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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-K/A

                                (AMENDMENT NO. 2)


              [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                   OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended DECEMBER 31, 2000
                                             -----------------

                                       or

              [ ]  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 1-6446
                                                 ------

                               KINDER MORGAN, INC.
                               -------------------
             (Exact name of registrant as specified in its charter)

            Kansas                                           48-0290000
----------------------------------                 -----------------------------
(State or other jurisdiction on                          (I.R.S. Employer
incorporation or organization)                           Identification No.)

   500 Dallas, Suite 1000, Houston, Texas                       77002
 ------------------------------------------                ---------------
  (Address of principal executive offices)                    (Zip Code)

        Registrant's telephone number, including area code (713) 369-9000
                                                           --------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
         Title of each class                           on which registered
     ------------------------------------            ------------------------
     Common stock, par value $5 per share            New York Stock Exchange
     Preferred share purchase rights                 New York Stock Exchange

           Securities registered pursuant to section 12(g) of the Act:

                  Preferred stock, Class A $5 cumulative series
                  ---------------------------------------------
                                (Title of class)

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__

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $4,650,370,529 as of March 1, 2001.

The number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date was: Common stock, $5 par value;
authorized 150,000,000 shares; outstanding 115,001,452 shares as of March 1,
2001.

                       Documents Incorporated by Reference
Part III of this report incorporates by reference specific portions of the
Registrant's Proxy Statement relating to the 2001 Annual Meeting of
Stockholders.


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                      KINDER MORGAN, INC. AND SUBSIDIARIES
                                    CONTENTS


<TABLE>
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                                                                                         Page
                                                                                         Number
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                                     PART I
<S>       <C>                                                                          <C>
ITEMS 1&2: BUSINESS AND PROPERTIES.....................................................   3-12
ITEM 3:    LEGAL PROCEEDINGS...........................................................  12-15
ITEM 4:    SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS.....................     15

           EXECUTIVE OFFICERS OF THE REGISTRANT........................................  16-17

                                     PART II

ITEM 5:    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
              STOCKHOLDER MATTERS......................................................     18
ITEM 6:    SELECTED FINANCIAL DATA.....................................................     19
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS......................................  20-38
ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.................     38
ITEM 8:    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................  39-84
ITEM 9:    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE......................................     84

                                    PART III

ITEM 10:   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..........................     85
ITEM 11:   EXECUTIVE COMPENSATION......................................................     85
ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............     85
ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................     85

                                     PART IV

ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............  86-92

SIGNATURES.............................................................................     93
</TABLE>


Note: Individual financial statements of the parent Company are omitted pursuant
to the provisions of Accounting Series Release No. 302.


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                                     PART I

ITEMS 1 and 2:   BUSINESS and PROPERTIES

In this report, unless the context requires otherwise, references to "we," "us,"
"our," or the "Company" are intended to mean Kinder Morgan, Inc. (a Kansas
corporation, incorporated on May 18, 1927, and formerly known as K N Energy,
Inc.) and its consolidated subsidiaries. All volumes of natural gas are stated
at a pressure base of 14.73 pounds per square inch absolute and at 60 degrees
Fahrenheit and, in most instances, are rounded to the nearest major multiple. In
this report, the term "Mcf" means thousand cubic feet, the term "MMcf" means
million cubic feet, the term "Bcf" means billion cubic feet, the term "Tcf"
means trillion cubic feet and the term "MMBtus" means million British Thermal
Units ("Btus). Natural gas liquids consist of ethane, propane, butane,
iso-butane and natural gasoline.

(A)   General Description

Our common stock is traded on the New York Stock Exchange under the symbol
"KMI." We are one of the largest midstream energy companies in America,
operating more than 30,000 miles of natural gas and products pipelines in 26
states. We also have significant retail natural gas distribution, electric
generation and bulk terminal operations. We own the general partner of Kinder
Morgan Energy Partners, L.P., America's largest pipeline master limited
partnership, traded on the New York Stock Exchange under the symbol "KMP" and
referred to in this report as "Kinder Morgan Energy Partners." We also hold a
significant limited partner interest in Kinder Morgan Energy Partners. Combined,
we and Kinder Morgan Energy Partners had an enterprise value of approximately
$15 billion at December 31, 2000. Our executive offices are located at 500
Dallas, Suite 1000, Houston Texas 77002 and our telephone number is (713)
369-9000. We employed 3,801 people at December 31, 2000, including employees of
Kinder Morgan G.P., Inc. that are dedicated to the operations of Kinder Morgan
Energy Partners.

On October 7, 1999, we completed the acquisition of Kinder Morgan (Delaware),
Inc., a Delaware corporation and the sole stockholder of the general partner of
Kinder Morgan Energy Partners. To effect that acquisition, we issued
approximately 41.5 million shares of our common stock in exchange for all of the
outstanding shares of Kinder Morgan Delaware. Upon closing of the transaction,
Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan
Delaware, was named Chairman and Chief Executive Officer, and we were renamed
Kinder Morgan, Inc.

After inclusion of incremental units resulting from the sale of certain of our
assets to Kinder Morgan Energy Partners as discussed below, we own approximately
14.0 million limited partner units of Kinder Morgan Energy Partners,
representing approximately 20.7% of its total outstanding units. As a result of
our general and limited partner interests in Kinder Morgan Energy Partners, at
the current level of distribution, including incentive distributions to Kinder
Morgan G.P., Inc. as the general partner, we currently are entitled to receive
approximately 49% of all quarterly cash distributions from Kinder Morgan Energy
Partners. The actual level of distributions we will receive in the future will
vary with the level of distributable cash determined in accordance with Kinder
Morgan Energy Partners' partnership agreement. We reflect our investment in
Kinder Morgan Energy Partners under the equity method of accounting and,
accordingly, report our share of Kinder Morgan Energy Partners' earnings as
"Equity in Earnings" together with the associated "Amortization of Excess
Investment" in our consolidated income statement in the period in which such
earnings are reported by Kinder Morgan Energy Partners.

Kinder Morgan Energy Partners is the largest publicly traded master limited
partnership in the pipeline industry and the second largest products pipeline
system in the United States in terms of volumes delivered. Kinder


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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

Morgan Energy Partners manages a diverse group of assets used in the
transportation, storage and processing of energy products, including six refined
products/liquids pipeline systems with more than 10,000 miles of pipeline and
over 20 truck loading terminals. Additional assets include 10,000 miles of
natural gas transportation pipelines and natural gas gathering and storage
facilities. Kinder Morgan Energy Partners also operates more than 25 bulk
terminal facilities that transfer over 40 million tons of coal, petroleum coke
and other products annually. In addition, Kinder Morgan Energy Partners owns 51%
of and operates Plantation Pipeline Company and 100% of Kinder Morgan CO2
Company, L.P., formerly Shell CO2 Company, Ltd. In November 2000, Kinder Morgan
Energy Partners announced that it had signed a definitive agreement to purchase
the U.S. pipeline and terminal businesses of GATX Corporation for $1.15 billion.
On March 1, 2001, Kinder Morgan Energy Partners closed the acquisition of these
businesses except for CALNEV Pipeline Company, the closing of which awaits
approval from the California Public Utilities Commission. Kinder Morgan G.P.'s
cash incentive distributions provide it with a strong incentive to increase
unitholder distributions through the successful management and business growth
of Kinder Morgan Energy Partners.

Effective December 31, 2000, we sold approximately $300 million of assets to
Kinder Morgan Energy Partners consisting of (i) Kinder Morgan Texas Pipeline,
L.P., a 2,600-mile natural gas pipeline system that extends from south Texas to
Houston along the Texas Gulf Coast, (ii) the Casper and Douglas Natural Gas
Gathering and Processing Systems, (iii) our 50 percent interest in Coyote Gas
Treating, LLC and (iv) our 25 percent interest in Thunder Creek Gas Services,
L.L.C., a joint venture engaged in natural gas gathering and processing
activities. As consideration for the assets, we received $150 million in cash
(with an additional cash payment for working capital), 0.6 million of Kinder
Morgan Energy Partners' common limited partner units and 2.7 million Class-B
limited partner units of Kinder Morgan Energy Partners. Effective December 31,
1999, we sold over $700 million of assets to Kinder Morgan Energy Partners
consisting of (i) Kinder Morgan Interstate Gas Transmission LLC (formerly K N
Interstate Gas Transmission Co.), (ii) a 49 percent interest in Red Cedar
Gathering Company and (iii) a subsidiary that owns a one-third interest in
Trailblazer Pipeline Company. As consideration for the assets, we received 9.81
million Kinder Morgan Energy Partners common units representing limited partner
interests and approximately $330 million in cash.

Additional information concerning the business of Kinder Morgan Energy Partners,
including the acquisitions of properties discussed above, is contained in Kinder
Morgan Energy Partners' 2000 Annual Report on Form 10-K.

 (B)   Narrative Description of Business

OVERVIEW

We are an energy services provider whose principal business units are: (1)
Natural Gas Pipeline Company of America (NGPL) and certain affiliates, a major
interstate natural gas pipeline and storage system, (2) retail natural gas
distribution, the regulated sale of natural gas to residential, commercial and
industrial customers and non-utility sales of natural gas to certain utility
customers under the Choice Gas Program and (3) power generation and other, the
construction and operation of natural gas-fired electric generation facilities,
together with various other activities not constituting separately managed or
reportable business segments. The operations of Kinder Morgan Energy Partners, a
significant master limited partnership equity-method investee in which we hold
the general partner interest, include (i) liquids and refined products
pipelines, (ii) transportation and storage of natural gas, (iii) carbon dioxide
production and transportation and (iv) bulk terminals. In 1999, we discontinued
our wholesale natural gas marketing, non-energy retail marketing services and
natural gas gathering and processing businesses. Note 19 of the accompanying
Notes to Consolidated Financial Statements contains financial information for
each of our business segments. As discussed following, certain of our operations
are regulated by various federal and state entities.



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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

NATURAL GAS PIPELINE COMPANY OF AMERICA

Through Natural Gas Pipeline Company of America we own and operate approximately
10,000 miles of interstate natural gas pipelines, field system lines and related
facilities, consisting primarily of two major interconnected transmission
pipelines terminating in the Chicago metropolitan area. The system is powered by
60 compressor stations in mainline and storage service having an aggregate of
approximately 1.0 million horsepower. Natural Gas Pipeline Company of America's
system has over 1,700 points of interconnection with 32 interstate pipelines, 24
intrastate pipelines and 54 local distribution companies and end users, thereby
providing significant flexibility in the receipt and delivery of natural gas.
One of Natural Gas Pipeline Company of America's primary pipelines, the Amarillo
Line, originates in the West Texas and New Mexico producing areas and is
comprised of approximately 3,900 miles of mainline and various small-diameter
pipelines. The other major pipeline, the Gulf Coast Line, originates in the Gulf
Coast areas of Texas and Louisiana and consists of approximately 4,400 miles of
mainline and various small-diameter pipelines. These two main pipelines are
connected at points in Texas and Oklahoma by Natural Gas Pipeline Company of
America's 700-mile Amarillo/Gulf Coast pipeline.

Natural Gas Pipeline Company of America provides transportation and storage
services to third-party natural gas distribution utilities, marketers and
producers, industrial end users, affiliates and other shippers. Pursuant to
transportation agreements and Federal Energy Regulatory Commission tariff
provisions, Natural Gas Pipeline Company of America offers its customers firm
and interruptible transportation, storage and no-notice services. Under Natural
Gas Pipeline Company of America's tariffs, firm transportation customers pay
reservation charges each month plus a commodity charge based on actual volumes
transported. Interruptible transportation customers pay a commodity charge based
upon actual volumes transported. Reservation and commodity charges are both
based upon geographical location and time of year. Under no-notice service,
customers pay a reservation charge for the right to have up to a specified
volume of natural gas delivered but, unlike with firm transportation service,
are able to meet their peaking requirements without making specific nominations.
Natural Gas Pipeline Company of America has the authority to negotiate rates
with customers as long as it has first offered service under its reservation and
commodity charge rate structure. Natural Gas Pipeline Company of America's
revenues have historically been higher in the first and fourth quarters of the
year, reflecting higher system utilization during the colder months. During the
winter months, Natural Gas Pipeline Company of America collects higher
transportation commodity revenue, higher interruptible transportation revenue,
winter only capacity revenue and higher peak rates on certain contracts.

Natural Gas Pipeline Company of America's principal delivery market area
encompasses the states of Illinois, Indiana and Iowa and portions of Wisconsin,
Nebraska, Kansas, Missouri and Arkansas. Natural Gas Pipeline Company of America
is the largest transporter of natural gas to the Chicago market and we believe
that its cost of service is one of the most competitive in the region. In 2000,
Natural Gas Pipeline Company of America delivered an average of 1.9 trillion
Btus per day of natural gas to this market. Given its strategic location at the
center of the North American pipeline grid, we believe that Chicago is likely to
continue to be a major natural gas trading hub for the rapidly growing markets
in the Midwest and Northeast.

Substantially all of Natural Gas Pipeline Company of America's pipeline capacity
is committed under firm transportation contracts ranging from one to five years.
As of January 1, 2001, approximately 75% of the total transportation volume
committed under Natural Gas Pipeline Company of America's long-term firm
transportation contracts had remaining terms of less than three years. Natural
Gas Pipeline Company of America continues to actively pursue the renegotiation,
extension and/or replacement of expiring contracts. In January 2000, we
announced the signing of contracts with Peoples Energy for approximately 300
MMcf per day of firm transportation (generally through 2005) and 20 Bcf of
storage services (generally through 2003). Nicor Gas and Peoples Energy are
Natural Gas Pipeline Company of America's two largest customers. As of March 1,
2001, contracts representing 20% of Natural Gas Pipeline Company of America's
total long-term contracted firm transport capacity are scheduled to expire
during the remainder of 2001.


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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

Through Natural Gas Pipeline Company of America, we are one of the nation's
largest natural gas storage operators with approximately 600 Bcf of total
natural gas storage capacity, 210 Bcf of working gas capacity and up to 4.0 Bcf
per day of peak deliverability from its storage facilities, which are located
near the markets Natural Gas Pipeline Company of America serves. Natural Gas
Pipeline Company of America owns and operates eight underground storage fields
in four states. These storage assets complement Natural Gas Pipeline Company of
America's pipeline facilities and allow it to optimize pipeline deliveries and
meet peak delivery requirements in its principal markets. Natural Gas Pipeline
Company of America provides firm and interruptible gas storage service pursuant
to storage agreements and tariffs. Firm storage customers pay a monthly demand
charge irrespective of actual volumes stored. Interruptible storage customers
pay a monthly charge based upon actual volumes of gas stored.

On February 9, 2000, we jointly announced with Nicor, Inc. (an energy and
transportation holding company whose subsidiary, Nicor Gas, is a major customer
of Natural Gas Pipeline Company of America as discussed preceding) the signing
of an agreement to become equal partners in the Horizon Pipeline. The Horizon
Pipeline is a $75 million natural gas pipeline that will originate in Joliet,
Illinois and extend 74 miles into northern Illinois, connecting the emerging
supply hub at Joliet with Nicor Gas' distribution system and an existing Natural
Gas Pipeline Company of America pipeline. The initial capacity of the pipeline,
expected to be completed in spring of 2002, is 380 MMcf per day, which is fully
subscribed and of which 300 MMcf per day has been committed to by Nicor Gas.

COMPETITION: Natural Gas Pipeline Company of America is in competition with
other transporters of natural gas in virtually all of the markets it serves and,
in particular, in the Chicago area, which is the northern terminus of Natural
Gas Pipeline Company of America's two major pipeline segments and its largest
market. These competitors include both interstate and intrastate natural gas
pipelines and, historically, most of the competition has been from such
pipelines with supplies originating in the United States. In recent periods,
Natural Gas Pipeline Company of America has also faced competition from
additional pipelines carrying Canadian supplies into the Chicago market. The
most recent example is the Alliance Pipeline, which began service during the
2000-2001 heating season. The additional pipeline capacity into the Chicago
market has increased competition for transportation into the area although, at
the same time, new pipelines have been or are expected to be constructed for the
specific purpose of transporting gas from the Chicago area to other markets,
generally further north and further east. Thus, the overall impact has been to
increase the amount of pipeline capacity into the Chicago area but, with
additional take-away capacity and the increased demand in the area, the
situation remains dynamic with respect to the ultimate impact on individual
transporters such as Natural Gas Pipeline Company of America.

Natural Gas Pipeline Company of America also faces competition with respect to
the natural gas storage services it provides. Natural Gas Pipeline Company of
America has storage facilities in both market and supply areas, allowing it to
offer varied storage services to customers. Natural Gas Pipeline Company of
America faces competition from independent storage providers as well as storage
services offered by other natural gas pipelines.

The competition faced by Natural Gas Pipeline Company of America is generally
price-based, although there is also a significant component related to the
variety and flexibility and the perceived reliability of services offered.
Natural Gas Pipeline Company of America's extensive pipeline system, with access
to diverse supply basins and significant storage assets in both the supply and
market areas, gives it a competitive advantage in some situations but,
typically, customers still have alternative sources for their requirements. In
addition, due to the price-based nature of much of the competition faced by
Natural Gas Pipeline Company of America, its proven ability to be a low-cost
provider is an important factor in its success in acquiring and retaining
customers. With respect to its storage services, there can be significant
environmental concerns and capital costs associated with the creation of new
natural gas storage facilities, providing barriers to entry for potential


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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

competitors. However, additional competition for storage services could result
from the utilization of currently underutilized storage facilities or from
conversion of existing storage facilities from one use to another. In addition,
competitive existing storage facilities could, in some instances, be expanded.

KINDER MORGAN RETAIL

As of December 31, 2000, through Kinder Morgan Retail, our retail natural gas
distribution business served approximately 218,000 customers in Colorado,
Nebraska and Wyoming through approximately 7,500 miles of distribution
pipelines. Our intrastate pipelines, distribution facilities and retail natural
gas sales in Colorado and Wyoming are subject to the regulatory authority of
each state's utility commission. In Nebraska, retail natural gas sales rates for
residential and small commercial customers are regulated by each municipality
served.

Kinder Morgan Retail's operations in Nebraska, Wyoming and northeastern Colorado
serve areas that are primarily rural and agriculturally based where natural gas
is used primarily for space heating, crop irrigation, grain drying and
processing of agricultural products. In much of Nebraska, the winter heating
load is balanced by irrigation requirements in the summer and grain drying in
the fall. Kinder Morgan Retail's operations in western Colorado serve
fast-growing resort and associated service areas, and rural communities. These
areas are characterized primarily by natural gas use for space heating, with
historical annual growth rates of 6-8%. Kinder Morgan Retail operations include
non-jurisdictional products and services including the sale of commodity natural
gas in Kinder Morgan Retail's Choice Gas programs and natural gas-related
equipment and services.

To support Kinder Morgan Retail's business, underground storage facilities are
used to provide natural gas for load balancing and peak system demand. Storage
services for Kinder Morgan Retail's natural gas distribution services are
provided by three facilities in Wyoming owned by our wholly owned subsidiary,
Northern Gas Company, one facility in Colorado operated by Rocky Mountain
Natural Gas Company and owned by Slurco Corporation, both of which are wholly
owned subsidiaries, and one facility located in Nebraska and owned by Kinder
Morgan Energy Partners. The peak natural gas withdrawal capacity available for
Kinder Morgan Retail's business is approximately 100 MMcf per day.

Kinder Morgan Retail's natural gas distribution business relies on both the
intrastate pipelines it operates and third-party pipelines for transportation
and storage services required to serve its markets. The natural gas supply
requirements for Kinder Morgan Retail's natural gas distribution business are
met through contract purchases from third-party suppliers.

Through Rocky Mountain Natural Gas Company in Colorado and Northern Gas Company
in Wyoming, Kinder Morgan Retail provides transportation services to affiliated
local distribution companies as well as natural gas producers, shippers and
industrial customers. These two intrastate pipeline systems include
approximately 1,500 miles of transmission lines, field system lines and related
facilities. Through Northern Gas Company, Kinder Morgan Retail provides storage
services in Wyoming to its customers from its three storage fields, Oil Springs,
Bunker Hill and Kirk Ranch, which combined have 29.7 Bcf of total storage
capacity, 11.7 Bcf of working gas capacity, and up to 37 MMcf per day of peak
withdrawal capacity. Rocky Mountain Natural Gas Company operates the Wolf Creek
storage facility, which has 10.1 Bcf of total storage capacity, 2.7 Bcf of
working gas capacity and provides 15 MMcf per day of withdrawal capacity for
peak day use by its sales customers in Colorado.

COMPETITION: The Kinder Morgan Retail natural gas distribution business unit
operates in areas with varying service area rules, including state utility
commission certificated areas, non-exclusive municipal franchises and
competitive areas. Limited competitive natural gas distribution pipelines exist
within the service areas. The primary competition for Kinder Morgan Retail's
products is from alternative fuels such as electric power and


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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

propane for heating use and electric power, propane and diesel fuel for our
agriculture use customers. We compete primarily on the basis of price and
service.

Kinder Morgan Retail currently has unbundled the regulated commodity natural gas
supply in Nebraska and eastern Wyoming under Choice Gas Programs, which allow
for competitive commodity natural gas providers to sell natural gas to
approximately half of our total customers. In the unbundled areas, our Kinder
Morgan Retail business unit competes as one of five natural gas marketing
companies to provide the customer with natural gas commodity offerings. Our
Kinder Morgan Retail business unit currently provides the commodity product for
75% of the end use customers in the unbundled areas.

KINDER MORGAN POWER

Kinder Morgan Power develops power project sites, designs power plants,
constructs power projects and operates electric generation facilities as an
independent power producer. Kinder Morgan Power is a fee-for-service business
that develops power projects for the benefit of long-term, off-take customers.
These customers take the commodity benefits and risks in the market place and
pay Kinder Morgan Power a fee for converting energy into electricity. Kinder
Morgan Power's customers include power marketers, power generation companies and
utilities.

In 1998, Kinder Morgan Power acquired interests in the Thermo Companies, which
provided us with our first electric generation assets as well as knowledge and
expertise with General Electric Company jet engines (LMs) in a combined cycle
mode. Thermo has interests in four independent natural gas-fired LM projects in
Colorado representing 380 megawatts of electric generation capacity. This LM
knowledge was used to develop Kinder Morgan Power's proprietary "Orion"
technology, which we are now deploying into the power market.

In May 2000, Kinder Morgan Power and the Southern Company announced plans to
build a 550 megawatt natural gas-fired electric power plant southeast of Little
Rock, Arkansas, utilizing Kinder Morgan Power's Orion technology. Natural gas
transportation service for the plant will be provided by Natural Gas Pipeline
Company of America. Construction is in process on the facility, for which Kinder
Morgan Power is the general contractor. Completion of construction is expected
by June 1, 2002.

On February 20, 2001, Kinder Morgan Power announced an agreement under which
Williams Energy Marketing and Trading will supply natural gas to and market
3,300 megawatts of capacity for 16 years for six 550 megawatt natural gas-fired
Orion technology electric power plants. The first of the planned six facilities
is currently under construction in Jackson, Michigan. Kinder Morgan Power is the
general contractor for the Jackson power plant, which is expected to begin
commercial operation on July 1, 2002.

COMPETITION: Kinder Morgan Power's competitors are other companies that develop
power projects. Utilities and power marketers are the customers of power
developers. Kinder Morgan Power has developed a proprietary "Orion" design that
is targeted for a niche application in the intermediate electric power market.
Currently, other technologies are used for the majority of the natural gas-fired
power plants being developed.

RECENT DEVELOPMENTS

Filing by Kinder Morgan Management, LLC

Kinder Morgan Management, LLC, an indirect wholly owned subsidiary of Kinder
Morgan, Inc., has filed a registration statement with the Securities and
Exchange Commission to issue and sell shares. Upon completion of that proposed
offering, Kinder Morgan Management, LLC would become a partner in Kinder Morgan
Energy Partners, L.P. and would manage and control its business and affairs. The
net proceeds from the offering would be used to buy i-units from Kinder Morgan
Energy Partners. The i-units would be a new class



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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

of Kinder Morgan Energy Partners' limited partner interests and would be issued
only to Kinder Morgan Management, LLC.

After the 45th day following the closing of the proposed offering discussed
above, holders of the shares of Kinder Morgan Management, LLC may exchange their
shares for common units of Kinder Morgan Energy Partners, L.P. owned by us. This
right to exchange is subject to our election to settle the exchange in cash
rather than in common units. We currently own 11,312,000 Kinder Morgan Energy
Partners common units. Upon the occurrence of certain events, we will be
required to purchase all of the then outstanding shares of Kinder Morgan
Management, LLC at a price equal to the higher of the average market price of
such shares or the common units of Kinder Morgan Energy Partners, L.P. as
determined for a 10 trading day period ending on the trading day immediately
prior to the date of the applicable event. If our affiliates and we ever own 80%
or more of the outstanding shares of Kinder Morgan Management, LLC, we will have
the right to purchase all of the shares owned by other holders at 110% of the
market price. If our affiliates and we ever own 80% or more in the aggregate of
outstanding Kinder Morgan Energy Partners, L.P.'s common units and Kinder Morgan
Management, LLC's shares, we will have the right to purchase all of the shares
and units owned by others at the higher of the average closing prices of the
shares and common units.

We can give no assurance that this proposed issuance of Kinder Morgan
Management, LLC shares will occur or that it will not be modified from the
description given above if it is ultimately completed.

Early Extinguishment of Debt

On March 1, 2001 we retired $400 million of Reset Put Securities due March 1,
2021, utilizing a combination of cash and incremental short-term borrowings. We
expect to report an extraordinary after-tax loss of approximately $12 million in
the first quarter associated with this early extinguishment of debt.

REGULATION

FEDERAL AND STATE REGULATION

Under the Natural Gas Act and, to a lesser extent, the Natural Gas Policy Act,
the Federal Energy Regulatory Commission regulates both the performance of
interstate transportation and storage services by natural gas companies,
including interstate pipeline companies, and the rates charged for such
services. As used in this report, FERC refers to the Federal Energy Regulatory
Commission.

With the adoption of FERC Order No. 636, the FERC required interstate pipelines
that perform open access transportation under blanket certificates to "unbundle"
or separate their traditional merchant sales services from their transportation
and storage services and to provide comparable transportation and storage
services with respect to all gas supplies, whether purchased from the pipeline
or from other merchants such as marketers or producers. The pipelines must now
separately state the applicable rates for each unbundled service. Order 636 has
been affirmed in all material respects upon judicial review and Natural Gas
Pipeline Company of America's own FERC orders approving its unbundling plans are
final and not subject to any pending judicial review.

Natural Gas Pipeline Company of America had a number of gas purchase contracts
that required Natural Gas Pipeline Company of America to purchase natural gas at
prices in excess of the prevailing market price. As a result of Order 636
prohibiting interstate pipelines from using their gas transportation and storage
facilities to market gas to sales customers, Natural Gas Pipeline Company of
America no longer had a sales market for the gas it is required to purchase
under these contracts. Order 636 went into effect on Natural Gas Pipeline
Company of America's system on December 1, 1993. Natural Gas Pipeline Company of
America agreed to pay substantial transition costs to reform these contracts
with the gas suppliers. Under settlement agreements between Natural Gas Pipeline
Company of America and its former sales customers, Natural Gas Pipeline


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ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

Company of America recovered from these customers a significant amount of the
gas supply realignment costs over a four-year period beginning December 1, 1993.
These settlement agreements were approved by the FERC. The FERC also permitted
Natural Gas Pipeline Company of America to implement a tariff mechanism to
recover additional portions of its gas supply realignment costs in rates charged
to transportation customers that were not party to the settlements. On December
1, 1997, the FERC allowed recovery of gas supply realignment costs initially
allocated to interruptible transportation but not recovered. Effective December
1, 1998, the FERC allowed Natural Gas Pipeline Company of America to recover its
remaining gas supply realignment costs over the period from December 1, 1998
through November 30, 2001.

INTRASTATE TRANSPORTATION AND SALES

The operations of our intrastate pipelines are affected by FERC rules and
regulations issued pursuant to the Natural Gas Act and the Natural Gas Policy
Act. Of particular importance are regulations that allow increased access to
interstate transportation services, without the necessity of obtaining prior
FERC authorization for each transaction. A key element of the program is
nondiscriminatory access, under which a regulated pipeline must agree, under
certain conditions, to transport gas for any party requesting such service.

Our intrastate pipeline in Colorado, Rocky Mountain Natural Gas Company, is
regulated by the Colorado Public Utilities Commission as a public utility in
regard to its transportation and sales services within the state. Rocky Mountain
also performs certain transportation services in interstate commerce pursuant to
Section 311 of the Natural Gas Policy Act of 1978. The Colorado Public Utilities
Commission regulates the rates, terms, and conditions of natural gas sales and
transportation services performed by public utilities in the state of Colorado.

Our intrastate pipeline in Wyoming, Northern Gas Company, is regulated by the
Wyoming Public Service Commission as a public utility in regard to its
transportation and sales services within the state. Northern Gas also performs
certain transportation services in interstate commerce pursuant to Section 311
of the Natural Gas Policy Act of 1978. The Wyoming Public Service Commission
regulates the rates, terms, and conditions of natural gas sales and
transportation services performed by public utilities in the state of Wyoming.

INTERSTATE TRANSPORTATION AND STORAGE SERVICES

Facilities that we use in the transportation of natural gas in interstate
commerce and for natural gas storage services in interstate commerce are subject
to regulation by the FERC under the Natural Gas Act and the Natural Gas Policy
Act. We are also subject to the requirements of FERC Order Nos. 497, et seq.,
and 566, et. seq., the Marketing Affiliate Rules, which prohibit preferential
treatment by an interstate pipeline of its marketing affiliates and govern, in
particular, the provision of information by an interstate pipeline to its
marketing affiliates.

On March 29, 2000, we announced that we had reached a settlement with the FERC
regarding issues surrounding the interpretation of FERC Order No. 497 (which
governs the conduct of interstate pipelines and affiliated gas marketers on
their systems) relative to Natural Gas Pipeline Company of America, Kinder
Morgan Interstate Gas Transmission LLC and Westar Transmission Company. Kinder
Morgan Interstate has been sold to Kinder Morgan Energy Partners, and Westar has
been sold to ONEOK, Inc. Combined, we agreed to pay a civil penalty and refunds
totaling $5.75 million in conjunction with the settlement, which also eliminated
the potential for any civil action or prolonged regulatory proceedings. The
matters resolved related to periods prior to the October 1999 K N Energy-Kinder
Morgan merger and, to some extent, periods prior to K N Energy's January 1998
acquisition of MidCon Corp., including the January 1997 complaint of Amoco
Production Company and Amoco Energy Trading Corporation against Natural Gas
Pipeline Company of America. The payment had no detrimental effect on our
earnings due to the existence of previously established reserves for this
matter.


                                       10
<PAGE>   11
ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)


RETAIL NATURAL GAS DISTRIBUTION SERVICES

Our intrastate pipelines, storage, distribution and/or retail sales in Colorado
and Wyoming are under the regulatory authority of those state's utility
commission. In Nebraska, retail natural gas sales rates for residential and
small commercial customers are regulated by the municipality served.

In certain of the incorporated communities in which we provide retail natural
gas services, we operate under franchises granted by the applicable municipal
authorities. The duration of these franchises varies. In unincorporated areas,
our natural gas utility services are not subject to municipal franchise. We have
been issued various certificates of public convenience and necessity by the
regulatory commissions in Colorado and Wyoming authorizing us to provide natural
gas utility services within certain incorporated and unincorporated areas of
those states.

We emerged as a leader in providing for customer choice in early 1996, when the
Wyoming Public Service Commission issued an order allowing us to bring
competition to 10,500 residential and commercial customers. In November 1997, we
announced a similar plan to give residential and small commercial customers in
Nebraska a choice of natural gas suppliers. This program, the Nebraska Choice
Gas program, became effective June 1, 1998. As of December 31, 2000, the plan
had been adopted by 178 of 181 communities, representing approximately 91,000
customers served by us in Nebraska. The programs have succeeded in providing a
choice of suppliers, competitive prices, and new products and services, while
maintaining reliability and security of supply. Kinder Morgan Retail continues
to provide all services other than the commodity supply in these programs, and
competes with other suppliers in offering nonregulated natural gas supplies to
customers.

ENVIRONMENTAL REGULATION

Our operations and properties are subject to extensive and evolving Federal,
state and local laws and regulations governing the release or discharge of
regulated materials into the environment or otherwise relating to environmental
protection or human health and safety. Numerous governmental departments issue
rules and regulations to implement and enforce such laws, which are often
difficult and costly to comply with and which carry substantial penalties for
failure to comply. These laws and regulations can also impose liability for
remedial costs on the owner or operator of properties or the generators of waste
materials, regardless of fault. Moreover, the recent trends toward stricter
standards in environmental legislation and regulation are likely to continue.

On December 20, 1999, the U.S. Department of Justice filed a Complaint against
Natural Gas Pipeline Company of America on behalf of the U.S. Environmental
Protection Agency in the Federal District Court of Colorado, Civil Action
99-S-2419. The Complaint alleged that Natural Gas Pipeline Company of America
failed to obtain all of the necessary air quality permits in 1979 when it
constructed the Akron Compressor Station, which consisted of three compressor
engines in Weld County, Colorado. Natural Gas Pipeline Company of America and
the Environmental Protection Agency, through the Department of Justice, have
settled this issue.

On December 17, 1999, the State of Colorado notified us of air quality permit
compliance issues for several Kinder Morgan facilities. On September 21, 2000,
we entered into a consent order with the State of Colorado to resolve the
outstanding issues.

In 1998, the Environmental Protection Agency published a final rule addressing
transport of ground level ozone. The rule affected 22 Eastern and Midwestern
states, including Illinois and Missouri, in which we operate gas compression
facilities. The rule required reductions in emissions of nitrogen oxide, a
precursor to ozone formation, from various emission sources, including utility
and non-utility sources. The rule required that the affected states prepare and
submit State Implementation Plans to the Environmental Protection Agency


                                       11
<PAGE>   12
ITEMS 1 and 2:  BUSINESS and PROPERTIES (continued)

by September 1999, reflecting how the required emissions reductions would be
achieved. Emission controls are required to be installed by May 1, 2003. The
State Implementation Plans which will effectuate this rule have yet to be
proposed or promulgated, and will require detailed analysis before their final
economic impact can be ascertained. On March 3, 2000, the Washington D.C.
Circuit Court issued a decision regarding the rule. The Circuit Court remanded
certain issues back to the Environmental Protection Agency. On January 5, 2001,
the Environmental Protection Agency proposed regulations concerning the remanded
issues. The final regulations are expected to be promulgated later this year.
While additional capital costs are likely to result from this rule, based on
currently available information, we do not believe that these costs will have a
material adverse effect on our business, cash flows, financial position or
results of operations.

On June 17, 1999, the Environmental Protection Agency published a final rule
creating a standard to limit emissions of hazardous air pollutants from oil and
natural gas production as well as from natural gas transmission and storage
facilities. The standard requires that the affected facilities reduce emissions
of hazardous air pollutants by 95 percent. This standard will require us to
achieve this reduction either by process modifications or by installing new
emissions control technology. The standard will affect our competitors and us in
a like manner. The rule allows affected sources three years from the publication
date to come into compliance. We have conducted a detailed analysis of the final
rule to determine its overall effect. While additional capital costs are likely
to result from this rule, the rule will not have a material adverse effect on
our business, cash flows, financial position or results of operations.

We have an established environmental reserve of approximately $19 million to
address remediation issues associated with 38 projects. Based on current
information and taking into account reserves established for environmental
matters, we do not believe that compliance with federal, state and local
environmental laws and regulations will have a material adverse effect on our
business, cash flows, financial position or results of operations. In addition,
the clean-up programs in which we are engaged are not expected to interrupt or
diminish our operational ability to gather or transport natural gas. However,
there can be no assurances that future events, such as changes in existing laws,
the promulgation of new laws, or the development of new facts or conditions will
not cause us to incur significant costs.

Other

Amounts we spent during 2000, 1999, and 1998 on research and development
activities were not material.

(C)   Financial Information About Foreign and Domestic Operations and Export
Sales

Substantially all of our operations are in the contiguous 48 states.

ITEM 3:   LEGAL PROCEEDINGS

"K N TransColorado, Inc. v. TransColorado Gas Transmission Company, et. al,"
Case No. 00-CV-129, District Court, County of Garfield, State of Colorado. On
June 15, 2000, K N TransColorado filed suit against Questar TransColorado and
several of its affiliated Questar entities, asserting claims for breach of
fiduciary duties, breach of contract, constructive trust, rescission of the
partnership agreement, breach of good faith and fair dealing, tortuous
concealment, misrepresentation, aiding and abetting a breach of fiduciary duty,
dissolution of the TransColorado partnership, and seeking a declaratory
judgment, among other claims. The TransColorado partnership has been made a
defendant for purposes of an accounting. The lawsuit stems from Questar's
failure to support the TransColorado partnership, together with its decision to
seek regulatory approval for a project that competes with the Partnership, in
breach of its fiduciary duties as a partner. K N TransColorado seeks to recover
damages in excess of $152 million due to Questar's breaches and, in addition,
seeks punitive damages. In response to the complaint, on July 28, 2000, the
Questar entities filed a counterclaim and third party claims against certain of
our entities and us for claims arising out of the construction and operation of
the


                                       12
<PAGE>   13
ITEM 3:    LEGAL PROCEEDINGS (continued)

TransColorado pipeline project. The claims allege, among other things, that the
Kinder Morgan entities interfered with and delayed construction of the pipeline
and made misrepresentations about marketing of capacity. The Questar entities
seek to recover damages in excess of $185 million for an alleged breach of
fiduciary duty and other claims. On December 15, 2000, the parties agreed to
stay the exercise of a contractual provision purportedly requiring K N
TransColorado to purchase Questar's interest in the pipeline and to investigate
the appointment of an independent operator for the pipeline during the
litigation. On January 31, 2001, the Court dismissed Questar's counterclaims for
breach of duty of good faith and fair dealing and for indemnity and contribution
and dismissed Questar's Third Party Complaint. Discovery has commenced.

"Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas Company, and
GASCO, Inc.," Civil Action No. 92-N-2000. On October 9, 1992, Jack J. Grynberg
filed suit in the United States District Court for the District of Colorado
against us, Rocky Mountain Natural Gas Company and GASCO, Inc. alleging that
these entities, the K N Entities, as well as K N Production Company and K N Gas
Gathering, Inc., have violated federal and state antitrust laws. In essence,
Grynberg asserts that the companies have engaged in an illegal exercise of
monopoly power, have illegally denied him economically feasible access to
essential facilities to store, transport and distribute gas, and illegally have
attempted to monopolize or to enhance or maintain an existing monopoly. Grynberg
also asserts certain state causes of action relating to a gas purchase contract.
In February 1999, the Federal District Court granted summary judgment for the
K N Entities as to some of Grynberg's antitrust and state law claims, while
allowing other claims to proceed to trial. Grynberg has previously claimed
damages in excess of $50 million. In addition to monetary damages, Grynberg has
requested that the K N Entities be ordered to divest all interests in natural
gas exploration, development and production properties, all interests in
distribution and marketing operations, and all interests in natural gas storage
facilities, in order to separate these interests from our natural gas gathering
and transportation system in northwest Colorado. No trial date has been set.
However, recent settlement conferences have occurred.

"Jack J. Grynberg, individually and as general partner for the Greater Green
River Basin Drilling Program: 72-73 v. Rocky Mountain Natural Gas Company and
K N Energy, Inc.," Case No. 90-CV-3686. On June 5, 1990, Jack J. Grynberg filed
suit, which is presently pending in Jefferson County District Court for
Colorado, against Rocky Mountain Natural Gas Company and us alleging breach of
contract and fraud. In essence, Grynberg asserts claims that the named companies
failed to pay Grynberg the proper price, impeded the flow of gas, mismeasured
gas, delayed his development of gas reserves, and other claims arising out of a
contract to purchase gas from a field in northwest Colorado. On February 13,
1997, the trial judge entered partial summary judgment for Mr. Grynberg on his
contract claim that he failed to receive the proper price for his gas. This
ruling followed an appellate decision that was adverse to us on the contract
interpretation of the price issue, but which did not address the question of
whether Grynberg could legally receive the price he claimed or whether he had
illegally diverted gas from a prior purchase. Grynberg has previously claimed
damages in excess of $30 million. On August 29, 1997, the trial judge stayed the
summary judgment pending resolution of a proceeding at the FERC to determine if
Grynberg was entitled to administrative relief from an earlier dedication of the
same gas to interstate commerce. The background of that proceeding is described
in the immediately following paragraph. On March 15, 1999, an Administrative Law
Judge for the FERC ruled, after an evidentiary hearing, that Mr. Grynberg had
illegally diverted the gas when he entered the contract with the named companies
and was not entitled to relief. Grynberg filed exceptions to this ruling. In
late March 2000, the FERC issued an order affirming in part and denying in part
the motions for rehearing of its Initial Decision. On November 21, 2000, the
FERC upheld the Administrative Law Judge's factual findings and denial of
retroactive abandonment. Grynberg recently filed a Notice of Appeal of the
FERC's decision to the D.C. Circuit Court of Appeals. The action in Colorado
remains stayed pending final resolution of these proceedings.

"Jack J. Grynberg v. Rocky Mountain Natural Gas Company," Docket No. GP91-8-008.
"Rocky Mountain Natural Gas Company v. Jack J. Grynberg," Docket No.
GP91-10-008. On May 8, 1991, Grynberg filed a petition for declaratory order
with the FERC seeking a determination whether he was entitled to the price he
seeks in the Jefferson County District Court proceeding referred to in the
immediately preceding paragraph. While


                                       13
<PAGE>   14
ITEM 3:    LEGAL PROCEEDINGS (continued)

Grynberg initially received a favorable decision from the FERC, that decision
was reversed by the Court of Appeals for the District of Columbia Circuit on
June 6, 1997. This matter has been remanded to the FERC for subsequent
proceedings. The matter was set for an expedited evidentiary hearing, and an
Initial Decision favorable to Rocky Mountain was issued on March 15, 1999. That
decision determined that Grynberg had intentionally diverted gas from an earlier
dedication to interstate commerce in violation of the Natural Gas Act and denied
him equitable administrative relief. On November 21, 2000, the FERC upheld the
Administrative Law Judge's factual findings and denial of retroactive
abandonment. Grynberg recently filed a Notice of Appeal of the FERC's decision
to the D.C. Circuit Court of Appeals.

"United States of America, ex rel., Jack J. Grynberg v. K N Energy," Civil
Action No. 97-D-1233, filed in the U.S. District Court, District of Colorado.
This action was filed pursuant to the federal False Claim Act and involves
allegations of mismeasurement of natural gas produced from federal and Indian
lands. The Department of Justice has decided not to intervene in support of the
action. The complaint is part of a larger series of similar complaints filed by
Mr. Grynberg against 77 natural gas pipelines (approximately 330 other
defendants). An earlier single action making substantially similar allegations
against the pipeline industry was dismissed by Judge Hogan of the U.S. District
Court for the District of Columbia on grounds of improper joinder and lack of
jurisdiction. As a result, Mr. Grynberg filed individual complaints in various
courts throughout the country. These cases were recently consolidated by the
Judicial Panel for Multidistrict Litigation, and transferred to the District of
Wyoming. Motions to Dismiss were filed and an oral argument on the Motion to
Dismiss occurred on March 17, 2000. On July 20, 2000, the United States of
America filed a motion to dismiss those claims by Grynberg that deal with the
manner in which defendants valued gas produced from federal leases.

"Quinque Operating Company, et. al. v. Gas Pipelines, et. al.," Cause No.
99-1390-CM, United States District Court for the District of Kansas. This action
was originally filed in Kansas state court in Stevens County, Kansas as a class
action against approximately 245 pipeline companies and their affiliates,
including certain Kinder Morgan entities. The plaintiffs in the case purport to
represent a class of natural gas producers and fee royalty owners who allege
that they have been subject to systematic gas mismeasurement by the defendants
for more than 25 years. Subsequently, one of the defendants removed the action
to Kansas Federal District Court. Thereafter, we filed a motion with the
Judicial Panel for Multidistrict Litigation to consolidate this action for
pretrial purposes with the Grynberg False Claim Act cases referred to above,
because of common factual questions. On April 10, 2000, the MDL Panel ordered
that this case be consolidated with the Grynberg federal False Claims Act cases.
On January 12, 2001, the Federal District Court of Wyoming issued an oral ruling
remanding the case back to the State Court in Stevens County, Kansas. A Motion
to Reconsider the remand was filed and is currently pending.

"Dirt Hogs, Inc. v. Natural Gas Pipeline Company of America, et al." There have
been several related cases with Dirt Hogs, Inc. with allegations of breach of
contract, false representations, improper requests for kickbacks and other
improprieties. Essentially, the plaintiff claims that it should have been
awarded extensive pipeline reclamation work without having to qualify or bid as
a qualifying contractor. Case No. Civ-98-231-R, is a case which was dismissed in
the U.S. District Court for the Western District of Oklahoma because of pleading
deficiencies and is now on appeal to the 10th Circuit (Case No. 99-6-026). On
April 10, 2000, the 10th Circuit upheld the dismissal of this action. Another
case, arising out of the same factual allegations, was filed by Dirt Hogs in the
District Court, Caddo County, Oklahoma (Case No. CJ-99-92), on March 29, 1999.
By agreement of all parties, this action is currently stayed. A third related
case, styled "Natural Gas Pipeline Company of America, et al. v. Dirt Hogs,
Inc." (Case No. 99-360-R), resulted in a default judgment against Dirt Hogs.
After initially appealing the default judgment, Dirt Hogs dismissed their appeal
on September 1, 1999.

"K N Energy, Inc., et al. v. James P. Rode and Patrick R. McDonald," Case No.
99CV1239, filed in the District Court, Jefferson County, Division 8, Colorado.
Defendants counterclaimed and filed third party claims against several of our
former officers and/or directors. Messrs. Rode and McDonald are former principal
shareholders


                                       14
<PAGE>   15
ITEM 3:   LEGAL PROCEEDINGS (continued)


of Interenergy Corporation. We acquired Interenergy on December 19, 1997
pursuant to a Merger Agreement dated August 25, 1997. Rode and McDonald allege
that K N Energy committed securities fraud, common law fraud and negligent
misrepresentation as well as breach in contract. Plaintiffs are seeking an
unspecified amount of compensatory damages, greater than $2 million, plus
unspecified exemplary or punitive damages, attorney's fees and their costs. We
filed a motion to dismiss, and on April 21, 2000, the Jefferson County District
Court Judge dismissed the case against the individuals and us with prejudice.
Defendants also filed a federal securities fraud action in the United States
District Court for the District of Colorado on January 27, 2000 titled: "James
P. Rode and Patrick R. McDonald v. K N Energy, Inc., et al.", Civil Action No.
00-N-190. This case initially raised the identical state law claims contained in
the counterclaim and third party complaint in state court. Rode and McDonald
filed an amended Complaint, which dropped the state-law claims. On February 23,
2001, the federal district court dismissed this Complaint with prejudice. A
third related class action case styled, "Adams vs. Kinder Morgan, Inc.", et.
al., Civil Action No. 00-M-516, in the United States District Court for the
District of Colorado was served on us on April 10, 2000. As of this date no
class has been certified. On February 23, 2001, the federal district court
dismissed several claims raised by the plaintiff, with prejudice, and dismissed
the other remaining claims, without prejudice.

We believe that we have meritorious defenses to all lawsuits and legal
proceedings in which we are defendants and will vigorously defend against them.
Based on our evaluation of the above matters, and after consideration of
reserves established, we believe that the resolution of such matters will not
have a material adverse effect on our business, cash flows, financial position
or results of operations.

ITEM 4:   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


                                       15
<PAGE>   16
EXECUTIVE OFFICERS OF THE REGISTRANT

(A)      Identification and Business Experience of Executive Officers

             Name                  Age      Position and Business Experience
             ----                  ---      --------------------------------

Richard D. Kinder................   56     Director, Chairman and Chief
                                           Executive Officer since October 1999.
                                           Director, Chairman and Chief
                                           Executive Officer of Kinder Morgan
                                           G.P., Inc. since February 1997. From
                                           1992 to 1994, Chairman of Kinder
                                           Morgan G.P., Inc. From October 1990
                                           until December 1996, President of
                                           Enron Corp. Mr. Kinder was employed
                                           by Enron and its affiliates and
                                           predecessors for over 16 years.


William V. Morgan................   57     Director, Vice Chairman and President
                                           since October 1999. Director of
                                           Kinder Morgan G.P., Inc. since June
                                           1994. Vice Chairman of Kinder Morgan
                                           G.P., Inc. since February 1997.
                                           President of Kinder Morgan G.P., Inc.
                                           since November 1998. President of
                                           Morgan Associates, Inc., an
                                           investment and pipeline management
                                           company, since February 1987. Legal
                                           and management positions in the
                                           energy industry since 1975, including
                                           the presidencies of three major
                                           interstate natural gas companies,
                                           which are now part of Enron Corp.:
                                           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.



William V. Allison...............   53     President, Natural Gas Pipeline
                                           Operations since September 1999.
                                           President, Pipeline Operations of
                                           Kinder Morgan Energy Partners from
                                           February 1999 to September 1999. Vice
                                           President and General Counsel of
                                           Kinder Morgan Energy Partners from
                                           April 1998 to February 1999. From
                                           1997 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...........   40     Vice President of Corporate
                                           Development since January 2000. Vice
                                           President and Chief Financial Officer
                                           from October 1999 to January 2000.
                                           Also Vice President, Corporate
                                           Development of Kinder Morgan G.P.,
                                           Inc. since January 2000. Treasurer of
                                           Kinder Morgan G.P., Inc. from
                                           February 1997 to January 2000. Vice
                                           President and Chief Financial Officer
                                           of Kinder Morgan G.P., Inc. from July
                                           1997 to January 2000. Secretary of
                                           Kinder Morgan G.P., Inc. from
                                           February 1997 to August 1997. Chief
                                           Financial Officer of Morgan
                                           Associates, Inc., an energy
                                           investment and pipeline management
                                           company, from October 1992 to January
                                           1997.



                                       16
<PAGE>   17
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)

Joseph Listengart................   32     Vice President, General Counsel and
                                           Secretary since October 1999. Also
                                           Vice President and General Counsel of
                                           Kinder Morgan G.P., Inc. since
                                           October 1999. Mr. Listengart became
                                           an employee of Kinder Morgan G.P.,
                                           Inc. in March 1998 and was elected
                                           its Secretary in November 1998. From
                                           March 1995 through February 1998, Mr.
                                           Listengart worked as an attorney for
                                           Hutchins, Wheeler & Dittmar, a
                                           Professional Corporation.


Michael C. Morgan................   32     Vice President, Strategy and Investor
                                           Relations since January 2000. Also
                                           Vice President, Strategy and Investor
                                           Relations of Kinder Morgan G.P., Inc.
                                           since January 2000. Vice President of
                                           Corporate Development of Kinder
                                           Morgan G.P., Inc. from February 1997
                                           to January 2000. From August 1995
                                           until February 1997, an associate
                                           with McKinsey & Company, an
                                           international management consulting
                                           firm. Son of William V. Morgan.



C. Park Shaper...................   32     Vice President and Chief Financial
                                           Officer since January 2000. Treasurer
                                           since April 2000. Also Vice
                                           President, Treasurer and Chief
                                           Financial Officer of Kinder Morgan
                                           G.P., Inc. since January 2000.
                                           Previously, President and Director of
                                           Altair Corporation, an enterprise
                                           focused on the distribution of
                                           web-based investment research for the
                                           financial services industry. Vice
                                           President and Chief Financial Officer
                                           of First Data Analytics, a subsidiary
                                           of First Data Corporation, from 1997
                                           to June 1999. From 1995 to 1997, a
                                           consultant with The Boston Consulting
                                           Group. Previous experience with
                                           TeleCheck Services, Inc. and as a
                                           management consultant with the
                                           Strategic Services Division of
                                           Andersen Consulting.


James E. Street..................   44     Vice President of Human Resources and
                                           Administration since August 1999.
                                           Also Vice President, Human Resources
                                           and Administration of Kinder Morgan
                                           G.P., Inc., since August 1999. Senior
                                           Vice President, Human Resources and
                                           Administration for Coral Energy, a
                                           subsidiary of Shell Oil Company, from
                                           October 1996 to August 1999. Vice
                                           President, Human Resources of Enron
                                           Corp. from July 1989 to August 1992.




These officers generally serve until April of each year.

(B)   Involvement in Certain Legal Proceedings

None.


                                       17
<PAGE>   18

                                     PART II

ITEM 5:   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
          MATTERS

Our common stock is listed for trading on the New York Stock Exchange under the
symbol KMI. Dividends paid and the price range of our common stock by quarter
for the last two years are provided below.

<TABLE>
<CAPTION>

                                                                MARKET PRICE DATA
                              --------------------------------------------------------------------------------------
                                                2000                                           1999
                              ---------------------------------------         --------------------------------------
                                LOW            HIGH            CLOSE            LOW            HIGH           CLOSE
                                ---            ----            -----            ---            ----           -----
<S>                         <C>             <C>             <C>             <C>             <C>            <C>
Quarter Ended:
   March 31                   $19.875         $34.500         $34.500         $19.813         $21.375        $19.938
   June 30                    $29.188         $34.938         $34.563         $12.188         $22.438        $13.375
   September 30               $31.625         $41.688         $40.938         $12.188         $24.688        $22.438
   December 31                $37.063         $54.250         $52.188         $17.125         $24.500        $20.188

Dividends
Quarter Ended:
   March 31                                    $0.05                                           $0.20
   June 30                                     $0.05                                           $0.20
   September 30                                $0.05                                           $0.20
   December 31                                 $0.05                                           $0.05

Common Stockholders
   at Year-end                                 9,326                                          10,397
</TABLE>


                                       18
<PAGE>   19
ITEM 6:   SELECTED FINANCIAL DATA
FIVE-YEAR REVIEW
KINDER MORGAN, INC. AND SUBSIDIARIES
(In Thousands Except Per Share Amounts)


<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                         -----------------------------------------------------------------------------------
                                          2000(7)       1999 (1,)(3)(7)      1998 (1,)(4)         1997               1996
                                         ----------     ---------------      ------------       ----------         ---------
<S>                                     <C>               <C>               <C>               <C>                <C>
 Operating Revenues                      $2,713,737        $1,836,368        $1,660,259        $  340,685         $  299,608
 Gas Purchases and Other Costs of Sales   1,960,083         1,050,250           836,614           134,476            102,725
                                         ----------        ----------        ----------        ----------         ----------
 Gross Margin                               753,654           786,118           823,645           206,209            196,883
 Other Operating Expenses                   358,511           490,416           427,953           128,059            128,895
                                         ----------        ----------        ----------        ----------         ----------
 OPERATING INCOME                           395,143           295,702           395,692            78,150             67,988
 Other Income and (Expenses) (6)            (87,977)          (81,151)         (172,787)          (21,039)           (14,798)
                                         ----------        ----------        ----------        ----------         ----------
 Income From Continuing Operations
   Before Income Taxes                      307,166           214,551           222,905            57,111             53,190
 Income Taxes                               123,017            79,124            82,710            12,777             17,304
                                         ----------        ----------        ----------        ----------         ----------
 INCOME FROM CONTINUING OPERATIONS          184,149           135,427           140,195            44,334             35,886
 Gain (Loss) From Discontinued
   Operations, Net of Tax                   (31,734)         (395,319)          (77,984)           33,163             27,933
                                         ----------        ----------        ----------        ----------         ----------
 NET INCOME (LOSS)                          152,415          (259,892)           62,211            77,497             63,819
 Less-Preferred Dividends                        --               129               350               350                398
 Less-Premium Paid on Preferred Stock
   Redemption                                    --               350                --                --                 --
                                         ----------        ----------        ----------        ----------         ----------
 EARNINGS (LOSS) AVAILABLE FOR
   COMMON STOCK                          $  152,415        $ (260,371)       $   61,861        $   77,147         $   63,421
                                         ==========        ==========        ==========        ==========         ==========

Number of Shares Used in Computing
  Basic Earnings Per Common Share           114,063            80,284            64,021            46,589             43,653
                                         ==========        ==========        ==========        ==========         ==========

BASIC EARNINGS (LOSS) PER
  COMMON SHARE:
Continuing Operations                    $     1.62        $     1.68        $     2.19        $     0.95         $     0.81
Discontinued Operations                       (0.28)            (4.92)            (1.22)             0.71               0.64
                                         ----------        ----------        ----------        ----------         ----------
Total Basic Earnings (Loss)
  Per Common Share                       $     1.34        $    (3.24)       $     0.97        $     1.66         $     1.45
                                         ==========        ==========        ==========        ==========         ==========

 Number of Shares Used in Computing
   Diluted Earnings Per Common Share        115,030            80,358            64,636            47,307             44,436
                                         ==========        ==========        ==========        ==========         ==========

 DILUTED EARNINGS (LOSS) PER
   COMMON SHARE:
 Continuing Operations                   $     1.61        $     1.68        $     2.17        $     0.93         $     0.80
 Discontinued Operations                      (0.28)            (4.92)            (1.21)             0.70               0.63
                                         ----------        ----------        ----------        ----------         ----------
 Total Diluted Earnings (Loss)
   Per Common Share                      $     1.33        $    (3.24)       $     0.96        $     1.63         $     1.43
                                         ==========        ==========        ==========        ==========         ==========

DIVIDENDS PER COMMON SHARE               $     0.20        $     0.65        $     0.76        $     0.73         $     0.70
                                         ==========        ==========        ==========        ==========         ==========

CAPITAL EXPENDITURES (2)                 $  137,477        $   97,644        $  120,881        $  230,814         $   88,755
                                         ==========        ==========        ==========        ==========         ==========

TOTAL ASSETS (5)                         $8,386,989        $9,393,834        $9,623,779        $2,305,805         $1,629,720
                                         ==========        ==========        ==========        ==========         ==========

CAPITALIZATION (5):
Common Stockholders' Equity              $1,777,624   39%  $1,649,615   32%  $1,219,043   25%  $  606,132   48%   $  519,794   55%
Preferred Stock                                  --   --           --   --        7,000   --        7,000   --         7,000    1%
Preferred Capital Trust Securities          275,000    6%     275,000    5%     275,000    6%     100,000    8%           --   --
Long-Term Debt                            2,478,983   55%   3,293,326   63%   3,300,025   69%     553,816   44%      423,676   44%
                                         ----------  ---   ----------  ---   ----------  ---   ----------  ---    ----------  ---
Total Capitalization                     $4,531,607  100%  $5,217,941  100%  $4,801,068  100%  $1,266,948  100%   $  950,470  100%
                                         ==========  ===   ==========  ===   ==========  ===   ==========  ===    ==========  ===

BOOK VALUE PER
  COMMON SHARE(5)                        $    15.53        $    14.64        $    17.77        $    12.63         $    11.44
                                         ==========        ==========        ==========        ==========         ==========
</TABLE>



(1) Restated, see Note 2 of the accompanying Notes to Consolidated Financial
    Statements.
(2) Capital Expenditures shown are for continuing operations only.
(3) Reflects the acquisition of Kinder Morgan Delaware on October 7, 1999. See
    Note 2 of the accompanying Notes to Consolidated Financial Statements.
(4) Reflects the acquisition of MidCon Corp. on January 30, 1998. See Note 2 of
    the accompanying Notes to Consolidated Financial Statements.
(5) At December 31 of each respective year
(6) Includes significant gains from sales of assets. See Note 1(L) of the
    accompanying Notes to Consolidated Financial Statements.
(7) Restated to reflect a change in the methodology for gain recognition on the
    sale of assets to Kinder Morgan Energy Partners in 1999, and the associated
    impact on amortization of excess investment during 2000. See Note 5 of the
    accompanying Notes to Consolidated Financial Statements.



                                       19
<PAGE>   20
ITEM 7:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

GENERAL

In this report, unless the context requires otherwise, references to "we," "us,"
"our," or the "Company" are intended to mean Kinder Morgan, Inc. (a Kansas
corporation and formerly known as K N Energy, Inc.) and its consolidated
subsidiaries. The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and related Notes. Specifically,
as discussed in Notes 2, 5 and 6 of the accompanying Notes to Consolidated
Financial Statements, we have engaged in acquisitions (including the October
1999 acquisition of Kinder Morgan (Delaware), Inc., a Delaware corporation and
the indirect owner of the general partner interest in Kinder Morgan Energy
Partners, L.P., a publicly traded master limited partnership, referred to in
this report as "Kinder Morgan Energy Partners"), and divestitures (including the
discontinuance of certain lines of business and the transfer of certain assets
to Kinder Morgan Energy Partners) that may affect comparisons of financial
position and results of operations between periods.

BUSINESS STRATEGY

On October 7, 1999, we completed the acquisition of Kinder Morgan (Delaware),
Inc., a Delaware corporation and the sole stockholder of the general partner of
Kinder Morgan Energy Partners. To effect that acquisition, we issued
approximately 41.5 million shares of our common stock in exchange for all of the
outstanding shares of Kinder Morgan Delaware. Upon closing of the transaction,
Richard D. Kinder, Chairman and Chief Executive Officer of Kinder Morgan
Delaware, was named Chairman and Chief Executive Officer, and we were renamed
Kinder Morgan, Inc.

In accordance with previously announced plans, we implemented and have continued
to pursue our "Back to Basics" strategy. This strategy includes the following
key aspects: (i) focus on fee-based midstream assets that are core to the energy
infrastructure of growing markets, (ii) increase utilization of existing assets
while controlling costs, (iii) leverage economies of scale from incremental
acquisitions, (iv) maximize the benefits of our unique financial structure and
(v) continue to align employee and shareholder incentives.

During 1999, we implemented plans to dispose of our non-core businesses and as
of December 31, 2000, we have effectively completed the disposition of these
assets and operations, all as more fully described in Note 6 of the accompanying
Notes to Consolidated Financial Statements. The cash proceeds from these
dispositions were largely used to retire debt, contributing to the reduction in
outstanding indebtedness during 1999 and 2000.

In addition to sales of non-core assets to third parties, we made significant
transfers of assets to Kinder Morgan Energy Partners at the end of 1999 and the
end of 2000 that, in total, have over $1 billion of fair market value. By
contributing assets to Kinder Morgan Energy Partners that are accretive to its
earnings and cash flow, we can receive fair market value in the contribution
transaction, while still maintaining an indirect interest in the earnings and
cash flows of the assets through our limited and general partner interests in
Kinder Morgan Energy Partners. As of December 31, 2000, we owned approximately
14.0 million limited partner units of Kinder Morgan Energy Partners,
representing approximately 20.7% of the total units outstanding. As a result of
our general and limited partner interests in Kinder Morgan Energy Partners, at
the current level of distribution including incentive distributions to the
general partner, we currently are entitled to receive approximately 49% of all
distributions from Kinder Morgan Energy Partners. The actual level of
distributions received by us in the future will vary with the level of
distributable cash determined by Kinder Morgan Energy Partners' partnership
agreement. By increasing our stake in Kinder Morgan Energy Partners, we expect
to receive additional future cash distributions from Kinder Morgan Energy
Partners through incremental general partner incentive distributions as well as
increased limited partner distributions due to our ownership of additional
common units received as compensation in the transfers.



                                       20
<PAGE>   21
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

After the dispositions discussed above, our largest business unit and our
primary source of operating income is Natural Gas Pipeline Company of America
(NGPL), a major interstate natural gas pipeline system that runs from natural
gas producing areas in West Texas and the Gulf of Mexico to its principal market
area of Chicago, Illinois. In accordance with our strategy to increase
operational focus on core assets, we have worked toward agreements to fully
utilize the transportation and storage capacity of Natural Gas Pipeline Company
of America with the result that Natural Gas Pipeline Company of America sold out
its capacity through the year 2000-2001 winter season. Natural Gas Pipeline
Company of America continues to pursue opportunities to connect its system to
power generation facilities and, in addition, has announced plans to extend its
system into the metropolitan east area of St. Louis anchored by a contract with
Dynegy Marketing and Trade.

Our other remaining business operations consist of the retail distribution of
natural gas to approximately 218,000 customers in several Western and Midwestern
states and the construction and operation of electric power generation
facilities. Our retail natural gas distribution properties are located, in part,
in areas where significant growth is occurring and we expect to participate in
that growth through increased natural gas demand. The nation's demand for
additional electric power generation is significant and immediate. Our power
generation business has a beneficial master turbine purchase agreement that it
plans to utilize in constructing a number of natural gas-fired electric
generation facilities to help meet this need. These power projects, in addition
to generating income in their own right, are expected to increase Natural Gas
Pipeline Company of America's throughput as described above.

Even though we have made significant progress to date, we believe that
opportunities remain for increasing shareholder value through cost reductions
and other efficiency improvements with respect to both existing assets and
future acquisitions. One measure intended to increase shareholder value is the
All Employee Stock Option Plan implemented in October 1999. Through this plan,
virtually all employees, with the exception of Richard D. Kinder and William V.
Morgan (each of whom is currently a major shareholder), have received options to
purchase shares of our common stock. Richard D. Kinder, our Chairman and Chief
Executive Officer, and William V. Morgan, our Vice Chairman and President, each
receive only $1 per year in salary and do not receive bonuses. By aligning
employee incentives with shareholder value, we expect to increase employee
productivity, retention and satisfaction. We believe these factors ultimately
contribute to increased earnings and overall shareholder value. To reduce debt
and provide funds for future growth, we reduced the regular quarterly common
dividend from $0.20 per share to $0.05 per share in the fourth quarter of 1999
and have maintained it at that level.

The final aspect of our strategy is benefiting from accretive acquisitions and
business expansions, primarily by Kinder Morgan Energy Partners. Kinder Morgan
Energy Partners has a multi-year history of making accretive acquisitions, which
benefit us through our limited and general partner interests. This acquisitive
strategy is expected to continue, with the population of potential acquisition
candidates being driven by consolidation in the energy industry, as well as
rationalization of asset portfolios by major corporations. In addition, we
expect to, within strict guidelines as to rate of return and risk and timing of
cash flows, expand Natural Gas Pipeline Company of America's pipeline system,
acquire natural gas distribution properties that fit well with the current
profile and build and acquire incremental power generation facilities.


                                       21
<PAGE>   22
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

CONSOLIDATED FINANCIAL RESULTS


<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                                  -----------------------------------------------------
                                                                     2000                  1999                1998
                                                                     ----                  ----                ----
                                                                      (In Thousands Except Per Share Amounts)
<S>                                                             <C>                  <C>                  <C>
Operating Revenues                                                $ 2,713,737          $ 1,836,368          $ 1,660,259
                                                                  ===========          ===========          ===========
Gross Margin(1)                                                   $   753,654          $   786,118          $   823,645
                                                                  ===========          ===========          ===========

Operating Income:
  Before Merger-related and Severance Costs                       $   395,143          $   333,145          $   401,455
  Merger-related and Severance Costs                                       --              (37,443)              (5,763)
                                                                  -----------          -----------          -----------
    Consolidated Operating Income                                 $   395,143          $   295,702          $   395,692
                                                                  ===========          ===========          ===========

Income from Continuing Operations:
  Before Merger-related and Severance Costs and
    Gains from Sales of Assets, Net of Tax                        $   147,169          $    58,848          $   131,416
  Merger-related and Severance Costs, Net of Tax                           --              (23,327)              (3,518)
  Gains from Sales of Assets, Net of Tax                               36,980               99,906(2)            12,297
                                                                  -----------          -----------          -----------
    Income from Continuing Operations                                 184,149              135,427              140,195
                                                                  -----------          -----------          -----------
Discontinued Operations, Net of Tax:
  Loss from Discontinued Operations                                        --              (50,941)             (77,984)
  Loss on Disposal of Discontinued Operations                         (31,734)            (344,378)                  --
                                                                  -----------          -----------          -----------
    Discontinued Operations, Net of Tax                               (31,734)            (395,319)             (77,984)
                                                                  -----------          -----------          -----------
    Net Income (Loss)                                             $   152,415          $  (259,892)         $    62,211
                                                                  ===========          ===========          ===========

Diluted Earnings (Loss) Per Share:
  From Continuing Operations Before Merger-related
    and Severance Costs and Gains from Sales of Assets            $      1.29          $      0.73          $      2.03
  Merger-related and Severance Costs                                       --                (0.29)               (0.05)
  Gains from Sales of Assets                                             0.32                 1.24                 0.19
  Loss from Discontinued Operations                                        --                (0.63)               (1.21)
  Loss on Disposal of Discontinued Operations                           (0.28)               (4.29)                  --
                                                                  -----------          -----------          -----------
    Diluted Earnings (Loss) Per Share                             $      1.33          $     (3.24)         $      0.96
                                                                  ===========          ===========          ===========

Number of Shares Used in Computing Diluted Earnings
  Per Common Share                                                    115,030               80,358               64,636
                                                                  ===========          ===========          ===========
</TABLE>


(1) Gross margin equals total operating revenues less gas purchases and other
    costs of sales.


(2) A gain recorded in 1999 was restated. See Note 5 of the accompanying
    Notes to Consolidated Financial Statements.


Our results for 2000, in comparison to 1999, reflect an increase of $877.4
million in operating revenues, a decrease of $32.5 million in gross margin and
an increase of $62.0 million in operating income before merger-related and
severance costs. The increase in operating revenues is principally due to (i)
increased natural gas sales volumes and prices on the Kinder Morgan Texas
Pipeline, L.P. system (transferred to Kinder Morgan Energy Partners in December
2000), (ii) weather-related increases in natural gas sales and transportation
volumes on Kinder Morgan Retail's system and (iii) increased storage service
revenues and operational gas sales from Natural Gas Pipeline Company of America,
partially offset by the exclusion from 2000 results of the operations of Kinder
Morgan Interstate Gas Transmission LLC. Kinder Morgan Interstate Gas
Transmission was contributed to Kinder Morgan Energy Partners at December 31,
1999, while Kinder Morgan Texas Pipeline was contributed to Kinder Morgan Energy
Partners at December 31, 2000. These transactions are described in Note 5 of the
accompanying Notes to Consolidated Financial Statements. The decrease in gross
margin that occurred from 1999 to 2000, despite the increased operating
revenues, was principally due to the fact that 2000 results do not include the
results of Kinder Morgan Interstate Gas Transmission LLC. Results for 1999 and
1998 included merger-related and severance costs as further discussed in Note 3
of the accompanying Notes to Consolidated Financial Statements. The individual
business unit sections that follow contain more details concerning the
comparison of these results down to the level of operating income.


                                       22
<PAGE>   23
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

Below the operating income line, results for 2000, 1999 and 1998 included
significant gains from the sale of assets. Results for 2000 and 1999 included
equity in earnings (and associated amortization of excess investment) associated
with our October 1999 acquisition of Kinder Morgan Delaware. Interest expense
increased significantly in 1999 due, in large part, to the January 1998
acquisition of MidCon Corp., and declined in 2000 largely due to reduced
short-term borrowing levels as a result of applying cash received from asset
sales. Additional information on these non-operating income and expense items is
included under "Other Income and (Expenses)" following, and information
concerning the acquisitions and asset sales is contained in Notes 2 and 5 of the
accompanying Notes to Consolidated Financial Statements.


Diluted earnings per common share from continuing operations before
merger-related and severance costs and gains from sales of assets increased from
$0.73 per share in 1999 to $1.29 per share in 2000. In addition to the operating
and financing factors described preceding, this increase also reflects an
increase of 34.7 million (43.1%) in average diluted shares outstanding, largely
due to shares issued in conjunction with the acquisition of Kinder Morgan
Delaware discussed above. Diluted earnings per common share increased from a
loss of $3.24 per common share in 1999 to earnings of $1.33 per common share in
2000, reflecting, in addition to the factors discussed preceding, the impact of
discontinued operations, including losses on disposal of discontinued
operations, in each period. See "Discontinued Operations" following and Note 6
of the accompanying Notes to Consolidated Financial Statements.


RESULTS OF OPERATIONS

We manage our various businesses by, among other things, allocating capital and
monitoring operating performance. This management process includes dividing the
overall Company into business units so that performance can be effectively
monitored and reported for a limited number of discrete businesses. Currently,
we manage and report our operations in the following business units:

<TABLE>
<CAPTION>

BUSINESS UNIT                        BUSINESS CONDUCTED                                REFERRED TO AS:
-------------                        ------------------                                ---------------
<S>                                <C>                                               <C>
Natural Gas Pipeline Company of      Major interstate natural gas pipeline and         Natural Gas Pipeline
   America and certain affiliates    storage system                                    Company of America

Retail Natural Gas Distribution      The regulated sale of natural gas to              Kinder Morgan Retail
                                     residential, commercial and industrial
                                     customers and non-utility sales of natural
                                     gas to certain utility customers under the
                                     Choice Gas Program

Power Generation and Other           The construction and operation of natural         Power and Other
                                     gas-fired electric generation facilities,
                                     together with various other activities not
                                     constituting separately managed or reportable
                                     business segments
</TABLE>


In previous periods, we owned and operated other lines of business, which we
discontinued during 1999. In addition, our direct investment in the natural gas
transmission and storage business has significantly decreased as a result of (i)
the December 31, 1999 sale of Kinder Morgan Interstate Gas Transmission LLC,
referred to in this report as "Kinder Morgan Interstate," to Kinder Morgan
Energy Partners and (ii) the December 2000 sale of Kinder Morgan Texas Pipeline,
L.P., referred to in this report as "Kinder Morgan Texas Pipeline," to Kinder
Morgan Energy Partners. The results of operations of these two businesses are
included in our financial statements until their disposition, which is discussed
under "General" in this portion of the Form 10-K and in Note 5 of the
accompanying Notes to Consolidated Financial Statements.



                                       23
<PAGE>   24
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

The accounting policies applied in the generation of business unit information
are generally the same as those described in Note 1 to the accompanying
Consolidated Financial Statements, except that items below the "Operating
Income" line are either not allocated to business units or are not considered by
Management in its evaluation of business unit performance. An exception to this
is that Power, which routinely conducts its business activities in the form of
joint operations with other parties that are accounted for under the equity
method of accounting, includes its equity in earnings of these investees in its
business unit operating results. These equity-method earnings are included in
"Other Income and (Expenses)" in our consolidated income statement. In addition,
certain items included in consolidated operating income (such as merger-related
and severance costs and general and administrative expenses) are not allocated
to individual business units. With adjustment for these items, we currently
evaluate business unit performance primarily based on operating income in
relation to the level of assets employed. Sales between business units are
accounted for at market prices. For comparative purposes, prior period results
and balances have been reclassified as necessary to conform to the current
presentation.

