Table of Contents

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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549**FORM 10-Q**[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE    SECURITIES    EXCHANGE ACT OF 1934
For the quarterly period ended **June 30, 2002**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 1-6446KINDER MORGAN, INC.(Exact name of registrant as specified in its charter)  

Kansas
48-0290000
(State or other    jurisdiction of incorporation or organization)
(I.R.S. Employer    Identification No.)
500 Dallas Street, Suite 1000, Houston, Texas
77002
(Address of    principal executive offices)
(Zip Code)
  

Registrant's telephone number, including area code (713) 369-9000
   
(Former name, former address and former    fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirements for the past 90days.

Yes X    No___

The number of shares outstanding for each of the registrant's classesof common stock, as of the latest practicable date was: Common Stock, $5 par value,121,825,260 shares as of July 31, 2002.

 

KINDER MORGAN, INC. AND SUBSIDIARIESFORM 10-QQUARTER ENDED JUNE 30, 2002Contents

 
PART I.FINANCIAL    INFORMATION  PageItem 1.Financial Statements (Unaudited)  Number     Consolidated Balance Sheets 
3-4      Consolidated Statements of Income
5      Consolidated Statements of Cash Flows
6      Notes to Consolidated Financial    Statements
7-20     Item 2.Management's Discussion    and Analysis of Financial   Condition and Results of    Operations
21-33     Item    3.Quantitative    and Qualitative Disclosures About Market Risk
33     PART II.OTHER    INFORMATION  Item    1.Legal    Proceedings
33     Item 2.Changes in    Securities and Use of Proceeds
33     Item 3.Defaults Upon Senior    Securities
33     Item 4.Submission    of Matters to a Vote of Security Holders
33-34     Item    5.Other    Information
34     Item 6.Exhibits and Reports on Form    8-K
34-35     SIGNATURE
36   
2

 
**PART I - FINANCIAL INFORMATION
*Item 1.  FinancialStatements.*
CONSOLIDATED BALANCE SHEETS (Unaudited)Kinder Morgan, Inc. and Subsidiaries 
**June 30,**December 31,**2002**2001
(In    thousands)**ASSETS:****Current Assets:**Cash and Cash Equivalents
$   17,356 
$   16,134 Restricted Deposits
    14,836 
    15,010 Notes Receivable:   Related Party
         - 
    22,576    Other
   104,373 
    18,890 Accounts Receivable, Net:   Trade
    90,779 
   161,926    Related Parties
    19,728 
    29,502 Inventories
    79,152 
    61,959 Gas Imbalances
    53,516 
    50,775 Other
    34,957 
    45,299 
   414,697 
   422,071    **Investments:**Kinder Morgan Energy Partners
 2,817,949 
 2,806,146 Other
   510,992 
   449,056 
 3,328,941 
 3,255,202    **Property, Plant and Equipment**
 6,133,828 
 6,078,834 **Less Accumulated Depreciation and    Amortization**
   409,254 
   374,882 
 5,724,574 
 5,703,952    **Deferred Charges and Other Assets**
   217,327 
   159,550   **Total Assets**
$9,685,539 
$9,540,775 
========== 
==========    
The accompanying notes are an integral part of these statements.

3
**CONSOLIDATED BALANCE SHEETS (Unaudited)Kinder Morgan, Inc. and Subsidiaries
**June 30,**December 31,**2002**2001
(In thousands)**LIABILITIES AND STOCKHOLDERS' EQUITY:****Current Liabilities:**Current Maturities of Long-term Debt
$  706,267 
$  206,267 Notes Payable
   654,012 
   423,785 Accounts Payable:   Trade
    97,677 
   160,309    Related Parties
         - 
    70,606 Accrued Interest
    72,060 
    76,606 Accrued Taxes
    46,709 
    16,348 Gas Imbalances:   Third Parties
    76,446 
    58,266    Related Parties
    17,804 
     7,690 Other
    70,895 
   107,701 
 1,741,870 
 1,127,578 **  ****Other Liabilities and Deferred Credits:**Deferred Income Taxes
 2,448,992 
 2,427,089 Other
   204,689 
   228,631 
 2,653,681 
 2,655,720   **Long-term Debt**
 1,931,696 
 2,404,967   **Kinder Morgan-Obligated Mandatorily    Redeemable Preferred****  Capital Trust Securities of    Subsidiary Trusts Holding****  Solely Debentures of Kinder    Morgan**
   275,000 
   275,000   **Minority Interests in Equity of    Subsidiaries**
   801,500 
   817,513   **Stockholders' Equity:**Common Stock-  Authorized - 150,000,000 Shares,    Par Value $5 Per Share  Outstanding - 129,715,662 and    129,092,689 Shares, Respectively,    Before Deducting    7,946,611 and 5,165,911 Shares Held in Treasury
   648,578 
   645,463 Additional Paid-in Capital
 1,676,115 
 1,652,846 Retained Earnings
   368,530 
   219,995 Treasury Stock
  (399,070)
  (263,967)Other
   (12,361)
     5,660 Total Stockholders' Equity
 2,281,792 
 2,259,997   **Total Liabilities and Stockholders' Equity**
$9,685,539 
$9,540,775 
========== 
========== **  **
The accompanying notes are an integral part of these statements.

4
**CONSOLIDATED STATEMENTS OF INCOME(Unaudited)Kinder Morgan, Inc. and Subsidiaries
**Three Months Ended    June 30,**Six Months Ended    June 30,**2002**2001**2002**2001
(In thousands    except per share amounts)**Operating Revenues:**Natural Gas Transportation and Storage
$143,410 
$146,427 
$296,816 
$317,242 Natural Gas Sales
  54,291 
  41,388 
 175,067 
 169,817 Other
  16,033 
  31,027 
  33,252 
  57,007     Total Operating    Revenues
 213,734 
 218,842 
 505,135 
 544,066   **Operating Costs and Expenses:**Gas Purchases and Other Costs of Sales
  53,310 
  59,286 
 154,557 
 192,594 Operations and Maintenance
  33,225 
  29,534 
  62,305 
  60,044 General and Administrative
  17,108 
  16,172 
  36,658 
  32,480 Depreciation and Amortization
  25,994 
  26,506 
  51,998 
  52,820 Taxes, Other Than Income Taxes
   7,226 
   6,519 
  14,391 
  12,881     Total Operating    Costs and Expenses
 136,863 
 138,017 
 319,909 
 350,819   **Operating Income**
  76,871 
  80,825 
 185,226 
 193,247   **Other Income and (Expenses):**Investment in Kinder Morgan Energy    Partners:    Equity in Earnings
  93,394 
  67,058 
 183,485 
 122,095     Amortization of    Equity-method Goodwill
       - 
  (6,591)
       - 
 (13,542)Equity in Earnings (Losses) of Other Equity    Investments
   4,056 
    (724)
   6,428 
  (5,603)Interest Expense, Net
 (39,810)
 (56,238)
 (79,358)
(114,525)Minority Interests 
 (12,824)
  (8,528)
 (25,601)
 (14,173)Other, Net
   1,477 
   9,282 
   5,050 
  12,255     Total Other Income    and (Expenses)
  46,293 
   4,259 
  90,004 
 (13,493)  **Income Before Income Taxes and    Extraordinary Item**
 123,164 
  85,084 
 275,230 
 179,754 Income Taxes
  50,712 
  35,184 
 114,390 
  73,052 **Income Before Extraordinary Item**
  72,452 
  49,900 
 160,840 
 106,702   Extraordinary Item - Loss on Early    Extinguishment     of Debt, Net of    Income Tax Benefit of $8,080
       - 
       - 
       - 
 (12,119)  **Net Income**
$ 72,452 
$ 49,900 
$160,840 
$ 94,583 
======== 
======== 
======== 
========   **Basic Earnings (Loss) Per Common Share:**Income Before Extraordinary Item
$   0.59 
$   0.43 
$   1.31 
$   0.93 Extraordinary Item - Loss on Early    Extinguishment of Debt
       - 
       - 
       - 
   (0.11)Total Basic Earnings Per Common Share
$   0.59 
$   0.43 
$   1.31 
$   0.82 
======== 
======== 
======== 
========   Number of Shares Used in Computing Basic    Earnings Per Common    Share (Thousands)
 122,015 
 115,258 
 122,703 
 115,051 
======== 
======== 
======== 
========   **Diluted Earnings (Loss) Per Common    Share:**Income Before Extraordinary Item
$   0.59 
$   0.41 
$   1.30 
$   0.88 Extraordinary Item - Loss on Early    Extinguishment of Debt
       - 
       - 
       - 
   (0.10)Total Diluted Earnings Per Common Share
$   0.59 
$   0.41 
$   1.30 
$   0.78 
======== 
======== 
======== 
========   Number of Shares Used in Computing Diluted    Earnings Per Common    Share (Thousands)
 123,230 
 122,359 
 124,026 
 121,845 
======== 
======== 
======== 
========   **Dividends Per Common Share**
$   0.05 
$   0.05 
$   0.10 
$   0.10 
======== 
======== 
======== 
======== 
The accompanying notes are an integral part of these statements.

5
**CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)Kinder Morgan, Inc. and SubsidiariesIncrease (Decrease) in Cash and Cash Equivalents
**Six Months Ended June 30,**2002**2001
(In    thousands)**Cash Flows From Operating Activities:**Net Income
$   160,840 
$    94,583 Adjustments to Reconcile Net Income to Net    Cash Flows from Operating Activities:    Extraordinary Loss    on Early Extinguishment of Debt
          - 
     20,199     Depreciation and    Amortization
     51,998 
     52,820     Deferred Income    Taxes
     28,916 
     55,254     Equity in Earnings    of Kinder Morgan Energy Partners
   (183,485)
   (108,553)    Distributions from    Kinder Morgan Energy Partners
    148,591 
    102,052     Equity in    (Earnings) Losses of Other Investments
     (6,428)
      5,603     Minority Interests    in Income of Consolidated Subsidiaries
     14,942 
      2,771     Deferred Purchased    Gas Costs
      3,921 
     18,676     Net Gains on Sales    of Facilities
     (2,567)
     (6,183)    Litigation    Settlement and Escrow Deposit
    (22,050)
          -     Pension    Contribution in Excess of Expense
    (18,772)
          -     Changes in Gas in    Underground Storage
    (17,503)
    (58,206)    Changes in Other    Working Capital Items
     26,350 
    (36,009)    Other, Net
     (3,316)
     (3,545)  Net Cash Flows Provided by    Continuing Operations
    181,437 
    139,462   Net Cash Flows Used in    Discontinued Operations
     (5,136)
     (4,370)**Net Cash Flows Provided by Operating    Activities**
    176,301 
    135,092   **Cash Flows From Investing Activities:**Capital Expenditures
    (77,720)
    (33,383)Acquisitions
          - 
    (15,000)Investment in Kinder Morgan Energy Partners
          - 
    (991,869)Other Investments
   (167,085)
     (89,165)Proceeds from Sales of Assets
      4,941 
      5,675 Net Cash Flows Used in Continuing Investing    Activities
   (239,864)
 (1,123,742)Net Cash Flows Provided by Discontinued    Investing Activities
          - 
     25,742 **Net Cash Flows Used in Investing    Activities**
   (239,864)
 (1,098,000)  **Cash Flows From Financing Activities:**Short-term Debt, Net
    230,227 
    391,900 Long-term Debt Retired
       (636)
   (420,706)Premiums Paid on Early Extinguishment of    Debt
          - 
    (28,529)Issuance of Shares by Kinder Morgan    Management
          - 
    942,614 Common Stock Issued
     12,314 
     20,440 Other Financing, Net
    (24,727)
          - Treasury Stock Issued
          - 
      2,223 Treasury Stock Acquired
   (139,875)
          - Cash Dividends, Common Stock
    (12,302)
    (11,499)Minority Interests, Net
       (216)
       (134)Premium Equity Participating Securities    Contract Fee
          - 
     (5,449)Securities Issuance Costs
          - 
    (54,480)**Net Cash Flows Provided by Financing    Activities**
     64,785 
    836,380   Net Increase (Decrease) in Cash and Cash    Equivalents
      1,222 
   (126,528)Cash and Cash Equivalents at Beginning of    Period
     16,134 
    141,923 Cash and Cash Equivalents at End of Period
$    17,356 
$    15,395 
=========== 
=========== 
For supplemental cash flow information, see Note 5.The accompanying notes are an integral part of these statements.

