Item 3. Legal Proceedings
See Note 15 of the Notes to the Consolidated Financial Statements of the Partnership included elsewhere in this report.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 1998.
PART II
Item 5.
Item 5. Market for the Registrant's Units and Related Security Holder Matters
The following table sets forth, for the periods indicated, the high and low sale prices per unit, as reported on the New York Stock Exchange, the principal market in which the units are traded, and the amount of cash distributions declared per unit. All information has been adjusted to give effect to the two-for-one split of units effective October 1, 1997.
Price Range Cash ----------- ---- High Low Distributions ---- --- ------------- ---- First Quarter $21.3750 $13.6875 $0.3150 Second Quarter 24.0625 19.2500 0.5000 Third Quarter 36.8750 23.9375 0.5000 Fourth Quarter 41.2500 32.0000 0.5625
---- First Quarter $37.8750 $30.1250 $0.5625 Second Quarter 38.1250 35.0000 0.6300 Third Quarter 37.3750 28.5625 0.6300 Fourth Quarter 36.9375 29.5625 0.6500
The Partnership pays quarterly distributions at a current rate of $.65 per quarter. The Partnership currently expects that it will continue to pay comparable cash distributions in the future.
As of February 20, 1999, there were approximately 35,000 beneficial owners of the Partnership's units.
Item 6.
Item 6. Selected Financial Data (unaudited)
The following table sets forth, for the periods and at the dates indicated, selected historical financial and operating data for the Partnership.
(1) Represents net income before extraordinary charge per unit adjusted for the two-for-one split of units on October 1, 1997. Net income before extraordinary charge per unit was computed by dividing the interest of the holders of units in net income before extraordinary charge by the weighted average number of units outstanding during the period. (2) Additions to property, plant and equipment for 1994 and 1997 exclude the $12,825, and $11,688 of assets acquired in the June 1994 Painter Gas Processing Plant and September 1997 Grand Rivers Terminal acquisitions, respectively. (3) The Partnership acquired the Pacific Operations on March 6, 1998. (4) Represents total volumes for the North System and the Cypress Pipeline only. (5) Represents the volumes of the Cora Terminal, excluding ship or pay volumes of 252 Mtons for 1996, the Grand Rivers Terminal from September 1997 and Kinder Morgan Bulk Terminals from July 1, 1998. (6) Includes results of operations for: * Pacific Operations from March 6, 1998; * Kinder Morgan Bulk Terminals from July 1, 1998; and * Plantation Pipe Line Company from September 15, 1998.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations of the Partnership
Year Ended December 31, 1998 Compared With Year Ended December 31, 1997
Key acquisitions and strong performance across all business segments during 1998 allowed the Partnership to realize a 105% increase in net income per unit before extraordinary items. The Partnership reported net earnings before extraordinary charge of $117.2 million ($2.09 per unit) for 1998 and $17.7 million ($1.02 per unit) for 1997. Included in the 1998 results was an extraordinary charge of $13.6 million associated with debt refinancing transactions, including both a prepayment premium and the write-off of unamortized debt issue costs. After the extraordinary charge, net income for the full year 1998 was $103.6 million ($1.75 per unit). The acquisition of the Pacific Operations (formerly Santa Fe Pacific Pipeline Partners, L.P.) in March 1998 was the primary contributing factor for the increase in total Partnership revenue to $322.6 million in 1998 from $73.9 million in 1997. Operating income for 1998 was $139.9 million versus $24.2 million in 1997.
For 1998, the Pacific Operations reported segment earnings of $140.1 million and total operating revenues of $221.4 million. The amounts reflect strong demand for gasoline, jet fuel and diesel fuel in the Partnership's West Coast markets. Segment earnings included other expense charges of $6.4 million, mainly the result of accrued expenses relating to the FERC Rate Case reserve.
The Mid-Continent Operations earned $37.2 million in segment earnings for 1998 compared to $27.5 million in 1997. Mid-Continent Operations consist of the North System, the Cypress Pipeline, the Painter gas processing plant, and the Partnership's equity investments in Shell CO2 Company, Plantation Pipe Line Company and the Mont Belvieu Fractionator. The 35% increase in earnings was primarily driven by high returns from the Partnership's investment in Shell CO2 Company. Segment revenues were $38.3 million for 1998 and $55.8 million for 1997. The revenue decrease was primarily related to the Central Basin Pipeline, which was contributed to Shell CO2 Company in March 1998 and subsequently accounted for as an investment in partnership. Cost of products sold decreased to $0.2 million in 1998 compared to $4.6 million in 1997 due to lower purchase/sale contracts reported by the North System and to the transfer of the Central Basin Pipeline. Operating and maintenance expenses, combined with fuel and power expenses, were $14.1 million in 1998. This amount compares to $17.1 million for 1997. The decrease was attributable to the assignment of the Mobil gas processing agreement at the Bushton Plant in April 1997, the transfer of the Central Basin Pipeline and a slight decrease (3%) in barrels transported. The transfer of the Central Basin Pipeline also accounted for a decrease in depreciation expense and other tax expenses in 1998. Depreciation and amortization expenses, combined with taxes, other than income taxes, were $10.3 million in 1998 and $11.7 million in 1997. Earnings from equity investments grew to $24.9 million in 1998 compared to $5.7 million in 1997. The increase was chiefly the result of the Partnership's interests in Plantation Pipe Line Company and Shell CO2 Company, both of which are accounted for under the equity method. Other income items increased $0.6 million in 1998 compared to 1997. This was attributable to a $0.6 million contested product loss at the Mont Belvieu Fractionator in 1997. Income tax expense for the segment increased $1.7 million in 1998 over the previous year. The 1998 income tax provision includes the Partnership's share of tax expense relating to its investment in Plantation Pipe Line Company.
The Bulk Terminals segment reported earnings of $19.2 million in 1998 versus $10.7 million in 1997. Revenues from Bulk Terminal activity were $62.9 million for 1998 and $18.2 million for 1997. The increase in operating results was directly affected by the Partnership's acquisition of Kinder Morgan Bulk Terminals, Inc. (formerly Hall-Buck Marine, Inc.) in July 1998 and the inclusion of a full year of operations from the Grand Rivers coal terminal, acquired in September 1997. The increase in total segment revenue was also driven by a 93% increase in revenues earned by the Red Lightning energy services unit, which began operations in April 1997. Cost of products sold for the year 1998 was $5.7 million compared to $2.6 million in 1997. The increase was due to a higher number of coal purchase contracts as part of the coal marketing activity. Operations and maintenance expenses, combined with fuel and power expenses, totaled $31.3 million in 1998 and $3.6 million in 1997. The increase was the result of 1998 business acquisitions and higher coal volumes transferred at the Partnership's Cora coal terminal. Depreciation and amortization expense was $3.9 million in 1998 and $1.1 million in 1997. Taxes, other than income taxes, were $1.6 million in 1998 and $0.3 million in 1997. The increase in both depreciation and taxes was primarily due to the addition of Kinder Morgan Bulk Terminals.
Total Partnership general and administrative expenses totaled $40.0 million in 1998 compared to $8.9 million in 1997. The increase was attributable to higher administrative expenses associated with new acquisitions, primarily the Pacific Operations, made by the Partnership in 1998. The Partnership continues to focus on productivity and expense controls.
Total Partnership interest expense, net of interest income, was $38.6 million in 1998 compared to $12.1 million in 1997. The increase was primarily due to debt assumed by the Partnership as part of the acquisition of the Pacific Operations as well as expenses related to the financing of the Partnership's 1998 investments.
Minority interest expense increased to $1.0 million in 1998 versus $0.2 million in 1997. The increase was the result of earnings attributable to SFPP (Pacific Operations) as well as to higher overall Partnership income.
Year Ended December 31, 1997 Compared With Year Ended December 31, 1996
Net income of the Partnership increased 49% to $17.7 million in 1997 from $11.9 million in 1996. The results for 1996 included a non-recurring gain of $2.5 million, attributable to the cash buyout received from Chevron, USA ("Chevron") for early termination of a gas processing contract at the Painter Plant. See Note 7 of the Notes to the Consolidated Financial Statements of the Partnership. Revenues of the Partnership increased 4% to $73.9 million in 1997 compared to $71.3 million in 1996.
A significant portion of the overall earnings increase was attributable to the Bulk Terminals segment. The segment reported net earnings of $10.7 million for 1997, $6.3 million (142%) higher than the previous year. Earnings from the coal terminals increased 81%, primarily the result of increases in both coal tons transferred and average transfer rates at the Cora Terminal, as well as the addition of the Grand Rivers Terminal in September 1997. Operating results from Red Lightning, the energy services business unit, also contributed positive earnings. Segment revenues totaled $18.2 million, up $10.1 million from 1996. The large increase reflects the addition of the Red Lightning energy services unit starting in April 1997, the addition of the Grand Rivers Terminal, and a 35% increase in revenues earned by the Cora Terminal. The increase in revenues from the Cora Terminal resulted from a 17% increase in volumes transferred, accompanied by a 6% increase in average transfer rates. Cost of products sold increased to $2.6 million in 1997 from $0.2 million in 1996. This was due to the coal purchase contracts entered into by the Red Lightning business unit. Operating and maintenance expenses, together with fuel and power expenses, were $3.6 million in 1997 and $2.0 million in 1996. Excluding the effect of the Grand Rivers Terminal, these operating costs increased 31% in 1997, mainly due to the increase in coal tons transferred by the Cora Terminal.
In 1997, the Mid-Continent Operations reported $27.5 million in segment earnings from total revenues of $55.8 million. This compares to 1996 segment earnings of $28.7 million from revenues of $63.2 million. The decline in segment earnings was primarily the result of the $2.5 million non-recurring gain recognized in 1996 (referred to above). The decrease in segment revenue was mainly the result of the termination of gas processing at the Painter Plant in August 1996 and the assignment of the Mobil gas processing agreement at the Bushton Plant (the "Mobil Agreement") to KN Processing, Inc. in April 1997. Revenues from the liquids pipelines remained relatively flat in 1997 as compared to 1996. Pipeline revenues were $53.5 million in 1997 versus $54.0 million in 1996. Revenues from the Cypress Pipeline increased 11% due to a 14% increase in throughput volumes. The North System's revenues decreased 3% due to a 5% decrease in barrels transported. Cost of products sold was $4.6 million in 1997 versus $7.7 million in 1996. The decrease was due to fewer purchase/sale contracts on the liquids pipelines as well as the termination of purchase/sale contracts at the Painter Plant. Operating and maintenance expenses, combined with fuel and power expenses, were $17.1 million for 1997 and $21.8 million for 1996. A significant decrease in segment operating expenses resulted from the assignment of the Mobil Agreement and the leasing of the Painter Facility to Amoco Oil Company in February 1997. Additionally, the decrease in volumes transferred by the North System in 1997 resulted in a 4% decrease in its operating and fuel costs. Taxes, other than income taxes, decreased $0.7 million (20%) in 1997 due to adjustments to the liquids pipelines' ad valorem tax valuations and higher 1996 ad valorem tax provisions. Other non-operating income and expense decreased $3.3 million in 1997 versus 1996. The decrease reflects the $2.5 million buyout payment received from Chevron in 1996 and a $0.6 million contested product loss at the Mont Belvieu Fractionator recorded in the fourth quarter of 1997. A decrease in the cumulative difference between book and tax depreciation and the effect of a partial liquidating distribution of Kinder Morgan Natural Gas Liquids Corporation, the corporate entity holding the Partnership's interest in the Fractionator, resulted in a $2.1 million reduction in income tax expense for 1997 compared to 1996.
Total Partnership general and administrative expenses totaled $8.9 million in 1997 compared to $9.1 million in 1996. The 2% decrease in administrative expenses was the result of cost savings realized by new management.
Total Partnership interest expense, net of interest income, for 1997 ($12.1 million) was relatively unchanged from the amount reported in 1996 ($11.9 million).
Outlook
The Partnership intends to actively pursue a strategy to increase the Partnership's operating income. The Partnership will use a three-pronged strategy to accomplish this goal.
o Cost Reductions. The Partnership has substantially reduced its operating expenses since the general partner was acquired from Enron in February 1997 and will continue to seek further reductions where appropriate. Since the acquisition of the Pacific Operations, the Partnership has also reduced costs by more than $20 million per year through the elimination of redundant general and administrative and other expenses.
o Internal Growth. The Partnership intends to expand the operations of its current facilities. The Partnership has taken a number of steps that management believes will increase revenues from existing operations, including the following:
o the Pacific Operations committed over $40 million to expand its pipeline and storage facilities; o the Cypress Pipeline expanded its capacity by 25,000 barrels per day in November 1997; o the Cora Terminal and the Grand Rivers Terminal handled an aggregate of approximately 13.5 million tons of coal during 1998 compared to 9.1 million tons in 1997. The increase was a result of sales agreements and other new business; and o earnings and cash flow, as historically related to the operations of the Central Basin Pipeline, increased in 1998 as a result of the partnership formed with Shell.
o Strategic Acquisitions. During 1998, the Partnership made the following acquisitions:
o Shell CO2 joint venture (20%) March 5, 1998 o Pacific Operations March 6, 1998 o Kinder Morgan Bulk Terminals July 1, 1998 o Plantation Pipe Line Company (24%) September 15, 1998 o Pier IX and Shipyard River Terminals December 18, 1998
The Partnership intends to seek opportunities to make additional strategic acquisitions to expand existing businesses or to enter into related businesses. The Partnership periodically considers potential acquisition opportunities as such opportunities are identified by the Partnership. No assurance can be given that the Partnership will be able to consummate any such acquisitions. Management anticipates that the Partnership will finance acquisitions temporarily by borrowings under the Credit Facility and permanently by a combination of debt and equity funding from the issuance of new debt securities and units.
