Table of Contents

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549FORM 10-Q

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


For the quarterly period ended  **March 31, 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 1-6446kminc.gif (5069 bytes)KINDER 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 reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days.

YesX  No___

The number of shares outstanding for each of the registrant's classes
of common stock, as of the latest practicable date was: Common Stock, $5 par value;
outstanding 122,139,676 shares as of April 30, 2002.



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KINDER MORGAN, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2002Contents



PART I.
    FINANCIAL
    INFORMATIONPageItem 1.
    Financial Statements
    (Unaudited)
    NumberConsolidated Balance Sheets
    3-4Consolidated Statements of Income
    5Consolidated Statements of Cash Flows
    6Notes to Consolidated Financial
    Statements
    7-19Item
    2.
    Management's
    Discussion and Analysis of FinancialCondition
    and Results of Operations
    20-29Item
    3.
    Quantitative
    and Qualitative Disclosures About Market Risk
    30PART II.
    OTHER
    INFORMATIONItem 1.
    Legal
    Proceedings
    30Item 2.
    Changes in
    Securities and Use of Proceeds
    30Item
    3.
    Defaults Upon Senior
    Securities
    30Item 4.
    Submission
    of Matters to a Vote of Security Holders
    30Item 5.
    Other
    Information
    30Item 6.
    Exhibits and Reports on Form
    8-K
    31SIGNATURE
    32


2

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

CONSOLIDATED BALANCE SHEETS (Unaudited)Kinder Morgan, Inc. and Subsidiaries

|                                                   | March 31,          |  | December 31,
|-------------------------------------------------- | ------------------ |  | ------------
|                                                   | 2002               |  | 2001        
|                                                   | (In
    thousands)
|ASSETS:                                            |                    |  |             
|Current Assets:                                    |                    |  |             
|Cash and Cash Equivalents                          | $   11,701         |  | $   16,134  
|Restricted Deposits                                | 8,383              |  | 15,010      
|Notes Receivable:                                  |                    |  |             
|Related Party                                      | 31,720             |  | 22,576      
|Other                                              | 46,649             |  | 18,890      
|Accounts Receivable, Net:                          |                    |  |             
|Trade                                              | 115,922            |  | 161,926     
|Related Parties                                    | 40,099             |  | 29,502      
|Inventories                                        | 46,156             |  | 61,959      
|Gas Imbalances                                     | 53,165             |  | 50,775      
|Other                                              | 32,340             |  | 37,609      
|                                                   | 386,135            |  | 414,381     
|                                                   |                    |  |             
|Investments:                                       |                    |  |             
|Kinder Morgan Energy Partners                      | 2,824,081          |  | 2,806,146   
|Other                                              | 437,359            |  | 449,056     
|                                                   | 3,261,440          |  | 3,255,202   
|                                                   |                    |  |             
|Property, Plant and Equipment                      | 6,110,661          |  | 6,078,834   
|Less Accumulated Depreciation and
    Amortization | 400,885            |  | 374,882     
|                                                   | 5,709,776          |  | 5,703,952   
|                                                   |                    |  |             
|Deferred Charges and Other Assets                  | 155,059            |  | 159,550     
|                                                   |                    |  |             
|Total Assets                                       | $9,512,410         |  | $9,533,085  
|                                                   | ==========         |  | ==========  
|                                                   |                    |  |             

The accompanying notes are an integral part of these statements.

3

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CONSOLIDATED BALANCE SHEETS (Unaudited)Kinder Morgan, Inc. and Subsidiaries

|                                                             | March 31,      |  | December 31,
|------------------------------------------------------------ | -------------- |  | ------------
|                                                             | 2002           |  | 2001        
|                                                             | (In thousands)
|LIABILITIES AND STOCKHOLDERS' EQUITY:                        |                |  |             
|Current Liabilities:                                         |                |  |             
|Current Maturities of Long-term Debt                         | $  706,267     |  | $  206,267  
|Notes Payable                                                | 561,800        |  | 423,785     
|Accounts Payable:                                            |                |  |             
|Trade                                                        | 90,797         |  | 160,309     
|Related Parties                                              | -              |  | 70,606      
|Accrued Interest                                             | 34,446         |  | 76,606      
|Accrued Taxes                                                | 67,500         |  | 16,348      
|Gas Imbalances                                               | 66,363         |  | 58,266      
|Reserve for Loss on Disposal of Discontinued
    Operations  | 1,731          |  | 5,209       
|Other                                                        | 65,720         |  | 102,492     
|                                                             | 1,594,624      |  | 1,119,888   
|                                                             |                |  |             
|Other Liabilities and Deferred Credits:                      |                |  |             
|Deferred Income Taxes                                        | 2,433,554      |  | 2,427,089   
|Other                                                        | 247,006        |  | 228,631     
|                                                             | 2,680,560      |  | 2,655,720   
|                                                             |                |  |             
|Long-term Debt                                               | 1,883,760      |  | 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             | 822,577        |  | 817,513     
|                                                             |                |  |             
|Stockholders' Equity:                                        |                |  |             
|Common Stock-                                                |                |  |             
|Authorized - 150,000,000 Shares,
    Par Value $5 Per Share  |                |  |             
|Outstanding - 129,631,879 and
    129,092,689 Shares,        |                |  |             
|Respectively,
    Before Deducting 7,048,111 and 5,165,911   |                |  |             
|Shares Held in
    Treasury                                  | 648,159        |  | 645,463     
|Additional Paid-in Capital                                   | 1,669,720      |  | 1,652,846   
|Retained Earnings                                            | 302,194        |  | 219,995     
|Treasury Stock                                               | (356,196)      |  | (263,967)   
|Other                                                        | (7,988)        |  | 5,660       
|Total Stockholders' Equity                                   | 2,255,889      |  | 2,259,997   
|                                                             |                |  |             
|Total Liabilities and Stockholders' Equity                   | $9,512,410     |  | $9,533,085  
|                                                             | ==========     |  | ==========  
|                                                             |                |  |             

The accompanying notes are an integral part of these statements.

4

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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)Kinder Morgan, Inc. and Subsidiaries

|                                                              | Three Months Ended March 31,                   
|------------------------------------------------------------- | -----------------------------------------------
|                                                              | 2002                                           
|                                                              | (In thousands
    except
    per share amounts)
|Operating Revenues:                                           |                                                
|Natural Gas Transportation and Storage                        | $ 153,406                                      
|Natural Gas Sales                                             | 120,776                                        
|Other                                                         | 17,219                                         
|Total Operating
    Revenues                                  | 291,401                                        
|                                                              |                                                
|Operating Costs and Expenses:                                 |                                                
|Gas Purchases and Other Costs of Sales                        | 101,247                                        
|Operations and Maintenance                                    | 29,080                                         
|General and Administrative                                    | 19,550                                         
|Depreciation and Amortization                                 | 26,004                                         
|Taxes, Other Than Income Taxes                                | 7,165                                          
|Total Operating
    Costs and Expenses                        | 183,046                                        
|                                                              |                                                
|Operating Income                                              | 108,355                                        
|                                                              |                                                
|Other Income and (Expenses):                                  |                                                
|Investment in Kinder Morgan Energy
    Partners:              |                                                
|Equity in Earnings                                            | 90,091                                         
|Amortization of
    Excess Investment                         | -                                              
|Equity in Earnings (Losses) of Other Equity
    Investments   | 2,372                                          
|Interest Expense, Net                                         | (39,548)                                       
|Minority Interests                                            | (12,777)                                       
|Other, Net                                                    | 3,573                                          
|Total Other Income
    and (Expenses)                         | 43,711                                         
|                                                              |                                                
|Income Before Income Taxes and
    Extraordinary Item         | 152,066                                        
|Income Taxes                                                  | 63,678                                         
|Income Before Extraordinary Item                              | 88,388                                         
|                                                              |                                                
|Extraordinary Item - Loss on Early
    Extinguishment         |                                                
|of Debt, Net of
    Income Tax Benefit of $8,080              | -                                              
|                                                              |                                                
|Net Income                                                    | $  88,388                                      
|                                                              | =========                                      
|                                                              |                                                
|Basic Earnings (Loss) Per Common Share:                       |                                                
|Income Before Extraordinary Item                              | $    0.72                                      
|Extraordinary Item - Loss on Early
    Extinguishment of Debt | -                                              
|Total Basic Earnings Per Common Share                         | $    0.72                                      
|                                                              | =========                                      
|                                                              |                                                
|Number of Shares Used in Computing Basic                      |                                                
|Earnings Per Common
    Share (Thousands)                     | 123,398                                        
|                                                              | =========                                      
|                                                              |                                                
|Diluted Earnings (Loss) Per Common
    Share:                 |                                                
|Income Before Extraordinary Item                              | $    0.71                                      
|Extraordinary Item - Loss on Early
    Extinguishment of Debt | -                                              
|Total Diluted Earnings Per Common Share                       | $    0.71                                      
|                                                              | =========                                      
|                                                              |                                                
|Number of Shares Used in Computing Diluted                    |                                                
|Earnings Per Common
    Share (Thousands)                     | 124,829                                        
|                                                              | =========                                      
|                                                              |                                                
|Dividends Per Common Share                                    | $    0.05                                      
|                                                              | =========                                      
|                                                              |                                                

The accompanying notes are an integral part of these statements.