Following are operating results by individual business unit (before intersegment
eliminations), including explanations of significant variances between the
periods presented.


NATURAL GAS PIPELINE COMPANY OF AMERICA

Operating results for Natural Gas Pipeline Company of America are included in
our consolidated results beginning with the January 30, 1998 acquisition of
MidCon Corp. See Note 2 of the accompanying Notes to Consolidated Financial
Statements for more information regarding this acquisition.

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                           ---------------------------------------------------
                                                             2000                 1999                 1998
                                                             ----                 ----                 ----
                                                                (In Thousands Except Systems Throughput)
<S>                                                       <C>                  <C>                  <C>
Operating Revenues                                         $656,017             $626,888             $556,961
                                                           --------             --------             --------

Operating Costs and Expenses:
  Gas Purchases and Other Costs of Sales                    145,431              115,481               24,273
  Operations and Maintenance                                 62,582               72,979               59,055
  Depreciation and Amortization                              84,975              109,346              121,008
  Taxes, Other Than Income Taxes                             20,142               22,575               15,800
                                                           --------             --------             --------
                                                            313,130              320,381              220,136
                                                           --------             --------             --------

Operating Income Before Corporate Costs                    $342,887             $306,507             $336,825
                                                           ========             ========             ========


Systems Throughput (Trillion Btus)                          1,459.3              1,449.9              1,296.6
                                                           ========             ========             ========
</TABLE>

Natural Gas Pipeline Company of America's operating income before corporate
costs increased by $36.4 million (11.9%) from 1999 to 2000. Operating results
for 2000 were positively affected, relative to 1999, by (i) increased
operational efficiency and the associated favorable impact of increased gas
prices on Natural Gas Pipeline Company of America's operational gas sales in
2000, (ii) increased storage service revenues, (iii) a reduction in amortization
resulting from the July 1999 change in amortization rates (see Note 4 of the
accompanying Notes to Consolidated Financial Statements), (iv) reduced 2000
operations and maintenance expenses due to successful cost control measures and
to the sales of certain gathering assets and offshore laterals and (v) reduced
ad valorem taxes. These positive effects were partially offset by (i) reduced
2000 revenues due to the sales of certain gathering assets and offshore
laterals, (ii) decreased 2000 unit revenues largely attributable to both
existing and planned competing pipeline capacity (with the attendant reduced
value of transportation) in the upper Midwest, Natural Gas Pipeline Company of
America's principal market area, and reduced transport revenue due to the sale
of a marketing affiliate during 2000. Note 5 of the accompanying Notes to
Consolidated Financial Statements contains additional information concerning
asset sales.



                                       24
<PAGE>   25
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

Natural Gas Pipeline Company of America's operating income before corporate
costs decreased by $30.3 million (9.0%) from 1998 to 1999. Natural Gas Pipeline
Company of America was negatively impacted in 1999, relative to 1998, by (i) a
decrease in the margin per MMBtu of throughput from $0.41 in 1998 to $0.35 in
1999 resulting from (1) two recent mild winters, including the impact of the
resultant high levels of gas in underground storage and (2) increased
competitive pressures in Midwest markets due to actual or projected supply
increases and (ii) increased operations and maintenance expenses and property
taxes. These negative impacts were partially offset by (i) an increase in
average monthly throughput volumes from 118 trillion Btus in 1998 to 121
trillion Btus in 1999 (although, in general, interstate pipelines receive the
majority of their transportation revenues from demand charges, which are not
affected by the level of throughput), (ii) reduced amortization expense in 1999
resulting from a change in the estimated useful life of Natural Gas Pipeline
Company of America's assets (see Note 4 of the accompanying Notes to
Consolidated Financial Statements) and (iii) the fact that our 1999 results
included 12 months of the operations of Natural Gas Pipeline Company of America,
while our 1998 results included only 11 months.

KINDER MORGAN INTERSTATE

We transferred Kinder Morgan Interstate Gas Transmission LLC to Kinder Morgan
Energy Partners effective December 31, 1999. See Note 5 of the accompanying
Notes to Consolidated Financial Statements for more information regarding this
transaction.

<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------
                                                          1999                      1998
                                                          ----                      ----
                                                    (In Thousands Except Systems Throughput)
<S>                                                   <C>                       <C>
Operating Revenues:
  Transportation and Storage                            $112,732                  $105,160
  Other                                                      475                       417
                                                        --------                  --------
                                                         113,207                   105,577
                                                        --------                  --------
Operating Costs and Expenses:
  Gas Purchases and Other Costs of Sales                  13,954                     3,763
  Operations and Maintenance                              23,737                    20,026
  Depreciation and Amortization                           16,985                    19,474
  Taxes, Other Than Income Taxes                           4,607                     4,308
                                                        --------                  --------
                                                          59,283                    47,571
                                                        --------                  --------

Operating Income Before Corporate Costs                 $ 53,924                  $ 58,006
                                                        ========                  ========


Systems Throughput (Trillion Btus)                         203.1                     216.6
                                                        ========                  ========
</TABLE>


Kinder Morgan Interstate's operating income before corporate costs decreased by
$4.1 million (7.0%) from 1998 to 1999. This business unit was negatively
impacted in 1999, relative to 1998, by (i) the 1999 write-off of approximately
$5.8 million of deferred fuel tracker costs that had accumulated since the
initial implementation of FERC Order No. 636 and were deemed unrecoverable due
to the settlement of the general rate case; (see Note 8 of the accompanying
Notes to Consolidated Financial Statements for more information regarding Kinder
Morgan Interstate's general rate case), (ii) a decrease in shipper supplied fuel
requirements under the terms of Kinder Morgan Interstate's general rate case
which, in conjunction with normal system fuel and loss requirements, caused
Kinder Morgan Interstate to purchase additional system fuel supplies and (iii)
increased operations and maintenance expenses, primarily related to the Pony
Express Pipeline. These negative impacts were partially offset by (i) increased
revenues in 1999 due to higher transportation rates under the terms of the
general rate case and (ii) reduced depreciation expense in 1999 resulting from
the assets of Kinder Morgan Interstate being classified as assets held for sale
effective November 1, 1999, at which time further depreciation of these assets
was suspended in accordance with the provisions of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of".



                                       25
<PAGE>   26
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

KINDER MORGAN RETAIL

<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------
                                                   2000                  1999                1998
                                                   ----                  ----                ----
                                                     (In Thousands Except Systems Throughput)
<S>                                             <C>                  <C>                  <C>
Operating Revenues:
  Gas Sales                                      $171,696             $134,208             $186,527
  Transportation                                   41,371               34,919               27,309
  Other                                            16,442               13,785               20,470
                                                 --------             --------             --------
                                                  229,509              182,912              234,306
                                                 --------             --------             --------
Operating Costs and Expenses:
  Gas Purchases and Other Costs of Sales          128,811              107,264              123,099
  Operations and Maintenance                       36,627               40,807               41,093
  Depreciation and Amortization                    11,776               11,382               11,014
  Taxes, Other Than Income Taxes                    2,563                3,355                2,886
                                                 --------             --------             --------
                                                  179,777              162,808              178,092
                                                 --------             --------             --------

Operating Income Before Corporate Costs          $ 49,732             $ 20,104             $ 56,214
                                                 ========             ========             ========


Systems Throughput (Trillion Btus)                   72.6                 56.6                 61.7
                                                 ========             ========             ========
</TABLE>


Kinder Morgan Retail's operating income before corporate costs increased by
$29.6 million (147.4%) from 1999 to 2000. Operating results for 2000 were
positively impacted, relative to 1999, by (i) increased system throughput in
2000, although a portion of this increase represents volumes transported for
relatively low margins, (ii) increased service revenues in 2000 and (iii)
reduced 2000 operating expenses. The increase in gross margins (operating
revenues minus gas purchases and other costs of sales) which resulted from
increased throughput volumes was principally due to increased irrigation demand
in the third quarter of 2000 and increased space heating demand in the fourth
quarter. Weather-related demand in Kinder Morgan Retail's service territory was
affected by colder than normal weather in the fourth quarter of 2000, compared
with warmer than normal weather in the fourth quarter of 1999. The reduced 2000
operating expenses resulted from (i) a reduction in advertising and marketing
expenses for the Choice Gas program (unregulated sales of natural gas made to
certain of Kinder Morgan Retail's utility customers), (ii) continued focus on
efficient operations, (iii) reduced ad valorem and use taxes in 2000 and (iv)
reduced costs for certain administrative functions due to renegotiation of a
contract with a third-party service provider.

Kinder Morgan Retail's operating income before corporate costs decreased by
$36.1 million (64.2%) from 1998 to 1999. This business unit was negatively
impacted in 1999, relative to 1998, by (i) the fact that 1998 results include
three months of the operations of distribution assets in Kansas that were sold
in March 1998 (see Note 5 of the accompanying Notes to Consolidated Financial
Statements) and (ii) reduced margins from sales and transportation due primarily
to (1) weather-related reductions in 1999 irrigation demand and (2) reduced
margins related to the Nebraska Choice Gas program.

KINDER MORGAN TEXAS PIPELINE

Operating results for Kinder Morgan Texas Pipeline are included in our
consolidated results beginning with the January 30, 1998 acquisition of MidCon
Corp. See Note 2 of the accompanying Notes to Consolidated Financial Statements
for more information regarding this acquisition. In December 2000, we
transferred Kinder Morgan Texas Pipeline to Kinder Morgan Energy Partners. See
Note 5 of the accompanying Notes to Consolidated Financial Statements for more
information regarding this transaction.



                                       26
<PAGE>   27
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)


<TABLE>
<CAPTION>

                                                                   YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------------------
                                                      2000                   1999                  1998
                                                      ----                   ----                  ----
                                                            (In Thousands Except Systems Throughput)
<S>                                              <C>                   <C>                   <C>
Operating Revenues:
  Gas Sales                                        $1,675,206            $  815,557            $  704,190
  Transportation                                       25,468                23,971                19,192
  Other                                                46,825                32,633                15,819
                                                   ----------            ----------            ----------
                                                    1,747,499               872,161               739,201
                                                   ----------            ----------            ----------
Operating Costs and Expenses:
  Gas Purchases and Other Costs of Sales            1,666,169               804,674               680,766
  Operations and Maintenance                           45,401                45,778                51,067
  Depreciation and Amortization                         2,211                 2,466                 1,615
  Taxes, Other Than Income Taxes                        4,400                 2,689                 3,624
                                                   ----------            ----------            ----------
                                                    1,718,181               855,607               737,072
                                                   ----------            ----------            ----------

Operating Income Before Corporate Costs            $   29,318            $   16,554            $    2,129
                                                   ==========            ==========            ==========


Systems Throughput (Trillion Btus)                      654.4                 575.3                 581.6
                                                   ==========            ==========            ==========
</TABLE>


Operating revenues for Kinder Morgan Texas Pipeline increased by $875.3 million
(100.4%) from 1999 to 2000. The $859.6 million (105.4%) increase in natural gas
sales reflected a 75% increase in the average sales price during 2000, together
with a 17% increase in sales volumes. The $14.2 million increase in other
revenues was principally due to a 55% increase in the average sales price of
natural gas liquids during 2000. Gross margin (operating revenues minus gas
purchases and other costs of sales) increased by $13.8 million (20.5%) from 1999
to 2000, as the increased operating revenues were offset approximately
proportionally by the increased cost of natural gas purchased. Operating income
before corporate costs increased by $12.8 million (77.1%) from 1999 to 2000 as
the increase in gross margin discussed preceding was partially offset by
increased ad valorem taxes.

Kinder Morgan Texas Pipeline's operating income before corporate costs increased
by $14.4 million from 1998 to 1999. This business unit was positively impacted
in 1999, relative to 1998, by (i) the fact that 1999 results include 12 months
of the operations of Kinder Morgan Texas Pipeline, while 1998 results include
only 11 months, (ii) increased per unit margins from sales and transportation in
1999, (iii) increased 1999 margins from natural gas liquids sales due to an
improved pricing environment, (iv) reduced 1999 operations and maintenance
expenses and (v) reduced 1999 ad valorem taxes. These positive impacts were
partially offset by (i) reduced 1999 overall systems throughput volumes and (ii)
increased 1999 depreciation expense reflecting the cumulative impact of capital
expenditures made in 1998 and 1999.


                                       27
<PAGE>   28

TEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS (continued)

POWER AND OTHER

<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------------
                                                   2000                 1999                  1998
                                                   ----                 ----                  ----
                                                                   (In Thousands)
<S>                                             <C>                  <C>                  <C>
Operating Revenues                                $80,697              $59,305              $47,380
Equity in Earnings of Equity Investments            3,669               10,511                8,675
                                                  -------              -------              -------
                                                   84,366               69,816               56,055
                                                  -------              -------              -------
Operating Costs and Expenses:
  Gas Purchases and Other Costs of Sales           19,653               12,921               19,441
  Operations and Maintenance                       19,680               15,648                7,232
  Depreciation and Amortization                     9,203                7,754                2,252
  Taxes, Other Than Income Taxes                      868                1,335                1,672
                                                  -------              -------              -------
                                                   49,404               37,658               30,597
                                                  -------              -------              -------

Income Before Corporate Costs                     $34,962              $32,158              $25,458
                                                  =======              =======              =======
</TABLE>

Results of power generation operations are included in Power and Other beginning
with the acquisition of interests in power plants from the Denver-based Thermo
Companies, which acquisition was completed in the third quarter of 1998. See
Note 2 of the accompanying Notes to Consolidated Financial Statements for more
information concerning this acquisition.

Income before corporate costs from Power and Other increased $2.8 million (8.7%)
from 1999 to 2000. Operating results for 2000 were positively impacted, relative
to 1999, by profits from development of a 550-megawatt electric generating plant
currently being constructed by Power near Little Rock, Arkansas. Kinder Morgan
Power is receiving a development fee and profit from turn-key construction of
the plant (which is owned by a unit of the Southern Company), which is being
recorded as revenue over the two-year construction period. The positive impact
related to profits from construction of the Little Rock, Arkansas power
generation facility was partially offset by (i) a decrease in earnings from
equity investments largely attributable to increased fuel (natural gas) costs
related to electricity generation and (ii) increased operating expenses
associated with other operations, principally our agreement with HS Resources,
Inc. and certain telecommunications assets used primarily by internal business
units. As we announced on November 30, 1999, we have entered into agreements
with HS Resources, Inc. for the sale of certain assets in the Wattenberg field
area of the Denver-Julesberg Basin. Under the terms of the agreements, HS
Resources, Inc. commenced operating these assets. We are receiving payments from
HS Resources, Inc. during 2000 and 2001, with the legal transfer of ownership
expected to occur on or before December 15, 2001. Loss before Corporate Costs
for our international activities, included in this business unit, was $1.9
million, $1.9 million and $0.4 million in 2000, 1999 and 1998, respectively.

Income before corporate costs from Power and Other increased $6.7 million
(26.3%) from 1998 to 1999. Operating results for 1999 were positively impacted,
relative to 1998, by (i) 1999 results include a full year of power generation
activities, while 1998 includes only partial year results and (ii) increased
1999 operating income from our agreement with HS Resources, as described above.


                                       28
<PAGE>   29
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

OTHER INCOME AND (EXPENSES)


<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------
                                                         2000                1999                  1998
                                                         ----                ----                  ----
                                                                      (In Thousands)
<S>                                                  <C>                  <C>                  <C>
Interest Expense, Net                                 $(243,155)           $(251,920)           $(205,840)
                                                      ---------            ---------            ---------
Equity in Earnings:
  Kinder Morgan Energy Partners - Earnings              140,913               15,733                   --
  Kinder Morgan Energy Partners - Amortization          (27,593)              (7,335)                  --
  Power Segment(1)                                        3,669               10,511                8,675
  Other                                                 (10,255)              14,140               22,466
                                                      ---------            ---------            ---------
     Total Equity in Earnings                           106,734               33,049               31,141
                                                      ---------            ---------            ---------
Minority Interests                                      (24,121)             (24,845)             (19,483)
Gains from Sales of Assets                               61,684              153,938(2)            19,552
Other, Net                                               10,881                4,627                1,843
                                                      ---------            ---------            ---------
                                                      $ (87,977)           $ (81,151)           $(172,787)
                                                      =========            =========            =========
</TABLE>


(1) See discussion under the heading "Power and Other."

(2) A gain recorded in 1999 was restated. See Note 5 of the
    accompanying Notes to Consolidated Financial Statements.



The increase of $6.8 million (8.4%) in net expense under "Other Income and
(Expenses)" from 1999 to 2000 is principally due to decreased gains from sales
of assets and reduced other equity in earnings in 2000, partially offset by
higher 2000 equity in earnings of Kinder Morgan Energy Partners and increased
"Other, Net." The decrease in gains from sales of assets in 2000 reflects the
fact that 1999 results include (i) a gain of $127.0 million from the sale of
Kinder Morgan Interstate and interests in two equity method investments and (ii)
a gain of $28.9 million from the sale of two offshore pipeline assets, while
2000 results include a gain of $61.6 million from the sale of Kinder Morgan
Texas Pipeline. The equity in earnings of Kinder Morgan Energy Partners and
associated amortization during 2000 and 1999 result from our October 1999
acquisition of interests in Kinder Morgan Energy Partners and, thus, 1999
includes only one quarter of earnings on this investment while 2000 reflects
earnings for the full year. Kinder Morgan Energy Partners' Form 10-K for the
year ended December 31, 2000 contains additional information about its results
of operations. The decrease in other equity in earnings from 1999 to 2000 is
principally due to the sale of various equity method investments. In addition,
2000 results reflect increased equity in losses of the TransColorado pipeline
joint venture, which was placed in service March 31, 1999. The expense
associated with "Minority Interests" in each period principally represents the
costs associated with our two series of Capital Trust Securities. These
securities are described in Note 12 of the accompanying Notes to Consolidated
Financial Statements. The increase in "Other, Net" from 1999 to 2000 reflects
the fact that, while each period includes miscellaneous items of income and
expense, 2000 results also include (i) $4.1 million due to the recovery of note
receivable proceeds in excess of its carrying value and (ii) $3.9 million due to
the settlement of a regulatory matter for an amount less than that previously
reserved.



The decrease of $91.6 million in net expense reported under "Other Income and
(Expenses)" from 1998 to 1999 is principally due to increased 1999 gains from
the sale of assets, partially offset by increased interest expense. The
increased 1999 gains from the sale of assets reflects the fact that 1999
includes the gain from the sale of Kinder Morgan Gas Transmission and other
assets as discussed above, while 1998 includes (i) a gain of $10.9 million from
the sale of certain microwave towers and (ii) a gain of $8.5 million from the
sale of Kansas natural gas distribution properties. The increase of $46.1
million (22.4%) in "Interest Expense, Net" from 1998 to 1999 is principally due
to the incremental debt outstanding as a result of the January 1998 acquisition
of MidCon Corp. and decreased capitalized interest in 1999 due to the reduced
level of capital spending (see "Net Cash Flows from Investing Activities").



                                       29
<PAGE>   30
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

INCOME TAXES - CONTINUING OPERATIONS


<TABLE>
<CAPTION>

                                                          YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------------
                                          2000                     1999                     1998
                                          ----                     ----                     ----
                                                          (Dollars In Thousands)
<S>                                   <C>                       <C>                       <C>
Income Tax Provision                   $ 123,017                 $  79,124                 $  82,710
                                       =========                 =========                 =========

Effective Tax Rate                          40.0%                     36.9%                     37.1%
                                       =========                 =========                 =========
</TABLE>



The increase of $43.9 million in the income tax provision from 1999 to 2000 is
composed of (i) an increase of $34.2 million due to an increase in pretax income
and (ii) an increase of $9.7 million due to an increase in the effective tax
rate in 2000. The increased effective tax rate for 2000 is principally due to an
increased effective rate associated with state income taxes. The decrease of
$3.6 million in income tax expense from 1998 to 1999 reflected a decrease of
$3.1 million due to a decrease in 1999 pre-tax income, and a decrease of
$0.5 million due to a decrease in the 1999 effective tax rate. The decrease in
the 1999 effective tax rate was principally due to the impact of asset sales
and dispositions of certain lines of business.


DISCONTINUED OPERATIONS

<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31,
                                                                ------------------------------------------------
                                                                   2000                1999               1998
                                                                   ----                ----               ----
                                                                                  (In Thousands)
<S>                                                            <C>                 <C>                <C>
Loss from Discontinued Operations, Net of Tax                   $       --          $ (50,941)         $ (77,984)
                                                                ==========          =========          =========

Loss on Disposal of Discontinued Operations, Net of Tax         $  (31,734)         $(344,378)         $      --
                                                                ==========          =========          =========
</TABLE>

During the third quarter of 1999, we adopted and implemented a plan to
discontinue the direct marketing of non-energy products and services
(principally under the "Simple Choice" brand), which activities had been carried
on largely through our EN*able joint venture with PacifiCorp. During the fourth
quarter of 1999, we adopted and implemented plans to discontinue the following
lines of business: (i) gathering and processing of natural gas, including
short-haul intrastate pipelines and providing field services to natural gas
producers, (ii) wholesale marketing of natural gas and natural gas liquids and
(iii) international operations. We recorded a loss of $344.4 million,
representing the estimated loss to be recognized upon final disposal of these
businesses, including estimated operating losses prior to disposal. During 2000,
we completed the disposition of these businesses, with the exception of
international operations (principally consisting of a natural gas distribution
system under construction in Hermosillo, Mexico), which, in the fourth quarter
of 2000, we decided to retain. Neither the decision to dispose of our
international operations nor our subsequent decision to retain them had any
material effect on our results of operations, commitments and contingencies,
known trends or capital resources. In the fourth quarter of 2000, we recorded an
incremental loss on disposal of discontinued operations of $31.7 million,
representing the impact of the final disposition transactions and adjustment of
previously recorded estimates. We had a remaining liability of approximately
$23.7 million at December 31, 2000 associated with these discontinued
operations, principally consisting of (i) indemnification obligations under the
various sale agreements and (ii) retained liabilities, which were settled in
cash in early 2001. We do not expect significant additional financial impacts
associated with these matters. Note 6 of the accompanying Notes to Consolidated
Financial Statements contains certain additional financial information with
respect to these discontinued operations.

Losses from discontinued operations, net of tax benefits of $31.6 million and
$41.4 million in 1999 and 1998, respectively, decreased by $27.0 million from
1998 to 1999. Operating results were positively impacted in 1999, relative to
1998, by (i) improvement in the natural gas liquids pricing environment in 1999
and (ii) the fact that 1998 operating results included (1) $6.4 million of
adjustments to write down certain natural gas due from third parties and in
underground storage to their current market values, (2) $3.7 million of
increased provision for uncollectible accounts receivable, (3) natural gas
liquids storage inventory write-downs and (4) operating losses associated with
gas processing facilities that were sold in the fourth quarter of 1998. These
factors serving to create a favorable period to period variance were partially
offset by the fact that 1998 results included $6.0 million in margin from sales
of storage gas.



                                       30
<PAGE>   31
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

LIQUIDITY AND CAPITAL RESOURCES

The following table illustrates the sources of our invested capital. The
balances at December 31, 1999 reflect the impacts associated with the
acquisition of Kinder Morgan Delaware and the sale of certain assets to Kinder
Morgan Energy Partners, while the balances at December 31, 2000 also reflect the
impact of the sale of additional assets to Kinder Morgan Energy Partners
effective as of that date. Notes 2 and 5 of the accompanying Notes to
Consolidated Financial Statements contain additional information on these
transactions, while Note 12 contains information concerning our outstanding debt
securities, short-term borrowing facilities and financing activities.


<TABLE>
<CAPTION>

                                                                            DECEMBER 31,
                                                        ----------------------------------------------------
                                                           2000                1999                 1998
                                                        ----------           ----------           ----------
                                                                      (Dollars In Thousands)
<S>                                                   <C>                  <C>                  <C>
Long-term Debt                                          $2,478,983           $3,293,326           $3,300,025
Common Equity                                            1,777,624            1,649,615            1,219,043
Preferred Stock                                                 --                   --                7,000
Capital Trust Securities                                   275,000              275,000              275,000
                                                        ----------           ----------           ----------
     Capitalization                                      4,531,607            5,217,941            4,801,068
Short-term Debt                                            908,167              581,567            1,702,013(1)
                                                        ----------           ----------           ----------
     Invested Capital                                   $5,439,774           $5,799,508           $6,503,081
                                                        ==========           ==========           ==========

Capitalization:
     Long-term Debt                                           54.7%                63.1%                68.7%
     Common Equity                                            39.2%                31.6%                25.4%
     Preferred Stock                                            --                   --                  0.2%
     Capital Trust Securities                                  6.1%                 5.3%                 5.7%

Invested Capital:
     Total Debt                                               62.2%(3)             66.8%                76.9%(2)
     Equity, Including Capital Trust Securities               37.8%(3)             33.2%                23.1%
</TABLE>


(1) Includes the $1,394,846 Substitute Note assumed in conjunction with the
    acquisition of MidCon Corp. This note was repaid on January 4, 1999.
(2) If the government securities then held as collateral were offset against the
    related debt, the ratio of total debt to invested capital at December 31,
    1998, would have been 72.3 percent.

(3) As adjusted to reflect the November 2001 maturity of the Premium Equity
    Participating Units (see "Net Cash Flows from Financing Activities") and the
    associated $460 million increase in equity and decrease in debt, the ratios
    would be: Debt - 53.8%, Equity - 46.2%.


CASH FLOWS

The following discussion of cash flows should be read in conjunction with the
accompanying Consolidated Statements of Cash Flows and related supplemental
disclosures. All highly liquid investments purchased with an original maturity
of three months or less are considered to be cash equivalents.

Net Cash Flows from Operating Activities

"Net Cash Flows Provided by Operating Activities" decreased from $321.2 million
in 1999 to $167.1 million in 2000, a decline of $154.1 million (48%). This
decline is primarily due to an increase in cash flows used for discontinued
operations, which increased from a source of $94.5 million in 1999 to a use of
$110.4 million in 2000, a $204.9 million increased use of cash reflecting (i)
$124.7 million of cash outflow in 2000 attributable to the termination of our
receivable sale program and (ii) $124.7 million of cash inflow in 1999
attributable to the receivable sale program (see "Net Cash Flows from Financing
Activities" following). The decline in "Net Cash Flows Provided by Operating
Activities" for discontinued operations was partially offset by an increase in
cash flows provided by continuing operations, which increased from a source of
$226.7 million in 1999 to a source of $277.5 million in 2000. This $50.8 million
of increased cash flow is primarily due to (i) $121.3 million of cash
distributions received in 2000 attributable to our interest in Kinder Morgan
Energy Partners (see Note 2 of the accompanying Notes to Consolidated Financial
Statements and the discussion following) and (ii) a decrease in cash used in
2000 to make interest payments reflecting the decreased average debt balance
outstanding. Partially offsetting this increase were (i) an increase in cash
used for working capital of $84.6 million and (ii) January 2000 payments
associated with December 1999 gas supply purchases.



                                       31
<PAGE>   32
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

"Net Cash Flows Provided by Operating Activities" increased from $95.3 million
in 1998 to $321.2 million in 1999, an increase of $225.9 million or 237 percent.
This increase was principally attributable to (i) cash provided by reductions in
working capital for continuing operations in 1999 and (ii) increased 1999
operating cash flows associated with discontinued operations reflecting, among
other things, improved operating results and the sale of accounts receivable,
partially offset by (i) reduced 1999 earnings from continuing operations before
asset sales and (ii) the inclusion in 1998 results of $27.5 million of proceeds
from the buyout of certain contractual gas obligations.

In general, distributions from Kinder Morgan Energy Partners are declared in the
month following the end of the quarter to which they apply and are paid in the
month following the month of declaration to the general partner and unit holders
of record as of the end of the declaration month. Therefore, the accompanying
Statement of Consolidated Cash Flows for 2000 reflects the receipt of a total of
$121.3 million of cash distributions from Kinder Morgan Energy Partners for the
fourth quarter of 1999 and the first nine months of 2000. The cash distributions
attributable to our interest for the three months and twelve months ended
December 31, 2000 total $44.5 million and $149.9 million, respectively. The
increase in distributions during 2000 reflects, among other factors, the
December 31, 1999 transfer of certain properties from us to Kinder Morgan Energy
Partners (see Note 5 of the accompanying Notes to Consolidated Financial
Statements).

Net Cash Flows from Investing Activities

"Net Cash Flows Provided by (Used in) Investing Activities" decreased from $1.0
billion in 1999 to $498.7 million in 2000, a decline of $521.5 million
principally due to the sale of approximately $1.1 billion of government
securities during 1999, with the proceeds utilized to repay the Substitute Note
assumed in conjunction with the January 1998 acquisition of MidCon Corp.
Partially offsetting this decrease was (i) $500.3 million of cash received
during 2000 from the sale of certain interests and assets to Kinder Morgan
Energy Partners and (ii) cash flows of discontinued investing activities
increasing from a use of $46.6 million in 1999 to a source of $154.2 million in
2000, which was principally a result of the $163.9 million of proceeds received
from ONEOK for the sale of gathering and processing businesses in Oklahoma,
Kansas and West Texas.

"Net Cash Flows Provided by (Used in) Investing Activities" increased from a net
outflow of $3.5 billion in 1998 to a net inflow of $1.0 billion in 1999. This
increase was principally attributable to the net impact of (i) a net cash
outflow of $2.2 billion in 1998 for the purchase of MidCon Corp., (ii) net
purchases of U.S. Government securities of $1.1 billion in 1998, principally to
act as collateral for the Substitute Note assumed in the acquisition of MidCon
Corp., (iii) net sales of U.S. government securities of $1.1 billion in 1999,
which proceeds were used, together with proceeds of additional short-term
borrowings, to repay the Substitute Note, (iv) additional cash used in 1999 for
other acquisitions, principally the cash portion of consideration paid for the
Thermo acquisition, (v) the 1999 receipt of $28.7 million of proceeds from the
sale of Tom Brown, Inc. preferred stock, (vi) increased proceeds from sales of
assets in 1999 and (vi) decreased net cash outflows for investing activities of
discontinued operations in 1999.


                                       32
<PAGE>   33

ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

During the year 2000, major asset sales included (i) Kinder Morgan Texas
Pipeline, L.P., the Casper and Douglas Natural Gas Gathering and Processing
Systems, our 50 percent interest in Coyote Gas Treating, LLC and our 25 percent
interest in Thunder Creek Gas Services, L.L.C. to Kinder Morgan Energy Partners,
(ii) gathering and processing businesses in Oklahoma, Kansas and West Texas as
well as our marketing and trading business to ONEOK, (iii) three natural gas
gathering systems and a natural gas processing facility to WBI Holdings, Inc.
and (iv) Wildhorse Energy Partners, LLC to Tom Brown, Inc. Total proceeds
received in 2000 from asset sales were $730.6 million of which $330 million
represented proceeds from the 1999 transfer of assets to Kinder Morgan Energy
Partners.

Major asset sales during 1999 included (i) Kinder Morgan Interstate, Kinder
Morgan Trailblazer LLC and our interest in Red Cedar Gathering Company to Kinder
Morgan Energy Partners, (ii) all of our major offshore assets in the Gulf of
Mexico area, including our interests in Stingray Pipeline Company L.L.C. and
West Cameron Dehydration Company L.L.C., and the HIOS and UTOS offshore pipeline
systems and (iii) MidCon Gas Products of New Mexico Corp. Total proceeds
received in 1999 from asset sales were $111.1 million.

Notes 2, 5 and 6 of the accompanying Notes to Consolidated Financial Statements
and "Net Cash Flows from Financing Activities" following contain more
information concerning these investments and sales.

Net Cash Flows from Financing Activities

"Net Cash Flows (Used in) Provided by Financing Activities" decreased from
approximately $1.3 billion in 1999 to $550.3 million in 2000, a decline of
approximately $786.7 million. This decrease was principally due to the
first-quarter 1999 repayment of the $1.39 billion Substitute Note as discussed
preceding, partially offset by increased short-term borrowings during the same
period, as well as reduced cash payments for dividends in 2000.

"Net Cash Flows (Used in) Provided by Financing Activities" decreased from a net
inflow of $3.4 billion in 1998 to a net outflow of $1.3 billion in 1999. This
decrease was principally the result of the 1998 financings associated with the
acquisition of MidCon Corp. and the repayment of the Substitute Note in 1999, in
each case as described following. In addition, we retired $158.9 million of
long-term debt in 1999, compared to $35.8 million in 1998. The long-term debt
retired in 1999 included $148.6 million of debt assumed in conjunction with the
acquisition of Kinder Morgan Delaware.

Our principal sources of short-term liquidity are our revolving bank facilities.
As of December 31, 2000, we had available a $500 million 364-day facility dated
October 25, 2000, and a $400 million amended and restated five-year revolving
credit agreement dated January 30, 1998. These bank facilities can be used for
general corporate purposes, including backup for our commercial paper program.
At December 31, 2000, we had $100 million of bank borrowings and commercial
paper (which is backed by the bank facilities) issued and outstanding. The
corresponding amount outstanding was $50 million at February 9, 2001. After
inclusion of applicable letters of credit, the remaining available borrowing
capacity under the bank facilities was $796.7 million and $846.7 million at
December 31, 2000 and February 9, 2001, respectively. The bank facilities
include covenants that are common in such arrangements. For example, the $500
million facility requires consolidated debt to be less than 68% of consolidated
total capitalization. The $400 million facility requires that upon issuance of
common stock to the holders of the premium equity participating security units
at the maturity of the security units (November 2001), consolidated debt must be
less than 67% of consolidated total capitalization. Both of the bank facilities
require the debt of consolidated subsidiaries to be less than 10% of our
consolidated debt and require the consolidated debt of each material subsidiary
to be less than 65% of our consolidated total capitalization. The $400 million
facility requires our consolidated net worth (inclusive of trust preferred
securities) be at least $1.236 billion plus 50 percent of consolidated net
income earned for each fiscal quarter beginning with the last quarter of 1998.
The $500 million facility requires our consolidated net worth (inclusive of
trust preferred securities) be at least $1.236 billion plus 50 percent of
consolidated net income earned for each fiscal quarter beginning with the last
quarter of 1999.



                                       33
<PAGE>   34
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

Our short-term debt of $908.2 million at December 31, 2000 consisted of (i) $100
million of borrowings under our revolving credit facilities, (ii) the $400
million of Reset Put Securities that are scheduled to be either remarketed or
retired as of March 1, 2001, (iii) the $400 million of 6.45% Senior Notes, due
November 2001 and (iv) $8.2 million of miscellaneous current maturities of
long-term debt. We expect to retire the Reset Put Securities at March 1, 2001
utilizing a combination of cash on hand and incremental short-term borrowings,
which will result in an extraordinary loss on early extinguishments of debt
expected to total approximately $15 million. We expect that the $400 million of
6.45% Senior Notes will be retired at maturity with a portion of the $460
million of cash to be received from the issuance of common stock upon maturity
of the Premium Equity Participating Securities, which occurs concurrently as
discussed following. Apart from these items, our current assets and current
liabilities are approximately equal. Given our expected cash flows from
operations and our unused debt capacity, including our five-year revolving
credit facility, we do not expect any liquidity issues in the foreseeable
future.

In September 1999, we established an accounts receivable sales facility that
provided up to $150 million of additional liquidity. In accordance with this
agreement, we received proceeds of $150 million on September 30, 1999. Cash
flows associated with this facility are included with "Cash flows from Operating
Activities" in the accompanying Consolidated Statements of Cash Flows. In
February 2000, we reduced our participation in this receivables sales program by
$124.9 million, principally as a result of our then-pending disposition of our
wholesale gas marketing business. On April 25, 2000, we repaid the residual
balance and terminated the agreement.

In November 1998, we sold $460 million principal amount of premium equity
participating securities in a public offering. The proceeds from the security
units offering was used to purchase U.S. Treasury Notes on behalf of the
security unit holders, which notes are the property of the security unit holders
and will be held as collateral to fund the obligation of the security unit
holders to purchase our common stock at the end of a three-year period. In
November 2001, the maturity of these securities will result in our receipt of
$460 million in cash as discussed above and, based on the market price of our
common stock as of November 30, 2001, the issuance of approximately 13.4 million
shares of common stock. The cash proceeds are expected to be used to retire the
$400 million of 6.45% Senior Notes that mature concurrently with the premium
equity participating securities and to repay a portion of short-term borrowings
then outstanding.

In March 1998, we issued 12.5 million shares (18.75 million shares after
adjustment for the December 1998 three-for-two stock split) of common stock in
an underwritten public offering, receiving net proceeds of approximately $624.6
million. Also in March 1998, we issued $2.35 billion principal amount of debt
securities of varying maturities and interest rates in an underwritten public
offering, receiving net proceeds of approximately $2.34 billion. The net
proceeds from these two offerings were used to refinance borrowings under the
MidCon Corp. acquisition financing arrangements and to purchase U.S. government
securities to collateralize a portion of the Substitute Note (assumed in
conjunction with the acquisition). In April 1998, we sold $175 million of 7.63%
Capital Securities due April 15, 2028, in an underwritten offering, with the net
proceeds of $173.1 million used to purchase U.S. government securities to
further collateralize the Substitute Note. In November 1998, we completed the
underwritten public offering of $400 million of three-year senior notes
concurrently with the $460 million principal amount of premium equity
participating security units discussed above. The $397.4 million of net proceeds
from the senior notes offering were used to retire a portion of our
then-outstanding short-term borrowings. For additional information on each of
these financings, including terms of the specific securities and the associated
accounting treatment, see Note 12 of the accompanying Notes to Consolidated
Financial Statements.


