Kinder Morgan G.P., Inc.
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
Balance Sheet
At March 31, 2000
(In Thousands) (Unaudited)
ASSETS
Current assets:
Receivable from Partnership (Note 5) $ 3,842
Receivable - Other 53
Prepaid expenses 618
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4,513
Investment in Partnership 1,345,533
Deferred taxes and other 1,789
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Total assets $1,351,835
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable - trade $ 1,579
Accrued liabilities 4,966
Payable to Kinder Morgan, Inc. (Note 5) 4,573
Accrued taxes 2,958
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14,076
Deferred taxes and other 506,921
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520,997
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Commitments and contingencies (Note 4)
Stockholder's equity:
Common stock, $10 par value, authorized, issued and outstanding
1,000,000 shares 10,000
Additional paid-in capital 815,251
Accumulated earnings (deficit) 5,587
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Total stockholder's equity 830,838
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Total liabilities and stockholders' equity $1,351,835
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The accompanying notes are an integral part of this financial statement.
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Kinder Morgan G.P., Inc.
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
Notes to Balance Sheet
March 31, 2000
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1. ORGANIZATION
Effective February 14, 1997, Kinder Morgan, Inc. ("KMI") acquired all of
the issued and outstanding stock of Enron Liquids Pipeline Company
("ELPC"), and ELPC was renamed Kinder Morgan G.P., Inc. (the "General
Partner"). The General Partner owns an effective 3.4% interest in Kinder
Morgan Energy Partners, L.P. (the "Partnership") as of March 31, 2000. The
ownership interest consists of a 1% general partner interest in the
Partnership, 862,000 common units of the Partnership and a 1.0101% general
partner interest in each of the Partnership's four operating limited
partnerships. The Partnership owns the remaining 98.9899%.
On October 7, 1999, KMI completed a merger with K N Energy, Inc., a Kansas
corporation, providing integrated energy services including the gathering,
processing, transportation and storage of natural gas, marketing of natural
gas and natural gas liquids and electric power generation and sales. The
combined entity was renamed Kinder Morgan,Inc. and trades under the New
York Stock Exchange symbol "KMI." KMI remains the sole stockholder of the
General Partner.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are followed by the General
Partner in the preparation of the financial statement.
USE OF ESTIMATES
The preparation of the financial statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement. Actual results could differ from those estimates.
INVESTMENT IN PARTNERSHIP
The General Partner's investment in the Partnership is accounted for under
the equity method. At March 31, 2000, the General Partner's investment in
the Partnership exceeded its share of the underlying equity in the net
assets of the Partnership by $1,297,390,097. This excess is being amortized
on a straight-line basis over 44 years. The amortization period
approximates the useful lives of the Partnership's assets, which range from
eight to fifty years.
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<PAGE>
Kinder Morgan G.P., Inc.
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
Notes to Balance Sheet
March 31, 2000
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INCOME TAXES
The General Partner accounts for income taxes under the liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are determined based
on temporary differences between the financial reporting and tax bases of
the General Partner's assets and liabilities using enacted tax rates in
effect during the years in which the differences are expected to reverse.
3. INVESTMENT IN PARTNERSHIP
Summarized financial information of the Partnership at March 31, 2000 is
presented below (in thousands):
Current assets $ 170,752
Noncurrent assets 3,147,289
Current liabilities 130,960
Long-term debt and other liabilities 1,329,734
Minority interest 50,183
Partners' capital 1,807,164
4. LITIGATION, COMMITMENTS AND OTHER CONTINGENCIES
LITIGATION
The General Partner, in the ordinary course of business, is a defendant in
various lawsuits relating to the Partnership's assets. The Partnership made
certain acquisitions during the year 1999 and during the first quarter of
2000. The General Partner assumed potential and existing claims associated
with those acquisitions. Although no assurance can be given, the General
Partner believes, based on its experience to date, that the ultimate
resolution of such items will not have a material adverse impact on the
General Partner's financial position. It is expected that the Partnership
will reimburse the General Partner for any liability or expenses incurred
in connection with these legal proceedings.
FERC
The Partnership and certain of its subsidiaries are defendants in several
actions in which the plaintiffs protest pipeline transportation rates with
the Federal Energy Regulatory Commission ("FERC"). These actions are
currently pending. The Plaintiffs seek to recover transportation
overpayments and interests and in some cases treble and punitive damages.
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<PAGE>
Kinder Morgan G.P., Inc.
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
Notes to Balance Sheet
March 31, 2000
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The General Partner is not able to predict with certainty whether
settlement agreements will be completed with some or all of the
complainants, the final terms of any such settlement agreements that may be
consummated, or the final outcome of the FERC proceedings should they be
carried through to their conclusion, and it is possible that current or
future proceedings could be resolved in a manner adverse to the
Partnership, which could affect future cash distributions to the General
Partner.
ENVIRONMENTAL
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 which could affect
future cash distributions to the General Partner.
The Partnership, along with several other respondents, is involved in a
cleanup in connection with an acquisition made in 1998. This cleanup,
ordered by the United States Environmental Protection Agency ("EPA"),
related to ground water contamination in the vicinity of the Partnership's
storage facilities and truck loading terminal at Sparks, Nevada. In
addition, the Partnership is presently 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. Although no assurance can be given, the General Partner believes
the ultimate resolutions of these matters will not have a material adverse
effect on the Partnership's financial position, result of operations, or
its ability to pay cash distributions to the General Partner.
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 General Partner believes, based on its
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<PAGE>
Kinder Morgan G.P., Inc.
(a wholly-owned subsidiary of Kinder Morgan, Inc.)
Notes to Balance Sheet
March 31, 2000
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experience to date, the ultimate resolution of such items will not have a
material adverse impact on the Partnership's financial position, results of
operations, or its ability to pay cash distributions to the General
Partner.
5. RELATED PARTY TRANSACTIONS
RECEIVABLE FROM PARTNERSHIP
General and administrative expenses incurred by the General Partner are all
reimbursed by the Partnership as provided in the Partnership Agreement. The
receivable from Partnership of $3,842,000 at March 31, 2000, represents
general and administrative expenses incurred by the General Partner to be
reimbursed by the Partnership. The accrued liabilities of $4,966,000 at
March 31, 2000, represent general and administrative expenses accrued by
the General Partner to be reimbursed by the Partnership upon payment of the
expenses.
PAYABLE TO KMI
The payable to KMI of $4,573,000 at March 31, 2000, primarily represents
amounts loaned to the General Partner for its minority interest
contributions to the Partnership. It also includes income taxes paid by KMI
on behalf of the General Partner as of December 31, 1999 as well as general
and administrative expenses incurred by KMI during the first quarter of
2000. The General Partner shares administrative personnel with KMI to
operate both KMI's business and the business of the Partnership. As a
result, the officers of the General Partner, who in some cases may also be
officers of KMI, must allocate, in their reasonable and sole discretion,
the time the General Partner's employees spend on behalf of the Partnership
and on behalf of KMI. For 2000, KMI will pay the General Partner $1 million
as reimbursement for the services of the General Partner's employees. The
General Partner will pay KMI $6.05 million as reimbursement for its
administrative services performed on behalf of the Partnership. Management
of the General Partner believes these amounts fairly reflect the value of
the services performed for and by KMI. The General Partner and KMI will
periodically reevaluate the amount to be charged to KMI and to the General
Partner for the services provided by the employees of KMI and the General
Partner.
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