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 March 31, 1999
KINDER MORGAN ENERGY PARTNERS, L.P.
KINDER MORGAN OPERATING L.P. "A"
KINDER MORGAN OPERATING L.P. "B"
KINDER MORGAN OPERATING L.P. "C"
KINDER MORGAN OPERATING L.P. "D"
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
KINDER MORGAN CO2, LLC
KINDER MORGAN BULK TERMINALS, INC.
(Exact name of registrants as specified in their charters)
Delaware 1-11234 76-0380342
Delaware 333-66931-01 76-0380015
Delaware 333-66931-02 76-0414819
Delaware 333-66931-03 76-0547319
Delaware 333-66931-04 76-0561780
Delaware 333-66931-05 76-0256928
Delaware 333-66931-06 76-0563308
Louisiana 333-66931-07 72-1073113
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation or Organization) Number) Identification No.)
1301 McKinney St.
Suite 3450
Houston, Texas 77010
---------------------------- -------------
(Address of Principal Executive (Zip Code)
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 48,815,690 units outstanding at May 6, 1999.
Page 1 of 26
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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 Statements of Income - Three Months
Ended March 31, 1999 and 1998 3
Consolidated Balance Sheet - March 31, 1999 and
December 31, 1998 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
ITEM 3. - Quantitative and Qualitative Disclosures about
Market Risk 22
PART II. OTHER INFORMATION
ITEM 1. - Legal Proceedings 23
ITEM 5. - Other Information 23
ITEM 6. - Exhibits and Reports on Form 8-K 23
Page 2 of 26
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Unit Amounts)
(Unaudited)
Three Months Ended March 31,
----------------------------
1999 1998
----------- -----------
Revenues $ 100,049 $ 36,741
Costs and Expenses
Cost of products sold 569 853
Operations and maintenance 21,166 6,360
Fuel and power 7,184 3,145
Depreciation and amortization 12,054 4,719
General and administrative 7,818 5,094
Taxes, other than income taxes 4,271 1,479
----------- -----------
53,062 21,650
----------- -----------
Operating Income 46,987 15,091
Other Income (Expense)
Earnings from equity investments 7,955 5,282
Interest, net (11,799) (5,668)
Other, net (11) (679)
Minority Interest (621) (62)
----------- -----------
Income Before Income Taxes and Extraordinary charge 42,511 13,964
Income Tax Benefit (Expense) (1,442) -
----------- -----------
Income Before Extraordinary charge 41,069 13,964
Extraordinary charge on early extinguishment of debt - (13,611)
----------- -----------
Net Income $ 41,069 $ 353
=========== ===========
Calculation of Limited Partners' Interest in Net
Income:
Income Before Extraordinary charge $ 41,069 $ 13,964
Less: General Partner's interest in Net Income (13,363) (2,865)
----------- -----------
Limited Partners' Net Income before extraordinary
charge 27,706 11,099
Less: Extraordinary charge on early extinguishment
of debt - (13,611)
----------- -----------
Limited Partners' Net Income $ 27,706 $ (2,512)
=========== ===========
Net Income per Unit before extraordinary charge $ 0.57 $ 0.52
=========== ===========
Extraordinary charge per Unit $ - (0.64)
=========== ===========
Net Income per Unit $ 0.57 $ (0.12)
=========== ===========
Number of Units used in Computation 48,817 21,505
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
1999 1998
----------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 33,276 $ 31,735
Accounts and notes receivable 47,480 44,125
Inventories
Products 4,192 2,901
Materials and supplies 2,561 2,640
----------- -----------
87,509 81,401
----------- -----------
Property, Plant and Equipment, at cost 1,854,703 1,836,719
Less accumulated depreciation 83,890 73,333
----------- -----------
1,770,813 1,763,386
----------- -----------
Equity Investments 237,536 238,608
----------- -----------
Intangibles 58,173 58,536
Deferred charges and other assets 15,815 10,341
----------- -----------
TOTAL ASSETS $2,169,846 $2,152,272
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable $ 18,449 $ 25,642
Accrued liabilities 31,679 18,230
Accrued benefits 7,801 9,415
Accrued taxes 4,610 4,195
----------- -----------
62,539 57,482
----------- -----------
Long-Term Liabilities and Deferred Credits
Long-term debt 631,205 611,571
Other 99,671 104,789
----------- ------------
730,876 716,360
----------- ------------
Commitments and Contingencies
Minority Interest 17,895 17,767
----------- ------------
Partners' Capital
Common Units 1,344,140 1,348,591
General Partner 14,396 12,072
----------- ------------
1,358,536 1,360,663
----------- ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $2,169,846 $ 2,152,272
=========== ============
The accompanying notes are an integral part of these consolidated
financial statements.
Page 4 of 26
<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
1999 1998
------------- ------------
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 41,069 $ 353
Extraordinary charge on early extinguishment
of debt - 13,611
Depreciation and amortization 12,054 4,719
Earnings from equity investments (7,955) (5,282)
Distributions from equity investments 7,816 1,298
Changes in components of working capital 487 5,600
Other, net (7,106) 1,164
------------- ------------
Net Cash Provided by Operating Activities 46,365 21,463
------------- ------------
Cash Flows From Investing Activities
Acquisitions of assets - (61,784)
Additions to property, plant and equipment for
expansion and maintenance projects (18,347) (4,359)
Sale of property, plant and equipment - 19
Contributions to equity investments (552) (25,213)
------------- ------------
Net Cash Used in Investing Activities (18,899) (91,337)
------------- ------------
Cash Flows From Financing Activities
Issuance of debt 249,683 265,020
Payment of debt (230,063) (130,800)
Long-term debt - refinancing / issue costs (1,916) (16,257)
Contributions from General Partner's
Minority Interest - 9,624
Distributions to partners
Common Units (31,171) (7,937)
General Partner (11,598) (1,981)
Minority Interest (493) (101)
Other, net (367) -
------------- ------------
Net Cash Provided by (Used in) Financing Activities (25,925) 117,568
------------- ------------
Increase in Cash and Cash Equivalents 1,541 47,694
Cash and Cash Equivalents, Beginning of Period 31,735 9,612
------------- ------------
Cash and Cash Equivalents, End of Period $ 33,276 $ 57,306
============= ============
Noncash Investing and Financing Activities
Contribution of net assets to partnership
investments $ - $ 56,563
Assets acquired by the issuance of Common Units $ - $ 943,202
Assets acquired by the assumption of liabilities $ - $ 512,706
Page 5 of 26
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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") 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, 1998 ("Form 10-K").
The Limited Partners' Net Income per Unit was computed by dividing the
Limited Partners' interest in Net Income (before and after the extraordinary
charge on early extinguishment of debt in 1998) by the weighted average number
of units outstanding during the period.
