UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 1-11234
KINDER MORGAN ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0380342
- ----------------------------- ------------------------------
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or
organization)
1301 McKinney Street
Suite 3450
Houston, Texas 77010
- ----------------------------- ------------------------------
(Address of principal (Zip Code)
executive offices)
(713) 844-9500
- ------------------------------------------------------------
(Registrant's telephone number, including area code)
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 Registrant had 6,510,000 Common Units outstanding at June 30, 1997.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. -Financial Statements (unaudited)
Consolidated Statement of Income -
Three Months and Six Months Ended
June 30, 1997 and 1996 3
Consolidated Balance Sheet - June
30, 1997 and December 31, 1996 4
Consolidated Statement of Cash
Flows - Six Months Ended June 30,
1997 and 1996 5
Notes to Consolidated Financial
Statements 6
ITEM 2. -Management's Discussion and
Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
ITEM 1. -Legal Proceedings 16
ITEM 5. -Other Information 16
ITEM 6. -Exhibits and Reports on Form 8-K 16
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Unit Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------- ----------------------
Revenues
Trade $16,036 $14,668 $35,168 $33,099
----------- ---------- --------- ----------
16,036 14,668 35,168 33,099
----------- ---------- --------- ----------
Costs and Expenses
Cost of products sold 1,557 1,771 3,718 3,266
Operations and maintenance 3,260 3,941 7,077 8,856
Fuel and power 1,021 923 2,726 2,196
Depreciation and amortization 2,585 2,443 5,140 4,854
General and administrative 2,209 2,084 4,254 4,371
Taxes other than income taxes 604 646 1,526 1,572
----------- ---------- --------- ----------
11,236 11,808 24,441 25,115
----------- ---------- --------- ----------
Operating Income 4,800 2,860 10,727 7,984
Other Income (Expense)
Equity in earnings of
partnerships 1,616 1,539 2,455 2,426
Interest expense (3,231) (3,136) (6,514) (6,328)
Other 101 417 256 614
Minority Interest (29) (13) (64) (42)
----------- ---------- --------- ----------
Income Before Income Taxes 3,257 1,667 6,860 4,654
Income Tax (Expense) (391) (314) (566) (491)
----------- ---------- --------- ----------
Net Income $2,866 $1,353 $6,294 $4,163
=========== ========== ========= ==========
General Partner's interest
in Net Income 984 38 1,043 91
Limited Partners' interest
in Net Income 1,882 1,315 5,251 4,072
----------- ---------- --------- ---------
Net Income $2,866 $1,353 $6,294 $4,163
=========== ========== ========= =========
Allocation of Net Income
per Limited Partner Unit $0.29 $0.20 $0.81 $0.63
=========== ========== ========= =========
Number of Units used in 6,510 6,510 6,510 6,510
Computation
=========== ========== ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
June 30, December 31,
1997 1996
---------- ------------
ASSETS
Current Assets
Cash and cash equivalents $14,206 $14,299
Accounts receivable
Trade 7,917 7,970
Related parties 63 4,390
Inventories
Products 1,146 882
Materials and supplies 1,570 1,827
----------- -------------
24,902 29,368
----------- -------------
Property, Plant and Equipment,
at cost 273,786 272,178
Less accumulated depreciation 41,101 36,184
----------- -------------
232,685 235,994
----------- -------------
Investments in Partnerships 31,809 32,043
----------- -------------
Deferred Charges and Other
Assets 6,532 6,198
----------- -------------
TOTAL ASSETS $295,928 $303,603
=========== =============
LIABILITIES AND PARTNERS'
CAPITAL
Current Liabilities
Accounts payable
Trade $1,922 $5,512
Related parties - 4,520
Current portion of
long-term debt 31,108 1,709
Accrued liabilities 2,683 811
Accrued taxes 2,128 2,304
Distribution payable - 4,210
----------- -------------
37,841 19,066
----------- -------------
Long-term Liabilities and
Deferred Credits
Long-term debt 130,921 160,211
Other 4,258 3,492
----------- -------------
135,179 163,703
----------- -------------
Minority Interest 2,511 2,490
----------- -------------
Partners' Capital
Common units 118,242 117,165
General Partner 2,155 1,179
----------- -------------
120,397 118,344
----------- -------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $295,928 $303,603
=========== =============
The accompanying notes are an integral part of these
consolidated financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
1997 1996
----------- -----------
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided
by operating activities
Net Income $6,294 $4,163
Depreciation and amortization 5,140 4,854
Equity in earnings of partnerships (2,455) (2,426)
Distributions from investments in partnerships 4,722 3,862
Changes in components of working capital
Accounts receivable 4,380 2,859
Inventories (7) 273
Accounts payable (8,110) (100)
Accrued liabilities 1,872 4,009
Accrued taxes (176) (379)
Other, Net 275 352
----------- ------------
Net Cash Provided by Operating Activities 11,935 17,467
----------- ------------
Cash Flows From Investing Activities
Additions to property, plant and equipment (1,610) (3,867)
Contributions to partnership investments (2,033) (2,559)
----------- ------------
Net Cash Used in Investing Activities (3,643) (6,426)
----------- ------------
Cash Flows From Financing Activities
Payment of debt (24,491) (856)
Issuance of debt 24,600 -
Unit registration costs (74) -
Distributions to partners
Common units (8,202) (8,203)
General Partner (133) (133)
Minority interest (85) (84)
----------- ------------
Net Cash Used in Financing Activities (8,385) (9,276)
----------- ------------
Increase in Cash and Cash Equivalents (93) 1,765
Cash and Cash Equivalents, Beginning of Period 14,299 14,202
----------- ------------
Cash and Cash Equivalents, End of Period $14,206 $15,967
=========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
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KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The unaudited consolidated financial statements included herein have been
prepared by Kinder Morgan Energy Partners, L.P. (the "Partnership") without
audit pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the financial results for
the interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Partnership believes, however, that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996 ("Form 10-K").
Certain reclassifications have been made to the consolidated financial
statements for the prior year to conform with the current presentation.
2. Litigation
On September 12, 1995, the State of Illinois filed suit against the General
Partner for events related to a fire that occurred in September, 1994 at the
North System's above-ground natural gasoline storage sphere at Morris, Illinois.
