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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, 2000
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 jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
500 Dallas St.
Suite 1000
Houston, Texas 77002
(Address of principal executive (Zip Code)
Offices)
(713) 369-9000
(Registrant's telephone number, including area code)
1301 McKinney St., Suite 3450, Houston, Texas 77010
(Former address, if changed since last report)
(713) 844-9500
(Former telephone number, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The Registrant had 64,212,509 units outstanding at August 7, 2000.
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<PAGE>
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
and Six Months Ended June 30, 2000 and 1999 3
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999 4
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
ITEM 3. - Quantitative and Qualitative Disclosures about
Market Risk 26
PART II. OTHER INFORMATION
ITEM 1. - Legal Proceedings 27
ITEM 2. - Changes in Securities and Use of Proceeds 27
ITEM 3. - Defaults Upon Senior Securities 27
ITEM 4. - Submission of Matters to a Vote of Security Holders 27
ITEM 5. - Other Information 27
ITEM 6. - Exhibits and Reports on Form 8-K 27
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<PAGE>
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Unit Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ 193,758 $ 102,933 $ 351,116 $ 202,982
Costs and Expenses
Operations and maintenance 72,022 30,987 127,054 59,906
Depreciation and amortization 19,904 11,510 38,749 22,906
General and administrative 15,380 8,942 29,703 16,760
Taxes, other than income taxes 6,476 4,154 12,573 8,425
------------ -------------- ------------- -----------
113,782 55,593 208,079 107,997
------------ -------------- ------------- -----------
Operating Income 79,976 47,340 143,037 94,985
Other Income (Expense)
Earnings from equity investments 17,362 9,746 32,179 17,701
Amortiz. of excess cost of equity investments (2,174) (781) (3,847) (1,439)
Interest, net (21,797) (12,184) (41,915) (23,983)
Other, net 3,832 1,898 11,743 1,887
Minority Interest (2,091) (805) (3,769) (1,426)
------------ ------------- -------------- -----------
Income Before Income Taxes 75,108 45,214 137,428 87,725
Income Taxes (3,298) (2,101) (6,059) (3,543)
------------- ------------- ------------- ----------
Net Income $ 71,810 $ 43,113 $ 131,369 $ 84,182
============= ============= ============= ==========
General Partner's interest in Net Income $ 27,003 $ 13,385 $ 49,260 $ 26,748
Limited Partners' interest in Net Income 44,807 29,728 82,109 57,434
------------- ------------- ------------- ----------
Net Income $ 71,810 $ 43,113 $ 131,369 $ 84,182
============= ============= ============= ==========
Net Income per Unit $ 0.70 $ 0.61 $ 1.33 $ 1.18
============= ============= ============= ==========
Number of Units used in Computation 64,064 48,816 61,787 48,816
============= ============= ============= ===========
</TABLE>
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)
June 30, December 31,
2000 1999
-------------- ---------------
ASSETS
Current Assets
Cash and cash equivalents $ 32,967 $ 40,052
Accounts and notes receivable
Trade 109,026 71,738
Related parties 9,659 45
Inventories
Products 8,417 8,380
Materials and supplies 4,964 4,703
Gas imbalances 57,730 7,014
Other current assets 662 -
------------ -------------
223,425 131,932
------------ -------------
Property, Plant and Equipment, at cost 3,053,869 2,696,122
Less accumulated depreciation 156,278 117,809
------------ -------------
2,897,591 2,578,313
------------ -------------
Equity Investments 338,554 418,651
------------ -------------
Notes receivable 9,460 10,041
Intangibles 112,292 56,630
Deferred charges and other assets 30,272 33,171
------------ -------------
TOTAL ASSETS $ 3,611,594 $ 3,228,738
============ =============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable
Trade $ 31,964 $ 15,692
Related parties 79 3,569
Current portion of long-term debt - 209,200
Accrued rate refunds 5,860 36,607
Accrued interest 14,416 10,014
Accrued right-of-way liabilities 7,789 7,039
Accrued taxes 9,624 8,870
Gas imbalances 53,546 6,189
Accrued other liabilities 24,330 21,981
------------ -------------
147,608 319,161
------------ -------------
Long-Term Liabilities and Deferred Credits
Long-term debt 1,324,679 989,101
Other 108,602 97,379
------------ -------------
1,433,281 1,086,480
------------ -------------
Commitments and Contingencies
Minority Interest 52,752 48,299
------------ -------------
Partners' Capital
Common Units 1,950,199 1,759,142
General Partner 27,754 15,656
------------ -------------
1,977,953 1,774,798
------------ -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 3,611,594 $ 3,228,738
============ =============
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 STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities
Net income $ 131,369 $ 84,182
Depreciation and amortization 38,749 22,906
Amortization of excess cost of equity investments 3,847 1,439
Earnings from equity investments (32,179) (17,701)
Distributions from equity investments 24,971 17,184
Changes in components of working capital (17,240) (6,468)
Rate refunds settlement (47,706) -
Other, net 2,743 (7,804)
----------- ----------
Net Cash Provided by Operating Activities 104,554 93,738
----------- ----------
Cash Flows From Investing Activities
Acquisitions of assets (572,488) -
Additions to property, plant and equipment for
expansion and maintenance projects (52,599) (44,446)
Sale of investments, property, plant and equipment,
net of removal costs 8,539 1,110
Changes in gas stored underground 568 -
Acquisitions of equity investments - (124,163)
Contributions to equity investments (229) (570)
----------- ----------
Net Cash Used in Investing Activities (616,209) (168,069)
----------- ----------
Cash Flows From Financing Activities
Issuance of debt 1,087,786 389,717
Payment of debt (633,996) (230,443)
Debt issue costs (1,912) (2,132)
Proceeds from issuance of common units 171,298 -
Contributions from General Partner's Minority Interest 7,434 -
Distributions to partners
Common Units (85,527) (65,342)
General Partner (37,161) (25,027)
Minority Interest (4,011) (1,075)
Other, net 659 (344)
----------- ----------
Net Cash Provided by Financing Activities 504,570 65,354
----------- ----------
Increase in Cash and Cash Equivalents (7,085) (8,977)
Cash and Cash Equivalents, Beginning of Period 40,052 31,735
---------- ----------
Cash and Cash Equivalents, End of Period $ 32,967 $ 22,758
========== ==========
Noncash Investing and Financing Activities
Assets acquired by the issuance of Common Units $ 23,319 $ -
Assets acquired by the assumption of liabilities $ 41,342 $ -
</TABLE>
The accompanying notes are an integral part of these consolidat
statements.
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<PAGE>
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, 1999 ("Form 10-K").
The Net Income per Unit was computed by dividing the Limited Partners'
interest in Net Income by the weighted average number of units outstanding
during the periods.
Organization
Effective April 1, 2000, the Partnership acquired from affiliates of Shell
Exploration & Production Company the 80% of Shell CO2 Company not owned by the
Partnership for $212.1 million. The Partnership renamed the company Kinder
Morgan CO2 Company, L.P., which became the fifth operating partnership through
which the Partnership conducts business.
Prior to the second quarter of 2000, the Partnership reported four
business segments: Pacific Operations; Mid-Continent Operations; Natural Gas
Operations; and Bulk Terminals. Due to the acquisition of the remaining interest
of Kinder Morgan CO2 Company, L.P., the Partnership began reporting the
following four business segments: Product Pipelines; Natural Gas Pipelines; CO2
Pipelines; and Bulk Terminals.
For periods prior to second quarter 2000, the previous Pacific Operations
and Mid-Continent Operations, excluding the Mid-Continent's Gas Processing and
Fractionation activities and CO2 activities, have been combined to present the
current "Product Pipelines" segment.
The "Natural Gas Pipelines" segment consists of Kinder Morgan Interstate
Gas Transmission LLC ("KMIGT"), a 66 2/3% controlling interest in Trailblazer
Pipeline Company ("Trailblazer"), a 49% equity interest in the Red Cedar
Gathering Company ("Red Cedar"), and the Partnership's former Gas Processing and
Fractionation activities.
The "CO2 Pipelines" segment consists of the operations of Kinder Morgan
CO2 Company, L.P. Prior to April 1, 2000, the Partnership only owned a 20%
equity interest in Shell CO2 Company and reported its results under the equity
method of accounting in the Mid-Continent Operations.
