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Kinder Morgan, Inc. Increases Quarterly Dividend To $0.32 Per Share

Shareholder Votes

On March 9, El Paso shareholders overwhelmingly approved the KMI-El Paso merger, with more than 95 percent of the shares that voted cast in favor of the transaction. KMI shareholders approved the transaction on March 2 with all shares that voted cast in favor of the transaction.

Sale of Exploration and Production Assets

In late February, El Paso entered into a definitive agreement to sell its exploration and production business, EP Energy Corporation (EP Energy), for approximately $7.15 billion to affiliates of Apollo Global Management, LLC and Riverstone Holdings, LLC, who are joined by Access Industries, Inc. and other parties. The sale of EP Energy, which is dependent upon completion of the KMI-El Paso transaction and customary closing conditions, is also expected to close about the same time as that transaction. As previously announced, El Paso’s net operating loss carryforwards will largely offset taxes associated with the sale of the exploration and production business, and thus almost the entire proceeds from this sale will be used to reduce substantially the debt borrowed by KMI to fund the cash portion of its purchase of El Paso.

Kinder Morgan, Inc. (NYSE: KMI) is a leading pipeline transportation and energy storage company in North America. It owns an interest in or operates more than 38,000 miles of pipelines and approximately 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO 2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel. KMI owns the general partner interest of Kinder Morgan Energy Partners, L.P. (NYSE: KMP), one of the largest publicly traded pipeline limited partnerships in America, along with limited partner interest in KMP and Kinder Morgan Management, LLC (NYSE: KMR). It also operates and owns a 20 percent interest in Natural Gas Pipeline Company of America. Combined, KMI, KMP and KMR constitute the largest midstream energy entity in the United States with an enterprise value of over $65 billion. For more information please visit www.kindermorgan.com.

Please join Kinder Morgan at 4:30 p.m. Eastern Time on Wednesday, April 18, at www.kindermorgan.com for a LIVE webcast conference call on the company’s first quarter earnings.

The non-generally accepted accounting principles, or non-GAAP, financial measure of cash available to pay dividends is presented in this news release. This non-GAAP financial measure should not be considered as an alternative to a GAAP measure such as net income or any other GAAP measure of liquidity or financial performance. Cash available to pay dividends is a significant metric used by us and by external users of our financial statements, such as investors, research analysts, commercial banks and others, to compare basic cash flows generated by us to the cash dividends we expect to pay our shareholders on an ongoing basis. Management uses this metric to evaluate our overall performance. Cash available to pay dividends is also an important non-GAAP financial measure for our shareholders because it serves as an indicator of our success in providing a cash return on investment. This financial measure indicates to investors whether or not we typically are generating cash flow at a level that can sustain or support an increase in the quarterly dividends we are paying. Our dividend policy provides that, subject to applicable law, we will pay quarterly cash dividends generally representing the cash we receive from our subsidiaries less any cash disbursements and reserves established by our board of directors. Cash available to pay dividends is also a quantitative measure used in the investment community because the value of a share of an entity like KMI that pays out all or a substantial proportion of its cash flow, is generally determined by the dividend yield (which in turn is based on the amount of cash dividends the corporation pays to its shareholders). The economic substance behind our use of cash available to pay dividends is to measure and estimate the ability of our assets to generate cash flows sufficient to pay dividends to our investors.

We believe the GAAP measure most directly comparable to cash available to pay dividends is income from continuing operations. A reconciliation of cash available to pay dividends to income from continuing operations is provided in this release. Our non-GAAP measure described above should not be considered as an alternative to GAAP net income and has important limitations as an analytical tool. Our computation of cash available to pay dividends may differ from similarly titled measures used by others. You should not consider this non-GAAP measure in isolation or as a substitute for an analysis of our results as reported under GAAP. Management compensates for the limitations of this non-GAAP measure by reviewing our comparable GAAP measures, understanding the differences between the measures and taking this information into account in its analysis and its decision making processes.