On January 13, 1999, the Partnership announced an increase in its quarterly distribution to $0.65 per unit, effective with the distribution for the fourth quarter of 1998. The distribution for the third quarter of 1998 was $0.63 per unit. Management intends to maintain the distribution at an annual level of at least $2.60 per unit assuming no adverse change in the Partnership's operations, economic conditions and other factors.
Liquidity and Capital Resources
The Partnership's primary cash requirements, in addition to normal operating expenses, are debt service, sustaining capital expenditures, discretionary capital expenditures, and quarterly distributions to partners. In addition to utilizing cash generated from operations, the Partnership could meet its cash requirements through borrowings under its credit facilities, issuing long-term notes or issuing additional units. The Partnership expects to fund future cash distributions and sustaining capital expenditures with existing cash and cash flows from operating activities.
Expansion capital expenditures are expected to be funded through additional Partnership borrowings or issuance of additional units. Interest payments are expected to be paid from cash flows from operating activities and debt principal payments will be met by additional borrowings as they become due or by issuance of additional units.
Cash Provided by Operating Activities
Net cash provided by operating activities was $134.0 million for 1998. This amount was $102.0 million higher than the $32.0 million of cash provided by operating activities in 1997. The increase in cash flow from operations was primarily the result of higher net earnings and higher non-cash depreciation and amortization charges. Higher earnings, chiefly due to the acquisition of the Pacific Operations, accounted for $85.9 million of the increase. Higher depreciation and amortization expenses, directly attributable to the Pacific Operations and the acquisition of Kinder Morgan Bulk Terminals accounted for $27.3 million of the increase. The higher overall change in cash provided by operating activities was partially offset by lower cash inflows relative to net changes in operating assets and liabilities. Cash flows from the net change in working capital components decreased $15.8 million in 1998 versus 1997. The decrease was chiefly due to a $9.1 million employee severance payment made in December 1998 related to the Santa Fe acquisition. In addition, under a settlement agreement of previous litigation matters between SFPP and El Paso Refinery L.P. and its general partner, SFPP was obligated to pay a final payment of $8 million. The liability was paid in the second quarter of 1998.
Cash Used in Investing Activities
Net cash used in investing activities was $281.7 million in 1998 compared to $30.3 million in 1997. The increase in funds utilized in investing activities was attributable to asset acquisitions and increases in capital expenditures driven primarily by continued investment in the Partnership's Pacific Operations. Excluding the effect of cash used for asset acquisitions, additions to property, plant and equipment were $38.4 million in 1998 and $6.9 million in 1997. These additions of property, plant and equipment include both expansion and maintenance projects.
Additionally, there were substantially higher contributions to equity investments made during 1998 versus 1997. The period-to-period increase in contributions was $132.7 million, reflecting the Partnership's cash investments in Shell CO2 Company and Plantation Pipe Line Company of $25.0 million and $110.0 million, respectively.
Cash Provided by / (Used in) Financing Activities
Net cash provided by financing activities amounted to $169.9 million in 1998. This compares to $6.3 million used in financing activities in 1997. The overall increase of $176.2 million nearly matches the $178.6 million increase in net proceeds received from the issuance of units. The Partnership received $212.3 million in proceeds from the June 1998 issuance of approximately 6.1 million units.
Other financing activities included $12.3 million received as a result of general partner contributions made to maintain its minority interest in the operating partnerships and $16.8 million used to refinance long-term debt. Overall debt financing activities provided $84.8 million in cash during 1998 versus cash utilization of $15.1 million during 1997.
Distributions to all partners increased to $122.4 million in 1998 compared to $24.3 million in 1997. Higher distributions were the result of an increase in the number of units, an increase in paid distributions per unit and an increase in incentive distributions to the general partner as a result of increased distributions to unitholders. The Partnership paid distributions of $2.385 per unit in 1998 compared to $1.63 per unit in 1997. The Partnership believes that the increase in paid distributions resulted from favorable operating results in 1998. The Partnership also 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's debt instruments generally require the Partnership to maintain a reserve for future debt service obligations. The purpose of the reserve is to lessen differences in the amount of Available Cash from quarter to quarter due to the timing of required principal and interest payments (which may only be required on a semi-annual or annual basis) and to provide a source of funds to make such payments. The Partnership's debt instruments
generally require the Partnership to set aside each quarter a portion of the principal and interest payments due in the next six to 12 months.
Partnership Distributions
The partnership agreement requires the Partnership to distribute 100% of "Available Cash" (as defined in the partnership agreement) to the Partners within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available Cash consists generally of all cash receipts of the Partnership and its operating partnerships, less cash disbursements and net additions to reserves and amounts payable to the former Santa Fe general partner in respect of its 0.5% interest in SFPP.
Available Cash of the Partnership generally is distributed 98% to the limited partners (including the approximate 2% limited partner interest of the general partner) and 2% to the general partner. This general requirement is modified to provide for incentive distributions to be paid to the general partner in the event that quarterly distributions to unitholders exceed certain specified targets.
In general, Available Cash for each quarter is distributed, first, 98% to the limited partners and 2% to the general partner until the limited partners have received a total of $0.3025 per unit for such quarter, second, 85% to the limited partners and 15% to the general partner until the limited partners have received a total of $0.3575 per unit for such quarter, third, 75% to the limited partners and 25% to the general partner until the limited partners have received a total of $0.4675 per unit for such quarter, and fourth, thereafter 50% to the limited partners and 50% to the general partner. Incentive distributions are generally defined as all cash distributions paid to the general partner that are in excess of 2% of the aggregate amount of cash being distributed. The general partner's incentive distributions declared by the Partnership for 1998 were $32,737,571, while the incentive distributions paid during 1998 were $23,920,773.
Credit Facilities
The Partnership has a $325 million revolving credit facility (the "Credit Facility") with a syndicate of financial institutions. First Union National Bank is the administrative agent under the agreement. The Partnership and OLP-B are co-borrowers under the Credit Facility. Commencing in May 2000, the amount available under the Credit Facility reduces on a quarterly basis, with the final installment due in February 2005.
The Partnership's operating partnerships and each other Restricted Subsidiary (as defined in the Credit Facility) of the Partnership (other than SFPP) have guaranteed the Partnership's obligations under the Credit Facility. The Partnership has guaranteed the obligations of OLP-B under the Credit Facility. The Credit Facility is unsecured, however, it requires the Partnership, in certain limited circumstances, to provide cash collateral to the lenders to secure letters of credit.
Interest on advances is generally payable quarterly. Interest on loans under the Credit Facility accrues at the Partnership's option at a floating rate equal to either:
o First Union National Bank's base rate (but not less than the Federal Funds Rate plus 0.5% per annum); or o LIBOR, plus a margin that will vary from 0.75% to 1.25% per annum depending upon the ratio of the Partnership's Debt to Cash Flow.
The Credit Facility includes restrictive covenants that are customary for this type of facility, including without limitation:
o requirements to maintain certain financial ratios; o restrictions on the incurrence of additional indebtedness; o restrictions on entering into mergers, consolidations and sales of assets; o restrictions on making investments; o restrictions on granting liens; o prohibitions on making cash distributions to holders of units more frequently than quarterly;
o prohibitions on making cash distributions in excess of 100% of Available Cash for the immediately preceding calendar quarter; and o prohibitions on making any distribution to holders of units if an event of default exists or would exist upon making such distribution.
As of December 31, 1998, the Partnership had outstanding borrowings under the Credit Facility of $230 million, including the following:
o approximately $142 million borrowed to refinance its First Mortgage Notes, including a make whole prepayment premium, and the bank credit facilities of two of its operating partnerships (the "Refinanced Indebtedness"); o approximately $25 million borrowed to fund its cash investment in Shell CO2 Company; o approximately $100 million borrowed to fund part of the acquisition of the Pacific Operations, including post-closing adjustments; o $100 million borrowed to fund part of the purchase price of its interest in Plantation Pipe Line Company; o $35 million borrowed to refinance debt of Kinder Morgan Bulk Terminals, Inc. that was outstanding at the time of the acquisition and to fund general corporate purposes; and o $35 million borrowed to finance the acquisition of the Pier IX Terminal and the Shipyard River Terminal.
The Partnership used approximately $210 million of proceeds from a public offering of units in June 1998 to pay down outstanding balances under the Credit Facility.
The Partnership's First Mortgage Notes were incurred in connection with the original formation of the Partnership. The Partnership borrowed the remainder of the Refinanced Indebtedness for working capital and general partnership purposes. The Partnership's First Mortgage Notes bore interest at a fixed rate of 8.79% per annum. The remaining Refinanced Indebtedness bore interest at varying rates (a weighted average rate of approximately 7.65% per annum as of December 31, 1997). The Partnership's First Mortgage Notes were payable in 10 equal annual installments of $11 million commencing in June 1998. The remaining Refinanced Indebtedness was scheduled to mature in 1999.
As of December 31, 1998, SFPP's long term debt aggregated $355 million and consisted of $244.0 million of First Mortgage Notes (the "SF Notes") and $111.0 million borrowed under SFPP's $175 million bank credit facility. The SF Notes are payable in annual installments through December 15, 2004. The credit facility matures in August 2000. The Partnership intends to refinance some or all of the remaining SF Notes as they become payable. The credit facility permits SFPP to refinance the $64 million of SF Notes due on or before December 15, 1999 (plus a $31.5 million prepayment allowed on such date). The SFPP credit facility also provides for a working capital facility of up to $25 million.
Senior Notes
On January 29, 1999, the Partnership issued $250 million of 6.30% Senior Notes due 2009. Interest on the senior notes is payable semi-annually on February 1 and August 1 of each year beginning on August 1, 1999. The indenture governing the senior notes contains restrictions on the ability of the Partnership to enter into sale and leaseback transactions, grant liens on its assets and merge or consolidate with other entities. Each subsidiary that guarantees any senior debt of the Partnership must also guarantee the senior notes. Currently, the senior notes are guaranteed by all of the Partnership's operating partnerships (other than SFPP) and by Kinder Morgan Bulk Terminals, Inc., Kinder Morgan Natural Gas Liquids Corporation and Kinder Morgan CO2, LLC.
The Partnership may redeem the senior notes at any time, upon not less than 30 and not more than 60 days notice, at a price equal to 100% of the principal amount of the senior notes plus accrued interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date) plus a Make-Whole Premium, if any (the "Redemption Price"). The Redemption Price will never be less than 100% of the principal amount of the senior notes plus accrued interest to the redemption date.
The amount of the Make-Whole Premium will be equal to the excess, if any, of:
(1) the sum of the present values, calculated as of the redemption date, of:
(a) each interest payment that, but for such redemption, would have been payable on the senior notes being redeemed on each interest payment date occurring after the redemption date (excluding any accrued interest for the period prior to the redemption date); and
(b) the principal amount that would have been payable at the final maturity of the senior notes if they had not been redeemed;
over
(2) the principal amount of the senior notes being redeemed.
The present value of interest and principal payments referred to in clause (1) above will be calculated by discounting the amount of each payment of interest or principal from the date that the payment would have been payable, but for the redemption, to the redemption date at a discount rate equal to the Treasury Yield (as defined below) plus 25 basis points.
For purposes of determining the Make-Whole Premium, "Treasury Yield" means a rate of interest per annum equal to the weekly average yield to maturity of United States Treasury Notes that have a constant maturity that corresponds to the remaining term to maturity of the senior notes, calculated to the nearest 1/12th of a year.
Capital Requirements for Recent Transactions
Shell CO2 Company. On March 5, 1998, the Partnership transferred the Central Basin Pipeline and $25 million in cash to Shell CO2 Company in exchange for a 20% limited partner interest in Shell CO2 Company. The Partnership financed its cash investment in Shell CO2 Company through the Credit Facility.
Santa Fe Pacific Pipeline Partners, L.P. On March 6, 1998, the Partnership acquired substantially all of the assets of Santa Fe for approximately $1.4 billion in aggregate consideration consisting of approximately 26.6 million units, $84.4 million in cash and the assumption of certain liabilities. The Partnership financed the $84.4 million cash portion of the purchase price and a portion of the transaction expenses through the Credit Facility.
Kinder Morgan Bulk Terminals, Inc. The Partnership, effective July 1, 1998, acquired Kinder Morgan Bulk Terminals, Inc. for approximately $100 million, consisting of approximately 2.1 million units and the assumption of approximately $23 million of indebtedness. The Partnership subsequently paid off the indebtedness with funds borrowed under the Credit Facility.
Plantation Pipe Line Company. On September 15, 1998, the Partnership acquired 24% of Plantation Pipe Line Company for $110 million. The Partnership borrowed $100 million under the Credit Facility, and paid $10 million from its cash accounts.
Pier IX Terminal and Shipyard River Terminal. On December 18, 1998, the Partnership acquired the Pier IX Terminal, located in Newport News, Virginia, and the Shipyard River Terminal, located in Charleston, South Carolina, for $35 million, which the Partnership borrowed under the Credit Facility.
Year 2000
The Partnership is currently implementing a five phase program to achieve Year 2000 compliance. The Partnership is evaluating both information technology systems ("IT") and non-IT systems such as those that include embedded technology.