The suit seeks civil penalties in the stated amount of $50,000 each for three
counts of air and water pollution, plus $10,000 per day for any continuing
violation. The State also seeks an injunction against future similar events. On
August 29, 1996, the Illinois Attorney General's office proposed a settlement in
the form of a consent decree that would require the Partnership to implement
several fire protection recommendations, pay a $100,000 civil penalty, and pay a
$500 per day penalty if established deadlines for implementing the
recommendations are not met. The Partnership has made a settlement offer to the
State and settlement negotiations are ongoing. If attempts at settlement are
unsuccessful, the General Partner will vigorously defend itself and the
Partnership against the charges. Although no assurance can be given, the
Partnership believes that the ultimate resolution of this matter will not have a
material adverse effect on its financial position or results of operations.
On December 10, 1996, the U.S. Department of Transportation ("D.O.T.")
issued to the General Partner a notice of eight probable violations of federal
safety regulations in connection with the fire at the Morris storage field. The
D.O.T. proposed a civil penalty of $90,000. The General Partner has responded to
the notice, and believes that the alleged violations and proposed fine will not
have a material impact on the Partnership. It is expected that the Partnership
will reimburse the General Partner for any liability or expenses incurred by the
General Partner in connection with these legal proceedings.
3. Distributions
On May 15, 1997, the Partnership paid a cash distribution for the quarterly
period ended March 31, 1997, of $0.63 per unit. The
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distribution was declared on April 16, 1997, payable to unitholders of record as
of April 30, 1997.
On July 16, 1997, the Partnership declared a cash distribution for the
quarterly period ended June 30, 1997, of $1.00 per unit. The distribution will
be paid on August 15, 1997, to unitholders of record as of July 31, 1997. Since
the distribution was declared after the end of the quarter, no amount is shown
on the June 30, 1997, balance sheet as a Distribution Payable. For years 1996
and earlier, quarterly distributions were declared prior to the end of such
periods.
4. Investment in Mont Belvieu Associates
Summarized income statement information for the Partnership's investment in
Mont Belvieu Associates, of which it holds a 50% interest, is presented below
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------------------- -------------------
Income Statement
Revenues $9,066 $6,819 $17,294 $12,376
Expenses $5,033 $3,988 $12,014 $7,649
Net Income $4,033 $2,831 $5,280 $4,727
5. Assignment of Mobil Gas Processing Agreement
On October 1, 1995, the Partnership assumed Enron Gas Processing Company's
("EGP") rights and obligations under a gas processing agreement with Mobil
Natural Gas, Inc. (the "Mobil Agreement"). Pursuant to the Mobil Agreement, the
Partnership was required to process dedicated volumes of natural gas produced by
Mobil. Also on October 1, 1995, the Partnership entered into a sublease
agreement with EGP (the "Sublease Agreement"), pursuant to which the Partnership
subleased a portion of the capacity at the Bushton gas processing plant located
in Ellsworth County, Kansas (the "Bushton Plant"). On March 31, 1997, KN
Processing, Inc. ("KN"), a Colorado corporation, acquired the stock of EGP.
Effective April 1, 1997, the Partnership assigned its rights and
obligations under the Mobil Agreement to KN in exchange for KN's agreement to
terminate the Sublease Agreement. The Partnership also amended its Bushton
storage agreement with KN. The amendment extends the current agreement to 2004
and provides for a reduction in annual fees to be paid to KN. The Partnership
intends to enter into a facilities agreement with KN, providing for additional
services and cost reductions to the Partnership.
6. Partners' Capital
At December 31, 1996, Partners' capital consisted of 5,650,000 Common Units
held by third parties and 860,000 units held by the General Partner. Together,
these 6,510,000 units represented the limited partners' interest and a 98%
economic interest in the Partnership. The general partner interest represents a
2% economic interest in the Partnership, as defined in the Partnership
Agreements. On February 14, 1997, the limited partner interests held by the
General Partner were converted to Common Units. Also, on February 14, 1997,
429,000 of these units were sold by the General Partner to a third party. The
General Partner retained the remaining 431,000 units. Since the units owned by
the General Partner are now Common Units, they are no longer separately
disclosed.
For purposes of maintaining partner capital accounts, the partnership
agreements specify that items of income and loss, shall be allocated among the
partners in accordance with their respective
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percentage interests. Normal allocations according to percentage interests are
done only, however, after giving effect to any priority income allocations in an
amount equal to incentive distributions allocated 100% to the General Partner.
Incentive distributions allocated to the General Partner are determined by
the amount quarterly distributions to unitholders exceed certain specified
target levels. The General Partner receives a priority allocation of income
equal to the amount of cash distributed as incentive distributions. For both the
first two quarters of 1996 and the first quarter of 1997, the Partnership's cash
distribution of $0.63 per unit required an incentive distribution of $25,143 to
the General Partner. The Partnership's declaration of a $1.00 per unit cash
distribution for the second quarter of 1997 will result in an incentive
distribution of $964,600 to the General Partner.
7. Related Party Transactions
The General Partner employs all employees of the Partnership and provides
the Partnership with general and administrative services. The General Partner is
entitled to reimbursement of all direct and indirect costs related to the
business activities of the Partnership. The General Partner has no related
commercial transactions with the Partnership; therefore, the Partnership's
reimbursements to the General Partner are not considered related party
transactions.
8. Significant Events - Coal Transfer and Storage
In April, 1997, the Partnership formed a new business unit under the
operation of Kinder Morgan Operating L.P. "B" ("OLP-B"). The business unit, Red
Lightning Energy Services, markets coal and provides coal blending and storage
services.
In addition, on May 12, 1997, the Partnership announced the expansion of
its Cora coal terminal facility located near Cora, Illinois. The expansion will
double the coal storage capacity to one million tons and will enhance the
services offered to allow for faster coal unloading and loading and to provide
for improvement in other coal services at Cora. The expanded facilities are
scheduled to be in- service by late summer 1997.
9. Subsequent Events
On July 31, 1997, the Partnership entered into an agreement to purchase BRT
Transfer Terminal, Inc. ("BRT") from Vulcan Materials Company. It is anticipated
that upon completion of the purchase, the Partnership's investment in BRT will
approximate $22 million. BRT operates a coal loading and storage terminal in
southwest Kentucky, on the Tennessee River near the Kentucky Lake Dam. Closing
of the transaction is anticipated to occur in September, 1997. The acquisition
of BRT corresponds with the Partnership's plans to expand its market position in
coal terminaling, loading, blending, and storage. Immediately following the
acquisition, the Partnership intends to liquidate BRT and conduct its operations
under the formation of a third operating partnership, entitled Kinder Morgan
Operating L.P. "C" ("OLP- C").