                                       34
<PAGE>   35
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

On January 4, 1999, we repaid the $1.4 billion Substitute Note payable to
Occidental Petroleum as part of the MidCon Corp. acquisition. The note was
repaid using the proceeds of approximately $1.1 billion from the sale of U.S.
government securities that had been held as collateral, with the balance of the
funds provided by an increase in short-term borrowings.

Capital Expenditures and Commitments

Capital expenditures in 2000 were $137.5 million and $3.2 million for continuing
operations and discontinued operations, respectively. The 2001 capital
expenditure budget totals approximately $197 million, before expenditures which
may be made on the Horizon Pipeline project. We expect that funding for the
budget will be provided from internal sources and, if necessary, incremental
borrowings. Approximately $5.5 million of this amount had been committed for the
purchase of plant and equipment at December 31, 2000. Additional information on
commitments is contained in Note 17 of the accompanying Notes to Consolidated
Financial Statements.

LITIGATION AND ENVIRONMENTAL

Our anticipated environmental capital costs and expenses for 2001, including
expected costs for remediation efforts, are approximately $7 million, compared
to $5.8 million of such costs and expenses incurred in 2000. A substantial
portion of our environmental costs are either recoverable through insurance and
indemnification provisions or have previously recorded liabilities associated
with them.

Refer to Notes 9(A) and 9(B) to the accompanying Consolidated Financial
Statements for additional information on our pending litigation and
environmental matters. We believe we have established adequate reserves such
that the resolution of pending litigation and environmental matters will not
have a material adverse impact on our business, cash flows, financial position
or results of operations.

REGULATION

See Note 8 of the accompanying Notes to Consolidated Financial Statements for
information regarding regulatory matters.

RISK MANAGEMENT

The following discussion should be read in conjunction with Note 14 of the
accompanying Notes to Consolidated Financial Statements, which contains
additional information on our risk management activities.

To minimize the risk of price changes in the natural gas and associated
transportation markets, we use certain financial instruments for hedging
purposes. These instruments include energy products traded on the New York
Mercantile Exchange, the Kansas City Board of Trade and over-the-counter markets
including, but not limited to, futures and options contracts and fixed-price
swaps. We are exposed to credit-related losses in the event of nonperformance by
counterparties to these financial instruments but, given their existing credit
ratings, we do not expect any counterparties to fail to meet their obligations.

Pursuant to a policy approved by our Board of Directors, we are to engage in
these activities only as a hedging mechanism against price volatility associated
with (i) pre-existing or anticipated physical gas sales, (ii) physical gas
purchases and (iii) system use and storage in order to protect profit margins,
and not to engage in speculative trading. Commodity-related activities of the
risk management group are monitored by our Risk Management Committee, which is
charged with the review and enforcement of the Board of Directors' risk
management policy. The Risk Management Committee reviews the types of hedging
instruments used, contract limits and approval levels and may review the pricing
and hedging of any or all commodity transactions. All energy futures, swaps and
options are recorded at fair value. The fair value of these risk management
instruments reflects the estimated amounts that we would receive or pay to
terminate the contracts at the reporting date, thereby taking into account the
current unrealized gains or losses on open contracts. Market quotes are
available for substantially all financial instruments we use.



                                       35
<PAGE>   36
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

Through December 31, 2000, gains and losses on hedging positions have been
deferred and recognized as gas purchases expense in the periods in which the
underlying physical transactions occur. On January 1, 2001, we began accounting
for derivative instruments under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", (after amendment by SFAS 137 and SFAS 138,
the "Statement"). As discussed preceding, our principal use of derivative
financial instruments is to mitigate the market price risk associated with
anticipated transactions for the purchase and sale of natural gas. The Statement
allows these transactions to continue to be treated as hedges for accounting
purposes, although the changes in the market value of these instruments will
affect comprehensive income in the period in which they occur and any
ineffectiveness in the risk mitigation performance of the hedge will affect net
income currently. The change in the market value of these instruments
representing effective hedge operation will continue to affect net income in the
period in which the associated physical transactions are consummated. Adoption
of the Statement has resulted in $14.4 million of deferred net loss as of
January 1, 2001, being reported as part of other comprehensive income in 2001,
as well as subsequent changes in the market value of these derivatives prior to
consummation of the transaction being hedged.

We measure the risk of price changes in the natural gas and natural gas liquids
markets utilizing a Value-at-Risk model. Value-at-Risk is a statistical measure
of how much the marked-to-market value of a portfolio could change during a
period of time, within a certain level of statistical confidence. We utilize a
closed form model to evaluate risk on a daily basis. The Value-at-Risk
computations utilize a confidence level of 97.7 percent for the resultant price
movement and a holding period of one day chosen for the calculation. The
confidence level used means that there is a 97.7 percent probability that the
mark-to-market losses for a single day will not exceed the Value-at-Risk number
presented. Instruments evaluated by the model include forward physical gas,
storage and transportation contracts and financial products including commodity
futures and options contracts, fixed price swaps, basis swaps and
over-the-counter options. During 2000, Value-at-Risk reached a high of $5.4
million and a low of $1.5 million. Value-at-Risk at December 31, 2000, was $5.3
million and averaged $4.5 million for 2000.

Our calculated Value-at-Risk exposure represents an estimate of the reasonably
possible net losses that would be recognized on our portfolio of derivatives
assuming hypothetical movements in future market rates, and is not necessarily
indicative of actual results that may occur. It does not represent the maximum
possible loss or any expected loss that may occur, since actual future gains and
losses will differ from those estimated. Actual gains and losses may differ from
estimates due to actual fluctuations in market rates, operating exposures and
the timing thereof, as well as changes in our portfolio of derivatives during
the year.

As a result of our recent divestiture of certain lines of business, including
our wholesale natural gas and liquids marketing and natural gas gathering,
processing and associated businesses, we expect that our portfolio of financial
instruments held for the purposes of hedging, and corresponding exposure to loss
from such instruments, will be smaller in the future. Given our portfolio of
businesses as of December 31, 2000, our principal uses of derivative financial
instruments will be to mitigate the risk associated with market movements in the
price of natural gas associated with (i) the sale of in-kind fuel recoveries in
excess of fuel used on Natural Gas Pipeline Company of America's pipeline system
and (ii) the purchase of natural gas by Kinder Morgan Retail to serve its
customers in the Choice Gas program.

From time to time, our treasury department manages interest rate exposure
utilizing interest rate swaps, caps or similar derivatives within
Board-established policy. None of these interest rate derivatives is leveraged.
We are currently not hedging our interest rate exposure resulting from
short-term borrowings. The market risk related to short-term borrowings from a
one percent change in interest rates would result in a $0.5 million annual
impact on pre-tax income, based on short-term borrowing levels as of February 9,
2001.



                                       36
<PAGE>   37
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

Significant Operating Variables

Our principal exposure to market variability is related to the variation in
natural gas prices and basis differentials, which can affect gross margins in
our Natural Gas Pipeline Company of America and Kinder Morgan Retail segments.
"Basis differential" is a term that refers to the difference in natural gas
prices between two locations or two points in time. These price differences can
be affected by, among other things, natural gas supply and demand, available
transportation capacity, storage inventories and deliverability, prices of
alternative fuels and weather conditions. In recent periods, additional
competitive pressures have been generated in Midwest natural gas markets due to
the introduction and planned introduction of additional supplies into the
Chicago market area, although incremental "take away" capacity has also been
constructed. We have attempted to reduce our exposure to this form of market
variability by pursuing long-term, fixed-rate type contract agreements for
capacity on Natural Gas Pipeline Company of America. In addition, as discussed
under "Risk Management" elsewhere in this document and in Note 14 of the
accompanying Notes to Consolidated Financial Statements, we utilize a
comprehensive risk management program to mitigate our exposure to changes in the
market price of natural gas and associated transportation.

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," "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 operating results
or the ability to generate sales, income or cash flow are forward-looking
statements. Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results of our
operations may differ materially from those 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, stability and overall demand for natural gas and
         electricity in the United States; economic activity, weather,
         alternative energy sources, conservation and technological advances
         that may affect price trends and demand;
    -    national, international, regional and local economic, competitive and
         regulatory conditions and developments;
    -    the various factors which affect Kinder Morgan Energy Partners, L.P.'s
         ability to maintain or increase its level of earnings and
         distributions;
    -    our ability to integrate any acquired operations into our existing
         operations;
    -    changes in laws or regulations, third-party relationships and
         approvals, decisions of courts, regulators and governmental bodies that
         may affect our business or our ability to compete;
    -    our ability to achieve cost savings and revenue growth;
    -    conditions in capital markets;
    -    rates of inflation;
    -    interest rates;
    -    political and economic stability of oil producing nations;
    -    the pace of deregulation of retail natural gas and electricity;


                                       37
<PAGE>   38
ITEM 7:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS (continued)

    -    the timing and extent of changes in commodity prices for oil, natural
         gas, electricity and certain agricultural products; and
    -    the timing and success of business development efforts.

You should not put an undue reliance on forward-looking statements.

ITEM 7A:   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this item is in Item 7 under the heading "Risk
Management."







                                       38
<PAGE>   39
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index                                                                      Page
--------------------------------------------------------------------------------

Report of Independent Accountants......................................... 40-41
Consolidated Statements of Income.........................................    42
Consolidated Statements of Comprehensive Income...........................    43
Consolidated Balance Sheets...............................................    44
Consolidated Statements of Stockholders' Equity...........................    45
Consolidated Statements of Cash Flows.....................................    46
Notes to Consolidated Financial Statements................................ 47-81
Selected Quarterly Financial Data (unaudited)............................. 82-83

Schedule II -- Valuation and Qualifying Accounts..........................    87


--------------------------------------------------------------------------------










                                       39
<PAGE>   40
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)




                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
and Stockholders of Kinder Morgan, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Kinder
Morgan, Inc. (formerly K N Energy, Inc.) and its subsidiaries at December 31,
2000 and 1999, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, 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 our opinion.


As more fully described in Note 5, the Company has revised the 2000 consolidated
financial statements for the amortization of excess investment and the 1999
consolidated financial statements for the amount of gain recognized on certain
asset sales.


We also audited the adjustments described in Note 2 that were applied to restate
the 1998 consolidated financial statements. In our opinion, these adjustments
are appropriate and have been properly applied.



/s/PricewaterhouseCoopers LLP


Houston, Texas
February 14, 2001,
except as to the third paragraph in
Note 5 which is as of May 2, 2001



                                       40
<PAGE>   41
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Kinder Morgan, Inc.:

We have audited the accompanying consolidated statements of income,
comprehensive income, stockholders' equity, and cash flows of Kinder Morgan,
Inc. (formerly K N Energy, Inc. and a Kansas corporation) and subsidiaries for
the year ended December 31, 1998 prior to the restatement (and, therefore, are
not presented herein) for the retroactive application of the equity method of
accounting for an investment as described in Note 2 to the restated financial
statements. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Kinder Morgan, Inc. and subsidiaries for the year ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.

                                                        /s/ Arthur Andersen LLP

Denver, Colorado
February 2, 1999 (except with respect to the matters discussed in Note 6, as to
which the dates are March 16, 2000 and February 14, 2001)



                                       41
<PAGE>   42

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF INCOME
KINDER MORGAN, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                                                                 YEAR ENDED DECEMBER 31,
                                                                -----------------------------------------------------
                                                                         RESTATED SEE                       RESTATED
                                                                         NOTES 2 AND 5                     SEE NOTE 2
                                                                --------------------------------          -----------
                                                                    2000                1999                  1998
                                                                -----------          -----------          -----------
                                                                      (In Thousands Except Per Share Amounts)
<S>                                                            <C>                  <C>                  <C>
OPERATING REVENUES:
Natural Gas Sales                                               $ 1,999,648          $ 1,004,097          $   955,254
Natural Gas Transportation and Storage                              596,774              745,179              640,906
Other                                                               117,315               87,092               64,099
                                                                -----------          -----------          -----------
Total Operating Revenues                                          2,713,737            1,836,368            1,660,259
                                                                -----------          -----------          -----------

OPERATING COSTS AND EXPENSES:
Gas Purchases and Other Costs of Sales                            1,960,083            1,050,250              836,614
Operations and Maintenance                                          164,286              184,888              170,035
General and Administrative                                           58,087               85,591               68,502
Depreciation and Amortization                                       108,165              147,933              155,363
Taxes, Other Than Income Taxes                                       27,973               34,561               28,290
Merger-related and Severance Costs                                       --               37,443                5,763
                                                                -----------          -----------          -----------
Total Operating Costs and Expenses                                2,318,594            1,540,666            1,264,567
                                                                -----------          -----------          -----------

OPERATING INCOME                                                    395,143              295,702              395,692
                                                                -----------          -----------          -----------

OTHER INCOME AND (EXPENSES):
Kinder Morgan Energy Partners:
    Equity in Earnings                                              140,913               15,733                   --
    Amortization of Excess Investment                               (27,593)              (7,335)                  --
Equity in Earnings (Losses) of Other Equity Investments              (6,586)              24,651               31,141
Interest Expense, Net                                              (243,155)            (251,920)            (205,840)
Minority Interests                                                  (24,121)             (24,845)             (19,483)
Other, Net                                                           72,565              162,565               21,395
                                                                -----------          -----------          -----------
Total Other Income and (Expenses)                                   (87,977)             (81,151)            (172,787)
                                                                -----------          -----------          -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES               307,166              214,551              222,905
Income Taxes                                                        123,017               79,124               82,710
                                                                -----------          -----------          -----------
INCOME FROM CONTINUING OPERATIONS                                   184,149              135,427              140,195
                                                                -----------          -----------          -----------

DISCONTINUED OPERATIONS, NET OF TAX:
Loss from Discontinued Operations                                        --              (50,941)             (77,984)
Loss on Disposal of Discontinued Operations                         (31,734)            (344,378)                  --
                                                                -----------          -----------          -----------
Total Loss From Discontinued Operations                             (31,734)            (395,319)             (77,984)
                                                                -----------          -----------          -----------

NET INCOME (LOSS)                                                   152,415             (259,892)              62,211
Less - Preferred Dividends                                               --                  129                  350
Less - Premium Paid on Preferred Stock Redemption                        --                  350                   --
                                                                -----------          -----------          -----------
EARNINGS (LOSS) AVAILABLE FOR COMMON STOCK                      $   152,415          $  (260,371)         $    61,861
                                                                ===========          ===========          ===========

Number of Shares Used in Computing Basic
  Earnings Per Common Share (Thousands)                             114,063               80,284               64,021
                                                                ===========          ===========          ===========

BASIC EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations                                           $      1.62          $      1.68          $      2.19
Loss from Discontinued Operations                                        --                (0.63)               (1.22)
Loss on Disposal of Discontinued Operations                           (0.28)               (4.29)                  --
                                                                -----------          -----------          -----------
Total Basic Earnings (Loss) Per Common Share                    $      1.34          $     (3.24)         $      0.97
                                                                ===========          ===========          ===========

Number of Shares Used in Computing Diluted
  Earnings Per Common Share (Thousands)                             115,030               80,358               64,636
                                                                ===========          ===========          ===========

DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Continuing Operations                                           $      1.61          $      1.68          $      2.17
Loss from Discontinued Operations                                        --                (0.63)               (1.21)
Loss on Disposal of Discontinued Operations                           (0.28)               (4.29)                  --
                                                                -----------          -----------          -----------
Total Diluted Earnings (Loss) Per Common Share                  $      1.33          $     (3.24)         $      0.96
                                                                ===========          ===========          ===========

DIVIDENDS PER COMMON SHARE                                      $      0.20          $      0.65          $      0.76
                                                                ===========          ===========          ===========
</TABLE>


The accompanying notes are an integral part of these statements.


                                     42
<PAGE>   43
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
KINDER MORGAN, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------------
                                                             RESTATED SEE                      RESTATED
                                                             NOTES 2 AND 5                    SEE NOTE 2
                                                    -------------------------------          -----------
                                                        2000               1999                  1998
                                                    -----------         -----------          -----------
                                                                      (In Thousands)
<S>                                                <C>                 <C>                  <C>
NET INCOME (LOSS)                                    $ 152,415           $(259,892)           $  62,211
Realized Gain on Equity Securities, Net of Tax           1,602                 852                   --
Unrealized Loss on Equity Securities, Net of Tax            --                  --               (6,697)
                                                     ---------           ---------            ---------

COMPREHENSIVE INCOME (LOSS)                          $ 154,017           $(259,040)           $  55,514
                                                     =========           =========            =========
</TABLE>


The accompanying notes are an integral part of these statements.



                                       43
<PAGE>   44
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


CONSOLIDATED BALANCE SHEETS
KINDER MORGAN, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                                              DECEMBER 31,
                                                                                      ---------------------------------
                                                                                          RESTATED SEE NOTES 2 AND 5
                                                                                      ---------------------------------
                                                                                          2000                  1999
                                                                                      -----------          ------------
                                                                                               (In Thousands)
<S>                                                                                 <C>                  <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents                                                             $   141,923          $    26,378
Restricted Deposits                                                                        14,063                   51
Customer Accounts Receivable, Net                                                         104,209              298,805
Receivable From Kinder Morgan Energy Partners                                                  --              330,000
Other Receivables                                                                          64,309                7,646
Inventories                                                                                19,600               50,328
Gas Imbalances                                                                             40,838               51,024
Other                                                                                      48,700               19,154
Net Current Assets of Discontinued Operations                                                  --               58,991
                                                                                      -----------          -----------
                                                                                          433,642              842,377
                                                                                      -----------          -----------
INVESTMENTS:
Kinder Morgan Energy Partners                                                           1,819,281            1,759,928
Other                                                                                     143,698              132,971
                                                                                      -----------          -----------
                                                                                        1,962,979            1,892,899
                                                                                      -----------          -----------
PROPERTY, PLANT AND EQUIPMENT, NET                                                      5,724,617            5,789,564
                                                                                      -----------          -----------

DEFERRED CHARGES AND OTHER ASSETS                                                         265,751              209,758
                                                                                      -----------          -----------

NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS                                              --              659,236
                                                                                      -----------          -----------
TOTAL ASSETS                                                                          $ 8,386,989          $ 9,393,834
                                                                                      ===========          ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-term Debt                                                  $   808,167          $     7,167
Notes Payable                                                                             100,000              574,400
Accounts Payable                                                                          126,267              224,625
Accounts Payable - Kinder Morgan Energy Partners                                           13,534                   --
Accrued Interest                                                                           72,222               73,000
Accrued Taxes                                                                              26,584               36,075
Gas Imbalances                                                                             39,496               74,992
Payable for Purchase of Thermo Companies                                                   15,000               44,320
Reserve for Loss on Disposal of Discontinued Operations                                    23,694              535,630
Other                                                                                     143,761              133,620
                                                                                      -----------          -----------
                                                                                        1,368,725            1,703,829
                                                                                      -----------          -----------
OTHER LIABILITIES AND DEFERRED CREDITS:
Deferred Income Taxes                                                                   2,273,177            2,219,615
Other                                                                                     208,570              242,926
                                                                                      -----------          -----------
                                                                                        2,481,747            2,462,541
                                                                                      -----------          -----------

LONG-TERM DEBT                                                                          2,478,983            3,293,326
                                                                                      -----------          -----------

KINDER MORGAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL TRUST
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY DEBENTURES OF KINDER MORGAN                 275,000              275,000
                                                                                      -----------          -----------

MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES                                                4,910                9,523
                                                                                      -----------          -----------

COMMITMENTS AND CONTINGENT LIABILITIES (NOTES 9 AND 17)

STOCKHOLDERS' EQUITY:
Preferred Stock (Note 13)                                                                      --                   --
Common Stock-
Authorized - 150,000,000 Shares, Par Value $5 Per Share
  Outstanding - 114,578,800  and 112,838,379 Shares,
  Before Deducting 96,140 and 172,402 Shares Held in Treasury                             572,894              564,192
Additional Paid-in Capital                                                              1,189,270            1,203,008
Retained Earnings (Deficit)                                                                17,787             (111,841)
Other, Including Shares Held in Treasury                                                   (2,327)              (5,744)
                                                                                      -----------          -----------
Total Stockholders' Equity                                                              1,777,624            1,649,615
                                                                                      -----------          -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $ 8,386,989          $ 9,393,834
                                                                                      ===========          ===========
</TABLE>


The accompanying notes are an integral part of these statements.


                                       44
<PAGE>   45

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
KINDER MORGAN, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                               -------------------------------------------------------------------------------------
                                                        2000                          1999                           1998
                                                        ----                          ----                           ----
                                                SHARES         AMOUNT         SHARES         AMOUNT         SHARES         AMOUNT
                                                ------         ------         ------         ------         ------         ------
                                                                              (Dollars In Thousands)
PREFERRED STOCK:
<S>                                          <C>             <C>            <C>            <C>            <C>            <C>
     Beginning Balance                                  --  $        --         70,000    $     7,000         70,000    $     7,000
     Redemption of Preferred Stock                      --           --        (70,000)        (7,000)            --             --
                                               -----------  -----------    -----------    -----------    -----------    -----------
     Ending Balance                                     --           --             --             --         70,000          7,000
                                               ===========  -----------    ===========    -----------    ===========    -----------

COMMON STOCK:
     Beginning Balance                         112,838,379      564,192     68,645,906        343,230     32,024,557        160,123
     Sale of Common Stock, Net                          --           --             --             --     12,500,000         62,500
     Acquisition of Kinder Morgan Delaware              --           --     41,683,323        208,417              -            - -
     Acquisitions/Sales of Other Businesses        946,207        4,731      2,065,909         10,330        689,810          3,449
     Employee and Executive Benefit Plans          794,214        3,971        443,241          2,215        549,570          2,758
     Common Stock Split                                 --           --             --             --     22,881,969        114,400
                                               -----------  -----------    -----------    -----------    -----------    -----------
     Ending Balance                            114,578,800      572,894    112,838,379        564,192     68,645,906        343,230
                                               -----------  -----------    -----------    -----------    -----------    -----------

ADDITIONAL PAID-IN CAPITAL:
     Beginning Balance                                        1,203,008                       694,223                       266,435
     Sale of Common Stock, Net                                       --                            --                       558,053
     Costs Related to PEPS Offering                              (1,151)                         (514)                      (62,150)
     Revaluation of KMEP Investment (Note 5)                    (51,074)                           --                            --
     Acquisition of Kinder Morgan Delaware                           --                       470,831                            --
     Acquisition of Other Businesses                             23,824                        34,670                        30,985
     Employee and Executive Benefit Plans                        14,663                         3,798                        15,371
     Common Stock Split                                              --                            --                      (114,471)
                                                            -----------                   -----------                   -----------
     Ending Balance                                           1,189,270                     1,203,008                       694,223
                                                            -----------                   -----------                   -----------

RETAINED EARNINGS (DEFICIT):
     Beginning Balance - as Previously
        Reported                                                (95,615)                      193,925                       185,658
     Restatement (Notes 2 and 5)                                (16,226)                        2,222                            --
                                                            -----------                   -----------                   -----------
     Beginning Balance - As Restated                           (111,841)                      196,147                       185,658
     Net Income (Loss) - as Previously Reported                 151,981                      (241,444)                       59,989
     Restatement (Notes 2 and 5)                                    434                       (18,448)                        2,222
     Cash Dividends:
        Common                                                  (22,787)                      (47,967)                      (51,372)
        Preferred                                                    --                          (129)                         (350)
                                                            -----------                   -----------                   -----------
     Ending Balance                                              17,787                      (111,841)                      196,147
                                                            -----------                   -----------                   -----------

OTHER:

  DEFERRED COMPENSATION:
     Beginning Balance                                               --                       (10,686)                       (9,203)
     Executive Benefit Plans                                         --                        10,686                        (1,483)
                                                            -----------                   -----------                   -----------
     Ending Balance                                                  --                            --                       (10,686)
                                                            -----------                   -----------                   -----------

  TREASURY STOCK, AT COST:
     Beginning Balance                            (172,402)      (4,142)       (48,598)        (1,417)       (28,482)        (1,124)
     Treasury Stock Acquired                        (1,743)         (62)      (135,510)        (2,956)       (60,994)        (2,834)
     Treasury Stock Issued                          78,005        1,877             --             --             --             --
     Acquisition of Businesses                          --           --             --             --         39,970          1,801
     Dividend Reinvestment Plan                         --           --         11,706            231         17,135            740
     Common Stock Split                                 --           --             --             --        (16,227)            --
                                               -----------  -----------    -----------    -----------    -----------    -----------
     Ending Balance                                (96,140)      (2,327)      (172,402)        (4,142)       (48,598)        (1,417)
                                               -----------  -----------    -----------    -----------    -----------    -----------

  ACCUMULATED OTHER COMPREHENSIVE
       INCOME (NET OF TAX):
     Beginning Balance                                           (1,602)                       (2,454)                        4,243
     Sale of Tom Brown, Inc. Common Stock                         1,602                            --                            --
     Unrealized Gain (Loss) on Equity Securities                     --                           852                        (6,697)
                                                            -----------                   -----------                   -----------
     Ending Balance                                                  --                        (1,602)                       (2,454)
                                                            -----------                   -----------                   -----------

TOTAL OTHER                                        (96,140)      (2,327)      (172,402)        (5,744)       (48,598)       (14,557)
                                               -----------  -----------    -----------    -----------    -----------    -----------

TOTAL  STOCKHOLDERS' EQUITY                    114,482,660  $ 1,777,624    112,665,977    $ 1,649,615     68,597,308    $ 1,226,043
                                               ===========  ===========    ===========    ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these statements.



                                       45
<PAGE>   46

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS
KINDER MORGAN, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                   YEAR ENDED DECEMBER 31,
                                                                                        -------------------------------------------

                                                                                        RESTATED SEE NOTES 2 AND 5
                                                                                        ---------------------------
                                                                                             2000            1999            1998
                                                                                             ----            ----            ----
<S>                                                                                   <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  (In Thousands)
Net Income (Loss)                                                                       $   152,415     $  (259,892)    $    62,211
Adjustments to Reconcile Net Income (Loss) to
  Net Cash Flows from Operating Activities:
     Loss from Discontinued Operations, Net of Tax                                           31,734         395,319          77,984
     Depreciation and Amortization                                                          108,165         147,933         155,363
     Deferred Income Taxes                                                                  105,714          46,000          24,516
     Equity in Earnings of Kinder Morgan Energy Partners                                   (112,596)         (8,398)             --
     Distributions from Kinder Morgan Energy Partners                                       121,323          15,000              --
     Deferred Purchased Gas Costs                                                             2,685           6,646             468
     Net Gains on Sales of Facilities                                                       (61,684)       (157,938)        (19,552)
     Proceeds from Buyout of Contractual Gas Obligations                                         --              --          27,500
     Changes in Other Working Capital Items [Note 1(M)]                                     (48,466)         36,119         (40,506)
     Changes in Deferred Revenues                                                            (4,457)        (15,641)          6,300
     Other, Net                                                                             (17,346)         21,540          (7,242)
                                                                                        -----------     -----------     -----------
Net Cash Flows Provided by Continuing Operations                                            277,487         226,688         287,042
Net Cash Flows Provided by (Used in) Discontinued Operations                               (110,399)         94,488        (191,773)
                                                                                        -----------     -----------     -----------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES                                             167,088         321,176          95,269
                                                                                        -----------     -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures                                                                       (137,477)        (97,644)       (120,881)
Proceeds from Sales to Kinder Morgan Energy Partners                                        500,302              --              --
Cash Paid for Acquisition of MidCon Corp., Net of Cash Acquired                                  --              --      (2,191,555)
Other Acquisitions                                                                          (19,412)        (34,565)          1,086
Investments                                                                                 (28,688)        (10,044)         (9,179)
Proceeds from Sale of Tom Brown, Inc. Stock                                                  14,823          28,650              --
Sale of U.S. Government Securities                                                               --       1,092,415       1,062,453
Purchase of U.S. Government Securities                                                           --              --      (2,154,868)
Proceeds from Sales of Other Assets                                                          14,998          87,949          38,634
                                                                                        -----------     -----------     -----------
Net Cash Flows Provided by (Used in) Continuing Investing Activities                        344,546       1,066,761      (3,374,310)
Net Cash Flows Provided by (Used in) Discontinued Investing Activities                      154,176         (46,568)       (119,100)
                                                                                        -----------     -----------     -----------
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING  ACTIVITIES                                  498,722       1,020,193      (3,493,410)
                                                                                        -----------     -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Debt, Net                                                                       (474,400)     (1,117,446)        (32,687)
Long-Term Debt - Issued                                                                          --              --       2,750,000
Long-Term Debt - Retired                                                                    (14,055)       (158,934)        (35,787)
Common Stock Issued in Public Offering                                                           --              --         650,000
Other Common Stock Issued                                                                    17,773           8,323          13,437
Other Financing, Net                                                                        (45,239)             --              --
Mandatorily Redeemable Trust Securities Issued                                                   --              --         175,000
Preferred Stock Redeemed                                                                         --          (7,350)             --
Treasury Stock, Issued                                                                        1,877             231             740
Treasury Stock, Acquired                                                                        (62)         (2,956)         (2,834)
Cash Dividends, Common and Preferred                                                        (22,787)        (48,096)        (51,722)
Minority Interests, Net                                                                      (2,436)            379           9,697
Premium Equity Participating Securities Contract Fee and Securities Issuance
Costs                                                                                       (10,936)        (11,097)        (78,219)
                                                                                        -----------     -----------     -----------
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES                                  (550,265)     (1,336,946)      3,397,625
                                                                                        -----------     -----------     -----------

Net Increase (Decrease) in Cash and Cash Equivalents                                        115,545           4,423            (516)
Cash and Cash Equivalents at Beginning of Year                                               26,378          21,955          22,471
                                                                                        -----------     -----------     -----------
Cash and Cash Equivalents at End of Year                                                $   141,923     $    26,378     $    21,955
                                                                                        ===========     ===========     ===========
</TABLE>


The accompanying notes are an integral part of these statements.



                                       46
<PAGE>   47
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1.   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 (A)  Nature of Operations

Kinder Morgan, Inc. is one of the largest midstream energy companies in America,
operating more than 30,000 miles of natural gas and products pipelines. Our
common stock is traded on the New York Stock Exchange under the ticker symbol
"KMI." We are an energy services provider and have operations in 16 states in
the Rocky Mountain and mid-continent regions, with principal operations in
Arkansas, Colorado, Illinois, Iowa, Kansas, Nebraska, Oklahoma, Texas and
Wyoming. Energy services we offer include: storing, transporting and selling
natural gas, providing retail natural gas distribution services, and generating
and selling electricity. We have both regulated and nonregulated operations.
During 1999, we made significant acquisitions, including Kinder Morgan Delaware.
As a result, through our general partner interest, we operate Kinder Morgan
Energy Partners, L.P., a publicly traded pipeline master limited partnership,
referred to in these Notes as "Kinder Morgan Energy Partners," and receive a
substantial portion of our earnings from returns on this investment.

In October 1999, K N Energy, Inc., (as we were then named) a Kansas corporation,
acquired Kinder Morgan, Inc., a Delaware corporation, referred to in these Notes
as "Kinder Morgan Delaware." We then changed our name to Kinder Morgan, Inc.
Unless the context requires otherwise, references to "we," "us," "our," or the
"Company" are intended to mean Kinder Morgan, Inc. (a Kansas corporation and
formerly known as K N Energy, Inc.) and its consolidated subsidiaries. During
the third and fourth quarters of 1999, we adopted and implemented plans to
discontinue our businesses involved in (i) wholesale marketing of natural gas
and natural gas liquids, (ii) gathering and processing of natural gas, including
field services and short-haul intrastate pipelines, (iii) direct marketing of
non-energy products and services and (iv) international operations. During the
fourth quarter of 2000, we decided that, due to the start-up nature of these
operations and the unwillingness of buyers to pay for the value created to date,
it was not in the best interests of the Company to dispose of our international
operations and, accordingly, we decided to retain them. Additional information
concerning these discontinued operations is contained in Note 6.

(B)  Basis of Presentation

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
these estimates.

The consolidated financial statements include the accounts of Kinder Morgan,
Inc. and its majority-owned subsidiaries. Investments in jointly owned
operations in which we have the ability to exercise significant influence over
their operating and financial policies are accounted for under the equity
method, as is our investment in Kinder Morgan Energy Partners, which is further
described in Note 2. All material intercompany transactions and balances have
been eliminated. Certain prior year amounts have been reclassified to conform to
the current presentation.

(C)  Accounting for Regulatory Activities

Our regulated public utilities are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 71,
Accounting for the Effects of Certain Types of Regulation, which prescribes the
circumstances in which the application of generally accepted accounting
principles is affected by the economic effects of regulation.


                                       47
<PAGE>   48
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


Regulatory assets and liabilities represent probable future revenues or expenses
associated with certain charges and credits that will be recovered from or
refunded to customers through the ratemaking process. The following regulatory
assets and liabilities are reflected in the accompanying Consolidated Balance
Sheets:

<TABLE>
<CAPTION>

                                                           DECEMBER 31,
                                                ---------------------------------
                                                  2000                     1999
                                                --------                 --------
                                                          (In Thousands)
<S>                                             <C>                      <C>
REGULATORY ASSETS:
     Employee Benefit Costs                     $  6,576                 $  6,909
     Debt Refinancing Costs                        1,664                    1,992
     Deferred Income Taxes                        16,801                   16,853
     Purchased Gas Costs                          23,470                   27,043
     Plant Acquisition Adjustments                   454                      454
     Rate Regulation and Application Costs         3,040                    3,095
                                                --------                 --------
     Total Regulatory Assets                      52,005                   56,346
                                                --------                 --------

REGULATORY LIABILITIES:
     Employee Benefit Costs                        5,967                    5,967
     Deferred Income Taxes                        28,930                   31,235
     Purchased Gas Costs                          14,415                   25,926
                                                --------                 --------
     Total Regulatory Liabilities                 49,312                   63,128
                                                --------                 --------

NET REGULATORY ASSETS (LIABILITIES)             $  2,693                 $ (6,782)
                                                ========                 ========
</TABLE>

As of December 31, 2000, $45.0 million of our regulatory assets and $43.3
million of our regulatory liabilities were being recovered from or refunded to
customers through rates over periods ranging from 1 to 13 years.

(D)  Revenue Recognition Policies

We recognize revenues as services are rendered or goods are delivered and, if
applicable, title has passed. Our rate-regulated retail natural gas distribution
business bills customers on a monthly cycle billing basis. Revenues are recorded
on an accrual basis, including an estimate at the end of each accounting period
for gas delivered and, if applicable, title has passed but for which bills have
not yet been rendered. With respect to our construction activities, we utilize
the percentage of completion method whereby revenues and associated expenses are
recognized over the construction period based on work performed in relation to
the total expected for the entire project.


We provide various types of natural gas storage and transportation services to
customers, principally through Natural Gas Pipeline Company of America. The gas
remains the property of the customers at all times. In many cases (generally
described as "firm service"), the customer pays a two-part rate that includes
(i) a fixed fee reserving the right to transport or store gas in our facilities
and (ii) a per-unit rate for volumes actually transported or injected
into/withdrawn from storage. The fixed-fee component of the overall rate is
recognized as revenue ratably over the contract period. The per-unit charge is
recognized as revenue when the volumes are delivered to the customers' agreed
upon delivery point, or when the volumes are injected into/withdrawn from our
storage facilities. In other cases (generally described as "interruptible
service"), there is no fixed fee associated with the services because the
customer accepts the possibility that service may be interrupted at our
discretion in order to serve customers who have purchased firm service. In the
case of interruptible service, revenue is recognized in the same manner
utilized for the per-unit rate on firm service.



(E)  Earnings Per Share

Basic earnings per share is computed based on the monthly weighted-average
number of common shares outstanding during each period. Diluted earnings per
share is computed based on the monthly weighted-average number of common shares
outstanding during the periods, increased by the assumed exercise or conversion
of securities (stock options and premium equity participating security units)
convertible into common stock for which the effect of conversion or exercise
using the treasury stock method would be dilutive.

<TABLE>
<CAPTION>

                                                                  2000             1999              1998
                                                               ----------       ----------        ----------
                                                                               (In Thousands)
<S>                                                           <C>               <C>               <C>
Weighted Average Common Shares Outstanding                        114,063           80,284            64,021
Dilutive Common Stock Options                                         967               74               615
                                                               ----------       ----------        ----------
Shares Used to Compute Diluted Earnings Per Share                 115,030           80,358            64,636
                                                               ==========       ==========        ==========
</TABLE>

Remaining stock options outstanding totaling 307,100 for 2000, 3,824,000 for
1999 and 785,000 for 1998 were not included in the earnings per share
calculation because to do so would have been antidilutive. Shares issuable upon
conversion of the premium equity participating security units were not included
in earnings per share calculations because to do so would have been antidilutive
for all periods presented. Preferred stock dividends and premiums paid on
preferred stock redemptions totaling $479 thousand in 1999, and Preferred Stock
dividends of $350 thousand in 1998 were deducted from net income in arriving at
the balance available to common stockholders. Note 12(B) contains more
information regarding premium equity participating security units, while Note 16
contains more information regarding stock options.