The Partnership has completed the system inventory phase. In the system inventory phase, all hardware and software was inventoried and a database of systems that need further assessment was created.
The Partnership has begun the assessment phase. In the assessment phase, specific Year 2000 issues and solutions are identified. The Partnership anticipates completing the assessment phase by the end of the first quarter of 1999.
The Partnership has begun the system testing phase. In the system testing phase, real world tests on critical systems are run to insure that they will operate properly after the Year 2000. The Partnership anticipates completing the system testing phase by the end of the second quarter of 1999.
The Partnership has begun the remediation phase. In the remediation phase, problems that arise in the Partnership's assessment and system testing phases are fixed. The Partnership anticipates completing the remediation phase by the end of the third quarter of 1999.
The Partnership has begun the contingency planning phase. The Partnership currently has plans in place for non-Year 2000 related contingencies and will modify these plans to address any specific contingencies related to the Year 2000 problem. Initial drill of contingency operations will be held in the first quarter of 1999. Refinement of contingency plans and employee training will continue throughout the year and be completed in the fourth quarter of 1999.
The Partnership does not believe it has material exposure to third parties' failures to remediate the Year 2000 problem. The Partnership has not sought and does not intend to seek information from material suppliers, customers, or service providers to determine the exact extent to which the Partnership would be effected by third parties' failures to remediate the Year 2000 problem.
While the Partnership has budgeted funds to address the Year 2000 problem, the Partnership does not believe that any material expenditures will be required to address the Year 2000 problem as it relates to existing systems. However, uncertainty exists concerning the potential costs and effects associated with any Year 2000 compliance. Therefore, the Partnership cannot give any assurances that unexpected Year 2000 compliance problems of either the Partnership or its vendors, customers and service providers would not materially and adversely affect the Partnership's business, financial condition or operating results.
Information Regarding Forward Looking Statements
This filing includes forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "continue," "estimate," "expect," "may," "will," or other similar words. These statements discuss future expectations or contain projections. Specific factors which could cause actual results to differ from those in the forward looking statements, include:
o price trends and overall demand for natural gas liquids, refined petroleum products, carbon dioxide, coal and other bulk materials in the United States. Economic activity, weather, alternative energy sources, conservation and technological advances may affect price trends and demand;
o if the Federal Energy Regulatory commission or the California Public Utilities Commission changes the Partnership's tariff rates;
o the Partnership's ability to integrate any acquired operations into its existing operations;
o if railroads experience difficulties or delays in delivering products to the bulk terminals;
o the Partnership's ability to successfully identify and close strategic acquisitions and make cost saving changes in operations;
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" 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 "Risk Factors" above. 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.
In addition, the Partnership's classification as a partnership for federal income tax purposes means that the Partnership does not generally pay federal income taxes on its net income. It does, however, pay taxes on the net income of subsidiaries that are corporations. The Partnership is relying on a legal opinion from its counsel, and not a ruling from the Internal Revenue Service, as to its proper classification for federal income tax purposes. See Items 1 and 2 "Business and Properties - Tax Treatment of Publicly Traded Partnerships Under the Internal Revenue Code."
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 8.
Item 8. Financial Statements and Supplementary Data
The information required hereunder is included in this report as set forth in the "Index to Financial Statements" on page.
Item 9.
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors and Executive Officers of the General Partner
As is commonly the case with publicly-traded limited partnerships, the Partnership does not employ any of the persons responsible for managing or operating the Partnership, but instead reimburses the general partner for its services. Set forth below is certain information concerning the directors and executive officers of the general partner. All directors of the general partner are elected annually by, and may be removed by, Kinder Morgan, Inc. as the sole shareholder of the general partner. All officers serve at the discretion of the board of directors of the general partner.
Name Age Position with the General Partner ---- --- --------------------------------- Richard D. Kinder 54 Director, Chairman and CEO William V. Morgan 55 Director, Vice Chairman and President Alan L. Atterbury 56 Director Edward O. Gaylord 67 Director William V. Allison 51 President, Pipeline Operations David G. Dehaemers, Jr. 38 Vice President, Treasurer and Chief Financial Officer Michael C. Morgan 30 Vice President, Corporate Development and Investments Thomas B. Stanley 48 President, Bulk Terminals Dixon B. Betz 50 Chief Executive Officer, River Consulting, Inc., subsidiary
Richard D. Kinder was elected Director, Chairman and Chief Executive Officer of the general partner in February 1997. From 1992 to 1994, Mr. Kinder served as Chairman of the general partner. From October 1990 until December 1996, Mr. Kinder was President of Enron Corp. Mr. Kinder was employed by Enron and its affiliates and predecessors for over 16 years.
William V. Morgan was elected Director of the general partner in June 1994, Vice Chairman of the general partner in February 1997 and President of the general partner in November 1998. Mr. Morgan has been the President of Morgan Associates, Inc., an investment and pipeline management company, since February 1987, and Cortez Holdings Corporation, a related pipeline investment company, since October 1992. He has held legal and management positions in the energy industry since 1975, including the presidencies of three major interstate natural gas companies which are now a part of Enron: Florida Gas Transmission Company, Transwestern Pipeline Company and Northern Natural Gas Company. Prior to joining Florida Gas in 1975, Mr. Morgan was engaged in the private practice of law in Washington, D.C.
Alan L. Atterbury was elected Director of the general partner in February 1997. Mr. Atterbury has been the Chief Executive Officer and President of Midland Loan Services, Inc., since its formation in April 1998. Mr. Atterbury co-founded Midland Loan Services, L.P. (the predecessor of Midland Loan Services, Inc.) and has served as Chief Executive Officer and President from the partnership's inception in 1992. Mr. Atterbury has also served as the President, Chief Executive Officer and a Director of Midland Data Systems, Inc., the general partner of Midland Loan Services, L.P. from its inception in 1990. Mr. Atterbury has also been the President of Midland Properties, Inc., a property management and real estate development company, since 1980.
Edward O. Gaylord was elected Director of the general partner in February 1997. Mr. Gaylord is the Chairman of the Board of Directors of Jacintoport Terminal Company, a liquid bulk storage terminal on the Houston, Texas ship channel. Mr. Gaylord also serves as Chairman of the Board for EOTT Energy Corporation, an oil trading and transportation company also located in Houston, Texas. Mr. Gaylord is also a Director of Seneca Foods Corporation and Imperial Sugar Company.
William V. Allison was elected President, Pipeline Operations of the general partner in February 1999. He served as Vice President and General Counsel of the general partner from April 1998 to February 1999. From 1977 to April 1998, Mr. Allison was employed at Enron Corp. where he held various executive positions, including President of Enron Liquid Services Corporation, Florida Gas Transmission Company and Houston Pipeline Company and Vice President and Associate General Counsel of Enron Corp. Prior to joining Enron Corp., he was an attorney at the FERC.
David G. Dehaemers, Jr. was elected Treasurer of the general partner in February 1997 and Vice President and Chief Financial Officer of the general partner in July 1997. He served as Secretary of the general partner from February 1997 to August 1997. From October 1992 to January 1997, he was Chief Financial Officer of Morgan Associates, Inc., an energy investment and pipeline management company. Mr. Dehaemers was previously employed by the national CPA firms of Ernst & Whinney and Arthur Young. He is a CPA, and received his undergraduate Accounting degree from Creighton University in Omaha, Nebraska. Mr. Dehaemers received his law degree from the University of Missouri-Kansas City and is a member of the Missouri Bar.
Michael C. Morgan was elected Vice President, Corporate Development and Investments of the general partner in February 1997. From August 1995 until February 1997, Mr. Morgan was an associate with McKinsey & Company, an international management consulting firm. In 1995, Mr. Morgan received a Masters in Business Administration from the Harvard Business School. From March 1991 to June 1993, Mr. Morgan held various positions at PSI Energy, Inc., an electric utility, including Assistant to the Chairman. Mr. Morgan received a Bachelor of Arts in Economics and a Masters of Arts in Sociology from Stanford University in 1990. Mr. Morgan is the son of William V. Morgan.
Thomas B. Stanley was elected President, Bulk Terminals of the general partner in August 1998. From 1993 to July 1998, he was President of Hall-Buck Marine, Inc. (now known as Kinder Morgan Bulk Terminals, Inc.), for which he has worked since 1980. Mr. Stanley is a CPA with ten years' experience in public accounting, banking, and insurance accounting prior to joining Hall-Buck. He received his bachelor's degree from Louisiana State University in 1972.
Dixon B. Betz founded River Consulting, Inc., a subsidiary of Kinder Morgan Bulk Terminals, Inc., in 1981 and has since served as its Chief Executive Officer. Mr. Betz received a Bachelor of Science degree in Mathematics from Louisiana State University in 1971.
Item 11.
Item 11. Executive Compensation
The Partnership has no executive officers, but is obligated to reimburse the general partner for compensation paid to the general partner's executive officers in connection with their operation of the Partnership's business. The following table summarizes all compensation paid to the general partner's chief executive officer and to each of the general partner's four other most highly compensated executive officers for services rendered to the Partnership during 1998 and 1997.
Summary Compensation Table
(1) Amounts earned in year shown and paid the following year. (2) Represents the general partner's contributions to the Savings Investment Plan (a 401(k) plan), the imputed value of general partner-paid group term life insurance exceeding $50,000, and compensation attributable to taxable moving expenses allowed. (3) Prior to the acquisition of the general partner by Kinder Morgan, Inc., Mr. Allison served as President of the general partner from January 1, 1997 until February 14, 1997.
Retirement Savings Plan. Effective July 1, 1997, the general partner established the Kinder Morgan Retirement Savings Plan, a defined contribution 401(k) plan, that permits all full-time employees of the general partner to contribute 1% to 15% of base compensation, on a pre-tax or after-tax basis, into participant accounts. In addition to a mandatory contribution equal to 4% of base compensation per year for each plan participant, the general partner may make discretionary contributions in years when specific performance objectives are met. Any discretionary contributions are made during the first quarter following the performance year. On March 1, 1999, an additional 2% discretionary contribution was made to individual accounts based on 1998 financial targets to unitholders. All contributions, together with earnings thereon, are immediately vested and not subject to forfeiture. Participants may direct the investment of their contributions into a variety of investments. Plan assets are held and distributed pursuant to a trust agreement. Because levels of future compensation, participant contributions and investment yields cannot be reliably predicted over the span of time contemplated by a plan of this nature, it is impractical to estimate the annual benefits payable at retirement to the individuals listed in the Summary Compensation Table above.
Executive Compensation Plan. Pursuant to the Partnership's Executive Compensation Plan (the "Plan"), executive officers of the general partner are eligible for awards equal to a percentage of the "Incentive Compensation Value", which is defined as cash distributions to the general partner during the four calendar quarters preceding the date of redemption times eight (less a participant adjustment factor, if any). Under the Plan, no eligible employee may receive a grant in excess of 2% and total awards under the Plan may not exceed 10%. In general, participants may redeem vested awards in whole or in part from time to time by written notice. The Partnership may, at its option, pay the participant in units (provided, however, the unitholders approve the plan prior to issuing such units) or in cash. The Partnership may not issue more than 200,000 units in the aggregate under the Plan. Units will not be issued to a participant unless such units have been listed for trading on the principal securities exchange on which the units are then listed. The Plan terminates January 1, 2007 and any unredeemed awards will be automatically redeemed. The board of directors of the general partner may, however, terminate the Plan before such date, and upon such early termination, the Partnership will redeem all unpaid grants of compensation at an amount equal to the highest Incentive Compensation Value, using as the determination date any day within the previous twelve months, multiplied by 1.5. The Plan was established in July 1997 and on July 1, 1997, the board of directors of the general partner granted awards totaling 2% of the Incentive Compensation Value to each of Thomas King, David Dehaemers and Michael Morgan. Originally, 50% of such awards were to vest on each of January 1, 2000 and January 1, 2002. No awards were granted during 1998.
All of Mr. King's awards were forfeited when he resigned as President of the general partner on December 1, 1998. On January 4, 1999 (subsequent to year end), the awards granted to Mr. Dehaemers and Mr. Morgan were amended to provide for the immediate vesting and pay-out of 50% of their awards, or 1% of the Incentive Compensation Value. The board of directors of the general partner believes that accelerating the vesting and pay-out of the awards was in the best interest of the Partnership because it capped the total payment the participants were entitled to receive with respect to 50% of their awards.
Unit Option Plan. Pursuant to the Partnership's unit Option Plan (the "Option Plan") key personnel of the Partnership and its affiliates are eligible to receive grants of options to acquire units. The total number of units available under the plan is 250,000. None of the options granted under the Option Plan may be "Incentive Stock Options" under Section 422 of the Internal Revenue Code. If an option expires without being exercised, the number of units covered by such option will be available for a future award. The exercise price for an option may not be less than the fair market value of a unit on the date of grant. Either the board of directors of the general partner or a committee of the board of directors will administer the Option Plan. The Plan terminates on March 5, 2008.
No individual employee may be granted options for more than 10,000 units in any year. The board of directors or the committee will determine the duration and vesting of the options to employees at the time of grant. At December 31, 1998, options for 194,500 units were granted to 89 employees of the general partner. Forty percent of such options will vest on the first anniversary of the date of grant and twenty percent on each anniversary, thereafter. The options expire seven years from the date of grant.