6
**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**
1.     General
We are a provider of energy and related services and have operations inthe Rocky Mountain and mid-continent regions of the United States, with principaloperations in Arkansas, Colorado, Illinois, Iowa, Kansas, Nebraska, Oklahoma, Texas andWyoming. Services we offer include: (i) storing, transporting and selling natural gas,(ii) providing retail natural gas distribution services and (iii) designing, developing,constructing and operating electric generation facilities. We have both regulated andnonregulated operations. Our common stock is traded on the New York Stock Exchange underthe symbol "KMI." As a result of our October 1999 acquisition of Kinder Morgan(Delaware), Inc., we own the general partner interest, as well as significant limitedpartner interests, in Kinder Morgan Energy Partners, L.P., a publicly traded pipelinemaster limited partnership, referred to in these Notes as "Kinder Morgan EnergyPartners," and receive a substantial portion of our earnings from returns on theseinvestments.

We have prepared the accompanying unaudited interim consolidatedfinancial statements under the rules and regulations of the Securities and ExchangeCommission. Under such rules and regulations, we have condensed or omitted certaininformation and notes normally included in financial statements prepared in conformitywith accounting principles generally accepted in the United States of America. We believe,however, that our disclosures are adequate to make the information presented notmisleading. The consolidated financial statements reflect all adjustments that are, in theopinion of management, necessary for a fair presentation of our financial results for theinterim periods presented. You should read these interim consolidated financial statementsin conjunction with our consolidated financial statements and related notes included inour 2001 Form 10-K. Certain prior period amounts have been reclassified to conform to thecurrent presentation. Unless the context requires otherwise, references to "we,""us," "our," or the "Company" are intended to mean KinderMorgan, Inc. and its consolidated subsidiaries.

2.     Kinder Morgan Management, LLC
In May 2001, Kinder Morgan Management, LLC, one of our indirectsubsidiaries, issued and sold 29,750,000 limited liability shares (after adjustment forthe stock split discussed following) in an underwritten initial public offering, with2,975,000 of the shares purchased by Kinder Morgan, Inc. The net proceeds from theoffering were used by Kinder Morgan Management to buy i-units from Kinder Morgan EnergyPartners for $991.9 million. Upon purchase of the i-units, Kinder Morgan Management becamea partner in Kinder Morgan Energy Partners and was delegated by Kinder Morgan EnergyPartners' general partner the responsibility to manage and control the business andaffairs of Kinder Morgan Energy Partners, subject to Kinder Morgan G.P., Inc.'s right toapprove specified actions. The i-units are a class of Kinder Morgan Energy Partners'limited partner interests that have been, and will be, issued only to Kinder MorganManagement.

As discussed in our 2001 Form 10-K, we have certain rights andobligations with respect to these securities. By approval of Kinder Morgan Managementshareholders other than us, effective at the close of business on July 23, 2002, we nolonger have an obligation to, upon presentation by the holder, exchange the Kinder MorganManagement shares for either Kinder Morgan Energy Partners' common units that we own or,at our election, cash. Approximately 872,000 and 940,000 of these shares were exchanged inthe three months and six months ended June 30, 2002, respectively and, during July 2002,an additional 5.9 million Kinder Morgan Management shares were exchanged before theelimination of the exchange feature. Approximately 3.8 million and 9.7 million KinderMorgan Management shares had been exchanged for Kinder Morgan Energy Partners' commonunits or cash as of June 30, 2002, and July 23, 2002, respectively. In conjunction withthe elimination of the exchange feature, on July 29, 2002, we issued to each Kinder MorganManagement shareholder (i) .09853 shares of Kinder Morgan, Inc. common stock for each 100Kinder Morgan Management shares held

7

of record by such shareholder at the close of business on July 23,2002, and (ii) cash in lieu of fractional shares. At June 30, 2002, Kinder Morgan, Inc.owned approximately 7.1 million (22.4%) of Kinder Morgan Management's outstanding shares,including the only two voting shares.

On August 6, 2002, Kinder Morgan Management closed the issue and saleof 12,478,900 limited liability shares in an underwritten public offering. The netproceeds of approximately $328.6 million from the offering were used by Kinder MorganManagement to buy i-units from Kinder Morgan Energy Partners. None of the shares fromKinder Morgan Management's offering were purchased by us. Immediately following thispublic offering, we owned approximately 13 million (29.4%) of Kinder Morgan Management'soutstanding shares, including the only two voting shares.

On July 18, 2001, Kinder Morgan Energy Partners announced a two-for-onesplit of its common units. The common unit split, in the form of a one-common-unitdistribution for each common unit outstanding, occurred on August 31, 2001. This splitresulted in Kinder Morgan, Inc. receiving one additional common unit for each common unitit owned and Kinder Morgan Management receiving one additional i-unit for each i-unit itowned. Also on July 18, 2001, Kinder Morgan Management announced a two-for-one split ofits shares. This share split, in the form of a one-share distribution for each shareoutstanding, occurred on August 31, 2001. All references to amounts of these securities inthese Notes reflect the impact of these splits.

On May 15, 2002, Kinder Morgan Management paid a share distribution of527,572 of its shares to shareholders of record as of April 30, 2002, based on the $0.59per common unit distribution declared by Kinder Morgan Energy Partners. On August 14,2002, Kinder Morgan Management will pay a share distribution of 619,585 of its shares toshareholders of record as of July 31, 2002, based on the $0.61 per common unitdistribution declared by Kinder Morgan Energy Partners. These distributions are paid inthe form of additional shares or fractions thereof based on the average market price of ashare determined for a ten-trading day period ending on the trading day immediately priorto the ex-dividend date for the shares.

3.     Investments and Sales
Effective July 1, 2002, construction and testing of the Jackson,Michigan 550-megawatt power generation facility were completed and commercial operationscommenced. Concurrently with commencement of commercial operations, (i) Kinder MorganPower Company, our wholly owned subsidiary, made a preferred investment in Triton PowerCompany LLC valued at $119.0 million; (ii) Triton Power Company LLC, through its whollyowned affiliate, Triton Power Michigan LLC, entered into a 40-year lease of the Jacksonpower facility from the plant owner, AlphaGen Power, LLC, and (iii) we received fullpayment of our $104.4 million construction note receivable. The construction notereceivable is included in the caption "Other" under the heading "NotesReceivable" in the accompanying interim Consolidated Balance Sheet as of June 30,2002.

Our preferred equity interest represents approximately 31% of the totalfacility capitalization of $380 million. This preferred equity interest has no managementor voting rights, but does retain certain protective rights, and is entitled to acumulative return, compounded monthly, of 9.0% per annum. One of our wholly ownedsubsidiaries operates and maintains the Jackson power facility for a fee. Williams EnergyMarketing and Trading supplies all natural gas to and purchases all electricity from thepower plant under a 16-year tolling agreement with Triton Power Michigan LLC. As discussedin our 2001 Form 10-K, during the 16-year tolling period, we could be obligated, solelybased on the operational performance of the facility, to make limited incrementalpreferred investments in the facility. In addition, after the 16-year tolling period, wecould be obligated to make limited incremental preferred investments based on cash flowsgenerated by the facility.

Effective July 1, 2002, construction and testing of the 550-megawattWrightsville, Arkansas power generation facility were completed and commercial operationscommenced. Mirant Corporation operates and maintains the

8

Wrightsville power facility and manages the natural gas supply andelectricity sales for the project company that owns the power plant. Kinder Morgan PowerCompany has a preferred investment of approximately $74.8 million in the project company,which represents approximately 21% of the total estimated facility capitalization of $350million. This preferred equity interest has no management or voting rights, but doesretain certain protective rights, and is entitled to a cumulative preferred dividendreturn that escalates over time from 6.3% to 8.8%. In addition, Kinder Morgan PowerCompany has advanced a total of $16.7 million to the electricity transmission carrier andthe project company, which will be repaid with interest over the next several years.

Horizon Pipeline Company, L.L.C. ("Horizon"), a joint venturebetween Nicor-Horizon, a subsidiary of Nicor Inc. (NYSE: GAS), and Natural Gas PipelineCompany of America, completed and placed into service its new $82 million natural gaspipeline in northern Illinois on May 11, 2002. This pipeline is being operated as aninterstate pipeline company under the authority of the Federal Energy RegulatoryCommission ("FERC").

Horizon's natural gas pipeline consists of 28 miles of newlyconstructed 36-inch diameter pipe, the lease of capacity in 42 miles of existing pipelinefrom Natural Gas Pipeline Company of America, and newly installed gas compressionfacilities. Horizon Pipeline can transport up to 380 million cubic feet of natural gas perday from near Joliet into McHenry County, connecting the emerging supply hub at Jolietwith the northern part of the Nicor Gas distribution system and the existing Natural GasPipeline Company of America pipeline system.

4.     Earnings Per Share
Basic earnings per common share is computed based on theweighted-average number of common shares outstanding during each period. In recentperiods, we have repurchased a significant number of our outstanding shares, see Note 8.Diluted earnings per common share is computed based on the weighted-average number ofcommon shares outstanding during each period, increased by the assumed exercise orconversion of securities (stock options and, prior to their November 2001 maturity,Premium Equity Participating Security Units) convertible into common stock, for which theeffect of conversion or exercise using the treasury stock method would be dilutive.
**Three Months Ended    June 30,**Six Months Ended    June 30,**2002**2001**2002**2001
(In    thousands)Weighted-average Common Shares Outstanding
 122,015
 115,258
 122,703
 115,051Dilutive Common Stock Options
   1,215
   1,906
   1,323
   1,872Dilutive Premium Equity Participating    Security Units
       -
   5,195
       -
   4,922Shares Used to Compute Diluted Earnings Per    Common Share
 123,230
 122,359
 124,026
 121,845
========
========
========
========  
There were approximately 2,561,000 and 2,531,000 weighted-average stockoptions outstanding during the three months and six months ended June 30, 2002,respectively, that were excluded from the diluted earnings per share calculations becausethe effect of including them would have been antidilutive. All stock options outstandingduring the three months and six months ended June 30, 2001 were dilutive.

9

5.     Supplemental Cash Flow Information
We consider all highly liquid investments purchased with an originalmaturity of three months or less to be cash equivalents.
**Changes in Other Working    Capital Items,      Net of Effects of Acquisitions and Sales    Increase (Decrease) in Cash and Cash Equivalents****Six Months Ended    June 30,**2002**2001
(In    thousands) Accounts Receivable
$  58,543 
$  29,016 Materials and Supplies Inventory
    6,096 
   (1,240)Other Current Assets
   (8,613)
  (15,278)Accounts Payable
  (49,516)
  (54,879)Other Current Liabilities
   19,840 
    6,372 
$  26,350 
$ (36,009)
========= 
=========   **Supplemental Disclosures of Cash Flow    Information:**  **Cash Paid During the Period for:**Interest, Net of Amount Capitalized
$  79,550 
$ 118,006 
========= 
========= Distribution on Preferred Capital Trust    Securities
$  10,956 
$  10,956 
========= 
========= Income Taxes Paid
$  61,474 
$  20,552 
========= 
=========   
As discussed in Note 2, Kinder Morgan, Inc. exchanged approximately940,000 common units of Kinder Morgan Energy Partners for Kinder Morgan Management sharesduring the first six months of 2002 in non-cash transactions.

6.     Business Segments
In accordance with the manner in which we currently manage ourbusinesses, including the allocation of capital and evaluation of business unitperformance, our principal business segments are: (1) Natural Gas Pipeline Company ofAmerica (NGPL) and affiliated companies, a major interstate natural gas pipeline andstorage system, (2) Kinder Morgan Retail, the regulated sale of natural gas toresidential, commercial and industrial customers and non-utility sales of natural gas tocertain utility customers under the Choice Gas Program, a program that allows utilitycustomers to choose their natural gas provider and (3) Power and Other, the constructionand operation of natural gas-fired electric generation facilities. Prior to 2002, Powerand Other also included various other activities not constituting separately managed orreportable business segments.

The accounting policies we apply in the generation of business segmentinformation are generally the same as those described in Note 1 of Notes to ConsolidatedFinancial Statements included in our 2001 Form 10-K, except that certain items below the"Operating Income" line are either not allocated to business segments or are notconsidered by management in its evaluation of business unit performance. Exceptions tothis are that (i) Kinder Morgan Power, which routinely conducts its business activities inthe form of joint operations with other parties that are accounted for under the equitymethod of accounting, includes its equity in earnings of these investees in its operatingresults and (ii) Natural Gas Pipeline Company of America's results include equity earningsattributable to its investment in Horizon Pipeline Company, L.L.C. These equity methodearnings are included in "Other Income and (Expenses)" in the accompanyinginterim Consolidated Statements of Income. In addition, (i) certain items included inoperating income (such as general and administrative expenses) are not allocated toindividual business segments and (ii) gains and losses from incidental sales of assets areincluded in segment earnings. With adjustment for these items, we currently evaluatebusiness segment performance primarily based on operating income in relation to the amountof capital employed. We

10

account for intersegment sales at market prices, while we account forasset transfers at either market value or, in some instances, book value. As necessary forcomparative purposes, we have reclassified prior period results and balances to conform tothe current presentation.