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Second Quarter 1997 Compared With Second Quarter 1996
Net income of the Partnership increased to $2.9 million (107%) in 1997 from
$1.4 million in 1996. The increase primarily relates to higher earnings from the
coal businesses (Cora Terminal and Red Lightning), the North System, and the
Cypress Pipeline. Higher quarterly earnings were partially offset by lower
earnings from the Central Basin Pipeline and the Painter Processing Plant.
Revenues of the Partnership increased $1.4 million (9%) in the second
quarter of 1997 compared to the same period in 1996. The revenue increase was
primarily due to increased coal activity. Revenues for the Cora Terminal
increased 86%, reflecting a 46% increase in transport volumes, accompanied by a
6% increase in average transfer rates. The Red Lightning coal services unit,
which commenced operations in the current quarter, reported revenues of $1.6
million, equaling 10% of total Partnership revenue. The North System and the
Cypress Pipeline reported increases in revenues of 18% and 11%, respectively.
The North System had a 3% increase in throughput, accompanied by a 10% increase
in the average tariff per barrel moved. The Cypress Pipeline's higher revenues
were the result of an 11% increase in delivery volumes. Compared to second
quarter of 1996, second quarter 1997 revenues decreased at the Central Basin
Pipeline, the Painter Processing Plant, and the Bushton Processing Plant.
Central Basin had a 28% increase in average daily delivery volumes, but was
adversely affected by decreased deficiency payments and by an adjustment related
to an earlier period. Revenues decreased at the Partnership's Painter Plant due
to the termination of the gas processing agreement by Chevron, USA ("Chevron")
effective as of August 1, 1996. Loss of processing revenues at Painter were
partially offset by lease revenue earned from the Painter Fractionator pursuant
to the operating lease agreement with Amoco Oil Company ("Amoco"), executed
February 14, 1997. There were no gas processing revenues at the Bushton Plant in
the second quarter of 1997 due to the assignment of the Mobil gas processing
agreement to KN Processing, Inc. ("KN"), effective as of April 1, 1997. For more
information, see Note 5. to the Consolidated Financial Statements.
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Operating statistics for the second quarter are as follows:
Second Quarter
1997 1996
--------------------
Liquids Pipelines
North System
Delivery Volumes (MMBbls) 6.5 6.4
Average Tariff ($/Bbl) $0.79 $0.72
Cypress Pipeline
Delivery Volumes (MMBbls) 3.1 2.8
Average Tariff ($/Bbl) $0.47 $0.49
Central Basin Pipeline
Delivery Volumes (MMcf/d) 195 152
Average Tariff ($/Mcf) $0.14 $0.18
Coal Transfer and Storage
Cora Terminal
Transport Volumes(MM Tons) 2.2 1.5
Average Revenues ($/Ton) $1.34 $1.25
Gas Processing and Fractionation
Painter Gas Processing Plant
Processing Volumes (MMcf/d) - 21
Average Revenues ($/Mcf) $0.00 $0.34
Fractionator Volumes (MBbls/d) - 4.5
Average Revenues ($/Bbl) $0.00 $1.00
Earnings contribution by business segment for the second quarter is as
follows:
Earnings Contribution by Business Segment*
(Unaudited)
(In Thousands)
Second Quarter
1997 1996
--------------
Liquids pipelines 3,954 3,550
Coal transfer and storage 3,580 1,416
Gas processing and fractionation 522 1,438
----------------------
* Excludes general and administrative expenses, debt costs and
minority interest.
Cost of products sold decreased 12% to $1.6 million in the second quarter
of 1997 compared to the second quarter of 1996. This decrease was primarily the
result of replacing CO2 purchase/sale contracts with transportation contracts at
the Central Basin Pipeline, partially offset by costs attributable to Red
Lightning.
Operations and maintenance expense, combined with fuel and power, declined
12% to $4.3 million in the second quarter of 1997 compared to the second quarter
of 1996. This decrease is primarily due to the assignment of the Mobil Agreement
to KN, the lease of the Painter
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Facility to Amoco Oil Company, and cost savings resulting from the change in
management. Expenses were higher at the Cora Terminal due to increased coal
operations. A 5% increase in fuel and power expense was realized by the liquids
pipelines due to a rise in transportation volumes.
Earnings from investments in partnerships increased 5% to $1.6 million in
the second quarter of 1997 as compared to the second quarter of 1996. This was
the result of a 14% increase in equity earnings from the Partnership's
investment in Mont Belvieu Associates.
Other income declined $0.3 million in the second quarter of 1997 when
compared to the same period last year. This decrease was due to lower interest
income in 1997 and the recognition of income in 1996 resulting from insurance
collections related to the 1994 fire at the North System's gasoline storage
sphere at Morris, Illinois.
Six Months Ended June 30, 1997 Compared With Six Months Ended June 30, 1996
Net income of the Partnership increased 50% to $6.3 million in 1997 from
$4.2 million in 1996. Significant earnings increases were attributable to the
coal businesses. At the Cora Terminal, net income increased to $4.4 million
(83%) for the first six months of 1997 as compared to $2.4 million in the same
period last year. The start-up of the Red Lightning coal services unit produced
income of $0.9 million in the first half of 1997. The Partnership also realized
higher earnings from the North System and the Cypress Pipeline. Higher overall
earnings were offset by lower earnings in the gas processing and fractionation
business units.
Revenues of the Partnership increased $2.1 million (6%) in the first half
of 1997 compared to the same period in 1996. Revenues at the Cora Terminal
increased to $6.4 million (64%) for the first half of 1997 as compared to $3.9
million for the first half of 1996. This change was due to a 41% increase in
transport volumes accompanied by a 3% increase in average transfer rates. The
Red Lightning coal services unit began operations in the second quarter of 1997
and generated $1.6 million of revenue. The North System reported higher revenues
despite a slight decrease (3%) in total throughput volume. Lower volumes were
offset by a 14% increase in the average tariff per barrel transported. Revenues
from the Cypress Pipeline increased 11% due to a 13% increase in delivery
volumes. The overall increase in Partnership revenue was offset by lower
revenues from the Central Basin Pipeline. Although average daily delivery
volumes increased 30%, Central Basin's revenues were negatively affected by
slightly lower average tariffs, reduced deficiency credit payments, and an
earlier period adjustment. Also, lower revenues were reported by the gas
processing and fractionation units due to the leasing of the Painter Facility
and the assignment of the Mobil Agreement at Bushton.