The Option Plan also granted to each non-employee director of the Partnership as of April 1, 1998, an option to acquire 5,000 units at an exercise price equal to the fair market value of the units on such date. In addition, each new non-employee director will receive options to acquire 5,000 units on the first day of the month following his or her election. Forty percent of such options will vest on the first anniversary of the date of grant and twenty percent on each anniversary, thereafter. The non-employee director options will expire seven years from the date of grant.
The following tables set forth certain information at December 31, 1998 and for the fiscal year then ended with respect to unit options granted to and exercised by the individuals named in the Summary Compensation Table above. Mr. Allison is the only person named in the Summary Compensation Table that has been granted options. No options have been granted at an option price below fair market value on the date of grant.
Aggregated Option Exercises in 1998, and 1998 Year-End Option Values
Directors fees. During 1998, each member of the board of directors of the general partner who was not also an employee of the general partner was paid an annual retainer of $16,000 in lieu of all attendance fees.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of March 9, 1999, regarding the beneficial ownership of (i) the units and (ii) the common stock of Kinder Morgan, Inc., the parent company of the general partner, by all directors of the general partner, each of the named executive officers, all directors and executive officers as a group and all persons known by the general partner to own beneficially more than 5% of the units.
*Less than 1% (1) All units involve sole voting power and sole investment power. (2) As of March 9, 1999, the Partnership had 48,815,690 units issued and outstanding. (3) As of March 9, 1999, Kinder Morgan, Inc. ("KMI") had a total of 8,047 shares of issued and outstanding voting stock and a total of 2,541 shares of issued and outstanding non voting stock. (4) Excludes 862,000 units owned by Kinder Morgan G.P., Inc. KMI owns 100% of the outstanding capital stock of Kinder Morgan G.P., Inc. Mr. Kinder owns approximately 72% of the voting common stock of KMI. By virtue of his ownership of KMI, Mr. Kinder may be deemed to indirectly own the units owned by Kinder Morgan G.P., Inc. Mr. Kinder disclaims beneficial ownership of such units. Furthermore, includes 2,950 units owned by Mr. Kinder's spouse. Mr. Kinder disclaims beneficial ownership of such units. (5) The KMI voting and non-voting shares are held by Morgan Associates, Inc., a Kansas corporation, wholly owned by Mr. Morgan. (6) Includes options to purchase 2,000 units exercisable within 60 days of March 9, 1999. Includes 14,000 units owned through Westover Investment L.P., as to which units Mr. Atterbury disclaims beneficial ownership. (7) Includes options to purchase 2,000 units exercisable within 60 days of March 9, 1999. (8) Includes options to purchase 4,000 units exercisable within 60 days of March 9, 1999.
KMI has pledged all of the stock of the general partner to secure its bank credit facilities.
Item 13.
Item 13. Certain Relationships and Related Transactions
General and Administrative Expenses
The general partner provides the Partnership with general and administrative services and is entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership. The general partner incurred $38.0 million in general and administrative expenses in 1998 and $6.9 million in general and administrative expenses in 1997.
Partnership Distributions
See Item 7 for information regarding Partnership Distributions.
Other
The general partner makes all decisions relating to the management of the Partnership. KMI owns all the common stock of the general partner. Certain conflicts of interest could arise as a result of the relationships among the general partner, KMI and the Partnership. The directors and officers of KMI have fiduciary duties to manage KMI, including selection and management of its investments in its subsidiaries and affiliates, in a manner beneficial to the shareholders of KMI. In general, the general partner has a fiduciary duty to manage the Partnership in a manner beneficial to the unitholders. The partnership agreements contain provisions that allow the general partner to take into account the interests of parties in addition to the Partnership in resolving conflicts of interest, thereby limiting its fiduciary duty to the unitholders, as well as provisions that may restrict the remedies available to unitholders for actions taken that might, without such limitations, constitute breaches of fiduciary duty. The duty of the directors and officers of KMI to the shareholders of KMI may, therefore, come into conflict with the duties of the general partner to the unitholders. The Conflicts and Audit Committee of the board of directors of the general partner will, at the request of the general partner, review (and is one of the means for resolving) conflicts of interest that may arise between KMI or its subsidiaries, on the one hand, and the Partnership, on the other hand.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" set forth on page.
(a)(3) Exhibits
*2.1 Purchase Agreement dated October 18, 1997 between Kinder Morgan Energy Partners, L.P., Kinder Morgan G.P., Inc., Santa Fe Pacific Pipeline Partners, L.P., Santa Fe Pacific Pipelines, Inc. and SFP Pipeline Holdings, Inc. (Exhibit 2 to the Partnership's Registration Statement on Form S-4 (File No. 333-44519) filed February 4, 1998 (the "1998 S-4")) *2.2 Master Agreement dated as of January 1, 1998 among Shell Western E&P Inc., Shell Western Pipelines Inc., Shell Cortez Pipeline Company, Shell CO2 LLC, Shell CO2 General LLC, Shell Land & Energy Company, Kinder Morgan Operating L.P. "A" and Kinder Morgan CO2 LLC (Exhibit 2.2 to the Partnership's Current Report on Form 8-K dated March 5, 19989 (the "March 5, 1998 Form 8-K")) *2.3 First Amended and Restated Agreement of Limited Partnership dated as of March 5, 1998, by and between Shell CO2 General LLC, Kinder Morgan CO2, LLC and Shell CO2 LLC (Exhibit 2.3 to the March 5, 1998 Form 8-K) 2.4 Amendment to the Limited Partnership Agreement of Shell CO2 Company, Ltd. dated as of September 30, 1998 *2.5 Assumption and Indemnification Agreement dated as of January 1, 1998 among Shell CO2 General LLC, Shell CO2 General LLC, Shell Western E&P Inc., Shell Western Pipelines Inc., Shell Cortez Pipeline Company, Shell Land & Energy Company, Kinder Morgan CO2 LLC, Kinder Morgan Operating L.P. "A" and Shell CO2 Company, Ltd. (Exhibit 2.4 to the March 5 1998 Form 8-K) *2.6 Guaranty and Indemnification Agreement dated as of January 1, 1998 between Shell Western E&P Inc. and Kinder Morgan Energy Partners, L.P. (Exhibit 2.5 to the March 5, 1998 Form 8-K) *3.1 Second Amendment to Amended and Restated Agreement of Limited Partnership dated as of February 14, 1997 (Exhibit 3.1 to Amendment No. 1 to the 1998 S-4) *4.1 Specimen Certificate representing Common Units (Exhibit 4.1 to 1998 S-4) *4.2 Indenture dated as of January 29, 1999 among the Partnership, the guarantors listed on the signature page thereto and U.S. Trust Company of Texas, N.A., as trustee, relating to Senior Debt Securities (filed as Exhibit 4.1 to the Partnership's Form 8-K dated January 29, 1999 (the "January 29, 1999 Form 8-K)) *4.3 First Supplemental Indenture dated as of January 29, 1999 among the Partnership, the subsidiary guarantors listed on the signature page thereto and U.S. Trust Company of Texas, N.A., as trustee, relating to $250,000,000 of 6.30% Senior Notes due February 1, 2009 (filed as Exhibit 4.2 to the January 29, 1999 Form 8-K) 4.4 Amended and Restated Credit Agreement dated as of December 1, 1998 among the Partnership, Kinder Morgan Operating L.P. "B", the subsidiary guarantors listed on the signature page thereto, the lenders party thereto and First Union National Bank, as agent 4.5 First Amendment, dated December 21, 1998 to Amended and Restated Credit Agreement among the Partnership, Kinder Morgan Operating L.P. "B", the subsidiary guarantors listed on the signature page thereto, the lenders party thereto and First Union National Bank, as agent *4.6 First Mortgage Note Agreement dated December 8, 1998 among Southern Pacific Pipe Lines Partnership, L.P. (now known as SFPP, L.P.) and the Purchasers listed on Schedule A (a conformed composite of 54 separate agreements, identical except for signatures) (Exhibit 4.2 to Form 10-K for Santa Fe Pacific Pipeline Partners, L.P. for 1988 ("Santa Fe 1988 Form 10-K")) *4.7 Consent and Amendment dated as of December 19, 1997 between the noteholders and SFPP, L.P. (a conformed composite of the separate agreements with each noteholder, identical except for signatures) (Exhibit 4.14.1 to the Partnership's Form 10-K for 1997 ("1997 Form 10-K"))
*4.8 Deed of Trust, Security Agreement and Fixture Filing, dated December 8, 1988, between SFPP, L.P., its general partner, Chicago Title Insurance Company and Security Pacific National Bank (Exhibit 4.3 to Santa Fe 1988 Form 10-K) *4.9 Trust Agreement dated December 19, 1988, between SFPP, L.P., its general partner and Security Pacific National Bank (Exhibit 4.4 to Santa Fe 1988 Form 10-K) *4.10 Amended and Restated Credit Agreement dated as of August 11, 1997 among SFPP, L.P., Bank of America National Trust and Savings Association, as agent, Texas Commerce Bank National Association, as syndication agent, Bank of Montreal, as documentation agent, BancAmerica Securities, Inc., as arranger, and the lenders that are signatories thereto. As the maximum allowable borrowings under this facility do not exceed 10% of the Registrant's total assets, this instrument is not filed as an exhibit to this Report, however, the Registrant hereby agrees to furnish a copy of such instrument to the Securities and Exchange Commission upon request. *10.1 Kinder Morgan Energy Partners, L.P. Common Unit Option Plan (Exhibit 10.6 to 1997 Form 10-K) 10.2 Amended and Restated Credit Agreement dated as of June 18, 1998 among Kinder Morgan, Inc. and First Union National Bank 10.3 First Amendment to Credit Agreement dated as of August 26, 1998 among Kinder Morgan, Inc. and First Union National Bank 10.4 Second Amendment to Credit Agreement dated as of September 8, 1998 among Kinder Morgan, Inc. and First Union National Bank 21 List of subsidiaries 23.1 Consent letter from PricewaterhouseCoopers LLP 23.2 Consent letter from Arthur Andersen LLP 27.1 Financial Data Schedule for Kinder Morgan Energy Partners, L.P. 27.2 Financial Data Schedule for Kinder Morgan Operating L.P. "A" 27.3 Financial Data Schedule for Kinder Morgan Operating L.P. "B" 27.4 Financial Data Schedule for Kinder Morgan Operating L.P. "C" 27.5 Financial Data Schedule for Kinder Morgan Operating L.P. "D" 27.6 Financial Data Schedule for Kinder Morgan Natural Gas Liquids Corporation 27.7 Financial Data Schedule for Kinder Morgan CO2, LLC 27.8 Financial Data Schedule for Kinder Morgan Bulk Terminals, Inc. - --------------------- * Asterisk indicates exhibits incorporated by reference as indicated; all other exhibits are filed herewith.
(b) Reports on Form 8-K
Report dated November 6, 1998, on Form 8-K, as amended December 23, 1998. A current listing of Risk Factors was disclosed pursuant to Item 5 of that form. The pro forma combined income statement of the Partnership for the nine month period ended September 30, 1998 giving effect to the acquisition of Santa Fe Pacific Pipeline Partners, L.P. and the formation of Shell CO2 Company, assuming the acquisition had been consummated January 1, 1997, was disclosed in Item 7.
Page ----
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES
Report of Independent Accountants
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December 31, 1998, 1997, and 1996
Consolidated Balance Sheets for the years ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996
Consolidated Statements of Partners' Capital for the years ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
Certain supplementary financial statement schedules have been omitted because the information required to be set forth therein is either not applicable or is shown in the financial statements or notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Kinder Morgan Energy Partners, L.P.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows, and of partners' capital present fairly, in all material respects, the financial position of Kinder Morgan Energy Partners, L.P. (a Delaware Limited Partnership) and subsidiaries (the Partnership) at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ Pricewaterhouse Coopers LLP ___________________________________ PricewaterhouseCoopers LLP Houston, Texas March 10, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Kinder Morgan Energy Partners, L.P. (Formerly Enron Liquids Pipeline, L.P.)
We have audited the accompanying consolidated balance sheet of Kinder Morgan Energy Partners, L.P. (a Delaware limited partnership) and subsidiaries as of December 31, 1996, and the related consolidated statements of income, cash flows and partners' capital for the year ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kinder Morgan Energy Partners, L.P. as of December 31, 1996, and the results of its operations and its cash flows for the year ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP _____________________________________ ARTHUR ANDERSEN LLP
Houston, Texas February 21, 1997
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Unit Amounts)
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
December 31, ------------------------------ -------------- -------------- 1998 1997 -------------- -------------- ASSETS Current Assets Cash and cash equivalents $ 31,735 $ 9,612 Accounts and notes receivable 44,125 8,569 Inventories Products 2,901 1,901 Materials and supplies 2,640 1,710 -------------- -------------- 81,401 21,792 -------------- --------------
Property, Plant and Equipment, at cost 1,836,719 290,620 Less accumulated depreciation 73,333 45,653 -------------- -------------- 1,763,386 244,967 -------------- --------------
Equity Investments 238,608 31,711 -------------- --------------
Intangibles 58,536 8,291 Deferred charges and other assets 10,341 6,145 ============== ============== TOTAL ASSETS $ 2,152,272 $ 312,906 ============== ==============
LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts payable Trade $ 11,690 $ 4,423 Related parties 13,952 507 Accrued liabilities 18,230 3,585 Accrued benefits 9,415 - Accrued taxes 4,195 2,861 -------------- -------------- 57,482 11,376 -------------- --------------
Long-Term Liabilities and Deferred Credits Long-term debt 611,571 146,824 Other 104,789 2,997 -------------- -------------- 716,360 149,821 -------------- --------------
Commitments and Contingencies
Minority Interest 17,767 1,485 -------------- -------------- Partners' Capital Common Units 1,348,591 146,840 General Partner 12,072 3,384 -------------- -------------- 1,360,663 150,224 -------------- -------------- ============== ============== TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 2,152,272 $ 312,906 ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (In Thousands)
The accompanying notes are an integral part of these consolidated financial statements.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Sale of the stock of the General Partner
Kinder Morgan Energy Partners, L.P. (the "Partnership", formerly Enron Liquids Pipeline, L.P.), a Delaware limited partnership was formed in August 1992. Effective February 14, 1997, Kinder Morgan, Inc. ("KMI") acquired all of the issued and outstanding stock of Enron Liquids Pipeline Company, the general partner, from Enron Liquids Holding Corp. ("ELHC"). At the time of the acquisition, the general partner and the Partnership's subsidiaries were renamed as follows: Kinder Morgan G.P., Inc. (the "general partner", formerly Enron Liquids Pipeline Company); Kinder Morgan Operating L.P. "A" ("OLP-A", formerly Enron Liquids Operating Limited Partnership); Kinder Morgan Operating L.P. "B" ("OLP-B", formerly Enron Transportation Services, L.P.); and Kinder Morgan Natural Gas Liquids Corporation ("KMNGL", formerly Enron Natural Gas Liquids Corporation).