The "Bulk Terminals" segment consists of 25 owned and/or operated bulk
terminals that handle approximately 45 million tons of coal, petroleum coke and
other dry and liquid bulk material annually.
For more information on the Partnership's reportable business segments,
see Note 7, below.
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<PAGE>
2. Acquisitions and Joint Ventures
During 1999 and the first six months of 2000, the Partnership completed
certain significant acquisitions. With respect to the following acquisitions and
joint ventures, the results of operations are included in the consolidated
financial statements from the date of acquisition.
Plantation Pipe Line Company
On September 15, 1998, the Partnership acquired an approximate 24%
interest in Plantation Pipe Line Company for $110 million. On June 16, 1999, the
Partnership acquired an approximate 27% interest in Plantation Pipe Line Company
for $124.2 million. Collectively, the Partnership now owns approximately 51% of
Plantation Pipe Line Company, and ExxonMobil Pipeline Company, an affiliate of
ExxonMobil Corporation, owns approximately 49%. Plantation Pipe Line Company
owns and operates a 3,100 mile pipeline system throughout the southeastern
United States which serves as a common carrier of refined petroleum products to
various metropolitan areas, including Atlanta, Georgia; Charlotte, North
Carolina; and the Washington, D.C. area. The Partnership does not control
Plantation Pipe Line Company, and therefore, accounts for its investment in
Plantation under the equity method of accounting and includes its activity as
part of the Product Pipelines business segment.
Transmix Operations
On September 10, 1999, the Partnership acquired certain net assets,
including transmix processing plants in Richmond, Virginia and Dorsey Junction,
Maryland, from Primary Corporation. As consideration for the purchase, the
Partnership paid Primary $18.25 million in cash (before purchase price
adjustments) and 510,147 units valued at approximately $14.3 million. The
petroleum products refining and marketing activities of the transmix operations
are included as part of the Product Pipelines business segment.
Trailblazer Pipeline Company
Effective November 30, 1999, the Partnership acquired a 33 1/3% interest
in Trailblazer for $37.6 million from Columbia Gulf Transmission Company, an
affiliate of Columbia Energy Group. Trailblazer is an Illinois partnership that
owns and operates a 436-mile natural gas pipeline system that traverses from
Colorado through southeastern Wyoming to Beatrice, Nebraska. Trailblazer has a
certificated capacity of 492 million cubic feet per day ("MMcf/d") of natural
gas. For the month of December 1999, the Partnership accounted for its 33 1/3%
interest in Trailblazer under the equity method of accounting. Effective
December 31, 1999, following the Partnership's acquisition of an additional 33
1/3% interest in Trailblazer (see "KMI Asset Contributions" below),
Trailblazer's activities were included as part of the Partnership's consolidated
financial statements. The Partnership reports Trailblazer's activities as part
of the Natural Gas Pipelines business segment.
KMI Asset Contributions
Effective December 31, 1999, the Partnership acquired over $700 million of
assets from Kinder Morgan, Inc. ("KMI"). The Partnership paid KMI $330 million
and 9.81 million common units as consideration for the assets. The Partnership
acquired KMIGT (formerly K N Interstate Gas Transmission Co.), a 33 1/3%
interest in Trailblazer and a 49% equity interest in Red Cedar. The acquired
interest in Trailblazer, when combined with the interest purchased on November
30, 1999, gave the Partnership a 66 2/3% controlling ownership interest. The
transaction was accounted for under the purchase method of accounting, and going
forward from December 31, 1999, these assets are included in the Partnership's
Natural Gas Pipelines business segment.
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<PAGE>
Bulk Terminals
Effective January 1, 2000, the Partnership acquired all of the shares of
the capital stock of Milwaukee Bulk Terminals, Inc. and Dakota Bulk Terminal,
Inc., both Wisconsin corporations. The Partnership paid an aggregate
consideration of approximately $24.1 million, including 574,172 units and
approximately $0.8 million in cash. The acquisition of the two entities was
accounted for under the purchase method of accounting, and going forward from
January 1, 2000, have been included as part of the Bulk Terminals business
segment.
CO2 Pipelines
Effective April 1, 2000, the Partnership acquired from affiliates of Shell
Exploration & Production Company the 80% of Shell CO2 Company not owned by the
Partnership for $212.1 million. The Partnership renamed the company Kinder
Morgan CO2 Company, L.P., and going forward from April 1, 2000, the results have
been reported as the CO2 Pipelines business segment.
Pro Forma Information
The following summarized unaudited Pro Forma Consolidated Income Statement
information for the six months ended June 30, 1999, assumes the above
acquisitions had occurred as of January 1, 1999. 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 indicated or which will be
attained in the future.
The Pro Forma information does not include the effects of the
Partnership's acquisition on June 1, 2000, of an equity interest in the Canyon
Reef Carriers CO2 pipeline and a working interest in the SACROC Unit. Amounts
presented below are in thousands, except for the per unit amount:
Pro Forma
Six Months Ended
Income Statement June 30, 1999
---------------- ----------------
(Unaudited)
Revenues $312,409
Operating Income $143,784
Net Income $126,136
Net Income per unit $1.46
3. Litigation and Other Contingencies
FERC Proceedings
SFPP
Tariffs charged by SFPP, L.P. ("SFPP") are subject to certain proceedings
involving shippers' protests regarding the interstate rates, as well as
practices and the jurisdictional nature of certain facilities and services on
the Pacific Operations' pipeline systems. In September 1992, El Paso Refinery,
L.P. ("El Paso") filed a protest/complaint with the Federal Energy Regulatory
Commission ("FERC") challenging SFPP's East Line rates from El Paso, Texas to
Tucson and Phoenix, Arizona, challenging SFPP's proration policy and seeking to
block the reversal of the direction of flow of SFPP's six inch pipeline between
Phoenix and Tucson. At various dates following El Paso's September 1992 filing,
other shippers on SFPP's South System, including Chevron U.S.A. Products Company
("Chevron"), Navajo Refining Company ("Navajo"), ARCO Products Company ("ARCO"),
Texaco Refining and Marketing Inc. ("Texaco"), Refinery Holding Company, L.P.
("RHC", a partnership formed by El Paso's long-term
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<PAGE>
secured creditors that purchased El Paso's refinery in May 1993), Mobil Oil
Corporation and Tosco Corporation, filed separate complaints, and/or motions to
intervene in the FERC proceeding, challenging SFPP's rates on its East and West
Lines. Certain of these parties also claimed that a gathering enhancement charge
at SFPP's Watson origin pump station in Carson, California was charged in
violation of the Interstate Commerce Act ("ICA"). In subsequent procedural
rulings, the FERC consolidated these challenges (Docket Nos. OR92-8-000, et al.)
and ruled that they must proceed as a complaint proceeding, with the burden of
proof being placed on the complaining parties. Such parties must show that
SFPP's rates and practices at issue violate the requirements of the ICA.
Hearings in the FERC proceeding were held in 1996 and an initial decision
by the FERC administrative law judge was issued on September 25, 1997 (the
"Initial Decision"). The Initial Decision upheld SFPP's position that "changed
circumstances" were not shown to exist on the West Line, thereby retaining the
just and reasonable status of all West Line rates that were "grandfathered"
under the Energy Policy Act of 1992 ("EPACT"). Accordingly, such rates are not
subject to challenge, either for the past or prospectively, in that proceeding.
The administrative law judge's decision specifically excepted from that ruling
SFPP's Tariff No. 18 for movement of jet fuel from Los Angeles to Tucson, which
was initiated subsequent to the enactment of EPACT.
The Initial Decision also included rulings that were generally adverse to
SFPP on such cost of service issues as the capital structure to be used in
computing SFPP's 1985 starting rate base under FERC Opinion 154-B, the level of
income tax allowance, and the recoverability of civil and regulatory litigation
expense and certain pipeline reconditioning costs. The administrative law judge
also ruled that a gathering enhancement service at SFPP's Watson origin pump
station in Carson, California was subject to FERC jurisdiction and ordered that
a tariff for that service and supporting cost of service documentation be filed
no later than 60 days after a final FERC order on this matter.