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Operating statistics for the first half of 1997 and 1996 are as follows:
Six Months Ended June 30,
1997 1996
-------------------------
Liquids Pipelines
North System
Delivery Volumes (MMBbls) 15.3 15.8
Average Tariff ($/Bbl) $0.91 $0.80
Cypress Pipeline
Delivery Volumes (MMBbls) 6.3 5.6
Average Tariff ($/Bbl) $0.47 $0.49
Central Basin Pipeline
Delivery Volumes (MMcf/d) 193 149
Average Tariff ($/Mcf) $0.14 $0.17
Coal Transfer and Storage
Cora Terminal
Transport Volumes (MM Tons) 3.9 2.8
Average Revenues ($/Ton) $1.37 $1.33
Gas Processing and Fractionation
Painter Gas Processing Plant
Processing Volumes (MMcf/d) - 27.6
Average Revenues ($/Mcf) $0.00 $0.34
Fractionator Volumes(MBbls/d) $4.0 4.9
Average Revenues ($/Bbl) $0.98 $0.97
Earnings contribution by business segment for the first half of 1997 and
1996 is as follows:
Earnings Contribution by Business Segment*
(Unaudited)
(In Thousands)
Six Months Ended June 30,
1997 1996
-------------------------
Liquids pipelines 10,462 9,300
Coal transfer and storage 5,237 2,353
Gas processing and fractionation 812 2,879
----------------------
* Excludes general and administrative expenses, debt costs and
minority interest.
Cost of products sold increased 14% to $3.7 million in the first six months
of 1997 compared to the first six months of 1996. This increase was primarily
due to a large purchase/sale contract recorded by the North System in 1997.
Fuel and power expense increased to $2.7 million (23%) in the first half of
1997 compared to $2.2 million in the same period of last year. This was
primarily the result of higher fuel costs incurred by the North System due to
the expiration of fuel gas contracts in October, 1996. Fuel costs, per MMBtu,
were higher on the 1997 spot market than under pre-existing contracts in effect
during 1996.
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Operations and maintenance expense decreased 20% to $7.1 million in the
first half of 1997 as compared to the first half of 1996. This decrease was
primarily due to lower expenses associated with the assignment of the Mobil
Agreement to KN, the lease of the Painter Facility to Amoco Oil Company, and
cost savings realized by new management. This favorable change was partially
offset by higher expenses at the Cora Terminal due to increased business
activity.
Financial Condition
General
The Partnership's primary cash requirements, in addition to normal
operating expenses, are debt service, sustaining capital expenditures,
discretionary capital expenditures, and quarterly distributions to partners. In
addition to utilizing cash generated from operations, the Partnership could meet
its cash requirements through the utilization of credit facilities or by issuing
additional limited partner interests in the Partnership. The General Partner has
agreed that, if necessary, it will contribute up to $7.3 million to the
Partnership through November 15, 1997 in exchange for additional partnership
interests to support the Partnership's ability to distribute the Minimum
Quarterly Distribution, as defined in the Partnership Agreement.
The current portion of long term debt as reflected on the June 30, 1997
balance sheet is a combination of maturing long term debt instruments along with
installment payments due within the next twelve months. The Partnership intends
to refinance these payments in due course. However, the Partnership has not
entered into any noncancelable agreements. This refinancing will be done by
either the incurrence of additional debt, the extension of existing debt, the
issuance of additional Common Units, or a combination of the foregoing.
Cash Provided by Operating Activities
Net cash provided by operating activities was $11.9 million for the six
months ended June 30, 1997, versus $17.5 million in the comparable period of
1996. Higher net income of $2.1 million was offset by increased working capital
requirements of $8.7 million. The increased working capital requirements
resulted primarily from decreases in accrued interest, accounts payable, and
other accrued liabilities, partially offset by a decrease in accounts
receivable. Payments for the cash settlement of liabilities due to Enron Corp.
accounted for the majority of the accounts payable reduction. Higher accrued
interest balances at June 30, 1996, compared to June 30, 1997, resulted in a
$5.0 million decrease in cash provided by operating activities. The decrease in
accounts receivable was mainly due to collections related to settlements with
Enron Corp.
Cash Used in Investing Activities
Cash used in investing activities totaled $3.6 million during the first
half of 1997 compared to $6.4 million during the first half of 1996. Additions
to property, plant and equipment totaled $1.6 million in the first half of 1997
compared to $3.9 million for last year. The higher additions to property, plant
and equipment in 1996 primarily reflect construction costs of a propane terminal
on the North System located in Tampico, Illinois. Contributions to partnership
investments decreased to $2.0 million for the first six months of 1997 as
compared to $2.6 million for the first six months of 1996. The 1996
contributions reflect the Partnership's partial funding of its $6.5 million
share of an expansion project in progress at the Mont Belvieu Fractionator. In
July 1996, Mont Belvieu Associates negotiated a loan agreement to fund such
expansion, which fulfilled the Partnership's funding obligations and allowed the
return of fundings to date.
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Cash Used in Financing Activities
Cash used in financing activities totaled $8.4 million during the first
half of 1997 as compared to $9.3 million during the same period in 1996. Both
periods primarily reflect cash distributions paid to unitholders in the amount
of $0.63 per unit in each of the first two quarters of 1997 and 1996. The $0.9
million variance represents higher debt payments during the first half of 1996
as compared to the same period in 1997.
Kinder Morgan Energy Partners, L.P. (the "Partnership") conducts business
by serving as the sole limited partner of two operating partnerships; Kinder
Morgan Operating L.P. "A" ("OLP-A") and Kinder Morgan Operating L.P. "B"
("OLP-B"). The ownership percentage in the operating partnerships relating to
the limited partner interest is 98.9899%. The 6,510,000 outstanding Common Units
represent a 99% limited partner ownership interest in the Partnership.
Kinder Morgan G.P., Inc. (the "General Partner") serves as the sole general
partner of the two operating partnerships as well as the sole general partner of
the Partnership. Pursuant to the partnership agreements, the general partner
interests represent a 1% ownership interest in the Partnership, and a direct
1.0101% ownership interest in the operating partnerships. Together then, the
General Partner owns an effective 2% interest in the operating partnerships; the
1.0101% direct general partner ownership interest (accounted for as minority
interest in the consolidated financial statements of the Partnership) and the
0.9899% ownership interest indirectly owned via its 1% ownership interest in the
Partnership.
