Kinder Morgan Management, LLC 2003 2nd Quarter 10-Q

Table of Contents


FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

x

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003
or

o

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to_____________

Commission File Number 1-16459

kmmgt.gif (40501 bytes)
Kinder Morgan Management, LLC
(Exact Name of Registrant as Specified in Its Charter)

Delaware

  

76-0669886

(State or Other Jurisdiction of
Incorporation or Organization)

  

(I.R.S. Employer
Identification No.)

  

500 Dallas Street, Suite 1000, Houston, Texas 77002

(Address of Principal Executive Offices, Including Zip Code)

  

(713) 369-9000

(Registrant's Telephone Number, Including Area Code)

  
  

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x   No o

The number of shares outstanding for each of the registrant's classes of common equity, as of July 31, 2003 was two voting shares and 47,372,960 listed shares.


KINDER MORGAN MANAGEMENT, LLC AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED JUNE 30, 2003


Contents

  

Page

  

Number

PART I. FINANCIAL INFORMATION
  
Item 1. Financial Statements (Unaudited)
  
   Consolidated Balance Sheets

3

   Consolidated Statements of Income

4

   Consolidated Statements of Cash Flows

5

   Notes to Consolidated Financial Statements

6-7

  
Item 2. Management's Discussion and Analysis of Financial
   Condition and Results of Operations

8-13

  
Item 3. Quantitative and Qualitative Disclosures About Market Risk

13

  
Item 4. Controls and Procedures

13

  
PART II. OTHER INFORMATION
  
Item 1. Legal Proceedings

14

  
Item 2. Changes in Securities and Use of Proceeds

14

  
Item 3. Defaults Upon Senior Securities

14

  
Item 4. Submission of Matters to a Vote of Security Holders

14

  
Item 5. Other Information

14

  
Item 6. Exhibits and Reports on Form 8-K

14-15

  
SIGNATURE

16

2


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.


CONSOLIDATED BALANCE SHEETS (Unaudited)
Kinder Morgan Management, LLC and Subsidiary

June 30,

December 31,

2003

2002

(In thousands except shares)

ASSETS

  
Current Assets:
Accounts Receivable, Related Party

$        2 

$   14,401 

Prepayments and Other

     3,667 

     4,975 

     3,669 

    19,376 

  
Investment in Kinder Morgan Energy Partners, L.P.

 1,464,093 

 1,419,814 

  
Total Assets

$1,467,762 

$1,439,190 

========== 

========== 

  

LIABILITIES AND SHAREHOLDERS' EQUITY

  
Current Liabilities:
Accounts Payable

$    1,122 

$    3,419 

Accrued Expenses and Other

     2,470 

    15,881 

     3,592 

    19,300 

  
Deferred Income Taxes

    51,853 

    35,027 

  
Shareholders' Equity:
Voting Shares - Unlimited Shares Authorized; 2 Voting Shares
   Issued and Outstanding

       100 

       100 

Listed Shares - Unlimited Shares Authorized; 47,372,960 and 45,654,046
  Listed Shares Issued and Outstanding, Respectively

 1,499,641 

 1,440,255 

Retained Deficit

   (76,875)

   (50,305)

Accumulated Other Comprehensive Loss

   (10,549)

    (5,187)

Total Shareholders' Equity

 1,412,317 

 1,384,863 

  
Total Liabilities and Shareholders' Equity

$1,467,762 

$1,439,190 

========== 

========== 

The accompanying notes are an integral part of these statements.

3


CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Kinder Morgan Management, LLC and Subsidiary

Three Months Ended June 30,

Six Months Ended June 30,

2003

2002

2003

2002

(In thousands except per share amounts)

Equity in Earnings of Kinder Morgan
    Energy Partners, L.P.

$   22,686 

$   14,872 

$   46,503 

$   29,666 

Provision for Income Taxes

     8,621 

     5,797 

    17,671 

    11,715 

  
Net Income

$   14,065 

$    9,075 

$   28,832 

$   17,951 

===========

===========

===========

===========

  
Earnings Per Share, Basic and Diluted

$     0.30 

$     0.29 

$     0.62 

$     0.58 

===========

===========

===========

===========

  
Weighted-average Shares Outstanding

    46,957 

    31,363 

    46,528 

    31,117 

===========

===========

===========

===========

The accompanying notes are an integral part of these statements.