                                       48
<PAGE>   49

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(F)  Restricted Deposits

Restricted Deposits consist of monies on deposit with brokers that are
restricted to meet exchange trading requirements; see Note 14.

(G)  Inventories

<TABLE>
<CAPTION>

                                                            DECEMBER 31,
                                                      -------------------------
                                                        2000            1999
                                                      ---------       ---------
                                                           (In Thousands)
<S>                                                   <C>             <C>
Gas in Underground Storage (Current)                  $   5,145       $  38,499
Materials and Supplies                                   14,455          11,829
                                                      ---------       ---------
                                                      $  19,600       $  50,328
                                                      =========       =========
</TABLE>

Inventories are accounted for using the following methods, with the percent of
the total dollars at December 31, 2000 shown in parentheses: average cost
(85.32%), last-in, first-out (10.26%) and first-in, first-out (4.42%). All
non-utility inventories held for resale are valued at the lower of cost or
market. We also maintain gas in our underground storage facilities on behalf of
certain third parties. We receive a fee from our storage service customers but
do not reflect the value of their gas stored in our facilities in the
accompanying Consolidated Balance Sheets. The excess of current cost over the
reported last-in, first-out value of gas in underground storage valued under
that method was approximately $7.4 million at December 31, 2000.

(H)  Other Investments

<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                                --------------------------------
                                                                   2000                  1999
                                                                ----------            ----------
                                                                        (In Thousands)
<S>                                                             <C>                   <C>
Thermo Companies                                                $   72,457            $   63,528
TransColorado Pipeline Company                                      34,824                31,160
Tom Brown, Inc. Common Stock (Note 5)                                   --                12,283
Other                                                               36,417                26,000
                                                                ----------            ----------
                                                                $  143,698            $  132,971
                                                                ==========            ==========
</TABLE>


Investments consist primarily of equity method investments in unconsolidated
subsidiaries and joint ventures, and include ownership interests in net profits
and net cash flows. At December 31, 2000, "Other" included a $13.5 million
investment in Wrightsville Development, LLC, a $6.0 million investment in
Igasamex USA, Ltd., a $5.3 million investment in Front Range Holding, LLC, and
approximately $4.5 million in assets held for deferred employee compensation,
among other individually insignificant items. At December 31, 1999, "Other"
included a $10.4 million investment in Front Range Holding, LLC, a $6.3 million
investment in Igasamex USA, Ltd., and approximately $4.9 million in assets held
for deferred employee compensation, among other individually insignificant
items.

(I)  Property, Plant and Equipment

Property, plant and equipment is stated at historical cost, which for
constructed plant includes indirect costs such as payroll taxes, fringe
benefits, administrative and general costs. Expenditures that increase
capacities, improve efficiencies or extend useful lives are capitalized. Routine
maintenance, repairs and renewal costs are expensed as incurred. The cost of
normal retirements of depreciable utility property, plant and equipment, plus
the cost of removal less salvage, is recorded in accumulated depreciation with
no effect on current period earnings. Gains or losses are recognized upon
retirement of non-utility property, plant and equipment, and utility property,
plant and equipment constituting an operating unit or system, when sold or
abandoned.



                                       49
<PAGE>   50

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

In accordance with the provisions of SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," we review the
carrying values of our long-lived assets whenever events or changes in
circumstances indicate that such carrying values may not be recoverable. As yet,
no asset or group of assets has been identified for which the sum of expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset(s) and, accordingly, no impairment losses have been
recorded. However, currently unforeseen events and changes in circumstances
could require the recognition of impairment losses at some future date.

(J)  Depreciation and Amortization

Depreciation is computed based on the straight-line method over the estimated
useful lives of assets. The range of estimated useful lives used in depreciating
assets for each property type are as follows:

<TABLE>
<CAPTION>

PROPERTY TYPE                                     RANGE OF ESTIMATED USEFUL LIVES OF ASSETS
-------------                                  ----------------------------------------------
                                                                   (In Years)
<S>                                             <C>
Natural Gas Pipelines                              24 to 68 (Transmission assets: average 56)
Retail Natural Gas Distribution                                        33
Power Generation                                                    10 to 30
General and Other                                                    3 to 56
</TABLE>

(K)  Interest Expense, Net

"Interest Expense, Net" as presented in the accompanying Consolidated Statements
of Income is net of (i) the debt component of the allowance for funds used
during construction ("AFUDC - Interest"), (ii) in 1999, interest income related
to government securities associated with the acquisition of MidCon Corp. and
(iii) in 2000, interest income attributable to (i) our note receivable from
Kinder Morgan Energy Partners associated with the sale of certain interests (see
Note 5) and (ii) interest income associated with settlement of our net cash
position with ONEOK, Inc.; see (N).

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------
                                                     2000               1999              1998
                                                     ----               ----              ----
                                                                   (In Millions)
<S>                                             <C>                <C>               <C>
AFUDC - Interest                                  $      2.6         $      1.9        $      2.3
Interest Income                                   $      2.6         $      0.5        $     46.4
</TABLE>

As discussed in Note 2, in conjunction with the January 30, 1998, acquisition of
MidCon Corp., we were required by the definitive stock purchase agreement to
assume the Substitute Note for $1.4 billion and to collateralize the Substitute
Note with bank letters of credit, a portfolio of government securities or a
combination of the two. As a result, we had a significant amount of interest
income during 1998 associated with the issuance of the Substitute Note, which
has been reported together with the related interest expense as described above.
In conjunction with our sale of certain assets to ONEOK as discussed in Note 6,
we agreed to continue managing cash for these assets for a period of months,
following which an audit was conducted to affirm the assignment of specific
amounts to the two parties based on the timing of the underlying business
transactions. We reported the interest income attributable to our net receivable
resulting from this transaction together with the related interest expense as
described above.


                                       50
<PAGE>   51

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


(L)  Other, Net

"Other, Net" as presented in the accompanying Consolidated Statements of Income
includes $61.7 million, $189.8 million and $19.6 million in 2000, 1999 and 1998,
respectively, attributable to gains from sales of assets. These transactions are
discussed in Note 5.

(M)  Cash Flow Information

We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. "Other, Net," presented as a
component of "Net Cash Flows From Operating Activities" in the accompanying
Consolidated Statements of Cash Flows includes, among other things,
undistributed equity in earnings of unconsolidated subsidiaries and joint
ventures (other than Kinder Morgan Energy Partners) and other non-cash charges
and credits to income.

ADDITIONAL CASH FLOW INFORMATION:

CHANGES IN OTHER WORKING CAPITAL ITEMS:
(NET OF EFFECTS OF ACQUISITIONS AND SALES)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                -----------------------------------------------
                                                                  2000               1999               1998
                                                                ----------         ----------        ----------
                                                                                 (In Thousands)
<S>                                                             <C>                <C>               <C>
Accounts Receivable                                             $ (172,781)        $  (16,483)       $  (19,626)
Material and Supplies Inventory                                     (2,626)             2,894              (962)
Gas in Underground Storage - Current                                32,453            (17,626)            6,598
Other Current Assets                                               (27,737)               114             3,329
Accounts Payable                                                   114,908             37,506           (68,774)
Other Current Liabilities                                            7,317             29,714            38,929
                                                                ----------         ----------        ----------
                                                                $  (48,466)        $   36,119        $  (40,506)
                                                                ==========         ==========        ==========
</TABLE>


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                                -----------------------------------------------
                                                                  2000               1999               1998
                                                                ----------         ----------        ----------
                                                                                 (In Thousands)
<S>                                                             <C>                <C>               <C>
CASH PAID FOR:
Interest (Net of Amount Capitalized)                            $  248,177         $  284,762        $  189,929
                                                                ==========         ==========        ==========
Distributions on Preferred Capital Trust Securities             $   21,913         $   21,913        $   14,754
                                                                ==========         ==========        ==========
Income Taxes Paid (Received)                                    $    7,674         $  (10,883)       $   39,756
                                                                ==========         ==========        ==========
</TABLE>

In April 2000, we made the final scheduled payment for our third-quarter 1998
acquisition of interests in the Thermo Companies using 961,153 shares of our
common stock, approximately $30 million of value. For our December 31, 2000 sale
of assets to Kinder Morgan Energy Partners, we received both cash and non-cash
consideration; see Note 5. In October 1999, we acquired Kinder Morgan Delaware
in a non-cash transaction. During 1998, we acquired MidCon Corp. and interests
in assets from the Thermo Companies in transactions that included both cash and
non-cash components. For additional information on these transactions, see Note
2.

(N)  Accounts Receivable

The caption "Customer Accounts Receivable, Net" in the accompanying Consolidated
Balance Sheets is presented net of allowances for doubtful accounts of $2.3
million and $1.7 million at December 31, 2000 and 1999, respectively. The
caption "Other Receivables" principally consists of a receivable from ONEOK due
to cash management services provided to them during 2000 in conjunction with
their purchase of certain of our assets as discussed in Note 6.



                                       51
<PAGE>   52
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(O)  Stock-Based Compensation

SFAS 123, "Accounting for Stock-Based Compensation," encourages, but does not
require, entities to adopt the fair value method of accounting for stock-based
compensation plans. As allowed under SFAS 123, we continue to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, compensation expense is not recognized for stock options unless the
options are granted at an exercise price lower than the market price on the
grant date.

(P)  Accounting for Certain Equity Transactions by Affiliates

We account for our investment in Kinder Morgan Energy Partners (among other
entities) under the equity method of accounting. In each accounting period, we
record our share of these investees' earnings, and amortize any "excess"
investment. We adjust the amount of our excess investment when an equity method
investee or a consolidated subsidiary issues additional equity (or reacquires
equity shares) in any manner that alters our ownership percentage. Differences
between the per unit sales proceeds from these equity issuances (or
reacquisitions) and our underlying book basis, as well as the pro rata portion
of the excess investment (including associated deferred taxes), are recorded
directly to paid-in capital rather than being recognized as gains or losses. Two
such transactions are described in Note 5.

(Q)  Accounting for Risk Management Activities

We utilize energy derivatives for the purpose of mitigating our risk resulting
from fluctuations in the market price of natural gas and associated
transportation. Prior to December 31, 2000, our accounting policy for these
activities was based on a number of authoritative pronouncements including SFAS
No. 80, "Accounting for Futures Contracts." This policy is described in detail
in Note 14, as is our new policy, which is based on the accounting standard
which became effective for us on January 1, 2001, SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."

(R)  Income Taxes

Deferred income tax assets and liabilities are recognized for temporary
differences between the basis of 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. Deferred tax
assets are reduced by a valuation allowance for the amount of any tax benefit we
do not expect to be realized.

2.   BUSINESS COMBINATIONS

On October 7, 1999, we completed the acquisition of Kinder Morgan Delaware, the
sole stockholder of the general partner of Kinder Morgan Energy Partners. Kinder
Morgan Energy Partners is the nation's largest pipeline master limited
partnership. It owns and operates one of the largest product pipeline systems in
the United States, delivering gasoline, diesel and jet fuel to customers through
more than 10,000 miles of pipeline and over 20 associated terminals. Additional
assets include 10,000 miles of natural gas transportation pipelines; natural gas
gathering and storage facilities; 28 bulk terminal facilities, which transload
more than 40 million tons of coal, petroleum coke and other products annually;
and Kinder Morgan CO2 Company, L.P.

To effect the business combination, we issued approximately 41.5 million shares
of our common stock in exchange for all of the outstanding shares of Kinder
Morgan Delaware. Upon closing of the transaction, Richard D. Kinder, Chairman
and Chief Executive Officer of Kinder Morgan Delaware, was named our Chairman
and Chief Executive Officer, and we were renamed Kinder Morgan, Inc. In
addition, we issued 200,000 shares of our common stock to Petrie Parkman & Co.,
Inc. in consideration for Petrie Parkman's advisory services rendered in
connection with the acquisition of Kinder Morgan Delaware. The issuance of these
shares was exempt from registration under Section 4(2) of the Securities Act of
1933, as amended.


                                       52
<PAGE>   53


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The acquisition was accounted for as a purchase for accounting purposes and,
accordingly, the assets acquired and liabilities assumed were recorded at their
respective estimated fair market values as of the acquisition date. The
calculation of the total purchase price and the allocation of that purchase
price to the assets acquired and liabilities assumed based on their fair market
values is shown following:

<TABLE>
<CAPTION>

                                                                           (millions of
The Total Purchase Price Consisted of the Following:                          dollars)
<S>                                                                         <C>
   Kinder Morgan, Inc. Common Stock Issued                                  $     679
   Transaction Fees                                                                 8
                                                                            ---------
        Total                                                               $     687
                                                                            =========

The Purchase Price was Allocated as Follows:
   Investment in Kinder Morgan Energy Partners                              $   1,336
   Cash and Cash Equivalents                                                        1
   Accounts Receivable                                                              9
   Prepayments and Other Current Assets                                             4
   Deferred Charges                                                                 1
   Note Payable Assumed                                                          (149)
   Deferred Income Taxes                                                         (503)
   Accounts Payable and Accrued Liabilities Assumed                               (12)
                                                                            ---------
        Total                                                               $     687
                                                                            =========
</TABLE>

The allocation of the purchase price resulted in an excess of the purchase price
over Kinder Morgan Delaware's share of the underlying equity in the net assets
of Kinder Morgan Energy Partners totaling $1.3 billion. This excess has been
fully allocated to the Kinder Morgan Delaware investment in Kinder Morgan Energy
Partners and reflects the estimated fair market value of this investment at the
date of acquisition. This excess investment is being amortized over 44 years,
approximately the estimated remaining useful life of Kinder Morgan Energy
Partners' assets, and is shown in the accompanying Consolidated Income
Statements as "Amortization of Excess Investment" under the sub-heading "Kinder
Morgan Energy Partners" within "Other Income and (Expenses)." The assets,
liabilities and results of operations of Kinder Morgan Delaware are included
with those of Kinder Morgan beginning with the October 7, 1999 acquisition date.

The following pro forma information gives effect to our acquisition of Kinder
Morgan Delaware as if the business combination had occurred January 1 of each
year presented. This unaudited pro forma information should be read in
conjunction with the accompanying consolidated financial statements. This pro
forma information does not necessarily indicate the financial results that would
have occurred if this acquisition had taken place on the dates indicated, nor
should it necessarily be viewed as an indicator of future financial results.

UNAUDITED PRO FORMA FINANCIAL INFORMATION


<TABLE>
<CAPTION>


                                                                             YEAR ENDED DECEMBER 31,
                                                                  ---------------------------------------------
                                                                        1999                        1998
                                                                        ----                        ----
                                                                  (Dollars in Millions Except Per Share Amounts)

<S>                                                                <C>                          <C>
Operating Revenues                                                 $    1,745.5                 $    1,660.9
Net Income (Loss)                                                  $     (233.9)                $       62.5
Diluted Earnings (Loss) Per Common Share                           $      (2.09)                $       0.58
Number of Shares Used in Computing Diluted Earnings Per
  Common Share (In Thousands)                                           112,334                      106,319
</TABLE>





                                       53
<PAGE>   54


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

During the third quarter of 1998, we completed our acquisition of interests in
four independent power plants in Colorado from the Denver-based Thermo
Companies, representing approximately 380 megawatts of electric generation
capacity and access to approximately 130 Bcf of natural gas reserves. These
generating facilities are located in Ft. Lupton, Colorado (272 megawatts) and
Greeley, Colorado (108 megawatts) and sell their power output to Public Service
Company of Colorado under long-term agreements.

The acquisition was accounted for as a purchase for accounting purposes and,
accordingly, the Thermo assets acquired and liabilities assumed were recorded at
their fair market values as of the acquisition date. The calculation of the
total purchase price and the allocation of that purchase price to the assets
acquired and liabilities assumed based on their fair market values is shown
following:


<TABLE>
<CAPTION>

                                                         (millions of
The Total Purchase Price Consisted of the Following:       dollars)
<S>                                                       <C>
   Cash Paid                                              $      35
   Note Payable to Seller                                       119
   Transaction Fees                                               2
                                                          ---------
        Total                                             $     156
                                                          =========

The Purchase Price was Allocated as Follows:
   Investments                                            $     109
   Property, Plant and Equipment                                 38
   Minority Interest                                             (2)
   Liabilities Assumed and Other                                (14)
   Goodwill                                                      25
                                                          ---------
        Total                                             $     156
                                                          =========
</TABLE>

Payments for the Thermo interests were made over a two-year period, with the
initial payment of 1,034,715 shares of our common stock having been made on
October 21, 1998. Additional payments were made on January 4, 1999, consisting
of 833,623 shares of our common stock and $15 million in cash, on April 20,
1999, consisting of 1,232,286 shares of our common stock and $20 million in cash
and on April 20, 2000, with 961,153 shares of our common stock. Under the
purchase agreement, we were entitled, as soon as the consent of the other
partner was obtained, to become a partner in a 50/50 joint venture in which
Thermo had previously been a partner and, in the interim, to receive cash
distributions from Thermo's former owners in lieu of our share of the joint
venture's earnings. In the fourth quarter of 2000, we obtained the consent,
became a partner in the venture and adopted the equity method of accounting for
this investment. We restated all prior periods to reflect the equity method of
accounting as required by the authoritative accounting guidelines. This
restatement had the effect of decreasing operating revenues by $7.4 million and
$4.9 million, increasing equity in earnings of unconsolidated subsidiaries by
$10.5 million and $8.7 million, and increasing income from continuing operations
by $1.8 million and $2.2 million, in each case for 1999 and 1998, respectively.

On January 30, 1998, we acquired all of the outstanding shares of capital stock
of MidCon Corp. from Occidental Petroleum Corporation for $2.1 billion in cash
and the assumption of a $1.4 billion short-term note (which was repaid in
January, 1999), at which time MidCon Corp. became our wholly owned subsidiary.
MidCon was an energy company engaged in the purchase, gathering, processing,
transmission and storage of natural gas and whose principal asset was Natural
Gas Pipeline Company of America (NGPL). The assets, liabilities and results of
operations of MidCon are included with those of Kinder Morgan beginning with the
January 30, 1998 acquisition date. The acquisition was initially financed
through a combination of credit agreements; see Note 12.

The acquisition was accounted for as a purchase for accounting purposes and,
accordingly, the MidCon assets acquired and liabilities assumed were recorded at
their fair market values as of the acquisition date. The calculation of the
total purchase price and the allocation of that purchase price to the assets
acquired and liabilities assumed based on their fair market values is shown
following:



                                       54
<PAGE>   55

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

<TABLE>
<CAPTION>


                                                                           (millions of
The Total Purchase Price Consisted of the Following:                          dollars)
<S>                                                                         <C>
   Cash Consideration Paid at Closing                                       $     2,104
   Assumption of Short-term Note                                                  1,395
   Transaction Fees                                                                  60
   Working Capital Adjustment                                                        25
                                                                            -----------
        Total                                                               $     3,584
                                                                            ===========

The Purchase Price was Allocated as Follows:
   Cash and Cash Equivalents                                                $        14
   Restricted Deposits                                                               19
   Accounts Receivable                                                              479
   Inventories                                                                       51
   Gas Imbalances and Other Current Assets                                          112
   Investments                                                                       50
   Other Non-current Assets                                                          14
   Property, Plant and Equipment, Net                                             5,308
   Accounts Payable                                                                (317)
   Gas Imbalances and Other Current Liabilities                                    (366)
   Deferred Income Taxes                                                         (1,588)
   Other Non-current Liabilities                                                   (185)
   Minority Interest                                                                 (7)
                                                                            -----------
        Total                                                               $     3,584
                                                                            ===========
</TABLE>

The allocation of purchase price resulted in the recognition of a gas plant
acquisition adjustment of approximately $4.0 billion, principally representing
the excess of the assigned fair market value of the assets of Natural Gas
Pipeline Company of America over the historical cost for ratemaking purposes.
This gas plant acquisition adjustment, none of which is currently being
recognized for rate-making purposes, is being amortized over 55 years (see Note
4), approximately the estimated remaining useful life of Natural Gas Pipeline
Company of America's interstate pipeline system. For the years ended December
31, 2000, 1999 and 1998, $73.3 million, $96.0 million and $97.9 million of such
amortization, respectively, was charged to expense; see Note 4.

The following pro forma information gives effect to our acquisition of MidCon
Corp. as if the business combination had occurred at January 1, 1998. This
unaudited pro forma information should be read in conjunction with the
accompanying consolidated financial statements. This pro forma information does
not necessarily indicate the financial results that would have occurred if this
acquisition had taken place on the date indicated, nor is it necessarily
comparable to subsequent financial results nor should it necessarily be viewed
as an indicator of future financial results.

UNAUDITED PRO FORMA FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                                                           YEAR ENDED
(Dollars in Millions Except Per Share Amounts)                                            DECEMBER 31,
                                                                                         --------------
                                                                                             1998
                                                                                             ----
<S>                                                                                      <C>
Operating Revenues                                                                        $    4,655.9
Net Income                                                                                $       65.6
Diluted Earnings Per Common Share                                                         $       1.01
Number of Shares Used in Computing Diluted Earnings Per Common Share (In Thousands)             64,636
</TABLE>


On February 22, 1999, Sempra Energy and we announced that our respective boards
of directors had unanimously approved a definitive agreement under which Sempra
and we would combine in a stock-and-cash transaction valued in the aggregate at
$6.0 billion. On June 21, 1999, Sempra and we announced that we had mutually
agreed to terminate the merger agreement. Sempra reimbursed us $5.95 million for
expenses incurred in connection with the proposed merger.


                                       55
<PAGE>   56

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

3.     MERGER-RELATED AND SEVERANCE COSTS

In anticipation of the completion of the transaction with Kinder Morgan
Delaware, during the third quarter of 1999, a number of our officers terminated
their employment with us, as did certain other employees. In addition, we
terminated the employment of a number of additional employees during the fourth
quarter of 1999 and in early 2000 as a result of cost saving initiatives
implemented following the closing of the Kinder Morgan Delaware transaction. In
total, approximately 150 employees were severed. In conjunction with these
terminations, we agreed to provide severance benefits and incurred certain legal
and other associated costs. Also in conjunction with the Kinder Morgan Delaware
transaction, we elected to discontinue certain projects, consolidate certain
facilities and relocate certain employees. The $37.4 million pre-tax expense
($23.6 million after tax or $0.29 per diluted share) associated with these
matters (included in the accompanying Consolidated Income Statement for 1999
under the caption "Merger-related and Severance Costs") was composed of the
following: (i) severance and relocation, including restricted stock -- $22.7
million, (ii) facilities costs, including moving expenses -- $5.3 million, (iii)
write-down/write-off of project costs -- $8.0 million and (iv) other -- $1.4
million. Of this total, approximately $9.4 million remained as an accrual at
December 31, 1999, all of which was expended during the first half of 2000. The
$5.8 million pre-tax expense ($3.6 million after tax or $0.06 per diluted share)
included under the same caption for the year ended December 31, 1998 represents
costs associated with our January 30, 1998 acquisition of MidCon Corp. For
additional information on these business combinations, see Note 2.

4.     CHANGE IN ACCOUNTING ESTIMATE

Pursuant to a revised study of the useful lives of the underlying assets by an
independent third party, in July 1999, we changed the depreciation rates
associated with the gas plant acquisition adjustment recorded in conjunction
with the acquisition of MidCon Corp. Relative to the amounts which would have
been recorded utilizing the previous depreciation rates, this change had the
effect of decreasing "Depreciation and Amortization" by approximately $19.3
million for the year ended December 31, 1999. Consequently, "Income from
Continuing Operations" and "Net Income" were increased by approximately $12.1
million for the year ended December 31, 1999 ($0.15 per diluted common share).

5.     INVESTMENTS AND SALES

See Note 6 for information regarding sales of assets and businesses included in
discontinued operations.


In December 2000, we sold approximately $300 million of assets to Kinder Morgan
Energy Partners effective December 31, 2000. The largest asset we sold was our
wholly owned subsidiary Kinder Morgan Texas Pipeline, L.P. and certain
associated entities (a major intrastate natural gas pipeline system). We also
sold the Douglas and Casper gas processing facilities and associated natural gas
gathering systems, our 50 percent interest in Coyote Gas Treating, LLC and our
25 percent interest in Thunder Creek Gas Services, L.L.C. As consideration for
the sale, we received approximately $150 million in cash (with an additional
cash payment for working capital), 0.6 million Kinder Morgan Energy Partners'
common limited partner units and 2.7 million Class-B Kinder Morgan Energy
Partners' common limited partner units. During 2000, we recorded a pre-tax gain
of $61.6 million (approximately $37.0 million after tax or $0.32 per diluted
share) in conjunction with this sale.



We have restated our consolidated financial statements for 2000 and 1999 to
reflect a change in the methodology for gain recognition on the sale of assets
to Kinder Morgan Energy Partners at December 31, 1999 and the associated impact
on amortization of excess investment during 2000. This change was to reflect, as
a proportionate reduction in the gain recognized, Kinder Morgan, Inc.'s
post-sale ownership interest in Kinder Morgan Energy Partners. This change
reduced income from continuing operations and net income for 1999 by $31.8
million pre-tax ($20.2 million after-tax or $0.25 per diluted share). This
restatement had no cash effect in any period and no effect on recurring earnings
(defined to be income from continuing operations before merger and severance
costs and gains from sales of assets) in 1999. As a result, Kinder Morgan, Inc.
reduced the amount of amortization of excess investment which increased
recurring pre-tax earnings by $0.7 million during 2000.


In August 2000, Kinder Morgan Power Company, one of our wholly owned
subsidiaries, announced plans to build a 550-megawatt electric power plant in
Jackson, Michigan. All necessary regulatory permits and approvals have been
obtained, and construction on the $250 million natural gas-fired plant has
begun. The plant is expected to begin commercial operation in July 2002. In May
2000, Kinder Morgan Power announced another 550-megawatt facility that is
currently being constructed near Little Rock, Arkansas.


                                       56
<PAGE>   57


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

In April 2000, Kinder Morgan Energy Partners issued 4.5 million limited
partnership units in a public offering at a price of $39.75 per unit, receiving
total net proceeds (after underwriting discount) of $171.3 million. We did not
acquire any of these units. This transaction reduced our percentage ownership of
Kinder Morgan Energy Partners from approximately 19.9% to approximately 18.6%
and had the associated effects of increasing our investment in the net assets of
Kinder Morgan Energy Partners by $6.1 million and reducing (i) our excess
investment in Kinder Morgan Energy Partners by $81.1 million, (ii) associated
accumulated deferred income taxes by $30.0 million, (iii) paid-in capital by
$45.0 million and (iv) the monthly amortization of the excess investment by
approximately $176 thousand. In February 2000, Kinder Morgan Energy Partners
issued approximately 0.6 million common units as consideration for acquiring all
the capital stock of Milwaukee Bulk Terminals, Inc. and Dakota Bulk Terminals,
Inc. This transaction reduced our percentage ownership of Kinder Morgan Energy
Partners and had the associated effects of increasing our investment in the net
assets of Kinder Morgan Energy Partners by $1.1 million and reducing (i) our
excess investment in Kinder Morgan Energy Partners by $11.3 million, (ii)
associated accumulated deferred income taxes by $4.1 million, (iii) paid-in
capital by $6.1 million and (iv) the monthly amortization of the excess
investment by approximately $21 thousand; see Notes 1(P) and 2.

In March 2000, we sold the 918,367 shares of Tom Brown, Inc. Common Stock we had
held since early 1996 (see the discussion of the sale of Tom Brown Preferred
Stock following). We recorded a pre-tax gain of $1.4 million ($0.8 million after
tax or approximately $0.01 per diluted share).


On December 30, 1999, we entered into an agreement with several of our wholly
owned subsidiaries and Kinder Morgan Energy Partners. As a result, effective as
of December 31, 1999, we sold all of our interests in the following to Kinder
Morgan Energy Partners: (i) our wholly owned subsidiary, Kinder Morgan
Interstate Gas Transmission LLC (formerly K N Interstate Gas Transmission Co.),
(ii) our wholly owned subsidiary, Kinder Morgan Trailblazer LLC (formerly
NGPL-Trailblazer, Inc.), which owns a one-third interest in Trailblazer Pipeline
Company and (iii) our 49% interest in Red Cedar Gathering Company. In exchange,
Kinder Morgan Energy Partners issued to us 9,810,000 common units representing
limited partnership interest in Kinder Morgan Energy Partners. In addition,
Kinder Morgan Energy Partners paid us $330 million in cash in early 2000. During
1999, we recorded a pre-tax gain of $127.0 million (approximately $80.7 million
after tax or $1.00 per diluted share) in conjunction with the sale of
interests, which gain amounts are restated as discussed preceding.


On September 30, 1999, we sold (to an unaffiliated party) our interests in
Stingray Pipeline Company, L.L.C., an offshore pipeline that gathers natural
gas, and West Cameron Dehydration Company, L.L.C., which dehydrates natural gas
for shippers on the Stingray Pipeline. On June 30, 1999, we sold our interests
in the HIOS and UTOS offshore pipeline systems and related laterals to Leviathan
Gas Pipeline Partners, L. P. These two sales yielded total cash proceeds of
approximately $75.1 million, resulted in a total pretax gain of approximately
$28.9 million (approximately $17.6 million after tax or $0.25 per diluted
share), and substantially eliminated our investment in offshore assets.

On September 3, 1999, we sold 1,000,000 shares of preferred stock of Tom Brown,
Inc. for approximately $29 million in cash, realizing a gain of $2.2 million
(approximately $1.3 million after tax or $0.02 per diluted share).

In May 1999, we announced plans to build the Horizon Pipeline, which, through
our wholly owned subsidiary Natural Gas Pipeline Company of America, we planned
to own jointly with one or more other partners. An open season closed in June
1999 with service requests from shippers of more than 800 MMcf of natural gas
per day, including 300 MMcf per day from Nicor Gas. In February 2000, Nicor,
Inc. announced that it had signed an agreement to become an equal partner in the
planned Horizon Pipeline with Natural Gas Pipeline Company of America. The
Horizon Pipeline is a $75 million natural gas pipeline that will originate in
Joliet, Illinois and extend 74 miles into northern Illinois, connecting the
emerging supply hub at Joliet with Nicor Gas' distribution system and an
existing Natural Gas Pipeline Company of America pipeline.




                                       57
<PAGE>   58

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

On March 31, 1999, the TransColorado Gas Transmission Company ("TransColorado"),
an enterprise we jointly own with Questar Corp., placed in service a
280-mile-long natural gas pipeline. This pipeline includes two compressor
stations and extends from near Rangely, Colorado, to its southern terminus at
the Blanco Hub near Aztec, New Mexico. The pipeline has a design transmission
capacity of approximately 300 million cubic feet of natural gas per day. On
October 14, 1998, TransColorado entered into a $200 million revolving credit
agreement with a group of commercial banks. We provide a corporate guarantee for
one-half of all amounts borrowed under the agreement. Beginning 24 months after
the in-service date, Questar has the right, for a 12-month period, to require
that we purchase Questar's ownership interest in TransColorado for $121 million.
This right has been stayed; see Note 9.

In September 1998, we sold some of our microwave towers and associated land and
equipment to American Tower Corp., recognizing a pre-tax gain of $10.9 million
($6.7 million after tax or $0.10 per diluted share). In March 1998, we sold our
Kansas retail natural gas distribution properties to Midwest Energy, Inc.,
recognizing a pre-tax gain of $8.5 million ($5.2 million after tax or $0.08 per
diluted share). Concurrently with the sale, we received $27.5 million in cash in
exchange for release of the purchaser from certain contractual gas purchase
obligations, which amount is being amortized as an offset to gas purchases over
a period of years as the associated volumes are sold.

6.     DISCONTINUED OPERATIONS

Prior to mid-1999, we had major business operations in the upstream (gathering
and processing), midstream (natural gas pipelines) and downstream (wholesale and
retail marketing) portions of the natural gas industry and, in addition, had (i)
non-energy retail marketing operations in the form of a joint venture called
EN*able and (ii) limited international operations. During the third quarter of
1999, we adopted a plan to discontinue the direct marketing of non-energy
products and services (principally under the "Simple Choice" brand). During the
fourth quarter of 1999 and following our merger with Kinder Morgan Delaware, we
adopted and implemented plans to discontinue the following lines of business:
(i) gathering and processing natural gas, including short-haul intrastate
pipelines and providing field services to natural gas producers, (ii) wholesale
marketing of natural gas and natural gas liquids, and (iii) international
operations. During the fourth quarter of 2000, we decided that, due to the
start-up nature of these operations and the unwillingness of buyers to pay for
the value created to date, it was not in the best interests of the Company to
dispose of our international operations, which consist principally of a natural
gas distribution system under development in Hermosillo, Mexico. Consequently,
results from our international operations have been reclassified to continuing
operations for all periods presented. The $3.9 million estimated after-tax loss
on disposal recorded in 1999, consisting principally of a write down to
estimated net realizable value including estimated costs of disposal, was
reversed in 2000 and is included under the caption "Loss on Disposal of
Discontinued Operations" in the accompanying Consolidated Statements of Income.
The following table contains additional information concerning our international
operations.

INTERNATIONAL OPERATIONS


<TABLE>
<CAPTION>

                                                                      YEAR ENDED DECEMBER 31,
                                                           --------------------------------------------
                                                             2000             1999              1998
                                                             ----             ----              ----
                                                                    (Thousands of dollars)
<S>                                                        <C>              <C>               <C>
Total Assets (at December 31)                               $32,347          $25,325           $12,838
Total Liabilities (at December 31)                          $ 3,984          $    29           $   779
Operating Revenues                                          $ 5,699          $ 1,129           $ 4,249
Operating Loss                                              $ 2,071          $ 2,523           $   631
</TABLE>

In accordance with the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30"), our consolidated financial statements have
been restated to present these businesses as discontinued operations.
Accordingly, the revenues, costs and expenses, assets and liabilities and cash
flows of these discontinued operations have been excluded from the respective
captions in the accompanying Consolidated Statements of Income, Consolidated
Balance Sheets and Consolidated Statements of Cash Flows, and have been reported
in the various statements under the captions "Loss from Discontinued Operations,
Net of Tax"; "Loss on Disposal of Discontinued Operations, Net of Tax"; "Net
Current Assets of Discontinued Operations"; "Net Non-current Assets of
Discontinued Operations"; "Net Cash Flows Provided by (Used in) Discontinued
Operations" and "Net Cash Flows Provided by (Used in) Discontinued Investing
Activities" for all relevant periods. In addition, certain of these Notes have
been restated for all relevant periods to reflect the discontinuance of these
operations.





                                       58
<PAGE>   59


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


Summarized financial data of discontinued operations are as follows:

<TABLE>
<CAPTION>

                                                                                              YEAR ENDED DECEMBER 31,
                                                                                   ---------------------------------------------
                                                                                     2000              1999             1998
                                                                                     ----              ----             ----
Income Statement Data                                                                             (In Thousands)
<S>                                                                                <C>               <C>              <C>
Operating Revenues:
  Wholesale Natural Gas and Liquids Marketing                                      $  580,159        $3,550,568       $2,580,459
  Gathering and Processing, Including Field Services and Short-haul
    Intrastate Pipelines                                                           $  436,979        $  630,005       $  640,623

Loss From Discontinued Operations, Net of Tax:
   Wholesale Marketing, Net of Tax Benefits of $9,300 and $7,869                                     $  (15,046)      $  (14,837)
   Gathering and Processing, Net of Tax Benefits of $18,177 and $30,733                              $  (29,404)      $  (57,949)
   EN*able/Orcom, Net of Tax Benefits of $4,150 and $2,757                                           $   (6,491)      $   (5,198)

Loss on Disposal of Discontinued Operations, Net of Tax:
   Wholesale Marketing, Net of Tax Benefits of $2,013 and $34,588                  $   (3,013)       $  (55,780)
   Gathering and Processing, Net of Tax Benefits of $21,617 and $169,413           $  (32,638)       $ (273,202)
   EN*able/Orcom, Net of Tax Benefits of $7,340                                                      $  (11,479)
   International Operations, Net of $2,430 of Tax and $2,430 of Tax Benefits       $    3,917        $   (3,917)
</TABLE>


With the exception of our international operations, which, as discussed above,
we decided to retain, we completed the divestiture of our discontinued
operations by December 31, 2000. In the fourth quarter of 2000, we recorded an
incremental loss on disposal of discontinued operations of $31.7 million,
representing the impact of the final disposition transactions and adjustment of
previously recorded estimates. We had a remaining liability of approximately
$23.7 million at December 31, 2000 associated with these discontinued
operations, principally consisting of (i) indemnification obligations under the
various sale agreements and (ii) retained liabilities, which were settled in
cash in early 2001. Following is additional information concerning the various
disposition transactions.

We completed the disposition of our investment in EN*able and sold our
businesses involved in providing field services to natural gas producers (K N
Field Services, Inc. and Compressor Pump and Engine, Inc.) and MidCon Gas
Products of New Mexico Corp., a wholly owned subsidiary providing natural gas
gathering and processing services, prior to the end of 1999. We received $23.3
million in cash as consideration for these sales.