BUSINESS SEGMENT INFORMATION
  **Three Months Ended June 30, 2002  **Income**Revenues From    External    Customers**Intersegment    Revenues**Depreciation    And    Amortization**Capital    Expenditures**Segment    Assets    at 6/30/02  
(In    thousands)  Natural Gas Pipeline Company of America
$   83,984 
$  157,531
$        -
$   21,637
$   31,818
$5,614,515 Kinder Morgan Retail
     6,097 
    46,542
         -
     3,583
     9,924
   388,143 Power and Other
     5,924 
     9,661
         -
       774
        93
 3,682,8811  Consolidated
    96,005 
$  213,734
$        -
$   25,994
$   41,835
$9,685,539 
==========
==========
===========
==========
========== General and Administrative Expenses
   (17,108)Other Income and (Expenses)
    44,267 Income Before Income Taxes and   Extraordinary Item
$  123,164 
========== **Three Months Ended June 30, 2001**Income**Revenues From    External    Customers**Intersegment    Revenues**Depreciation    And    Amortization**Capital    Expenditures
(In thousands)  Natural Gas Pipeline Company of America
$   80,294 
$  138,296
$        -
$   21,606 
$   12,361Kinder Morgan Retail
     4,202 
    45,483
         -
     3,072 
     7,509Power and Other
    19,418 
    35,063
         -
     1,828 
       173  Consolidated
   103,914 
$  218,842
$        -
$   26,506 
$   20,043
==========
==========
========== 
==========General and Administrative Expenses
   (16,172)Other Income and (Expenses)
    (2,658)Income Before Income Taxes and   Extraordinary Item
$   85,084 
========== 
11

BUSINESS SEGMENT INFORMATION (Continued)
  **Six Months    Ended June 30, 2002  **Income**Revenues From    External    Customers**Intersegment    Revenues**Depreciation    And    Amortization**Capital    Expenditures  
(In    thousands)  Natural Gas Pipeline Company of America
$  179,602 
$  340,620
$        -
$   43,401
$   49,852Kinder Morgan Retail
    30,955 
   144,169
         -
     7,053
    10,769Power and Other
    15,664 
    20,346
         -
     1,544
    17,099  Consolidated
   226,221 
$  505,135
$        -
$   51,998
$   77,720
==========
==========
==========
==========General and Administrative Expenses
   (36,658)Other Income and (Expenses)
    85,667 Income Before Income Taxes and   Extraordinary Item
$  275,230 
========== **Six Months Ended June 30, 2001**Income**Revenues From    External    Customers**Intersegment    Revenues**Depreciation    And    Amortization**Capital    Expenditures
(In thousands)  Natural Gas Pipeline Company of America
$  174,176 
$  310,410
$        -
$   43,083 
$   18,264Kinder Morgan Retail
    27,739 
   172,725
        44
     6,123 
    14,907Power and Other
    29,035 
    60,931
     2,032
     3,614 
       212  Consolidated
   230,950 
$  544,066
$    2,076
$   52,820 
$   33,383
==========
==========
==========
==========General and Administrative Expenses
   (32,480)Other Income and (Expenses)
   (18,716)Income Before Income Taxes and   Extraordinary Item
$  179,754 
========== 1
Principally our investment    in Kinder Morgan Energy Partners, investments in power plant facilities and corporate cash    and receivables. Earnings attributable to our investment in Kinder Morgan Energy Partners    are included with "Other Income and (Expenses)."
GEOGRAPHIC INFORMATION

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

7.     Financing
We have available a $500 million 364-day credit facility dated October24, 2001, and a $400 million amended and restated five-year revolving credit agreementdated January 30, 1998. These bank facilities can be used for general corporate purposes,including backup for our commercial paper program and, as discussed in our 2001 Form 10-K,include covenants that are common in such arrangements. Under these bank facilities, weare required to pay a facility fee based on the total commitment, whether used or unused,at a rate which varies based on our senior debt rating. We had no borrowings under ourbank facilities at June 30, 2002.

The commercial paper we issue, which is supported by the creditfacilities described above, is comprised of unsecured short-term notes with maturities notto exceed 270 days from the date of issue. Commercial paper outstanding at June 30, 2002was $654.0 million. Our weighted-average interest rate on short-term borrowingsoutstanding at June 30, 2002 was 2.18 percent. Average short-term borrowings outstandingduring the second quarter of 2002 were $652.1 million and the weighted-average interestrate was 2.13 percent. Average short-

12

term borrowings outstanding during the first six months of 2002 were$570.3 million and the weighted-average interest rate was 2.18 percent.

In March 2001, we retired (i) our $400 million of Reset Put Securitiesdue March 1, 2021 and (ii) our $20 million of 9.95% Series Sinking Fund Debentures due2020, utilizing a combination of cash and incremental short-term debt. In conjunction withthese early extinguishments of debt, we recorded an extraordinary loss of $12.1 million(net of associated tax benefit of $8.1 million), presented as a separate line item in theaccompanying interim Consolidated Statement of Income for the six months ended June 30,2001.

On April 17, 2002, our Board of Directors approved a cash dividend of$0.05 per common share payable on May 15, 2002 to shareholders of record as of April 30,2002. On July 17, 2002, our Board of Directors approved a cash dividend of $0.10 percommon share payable on August 14, 2002 to shareholders of record as of July 31, 2002.

8.     Common Stock Repurchase Plan
On August 14, 2001, we announced a program to repurchase $300 millionof our outstanding common stock. On February 5, 2002, we announced that our Board ofDirectors had approved expanding the program to a total of $400 million. On July 17, 2002,we announced that our Board of Directors had authorized additional share repurchases up to$50 million, expanding the program to a total of $450 million. As of June 30, 2002, we hadrepurchased a total of approximately $405.5 million (8,075,500 shares) of our outstandingcommon stock under the program, of which $42.9 million (898,500 shares) and $135.1 million(2,780,700 shares) were repurchased in the three months and six months ended June 30,2002, respectively.

9.     Regulatory Matters
On July 17, 2000, Natural Gas Pipeline Company of America filed itscompliance plan, including pro forma tariff sheets, pursuant to the FERC's Order Nos. 637and 637-A. The FERC directed all interstate pipelines to file pro forma tariff sheets tocomply with new regulatory requirements in the Orders regarding scheduling procedures,capacity segmentation, imbalance management services and penalty credits, or in thealternative, to explain why no changes to existing tariff provisions are necessary. Atechnical conference was held on July 10, 2001 to discuss Natural Gas Pipeline Company ofAmerica's Order 637 filing. Parties have filed comments on Natural Gas Pipeline Company ofAmerica's filing and all parties are awaiting the FERC's decision.

On April 5, 2002, the D.C. Circuit issued an order largely affirmingOrder Nos. 637, et seq. The D.C. Circuit did remand the FERC's decision to impose a 5-yearcap on bids the existing shipper would have to match in the right of first refusalprocess. The D.C. Circuit also remanded the FERC's decision to allow forward-hauls andbackhauls to the same point. Finally, the D.C. Circuit held that several aspects of theFERC's segmentation policy and its policy on discounting at alternate points were not ripefor review. Numerous parties, including Natural Gas Pipeline Company of America, havefiled comments on the remanded issues and the proceeding is pending FERC action.

The FERC, in a Notice of Proposed Rulemaking in RM01-10-000, hasproposed standards of conduct to govern interactions between interstate natural gaspipelines and electric transmission utilities and their energy affiliates. These standardswould entirely replace the current standards of conduct related to affiliate interaction.Numerous parties, including Natural Gas Pipeline Company of America, have filed commentson the proposed rulemaking, which is awaiting further action by the FERC.

13

The FERC, in a Notice of Proposed Rulemaking in RM02-14-000, hasproposed new regulation of cash management practices, including establishing limits on theamount of funds that can be swept from a regulated subsidiary to a non-regulated parentcompany. Comments on the proposed rulemaking are due August 22, 2002.

As a part of the settlement of litigation styled*, 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,in early 2002, Mr. Grynberg received $16.825 million (including forgiveness of a $10.4million obligation owing from Mr. Grynberg) and an additional $15.625 million was paidinto escrow. Rocky Mountain Natural Gas Company agreed to seek to recover these amountsfrom its customers/rate payers in a proceeding before the Public Utilities Commission forthe State of Colorado. We expect to file this proceeding later in 2002.

Currently, there are no material proceedings challenging the rates onany of our pipeline systems. Nonetheless, shippers on our pipelines do have rights tochallenge the rates we charge under certain circumstances prescribed by applicableregulations. There can be no assurance that we will not face challenges to the rates wereceive for services on our pipeline systems in the future. In addition, since many of ourassets are subject to regulation, we are subject to potential future changes in applicablerules and regulations that may have an adverse effect on our business, financial positionor results of operations.

10.     Comprehensive Income
Our comprehensive income for the three months and six months ended June30, 2002 and 2001 is as follows:
**Three Months Ended June 30, **Six Months Ended June 30, **2002**2001**2002**2001
(In    Thousands)**Net Income:**
$  72,452 
$  49,900 
$ 160,840 
$  94,583 **Other Comprehensive Income, Net of Tax:**Change in Fair Value of Derivatives    Utilized    for Hedging    Purposes, Net of Tax
   (2,218)
    8,985 
  (12,532)
    8,850 Reclassification of Change in Fair Value of    Derivatives to Net    Income, Net of Tax
   (2,977)
    3,784 
    2,086 
    7,385 **Other Comprehensive Income**
   (5,195)
   12,769 
  (10,446)
   16,235 **Comprehensive Income**
$  67,257 
$  62,669 
$ 150,394 
$ 110,818 
========= 
========= 
========= 
========= **  **
11.    Accounting for Derivative Instruments andHedging Activities
Our normal business activities expose us to risks associated withchanges in the market price of natural gas and associated transportation. We engage inderivative transactions for the purpose of mitigating these risks, which transactions areaccounted for in accordance with Statement of Financial Accounting Standards("SFAS") No. 133, *Accounting for Derivative Instruments and HedgingActivities* and associated amendments. During the three months and six months endedJune 30, 2002 and 2001, our derivative activities relating to the mitigation of theserisks were designated and qualified as cash flow hedges, and the impact of hedgeineffectiveness, while included in our net income, was immaterial. As the hedged sales andpurchases take place and we record them into earnings, we also reclassify the gains andlosses included in accumulated other comprehensive income into earnings. We expect toreclassify into earnings, during the next twelve months, substantially all of ouraccumulated other comprehensive income balance of $0.6 million, representing unrecognizednet losses on derivative activities at June 30, 2002. During the three months and sixmonths ended June 30, 2002 and 2001, we reclassified no gains or losses into earnings as aresult of the discontinuance of cash flow hedges due to a

14

determination that the forecasted transactions would no longer occur bythe end of the originally specified time period.

We have outstanding fixed-to-floating interest rate swap agreementswith a notional principal amount of $1.0 billion. These agreements effectively convert theinterest expense associated with our 6.65% senior notes due in 2005 and our 7.25%debentures due in 2028 from fixed rates to floating rates based on the three-month LondonInterbank Offered Rate ("LIBOR") plus a credit spread. These swaps have beendesignated as fair value hedges, accounted for utilizing the "shortcut" methodprescribed for qualifying fair value hedges. Accordingly, at each reporting date, thecarrying value of the swap is adjusted to its fair value, and an offsetting entry is madeto adjust the carrying value of the debt securities whose fair value is being hedged. Thefair value of the swaps at June 30, 2002 was $22.3 million (included in the caption"Deferred Charges and Other Assets" of the accompanying Consolidated BalanceSheet as of June 30, 2002). We record interest expense equal to the floating ratepayments, which is accrued monthly and paid semi-annually.

12.    Interest Expense, Net
"Interest Expense, Net" as presented in the accompanyinginterim Consolidated Statements of Income is net of the debt component of the allowancefor funds used during construction, which was $0.5 million and $1.4 million for the threemonths ended June 30, 2002 and 2001, respectively and $0.9 million and $2.7 million forthe six months ended June 30, 2002 and 2001, respectively.