General
The Partnership is a publicly traded Master Limited Partnership that manages a diversified portfolio of midstream energy assets. It operates through four operating limited partnerships, OLP-A, OLP-B, Kinder Morgan Operating L.P. "C" ("OLP-C") and Kinder Morgan Operating L.P. "D" ("OLP-D") (collectively, the "Operating Partnerships"). Kinder Morgan Bulk Terminals, Inc. (formerly Hall-Buck Marine, Inc.) and its consolidated subsidiaries are owned and controlled by OLP-C. OLP-D owns 99.5% of and controls SFPP, L.P.
Kinder Morgan G.P., Inc. is a wholly owned subsidiary of KMI and serves as the sole general partner of the Partnership and the Operating Partnerships. The Partnership and the Operating Partnerships are governed by Amended and Restated Agreements of Limited Partnership and certain other agreements (collectively, the "partnership agreements").
Prior to 1998, the Partnership reported three business segments: Liquids Pipelines; Coal Transfer, Storage and Services; and Gas Processing and Fractionation. Due to the acquisitions made in 1998, the Partnership now competes in the following three reportable business segments: Pacific Operations; Mid-Continent Operations; and Bulk Terminals. For the periods prior to 1998, the previous Liquids Pipelines and Gas Processing and Fractionation segments have been combined to present the current Mid-Continent Operations segment.
The "Pacific Operations" include four common carrier refined petroleum products pipelines covering approximately 3,300 miles and transporting approximately one million barrels per day of refined petroleum products such as gasoline, diesel and jet fuel. The Pacific Operations also include 13 truck loading terminals. These operations serve approximately 44 customer-owned terminals, three commercial airports and 12 military bases in six western states.
The "Mid-Continent Operations" include two interstate common carrier natural gas liquids ("NGL" or "NGLs") pipelines ("North System" and "Cypress Pipeline"), a 20% equity interest in Shell CO2 Company, a 24% equity interest in Plantation Pipe Line Company, a gas processing plant ("Painter Plant") and a 25% indirect interest in an NGL fractionator in Mont Belvieu, Texas. The North System includes a 1,600 mile common carrier pipeline that transports, stores and delivers a full range of NGLs and refined products from South Central Kansas to markets in the Midwest and has interconnects, using third-party pipelines in the Midwest, to the eastern United States. Additionally, the North System has eight truck loading terminals, which primarily deliver propane throughout the upper Midwest. The Cypress Pipeline is a 100 mile pipeline that transports ethane from Mont Belvieu, Texas, to the Lake Charles, Louisiana area. Shell CO2 Company produces, markets and delivers CO2 for enhanced oil recovery throughout the continental United States. Plantation Pipe Line Company owns and operates a 3,100 mile common carrier refined petroleum products pipeline serving the southeastern United States. Amoco Oil Company operates the Painter Plant assets under an operating lease agreement.
The "Bulk Terminals" segment consists of 24 bulk terminals that handle approximately 50 million tons of coal, petroleum coke and other products annually. The Partnership itself, or through Kinder Morgan Bulk Terminals, Inc., owns or operates these 24 bulk terminals located primarily on the Mississippi River and the West Coast. The segment also includes two modern high speed rail-to-barge coal transfer facilities ("Cora Terminal" and "Grand Rivers Terminal"). The Cora Terminal transfers coal from rail to barge on the banks of the Mississippi River near Cora, Illinois. The Grand Rivers Terminal is a coal transfer, storage, and blending facility located on the Tennessee
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
River near Paducah, Kentucky. Other activities included in Bulk Terminals include the "Red Lightning" energy services unit, which performs specialized coal services for both the Cora Terminal and the Grand Rivers Terminal. River Consulting, Inc., a major engineering and construction management company specializing in designing and construction services for dry bulk material handling terminals is also included in the Bulk Terminals segment. On December 18, 1998 the Partnership acquired the Pier IX Terminal, located in Newport News, Virginia, and the Shipyard River Terminal, located in Charleston, South Carolina.
Two-for-one Common Unit Split
On September 2, 1997, the Partnership's general partner approved a two-for-one unit split of the Partnership's outstanding units representing limited partner interests in the Partnership. The unit split entitled common unitholders to one additional unit for each unit held. The issuance and mailing of split units occurred on October 1, 1997 to unitholders of record on September 15, 1997. All references to the number of units and per unit amounts in the consolidated financial statements and related notes have been restated to reflect the effect of the split for all periods presented.
2. Summary of Significant Accounting Policies
Principles of Consolidation and Use of Estimates
The consolidated financial statements include the assets, liabilities, and results of operations of the Partnership and its majority-owned subsidiaries. All significant intercompany items have been eliminated in consolidation.
The preparation of financial statements 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 statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents are defined as all highly liquid short-term investments with original maturities of three months or less.
Inventories
Inventories of products consist of natural gas liquids, refined petroleum products and coal. These assets are valued at the lower of cost (weighted-average cost method) or market. Materials and supplies are stated at the lower of cost or market.
Property, Plant and Equipment
Property, plant and equipment is stated at its acquisition cost. Expenditures for maintenance and repairs are charged to operations in the period incurred. The cost of property, plant and equipment sold or retired and the related depreciation are removed from the accounts in the period of sale or disposition. The provision for depreciation is computed using the straight-line method based on estimated economic lives. Generally, composite depreciation rates are applied to functional groups of property having similar economic characteristics and range from 2.0% to 12.5%, excluding certain short-lived assets such as vehicles. The original cost of property retired is charged to accumulated depreciation and amortization, net of salvage and cost of removal. No retirement gain or loss is included in income except in the case of extraordinary retirements or sales.
Equity Method of Accounting
Investments in significant 20-50% owned affiliates are accounted for by the equity method of accounting, whereby the investment is carried at cost of acquisition, plus the Partnership's equity in undistributed earnings or losses since acquisition.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Excess of Cost Over Fair Value
The excess of the Partnership's cost over its underlying net assets is being amortized using the straight-line method over the estimated remaining life of the assets over a period not to exceed 40 years. Such amortization is reflected primarily as amortization expense. The unamortized excess was approximately $162.3 million and $8.3 million as of December 31, 1998 and 1997, respectively, and such amounts are included within intangibles and equity investments on the accompanying balance sheet.
The Partnership periodically evaluates the propriety of the carrying amount of the excess of cost over fair value of net assets of businesses acquired, as well as the amortization period, to determine whether current events or circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. At this time, the Partnership believes no such impairment has occurred and no reduction in estimated useful lives is warranted.
Revenue Recognition
Revenues for the pipeline operations are generally recognized based on delivery of actual volume transported. Bulk terminal transfer service revenues are recognized based on volumes loaded. Recognition of gas processing revenues is based on volumes processed or fractionated. Revenues from energy related product sales of the Red Lightning energy services unit are based on delivered quantities of product.
Environmental Matters
Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Partnership's commitment to a formal plan of action.
Minority Interest
Minority interest consists of the approximate 1% general partner interest in the Operating Partnerships, the 0.5% special limited partner interest in SFPP, L.P. and the 50% interest in Globalplex Partners, a Louisiana joint venture owned 50% and controlled by Kinder Morgan Bulk Terminals, Inc.
Income Taxes
The Partnership is not a taxable entity for Federal income tax purposes. As such, no Federal income tax will be paid by the Partnership. Each partner will be required to report on its tax return its allocable share of the taxable income or loss of the Partnership. Taxable income or loss may vary substantially from the net income or net loss reported in the consolidated statement of income primarily because of accelerated tax depreciation.
The tax attributes of the Partnership's net assets flow directly to each individual partner. Individual partners will have different investment bases depending upon the timing and prices of acquisition of partnership units. Further, each partner's tax accounting, which is partially dependent upon the partner's individual tax position, may differ from the accounting followed in the financial statements. Accordingly, there could be significant differences between each individual partner's tax basis and the partner's proportionate share of the net assets reported in the financial statements. FAS 109 requires disclosure by a publicly held partnership of the aggregate difference in the basis of its net assets for financial and tax reporting purposes. However, the Partnership does not have access to information about each individual partner's tax attributes in the Partnership, and the aggregate tax bases cannot be readily determined. In any event, management does not believe that, in the Partnership's circumstances, the aggregate difference would be meaningful information.
Net Income Per Unit
Net Income per Unit was computed by dividing limited partner's interest in net income by the weighted average number of units outstanding during the period.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Acquisitions and Joint Ventures
With respect to the following acquisitions and joint ventures, the results of operations are included in the consolidated financial statements from the effective date of acquisition.
Santa Fe
Kinder Morgan Operating L.P. "D" ("OLP-D"), a Delaware limited partnership, acquired on March 6, 1998, 99.5% of SFPP, L.P. ("SFPP"), the operating partnership of Santa Fe Pacific Pipeline Partners, L.P. ("Santa Fe"). The transaction was accounted for under the purchase method of accounting and was valued at more than $1.4 billion inclusive of liabilities assumed. The Partnership acquired the interest of Santa Fe's common unit holders in SFPP in exchange for approximately 26.6 million units (1.39 units of the Partnership for each Santa Fe common unit). The Partnership paid $84.4 million to Santa Fe Pacific Pipelines, Inc. (the "former SF General Partner") in exchange for the general partner interest in Santa Fe. The $84.4 million was borrowed under the Credit Facility (see Note 8). Also on March 6, 1998, SFPP redeemed from the former SF General Partner a 0.5% interest in SFPP for $5.8 million. The redemption was paid from SFPP's cash reserves. After the redemption, the former SF General Partner continues to own a .5% special limited partner interest in SFPP.
Assets acquired in this transaction comprise the Partnership's Pacific Operations, which include over 3,300 miles of pipeline and thirteen owned and operated terminals.
Shell CO2 Company
On March 5, 1998, the Partnership and affiliates of Shell Oil Company ("Shell") agreed to combine their CO2 activities and assets into a partnership, Shell CO2 Company, Ltd. ("Shell CO2 Company"), to be operated by a Shell affiliate. The Partnership acquired, through a newly created limited liability company, a 20% interest in Shell CO2 Company in exchange for contributing the Central Basin Pipeline and approximately $25 million in cash. The $25 million was borrowed under the Credit Facility (see Note 8). The Partnership accounts for its partnership interest in Shell CO2 Company under the equity method. The investment is included as part of the Mid-Continent Operations.
Under the terms of the Shell CO2 Company partnership agreement, the Partnership will receive a priority distribution of $14.5 million per year during 1998 through 2001. To the extent the amount paid to the Partnership over this period is in excess of the Partnership's percentage share (currently 20%) of Shell CO2 Company's distributable cash flow for such period (discounted at 10%), Shell will receive a priority distribution in equal amounts of such overpayment during 2002 and 2003.
Hall-Buck Marine, Inc.
Effective July 1, 1998, the Partnership acquired Hall-Buck Marine, Inc. ("Hall-Buck") for approximately $100 million. The transaction was accounted for under the purchase method of accounting. Hall-Buck, headquartered in Sorrento, Louisiana, is one of the nation's largest independent operators of dry bulk terminals, operating twenty terminals on the Mississippi River, the Ohio River, and the Pacific Coast. In addition, Hall-Buck owns all of the common stock of River Consulting Incorporated, a nationally recognized leader in the design and construction of bulk material facilities and port related structures.
The $100 million of consideration consisted of approximately 2.1 million units and assumed indebtedness of $23 million. After the acquisition, the Partnership changed the name of Hall-Buck Marine, Inc. to Kinder Morgan Bulk Terminals, Inc. and accounts for its activity as part of the Bulk Terminals business segment.
