surcharge (associated with the P-0802 contract
entered into in 1973) to recover costs Retail incurred in
purchasing natural gas for its customers. Kinder Morgan alleges
that these municipalities failed to determine an appropriate
overall amount for Retail's rates and that the municipalities
failed to follow the appropriate process, as set up by the
Nebraska legislature, to review the P-0802 contract. When Retail
opened its distribution system to competitive supplies in 1998,
participating municipalities were made aware of the surcharge and
passed ordinances allowing it.
11. Comprehensive Income
--------------------
Statement of Financial Accounting Standards No. 130, "Reporting of
Comprehensive Income," effective for fiscal years beginning after
December 15, 1997, requires that enterprises report a total for
comprehensive income. The only difference between "net income"
and "comprehensive income" for Kinder Morgan has been the
unrealized gain or loss on its investment in available-for-sale
securities, which was recorded directly to stockholders' equity.
During the quarter ended March 31, 2000, Kinder Morgan sold its
available-for-sale securities, 918,367 shares of Tom Brown, Inc.
Common Stock (see Note 4). In conjunction with this sale, Kinder
Morgan recorded a reclassification adjustment to Accumulated
Comprehensive Income of $1.6 million, resulting in comprehensive
income for the period of $47.7 million. For the quarter ended
March 31,
<PAGE> 16
1999, Kinder Morgan recorded an unrealized after-tax
investment gain of $1.1 million, resulting in comprehensive
income for the period of $8.2 million.
12. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" (the
"Statement"). The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes
in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. If the
derivatives meet these criteria, the Statement allows a
derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company
formally designate a derivative as a hedge and document and
assess the effectiveness of derivatives associated with
transactions that receive hedge accounting.
The Statement is effective for fiscal years beginning after June
15, 2000. The Statement cannot be applied retroactively. The
Statement must be applied to (i) derivative instruments and (ii)
certain derivative instruments embedded in hybrid contracts that
were issued, acquired, or substantively modified after December
31, 1997 (and, at Kinder Morgan's election, before January 1,
1998). Kinder Morgan has not yet quantified the impacts of
adopting the Statement on its financial position or results of
operations.
13. Interest Expense, Net
---------------------
"Interest Expense, Net" as presented in the accompanying
Consolidated Statements of Income is net of (i) the debt
component of the allowance for funds used during construction
("AFUDC - Interest"), (ii) in 1999, interest income related to
government securities associated with the acquisition of MidCon
(see Note 1(K) of Notes to Consolidated Financial Statements
included in Kinder Morgan's 1999 Annual Report on Form 10-K) and
(iii) in 2000, interest income attributable to Kinder Morgan's
note receivable from Kinder Morgan Energy Partners associated
with the sale of certain interests, see Note 4.
Three Months Ended
March 31,
----------------------
(In Thousands)
2000 1999
------ ------
AFUDC - Interest $ 712 $ 213
Interest Income $ 2,647 $ 480
14 Other, Net
----------
"Other, Net" as presented in the accompanying Consolidated
Statements of Income for the three months ended March 31, 2000,
principally consists of (i) $4.1 million due to the recovery of
note receivable proceeds in excess of its carrying value, (ii)
$3.9 million attributable to the settlement of a regulatory
matter for an amount less than that previously reserved, see Note
10(A) and (iii) $1.3 million attributable to a gain from the sale
of Tom Brown, Inc. Common Stock, see Note 4.
<PAGE> 17
15. Accounts Receivable
-------------------
The caption "Accounts Receivable" in the accompanying
Consolidated Balance Sheets is presented net of allowances for
doubtful accounts of $1.7 million at March 31, 2000, and $1.7
million at December 31, 1999.
16. Environmental and Legal Matters
-------------------------------
(A) Environmental Matters
On December 20, 1999, the U.S. Department of Justice filed a
Complaint on behalf of the U.S. Environmental Protection Agency
in the Federal District Court of Colorado, Civil Action 99-S-
2419, against Natural alleging that Natural failed to obtain all
of the necessary air quality permits in 1979 when it constructed
the Akron Compressor Station, which consisted of three compressor
engines in Weld County, Colorado. Natural constructed and then
operated the facility until August 1996 when it was sold to High
Plains Gathering System. High Plains sold one of the compressor
engines to Colorado Interstate Gas Company in October 1997.
The complaint makes the standard request for penalties up to the
statutory maximums for each day of violation. Natural has filed
a motion to dismiss this case and is in discussions with the U.S.
Department of Justice. A number of defenses to the complaint and
plans to defend the action vigorously have been prepared by
Natural. Although Kinder Morgan cannot express an opinion as to
the probable outcome of this case, Kinder Morgan believes that
this proceeding will not have a material adverse effect on Kinder
Morgan's business, cash flows, financial position or results of
operations.
Based on current information and taking into account reserves
established for environmental matters, Kinder Morgan does not
believe that compliance with federal, state and local
environmental laws and regulations will have a material adverse
effect on Kinder Morgan's business, cash flows, financial
position or results of operations. In addition, the clean-up
programs in which Kinder Morgan is engaged are not expected to
interrupt or diminish Kinder Morgan's operational ability to
gather or transport natural gas. However, there can be no
assurances that future events, such as changes in existing laws,
the promulgation of new laws, or the development of new facts or
conditions will not cause Kinder Morgan to incur significant
costs.
See Note 9(A) of Notes to Consolidated Financial Statements of
Kinder Morgan's Annual Report on Form 10-K for the year ended
December 31, 1999, for additional information regarding
environmental matters.
(B) Litigation Matters
"Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas
Company, and GASCO, Inc.," Civil Action No. 92-N-2000. On October
9, 1992, Jack J. Grynberg filed suit in the United States
District Court for the District of Colorado against Kinder
Morgan, Rocky Mountain Natural Gas Company and GASCO, Inc.
alleging that these entities, referred to here as the "K N
Entities," as well as K N Production Company and K N Gas
Gathering, Inc., have violated federal and state antitrust laws.
In essence, Grynberg asserts that the companies have engaged in
an illegal exercise of monopoly power, have illegally denied him
economically feasible access to essential facilities to store,
transport and distribute gas, and illegally have attempted to
monopolize or to enhance or maintain an existing monopoly.
Grynberg also asserts certain state causes of action relating to
a gas purchase contract. In February 1999, the Federal District
Court granted summary judgment as to some of Grynberg's antitrust
and state law claims, while allowing other claims to proceed to
trial. In addition to monetary damages, Grynberg has requested
that the K N Entities be ordered to divest all
<PAGE> 18
interests in natural gas exploration, development and production
properties, all interests in distribution and marketing
operations, and all interests in natural gas storage facilities,
separating these interests from Kinder Morgan's natural gas
gathering and transportation system in northwest Colorado. No
trial date has been set.
"Jack J. Grynberg, individually and as general partner for the
Greater Green River Basin Drilling Program: 72-73 v. Rocky
Mountain Natural Gas Company and K N Energy, Inc.," Case No.
90-CV-3686. On June 5, 1990, Jack J. Grynberg filed suit, which
is presently pending in Jefferson County District Court for
Colorado, against Rocky Mountain Natural Gas Company and Kinder
Morgan alleging breach of contract and fraud. In essence,
Grynberg asserts claims that the named companies failed to pay
Grynberg the proper price, impeded the flow of gas, mismeasured
gas, delayed his development of gas reserves, and other claims
arising out of a contract to purchase gas from a field in
northwest Colorado. On February 13, 1997, the trial judge
entered partial summary judgment for Mr. Grynberg on his contract
claim that he failed to receive the proper price for his gas.
This ruling followed an appellate decision which was adverse to
Kinder Morgan on the contract interpretation of the price issue,
but which did not address the question of whether Grynberg could
legally receive the price he claimed or whether he had illegally
diverted gas from a prior purchase. On August 29, 1997, the
trial judge stayed the summary judgment pending resolution of a
proceeding at the FERC to determine if Grynberg was entitled to
administrative relief from an earlier dedication of the same gas
to interstate commerce. The background of that proceeding is
described below. On March 15, 1999, an Administrative Law Judge
for the FERC ruled, after an evidentiary hearing, that Mr.
Grynberg had illegally diverted the gas when he entered the
contract with the named companies and was not entitled to relief.
Grynberg filed exceptions to this ruling. In late March 2000,
the FERC issued an order affirming in part and denying in part
its Initial Decision. The action in Colorado remains stayed
pending final resolution of the FERC proceeding.
"Jack J. Grynberg v. Rocky Mountain Natural Gas Company," Docket
No. GP91-8-008. On May 8, 1991, Grynberg filed a petition for
declaratory order with the FERC) seeking a determination
whether he was entitled to the price he seeks in
the Jefferson County District Court proceeding referred to
above. While Grynberg initially received a favorable decision
from the FERC, that decision was reversed by the Court of
Appeals for the District of Columbia Circuit on June 6, 1997.
This matter has been remanded to the FERC for subsequent
proceedings. The matter was set for an expedited evidentiary
hearing, and an Initial Decision favorable to Rocky Mountain
was issued on March 15, 1999. That decision determined
that Grynberg had intentionally diverted gas from an earlier
dedication to interstate commerce in violation of the Natural Gas
Act and denied him equitable administrative relief. Grynberg
filed exceptions to this Initial Decision. In late March 2000,
the FERC issued an order affirming in part and denying in part
its Initial Decision. In April 2000, Kinder Morgan, together
with the other parties, filed for rehearing.
"United States of America, ex rel., Jack J. Grynberg v. K N
Energy," Civil Action No. 97-D-1233, filed in the U.S. District
Court, District of Colorado. This action was filed pursuant to
the federal False Claim Act and involves allegations of
mismeasurement of natural gas produced from federal and Indian
lands. The Department of Justice has decided not to intervene in
support of the action. The complaint is part of a larger series
of similar complaints filed by Mr. Grynberg against 77 natural
gas pipelines (approximately 330 other defendants). An earlier
single action making substantially similar allegations against
the pipeline industry was dismissed by Judge Hogan of the U.S.
District Court for the District of Columbia on grounds of
improper joinder and lack of jurisdiction. As a result, Mr.
Grynberg filed individual complaints in various courts throughout
the country. These cases were recently consolidated by the
Judicial Panel for Multidistrict Litigation, and transferred to
the District of Wyoming. Motions to Dismiss were filed on
November 19, 1999. Plaintiff filed his response on January 14, 2000
and defendants filed their Reply Brief on February 14, 2000. An
oral argument on the Motion to Dismiss occurred on March 17, 2000.
<PAGE> 19
"Quinque Operating Company, et. al. v. Gas Pipelines, et. al.,"
Cause No. 99-1390-CM, United States District Court for the
District of Kansas. This action was originally filed in Kansas
state court in Stevens County, Kansas as a class action against
approximately 245 pipeline companies and their affiliates,
including certain Kinder Morgan entities. The plaintiffs in the
case purport to represent a class of natural gas producers and
fee royalty owners who allege that they have been subject to
systematic gas mismeasurement by the defendants for more than 25
years. Subsequently, one of the defendants removed the action to
Kansas Federal District Court. Thereafter, Kinder Morgan filed a
motion with the Judicial Panel for Multidistrict Litigation to
consolidate this action for pretrial purposes with the False
Claim Act cases referred to above, because of common factual
questions. On April 10, 2000, the MDL Panel ordered that this
case be consolidated with the Grynberg federal False Claims Act
cases.
"Dirt Hogs, Inc. v. Natural Gas Pipeline Company of America, et
al." There have been several related cases with Dirt Hogs, Inc.
with allegations of breach of contract, false representations,
improper requests for kickbacks and other improprieties.
Essentially, the Plaintiff claims that it should have been
awarded extensive pipeline reclamation work without having to
qualify or bid as a qualifying contractor. Case No.
Civ-98-231-R, is a case which was dismissed in the U.S. District
Court for the Western District of Oklahoma because of pleading
deficiencies and is now on appeal to the 10th Circuit
(Case No. 99-6-026). On April 10, 2000, the 10th Circuit upheld
the dismissal of this action. Another case, arising out of the
same factual allegations, was filed by Dirt Hogs in the District
Court, Caddo County, Oklahoma (Case No. CJ-99-92), on March 29,
1999. By agreement of all parties, this action is currently
stayed. A third related case, styled "Natural Gas Pipeline
Company of America, et al. v. Dirt Hogs, Inc."
(Case No. 99-360-R), resulted in a default judgement against
Dirt Hogs. After initially appealing the default judgement,
Dirt Hogs dismissed their appeal on September 1, 1999.
"K N Energy, Inc., et al. v. James P. Rode and Patrick R.
McDonald," Case No. 99CV1239, filed in the District Court,
Jefferson County, Division 8, Colorado. Defendants
counterclaimed and filed third party claims against several
former K N Energy officers and/or directors. Messrs. Rode and
McDonald are former principal shareholders of Interenergy
Corporation. Interenergy was merged into K N Energy on December
19, 1997 pursuant to a Merger Agreement dated August 25, 1997.