5

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)Kinder Morgan, Inc. and Subsidiaries
Increase (Decrease) in Cash and Cash Equivalents

|                                                                                     | Three Months Ended March 31,
|------------------------------------------------------------------------------------ | ----------------------------
|                                                                                     | 2002                        
|                                                                                     | (In
    thousands)          
|Cash Flows From Operating Activities:                                                |                             
|Net Income                                                                           | $    88,388                 
|Adjustments to Reconcile Net Income to Net
    Cash Flows from Operating Activities: |                             
|Extraordinary Loss
    on Early Extinguishment of Debt                               | -                           
|Depreciation and
    Amortization                                                    | 26,004                      
|Deferred Income
    Taxes                                                            | 9,990                       
|Equity in Earnings
    of Kinder Morgan Energy Partners                              | (90,091)                    
|Distributions from
    Kinder Morgan Energy Partners                                 | 70,394                      
|Equity in Earnings
    of Other Investments                                          | (2,372)                     
|Minority Interests
    in Income of Consolidated Subsidiaries                        | 7,712                       
|Deferred Purchased
    Gas Costs                                                     | (3,236)                     
|Net Gains on Sales
    of Facilities                                                 | (2,567)                     
|Changes in Other
    Working Capital Items                                           | (8,411)                     
|Other, Net                                                                           | 7,921                       
|Net Cash Flows Provided by
    Continuing Operations                                 | 103,732                     
|Net Cash Flows Used in
    Discontinued Operations                                   | (3,478)                     
|Net Cash Flows Provided by Operating
    Activities                                  | 100,254                     
|                                                                                     |                             
|Cash Flows From Investing Activities:                                                |                             
|Capital Expenditures                                                                 | (35,885)                    
|Acquisitions                                                                         | -                           
|Other Investments                                                                    | (29,565)                    
|Proceeds from Sales of Other Assets                                                  | 4,385                       
|Net Cash Flows Used in Continuing Investing
    Activities                           | (61,065)                    
|Net Cash Flows Provided by Discontinued
    Investing Activities                     | -                           
|Net Cash Flows Used in Investing
    Activities                                      | (61,065)                    
|                                                                                     |                             
|Cash Flows From Financing Activities:                                                |                             
|Short-term Debt, Net                                                                 | 138,015                     
|Long-term Debt Retired                                                               | (320)                       
|Premiums Paid on Early Extinguishment of
    Debt                                    | -                           
|Common Stock Issued                                                                  | 9,728                       
|Other Financing, Net                                                                 | (90,347)                    
|Treasury Stock Issued                                                                | -                           
|Treasury Stock Acquired                                                              | (94,405)                    
|Cash Dividends, Common Stock                                                         | (6,186)                     
|Minority Interests, Net                                                              | (107)                       
|Net Cash Flows Used in Financing
    Activities                                      | (43,622)                    
|                                                                                     |                             
|Net Decrease in Cash and Cash Equivalents                                            | (4,433)                     
|Cash and Cash Equivalents at Beginning of
    Period                                 | 16,134                      
|Cash and Cash Equivalents at End of Period                                           | $    11,701                 
|                                                                                     | ===========                 

For supplemental cash flow information, see Note 5.
The accompanying notes are an integral part of these statements.

6

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Unaudited)

1.     General

We are a provider of energy and related services and have operations in
the Rocky Mountain and mid-continent regions of the United States, with principal
operations in Arkansas, Colorado, Illinois, Iowa, Kansas, Nebraska, Oklahoma, Texas and
Wyoming. 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 and
nonregulated operations. Our common stock is traded on the New York Stock Exchange under
the 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 limited
partner interests, in Kinder Morgan Energy Partners, L.P., a publicly traded pipeline
master limited partnership, referred to in these Notes as "Kinder Morgan Energy
Partners," and receive a substantial portion of our earnings from returns on these
investments.

We have prepared the accompanying unaudited interim consolidated
financial statements under the rules and regulations of the Securities and Exchange
Commission. Under such rules and regulations, we have condensed or omitted certain
information and notes normally included in financial statements prepared in conformity
with accounting principles generally accepted in the United States of America. We believe,
however, that our disclosures are adequate to make the information presented not
misleading. The consolidated financial statements reflect all adjustments that are, in the
opinion of management, necessary for a fair presentation of our financial results for the
interim periods presented. You should read these interim consolidated financial statements
in conjunction with our consolidated financial statements and related notes included in
our 2001 Form 10-K. Certain prior period amounts have been reclassified to conform to the
current presentation. Unless the context requires otherwise, references to "we,"
"us," "our," or the "Company" are intended to mean Kinder
Morgan, Inc. and its consolidated subsidiaries.

2.     Kinder Morgan Management, LLC

In May 2001, Kinder Morgan Management, LLC, one of our indirect
subsidiaries, issued and sold 29,750,000 limited liability shares (after adjustment for
the stock split discussed following) in an underwritten initial public offering, with
2,975,000 of the shares purchased by Kinder Morgan, Inc. The net proceeds from the
offering were used by Kinder Morgan Management to buy i-units from Kinder Morgan Energy
Partners for $991.9 million. Upon purchase of the i-units, Kinder Morgan Management became
a partner in Kinder Morgan Energy Partners and was delegated by Kinder Morgan Energy
Partners' general partner the responsibility to manage and control the business and
affairs of Kinder Morgan Energy Partners. The i-units are a class of Kinder Morgan Energy
Partners' limited partner interests that have been, and will be, issued only to Kinder
Morgan Management. As discussed in our 2001 Form 10-K, we have certain rights and
obligations with respect to these securities, including an obligation to, upon
presentation by the holder, exchange the Kinder Morgan Management shares for Kinder Morgan
Energy Partners' common units that we own or cash (at our option). As of March 31, 2002,
approximately 2.9 million Kinder Morgan Management shares had been exchanged for Kinder
Morgan Energy Partners' common units, with approximately 68,000 of these shares having
been exchanged in the first quarter of 2002. At March 31, 2002, Kinder Morgan, Inc. owned
approximately 6.1 million (19.7%) of Kinder Morgan Management's outstanding shares,
including the only two voting shares.

On July 18, 2001, Kinder Morgan Energy Partners announced a two-for-one
split of its common units. The common unit split, in the form of a one-common-unit
distribution for each common unit outstanding, occurred on August 31, 2001. This split
resulted in Kinder Morgan, Inc. receiving one additional common unit for each common unit
it owned and Kinder Morgan Management receiving one additional i-unit for each i-unit it
owned.

7

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Also on July 18, 2001, Kinder Morgan Management announced a two-for-one
split of its shares. This share split, in the form of a one-share distribution for each
share outstanding, occurred on August 31, 2001. All references to amounts of these
securities in these Notes reflect the impact of these splits.

On February 14, 2002, Kinder Morgan Management paid a share
distribution of 453,970 of its shares to shareholders of record as of January 31, 2002,
based on the $0.55 per common unit distribution declared by Kinder Morgan Energy Partners.
On May 15, 2002, Kinder Morgan Management will pay a share distribution of 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. These distributions are paid in
the form of additional shares or fractions thereof based on the average market price of a
share determined for a ten-trading day period ending on the trading day immediately prior
to the ex-dividend date for the shares.

3.     Investments and Sales

Horizon Pipeline Company, L.L.C. ("Horizon"), a joint venture
between Nicor-Horizon, a subsidiary of Nicor Inc. (NYSE: GAS), and Natural Gas Pipeline
Company of America, is nearing completion of its new $82 million natural gas pipeline in
northern Illinois and expects to commence commercial operation in May 2002. This project
is being built and will be operated as an interstate pipeline company under the authority
of the Federal Energy Regulatory Commission ("FERC").

Horizon Pipeline's natural gas pipeline entails the new construction of
28 miles of 36-inch diameter pipe, the lease of capacity in 42 miles of existing pipeline
from Natural Gas Pipeline Company of America, and the installation of gas compression
facilities. Upon completion of the project, Horizon Pipeline will be able to transport 380
million cubic feet of natural gas per day from near Joliet into McHenry County, connecting
the emerging supply hub at Joliet with the northern part of the Nicor Gas distribution
system and the existing Natural Gas Pipeline Company of America pipeline system.

4.     Earnings Per Share

Basic earnings per common share is computed based on the
weighted-average number of common shares outstanding during each period. Diluted earnings
per common share is computed based on the weighted-average number of common shares
outstanding during each period, increased by the assumed exercise or conversion of
securities (stock options and, prior to their November 2001 maturity, Premium Equity
Participating Security Units) convertible into common stock, for which the effect of
conversion or exercise using the treasury stock method would be dilutive.

|                                                             | Three Months Ended
    March 31,
|------------------------------------------------------------ | --------------------------------
|                                                             | 2002                            
|                                                             | (In
    thousands)              
|Weighted-average Common Shares Outstanding                   | 123,398                         
|Dilutive Common Stock Options                                | 1,431                           
|Dilutive Premium Equity Participating
    Security Units     | -                               
|Shares Used to Compute Diluted Earnings Per
    Common Share | 124,829                         
|                                                             | ========                        
|                                                             |                                 

There were approximately 1,410,000 and 13,000 weighted-average stock
options outstanding during the three months ended March 31, 2002 and 2001, respectively,
which were excluded from the diluted earnings per share calculation because the effect of
including them would have been antidilutive.