On January 13, 1999, the FERC issued its Opinion No. 435, which affirmed
in part and modified in part the Initial Decision. 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 Initial Decision's ruling 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 on which the starting rate
base should 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. On January 19, 1999, ARCO
Products Company filed a petition with the United States Court of Appeals for
the District of Columbia Circuit for review of Opinion No. 435. SFPP and a
number of the complainants have each sought rehearing by FERC of elements of
Opinion No. 435. In compliance with Opinion No. 435, on March 15, 1999, SFPP
submitted a compliance filing implementing the rulings made by FERC,
establishing the level of rates to be charged by SFPP in the future, and setting
forth the amount of reparations owed by SFPP to the complainants under the
order. SFPP's compliance filing was contested by the complainants.
On May 17, 2000, the FERC issued its Opinion No. 435-A, which ruled on the
requests for rehearing and modified Opinion No. 435 in certain respects. It
denied requests to reverse its prior rulings that SFPP's West Line rates and
Watson Station gathering enhancement facilities charge are entitled to be
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<PAGE>
treated as just and reasonable "grandfathered" rates under EPACT. It suggested,
however, that if SFPP had fully recovered the capital costs of the Watson
Station facilities, that might form the basis of an amended "changed
circumstances" complaint.
Opinion No. 435-A granted a request by Chevron and Navajo to require that
SFPP's December 1988 partnership capital structure be used to compute the
starting rate base from December 1983 forward, as well as a request by SFPP to
vacate a ruling that would have required the elimination of approximately $125
million from the rate base used to determine capital structure. It also granted
two clarifications sought by Navajo, to the effect that SFPP's return on its
starting rate base should be based on SFPP's capital structure in each given
year (rather than a single capital structure from the outset) and that the
return on deferred equity should also vary with the capital structure for each
year.
Opinion No. 435-A denied Chevron and Navajo requests that no income tax
allowance should be given for the limited partnership interests held by SFPP's
corporate parent, as well as SFPP's request that the tax allowance should
include interests owned by certain non-corporate entities. However, it granted
Navajo's request to make the computation of interest expense for tax allowance
purposes the same as for debt return.
Opinion No. 435-A reaffirmed that SFPP may recover certain litigation costs
incurred in defense of its rates (amortized over five years), but reversed a
ruling that those expenses could include the costs of civil litigation between
SFPP and Navajo and El Paso Refining. It also reversed a prior decision that
litigation costs should be allocated between the East and West Lines based on
throughput, instead adopting SFPP's position that such expenses should be split
equally between the two systems.
As to reparations, Opinion 435-A held that no reparations would be awarded
to West Line shippers and that only Navajo was eligible to recover reparations
on the East Line. It reaffirmed that a 1989 settlement with SFPP barred Navajo
from obtaining reparations prior to November 23, 1993, but allowed Navajo
reparations for a one-month period prior to the filing of its December 23, 1993
complaint. Opinion No. 435-A also confirmed that the Commission's indexing
methodology should be used in determining rates for reparations purposes and
made certain clarifications sought by Navajo.
Opinion No. 435-A denied Chevron's request for modification of SFPP's
prorationing policy, which requires customers to demonstrate need for additional
capacity if there is a shortage of available pipeline space.
Finally, Opinion No. 435-A directed SFPP to revise its initial compliance
filings to reflect the modified rulings. It eliminated the refund obligation for
the compliance tariff containing the Watson Station gathering enhancement
charge, but required SFPP to pay refunds to the extent that the compliance
tariff East Line rates are higher than the rates produced under Opinion No.
435-A.
In June 2000, several parties filed requests for rehearing of certain
rulings made in Opinion No. 435-A. Chevron and RHC both sought rehearing of the
Commission's ruling that only Navajo is entitled to reparations for East Line
shipments. SFPP sought rehearing of the FERC's decision to require use of the
December 1988 partnership capital structure for the period 1994-98 in computing
starting rate base, its elimination of civil litigation costs, its refusal to
allow any recovery of civil litigation settlements and its failure to provide
any allowance for regulatory expenses in prospective rates.
ARCO Products Company, Chevron Products Company, Navajo Refining Company,
Refinery Holding Company, L.P., Texaco Refining and Marketing Inc. and SFPP have
sought judicial review of Opinion No. 435 and Opinion No. 435-A in the United
States Court of Appeals for the District of Columbia Circuit. The FERC has moved
to consolidate those petitions with prior petitions to review Opinion
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<PAGE>
No. 435, to dismiss the Chevron and RHC petitions, and to hold the other
petitions in abeyance pending ruling on the requests for rehearing of Opinion
No. 435-A.
On July 17, 2000, SFPP submitted a compliance filing implementing the
rulings made in Opinion No. 435-A, together with a calculation of reparations
due to Navajo and refunds due to other East Line shippers. SFPP also filed a
tariff containing East Line rates based on those rulings.
In December 1995, Texaco filed an additional FERC complaint, which
involves the question of whether a tariff filing was required for movements on
certain of SFPP's lines upstream of its Watson, California station origin point
(the "Sepulveda Lines") and, if so, whether those rates may be set in that
proceeding and what those rates should be. Texaco's initial complaint was
followed by several other West Line shippers filing similar complaints and/or
motions to intervene, all of which have been consolidated into Docket Nos.
OR96-2-000 et al. Hearings before an administrative law judge were held in
December 1996 and the parties completed the filing of final post-hearing briefs
on January 31, 1997.
On March 28, 1997, the administrative law judge issued an initial decision
holding that the movements on SFPP's Sepulveda Lines are not subject to FERC
jurisdiction. On August 5, 1997, the FERC reversed that decision and found the
Sepulveda Lines to be subject to the jurisdiction of the FERC. SFPP was ordered
to make a tariff filing within 60 days to establish an initial rate for these
facilities. The FERC reserved decision on reparations until it ruled on the
newly-filed rates. On October 6, 1997, SFPP filed a tariff establishing the
initial interstate rate for movements on the Sepulveda Lines from Sepulveda
Junction to Watson Station at the preexisting rate of five cents per barrel,
along with supporting cost of service documentation. Subsequently, several
shippers filed protests and motions to intervene at the FERC challenging that
rate. On December 24, 1997, FERC denied SFPP's request for rehearing of the
August 5, 1997 decision. On December 31, 1997, SFPP filed an application for
market power determination, which, if granted, will enable it to charge
market-based rates for this service. Several parties protested SFPP's
application. On September 30, 1998, the FERC issued an order finding that, based
on SFPP's application, SFPP lacks market power in the Watson Station destination
market served by the Sepulveda Lines. The FERC found that SFPP appeared to lack
market power in the origin market served by the Sepulveda Lines as well, but
established a hearing to permit the protesting parties to substantiate
allegations that SFPP possessed market power in the origin market. Hearing
before a FERC administrative law judge on this limited issue commenced on
February 7, 2000 and concluded on February 17, 2000. The matter has been briefed
to the administrative law judge and is awaiting the judge's issuance of an
initial decision.
On October 22, 1997, ARCO Products Company, Mobil Oil Corporation and
Texaco Refining and Marketing, Inc. filed another complaint at the FERC (Docket
No. OR98-1-000) challenging the justness and reasonableness of all of SFPP's
interstate rates. The complaint again challenges SFPP's East and West Line rates
and raises many of the same issues, including a renewed challenge to the
grandfathered status of West Line rates, that have been at issue in Docket Nos.
OR92-8-000, et al. The complaint includes 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. The complaint also seeks to
establish that SFPP's grandfathered interstate rates from the San Francisco Bay
area to Reno, Nevada and from Portland to Eugene, Oregon are also subject to
"changed circumstances" and, therefore, can be challenged as unjust and
unreasonable. On November 26, 1997, Ultramar Diamond Shamrock Corporation filed
a similar complaint at the FERC (Docket No. OR98-2-000). Both reparations and
prospective rate deductions are sought for movements on all of the lines.
SFPP filed answers to both complaints with the FERC on November 21, 1997
and December 22, 1997. On January 20, 1998, the FERC issued an order accepting
Page 11 of 29
<PAGE>
the complaints and consolidating both complaints into one proceeding, but
holding them in abeyance pending a Commission decision on review of the Initial
Decision in Docket Nos. OR92-8-000 et al. In July 1998, some complainants
amended their complaints to incorporate updated financial and operational data
on SFPP. SFPP answered the amended complaints. In a companion order to Opinion
No. 435, the FERC directed the complainants to amend their complaints, as may be
appropriate, consistent with the terms and conditions of its orders, including
Opinion No. 435. On January 10th and 11th, 2000, the complainants again amended
their complaints to incorporate further updated financial and operational data
on SFPP. SFPP filed an answer to these amended complaints on February 15, 2000.