2. Acquisitions and Joint Ventures
During 1998, the Partnership completed certain significant acquisitions
consisting of SFPP, L.P. ("SFPP"), an operating partnership acquired on March 6,
1998, valued at more than $1.4 billion inclusive of liabilities assumed,
Hall-Buck Marine, Inc. ("Hall-Buck"), acquired on July 1, 1998, valued at $100
million including common units and debt assumed, and an equity interest in Shell
CO2 Company, Ltd. ("Shell CO2 Company"), acquired on March 5, 1998, valued at
$85 million, including contributions of a pipeline and cash.
Pro Forma Information
The following summarized unaudited Pro Forma Consolidated Income Statement
information for the three months ended March 31, 1998, assumes the above
acquisitions had occurred as of January 1, 1998. The unaudited Pro Forma
financial results have been prepared for comparative purposes only and may not
be indicative of the results that would have occurred if the Partnership had
completed the above acquisitions on the dates indicted or which will be attained
in the future.
Net Income for the Pro Forma period does not include the annualized
effects of all the cost saving measures the Partnership has achieved since its
acquisition of SFPP. The Pro Forma information does not include the effects of
the Partnership's acquisitions of an equity interest in Plantation Pipe Line
Company on September 15, 1998, or the acquisitions of the Pier IX and Shipyard
River Terminals on December 18, 1998. Amounts presented below are in thousands,
except for per unit amounts:
Page 6 of 26
<PAGE>
Pro Forma
Three Months Ended
March 31,
Income Statement 1998
-----
Revenues $92,431
Operating Income $31,558
Net Income before extraordinary charge $23,884
Net Income $10,273
Net Income per unit before extraordinary charge $0.42
Net Income per unit $0.10
3. Litigation
FERC Proceedings
On January 13, 1999, the Federal Energy Regulatory Commission issued its
Opinion No. 435 in Docket Nos. OR92-8-000, et. al. This docket deals with a
complaint filed by certain shippers: (1) challenging the Pacific Operations'
West Line rates from the Los Angeles area to Phoenix and Tucson, Arizona and
East Line rates from El Paso, Texas to Tucson and Phoenix and (2) challenging
the Pacific Operations' proration policy. Opinion 435 affirmed in part and
modified in part the initial decision by the FERC Administrative Law Judge that
was issued on September 25, 1997. In Opinion No. 435, the FERC ruled that all
but one of the West Line rates are "grandfathered" as just and reasonable and
that "changed circumstances" had not been shown to satisfy the complainants'
threshold burden necessary to challenge those rates. The FERC further held that
the one "non-grandfathered" West Line tariff did not require rate reduction.
Accordingly, all complaints against the West Line rates were dismissed without
any requirement that SFPP reduce, or pay any reparations for, any West Line
rate.
With respect to the East Line rates, Opinion No. 435 reversed in part and
affirmed in part the administrative law judge's initial decision regarding the
methodology of calculating the rate base for the East Line. Among other things,
Opinion No. 435 modified the initial decision concerning the date in reference
to which the starting rate base would be calculated and the income tax allowance
and allowable cost of equity used to calculate the rate base. In addition,
Opinion No. 435 ruled that no reparations would be owed to any complainant for
any period prior to the date on which that complainant's complaint was filed,
thus reducing the potential reparations period for most complainants by two
years. Complainants have filed petitions with the United States Court of Appeals
for the District of Columbia circuit for review of Opinion No. 435. SFPP has
filed for both rehearing and appellate review of Opinion No. 435. The
Partnership believes Opinion No. 435 substantially reduces the negative impact
of the initial decision.
In a companion order to Opinion No. 435, the FERC directed the
complainants in Docket Nos. OR98-1-000 and OR98-2-000 to amend their complaints,
as may be appropriate, so as to make them consistent with the terms and
conditions of its orders, including Opinion No. 435. These complaints challenge
the justness and reasonableness of all of SFPP's interstate rates and include an
assertion that the acquisition of SFPP and the cost savings anticipated to
result from the acquisition constitute "changed circumstances" that provide a
basis for terminating the "grandfathered" status of SFPP's otherwise protected
rates.
Page 7 of 26
<PAGE>
California Public Utilities Commission Proceeding
ARCO Products Company, Mobil Oil Corporation and Texaco Refining and
Marketing Inc. have filed a complaint with the California Public Utilities
Commission ("CPUC") against SFPP challenging the rates charged by SFPP for
intrastate transportation of refined petroleum products in California and
requesting prospective rate adjustments. In June 1998, the CPUC affirmed a
ruling dismissing the complaint, which decision has been appealed to the
California Supreme Court. The Partnership believes it has adequate reserves
recorded for any adverse decision related to this matter.
SPTC Easements
SFPP and Southern Pacific Transportation Company ("SPTC") are engaged in a
judicial reference proceeding to determine the extent, if any, to which the rent
payable by SFPP for the use of pipeline easements on rights-of-way held by SPTC
should be adjusted pursuant to existing contractual arrangements. The judge in
the case has issued a Statement of Tentative Decision indicating that he intends
to establish a new base annual rental for the subject rights-of-way at a level,
subject to inflation adjustments, that is adequately provided for by the amounts
accrued by SFPP through March 31, 1999. The case is currently pending before the
Court of Appeals for the First Appellate District of the State of California.
Environmental Matters
The Partnership is currently involved in the following governmental
proceedings related to compliance with environmental regulations:
o SFPP, along with several other respondents, is involved in one cleanup
ordered by the United States Environmental Protection Agency related to
ground water contamination in the vicinity of SFPP's storage facilities and
truck loading terminal at Sparks, Nevada.
o SFPP is currently involved in 18 ground water hydrocarbon remediation efforts
under administrative orders issued by the California Regional Water Quality
Control Board and two other state agencies.
o The general partner is a defendant in two proceedings (one by the State of
Illinois and one by the Department of Transportation) relating to alleged
environmental violations for events relating to a fire that occurred at the
Morris storage field in September 1994.
In addition, the Partnership from time to time is involved in civil
proceedings relating to damages alleged to have occurred as a result of
accidental leaks or spills of refined petroleum products or natural gas liquids.
Among these matters is a lawsuit originally filed in February 1998 against SFPP
in the Superior Court of the State of California in and for the County of Solano
by 283 individual plaintiffs alleging personal injury and property damage
arising from a release in 1996 of petroleum products from SFPP's pipeline
running through Elmira, California. An amended complaint was filed on May 22,
1998. No trial date has been set. The Partnership continues to aggressively
defend the action.
Although no assurance can be given, the Partnership believes that the
ultimate resolution of these matters will not have a material adverse effect
on its financial position or results of operations. The Partnership has
Page 8 of 26
<PAGE>
recorded a reserve for environmental claims in the amount of $23.5 million at
March 31, 1999.