4


CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Kinder Morgan Management, LLC and Subsidiary
Increase (Decrease) in Cash and Cash Equivalents

Six Months Ended June 30,

2003

2002

(In thousands)

Cash Flows From Operating Activities:
Net Income

$   28,832 

$   17,951 

Adjustments to Reconcile Net Income to Net Cash Flows from Operating Activities:
    Deferred Income Taxes

    17,671 

    11,715 

    Equity in Earnings of Kinder Morgan Energy Partners, L.P.

   (46,503)

   (29,666)

    Decrease in Accounts Receivable

    14,399 

     4,270 

    Decrease (Increase) in Other Assets

     1,309 

       (30)

    Increase (Decrease) in Accounts Payable

    (2,297)

     1,371 

    Decrease in Other Current Liabilities

   (13,411)

    (5,611)

Net Cash Flows Provided by Operating Activities

         - 

         - 

  
Net Cash Flows Used In Investing Activities

         - 

         - 

  
Net Cash Flows Provided by Financing Activities

         - 

         - 

  
Net Increase in Cash and Cash Equivalents

         - 

         - 

Cash and Cash Equivalents at Beginning of Period

         - 

         - 

Cash and Cash Equivalents at End of Period

$        - 

$        - 

========== 

========== 

SUPPLEMENTAL CASH FLOW INFORMATION

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. No cash payments for interest or income taxes were made during the periods presented. We issue our shares or fractions thereof in distributions to our shareholders, and receive distributions from Kinder Morgan Energy Partners, L.P. on the i-units we own in the form of additional i-units in noncash transactions discussed in Note 3.

The accompanying notes are an integral part of these statements.

5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.   General

Kinder Morgan Management, LLC is a publicly traded Delaware limited liability company formed on February 14, 2001. Kinder Morgan G.P., Inc., an indirect wholly owned subsidiary of Kinder Morgan, Inc., and the general partner of Kinder Morgan Energy Partners, L.P., owns all of our voting shares. Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and Kinder Morgan Energy Partners, L.P.'s limited partnership agreement, all of its rights and powers to manage and control the business and affairs of Kinder Morgan Energy Partners, L.P., subject to the general partner's right to approve specified actions. We are a limited partner in Kinder Morgan Energy Partners, L.P. through our ownership of its i-units, and manage and control its business and affairs pursuant to the delegation of control agreement. Our success is dependent upon our operation and management of Kinder Morgan Energy Partners, L.P. and its resulting performance, see Note 5.

We have prepared the accompanying unaudited interim consolidated financial statements under the rules and regulations of the Securities and Exchange Commission. Under such rules and regulations, we have condensed or omitted certain information and notes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. We believe, however, that our disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial results for the interim periods presented. You should read these interim consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2002 ("2002 Form 10-K"). Certain prior period amounts have been reclassified to conform to the current presentation. Unless the context requires otherwise, references to "we," "us," "our," or the "Company" are intended to mean Kinder Morgan Management, LLC and its consolidated subsidiary, Kinder Morgan Services LLC.

2.   Earnings Per Share

Both basic and diluted earnings per share are computed based on the weighted-average number of shares outstanding during each period, adjusted for stock splits. There are no securities outstanding that may be converted into or exercised for shares.

3.   Share Distributions

On May 15, 2003, we paid a share distribution of 859,933 shares to shareholders of record as of April 30, 2003, based on the $0.64 per common unit distribution declared by Kinder Morgan Energy Partners, L.P. On August 14, 2003, we will pay a share distribution of 811,878 shares to shareholders of record as of July 31, 2003, based on the $0.65 per common unit distribution declared by Kinder Morgan Energy Partners, L.P. for the second quarter of 2003. These distributions are paid in the form of additional shares or fractions thereof calculated by dividing the Kinder Morgan Energy Partners, L.P.'s cash distribution per common unit by the average market price of a share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for our shares.

4.   Business Activities and Related Party Transactions

We do not receive a fee for our services under the delegation of control agreement, nor do we receive any margin or profit on the expense reimbursement. We incurred, on behalf of Kinder Morgan Energy

6


Partners, L.P., approximately $24.1 million and $26.7 million of expenses during the three months ended June 30, 2003 and 2002, respectively, and $58.8 million and $50.5 million of expenses during the six months ended June 30, 2003 and 2002, respectively. The expense reimbursements by Kinder Morgan Energy Partners, L.P. to us are accounted for as a reduction to the expense incurred. At June 30, 2003, a $2,000 receivable from Kinder Morgan Energy Partners, L.P. is recorded in the caption "Accounts Receivable, Related Party" in the accompanying interim Consolidated Balance Sheet.