13.    Summarized Income Statement Informationfor Kinder Morgan Energy Partners, L.P.
Following is summarized income statement information for Kinder MorganEnergy Partners, a publicly traded master limited partnership in which we own the generalpartner interest. In addition, we own limited partner interests in the form of KinderMorgan Energy Partners common units, i-units and Class B limited partner units. Thisinvestment, which is accounted for under the equity method of accounting, is described inmore detail in our 2001 Form 10-K. Additional information on Kinder Morgan EnergyPartners' results of operations and financial position are contained in its Form 10-Q forthe quarter ended June 30, 2002 and in its 2001 Form 10-K.
**Three Months Ended June 30,**Six Months Ended June 30,**2002**2001**2002**2001
(In    thousands)Operating Revenues
$ 1,090,936
$   735,755
$ 1,894,001
$ 1,764,400Operating Expenses
    918,589
    597,159
  1,555,798
  1,487,453Operating Income
$   172,347
$   138,596
$   338,203
$   276,947
===========
===========
===========
===========  Net Income
$   144,517
$   104,226
$   285,950
$   205,893
===========
===========
===========
===========  
14.    Environmental and Legal Matters
(A)    Environmental Matters

We are subject to a variety of federal, state and local laws thatregulate permitted activities relating to air and water quality, waste disposal, and otherenvironmental matters. Additionally, we have established reserves to address knownenvironmental remediation sites. After consideration of reserves established, we believethat costs for environmental remediation and ongoing compliance with these regulationswill not have a material adverse effect on our cash flows, financial position or resultsof operations or diminish our ability to operate our businesses. However, there can be noassurances that future events, such as changes in existing laws, the 

15

promulgation of new laws, or the development of new facts or conditionswill not cause us to incur significant costs.

See Note 10(A) of Notes to Consolidated Financial Statements and"Litigation and Environmental" included in Management's Discussion and Analysisof Financial Condition and Results of Operations in our 2001 Form 10-K for additionalinformation regarding environmental matters.

(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 June15, 2000, K N TransColorado filed suit against Questar TransColorado, its parent QuestarPipeline Company, and other affiliated Questar entities, asserting claims for breach offiduciary duties, breach of contract, constructive trust, rescission of the partnershipagreement, breach of good faith and fair dealing, tortious concealment, misrepresentation,aiding and abetting a breach of fiduciary duty, dissolution of the TransColoradopartnership, and seeking a declaratory judgment, among other claims. The TransColoradopartnership has been made a defendant for purposes of an accounting. The lawsuit alleges,among other things, Questar breached its fiduciary duties as a partner. K N TransColoradoseeks to recover damages in excess of $152 million due to Questar's breaches and, inaddition, seeks punitive damages. In response to the complaint, on July 28, 2000, theQuestar entities filed a counterclaim and third party claims against Kinder Morgan andcertain of its affiliates for claims arising out of the construction and operation of theTransColorado pipeline project. The claims allege, among other things, that the KinderMorgan entities interfered with and delayed construction of the pipeline and mademisrepresentations about marketing of capacity. The Questar entities seek to recoverdamages in excess of $185 million for an alleged breach of fiduciary duty and otherclaims. The parties agreed to stay the exercise of a contractual provision purportedlyrequiring K N TransColorado to purchase Questar's interest in the pipeline and toinvestigate the appointment of an independent operator for the pipeline during thelitigation. The Court dismissed Questar's counterclaims for breach of duty of good faithand fair dealing and for indemnity and contribution and dismissed Questar's Third PartyComplaint. On July 19, 2001, the Court granted K N TransColorado's motion for summaryjudgment that: a) fiduciary duties existed between the partners; b) these fiduciary dutieswere not modified or waived; and c) the affiliates and directors of Questar PipelineCompany and Questar TransColorado acting in their dual capacity had fiduciary obligationswhich required those individuals to disclose, to the partnership and the partners,information that affected the fundamental business purpose of the partnership. On August14, 2001, the Court granted leave to Questar to file its First Amended Answer andCounterclaim, once again naming Kinder Morgan, Inc. as a counterclaim defendant, andmaking similar allegations against us as set forth above. Trial of the matter concluded onMay 3, 2002. Post trial briefing has been completed, and the parties are awaiting thejudgment of the trial court.
*United States of America, ex rel., Jack J. Grynberg v. K N Energy, CivilAction No. 97-D-1233, filed in the U.S. District Court, District of Colorado. This actionwas filed on June 9, 1997 pursuant to the federal False Claim Act and involves allegationsof mismeasurement of natural gas produced from federal and Indian lands. The Department ofJustice has decided not to intervene in support of the action. The complaint is part of alarger series of similar complaints filed by Mr. Grynberg against 77 natural gas pipelines(approximately 330 other defendants). An earlier single action making substantiallysimilar 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 ofjurisdiction. As a result, Mr. Grynberg filed individual complaints in various courtsthroughout the country. These cases were recently consolidated by the Judicial Panel forMultidistrict Litigation, and transferred to the District of Wyoming. Motions to Dismisswere filed and an oral argument on the Motion to Dismiss occurred on March 17, 2000. OnJuly 20, 2000 the United States of America filed a motion to dismiss those claims byGrynberg that deal with the manner in which defendants valued gas produced from federalleases. Judge Downes denied the defendant's motion to dismiss on May 18, 2001. Thedefendants 

16

have sought reconsideration of this Order and have requested a statusconference.
*Will Price, et al. v. Gas Pipelines, et al., (f/k/a *QuinqueOperating Company**et al. v. Gas Pipelines, et al.*), Stevens County, KansasDistrict Court, Case No. 99 C 30. In May 1999, three plaintiffs, Quinque OperatingCompany, Tom Boles and Robert Ditto, filed a purported nationwide class action in theStevens County, Kansas District Court against some 250 natural gas pipelines and many oftheir affiliates. The District Court is located in Hugoton, Kansas. The Petition (recentlyamended) alleges a conspiracy to underpay royalties, taxes and producer payments by thedefendants' undermeasurement of the volume and heating content of natural gas producedfrom nonfederal lands for more than twenty-five years. The named plaintiffs purport toadequately represent the interests of unnamed plaintiffs in this action who are comprisedof the nation's gas producers, State taxing agencies and royalty, working and overridingowners. The plaintiffs seek compensatory damages, along with statutory penalties, trebledamages, interest, costs and fees from the defendants, jointly and severally. This actionwas originally filed on May 28, 1999 in Kansas State Court in Stevens County, Kansas as aclass action against approximately 245 pipeline companies and their affiliates, includingcertain Kinder Morgan entities. Subsequently, one of the defendants removed the action toKansas Federal District Court and the case was styled as *Quinque Operating Company, etal. v. Gas Pipelines, et al.,* Case No. 99-1390-CM, United States District Court forthe District of Kansas. Thereafter, we filed a motion with the Judicial Panel forMultidistrict Litigation to consolidate this action for pretrial purposes with theGrynberg False Claim Act cases referred to above, because of common factual questions. OnApril 10, 2000, the MDL Panel ordered that this case be consolidated with the Grynbergfederal False Claims Act cases. On January 12, 2001, the Federal District Court of Wyomingissued an oral ruling remanding the case back to the State Court in Stevens County,Kansas. A case management conference occurred in State Court in Stevens County, and abriefing schedule was established for preliminary matters. Personal jurisdiction discoveryhas commenced. Merits discovery has been stayed. Recently, the defendants filed a motionto dismiss on grounds other than personal jurisdiction, and a motion to dismiss for lackof personal jurisdiction for non-resident defendants. The current Named plaintiffs areWill Price, Tom Boles, Cooper Clark Foundation and Stixon Petroleum, Inc. QuinqueOperating Company has been dropped from the action as a Named Plaintiff.
*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.The case was filed on May 21, 1999. Defendants counterclaimed and filed third party claimsagainst several of our former officers and/or directors. Messrs. Rode and McDonald areformer principal shareholders of Interenergy Corporation. We acquired Interenergy onDecember 19, 1997 pursuant to a Merger Agreement dated August 25, 1997. Rode and McDonaldallege that K N Energy committed securities fraud, common law fraud and negligentmisrepresentation as well as breach of contract. Rode and McDonald are seeking anunspecified amount of compensatory damages, greater than $2 million, plus unspecifiedexemplary or punitive damages, attorney's fees and their costs. We filed a motion todismiss, and on April 21, 2000, the Jefferson County District Court Judge dismissed thecase against the individuals and us with prejudice. On April 6, 2001, the Colorado Courtof Appeals affirmed the dismissal. Rode and McDonald also filed a federal securities fraudaction 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 claimscontained in the counterclaim and third party complaint in state court. Rode and McDonaldfiled an amended Complaint, which dropped the state-law claims. On June 20, 2000, thefederal district court dismissed this Complaint with prejudice. The district court'sdismissal was subsequently affirmed by the Tenth Circuit Court of Appeals on April 23,2002. 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 ofColorado 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 theplaintiff, with prejudice, and dismissed the remaining claims, without prejudice. On April27, 2001, the Adams plaintiffs filed their second amended complaint. On March 29, 2002,the court dismissed the Adams plaintiffs' second amended complaint with prejudice. On May2, 2002, the Adams plaintiffs 

17

appealed the dismissal. Briefing at the Tenth Circuit Court of Appealshas commenced.

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

In addition, we are a defendant in various lawsuits arising from theday-to-day operations of our businesses. Although no assurance can be given, we believe,based on our experiences to date, that the ultimate resolution of such items will not havea material adverse impact on our business, financial position or results of operations.

15.    Discontinued Operations

During 1999, we adopted and implemented a plan to discontinue a numberof lines of business. During 2000, we essentially completed the disposition of thesediscontinued operations. The cash flows attributable to discontinued operations includedin the accompanying interim Statements of Consolidated Cash Flows under the caption"Net Cash Flows Used in Discontinued Operations" result from cash activityattributable to retained liabilities associated with these discontinued operations. Thecaption "Net Cash Flows Provided By Discontinued Investing Activities," for thesix months ended June 30, 2001, includes cash received for discontinued operations soldduring 2000. Note 7 of Notes to Consolidated Financial Statements of our 2001 Form 10-Kcontains additional information on these matters.

16.    Goodwill - Adoption of Statement 142
In June 2001, the Financial Accounting Standards Board("FASB") issued SFAS No. 142, *Goodwill and Other Intangible Assets*,referred to in the following discussion as "SFAS 142." SFAS 142, whichsuperceded Accounting Principles Board Opinion No. 17, *Intangible Assets*, addressesfinancial accounting and reporting for (i) intangible assets acquired individually or witha group of other assets (but not those acquired in a business combination) at acquisitionand (ii) goodwill and other intangible assets subsequent to their acquisition. SFAS 142was required to be applied in fiscal years beginning after December 15, 2001 and weadopted it on January 1, 2002. 

SFAS 142 provides that goodwill in each reporting unit must be testedfor impairment at the beginning of the fiscal year in which this statement is initiallyapplied in its entirety, and further provides that an entity has six months from the dateof initial application to complete the first step of that transitional goodwill impairmenttest. If the carrying value of the net assets of a reporting unit (including goodwill)exceeds the fair value of that reporting unit, the second step of that transitionalgoodwill impairment test must be completed as soon as possible, but no later than the endof the year of initial application. Any impairment loss recognized as a result of atransitional goodwill impairment test will be recognized as the effect of a change inaccounting principle. 

The only goodwill we currently have recorded (approximately $23million) relates to our third-quarter 1998 acquisition of interests in three independentpower plants from the Denver-based Thermo Companies. We have completed the transitionalgoodwill impairment test and found that no impairment of this goodwill existed as ofDecember 31, 2001. We will continue to test this goodwill for impairment on an annualbasis or more frequently in certain circumstances as required by SFAS 142. The powergeneration market has been volatile in recent periods, so the possibility exists that awrite-down could be required in the future.

In addition to the goodwill discussed above, we also have "equitymethod goodwill" (approximately $1.03 billion as of December 31, 2001) as a result ofour third-quarter 1999 acquisition of Kinder Morgan Delaware, the indirect owner of thegeneral partner of and certain limited partner interests in Kinder Morgan Energy 

18

Partners. This equity method goodwill, while subject to the provisionsof SFAS 142 requiring that amortization no longer be recorded, is not subject to theimpairment provisions of SFAS 142 but, instead, continues to be subject to the impairmentprovisions of Accounting Principles Board Opinion No. 18, *The Equity Method ofAccounting for Investments in Common Stock*, which provides that an impairment berecognized when there is a loss in the value of an investment that is other than atemporary decline. We estimate that implementation of SFAS 142 will result in a $0.12 perdiluted common share reduction of our amortization of intangible assets and goodwill in2002, principally due to the cessation of amortization of our equity-method goodwill, andproviding that no goodwill impairment is determined to be necessary.