Rode and McDonald allege that K N Energy committed securities
fraud, common law fraud and negligent misrepresentation as well
as breach in contract. They are seeking an unspecified amount of
compensatory damages that we estimate could be greater than $2
million, plus unspecified exemplary or punitive damages,
attorney's fees and their costs. Kinder Morgan filed a Motion to
Dismiss, and on April 21, 2000, the Jefferson County District
Court Judge dismissed the case against K N and the individuals
with prejudice. Defendants also filed a federal securities fraud
action in the United States District Court for the District of
Colorado on January 27, 2000 titled: "James P. Rode and Patrick R.
McDonald v. K N Energy, Inc., et al.," Civil Action No. 00-N-190.
This case initially raised the identical state law claims
contained in the counterclaim and third party complaint in state
court. Rode and McDonald filed an amended Complaint, which
dropped the state-law claims. This Complaint is now the subject
of a motion to dismiss filed by defendants. The case has been
stayed pending the outcome of these motions. A fourth related
class action case styled, "Adams vs. Kinder Morgan, Inc., et.
al.," Civil Action No. 00-M-516, in the United States District
Court for the District of Colorado was served on Kinder Morgan on
April 10, 2000. Kinder Morgan intends to file a motion to
dismiss this case, and expects that the case will be stayed
pending the resolution of such motion.
Kinder Morgan believes it has meritorious defenses to all
lawsuits and legal proceedings in which it is a defendant and
will vigorously defend against them. Based on its evaluation of
the above matters, and after
<PAGE> 20
consideration of reserves established, Kinder Morgan
believes that the resolution of such matters will not
have a material adverse effect on Kinder
Morgan's business, financial position or results of operations.
See Note 9(B) of Notes to Consolidated Financial Statements of
Kinder Morgan's Annual Report on Form 10-K for the year ended
December 31, 1999, for additional information regarding legal
matters.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
- -------
As used in this report, "Kinder Morgan" refers to Kinder Morgan,
Inc. (a Kansas corporation, formerly K N Energy, Inc.) and its
consolidated subsidiaries. The following discussion should be
read in conjunction with (i) the accompanying Consolidated
Financial Statements and related Notes and (ii) the Consolidated
Financial Statements, related Notes and Management's Discussion
and Analysis of Financial Condition and Results of Operations
included in Kinder Morgan's 1999 Annual Report on Form 10-K. Due
to the seasonal variation in energy demand, among other factors,
the following interim results may not be indicative of the
results to be expected for an entire year. As discussed in Notes
2 and 4 of the accompanying Notes to Consolidated Financial
Statements, Kinder Morgan has engaged in acquisition and
divestiture transactions (and may engage in additional such
transactions) which may affect the comparison of results of
operations between periods.
In accordance with the manner in which Kinder Morgan currently
manages its businesses, including the allocation of capital and
evaluation of business unit performance, Kinder Morgan reports
its operations in the following segments: (1) Natural Gas
Pipeline Company of America and certain associated entities,
referred to as "NGPL," a major interstate natural gas pipeline
system; (2) Kinder Morgan Texas Pipeline and certain associated
entities, referred to as "KMTP," a major intrastate natural gas
pipeline system; (3) "Retail," the (largely regulated)
distribution of natural gas to retail customers and (4) "Power
and Other," the generation and sale of electric power and
various other activities not constituting business segments.
Prior to its December 31, 1999 sale to Kinder Morgan Energy
Partners (see Note 4 of the accompanying Notes to Consolidated
Financial Statements), Kinder Morgan also owned and operated
Kinder Morgan Interstate Gas Transmission LLC (formerly K N
Interstate Gas Transmission Co.), which is referred to in this
report as "KMIGT." Prior period results and balances have been
reclassified to conform to the current presentation.
Certain information contained in this report may include "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to
risks and uncertainties and are based on the beliefs and
assumptions of Kinder Morgan's management, based on information
currently available to Kinder Morgan's management. When words
such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should" or similar expressions are used, Kinder
Morgan is making forward-looking statements.
Forward-looking statements are not guarantees of performance.
They involve risks, uncertainties and assumptions. The future
results and stockholder values of Kinder Morgan may differ
materially from those expressed in these forward-looking
statements. Many of the factors that will determine these
results and values are beyond Kinder Morgan's ability to control
or predict. These statements are necessarily based upon various
assumptions involving judgments with respect to the future
including, among others, the ability to achieve synergies and
revenue growth, national, international, regional and local
economic, competitive and regulatory conditions and developments,
technological developments, capital market conditions, inflation
rates, interest rates, the political and economic
stability of oil producing nations, energy markets, weather
conditions, business and regulatory or legal decisions, the pace
of deregulation of retail natural gas and
<PAGE> 21
electricity, the timing and extent of changes in
commodity prices for oil, natural gas, natural gas
liquids, electricity and certain agricultural
products, the timing and success of business development efforts,
and other uncertainties, all of which are difficult to predict and
many of which are beyond Kinder Morgan's control. Readers are
cautioned not to put undue reliance on any forward-looking
statements. For those statements, Kinder Morgan claims the
protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of
1995.
Consolidated Financial Results
- ------------------------------
Three Months Ended March 31,
--------------------------------------
(In Thousands Except Per Share
Amounts)
Increase
2000 1999 (Decrease)
---- ---- ----------
Operating Revenues $ 480,512 $ 427,267 $ 53,245
Gross Margin 203,935 221,362 (17,427)
General and Administrative Expenses 14,293 20,349 (6,056)
Merger-related Costs - 2,916 (2,916)
Operating Income 114,396 100,160 14,236
Income From Continuing Operations 46,084 23,908 22,176
Loss From Discontinued Operations,
Net of Tax N/A (16,786) N/A
Diluted Earnings (Loss) Per Share:
Continuing Operations $ 0.41 0.34 $ 0.07
Discontinued Operations N/A $ (0.24) N/A
Kinder Morgan's results for the quarter ended March 31, 2000
reflect an increase of $53.2 million (12.5%) in operating
revenues, a decrease of $17.4 million (7.9%) in gross margin and
an increase of $14.2 million (14.2%) in operating income from the
first quarter of 1999. Operating results for 2000 do not include
revenues, costs and expenses of KMIGT, which was sold to Kinder
Morgan Energy Partners effective December 31, 1999. The increase
in operating revenues is principally due to increased revenues at
KMTP, partially offset by the absence of KMIGT revenues in the
first quarter of 2000. The decline in gross margin principally
reflects the sale of KMIGT. General and administrative expenses
decreased from $20.3 million in the first quarter of 1999 to $14.3
million in the first quarter of 2000, a decrease of $6.0 million
(29.6%) due to cost reduction measures implemented following the
business combination with Kinder Morgan Delaware. The
merger-related costs included in results for the first quarter of
1999 are associated with the proposed merger with Sempra Energy
that was not consummated. For additional information on these
matters, see Note 2 of the accompanying Notes to Consolidated
Financial Statements. The increased operating income, which
occurred despite the sale of KMIGT, reflects (i) improved
first-quarter 2000 segment performance, principally NGPL, and
(ii) merger-related costs included in 1999 results and lower
first-quarter 2000 general and administrative expenses, in
each case as discussed preceding.
Operating income for each of Kinder Morgan's business segments,
as well as interest expense, other income and deductions and
income taxes were affected by various factors which are
described within the corresponding individual discussions which
follow. Following are operating results by individual segment
(before intersegment eliminations), including explanations of
significant variances between the periods presented.
<PAGE> 22
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Increase
NGPL 2000 1999 (Decrease)
- ---- ---- ---- ------------
(In Thousands Except Systems
Throughput)
<S> <C> <C> <C>
Operating Revenues:
Transportation and Storage $ 144,578 $ 150,619 $ (6,041)
Other 3,476 2,880 596
----------- ----------- -----------
148,054 153,499 (5,445)
----------- ----------- -----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 13,800 16,973 (3,173)
Operations and Maintenance 16,258 18,934 (2,676)
Depreciation and Amortization 21,118 33,664 (12,546)
Taxes, Other Than Income Taxes 4,928 5,464 (536)
----------- ----------- -----------
56,104 75,035 (18,931)
----------- ----------- -----------
Operating Income Before Corporate Costs $ 91,950 $ 78,464 $ 13,486
=========== =========== ===========
Systems Throughput (Trillion Btus) 433.5 420.7 12.8
=========== =========== ===========
</TABLE>
NGPL's operating income before corporate costs increased from
$78.5 million in the first quarter of 1999 to $91.9 million in
the first quarter of 2000, an increase of $13.5 million (17.2%).
Approximately $9.7 million of this increase is attributable to a
July 1999 change in amortization rates, see Note 3 of the
accompanying Notes to Consolidated Financial Statements. In
addition, results for the first quarter of 2000 reflect (i)
decreased unit revenues largely attributable to both existing and
planned competing pipeline capacity (with the attendant reduced
value of transportation) in the upper Midwest, NGPL's principal
market area; although, as discussed following and in Kinder
Morgan's 1999 Annual Report on Form 10-K, NGPL continues to
experience successes in retaining existing customers and
acquiring new customers; (ii) reduced operating expenses
reflecting continued cost control measures and (iii) a $3.3
million refund of previously expensed transportation charges from
an unaffiliated interstate pipeline.
In March 2000, Kinder Morgan announced that it had reached a
settlement with the Federal Energy Regulatory Commission (the
"FERC") regarding issues surrounding the interpretation of FERC
Order No. 497 to several entities currently or formerly owned by
Kinder Morgan, including Natural Gas Pipeline Company of America
("Natural"). For additional information on this matter, see Note
10 of the accompanying Notes to Consolidated Financial Statements.
Also in March 2000, Kinder Morgan announced that it had filed a
"motion to dismiss" in Colorado Federal District Court and will
vigorously defend itself against a complaint filed by the
Department of Justice alleging that Natural failed to obtain all
necessary air quality permits when constructing a compressor
station in Colorado more than 20 years ago. For additional
information on this matter, see Note 16 of the accompanying Notes
to Consolidated Financial Statements.
During the first quarter of 2000, Natural announced that it had
(i) fully subscribed its 130 Bcf of nominated storage capacity
until at least January 1, 2001 as a result of entering into
contracts for 25 Bcf of firm nominated storage service under two
separate three-year contracts and (ii) entered into contracts with
Ameren Corporation for up to 245,000 MMBtu per day of natural gas
transportation through a four-year term which began on April 1,
2000.
In April 2000, Natural announced that it had initiated HubAmerica,
a new program designed to facilitate the movement of natural gas
from Chicago and other MidWest regions to markets served directly
by Natural or
<PAGE> 23
through interconnecting pipelines. In connection
with establishment of HubAmerica, Natural signed a letter of
intent with Duke Energy's Texas Eastern Transmission Corporation
for a long-term reciprocal natural gas pipeline capacity lease.
Under the agreement, the two pipelines will lease capacity on each
other's systems to offer seamless transportation services of
natural gas from the Chicago area to eastern markets. HubAmerica
will provide direct access to major markets in Illinois, Indiana,
Iowa and Wisconsin, and indirect access to Dallas, Houston,
St. Louis, Kansas City and markets on the West Coast, East
Coast and Southeastern states through numerous downstream
interstate and intrastate pipelines. HubAmerica will offer firm
and interruptible transportation services in conjunction with
other Natural services, such as parking and loaning transactions
and other storage and balancing services.
Three Months
Ended March 31, 1999
--------------------
KMIGT (In Thousands Except
- ----- Systems Throughput)
Operating Revenues:
Transportation and Storage $ 26,288
Other 109
-----------
26,397
-----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales (449)
Operations and Maintenance 6,050
Depreciation and Amortization 5,145
Taxes, Other Than Income Taxes 1,299
-----------
12,045
-----------
Operating Income Before Corporate Costs $ 14,352
===========
Systems Throughput (Trillion Btus) 54.7
===========
Effective December 31, 1999, Kinder Morgan contributed KMIGT and
Kinder Morgan Trailblazer LLC (formerly NGPL-Trailblazer, Inc.),
as well as its interest in Red Cedar Gathering Company to Kinder
Morgan Energy Partners in exchange for $330 million in cash plus
approximately 9.8 million Kinder Morgan Energy Partners common
units. See Note 4 of the accompanying Notes to Consolidated
Financial Statements for more information regarding this
transaction. In March 2000, Kinder Morgan announced that it had
reached a settlement with the FERC regarding issues surrounding
the interpretation of FERC Order 497 to several entities
currently or formerly owned by Kinder Morgan, including KMIGT.
For additional information on this matter, see Note 10 of the
accompanying Notes to Consolidated Financial Statements.