8

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5.     Supplemental Cash Flow Information

We consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

|Changes in Other Working Capital Items,                | Three Months Ended
    March 31,
|------------------------------------------------------ | --------------------------------
|Net of Effects of
    Acquisitions and Sales           | 2002                            
|Increase (Decrease) in Cash and Cash
    Equivalents   | (In
    thousands)              
|                                                       |                                 
|Accounts Receivable                                    | $  46,467                       
|Materials and Supplies Inventory                       | 6,541                           
|Gas in Underground Storage - Current                   | 9,262                           
|Other Current Assets                                   | 561                             
|Accounts Payable                                       | (56,396)                        
|Other Current Liabilities                              | (14,846)                        
|                                                       | $  (8,411)                      
|                                                       | =========                       
|                                                       |                                 
|Supplemental Disclosures of Cash Flow
    Information: |                                 
|                                                       |                                 
|Cash Paid During the Period for:                       |                                 
|Interest, Net of Amount Capitalized                    | $  66,625                       
|                                                       | =========                       
|Income Taxes Paid (Received)                           | $   4,272                       
|                                                       | =========                       
|                                                       |                                 

As discussed in Note 2, Kinder Morgan, Inc. exchanged approximately
68,000 common units of Kinder Morgan Energy Partners for Kinder Morgan Management shares
during the first quarter of 2002 in non-cash transactions.

6.     Business Segments

In accordance with the manner in which we currently manage our
businesses, including the allocation of capital and evaluation of business unit
performance, our principal business segments are: (1) Natural Gas Pipeline Company of
America (NGPL) and affiliated companies, a major interstate natural gas pipeline and
storage system, (2) Kinder Morgan Retail, the regulated sale of natural gas to
residential, commercial and industrial customers and non-utility sales of natural gas to
certain utility customers under the Choice Gas Program, a program that allows utility
customers to choose their natural gas provider and (3) Power and Other, the construction
and operation of natural gas-fired electric generation facilities.  Prior to 2002,
Power and Other also included various other activities not constituting separately managed
or reportable business segments.

The accounting policies we apply in the generation of business segment
information are generally the same as those described in Note 1 of Notes to Consolidated
Financial 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 not
considered by management in its evaluation of business unit performance. An exception to
this is that Kinder Morgan Power, which routinely conducts its business activities in the
form of joint operations with other parties that are accounted for under the equity method
of accounting, includes its equity in earnings of these investees in its operating
results. These equity method earnings are included in "Other Income and
(Expenses)" in the accompanying interim Consolidated Statements of Income. In
addition, (i) certain items included in operating income (such as general and
administrative expenses) are not allocated to individual business segments and (ii) gains
and losses from incidental sales of assets are included in segment earnings. With
adjustment for these items, we currently evaluate business segment performance primarily
based on operating income in relation to the level of capital employed. We account for
intersegment sales at market prices, while

9

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we account for asset transfers at either market value or, in some
instances, book value. As necessary for comparative purposes, we have reclassified prior
period results and balances to conform to the current presentation.

BUSINESS SEGMENT INFORMATION

|                                        | Three Months Ended March 31, 2002
|--------------------------------------- | ---------------------------------
|                                        | Income                           
|                                        | (In
    thousands)               
|                                        |                                  
|Natural Gas Pipeline Company of America | $   95,618                       
|Kinder Morgan Retail                    | 24,858                           
|Power and Other                         | 9,740                            
|Consolidated                            | 130,216                          
|                                        |                                  
|General and Administrative Expenses     | (19,550)                         
|Other Income and (Expenses)             | 41,400                           
|Income Before Income Taxes and          |                                  
|Extraordinary Item                      | $  152,066                       
|                                        | ==========                       

|                                        | Three Months Ended March 31, 2001
|--------------------------------------- | ---------------------------------
|                                        | Income                           
|                                        | (In thousands)                   
|                                        |                                  
|Natural Gas Pipeline Company of America | $   93,882                       
|Kinder Morgan Retail                    | 23,537                           
|Power and Other                         | 9,617                            
|Consolidated                            | 127,036                          
|                                        |                                  
|General and Administrative Expenses     | (16,308)                         
|Other Income and (Expenses)             | (16,058)                         
|Income Before Income Taxes and          |                                  
|Extraordinary Item                      | $   94,670                       
|                                        | ==========                       

1

GEOGRAPHIC INFORMATION

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

7.     Financing

We have available a $500 million 364-day credit facility dated October
23, 2001, and a $400 million amended and restated five-year revolving credit agreement
dated January 30, 1998. These bank facilities can be used for general corporate purposes,
including backup for our commercial paper program and, as discussed in our 2001 Form 10-K,
include covenants that are common in such arrangements. Under these bank facilities, we
are 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 our
bank facilities at March 31, 2002.

The commercial paper we issue, which is supported by the credit
facilities described above, is comprised of unsecured short-term notes with maturities not
to exceed 270 days from the date of issue. Commercial paper

10

---

outstanding at March 31, 2002 was $561.8 million. Our weighted-average
interest rate on short-term borrowings outstanding at March 31, 2002 was 2.28 percent.
Average short-term borrowings outstanding during the first quarter of 2002 were $488.5
million and the weighted-average interest rate was 2.25 percent.

In March 2001, we retired (i) our $400 million of Reset Put Securities
due March 1, 2021 and (ii) our $20 million of 9.95% Series Sinking Fund Debentures due
2020, utilizing a combination of cash and incremental short-term debt. In conjunction with
these 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 the
accompanying interim Consolidated Statement of Income for the three months ended March 31,
2001.

On April 17, 2002, our Board of Directors approved a common stock
dividend of $0.05 per share payable on May 15, 2002 to shareholders of record as of April
30, 2002.

8.     Common Stock Repurchase Plan

On August 14, 2001, we announced a program to repurchase $300 million
of our outstanding common stock. On February 5, 2002, we announced that our Board of
Directors had approved expanding the program to a total of $400 million. As of March 31,
2002, we had repurchased a total of approximately $362.6 million (7,177,000 shares) of our
outstanding common stock under the program, of which $92.2 million (1,882,200 shares) was
repurchased in the first quarter of 2002.

9.     Regulatory Matters

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

On April 5, 2002, the D.C. Circuit issued an order largely affirming
Order Nos. 637, et seq. The D.C. Circuit did remand the FERC's decision to impose a 5-year
cap on bids the existing shipper would have to match in the right of first refusal
process. The D.C. Circuit also remanded the FERC's decision to allow forward-hauls and
backhauls to the same point. Finally, the D.C. Circuit held that several aspects of the
FERC's segmentation policy and its policy on discounting at alternate points were not ripe
for review.

The FERC, in a Notice of Proposed Rulemaking in RM01-10-000, has
proposed standards of conduct to govern interactions between interstate natural gas
pipelines and electric transmission utilities and their energy affiliates. These standards
would entirely replace the current standards of conduct related to affiliate interaction.
Numerous parties, including Natural Gas Pipeline Company of America, have filed comments
on the proposed rulemaking, which is awaiting further action by the FERC. A technical
conference on the proposed rulemaking will be held on May 21, 2002.

Currently, there are no material proceedings challenging the rates on
any of our pipeline systems. Nonetheless, shippers on our pipelines do have rights to
challenge the rates we charge under certain circumstances prescribed by applicable
regulations. There can be no assurance that we will not face challenges to the rates we
receive for services on our pipeline systems in the future.

11

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10.     Comprehensive Income

Our comprehensive income for the three months ended March 31, 2002 and
2001 is as follows:

|                                                        | Three Months Ended March 31,
|------------------------------------------------------- | ----------------------------
|                                                        | 2002                        
|                                                        | (In
    thousands)          
|Net Income                                              | $  88,388                   
|Change in Unrealized Gain on Derivatives                |                             
|Utilized for Hedging
    Purposes, Net of Tax           | (5,251)                     
|Cumulative Effect Transition Adjustment, Net
    of Tax | -                           
|Comprehensive Income                                    | $  83,137                   
|                                                        | =========                   
|                                                        |                             

11.    Accounting for Derivative Instruments and
Hedging Activities

Our normal business activities expose us to risks associated with
changes in the market price of natural gas and associated transportation. We engage in
derivative transactions for the purpose of mitigating these risks, which transactions are
accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities and associated amendments. During the three months ended March 31, 2002 and
2001, our derivative activities relating to the mitigation of these risks were designated
and qualified as cash flow hedges, and the impact of hedge ineffectiveness, while included
in our net income, was immaterial. As the hedged sales and purchases take place and we
record them into earnings, we also reclassify the gains and losses included in accumulated
other comprehensive income into earnings. We expect to reclassify into earnings, during
the next twelve months, substantially all of our accumulated other comprehensive income
balance of $4.6 million, representing unrecognized net gains on derivative activities at
March 31, 2002. During the three months ended March 31, 2002 and 2001, we reclassified no
gains or losses into earnings as a result of the discontinuance of cash flow hedges due to
a determination that the forecasted transactions would no longer occur by the end of the
originally specified time period.

We have outstanding fixed-to-floating interest rate swap agreements
with a notional principal amount of $1.0 billion. These agreements effectively convert the
interest 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 London
Interbank Offered Rate ("LIBOR") plus a credit spread. These swaps have been
designated as fair value hedges, accounted for utilizing the "shortcut" method
prescribed for qualifying fair value hedges. Accordingly, at each reporting date, the
carrying value of the swap is adjusted to its fair value, and an offsetting entry is made
to adjust the carrying value of the debt securities whose fair value is being hedged. We
record interest expense equal to the floating rate payments, which is accrued monthly and
paid semi-annually.

12.    Interest Expense, Net

"Interest Expense, Net" as presented in the accompanying
interim Consolidated Statements of Income is net of the debt component of the allowance
for funds used during construction, which was $0.4 million and $1.3 million for the three
months ended March 31, 2002 and 2001, respectively.