Had SFAS 142 been in effect prior to January 1, 2002, our reported netincome and earnings per share would have been as follows:
**Three Months Ended    June 30,**Six Months Ended    June 30,**2002**2001**2002**2001
(In thousands    except per share amounts)Reported Net Income
$ 72,452
$ 49,900
$160,840
$ 94,583Add Back: Goodwill Amortization, Net of Tax
       -
   4,076
       -
   8,369Adjusted Net Income
$ 72,452
$ 53,976
$160,840
$102,952
========
========
========
========  Basic Earnings Per Share:  Reported Net Income
$   0.59
$   0.43
$   1.31
$   0.82  Goodwill Amortization
       -
    0.04
       -
    0.07  Adjusted Net Income
$   0.59
$   0.47
$   1.31
$   0.89
========
========
========
========  Diluted Earnings Per Share:  Reported Net Income
$   0.59
$   0.41
$   1.30
$   0.78  Goodwill Amortization
       -
    0.03
       -
    0.06  Adjusted Net Income
$   0.59
$   0.44
$   1.30
$   0.84
========
========
========
========  
17.    Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, *Accounting for AssetRetirement Obligations*. This Statement addresses financial accounting and reportingfor obligations associated with the retirement of tangible long-lived assets and theassociated asset retirement costs. This Statement requires that the fair value of aliability for an asset retirement obligation be recognized in the period in which it isincurred if a reasonable estimate of fair value can be made. The associated assetretirement costs are capitalized as part of the carrying amount of the long-lived asset.This Statement contains disclosure requirements that provide descriptions of assetretirement obligations and reconciliations of changes in the components of thoseobligations. This Statement is effective for financial statements issued for fiscal yearsbeginning after June 15, 2002. Earlier applications are encouraged. We have not yetquantified the impacts of adopting this Statement on our financial position or results ofoperations.

On April 30, 2002, the FASB issued SFAS No. 145*, Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections*. This Statement rescinds SFAS No. 4, *Reporting Gains and Losses fromExtinguishment of Debt* and SFAS No. 64, *Extinguishments of Debt Made to SatisfySinking-Fund Requirements*, as well as SFAS No. 44, *Accounting for Intangible Assetsof Motor Carriers*. It also amends SFAS No. 13, *Accounting for Leases*, toeliminate an inconsistency between the required accounting for sale-leaseback transactionsand the required accounting for certain lease modifications that have economic effectsthat are similar to sale-leaseback transactions. This Statement also amends other existingauthoritative pronouncements to make various technical corrections, clarify meanings, ordescribe their applicability under changed conditions. The provisions of this Statementrelated to the rescission of SFAS No. 4 shall be applied in fiscal years beginning afterMay 15, 2002. The provisions related to the amendment to SFAS 

19

No. 13 shall be effective for transactions occurring after May 15,2002. All other provisions in this Statement shall be effective for financial statementsissued on or after May 15, 2002. Early application of the provisions of this Statement isencouraged, and may be as of the beginning of the fiscal year or as of the beginning ofthe interim period in which this Statement is issued.

As a result of the rescission of SFAS No. 4, gains and losses fromextinguishment of debt should be classified as extraordinary items only if they meet thecriteria in Accounting Principles Board Opinion No. 30, *Reporting the Results ofOperations- Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions*. Applyingthe provisions of Accounting Principles Board Opinion No. 30 will distinguish transactionsthat are part of an entity's recurring operations from those that are unusual orinfrequent or that meet the criteria for classification as an extraordinary item. Theprovisions of SFAS No. 145 related to the rescission of SFAS No. 4 will require us, whenthe provisions are applied, to reclassify, in income statements that include the first andthird quarters of 2001, the loss on extinguishment of debt that was classified as anextraordinary item.

In June 2002, the FASB issued SFAS No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*, which addresses financial accounting andreporting for costs associated with exit or disposal activities and nullifies EmergingIssues Task Force (EITF) Issue No. 94-3, *Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurredin a Restructuring).* This Statement requires that a liability for a cost associatedwith an exit or disposal activity be recognized when the liability is incurred. Under EITFIssue 94-3, a liability for an exit activity as defined in EITF Issue 94-3 was recognizedat the date of an entity's commitment to an exit plan. This Statement eliminates thedefinition and requirements for recognition of exit costs in EITF Issue 94-3 andestablishes that fair value is the objective for initial measurement of the liability. Theprovisions of this Statement are effective for exit or disposal activities that areinitiated after December 31, 2002, with early application encouraged.

18.    Commitments and Contingent Liabilities
Note 18 of Notes to Consolidated Financial Statements included in our2001 Form 10-K contains a discussion of our commitments and contingent liabilities as ofDecember 31, 2001. The contingent obligation discussed in Note 18(E) of our 2001 Form10-K, the potential requirement to assume a $250 million note in conjunction with a powerplant facility, no longer exists due to the closing of long-term, third-party financing bythe owner of the facility in May 2002.

20
***Item2.  Management's Discussion and Analysis of Financial Condition and Resultsof Operations.*
General**
The following discussion should be read in conjunction with (i) theaccompanying interim Consolidated Financial Statements and related Notes and (ii) theConsolidated Financial Statements, related Notes and Management's Discussion and Analysisof Financial Condition and Results of Operations included in our 2001 Form 10-K. Due tothe seasonal variation in energy demand, among other factors, the following interimresults may not be indicative of the results to be expected for an entire year. In thisreport Kinder Morgan Energy Partners, L.P., a publicly traded pipeline master limitedpartnership in which we own the general partner interest and significant limited partnerinterests, is referred to as "Kinder Morgan Energy Partners."
**Consolidated Financial Results****Three Months Ended June 30,**Increase**Six Months Ended June 30,**Increase**2002**2001**(Decrease)**2002**2001**(Decrease)
(In    thousands except per share amounts)Operating Revenues
$  213,734 
$  218,842 
$   (5,108)
$  505,135 
$  544,066 
$  (38,931)
========== 
========== 
========== 
========== 
========== 
========== Gross Margin
$  160,424 
$  159,556 
$      868 
$  350,578 
$  351,472 
$     (894)
========== 
========== 
========== 
========== 
========== 
========== General and Administrative Expenses
$   17,108 
$   16,172 
$      936 
$   36,658 
$   32,480 
$    4,178 
========== 
========== 
========== 
========== 
========== 
========== Operating Income
$   76,871 
$      80,825 
$   (3,954)
$  185,226 
$  193,247 
$   (8,021)Other Income and (Expenses)
    46,293 
    4,259 
    42,034 
    90,004 
   (13,493)
   103,497 Income Taxes
    50,712 
    35,184 
    15,528 
   114,390 
    73,052 
    41,338 Extraordinary Item - Loss on Early    Extinguishment of    Debt, Net of Tax
         - 
         - 
         - 
         - 
   (12,119)
    12,119 Net Income
$   72,452 
$   49,900 
$   22,552 
$  160,840 
$   94,583 
$   66,257 
========== 
========== 
========== 
========== 
========== 
==========   Diluted Earnings (Loss) Per Common Share:Income Before Extraordinary Item
$     0.59 
$     0.41 
$     0.18 
$     1.30 
$     0.88 
$     0.42 Extraordinary Item - Loss on Early    Extinguishment of    Debt
         - 
         - 
         - 
         - 
     (0.10)
      0.10 Total Diluted Earnings Per Common Share
$     0.59 
$     0.41 
$     0.18 
$     1.30 
$     0.78 
$     0.52 
========== 
========== 
========== 
========== 
========== 
==========   
Total diluted earnings per common share increased from $0.41 in thesecond quarter of 2001 to $0.59 in the second quarter of 2002, an increase of $0.18 (44%).Income was positively impacted in the second quarter of 2002, compared to 2001, primarilyby (i) increased equity in earnings of Kinder Morgan Energy Partners due, in part, to thestrong performance from the assets held by Kinder Morgan Energy Partners and the cessationof amortization of equity-method goodwill (amortization of $4.0 million and $8.1 millionafter taxes was included in the results of operations for the second quarter and first sixmonths of 2001, respectively) related to this investment due to the adoption of SFAS No.142 as discussed in Note 16 of the accompanying Notes to Consolidated FinancialStatements, (ii) decreased interest expense, (iii) increased earnings from our Natural GasPipeline Company of America and Kinder Morgan Retail business segments and (iv) increasedearnings from other equity investments (exclusive of earnings from Kinder Morgan EnergyPartners and earnings from equity investments included in the Natural Gas Pipeline Companyof America and Power and Other business segments). These positive impacts were partiallyoffset by (i) increased income tax expense, (ii) decreased earnings from our Power andOther business segment and (iii) increased general and administrative expenses,principally insurance costs. Please refer to the individual headings under "Resultsof Operations" following for additional details regarding these matters. The numberof shares used to calculate diluted earnings per common share was approximately 0.9million (0.7%) higher for the second quarter of 2002 than the second quarter of 2001. Thenumber of shares used to calculate diluted earnings per common share was impacted by,among other things, the November 2001 issuance of 13.4 million common shares upon thematurity of our Premium Equity Participating Security Units. This increase in commonshares was partially offset by shares acquired under our share repurchase program,totaling 5.3 million shares in 2001 and an additional 2.8 million shares in the first six

21

months of 2002. In addition, fluctuations in the market price of ourstock affect the dilutive impact of our outstanding common stock options.

Total diluted earnings per common share increased from $0.78 in thefirst six months of 2001 to $1.30 in the first six months of 2002, an increase of $0.52(67%). Excluding the effect of an extraordinary after-tax loss in 2001 of $12.1 million,or $0.10 per diluted common share, diluted earnings per common share increased from $0.88in the first six months of 2001 to $1.30 in the first six months of 2002, an increase of$0.42 (48%). Income before the extraordinary item for the first six months of 2002 wasimpacted, relative to 2001, largely by the same factors as discussed previously withrespect to second quarter results, with the exception that, on a year-to-date basis,general and administrative expenses increased due to higher costs for insurance andemployee compensation and benefits. The number of shares used to calculate dilutedearnings per common share was approximately 2.2 million (1.8%) higher for the first sixmonths of 2002 than the first six months of 2001 due to the same factors that affected thequarter-to-quarter comparison.
**Results of Operations**
The following comparative discussion of our results of operations is bysegment for factors affecting segment earnings, and on a consolidated basis for otherfactors.

We manage our various businesses by, among other things, allocatingcapital and monitoring operating performance. This management process includes dividingthe company into discrete business segments so that performance can be effectivelymonitored and reported. Currently, we manage and report our operations in the followingsegments:
**Business Segment****Business Conducted****  ****Referred to As:**Natural Gas Pipeline Company of       America and certain affiliates      The ownership and operation of a major interstate natural gas    pipeline and storage systemNatural Gas Pipeline Company of AmericaRetail Natural Gas Distribution      The regulated transportation, distribution and sale of    natural gas to residential, commercial and industrial customers and the non-regulated sale    of natural gas to certain utility customersKinder Morgan RetailPower and OtherThe construction and operation of natural gas-fired electric    generation facilities, together with various other activities not constituting separately    managed or reportable business segmentsPower and Other
The accounting policies we apply in the generation of business segmentinformation are generally the same as those described in Note 1 of Notes to ConsolidatedFinancial Statements included in our 2001 Form 10-K, except that certain items below the"Operating Income" line are either not allocated to business segments or are notconsidered by management in its evaluation of business segment performance. An exceptionto this is that certain business activities in the form of joint operations with otherparties that are accounted for under the equity method of accounting are included insegment results. Earnings of equity method investees included in segment results are (i)equity method investees of Kinder Morgan Power, which routinely conducts its business

22

activities in the form of joint operations with other parties and (ii)Horizon Pipeline Company, whose pipeline system is directly connected to Natural GasPipeline Company of America's pipeline system. These equity method earnings, however, areincluded in "Other Income and (Expenses)" in our Consolidated Statements ofIncome. In addition, (i) certain items included in operating income (such as general andadministrative expenses) are not allocated to individual business segments and (ii) gainsand losses from incidental sales of assets are included in segment earnings. Withadjustment for these items, we currently evaluate business segment performance primarilybased on operating income in relation to the level of capital employed. We account forintersegment sales at market prices, while we account for asset transfers at either marketvalue or, in some instances, book value. As necessary for comparative purposes, we havereclassified prior period results and balances to conform to the current presentation.

Following are operating results by individual business segment (beforeintersegment eliminations), including explanations of significant variances between theperiods presented.
**Natural Gas Pipeline Company of America****Three Months Ended    June 30,**Six Months Ended    June 30,**2002**2001**Increase**2002**2001**Increase
(In    thousands except systems throughput)Operating Revenues
$157,531 
$138,296 
$ 19,235 
$340,620 
$310,410 
$ 30,210 
======== 
======== 
======== 
======== 
======== 
========   Gross Margin
$130,308 
$118,226 
$ 12,082 
$270,285 
$254,454 
$ 15,831 
======== 
======== 
======== 
======== 
======== 
========   Segment Earnings
$ 83,984 
$ 80,294 
$  3,690 
$179,602 
$174,176 
$  5,426 
======== 
======== 
======== 
======== 
======== 
========     Systems Throughput (Trillion Btus)
   353.1 
   308.1 
    45.0 
   751.0 
   707.1 
    43.9 
======== 
======== 
======== 
======== 
======== 
========   
Natural Gas Pipeline Company of America's segment earnings increased by$3.7 million, or 4.6%, from the second quarter of 2001 to the second quarter of 2002.Operating results for the second quarter of 2002 were positively affected, relative to thecorresponding period in 2001, by (i) increased margins from natural gas transportation andstorage services, including operational sales, and (ii) the inclusion, in second quarter2002 results, of earnings from our equity investment in Horizon Pipeline Company, whichwas placed in service during the quarter. These positive impacts were partially offset by(i) a reduction of $6.1 million in pre-tax gains from asset sales in 2002, (ii) increasedexpenses in 2002 related to the operations and maintenance of natural gas transportationand storage facilities and (iii) increased expenses in 2002 related to system right of waycosts. Although systems throughput increased in 2002, this increase did not have asignificant impact on revenues or segment earnings due to the fact that transportationrevenues are derived primarily from "demand" contracts in which shippers pay afee to reserve a set amount of system capacity for their use.