<PAGE> 24
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------- Increase
Retail 2000 1999 (Decrease)
- ------ ---- ---- -----------
(In Thousands Except Systems
Throughput)
<S> <C> <C> <C>
Operating Revenues:
Gas Sales $ 53,910 $ 54,769 $ (859)
Transportation 11,257 11,197 60
Other 3,256 3,896 (640)
----------- ----------- ---------
68,423 69,862 (1,439)
----------- ----------- ---------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 35,306 40,553 (5,247)
Operations and Maintenance 9,812 10,250 (438)
Depreciation and Amortization 2,889 2,845 44
Taxes, Other Than Income Taxes 629 886 (257)
----------- ----------- ---------
48,636 54,534 (5,898)
----------- ----------- ---------
Operating Income Before Corporate Costs $ 19,787 $ 15,328 $ 4,459
=========== =========== =========
Systems Throughput (Trillion Btus) 21.8 17.2 4.6
=========== =========== =========
</TABLE>
Retail's operating income before corporate costs increased from
$15.3 million in the first quarter of 1999 to $19.8 million in
the first quarter of 2000, an increase of $4.5 million (29.1%).
Gross margin increased from $29.3 million in the first quarter of
1999 to $33.1 million in the first quarter of 2000, an increase
of $3.8 million (13.0%), despite a $1.4 million (2.1%) decrease
in operating revenues. These favorable results principally
reflect (i) increased system throughput in the first quarter of
2000, although a significant portion of this increase represents
volumes transported for relatively low margins, (ii) reduced
operating expenses reflecting a continued focus on efficient
operations and reduced costs for certain administrative functions
due to renegotiation of a contract with a third-party service
provider and (iii) certain unfavorable adjustments to gas cost
affecting first-quarter 1999 results.
In March 2000, Kinder Morgan announced the results of Retail's
Agricultural Choice Gas Program, which provides agricultural
customers in Nebraska (approximately 10,000 customers, a 6.9 Bcf
per year market) the option to select their natural gas supplier.
During the selection period, which ran from January 20 to March
15, customers in Nebraska had the opportunity to select from six
natural gas suppliers. Retail received the largest share of the
market with 47%, which represents a small increase in market
share over the previous year, with the next largest market share
going to Midwest United Energy at 32%.
Kinder Morgan recently filed appeals with respect to recovery of
certain surcharges in Nebraska, see "Regulatory Matters".
<PAGE> 25
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------- Increase
KMTP 2000 1999 (Decrease)
- ---- ---- ---- -----------
(In Thousands Except Systems
Throughput)
<S> <C> <C> <C>
Operating Revenues:
Gas Sales $ 231,963 $ 153,994 $ 77,969
Transportation and Storage 7,217 7,170 47
Other 10,739 3,163 7,576
----------- ----------- ----------
249,919 164,327 85,592
----------- ----------- ----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 225,789 143,714 82,075
Operations and Maintenance 11,195 10,417 778
Depreciation and Amortization 676 587 89
Taxes, Other Than Income Taxes 929 622 307
----------- ----------- ----------
238,589 155,340 83,249
----------- ----------- ----------
Operating Income Before Corporate Costs $ 11,330 $ 8,987 $ 2,343
=========== =========== ==========
Systems Throughput (Trillion Btus) 144.2 145.5 (1.3)
=========== =========== ==========
</TABLE>
KMTP's operating income before corporate costs increased from
$9.0 million in the first quarter of 1999 to $11.3 million in the
first quarter of 2000, an increase of $2.3 million (26.1%).
Operating revenues increased from $164.3 million in the first
quarter of 1999 to $249.9 million in the first quarter of 2000,
an increase of $85.6 million (52.1%), while gross margin
increased by $3.5 million (17.0%), from $20.6 million to $24.1
million, over the same period. The increase in first-quarter
2000 operating revenues is principally due to (i) an increase in
the average cost of gas (a component of the gas sales rate) of
approximately $0.75 per MMBtu in 2000, (ii) a $0.30 per
gallon increase in the average sales price of natural gas liquids
during the first quarter of 2000 and (iii) increased first-quarter
2000 natural gas liquids sales volumes. The increase in "Gas Purchases
and Other Costs of Sales" is principally due to the increased
first-quarter 2000 cost of gas. The increase in both gross
margin and operating income largely reflects the increased natural
gas liquids sales volumes and improvement in natural gas liquids
prices, each as discussed preceding.
In March 2000, Kinder Morgan announced that Kinder Morgan Texas
Pipeline had (i) renewed its natural gas and transportation
contract with Reliant Energy HL&P (the electric utility which
serves the greater Houston, Texas metropolitan area) through
March 1, 2004 and (ii) entered into a new transportation services
agreement with Reliant Energy HL&P beginning in 2002 and
extending through 2012. Reliant Energy, as a consolidated
enterprise (which includes, in addition to HL&P, Entex - the gas
distribution utility which serves the Houston Texas metropolitan
area), constitutes KMTP's (and Kinder Morgan Inc.'s) largest
customer. See Note 19 of Notes to Consolidated Financial
Statements included in Kinder Morgan's 1999 Annual Report on
Form 10-K.
<PAGE> 26
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------- Increase
Power and Other 2000 1999 (Decrease)
- --------------- ---- ---- ------------
(In Thousands)
<S> <C> <C> <C>
Operating Revenues $ 14,176 $ 15,126 $ (950)
----------- ----------- -----------
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales 1,742 3,675 (1,933)
Operations and Maintenance 4,413 3,018 1,395
Depreciation and Amortization 2,078 1,899 179
Taxes, Other Than Income Taxes 321 240 81
----------- ----------- -----------
8,554 8,832 (278)
----------- ----------- -----------
Operating Income Before Corporate Costs $ 5,622 $ 6,294 $ (672)
=========== =========== ===========
</TABLE>
Power and Other operating income before corporate costs declined
by approximately $0.7 million (10.7%) from the first quarter of
1999 to the first quarter of 2000, reflecting minor decreases in
both operating revenues and operating expenses. These declines
were principally due to lower power sales volumes and associated
reduced operating expenses resulting from relatively milder 2000
winter weather. In addition to power operations, results reported
in "Power and Other" include earnings from Kinder Morgan's
agreement with HS Resources, Inc. as described in Kinder Morgan's
1999 Annual Report on Form 10-K and earnings from certain
telecommunications assets used primarily by internal business
segments.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------- Increase
Other Income and (Deductions) 2000 1999 (Decrease)
- ----------------------------- ---- ---- ------------
(In Thousands)
<S> <C> <C> <C>
Equity in Earnings of Kinder Morgan Energy Partners:
Equity in Earnings $ 29,583 $ - $ 29,583
Amortization of Excess Investment (7,577) - (7,577)
Other Equity in Earnings(Losses) (2,899) 6,573 (9,472)
Interest Expense, Net (60,399) (62,917) 2,518
Minority Interests (5,965) (5,979) 14
Other, Net 9,672 1,357 8,315
----------- ----------- -----------
$ (37,585) $ (60,966) $ 23,381
=========== =========== ===========
</TABLE>
The equity in earnings of Kinder Morgan Energy Partners and
associated amortization during 2000 reflect the October 1999
acquisition of Kinder Morgan Delaware, see Note 2 of the
accompanying Notes to Consolidated Financial Statements. For
additional information regarding the results of operations of
Kinder Morgan Energy Partners, the reader is directed to Kinder
Morgan Energy Partners' quarterly report on Form 10-Q for the
period ended March 31, 2000. The decrease in "Other Equity in
Earnings" from the first quarter of 1999 to the first quarter
of 2000 is principally due to the sale or discontinuance
of various equity method investments, see Notes 4 and 5
of the accompanying Notes to Consolidated Financial Statements.
"Other, Net" in the first quarter of 2000 includes (i) $4.1
million due to the recovery of note receivable proceeds in excess
of its carrying value, (ii) $3.9 million attributable to the
settlement of a regulatory matter for an amount less than that
previously reserved, see "Regulation" and (iii) $1.3 million
attributable to a gain from the sale of Tom Brown, Inc. Common
Stock. First quarter 1999 "Other, Net" included dividend income
associated with Tom Brown, Inc. Preferred Stock, which was sold in
the third quarter of 1999. For additional information with
respect to the sale of the Tom Brown, Inc. Preferred and Common
stock, see Note 4 of the accompanying Notes to Consolidated
Financial Statements.
<PAGE> 27
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
Income Taxes From Continuing Operations 2000 1999 Increase
- --------------------------------------- ---- ---- ------------
(Dollars In Thousands)
<S> <C> <C> <C>
Income Tax Provision $ 30,727 $ 15,286 $ 15,441
=========== =========== ===========
Effective Tax Rate 40.0% 39.0% 1.0%
=========== =========== ===========
</TABLE>
The increase of $15.4 million in the income tax provision from
the first quarter of 1999 to the first quarter of 2000 is
composed of (i) an increase of $14.7 million attributable to an
increase in pre-tax income and (ii) an increase of $0.7 million
attributable to an increase in the effective tax rate in 2000.
This increase in the effective tax rate is principally due to an
increased provision for state income taxes.
Discontinued Operations
- -----------------------
During the third quarter of 1999, Kinder Morgan adopted a plan to
discontinue the direct marketing of non-energy products and
services (principally under the "Simple Choice" brand), which
activities had been carried on largely through Kinder Morgan's
en*able joint venture with PacifiCorp. During the fourth quarter
of 1999, Kinder Morgan adopted and implemented plans to
discontinue the following lines of business: gathering and
processing natural gas and providing field services to natural
gas producers, commodity marketing of natural gas and natural gas
liquids, international operations and West Texas intrastate
pipelines.
As further described in Note 6 of Notes to Consolidated Financial
Statements included in Kinder Morgan's 1999 Annual Report on Form
10-K, as of December 31, 1999, in accordance with the provisions
of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," Kinder Morgan
(i) restated its consolidated financial statements to reflect
these businesses as discontinued operations and (ii) recorded an
estimate of the loss expected to result from the discontinuance
and disposal of these businesses, including both the estimated
losses to be incurred upon sale and the estimated operating
losses to be incurred prior to the projected disposal dates.
This total estimated loss is subject to uncertainty with respect
to the ultimate proceeds to be received from the sale and
operation of these assets (among other factors) and, accordingly,
the actual loss may differ materially from the estimate recorded
as of December 31, 1999. Any such difference will be recognized
in the period in which it is reasonably estimable and classified
in the same manner as the original estimated loss.
The reader is directed to Note 5 of the accompanying Notes to
Consolidated Financial Statements for (i) information concerning
the status of disposition efforts with respect to these assets,
(ii) certain financial information with respect to discontinued
operations and (iii) Kinder Morgan's remaining investment in
these businesses.
Liquidity and Capital Resources
- -------------------------------
The following table illustrates the sources of Kinder Morgan's
invested capital. The balances at December 31, 1998 and
subsequent reflect the incremental capital associated with the
acquisition of MidCon Corp., including the post-acquisition
refinancings completed in 1998. The balances at December 31,
1999 and March 31, 2000 also reflect the impacts associated with
the acquisition of Kinder Morgan Delaware and the sale of certain
assets to Kinder Morgan Energy Partners (for additional
information on these transactions, see Notes 2 and 4 of the
accompanying Notes to Consolidated Financial Statements).
<PAGE> 28
<TABLE>
<CAPTION>
March 31, December 31,
------------ --------------------------------------------------------
(Dollars in Thousands)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-term Debt $3,293,168 $ 3,293,326 $ 3,300,025 $ 553,816 $ 423,676
Common Equity 1,716,679 1,665,841 1,216,821 606,132 519,794
Preferred Stock - - 7,000 7,000 7,000
Capital Trust Securities 275,000 275,000 275,000 100,000 -
---------- ----------- ----------- ---------- ----------
Capitalization 5,284,847 5,234,167 4,798,846 1,266,948 950,470
Short-Term Debt 444,267 581,567 1,702,013 (1) 359,951 156,271
---------- ----------- ----------- ---------- ----------
Invested Capital $5,729,114 $ 5,815,734 $ 6,500,859 $1,626,899 $1,106,741
========== =========== =========== ========== ==========
Capitalization:
- ---------------
Long-term Debt 62.3% 62.9% 68.8% 43.7% 44.6%
Common Equity 32.5% 31.8% 25.4% 47.8% 54.7%
Preferred Stock - - 0.1% 0.6% 0.7%
Capital Trust Securities 5.2% 5.3% 5.7% 7.9% -
Invested Capital:
- -----------------
Total Debt 65.2% 66.6% 76.9% 56.2% 52.4%
Equity, Including Capital
Trust Securities 34.8% 33.4% 23.1% 43.8% 47.6%
</TABLE>
(1) Includes the $1,394,846 Substitute Note assumed in conjunction
with the acquisition of MidCon Corp., which note was repaid in January
1999.
CASH FLOWS
- ----------
The following discussion of cash flows should be read in
conjunction with the Statements of Consolidated Cash Flows and
related supplemental information included in Kinder Morgan's 1999
Annual Report on Form 10-K and the accompanying Consolidated
Statements of Cash Flows, including the related supplemental
disclosures.