5.   Summarized Income Statement Information for Kinder Morgan Energy Partners, L.P.

At June 30, 2003, through our ownership of Kinder Morgan Energy Partners, L.P. i-units, we owned approximately 25.3% of all of Kinder Morgan Energy Partners, L.P.'s outstanding limited partner interests. We use the equity method of accounting for this investment and, therefore, record earnings equal to our share of Kinder Morgan Energy Partners, L.P.'s limited partners' net income. Our percentage ownership will change over time upon distribution of additional i-units to us and/or upon issuance of additional common units or other equity securities by Kinder Morgan Energy Partners, L.P. Following is summarized income statement information for Kinder Morgan Energy Partners, L.P. Additional information on Kinder Morgan Energy Partners, L.P.'s results of operations and financial position are contained in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

Three Months Ended June 30,

Six Months Ended June 30,

2003

2002

2003

2002

(In thousands)

Operating Revenues

$ 1,664,447

$ 1,090,936

$ 3,453,285

$ 1,894,001

Operating Expenses

  1,464,885

    918,589

  3,058,571

  1,555,798

Operating Income

$   199,562

$   172,347

$   394,714

$   338,203

===========

===========

===========

===========

Net Income

$   168,957

$   144,517

$   339,435

$   285,950

===========

===========

===========

===========

6.    Comprehensive Income

Our comprehensive income, which differs from our net income solely due to our equity in the other comprehensive income of Kinder Morgan Energy Partners, L.P., for the three months and six months ended June 30, 2003 and 2002 is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2003

2002

2003

2002

(In thousands)

Net Income

$   14,065 

$    9,075 

$   28,832 

$   17,951 

Other Comprehensive Loss, Net of Tax:
   Equity In Other Comprehensive Loss of
     Kinder Morgan Energy Partners, L.P.

    (3,006)

      (377)

    (5,362)

    (3,112)

Comprehensive Income

$   11,059 

$    8,698 

$   23,470 

$   14,839 

========== 

========== 

========== 

========== 

7


Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

We are a publicly traded Delaware limited liability company, formed on February 14, 2001, that has elected to be treated as a corporation for federal income tax purposes. Our voting shares are owned by Kinder Morgan G.P., Inc., an indirect wholly owned subsidiary of Kinder Morgan, Inc. and the general partner of Kinder Morgan Energy Partners, L.P.

Business

Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and Kinder Morgan Energy Partners, L.P.'s limited partnership agreement, all of its rights and powers to manage and control the business and affairs of Kinder Morgan Energy Partners, L.P., subject to the general partner's right to approve specified actions.

Financial Condition

As indicated by the accompanying interim Consolidated Balance Sheets, there has been no material change in our financial condition during the current quarter.

Results of Operations

Our results of operations consist of the offsetting expenses and receipts associated with our managing and controlling the business and affairs of Kinder Morgan Energy Partners, L.P. and our equity in the earnings of Kinder Morgan Energy Partners, L.P. attributable to the i-units we own. At June 30, 2003, through our ownership of i-units, we owned approximately 25.3% of all of Kinder Morgan Energy Partners, L.P.'s outstanding limited partner interests. We use the equity method of accounting for our investment in Kinder Morgan Energy Partners, L.P. and, therefore, we record earnings equal to our share of Kinder Morgan Energy Partners, L.P.'s limited partners' net income. Our percentage ownership in Kinder Morgan Energy Partners, L.P. will change over time upon the distribution of additional i-units to us or upon issuances of additional common units or other equity securities by Kinder Morgan Energy Partners, L.P.

For the three months ended June 30, 2003 and 2002, Kinder Morgan Energy Partners, L.P. reported limited partners' net income of $88.4 million and $79.3 million, respectively. For the six months ended June 30, 2003 and 2002, Kinder Morgan Energy Partners, L.P. reported limited partners' net income of $182.4 million and $158.9 million, respectively. The reported segment earnings contribution by business segment for Kinder Morgan Energy Partners, L.P. is set forth below. This information should be read in conjunction with Kinder Morgan Energy Partners, L.P.'s Annual Report on Form 10-K for the year ended December 31, 2002 and with its Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

8


Kinder Morgan Energy Partners, L.P.