12

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

Following is summarized income statement information for Kinder Morgan
Energy Partners, a publicly traded master limited partnership in which we own the general
partner interest. In addition, we own limited partner interests in the form of Kinder
Morgan Energy Partners common units, i-units and Class B limited partner units. This
investment, which is accounted for under the equity method of accounting, is described in
more detail in our 2001 Form 10-K. Additional information on Kinder Morgan Energy
Partners' results of operations and financial position are contained in its Form 10-Q for
the quarter ended March 31, 2002 and in its 2001 Form 10-K.

|                   | Three Months Ended March 31,
|------------------ | ----------------------------
|                   | 2002                        
|                   | (In
    thousands)          
|Operating Revenues | $   803,065                 
|Operating Expenses | 637,209                     
|Operating Income   | $   165,856                 
|                   | ===========                 
|                   |                             
|Net Income         | $   141,433                 
|                   | ===========                 
|                   |                             

14.    Environmental and Legal Matters

(A)    Environmental Matters

We are subject to a variety of federal, state and local laws that
regulate permitted activities relating to air and water quality, waste disposal, and other
environmental matters. Additionally, we have established reserves to address known
environmental remediation sites. After consideration of reserves established, we believe
that costs for environmental remediation and ongoing compliance with these regulations
will not have a material adverse effect on our cash flows, financial position or results
of operations or diminish our ability to operate our businesses. However, there can be no
assurances that future events, such as changes in existing laws, the promulgation of new
laws, or the development of new facts or conditions will not cause us to incur significant
costs.

See Note 10(A) of Notes to Consolidated Financial Statements and
"Litigation and Environmental" included in Management's Discussion and Analysis
of Financial Condition and Results of Operations in our 2001 Form 10-K for additional
information 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 June
15, 2000, K N TransColorado filed suit against Questar TransColorado, its parent Questar
Pipeline Company, and other affiliated Questar entities, asserting claims for breach of
fiduciary duties, breach of contract, constructive trust, rescission of the partnership
agreement, breach of good faith and fair dealing, tortious concealment, misrepresentation,
aiding and abetting a breach of fiduciary duty, dissolution of the TransColorado
partnership, and seeking a declaratory judgment, among other claims. The TransColorado
partnership has been made a defendant for purposes of an accounting. The lawsuit alleges,
among other things, Questar breached its fiduciary duties as a partner. K N TransColorado
seeks to recover damages in excess of $152 million due to Questar's breaches and, in
addition, seeks punitive damages. In response to the complaint, on July 28, 2000, the
Questar entities filed a counterclaim and third party claims against Kinder Morgan and
certain of its affiliates for claims arising out of the construction and operation of the
TransColorado pipeline project. The claims allege, among other things, that the Kinder
Morgan entities

13

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interfered with and delayed construction of the pipeline and made
misrepresentations about marketing of capacity. The Questar entities seek to recover
damages in excess of $185 million for an alleged breach of fiduciary duty and other
claims. The parties agreed to stay the exercise of a contractual provision purportedly
requiring K N TransColorado to purchase Questar's interest in the pipeline and to
investigate the appointment of an independent operator for the pipeline during the
litigation. The Court dismissed Questar's counterclaims for breach of duty of good faith
and fair dealing and for indemnity and contribution and dismissed Questar's Third Party
Complaint. On July 19, 2001, the Court granted K N TransColorado's motion for summary
judgment that: a) fiduciary duties existed between the partners; b) these fiduciary duties
were not modified or waived; and c) the affiliates and directors of Questar Pipeline
Company and Questar TransColorado acting in their dual capacity had fiduciary obligations
which required those individuals to disclose, to the partnership and the partners,
information that affected the fundamental business purpose of the partnership. On August
14, 2001, the Court granted leave to Questar to file its First Amended Answer and
Counterclaim, once again naming Kinder Morgan, Inc. as a counterclaim defendant, and
making similar allegations against us as set forth above. Fact discovery and expert
discovery have closed. Trial of the matter commenced on April 1, 2002.

Jack J. Grynberg, individually and as general partner for the Greater
Green River Basin Drilling Program: 72-73 v. Rocky Mountain Natural Gas Company and K N
Energy, Inc., Case No. 90-CV-3686. On June 5, 1990, Jack J. Grynberg filed suit in
Jefferson County District Court For Colorado against Rocky Mountain Natural Gas Company
and us alleging breach of contract and fraud. In essence, Grynberg asserts claims that the
named companies failed to pay Grynberg the proper price, impeded the flow of natural gas,
mismeasured natural gas, delayed his development of natural gas reserves, and other claims
arising out of a contract to purchase natural gas from a field in northwest Colorado. On
February 13, 1997, the trial judge entered partial summary judgment for Grynberg on his
contract claim that he failed to receive the proper price for his natural gas. This ruling
followed an appellate decision that was adverse to us on the contract interpretation of
the price issue, but which did not address the question of whether Grynberg could legally
receive the price he claimed or whether he had illegally diverted natural gas from a prior
purchase. Grynberg has previously claimed damages in excess of $30 million. On August 29,
1997, the trial judge stayed the summary judgment pending resolution of a proceeding at
the FERC to determine if Grynberg was entitled to administrative relief from an earlier
dedication of the same natural gas to interstate commerce. On March 15, 1999, an
Administrative Law Judge for the FERC ruled, after an evidentiary hearing, that Mr.
Grynberg had illegally diverted the natural gas when he entered the contract with the
named companies and was not entitled to relief. Grynberg filed exceptions to this ruling.
In late March 2000, the FERC issued an order affirming in part and denying in part the
motions for rehearing of its Initial Decision. On November 21, 2000, the FERC upheld the
Administrative Law Judge's factual findings and denial of retroactive abandonment. On June
14, 2001, Rocky Mountain Natural Gas Company filed a motion for Summary Judgment and To
Vacate the February 13, 1997, Partial Summary Judgment, as a result of the conclusion of
the FERC proceedings. On August 16, 2001, the Court granted Plaintiff's Motion to Continue
the Stay of these proceedings pending the proceedings in federal court.

On February 8, 2002, the parties reached an agreement in principle to
settle all pending litigation, subject to the federal district court adopting the findings
and conclusions of a court appointed Special Master that the Kinder Morgan entities acted
prudently in entering the settlement agreement and that the agreement was prudent, fair
and reasonable to Rocky Mountain Natural Gas Company and the Kinder Morgan entities'
customers/rate payers. On February 20, 2002, such findings were entered by the Special
Master, and on March 13, 2002 the federal court adopted those findings and stated that the
terms and conditions of the Settlement Agreement should be approved and the litigation
actions dismissed. All of the lawsuits between the parties were dismissed shortly
thereafter.

As part of the settlement agreement, Grynberg received $16.825 million
(including forgiveness of a $10.4 million obligation owing from Grynberg) for purchased
gas costs for gas delivered, and Rocky Mountain

14

---

Natural Gas Company agreed to seek to recover from its customers/rate
payers both that amount as well as an additional $15.625 million in purchased gas costs in
a proceeding before the Public Utilities Commission for the State of Colorado. The
proceeding before the Public Utilities Commission for the State of Colorado has not yet
been filed. In addition, Grynberg conveyed his interests in the Blue Gravel Field (the
natural gas producing property at issue in the litigation) to Rocky Mountain Natural Gas
Company for the benefit of its customers/rate payers.

Jack J. Grynberg v. K N Energy, Inc., Rocky Mountain Natural Gas
Company, and GASCO, Inc., Civil Action No. 92-N-2000. On October 9, 1992, Jack J.
Grynberg filed suit in the United States District Court for the District of Colorado
against us, Rocky Mountain Natural Gas Company and GASCO, Inc. alleging that these
entities, the K N Entities, as well as K N Production Company and K N Gas Gathering, Inc.,
have violated federal and state antitrust laws. In essence, Grynberg asserts that the
companies have engaged in an illegal exercise of monopoly power, have illegally denied him
economically feasible access to essential facilities to store, transport and distribute
gas, and illegally have attempted to monopolize or to enhance or maintain an existing
monopoly. Grynberg also asserts certain state causes of action relating to a gas purchase
contract. In February 1999, the Federal District Court granted summary judgment for the K
N Entities as to some of Grynberg's antitrust and state law claims, while allowing other
claims to proceed to trial. Grynberg has previously claimed damages in excess of $50
million. In addition to monetary damages, Grynberg has requested that the K N Entities be
ordered to divest all interests in natural gas exploration, development and production
properties, all interests in distribution and marketing operations, and all interests in
natural gas storage facilities, in order to separate these interests from our natural gas
gathering and transportation system in northwest Colorado. As described previously, the
parties settled this matter together with Jack J. Grynberg, individually and as general
partner for the Greater Green River Basin Drilling Program: 72-7*3* *v*.Rocky Mountain Natural Gas Company and K N Energy, Inc.,on the terms described above.