Net Cash Flows from Operating Activities
- ----------------------------------------
"Net Cash Flows Provided by (Used in) Operating Activities"
decreased from a source of $38.2 million in the first quarter of
1999 to a use of $115.8 million in the first quarter of 2000, a
decline of $154.0 million. This decline is primarily due to an
increase in cash flows used for discontinued operations, which
increased from a source of $82.8 million in the first quarter of
1999 to a use of $132.0 million in the first quarter of 2000,
reflecting (i) $124.9 million of cash outflow attributable to the
reduced utilization of Kinder Morgan's receivable sale program,
see "Net Cash Flows from Financing Activities" following and (ii)
a $21.5 million source of cash in the first quarter of 2000 for
discontinued operations working capital items, compared to a
$109.2 million source of cash in the first quarter of 1999. This
decline in cash provided by working capital items for
discontinued operations principally reflected (i) decreased cash
from sales of gas in storage during the first
quarter of 2000 and (ii) decreased cash provided from
the net of accounts receivable and accounts payable during the
first quarter of 2000, over and above the effect of the
receivable sales program. The decline in "Net Cash Flows
Provided by (Used in) Operating Activities" for discontinued
operations was partially offset by an increase in cash flows
provided by continuing operations, which increased from a use of
$44.5 million in the first quarter of 1999 to a source of $16.3
million in the first quarter of 2000. This increase is primarily
due to (i) increased cash of $13.8 million in the first quarter
of 2000 attributable to increased income before equity in earnings
of Kinder Morgan Energy Partners, depreciation and amortization,
deferred income taxes and other non-cash charges and credits,
(ii) $15.9 million of cash distributions in the first quarter
of 2000 attributable to Kinder Morgan's interest in Kinder Morgan
Energy Partners, see Note 2 of the accompanying Notes to
Consolidated Financial Statements and (iii) a decrease in cash
used in the first
<PAGE> 29
quarter of 2000 to make interest payments
reflecting the decreased average debt balance outstanding.
Partially offsetting this increase were January 2000 payments
associated with December 1999 gas supply purchases.
Net Cash Flows from Investing Activities
- ----------------------------------------
"Net Cash Flows Provided by Investing Activities" decreased from
$1.0 billion in the first quarter of 1999 to $232.0 million in
the first quarter of 2000, a decline of $803.6 million
principally due to the sale of approximately $1.1 billion of
government securities in the first quarter of 1999, with the
proceeds utilized to repay the Substitute Note assumed in
conjunction with the January 1998 acquisition of MidCon Corp.,
see "Cash Flows From Financing Activities" following and Note 2
of Notes to Consolidated Financial Statements included in Kinder
Morgan's 1999 Annual Report on Form 10-K. Partially offsetting
this decrease was $330 million of cash received during the first
quarter of 2000 from the sale of certain interests to Kinder
Morgan Energy Partners, see Note 4 of the accompanying Notes to
Consolidated Financial Statements. In addition, cash flows used
in discontinued investing activities increased from $21.8 million
in the first quarter of 1999 to $49.3 million in the first
quarter of 2000. Kinder Morgan is in the process of monetizing
its remaining investment in Discontinued businesses, see
"Discontinued Operations" elsewhere herein.
Net Cash Flows from Financing Activities
- ----------------------------------------
"Net Cash Flows Used in Financing Activities" decreased from
approximately $1.1 billion in the first quarter of 1999 to $122.9
million in the first quarter of 2000, a decline of approximately
$1.0 billion. This decrease was principally due to the first-
quarter 1999 repayment of the $1.39 billion Substitute Note as
discussed preceding, partially offset by increased short-term
borrowings.
As further discussed in Note 9 of the accompanying Notes to
Consolidated Financial Statements, Kinder Morgan's principal
sources of short-term liquidity are its revolving bank facilities
totaling $950 million. At March 31, 2000, Kinder Morgan had
$437.1 million of commercial paper (which is backed by the bank
facilities) issued and outstanding. The corresponding amount
outstanding was $250.3 million at April 17, 2000. The principal
reason for the decline in short-term borrowings from March 31 to
April 17 was application of the $164 million of cash proceeds
from the transaction with ONEOK, see Note 5 of the accompanying
Notes to Consolidated Financial Statements. After inclusion of
applicable letters of credit, the remaining available borrowing
capacity under the bank facilities was $512.9 million and $699.7
million at March 31, 2000 and April 17, 2000, respectively. As
described in Kinder Morgan's 1999 Annual Report on Form 10-K,
Kinder Morgan's bank facilities and certain of its operating lease
arrangements contain covenants related to Kinder Morgan's ratio of
debt to total capitalization, consolidated net worth and debt
ratings. For additional information on utilization of these
facilities, see Note 9 of the accompanying Notes to Consolidated
Financial Statements. As more fully discussed in
Kinder Morgan's 1999 Annual Report on Form 10-K, in
September 1999, Kinder Morgan established a receivables
sales facility that provided up to $150 million of
additional liquidity. In accordance with this agreement,
proceeds of $150 million were received on September 30, 1999. In
accordance with authoritative accounting guidelines, cash flows
associated with this facility are included with "Cash flows from
Operating Activities" in the accompanying Consolidated Statements
of Cash Flows. In February 2000, Kinder Morgan reduced its
participation in this receivable sales program by $124.9 million,
principally as a result of its then-pending disposition of its
wholesale gas marketing business, see Note 6 of the accompanying
Notes to Consolidated Financial Statements. On April 25, 2000,
Kinder Morgan repaid the residual balance and terminated the
agreement.
<PAGE> 30
Regulation
- ----------
On March 29, 2000, Kinder Morgan announced that it had reached a
settlement with the FERC regarding issues surrounding the
interpretation of FERC Order 497 (which governs the conduct of
interstate pipelines and affiliated gas marketers on their
systems) relative to KMIGT, Natural and Westar Transmission
Company. KKMIGT has been sold to Kinder Morgan Energy Partners
and Westar has been sold to ONEOK, see Notes 4 and 5 of the
accompanying Notes to Consolidated Financial Statements.
Combined, Kinder Morgan agreed to pay a civil penalty and
refunds totaling $5.75 million in conjunction with the
settlement, which also eliminated the potential for any civil
action or prolonged regulatory proceedings. The matters
resolved related to periods prior to the October 1999 K N
Energy-Kinder Morgan merger and, to some extent, periods prior
to K N Energy's January 1998 acquisition of MidCon Corp. The
payment had no detrimental effect on Kinder Morgan's earnings
due to the existence of previously established reserves.
In April 2000, Kinder Morgan filed appeals against 11 Nebraska
municipalities that have adopted rate ordinances prohibiting the
collection of a surcharge (associated with the P-0802 contract
entered into in 1973) to recover costs Retail incurred in
purchasing natural gas for its customers. Kinder Morgan alleges
that these municipalities failed to determine an appropriate
overall amount for Retail's rates and that the municipalities
failed to follow the appropriate process, as set up by the
Nebraska legislature, to review the P-0802 contract. When Retail
opened its distribution system to competitive supplies in 1998,
participating municipalities were made aware of the surcharge and
passed ordinances allowing it.
Environmental and Legal Matters
- -------------------------------
See Note 16 of the accompanying Notes to Consolidated Financial
Statements for information regarding environmental and legal
matters. The reader is also directed to Notes 9(A) and 9(B) of
Notes to Consolidated Financial Statements of Kinder Morgan's
Annual Report on Form 10-K for the year ended December 31, 1999,
for additional information on Kinder Morgan's pending litigation
and environmental matters. Kinder Morgan believes it has
established adequate reserves such that the resolution of pending
litigation and environmental matters will not have a material
adverse impact on Kinder Morgan's business, cash flows, financial
position or results of operations.
Business Strategy
- -----------------
The reader is directed to Kinder Morgan's 1999 Annual Report on
Form 10K for a discussion of business strategy.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
There have been no material changes in market risk exposures that
would affect the quantitative and qualitative disclosures
presented as of December 31, 1999, in the "Risk Management"
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in Kinder Morgan's
Annual Report on Form 10-K for the year ended December 31, 1999.
<PAGE> 31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The reader is directed to Note 16 of the accompanying Notes to
Consolidated Financial Statements in Part I, Item 1, which is
incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10(a) Employment Agreement dated April 20, 2000, by and
among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
and David G. Dehaemers, Jr. (Attached hereto as
Exhibit 10(a))*
10(b) Employment Agreement dated April 20, 2000, by and
among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
and Michael C. Morgan (Attached hereto as Exhibit
10(b))*
27.1 Financial Data Schedule*
*Included in SEC copy only.
(B) Reports on Form 8-K
(1) Current Report on Form 8-K dated January 14, 2000 was filed
pursuant to Items 5 and 7 of that form.
(2) Current Report on Form 8-K dated February 4, 2000 was filed
pursuant to Items 2, 5 and 7 of that form.
Pursuant to Item 7 of that form, Kinder Morgan filed certain
pro forma financial information.
(3) Amendment No. 1 to Current Report on Form 8-K (an amendment
to the Current Report on Form 8-K dated February 4, 2000)
dated February 7, 2000 was filed pursuant to Items 2, 5 and
7.
Pursuant to Item 7 of that form, Kinder Morgan filed
certain pro forma financial information.
(4) Current Report on Form 8-K dated February 23, 2000 was filed
pursuant to Items 5 and 7 of that form.
(5) Current Report on Form 8-K dated April 20, 2000 was filed
pursuant to Items 2 and 7 of that form.
Pursuant to Item 7 of that form, Kinder Morgan disclosed that
substantially the same information as that required by Item 7
(pro forma financial information) has been previously
reported by Kinder Morgan on its Form 10-K for the year ended
December 31, 1999.
<PAGE> 32
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.
KINDER MORGAN, INC.
(Registrant)
May 10, 2000 /s/ C. Park Shaper
----------------------------------------------
C. Park Shaper
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 33
EXHIBIT INDEX
10(a) Employment Agreement dated April 20, 2000, by and among Kinder
Morgan, Inc., Kinder Morgan G.P., Inc. and David G Dehaemers, Jr.
(Attached hereto as Exhibit 10(a))*
10(b) Employment Agreement dated April 20, 2000, by and among Kinder
Morgan, Inc., Kinder Morgan G.P., Inc. and Michael C. Morgan
(Attached hereto as Exhibit 10(b))*
27.1 Financial Data Schedule*
*Included in SEC copy only.
Exhibit 10(a)
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is entered into this 20th day
of April, 2000 (the "Effective Date") by and among Kinder Morgan,
Inc., a Kansas corporation ("KMI"), Kinder Morgan G.P., Inc., a
Delaware corporation ("KMGP"), and David G. Dehaemers, Jr.
("Employee").
WHEREAS, the parties acknowledge wherever KMI is used in
this Agreement it is intended to refer to both KMI and KMGP;
WHEREAS, the parties acknowledge Employee is an officer of
KMI and KMGP;
WHEREAS, the parties wish to provide for certain conditions
of employment as negotiated relating to continued employment;
WHEREAS, the parties negotiated certain terms to extend past
employment, including, without limitation, terms relating to a
non-compete obligation;
WHEREAS, Employee agrees that ample consideration was
provided to ensure enforcement of certain provisions and the
waiver of certain rights;
NOW THEREFORE, in consideration of the foregoing premises
and the following promises, the parties agree as follows:
1. Intent of the Parties. It is the intent of the parties that
Employee's rights under the Kinder Morgan Energy Partners, L.P.
Executive Compensation Plan shall be waived and forfeited upon
execution of this Agreement.
2. Definitions.
(a) Termination for Cause. "Termination for Cause" shall mean
termination of Employee's employment by KMI because of
(i)Employee's conviction of a felony which in the reasonable,
good faith opinion of the Compensation Committee of the Board of
Directors of Kinder Morgan, Inc. would have an adverse impact on
the reputation or business of KMI or any of its affiliates; (ii)
subject to the notice provision's set forth below in this Section
2(a), Employee's willful refusal without proper legal cause to
perform his duties and responsibilities; (iii) Employee's
willfully engaging in conduct which Employee has reason to know
is materially injurious to KMI or any of its affiliates; or (iv)
subject to the notice and counseling provisions set forth below
in this Section 2(a), failure to meet clearly established and
reasonable performance objectives or standards established by KMI
for Employee's job position. Such termination shall be effected
by notice thereof delivered by KMI to Employee and shall be
effective as of the date of such notice; provided, however, that
if such termination is pursuant to clause (ii) above and within
seven (7) days following the date of such notice Employee shall
cease such refusal and shall use his or her best efforts to
perform such duties and responsibilities, the termination shall
not be effective; provided further, that termination pursuant to
clause (iv) above shall not become effective unless Employee has
been counseled about such unacceptable performance and coached to
improve performance for at least forty-five (45) days; and,
provided further, that KMI shall consult with Employee and
provide an opportunity for Employee to be heard prior to
effecting any termination under this section, and KMI's failure
to do so shall constitute Involuntary Termination and not
Termination for Cause.