Other
The Partnership, in the ordinary course of business, is a defendant in
various lawsuits relating to the Partnership's assets. Although no assurance can
be given, the Partnership believes, based on its experience to date, that the
ultimate resolution of such items will not have a material adverse impact on the
Partnership's financial position or results of operations.
For more detailed information regarding these proceedings and other
litigation, please refer to the Partnership's Form 10-K, Note 15 of the Notes to
the Consolidated Financial Statements.
4. Distributions
On February 12, 1999, the Partnership paid a cash distribution for the
quarterly period ended December 31, 1998, of $0.65 per unit. The distribution
was declared on January 13, 1999, payable to unitholders of record as of January
29, 1999.
On April 12, 1999, the Partnership declared a cash distribution for the
quarterly period ended March 31, 1999, of $0.70 per unit. The distribution will
be paid on or before May 14, 1999, to unitholders of record as of April 30,
1999.
5. Long-Term Debt
The Partnership's debt facilities consist of:
o a $325 million unsecured credit facility,
o $250 million of 6.30% Senior Notes due February 1, 2009,
o $244 million of Series F First Mortgage Notes (a subsidiary, SFPP, L.P.
is the obligor on the notes),
o a $175 million secured credit facility of SFPP, L.P., and
o $23.7 million of tax-exempt bonds due 2004 (a subsidiary, Kinder Morgan
Operating L.P. "B" ("OLP-B") is the obligor on these bonds).
In February 1998, the Partnership refinanced the first mortgage notes and
existing bank credit facilities of Kinder Morgan Operating L.P. "A" with a $325
million secured revolving credit facility ("Credit Facility") expiring in
February 2005. On December 1, 1998, the Credit Facility was amended to release
the collateral and the Credit Facility became unsecured. The Credit Facility had
an outstanding balance of $230 million at December 31, 1998, and zero dollars at
March 31, 1999. During the first quarter of 1999, the weighted average interest
rate on the Credit Facility was approximately 4.2% per annum.
On January 29, 1999, the Partnership closed a public offering of $250
million in principal amount of 6.30% Senior Notes due February 1, 2009 ("Notes")
at a price to the public of 99.67% per Note. In the offering, the Partnership
received proceeds, net of underwriting discounts and commissions, of
approximately $248 million. The proceeds were used to pay the outstanding
balance on the Credit Facility and for working capital and other proper
partnership purposes. The Notes will be guaranteed on a full, unconditional, and
joint and several basis by all of the Partnership's consolidating subsidiaries
(excluding SFPP and the subsidiaries of Kinder Morgan Bulk Terminals, Inc.) so
long as any other debt obligations of the Partnership are
Page 9 of 26
<PAGE>
guaranteed by such subsidiaries. SFPP, which was acquired March 6, 1998, is not
a guarantor of the public debt securities. Kinder Morgan Energy Partners, L.P.,
the parent company, has operations only from investments in its subsidiaries. On
March 31, 1999, the unamortized Senior Note liability balance was approximately
$249 million.
At March 31, 1999, the outstanding balance under SFPP's Series F notes was
$244.0 million. The annual interest rate on the Series F notes is 10.70%, the
maturity is December 2004, and interest is payable semiannually in June and
December. The Series F notes are payable in annual installments of $31.5 million
in 1999, $32.5 million in 2000, $39.5 million in 2001, $42.5 million in 2002,
and $37.0 million in 2003. The Series F notes may also be prepaid beginning in
1999 in full or in part at a price equal to par plus, in certain circumstances,
a premium. The Series F notes are secured by mortgages on substantially all of
the properties of SFPP (the "Mortgaged Property"). The notes contain certain
covenants limiting the amount of additional debt or equity that may be issued
and limiting the amount of cash distributions, investments, and property
dispositions.
At March 31, 1999, the outstanding balance under SFPP's bank facility was
$111.0 million. The bank credit facility provides for borrowings of up to $175
million due in August 2000 and interest, at a short-term Eurodollar rate,
payable quarterly. This bank credit facility is used primarily for financing the
first mortgage notes when due. Borrowings under this facility are also secured
by the Mortgaged Property and are generally subject to the same terms and
conditions as the Series F notes. At March 31, 1999, the interest rate on the
credit facility debt was 5.215%.
OLP-B's $23.7 million principal amount of tax exempt bonds due 2024 were
issued by the Jackson-Union Counties Regional Port District. Such bonds bear
interest at a weekly floating market rate. During the first quarter of 1999, the
weighted-average interest rate on these bonds was approximately 3.5%-4% per
annum. OLP-B has entered into an interest rate swap, which fixes the interest
rate at approximately 3.65% per annum during the period from February 13, 1996
to December 31, 1999.
The following discloses the consolidating financial information for the
Partnership:
Page 10 of 26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(In Thousands) (Unaudited)
Kinder Morgan Combined Combined Eliminations
Energy Guarantor Nonguarantor and
Partners, LP Subs. Subs. Adjustments Consolidated
--------------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 39,326 $ 60,723 $ - $ 100,049
Costs and Expenses
Cost of products sold - 569 - - 569
Operations and maintenance - 17,886 3,280 - 21,166
Fuel and power - 2,224 4,960 - 7,184
Depreciation and amortization - 4,359 7,695 - 12,054
General and administrative - 1,952 5,866 - 7,818
Taxes, other than income taxes - 1,508 2,763 - 4,271
--------------- ---------- ------------ ------------ ------------
- 28,498 24,564 - 53,062
--------------- ---------- ------------ ------------ ------------
Operating Income - 10,828 36,159 - 46,987
Other Income (Expense)
Earnings from equity investments 41,024 36,419 386 (69,874) 7,955
Interest, net 45 (4,305) (7,539) - (11,799)
Other, net - - (11) - (11)
Minority Interest - (57) - (564) (621)
--------------- ---------- ------------ ------------ ------------
Income Before Income Taxes 41,069 42,885 28,995 (70,438) 42,511
Income Tax Benefit (Expense) - (1,442) - - (1,442)
--------------- ---------- ------------ ------------ ------------
Net Income $ 41,069 $ 41,443 $ 28,995 $ (70,438) $ 41,069
=============== ========== ============= ============ ============
</TABLE>
Page 11 of 26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET
AT MARCH 31, 1999
(In Thousands) (Unaudited)
Kinder Morgan Combined Combined Eliminations
Energy Guarantor Nonguarantor and
Partners, LP Subs. Subs. Adjustments Consolidated
--------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 44 $ 17,059 $ 16,173 $ - $ 33,276
Accounts and notes receivable 9,390 44,883 38,563 (45,356) 47,480
Inventories
Products - 3,992 200 - 4,192