United States of America, ex rel., Jack J. Grynberg v. K N Energy, Civil
Action No. 97-D-1233, filed in the U.S. District Court, District of Colorado. This action
was filed on June 9, 1997 pursuant to the federal False Claim Act and involves allegations
of mismeasurement of natural gas produced from federal and Indian lands. The Department of
Justice has decided not to intervene in support of the action. The complaint is part of a
larger series of similar complaints filed by Mr. Grynberg against 77 natural gas pipelines
(approximately 330 other defendants). An earlier single action making substantially
similar allegations against the pipeline industry was dismissed by Judge Hogan of the U.S.
District Court for the District of Columbia on grounds of improper joinder and lack of
jurisdiction. As a result, Mr. Grynberg filed individual complaints in various courts
throughout the country. These cases were recently consolidated by the Judicial Panel for
Multidistrict Litigation, and transferred to the District of Wyoming. Motions to Dismiss
were filed and an oral argument on the Motion to Dismiss occurred on March 17, 2000. On
July 20, 2000 the United States of America filed a motion to dismiss those claims by
Grynberg that deal with the manner in which defendants valued gas produced from federal
leases. Judge Downes denied the defendant's motion to dismiss on May 18, 2001. The
defendants have sought reconsideration of this Order and have requested a status
conference.

Quinque Operating Company, et al. v. Gas Pipelines, et. al., Case
No. 99-1390-CM, United States District Court for the District of Kansas. This action was
originally filed on May 28, 1999 in Kansas state court in Stevens County, Kansas as a
class action against approximately 245 pipeline companies and their affiliates, including
certain Kinder Morgan entities. The plaintiffs in the case seek to have the Court certify
the case as a class action, a class of natural gas producers and fee royalty owners who
allege that they have been subject to systematic mismeasurement of natural gas by the
defendants for more than 25 years. Among other things, the plaintiffs allege a conspiracy
among the pipeline industry to under-measure gas and have asserted joint and several
liability against the defendants. Subsequently, one of the defendants removed the action
to Kansas Federal District Court. Thereafter, we filed a motion with the Judicial Panel
for Multidistrict Litigation to

15

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consolidate this action for pretrial purposes with the Grynberg False
Claim Act cases referred to above, because of common factual questions. On April 10, 2000,
the MDL Panel ordered that this case be consolidated with the Grynberg federal False
Claims Act cases. On January 12, 2001, the Federal District Court of Wyoming issued an
oral ruling remanding the case back to the State Court in Stevens County, Kansas. A case
management conference occurred in State Court in Stevens County, and a briefing schedule
was established for preliminary matters. Personal jurisdiction discovery has commenced.
Merits discovery has been stayed. Recently, the defendants filed a motion to dismiss on
grounds other than personal jurisdiction, and a motion to dismiss for lack of personal
jurisdiction for non-resident defendants.

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 claims
against several of our former officers and/or directors. Messrs. Rode and McDonald are
former principal shareholders of Interenergy Corporation. We acquired Interenergy on
December 19, 1997 pursuant to a Merger Agreement dated August 25, 1997. Rode and McDonald
allege that K N Energy committed securities fraud, common law fraud and negligent
misrepresentation as well as breach of contract. Rode and McDonald are seeking an
unspecified amount of compensatory damages, greater than $2 million, plus unspecified
exemplary or punitive damages, attorney's fees and their costs. We filed a motion to
dismiss, and on April 21, 2000, the Jefferson County District Court Judge dismissed the
case against the individuals and us with prejudice. On April 6, 2001, the Colorado Court
of Appeals affirmed the dismissal. Rode and McDonald also filed a federal securities fraud
action in the United States District Court for the District of Colorado on January 27,
2000 titled: James P. Rode and Patrick R. McDonald v. K N Energy, Inc., et al.,
Civil Action No. 00-N-190. This case initially raised the identical state law claims
contained in the counterclaim and third party complaint in state court. Rode and McDonald
filed an amended Complaint, which dropped the state-law claims. On June 20, 2000, the
federal district court dismissed this Complaint with prejudice. The district court's
dismissal 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 of
Colorado was served on us on April 10, 2000. As of this date no class has been certified.
On February 23, 2001, the federal district court dismissed several claims raised by the
plaintiff, with prejudice, and dismissed the remaining claims, without prejudice. On April
27, 2001, the Adams plaintiffs filed their second amended complaint. We have moved to
dismiss this complaint and the briefing on the motion is complete. On March 29, 2002, the
court dismissed the Adams plaintiffs' second amended complaint with prejudice.

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

See Note 10(B) of Notes to Consolidated Financial Statements of our
2001 Form 10-K for additional information regarding legal matters.

15.    Discontinued Operations

During 1999, we adopted and implemented a plan to discontinue a number
of lines of business. During 2000, we essentially completed the disposition of these
discontinued operations. The cash flows attributable to discontinued operations included
in the accompanying interim Statements of Consolidated Cash Flows under the caption
"Net Cash Flows Used in Discontinued Operations" result from cash activity
attributable to retained liabilities associated with these discontinued operations. The
caption "Net Cash Flows Provided By Discontinued Investing Activities," for the
three months ended March 31, 2001, includes cash received for

16

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discontinued operations sold during 2000. Note 7 of Notes to
Consolidated Financial Statements of our 2001 Form 10-K contains 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, which
superceded Accounting Principles Board Opinion No. 17, Intangible Assets, addresses
financial accounting and reporting for (i) intangible assets acquired individually or with
a group of other assets (but not those acquired in a business combination) at acquisition
and (ii) goodwill and other intangible assets subsequent to their acquisition. SFAS 142
was required to be applied in fiscal years beginning after December 15, 2001 and we
adopted it on January 1, 2002.

SFAS 142 provides that goodwill in each reporting unit must be tested
for impairment at the beginning of the fiscal year in which this statement is initially
applied in its entirety, and further provides that an entity has six months from the date
of initial application to complete the first step of that transitional goodwill impairment
test. 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 transitional
goodwill impairment test must be completed as soon as possible, but no later than the end
of the year of initial application. Any impairment loss recognized as a result of a
transitional goodwill impairment test will be recognized as the effect of a change in
accounting principle. The only goodwill we currently have recorded (approximately $23
million) relates to our third-quarter 1998 acquisition of interests in three independent
power plants from the Denver-based Thermo Companies.

In addition to the goodwill discussed above, we also have "equity
method goodwill" (approximately $1.03 billion as of December 31, 2001) as a result of
our third-quarter 1999 acquisition of Kinder Morgan Delaware, the indirect owner of the
general partner of and certain limited partner interests in Kinder Morgan Energy Partners.
This equity method goodwill, while subject to the provisions of SFAS 142 requiring that
amortization no longer be recorded, is not subject to the impairment provisions of SFAS
142 but, instead, continues to be subject to the impairment provisions of Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock, which provides that an impairment be recognized when there is a loss in
the value of an investment that is other than a temporary decline. We estimate that
implementation of SFAS 142 will result in a $0.12 per diluted common share reduction of
our amortization of intangible assets and goodwill in 2002, principally due to the
cessation of amortization of our equity-method goodwill, and providing that no goodwill
impairment is determined to be necessary.

17

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Had SFAS 142 been in effect prior to January 1, 2002, our reported net
income and earnings per share would have been as follows:

|                                | Three Months Ended
    March 31,           
|------------------------------- | -------------------------------------------
|                                | 2002                                       
|                                | (In thousands
    except per share amounts)
|Reported Net Income             | $ 88,388                                   
|Add Back: Goodwill Amortization | -                                          
|Adjusted Net Income             | $ 88,388                                   
|                                | ========                                   
|                                |                                            
|Basic Earnings Per Share:       |                                            
|Reported Net Income             | $   0.72                                   
|Goodwill Amortization           | -                                          
|Adjusted Net Income             | $   0.72                                   
|                                | ========                                   
|                                |                                            
|Diluted Earnings Per Share:     |                                            
|Reported Net Income             | $   0.71                                   
|Goodwill Amortization           | -                                          
|Adjusted Net Income             | $   0.71                                   
|                                | ========                                   
|                                |                                            

17.    Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset.
This Statement contains disclosure requirements that provide descriptions of asset
retirement obligations and reconciliations of changes in the components of those
obligations. This Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Earlier applications are encouraged. We have not yet
quantified the impacts of adopting this Statement on our financial position or results of
operations.

On April 30, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements, as well as SFAS No. 44, Accounting for Intangible Assets
of Motor Carriers. It also amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this Statement
related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after
May 15, 2002. The provisions related to the amendment to SFAS No. 13 shall be effective
for transactions occurring after May 15, 2002. All other provisions in this Statement
shall be effective for financial statements issued on or after May 15, 2002. Early
application of the provisions of this Statement is encouraged, and may be as of the
beginning of the fiscal year or as of the beginning of the interim period in which this
Statement is issued.

18

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

18.    Commitments and Contingent Liabilities

Note 19 of Notes to Consolidated Financial Statements included in our
2001 Form 10-K contains a discussion of our commitments and contingent liabilities as of
December 31, 2001. The contingent obligation discussed in Note 19(E) of our 2001 Form
10-K, the potential requirement to assume a $250 million note in conjunction with a power
plant facility, still exists as the closing of long-term, third-party financing by the
owner of the facility has not yet occurred.  The time period for closing this
financing, however, has been extended, and we expect the closing to occur in May 2002.

19

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

General

The following discussion should be read in conjunction with the
accompanying interim Consolidated Financial Statements and related Notes and the
Consolidated Financial Statements, related Notes and Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our 2001 Form 10-K. Due to
the seasonal variation in energy demand, among other factors, the following interim
results may not be indicative of the results to be expected for an entire year. In this
report Kinder Morgan Energy Partners, L.P., a publicly traded pipeline master limited
partnership in which we own the general partner interest and significant limited partner
interests, is referred to as "Kinder Morgan Energy Partners."