(b) Change of Duties. A "Change of Duties" means;
(i) A significant reduction in the nature, scope of authority
or duties of Employee (without the written consent of Employee) from
those applicable to him on the Effective Date of this Agreement;
(ii) Any reduction in Employee's annual base salary, without the
consent of Employee, unless it is part of a program to reduce
salaries for all similarly situated employees;
(iii) Receipt of employee benefits (including but not limited
to medical, dental, life insurance, accidental death and
dismemberment; and long term disability plans) that are
materially inconsistent with and inferior to the employee
benefits provided by KMI to employees with comparable duties; or
(iv) A change in the location of Employee's principal place of
employment by KMI by more than 50 miles from the location where
he was principally employed on the Effective Date of this
Agreement, without Employee's consent.
(c) Pro-Rata Portion. "Pro-Rata Portion" is the amount
determined by the formula: the compensation payment received by
Employee pursuant to section 4(b) hereof, multiplied by the Pro-
Rata Percentage. The Pro-Rata Percentage is defined as: 1460
minus the number of calendar days from Effective Date of this
Agreement up to the date of a Non-Competition Violation, as
defined in Section 5(d) below, not to exceed 1460 days, divided
by 1460.
(d) Confidential Information. "Confidential Information" shall
include all information, the use of which by persons or entities
other than KMI or its employees, agents or representatives would
be detrimental to KMI's business interests, relating to (i) KMI's
Customers, providers, suppliers, and other business affiliates;
(ii) KMI's policies, practices, operating information, financial
information, business plans, and market approaches; and (iii)
other information, techniques or approaches used by KMI and not
generally known or applied in KMI's industry. KMI believes that
some or all of this information constitutes trade secrets;
however, the Confidential Information covered in this Agreement
need not satisfy the legal definition or requirements of a "trade
secret" to be protected from disclosure hereunder. Confidential
Information shall exclude any information that is generally known
in KMI's industry and information known to any future employer of
Employee and any information disclosed by KMI in public filings,
including, without limitation, filings with the Securities and
Exchange Commission and the Federal Energy Regulatory Commission.
(e) Customer. "Customer" shall include any person or entity to
whom during the Term of this Agreement, services are being sold
by KMI, and any person or entity with whom, during the Term of
this Agreement, KMI has established a strategic marketing
alliance.
(f) He, him, himself, his. "He," "him," "himself" and "his"
when used herein shall be synonymous with "she," "her,"
"herself," and "her," as applicable.
(g) Involuntary Termination. "Involuntary Termination" means
(i) termination of Employee's employment at the behest of KMI
other than a Termination for Cause; (ii) Employee's resignation
on or before thirty (30) days following receipt by Employee of a
notice of a Change of Duties; or (iii) a termination which under
the terms of the last clause of Section 2(a) is not a Termination
for Cause. "Involuntary Termination" does not include (i)
Termination for Cause; (ii) termination of Employee's employment
due to the death of Employee; (iii) termination of Employee's
employment due to Employee's disability under circumstances
entitling him to benefits under KMI's long term disability plan;
(iv) or any change of employer due to transfer of Employee's
employment to a successor company that is a wholly owned KMI
subsidiary or affiliate and/or any change of employer due to
transfer of Employee's employment to a purchaser of or successor
to KMI.
(h) KMI. "KMI" means collectively Kinder Morgan, Inc., a Kansas
corporation, Kinder Morgan G.P., Inc., their successors and
assigns, and their divisions and affiliates. For purposes of
this Agreement, the term "affiliates" shall have the same
definition as the term "affiliated group" in Section 1504(a) of
the Internal Revenue Code of 1986, as amended from time to time.
(i) Welfare Benefit Coverages. "Welfare Benefit Coverages"
shall mean the medical, dental, life insurance, long term
disability and accidental death and dismemberment coverages
provided by KMI to its active employees.
3. Term of This Agreement. The term of this Agreement shall be
four (4) years from the Effective Date of this Agreement. It is
expressly understood and agreed that this Agreement shall
terminate and be of no further force or effect at the end of the
initial four (4) year term.
4. KMI's Promises. In consideration of Employee's promises,
KMI hereby agrees as follows:
(a) Salary. Employee shall receive a base salary of two hundred
thousand dollars ($200,000) annually. Increases may occur at the
behest of the senior management of the Company if approved by the
Compensation Committee of the Board. Salary shall be continued
only if Employee's employment continues.
(b) Compensation Payment. In consideration of the obligations
of Employee set forth in Section 5(d) hereof and for waiving all
rights under the Kinder Morgan Energy Partners, L.P. Executive
Compensation Plan, Kinder Morgan, Inc. shall cause Kinder Morgan
G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., to
pay Employee a lump sum payment of seven million, ten thousand
dollars ($7,010,000.00) within three (3) days of execution of
this Agreement. The parties acknowledge that Employee and
Kinder Morgan Energy Partners, L.P. have executed a termination
and settlement of the grant agreement evidencing Employee's grant
under the Kinder Morgan Energy Partners, L.P. Executive
Compensation Plan.
(c) Stock Options. Kinder Morgan, Inc. will
provide Employee a grant of 150,000 stock options priced at
$33.125, the closing price of Kinder Morgan, Inc.'s common
stock on the New York Stock Exchange on April 20, 2000. The
terms and conditions are specified in the Option Agreement
(Exhibit B).
(d) Bonus. Employee will be eligible for any applicable
incentive compensation plan of KMI or its predecessors, at the
same level as other senior officers.
(e) Directors and Officers Insurance. As long as Employee is an
officer or director of either Kinder Morgan, Inc. or any of its
affiliates, KMI will provide director and officer liability
coverage to Employee on the same terms as it provides to other
officers and directors.
(f) Bridging. KMI will provide for bridging of service for
eligible employees in accordance with approved plan documents in
effect on the Effective Date of Employee's Involuntary
Termination.
(g) Condition to Receipt of Benefits Listed in This Paragraph 4.
As a condition of receipt of any benefit listed in this Paragraph
4, Employee shall execute Exhibit A, Exhibit B and be subject to
all promises provided in Section 5(d) of this Agreement. Exhibit
A and Exhibit B shall be executed upon execution of this
Agreement.
5. Employee's Promises.
(a) Confidential Information. Employee shall not, while
employed by KMI or at any time thereafter, directly or
indirectly, (i) use or apply any Confidential Information for
unauthorized purposes, alone or with any other person or entity;
or (ii) disclose or provide any Confidential Information to any
person or entity not authorized by KMI to receive such
Confidential Information.
(b) Non-Disparagement Agreement. Employee specifically agrees
that he will not in any way disparage KMI, its officers,
directors, employees, consultants, agents, or business operations
or decisions; provided, however, that Employee shall not be held
in breach of this provision should Employee testify pursuant to
subpoena under oath and give testimony that KMI considers to be
disparaging.
(c) Non-Solicitation of KMI Employees. Employee agrees that,
for the term of the Agreement from the date of termination of
employment hereunder, he will not encourage, entice, or otherwise
solicit any employee of KMI or any of its affiliates or
subsidiaries, or aid any third party to encourage, entice or
solicit any employee of KMI, to leave employment with KMI in
order to accept employment elsewhere. For purposes of this
paragraph, "employment elsewhere" shall include any relationship
of employer/employee and any relationship of
principal/independent contractor.
(d) Non-Competition. Employee acknowledges that; 1) KMI and its
affiliates are engaged in the business (the "Business")of owning
and/or operating integrated natural gas assets, products and bulk
terminals, refined products, natural gas, natural gas liquids and
carbon dioxide pipelines, electricity generating assets and other
midstream energy assets; 2) the Business is conducted throughout
the United States; 3) his work for KMI gives or gave him access
to proprietary information and trade secrets of and confidential
information concerning KMI, and 4) the agreements and covenants
contained in this provision are essential to protect the Business
and the trade secrets, confidential and proprietary information
and other legitimate interests of KMI. Accordingly, Employee
covenants and agrees as follows:
(i) Employee agrees that for a period of four (4) years
following the Effective Date of this Agreement regardless of
whether Employee remains employed by KMI, Employee, other than on
behalf of KMI, will not engage in any conduct, line of business
or activity which is the same as or substantially similar to any
conduct, activity or line of business conducted by KMI or their
affiliates in which Employee was or is engaged in during his
employment by KMI (each such line of business or activity being
an "Exclusive Activity"), in any geographic area in which Company
conducts such Exclusive Activities.
(ii) The parties stipulate and agree that the terms and covenants
contained in this provision are fair and reasonable in all
respects, including the time period and geographical coverage and
that these restrictions are designed for the reasonable
protection of the business of KMI. If, at the time of enforcement
of any of these provisions, a court holds that the restrictions
stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope
or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area. In such event
KMI and Employee hereby specifically request a trial court
presented with this Agreement for enforcement to reform it as to
time, geographic area or scope of activities prohibited and to
enforce this Agreement as reformed.
(iii) In the event KMI determines that Employee has violated
the provisions of this Section 5(d), KMI agrees to provide
Employee written notice of such violation. If Employee does not
cease the conduct prohibited by this Section 5(d) and cure the
impact of such conduct on KMI within 30 days after receipt of
written notice from KMI, a "Non-Competition Violation" shall be
deemed to have occurred at the end of such 30 day period, and the
provisions of Section 7 shall apply.
(iv) KMI hereby waives any rights under, and
Employee shall not be deemed to have violated, the
provisions of this Section 5(d) with respect to any
conduct or activity of Employee if Employee gives KMI
30 days written notice prior to engaging in such
conduct or activity, and KMI does not object to such
conduct or activity in writing within the 30 day period
following notice from Employee.
(e) Section 5 shall be enforceable only to the extent either
Richard D. Kinder or William V. Morgan serves as Chief Executive
Officer of Kinder Morgan, Inc. or its successor.
6. Effects of Termination. During the term of this Agreement,
a termination of Employee's employment for any of the following
reasons shall have the effects set forth below:
(a) Termination is for Cause. If the Employee's employment is
terminated by a Termination for Cause:
(i) subject to Section 7 below, Employee shall be entitled
to retain the all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
(iii) Employee shall not be eligible for
severance payments under KMI's severance policy;
and
(iv) all benefits otherwise payable under Sections 4(a) and
4 (d) hereof shall cease.
(b) Termination for Change of Duties or Involuntary Termination.
If the Employee's employment is terminated by a Termination for
Change of Duties or an Involuntary Termination:
(i) subject to Section 7 below, Employee shall be
entitled to retain all payments and benefits made under Sections
4(b) hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
(iii) Employee shall be eligible for severance
consistent with KMI's severance policy; and
(iv) all benefits otherwise payable under
Sections 4(a) and 4(d) hereof shall cease.
(c) Termination for Death, Disability ,Retirement or
Resignation. If the Employee's employment is terminated due to
the death, disability, retirement or resignation of Employee:
(i) subject to Section 7 below, Employee shall be entitled
to retain all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
and
(iii) All other payments and benefits relating to
Employee's employment shall cease upon last day of employment
other than benefits which generally continue for all KMI
employees after termination of employment under the terms of
KMI's benefit plans.
7. Violation of Non-Competition; Payment of Pro-Rata
Portion. Within three business days following a Non-Competition
Violation which occurs during the term of this Agreement,,
Employee shall pay to KMI an amount in U.S. dollars equal to the
Pro-Rata Portion, calculated in accordance with Section 2(c)
hereof.
8. Adequacy of Consideration. By executing this Agreement, KMI
and Employee acknowledges the receipt and sufficiency of the
consideration provided by the other in conjunction with executing
this Agreement. Each acknowledges and confirms to the other that
the consideration provided by the other is good and valuable
consideration legally supportive of each party's respective
rights, duties and obligations hereunder. By executing this
Agreement, KMI and Employee shall be estopped from raising and
hereby expressly waive any defense regarding the receipt and/or
legal sufficiency of the consideration provided by one to the
other with respect to this Agreement.
9. Nonassignability. This Agreement shall inure to the benefit
of, and be binding upon, Employee and Employee's personal or
legal representatives, employees, administrators, successors,
heirs, distributees, devisees and legatees, and KMI, its
successors and assignees, provided, however, that neither KMI nor
Employee may assign any of Employee's or its rights or benefits
hereunder without the prior written consent of the other.
10. No Attachment. Except as required by law, the right to
receive payments under this Agreement shall not be subject to
anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any
such action shall be null, void ab initio and of no effect.
11. Arbitration. The parties agree that any dispute regarding
the interpretation or breach of any term of this Agreement shall
be resolved through arbitration pursuant to the guidelines set
forth by the American Arbitration Association and that any
attempt by either party to bring a court action concerning this
Agreement shall be subject to dismissal for lack of jurisdiction
at the request of the other party. The arbitration and all
related activities shall occur in Houston, Texas. To the extent
that either party should initiate action to enforce this
Agreement, the party prevailing in the action for breach shall be
entitled to recover its attorney fees and costs incurred in the
prosecution or defense of said action.