Materials and supplies - 1,771 790 - 2,561
--------------- ----------- ------------ ------------ ------------
9,434 67,705 55,726 (45,356) 87,509
--------------- ----------- ------------ ------------ ------------
Prop., Plant and Equip, at cost - 303,655 1,551,048 - 1,854,703
Less accumulated depreciation - 49,007 34,883 - 83,890
--------------- ----------- ------------ ------------ ------------
- 254,648 1,516,165 - 1,770,813
--------------- ----------- ------------ ------------ ------------
Equity Investments 1,354,898 1,310,302 10,045 (2,437,709) 237,536
--------------- ----------- ------------ ------------ ------------
Intangibles - 58,173 - - 58,173
Deferred charges and other assets 269,917 5,709 5,520 (265,331) 15,815
--------------- ----------- ------------ ------------ ------------
TOTAL ASSETS $ 1,634,249 $1,696,537 $ 1,587,456 $(2,748,396) $ 2,169,846
=============== =========== ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable $ 23,675 $ 25,496 $ 14,634 $ (45,356)$ 18,449
Accrued liabilities 2,849 6,221 22,609 - 31,679
Accrued benefits - 558 7,243 - 7,801
Accrued taxes - 1,426 3,184 - 4,610
--------------- ----------- ------------ ------------ ------------
26,524 33,701 47,670 (45,356) 62,539
--------------- ----------- ------------ ------------ ------------
Long-Term Liabilities and Def. Credits
Long-term debt 249,189 291,900 355,447 (265,331) 631,205
Other - 3,520 96,151 - 99,671
--------------- ----------- ------------ ------------ ------------
249,189 295,420 451,598 (265,331) 730,876
--------------- ----------- ------------ ------------ ------------
Minority Interest - (1,307) - 19,202 17,895
--------------- ----------- ------------ ------------ ------------
Partners' Capital
Limited Partner Interests - 1,354,898 - (1,354,898) -
General Partner Interests - - 1,082,811 (1,082,811) -
Special LP Interests - - 5,377 (5,377) -
Common Units 1,344,140 - - - 1,344,140
Kinder Morgan General Partner 14,396 13,825 - (13,825) 14,396
--------------- ----------- ------------ ------------ ------------
1,358,536 1,368,723 1,088,188 (2,456,911) 1,358,536
--------------- ----------- ------------ ------------ ------------
TOTAL LIABILITIES AND CAPITAL $ 1,634,249 $1,696,537 $ 1,587,456 $(2,748,396) $ 2,169,846
=============== =========== ============ ============= ============
</TABLE>
Page 12 of 26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(In Thousands) (Unaudited)
Kinder Morgan Combined Combined Eliminations
Energy Guarantor Nonguarantor and
Partners, LP Subs. Subs. Adjustments Consolidated
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 41,069 $ 41,443 $ 28,995 $ (70,438) $ 41,069
Depreciation and amortization - 4,359 7,695 - 12,054
Earnings from equity investments (41,024) (36,419) (386) 69,874 (7,955)
Distributions from equity investments 42,769 18,384 875 (54,212) 7,816
Changes in components of working capital 17,995 (17,988) 480 - 487
Other, net 179 (570) (7,279) 564 (7,106)
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- ------------
Operating Activities 60,988 9,209 30,380 (54,212) 46,365
------------- ------------- ------------- ------------- ------------
Cash Flows From Investing Activities
Acquisitions of assets - - - - -
Adds to prop, plant and equip. for
expansion and maintenance projects - (1,041) (17,306) - (18,347)
Sale of property, plant and equipment - - - - -
Contributions to equity investments - (552) - - (552)
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- ------------
Investing Activities - (1,593) (17,306) - (18,899)
------------- ------------- ------------- ------------- ------------
Cash Flows From Financing Activities
Issuance of debt 249,175 35,608 - (35,100) 249,683
Payment of debt (230,000) - (63) - (230,063)
Long-term debt - refinancing / issue costs (1,916) - - - (1,916)
Proceeds from issuance of common units - - - - -
Contributions from GP interests - - - - -
Distributions to partners -
Limited Partner Interests - (42,769) - 42,769 -
General Partner Interests - - (11,443) 11,443 -
Special LP Interests - - (57) 57 -
Common Units (31,171) - - - (31,171)
Kinder Morgan General Partner (11,598) (436) - 436 (11,598)
Minority Interest - - - (493) (493)
Other, net (35,527) 60 - 35,100 (367)
Net Cash Provided by (Used in)
------------- ------------- ------------- ------------- ------------
Financing Activities (61,037) (7,537) (11,563) 54,212 (25,925)
------------- ------------- ------------- ------------- ------------
Incr/(Decr) in Cash and Cash Equivs. (49) 79 1,511 - 1,541
Cash and Cash Equivs., Beg. of Period 93 16,980 14,662 - 31,735
------------- ------------- ------------- ------------- ------------
Cash and Cash Equivs., End of Period $ 44 $ 17,059 $ 16,173 $ - $ 33,276
============= ============= ============= ============= ============
</TABLE>
6. Partners' Capital
At December 31, 1997, the Partnership had 14,111,200 units outstanding. On
March 6, 1998, the Partnership issued 26,615,308 units in connection with the
acquisition of the Pacific Operations. At March 31, 1998, the Partnership had
40,726,508 units outstanding.
At December 31, 1998, the Partnership had 48,821,690 units outstanding. On
January 22, 1999, and January 30, 1999, the Partnership repurchased and
immediately cancelled 4,000 and 2,000 units, respectively. At March 31, 1999,
the Partnership had 48,815,690 units outstanding.
Page 13 of 26
<PAGE>
These units represent the limited partners' interest and an effective 98%
economic interest in the Partnership, exclusive of the general partner's
incentive distribution. The general partner interest represents an effective 2%
interest in the Partnership, excluding the general partner's incentive
distribution.
For the purposes of maintaining partner capital accounts, the partnership
agreement specifies that items of income and loss shall be allocated among the
partners in accordance with their respective 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 Partnership's cash distribution of $0.65 per unit paid on
February 12, 1999 for the fourth quarter of 1998 required an incentive
distribution to the General Partner of $10,717,464. The Partnership's cash
distribution of $0.5625 per unit paid on February 17, 1998 for the fourth
quarter of 1997 required an incentive distribution to the general partner of
$1,900,667. The increased incentive distribution paid for the fourth quarter of
1998 over the distribution paid for the fourth quarter of 1997 reflects the
increase in amount distributed per unit as well as the issuance of additional
units.
The Partnership's declared distribution for the first quarter of 1999 of
$0.70 per unit will result in an incentive distribution to the general partner
of $13,083,847. This compares to the Partnership's cash distribution of $0.5625
per unit and incentive distribution to the general partner of $2,889,621 for the
first quarter of 1998. The increased incentive distribution paid for the first
quarter of 1999 over the distribution paid for the first quarter of 1998
reflects the increase in amount distributed per unit as well as the issuance of
additional units.