Three Months Ended
June 30,

Six Months Ended
June 30,

2003

2002

2003

2002

(In thousands)

Segment Earnings Contribution:
   Product Pipelines

$  92,991 

$  93,373 

$ 184,284 

$ 176,351 

   Natural Gas Pipelines

   75,200 

   61,316 

  154,066 

  128,884 

   CO2 Pipelines

   32,388 

   22,609 

   62,088 

   43,978 

   Terminals

   49,556 

   43,514 

   98,528 

   84,413 

   General and Administrative Expenses

  (34,157)

  (30,210)

  (68,836)

  (59,742)

   Net Debt Costs (Includes Interest Income)

  (44,896)

  (43,864)

  (89,821)

  (82,886)

   Minority Interest

   (2,125)

   (2,221)

   (4,339)

   (5,048)

   Cumulative Effect of Change in Accounting
      Principle

        - 

        - 

    3,465 

        - 

   Net Income

$ 168,957 

$ 144,517 

$ 339,435 

$ 285,950 

========= 

========= 

========= 

========= 

Our earnings, as reported in the accompanying interim Consolidated Statements of Income, represent equity in earnings attributable to the i-units we own, reduced by a deferred income tax provision. The deferred income tax provision is calculated based on the book/tax basis difference created by our recognition, under accounting principles generally accepted in the United States of America, of our share of the earnings of Kinder Morgan Energy Partners, L.P. Our earnings per share (both basic and diluted) is our net income divided by our weighted-average number of outstanding shares during each period presented. There are no securities outstanding that may be converted into or exercised for shares.

Income Taxes

We are a limited liability company that has elected to be treated as a corporation for federal income tax purposes. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of our assets and liabilities for financial reporting and tax purposes. Changes in tax legislation are included in the relevant computations in the period in which such changes are effective. Currently, our only such temporary difference results from recognition of the increased investment associated with recording our equity in the earnings of Kinder Morgan Energy Partners, L.P. The effective tax rate used in computing our income tax provision is 38 percent for the six months ended June 30, 2003 and was 39.5 percent for the six months ended June 30, 2002, composed of the 35 percent federal statutory rate and a provision for state income taxes.

We are a party to a tax indemnification agreement with Kinder Morgan, Inc. Pursuant to this tax indemnification agreement, Kinder Morgan, Inc. has agreed to indemnify us for any tax liability attributable to our formation or our management and control of the business and affairs of Kinder Morgan Energy Partners, L.P., and for any taxes arising out of a transaction involving the i-units we own to the extent the transaction does not generate sufficient cash to pay our taxes with respect to such transaction.

Liquidity and Capital Resources

Our authorized capital structure consists of two classes of interests: (1) our listed shares and (2) our voting shares, collectively referred to in this document as our "shares." Additional classes of interests may be approved by our board and holders of a majority of our shares, excluding shares held by Kinder Morgan, Inc. and its affiliates. The number of our shares outstanding will at all times equal the number of i-units of Kinder Morgan Energy Partners, L.P. we own. Under the terms of our limited liability

9


company agreement, except in connection with our liquidation, we do not pay distributions on our shares in cash but we make distributions on our shares in additional shares or fractions of shares. At the same time Kinder Morgan Energy Partners, L.P. makes a distribution on its common units and i-units, we distribute on each of our shares that fraction of a share determined by dividing the amount of the cash distribution to be made by Kinder Morgan Energy Partners, L.P. on each common unit by the average market price of a share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for our shares.

On May 15, 2003, we paid a share distribution of 859,933 shares to shareholders of record as of April 30, 2003, based on the $0.64 per common unit distribution declared by Kinder Morgan Energy Partners, L.P. On August 14, 2003, we will pay a share distribution of 811,878 shares to shareholders of record as of July 31, 2003, based on the $0.65 per common unit distribution declared by Kinder Morgan Energy Partners, L.P. for the second quarter of 2003. These distributions are paid in the form of additional shares or fractions thereof calculated as described above.

Kinder Morgan Energy Partners, L.P.'s partnership agreement requires that it distribute 100% of available cash, as defined in the partnership agreement, to its partners within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of Kinder Morgan Energy Partners, L.P.'s cash receipts, including cash received by its operating partnership, less cash disbursements and net additions to reserves (including any reserves required under debt instruments for future principal and interest payments) and amounts payable to the former general partner of SFPP, L.P. in respect of its remaining 0.5% interest in SFPP.

Kinder Morgan Energy Partners, L.P.'s general partner is granted discretion by the partnership agreement, which discretion has been delegated to us, subject to the approval of the general partner in certain cases, to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, rate refunds and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When we determine Kinder Morgan Energy Partners, L.P.'s quarterly distributions, we consider current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level.