Natural Gas Pipeline Company of America's segment earnings increased by$5.4 million, or 3.1%, from the first six months of 2001 to the first six months of 2002.Operating results for the first six months of 2002 were affected, relative to the sameperiod in 2001, largely by the same factors as discussed previously regarding secondquarter results.

We expect that two major expansion projects will contribute additionalsegment earnings for Natural Gas Pipeline Company of America. The Horizon Pipeline projectin Northern Illinois was completed and placed into service on May 11, 2002. Havingreceived all necessary regulatory approvals and easements along rights-of-way, Natural GasPipeline Company of America began construction, in May 2002, of 51 miles of 24-inchdiameter pipeline, extending its system into the east metropolitan area of St. Louis,Missouri. We expect

23

operation of this pipeline extension to commence in August 2002. Pleaserefer to our 2001 Form 10-K for additional information regarding Natural Gas PipelineCompany of America.
**Kinder Morgan Retail****Three Months Ended    June 30,**Increase**Six Months Ended    June 30,**Increase**2002**2001**(Decrease)**2002**2001**(Decrease)
(In    thousands except systems throughput)Operating Revenues
$ 46,542 
$ 45,483 
$  1,059 
$144,169 
$172,769 
$(28,600)
======== 
======== 
======== 
======== 
======== 
========   Gross Margin
$ 21,491 
$ 18,994 
$  2,497 
$ 62,071 
$ 56,614 
$  5,457 
======== 
======== 
======== 
======== 
======== 
========   Segment Earnings
$  6,097 
$  4,202 
$  1,895 
$ 30,955 
$ 27,739 
$  3,216 
======== 
======== 
======== 
======== 
======== 
========     Systems Throughput (Trillion Btus)1
     4.6 
     5.4 
    (0.8)
    18.1 
    20.2 
    (2.1)
======== 
======== 
======== 
======== 
======== 
======== 
1 Excludes transport volumes ofintrastate pipelines.

Kinder Morgan Retail's segment earnings increased by $1.9 million, or45.1%, from the second quarter of 2001 to the second quarter of 2002. Operating resultsfor the second quarter of 2002 were positively affected, relative to the correspondingperiod in 2001, by (i) margins derived as a result of the fourth quarter 2001 acquisitionof natural gas distribution facilities from Citizens Communications Company, as describedfollowing, and (ii) the addition of new customers in our existing service territories.Although system throughput volumes decreased by approximately 15 percent, the effects ofthis decrease were mitigated by our weather-hedging program, which is designed to reduceweather-related volatility of earnings and cash flows. The increase in gross margins waspartially offset by higher depreciation expense attributable to the new facilities.

Kinder Morgan Retail's segment earnings increased by $3.2 million, or11.6%, from the first six months of 2001 to the first six months of 2002. Operatingresults for the first six months of 2002 were affected, relative to the same period in2001, largely by the same factors as discussed previously regarding second quarterresults, with the exception that, on a year-to-date basis, operations and maintenanceexpenses increased, largely as a result of the new facilities.

During the fourth quarter of 2001, Kinder Morgan Retail successfullycompleted the acquisition of natural gas distribution facilities from CitizensCommunications Company (NYSE: CZN, CZB) for approximately $11 million in cash and assumedliabilities. The natural gas distribution assets serve approximately 13,400 residential,commercial and agricultural customers in Bent, Crowley, Otero, Archuleta, La Plata andMineral Counties in Colorado. Please refer to our 2001 Form 10-K for additionalinformation regarding Kinder Morgan Retail.

24
**Power and Other****Three Months Ended    June 30,**Six Months Ended    June 30,**2002**2001**(Decrease)**2002**2001**(Decrease)
(In    thousands)Operating Revenues
$  9,661 
$ 35,063 
$(25,402)
$ 20,346 
$ 62,963 
$(42,617)
======== 
======== 
======== 
======== 
======== 
========   Gross Margin
$  8,625 
$ 22,336 
$(13,711)
$ 18,222 
$ 40,404 
$(22,182)
======== 
======== 
======== 
======== 
======== 
========   Segment Earnings
$  5,924 
$ 19,418 
$(13,494)
$ 15,664 
$ 29,035 
$(13,371)
======== 
======== 
======== 
======== 
======== 
========   
Results for this segment in 2002 include only the results of our Powerbusiness unit. Excluding the operating results of the Wattenberg facilities in 2001 asdiscussed following, segment revenues and gross margin decreased by $7.6 million, or 43.9%and 46.9%, respectively, and segment earnings decreased by $8.5 million, or 58.9%, fromthe second quarter of 2001 to the second quarter of 2002. Power's reduced 2002 earningsreflect, as expected, lower 2002 power plant development fees. The reduction in 2002development fees was partially offset by (i) increased 2002 equity in earnings of ThermoCogeneration Partnership resulting from lower natural gas costs and (ii) decreased 2002amortization charges as a result of newly adopted rules regarding amortization of goodwill(see Note 16 of the accompanying Notes to Consolidated Financial Statements). Operatingresults of the Power and Other segment for the second quarter of 2001 include $17.8million of revenue, $6.1 million of gross margin and $5.0 million of segment earningsresulting from our operating agreement with Kerr-McGee Gathering LLC (formerly HSResources, Inc.), which agreement concluded upon the sale of our Wattenberg natural gasfacilities to Kerr-McGee in the fourth quarter of 2001.

Operating results of the Power and Other segment for the first sixmonths of 2001 include $36.2 million of revenue, $15.9 million of gross margin and $10.7million of segment earnings resulting from the Wattenberg facilities, which were sold atyear-end 2001 as discussed previously. Excluding the 2001 results from the Wattenbergfacilities, segment revenue decreased by $6.5 million, or 24.1%, gross margin decreased by$6.3 million, or 25.6%, and segment earnings decreased by $2.7 million, or 14.6%, from thefirst six months of 2001 to the first six months of 2002. Power's earnings for the firstsix months of 2002 were impacted, relative to the first six months of 2001, largely by thesame factors as discussed previously regarding second quarter results.

Effective July 1, 2002, construction and testing of the Jackson,Michigan 550-megawatt power generation facility were completed and commercial operationscommenced. Concurrently with commencement of commercial operations, (i) Kinder MorganPower Company, our wholly owned subsidiary, made a preferred investment in Triton PowerCompany LLC valued at $119.0 million; (ii) Triton Power Company LLC, through its whollyowned affiliate, Triton Power Michigan LLC, entered into a 40-year lease of the Jacksonpower facility from the plant owner, AlphaGen Power, LLC, and (iii) we received fullpayment of our $104.4 million construction note receivable. The construction notereceivable is included in the caption "Other" under the heading "NotesReceivable" in the accompanying interim Consolidated Balance Sheet as of June 30,2002.

Our preferred equity interest represents approximately 31% of the totalfacility capitalization of $380 million. This preferred equity interest has no managementor voting rights, but does retain certain protective rights, and is entitled to acumulative return, compounded monthly, of 9.0% per annum. One of our wholly ownedsubsidiaries operates and maintains the Jackson power facility for a fee. Williams EnergyMarketing and Trading supplies all natural gas to and purchases all electricity from thepower plant under a 16-year tolling agreement with Triton Power Michigan LLC. As discussedin our 2001 Form 10-K, during the 16-year tolling period, we could be obligated, solelybased on the operational performance of the facility, to make limited

25

incremental preferred investments in the facility. In addition, afterthe 16-year tolling period, we could be obligated to make limited incremental preferredinvestments based on cash flows generated by the facility.

Effective July 1, 2002, construction and testing of the 550-megawattWrightsville, Arkansas power generation facility were completed and commercial operationscommenced. Mirant Corporation operates and maintains the Wrightsville power facility andmanages the natural gas supply and electricity sales for the project company that owns thepower plant. Kinder Morgan Power Company has a preferred investment of approximately $74.8million in the project company, which represents approximately 21% of the total estimatedfacility capitalization of $350 million. This preferred equity interest has no managementor voting rights, but does retain certain protective rights, and is entitled to acumulative preferred dividend return that escalates over time from 6.3% to 8.8%. Inaddition, Kinder Morgan Power Company has advanced a total of $16.7 million to theelectricity transmission carrier and the project company, which will be repaid withinterest over the next several years.

Given (i) the lengthy development phase, including the lengthy anduncertain permitting process that precedes actual construction of a power generationfacility and (ii) the impact that projections of future electrical demand and pricing canhave on the desirability, timing and locations for new power plant development, we are notforecasting the development of any additional power plants in 2002. In our 2001 Form 10-K,we estimated that the segment earnings of Power and Other for 2002 would decline by 20-25%from the 2001 level. We now estimate that, due the timing of certain development fees, thedecline will be 40-45%. Please refer to our 2001 Form 10-K for additional informationregarding Power and Other.
**Other Income and (Expenses)****Three Months Ended    June 30,**Earnings Increase**Six Months Ended    June 30,**Earnings Increase**2002**2001**(Decrease)**2002**2001**(Decrease)
(In    thousands)Interest Expense, Net
$(39,810)
$(56,238)
$ 16,428 
$(79,358)
$(114,525)
$ 35,167 Equity in Earnings of Kinder Morgan Energy    Partners:    General Partner    Interest
  66,700 
  51,720 
  14,980 
 129,935 
   94,322 
  35,613     Limited Partner    Units (KMP)
  11,824 
  10,012 
   1,812 
  23,938 
   22,447 
   1,491     Limited Partner    i-units (KMR)
  14,870 
   5,326 
   9,544 
  29,612 
    5,326 
  24,286     Amortization of    Excess Investment
       - 
  (6,591)
   6,591 
       - 
  (13,542)
  13,542 Equity in Earnings (Losses) of Power    Segment
   1,611 
     797 
     814 
   3,922 
     (960)
   4,882 Equity in Earnings of Horizon Pipeline    Company
     415 
       - 
     415 
     415 
       - 
     415 Other Equity in Earnings (Losses)
   2,030 
  (1,521)
   3,551 
   2,091 
   (4,643)
   6,734 Minority Interests:    Trust Preferred    Securities
  (5,478)
  (5,478)
       - 
 (10,956)
  (10,956)
       -     Other
  (7,346)
  (3,050)
  (4,296)
 (14,645)
   (3,217)
 (11,428)Other, Net
   1,477 
   9,282 
  (7,805)
   5,050 
   12,255 
  (7,205)    
$ 46,293 
$  4,259 
$ 42,034 
$ 90,004 
$ (13,493)
$103,497 
======== 
======== 
======== 
======== 
========= 
========   
"Other Income and (Expense)" was a net increase to earningsof $46.3 million and $4.3 million in the second quarter of 2002 and 2001, respectively.This positive variance of $42.0 million is principally due to: (i) an increase of $26.3million in equity in earnings of Kinder Morgan Energy Partners before amortization ofexcess investment (see Note 13 of the accompanying Notes to Consolidated FinancialStatements), (ii) an increase of $6.6 million due to the elimination, as of January 1,2002, of amortization related to the equity-method goodwill in Kinder Morgan EnergyPartners (see Note 16 of the accompanying Notes to Consolidated Financial Statements),(iii) a decrease of $16.4 million in net interest expense in the second quarter of 2002,reflecting reduced interest rates and reduced debt outstanding and (iv) an increase of$4.8 million from equity in earnings of other equity method investees, principally ThermoCogeneration Partnership (note that we also include 

26

results from Thermo Cogeneration Partnership in our Power and Othersegment), TransColorado Gas Transmission Company and Horizon Pipeline Company (note thatwe also include results from Horizon Pipeline Company in our Natural Gas Pipeline Companyof America segment). These favorable impacts were partially offset by (i) an increase of$4.3 million in expense due to minority interest in the second quarter of 2002, dueprincipally to the inclusion of the minority interest in Kinder Morgan Management, LLCfollowing its May 2001 initial public offering (see Note 2 of the accompanying Notes toConsolidated Financial Statements) and (ii) the fact that second quarter 2001 resultsinclude $6.1 million of net pre-tax gains from sales of certain assets (note thatessentially all of the second quarter 2001 gains from asset sales are also included in ourNatural Gas Pipeline Company of America segment).