On May 17, 2000, the FERC issued an order finding that the various complaining
parties had alleged sufficient grounds for their complaints against SFPP's
interstate rates to go forward to a hearing. At such hearing, the administrative
law judge will assess whether any of the challenged rates that are grandfathered
under EPACT will continue to have such status and, if the grandfathering status
of any rate is not upheld, whether the existing rate is just and reasonable.
Discovery in this new proceeding is currently being conducted, with a hearing
scheduled for March 2001 and an initial decision by the administrative law judge
due in August 2001.
Applicable rules and regulations in this field are vague, relevant factual
issues are complex and there is little precedent available regarding the factors
to be considered or the method of analysis to be employed in making a
determination of "changed circumstances", which is the showing necessary to make
"grandfathered" rates subject to challenge. The complainants have alleged a
variety of grounds for finding "changed circumstances," including the
acquisition of SFPP and cost savings achieved subsequent to the acquisition.
Given the newness of the grandfathering standard under EPACT and limited
precedent, the Partnership cannot predict how these allegations will be viewed
by the FERC.
If "changed circumstances" are found, SFPP rates previously
"grandfathered" under EPACT may lose their "grandfathered" status and, if such
rates are found to be unjust and unreasonable, shippers may be entitled to a
prospective rate reduction together with reparations for periods from the date
of the complaint to the date of the implementation of the new rates.
The Partnership is not able to predict with certainty whether settlement
can be reached with some or all of the complainants or the final outcome of the
FERC proceedings should they be carried through to their conclusion. It is
possible that current or future proceedings could be resolved in a manner
adverse to the Partnership. The Partnership believes that is has adequately
reserved for all current proceedings.
KMIGT
On January 23, 1998, KMIGT filed a general rate case with the FERC
requesting a $30.2 million increase in annual revenues. As a result of the
FERC's action, KMIGT was allowed to place its rates into effect on August 1,
1998, subject to refund. On November 3, 1999, KMIGT filed a comprehensive
Stipulation and Agreement to resolve all issues in this proceeding. The FERC
approved the Stipulation and Agreement on December 22, 1999. The settlement
rates have been placed in effect, and the Partnership paid refunds for past
periods in April 2000. The refunds did not exceed amounts previously accrued by
the Partnership.
On June 15, 2000, KMIGT made its filing to comply with the FERC's Orders
637 and 637-A. That filing contained KMIGT's compliance plan to implement the
changes required by the FERC dealing with the way business is conducted on
interstate pipelines. All interstate pipelines are required to make such
compliance filings, according to a schedule established by the FERC. KMIGT's
filing is currently pending FERC action, and any changes to its tariff
provisions are not expected to take effect until after the entire Order 637
process is finished for all pipelines.
Page 12 of 29
<PAGE>
Trailblazer
On July 1, 1997, Trailblazer filed a rate case with the FERC (Docket No.
RP97-408) which reflected a proposed annual revenue increase of $3.3 million.
The timing of the rate case filing was in accordance with the requirements of
Trailblazer's previous rate case settlement in Docket No. RP93-55. The FERC
issued an order on July 31, 1997, which suspended the rates to be effective
January 1, 1998. Major issues in the rate case include throughput levels used in
the design of rates, levels of depreciation rates, return on investment and the
cost of service treatment of the Columbia settlement revenues. Trailblazer filed
a proposed settlement agreement with the administrative law judge on May 8,
1998. The presiding administrative law judge certified the settlement to the
FERC in an order dated June 25, 1998. The FERC issued an order on October 19,
1998 remanding the settlement, which was contested by two parties, to the
presiding administrative law judge for further action. A revised settlement was
filed on November 20, 1998. The presiding administrative law judge certified the
revised settlement to the FERC on January 25, 1999.
The FERC issued orders on April 28, 1999 and August 3, 1999, approving the
revised settlement as to all parties except the two parties who contested the
settlement. As to the two contesting parties, the FERC established hearing
procedures. On March 3, 2000, Trailblazer and the two parties filed a joint
motion indicating that a settlement in principle had been reached. On March 6,
2000, the presiding administrative law judge issued an order suspending the
procedural schedule and hearing pending the filing of the appropriate documents
necessary to terminate the proceeding. On March 16, 2000, the two contesting
parties filed a motion to withdraw their requests for rehearing of the FERC
orders approving the settlement and concurrently those parties and Trailblazer
jointly moved to terminate the proceeding. On March 30, 2000, the Administrative
Law Judge issued an order granting motion to terminate further proceedings,
followed by an initial decision on April 7, 2000, terminating the proceedings.
On May 18, 2000, the commission issued a notice of the finality of the initial
decision. Refunds related to the rate case were made in April 28, 2000 and
totaled approximately $19 million. Adequate reserves had previously been
established.
California Public Utilities Commission Proceeding
A complaint was filed with the California Public Utilities Commission
("CPUC") on April 7, 1997 by ARCO Products Company, Mobil Oil Corporation and
Texaco Refining and Marketing Inc. against SFPP. The complaint challenges rates
charged by SFPP for intrastate transportation of refined petroleum products
through its pipeline system in the State of California and requests prospective
rate adjustments. On October 1, 1997, the complainants filed testimony seeking
prospective rate reductions aggregating approximately $15 million per year.
On August 6, 1998, the CPUC issued its decision dismissing the
complainants' challenge to SFPP's intrastate rates. On June 24, 1999, the CPUC
granted limited rehearing of its August 1998 decision for the purpose of
addressing the proper ratemaking treatment for partnership tax expenses, the
calculation of environmental costs and the public utility status of SFPP's
Sepulveda Line and its Watson Station gathering enhancement facilities. In
pursuing these rehearing issues, complainants seek prospective rate reductions
aggregating approximately $10 million per year.
On March 16, 2000, SFPP filed an application with the CPUC seeking
authority to justify its rates for intrastate transportation of refined
petroleum products on competitive, market-based conditions rather than on
traditional, cost-of-service analysis.
On April 10, 2000, ARCO Products Company and Mobil Oil Corporation filed a
new complaint with the CPUC asserting that SFPP's California intrastate rates
are not just and reasonable based on a 1998 test year and requesting the CPUC to
reduce SFPP's rates prospectively. The amount of the reduction in SFPP
Page 13 of 29
<PAGE>
rates sought by the complainants is not discernible from the complaint.
Procedurally, the rehearing complaint, will be heard first, followed by
consideration of the April 10, 2000 complaint and SFPP's market-based
application, which have been consolidated for hearing by the CPUC. The rehearing
complaint (Phase 1) will be the subject of evidentiary hearings in October 2000,
with a decision expected within six months of the hearings. The April 2000
complaint and SFPP's market-based application will be the subject of evidentiary
hearings in February 2001, with a decision expected within six months of the
hearings.
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 (Southern
Pacific Transportation Company vs. Santa Fe Pacific Corporation, SFP Properties,
Inc., Santa Fe Pacific Pipelines, Inc., SFPP, L.P., et al., Superior Court of
the State of California for the County of San Francisco, filed August 31, 1994).
Although SFPP received a favorable ruling from the trial court in May 1997, in
September 1999, the California Court of Appeals remanded the case back to the
trial court for further proceeding. SFPP is accruing amounts for payment of the
rental for the subject rights-of-way consistent with the Partnership's
expectations of the ultimate outcome of the proceeding.
Environmental Matters
The Partnership is subject to environmental cleanup and enforcement
actions from time to time. In particular, the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund"
law) generally imposes joint and several liability for cleanup and enforcement
costs, without regard to fault or the legality of the original conduct, on
current or predecessor owners and operators of a site. The operations of the
Partnership are also subject to Federal, state and local laws and regulations
relating to protection of the environment. Although the Partnership believes its
operations are in general compliance with applicable environmental regulations,
risks of additional costs and liabilities are inherent in pipeline and terminal
operations, and there can be no assurance significant costs and liabilities will
not be incurred by the Partnership. Moreover, it is possible that other
developments, such as increasingly stringent environmental laws, regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the Partnership, could result in substantial
costs and liabilities to the Partnership.