Pro Forma Information
The following summarized unaudited Pro Forma Consolidated Income Statement information for the twelve months ended December 31, 1998 and 1997, assumes the Partnership's acquisition of SFPP, Hall-Buck and its interest in Shell CO2 Company had occurred as of January 1, 1997. 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 acquired the assets of SFPP, Hall-Buck and its interest in Shell CO2 Company on the dates indicted or which will be attained in the future.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income for each of the Pro Forma periods does not include the annualized effects of all the cost saving measures the company has achieved since its acquisition of SFPP. Amounts presented below are in thousands, except for per Common Unit amounts:
Pro Forma Twelve Months Ended December 31, Income Statement 1998 1997 ------------------- Revenues $395,963 $371,033 Operating Income 155,057 135,816 Net Income before extraordinary charge 126,122 87,997 Net Income 112,511 87,997 Net Income per unit before extraordinary charge $1.89 $1.78 Net Income per unit $1.60 $1.78
Other Acquisitions
Cardlock Fuels System, Inc.
On August 26, 1998, the Partnership signed a series of definitive agreements to form a joint venture with Cardlock Fuels System, Inc ("CFS"), an affiliate of Southern Counties Oil Co., for the purpose of constructing unattended, automated fueling stations adjacent to the Partnership's terminal facilities within its Pacific Operations. The Partnership will provide the terminal sites, and CFS will contribute its unattended, automated fueling station expertise including marketing and electronic transaction processing services. At December 31, 1998, the joint venture had selected and signed lease agreements for activity at the Pacific Operations' Bradshaw and Reno terminals. The joint venture has a target of up to ten sites within the next three years.
Plantation Pipe Line Company
On September 15, 1998, the Partnership acquired a 24% interest in Plantation Pipe Line Company for $110 million. 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 will account for its investment in Plantation Pipe Line Company under the equity method of accounting and includes its activity as part of the Mid-Continent Operations.
Pier IX and Shipyard River Terminals
On December 18, 1998, the Partnership acquired the Pier IX Terminal, located in Newport News, Virginia, and the Shipyard River Terminal, located in Charleston, South Carolina for $35 million. The Pier IX Terminal has the capacity to transload approximately 12 million tons of coal annually. It can store 1.3 million tons of coal on its 30 acre storage site and can blend multiple coals to meet an individual customer's requirements. In addition, the Pier IX Terminal operates a cement facility, which has the capacity to transload over 400,000 tons of cement annually.
The Shipyard River Terminal is a 52 acre import-export dry and liquid bulk product handling facility which can transload coal, asphalt, fertilizer and other aggregates. Annual throughput capacity at Shipyard River Terminal is 2.5 million tons, with ground storage capacity of 250,000 tons.
The Partnership includes the activities of both terminals as part of the Bulk Terminals business segment.
4. Income Taxes
Certain operations of the Partnership are conducted through wholly-owned corporate subsidiaries, which are taxable. Income/(Loss) before income tax expense attributable to corporate operations was $(1.3) million, $2.5 million and $3.6 million for the years ended December 31, 1998, 1997, and 1996, respectively. For the periods ended December 31, 1998, 1997, and 1996, respectively, the provision for income taxes consists of deferred income tax of $0.0 million, $(1.1) million, and $0.9 million, respectively, and current income tax of $1.6 million, $0.3
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million and $0.4 million, respectively. The 1998 income tax provision includes $1.7 million related to the Partnership's share of Plantation Pipe Line Company's income taxes. The net deferred tax liability of $0.5 million and $2.1 million at December 31, 1998 and 1997, respectively, consists of deferred tax liabilities of $1.3 million and $4.6 million, respectively, and deferred tax assets of $0.8 million and $2.5 million, respectively.
Reconciling items between income tax expense computed at the statutory rate and actual income tax expense primarily include for the year ended: December 31, 1998, intercompany income and expense items eliminated in the consolidation of the Partnership, amortization of certain intangibles, a change in estimate of prior years' provision, former Hall-Buck Marine, Inc. employees' exercise of stock options prior to acquisition by the Partnership and inclusion of the Partnership's share of income tax expense from Plantation Pipe Line Company; December 31, 1997, the effect of a change in estimate of prior years' provision, a partial liquidating distribution and state income taxes; and December 31, 1996, state income taxes.
5. Property, Plant and Equipment
Property, plant and equipment consists of the following (in thousands):
December 31, -------------------- 1998 1997 --------- -------- Pacific Operations $1,533,741 $ - Mid-Continent Operations 187,235 249,092 Bulk Terminals 115,743 41,528 --------- -------- Total $1,836,719 $ 290,620 ========= ========
6. Equity Investments
The Partnership's significant equity investments consist of Plantation Pipe Line Company (24%), Shell CO2 Company (20%), Mont Belvieu Associates (50%), Colton Transmix Processing Facility (50%) and Heartland Pipeline Company (50%). Total equity investments consisted of the following (in thousands):
1998 1997 ---- ---- Plantation Pipe Line Company $109,401 $ - Shell CO2 Company 86,688 Mont Belvieu Associates 27,568 27,157 Colton Transmix Processing Facility 5,187 - Heartland Pipeline Company 4,348 4,554 All Others 5,416 - -------- ------- Total $238,608 $31,711 ======== =======
The Partnership's earnings from equity investments is as follows (in thousands):
1998 1997 1996 ---- ---- ---- Plantation Pipe Line Company $4,421 $ - $ - Shell CO2 Company 14,500 - - Mont Belvieu Associates 4,577 5,009 4,968 Colton Transmix Processing Facility 803 - - Heartland Pipeline Company 1,394 715 707 All Others 37 - - ------- ------ ------ Total $25,732 $5,724 $5,675 ======= ====== ======
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summarized combined unaudited financial information for the Partnership's significant equity investments is reported below (in thousands):
Income Statement 1998 1997 1996 ---- ---- ---- Revenues $236,534 $38,299 $31,534 Earnings before income taxes 110,050 12,259 11,971 Net income 87,918 12,259 11,971
1998 1997 ---- ---- Current assets $117,582 $7,353 Non-current Assets 398,073 53,842 Current liabilities 50,669 4,885 Non-current liabilities 159,318 11,790 Partners'/Owners' equity 305,668 44,520
7. Gas Processing and Fractionation Transactions
Chevron Contract Buyout
In 1996, the Partnership was notified by Chevron, the only gas processing customer of the Painter Plant, that it was terminating the gas processing agreement effective as of August 1, 1996. The gas processing agreement with Chevron allowed for early termination by Chevron, subject to an approximate $2.9 million one time termination payment. On June 14, 1996, a force majeure event occurred and the Painter Plant gas processing facilities were shut down. Chevron subsequently disputed its obligation to pay the early termination payment. The Partnership negotiated with Chevron to settle all claims between the two parties under the gas processing agreement for $2.5 million.
Gas Processing and Terminal Lease to Amoco
On February 14, 1997, the Partnership executed an operating lease agreement with Amoco Oil Company ("Amoco") for Amoco's use of the Painter Plant fractionator and the Partnership's Millis Terminal and Storage Facility ("Millis") with the nearby Amoco Painter Complex Gas Plant. The lease generated $1.0 million of cash flow in 1998 and 1997.
8. Long-Term Debt
OLP-B
As of December 31, 1998, OLP-B has outstanding $23.7 million principal amount of tax exempt bonds due 2024 issued by the Jackson-Union Counties Regional Port District. Such bonds bear interest at a weekly floating market rate. During 1998, the weighted-average interest rate on these bonds was approximately 3.5% per annum. OLP-B has entered into an interest rate swap, which fixes the interest rate at approximately 3.65% per annum during the period from February 13, 1996 to December 31, 1999.
SFPP
SFPP's long-term debt primarily consists of its Series F first mortgage notes and a bank credit facility. At December 31, 1998, the outstanding balances under the Series F notes and bank credit facility were $244.0 million, and $111.0 million, respectively. The annual interest rate on the Series F notes is 10.70%, the maturity is December 2004, and interest is payable semiannually in June and December. The Series F notes are payable in annual installments of $31.5 million in 1999, $32.5 million in 2000, $39.5 million in 2001, $42.5 million in 2002, and $37.0 million in 2003. The first mortgage notes may also be prepaid beginning in 1999 in full or in part at a price equal to par plus, in certain circumstances, a premium. The first mortgage notes are secured by mortgages on substantially all of the properties of SFPP (the "Mortgaged Property"). The notes contain certain covenants limiting the amount of additional debt or equity that may be issued and limiting the amount of cash distributions, investments, and
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property dispositions. The bank credit facility provides for borrowings of up to $175 million due in August 2000 and interest, at a short-term Eurodollar rate, payable quarterly. This bank credit facility is used primarily for financing the first mortgage notes when due. Borrowings ($111.0 million at December 31, 1998) under this facility are also secured by the Mortgaged Property and are generally subject to the same terms and conditions as the first mortgage notes. At December 31, 1998, the interest rate on the credit facility debt was 5.465%.
Credit Facilities and Senior Notes
In February 1998, the Partnership refinanced OLP-A's first mortgage notes and existing bank credit facilities with a $325 million secured revolving credit facility ("Credit Facility") expiring in February 2005. On December 1, 1998, the Credit Facility was amended to release the collateral and the Credit Facility became unsecured. The Credit Facility had an outstanding balance of $230 million at December 31, 1998. The Credit Facility provides for principal payments equal to the amount by which the outstanding balance is in excess of the amount available, which reduces quarterly commencing in May 2000. The Credit Facility also provides, at the Partnership's option, a floating interest rate equal to either the administrative agent's base rate (but not less than the Federal Funds Rate plus 0.5% per year) or LIBOR plus a margin ranging from .75% to 1.25% per year based on the Partnership's ratio of Funded Indebtedness to Cash Flow, as defined in the Credit Facility. The Credit Facility contains certain restrictive covenants including, but not limited to, the incurrence of additional indebtedness, the making of investments, and making cash distributions other than quarterly distributions from available cash as provided by the partnership agreement. The Partnership has used the proceeds from the Credit Facility to refinance the existing first mortgage notes of OLP-A, including a prepayment premium, to fund the cash investments in Shell CO2 Company and Plantation Pipe Line Company, to refinance the debt associated with the Hall-Buck acquisition, to fund the acquisition of the general partner interest in Santa Fe (Note 3), and to fund the acquisition of the Pier IX Terminal and the Shipyard River Terminal. The prepayment premium and the write-off of the associated unamortized debt issue costs are reflected as an extraordinary charge in the accompanying consolidated statement of income.
On November 6, 1998, the Partnership filed with the SEC a shelf registration statement with respect to the sale from time to time of up to $600 million in debt and/or equity securities. On January 29, 1999, the Partnership closed a public offering of $250 million in principal amount of 6.30% Senior Notes due February 1, 2009 ("Notes") at a price to the public of 99.67% per Note. In the offering, the Partnership received proceeds, net of underwriting discounts and commissions, of approximately $248 million. The proceeds were used to pay the outstanding balance on the Credit Facility and for working capital and other proper partnership purposes. The Notes will be guaranteed on a full, unconditional, and joint and several basis by all of the Partnership's consolidating subsidiaries (excluding SFPP and the subsidiaries of Kinder Morgan Bulk Terminals, Inc.) so long as any other debt obligations of the Partnership are guaranteed by such subsidiaries. SFPP, which was acquired March 6, 1998, will not be guaranteeing the public debt securities. Kinder Morgan Energy Partners, L.P., the parent company, has operations from only investments in its subsidiaries. The following discloses the consolidating financial information for the Partnership:
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (In Thousands)
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1998 (In Thousands)
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 (In Thousands)
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The estimated fair value of the long-term debt based upon prevailing interest rates available to the Partnership at December 31, 1998 and 1997 is disclosed below.
Fair value as used in SFAS No. 107 -- "Disclosures About Fair Value of Financial Instruments" represents the amount at which the instrument could be exchanged in a current transaction between willing parties.
December 31, 1998 December 31, 1997 ----------------------- ---------------------- Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value --------- ---------- --------- ---------- (in thousands) Long-term debt $ 611,571 $ 645,873 $ 146,824 $ 158,343
9. Pensions and Other Postretirement Benefits
In 1998, the Partnership adopted Statement of Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which revises and standardizes the reporting requirements for postretirement benefits. However, SFAS No. 132 does not change the measurement and recognition of those benefits.
In connection with the acquisition of SFPP and Hall-Buck, the Partnership acquired certain liabilities for pension and postretirement benefits. The Partnership has a noncontributory defined benefit pension plan covering the former employees of Hall-Buck. The benefits under this plan were based primarily upon years of service and final average pensionable earnings. The Partnership also provides medical and life insurance benefits to current employees, their covered dependents and beneficiaries of SFPP and Kinder Morgan Bulk Terminals, Inc. The Partnership also provides the same benefits to former salaried employees of SFPP.
The SFPP postretirement benefit plan is frozen as no additional participants may join the Plan. The Partnership will continue to fund the cost associated with those employees currently in the Plan for medical benefits and life insurance coverage during retirement.