Effective March 1, 2000, ONEOK purchased our gathering and processing businesses
in Oklahoma, Kansas and West Texas. In addition, ONEOK purchased our marketing
and trading business, as well as certain storage and transmission pipelines in
the Mid-continent region. As consideration, ONEOK paid us approximately $108
million plus approximately $56 million for estimated net working capital at
closing (subject to post-closing adjustment). In addition, ONEOK assumed (i) the
operating lease associated with the Bushton, Kansas processing plant and (ii)
long-term throughput capacity commitments on Natural Gas Pipeline Company of
America and Kinder Morgan Interstate.



                                       59
<PAGE>   60


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

During the second quarter of 2000, we completed the sale of three natural gas
gathering systems and a natural gas processing facility to WBI Holdings, Inc.,
the natural gas pipeline unit of MDU Resources Group, Inc. for approximately $21
million. Gathering systems included in the sale were the Bowdoin System located
in north-central Montana, the Niobrara System located in northeastern Colorado
and northwestern Kansas, and the Yenter System located in northeastern Colorado
and western Nebraska. The natural gas processing facility included in the sale
was the Yenter Plant, located northwest of Sterling, Colorado.

During the fourth quarter of 2000, Wildhorse Energy Partners, LLC distributed
all of its assets to the members and was dissolved. Formed in 1996, Wildhorse
was owned 55 percent by us and 45 percent by Tom Brown. All the Wildhorse
gathering and processing assets were distributed to Tom Brown and we received
the Wolf Creek storage facility (which will be utilized in our natural gas
distribution business) and cash. Also during the fourth quarter of 2000, our
Douglas and Casper gas processing facilities and associated natural gas
gathering systems, our 50 percent interest in Coyote Gas Treating, LLC and our
25 percent interest in Thunder Creek Gas Services, L.L.C. were included as part
of a larger transaction with Kinder Morgan Energy Partners; see Note 5.

7.     ACCOUNTS RECEIVABLE SALES FACILITY

In September 1999, certain of our wholly owned subsidiaries entered into a
five-year agreement to sell all of their accounts receivable, on a revolving
basis, to K N Receivables Corporation, our wholly owned subsidiary. K N
Receivables was formed prior to the execution of that receivables agreement for
the purpose of buying and selling accounts receivable and was determined to be
bankruptcy remote. Also in September 1999, K N Receivables entered into a
five-year agreement with a financial institution whereby K N Receivables could
sell, on a revolving basis, an undivided percentage ownership interest in
certain eligible accounts receivable, as defined, up to a maximum of $150
million. This transaction was accounted for as a sale of receivables in
accordance with SFAS No. 125, "Accounting for Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities." Accordingly, our
accompanying Consolidated Balance Sheet at December 31, 1999, reflects the
portion of receivables transferred to the financial institution as a reduction
of Accounts Receivable. Losses from the sale of these receivables are included
in "Other, Net" in the accompanying Consolidated Statements of Income during the
periods in which the facility was utilized. We received compensation for
servicing that was approximately equal to the amount an independent servicer
would receive. Accordingly, no servicing assets or liabilities were recorded.
The full amount of the allowance for possible losses was retained by K N
Receivables. The fair value of this recourse liability approximated the
allocated allowance for doubtful accounts given the short-term nature of the
transferred receivables.

We received $150 million in proceeds from the sale of receivables on September
30, 1999. The proceeds were subsequently used to retire notes payable of Kinder
Morgan Delaware that were outstanding when we acquired it. Cash flows associated
with this program are included with "Accounts Receivable" under "Cash Flows from
Operating Activities" in the accompanying Statements of Consolidated Cash Flows.
In February 2000, we reduced our participation in this receivables sale program
by approximately $120 million, principally as a result of our then pending
disposition of our wholesale gas marketing business. On April 25, 2000, we
repaid the residual balance and terminated this agreement.

8.     REGULATORY MATTERS

On July 17, 2000, Natural Gas Pipeline Company of America filed its Compliance
Plan, including pro forma tariff sheets, pursuant to the Federal Energy
Regulatory Commission's Order Nos. 637 and 637-A. The FERC directed all
interstate pipelines to file pro forma tariff sheets to comply with new
regulatory requirements in the Orders regarding scheduling procedures, capacity
segmentation, imbalance management services and penalty credits, or in the
alternative, to explain why no changes to existing tariff provisions are
necessary. Natural Gas Pipeline Company of America's filing is currently pending
FERC action and any changes to its tariff provisions are not expected to take
effect until after the entire Order 637 process is finished for all interstate
pipelines.



                                       60
<PAGE>   61


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

On May 10, 2000, Chesapeake Panhandle Limited Partnership filed a complaint with
the FERC against Natural Gas Pipeline Company of America, MidCon Gas Products
Corp., MidCon Gas Services Corp., K N Energy, Inc. and us. The complaint alleges
that Natural Gas Pipeline Company of America collected an unlawful gathering
rate from Chesapeake for the period March 1998 through December 1999. Chesapeake
is seeking a refund totaling $5.2 million. We have responded and denied the
allegations. On July 27, 2000, the FERC issued an order commencing a preliminary
non-public investigation into the complaint. We believe that we have meritorious
defenses to the claim.

On January 23, 1998, Kinder Morgan Interstate filed a general rate case with the
FERC, requesting a $30.2 million increase in annual revenues. As a result of the
FERC's action, Kinder Morgan Interstate was allowed to place its rates into
effect on August 1, 1998, subject to refund, and provisions for refund were
recorded based on expected ultimate resolution. On November 3, 1999, Kinder
Morgan Interstate filed a comprehensive Stipulation and Agreement to resolve all
issues in this proceeding. The FERC approved the Stipulation and Agreement on
December 22, 1999, and the settlement rates have been placed in effect. Kinder
Morgan Interstate was sold to Kinder Morgan Energy Partners effective December
31, 1999; see Note 5.

In November 1997, we announced a plan to give residential and small commercial
customers in Nebraska a choice of natural gas suppliers. This program, the
Nebraska Choice Gas program, became effective June 1, 1998. This program
separates, or "unbundles," the consumer's natural gas purchases from other
utility services. As of December 31, 2000, the plan had been approved by 178 of
the 181 Nebraska municipalities we serve, representing approximately 91,000
customers served by us in Nebraska.

9.     ENVIRONMENTAL AND LEGAL MATTERS

(A)   Environmental Matters

On December 20, 1999, the U.S. Department of Justice filed a Complaint against
Natural Gas Pipeline Company of America on behalf of the U.S. Environmental
Protection Agency in the Federal District Court of Colorado, Civil Action
99-S-2419. The Complaint alleged that Natural Gas Pipeline Company of America
failed to obtain all of the necessary air quality permits in 1979 when it
constructed the Akron Compressor Station, which consisted of three compressor
engines in Weld County, Colorado. Natural Gas Pipeline Company of America and
the Environmental Protection Agency, through the Department of Justice, have
settled this issue.

On December 17, 1999, the State of Colorado notified us of air quality permit
compliance issues for several Kinder Morgan facilities. On September 21, 2000,
we entered into a consent order with the State of Colorado to resolve the
outstanding issues.

In 1998, the Environmental Protection Agency published a final rule addressing
transport of ground level ozone. The rule affected 22 Eastern and Midwestern
states, including Illinois and Missouri, in which we operate gas compression
facilities. The rule required reductions in emissions of nitrogen oxide, a
precursor to ozone formation, from various emission sources, including utility
and non-utility sources. The rule required that the affected states prepare and
submit State Implementation Plans to the Environmental Protection Agency by
September 1999, reflecting how the required emissions reductions would be
achieved. Emission controls are required to be installed by May 1, 2003. The
State Implementation Plans which will effectuate this rule have yet to be
proposed or promulgated, and will require detailed analysis before their final
economic impact can be ascertained. On March 3, 2000, the Washington D.C.
Circuit Court issued a decision regarding the rule. The Circuit Court remanded
certain issues back to the Environmental Protection Agency. On January 5, 2001,
the Environmental Protection Agency proposed regulations concerning the remanded
issues. The final regulations are expected to be promulgated later this year.
While additional capital costs are likely to result from this rule, based on
currently available information, we do not believe that these costs will have a
material adverse effect on our business, cash flows, financial position or
results of operations.



                                       61
<PAGE>   62


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

On June 17, 1999, the Environmental Protection Agency published a final rule
creating a standard to limit emissions of hazardous air pollutants from oil and
natural gas production as well as from natural gas transmission and storage
facilities. The standard requires that the affected facilities reduce emissions
of hazardous air pollutants by 95 percent. This standard will require us to
achieve this reduction either by process modifications or by installing new
emissions control technology. The standard will affect our competitors and us in
a like manner. The rule allows affected sources three years from the publication
date to come into compliance. We have conducted a detailed analysis of the final
rule to determine its overall effect. While additional capital costs are likely
to result from this rule, the rule will not have a material adverse effect on
our business, cash flows, financial position or results of operations.

We have an established environmental reserve of approximately $19 million to
address remediation issues associated with 38 projects. Based on current
information and taking into account reserves established for environmental
matters, we do not believe that compliance with federal, state and local
environmental laws and regulations will have a material adverse effect on our
business, cash flows, financial position or results of operations. In addition,
the clean-up programs in which we are engaged are not expected to interrupt or
diminish our operational ability to gather or transport natural gas. However,
there can be no assurances that future events, such as changes in existing laws,
the promulgation of new laws, or the development of new facts or conditions will
not cause us to incur significant costs.

(B)   Litigation Matters

"K N TransColorado, Inc. v. TransColorado Gas Transmission Company, et. al,"
Case No. 00-CV-129, District Court, County of Garfield, State of Colorado. On
June 15, 2000, K N TransColorado filed suit against Questar TransColorado and
several of its affiliated Questar entities, asserting claims for breach of
fiduciary duties, breach of contract, constructive trust, rescission of the
partnership agreement, breach of good faith and fair dealing, tortuous
concealment, misrepresentation, aiding and abetting a breach of fiduciary duty,
dissolution of the TransColorado partnership, and seeking a declaratory
judgment, among other claims. The TransColorado partnership has been made a
defendant for purposes of an accounting. The lawsuit stems from Questar's
failure to support the TransColorado partnership, together with its decision to
seek regulatory approval for a project that competes with the Partnership, in
breach of its fiduciary duties as a partner. K N TransColorado seeks to recover
damages in excess of $152 million due to Questar's breaches and, in addition,
seeks punitive damages. In response to the complaint, on July 28, 2000, the
Questar entities filed a counterclaim and third party claims against certain of
our entities and us for claims arising out of the construction and operation of
the TransColorado pipeline project. The claims allege, among other things, that
the Kinder Morgan entities interfered with and delayed construction of the
pipeline and made misrepresentations about marketing of capacity. The Questar
entities seek to recover damages in excess of $185 million for an alleged breach
of fiduciary duty and other claims. On December 15, 2000, the parties agreed to
stay the exercise of a contractual provision purportedly requiring K N
TransColorado to purchase Questar's interest in the pipeline and to investigate
the appointment of an independent operator for the pipeline during the
litigation. On January 31, 2001, the Court dismissed Questar's counterclaims for
breach of duty of good faith and fair dealing and for indemnity and contribution
and dismissed Questar's Third Party Complaint. Discovery has commenced.

"Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas Company, and
GASCO, Inc.", Civil Action No. 92-N-2000. On October 9, 1992, Jack J. Grynberg
filed suit in the United States District Court for the District of Colorado
against us, Rocky Mountain Natural Gas Company and GASCO, Inc. alleging that
these entities, the K N Entities, as well as K N Production Company and K N Gas
Gathering, Inc., have violated federal and state antitrust laws. In essence,
Grynberg asserts that the companies have engaged in an illegal exercise of
monopoly power, have illegally denied him economically feasible access to
essential facilities to store, transport and distribute gas, and illegally have
attempted to monopolize or to enhance or maintain an existing monopoly. Grynberg
also asserts certain state causes of action relating to a gas purchase contract.
In February 1999, the Federal District Court granted summary judgment for the K
N Entities as to some of Grynberg's antitrust and state law claims, while
allowing other claims to proceed to trial. Grynberg has previously claimed
damages in excess of $50 million. In addition to monetary damages, Grynberg has
requested that the K N Entities be ordered to divest all interests in natural
gas exploration, development and production properties, all interests in
distribution and marketing operations, and all interests in natural gas storage
facilities, in order to separate these interests from our natural gas gathering
and transportation system in northwest Colorado. No trial date has been set.
However, recent settlement conferences have occurred.




                                       62
<PAGE>   63

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

"Jack J. Grynberg, individually and as general partner for the Greater Green
River Basin Drilling Program: 72-73 v. Rocky Mountain Natural Gas Company and
K N Energy, Inc.," Case No. 90-CV-3686. On June 5, 1990, Jack J. Grynberg filed
suit, which is presently pending in Jefferson County District Court for
Colorado, against Rocky Mountain Natural Gas Company and us alleging breach of
contract and fraud. In essence, Grynberg asserts claims that the named companies
failed to pay Grynberg the proper price, impeded the flow of gas, mismeasured
gas, delayed his development of gas reserves, and other claims arising out of a
contract to purchase gas from a field in northwest Colorado. On February 13,
1997, the trial judge entered partial summary judgment for Mr. Grynberg on his
contract claim that he failed to receive the proper price for his gas. This
ruling followed an appellate decision that was adverse to us on the contract
interpretation of the price issue, but which did not address the question of
whether Grynberg could legally receive the price he claimed or whether he had
illegally diverted gas from a prior purchase. Grynberg has previously claimed
damages in excess of $30 million. On August 29, 1997, the trial judge stayed the
summary judgment pending resolution of a proceeding at the FERC to determine if
Grynberg was entitled to administrative relief from an earlier dedication of the
same gas to interstate commerce. The background of that proceeding is described
in the immediately following paragraph. On March 15, 1999, an Administrative Law
Judge for the FERC ruled, after an evidentiary hearing, that Mr. Grynberg had
illegally diverted the gas when he entered the contract with the named companies
and was not entitled to relief. Grynberg filed exceptions to this ruling. In
late March 2000, the FERC issued an order affirming in part and denying in part
the motions for rehearing of its Initial Decision. On November 21, 2000, the
FERC upheld the Administrative Law Judge's factual findings and denial of
retroactive abandonment. Grynberg recently filed a Notice of Appeal of the
FERC's decision to the D.C. Circuit Court of Appeals. The action in Colorado
remains stayed pending final resolution of these proceedings.

"Jack J. Grynberg v. Rocky Mountain Natural Gas Company," Docket No. GP91-8-008.
"Rocky Mountain Natural Gas Company v. Jack J. Grynberg," Docket No.
GP91-10-008. On May 8, 1991, Grynberg filed a petition for declaratory order
with the FERC seeking a determination whether he was entitled to the price he
seeks in the Jefferson County District Court proceeding referred to in the
immediately preceding paragraph. While Grynberg initially received a favorable
decision from the FERC, that decision was reversed by the Court of Appeals for
the District of Columbia Circuit on June 6, 1997. This matter has been remanded
to the FERC for subsequent proceedings. The matter was set for an expedited
evidentiary hearing, and an Initial Decision favorable to Rocky Mountain was
issued on March 15, 1999. That decision determined that Grynberg had
intentionally diverted gas from an earlier dedication to interstate commerce in
violation of the Natural Gas Act and denied him equitable administrative relief.
On November 21, 2000, the FERC upheld the Administrative Law Judge's factual
findings and denial of retroactive abandonment. Grynberg recently filed a Notice
of Appeal of the FERC's decision to the D.C. Circuit Court of Appeals.

"United States of America, ex rel., Jack J. Grynberg v. K N Energy," Civil
Action No. 97-D-1233, filed in the U.S. District Court, District of Colorado.
This action was filed pursuant to the federal False Claim Act and involves
allegations of mismeasurement of natural gas produced from federal and Indian
lands. The Department of Justice has decided not to intervene in support of the
action. The complaint is part of a larger series of similar complaints filed by
Mr. Grynberg against 77 natural gas pipelines (approximately 330 other
defendants). An earlier single action making substantially similar allegations
against the pipeline industry was dismissed by Judge Hogan of the U.S. District
Court for the District of Columbia on grounds of improper joinder and lack of
jurisdiction. As a result, Mr. Grynberg filed individual complaints in various
courts throughout the country. These cases were recently consolidated by the
Judicial Panel for Multidistrict Litigation, and transferred to the District of
Wyoming. Motions to Dismiss were filed and an oral argument on the Motion to
Dismiss occurred on March 17, 2000. On July 20, 2000 the United States of
America filed a motion to dismiss those claims by Grynberg that deal with the
manner in which defendants valued gas produced from federal leases.





                                       63
<PAGE>   64

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

"Quinque Operating Company, et. al. v. Gas Pipelines, et. al.," Cause No.
99-1390-CM, United States District Court for the District of Kansas. This action
was originally filed in Kansas state court in Stevens County, Kansas as a class
action against approximately 245 pipeline companies and their affiliates,
including certain Kinder Morgan entities. The plaintiffs in the case purport to
represent a class of natural gas producers and fee royalty owners who allege
that they have been subject to systematic gas mismeasurement by the defendants
for more than 25 years. Subsequently, one of the defendants removed the action
to Kansas Federal District Court. Thereafter, we filed a motion with the
Judicial Panel for Multidistrict Litigation to consolidate this action for
pretrial purposes with the Grynberg False Claim Act cases referred to above,
because of common factual questions. On April 10, 2000, the MDL Panel ordered
that this case be consolidated with the Grynberg federal False Claims Act cases.
On January 12, 2001, the Federal District Court of Wyoming issued an oral ruling
remanding the case back to the State Court in Stevens County, Kansas. A Motion
to Reconsider the remand was filed and is currently pending.

"Dirt Hogs, Inc. v. Natural Gas Pipeline Company of America, et al." There have
been several related cases with Dirt Hogs, Inc. with allegations of breach of
contract, false representations, improper requests for kickbacks and other
improprieties. Essentially, the plaintiff claims that it should have been
awarded extensive pipeline reclamation work without having to qualify or bid as
a qualifying contractor. Case No. Civ-98-231-R, is a case which was dismissed in
the U.S. District Court for the Western District of Oklahoma because of pleading
deficiencies and is now on appeal to the 10th Circuit (Case No. 99-6-026). On
April 10, 2000, the 10th Circuit upheld the dismissal of this action. Another
case, arising out of the same factual allegations, was filed by Dirt Hogs in the
District Court, Caddo County, Oklahoma (Case No. CJ-99-92), on March 29, 1999.
By agreement of all parties, this action is currently stayed. A third related
case, styled "Natural Gas Pipeline Company of America, et al. v. Dirt Hogs,
Inc." (Case No. 99-360-R), resulted in a default judgment against Dirt Hogs.
After initially appealing the default judgment, Dirt Hogs dismissed their appeal
on September 1, 1999.

"K N Energy, Inc., et al. v. James P. Rode and Patrick R. McDonald," Case No.
99CV1239, filed in the District Court, Jefferson County, Division 8, Colorado.
Defendants counterclaimed and filed third party claims against several of our
former officers and/or directors. Messrs. Rode and McDonald are former principal
shareholders of Interenergy Corporation. We acquired Interenergy on December 19,
1997 pursuant to a Merger Agreement dated August 25, 1997. Rode and McDonald
allege that K N Energy committed securities fraud, common law fraud and
negligent misrepresentation as well as breach in contract. Plaintiffs are
seeking an unspecified amount of compensatory damages, greater than $2 million,
plus unspecified exemplary or punitive damages, attorney's fees and their costs.
We filed a motion to dismiss, and on April 21, 2000, the Jefferson County
District Court Judge dismissed the case against the individuals and us with
prejudice. Defendants also filed a federal securities fraud action in the United
States District Court for the District of Colorado on January 27, 2000 titled:
"James P. Rode and Patrick R. McDonald v. K N Energy, Inc., et al.," Civil
Action No. 00-N-190. This case initially raised the identical state law claims
contained in the counterclaim and third party complaint in state court. Rode and
McDonald filed an amended Complaint, which dropped the state-law claims. On
February 23, 2000, the federal district court dismissed this Complaint with
prejudice. A third related class action case styled, "Adams vs. Kinder Morgan,
Inc., et. al.," Civil Action No. 00-M-516, in the United States District Court
for the District of Colorado was served on us on April 10, 2000. As of this date
no class has been certified. On February 23, 2000, the federal district court
dismissed several claims raised by the plaintiff, with prejudice, and dismissed
the remaining claims, without prejudice.

We believe that we have meritorious defenses to all lawsuits and legal
proceedings in which we are defendants and will vigorously defend against them.
Based on our evaluation of the above matters, and after consideration of
reserves established, we believe that the resolution of such matters will not
have a material adverse effect on our business, cash flows, financial position
or results of operations.




                                       64
<PAGE>   65


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

10.    PROPERTY, PLANT AND EQUIPMENT

Investments in property, plant and equipment ("PP&E"), at cost, and accumulated
depreciation and amortization ("Accumulated D&A") are as follows:

<TABLE>
<CAPTION>

                                                                          DECEMBER 31, 2000
                                                    --------------------------------------------------------------
                                                    PROPERTY, PLANT          ACCUMULATED
                                                     AND EQUIPMENT               D&A                     NET
                                                     -------------               ---                     ---
                                                                            (In Thousands)
<S>                                                 <C>                      <C>                     <C>
Natural Gas Pipelines                                $  5,662,880            $    262,073            $  5,400,807
Retail Natural Gas Distribution                           251,660                  90,966                 160,694
Electric Power Generation                                  79,696                   2,608                  77,088
General and Other                                         142,773                  56,745                  86,028
                                                     ------------            ------------            ------------
PP&E Related to Continuing Operations                $  6,137,009            $    412,392            $  5,724,617
                                                     ============            ============            ============
</TABLE>

<TABLE>
<CAPTION>

                                                                          DECEMBER 31, 1999
                                                    --------------------------------------------------------------
                                                    PROPERTY, PLANT          ACCUMULATED
                                                     AND EQUIPMENT               D&A                     NET
                                                     -------------               ---                     ---
                                                                            (In Thousands)
<S>                                                 <C>                      <C>                     <C>
Natural Gas Pipelines                                $  5,768,566            $    240,949            $  5,527,617
Retail Natural Gas Distribution                           248,998                  83,010                 165,988
Electric Power Generation                                  27,873                   1,915                  25,958
General and Other                                         121,814                  51,813                  70,001
                                                     ------------            ------------            ------------
PP&E Related to Continuing Operations                $  6,167,251            $    377,687            $  5,789,564
                                                     ============            ============            ============

</TABLE>

11.    INCOME TAXES

Components of the income tax provision applicable to continuing operations for
federal and state income taxes are as follows:


<TABLE>
<CAPTION>

                                                               YEAR ENDED DECEMBER 31,
                                                -----------------------------------------------------
                                                   2000                 1999                  1998
                                                   ----                 ----                  ----
                                                                 (Dollars in thousands)
TAXES CURRENTLY PAYABLE:
<S>                                              <C>                   <C>                  <C>
  Federal                                        $   3,212             $  19,340            $  49,630
  State                                             14,091                13,784                8,564
                                                 ---------             ---------            ---------
  Total                                             17,303                33,124               58,194
                                                 ---------             ---------            ---------

TAXES DEFERRED:
  Federal                                           94,688                52,942               25,068
  State                                             11,026                (6,942)                (552)
                                                 ---------             ---------            ---------
  Total                                            105,714                46,000               24,516
                                                 ---------             ---------            ---------
TOTAL TAX PROVISION                              $ 123,017             $  79,124            $  82,710
                                                 =========             =========            =========

EFFECTIVE TAX RATE                                    40.0%                 36.9%                37.1%
                                                     =====                 =====                =====

</TABLE>






                                       65
<PAGE>   66
ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The difference between the statutory federal income tax rate and our effective
income tax rate is summarized as follows:

<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------
                                                       2000             1999            1998
                                                       ----             ----            ----
<S>                                                    <C>              <C>             <C>
FEDERAL INCOME TAX RATE                                35.0%            35.0%           35.0%
INCREASE (DECREASE) AS A RESULT OF:
  State Income Tax, Net of Federal Benefit              5.6%             1.9%            2.1%
  Other                                                (0.6%)           (0.1%)              -
                                                       -----            -----           -----
EFFECTIVE TAX RATE                                     40.0%            36.8%           37.1%
                                                       =====            =====           =====
</TABLE>


Deferred tax assets and liabilities result from the following:


<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                          ----------------------------------
                                                             2000                  1999
                                                             ----                  ----
                                                                (Dollars In Thousands)
DEFERRED TAX ASSETS:
<S>                                                       <C>                   <C>
  Post-retirement Benefits                                $    14,776           $    28,299
  Gas Supply Realignment Deferred Receipts                     17,101                15,847
  State Taxes                                                 138,976               112,049
  Book Accruals                                                39,505                29,186
  Alternative Minimum Tax Credits                               9,098                 8,222
  Net Operating Loss Carryforwards                            107,033               112,080
  Discontinued Operations                                       9,584               208,317
  Capital Loss Carryforwards                                   42,914                     -
  Other                                                         4,269                 6,765
                                                          -----------           -----------
TOTAL DEFERRED TAX ASSETS                                     383,256               520,765
                                                          -----------           -----------
DEFERRED TAX LIABILITIES:
  Property, Plant and Equipment                             2,009,086             2,087,109
  Investments                                                 642,944               645,172
  Other                                                         4,403                 8,099
                                                          -----------           -----------
TOTAL DEFERRED TAX LIABILITIES                              2,656,433             2,740,380
                                                          -----------           -----------

NET DEFERRED TAX LIABILITIES                              $ 2,273,177           $ 2,219,615
                                                          ===========           ===========
</TABLE>



For tax purposes we had available, at December 31, 2000, net operating loss
carryforwards for regular federal income tax purposes of approximately $306
million which will expire as follows: $66 million in the year 2018, $211 million
in the year 2019 and $29 million in the year 2020. We also had available, at
December 31, 2000, capital loss carryforwards of $122 million which will expire
in the year 2005. We believe it is more likely than not that all of the net
operating loss carryforwards and capital loss carryforwards will be utilized
prior to their expiration; therefore no valuation allowance is necessary. We
also had available, at December 31, 2000, approximately $9 million of
alternative minimum tax credit carryforwards which are available indefinitely.

12.    FINANCING

(A)   Notes Payable

At December 31, 2000, we had available a $500 million 364-day facility dated
October 25, 2000, and a $400 million amended and restated five-year revolving
credit agreement dated January 30, 1998. These bank facilities can be used for
general corporate purposes, including backup for our commercial paper program,
and include covenants that are common in such arrangements. For example, the
$500 million facility requires consolidated debt to be less than 68% of
consolidated capitalization. The $400 million facility requires that upon
issuance of common stock to the holders of the premium equity participating
security units at the maturity of the security units (November 2001),
consolidated debt must be less than 67% of consolidated total capitalization.
Both of the bank facilities require the debt of consolidated subsidiaries to be
less than 10% of our consolidated debt and require the consolidated debt of each
material subsidiary to be less than 65% of our consolidated total
capitalization. The $400 million facility requires our consolidated net worth
(inclusive of trust preferred securities) be at least $1.236 billion plus 50
percent of consolidated net income earned for each fiscal quarter beginning with
the last quarter of 1998. The $500 million facility requires our consolidated
net worth (inclusive of trust preferred securities) be at least $1.236 billion
plus 50 percent of consolidated net income earned for each fiscal quarter
beginning with the last quarter of 1999. Under the bank facilities, we are
required to pay a facility fee based on the total commitment, at a rate that
varies based on our senior debt rating. Facility fees paid in 2000 and 1999 were
$1.6 million and $1.9 million, respectively. At December 31, 2000 and 1999, $100
million and $300 million, respectively, was outstanding under the bank
facilities.




                                       66
<PAGE>   67

Commercial paper issued by us and supported by the bank facilities are unsecured
short-term notes with maturities not to exceed 270 days from the date of issue.
During 2000, all commercial paper was redeemed within 52 days, with interest
rates ranging from 5.60 percent to 7.50 percent. No commercial paper was
outstanding at December 31, 2000. Commercial paper outstanding at December 31,
1999 was $274.4 million. The weighted-average interest rate on short-term
borrowings outstanding at December 31, 1999 was 7.00 percent. Average short-term
borrowings outstanding during 2000 and 1999 were $310.6 million and $620.9
million, respectively. During 2000 and 1999, the weighted-average interest rates
on short-term borrowings outstanding were 6.52 percent and 5.56 percent
(excluding the Substitute Note as described below), respectively.

Effective with the acquisition of MidCon Corp. on January 30, 1998, we entered
into a $4.5 billion credit facility consisting of (i) a $1.4 billion 364-day
credit facility to support the note issued to Occidental Petroleum Corporation
in conjunction with the purchase of MidCon Corp., (ii) a $2.1 billion 364-day
revolving facility, (iii) the $400 million facility, providing for loans and
letters of credit, of which the letter of credit usage may not exceed $100
million and (iv) a 364-day $600 million revolving credit facility. The $1.4
billion and $2.1 billion facilities could be used only in conjunction with the
acquisition of MidCon Corp. In addition to the working capital and acquisition
components of the $4.5 billion facility, we assumed a short-term note for $1.4
billion payable to Occidental referred to as the "Substitute Note," which was
initially collateralized by letters of credit issued under the $1.4 billion
facility. In March 1998, we received net proceeds of approximately $2.34 billion
from the public offerings of senior debt securities of varying maturities with
principal totaling $2.35 billion. The net proceeds from these offerings were
used to refinance borrowings under the $4.5 billion facility and to purchase
U.S. government securities to replace a portion of the letters of credit that
collateralized the Substitute Note. The $2.1 billion facility was repaid in its
entirety and cancelled on March 10, 1998. The Substitute Note was repaid on
January 4, 1999. On January 5, 1999, we cancelled the remaining letters of
credit used to collateralize the Substitute Note. On January 8, 1999, the $600
million facility was replaced with a new $600 million 364-day facility, which
was essentially the same as the previous agreement. On November 18, 1999, we
replaced our then-existing $600 million 364-day facility with a new $550 million
364-day facility, which has subsequently been replaced with a new $500 million
364-day facility dated October 25, 2000 as discussed above.



                                       67

<PAGE>   68


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(B)   Long-term Debt and Premium Equity Participating Security Units


<TABLE>
<CAPTION>

                                                               DECEMBER 31,
                                                   ------------------------------------
                                                      2000                     1999
                                                      ----                     ----
                                                              (In Thousands)
DEBENTURES:
<S>                                                <C>                      <C>
  6.50% Series, Due 2013                           $   50,000               $   50,000
  7.85% Series, Due 2022                               24,943                   25,731
  8.75% Series, Due 2024                               75,000                   75,000
  7.35% Series, Due 2026                              125,000                  125,000
  6.67% Series, Due 2027                              150,000                  150,000
  7.25% Series, Due 2028                              493,000                  500,000
  7.45% Series, Due 2098                              150,000                  150,000
SINKING FUND DEBENTURES:
  9.95% Series, Due 2020                               20,000                   20,000
  9.625% Series, Due 2021                              45,000                   45,000
  8.35% Series, Due 2022                               35,000                   35,000
SENIOR NOTES:
  6.45% Series, Due 2001                              400,000                  400,000
  7.27% Series, Due 2002                               10,000                   15,000
  6.45% Series, Due 2003                              500,000                  500,000
  6.65% Series, Due 2005                              500,000                  500,000
  6.80% Series, Due 2008                              300,000                  300,000
Reset Put Securities, 6.30%, Due 2021                 400,000                  400,000
Other                                                  13,617                   14,883
Unamortized Debt Discount                              (4,410)                  (5,121)
Current Maturities of Long-term Debt                 (808,167)                  (7,167)
                                                   ----------               ----------
TOTAL LONG-TERM DEBT                               $2,478,983               $3,293,326
                                                   ==========               ==========
</TABLE>

Maturities of long-term debt (in thousands) for the five years ending December
31, 2005 are $808,167, $10,417, $507,167, $7,167 and $507,167, respectively.

The 2013 Debentures and the 2001, 2003 and 2005 Senior Notes are not redeemable
prior to maturity. The 2022, 2028 and 2098 Debentures, the 2020 Sinking Fund
Debentures and the 2002 and 2008 Senior Notes are redeemable in whole or in
part, at our option at any time, at redemption prices defined in the associated
prospectus supplements. The 2024, 2026 and 2027 Debentures are redeemable in
whole or in part, at our option after October 15, 2002, August 1, 2006, and
November 1, 2004, respectively, at redemption prices defined in the associated
prospectus supplements. The 2021 and 2022 Sinking Fund Debentures are redeemable
in whole or in part, at our option after August 1, 2001 and September 15, 2002,
respectively, at redemption prices defined in the associated prospectus
supplements.

In November 1998 we sold $460 million principal amount of premium equity
participating security units in an underwritten public offering. The net cash
proceeds from the sale of the security units, together with additional funds we
provided, were used to purchase U.S. Treasury Notes on behalf of the security
unit holders. The Treasury Notes are the property of the security unit holders
and are pledged to the collateral agent, for our benefit, to secure the
obligation of the security unit holders to purchase our common stock. These
security units obligate the holders to purchase a certain amount of our common
stock, depending on the market price at November 30, 2001 (unless earlier
terminated or settled at the option of the holders of the security units), and
provide for the holders to receive interest at the rate of 8.25 percent per year
during the three-year period. The interest is paid by the agent, which receives
part of the necessary funds from the collateral agent, which holds 5.875% U.S.
Treasury Notes purchased with the proceeds of the initial investment by the
security unit holders. We pay the remaining 2.375 percent. We may defer the
payment of all or any part of our portion of the contract fees until no later
than the end of the three-year period. Any portion so deferred will accrue
interest at the annual rate of 8.25 percent until paid.

The face value of the security units is not recorded in the accompanying
Consolidated Balance Sheets. The $29.4 million present value of the contract fee
payable to the security unit holders has been recorded as a liability and as a
reduction to paid-in capital. During the period in which the 2.375 percent
contract fees are payable, accretion of the $3.4 million of discount initially
recorded will increase the liability and further decrease paid-in capital. In
addition, paid-in capital has been reduced for the issuance costs associated
with the security units and the premium paid upon purchase of the Treasury Notes
pledged to the collateral agent, which amounts total approximately $32.8
million.






                                       68
<PAGE>   69


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The $400 million of Reset Put Securities due March 1, 2021 are subject to
mandatory redemption from the then-existing holders on March 1, 2001, either (i)
through the exercise of a call option by Morgan Stanley & Co. International
Limited or (ii) in the event Morgan Stanley does not exercise the call option,
the automatic exercise of a mandatory put by First Trust National Association on
behalf of the holders. The $12 million of proceeds we received from Morgan
Stanley as consideration for the call option are being amortized as an
adjustment to the effective interest rate on the Reset Put Securities. We
currently expect that these securities will not be remarketed but, instead, will
be retired utilizing a combination of cash and incremental short-term
borrowings. This retirement is expected to result in an extraordinary loss, net
of tax, of approximately $15 million.

At December 31, 2000 and 1999, the carrying amount of our long-term debt was
$3.3 billion and $3.3 billion, respectively. The estimated fair values of our
long-term debt at December 31, 2000 and 1999 are shown in Note 18.

(C)   Capital Securities

In April 1998, we sold $175 million of 7.63% Capital Trust Securities maturing
on April 15, 2028, and in April 1997, we sold $100 million of 8.56% Capital
Trust Securities maturing on April 15, 2027, each in an underwritten public
offering. We created wholly owned business trusts, K N Capital Trust I and K N
Capital Trust III, to make the sales. The transactions and balances of K N
Capital Trust I and K N Capital Trust III are included in our consolidated
financial statements, with the Capital Securities treated as a minority
interest, shown in our Consolidated Balance Sheets under the caption "Kinder
Morgan-Obligated Mandatorily Redeemable Preferred Capital Trust Securities of
Subsidiary Trust Holding Solely Debentures of Kinder Morgan." Periodic payments
made to the holders of these securities are classified under "Minority
Interests" in the accompanying Consolidated Statements of Income. See Note 18
for the fair value of these securities.

(D)   Common Stock

On November 17, 1999, our Board of Directors approved a reduction in the
quarterly dividend from $0.20 per share to $0.05 per share.

On November 9, 1998, our Board of Directors approved a three-for-two split of
our common stock. The stock split was distributed on December 31, 1998, to
shareholders of record at the close of business on December 15, 1998. The par
value of the stock did not change.

In March 1998, we received net proceeds of approximately $624.6 million from a
public offering of 12.5 million shares (18.75 million shares after adjustment
for the December 1998 three-for-two stock split) of our common stock. The net
proceeds from this offering were used to refinance borrowings under the $4.5
billion Facility and to purchase U.S. government securities to replace a portion
of the letters of credit that collateralized the Substitute Note.




                                       69
<PAGE>   70


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

13.    PREFERRED STOCK

We have authorized 200,000 shares of Class A and 2,000,000 shares of Class B
preferred stock, all without par value.

(A)   Class A $5.00 Cumulative Preferred Stock

On April 13, 1999, we sent notices to holders of our Class A $5.00 Cumulative
Preferred Stock of our intent to redeem these shares on May 14, 1999. Holders of
70,000 preferred shares were advised that on April 13, 1999, funds were
deposited with the First National Bank of Chicago to pay the redemption price of
$105 per share plus accrued but unpaid dividends. Under the terms of our
Articles of Incorporation, upon deposit of funds to pay the redemption price,
all rights of the preferred stockholders ceased and terminated except the right
to receive the redemption price upon surrender of their stock certificates.