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 several ground water hydrocarbon
remediation efforts under administrative orders issued by the
California Regional Water Quality Control Board and two other state
agencies.
In addition, the Partnership from time to time is involved in civil
proceedings relating to damages alleged to have occurred as a result of
Page 14 of 29
<PAGE>
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, has settled the personal injury claims of approximately 80
plaintiffs and is in the process of settling the entire case globally of
personal injury, property damage and outstanding claims with the remaining
plaintiffs.
Although no assurance can be given, the Partnership believes that the
ultimate resolution of all these environmental matters set forth in this Note 3
will not have a material adverse effect on its financial position or results of
operations. The Partnership has recorded a reserve for environmental claims in
the amount of $16.7 million at June 30, 2000.
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 1999 Form 10-K, Note 16 of the
Notes to the Consolidated Financial Statements.
4. Distributions
On May 15, 2000, the Partnership paid a cash distribution for the
quarterly period ended March 31, 2000, of $0.775 per unit. The distribution was
declared on April 20, 2000, payable to unitholders of record as of May 1, 2000.
On July 20, 2000, the Partnership declared a cash distribution for the
quarterly period ended June 30, 2000, of $0.85 per unit. The distribution will
be paid on or before August 14, 2000, to unitholders of record as of July 31,
2000.
5. Debt
The Partnership's debt facilities as of June 30, 2000, consist primarily
of:
o a $300 million unsecured five-year credit facility;
o a $300 million unsecured 364-day credit facility;
o $250 million of 6.30% Senior Notes due February 1, 2009;
o $200 million of 8.00% Senior Notes due March 15, 2005;
o $200 million of Floating Rate Senior Notes due March 22, 2002;
o $181 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.;
o $25.25 million of Senior Secured Notes (a subsidiary, Trailblazer Pipeline
Company, is the obligor on the notes);
o $23.7 million of tax-exempt bonds due 2024 (a subsidiary, Kinder Morgan
Operating L.P. "B" ("OLP-B"), is the obligor on these bonds);
o a $10 million unsecured 364-day credit facility of Trailblazer Pipeline
Company; and
Page 15 of 29
<PAGE>
o $259.4 million in short-term commercial paper.
See Note 9 to the Partnership's Consolidated Financial Statements included
in the Partnership's Annual Report filed on Form 10-K with the Securities and
Exchange Commission on March 14, 2000 and Note 5 to the Partnership's Form 10-Q
filed with the Securities and Exchange Commission on May 11, 2000.
Under an indenture dated March 22, 2000, the Partnership completed a
private placement of $200 million of Floating Rate Notes and $200 million of
8.0% Notes (the "Original Notes") to qualified institutional buyers in reliance
on Rule 144A under the Securities Act of 1933. At the closing of the offering,
the Partnership entered into a registration rights agreement with the initial
purchasers pursuant to which the Partnership agreed, for the benefit of the
holders of the notes, at its cost, to make an offer to exchange the Original
Notes for new notes that are substantially identical to the terms of the
Original Notes of the same series (the "Exchange Notes"), except that the
Exchange Notes will be freely transferable and issued free of any covenants
regarding exchange and registration rights. The exchange offer expired on May
31, 2000 and all of the Original Notes were exchanged for the Exchange Notes in
connection with the exchange offer.
No borrowings were outstanding under the five-year or 364-day credit
facilities at June 30, 2000.
At June 30, 2000, the outstanding balance under SFPP's bank facility was
$174.0 million and the interest rate on the credit facility debt was 6.92%.
At June 30, 2000, the outstanding balance under Trailblazer's revolving
credit agreement was $10 million. The agreement provides for an interest rate of
LIBOR plus 0.875%. At June 30, 2000, the interest rate on the credit facility
debt was 7.48625%.
For the quarter ended June 30, 2000, the weighted-average interest rate on
OLP-B's tax-exempt bonds issued by the Jackson-Union Counties Regional Port
District was 4.60% per annum.
At June 30, 2000, the Partnership had $259.4 million of commercial paper
outstanding.
6. Partners' Capital
At December 31, 1998, the Partnership had 48,821,690 units outstanding. On
January 21, 1999, and January 29, 1999, the Partnership repurchased and
immediately cancelled 4,000 and 2,000 units, respectively. At June 30, 1999, the
Partnership had 48,815,690 units outstanding.
At December 31, 1999, the Partnership had 59,137,137 units outstanding. On
February 2, 2000, the Partnership issued 574,172 units for the acquisition of
Milwaukee Bulk Terminals, Inc. and Dakota Bulk Terminal, Inc. Additionally, 400
units were issued on each of February 7, 2000 and February 23, 2000, in
accordance with unit option exercises. On April 4, 2000, the Partnership issued
4,500,000 units in a public offering at an issuance price of $39.75 per unit,
less commissions and underwriting expenses. The Partnership used the proceeds
from the unit issuance to acquire the remaining ownership interest in Kinder
Morgan CO2 Company, L.P. At June 30, 2000, the Partnership had 64,212,109 units
outstanding.
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.
Page 16 of 29
<PAGE>
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 $0.775 per unit paid on
May 15, 2000 for the first quarter of 2000 required an incentive distribution to
the general partner of $21,880,451. The Partnership's cash distribution of $0.70
per unit paid on May 14, 1999 for the first quarter of 1999 required an
incentive distribution to the general partner of $13,083,847. The increased
incentive distribution paid for the first quarter of 2000 over the distribution
paid for the first quarter of 1999 reflects the increase in amount distributed
per unit as well as the issuance of additional units.
The Partnership's declared distribution for the second quarter of 2000 of
$0.85 per unit will result in an incentive distribution to the general partner
of $26,550,589. This compares to the Partnership's cash distribution of $0.70
per unit and incentive distribution to the general partner of $13,083,847 for
the second quarter of 1999. The increased incentive distribution paid for the
second quarter of 2000 over the distribution paid for the second quarter of 1999
reflects the increase in amount distributed per unit as well as the issuance of
additional units.
7. Reportable Segments
The Partnership competes in four reportable business segments: Product
Pipelines, Natural Gas Pipelines, CO2 Pipelines and Bulk Terminals. The
Partnership evaluates performance based on each segments' earnings, which
excludes general and administrative expenses, third-party debt costs, 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):
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
<CAPTION>
----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
Revenues
Products Pipelines $ 94,918 $ 73,332 $ 181,322 $ 144,686
Natural Gas Pipelines 40,340 - 80,114 -
CO2 Pipelines 24,619 - 24,619 -
Bulk Terminals 33,881 29,601 65,061 58,296
-------- ---------- ---------- -------------
Total Segments $ 193,758 $ 102,933 $ 351,116 $ 202,982
========== ========== ========== =============
Page 17 of 29
<PAGE>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------------------------- -------------------------
Operating expenses
Products Pipelines $ 34,480 $ 14,994 $ 64,421 $ 26,990
Natural Gas Pipelines 11,439 - 18,063 -
CO2 Pipelines 5,797 - 5,797 -
Bulk Terminals 20,306 15,993 38,773 32,916
---------- ---------- --------- -----------
Total Segments $ 72,022 $ 30,987 $ 127,054 $ 59,906
========== ========== ========= ===========
Operating income
Products Pipelines $ 46,822 $ 45,648 $ 89,505 $ 92,005
Natural Gas Pipelines 22,778 (19) 48,150 (38)
CO2 Pipelines 15,551 (1) 15,516 (2)
Bulk Terminals 10,205 10,656 19,569 19,782
---------- ---------- --------- -----------
Total Segments $ 95,356 $ 56,284 $ 172,740 $ 111,747
========== ========== ========= ===========
Earnings from equity investments, net of amortization of excess costs
Products Pipelines $ 7,168 $ 4,758 $ 12,976 $ 7,821
Natural Gas Pipelines 3,716 581 7,430 1,180
CO2 Pipelines 4,304 3,622 7,926 7,244
Bulk Terminals - 4 - 17
-------- ---------- ----------- -----------
Total Segments $ 15,188 $ 8,965 $ 28,332 $ 16,262
======== ========== =========== ===========
Segment earnings
Products Pipelines $ 53,598 $ 50,564 $ 107,010 $ 98,872
Natural Gas Pipelines 26,499 525 55,633 1,067
CO2 Pipelines 20,601 3,608 24,188 7,229
Bulk Terminals 10,380 10,348 19,925 19,187
---------- ---------- ---------- -----------
Total Segments (1) $ 111,078 $ 65,045 $ 206,756 $ 126,355
========== ========== ========== ===========
</TABLE>
June 30, Dec. 31,
Business Segment Assets 2000 1999
------------- ------------
Products Pipelines $ 2,028,321 $ 2,015,995
Natural Gas Pipelines 947,094 879,076
CO2 Pipelines 361,948 86,684
Bulk Terminals 225,199 203,601
------------- ------------
Total Segments (2) $ 3,562,562 $ 3,185,356
============= ============
(1) The following reconciles segment earnings to net income.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
-------------------------- ------------ -------------
<S> <C> <C> <C> <C>
Segment earnings $ 111,078 $ 65,045 $ 206,756 $ 126,355
Interest and corporate
administrative expenses (39,268) (21,932) (75,387) (42,173)
(a)
----------- ---------- ------------ -------------
Net Income $ 71,810 $ 43,113 $ 131,369 $ 84,182
=========== ========== ============ =============
</TABLE>
(a) Includes interest expense, general and administrative expenses, minority
interest and other insignificant items.