Net periodic benefit costs for these plans include the following components (in thousands):
Other Postretirement Pension Benefits Benefits 1998 1998 ---------------- --------------
Net periodic benefit cost
Service cost $ 98 $ 636 Interest cost 76 983 Expected return on plan assets (70) - Amortization of prior service cost - (493) Actuarial loss (gain) - (208) -------------- -------------
Net periodic benefit cost $ 104 $ 918 ============== =============
Additional amounts recognized for 1998 Curtailment (gain) loss $ (425) $ -
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information concerning benefit obligations, plan assets, funded status and recorded values for these plans follows (in thousands):
Other Postretirement Pension Benefits Benefits 1998 1998 --------------- --------------
Change in benefit obligation
Benefit obligation at January 1, 1998 $ - $ - Service cost 98 636 Interest cost 76 983 Plan participants' contributions - 117 Actuarial loss - 529 Acqusitions 2,201 13,039 Curtailment (gain) (425) - Benefits paid from plan assets (88) (570) --------------- --------------
Benefit obligation at December 31, 1998 $ 1,862 $ 14,734 =============== ==============
Change in Plan Assets
Fair value of plan assets at January 1, 1998 $ - $ - Actual return on plan assets 136 - Acqusitions 1,628 - Employer contributions 157 453 Plan participants' contributions - 117 Benefits paid from plan assets (88) (570) --------------- --------------
Fair value of plan assets at December 31, 1998 $ 1,833 $ - =============== ==============
Funded status $ (29) $ (14,734) Unrecognized net transition obligation 3 - Unrecognized net actuarial (gain) (187) (1,831) Unrecognized prior service (benefit) - (2,270) --------------- --------------
(Accrued) benefit cost $ (213) $ (18,835) =============== ==============
Weighted-Average assumptions at December 31, 1998
Discount rate 7.0% 7.0% Expected return on plan assets 8.5% - Rate of compensation increase 4.0% 4.0%
The unrecognized prior service credit will be amortized straight-line over the remaining expected service to retirement (5.6 years). For 1998, the assumed health care cost trend rate for medical costs was 9% and is assumed to decrease gradually to 5% by 2005 and remain constant thereafter.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A one-percentage change in assumed health care cost trend rates would have the following effects (in thousands):
Other Postretirement Benefits -------------- Effect on total of service and interest cost components 1-Percentage point increase $ 103 1-Percentage point decrease $ (93)
Effect on postretirement benefit obligation 1-Percentage point increase $ 1,655 1-Percentage point decrease $ (1,490)
Multiemployer Plans and Other Benefits. With the acquisition of Hall-Buck, the Partnership participates in multi-employer pension plans for the benefit of its employees who are union members. Partnership contributions to these plans were $0.6 million from the period of acquisition through December 31, 1998. These plans are not administered by the Partnership and contributions are determined in accordance with the provisions of negotiated labor contracts. Other benefits include a self-insured health and welfare insurance plan and an employee health plan where employees may contribute for their dependents' health care costs. Amounts charged to expense for these plans were $0.5 million from the period of acquisition through December 31, 1998.
The Partnership terminated the Employee Stock ownership Plan (the "ESOP") held by Hall-Buck for the benefit of its employees on August 13, 1998. All participants became fully vested retroactive to July 1, 1998, the effective date of the acquisition. The assets remaining in the plan will be distributed during 1999.
The Partnership assumed River Consulting, Inc.'s (a consolidating affiliate of Hall-Buck Marine, Inc.), savings plan under Section 401(k) of the Internal Revenue Code. This savings plan allowed eligible employees to contribute up to 10 percent of their compensation on a pre-tax basis, with the Partnership matching 2.5 percent of the first 5 percent of the employees' wage. Matching contributions are vested at the time of eligibility, which is one year after employment. Effective January 1, 1999, this savings plan was merged into the retirement savings plan of the general partner.
10. Partners' Capital
At December 31, 1998, Partners' capital consisted of 47,959,690 units held by third parties and 862,000 units held by the general partner. Together, these 48,821,690 units represent the limited partners' interest and an effective 98% interest in the Partnership, excluding the general partner's incentive distribution. At December 31, 1997 and 1996 there were 14,111,200 and 13,020,000 units outstanding, respectively. The general partner interest represents an effective 2% interest in the Partnership, excluding the general partner's incentive distribution. On February 14, 1997, the 1,720,000 deferred participation units held by the general partner were converted to common units and 858,000 of these units were sold to a third party. Since the deferred participation units owned by the general partner are now common units, they are no longer separately disclosed. In addition to the units issued for the acquisition of SFPP and Hall-Buck (see Note 3), the Partnership issued 6,070,578 units in June 1998 related to a primary public offering.
For 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. For the years ended December 31, 1998 and 1997, the Partnership distributed $2.4725 and $1.8775, respectively, per unit. The distributions for 1998 and 1997 required incentive distributions to the general partner in the amount of $32,737,571 and $3,935,852, respectively. The increased incentive distribution paid for 1998 over 1997 reflects the increase in amount distributed per unit as well as the issuance of additional units in 1998.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 13, 1999, the Partnership declared a cash distribution for the quarterly period ended December 31, 1998, of $0.65 per unit. The distribution was paid on February 12, 1999, to unitholders of record as of January 29, 1999, and required an incentive distribution to the general partner of $10,717,464. Since this distribution was declared after the end of the quarter, no amount is shown in the December 31, 1998 balance sheet as a Distribution Payable.
11. Concentrations of Credit Risk
Four customers of the Partnership each accounted for over 10% of consolidated revenues for 1998. In 1997, only one customer accounted for more than 10% of consolidated revenues. See Note 14 for more information on major customers. Additionally, a portion of the Partnership's revenues is derived from transportation services to oil and gas refining and marketing companies in the Midwest. Although this concentration could affect the Partnership's overall exposure to credit risk inasmuch as these customers could be affected by similar economic or other conditions, management believes that the Partnership is exposed to minimal credit risk. The Partnership generally does not require collateral for its receivables.
12. Related Party Transactions
Revenues and Expenses
Revenues for the year ended December 31, 1996 include transportation charges and product sales to an Enron subsidiary, Enron Gas Liquids, Inc., of $7.7 million. Another Enron subsidiary, Enron Gas Processing Company ("EGP"), provided services in connection with a gas processing agreement with Mobil as well as storage and other services to the Partnership and charged $6.6 million for the year ended December 31, 1996. Management believes that these charges were reasonable. As a result of KMI's acquisition of all of the common stock of the general partner, Enron and its affiliates are no longer affiliates of the Partnership.
The Partnership leases approximately 17 MBbls/d of North System capacity to Heartland Pipeline Company ("Heartland") under a lease agreement, which will expire in 2010. Revenues earned from Heartland for the lease rights were approximately $0.9 million for each of the years ended December 31, 1998, 1997 and 1996.
General and Administrative Expenses
Prior to the sale of the general partner, Enron and its affiliates were reimbursed for certain corporate staff and support services rendered to the general partner in managing and operating the Partnership. Such reimbursement was made pursuant to the terms of the Omnibus Agreement executed among Enron, the Partnership and the general partner at the time of formation of the Partnership. For the year ended December 31, 1996, the amounts reimbursed to Enron were $5.8 million.
After the sale of the general partner, the general partner provides the Partnership with general and administrative services and is entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership. The general partner incurred $38.0 million in general and administrative expenses in 1998 and $6.9 million in general and administrative expenses in 1997.
Partnership Distributions
Kinder Morgan G.P., Inc. (the "general partner") serves as the sole general partner of the four operating partnerships as well as the sole general partner of the Partnership. Pursuant to the partnership agreements, the general partner interests represent a 1% ownership interest in the Partnership, and a direct 1.0101% ownership interest in the operating partnerships. Together then, the general partner owns an effective 2% interest in the operating partnerships, excluding incentive distributions; the 1.0101% direct general partner ownership interest (accounted for as minority interest in the consolidated financial statements of the Partnership) and the 0.9899% ownership interest indirectly owned via its 1% ownership interest in the Partnership.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1998, the general partner owned 862,000 units, representing approximately 1.8% of the outstanding units. The partnership agreements governing the operation of the Partnership and the operating partnerships require the partnerships to distribute 100% of the "Available Cash" (as defined in the partnership agreements) to the partners within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available Cash consists generally of all cash receipts of the partnerships, less all of their cash disbursements, net additions to reserves, and amounts payable to the former Santa Fe General Partner in respect of its 0.5% interest in SFPP, L.P.
In general, Available Cash for each quarter is distributed, first, 98% to the limited partners and 2% to the general partner until the limited partners have received a total of $0.3025 per unit for such quarter, second, 85% to the limited partners and 15% to the general partner until the limited partners have received a total of $0.3575 per unit for such quarter, third, 75% to the limited partners and 25% to the general partner until the limited partners have received a total of $0.4675 per unit for such quarter, and fourth, thereafter 50% to the limited partners and 50% to the general partner. Incentive distributions are generally defined as all cash distributions paid or payable to the general partner that are in excess of 2% of the aggregate amount of cash being distributed. The general partner's declared incentive distributions for the years ended December 31, 1998, 1997, and 1996 were $32,737,571, $3,935,852 and $100,571, respectively.
13. Leases and Commitments
The Partnership has entered into certain operating leases. Including probable elections to exercise renewal options, the leases have remaining terms ranging from one to forty-five years. Future commitments related to these leases at December 31, 1998 are as follows (in thousands):
1999 $ 4,886 2000 3,951 2001 3,781 2002 4,209 2003 4,052 Thereafter 31,924 -------- Total minimum payments $ 52,803 ========
Total minimum payments have not been reduced for future minimum sublease rentals aggregating approximately $3.2 million. Total lease expenses, including related variable charges, incurred for the years ended December 31, 1998, 1997, and 1996 were $3.7 million, $1.3 million and $1.5 million, respectively.
The primary shipper on the Cypress Pipeline has the right until 2011 to purchase up to a 50% joint venture interest in the pipeline at a price based on, among other things, the construction cost of the Cypress Pipeline, plus adjustments for expansions. If the customer exercises its rights under the option, management anticipates that no loss will accrue to the Partnership.
Under a joint tariff agreement, the Partnership's North System is obligated to pay minimum tariff revenues of approximately $2.0 million per contract year to an unaffiliated pipeline company subject to certain adjustments. This agreement expires March 1, 2013, but provides for a five-year extension at the option of the Partnership.
During 1998, the Partnership established a unit option plan, which provides that key personnel are eligible to receive grants of options to acquire units. The number of units available under the option plan is 250,000. The option plan terminates in March 2008. As of December 31, 1998, 194,500 options were granted to certain personnel with a term of seven years at exercise prices equal to the market price of the units at the grant date ($34.56 weighted average price). In addition, 10,000 options were granted to non-employee directors of the Partnership. The options granted generally vest forty percent in the first year and twenty percent each year thereafter.
The Partnership applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for unit options granted under the Partnership's option plan. Pro forma information regarding changes in net income and per unit data if the accounting prescribed by Statement
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of Financial Accounting Standards No.123 "Accounting for Stock Based Compensation," had been applied is not material. No compensation expense has been recorded since the options were granted at exercise prices equal to the market prices at the date of grant.
During 1997, the Partnership established an Executive Compensation Plan for certain executive officers of the general partner. The Partnership may, at its option and with the approval of the unitholders, pay the participants in units instead of cash. Eligible awards are equal to a formula based upon the cash distributions paid to the general partner during the four calendar quarters preceding the date of redemption multiplied by eight (the "Calculated Amount"). Calculated amounts are accrued as compensation expense and adjusted quarterly. Under the plan, no eligible employee may receive a grant in excess of 2% and total awards under the Plan may not exceed 10% of the Calculated Amount. The plan terminates January 1, 2007, and any unredeemed awards will be automatically redeemed.
At December 31, 1998, certain executive officers of the general partner had outstanding awards totaling 2% of the Calculated Amount eligible to be granted under the Plan. On January 4, 1999 (subsequent to year end) 50% of the awards granted to these executive officers were vested and paid out. Each participant continues to have a grant of 1% under the plan.
14. Reportable Segments
The Partnership has adopted SFAS No. 131 -- "Disclosures About Segments of an Enterprise and Related Information". The Partnership competes in three reportable business segments: Pacific Operations, Mid-Continent Operations and Bulk Terminals (see Note 1). The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Partnership evaluates performance based on each segments' earnings, which excludes general and administrative expenses, third-party debt costs, unallocable non-affiliated interest income and expense, and minority interest. The Partnership's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment involves different products and marketing strategies. Financial information by segment follows (in thousands):
1998 1997 1996 ------------- --------------- ------------- Revenues Pacific Operations $ 221,430 $ - $ - Mid-Continent Operations 38,271 55,777 63,191 Bulk Terminals 62,916 18,155 8,059 ============= =============== ============= Total Segments $ 322,617 $ 73,932 $ 71,250 ============= =============== =============
Operating Income Pacific Operations $ 145,685 $ - $ - Mid-Continent Operations 13,632 22,389 21,804 Bulk Terminals 20,572 10,709 4,401 ============= =============== ============= Total Segments $ 179,889 $ 33,098 $ 26,205 ============= =============== =============
Earnings from equity investments Pacific Operations $ 803 $ - $ - Mid-Continent Operations 24,892 5,724 5,675 Bulk Terminals 37 - - ============= =============== ============= Total Segments $ 25,732 $ 5,724 $ 5,675 ============= =============== =============
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 1997 1996 ------------- --------------- ------------- Other, net Pacific Operations $ (6,418) $ - $ - Mid-Continent Operations (80) (707) 2,605 Bulk Terminals (765) (1) 21 ============= =============== ============= Total Segments $ (7,263) $ (708) $ 2,626 ============= =============== =============
Income tax benefit (expense) Pacific Operations $ - $ - $ - Mid-Continent Operations (972) 740 (1,343) Bulk Terminals (600) - - ============= =============== ============= Total Segments $ (1,572) $ 740 $ (1,343) ============= =============== =============
Segment earnings Pacific Operations $ 140,070 $ - $ - Mid-Continent Operations 37,156 27,482 28,741 Bulk Terminals 19,244 10,708 4,422 ============= =============== ============= Total Segments (1) $ 196,470 $ 38,190 $ 33,163 ============= =============== =============
Assets at December 31 Pacific Operations $ 1,549,523 $ - $ - Mid-Continent Operations 381,881 254,084 255,679 Bulk Terminals 186,298 54,710 33,625 ============= =============== ============= Total Segments (2) $ 2,117,702 $ 308,794 $ 289,304 ============= =============== =============
Depreciation and amortization Pacific Operations $ 25,177 $ - $ - Mid-Continent Operations 8,274 9,009 8,542 Bulk Terminals 3,870 1,058 1,366 ============= =============== ============= Total Segments $ 37,321 $ 10,067 $ 9,908 ============= =============== =============
Capital expenditures Pacific Operations $ 23,925 $ - $ - Mid-Continent Operations 4,531 4,310 7,969 Bulk Terminals 9,951 2,574 606 ============= =============== ============= Total Segments $ 38,407 $ 6,884 $ 8,575 ============= =============== =============
(1) The following reconciles segment earnings to net income. 1998 1997 1996 ------------- --------------- ------------- Segment earnings $ 196,470 $ 38,190 $ 33,163 Interest and corporate administrative expenses (a) (92,864) (20,453) (21,263) ============= =============== ============= Net Income $ 103,606 $ 17,737 $ 11,900 ============= =============== ============= (a) Includes interest and debt expense, general and administrative expenses, minority interest expense and other insignificant items.