12. Headings. The headings of sections and paragraphs herein
are included solely for convenience of reference and shall not
control the meaning or interpretation of any of the provisions of
this Agreement.
13. Controlling Law. This Agreement shall be governed and
construed in accordance with the laws of Texas.
14. Entire Agreement. This document constitutes the entire
agreement of the parties on the subject matters addressed herein
and may not be expanded or except by express written agreement
executed by both.
15. Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary and convenient, and by
the different parties on separate counterparts, each of which
shall be deemed an original but all of which shall constitute one
and the same instrument.
16. Effective Date. The Effective Date of this Agreement shall
be the date provided at the top of this Agreement.
KINDER MORGAN G.P., INC.
By /s/ Joseph Listengart
-------------------------------------------
Title: Vice President
Witness: /s/ Andre Massey
_______________________________________
EMPLOYEE
/s/ David G. Dehaemers, Jr.
__________________________________________
Name: David G. Dehaemers, Jr.
Exhibit A
In connection with the Employment Agreement (the
"Agreement") dated April 20, 2000, by and among David G.
Dehaemers, Jr., Kinder Morgan, Inc. and Kinder Morgan G.P., Inc.
(collectively ("KMI"), Employee for himself and his
representatives, heirs, and assigns, hereby releases and
discharges KMI, any parent, sister or subsidiary company, and any
present or former shareholders, officers, directors, employees,
agents, representatives, legal representatives, accountants,
successors, and assigns, , Richard Kinder, and William Morgan,
from all claims, demands, and actions of any nature, known or
unknown, in any manner arising out of or involving any aspect of
his rights under the Kinder Morgan Energy Partners, L.P.
Executive Compensation Plan and any agreement executed in
connection therewith. This release includes any and all claims
concerning attorney fees, costs, and any and all other expenses
related to the claims released herein. This release does not
include claims for breach of the Agreement, indemnification,
coverage or defense under any applicable directors and officers'
insurance policy or vested employee benefits.
EMPLOYEE:
________________________________________
Employee Signature
Exhibit B
KINDER MORGAN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
For the
1994 KINDER MORGAN LONG TERM INCENTIVE PLAN
This Nonqualified Stock Option Agreement ("Option
Agreement") is between Kinder Morgan, Inc. (the "Company"), and
David G. Dehaemers, Jr. ("Optionee"), who agree as follows:
Section 1. Introduction. The Company has heretofore
adopted the Kinder Morgan, Inc. (f/k/a KN Energy, Inc.) 1994
Kinder Morgan Long Term Incentive Plan (the "Plan") for the
purpose of providing eligible employees of the Company and its
Affiliates (as defined in the Plan) with incentive and reward
opportunities designed to enhance the profitable growth of the
Company. The Company, acting through the Committee (as defined
in the Plan), has determined that its interests will be advanced
by the issuance to Optionee of a nonqualified stock option under
the Plan.
Section 2. Option. Subject to the terms and conditions
contained herein, the Company hereby irrevocably grants to
Optionee the right and option ("Option") to purchase from the
Company 150,000 shares of the Company's common stock, $5.00 par
value ("Stock"), at a price of $33.125 per share.
Section 3. Option Period. The Option, herein granted, may
be exercised by Optionee in whole or in part at any time during a
ten year period (the "Option Period") beginning on April 20, 2000
(the "Date of Grant").:
Section 4. Procedure for Exercise. The Committee or its
designee shall establish procedures for Exercise of the Option.
Section 5. Termination of Employment. If, for any reason
other than Death, Optionee ceases to be employed by the Company
or its Affiliates, the Option may be exercised to the extent
Optionee would have been entitled to do so, but in no event may
the Option be exercised after the expiration of the Option
Period.
Section 6. Death. In the event that Optionee's employment
is terminated because of Optionee's death, this Option may be
exercised, at any time and from time to time, within the Option
Period after such Death, by (i) the guardian of Optionee's
estate, (ii) the executor or administrator of Optionee's estate,
or (iii) the person or persons to whom Optionee's rights under
this Option Agreement shall pass by will or the laws of descent
and distribution, but in no event may the Option be exercised
after the expiration of the Option Period.
Section 7. Transferability. This Option shall not be trans
ferable by Optionee otherwise than by Optionee's will or by the
laws of descent and distribution. During the lifetime of
Optionee, the Option shall be exercisable only by Optionee or his
guardian or authorized legal representative. Any heir or legatee
of Optionee shall take rights herein granted subject to the terms
and conditions hereof. No such transfer of this Option Agreement
to heirs or legatees of Optionee shall be effective to bind the
Company unless the Company shall have been furnished with written
notice thereof and a copy of such evidence as the Committee may
deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and
conditions hereof.
Section 8. No Rights as Shareholder. Optionee shall have
no rights as a shareholder with respect to any shares of Stock
covered by this Option Agreement until the Option is exercised by
written notice and accompanied by payment as provided in Section
4 of this Option Agreement.
Section 9. Extraordinary Corporate Transactions. The
existence of outstanding Options shall not affect in any way the
right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganiza
tions, exchanges or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issuance of Stock or other securities or
subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or
proceedings, whether of a similar character or otherwise.
Section 10. Changes in Capital Structure. If the
outstanding shares of Stock or other securities of the Company,
or both, for which the Option is then exercisable shall at any
time be changed or exchanged by declaration of a stock dividend,
stock split or combination of shares, the number and kind of
shares of Stock or other securities subject to the Plan or
subject to the Option, and the exercise price, shall be appro
priately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without
changing the aggregate exercise price.
Section 11. Compliance With Securities Laws. Upon the
acquisition of any shares pursuant to the exercise of the Option
herein granted, Optionee (or any person acting under Section 7)
will enter into such written representations, warranties and
agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option
Agreement.
Section 12. Compliance With Laws. Notwithstanding any of
the other provisions hereof, Optionee agrees that he or she will
not exercise the Option granted hereby, and that the Company will
not be obligated to issue any shares pursuant to this Option
Agreement, if the exercise of the Option or the issuance of such
shares of Stock would constitute a violation by Optionee or by
the Company of any provision of any law or regulation of any
governmental authority.
Section 13. Withholding of Tax. To the extent that the
exercise of this Option or the disposition of shares of Stock
acquired by exercise of this Option results in compensation
income to Optionee for federal or state income tax purposes,
Optionee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to
meet its obligation under applicable tax laws or regulations and,
if Optionee fails to do so, the Company is authorized to withhold
from any cash remuneration then or thereafter payable to
Optionee, any tax required to be withheld by reason of such
resulting compensation income or Company may otherwise refuse to
issue or transfer any shares otherwise required to be issued or
transferred pursuant to the terms hereof.
Section 14. No Right to Employment or Directorship.
Optionee shall be considered to be in the employment of the
Company or its Affiliates or in service on the Board so long as
he or she remains an employee or director of the Company or its
Affiliates. Any questions as to whether and when there has been
a termination of such employment or service on the Board and the
cause of such termination shall be determined by the Committee,
and its determination shall be final. Nothing contained herein
shall be construed as conferring upon Optionee the right to
continue in the employ of the Company or its Affiliates or to
continue service on the Board, nor shall anything contained
herein be construed or interpreted to limit the "employment at
will" relationship between Optionee and the Company or its
Affiliates.
Section 15. Resolution of Disputes. As a condition of the
granting of the Option hereby, Optionee and Optionee's heirs,
personal representatives and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the
Committee in its sole discretion and judgment, and that any such
determination and any interpretation by the Committee of the
terms of this Option Agreement shall be final and shall be
binding and conclusive, for all purposes, upon the Company,
Optionee, and Optionee's heirs, personal representatives and
successors.
Section 16. Legends on Certificate. The certificates
representing the shares of Stock purchased by exercise of the
Option will be stamped or otherwise imprinted with legends in
such form as the Company or its counsel may require with respect
to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer
instructions with respect to such shares.
Section 17. Notices. Every notice hereunder shall be in
writing and shall be given by registered or certified mail or by
any other method accepted by the Company or the Company's
designee. All notices of the exercise of any Option hereunder
shall be directed to Kinder Morgan, Inc., 1301 McKinney, Suite
3450, Houston, Texas 77010, Attention: Secretary, or to the
Company's designee. Any notice given by the Company to Optionee
directed to Optionee at the address on file with the Company
shall be effective to bind Optionee and any other person who
shall acquire rights hereunder. The Company shall be under no
obligation whatsoever to advise Optionee of the existence,
maturity or termination of any of Optionee's rights hereunder and
Optionee shall be deemed to have familiarized himself or herself
with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
Section 18. Construction and Interpretation. Whenever the
term "Optionee" is used herein under circumstances applicable to
any other person or persons to whom this award, in accordance
with the provisions of Section 7 hereof, may be transferred, the
word "Optionee" shall be deemed to include such person or
persons.
Section 19. Agreement Subject to Plan. This Option
Agreement is subject to the Plan. The terms and provisions of
the Plan (including any subsequent amendments thereto) are hereby
incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a
term or provision of the Plan, the applicable terms and
provisions of the Plan will govern and prevail. All definitions
of words and terms contained in the Plan shall be applicable to
this Option Agreement.
Section 20. Entire Agreement; Amendment. This Option
Agreement and any other agreements and instruments contemplated
by this Option Agreement contain the entire agreement of the
parties, and this Option Agreement may be amended only in writing
signed by both parties.
Section 21. Modification and Severability. If a court of
competent jurisdiction declares that any provision of this Option
Agreement is illegal, invalid or unenforceable, then such
provision shall be modified automatically to the extent necessary
to make such provision fully enforceable. If such court does not
modify any such provision as contemplated herein, but instead
declares it to be wholly illegal, invalid or unenforceable, then
such provision shall be severed from this Option Agreement, and
such declaration shall in no way affect the legality, validity
and enforceability of the other provisions of this Option
Agreement to which such declaration does not relate. In this
event, this Option Agreement shall be construed as if it did not
contain the particular provision held to be illegal, invalid or
unenforceable, the rights and obligations of the parties hereto
shall be construed and enforced accordingly, and this Option
Agreement otherwise shall remain in full force and effect. If
any provision of this Option Agreement is capable of two
constructions, one of which would render the provision void and
the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
Section 22. Binding Effect. This Option Agreement shall be
binding upon and inure to the benefit of any successors to the
Company and all persons lawfully claiming under Optionee as
provided herein.
Section 23. Governing Law. This Option Agreement shall be
interpreted and construed in accordance with the laws of the
State of Colorado and applicable federal law.
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has
been executed as of the 20th day of April, 2000.
KINDER MORGAN, INC.
By:
-------------------------------
Joseph Listengart
Vice President
OPTIONEE
_______________________________________
David G. Dehaemers, Jr.
Exhibit 10(b)
EMPLOYMENT AGREEMENT
This Agreement ("Agreement") is entered into this 20th day
of April, 2000 (the "Effective Date") by and among Kinder Morgan,
Inc., a Kansas corporation ("KMI"), Kinder Morgan G.P., Inc., a
Delaware corporation ("KMGP"), and Michael C. Morgan
("Employee").
WHEREAS, the parties acknowledge wherever KMI is used in
this Agreement it is intended to refer to both KMI and KMGP;
WHEREAS, the parties acknowledge Employee is an officer of
KMI and KMGP;
WHEREAS, the parties wish to provide for certain conditions
of employment as negotiated relating to continued employment;
WHEREAS, the parties negotiated certain terms to extend past
employment, including, without limitation, terms relating to a
non-compete obligation;
WHEREAS, Employee agrees that ample consideration was
provided to ensure enforcement of certain provisions and the
waiver of certain rights;
NOW THEREFORE, in consideration of the foregoing premises
and the following promises, the parties agree as follows:
1. Intent of the Parties. It is the intent of the parties that
Employee's rights under the Kinder Morgan Energy Partners, L.P.
Executive Compensation Plan shall be waived and forfeited upon
execution of this Agreement.
2. Definitions.
(a) Termination for Cause. "Termination for Cause" shall mean
termination of Employee's employment by KMI because of
(i) Employee's conviction of a felony which in the reasonable,
good faith opinion of the Compensation Committee of the Board of
Directors of Kinder Morgan, Inc. would have an adverse impact on
the reputation or business of KMI or any of its affiliates; (ii)
subject to the notice provision's set forth below in this Section
2(a), Employee's willful refusal without proper legal cause to
perform his duties and responsibilities; (iii) Employee's
willfully engaging in conduct which Employee has reason to know
is materially injurious to KMI or any of its affiliates; or (iv)
subject to the notice and counseling provisions set forth below
in this Section 2(a), failure to meet clearly established and
reasonable performance objectives or standards established by KMI
for Employee's job position. Such termination shall be effected
by notice thereof delivered by KMI to Employee and shall be
effective as of the date of such notice; provided, however, that
if such termination is pursuant to clause (ii) above and within
seven (7) days following the date of such notice Employee shall
cease such refusal and shall use his or her best efforts to
perform such duties and responsibilities, the termination shall
not be effective; provided further, that termination pursuant to
clause (iv) above shall not become effective unless Employee has
been counseled about such unacceptable performance and coached to
improve performance for at least forty-five (45) days; and,
provided further, that KMI shall consult with Employee and
provide an opportunity for Employee to be heard prior to
effecting any termination under this section, and KMI's failure
to do so shall constitute Involuntary Termination and not
Termination for Cause.