"Other Income and (Expense)" was a net increase to earningsof $90.0 million in the first six months of 2002 and a net decrease to earnings of $13.5million in the first six months of 2001. This positive variance of $103.5 million isprincipally due to: (i) an increase of $61.4 million in equity in earnings of KinderMorgan Energy Partners before amortization of equity-method goodwill, (ii) an increase of$13.5 million due to the elimination, as of January 1, 2002, of amortization related tothe equity-method goodwill in Kinder Morgan Energy Partners, (iii) a decrease of $35.2million in net interest expense in the first six months of 2002, reflecting reducedinterest rates and reduced debt outstanding and (iv) an increase of $12.0 million fromequity in earnings of other equity method investees, principally Thermo CogenerationPartnership, TransColorado Gas Transmission Company and Horizon Pipeline Company. Thesefavorable impacts were partially offset by (i) an increase of $11.4 million in expense dueto minority interest in the first six months of 2002, due principally to the inclusion ofthe minority interest in Kinder Morgan Management, LLC and (ii) a reduction of $4.4million of net pre-tax gains from sales of certain assets (note that approximately $6.1million of pre-tax gains from asset sales are also included in the results of our NaturalGas Pipeline Company of America segment for the first six months of 2001).
**Income Taxes**
The increase of $15.5 million in the income tax provision for thesecond quarter of 2002, relative to 2001, was due to an increase of $17.0 million inpretax income, partially offset by a decrease of $1.5 million reflecting a reduction inthe provision for state income taxes. The increase of $41.3 million in the income taxprovision for the first six months of 2002, relative to 2001, was due to an increase of$42.8 million in pretax income, partially offset by a decrease of $1.5 million reflectinga reduction in the provision for state income taxes.
**Discontinued Operations**
During 1999, we adopted and implemented a plan to discontinue a numberof lines of business. During 2000, we essentially completed the disposition of thesediscontinued operations. The cash flow impacts associated with discontinued operations arediscussed under "Cash Flows" following. Note 15 of the accompanying Notes toConsolidated Financial Statements contains additional information on these matters.

**Liquidity and Capital Resources**

The following table gives the sources of our invested capital. Thebalances at December 31, 2000 and thereafter reflect the transfer of certain assets toKinder Morgan Energy Partners effective as of that date, while the balances at December31, 2001 and June 30, 2002 reflect the May 2001 sale of shares of Kinder MorganManagement, LLC in a public offering. In addition to our results of operations, whichaffect the amount of cash we generate internally, financing activities such as (i)retirement of debt securities, (ii) the November 2001 maturity of our premium equityparticipating security units and (iii) reacquisition of our common stock under our stockrepurchase program impact these balances in various periods. Additional information onthese matters 

27

is contained under "Cash Flows" following and in Note 7 ofthe accompanying Notes to Consolidated Financial Statements.

The discussion under the heading "Liquidity and CapitalResources" in Management's Discussion and Analysis of Financial Condition and Resultsof Operations included in our 2001 Form 10-K includes a comprehensive discussion of (i)our investments in and obligations to unconsolidated entities, (ii) our contractualobligations and (iii) our contingent liabilities. The contingent obligation discussed inNote 18(E) of our 2001 Form 10-K, the potential requirement to assume a $250 million notein conjunction with a power plant facility, no longer exists due to the closing oflong-term, third-party financing by the owner of the facility in May 2002.
**June 30,**December 31,**2002**2001**2000**1999
(Dollars in    thousands)Long-term Debt1
$ 1,931,696 
$ 2,404,967 
$ 2,478,983 
$ 3,293,326 Minority Interests
    801,500 
    817,513 
      4,910 
      9,523 Common Equity
  2,281,792 
  2,259,997 
  1,777,624 
  1,649,615 Capital Trust Securities
    275,000 
    275,000 
    275,000 
    275,000     Capitalization
  5,289,988 
  5,757,477 
  4,536,517 
  5,227,464 Short-term Debt, Less Cash and Cash    Equivalents2
  1,342,923 
    613,918 
    766,244 
    555,189     Invested Capital
$ 6,632,911 
$ 6,371,395 
$ 5,302,761 
$ 5,782,653 
=========== 
=========== 
=========== 
===========   Capitalization:    Long-term Debt
36.5%
41.8%
54.6%
63.0%    Minority Interests
15.2%
14.2%
 0.1%
 0.2%    Common Equity
43.1%
39.2%
39.2%
31.5%    Capital Trust    Securities
 5.2%
 4.8%
 6.1%
 5.3%Invested Capital:    Total Debt
49.4%
47.4%
61.2%
66.6%    Equity and Minority    Investments,      Including    Capital Trust Securities
50.6%
52.6%
38.8%
33.4%  1
Adjusted for the fair value    of fixed-to-floating interest rate swap agreements (see Note 11 of the accompanying Notes    to Consolidated Financial Statements).2
Cash and cash equivalents    netted against short-term debt were $17,356, $16,134, $141,923 and $26,378 for June 30,    2002 and December 31, 2001, 2000 and 1999, respectively.
On August 14, 2001, we announced a program to repurchase up to $300million of our outstanding common stock. On February 5, 2002, we announced that our Boardof Directors had approved expanding the program to a total of up to $400 million. On July17, 2002, we announced that our Board of Directors had approved expanding the program anadditional $50 million. As of June 30, 2002, we had repurchased a total of approximately$405.5 million (8,075,500 shares) of our outstanding common stock under the program, ofwhich $42.9 million (898,500 shares) and $135.1 million (2,780,700 shares) wererepurchased in the three months and six months ended June 30, 2002, respectively.

In May 2001, Kinder Morgan Management, LLC, one of our indirectsubsidiaries, issued and sold 29,750,000 limited liability shares (after adjustment forthe stock split discussed following) in an underwritten initial public offering, with2,975,000 of the shares purchased by Kinder Morgan, Inc. The net proceeds from theoffering were used by Kinder Morgan Management to buy i-units from Kinder Morgan EnergyPartners for $991.9 million. Upon purchase of the i-units, Kinder Morgan Management becamea partner in Kinder Morgan Energy Partners and was delegated by Kinder Morgan EnergyPartners' general partner the responsibility to manage and control the business andaffairs of Kinder Morgan Energy Partners. The i-units are a class of Kinder 

28

Morgan Energy Partners' limited partner interests that have been, andwill be, issued only to Kinder Morgan Management.

As discussed in our 2001 Form 10-K, we have certain rights andobligations with respect to these securities. By approval of Kinder Morgan Managementshareholders other than us, effective at the close of business on July 23, 2002, we nolonger have an obligation to, upon presentation by the holder, exchange the Kinder MorganManagement shares for either Kinder Morgan Energy Partners' common units that we own or,at our option, cash. Approximately 872,000 and 940,000 of these shares were exchanged inthe three months and six months ended June 30, 2002, respectively and, during July 2002,an additional 5.9 million Kinder Morgan Management shares were exchanged before theelimination of the exchange feature. Approximately 3.8 million and 9.7 million KinderMorgan Management shares had been exchanged for Kinder Morgan Energy Partners' commonunits or cash as of June 30, 2002, and July 23, 2002, respectively. In conjunction withthe elimination of the exchange feature, on July 29, 2002, we issued to each Kinder MorganManagement shareholder (i) .09853 shares of Kinder Morgan, Inc. common stock for each 100Kinder Morgan Management shares held of record by such shareholder at the close ofbusiness on July 23, 2002, and (ii) cash in lieu of fractional shares. At June 30, 2002,Kinder Morgan, Inc. owned approximately 7.1 million (22.4%) of Kinder Morgan Management'soutstanding shares, including the only two voting shares.

On August 6, 2002, Kinder Morgan Management closed the issue and saleof 12,478,900 limited liability shares in an underwritten public offering. The netproceeds of approximately $328.6 million from the offering were used by Kinder MorganManagement to buy i-units from Kinder Morgan Energy Partners. None of the shares fromKinder Morgan Management's offering were purchased by us. Immediately following thispublic offering, we owned approximately 13 million (29.4%) of Kinder Morgan Management'soutstanding shares, including the only two voting shares.

On July 18, 2001, Kinder Morgan Energy Partners announced a two-for-onesplit of its common units. The common unit split, in the form of a one-common-unitdistribution for each common unit outstanding, occurred on August 31, 2001. This splitresulted in Kinder Morgan, Inc. receiving one additional common unit for each common unitit owned and Kinder Morgan Management receiving one additional i-unit for each i-unit itowned. Also on July 18, 2001, Kinder Morgan Management announced a two-for-one split ofits shares. This share split, in the form of a one-share distribution for each shareoutstanding, occurred on August 31, 2001. All references to amounts of these securities inthese Notes reflect the impact of these splits.

On May 15, 2002, Kinder Morgan Management paid a share distributionof 527,572 of its shares to shareholders of record as of April 30, 2002, based on the$0.59 per common unit distribution declared by Kinder Morgan Energy Partners. On August15, 2002, Kinder Morgan Management will pay a share distribution of 619,585 of its sharesto shareholders of record as of July 31, 2002, based on the $0.61 per common unitdistribution declared by Kinder Morgan Energy Partners. These distributions are paid inthe form of additional shares or fractions thereof based on the average market price of ashare determined for a ten-trading day period ending on the trading day immediately priorto the ex-dividend date for the shares.
CASH FLOWS

The following discussion of cash flows should be read in conjunctionwith the accompanying interim Consolidated Statements of Cash Flows and relatedsupplemental disclosures, and the Statements of Consolidated Cash Flows and relatedsupplemental disclosures included in our 2001 Form 10-K.

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Net Cash Flows from Operating Activities

"Net Cash Flows Provided by Operating Activities" increasedfrom $135.1 million for the six months ended June 30, 2001 to $176.3 million for the sixmonths ended June 30, 2002, an increase of $41.2 million (30.5%). This positive variancereflects the favorable impacts of (i) an increase of $9.6 million in 2002 income beforeextraordinary item, as adjusted to reflect the cash earnings impact of equity in earningsof equity method investees, including Kinder Morgan Energy Partners, (ii) a decrease of$40.7 million in cash outflows for gas in underground storage during 2002 and (iii) anincrease of $62.4 million in 2002 cash associated with other working capital items,reflecting an increase of $34.9 million in the net of accounts receivable and accountspayable and an increase of $13.5 million attributable to other current liabilities. Thesefavorable impacts were partially offset by (i) a $22.1 million payment and escrow depositin 2002 in settlement of litigation, (ii) an $18.8 million payment in 2002 for pensioncontributions in excess of book expense and (iii) a decrease of $14.8 million in 2002 cashattributable to deferred purchased gas costs. The $20 million pension contribution made inApril 2002 was deductible under Internal Revenue Service regulations but was not requiredto be made under ERISA minimum contribution guidelines.

Net Cash Flows from Investing Activities

"Net Cash Flows Used in Investing Activities" decreased from$1.1 billion for the six months ended June 30, 2001 to $239.9 million for the six monthsended June 30, 2002, a decrease of $858.1 million. This decreased use of cash isprincipally due to the fact that the six months ended June 30, 2001 included a $991.9million cash outflow for an investment in i-units of Kinder Morgan Energy Partners and a$15 million cash outflow for acquisitions, offset by (i) an increase of $44.3 million incapital expenditures in 2002, principally for the Natural Gas Pipeline Company of Americapipeline extension into the east metropolitan area of St. Louis, Missouri, (ii) anincrease of $66.0 million of 2002 cash outflows for power plant development investments,(iii) a $16.5 million 2002 cash outflow for an investment in Horizon Pipeline Company and(iv) the fact that the six months ended June 30, 2001 included $25.7 million of proceedsfrom discontinued operations sold during 2000.

Net Cash Flows from Financing Activities

"Net Cash Flows Provided by Financing Activities" decreasedfrom $836.4 million for the six months ended June 30, 2001 to $64.8 million for the sixmonths ended June 30, 2002, a decrease of $771.6 million. This decrease is principally dueto (i) the fact that the six months ended June 30, 2001 included net proceeds of $888.1million from the issuance of Kinder Morgan Management shares, (ii) a $161.7 milliondecrease in net cash provided from the issuance of short-term debt during 2002, (iii)$139.9 million of cash used during the six months ended June 30, 2002 to repurchase aportion of our outstanding common stock (see Note 8 of the accompanying Notes toConsolidated Financial Statements) and (iv) a 2002 cash outflow for other financing,principally attributable to the timing of cash inflows and outflows resulting from cashmanagement and hedging functions performed on behalf of Kinder Morgan Energy Partners.Partially offsetting these impacts was the fact that the six months ended June 30, 2001included a $448.5 million cash outflow for the early extinguishment of two series of debtsecurities (see Note 7 of the accompanying Notes to Consolidated Financial Statements). 