Typically, the general partner and owners of Kinder Morgan Energy Partners, L.P.'s common units and Class B units receive distributions in cash, while we, the sole owner of Kinder Morgan Energy Partners, L.P.'s i-units, receive distributions in additional i-units. For each outstanding i-unit, a fraction of an i-unit will be issued. The fraction is calculated by dividing the amount of cash being distributed per Kinder Morgan Energy Partners, L.P. common unit by the average closing price of our shares over the ten consecutive trading days preceding the date on which the shares begin to trade ex-dividend under the rules of the New York Stock Exchange. The cash equivalent of distributions of i-units will be treated as if it had actually been distributed for purposes of determining the distributions to the general partner. Kinder Morgan Energy Partners, L.P. does not distribute cash to i-unit owners but retains the cash for use in its business.

Available cash is initially distributed 98% to the limited Partners, L.P. and 2% to the general partner. These distribution percentages are modified to provide for incentive distributions to be paid to the general partner in the event that quarterly distributions to unitholders exceed certain specified targets.

10


Kinder Morgan Energy Partners, L.P.'s available cash for each quarter is distributed:

   •  

first, 98% to the owners of all classes of units pro rata and 2% to the general partner until the owners of all classes of units have received a total of $0.15125 per unit in cash or equivalent i-units for such quarter;

  

   •  

second, 85% of any available cash then remaining to the owners of all classes of units pro rata and 15% to the general partner until the owners of all classes of units have received a total of $0.17875 per unit in cash or equivalent i-units for such quarter;

  

   •  

third, 75% of any available cash then remaining to the owners of all classes of units pro rata and 25% to the general partner until the owners of all classes of units have received a total of $0.23375 per unit in cash or equivalent i-units for such quarter; and

  

   •  

fourth, 50% of any available cash then remaining to the owners of all classes of units pro rata, to owners of common units and Class B units in cash and to owners of i-units in the equivalent number of i-units, 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 value of cash and i-units being distributed. The general partner's incentive distribution for the distribution that Kinder Morgan Energy Partners, L.P. declared for the second quarter of 2003 was $79.6 million. The general partner's incentive distribution for the distribution that Kinder Morgan Energy Partners, L.P. declared for the second quarter of 2002 was $64.4 million. The general partner's incentive distribution that Kinder Morgan Energy Partners, L.P. paid during the second quarter of 2003 to the general partner (for the first quarter of 2003) was $75.5 million. The general partner's incentive distribution that Kinder Morgan Energy Partners, L.P. paid during the second quarter of 2002 to the general partner (for the first quarter of 2002) was $61.0 million. All partnership distributions Kinder Morgan Energy Partners, L.P. declares for the fourth quarter of each year are declared and paid in the first quarter of the following year.

We expect that our expenditures associated with managing and controlling the business and affairs of Kinder Morgan Energy Partners, L.P. and the reimbursement for these expenditures received by us from Kinder Morgan Energy Partners, L.P. will continue to be equal. As stated above, the distributions we expect to receive on the i-units we own will be in the form of additional i-units. Therefore, we expect neither to generate nor to require significant amounts of cash in ongoing operations. We currently have no debt and have no plans to incur any debt. Any cash received from the sale of additional shares will immediately be used to purchase additional i-units. Accordingly, we do not anticipate any other sources or needs for additional liquidity.

Information Regarding Forward-looking Statements

This filing includes forward-looking statements. 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," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," or the negative of those terms or other variations of them or by comparable terminology. In particular, statements, express or implied, concerning future actions, conditions, events or future operating results or the ability to generate sales, income or cash flow or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of our operations and those of Kinder Morgan Energy Partners, L.P. may differ materially from those

11


expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include but are not limited to the following:

  

   •  

price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, coal and other bulk materials and chemicals in the United States;

  

   •  

economic activity, weather, alternative energy sources, conservation and technological advances that may affect price trends and demand;

  

   •  

changes in Kinder Morgan Energy Partners, L.P.'s tariff rates implemented by the Federal Energy Regulatory Commission or the California Public Utilities Commission;

  

   •  

Kinder Morgan Energy Partners, L.P.'s ability to integrate any acquired operations into its existing operations;

  

   •  

Kinder Morgan Energy Partners, L.P.'s ability to acquire new businesses and assets and to make expansions to its facilities;

  

   •  

difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to Kinder Morgan Energy Partners, L.P.'s terminals or pipelines;

  

   •  

Kinder Morgan Energy Partners, L.P.'s ability to successfully identify and close acquisitions and make cost saving changes in operations;

  