7. Reportable Segments
The Partnership has adopted SFAS No. 131 -- "Disclosures About Segments of
an Enterprise and Related Information". The Partnership competes in three
reportable business segments: Pacific Operations, Mid-Continent Operations and
Bulk Terminals. The Partnership evaluates performance based on each segments'
earnings, which excludes general and administrative expenses, third-party debt
costs, unallocable non-affiliated interest income and expense, and minority
interest. The Partnership's reportable segments are strategic business units
that offer different products and services. They are managed separately because
each segment involves different products and marketing strategies.
Financial information by segment follows (in thousands):
Three Months Ended March 31,
1999 1998
--------------- --------------
Revenues
Pacific Operations $ 60,723 $ 20,767
Mid-Continent Operations 10,631 10,130
Bulk Terminals 28,695 5,844
--------------- --------------
Total Segments $ 100,049 $ 36,741
=============== ==============
Page 14 of 26
<PAGE>
Three Months Ended March 31,
1999 1998
--------------- --------------
Operating Income
Pacific Operations $ 42,025 $ 13,497
Mid-Continent Operations 3,654 4,255
Bulk Terminals 9,126 2,433
--------------- --------------
Total Segments $ 54,805 $ 20,185
=============== ==============
Segment earnings
Pacific Operations $ 42,400 $ 12,865
Mid-Continent Operations 10,071 9,409
Bulk Terminals 8,839 2,450
--------------- --------------
Total Segments (1) $ 61,310 $ 24,724
=============== ==============
Assets at March 31
Pacific Operations $ 1,564,233 $ 1,515,970
Mid-Continent Operations 379,082 274,064
Bulk Terminals 188,669 54,724
--------------- --------------
Total Segments (2) $ 2,131,984 $ 1,844,758
=============== ==============
(1) The following reconciles segment earnings to net income.
Three Months Ended March 31,
1999 1998
--------------- --------------
Segment earnings $ 61,310 $ 24,724
Interest and corporate
administrative expenses (a) (20,241) (10,760)
Extraordinary charge - (13,611)
--------------- --------------
Net Income $ 41,069 $ 353
=============== ==============
(a) Includes interest and debt expense, general and administrative expenses,
minority interest expense and other insignificant items.
(2) The following reconciles segment assets to consolidated assets.
Assets at March 31 1999 1998
--------------- --------------
Segment assets $ 2,131,984 $ 1,844,758
Corporate assets (a) 37,862 66,419
--------------- --------------
Total assets $ 2,169,846 $ 1,911,177
=============== ==============
(a) Includes cash, cash equivalents and certain unallocable deferred charges.
8. Subsequent Events
On May 3, 1999, the Partnership announced the execution of a definitive
agreement to acquire all of Chevron's shares of Plantation Pipe Line Company for
approximately $124 million in cash. Following the transaction, the Partnership
will own 51% of Plantation Pipe Line Company and Exxon Pipeline Company, an
affiliate of Exxon Corp, will own 49%. The completion of the transaction is
subject to regulatory approval, to a right of first refusal by Exxon Pipeline
Company, and to other customary conditions. The transaction is expected to close
during the second quarter.
Plantation Pipe Line Company is one of the largest product pipelines in
the United States. It delivers over 600,000 barrels per day of gasoline, jet
fuel and diesel fuel through its 3,144 mile pipeline network which serves
Atlanta, Charlotte, Washington, D.C. and other destinations in the southeast
United States. On September 15, 1998, the Partnership acquired 24% of Plantation
Pipe Line Company for $110 million.
Page 15 of 26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
First Quarter 1999 Compared With First Quarter 1998
The Partnership's first quarter results reflect record quarterly earnings
before extraordinary items and strong revenue growth across all business
segments. Total net earnings before extraordinary charges for the first quarter
of 1999 were $41.1 million ($0.57 per unit) compared to $14.0 million ($0.52 per
unit) for the first quarter of 1998. Included in 1998 net earnings was an
extraordinary charge of $13.6 million associated with debt refinancing
transactions, including both a prepayment premium and the write-off of
unamortized debt issue costs. After the extraordinary charge, net income for the
first quarter 1998 was $0.4 million. There was revenue growth across all
business segments, primarily due to the acquisitions of the Pacific Operations
(formerly Santa Fe Pacific Pipeline Partners, L.P.) in March 1998 and Kinder
Morgan Bulk Terminals, Inc. (formerly Hall-Buck Marine, Inc.) in July 1998.
Total Partnership revenue increased to $100.0 million in the first quarter of
1999 compared to $36.7 million in the first quarter of 1998. Operating income
for the three months ended March 31, 1999 was $47.0 million compared to $15.1
million for the same period of 1998.
The Pacific Operations reported segment earnings of $42.4 million and
operating revenues of $60.7 million for the first three months of 1999. Segment
earnings and operating revenues for the first three months of 1998 were $12.9
million and $20.8 million, respectively. The 1999 first quarter results reflect
the inclusion of a full quarter of operations and continued strong demand for
refined products in the Partnership's West Coast markets.
The Mid-Continent Operations realized $10.1 million in segment earnings in
the first quarter of 1999 compared to $9.4 million in the year-earlier period.
The 7% earnings increase in 1999 was primarily due to earnings from the
Partnership's equity investment in Plantation Pipe Line Company, which was
acquired in September 1998. Segment revenues were $10.6 million in the first
quarter of 1999 and $10.1 million in the first quarter of 1998. The 5% increase
in segment revenue was the result of a 3% increase in average tariff rates
accompanied by a slight increase (1%) in barrels transported. Higher throughput
volumes resulted in an increase in operating expenses. Combined operating,
maintenance, fuel and power expenses increased 9% (to $3.7 million) compared
with last year's first quarter. Depreciation and amortization expense for the
first quarter of 1999 was $2.6 million versus $1.9 million in the same period
last year. The increase of $0.7 million in depreciation and amortization expense
represents the Partnership's amortization of goodwill associated with its
investment in Plantation Pipe Line Company. Earnings from equity investments
totaled $7.6 million in the first quarter of 1999 compared to $5.2 million in
the first quarter of 1998. The 46% increase is mainly due to the inclusion of
$2.9 million in earnings from the Partnership's equity investment in Plantation
Pipe Line Company and higher earnings from its investment in the Heartland
pipeline. Higher overall equity earnings were partially offset by lower returns
on the Partnership's investment in the Mont Belvieu Fractionator, primarily due
to a decrease in fractionation volumes. Income tax expense for the segment
increased $1.1 million in 1999 over the previous year. The 1999 income tax
expense increase represents the Partnership's share of tax expense related to
its investment in Plantation Pipe Line Company.