The partnership agreements governing the operation of the Partnership and
the operating partnerships require the partnerships to distribute 100% of
"Available Cash" (as defined in the partnership agreements) to the Partners
within 45 days following the end of each calendar quarter in accordance with
their respective percentage interests. Available Cash consists generally of all
cash receipts of the partnerships less all of their cash disbursements and net
additions to reserves.
The partnership agreements governing the Partnership generally prescribe
that the Available Cash of the Partnership be distributed 98% to the Limited
Partners and 2% to the General Partner. This general requirement is modified to
provide for incentive distributions to be paid to the General Partner in the
event that quarterly distributions to unitholders exceed certain specified
targets. Incentive distributions are generally defined as all cash distributions
paid to the General Partner that are in excess of 2% of the aggregate amount of
cash being distributed. The General Partner's incentive distribution for the
quarter ended June 30, 1997 is $964,600 compared to $25,143 for the quarter
ended June 30, 1996.
In general, Available Cash for each quarter is distributed, first, 98% to
the Limited Partners and 2% to the General Partner until the Limited Partners
have received a total of $0.605 per Unit for such quarter, second, 85% to the
Limited Partners and 15% to the General Partner until the Limited Partners have
received a total of $0.715 per Unit for such quarter, third, 75% to the Limited
Partners and 25% to the General Partner until the Limited Partners have received
a total of $0.935 per Unit for such quarter, and fourth, thereafter 50% to the
Limited Partners and 50% to the General Partner.
The Partnership believes that the increase in quarterly cash distributions
from $0.63 for the first quarter of 1997 to $1.00 for the second quarter of 1997
is the result of favorable operating results during the first half of 1997.
Operating results for the six months ended June 30, 1997 benefited from
significant revenue increases due to
Page 14 of 17
<PAGE>
positive volume and price changes along with reductions in combined operating,
maintenance, and administrative expenses resulting from the change in control of
the Partnership. The Partnership believes that future operating results will
continue to support similar levels of quarterly cash distributions, however, no
assurance can be given that future distributions will continue at such levels.
Information Regarding Forward Looking Statements
This filing includes forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Partnership believes that its expectations
are based on reasonable assumptions, it can give no assurance that its goals
will be achieved. Price trends and overall demand for NGLs, CO2 and coal in the
United States and the condition of the capital markets and equity markets could
cause actual results to differ from those in the forward looking statements
herein.
Page 15 of 17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See Part I., Item 1., Note 2. to
Consolidated Financial Statements entitled
"Litigation" which is incorporated herein by
reference.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 - Kinder Morgan Energy Partners,
L.P. Executive Compensation Plan
Exhibit 27 - Financial Data Schedule as of
and for the six months ended June 30, 1997
(b) Reports on Form 8-K
Report dated April 2, 1997, on Form 8-K was
filed on April 15, 1997, pursuant to Items 4.
and 5. of that form. A change in Registrant's
independent accountants was disclosed in Item 4.
of this filing. The assignment of a gas
processing agreement with Mobil Natural Gas,
Inc. to KN Processing, Inc. was disclosed
pursuant to Item 5. of this filing.
Report dated April 17, 1997, on Form 8-K was
filed on April 25, 1997, pursuant to Item 1.
of that form. A change in control of Registrant
was disclosed in this filing.
Page 16 of 17
<PAGE>
SIGNATURES
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 Energy Partners, L.P.
(A Delaware Limited Partnership)
BY: Kinder Morgan G.P., Inc.
as General Partner
BY: /s/David G. Dehaemers, Jr. Dated: August 14, 1997
-------------------------------
David G. Dehaemers, Jr.
Vice President and
Chief Financial Officer
Page 17 of 17
KINDER MORGAN ENERGY PARTNERS, L.P.
EXECUTIVE COMPENSATION PLAN
Section 1. Purposes of the Plan. Section 6.4 (c) of the Partnership
Agreement provides that the General Partner in its sole discretion and without
the approval of the Limited Partners may propose and adopt on behalf of the
Partnership employee benefit plans (including, without limitation, plans
involving the issuance of Units), for the benefit of employees of the General
Partner, the Partnership, the Operating Partnerships or any Affiliate of any of
them in respect to services performed, directly or indirectly, for the benefit
of the Partnership or the Operating Partnerships. The Kinder Morgan Energy
Partners, L.P. Executive Compensation Plan (the "Plan") is intended to provide a
method for attracting, motivating and retaining key executive personnel for the
Partnership. The primary purpose of the Plan is to link incentive compensation
for such key personnel to the ongoing success and performance of the
Partnership.
Section 2. Administration of the Plan.
2.1. The Committee. The Plan shall be administered by the Board of
Directors of the General Partner (the "Board") acting as an administrative
committee of the whole or by another administrative committee appointed from
time to time by the Board and which committee shall be comprised of two or more
members of the Board who are not employees of the General Partner, the
Partnership, the Operating Partnerships or any Affiiate, (in each case the
"Committee"). The Committee shall have all of the powers and duties specified
for it under the Plan, including, without limitation, the selection of
Participants and the determination of grants of Incentive Compensation to be
granted to each Participant. The Committee may from time to time establish rules
and procedures for the administration of the Plan which are not inconsistent
with the provisions of the Plan, and any such rules and procedures shall be
effective as if included in the Plan.
2.2. Meetings. A majority of the members of the Committee shall constitute
a quorum for the transaction of business. All action taken by the Committee at a
meeting at which a quorum is present shall be by the vote of a majority of those
present at such meeting, but any action may be taken by the Committee without a
meeting upon written consent signed by all of the members of the Committee.
Members of the Committee may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear or see the comments of one another. No
member of the Committee shall vote on any matter directly affecting the amounts
payable under the Plan to such member, but any such interested member(s) of the
Committee may be counted for purposes of determining the existence of a quorum.
2.2. Committee Determinations. All determinations of the Committee shall be
final, binding and conclusive upon all persons.
<PAGE>
Section 3. Eligibility and Participation.
3.1. Eligible Employees. Employees of the General Partner are eligible to
be selected by the Committee for participation in the Plan. Participation in the
Plan and the grant of Incentive Compensation to such eligible employees shall be
in the discretion of the Committee, and the Committee may from time to time
establish further eligibility requirements for participation in the Plan.
Subject to provisions of the Plan, Incentive Compensation granted to each
Participant shall be determined in the sole discretion of the Committee.