Consolidated Financial Results

|                                          | Three Months Ended March 31,                |  | Increase  
|----------------------------------------- | ------------------------------------------- |  | ----------
|                                          | 2002                                        |  | 2001      
|                                          | (In thousands
    except per share amounts)
|                                          |                                             |  |           
|Operating Revenues                        | $  291,401                                  |  | $  325,224
|                                          | ==========                                  |  | ==========
|Gross Margin                              | $  190,154                                  |  | $  191,916
|                                          | ==========                                  |  | ==========
|General and Administrative Expenses       | $   19,550                                  |  | $   16,308
|                                          | ==========                                  |  | ==========
|Operating Income                          | $  108,355                                  |  | $  112,422
|Other Income and (Expenses)               | 43,711                                      |  | (17,752)  
|Income Taxes                              | 63,678                                      |  | 37,868    
|Extraordinary Item - Loss on Early        |                                             |  |           
|Extinguishment of
    Debt, Net of Tax    | -                                           |  | (12,119)  
|Net Income                                | $   88,388                                  |  | $   44,683
|                                          | ==========                                  |  | ==========
|                                          |                                             |  |           
|Diluted Earnings (Loss) Per Common Share: |                                             |  |           
|Income Before Extraordinary Item          | $     0.71                                  |  | $     0.47
|Extraordinary Item - Loss on Early        |                                             |  |           
|Extinguishment of
    Debt                | -                                           |  | (0.10)    
|Total Diluted Earnings Per Common Share   | $     0.71                                  |  | $     0.37
|                                          | ==========                                  |  | ==========
|                                          |                                             |  |           

Total diluted earnings per common share increased from $0.37 in the
first quarter of 2001 to $0.71 in the first quarter of 2002, an increase of $0.34 (92%).
Excluding the effect of an extraordinary after-tax loss in 2001of $12.1 million, or $0.10
per diluted common share, diluted earnings per common share increased from $0.47 in the
first quarter of 2001 to $0.71 in the first quarter of 2002, an increase of $0.24 (51%).
Income before the extraordinary item was positively impacted in the first quarter of 2002,
compared to 2001, primarily by (i) increased equity in earnings of Kinder Morgan Energy
Partners due, in part, to the strong performance from the assets held by Kinder Morgan
Energy Partners and the cessation of amortization of excess investment ($4.3 million after
taxes was included in the results for the first quarter of 2001) due to the adoption of
SFAS No. 142 as discussed under "Recently Issued Accounting Standards" elsewhere
herein and in Note 16 of the accompanying Notes to Consolidated Financial Statements, (ii)
decreased interest expense and (iii) increased earnings from other equity investments.
These positive impacts were partially offset by (i) an increase in general and
administrative expenses, principally increased insurance expense and employee benefit and
compensation costs and (ii) increased income tax expense. The number of shares used to
calculate diluted earnings per share was approximately 3.5 million (2.9%) higher for the
first quarter of 2002 than the first quarter of 2001. The number of shares used to
calculate diluted earnings per share was impacted by, among other things, the November
2001 issuance of 13.4 million common shares upon the maturity of our Premium Equity
Participating Security Units. This increase in common shares was partially offset by our
share

20

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repurchase program, under which we repurchased 5.3 million shares in
2001 and an additional 1.9 million shares in the first quarter of 2002. In addition,
fluctuations in the market price of our stock affect the dilutive impact of our
outstanding common stock options.

Results of Operations

The following comparative discussion of our results of operations is by
segment for factors affecting segment earnings, and on a consolidated basis for other
factors.

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

|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 system                                                                                                                                      |  | Natural Gas Pipeline Company of America
|Retail 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 customers under the Choice Gas Program |  | Kinder Morgan Retail                   
|Power and Other                                                       | The construction and operation of natural gas-fired electric
    generation facilities, together with various other activities not constituting separately
    managed or reportable business segments                             |  | Power and Other                        

The accounting policies we apply in the generation of business segment
information are generally the same as those described in Note 1 of Notes to Consolidated
Financial 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 not
considered by management in its evaluation of business unit performance. An exception to
this is that Kinder Morgan Power, which routinely conducts its business activities in the
form of joint operations with other parties that are accounted for under the equity method
of accounting, includes its equity in earnings of these investees in its operating
results. These equity method earnings are included in "Other Income and
(Expenses)" in our Consolidated Statements of Income. In addition, (i) certain items
included in operating income (such as general and administrative expenses) are not
allocated to individual business segments and (ii) gains and losses from incidental sales
of assets are included in segment earnings. With adjustment for these items, we currently
evaluate business segment performance primarily based on operating income in relation to
the level of capital employed. We account for intersegment sales at market prices, while
we account for asset transfers at either market value or, in some instances, book value.
As necessary for comparative purposes, we have reclassified prior period results and
balances to conform to the current presentation.

21

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

Natural Gas Pipeline Company of America

|                                   | Three Months Ended March 31,                 |  | Increase
|---------------------------------- | -------------------------------------------- |  | --------
|                                   | 2002                                         |  | 2001    
|                                   | (In thousands
    except systems throughput)
|                                   |                                              |  |         
|Operating Revenues                 | $183,089                                     |  | $172,114
|                                   | ========                                     |  | ========
|Gross Margin                       | $139,977                                     |  | $136,228
|                                   | ========                                     |  | ========
|Segment Earnings                   | $ 95,618                                     |  | $ 93,882
|                                   | ========                                     |  | ========
|                                   |                                              |  |         
|Systems Throughput (Trillion Btus) | 397.9                                        |  | 399.0   
|                                   | ========                                     |  | ========
|                                   |                                              |  |         

Natural Gas Pipeline Company of America's segment earnings increased by
$1.7 million, or 1.8%, from the first quarter of 2001 to the first quarter of 2002.
Operating results for the first quarter of 2002 were positively affected, relative to the
same period in 2001, by increased margins from operational natural gas sales. The increase
in gross margin was partially offset by (i) increased expenses related to system right of
way costs, (ii) increased expenses related to the operations and maintenance of natural
gas storage facilities and (iii) increased ad-valorem taxes. Although systems throughput
decreased slightly in 2002, this reduction did not have any significant impact on revenues
due to the fact that transportation revenues are derived primarily from "demand"
contracts in which shippers pay a fee to reserve a set amount of system capacity for their
use.

We expect two major expansion projects will contribute additional
segment earnings for Natural Gas Pipeline Company of America. The Horizon Pipeline project
in Northern Illinois is nearing completion and we expect commercial operation to commence
in May 2002. Having received all necessary regulatory approvals and easements along
rights-of-way, Natural Gas Pipeline Company of America expects to begin construction, in
May 2002, of 51 miles of 24-inch diameter pipeline, extending its system into the
metropolitan east area of St. Louis, Missouri. We expect Natural Gas Pipeline Company of
America to commence operation of this pipeline extension in August 2002.

Kinder Morgan Retail

|                                    | Three Months Ended March 31,                 |  | Increase
|----------------------------------- | -------------------------------------------- |  | --------
|                                    | 2002                                         |  | 2001    
|                                    | (In thousands
    except systems throughput)
|                                    |                                              |  |         
|Total Operating Revenues            | $ 97,627                                     |  | $127,286
|                                    | ========                                     |  | ========
|Gross Margin                        | $ 40,580                                     |  | $ 37,620
|                                    | ========                                     |  | ========
|Segment Earnings                    | $ 24,858                                     |  | $ 23,537
|                                    | ========                                     |  | ========
|                                    |                                              |  |         
|Systems Throughput (Trillion Btus)1 | 13.5                                         |  | 14.8    
|                                    | ========                                     |  | ========
|                                    |                                              |  |         

1

22

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Kinder Morgan Retail's segment earnings increased from $23.5 million in
the first quarter of 2001 to $24.9 million in the first quarter of 2002, an increase of
$1.3 million (5.6%). The decrease of $29.7 million (23.3%) in operating revenues, from
$127.3 million in the first quarter of 2001 to $97.6 million in the first quarter of 2002,
is due to lower natural gas prices in 2002 (a component of the overall gas sales price)
and is offset by lower expenses for natural gas purchases. Gross margin increased from
$37.6 million in the first quarter of 2001 to $40.6 million in the first quarter of 2002,
an increase of $3.0 million (7.9%). The increase in gross margin is primarily due to (i)
revenues derived from the acquisition of natural gas distribution facilities, as described
in the following paragraph and (ii) the addition of new customers in our existing service
territories. Although system throughput volumes decreased by approximately 9 percent, the
effects of this decrease were mitigated by our weather-hedging program, which is designed
to reduce weather-related volatility of earnings and cash flows. The increase in gross
margins was partially offset by additional operating expenses incurred to operate the new
facilities.

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

Power and Other

|                         | Three Months Ended March 31, |  | Increase
|------------------------ | ---------------------------- |  | --------
|                         | 2002                         |  | 2001    
|                         | (In
    thousands)          
|                         |                              |  |         
|Total Operating Revenues | $ 10,685                     |  | $ 27,899
|                         | ========                     |  | ========
|Gross Margin             | $  9,597                     |  | $ 18,068
|                         | ========                     |  | ========
|Segment Earnings         | $  9,740                     |  | $  9,617
|                         | ========                     |  | ========
|                         |                              |  |         

First quarter 2002 results for this segment include only the results of
our Power business unit. Operating results of the Power and Other segment for the first
quarter of 2001 include $18.3 million of revenue, $9.8 million of gross margin and $5.7
million of segment earnings resulting from our agreements with Kerr-McGee Gathering LLC
(formerly HS Resources, Inc.), which agreements concluded upon the sale of our Wattenberg
natural gas facilities to Kerr-McGee in the fourth quarter of 2001. Excluding the
Wattenberg facilities, segment revenue increased by $1.1 million, gross margin increased
by $1.3 million and segment earnings increased by $5.8 million from the first quarter of
2001 to the first quarter of 2002. Segment earnings for the first quarter of 2002 were
positively impacted, relative to the first quarter of 2001, by (i) increased equity in
earnings of Thermo Cogeneration Partnership resulting from lower natural gas costs, (ii)
increased power plant development fees and (iii) decreased amortization charges as a
result of newly adopted rules regarding amortization of goodwill (see "Recently
Issued Accounting Standards" elsewhere herein and Note 16 of the accompanying Notes
to Consolidated Financial Statements). These positive results were partially offset by
increased operations and maintenance expenses related to power plant site development.