(2) The following reconciles segment assets to consolidated assets.
June 30, Dec. 31,
2000 1999
------------- -------------
Segment assets $ 3,562,562 $ 3,185,356
Corporate assets (b) 49,032 43,382
------------- -------------
Total assets $ 3,611,594 $ 3,228,738
============= =============
(b) Includes cash, cash equivalents and certain unallocable deferred charges.
Page 18 of 29
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Second Quarter 2000 Compared With Second Quarter 1999
The Partnership reported record quarterly revenues and earnings for the
second quarter of 2000. The Partnership's total earnings increased 67% (to $71.8
million or $0.70 per unit) and its total revenues increased 88% (to $193.8
million) in the three months ended June 30, 2000 compared to the same period in
1999. The Partnership reported earnings of $43.1 million ($0.61 per unit) on
revenues of $102.9 million for the second quarter of 1999. The increases in
earnings and revenues primarily resulted from the inclusion of the Natural Gas
Pipelines, which were acquired from Kinder Morgan, Inc. on December 31, 1999,
and the acquisition of the remaining 80% ownership interest in Kinder Morgan CO2
Company, L.P. (formerly Shell CO2 Company), effective April 1, 2000. Prior to
that date, the Partnership owned a 20% equity interest in Kinder Morgan CO2
Company L.P. and reported its results under the equity method of accounting. The
results of Kinder Morgan CO2 Company, L.P. now comprise the Partnership's CO2
Pipelines business segment. Revenues and earnings from each of the Partnership's
other two business segments also increased in the second quarter of 2000
compared with the second quarter of last year. The acquisition of the Product
Pipelines' transmix operations in September 1999 and certain bulk terminal
businesses in January 2000 were the main contributors to the increase in
period-to-period revenues for those two business segments. Operating expenses,
excluding depreciation, amortization, and taxes, other than income taxes,
totaled $72.0 million in the second quarter of 2000 versus $31.0 million in the
second quarter of 1999. The increase in operating expenses was mainly due to the
acquisition of the transmix operations, the Natural Gas Pipelines and the
remaining interest in Kinder Morgan CO2 Company, L.P. Total Partnership
operating income for the second quarter of 2000 increased 69% (to $80.0 million)
compared to the $47.3 million in operating income for the second quarter of
1999. Second quarter earnings from equity investments, net of amortization of
excess costs, were $15.2 million in 2000 and $9.0 million in 1999. The 69%
increase ($6.2 million) in net equity earnings was mainly due to higher equity
income as a result of equity investments made since the second quarter of 1999.
The overall increase in net equity earnings was partially offset by the absence
of second quarter 2000 equity earnings from the Partnership's original 20%
interest in Kinder Morgan CO2 Company L.P. due to the fact that the interest is
no longer accounted for as an equity investment.
Product Pipelines
The Product Pipelines' segment reported earnings of $53.6 million on
revenues of $94.9 million in the second quarter of 2000. These amounts compare
to earnings of $50.6 million on revenues of $73.3 million in the second quarter
of 1999. The $3.0 million increase in period-to-period segment earnings was the
result of higher earnings from the Partnership's Pacific pipelines and from the
Partnership's equity investment in Plantation Pipe Line Company. The $21.6
million increase in segment revenues resulted primarily from the inclusion of
the transmix operations acquired from Primary Corporation in September 1999 and
a 5% increase in revenues generated by the Pacific pipelines. The Pacific
pipelines' revenue growth resulted from a 5% increase in mainline delivery
volumes, partially offset by slightly lower average tariff rates. Operating
expenses for the second quarter of 2000 and the second quarter of 1999 were
$34.5 million and $15.0 million, respectively. The transmix acquisition was the
primary factor for the $19.5 million increase in combined segment operating
expenses. Segment operating income totaled $46.8 million in the second quarter
of 2000 versus $45.6 million in the second quarter of 1999. The segment's
earnings from equity investments, net of amortization of excess costs, increased
to $7.2 million in the second quarter of 2000 versus $4.8 million in the same
period last year. The $2.4 million increase in net equity earnings was the
result of higher income from the segment's investment in Plantation Pipe Line
Company, reflecting the Partnership's acquisition of an additional 27% interest
in June 1999.
Page 19 of 29
<PAGE>
Natural Gas Pipelines
The Partnership's Natural Gas Pipelines, acquired on December 31, 1999,
reported earnings of $26.5 million on revenues of $40.3 million during the
second quarter of 2000. Segment operating expenses totaled $11.4 million in the
second quarter of 2000 and segment operating income was $22.8 million. For the
quarter ended June 30, 2000, the segment reported $3.7 million in earnings from
equity investments, net of amortization of excess costs. This compares to $0.6
million in net equity earnings in the second quarter of 1999. The overall
increase of $3.1 million represents the $3.7 million earned in 2000 from the
Partnership's 49% interest in the Red Cedar Gathering Company, partially offset
by the $0.6 million earned in 1999 from the Partnership's investment in the Mont
Belvieu fractionation facility, which was sold in the third quarter of 1999.
CO2 Pipelines
The Partnership's CO2 Pipelines reported earnings of $20.6 million in the
second quarter of 2000 compared with earnings of $3.6 million in the same period
last year. The segment's $3.6 million in net earnings in the second quarter of
1999 represented equity earnings from the Partnership's original 20% interest in
Kinder Morgan CO2 Company, L.P. For the second quarter of 2000, the segment
reported operating revenues of $24.6 million, operating expenses of $5.8 million
and operating income of $15.6 million. The segment's equity earnings, net of
amortization of excess costs increased to $4.3 million in the second quarter of
2000. The amount represents earnings from the Partnership's 50% interest in
Cortez Pipeline Company.
Bulk Terminals
The Bulk Terminals segment reported a $4.3 million (14%) increase in
operating revenues for the second quarter of 2000 when compared with the second
quarter of 1999. Period-to-period segment earnings remained relatively flat,
primarily the result of a $4.3 million increase in segment operating expenses.
The increase in revenues and expenses were mainly attributable to terminal
acquisitions made by the Partnership since the second quarter of 1999. Higher
average coal and bulk product transfer rates were partially offset by a slight
(1%) decrease in total volumes transferred. The segment reported earnings of
$10.4 million on revenues of $33.9 million in the second quarter of 2000. In the
same 1999 period, the segment earned $10.3 million on revenues of $29.6 million.
Combined operating expenses were $20.3 million in the second quarter of 2000
versus $16.0 million in the second quarter of 1999. Operating income for the
segment was $10.2 million in the second quarter of 2000 versus $10.7 million in
the same quarter last year.
Page 20 of 29
<PAGE>
Operating statistics for the second quarter of 2000 and 1999 are as follows:
Three Months Ended June 30,
2000 1999
----------------
Product Pipelines
Pacific - Mainline Delivery Volumes (MMBbls) 99.8 94.8
Other Delivery Volumes (MMBbls) 3.7 2.0
Plantation - Delivery Volumes (MMBbls) 57.9 57.1
North System/Cypress - Delivery Volumes (MMBbls) 11.2 11.8
Natural Gas Pipelines
Transport Volumes (Bcf) * 112.8 108.1
CO2 Pipelines
Delivery Volumes (Bcf) ** 77.2 70.4
Bulk Terminals
Transport Tonnage (MM Tons) 10.2 10.2
--------------------------------------------------------------------------
* KMIGT and Trailblazer assets acquired 12/31/99. 1999 volumes shown for
comparative purposes only.