3.2. Grant Agreements. The terms and provisions of each grant of Incentive
Compensation, as determined by the Committee in its sole discretion, shall be
set forth in a written Grant Agreement, which shall incorporate by reference,
and be subject to, the terms and provisions of the Plan. Each Grant Agreement
shall contain such provisions not inconsistent with the Plan as the Committee
deems appropriate. The terms and provisions set forth in Grant Agreements may
vary among Participants. Participants shall be granted an amount of Incentive
Compensation specified as a percentage between 0% and 2% of the Incentive
Compensation Value. Incentive Compensation and all rights attendant thereto are
transferable only by will or the laws of descent and distribution, and are only
redeemable while the Participant remains an employee of the General Partner or
dies while an employee of the General Partner unless otherwise provided by a
provision of the Plan or of the Participant's Grant Agreement. Subject to the
foregoing, the Committee has complete authority to determine the identity of
Participants, the time of Grant, time and provisions for redemption and duration
of a Grant of Incentive Compensation and any other conditions or limitations
applicable to the Grant and redemption of a Grant of Incentive Compensation.
3.3. Limit On Incentive Compensation. The sum of the percentages (each
being a percentage of the Incentive Compensation Value) of Grants of Incentive
Compensation, including Grants of Incentive Compensation which have been
redeemed, shall not exceed ten percent (10%). For example, if two percent (2%)
aggregate Grants of Incentive Compensation have been redeemed, and there are
outstanding unredeemed aggregate Grants of Incentive Compensation of four
percent (4%), then only an additional four percent (4%) of aggregate Incentive
Compensation may be granted. If a Grant of Incentive Compensation is forfeited
before its redemption, then the percentage attributable to such forfeited Grant
is available for Grants of Incentive Compensation subsequent to such forfeiture.
Section 4. Plan Accounts. A bookkeeping account (each, a "Plan Account")
shall be established for each Participant on books kept by the Partnership. Such
account shall be unfunded and shall set forth the initial Grant of Incentive
Compensation to a Participant, the Incentive Compensation Value of such
Incentive Compensation (if any) at the time of such Grant, and the Incentive
Compensation Value as of the end of each successive calendar quarter. A
statement of a Participant's Plan Account shall be provided to such Participant
on written request within 45 days of the Partnership's receipt of such request
(but not more frequently than once per quarter).
<PAGE>
Section 5. Provisions Regarding Incentive Compensation.
5.1. Redemption. A Grant of Incentive Compensation shall become redeemable
according to the provisions of the Grant Agreement.
5.2. Notice of Redemption. Subject to the provisions of a Participant's
Grant Agreement the Redeemable Portion of Incentive Compensation granted to
Participant may be redeemed in whole or in part from time to time by written
notice (the "Redemption Request") received by the Committee. The Redemption
Request must specify what portion of the redeemable Incentive Compensation is
being redeemed (e.g., "all of the Redeemable Portion" or "40% of the Redeemable
Portion"). If a Redemption Request is for less than all of the Incentive
Compensation granted to Participant under a Grant Agreement, it must be for at
least the lesser of (i) twenty five percent (25%) of the total Incentive
Compensation (whether redeemed, redeemable, or to become redeemable in the
future) granted to such Participant or (ii) the Redeemable Portion of Incentive
Compensation under the Grant Agreement.
5.3. Redemption Payment. Within thirty (30) days of the Committee's receipt
of a Redemption Request, the Partnership will pay or cause to be paid to the
Participant making the Redemption Request a Redemption Payment of the Incentive
Compensation being redeemed in Units of the Partnership or in cash, as
determined in the sole discretion of the Committee. A cash Redemption Payment
shall be the product of (a) Incentive Compensation Value as of the Determination
Date multiplied by (b) the applicable percentage Grant of Incentive Compensation
to the redeeming Participant (expressed in the Grant Agreement as a percentage
of the Incentive Compensation Value) multiplied by (c) the portion expressed as
a percentage of the Incentive Compensation being redeemed. Attached Exhibit A
gives an example of the method of computation of a cash Redemption Payment. A
Participant may request in his Redemption Request that such payment be made
partially in cash and Units of the Partnership according to percentages
requested by the Participant. The Committee shall have final discretion in
determining the method and form of the Redemption Payment. The number of Units
of the Partnership paid, if any, pursuant to a Redemption Request shall be
determined using the value of a cash Redemption Payment for the Redemption
Request and the closing price of a Unit as reported on the New York Stock
Exchange on the day before Units of the Partnership are transferred to a
Participant. The Partnership will file, as and when appropriate, and maintain
the effectiveness of its Registration Statement on Form S-8 (or other
appropriate form under the Securities Act of 1933) so that all Units which are
issued to Participants pursuant to this Plan are issued pursuant to such
effective Registration Statement; and the Partnership will, promptly upon
receipt of written request from a Participant, file and maintain for a
reasonable period of time the effectiveness of any post-effective amendment(s)
to such Registration Statement (in the form of a re-offer prospectus or
otherwise) as may be necessary for such Participant to sell such Units received
pursuant to this Plan in market transactions effected on the principal
securities exchange on which the Units are then listed. Unless this Plan is
amended by the Board, the Committee may not cause the Partnership to issue more
than 200,000 Units in the aggregate in satisfaction of any and all Redemption
Requests. Units will not be
<PAGE>
issued to a Participant hereunder unless and until such Units have been listed
for trading on the principal securities exchange on which the Partnership's
Units are then listed. If the Partnership is unable to effect such listing with
respect to Units which the Committee has determined will be issued in
satisfaction of a Redemption Request, then the Redemption Payment shall be made
to such Participant in cash (or a combination of cash and Units that have been
duly listed).
5.4. Participants Not Shareholders or Unitholders.
(1) The existence of the Plan and Grants of Incentive Compensation do
not restrict the right or power of the Partnership or the General Partner
to effect any organizational actions, including, but not limited to,
issuance of securities, changes of capital structure, and mergers or other
reorganizations. Participants will not have any rights of equity or
ownership in either the Partnership or the General Partner as a result of
receiving or holding Grants of Incentive Compensation.