The construction of the Wrightsville, Arkansas and Jackson, Michigan
power plants is expected to be completed during the second quarter of 2002. Given (i) the
lengthy development phase, including the lengthy and uncertain permitting process that
precedes actual construction of a power generation facility and (ii) the impact that
projections of future electrical demand and pricing can have on the desirability, timing
and locations for

23

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new power plant development, we are not forecasting the development of
any additional power plants in 2002. Please refer to our 2001 Form 10-K for additional
information regarding Power and Other.

Other Income and (Expenses)

|                                                         | Three Months Ended March 31, |  | Earnings 
|-------------------------------------------------------- | ---------------------------- |  | ---------
|                                                         | 2002                         |  | 2001     
|                                                         | (In
    thousands)          
|                                                         |                              |  |          
|Interest Expense, Net                                    | $(39,548)                    |  | $(58,287)
|Equity in Earnings of Kinder Morgan Energy
    Partners: |                              |  |          
|Equity in Earnings                                       | 90,091                       |  | 55,037   
|Amortization of
    Excess Investment                    | -                            |  | (6,951)  
|Equity in Earnings (Losses) of Power
    Segment         | 2,311                        |  | (1,757)  
|Other Equity in Earnings (Losses)                        | 61                           |  | (3,122)  
|Minority Interests                                       | (12,777)                     |  | (5,645)  
|Other, Net                                               | 3,573                        |  | 2,973    
|                                                         | $ 43,711                     |  | $(17,752)
|                                                         | ========                     |  | ======== 
|                                                         |                              |  |          

"Other Income and (Expense)" was a net decrease to earnings
of $17.8 million in the first quarter of 2001 and a net increase to earnings of $43.7
million in the first quarter of 2002. This positive change of $61.5 million is principally
due to: (i) an increase of $35.1 million in equity in earnings of Kinder Morgan Energy
Partners before amortization of excess investment (see Note 13 of the accompanying Notes
to Consolidated Financial Statements), (ii) an increase of $7.0 million due to the
elimination, as of January 1, 2002, of amortization related to the excess investment in
Kinder Morgan Energy Partners (see "Recently Issued Accounting Standards"
elsewhere herein and Note 16 of the accompanying Notes to Consolidated Financial
Statements), (iii) a decrease of $18.7 million in net interest expense in the first
quarter of 2002, reflecting reduced interest rates and reduced debt outstanding, and (iv)
an increase of $7.3 million from equity in earnings of equity method investees,
principally Thermo Cogeneration Partnership (note that we also include results from Thermo
Cogeneration Partnership in our Power and Other segment) and TransColorado Gas
Transmission Company. These favorable impacts were partially offset by an increase of $7.1
million in expense due to minority interest in the first quarter of 2002, due principally
to the inclusion of the minority interest in Kinder Morgan Management, LLC (see Note 2 of
the accompanying Notes to Consolidated Financial Statements).

Income Taxes

|                     | Three
    Months Ended March 31, |  | Increase
|-------------------- | -------------------------------- |  | --------
|                     | 2002                             |  | 2001    
|                     | (In
    thousands)              
|                     |                                  |  |         
|Income Tax Provision | $ 63,678                         |  | $ 37,868
|                     | ========                         |  | ========
|Effective Tax Rate   | 41.9%                            |  | 40.0%   
|                     | ========                         |  | ========
|                     |                                  |  |         

The increase of $25.8 million in the income tax provision for the first
quarter of 2002 over the first quarter of 2001 is principally the result of an increase of
$57.4 million in income before income taxes and extraordinary items. The increase in the
effective tax rate for the first quarter of 2002, in comparison with the first quarter of
2001, is due primarily to the impact on the effective tax rate of recording the minority
interest in the earnings of Kinder Morgan Management, LLC on an after-tax basis.

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Discontinued Operations

During 1999, we adopted and implemented a plan to discontinue a number
of lines of business. During 2000, we essentially completed the disposition of these
discontinued operations. The cash flow impacts associated with discontinued operations are
discussed under "Cash Flows" following. Note 15 of the accompanying Notes to
Consolidated Financial Statements contains additional information on these matters.

Liquidity and Capital Resources

The following table gives the sources of our invested capital. The
balances at December 31, 2000 and thereafter reflect the transfer of certain assets to
Kinder Morgan Energy Partners effective as of that date, while the balances at December
31, 2001 and March 31, 2002 also reflect the May 2001 sale of shares of Kinder Morgan
Management, LLC in a public offering. In addition to our results of operations, which
affect the amount of cash we generate internally, financing activities such as (i)
retirement of debt securities, (ii) the November 2001 maturity of our premium equity
participating security units and (iii) reacquisition of our common stock under our $400
million stock repurchase program impact these balances in various periods. Additional
information on these matters is contained under "Cash Flows" following and in
Note 7 of the accompanying Notes to Consolidated Financial Statements.

The discussion under "Liquidity and Capital Resources" in
Management's Discussion and Analysis of Financial Condition and Results of Operations
included in our 2001 Form 10-K includes a comprehensive discussion of (i) our investments
in and obligations to unconsolidated entities, (ii) our contractual obligations and (iii)
our contingent liabilities. The contingent obligation discussed in Note 19(E) of our 2001
Form 10-K, the potential requirement to assume a $250 million note in conjunction with a
power plant facility, still exists as the closing of long-term, third-party financing by
the owner of the facility has not yet occurred.  The time period for closing this
financing, however, has been extended, and we expect the closing to occur in May 2002.

|                                                    | March 31,                  |  | December 31,
|--------------------------------------------------- | -------------------------- |  | ------------
|                                                    | 2002                       |  | 2001        
|                                                    | (Dollars in
    thousands)
|                                                    |                            |  |             
|Long-term Debt                                      | $ 1,883,760                |  | $ 2,404,967 
|Minority Interests                                  | 822,577                    |  | 817,513     
|Common Equity                                       | 2,255,889                  |  | 2,259,997   
|Capital Trust Securities                            | 275,000                    |  | 275,000     
|Capitalization                                      | 5,237,226                  |  | 5,757,477   
|Short-term Debt, Less Cash and Cash
    Equivalents | 1,256,366                  |  | 613,918     
|Invested Capital                                    | $ 6,493,592                |  | $ 6,371,395 
|                                                    | ===========                |  | =========== 
|                                                    |                            |  |             
|Capitalization:                                     |                            |  |             
|Long-term Debt                                      | 36.0%                      |  | 41.8%       
|Minority Interests                                  | 15.7%                      |  | 14.2%       
|Common Equity                                       | 43.1%                      |  | 39.2%       
|Capital Trust
    Securities                        | 5.2%                       |  | 4.8%        
|                                                    |                            |  |             
|Invested Capital:                                   |                            |  |             
|Total Debt                                          | 48.4%                      |  | 47.4%       
|Equity and Minority
    Investments,                |                            |  |             
|Including
    Capital Trust Securities              | 51.6%                      |  | 52.6%       
|                                                    |                            |  |             

On August 14, 2001, we announced a program to repurchase $300 million
of our outstanding common stock. On February 5, 2002, we announced that our Board of
Directors had approved expanding the program to a total

25

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of $400 million. As of March 31, 2002, we had repurchased a total of
approximately $362.6 million (7,177,000 shares) of our outstanding common stock under the
program, of which $92.2 million (1,882,200 shares) was repurchased in the first quarter of
2002.

In May 2001, Kinder Morgan Management, LLC, one of our indirect
subsidiaries, issued and sold 29,750,000 limited liability shares (after adjustment for
the stock split discussed following) in an underwritten initial public offering, with
2,975,000 of the shares purchased by Kinder Morgan, Inc. The net proceeds from the
offering were used by Kinder Morgan Management to buy i-units from Kinder Morgan Energy
Partners for $991.9 million. Upon purchase of the i-units, Kinder Morgan Management became
a partner in Kinder Morgan Energy Partners and was delegated by Kinder Morgan Energy
Partners' general partner the responsibility to manage and control the business and
affairs of Kinder Morgan Energy Partners. The i-units are a class of Kinder Morgan Energy
Partners' limited partner interests that have been, and will be, issued only to Kinder
Morgan Management. As discussed in our 2001 Form 10-K, we have certain rights and
obligations with respect to these securities, including an obligation to, upon
presentation by the holder, exchange the Kinder Morgan Management shares for Kinder Morgan
Energy Partners' common units that we own or cash (at our option). As of March 31, 2002,
approximately 2.9 million Kinder Morgan Management shares had been exchanged for Kinder
Morgan Energy Partners' common units, with approximately 68,000 of these exchanges having
occurred in the first quarter of 2002. At March 31, 2002, Kinder Morgan, Inc. owned
approximately 6.1 million (19.7%) of Kinder Morgan Management's outstanding shares,
including the only two voting shares.