At December 31, 2000 and 1999, we did not have any outstanding shares of Class A
$5.00 Cumulative Series Preferred Stock. At December 31, 1998, we had 70,000
shares of Class A $5.00 Cumulative Series Preferred Stock outstanding.

(B)   Class B Preferred Stock

We did not have any outstanding shares of Class B Preferred Stock at December
31, 2000, 1999 or 1998.

14.    RISK MANAGEMENT

We use energy financial instruments to reduce our risk of price changes in the
spot and fixed price natural gas markets as discussed following. We are exposed
to credit-related losses in the event of nonperformance by counterparties to
these financial instruments but, given their existing credit ratings, do not
expect any counterparties to fail to meet their obligations. The fair value of
these risk management instruments reflects the estimated amounts that we would
receive or pay to terminate the contracts at the reporting date, thereby taking
into account the current unrealized gains or losses on open contracts. Market
quotes are available for substantially all financial instruments we use.

Energy risk management products we use include commodity futures and options
contracts, fixed-price swaps and basis swaps. Pursuant to our Board of
Director's approved policy, we are to engage in these activities only as a
hedging mechanism against price volatility associated with pre-existing or
anticipated physical gas sales, gas purchases, system use and storage in order
to protect profit margins, and are prohibited from engaging in speculative
trading. Commodity-related activities of the risk management group are monitored
by our Risk Management Committee, which is charged with the review and
enforcement of the Board of Director's risk management policy. Gains and losses
on hedging positions are deferred and recognized as gas purchases expense in the
periods in which the underlying physical transactions occur.

Purchases or sales of commodity contracts require a dollar amount to be placed
in margin accounts. In addition, we are required to post margins with certain
over-the-counter swap partners. These margin requirements are determined based
upon credit limits and mark-to-market positions. At December 31, 2000, we had
$10.0 million in margin deposits associated with commodity contract positions
and $4.0 million in margin deposits associated with over-the-counter swaps.
These amounts are shown as "Restricted Deposits" in the accompanying
Consolidated Balance Sheets.

The differences between the current market value and the original physical
contracts value, associated with hedging activities, are reflected, depending on
maturity, as deferred charges or credits and other current assets or liabilities
in the accompanying Consolidated Balance Sheets but, in 2001, will be included
with "Other Comprehensive Income" as discussed following. In the event energy
financial instruments are terminated prior to the period of physical delivery of
the items being hedged, the gains and losses on the energy financial instruments
at the time of termination remain deferred until the period of physical
delivery.





                                       70
<PAGE>   71


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Given our portfolio of businesses as of December 31, 2000, our principal uses of
derivative financial instruments will be to mitigate the risk associated with
market movements in the price of natural gas associated with (i) the sale of
in-kind fuel recoveries in excess of fuel used on Natural Gas Pipeline Company
of America's pipeline system and (ii) the purchase of natural gas by Kinder
Morgan Retail to serve its customers in the Choice Gas program. The "short" and
"long" positions shown in the table that follows are principally associated with
the activities described under (i) and (ii), respectively.

Following is selected information concerning our risk management activities:


<TABLE>
<CAPTION>

                                                                 DECEMBER 31, 2000
                                              -------------------------------------------------------
                                               COMMODITY          OVER-THE-COUNTER
                                               CONTRACTS          SWAPS AND OPTIONS         TOTAL
                                               ----------         -----------------         -----
                                                       (In contracts and thousands of dollars)

<S>                                           <C>                 <C>                  <C>
Deferred Net (Loss) Gain                      $    14,036           $   (28,466)         $   (14,430)
Contract Amounts - Gross                      $    65,730           $   163,991          $   229,721
Contract Amounts - Net                        $       540           $   (93,283)         $   (92,743)
Credit Exposure of Loss                                             $     2,514          $     2,514

Notional Volumetric Positions: Long                   419                 1,296
Notional Volumetric Positions: Short                 (500)               (2,913)
Net Notional Totals To Occur in 2001                  (81)               (1,459)
Net Notional Totals To Occur in 2002                    -                  (158)
</TABLE>


In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (the
"Statement"). The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. The Statement requires
that changes in the derivatives fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. If the derivatives meet these
criteria, the Statement allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
formally designate a derivative as a hedge and document and assess the
effectiveness of derivatives associated with transactions that receive hedge
accounting.

The Statement, after amendment by SFAS 137 and SFAS 138, is effective for all
quarters of all fiscal years beginning after June 15, 2000. The Statement cannot
be applied retroactively. As discussed preceding, our principal use of
derivative financial instruments is to mitigate the market price risk associated
with anticipated transactions for the purchase and sale of natural gas. The
Statement allows these transactions to continue to be treated as hedges for
accounting purposes, although the changes in the market value of these
instruments will affect comprehensive income in the period in which they occur
and any ineffectiveness in the risk mitigation performance of the hedge will
affect net income currently, although we do not expect the amount of such
inefficiency to be material. The change in the market value of these instruments
representing effective hedge operation will continue to affect net income in the
period in which the associated physical transactions are consummated. Adoption
of the Statement has resulted in the $14.4 million deferred net loss shown in
the preceding table being reported as part of other comprehensive income, as
well as subsequent changes in the market value of these derivatives prior to
consummation of the transaction being hedged.




                                       71
<PAGE>   72


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

15.    EMPLOYEE BENEFITS

(A)   Retirement Plans

We have defined benefit pension plans covering eligible full-time employees.
These plans provide pension benefits that are based on the employees'
compensation during the period of employment, age and years of service. These
plans are tax-qualified subject to the minimum funding requirements of the
"Employee Retirement Income Security Act of 1974." Our funding policy is to
contribute annually the recommended contribution using the actuarial cost method
and assumptions used for determining annual funding requirements. Plan assets
consist primarily of pooled fixed income, equity, bond and money market funds.
Plan assets included our common stock valued at $11.5 million and $5.1 million
as of December 31, 2000 and 1999, respectively.

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>

                                                           YEAR ENDED DECEMBER 31,
                                           ----------------------------------------------------
                                               2000               1999                  1998
                                               ----               ----                  ----
                                                             (In Thousands)
<S>                                        <C>                 <C>                  <C>
Service Cost                               $    7,306          $    9,977           $    4,859
Interest Cost                                   8,600               8,170                7,537
Expected Return on Assets                     (14,034)            (13,381)             (11,812)
Net Amortization and Deferral                  (1,257)               (210)                (864)
Recognition of Curtailment Gain                     -                  (9)                   -
                                           ----------          ----------           ----------
Net Periodic Pension (Benefit) Cost        $      615          $    4,547           $     (280)
                                           ==========          ==========           ==========

</TABLE>

The following table sets forth the reconciliation of the beginning and ending
balances of the pension benefit obligation:

<TABLE>
<CAPTION>

                                                         2000                 1999
                                                         ----                 ----
                                                              (In Thousands)
<S>                                                   <C>                  <C>
Benefit Obligation at Beginning of Year               $ (118,038)          $ (121,076)
Service Cost                                              (7,306)              (9,977)
Interest Cost                                             (8,600)              (8,170)
Actuarial Gain                                             3,922               14,602
Benefits Paid                                              6,915                6,421
Curtailment Gain                                               -                  162
                                                      ----------           ----------
Benefit Obligation at End of Year                     $ (123,107)          $ (118,038)
                                                      ==========           ==========
</TABLE>





                                       72
<PAGE>   73


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table sets forth the reconciliation of the beginning and ending
balances of the fair value of the plans' assets, the plans' funded status and
prepaid pension cost amounts recognized under the caption "Other Current Assets"
in our Consolidated Balance Sheets:

<TABLE>
<CAPTION>


                                                                                       DECEMBER 31,
                                                                              -------------------------------
                                                                                 2000                 1999
                                                                                 ----                 ----
                                                                                      (In Thousands)

<S>                                                                           <C>                  <C>
Fair Value of Plan Assets at Beginning of Year                                $  150,900           $  143,983
Actual Return on Plan Assets During the Year                                      17,294               13,338
Benefits Paid During the Year                                                     (6,915)              (6,421)
                                                                              ----------           ----------
Fair Value of Plan Assets at End of Year                                         161,279              150,900
Benefit Obligation at End of Year                                               (123,107)            (118,038)
                                                                              ----------           ----------
Plan Assets in Excess of Projected Benefit Obligation                             38,172               32,862
Unrecognized Net Gain                                                            (33,134)             (27,080)
Prior Service Cost Not Yet Recognized in Net Periodic Pension Costs                   88                  105
Unrecognized Net Asset at Transition                                                (696)                (842)
                                                                              ----------           ----------
Prepaid Pension Cost                                                          $    4,430           $    5,045
                                                                              ==========           ==========
</TABLE>


The rate of increase in future compensation was 3.5 percent for 2000, 1999 and
1998. The expected long-term rate of return on plan assets was 9.5 percent for
2000 and 1999, and 8.5 percent for 1998. The weighted-average discount rate used
in determining the actuarial present value of the projected benefit obligation
was 7.75 percent for 2000 and 1999, and 6.75 percent for 1998.

Effective January 1, 2001, we added a cash balance plan to our retirement plan.
Certain collectively bargained employees and "grandfathered" employees will
continue to accrue benefits through the defined pension benefit plan described
above. All other employees will accrue benefits through a personal retirement
account in the new cash balance plan. All employees converting to the cash
balance plan will be credited with the current fair value of any benefits they
have previously accrued through the defined benefit plan. We will then begin
contributions on behalf of these employees equal to 3% of eligible compensation
every pay period. In addition, we may make discretionary contributions to the
plan based on our performance. Interest will be credited to the personal
retirement accounts at the 30-year U.S. Treasury bond rate in effect each year.
Employees will be fully vested in the plan after five years, and they may take a
lump sum distribution upon termination or retirement.

In 2000, we merged the Kinder Morgan Bulk Terminals Retirement Savings Plan and
the Kinder Morgan Retirement Savings Plan with the Kinder Morgan Profit Sharing
and Savings Plan, a defined contribution plan. The merged plan was renamed the
Kinder Morgan, Inc. Savings Plan. On July 2, 2000, we began making regular
contributions to the Plan. Contributions are made each pay period in an amount
equal to 4% of compensation on behalf of each eligible employee. All
contributions are in the form of Company stock, which is immediately convertible
into other available investment vehicles at the employee's discretion. On July
25, 2000, our Board of Directors authorized an additional 6 million shares to be
issued through the Plan, for a total of 6.7 million shares available. In
addition to the above contributions, we may make annual discretionary
contributions based on our performance. These contributions are made in the year
following the year for which the contribution amount is calculated. The total
amount contributed for 2000 was $3.7 million. No contribution was made to the
profit sharing plan for 1999 or 1998. In January 1998, we acquired the MidCon
Retirement Plan as part of our acquisition of MidCon Corp. (See Note 2.) The
MidCon plan was a defined contribution plan. Contributions to the plan were
based on age and earnings. Effective January 1, 1999, the MidCon plan was merged
into the Profit Sharing Plan and all eligible MidCon employees joined our
defined benefit pension plans. In 1999 and 1998, we contributed $0.7 million and
$4.6 million, respectively, to the MidCon plan.



                                       73


<PAGE>   74

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(B)   Other Postretirement Employee Benefits

We have a defined benefit postretirement plan providing medical and life
insurance benefits upon retirement for eligible employees and their eligible
dependents, including former MidCon employees who met the eligibility
requirements on the date of acquisition of MidCon Corp. (see Note 2). The MidCon
postretirement medical and life insurance plans were "grandfathered" as of the
acquisition date and no new employees have or will be added to the MidCon plans
subsequent to the acquisition date. We fund the future expected postretirement
benefit cost under the plan by making payments to Voluntary Employee Benefit
Association trusts. Plan assets consist primarily of pooled fixed income funds.

Net periodic postretirement benefit cost includes the following components:

<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31,
                                                               -----------------------------------------------------
                                                                 2000                  1999                 1998
                                                                 ----                  ----                 ----
                                                                                   (In Thousands)
<S>                                                            <C>                   <C>                  <C>
Service Cost                                                   $      413            $      450           $      592
Interest Cost                                                       7,159                 6,655                6,425
Expected Return on Assets                                          (4,790)               (3,720)              (2,854)
Net Amortization and Deferral                                         992                   908                  919
Curtailment Gain                                                        -                     -               (1,569)
                                                               ----------            ----------           ----------
Net Periodic Postretirement Benefit Cost                       $    3,774            $    4,293           $    3,513
                                                               ==========            ==========           ==========

</TABLE>

The following table sets forth the reconciliation of the beginning and ending
balances of the accumulated postretirement benefit obligation:

<TABLE>
<CAPTION>
                                                                 2000                  1999
                                                                 ----                  ----
                                                                         (In Thousands)

<S>                                                           <C>                    <C>
Benefit Obligation at Beginning of Year                       $   (93,080)           $ (101,988)
Service Cost                                                         (413)                 (450)
Interest Cost                                                      (7,159)               (6,655)
Actuarial Gain (Loss)                                              (8,191)                3,278
Benefits Paid                                                      15,918                15,330
Retiree Contributions                                              (2,253)               (2,595)
                                                               ----------            ----------
Benefit Obligation at End of Year                              $  (95,178)           $  (93,080)
                                                               ==========            ==========

</TABLE>

The following table sets forth the reconciliation of the beginning and ending
balances of the fair value of plan assets, the plan's funded status and the
amounts included under the caption "Other" in the category "Other Liabilities
and Deferred Credits" in our Consolidated Balance Sheets:

<TABLE>
<CAPTION>

                                                                                DECEMBER 31,
                                                                        2000                   1999
                                                                        ----                   ----
                                                                              (In Thousands)

<S>                                                                  <C>                    <C>
Fair Value of Plan Assets at Beginning of Year                       $    52,572            $    45,364
Actual Return on Plan Assets                                              (2,175)                 4,320
Contributions by Employer                                                  1,500                  2,771
Retiree Contributions                                                      1,726                  2,246
Benefits Paid                                                             (2,467)                (2,129)
                                                                     -----------            -----------
Fair Value of Plan Assets at End of Year                                  51,156                 52,572
Benefit Obligation at End of Year                                        (95,178)               (93,080)
                                                                     -----------            -----------
Excess of Projected Benefit Obligation Over Plan Assets                  (44,022)               (40,508)
Unrecognized Net (Gain) Loss                                              12,779                 (2,313)
Unrecognized Net Obligations at Transition                                11,149                 12,078
                                                                     -----------            -----------
Accrued Expense                                                      $   (20,094)           $   (30,743)
                                                                     ===========            ===========
</TABLE>



                                       74
<PAGE>   75

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The weighted-average discount rate used in determining the actuarial present
value of the accumulated postretirement benefit obligation was 7.75 percent for
2000 and 1999, and 6.75 percent for 1998. The expected long-term rate of return
on plan assets was 9.5 percent for 2000 and 1999, and 8.5 percent for 1998. The
assumed health care cost trend rate was 7 percent per year for 1999 and beyond
(3 percent per year for 1999 and beyond for the MidCon plans). A one-percentage-
point increase (decrease) in the assumed health care cost trend rate for each
future year would have increased (decreased) the aggregate of the service and
interest cost components of the 2000 net periodic postretirement benefit cost by
approximately $23,332 ($22,163) and would have increased (decreased) the
accumulated postretirement benefit obligation as of December 31, 2000 by
approximately $205,055 ($214,589).

16.    COMMON STOCK OPTION AND PURCHASE PLANS

We have the following stock option plans: The 1982 Incentive Stock Option Plan,
the 1982 Stock Option Plan for Non-Employee Directors, the 1986 Incentive Stock
Option Plan, the 1988 Incentive Stock Option Plan, the 1992 Stock Option Plan
for Non-Employee Directors, the 1994 Kinder Morgan, Inc. Long-term Incentive
Plan (which also provides for the issuance of restricted stock), the American
Oil and Gas Corporation Stock Incentive Plan and the Kinder Morgan, Inc. Amended
and Restated 1999 Stock Option Plan. We also have an employee stock purchase
plan. All per share amounts and shares outstanding or exercisable presented in
this note have been restated to reflect the impact of the December 31, 1998,
three-for-two common stock split as discussed in Note 12(D).

On October 8, 1999, our Board of Directors approved the creation of the 1999
stock option plan, a broadly based non-qualified stock option plan. Under the
plan, options may be granted to individuals who are regular full-time employees,
including officers and directors who are employees. The aggregate number of
shares of stock that may be issued under the plan is 5.5 million. Options under
the plan vest in 25 percent increments on the anniversary of the grant over a
four-year period from the date of grant. All options granted under the plan have
a 10-year life, and must be granted at not less than the fair market value of
Kinder Morgan, Inc. common stock at the close of trading on the date of grant.
On January 17, 2001, our Board of Directors approved an additional 5 million
shares for future grants to participants in the 1999 Stock Option Plan, which
brings the aggregate number of shares subject to the plan to 10.5 million. The
Board also approved an additional 0.5 million shares for future grants to
participants in the 1992 Directors' Plan, which will be available subject to
shareholder approval.

Under all plans, except the Long-term Incentive Plan and the AOG Plan, options
are granted at not less than 100 percent of the market value of the stock at the
date of grant. Under the Long-term Incentive Plan options may be granted at less
than 100 percent of the market value of the stock at the date of grant. Certain
restricted stock awards include provisions accelerating the lapsing of
restrictions in the event certain operating goals are met. Compensation expense
was recorded totaling $0, $8.6 million, and $3.1 million for 2000, 1999, and
1998, respectively, relating to restricted stock grants awarded under the plans.

<TABLE>
<CAPTION>

                                                              OPTION SHARES
                                     SHARES SUBJECT          GRANTED THROUGH        VESTING            EXPIRATION
        PLAN NAME                     TO THE PLAN               12/31/00            PERIOD               PERIOD
        ---------                     -----------               --------            ------               ------

<S>                                  <C>                     <C>                  <C>                  <C>
1982 Plan                              1,332,788                1,332,788          Immediate             10 Years
1982 Directors' Plan                     186,590                  186,590           3 Years              10 Years
1986 Plan                                618,750                  618,750          Immediate             10 Years
1988 Plan                                618,750                  618,750          Immediate             10 Years
1992 Directors' Plan                     525,000                  386,875         0 - 6 Months           10 Years
Long-term Incentive Plan               5,700,000                2,754,839         0 - 5 Years          5 - 10 Years
AOG Plan                                 775,500                  775,500           3 Years              10 Years
1999 Plan                              5,500,000                4,974,475           4 Years              10 Years

</TABLE>


                                       75
<PAGE>   76

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


A summary of the status of our stock option plans at December 31, 2000, 1999 and
1998, and changes during the years then ended is presented in the table and
narrative below:

<TABLE>
<CAPTION>

                                                 2000                           1999                           1998
                                        ------------------------        ------------------------      ------------------------
                                                        WTD. AVG.                      WTD. AVG.                      WTD. AVG.
                                                        EXERCISE                       EXERCISE                       EXERCISE
                                           SHARES         PRICE           SHARES         PRICE          SHARES          PRICE
                                           ------         -----           ------         -----          ------          -----
<S>                                      <C>            <C>             <C>            <C>             <C>            <C>
OUTSTANDING AT BEGINNING OF YEAR         7,542,898       $ 24.92        4,218,191       $ 24.38        3,220,065       $ 19.19
Granted                                  1,364,500       $ 30.42        4,837,656       $ 23.81        1,781,761       $ 31.40
Exercised                                 (537,400)      $ 19.26         (602,928)      $  8.00         (662,274)      $ 16.46
Forfeited                               (2,276,179)      $ 25.69         (910,021)      $ 27.79         (121,361)      $ 27.35
                                        ----------                     ----------                     ----------
OUTSTANDING AT END OF YEAR               6,093,819       $ 26.05        7,542,898       $ 24.92        4,218,191       $ 24.38
                                        ==========       =======       ==========       =======       ==========       =======

EXERCISABLE AT END OF YEAR               2,056,771       $ 27.03        1,918,868       $ 26.54        1,794,112       $ 25.11
                                        ==========       =======       ==========       =======       ==========       =======

WEIGHTED-AVERAGE FAIR VALUE
  OF OPTIONS GRANTED                                     $ 10.51                        $  5.83                        $ 12.08
                                                         =======                        =======                        =======
</TABLE>


The weighted-average fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                              -------------------------------------------
                                                                2000             1999             1998
                                                                ----             ----             ----
<S>                                                           <C>              <C>              <C>
                    RISK-FREE INTEREST RATE (%)                 4.97              5.5              5.5
                    EXPECTED WEIGHTED-AVERAGE LIFE            4.5 years         4.0 years        4.0 years
                    VOLATILITY                                  0.34              0.31             0.25
                    EXPECTED DIVIDEND YIELD (%)                 0.38              3.2              3.5
</TABLE>


We account for these plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Had compensation cost for these
plans been determined consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), net income and diluted earnings per share would have
been reduced to the pro forma amounts shown in the table below. Because the SFAS
123 method of accounting has not been applied to options granted prior to
January 1, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. Additionally, the pro
forma amounts include $0.5 million, $0.6 million and $0.6 million related to the
purchase discount offered under the ESP Plan for 2000, 1999 and 1998,
respectively.

<TABLE>
<CAPTION>

                                                                    YEAR ENDED DECEMBER 31,
                                                        -------------------------------------------------
                                                            2000             1999                1998
                                                            ----             ----                ----
                                                          (In Thousands Except Per Share Amounts)
NET INCOME (LOSS):
<S>                                                     <C>               <C>                 <C>
  As Reported                                           $   151,981       $ (239,661)         $    62,211
                                                        ===========       ==========          ===========
  Pro Forma                                             $   144,526       $ (244,513)         $    58,109
                                                        ===========       ==========          ===========

EARNINGS (LOSS) PER DILUTED SHARE:
  As Reported                                           $      1.32       $    (2.99)         $      0.96
                                                        ===========       ==========          ===========
  Pro Forma                                             $      1.26       $    (3.05)         $      0.90
                                                        ===========       ==========          ===========

</TABLE>




                                       76
<PAGE>   77


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table sets forth our December 31, 2000, common stock options
outstanding, weighted-average exercise prices, weighted-average remaining
contractual lives, common stock options exercisable and the exercisable
weighted-average exercise price:

<TABLE>
<CAPTION>

                     OPTIONS OUTSTANDING                                                OPTIONS EXERCISABLE
------------------------------------------------------------------------------      ----------------------------
                                            WTD. AVG.                                                 WTD. AVG.
                           NUMBER           EXERCISE       WTD. AVG. REMAINING        NUMBER          EXERCISE
  PRICE RANGE            OUTSTANDING          PRICE          CONTRACTUAL LIFE       EXERCISABLE         PRICE
  -----------            -----------          -----          ----------------       -----------         -----
<S>                    <C>                  <C>            <C>                    <C>                 <C>
$00.00 - $23.72              166,228          $  20.50          5.90 years              162,986         $  20.44
$23.81 - $23.81            3,920,421          $  23.81          8.77 years            1,018,417         $  23.81
$24.04 - $39.38            2,007,170          $  30.87          8.55 years              875,368         $  32.00
                        ------------                                               ------------
                           6,093,819          $  26.05          8.61 years            2,056,771         $  27.03
                        ============                                               ============
</TABLE>


Under the employee stock purchase plan, we may sell up to 2,400,000 shares of
common stock to eligible employees. Employees purchase shares through voluntary
payroll deductions. Prior to the 2000 plan year, shares were purchased annually
at a 15 percent discount from the market value of the common stock, as defined
in the plan, and issued in the month following the end of the plan year.
Beginning with the 2000 plan year, shares are purchased quarterly at a 15
percent discount from the closing price of the common stock on the last trading
day of each calendar quarter. Employees purchased 86,630 shares, 187,567 shares
and 163,799 shares for plan years 2000, 1999 and 1998, respectively. Using the
Black-Scholes model to assign value to the option inherent in the right to
purchase stock under the provisions of the employee stock purchase plan, the
weighted-average fair value per share of purchase rights granted in 2000, 1999
and 1998 was $6.60, $6.41 and $5.94, respectively.

17.    COMMITMENTS AND CONTINGENT LIABILITIES

(A)   Leases

Expenses incurred under operating leases were $47.1 million in 2000, $57.8
million in 1999, and $56.9 million in 1998. Future minimum commitments under
major operating leases as of December 31, 2000 are as follows:

<TABLE>
<CAPTION>

YEAR                                         AMOUNT
----                                         ------
                                         (In Thousands)
<S>                                      <C>
2001                                       $   11,886
2002                                            8,376
2003                                            7,813
2004                                            7,563
2005                                            7,716
Thereafter                                     21,605
                                           ----------
Total                                      $   64,959
                                           ==========
</TABLE>


(B)   Guarantees of Unconsolidated Subsidiaries' Debt

We have executed a guarantee of the revolving credit agreement of an
unconsolidated subsidiary, TransColorado, in the amount of $100 million. As of
December 31, 2000, $100 million had been borrowed with a maturity date of
October 13, 2001.

(C)   Capital Expenditures Budget

Approximately $5.5 million of our consolidated capital expenditure budget for
2001 had been committed for the purchase of plant and equipment at December 31,
2000.



                                       77
<PAGE>   78

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


(D)   Commitment to Sell or Purchase Assets

We announced on November 30, 1999, that we entered into agreements with HS
Resources, Inc. for the sale of certain assets in the Wattenberg field area of
the Denver-Julesberg Basin. Under the terms of the agreements, HS Resources,
Inc. commenced operating these assets. We are receiving cash payments from HS
Resources, Inc. during 2000 and 2001, with the legal transfer of ownership
expected to occur on or before December 15, 2001. We were committed, during a
specified period, to purchase, at the option of the other party, an incremental
50% interest in a joint venture pipeline, although the ability of the other
party to cause the purchase is currently stayed; see Notes 5 and 9.

18.    FAIR VALUE

The following fair values of Investments, Long-term Debt and Capital Securities
were estimated based on an evaluation made by an independent securities analyst.
Fair values of "Energy Financial Instruments, Net" reflect the estimated amounts
that we would receive or pay to terminate the contracts at the reporting date,
thereby taking into account the current unrealized gains or losses on open
contracts. Market quotes are available for substantially all instruments we use.

<TABLE>
<CAPTION>

                                                                      DECEMBER 31,
                                             --------------------------------------------------------------
                                                        2000                                1999
                                             ---------------------------        ---------------------------
                                               CARRYING                           CARRYING
                                                VALUE         FAIR VALUE           VALUE         FAIR VALUE
                                                -----         ----------           -----         ----------
                                                                      (In Millions)
FINANCIAL ASSETS:
<S>                                          <C>              <C>               <C>              <C>
  Tom Brown, Inc. Common Stock (1)           $        -       $        -        $     12.3       $     12.3

FINANCIAL LIABILITIES:
  Long-term Debt                             $  3,291.6       $  3,253.4        $  3,305.6       $  3,146.1
  Capital Securities                         $    275.0       $    278.7        $    275.0       $    265.4
  Energy Financial Instruments, Net          $     14.4       $     14.4        $     16.1       $     16.1
</TABLE>


 (1) See Note 5 regarding the sale of this stock.

19.    BUSINESS SEGMENT INFORMATION

In accordance with the manner in which we manage our businesses, including the
allocation of capital and evaluation of business unit performance, we report our
operations in the following segments: (1) Natural Gas Pipeline Company of
America and certain associated entities, referred to as Natural Gas Pipeline
Company of America, a major interstate natural gas pipeline and storage system;
(2) Kinder Morgan Retail, the regulated sale of natural gas to residential,
commercial and industrial customers and non-utility sales of natural gas to
certain utility customers under the Choice Gas Program and (3) Power and Other,
the construction and operation of natural gas fired electric generation
facilities, together with various other activities not constituting separately
managed or reportable business segments. In previous periods, we owned and
operated other lines of business that we discontinued during 1999. In addition,
our direct investment in the natural gas transmission and storage business has
significantly decreased as a result of (i) the December 2000 sale of Kinder
Morgan Texas Pipeline, L.P. to Kinder Morgan Energy Partners and (ii) the
December 31, 1999 sale of Kinder Morgan Interstate Gas Transmission LLC to
Kinder Morgan Energy Partners. The results of operations of these two businesses
are included in our financial statements until their disposition, which is
discussed in Note 5.

The accounting policies applied in the generation of business unit information
are generally the same as those described in Note 1 to the accompanying
Consolidated Financial Statements, except that items below the "Operating
Income" line are either not allocated to business units or are not considered by
Management in its evaluation of business unit performance. An exception to this
is that Power, which routinely conducts its business activities in the form of
joint operations with other parties that are accounted for under the equity




                                       78
<PAGE>   79


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

method of accounting, includes its equity in earnings of these investees in its
operating results. These equity-method earnings are included in "Other Income
and (Expenses)" in our consolidated income statement. In addition, certain items
included in consolidated operating income (such as merger-related and severance
costs and general and administrative expenses) are not allocated to individual
business units. With adjustment for these items, we currently evaluate business
unit performance primarily based on operating income in relation to the level of
assets employed. Sales between business units are accounted for at market
prices. For comparative purposes, prior period results and balances have been
reclassified as necessary to conform to the current presentation.

Natural Gas Pipeline Company of America's principal delivery market area
encompasses the states of Illinois, Indiana, Iowa and portions of Wisconsin,
Nebraska, Kansas, Missouri and Arkansas. Natural Gas Pipeline Company of America
is the largest transporter of natural gas to the Chicago, Illinois area, its
largest market. During 2000, approximately 50% of Natural Gas Pipeline Company
of America's transportation represented deliveries to this market. Natural Gas
Pipeline Company of America's storage capacity is largely located near its
transportation delivery markets, effectively serving the same customer base.
Natural Gas Pipeline Company of America has a number of individually significant
customers, including local gas distribution companies in the greater Chicago
area and major natural gas marketers and, during 2000, approximately 50% of its
operating revenues were attributable to its nine largest customers. Kinder
Morgan Retail's markets are represented by residential, commercial and
industrial customers located in Colorado, Nebraska and Wyoming. These markets
represent varied types of customers in many industries, but a significant amount
of Kinder Morgan Retail's load is represented by the use of natural gas for
space heating, grain drying and irrigation. The latter two groups of customers
are concentrated in the agricultural industry and all markets are affected by
the weather. Power's current principal market is represented by the local
electric utilities in Colorado, which purchase the power output from its
generation facilities. Its market will expand geographically as a result of
power generation facilities planned or under construction and it is expected
that future customers may include wholesale power marketers.

During 2000 and 1999, we had revenues from a single customer of $740.5 million
and $ 389.4 million, respectively, amounts in excess of 10 percent of
consolidated operating revenues for each year. Both Natural Gas Pipeline Company
of America and Kinder Morgan Texas Pipeline made sales to this customer. With
the transfer of Kinder Morgan Texas Pipeline to Kinder Morgan Energy Partners as
of December 31, 2000, sales to this customer are not expected to exceed 10% of
consolidated operating revenues in the future, although certain of Natural Gas
Pipeline Company of America's customers may meet this threshold.




                                       79
<PAGE>   80



ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)


BUSINESS SEGMENT INFORMATION


<TABLE>
<CAPTION>
                                                                                                                      DECEMBER 31,
                                                                     YEAR ENDED DECEMBER 31, 2000                         2000
                                            ------------------------------------------------------------------------- ------------
                                            INCOME FROM   REVENUES FROM                   DEPRECIATION
                                            CONTINUING      EXTERNAL      INTERSEGMENT        AND          CAPITAL      SEGMENT
                                            OPERATIONS      CUSTOMERS       REVENUES      AMORTIZATION   EXPENDITURES   ASSETS
                                            -----------   -------------   ------------    ------------   ------------ ------------
                                                                 (In Thousands)
<S>                                         <C>            <C>             <C>             <C>            <C>         <C>
Natural Gas Pipeline Company of America     $  342,887     $  656,035      $      (18)     $   84,975     $   38,555  $ 5,478,183
Kinder Morgan Retail                            49,732        229,510              (1)         11,776         10,730      350,042
Kinder Morgan Texas Pipeline                    29,318      1,747,499               -           2,211         16,734            -
Power and Other(3)                              34,962         80,693               4           9,203         71,458    2,589,880(1)
Discontinued Operations                              -              -               -               -          3,185            -
                                            ----------     ----------      ----------      ----------     ----------  -----------
  Consolidated                                 456,899     $2,713,737      $      (15)     $  108,165     $  140,662  $ 8,418,105
                                                           ==========      ==========      ==========     ==========  ===========
General and Administrative Expenses            (58,087)
Other Income and (Expenses)(4)                 (91,646)
                                            ----------
Income from Continuing Operations
   Before Income Taxes                      $  307,166
                                            ==========
</TABLE>




<TABLE>
<CAPTION>
                                                                                                                      DECEMBER 31,
                                                                     YEAR ENDED DECEMBER 31, 1999                         1999
                                            ------------------------------------------------------------------------- ------------
                                            INCOME FROM   REVENUES FROM                   DEPRECIATION
                                            CONTINUING      EXTERNAL      INTERSEGMENT        AND          CAPITAL       SEGMENT
                                            OPERATIONS      CUSTOMERS       REVENUES      AMORTIZATION   EXPENDITURES    ASSETS
                                            -----------   -------------   ------------    ------------   ------------ ------------
                                                                 (In Thousands)
<S>                                         <C>           <C>             <C>             <C>            <C>          <C>
Natural Gas Pipeline Company of America     $  306,507     $  625,705      $    1,183      $  109,346     $   41,716  $ 5,469,050
Kinder Morgan Interstate                        53,924         96,531          16,676          16,985         20,743            -
Kinder Morgan Retail                            20,104        182,861              51          11,382         11,749      332,618
Kinder Morgan Texas Pipeline                    16,554        872,161               -           2,466          4,567      255,200
Power and Other(3)                              32,158         59,110             195           7,754         18,869    2,650,579(1)
Discontinued Operations                              -              -               -               -         28,363      718,227
                                            ----------     ----------      ----------      ----------     ----------  -----------
  Consolidated                                 429,247     $1,836,368      $   18,105      $  147,933     $  126,007  $ 9,425,674
                                                           ==========      ==========      ==========     ==========  ===========
General and Administrative Expenses            (85,591)
Merger-related and Severance Costs             (37,443)
Other Income and (Expenses)(4)                 (91,662)
                                            ----------
Income from Continuing Operations
   Before Income Taxes                      $  214,551
                                            ==========

</TABLE>


<TABLE>
<CAPTION>
                                                                                                                       DECEMBER 31,
                                                                    YEAR ENDED DECEMBER 31, 1998                           1998
                                            -------------------------------------------------------------------------  ------------
                                            INCOME FROM   REVENUES FROM                   DEPRECIATION
                                            CONTINUING      EXTERNAL      INTERSEGMENT        AND          CAPITAL       SEGMENT
                                            OPERATIONS      CUSTOMERS       REVENUES      AMORTIZATION   EXPENDITURES    ASSETS
                                            -----------   -------------   ------------    ------------   ------------ ------------
                                                               (In Thousands)
<S>                                         <C>           <C>             <C>             <C>            <C>          <C>
Natural Gas Pipeline Company of America     $  336,825     $  556,662      $      299      $  121,008     $   40,855  $ 5,421,029
Kinder Morgan Interstate                        58,006         88,244          17,333          19,474         49,044      581,089
Kinder Morgan Retail                            56,214        234,307              (1)         11,014         17,405      362,289
Kinder Morgan Texas Pipeline                     2,129        739,201               -           1,615          8,037      198,347
Power and Other(3)                              25,458         41,845           5,535           2,252          5,540    1,519,510(2)
Discontinued Operations                              -              -               -               -        135,633    1,541,515
                                            ----------     ----------      ----------      ----------     ----------  -----------
  Consolidated                                 478,632     $1,660,259         $23,166      $  155,363     $  256,514  $ 9,623,779
                                                           ==========      ==========      ==========     ==========  ===========
General and Administrative Expenses            (68,502)
Merger-related and Severance Costs              (5,763)
Other Income and (Expenses)                   (181,462)
                                            ----------
Income from Continuing Operations
   Before Income Taxes                      $  222,905
                                            ==========
</TABLE>

(1) Principally the investment in Kinder Morgan Energy Partners and corporate
    cash and receivables
(2) Principally government securities held as collateral for the Substitute Note
(3) Restated, see Note 2.

(4) Restated, see Note 5.






                                       80
<PAGE>   81


ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

GEOGRAPHIC INFORMATION

All but an insignificant amount of our assets and operations are located in the
continental United States.