(2) If an event occurs which results in the withdrawal of the General
Partner pursuant to the provisions of Section 13.1 of the Partnership
Agreement (an "Event of Withdrawal"), then within thirty (30) days of an
Event of Withdrawal all unpaid grants of Incentive Compensation shall
become fully redeemable and shall be surrendered to the General Partner by
each Participant, and shall be canceled by the General Partner; provided,
however, each Participant (or the Participant's estate in the event of
death) shall receive a cash Redemption Payment for such Incentive
Compensation from the Partnership in an amount equal to the Incentive
Compensation Value of such canceled Incentive Compensation using as the
Determination Date, the date of Event of Withdrawal as determined by the
Committee.
(3) If an event occurs which results in a Participant's employment with
the General Partner being Involuntarily Terminated, then within the earlier
of the Plan Termination Date or twelve months following an affected
Participant's Involuntary Termination, such Participant may redeem all of
the unredeemed, outstanding Incentive Compensation previously granted to
the Participant which shall become fully redeemable by the Participant as
of the date of such Involuntary Termination.
5.5. Deferral of Redemption Payment. If the Committee shall determine, upon
advice of its independent certified public accountants that prepare the
Partnership's tax returns, that the provisions of Section 162(m) of the Internal
Revenue Code, or any successor or similar provision, limit the deductibility of
the amount of any Redemption Payment to be made to a Participant in any taxable
year (in whatever combination of payment of cash or Units that the Committee has
determined is appropriate to satisfy such Redemption Request), then,
notwithstanding anything herein to the contrary, the Committee may defer the
payment of that portion of the Redemption Payment (whether in cash or in Units,
as determined by the Committee) that the Committee believes would be
non-deductible. Upon making any
<PAGE>
such determination that a portion of a Redemption Payment will be deferred, the
Committee will notify the Participant of such action and will make the remaining
portion of the Redemption Payment to the Participant (or the Participant's
estate in the event of death) promptly upon the commencement of the next taxable
year, subject, however, to the Committee's right to continue to defer such
amounts as it shall reasonably determine would be non-deductible for tax
purposes after taking into account all other remuneration which is anticipated
to be paid to such employee during each succeeding taxable year.
Section 6. No Right of Employment. Neither the adoption of the Plan nor a
Grant of Incentive Compensation or crediting of amounts with respect thereto
shall confer on any person the right to continued employment by the Partnership
or General Partner or affect in any way the right of the Partnership or General
Partner to terminate such employment at any time.
Section 7. Prohibition Against Assignment or Encumbrance. Except as
provided in Section 3.2, no right, title, interest or benefit hereunder shall
ever be transferable or liable for or charged with any of the torts or
obligations of a Participant or any person claiming under or through a
Participant, or be subject to seizure by any creditor of a Participant or any
person claiming under or through a Participant. No Participant or any person
claiming under or through a Participant shall have the power to anticipate or
dispose of any right, title, interest or benefit hereunder in any manner until
the same shall have been actually distributed free and clear of the terms of the
Plan.
Section 8. Amendment and Termination of Plan.
8.1. Amendment of Plan. The Board shall have the right to alter or amend
the Plan or any part thereof from time to time, except that the Board of
Directors shall not make any alteration or amendment which would impair the
rights of a Participant without that Participant's consent with respect to
amounts, rights or provisions theretofore granted.
8.2. Early Termination of Plan. Notwithstanding any other provision of the
Plan to the contrary, the Board may, in its sole discretion, terminate the Plan
at any time prior to the Plan Termination Date, and upon such termination all
unpaid Grants of Incentive Compensation shall become fully redeemable and shall
be surrendered to the General Partner by each Participant, and shall be canceled
by the General Partner; provided, however, each Participant (or the
Participant's estate in the event of death) shall receive a Redemption Payment
for such Incentive Compensation in an amount equal to the highest Incentive
Compensation Value using as the Determination Date any day within the previous
twelve (12) months, multiplied by 1.5. If not earlier terminated under the
provisions of this Section 8, the Plan shall terminate as of the Plan
Termination Date.
Section 9. Source of Payments. The Plan shall constitute an unfunded,
unsecured obligation of the Partnership to make payments of
<PAGE>
Incentive Compensation benefits from its general assets in accordance with the
provisions of the Plan. Neither the establishment of the Plan nor the allocation
of Incentive Compensation or crediting of Plan Accounts with amounts with
respect thereto shall be deemed to create a trust. By virtue of being a
Participant in the Plan, no Participant shall have any security or other
interest in any assets or equity of the Partnership or General Partner. The
Participant, his or her beneficiary and any other person or persons having or
claiming a right to payments hereunder or to any interest in Incentive
Compensation or this Plan shall rely solely on the unsecured promise of the
Partnership set forth herein, and nothing in this Plan shall be construed to
give the Participant, beneficiary or any other person or persons any right,
title, interest or claim in or to any specific asset, fund, reserve, account or
property of any kind whatsoever owned by the Partnership, General Partner or in
which either may have any right, title or interest now or in the future; but
Participant shall have the right to enforce his claim against the Partnership in
the same manner as any unsecured creditor. Further, the General Partner shall
have no obligation to pay or fund any grant made under the Plan.
Section 10. Plan Binding. This Plan shall be binding upon the Partnership,
its successors and assigns. The Partnership shall not be a party to any merger,
consolidation or reorganization, unless and until the Plan and the Partnership's
obligations hereunder shall be expressly assumed by its successor or successors
or the Board exercises its right pursuant to Section 8.2 to terminate the Plan.
Section 11. Administration of Plan.
11.1. Committee Powers and Duties. The Committee, in good faith, shall
supervise the administration and enforcement of the Plan according to the terms
and provisions hereof and shall have the sole discretionary authority and all
powers necessary to accomplish these purposes, including, but not by way of
limitation, the right, power, authority and duty:
1) to make rules, regulations and procedures for the administration of
the Plan which are not inconsistent with the terms and provisions hereof,
provided such rules, regulations and procedures are evidenced in writing
and copies thereof are delivered to the General Partner;
2) to construe and interpret all terms, provisions, conditions
and limitations of the Plan;
3) to correct any defect, supply any omission, construe any ambiguous
or uncertain provisions, or reconcile any inconsistency that may appear in
the Plan, in such manner and to such extent as it shall deem expedient to
carry the Plan into effect;
4) to employ and compensate and delegate responsibilities to such
accountants, attorneys, investment advisors and other agents and persons
as the Committee may deem necessary or advisable in the proper
and efficient administration of the Plan;
<PAGE>
5) to determine all questions and issues relating to eligibility;
6) to determine the amount, manner and time of payment of any
benefits under the Plan and to prescribe procedures to be followed by
Participants in obtaining benefits;
7) to cause to be prepared, filed and distributed, in such manner
as the Committee determines to be appropriate, such information and
material as is required by the reporting and disclosure requirements
of applicable statute or regulation; and
8) to make a determination as to the right of any person to receive
an amount payable under the Plan.