(b) Change of Duties. A "Change of Duties" means;
(i) A significant reduction in the nature, scope of authority or
duties of Employee (without the written consent of Employee) from
those applicable to him on the Effective Date of this Agreement;
(ii) Any reduction in Employee's annual base salary, without the
consent of Employee, unless it is part of a program to reduce
salaries for all similarly situated employees;
(iii) Receipt of employee benefits (including but not limited
to medical, dental, life insurance, accidental death and
dismemberment; and long term disability plans) that are
materially inconsistent with and inferior to the employee
benefits provided by KMI to employees with comparable duties; or
(iv) A change in the location of Employee's principal place of
employment by KMI by more than 50 miles from the location where
he was principally employed on the Effective Date of this
Agreement, without Employee's consent.
(c) Pro-Rata Portion. "Pro-Rata Portion" is the amount
determined by the formula: the compensation payment received by
Employee pursuant to section 4(b) hereof, multiplied by the Pro-
Rata Percentage. The Pro-Rata Percentage is defined as: 1460
minus the number of calendar days from Effective Date of this
Agreement up to the date of a Non-Competition Violation, as
defined in Section 5(d) below, not to exceed 1460 days, divided
by 1460.
(d) Confidential Information. "Confidential Information" shall
include all information, the use of which by persons or entities
other than KMI or its employees, agents or representatives would
be detrimental to KMI's business interests, relating to (i) KMI's
Customers, providers, suppliers, and other business affiliates;
(ii) KMI's policies, practices, operating information, financial
information, business plans, and market approaches; and (iii)
other information, techniques or approaches used by KMI and not
generally known or applied in KMI's industry. KMI believes that
some or all of this information constitutes trade secrets;
however, the Confidential Information covered in this Agreement
need not satisfy the legal definition or requirements of a "trade
secret" to be protected from disclosure hereunder. Confidential
Information shall exclude any information that is generally known
in KMI's industry and information known to any future employer of
Employee and any information disclosed by KMI in public filings,
including, without limitation, filings with the Securities and
Exchange Commission and the Federal Energy Regulatory Commission.
(e) Customer. "Customer" shall include any person or entity to
whom during the Term of this Agreement, services are being sold
by KMI, and any person or entity with whom, during the Term of
this Agreement, KMI has established a strategic marketing
alliance.
(f) He, him, himself, his. "He," "him," "himself" and "his"
when used herein shall be synonymous with "she," "her,"
"herself," and "her," as applicable.
(g) Involuntary Termination. "Involuntary Termination" means
(i) termination of Employee's employment at the behest of KMI
other than a Termination for Cause; (ii) Employee's resignation
on or before thirty (30) days following receipt by Employee of a
notice of a Change of Duties; or (iii) a termination which under
the terms of the last clause of Section 2(a) is not a Termination
for Cause. "Involuntary Termination" does not include (i)
Termination for Cause; (ii) termination of Employee's employment
due to the death of Employee; (iii) termination of Employee's
employment due to Employee's disability under circumstances
entitling him to benefits under KMI's long term disability plan;
(iv) or any change of employer due to transfer of Employee's
employment to a successor company that is a wholly owned KMI
subsidiary or affiliate and/or any change of employer due to
transfer of Employee's employment to a purchaser of or successor
to KMI.
(h) KMI. "KMI" means collectively Kinder Morgan, Inc., a Kansas
corporation, Kinder Morgan G.P., Inc., their successors and
assigns, and their divisions and affiliates. For purposes of
this Agreement, the term "affiliates" shall have the same
definition as the term "affiliated group" in Section 1504(a) of
the Internal Revenue Code of 1986, as amended from time to time.
(i) Welfare Benefit Coverages. "Welfare Benefit Coverages"
shall mean the medical, dental, life insurance, long term
disability and accidental death and dismemberment coverages
provided by KMI to its active employees.
3. Term of This Agreement. The term of this Agreement shall be
four (4) years from the Effective Date of this Agreement. It is
expressly understood and agreed that this Agreement shall
terminate and be of no further force or effect at the end of the
initial four (4) year term.
4. KMI's Promises. In consideration of Employee's promises,
KMI hereby agrees as follows:
(a) Salary. Employee shall receive a base salary of two hundred
thousand dollars ($200,000) annually. Increases may occur at the
behest of the senior management of the Company if approved by the
Compensation Committee of the Board. Salary shall be continued
only if Employee's employment continues.
(b) Compensation Payment. In consideration of the obligations
of Employee set forth in Section 5(d) hereof and for waiving all
rights under the Kinder Morgan Energy Partners, L.P. Executive
Compensation Plan, Kinder Morgan, Inc. shall cause Kinder Morgan
G.P., Inc., on behalf of Kinder Morgan Energy Partners, L.P., to
pay Employee a lump sum payment of seven million, ten thousand
dollars ($7,010,000.00) within three (3) days of execution of
this Agreement. The parties acknowledge that Employee and
Kinder Morgan Energy Partners, L.P. have executed a termination
and settlement of the grant agreement evidencing Employee's grant
under the Kinder Morgan Energy Partners, L.P. Executive
Compensation Plan.
(c) Stock Options. Kinder Morgan, Inc. will
provide Employee a grant of 150,000 stock options priced at
$33.125, the closing price of Kinder Morgan, Inc.'s common
stock on the New York Stock Exchange on April 20, 2000. The
terms and conditions are specified in the Option Agreement
(Exhibit B).
(d) Bonus. Employee will be eligible for any applicable
incentive compensation plan of KMI or its predecessors, at the
same level as other senior officers.
(e) Directors and Officers Insurance. As long as Employee is an
officer or director of either Kinder Morgan, Inc. or any of its
affiliates, KMI will provide director and officer liability
coverage to Employee on the same terms as it provides to other
officers and directors.
(f) Bridging. KMI will provide for bridging of service for
eligible employees in accordance with approved plan documents in
effect on the Effective Date of Employee's Involuntary
Termination.
(g) Condition to Receipt of Benefits Listed in This Paragraph 4.
As a condition of receipt of any benefit listed in this Paragraph
4, Employee shall execute Exhibit A, Exhibit B and be subject to
all promises provided in Section 5(d) of this Agreement. Exhibit
A and Exhibit B shall be executed upon execution of this
Agreement.
5. Employee's Promises.
(a) Confidential Information. Employee shall not, while
employed by KMI or at any time thereafter, directly or
indirectly, (i) use or apply any Confidential Information for
unauthorized purposes, alone or with any other person or entity;
or (ii) disclose or provide any Confidential Information to any
person or entity not authorized by KMI to receive such
Confidential Information.
(b) Non-Disparagement Agreement. Employee specifically agrees
that he will not in any way disparage KMI, its officers,
directors, employees, consultants, agents, or business operations
or decisions; provided, however, that Employee shall not be held
in breach of this provision should Employee testify pursuant to
subpoena under oath and give testimony that KMI considers to be
disparaging.
(c) Non-Solicitation of KMI Employees. Employee agrees that,
for the term of the Agreement from the date of termination of
employment hereunder, he will not encourage, entice, or otherwise
solicit any employee of KMI or any of its affiliates or
subsidiaries, or aid any third party to encourage, entice or
solicit any employee of KMI, to leave employment with KMI in
order to accept employment elsewhere. For purposes of this
paragraph, "employment elsewhere" shall include any relationship
of employer/employee and any relationship of
principal/independent contractor.
(d) Non-Competition. Employee acknowledges that; 1) KMI and its
affiliates are engaged in the business (the "Business")of owning
and/or operating integrated natural gas assets, products and bulk
terminals, refined products, natural gas, natural gas liquids and
carbon dioxide pipelines, electricity generating assets and other
midstream energy assets; 2) the Business is conducted throughout
the United States; 3) his work for KMI gives or gave him access
to proprietary information and trade secrets of and confidential
information concerning KMI, and 4) the agreements and covenants
contained in this provision are essential to protect the Business
and the trade secrets, confidential and proprietary information
and other legitimate interests of KMI. Accordingly, Employee
covenants and agrees as follows:
(i) Employee agrees that for a period of four (4) years
following the Effective Date of this Agreement regardless of
whether Employee remains employed by KMI, Employee, other than on
behalf of KMI, will not engage in any conduct, line of business
or activity which is the same as or substantially similar to any
conduct, activity or line of business conducted by KMI or their
affiliates in which Employee was or is engaged in during his
employment by KMI (each such line of business or activity being
an "Exclusive Activity"), in any geographic area in which Company
conducts such Exclusive Activities.
(ii) The parties stipulate and agree that the terms and covenants
contained in this provision are fair and reasonable in all
respects, including the time period and geographical coverage and
that these restrictions are designed for the reasonable
protection of the business of KMI. If, at the time of enforcement
of any of these provisions, a court holds that the restrictions
stated herein are unreasonable under the circumstances then
existing, the parties hereto agree that the maximum period, scope
or geographical area reasonable under such circumstances will be
substituted for the stated period, scope or area. In such event
KMI and Employee hereby specifically request a trial court
presented with this Agreement for enforcement to reform it as to
time, geographic area or scope of activities prohibited and to
enforce this Agreement as reformed.
(iii) In the event KMI determines that Employee has violated
the provisions of this Section 5(d), KMI agrees to provide
Employee written notice of such violation. If Employee does not
cease the conduct prohibited by this Section 5(d) and cure the
impact of such conduct on KMI within 30 days after receipt of
written notice from KMI, a "Non-Competition Violation" shall be
deemed to have occurred at the end of such 30 day period, and the
provisions of Section 7 shall apply.
(iv) KMI hereby waives any rights under, and
Employee shall not be deemed to have violated, the
provisions of this Section 5(d) with respect to any
conduct or activity of Employee if Employee gives KMI
30 days written notice prior to engaging in such
conduct or activity, and KMI does not object to such
conduct or activity in writing within the 30 day period
following notice from Employee.
(e) Section 5 shall be enforceable only to the extent either
Richard D. Kinder or William V. Morgan serves as Chief Executive
Officer of Kinder Morgan, Inc. or its successor.
6. Effects of Termination. During the term of this Agreement,
a termination of Employee's employment for any of the following
reasons shall have the effects set forth below:
(a) Termination is for Cause. If the Employee's employment is
terminated by a Termination for Cause:
(i) subject to Section 7 below, Employee shall be entitled to
retain the all payments and benefits made under Sections 4(b)
hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
(iii) Employee shall not be eligible for
severance payments under KMI's severance policy;
and
(iv) all benefits otherwise payable under Sections 4(a) and
4(d) hereof shall cease.
(b) Termination for Change of Duties or Involuntary Termination.
If the Employee's employment is terminated by a Termination for
Change of Duties or an Involuntary Termination:
(i) subject to Section 7 below, Employee shall be entitled to
retain all payments and benefits made under Sections 4(b) hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
(iii) Employee shall be eligible for severance consistent
with KMI's severance policy; and
(iv) all benefits otherwise payable under
Sections 4(a) and 4(d) hereof shall cease.
(c) Termination for Death, Disability ,Retirement or
Resignation. If the Employee's employment is terminated due to
the death, disability, retirement or resignation of Employee:
(i) subject to Section 7 below, Employee shall be entitled to
retain all payments and benefits made under Sections 4(b) hereof;
(ii) Employee shall retain the stock options
granted in accordance with Section 4(c) hereof;
and
(iii) All other payments and benefits relating to
Employee's employment shall cease upon last day of employment
other than benefits which generally continue for all KMI employees
after termination of employment under the terms of KMI's benefit
plans.
7. Violation of Non-Competition; Payment of Pro-Rata
Portion. Within three business days following a Non-Competition
Violation which occurs during the term of this Agreement,,
Employee shall pay to KMI an amount in U.S. dollars equal to the
Pro-Rata Portion, calculated in accordance with Section 2(c)
hereof.
8. Adequacy of Consideration. By executing this Agreement, KMI
and Employee acknowledges the receipt and sufficiency of the
consideration provided by the other in conjunction with executing
this Agreement. Each acknowledges and confirms to the other that
the consideration provided by the other is good and valuable
consideration legally supportive of each party's respective
rights, duties and obligations hereunder. By executing this
Agreement, KMI and Employee shall be estopped from raising and
hereby expressly waive any defense regarding the receipt and/or
legal sufficiency of the consideration provided by one to the
other with respect to this Agreement.
9. Nonassignability. This Agreement shall inure to the benefit
of, and be binding upon, Employee and Employee's personal or
legal representatives, employees, administrators, successors,
heirs, distributees, devisees and legatees, and KMI, its
successors and assignees, provided, however, that neither KMI nor
Employee may assign any of Employee's or its rights or benefits
hereunder without the prior written consent of the other.