(2) The following reconciles segment assets to consolidated assets. 1998 1997 1996 ------------ --------------- ------------- Segment assets $ 2,117,702 $ 308,794 $ 289,304 Corporate assets (a) 34,570 4,112 14,299 ============ =============== ============= Total assets $ 2,152,272 $ 312,906 $ 303,603 ============ =============== ============= (a) Includes cash, cash equivalents and certain unallocable deferred charges.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although the Partnership's 1998 revenues were derived from a wide customer base, revenues from one customer of the Partnership's Pacific Operations and Bulk Terminals segments represented approximately $42.5 million (13.2%) of the Partnership's consolidated revenues. Three other customers of the Pacific Operations accounted for more than 10% of total revenues. These customers had revenues of approximately $39.7 million (12.3%), $35.29 million (11.0%) and $35.28 million (10.9%), respectively, of total revenues. For the year ended December 31, 1997, revenues from one customer of the Mid-Continent Operations segment represented approximately $8.8 million (11.9%) of total revenues. For the year ended December 31, 1996, revenues from two customers of the Mid-Continent Operations segment represented approximately $8.9 million (12.4%) and $7.4 million (10.4%), respectively, of total revenues.
15. Litigation and Other Contingencies
The tariffs charged for interstate common carrier pipeline transportation for the Partnership's pipelines are subject to rate regulation by the Federal Energy Regulatory Commission ("FERC") under the Interstate Commerce Act ("ICA"). The ICA requires, among other things, that petroleum products (including NGLs) pipeline rates be just and reasonable and non-discriminatory. Pursuant to FERC Order No. 561, effective January 1, 1995, petroleum pipelines are able to change their rates within prescribed ceiling levels that are tied to an inflation index. FERC Order No. 561-A, affirming and clarifying Order No. 561, expands the circumstances under which petroleum pipelines may employ cost-of-service ratemaking in lieu of the indexing methodology, effective January 1, 1995. For each of the years ended December 31, 1998, 1997, and 1996, the application of the indexing methodology did not significantly affect the Partnership's rates. Tariffs charged by 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.
FERC Proceedings
In September 1992, El Paso Refinery, L.P. ("El Paso") filed a protest/complaint with the 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, ARCO Products Company ("ARCO"), Texaco Refining and Marketing Inc. ("Texaco"), Refinery Holding Company, L.P. (a partnership formed by El Paso's long-term 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. 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 Interstate Commerce Act.
Hearings in the FERC proceeding commenced on April 9, 1996 and concluded on July 19, 1996. The parties completed the filing of their post-hearing briefs on December 9, 1996. 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
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
service and supporting cost of service documentation be filed no later than 60 days after a final FERC order on this matter.
As of December 31, 1998, the matters at issue were pending before the FERC commissioners for a final decision. 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 in reference to which the starting rate base would be calculated and the income tax allowance and allowable cost of equity used to calculate the rate base. In addition, Opinion No. 435 ruled that no reparations would be owed to any complainant for any period prior to the date on which that complainant's complaint was filed, thus reducing the potential reparations period for most complainants by two years. 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 has not yet determined if it will seek rehearing or appellate review of Opinion No. 435. The Partnership believes Opinion No. 435 substantially reduces the negative impact of the Initial Decision.
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 October 27, 1997, SFPP made a responsive filing at the FERC, requesting that these protests be held in abeyance until the FERC ruled on SFPP's request for rehearing of the August 5, 1997 order, and also indicating that SFPP intended to defend the new tariff both on the basis of its cost of service and as a market-based rate. On November 5, 1997, the FERC issued an order accepting the new rate effective November 6, 1997, subject to refund, and referred the proceeding to a settlement judge. On December 10, 1997, following a settlement conference held at the direction of the FERC, the settlement judge recommended that the settlement procedures be terminated. 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. SFPP's application has been set for hearing before a FERC Administrative Law Judge.
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
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, respectively, and intends to vigorously defend all of the challenged rates. On January 20, 1998, the FERC issued an order accepting 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 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.
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 Partnership believes, after consultation with FERC counsel, that the acquisition of SFPP, standing alone, should not be found to constitute "changed circumstances", however, the realization of the cost savings anticipated to arise from the acquisition may increase the risk of a finding of "changed circumstances".
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 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.
California Public Utilities Commission Proceeding
A complaint was filed with the California Public Utilities Commission on April 7, 1997 by ARCO Products Company, Mobil Oil Corporation and Texaco Refining and Marketing Inc. against SFPP, L.P. 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 November 26, 1997, SFPP filed responsive testimony defending the justness and reasonableness of its rates. The rebuttal testimony was filed on December 12, 1997 and hearings before the Administrative Law Judge were completed on January 15, 1998. Briefing and oral arguments were made in March 1998, and on June 18, 1998, a California Public Utilities Commission ("CPUC") Administrative Law Judge issued a ruling in the Partnership's favor and dismissed the complaints. On August 6, 1998, the CPUC affirmed the Judge's decision. The shippers have appealed the CPUC's decision to the California Supreme Court. The Partnership believes it has adequate reserves recorded for any adverse decision related to this matter.
SPTC Easements
SFPP and Southern Pacific Transportation Company ("SPTC") are engaged in a judicial reference proceeding to determine the extent, if any, to which the rent payable by SFPP for the use of pipeline easements on rights-of-way held by SPTC should be adjusted pursuant to existing contractual arrangements (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). This matter was tried in the latter part of 1996 and the court issued its Statement of Tentative Decision in January 1997. The Statement of Tentative Decision indicated that the court intended to establish a new base annual rental for the subject rights-of-way at a level, subject to inflation adjustments, that is adequately provided for by the amounts accrued by SFPP through December 31, 1998.
On May 7, 1997, the judge issued a Statement of Decision and Judgment that reaffirmed the conclusions set forth in his January 1997 Statement of Tentative Decision. This Statement of Decision and Judgment was filed on June
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30, 1997 with the Superior Court for the County of San Francisco, under which court's jurisdiction it is subject to appeal by SPTC. On May 30, 1997, SPTC filed a motion for a new trial and the motion was denied on June 26, 1997. SPTC and SFPP filed motions of appeal in July and August 1997, respectively. The case is currently pending before the Court of Appeals for the First Appellate District of the State of California. The Partnership believes it has adequate reserves recorded for any adverse decision related to this matter.
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.
Since August 1991, SFPP, along with several other respondents, has been involved in one cleanup ordered by the United States Environmental Protection Agency ("EPA") related to ground water contamination in the vicinity of SFPP's storage facilities and truck loading terminal at Sparks, Nevada. The EPA approved the respondents' remediation plan in September 1992 and the remediation system began operation in 1995. In addition, SFPP is presently involved in 18 ground water hydrocarbon remediation efforts under administrative orders issued by the California Regional Water Quality Control Board and two other state agencies. The Partnership has recorded a reserve for environmental claims in the amount of $26.1 million at December 31, 1998.
Morris Storage Facility
The general partner is a defendant in two proceedings (one by the State of Illinois and one by the Department of Transportation) relating to alleged environmental violations for events relating to a fire that occurred at the Morris storage field in September, 1994. Although no assurance can be given, the Partnership believes that the ultimate resolution of these matters will not have a material adverse effect on its financial position or results of operations.
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.
KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Quarterly Financial Data (unaudited)
Operating Operating Net Income Revenues Income Net Income per Unit (In thousands, except per unit amounts) ---------------------------------------------------------------------------
First Quarter (1) $36,741 $15,091 $353 $(0.12) Second Quarter 82,044 39,371 30,313 0.50 Third Quarter 101,900 41,623 35,116 0.52 Fourth Quarter 101,932 43,820 37,824 0.55
First Quarter $19,132 $5,927 $3,428 $0.26 Second Quarter 16,036 4,800 2,866 0.15 Third Quarter 17,385 5,315 3,754 0.20 Fourth Quarter 21,379 8,189 7,689 0.41
(1) Note: 1998 First Quarter includes an extraordinary charge of $13,611 due to an early extinguishment of debt. Net Income before extraordinary charge was $13,964 and Net Income per Unit before extraordinary charge was $0.52.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized on the 15th day of March 1999.
KINDER MORGAN ENERGY PARTNERS, L.P. (A Delaware Limited Partnership) By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan ____________________________________________ William V. Morgan, Vice Chairman and President
KINDER MORGAN OPERATING L.P. "A" (A Delaware Limited Partnership) By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan _____________________________________________ William V. Morgan, Vice Chairman and President
KINDER MORGAN OPERATING L.P. "B" (A Delaware Limited Partnership) By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan _____________________________________________ William V. Morgan, Vice Chairman and President
KINDER MORGAN OPERATING L.P. "C" (A Delaware Limited Partnership) By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan _____________________________________________ William V. Morgan, Vice Chairman and President
KINDER MORGAN OPERATING L.P. "D" (A Delaware Limited Partnership) By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan _____________________________________________ William V. Morgan, Vice Chairman and President
S-1
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION (A Delaware Corporation)
By: /s/ William V. Morgan _____________________________________________ William V. Morgan, President
KINDER MORGAN CO2, LLC (A Delaware Limited Liability Company) By: KINDER MORGAN OPERATING L.P. "A" As sole Member By: KINDER MORGAN G.P., INC. as General Partner
By: /s/ William V. Morgan ______________________________________________ William V. Morgan, Vice Chairman and President
KINDER MORGAN BULK TERMINALS, INC. (A Louisiana Corporation)
By: /s/ William V. Morgan ______________________________________________ William V. Morgan, Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
KINDER MORGAN G.P., INC. (General Partner to Kinder Morgan Operating L.P. "A," General Partner to Kinder Morgan Operating L.P. "B," General Partner to Kinder Morgan Operating L.P. "C," General Partner to Kinder Morgan Operating L.P. "D," and Kinder Morgan Operating L.P. "A"as the sole Member of Kinder Morgan CO2, LLC.)
Name Title Date ---- ----- ----
/s/ Richard D. Kinder _________________ Chairman of the Board and Chief March 15, 1999 Richard D. Kinder Executive Officer of Kinder Morgan G.P., Inc.
/s/ William V. Morgan _________________ Director, Vice Chairman and President March 15, 1999 William V. Morgan of Kinder Morgan G.P., Inc.
/s/ Alan L. Atterbury _________________ Director of Kinder Morgan G.P., Inc. March 15, 1999 Alan L. Atterbury
/s/ Edward O. Gaylord _________________ Director of Kinder Morgan G.P., Inc. March 15, 1999 Edward O. Gaylord
/s/ David G. Dehaemers, Jr.
_________________ Vice President, Chief Financial Officer March 15, 1999 David G. Dehaemers, Jr. of Kinder Morgan G.P., Inc. (principal financial officer and principal accounting officer)
S-2
KINDER MORGAN NATURAL GAS LIQUIDS CORPORATION
Name Title Date ---- ----- ----
/s/ Richard D. Kinder _________________ Director and Chief Executive Officer of March 15, 1999 Richard D. Kinder Kinder Morgan Natural Gas Liquids Corporation
/s/ William V. Morgan _________________ Director and President of March 15, 1999 William V. Morgan Kinder Morgan Natural Gas Liquids Corporation
/s/ David G. Dehaemers, Jr.
_________________ Chief Financial Officer of Kinder March 15, 1999 David G. Dehaemers, Jr. Morgan Natural Gas Liquids Corporation (principal financial officer and principal accounting officer)
KINDER MORGAN BULK TERMINALS, INC.
Name Title Date ---- ----- ----
/s/ Richard D. Kinder __________________ Director and Chairman of March 15, 1999 Richard D. Kinder Kinder Morgan Bulk Terminals, Inc.
/s/ William V. Morgan __________________ Director and Vice Chairman of March 15, 1999 William V. Morgan Kinder Morgan Bulk Terminals, Inc.
/s/ Thomas B. Stanley __________________ President of Kinder Morgan Bulk March 15, 1999 Thomas B. Stanley Terminals, Inc. (chief executive officer)
/s/ David G. Dehaemers, Jr.
__________________ Treasurer of Kinder Morgan Bulk David G. Dehaemers, Jr. Terminals, Inc. (principal financial March 15, 1999 officer and principal accounting officer)