Our principal sources of short-term liquidity are the commercial papermarket and our $900 million of revolving bank facilities. At June 30, 2002, we had $654.0million of commercial paper (which is backed by the bank facilities) issued andoutstanding. The corresponding amount outstanding was $605.0 million at July 31, 2002.After inclusion of applicable letters of credit, the remaining available borrowingcapacity under the bank facilities was $235.0 million and $271.0 million at June 30, 2002and July 31, 2002, respectively. For additional information on utilization of thesefacilities, see Note 7 of the accompanying Notes to Consolidated Financial Statements.

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Apart from our commercial paper borrowings and our current maturitiesof long-term debt, our current assets exceeded our current liabilities by approximately$33.1 million at June 30, 2002. Our commercial paper borrowings represent a recurringsource of short-term financing for our operations that is typically replaced withlonger-term capital in the ordinary course of business and, as explained preceding, arebacked by revolving bank facilities. Our current maturities of long-term debt of $706.3million at June 30, 2002 principally consisted of the $500 million of our 6.65% SeriesSenior Notes due in March of 2003, the $200 million of our Floating Rate Notes due inOctober 2002 and the $5 million of our 7.27% Series Senior Notes due in December of 2002.We currently expect that funding for these obligations will be provided, in part, from newlong-term debt financings that will be completed in advance of the cash requirements.

In March 2001, we retired (i) our $400 million of Reset Put Securitiesdue March 1, 2021 and (ii) our $20 million of 9.95% Series Sinking Fund Debentures due2020, utilizing a combination of cash and incremental short-term debt. In conjunction withthese early extinguishments of debt, we recorded an extraordinary loss of $12.1 million(net of associated tax benefit of $8.1 million), presented as a separate line item in theaccompanying interim Consolidated Statement of Income for the six months ended June 30,2001.

On April 17, 2002, our Board of Directors approved a cash dividend of$0.05 per common share payable on May 15, 2002 to shareholders of record as of April 30,2002. On July 17, 2002, our Board of Directors approved a cash dividend of $0.10 percommon share payable on August 14, 2002 to shareholders of record as of July 31, 2002.
**Recently Issued Accounting Standards**
In June 2001, the Financial Accounting Standards Board("FASB") issued SFAS No. 143, *Accounting for Asset Retirement Obligations*.This Statement addresses financial accounting and reporting for obligations associatedwith the retirement of tangible long-lived assets and the associated asset retirementcosts. This Statement requires that the fair value of a liability for an asset retirementobligation be recognized in the period in which it is incurred if a reasonable estimate offair value can be made. The associated asset retirement costs are capitalized as part ofthe carrying amount of the long-lived asset. This Statement contains disclosurerequirements that provide descriptions of asset retirement obligations and reconciliationsof changes in the components of those obligations. This Statement is effective forfinancial statements issued for fiscal years beginning after June 15, 2002. Earlierapplications are encouraged. We have not yet quantified the impacts of adopting thisStatement on our financial position or results of operations.

On April 30, 2002, the FASB issued SFAS No. 145*, Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections*. This Statement rescinds SFAS No. 4, *Reporting Gains and Losses fromExtinguishment of Debt* and SFAS No. 64, *Extinguishments of Debt Made to SatisfySinking-Fund Requirements*, as well as SFAS No. 44, *Accounting for Intangible Assetsof Motor Carriers*. It also amends SFAS No. 13, *Accounting for Leases*, toeliminate an inconsistency between the required accounting for sale-leaseback transactionsand the required accounting for certain lease modifications that have economic effectsthat are similar to sale-leaseback transactions. This Statement also amends other existingauthoritative pronouncements to make various technical corrections, clarify meanings, ordescribe their applicability under changed conditions. The provisions of this Statementrelated to the rescission of SFAS No. 4 shall be applied in fiscal years beginning afterMay 15, 2002. The provisions related to the amendment to SFAS No. 13 shall be effectivefor transactions occurring after May 15, 2002. All other provisions in this Statementshall be effective for financial statements issued on or after May 15, 2002. Earlyapplication of the provisions of this Statement is encouraged, and may be as of thebeginning of the fiscal year or as of the beginning of the interim period in which thisStatement is issued.

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As a result of the rescission of SFAS No. 4, gains and losses fromextinguishment of debt should be classified as extraordinary items only if they meet thecriteria in Accounting Principles Board Opinion No. 30, *Reporting the Results ofOperations- Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions*. Applyingthe provisions of Accounting Principles Board Opinion No. 30 will distinguish transactionsthat are part of an entity's recurring operations from those that are unusual orinfrequent or that meet the criteria for classification as an extraordinary item. Theprovisions of SFAS No. 145 related to the rescission of SFAS No. 4 will require us, whenthe provisions are applied, to reclassify, in income statements that include the first andthird quarters of 2001, the loss on extinguishment of debt that was classified as anextraordinary item.

In June 2002, the FASB issued SFAS No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*, which addresses financial accounting andreporting for costs associated with exit or disposal activities and nullifies EmergingIssues Task Force (EITF) Issue No. 94-3, *Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurredin a Restructuring).* This Statement requires that a liability for a cost associatedwith an exit or disposal activity be recognized when the liability is incurred. Under EITFIssue 94-3, a liability for an exit activity as defined in EITF Issue 94-3 was recognizedat the date of an entity's commitment to an exit plan. This Statement eliminates thedefinition and requirements for recognition of exit costs in EITF Issue 94-3 andestablishes that fair value is the objective for initial measurement of the liability. Theprovisions of this Statement are effective for exit or disposal activities that areinitiated after December 31, 2002, with early application encouraged.
**Information Regarding Forward-looking Statements**
This filing includes forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Actof 1934. These forward-looking statements are identified as any statement that does notrelate 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 bycomparable terminology. In particular, statements, express or implied, concerning futureoperating results or the ability to generate sales, income or cash flow areforward-looking statements. Forward-looking statements are not guarantees of performance.They involve risks, uncertainties and assumptions. The future results of our operationsmay differ materially from those expressed in these forward-looking statements. Many ofthe factors that will determine these results are beyond our ability to control orpredict. Specific factors that could cause actual results to differ from those in theforward-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' 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;
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  •
      the pace of deregulation of retail natural gas and electricity;
•
acts of sabotage, terrorism or other similar acts    causing damage greater than our insurance coverage limits;
•
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.
***Item3.  Quantitative and Qualitative Disclosures about Market Risk.***
There have been no material changes in market risk exposures that wouldaffect the quantitative and qualitative disclosures presented as of December 31, 2001, inthe "Risk Management" section of Management's Discussion and Analysis ofFinancial Condition and Results of Operations contained in our 2001 Form 10-K. See alsoNote 11 of the accompanying Notes to Consolidated Financial Statements.
**PART II - OTHER INFORMATION
*Item 1.  Legal Proceedings.***
The reader is directed to Note 14 of the accompanying Notes toConsolidated Financial Statements in Part I, Item 1, which is incorporated herein byreference.***Item2.  Changes in Securities and Use of Proceeds.***
The exchange feature issued by us and attached to Kinder MorganManagement, LLC shares was eliminated effective at the close of business on July 23, 2002.See Note 2 of the accompanying Notes to Consolidated Financial Statements.

During the quarter ended June 30, 2002, we did not sell any equitysecurities that were not registered under the Securities Act of 1933, as amended.
***Item3.  Defaults Upon Senior Securities.***
None.
***Item4.  Submission of Matters to a Vote of Security Holders.***a)
The Company held its Annual Meeting of    Shareholders on May 14, 2002 (the "Annual Meeting").  b)
Proxies for the Annual Meeting were    solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934. There was no    solicitation in opposition to management's nominees for directors as listed in the Proxy    Statement and all such nominees were elected, which included Messrs. Bliss, Morgan and    Randall. In addition, those directors continuing in office after the meeting included    Messrs. Austin, Battey, Gardner, Hybl, Kinder, Sarofim and True. The number of votes for    and withheld for the nominees elected at the meeting were as follows:
  33
  **For**Withheld  Stuart A. Bliss
105,939,293
1,475,022William V. Morgan
106,349,952
1,064,363Edward Randall, III
106,244,918
1,169,397  c)
The following matters were also voted on    at the Annual Meeting:  (1)
A proposal to ratify and approve the    selection of PricewaterhouseCoopers LLP as our auditors for 2002 was approved and the    number of affirmative votes, negative votes, abstentions and broker non-votes with respect    to the matter were as follows:  For105,221,051Against    1,806,183Abstain       387,081Broker Non-votes
N/A  (2)
A stockholder proposal relating to the    adoption of an Independent Board Nominating Committee Policy was not approved and the    number of affirmative votes, negative votes, abstentions and broker non-votes with respect    to the matter were as follows:  For
22,942,919Against
67,038,694Abstain
850,004Broker Non-votes
N/A***Item 5.  Other Information.***
None.
***Item6.  Exhibits and Reports on Form 8-K.*****(A)     Exhibits.**  None.      **(B)     Reports on    Form 8-K.**  **(1)****Current Report on Form 8-K dated April    9, 2002 was filed on April 10, 2002 pursuant to Item 9. of that form.  
Pursuant to Item 9. of that    form, Kinder Morgan, Inc. announced its intention to make presentations on April 10, 2002    at the 30th Annual Howard Weil Energy Conference to investors and others to    address various strategic and financial issues relating to the business plans and    objectives of Kinder Morgan, Inc., Kinder Morgan Energy Partners, L.P. and Kinder Morgan    Management, LLC, and the availability of materials to be presented at the meetings on    Kinder Morgan, Inc.'s website.
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**      (2)****      Current Report on Form 8-K dated June 19, 2002 was filed on June 19, 2002 pursuant to Item    5. and Item 9. of that form.
Pursuant to Item 5. of that    form, Kinder Morgan, Inc. disclosed how the provisions of Statement of Financial    Accounting Standards No. 142, *Goodwill and Other Intangible Assets*, referred to as    SFAS 142, would have affected the financial statements of Kinder Morgan, Inc. if SFAS 142    had been in effect for the five years ended December 31, 2001, and set forth the    transitional disclosures described in SFAS 142. Pursuant to Item 7. of that form, Kinder    Morgan, Inc. filed as an exhibit (i) the Five-Year Review of Kinder Morgan, Inc. and    subsidiaries previously filed as Item 6. to Kinder Morgan, Inc.'s 2001 Form 10-K as filed    with the Securities and Exchange Commission on February 20, 2002, and (ii) a table showing    the changes that would have been reflected in its net income and earnings per share if the    provisions of SFAS 142 had been in effect for the five years ended December 31, 2001    **(3)****Current Report on Form 8-K dated July    8, 2002 was filed on July 8, 2002 pursuant to Item 9. and Item 7. of that form.  
Pursuant to Item 9. of that    form, in Item 7. Kinder Morgan, Inc. filed an exhibit containing press releases dated July    8, 2002 in which Kinder Morgan, Inc. and Kinder Morgan Energy Partners, L.P. announced    that they expect to exceed consensus earnings estimates for the second quarter of 2002.    **(4)****Current Report on Form 8-K dated July    23, 2002 was filed on July 23, 2002 pursuant to Item 5. and Item 7. of that form.    
Pursuant to Item 5. of that    form, Kinder Morgan, Inc. made two disclosures. First, Kinder Morgan, Inc. disclosed that    on July 23, 2002, Kinder Morgan, Inc. issued a press release announcing (i) that at a    special meeting of shareholders of Kinder Morgan Management, LLC held on July 23, 2002,    Kinder Morgan Management, LLC shareholders approved an amendment to Kinder Morgan    Management, LLC's limited liability agreement eliminating the exchange feature of Kinder    Morgan Management, LLC's shares, and (ii) that Kinder Morgan, Inc. will issue to each    Kinder Morgan Management, LLC shareholder .09853 shares of Kinder Morgan, Inc. common    stock for each 100 Kinder Morgan Management, LLC shares held of record by such shareholder    at the close of business on July 23, 2002, with cash in lieu of fractional shares. Second,    Kinder Morgan, Inc. disclosed that David G. Dehaemers, Jr., Vice President-Corporate    Development, announced his intention to leave Kinder Morgan, Inc. to pursue personal and    family interests effective April of 2003.

Pursuant to Item 7. of that form, Kinder Morgan, Inc. filed the press    release of the Company issued July 23, 2002 as an exhibit.
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**SIGNATURE**
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.  
KINDER MORGAN, INC.    (Registrant)August 8, 2002/s/ C.    Park ShaperC. Park Shaper    Vice President and Chief Financial Officer    (Principal Financial and Accounting Officer)
 

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