10. No Attachment. Except as required by law, the right to
receive payments under this Agreement shall not be subject to
anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation or to execution,
attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any
such action shall be null, void ab initio and of no effect.
11. Arbitration. The parties agree that any dispute regarding
the interpretation or breach of any term of this Agreement shall
be resolved through arbitration pursuant to the guidelines set
forth by the American Arbitration Association and that any
attempt by either party to bring a court action concerning this
Agreement shall be subject to dismissal for lack of jurisdiction
at the request of the other party. The arbitration and all
related activities shall occur in Houston, Texas. To the extent
that either party should initiate action to enforce this
Agreement, the party prevailing in the action for breach shall be
entitled to recover its attorney fees and costs incurred in the
prosecution or defense of said action.
12. Headings. The headings of sections and paragraphs herein
are included solely for convenience of reference and shall not
control the meaning or interpretation of any of the provisions of
this Agreement.
13. Controlling Law. This Agreement shall be governed and
construed in accordance with the laws of Texas.
14. Entire Agreement. This document constitutes the entire
agreement of the parties on the subject matters addressed herein
and may not be expanded or except by express written agreement
executed by both.
15. Counterparts. This Agreement may be executed in as many
counterparts as may be deemed necessary and convenient, and by
the different parties on separate counterparts, each of which
shall be deemed an original but all of which shall constitute one
and the same instrument.
16. Effective Date. The Effective Date of this Agreement shall
be the date provided at the top of this Agreement.
KINDER MORGAN G.P., INC.
By /s/ Joseph Listengart
______________________________________
Title: Vice President
Witness: /s/ Andre Massey
_______________________________________
EMPLOYEE
/s/ Michael C. Morgan
___________________________________________
Name: Michael C. Morgan
Exhibit A
In connection with the Employment Agreement (the
"Agreement") dated April 20, 2000, by and among Michael C.
Morgan, Kinder Morgan, Inc. and Kinder Morgan G.P., Inc.
(collectively ("KMI"), Employee for himself and his
representatives, heirs, and assigns, hereby releases and
discharges KMI, any parent, sister or subsidiary company, and any
present or former shareholders, officers, directors, employees,
agents, representatives, legal representatives, accountants,
successors, and assigns, , Richard Kinder, and William Morgan,
from all claims, demands, and actions of any nature, known or
unknown, in any manner arising out of or involving any aspect of
his rights under the Kinder Morgan Energy Partners, L.P.
Executive Compensation Plan and any agreement executed in
connection therewith. This release includes any and all claims
concerning attorney fees, costs, and any and all other expenses
related to the claims released herein. This release does not
include claims for breach of the Agreement, indemnification,
coverage or defense under any applicable directors and officers'
insurance policy or vested employee benefits.
EMPLOYEE:
________________________________________
Employee Signature
Exhibit B
KINDER MORGAN, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
For the
1994 KINDER MORGAN LONG TERM INCENTIVE PLAN
This Nonqualified Stock Option Agreement ("Option
Agreement") is between Kinder Morgan, Inc. (the "Company"), and
Michael C. Morgan ("Optionee"), who agree as follows:
Section 1. Introduction. The Company has heretofore
adopted the Kinder Morgan, Inc. (f/k/a KN Energy, Inc.) 1994
Kinder Morgan Long Term Incentive Plan (the "Plan") for the
purpose of providing eligible employees of the Company and its
Affiliates (as defined in the Plan) with incentive and reward
opportunities designed to enhance the profitable growth of the
Company. The Company, acting through the Committee (as defined
in the Plan), has determined that its interests will be advanced
by the issuance to Optionee of a nonqualified stock option under
the Plan.
Section 2. Option. Subject to the terms and conditions
contained herein, the Company hereby irrevocably grants to
Optionee the right and option ("Option") to purchase from the
Company 150,000 shares of the Company's common stock, $5.00 par
value ("Stock"), at a price of $33.125 per share.
Section 3. Option Period. The Option, herein granted, may
be exercised by Optionee in whole or in part at any time during a
ten year period (the "Option Period") beginning on April 20, 2000
(the "Date of Grant").
Section 4. Procedure for Exercise. The Committee or its
designee shall establish procedures for Exercise of the Option.
Section 5. Termination of Employment. If, for any reason
other than Death, Optionee ceases to be employed by the Company
or its Affiliates, the Option may be exercised to the extent
Optionee would have been entitled to do so, but in no event may
the Option be exercised after the expiration of the Option
Period.
Section 6. Death. In the event that Optionee's employment
is terminated because of Optionee's death, this Option may be
exercised, at any time and from time to time, within the Option
Period after such Death, by (i) the guardian of Optionee's
estate, (ii) the executor or administrator of Optionee's estate,
or (iii) the person or persons to whom Optionee's rights under
this Option Agreement shall pass by will or the laws of descent
and distribution, but in no event may the Option be exercised
after the expiration of the Option Period.
Section 7. Transferability. This Option shall not be trans
ferable by Optionee otherwise than by Optionee's will or by the
laws of descent and distribution. During the lifetime of
Optionee, the Option shall be exercisable only by Optionee or his
guardian or authorized legal representative. Any heir or legatee
of Optionee shall take rights herein granted subject to the terms
and conditions hereof. No such transfer of this Option Agreement
to heirs or legatees of Optionee shall be effective to bind the
Company unless the Company shall have been furnished with written
notice thereof and a copy of such evidence as the Committee may
deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and
conditions hereof.
Section 8. No Rights as Shareholder. Optionee shall have
no rights as a shareholder with respect to any shares of Stock
covered by this Option Agreement until the Option is exercised by
written notice and accompanied by payment as provided in Section
4 of this Option Agreement.
Section 9. Extraordinary Corporate Transactions. The
existence of outstanding Options shall not affect in any way the
right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganiza
tions, exchanges or other changes in the Company's capital
structure or its business, or any merger or consolidation of the
Company, or any issuance of Stock or other securities or
subscription rights thereto, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or
proceedings, whether of a similar character or otherwise.
Section 10. Changes in Capital Structure. If the
outstanding shares of Stock or other securities of the Company,
or both, for which the Option is then exercisable shall at any
time be changed or exchanged by declaration of a stock dividend,
stock split or combination of shares, the number and kind of
shares of Stock or other securities subject to the Plan or
subject to the Option, and the exercise price, shall be appro
priately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without
changing the aggregate exercise price.
Section 11. Compliance With Securities Laws. Upon the
acquisition of any shares pursuant to the exercise of the Option
herein granted, Optionee (or any person acting under Section 7)
will enter into such written representations, warranties and
agreements as the Company may reasonably request in order to
comply with applicable securities laws or with this Option
Agreement.
Section 12. Compliance With Laws. Notwithstanding any of
the other provisions hereof, Optionee agrees that he or she will
not exercise the Option granted hereby, and that the Company will
not be obligated to issue any shares pursuant to this Option
Agreement, if the exercise of the Option or the issuance of such
shares of Stock would constitute a violation by Optionee or by
the Company of any provision of any law or regulation of any
governmental authority.
Section 13. Withholding of Tax. To the extent that the
exercise of this Option or the disposition of shares of Stock
acquired by exercise of this Option results in compensation
income to Optionee for federal or state income tax purposes,
Optionee shall pay to the Company at the time of such exercise or
disposition such amount of money as the Company may require to
meet its obligation under applicable tax laws or regulations and,
if Optionee fails to do so, the Company is authorized to withhold
from any cash remuneration then or thereafter payable to
Optionee, any tax required to be withheld by reason of such
resulting compensation income or Company may otherwise refuse to
issue or transfer any shares otherwise required to be issued or
transferred pursuant to the terms hereof.
Section 14. No Right to Employment or Directorship.
Optionee shall be considered to be in the employment of the
Company or its Affiliates or in service on the Board so long as
he or she remains an employee or director of the Company or its
Affiliates. Any questions as to whether and when there has been
a termination of such employment or service on the Board and the
cause of such termination shall be determined by the Committee,
and its determination shall be final. Nothing contained herein
shall be construed as conferring upon Optionee the right to
continue in the employ of the Company or its Affiliates or to
continue service on the Board, nor shall anything contained
herein be construed or interpreted to limit the "employment at
will" relationship between Optionee and the Company or its
Affiliates.
Section 15. Resolution of Disputes. As a condition of the
granting of the Option hereby, Optionee and Optionee's heirs,
personal representatives and successors agree that any dispute or
disagreement which may arise hereunder shall be determined by the
Committee in its sole discretion and judgment, and that any such
determination and any interpretation by the Committee of the
terms of this Option Agreement shall be final and shall be
binding and conclusive, for all purposes, upon the Company,
Optionee, and Optionee's heirs, personal representatives and
successors.
Section 16. Legends on Certificate. The certificates
representing the shares of Stock purchased by exercise of the
Option will be stamped or otherwise imprinted with legends in
such form as the Company or its counsel may require with respect
to any applicable restrictions on sale or transfer and the stock
transfer records of the Company will reflect stop-transfer
instructions with respect to such shares.
Section 17. Notices. Every notice hereunder shall be in
writing and shall be given by registered or certified mail or by
any other method accepted by the Company or the Company's
designee. All notices of the exercise of any Option hereunder
shall be directed to Kinder Morgan, Inc., 1301 McKinney, Suite
3450, Houston, Texas 77010, Attention: Secretary, or to the
Company's designee. Any notice given by the Company to Optionee
directed to Optionee at the address on file with the Company
shall be effective to bind Optionee and any other person who
shall acquire rights hereunder. The Company shall be under no
obligation whatsoever to advise Optionee of the existence,
maturity or termination of any of Optionee's rights hereunder and
Optionee shall be deemed to have familiarized himself or herself
with all matters contained herein and in the Plan which may
affect any of Optionee's rights or privileges hereunder.
Section 18. Construction and Interpretation. Whenever the
term "Optionee" is used herein under circumstances applicable to
any other person or persons to whom this award, in accordance
with the provisions of Section 7 hereof, may be transferred, the
word "Optionee" shall be deemed to include such person or
persons.
Section 19. Agreement Subject to Plan. This Option
Agreement is subject to the Plan. The terms and provisions of
the Plan (including any subsequent amendments thereto) are hereby
incorporated herein by reference thereto. In the event of a
conflict between any term or provision contained herein and a
term or provision of the Plan, the applicable terms and
provisions of the Plan will govern and prevail. All definitions
of words and terms contained in the Plan shall be applicable to
this Option Agreement.
Section 20. Entire Agreement; Amendment. This Option
Agreement and any other agreements and instruments contemplated
by this Option Agreement contain the entire agreement of the
parties, and this Option Agreement may be amended only in writing
signed by both parties.
Section 21. Modification and Severability. If a court of
competent jurisdiction declares that any provision of this Option
Agreement is illegal, invalid or unenforceable, then such
provision shall be modified automatically to the extent necessary
to make such provision fully enforceable. If such court does not
modify any such provision as contemplated herein, but instead
declares it to be wholly illegal, invalid or unenforceable, then
such provision shall be severed from this Option Agreement, and
such declaration shall in no way affect the legality, validity
and enforceability of the other provisions of this Option
Agreement to which such declaration does not relate. In this
event, this Option Agreement shall be construed as if it did not
contain the particular provision held to be illegal, invalid or
unenforceable, the rights and obligations of the parties hereto
shall be construed and enforced accordingly, and this Option
Agreement otherwise shall remain in full force and effect. If
any provision of this Option Agreement is capable of two
constructions, one of which would render the provision void and
the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
Section 22. Binding Effect. This Option Agreement shall be
binding upon and inure to the benefit of any successors to the
Company and all persons lawfully claiming under Optionee as
provided herein.
Section 23. Governing Law. This Option Agreement shall be
interpreted and construed in accordance with the laws of the
State of Colorado and applicable federal law.
IN WITNESS WHEREOF, this Nonqualified Stock Option Agreement has
been executed as of the 20th day of April, 2000.
KINDER MORGAN, INC.
By:
----------------------------
Joseph Listengart
Vice President
OPTIONEE
_______________________________________
Michael C. Morgan
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 19714
<SECURITIES> 0
<RECEIVABLES> 531800
<ALLOWANCES> 1712
<INVENTORY> 31072
<CURRENT-ASSETS> 834613
<PP&E> 6151253
<DEPRECIATION> 371672
<TOTAL-ASSETS> 8848933
<CURRENT-LIABILITIES> 1131474
<BONDS> 3293168
0
0
<COMMON> 566462
<OTHER-SE> 1150217
<TOTAL-LIABILITY-AND-EQUITY> 8848933
<SALES> 480512
<TOTAL-REVENUES> 480512
<CGS> 276577
<TOTAL-COSTS> 366116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 255
<INTEREST-EXPENSE> 60399
<INCOME-PRETAX> 76811
<INCOME-TAX> 30727
<INCOME-CONTINUING> 46084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46084
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
</TABLE>