   •  

shut-downs or cutbacks at major refineries, petrochemical or chemical plants, ports, utilities, military bases or other businesses that use or supply Kinder Morgan Energy Partners, L.P.'s services;

  

   •  

changes in laws or regulations, third party relations and approvals, decisions of courts, regulators and governmental bodies may adversely affect Kinder Morgan Energy Partners, L.P.'s business or its ability to compete;

  

   •  

our ability to offer and sell equity securities and Kinder Morgan Energy Partners, L.P.'s ability to offer and sell equity securities and debt securities or obtain debt financing in sufficient amounts to implement that portion of Kinder Morgan Energy Partners, L.P.'s business plan that contemplates growth through acquisitions of operating businesses and assets and expansions of its facilities;

  

   •  

Kinder Morgan Energy Partners, L.P.'s indebtedness could make it vulnerable to general adverse economic and industry conditions, limit its ability to borrow additional funds and/or place it at a competitive disadvantage compared to its competitors that have less debt or have other adverse consequences;

  

   •  

interruptions of electric power supply to facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes;

  

   •  

acts of nature, sabotage, terrorism or other similar acts causing damage greater than Kinder Morgan Energy Partners, L.P.'s insurance coverage limits;

12


  

   •  

the condition of the capital markets and equity markets in the United States;

  

   •  

the political and economic stability of the oil producing nations of the world;

  

   •  

national, international, regional and local economic, competitive and regulatory conditions and developments;

  

   •  

the ability of Kinder Morgan Energy Partners, L.P. to achieve cost savings and revenue growth;

  

   •  

rates of inflation;

  

   •  

interest rates;

  

   •  

the pace of deregulation of retail natural gas and electricity;

  

   •  

the timing and extent of changes in commodity prices for oil, natural gas, electricity and certain agricultural products; and

  

   •  

the timing and success of Kinder Morgan Energy Partners, L.P.'s business development efforts.

One should not put undue reliance on any forward-looking statements.

See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Factors of our Business" included in our annual report filed on Form 10-K for the year ended December 31, 2002, 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 our 2002 Form 10-K report. The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The nature of our business and operations is such that no activities or transactions of the type requiring discussion under this item are conducted or entered into.

Item 4.  Controls and Procedures.

As of the end of the quarter ended June 30, 2003, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective.

There has been no change in our internal control over financial reporting during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

There are currently no legal proceedings involving us in progress or pending.

Item 2.  Changes in Securities and Use of Proceeds.

During the quarter ended June 30, 2003, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Submission of Matters to a Vote of Security Holders.

None.

Item 5.  Other Information.

None.

Item 6.  Exhibits and Reports on Form 8-K.

(A)     Exhibits.
  
31.1

31.2

32.1
  
32.2
 
Section 13a - 14(a) / 15d - 14(a) Certification of Chief Executive Officer
  
Section 13a - 14(a) / 15d - 14(a) Certification of Chief Financial Officer

Section 1350 Certification of Chief Executive Officer

Section 1350 Certification of Chief Financial Officer
  
(B)     Reports on Form 8-K.
  
  

(1)

Current Report on Form 8-K dated April 1, 2003 was furnished as of April 1, 2003, pursuant to Item 9. of that form.
  

  

We announced our intention to make presentations on April 1, 2003 at the 31st Annual Howard Weil Energy Conference to address our strategy and philosophy, the fiscal year 2003 budget and other business information about us, Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P., and the availability of materials to be presented at the meetings on Kinder Morgan, Inc.'s website.

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(2)

Current Report on Form 8-K dated June 9, 2003 was furnished as of June 6, 2003 pursuant to Item 7., Item 9. and Item 12. of that form.
  

  

We announced our intention to make presentations on June 9, 2003 at the Deutsche Bank Conference to investors, analysts and others, in order to address various strategic and financial issues relating to the business plans and objectives of us, Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P., and the availability of materials to be presented at the meetings on Kinder Morgan, Inc.'s website.

  
  

(3)

Current Report on Form 8-K dated August 4, 2003 was furnished as of August 5, 2003 pursuant to Item 9. of that form.
  

  

We announced our intention to make presentations on August 5, 2003 and August 6, 2003 at various meetings with investors, analysts and others, in order to discuss the second quarter and year-to-date financial results, business plans and objectives of us, Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P., and the availability of materials to be presented at the meetings on Kinder Morgan, Inc.’s website.

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SIGNATURE



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

KINDER MORGAN MANAGEMENT, LLC
(Registrant)
  
  
August 8, 2003 /s/ C. Park Shaper
C. Park Shaper
Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)

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