                                       81

<PAGE>   82

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
KINDER MORGAN, INC. AND SUBSIDIARIES

QUARTERLY OPERATING RESULTS FOR 2000 AND 1999

<TABLE>
<CAPTION>

                                                                                   2000 - THREE MONTHS ENDED
                                                                -----------------------------------------------------------------
                                                                MARCH 31(1)        JUNE 30(1)      SEPTEMBER 30(1)    DECEMBER 31
                                                                -----------        ----------      ---------------    -----------
                                                                             (In Thousands Except Per Share Amounts)
<S>                                                             <C>                <C>             <C>                <C>
Operating Revenues                                               $  480,481        $  551,088        $  750,465       $  931,703
Gas Purchases and Other Costs of Sales                              277,911           381,607           577,478          723,087
                                                                 ----------        ----------        ----------       ----------
Gross Margin                                                        202,570           169,481           172,987          208,616
Other Operating Expenses                                             89,881            87,819            87,517           93,294
                                                                 ----------        ----------        ----------       ----------
Operating Income                                                    112,689            81,662            85,470          115,322
Other Income and (Expenses)                                         (35,477)          (40,581)          (40,624)          28,705(2)
                                                                 ----------        ----------        ----------       ----------
Income From Continuing Operations
  Before Income Taxes                                                77,212            41,081            44,846          144,027
Income Taxes                                                         30,887            16,968            18,138           57,024
                                                                 ----------        ----------        ----------       ----------
Income From Continuing Operations                                    46,325            24,113            26,708           87,003
Loss on Disposal of Discontinued
  Operations, Net of Tax                                                  -                 -                 -          (31,734)(3)
                                                                 ----------        ----------        ----------       ----------

Net Income                                                       $   46,325        $   24,113        $   26,708       $   55,269
                                                                 ==========        ==========        ==========       ==========

Number of Shares Used in Computing
  Basic Earnings Per Share                                          113,058           114,196           114,461          114,535
Number of Shares Used in Computing
  Diluted Earnings Per Share                                        113,456           114,981           116,177          118,594

BASIC EARNINGS PER COMMON SHARE:
  Continuing Operations                                          $     0.41        $     0.21        $     0.23       $     0.76
  Loss on Disposal of Discontinued Operations                             -                 -                 -            (0.28)
                                                                 ----------        ----------        ----------       ----------
Total Basic Earnings Per Common Share                            $     0.41        $     0.21        $     0.23       $     0.48
                                                                 ==========        ==========        ==========       ==========

DILUTED EARNINGS PER COMMON SHARE:
  Continuing Operations                                          $     0.41        $     0.21        $     0.23       $     0.74
  Loss on Disposal of Discontinued Operations                             -                 -                 -            (0.27)
                                                                 ----------        ----------        ----------       ----------
Total Diluted Earnings Per Common Share                          $     0.41        $     0.21        $     0.23       $     0.47
                                                                 ==========        ==========        ==========       ==========

</TABLE>


(1)  Restated for a change to the equity method of accounting for an investment
     and reflects the reclassification of International's operating results to
     continuing operations. See Notes 2 and 6 of the accompanying Notes to
     Consolidated Financial Statements and the table presented below.


(2)  Includes the $62 million pre-tax gain from the sale of certain assets to
     Kinder Morgan Energy Partners and a restatement decreasing the previously
     reported amount of amortization of excess investment in Kinder Morgan
     Energy Partners by $0.7 million; see Note 5 of the accompanying Notes to
     Consolidated Financial Statements.


(3)  See Note 6 of the accompanying Notes to Consolidated Financial Statements.


<TABLE>
<CAPTION>

                                                                         2000 - THREE MONTHS ENDED
                                                     --------------------------------------------------------------------
                                                      MARCH 31          JUNE 30         SEPTEMBER 30         DECEMBER 31
                                                      --------          -------         ------------        -------------
                                                                             (In Thousands)
<S>                                                   <C>               <C>               <C>                 <C>
Income From Continuing
  Operations as Previously Reported                   $  46,084         $  24,827         $  26,628         $  86,569
Power Restatement:
  Operating Revenues                                     (1,072)             (598)              (97)               --
  Other Income and (Expenses)                             1,892             1,618             1,092                --
  Income Taxes                                             (328)             (408)             (398)               --
Reclassification of International Operations               (251)           (1,326)             (517)               --
Restatement of amortization of excess
  investment in Kinder Morgan Energy Partners                --                --                --               434
                                                      ---------         ---------         ---------         ----------
Income From Continuing
  Operations as Restated                              $  46,325         $  24,113         $  26,708         $  87,003
                                                      =========         =========         =========         =========
</TABLE>





                                       82
<PAGE>   83

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)



<TABLE>
<CAPTION>

                                                                                  1999 - THREE MONTHS ENDED(1)
                                                                 ---------------------------------------------------------------
                                                                  MARCH 31           JUNE 30        SEPTEMBER 30     DECEMBER 31
                                                                  --------           -------        ------------     -----------
                                                                              (In Thousands Except Per Share Amounts)
<S>                                                               <C>               <C>              <C>              <C>
Operating Revenues                                                $ 425,696         $ 429,331        $ 495,906        $ 485,435
Gas Purchases and Other Costs of Sales                              206,158           248,449          318,386          277,257
                                                                  ---------         ---------        ---------        ---------
Gross Margin                                                        219,538           180,882          177,520          208,178
Other Operating Expenses                                            118,593           119,292          107,361          107,727
Merger-Related and Severance Costs                                    2,916            (2,916)          10,962           26,481
                                                                  ---------         ---------        ---------        ---------
Operating Income                                                     98,029            64,506           59,197           73,970
Other Income and (Expenses)                                         (58,162)          (44,145)         (48,729)          69,885(2)
                                                                  ---------         ---------        ---------        ---------
Income From Continuing Operations
  Before Income Taxes                                                39,867            20,361           10,468          143,855
Income Taxes                                                         15,582             8,056            4,465           51,021
                                                                  ---------         ---------        ---------        ---------
Income From Continuing Operations                                    24,285            12,305            6,003           92,834
                                                                  ---------         ---------        ---------        ---------
Discontinued Operations, Net of Tax(3):
  Loss From Discontinued Operations                                 (16,720)          (14,500)          (7,989)         (11,732)
  Loss on Disposal of Discontinued Operations                             -                 -          (11,479)        (332,899)
                                                                  ---------         ---------        ---------        ---------
Total Loss From Discontinued Operations                             (16,720)          (14,500)         (19,468)        (344,631)
                                                                  ---------         ---------        ---------        ---------
Net Income (Loss)                                                     7,565            (2,195)         (13,465)        (251,797)
Less-Preferred Dividends                                                 88                41                -                -
Less-Premium Paid on Preferred Stock Redemption                           -               350                -                -
                                                                  ---------         ---------        ---------        ---------
Earnings (Loss) Available for Common Stock                        $   7,477         $  (2,586)       $ (13,465)       $(251,797)
                                                                  =========         =========        =========        =========

Number of Shares Used in Computing
  Basic Earnings Per Share                                           69,486            70,689           70,914          110,047
Number of Shares Used in Computing
  Diluted Earnings Per Share                                         69,578            70,761           70,986          110,105

BASIC EARNINGS (LOSS) PER COMMON SHARE:
  Continuing Operations                                           $    0.35          $   0.17         $   0.08        $    0.84
  Discontinued Operations                                             (0.24)            (0.21)           (0.11)           (0.11)
  Loss on Disposal of Discontinued Operations                             -                 -            (0.16)           (3.02)
                                                                  ---------         ---------        ---------        ---------
Total Basic Earnings (Loss) Per Common Share                      $    0.11          $  (0.04)        $  (0.19)       $   (2.29)
                                                                  =========         =========        =========        =========

DILUTED EARNINGS (LOSS) PER COMMON SHARE:
  Continuing Operations                                           $    0.35         $    0.17        $    0.08       $     0.84
  Discontinued Operations                                             (0.24)            (0.21)           (0.11)           (0.11)
  Loss on Disposal of Discontinued Operations                             -                 -            (0.16)           (3.02)
                                                                  ---------         ---------        ---------        ---------
Total Diluted Earnings (Loss) Per Common Share                    $    0.11         $   (0.04)       $   (0.19)       $   (2.29)
                                                                  =========         =========        =========        =========

</TABLE>


(1)  Restated for a change to the equity method of accounting for an investment
     and reflects the reclassification of International's operating results to
     continuing operations. See Notes 2 and 6 of the accompanying Notes to
     Consolidated Financial Statements and the table presented following.

(2)  Includes the $127.0 million pre-tax gain from the sale of certain assets to
     Kinder Morgan Energy Partners, which has been restated from the previously
     reported amount; see Note 5 of the accompanying Notes to Consolidated
     Financial Statements.

(3) See Note 6 of the accompanying Notes to Consolidated Financial Statements.



                                       83
<PAGE>   84

ITEM 8:   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)



<TABLE>
<CAPTION>

                                                                           1999 - THREE MONTHS ENDED
                                                        ---------------------------------------------------------------
                                                         MARCH 31          JUNE 30        SEPTEMBER 30      DECEMBER 31
                                                         --------          -------        ------------      -----------
                                                                              (In Thousands)
<S>                                                      <C>               <C>              <C>               <C>
Income From Continuing
  Operations as Previously Reported                      $  23,908         $  12,380        $   5,886         $ 112,478
Power Restatement:
  Operating Revenues                                        (2,058)           (2,580)          (1,201)           (1,595)
  Other Income and (Expenses)                                2,797             2,934            2,955             1,720
  Income Taxes                                                (296)             (141)            (702)              (50)
Reclassification of International Operations                   (66)             (288)            (935)              512
Restatement of gain from sale to Kinder
  Morgan Energy Partners                                        --                --               --           (20,231)
                                                         ---------         ---------        ---------         ---------
Income From Continuing
  Operations as Restated                                 $  24,285         $  12,305        $   6,003         $  92,834
                                                         =========         =========        =========         =========
</TABLE>



ITEM 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

None




                                       84
<PAGE>   85





                                    PART III


ITEM 10:   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information required by this item is contained in our Proxy Statement
related to the 2001 Annual Meeting of Stockholders, to be filed pursuant to
Section 14 of the Securities Exchange Act of 1934 and is incorporated herein by
reference.

For information regarding our current executive officers, see Executive Officers
of the Registrant under Part I.

ITEM 11:   EXECUTIVE COMPENSATION

Information required by this item is contained in our Proxy Statement related to
the 2001 Annual Meeting of Stockholders, to be filed pursuant to Section 14 of
the Securities Exchange Act of 1934 and is incorporated herein by reference.

ITEM 12:   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is contained in our Proxy Statement related to
the 2001 Annual Meeting of Stockholders, to be filed pursuant to Section 14 of
the Securities Exchange Act of 1934 and is incorporated herein by reference.

ITEM 13:   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is contained in our Proxy Statement related to
the 2001 Annual Meeting of Stockholders, to be filed pursuant to Section 14 of
the Securities Exchange Act of 1934 and is incorporated herein by reference.




                                       85
<PAGE>   86



                                     PART IV


ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    1.  Financial Statements
              Reference is made to the listings of financial statements and
                supplementary data under Item 8 in Part II.

(a)    2.  Financial Statement Schedules

KINDER MORGAN, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31, 2000
                                        -----------------------------------------------------------------------------------------
                                                                              DEDUCTIONS
                                         BALANCE AT         ADDITIONS        WRITE-OFF OF        DISCONTINUED
                                        BEGINNING OF     CHARGED TO COST     UNCOLLECTIBLE        OPERATIONS       BALANCE AT END
                                           PERIOD         AND EXPENSES         ACCOUNTS           DEDUCTIONS         OF PERIOD
                                           ------         ------------         --------           ---------          ---------
                                                                            (In Millions)
<S>                                     <C>              <C>                <C>                 <C>                <C>
Allowance for Doubtful Accounts            $   1.7          $   9.9            $  (9.3)            $     -           $   2.3

</TABLE>

<TABLE>
<CAPTION>

                                                                     YEAR ENDED DECEMBER 31, 1999
                                        -----------------------------------------------------------------------------------------
                                                                              DEDUCTIONS
                                         BALANCE AT         ADDITIONS        WRITE-OFF OF        DISCONTINUED
                                        BEGINNING OF     CHARGED TO COST     UNCOLLECTIBLE        OPERATIONS       BALANCE AT END
                                           PERIOD         AND EXPENSES         ACCOUNTS           DEDUCTIONS         OF PERIOD
                                           ------         ------------         --------           ----------         ---------
                                                                            (In Millions)
<S>                                     <C>              <C>                 <C>                <C>               <C>
Allowance for Doubtful Accounts           $  10.8            $   3.6           $  (0.6)            $ (12.1)           $   1.7

</TABLE>


Note: Activity and balances prior to 1999 were not material.

The financial statements of Kinder Morgan Energy Partners, an equity method
investee of the Registrant, are incorporated herein by reference from F-1 to
F-40 of Kinder Morgan Energy Partners' Annual Report on Form 10-K for the year
ended December 31, 2000 dated March 12, 2001.




                                       86
<PAGE>   87
ITEM 14:    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
             FORM 8-K (continued)

(a)    3.  Exhibits

Any reference made to K N Energy, Inc. in the exhibit listing that follows is a
reference to the former name of Kinder Morgan, Inc., a Kansas corporation and
the registrant, and is made because the exhibit being listed and incorporated by
reference was originally filed before October 7, 1999, the date of the change in
the Registrant's name.

          EXHIBIT
            NO.              DESCRIPTION
          -------            -----------

        Exhibit 2(a)         Agreement and Plan of Merger, dated as of July 8,
                             1999, by and among K N Energy, Inc., Rockies Merger
                             Corp., and Kinder Morgan, Inc., (Annex A-1 of
                             Registration Statement on Form S-4 (File No.
                             333-85747))


        Exhibit 2(b)         First Amendment to Agreement and Plan of Merger,
                             dated as of August 20, 1999, by and among K N
                             Energy, Inc., Rockies Merger Corp., and Kinder
                             Morgan, Inc., (Annex A-2 of Registration Statement
                             on Form S-4 (File No. 333-85747))


        Exhibit 2(c)         Contribution Agreement, dated as of December 30,
                             1999, by and among Kinder Morgan, Inc., Natural Gas
                             Pipeline Company of America, K N Gas Gathering,
                             Inc., Kinder Morgan G.P., Inc. and Kinder Morgan
                             Energy Partners, L.P. (Exhibit 99.1 to Current
                             Report on Form 8-K filed on January 14, 2000)


        Exhibit 3(a)         Restated Articles of Incorporation of Kinder
                             Morgan, Inc. (Exhibit 3(a) to the Annual Report on
                             Form 10-K/A, Amendment No. 1 filed on May 22, 2000)


        Exhibit 3(b)         Certificate of Amendment to the Restated
                             Articles of Incorporation of Kinder Morgan, Inc. as
                             filed on October 7, 1999, with the Secretary of
                             State of Kansas (Exhibit 3.1 to Kinder Morgan,
                             Inc.'s Quarterly Report on Form 10-Q for the
                             quarter ended September 30, 1999)


        Exhibit 3(c)         Bylaws of Kinder Morgan, Inc., as amended to
                             October 7, 1999 (Exhibit 3.2 to Kinder Morgan,
                             Inc.'s Quarterly Report on Form 10-Q for the
                             quarter ended September 30, 1999)


        Exhibit 4(a)         Indenture dated as of September 1, 1988, between
                             K N Energy, Inc. and Continental Illinois National
                             Bank and Trust Company of Chicago (Exhibit 4(a) to
                             the Annual Report on Form 10-K/A, Amendment No. 1
                             filed on May 22, 2000)


        Exhibit 4(b)         First supplemental indenture dated as of
                             January 15, 1992, between K N Energy, Inc. and
                             Continental Illinois National Bank and Trust
                             Company of Chicago (Exhibit 4.2, File No. 33-45091)




                                       87
<PAGE>   88
ITEM 14:    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
            FORM 8-K (continued)

        Exhibit 4(c)         Second supplemental indenture  dated as of December
                             15, 1992, between K N Energy, Inc. and Continental
                             Bank, National Association (Exhibit 4(c) to the
                             Annual Report on Form 10-K/A, Amendment No. 1 filed
                             on May 22, 2000)


        Exhibit 4(d)         Indenture dated as of November 20, 1993, between
                             K N Energy, Inc. and Continental Bank, National
                             Association (Exhibit 4.1, File No. 33-51115) Note -
                             Copies of instruments relative to long-term debt in
                             authorized amounts that do not exceed 10 percent of
                             the consolidated total assets of Kinder Morgan and
                             its subsidiaries have not been furnished. Kinder
                             Morgan will furnish such instruments to the
                             Commission upon request.


        Exhibit 4(e)         $500,000,000 364-Day Credit Agreement among Kinder
                             Morgan, Inc., certain banks listed therein and Bank
                             of America, N. A.*


        Exhibit 4(f)         $400,000,000 Amended and Restated Five-Year
                             Credit Agreement dated January 30, 1998 among K N
                             Energy, Inc., certain banks listed therein and
                             Morgan Guaranty Trust Company of New York, as
                             Administrative Agent (Exhibit 4(f) to the Annual
                             Report on Form 10-K for the year ended December 31,
                             1997)

        Exhibit 4(g)         Amendment No. 1 to the $400,000,000 Five-Year
                             Amended and Restated Credit Agreement dated as of
                             November 6, 1998 among K N Energy, Inc., certain
                             banks listed therein and Morgan Guaranty Trust
                             Company of New York, as Administrative Agent
                             (Exhibit 4(j) to the Annual Report on Form 10-K for
                             the year ended December 31, 1998)

        Exhibit 4(h)         Amendment No. 2 to the $400,000,000 Five-Year
                             Amended and Restated Credit Agreement dated as of
                             January 8, 1999 among K N Energy, Inc., certain
                             banks listed therein and Morgan Guaranty Trust
                             Company of New York, as Administrative Agent
                             (Exhibit 4(l) to the Annual Report on Form 10-K for
                             the year ended December 31, 1998)

        Exhibit 4(i)         Purchase Contract Agreement dated as of November
                             25, 1998, between K N Energy, Inc. and U.S. Bank
                             Trust National Association, as Purchase Contract
                             Agent for the PEPS Units (Exhibit 4.4 to the
                             Current Report on Form 8-K dated November 24, 1998)


        Exhibit 4(j)         Rights Agreement between K N Energy, Inc. and the
                             Bank of New York, as Rights Agent, dated as of
                             August 21, 1995 (Exhibit 1 on Form 8-A dated August
                             21, 1995)


        Exhibit 4(k)         Amendment No. 1 to Rights Agreement between K N
                             Energy, Inc. and the Bank of New York, as Rights
                             Agent, dated as of September 8, 1998 (Exhibit
                             10(cc) to the Annual Report on Form 10-K for the
                             year ended December 31, 1998)


        Exhibit 4(l)         Amendment No. 2 to Rights Agreement of Kinder
                             Morgan, Inc. dated July 8, 1999, between Kinder
                             Morgan, Inc. and First Chicago Trust Company of New
                             York, as successor-in-interest to the Bank of New
                             York, as Rights Agent (Exhibit 4.1 to Kinder
                             Morgan, Inc.'s Quarterly Report on Form 10-Q for
                             the quarter ended September 30, 1999)



                                       88
<PAGE>   89
ITEM 14:    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
            FORM 8-K (continued)


        Exhibit 10(a)        1994 Amended and Restated Kinder Morgan, Inc.
                             Long-term Incentive Plan (Appendix A to the Kinder
                             Morgan, Inc. 2000 Proxy Statement on Schedule 14A)


        Exhibit 10(b)        Kinder Morgan, Inc. Amended and Restated 1999
                             Stock Option Plan (Appendix B to the Kinder Morgan,
                             Inc. 2000 Proxy Statement on Schedule 14A)


        Exhibit 10(c)        Kinder Morgan, Inc. Amended and Restated 1992 Stock
                             Option Plan for Nonemployee Directors (Appendix C
                             to the Kinder Morgan, Inc. 2000 Proxy Statement on
                             Schedule 14A)


        Exhibit 10(d)        2000 Annual Incentive Plan of Kinder Morgan, Inc.
                             (Appendix D to the Kinder Morgan, Inc. 2000 Proxy
                             Statement on Schedule 14A)


        Exhibit 10(e)        Kinder Morgan, Inc. Employees Stock Purchase Plan
                             (Appendix E to the Kinder Morgan, Inc. 2000 Proxy
                             Statement on Schedule 14A)


        Exhibit 10(f)        Form of Nonqualified Stock Option Agreement*


        Exhibit 10(g)        Form of Restricted Stock Agreement*


        Exhibit 10(h)        Directors and Executives Deferred Compensation
                             Plan effective January 1, 1998 for
                             executive officers and directors of K N Energy,
                             Inc. (Exhibit 10(aa) to the Annual Report on Form
                             10-K for the year ended December 31, 1998)


        Exhibit 10(i)        Stock Purchase Agreement dated  December 18, 1997,
                             between K N Energy, Inc. and Occidental Petroleum
                             Corporation (Exhibit 2.1, File No. 333-44421)


        Exhibit 10(j)        Amendment No.1 to Stock Purchase Agreement
                             dated January 30, 1998, between K N Energy, Inc.
                             and Occidental Petroleum Corporation (Exhibit 2(b)
                             to the Annual Report on Form 10-K for the year
                             ended December 31, 1997)


        Exhibit 10(k)        Governance Agreement dated October 7, 1999,
                             between Kinder Morgan, Inc. and Richard D. Kinder
                             (Exhibit 99.C of the Schedule 13D filed by Mr.
                             Kinder on October 8, 1999)


        Exhibit 10(l)        Governance Agreement dated October 7, 1999, between
                             Kinder Morgan, Inc. and Morgan Associates, Inc.
                             (Exhibit 99.C of the Schedule 13D filed by Morgan
                             Associates, Inc. and William V. Morgan on October
                             8, 1999)

        Exhibit 10(m)        Employment Agreement dated October 7, 1999,
                             between the Company and Richard D. Kinder (Exhibit
                             99.D of the Schedule 13D filed by Mr. Kinder on
                             October 8, 1999)





                                       89
<PAGE>   90


        Exhibit 10(n)        Employment Agreement dated April 20, 2000, by and
                             among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
                             and David G. Dehaemers, Jr. (filed as Exhibit 10(a)
                             to Kinder Morgan, Inc.'s Form 10-Q for the quarter
                             ended March 31, 2000)


        Exhibit 10(o)        Employment  Agreement dated April 20, 2000, by and
                             among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
                             and Michael C. Morgan (filed as Exhibit 10(b) to
                             Kinder Morgan, Inc.'s Form 10-Q for the quarter
                             ended March 31, 2000)


        Exhibit 13           2000 Annual Report to Shareholders (Exhibit 13 to
                             the Annual Report on Form 10-K for the year ended
                             December 31, 2000)


        Exhibit 21           Subsidiaries of the Registrant  (Exhibit 21 to the
                             Annual Report on Form 10-K for the year ended
                             December 31, 2000)


        Exhibit 23.1         Consent of Independent Accountants Exhibit 23.1 to
                             the Annual Report on Form 10-K for the year
                             ended December 31, 2000)


        Exhibit 23.2         Consent of Independent Public Accountants
                             (Exhibit 23.2 to the Annual Report on Form 10-K for
                             the year ended December 31, 2000)

        Exhibit 24.1         Power of Attorney*

                             * Filed herewith.

(b)    Reports on Form 8-K

         (1) Current Report on Form 8-K dated March 5, 2001 was filed pursuant
             to Item 5 and Item 7 of that form.

Pursuant to Item 5 of that form, we disclosed that on February 20, 2001, the
Company issued a press release announcing that we and a unit of Williams
(NYSE:WMB) had reached an agreement under which Williams will supply fuel to and
market 3,300 megawatts of capacity for 16 years for six natural gas-fired,
intermediate-peaking power generation facilities to be developed by Kinder
Morgan Power Company over the next four years.

Pursuant to Item 7 of that form, we filed the press release of the Company
issued February 20, 2001 as an exhibit.

         (2) Current Report on Form 8-K dated February 16, 2001 was filed
             pursuant to Item 5 and Item 7 of that form.




                                       90
<PAGE>   91
ITEM 14:   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
           (continued)


Pursuant to Item 5 of that form, we filed the following financial information of
Kinder Morgan, Inc.:

         (1)   Financial statements as of December 31, 2000 and 1999, and for
               the years ended December 31, 2000, 1999 and 1998;

         (2)   Quarterly financial information (unaudited) for 2000 and 1999;

         (3)   Selected financial data for each of the five years in the period
               ended December 31, 2000;

         (4)   Management's discussion and analysis of financial condition and
               results of operation;

         (5)   Quantitative and qualitative disclosures about market risk; and

         (6)   Schedule II - Valuation and Qualifying Accounts.

Pursuant to Item 7 of that form, we filed the following exhibits:

         23.1  Consent of PricewaterhouseCoopers LLP

         23.2  Consent of Arthur Andersen LLP

         99.1  Form 8-K of Kinder Morgan Energy Partners, L.P. dated February
               16, 2001, including the consolidated financial statements of
               Kinder Morgan Energy Partners, L.P.


           (3) Current Report on Form 8-K dated February 14, 2001 was filed
pursuant to Item 9 of that form.

Pursuant to Item 9 of that form, we filed notice that representatives of Kinder
Morgan Energy Partners and the Company intended to discuss various strategic and
financial issues relating to the business plans and objectives of the Company
and Kinder Morgan Energy Partners at the UBS Warburg Energy Conference on
February 15, 2001. We also gave notice that the materials presented at the
meeting would be available for viewing prior to the meeting at the Company's web
site at www.kindermorgan.com/presentations/KMI/ubswarburg02152001/index.html.

           (4) Current Report on Form 8-K dated February 1, 2001 was filed
pursuant to Item 5 and Item 7 of that form.

Pursuant to Item 5 of that form, we made three disclosures. First, we disclosed
that during the fourth quarter of 2000, we changed to the equity method of
accounting for our investment in the partnership that owns and operates the Ft.
Lupton power generation facility. Second, we disclosed that during the fourth
quarter of 2000, we decided to retain our previously discontinued international
operations segment. Third, we disclosed that on January 17, 2001, we issued a
press release containing earnings information and supplemental information with
respect to the years ended December 31, 2000 and 1999 for our Company.

Pursuant to Item 7 of that form, (1) we filed proforma financial statements of
the Company, giving effect to the events we disclosed in Item 5 and (2) we filed
the press release of the Company issued January 17, 2001 as an exhibit.

           (5) Current Report on Form 8-K dated January 30, 2001 was filed
pursuant to Item 9 of that form.


                                       91
<PAGE>   92

Pursuant to Item 9 of that form, we filed notice that representatives of Kinder
Morgan Energy Partners and the Company intended to discuss various strategic and
financial issues relating to the business plans and objectives of the Company
and Kinder Morgan Energy Partners at an analyst meeting on January 30, 2001. We
also gave notice that the materials presented at the meeting would be available
for viewing prior to the meeting at the Company's web site at
www.kindermorgan.com/presentations/KMI/lehmans01302001.

           (6) Current Report on Form 8-K dated January 9, 2001 was filed
pursuant to Item 9 of that form.

Pursuant to Item 9 of that form, we filed notice that representatives of Kinder
Morgan Energy Partners and the Company intended to discuss various strategic and
financial issues relating to the business plans and objectives of the Company
and Kinder Morgan Energy Partners at an analyst meeting on January 10, 2001. We
also gave notice that the materials presented at the meeting would be available
for viewing prior to the meeting at the Company's web site at
www.kindermorgan.com/presentations/KMI/GoldmanSachs01202001/.

           (7) Current Report on Form 8-K dated November 6, 2000 was filed
pursuant to Items 7 and 9 of that form.

Pursuant to Item 9 of that form, in Item 7 we filed an exhibit containing
presentation materials for use at a meeting with analysts and others on November
6, 2000.



                                       92
<PAGE>   93

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, INC.
                                 (Registrant)

Date: May 2, 2001

                                 By /s/ C. Park Shaper
                                   ---------------------------------------------
                                      C. Park Shaper
                                      Vice President and Chief Financial Officer



                                       93
<PAGE>   94
                                 EXHIBIT INDEX

          EXHIBIT
            NO.              DESCRIPTION
          -------            -----------

        Exhibit 2(a)         Agreement and Plan of Merger, dated as of July 8,
                             1999, by and among K N Energy, Inc., Rockies Merger
                             Corp., and Kinder Morgan, Inc., (Annex A-1 of
                             Registration Statement on Form S-4 (File No.
                             333-85747))


        Exhibit 2(b)         First Amendment to Agreement and Plan of Merger,
                             dated as of August 20, 1999, by and among K N
                             Energy, Inc., Rockies Merger Corp., and Kinder
                             Morgan, Inc., (Annex A-2 of Registration Statement
                             on Form S-4 (File No. 333-85747))


        Exhibit 2(c)         Contribution Agreement, dated as of December 30,
                             1999, by and among Kinder Morgan, Inc., Natural Gas
                             Pipeline Company of America, K N Gas Gathering,
                             Inc., Kinder Morgan G.P., Inc. and Kinder Morgan
                             Energy Partners, L.P. (Exhibit 99.1 to Current
                             Report on Form 8-K filed on January 14, 2000)


        Exhibit 3(a)         Restated Articles of Incorporation of Kinder
                             Morgan, Inc. (Exhibit 3(a) to the Annual Report on
                             Form 10-K/A, Amendment No. 1 filed on May 22, 2000)


        Exhibit 3(b)         Certificate of Amendment to the Restated
                             Articles of Incorporation of Kinder Morgan, Inc. as
                             filed on October 7, 1999, with the Secretary of
                             State of Kansas (Exhibit 3.1 to Kinder Morgan,
                             Inc.'s Quarterly Report on Form 10-Q for the
                             quarter ended September 30, 1999)


        Exhibit 3(c)         Bylaws of Kinder Morgan, Inc., as amended to
                             October 7, 1999 (Exhibit 3.2 to Kinder Morgan,
                             Inc.'s Quarterly Report on Form 10-Q for the
                             quarter ended September 30, 1999)


        Exhibit 4(a)         Indenture dated as of September 1, 1988, between
                             K N Energy, Inc. and Continental Illinois National
                             Bank and Trust Company of Chicago (Exhibit 4(a) to
                             the Annual Report on Form 10-K/A, Amendment No. 1
                             filed on May 22, 2000)


        Exhibit 4(b)         First supplemental indenture dated as of
                             January 15, 1992, between K N Energy, Inc. and
                             Continental Illinois National Bank and Trust
                             Company of Chicago (Exhibit 4.2, File No. 33-45091)




<PAGE>   95

        Exhibit 4(c)         Second supplemental indenture  dated as of December
                             15, 1992, between K N Energy, Inc. and Continental
                             Bank, National Association (Exhibit 4(c) to the
                             Annual Report on Form 10-K/A, Amendment No. 1 filed
                             on May 22, 2000)


        Exhibit 4(d)         Indenture dated as of November 20, 1993, between
                             K N Energy, Inc. and Continental Bank, National
                             Association (Exhibit 4.1, File No. 33-51115) Note -
                             Copies of instruments relative to long-term debt in
                             authorized amounts that do not exceed 10 percent of
                             the consolidated total assets of Kinder Morgan and
                             its subsidiaries have not been furnished. Kinder
                             Morgan will furnish such instruments to the
                             Commission upon request.


        Exhibit 4(e)         $500,000,000 364-Day Credit Agreement among Kinder
                             Morgan, Inc., certain banks listed therein and Bank
                             of America, N. A.*


        Exhibit 4(f)         $400,000,000 Amended and Restated Five-Year Credit
                             Agreement dated January 30, 1998 among K N Energy,
                             Inc., certain banks listed therein and Morgan
                             Guaranty Trust Company of New York, as
                             Administrative Agent (Exhibit 4(f) to the Annual
                             Report on Form 10-K for the year ended December 31,
                             1997)

        Exhibit 4(g)         Amendment No. 1 to the $400,000,000 Five-Year
                             Amended and Restated Credit Agreement dated as of
                             November 6, 1998 among K N Energy, Inc., certain
                             banks listed therein and Morgan Guaranty Trust
                             Company of New York, as Administrative Agent
                             (Exhibit 4(j) to the Annual Report on Form 10-K for
                             the year ended December 31, 1998)

        Exhibit 4(h)         Amendment No. 2 to the $400,000,000 Five-Year
                             Amended and Restated Credit Agreement dated as of
                             January 8, 1999 among K N Energy, Inc., certain
                             banks listed therein and Morgan Guaranty Trust
                             Company of New York, as Administrative Agent
                             (Exhibit 4(l) to the Annual Report on Form 10-K for
                             the year ended December 31, 1998)

        Exhibit 4(i)         Purchase Contract Agreement dated as of November
                             25, 1998, between K N Energy, Inc. and U.S. Bank
                             Trust National Association, as Purchase Contract
                             Agent for the PEPS Units (Exhibit 4.4 to the
                             Current Report on Form 8-K dated November 24, 1998)


        Exhibit 4(j)         Rights Agreement between K N Energy, Inc. and the
                             Bank of New York, as Rights Agent, dated as of
                             August 21, 1995 (Exhibit 1 on Form 8-A dated August
                             21, 1995)


        Exhibit 4(k)         Amendment No. 1 to Rights Agreement between K N
                             Energy, Inc. and the Bank of New York, as Rights
                             Agent, dated as of September 8, 1998 (Exhibit
                             10(cc) to the Annual Report on Form 10-K for the
                             year ended December 31, 1998)


        Exhibit 4(l)         Amendment No. 2 to Rights Agreement of Kinder
                             Morgan, Inc. dated July 8, 1999, between Kinder
                             Morgan, Inc. and First Chicago Trust Company of New
                             York, as successor-in-interest to the Bank of New
                             York, as Rights Agent (Exhibit 4.1 to Kinder
                             Morgan, Inc.'s Quarterly Report on Form 10-Q for
                             the quarter ended September 30, 1999)



<PAGE>   96


        Exhibit 10(a)        1994 Amended and Restated Kinder Morgan, Inc.
                             Long-term Incentive Plan (Appendix A to the Kinder
                             Morgan, Inc. 2000 Proxy Statement on Schedule 14A)


        Exhibit 10(b)        Kinder Morgan, Inc. Amended and Restated 1999
                             Stock Option Plan (Appendix B to the Kinder Morgan,
                             Inc. 2000 Proxy Statement on Schedule 14A)


        Exhibit 10(c)        Kinder Morgan, Inc. Amended and Restated 1992 Stock
                             Option Plan for Nonemployee Directors (Appendix C
                             to the Kinder Morgan, Inc. 2000 Proxy Statement on
                             Schedule 14A)


        Exhibit 10(d)        2000 Annual Incentive Plan of Kinder Morgan, Inc.
                             (Appendix D to the Kinder Morgan, Inc. 2000 Proxy
                             Statement on Schedule 14A)


        Exhibit 10(e)        Kinder Morgan, Inc. Employees Stock Purchase Plan
                             (Appendix E to the Kinder Morgan, Inc. 2000 Proxy
                             Statement on Schedule 14A)


        Exhibit 10(f)        Form of Nonqualified Stock Option Agreement*


        Exhibit 10(g)        Form of Restricted Stock Agreement*


        Exhibit 10(h)        Directors and Executives Deferred Compensation Plan
                             effective January 1, 1998 for executive officers
                             and directors of K N Energy, Inc. (Exhibit 10(aa)
                             to the Annual Report on Form 10-K for the year
                             ended December 31, 1998)


        Exhibit 10(i)        Stock Purchase Agreement dated  December 18, 1997,
                             between K N Energy, Inc. and Occidental Petroleum
                             Corporation (Exhibit 2.1, File No. 333-44421)


        Exhibit 10(j)        Amendment No.1 to Stock Purchase Agreement dated
                             January 30, 1998, between K N Energy, Inc. and
                             Occidental Petroleum Corporation (Exhibit 2(b) to
                             the Annual Report on Form 10-K for the year ended
                             December 31, 1997)


        Exhibit 10(k)        Governance Agreement dated October 7, 1999,
                             between Kinder Morgan, Inc. and Richard D. Kinder
                             (Exhibit 99.C of the Schedule 13D filed by Mr.
                             Kinder on October 8, 1999)


        Exhibit 10(l)        Governance Agreement dated October 7, 1999, between
                             Kinder Morgan, Inc. and Morgan Associates, Inc.
                             (Exhibit 99.C of the Schedule 13D filed by Morgan
                             Associates, Inc. and William V. Morgan on October
                             8, 1999)

        Exhibit 10(m)        Employment Agreement dated October 7, 1999, between
                             the Company and Richard D. Kinder (Exhibit 99.D of
                             the Schedule 13D filed by Mr. Kinder on October 8,
                             1999)


<PAGE>   97
        Exhibit 10(n)        Employment Agreement dated April 20, 2000, by and
                             among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
                             and David G. Dehaemers, Jr. (filed as Exhibit 10(a)
                             to Kinder Morgan, Inc.'s Form 10-Q for the quarter
                             ended March 31, 2000)


        Exhibit 10(o)        Employment  Agreement dated April 20, 2000, by and
                             among Kinder Morgan, Inc., Kinder Morgan G.P., Inc.
                             and Michael C. Morgan (filed as Exhibit 10(b) to
                             Kinder Morgan, Inc.'s Form 10-Q for the quarter
                             ended March 31, 2000)


        Exhibit 13           2000 Annual Report to Shareholders (Exhibit 13 to
                             the Annual Report on Form 10-K for the year ended
                             December 31, 2000)**


        Exhibit 21           Subsidiaries of the Registrant  (Exhibit 21 to the
                             Annual Report on Form 10-K for the year ended
                             December 31, 2000)**


        Exhibit 23.1         Consent of Independent Accountants Exhibit 23.1 to
                             the Annual Report on Form 10-K for the year ended
                             December 31, 2000)**


        Exhibit 23.2         Consent of Independent Public Accountants (Exhibit
                             23.2 to the Annual Report on Form 10-K for the year
                             ended December 31, 2000)**

        Exhibit 24.1         Power of Attorney*

                              * Filed with the Form 10-K.
                             ** Filed with the Form 10-K/A.