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

On February 14, 2002, Kinder Morgan Management paid a share
distribution of 453,970 of its shares to shareholders of record as of January 31, 2002,
based on the $0.55 per common unit distribution declared by Kinder Morgan Energy Partners.
On May 15, 2002, Kinder Morgan Management will pay a share distribution of an aggregate of
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. These
distributions are paid in the form of additional shares or fractions thereof based on the
average market price of a share determined for a ten-trading day period ending on the
trading day immediately prior to the ex-dividend date for the shares.

CASH FLOWS

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

Net Cash Flows from Operating Activities

"Net Cash Flows Provided by Operating Activities" decreased
from $110.3 million in the first quarter of 2001 to $100.3 million in the first quarter of
2002, a decrease of $10.0 million (9.1%). This decrease reflects an increase of $7.4
million in 2002 income before an extraordinary item, as adjusted to reflect the cash
earnings impact of equity in earnings of Kinder Morgan Energy Partners, which positive
variance was more than offset by increases of $9.4 million and $8.4 million in cash paid
for income taxes and purchased gas costs,

26

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respectively, in the first quarter of 2002. Other miscellaneous
changes, including working capital, were essentially offsetting.

Net Cash Flows from Investing Activities

"Net Cash Flows Used in Investing Activities" increased from
$16.3 million in the first quarter of 2001 to $61.1 million in the first quarter of 2002,
an increase of $44.8 million. This increase is principally due to the fact that the first
quarter of 2001 included a $15 million cash outflow for acquisitions, offset by (i) an
increase of $22.5 million in capital expenditures, (ii) an increase of $10.5 million of
cash outflows for other investments, principally power plant development investments and
(iii) the fact that the first quarter of 2001 included $25.7 million of proceeds from
discontinued operations sold during 2000.

Net Cash Flows from Financing Activities

"Net Cash Flows Used in Financing Activities" decreased from
$222.2 million in the first quarter of 2001 to $43.6 million in the first quarter of 2002,
a decrease of $178.6 million. This decrease is principally due to the net effects of the
fact that the first quarter of 2001 included a $448.5 million cash outflow for the early
extinguishment of two series of debt securities (see Note 7 of the accompanying Notes to
Consolidated Financial Statements), partially offset by (i) a $134.5 million decrease in
net cash provided from the issuance of short-term debt, (ii) $94.4 million of cash used
during the first quarter of 2002 to repurchase a portion of our outstanding common stock
and (iii) an increase in cash outflows for other financing principally attributable to
temporary changes caused by the timing of inflows and outflows resulting from cash
management and hedging functions performed on behalf of Kinder Morgan Energy Partners.

Our principal sources of short-term liquidity are our revolving bank
facilities totaling $900 million. At March 31, 2002, we had $561.8 million of commercial
paper (which is backed by the bank facilities) issued and outstanding. The corresponding
amount outstanding was $675.4 million at April 30, 2002. After inclusion of applicable
letters of credit, the remaining available borrowing capacity under the bank facilities
was $322.5 million and $208.9 million at March 31, 2002 and April 30, 2002, respectively.
For additional information on utilization of these facilities, see Note 7 of the
accompanying Notes to Consolidated Financial Statements.

In March 2001, we retired (i) our $400 million of Reset Put Securities
due March 1, 2021 and (ii) our $20 million of 9.95% Series Sinking Fund Debentures due
2020, utilizing a combination of cash and incremental short-term debt. In conjunction with
these 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 the
accompanying interim Consolidated Statement of Income for the three months ended March 31,
2001.

On April 17, 2002, our Board of Directors approved a common stock
dividend of $0.05 per share payable on May 15, 2002 to shareholders of record as of April
30, 2002.

Recently Issued Accounting Standards

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, which
superceded Accounting Principles Board Opinion No. 17, Intangible Assets, addresses
financial accounting and reporting for (i) intangible assets acquired individually or with
a group of other assets (but not those acquired in a business combination) at acquisition
and (ii) goodwill and other intangible assets subsequent to their acquisition. SFAS 142
was required to be applied starting with fiscal years beginning after December 15, 2001
and we adopted it on January 1, 2002.

27

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SFAS 142 provides that goodwill in each reporting unit must be tested
for impairment at the beginning of the fiscal year in which this statement is initially
applied in its entirety, and further provides that an entity has six months from the date
of initial application to complete the first step of that transitional goodwill impairment
test. 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 transitional
goodwill impairment test must be completed as soon as possible, but no later than the end
of the year of initial application. Any impairment loss recognized as a result of a
transitional goodwill impairment test will be recognized as the effect of a change in
accounting principle. The only goodwill we currently have recorded (approximately $23
million) relates to our third-quarter 1998 acquisition of interests in three independent
power plants from the Denver-based Thermo Companies.

In addition to the goodwill discussed above, we also have "equity
method goodwill" (approximately $1.03 billion as of December 31, 2001) as a result of
our third-quarter 1999 acquisition of Kinder Morgan Delaware, the indirect owner of the
general partner of and certain limited partner interests in Kinder Morgan Energy Partners.
This equity method goodwill, while subject to the provisions of SFAS 142 requiring that
amortization no longer be recorded, is not subject to the impairment provisions of SFAS
142 but, instead, continues to be subject to the impairment provisions of Accounting
Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock, which provides that an impairment be recognized when there is a loss in
the value of an investment that is other than a temporary decline. We estimate that
implementation of SFAS 142 will result in a $0.12 per diluted common share reduction of
our amortization of intangible assets and goodwill in 2002, principally due to the
cessation of amortization of our equity-method goodwill, and providing that no goodwill
impairment is determined to be necessary.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the long-lived asset.
This Statement contains disclosure requirements that provide descriptions of asset
retirement obligations and reconciliations of changes in the components of those
obligations. This Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Earlier applications are encouraged. We have not yet
quantified the impacts of adopting this Statement on our financial position or results of
operations.

On April 30, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt and SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements, as well as SFAS No. 44, Accounting for Intangible Assets
of Motor Carriers. It also amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic effects
that are similar to sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this Statement
related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after
May 15, 2002. The provisions related to the amendment to SFAS No. 13 shall be effective
for transactions occurring after May 15, 2002. All other provisions in this Statement
shall be effective for financial statements issued on or after May 15, 2002. Early
application of the provisions of this Statement is encouraged, and may be as of the
beginning of the fiscal year or as of the beginning of the interim period in which this
Statement is issued.

28

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

Information Regarding Forward-looking Statements

This filing includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These forward-looking statements are identified as any statement that does not
relate strictly to historical or current facts. They use words such as
"anticipate," "believe," "intend," "plan,"
"projection," "forecast," "strategy," "position,"
"continue," "estimate," "expect," "may,"
"will," or the negative of those terms or other variations of them or by
comparable terminology. In particular, statements, express or implied, concerning future
operating results or the ability to generate sales, income or cash flow are
forward-looking statements. Forward-looking statements are not guarantees of performance.
They involve risks, uncertainties and assumptions. The future results of our operations
may differ materially from those expressed in these forward-looking statements. Many of
the factors that will determine these results are beyond our ability to control or
predict. Specific factors that could cause actual results to differ from those in the
forward-looking statements include but are not limited to the following:

| | price trends, stability and overall demand
    for natural gas and electricity in the United States; economic activity, weather,
    alternative energy sources, conservation and technological advances that may affect price
    trends and demand;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | national, international, regional and
    local economic, competitive and regulatory conditions and developments;                                                                                                                                    
| | the various factors which affect Kinder
    Morgan Energy Partners' ability to maintain or increase its level of earnings and
    distributions;                                                                                                     
| | our ability to integrate any acquired
    operations into our existing operations;                                                                                                                                                                   
| | changes in laws or regulations,
    third-party relationships and approvals, decisions of courts, regulators and governmental
    bodies that may affect our business or our ability to compete;                                                     
| | our ability to achieve cost savings and
    revenue growth;                                                                                                                                                                                          
| | conditions in capital markets;                                                                                                                                                                                                                       
| | rates of inflation;                                                                                                                                                                                                                                  
| | interest rates;                                                                                                                                                                                                                                      
| | political and economic stability of oil
    producing nations;                                                                                                                                                                                       
| | the pace of deregulation of retail natural
    gas and electricity;                                                                                                                                                                                  
| | 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.

29

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Item
3.  Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes in market risk exposures that would
affect the quantitative and qualitative disclosures presented as of December 31, 2001, in
the "Risk Management" section of Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in our 2001 Form 10-K. See also
Note 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 to
Consolidated Financial Statements in Part I, Item 1, which is incorporated herein by
reference.

Item
2.  Changes in Securities and Use of Proceeds.

During the quarter ended March 31, 2002, we did not sell any equity
securities that were not registered under the Securities Act of 1933, as amended.

Item
3.  Defaults Upon Senior Securities.

None.

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

None.

Item 5.  Other Information.

None.

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

| | (A)     Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (B)     Reports on
    Form 8-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Pursuant to Item 9. of that form, Kinder Morgan, Inc. announced its intention to make
    presentations on January 17, 2002 to analysts 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.                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

31

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SIGNATURE

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

|             | KINDER MORGAN, INC.
    (Registrant)                                                                          
|------------ | --------------------------------------------------------------------------------------------------------------
|May 10, 2002 | /s/ C.
    Park Shaper                                                                                        
|             | C. Park Shaper
    Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)

32

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