** Additional 80% CO2 interest acquired, effective April 1, 2000. 1999 volumes
shown for comparative purposes only.
Items not attributable to any segment include general and administrative
expenses, interest income and expense and minority interest. General and
administrative expenses were $15.4 million in the second quarter of 2000
compared with $8.9 million in the same period last year. The increase was
principally associated with assets acquired from Kinder Morgan, Inc. on December
31, 1999. Interest expense, net of interest income, was $21.8 million in the
second quarter of 2000 compared with $12.1 million in the same year-earlier
period. The increase was due to higher average debt balances and higher average
borrowing rates. Minority interest was $2.1 million for the second quarter of
2000 versus $0.8 million in the second quarter of the prior year. The increase
reflects the 33 1/3% minority interest in Trailblazer Pipeline Company as well
as overall higher Partnership net income.
The Partnership reported an increase in income tax expense of $1.2 million
in the second quarter of 2000 compared to last year's second quarter. The
increase represents the Partnership's higher share of income tax expense from
its investment in Plantation Pipe Line Company.
Six Months Ended June 30, 2000 Compared With Six Months Ended June 30, 1999
Net earnings for the six months ended June 30, 2000 were $131.4 million ($1.33
per unit) compared with net earnings of $84.2 million ($1.18 per unit) in the
first six months of 1999. The Partnership reported total revenues of $351.1
million for the first half of 2000 versus $203.0 million for the first half of
last year. The 56% increase in earnings and the 73% increase in revenues were
distributed across all four of the Partnership's business segments, reflecting
key acquisitions made since the second quarter of 1999 and continued strong
demand for the Partnership's transportation services. Operating expenses for the
six-month periods ended June 30, 2000 and June 30, 1999 were $127.1 million and
$59.9 million, respectively. Operating income was $143.0 million for the six
months ended June 30, 2000. The year-to-date June 30, 2000 operating income
increased 51% from the $95.0 million reported as operating income in the same
period last year. Equity earnings from investments, less amortization of excess
costs, were $28.3 million in the first six months of 2000 versus $16.3 million
in the first six months of 1999. The increase of $12.0 million was primarily due
to the Partnership's acquisition of a 49% equity interest in Red Cedar Gathering
Company in December 1999 and an additional 27% equity interest in Plantation
Pipe Line Company in June 1999, partially offset by the reduction in equity
earnings from the Partnership's 20% interest in Kinder Morgan CO2 Company, L.P.
as a result of the
Page 21 of 29
<PAGE>
Partnership's acquisition of the remaining 80% of Kinder Morgan CO2 Company,
L.P. on April 1, 2000.
Product Pipelines
The Product Pipelines' segment reported earnings of $107.0 million on
revenues of $181.3 million for the first six months of 2000. These amounts
compare with earnings of $98.9 million on revenues of $144.7 million for the
same period of 1999. The $36.6 million increase in segment revenues resulted
primarily from the inclusion of the transmix operations acquired in September
1999. In addition, the Pacific pipelines reported a 3% increase in revenues as a
result of a 4% increase in mainline delivery volumes, partially offset by
slightly lower (2%) average tariff rates. The decrease in average tariff rates
was mainly due to the reduction in transportation rates, effective April 1,
1999, on the segment's East Line. The Product Pipelines' North System reported a
10% increase in revenues as a result of a 9% increase in throughput volumes.
Segment operating expenses totaled $64.4 million and $27.0 million for the six
month periods ended June 30, 2000 and June 30, 1999, respectively. The increase
in operating expenses were due to the inclusion of the transmix operations and
to higher expenses on the Pacific pipelines due to the higher volumes delivered.
Net operating income was $89.5 million in the first half of 2000, and $92.0
million in the comparable period in 1999. The segment's earnings from equity
investments, net of amortization of excess costs, increased to $13.0 million in
the six-month period of 2000 versus $7.8 million in the same period last year.
The $5.2 million increase in net equity earnings was mainly the result of higher
income from the segment's investment in Plantation Pipe Line Company. The
increase was the result of the Partnership having a 51% ownership interest in
Plantation Pipe Line Company for the entire six-month period ended June 30,
2000.
Natural Gas Pipelines
The Natural Gas Pipelines reported segment earnings of $55.6 million on
revenues of $80.1 million for the first six months of 2000. The operations of
the Natural Gas Pipelines, excluding the Partnership's former equity investment
in the Mont Belvieu fractionation facility and a 33 1/3% interest in Trailblazer
Pipeline Company, were acquired on December 31, 1999. The Partnership sold its
partnership interest in the Mont Belvieu fractionation facility in the third
quarter of 1999 and acquired its initial one-third interest in Trailblazer on
November 30, 1999. Combined operating expenses were $18.1 million and segment
operating income totaled $48.2 million for the first half of 2000. Equity
earnings, net of amortization of excess costs, were $7.4 million in the first
six months of 2000 and $1.2 million in the same period last year. The $6.2
million year-to-year increase represents the difference between the 2000
earnings from the Partnership's 49% interest in the Red Cedar Gathering Company
and the 1999 earnings from the former equity interest in the Mont Belvieu
fractionation facility.
CO2 Pipelines
The CO2 Pipelines activities consist of Kinder Morgan CO2 Company, L.P.
Prior to April 1, 2000, the Partnership owned a 20% equity interest in Kinder
Morgan CO2 Company, L.P. and reported its results under the equity method of
accounting. The CO2 Pipelines reported segment earnings of $24.2 million on
revenues of $24.6 million for the first six months of 2000. The segment reported
operating expenses of $5.8 million and operating income of $15.5 million for the
six-month period ended June 30, 2000. Equity earnings, net of amortization of
excess costs, were $7.9 million in the first six months of 2000 and $7.2 million
in the first six months of last year. The $0.7 million increase in 2000
represents the difference between (1) the Partnership's earnings from its 20%
interest in Kinder Morgan CO2 Company, L.P. from January 1, 2000 through April
1, 2000 and its 50% interest in Cortez Pipeline from April 1, 2000 and (2) the
Partnership's earnings from its 20% interest in Kinder Morgan CO2 Company, L.P.
for the first six months of 1999.
Page 22 of 29
<PAGE>
Bulk Terminals
For the comparative six-month periods, the Bulk Terminals segment reported
a 4% increase in segment earnings and a 12% increase in total revenues. The
segment earned $19.9 million on revenues of $65.1 million during the first half
of 2000. These amounts compare to earnings of $19.2 million on revenues of $58.3
million during the comparable period last year. The $6.8 million increase in
revenues resulted from a 7% increase in coal and bulk tonnage volumes
transferred, as well as a 2% increase in average transfer rates. The increase in
transferred volumes created a $5.9 million increase in segment operating
expenses and kept operating income relatively flat. Segment operating expenses
totaled $38.8 million for the six months ended June 30, 2000 and $32.9 million
for the same period last year. Operating income for the six months ended June
30, 2000 was $19.6 million versus $19.8 million for the six months ended June
30, 1999.
Operating statistics for the first six months of 2000 and 1999 are as follows:
Six Months Ended June 30,
2000 1999
-------------------------
Product Pipelines
Pacific - Mainline Delivery Volumes (MMBbls) 188.5 181.1
Other Delivery Volumes (MMBbls) 6.8 5.0
Plantation - Delivery Volumes (MMBbls) 109.0 109.5
North System/Cypress - Delivery Volumes (MMBbls) 24.8 23.7
Natural Gas Pipelines
Transport Volumes (Bcf) * 220.6 213.1
CO2 Pipelines
Delivery Volumes (Bcf) ** 160.3 147.3
Bulk Terminals
Transport Tonnage (MM Tons) 21.2 19.8
--------------------------------------------------------------------------
* KMIGT and Trailblazer assets acquired 12/31/99. 1999 volumes shown for
comparative purposes only.
** Additional 80% CO2 interest acquired, effective April 1, 2000. Year-to-
date 2000 and 1999 volumes shown for comparative purposes only.