Page 16 of 26
<PAGE>
The Bulk Terminals segment reported earnings of $8.8 million in the first
quarter of 1999 compared to $2.5 million in the same period of 1998. Segment
revenues for the first quarters of 1999 and 1998 were $28.7 million and $5.8
million, respectively. The 1999 increase in operating results reflects the
Partnership's acquisitions of Kinder Morgan Bulk Terminals, Inc. in July 1998
and the Pier IX and Shipyard River Terminals in December 1998. Excluding these
acquisitions, revenues from the Partnership's other coal terminals increased 25%
in the first quarter of 1999 compared with the year-earlier period. The revenue
increase was primarily the result of a 19% increase in coal volumes transferred
and a slight increase (2%) in average coal transfer rates. Cost of products sold
decreased 40% compared with last year's first quarter. The decrease was mainly
due to a lower number of coal purchase contracts incurred in coal marketing
activity. Operations and maintenance expenses, combined with fuel and power
expenses, totaled $16.4 million in the first quarter of 1999 and $2.1 million in
the first quarter of 1998. The increase in operating expenses was the result of
the 1998 business acquisitions. Excluding the acquired operations, combined
expenses decreased 5% compared to the first quarter of last year. The
acquisitions affected other expense categories as well. Depreciation and
amortization expenses, along with taxes, other than income taxes, were higher in
the first quarter of 1999 versus the comparable period in 1998. Depreciation and
amortization expenses were $1.8 million in 1999 and $0.4 million in 1998. Taxes,
other than income taxes, were $0.9 million in 1999 and $0.1 million in 1998.
Operating statistics for the first quarter are as follows:
First Quarter
1999 1998
-----------------
Pacific Operations
Delivery Volumes(MMBbls) 89.3 29.9
Average Revenue ($/Bbl) $0.68 $0.69
Mid-Continent Operations *
Delivery Volumes (MMBbls) 11.9 11.8
Average Tariff ($/Bbl) $0.80 $0.78
Bulk Terminals
Transport Volumes (MM Tons) 9.6 3.0
------------------------------------------------------------------------
* North System and Cypress only.
Page 17 of 26
<PAGE>
Earnings contribution by business segment for the first quarter is as follows:
Earnings Contribution by Business Segment**
(Unaudited)
(In Thousands)
First Quarter
1999 1998
-----------------
Pacific Operations $42,400 $12,865
Mid-Continent Operations $10,071 $9,409
Bulk Terminals $8,839 $2,450
------------------------------------------------------------------------
** Excludes general and administrative expenses, debt costs, and
minority interest. Includes the results of acquired operations
from the date of acquisition.
Total Partnership general and administrative expenses were $7.8 million in
the first quarter of 1999 compared to $5.1 million in the same period of 1998.
The increase was attributable to higher administrative expenses associated with
the SFPP and Bulk Terminal acquisitions made by the Partnership in 1998. The
Partnership continues to focus on productivity and expense controls.
Total Partnership interest expense, net of interest income, was $11.8
million in the first quarter of 1999 compared to $5.7 million in the same
year-earlier period. The increase was mainly due to debt assumed by the
Partnership as part of the acquisition of the Pacific Operations as well as
expenses related to the financing of the Partnership's 1998 investments.
Minority interest expense increased to $0.6 million in the first quarter
of 1999 versus $0.1 million in the first quarter of 1998. The increase was the
result of earnings attributable to SFPP (Pacific Operations) as well as to
higher overall Partnership net income.
Financial Condition
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 borrowings under its credit facilities, issuing
long-term notes or issuing additional units. The Partnership expects to fund
future cash distributions and sustaining capital expenditures with existing cash
and cash flows from operating activities. Expansion capital expenditures are
expected to be funded through additional Partnership borrowings or issuance of
additional units. Interest payments are expected to be paid from cash flows from
operating activities and debt principal payments will be met by additional
borrowings as they become due or by issuance of additional units.
Cash Provided by Operating Activities
Net cash provided by operating activities was $46.4 million for the three
months ended March 31, 1999, versus $21.5 million in the comparable
Page 18 of 26
<PAGE>
period of 1998. The period-to-period increase of $24.9 million in cash flow from
operations was primarily the result of higher net earnings, non-cash
depreciation and amortization charges and distributions from equity investments.
Higher earnings and depreciation charges, chiefly due to business acquisitions
made during 1998, increased $27.1 million and $7.3 million, respectively, in the
first quarter of 1999 when compared to the same period in 1998. Distributions
from the Partnership's investments in Shell CO2 Company and Plantation Pipe Line
Company were the primary factors for the $6.5 million increase in equity
investment distributions. The overall increase in cash provided by operating
activities was partially offset by lower cash inflows relative to net changes in
working capital items, higher payments for pipeline right-of-way easements and
payments under the Partnership's executive compensation plan.
Cash Used in Investing Activities
Net cash used in investing activities was $18.9 million for the three
month period ended March 31, 1999, compared to $91.3 million in the same
year-earlier period. The $72.4 million decrease reflects $61.8 million used for
the March 6, 1998 acquisition of the Pacific Operations and $25.0 million used
for the March 5, 1998 cash investment in Shell CO2 Company. Lower overall funds
used in investing activities were partially offset by a $14.0 million increase
in capital expenditures driven primarily by continued investment in the
Partnership's Pacific Operations. Excluding the effect of cash used for asset
acquisitions, additions to property, plant and equipment were $18.4 million in
the first quarter of 1999 and $4.4 million in the first quarter of 1998. These
additions of property, plant and equipment include both expansion and
maintenance projects.
Cash Provided by / (Used in) Financing Activities
Net Cash used in financing activities amounted to $25.9 million for the
three month period ended March 31, 1999. This increase of $143.5 million from
the comparable 1998 period was the result of increased distributions to partners
and decreased net borrowings and general partner contributions. The overall
increase in cash used in financing activities was partially offset by lower debt
refinancing fees.
Overall debt financing activities provided $19.6 million in cash during
the three month period of 1999, versus $134.2 million during the comparable
period of 1998. The 1998 first quarter financing activities included borrowings
made by the Partnership as part of the acquisition of the Pacific Operations.
Distributions to all partners increased to $43.6 million in the three month
period ended March 31, 1999, compared to $10.0 million in the comparable 1998
period. Higher distributions were the result of an increase in distributable
cash flow. Furthermore, the higher distributions were as a result of an increase
in the number of units, an increase in paid distributions per unit and an
increase in incentive distributions to the general partner as a result of
increased distributions to unitholders. The Partnership paid distributions of
$0.65 per unit in the first quarter of 1999 compared to $0.5625 per unit in the
first quarter of 1998.
The Partnership believes that the increase in paid distributions per unit
resulted from favorable operating results in 1998. On April 12, 1999, the
Partnership declared a distribution of $0.70 per unit for the first quarter of
1999. 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.