11.2. The General Partner to Supply Information. The General Partner shall
supply full and timely information to the Committee relating to Participants and
such pertinent facts as the Committee may require. When making a determination
in connection with the Plan, the Committee shall be entitled to rely upon the
aforesaid information furnished by the General Partner.
11.3. Reliance. The Committee and the Board shall not be liable for any
decision or action taken in good faith in connection with the administration of
the Plan. Without limiting the generality of the foregoing, any such decision or
action taken by the Board or the Committee in reliance upon any information
supplied to them by the General Partner, the General Partner's legal counsel, or
by the General Partner's independent accountants in connection with the
administration of the Plan shall be deemed to have been taken in good faith.
Section 12. Governing Law. This Plan shall be subject to, and governed by,
the laws of the State of Texas.
Section 13. Construction. In the event any parts of this Plan are found to
be void, the remaining provisions of this Plan shall nevertheless be binding
with the same effect as though the void parts were deleted.
Section 14. Withholding. Any payment provided for under the Plan shall be
made by the Partnership as provided herein and shall be reduced by any amount
required to be withheld by the Partnership under applicable local, state or
federal withholding requirements.
Section 15. Definitions. For the purposes of this Plan, the terms defined
below shall have the following meanings:
"Available Cash" shall have the same meaning as defined in Article II of
the Partnership Agreement.
"Determination Date" shall mean the date as of which Incentive Compensation
Value is calculated.
"Distributions to the General Partner" shall mean, as of a Determination
Date, the sum of Available Cash actually distributed by the Partnership to the
General Partner pursuant to the provisions of
<PAGE>
the Partnership Agreement for the preceding four calendar quarters, including,
without limitation, cash distributed to the General Partner pursuant to Section
5.4 of the Partnership Agreement and cash distributed to the General Partner in
its capacity as general partner of the Operating Partnerships, but excluding
cash distributed due to its ownership of Units.
"General Partner" means Kinder Morgan G.P., Inc., a Delaware corporation,
and its successors as general partner of the Partnership.
"Grant" means an award of Incentive Compensation pursuant to a Grant
Agreement.
"Grant Agreement" means a written making of a grant of Incentive
Compensation to a Participant.
"Incentive Compensation" shall mean the interest granted, which shall be
expressed as a percentage of the Incentive Compensation Value to a Participant
pursuant to a Grant made by the Committee pursuant to the provisions of the
Plan.
"Incentive Compensation Value" is a dollar value determined by the formula
ICV = (D X 8) - PAF, where ICV shall mean Incentive Compensation Value, D shall
mean Distributions to the General Partner, and PAF shall mean Participant
Adjustment Factor specified in the individual Grant Agreement. Attached Exhibit
A gives an example of the method of computation of Incentive Compensation Value
as of June 1, 1997 and other hypothetical dates.
"Involuntary Termination" shall have the meaning set forth in Participant's
Grant Agreement.
"Participant" shall mean an eligible employee of the General Partner who
has been selected by the Committee to participate in the Plan and who, with the
Partnership, has entered into a Grant Agreement.
"Participant Adjustment Factor" shall have a value as provided for in a
Participant's Grant Agreement.
"Partnership" shall mean the limited partnership formed and continued
pursuant to the Partnership Agreement; presently, as of the effective date of
this Plan, Kinder Morgan Energy Partners, L.P., a Delaware limited partnership.
"Partnership Agreement" shall mean the Amended And Restated Agreement of
Limited Partnership Of Enron Liquids Pipeline, L.P., dated as of July ___, 1992.
"Permanent Disability" shall mean an injury or illness to or of a
Participant for which the Committee makes a determination that the Participant
is permanently and totally unable to perform his or her duties for the General
Partner as a result of any medically determinable physical or mental impairment
as supported by a written medical opinion satisfactory to the Committee by a
physician selected by the Committee, or if earlier, the date the Participant
becomes
<PAGE>
entitled to receive long term disability benefits under the long term disability
plan, if any, sponsored by the General Partner for its employees generally.
"Plan Termination Date" shall mean January 1, 2007.
"Redeemable Portion" shall mean that portion of the Participant's Grant of
Incentive Compensation that has vested and is then available for redemption
pursuant to the terms of the Participant's Grant Agreement.
"Redemption Payment" shall mean a payment of Incentive Compensation Value
according to the provisions of the Plan.
"Units" or a "Unit" of the Partnership shall have the same meaning as
"Unit" is defined in the Partnership Agreement.
In addition, unless the context indicates otherwise, capitalized terms used
herein but not otherwise defined shall have the same meaning as assigned to such
term in the Partnership Agreement.
Executed this 17th day of July, 1997
KINDER MORGAN ENERGY PARTNERS, L.P.
By: Kinder Morgan G. P., Inc., its
General Partner
By: /s/ Richard D. Kinder
Name: Richard D. Kinder
Title: Chairman
Attest:
/s/ Clare H. Doyle
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial informa-
tion extracted from the Consolidated Statements of
Income for the three and six months ended June 30,
1997 and 1996 and the Consolidated Balance Sheet
as of June 30, 1997 and 1996 and the Consolidated
Statement of Cash Flows for the six months ended
June 30, 1997 and 1996 and the Notes thereto
for Kinder Morgan Energy Partners, L.P. and
subsidiaries and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,206
<SECURITIES> 0
<RECEIVABLES> 7,980
<ALLOWANCES> 0
<INVENTORY> 2,716
<CURRENT-ASSETS> 24,902
<PP&E> 273,786
<DEPRECIATION> 41,101
<TOTAL-ASSETS> 295,928
<CURRENT-LIABILITIES> 37,841
<BONDS> 130,921
0
0
<COMMON> 0
<OTHER-SE> 120,397
<TOTAL-LIABILITY-AND-EQUITY> 295,928
<SALES> 35,168
<TOTAL-REVENUES> 35,168
<CGS> 3,718
<TOTAL-COSTS> 24,441
<OTHER-EXPENSES> (2,647)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,514
<INCOME-PRETAX> 6,860
<INCOME-TAX> 566
<INCOME-CONTINUING> 6,294
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,294
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