Items not attributable to any segment include general and administrative
expenses, interest income and expense and minority interest. General and
administrative expenses were $29.7 million in the six-month period ended June
30, 2000 and $16.8 million in the six-month period ended June 30, 1999. The
increase in general and administrative expenses over last year reflects the
Partnership's larger and more diverse operations. Interest expense, net of
interest income, was $41.9 million in the first six months of 2000 compared with
$24.0 million in the same year-earlier period. The increase was due to higher
average debt balances and higher average borrowing rates. Minority interest,
which includes all subsidiary partners other than the Partnership, amounted to
$3.8 million and $1.4 million for the six months ended June 30, 2000 and June
30, 1999, respectively. The increase reflects the 33 1/3% minority interest in
Trailblazer Pipeline Company and higher overall Partnership net income.
The Partnership reported an increase in income tax expense of $2.5 million
in the first six months of 2000 compared to the first six months of last year.
The increase was principally due to the Partnership's higher share of income tax
expense from its investment in Plantation Pipe Line Company.
Page 23 of 29
<PAGE>
Financial Condition
The Partnership's primary cash requirements, in addition to normal
operating expenses, are debt service, sustaining capital expenditures, expansion
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 or issuing
short-term commercial paper, long-term notes or 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.
Operating Activities
Net cash provided by operating activities was $104.6 million for the six
months ended June 30, 2000, versus $93.7 million in the comparable period of
1999. The period-to-period increase of $10.9 million in cash flow from
operations was primarily the result of higher net earnings and higher non-cash
depreciation and amortization charges. Higher net earnings in the first six
months of 2000 produced an additional $47.2 million in operating funds compared
to the same period last year, and higher depreciation and amortization charges
produced an incremental $15.8 million. The higher earnings and non-cash
depreciation charges in the first half of 2000 compared to the prior year were
chiefly due to business acquisitions made since June 1999. The overall increase
in cash provided by operating activities was partially offset by a $47.7 million
payment of accrued rate refund liabilities, a $12.1 million increase in
undistributed earnings from equity investments, including amortization of excess
costs, and a $10.8 million decrease in cash inflows relative to net changes in
working capital items. The payment of the rate refunds was made under settlement
agreements between shippers and the Partnership's Natural Gas Pipelines. The
increase in undistributed earnings from equity investments resulted primarily
from income generated from the Partnership's December 1999 investment in Red
Cedar Gathering Company and its June 1999 investment in Plantation Pipe Line
Company. The absence of earnings from January 1, 2000 through June 30, 2000,
from the Partnership's investment in the Mont Belvieu fractionation facility,
and from April 1, 2000 through June 30, 2000, from its investment in Kinder
Morgan CO2 Company, L.P., offset higher overall earnings from equity
investments. The Partnership sold its interest in the fractionation facility in
the third quarter of 1999, and as a result of acquiring the remaining 80%
interest in Kinder Morgan CO2 Company, L.P. on April 1, 2000, the Partnership no
longer accounts for its investment in Kinder Morgan CO2 Company, L.P. on an
equity basis.
Investing Activities
Net cash used in investing activities was $616.2 million for the six-month
period ended June 30, 2000, compared to $168.1 million in the comparable 1999
period. The $448.1 million increase in funds utilized in investing activities
was primarily attributable to $572.5 million of asset acquisitions made in the
first half of 2000. The acquisition outlays consisted of a $330.0 million
payment to Kinder Morgan, Inc. for the Natural Gas Pipelines, a net payment of
$188.9 million for the remaining 80% interest in Kinder Morgan CO2 Company,
L.P., a $53.4 million payment for the Partnership's interests in the Canyon Reef
Carriers CO2 pipeline and SACROC Unit, and a net payment of $0.2 million for
Bulk Terminal acquisitions. The overall increase in funds used in investing
activities was offset by the Partnership's $124.2 million investment in
Plantation Pipe Line Company in June 1999. Cash used for capital expenditures
increased $8.2 million (to $52.6 million) in the first six months of 2000 versus
the same period last year. The increase primarily reflects higher investments
made in the Partnership's Product Pipelines and Bulk
Page 24 of 29
<PAGE>
Terminals business segments. All funds classified as additions to property,
plant and equipment include both expansion and sustaining capital expenditures.
Financing Activities
Net Cash provided by financing activities amounted to $504.6 million for
the six months ended June 30, 2000. This increase of $439.2 million from the
comparable 1999 period was mainly the result of an additional $294.5 million
received from overall debt financing activities and $171.3 million in proceeds
received from the April 2000 public offering of Partnership units. The
Partnership completed a private placement of $400 million in debt securities
during the first quarter of 2000, resulting in a cash inflow of $397.9 million
net of discounts and issuing costs. The general increase in funds provided by
financing activities was partially offset by a $35.3 million increase in
distributions to partners in the 2000 period.
Distributions to all partners increased to $126.7 million in the six-month
period ended June 30, 2000, compared to $91.4 million in the corresponding 1999
period. The increase in distributions was due to an increase in the per unit
distributions paid, the number of units outstanding and the general partner
incentive distributions, which resulted from increased distributions to
unitholders. The Partnership paid distributions of $1.50 per unit in the first
six months of 2000 compared with distributions of $1.35 per unit in the first
six months of 1999.
The 11% increase in paid distributions per unit resulted from favorable
operating results in 2000. On July 20, 2000, the Partnership declared a
distribution of $0.85 per unit for the second quarter of 2000. 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.
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 (including any reserves required
under debt instruments for future principal and interest payments) and amounts
payable to the former Santa Fe general partner in respect of its 0.5% interest
in SFPP.
Available Cash of the Partnership is initially distributed 98% to the
limited partners (including the approximate 2% limited partner interest of the
general partner) and 2% to the general partner. These distribution percentages
are 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.
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 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 declared by the Partnership for the second quarter of
2000 was $26.6 million, while the incentive distribution paid during the first
six months of 2000 and 1999 were $36.3 million and $23.8 million, respectively.
Page 25 of 29
<PAGE>
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, natural gas, 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 changes in the Partnership's tariff rates implemented by the Federal
Energy Regulatory Commission or the California Public Utilities
Commission;
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;
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
14, 2000 for a more detailed description of these and other factors that may
affect the forward looking statements. When considering forward looking
statements, one should keep in mind the risk factors described in the Form 10-K.
The risk factors could cause the Partnership's actual results to differ
materially from those contained in any forward looking statement. The
Partnership disclaims any obligation to update the above list or to announce
publicly the result of any revisions to any of the forward looking statements to
reflect future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that would
affect the quantitative and qualitative disclosures presented as of December 31,
1999, in Item 7a of the Partnership's 1999 Form 10-K.
Page 26 of 29
<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 and Other Contingencies" which is incorporated herein by
reference.
ITEM 2. Changes in Securities and Use of Proceeds
During the quarter ended June 30, 2000, the Partnership did not issue any
securities that were not registered under the Securities Act of 1933, as
amended.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 -Certain instruments with respect to long-term debt of the Partnership and
its consolidated subsidiaries which relate to debt that does not exceed 10%
of the total assets of the Partnership and its consolidated subsidiaries
are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17
C.F.R. ss.229.601. The Partnership hereby agrees to furnish supplementally
to the Securities and Exchange Commission a copy of each such instrument
upon request.
*27.1 - Financial Data Schedule for Kinder Morgan Energy Partners, L.P.
---------------------
* Filed herewith.
(b) Reports on Form 8-K.
Current report dated March 28, 2000, on Form 8-K was filed April 3, 2000,
pursuant to Items 5 and 7 of that form. Pursuant to Item 5 of that form, the
Registrant disclosed the issuance of 4,500,000 common units representing limited
partner interests in an underwritten public offering. The Registrant received
net proceeds of approximately $171 million from this offering, after paying
underwriting discounts and commissions and offering expenses. The underwriting
agreement under which the units were sold was attached as an exhibit pursuant to
Item 7 of that form.
Page 27 of 29
<PAGE>
Current report dated June 27, 2000, on Form 8-K was filed June 28, 2000. The
Balance Sheet of Kinder Morgan G.P., Inc., as of March 31, 2000 was disclosed
pursuant to Item 7 of that form.
Page 28 of 29
<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/ C. Park Shaper
------------------------------
C. Park Shaper
Vice President, Treasurer
and Chief Financial Officer
Date: August 7, 2000
Page 29 of 29