Page 19 of 26
<PAGE>
The partnership agreement requires the Partnership to distribute 100% of
"Available Cash" (as defined in the partnership agreement) 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 Partnership and its operating partnerships, less cash
disbursements and net additions to reserves and amounts payable to the former
Santa Fe general partner in respect of its 0.5% interest in SFPP.
The Partnership's debt instruments generally require the Partnership to
maintain a reserve for future debt service obligations. The purpose of the
reserve is to lessen differences in the amount of Available Cash from quarter to
quarter due to the timing of required principal and interest payments (which may
only be required on a semi-annual or annual basis) and to provide a source of
funds to make such payments. The Partnership's debt instruments generally
require the Partnership to set aside each quarter a portion of the principal and
interest payments due in the next six to twelve months.
Available Cash of the Partnership generally is distributed 98% to the
limited partners (including the approximate 2% limited partner interest of the
general partner) 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.
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 $0.3025 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 $0.3575 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 $0.4675 per unit for such quarter, and fourth, thereafter 50% to the
limited partners and 50% to the general partner. Incentive distributions are
generally defined as all cash distributions to the general partner that are in
excess of 2% of the aggregate amount of cash being distributed. The general
partner's incentive distribution declared by the Partnership for the first
quarter of 1999 was $13.1 million, while the incentive distribution paid during
the first quarters of 1999 and 1998 were $10.7 million and $1.9 million,
respectively.
Year 2000
The Partnership is currently implementing a five phase program to achieve Year
2000 compliance. The Partnership is evaluating both information technology
systems ("IT") and non-IT systems such as those that include embedded
technology.
The Partnership has completed the system inventory phase. In the system
inventory phase, all hardware and critical software was inventoried and a
database of systems that needed further assessment was created.
The Partnership has begun the assessment phase. In the assessment phase,
specific Year 2000 issues and solutions are identified. The Partnership
anticipates completing the assessment phase by the end of May 1999.
The Partnership has begun the system testing phase. In the system testing phase,
real world tests on critical systems are run to insure that they will
Page 20 of 26
<PAGE>
operate properly after the Year 2000. The Partnership anticipates completing the
system testing phase by the end of August 1999.
The Partnership has begun the remediation phase. In the remediation phase,
problems that arise in the Partnership's assessment and system testing phases
are fixed. The Partnership anticipates completing the remediation of critical
systems by the end of August 1999, and all other remediation by the end of
October 1999.
The Partnership has begun the contingency planning phase. The Partnership
currently has plans in place for non-Year 2000 related contingencies and will
modify these plans to address any specific contingencies related to the Year
2000 problem. Initial drills of contingency operations were held in the first
quarter of 1999. Refinement of contingency plans and employee training will
continue throughout the year and be completed in the fourth quarter of 1999.
The Partnership does not believe it has material exposure to third parties'
failures to remediate the Year 2000 problem. The Partnership has not sought and
does not intend to seek information from material suppliers, customers, or
service providers to determine the exact extent to which the Partnership would
be effected by third parties' failures to remediate the Year 2000 problem.
While the Partnership has budgeted funds to address the Year 2000 problem, the
Partnership does not believe that any material expenditures will be required to
address the Year 2000 problem as it relates to existing systems. However,
uncertainty exists concerning the potential costs and effects associated with
any Year 2000 compliance. Therefore, the Partnership cannot give any assurances
that unexpected Year 2000 compliance problems of either the Partnership or its
vendors, customers, and service providers would not materially and adversely
affect the Partnership's business, financial condition or operating results.
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. These forward looking statements are identified as any
statement that does not relate strictly to historical or current facts. They use
words such as "anticipate," "continue," "estimate," "expect," "may," "will," or
other similar words. These statements discuss future expectations or contain
projections. Specific factors which could cause actual results to differ from
those in the forward looking statements, include:
o price trends and overall demand for natural gas liquids, refined
petroleum products, carbon dioxide, coal and other bulk materials in the
United States. Economic activity, weather, alternative energy sources,
conservation and technological advances may affect price trends and
demand;
o if the Federal Energy Regulatory Commission or the California Public
Utilities Commission changes the Partnership's tariff rates;
o the Partnership's ability to integrate any acquired operations into its
existing operations;
o if railroads experience difficulties or delays in delivering products to
the bulk terminals;
o the Partnership's ability to successfully identify and close strategic
acquisitions and make cost saving changes in operations;
Page 21 of 26
<PAGE>
o shut-downs or cutbacks at major refineries, petrochemical plants,
utilities, military bases or other businesses that use the Partnership's
services;
o the condition of the capital markets and equity markets in the United
States; and
o the political and economic stability of the oil producing nations of the
world.
See Items 1 and 2 "Business and Properties - Risk Factors" of the Annual
Report filed on Form 10-K with the Securities and Exchange Commission on March
15, 1999 for a more detailed description of these and other factors that may
affect the forward looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
Page 22 of 26
<PAGE>
PART II. OTHER INFORMATION
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See Part I, Item 1, Note 3 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
*3.1 - Second Amendment to Amended and Restated Agreement of Limited
Partnership dated as of February 14, 1997 (filed as Exhibit 3.1 to
Amendment No. 1 to Kinder Morgan Energy Partners, L.P. Registration
Statement on Form S-4, file No. 333-46709, filed on April 13, 1999)
*4.1 - Specimen Certificate representing Common Units (filed as Exhibit 4.1
to Amendment No. 1 to Kinder Morgan Energy Partners, L.P. Registration
Statement on Form S-4, file No. 333-44519, filed on February 4, 1998)
*4.2 - Indenture dated as of January 29, 1999 among the Partnership, the
guarantors listed on the signature page thereto and U.S. Trust Company
of Texas, N.A., as trustee, relating to Senior Debt Securities (filed as
Exhibit 4.1 to the Partnership's Form 8-K dated January 29, 1999 (the
"January 29, 1999 Form 8-K"))
*4.3 - First Supplemental Indenture dated as of January 29, 1999 among the
Partnership, the subsidiary guarantors listed on the signature page
thereto and U.S. Trust Company of Texas, N.A., as trustee, relating to
$250,000,000 of 6.30% Senior Notes due February 1, 2009 (filed as
Exhibit 4.2 to the January 29, 1999 Form 8-K)
*4.4 - Amended and Restated Credit Agreement dated as of December 1, 1998
among the Partnership, Kinder Morgan Operating L.P. "B", the subsidiary
guarantors listed on the signature page thereto, the lenders party
thereto and First Union National Bank, as agent (filed as Exhibit 4.4 to
the Partnership's Form 10-K for 1998 (the "1998 Form 10-K"))
*4.5 - First Amendment, dated December 21, 1998 to Amended and Restated
Credit Agreement among the Partnership, Kinder Morgan Operating L.P.
"B", the subsidiary guarantors listed on the signature page thereto, the
lenders party thereto and First Union National Bank, as agent (filed as
Exhibit 4.5 to 1998 Form 10-K)
*4.6 - First Mortgage Note Agreement dated December 8, 1988 among Southern
Pacific Pipe Lines Partnership, L.P. (now known as SFPP, L.P.) and the
Purchasers listed on Schedule A (a conformed composite of 54 separate
agreements, identical except for signatures) (filed as Exhibit 4.2 to
Form 10-K for Santa Fe Pacific Pipeline Partners, L.P. for 1988, file
no. 001-10066 ("Santa Fe 1988 Form 10-K"))
*4.7 - Consent and Amendment dated as of December 19, 1997 between the
noteholders and SFPP, L.P. (a conformed composite of the separate
Page 23 of 26
<PAGE>
agreements with each noteholder, identical except for signatures)
(Exhibit 4.14.1 to the Partnership's Form 10-K for 1997)
*4.8 - Deed of Trust, Security Agreement and Fixture Filing, dated December
8, 1988, between SFPP, L.P., its general partner, Chicago Title
Insurance Company and Security Pacific National Bank (Exhibit 4.3 to
Santa Fe 1988 Form 10-K)
*4.9 - Trust Agreement dated December 19, 1988, between SFPP, L.P., its
general partner and Security Pacific National Bank (Exhibit 4.4 to Santa
Fe 1988 Form 10-K)
*4.10 - Amended and Restated Credit Agreement dated as of August 11, 1997
among SFPP, L.P., Bank of America National Trust and Savings
Association, as agent, Texas Commerce Bank National Association, as
syndication agent, Bank of Montreal, as documentation agent, BancAmerica
Securities, Inc., as arranger, and the lenders that are signatories
thereto. As the maximum allowable borrowings under this facility do not
exceed 10% of the Registrant's total assets, this instrument is not
filed as an exhibit to this Report, however, the Registrant hereby
agrees to furnish a copy of such instrument to the Securities and
Exchange Commission upon request.
27.1 - Financial Data Schedule for Kinder Morgan Energy Partners, L.P.
27.2 - Financial Data Schedule for Kinder Morgan Operating L.P. "A"
27.3 - Financial Data Schedule for Kinder Morgan Operating L.P. "B"
27.4 - Financial Data Schedule for Kinder Morgan Operating L.P. "C"
27.5 - Financial Data Schedule for Kinder Morgan Operating L.P. "D"
27.6 - Financial Data Schedule for Kinder Morgan Natural Gas Liquids
Corporation
27.7 - Financial Data Schedule for Kinder Morgan CO2, LLC
27.8 - Financial Data Schedule for Kinder Morgan Bulk Terminals, Inc.
*Incorporated by reference.
(b) Reports on Form 8-K.
Current Report dated January 13, 1999, on Form 8-K was filed January 14, 1999,
pursuant to Items 5 and 7 of that form. A press release regarding the draft
order issued by the Federal Energy Regulatory Commission concerning complaints
against rates and practices of the Partnership's subsidiary, SFPP, L.P. was
disclosed pursuant to Item 5 of this filing. The press release was attached as
an exhibit pursuant to Item 7. The Partnership's unaudited Consolidated
Statements of Income for the Three Months Ended December 31, 1998 and 1997 were
disclosed pursuant to Item 5 of this report.
Current Report dated February 16, 1999, on Form 8-K was filed February 16, 1999,
pursuant to Items 5 and 7 of that form. The Partnership's sale on January 29,
1999 of $250,000,000 aggregate principal amount of its 6.30% Senior Notes due
February 1, 2009 pursuant to an underwritten public offering was disclosed
according to Item 5. The Underwriting Agreement, Indenture, and supplemental
information were filed as exhibits pursuant to Item 7 of this report.
Current Report dated March 31, 1999, on Form 8-K was filed March 31, 1999,
pursuant to Item 7 of that form. The balance sheet of Kinder Morgan G.P., Inc.,
at December 31, 1998, and the consent of Independent Accountants were filed as
exhibits.
Page 24 of 26
<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.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN OPERATING L.P. "A"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN OPERATING L.P. "B"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN OPERATING L.P. "C"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
Page 25 of 26
<PAGE>
KINDER MORGAN OPERATING L.P. "D"
(A Delaware Limited Partnership)
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN NATURAL GAS LIQUIDS
CORPORATION
(A Delaware Corporation)
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN CO2, LLC
(A Delaware Limited Liability Company)
By: KINDER MORGAN OPERATING L.P. "A"
as sole Member
By: KINDER MORGAN G.P., Inc.
as General Partner
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO, Treasurer
and Assistant Secretary
KINDER MORGAN BULK TERMINALS, INC.
(A Louisiana Corporation)
By: /s/ David G. Dehaemers, Jr.
------------------------------
David G. Dehaemers, Jr.
Vice President, CFO and
Treasurer
Date: May 6, 1999
Page 26 of 26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Consolidated
Statements of Income, Cash Flows and Partners'
Capital for the three months ended March 31,
1998 and 1999 and the Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998 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>
<CIK> 0000888228
<NAME> Kinder Morgan Energy Partners, L.P.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 33,276
<SECURITIES> 0
<RECEIVABLES> 47,480
<ALLOWANCES> 0
<INVENTORY> 6,753
<CURRENT-ASSETS> 87,509
<PP&E> 1,854,703
<DEPRECIATION> 83,890
<TOTAL-ASSETS> 2,169,846
<CURRENT-LIABILITIES> 62,539
<BONDS> 631,205
0
0
<COMMON> 0
<OTHER-SE> 1,358,536
<TOTAL-LIABILITY-AND-EQUITY> 2,169,846
<SALES> 100,049
<TOTAL-REVENUES> 100,049
<CGS> 569
<TOTAL-COSTS> 53,062
<OTHER-EXPENSES> (7,684)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,160
<INCOME-PRETAX> 42,511
<INCOME-TAX> 1,442
<INCOME-CONTINUING> 41,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,069
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073984
<NAME> Kinder Morgan Operating L.P. "A"
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
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0
0
<COMMON> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073985
<NAME> Kinder Morgan Operating L.P. "B"
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<PP&E> 0
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073986
<NAME> Kinder Morgan Operating L.P. "C"
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073987
<NAME> Kinder Morgan Operating L.P. "D"
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073988
<NAME> Kinder Morgan Natural Gas Liquids Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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0
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<TOTAL-REVENUES> 0
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073989
<NAME> Kinder Morgan CO2, LLC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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0
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<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001073991
<NAME> Kinder Morgan Bulk Terminals, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
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</TABLE>