This news release 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. Although Kinder Morgan believes that its expectations are based on reasonable assumptions, it can give no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include those enumerated in Kinder Morgan’s Forms 10-K and 10-Q as filed with the Securities and Exchange Commission.

   
Kinder Morgan, Inc. and Subsidiaries
Preliminary Cash Available to Pay Dividends
(Non-GAAP, Unaudited)
(In millions)
 
Three Months Ended March 31,
2012 2011
KMP distributions to us
From ownership of general partner interest (1) $ 331 $ 290
On KMP units owned by us (2) 26 25
On KMR shares owned by us (3)   17     15  
Total KMP distributions to us (4) 374 330
NGPL's cash available for distribution to us (4)   11     14  
 
Total cash generated 385 344
General and administrative expenses and sustaining capital expenditures (3 ) (2 )
Interest expense   (77 )   (75 )
 
Cash available to pay dividends before cash taxes 305 267
Cash taxes   (2 )   -  
 
Cash available to pay dividends (4) $ 303   $ 267  
 

Notes

(1)   Based on (i) Kinder Morgan Energy Partners, L.P. (KMP) distributions of $1.20 and $1.14 per common unit declared for the first quarter of 2012 and 2011, respectively, (ii) 339.7 million and 318.9 million aggregate common units, Class B units and i-units estimated to be outstanding as of April 30, 2012 and outstanding as of April 29, 2011, respectively, and (iii) waived incentive distributions of $6.2 million and $7.1 million for the first quarter 2012 and 2011, respectively. In conjunction with KMP's acquisition of its initial 50% interest in May 2010, and subsequently, the remaining 50% interest in May 2011 of KinderHawk, we as general partner have agreed to waive a portion of our incentive distributions related to this investment from the first quarter of 2010 through the first quarter of 2013.
(2) Based on 21.7 million KMP units owned by us multiplied by the KMP per unit distribution declared, as outlined in footnote (1) above.
(3) Assumes that we sold the Kinder Morgan Management, LLC (KMR) shares that we estimate to be received as distributions for the three months ended March 31, 2012 and received as distributions for the three months ended March 31, 2011, respectively. We did not sell any KMR shares in the first three months of 2011 or 2012. We intend periodically to sell the KMR shares we receive as distributions to generate cash.
(4) 2011 KMP distributions to us have been restated to a declared basis and NGPL amounts have been restated to a cash available basis to be consistent with the 2012 presentation.
   
Kinder Morgan, Inc. and Subsidiaries
Preliminary Consolidated Statement of Income
(Unaudited)
(In millions, except per share amounts)
 
 
Three Months Ended March 31,
2012 2011
 
Revenues $ 1,857   $ 1,932  
 
Costs, expenses and other
Operating expenses 886 1,091
Depreciation, depletion and amortization 274 250
General and administrative 129 180
Taxes, other than income taxes 50 46
Other expense (income)   2     -  
  1,341     1,567  
 
Operating income 516 365
 
Other income (expense)
Earnings from equity investments 65 50
Amortization of excess cost of equity investments (2 ) (2 )
Interest, net (179 ) (169 )
Other, net   1     2  
 
Income before income taxes 401 246
 
Income tax expense   (96 )   (96 )
 
Income from continuing operations 305 150
 
Income from discontinued operations 50 51
Loss on remeasurement to fair value of discontinued operations   (428 )   -  
(Loss) income from discontinued operations   (378 )   51  
 
Net income (73 ) 201
 
Net loss (income) attributable to noncontrolling interests   94     (46 )
 
Net income attributable to KMI $ 21   $ 155  
 
Class P Shares
Basic Earnings Per Common Share From Continuing Operations (1) (2) $ 0.23 $ 0.11
Basic (Loss) Earnings Per Common Share From Discontinued Operations (1)   (0.20 )   0.01  
Total Basic Earnings Per Common Share $ 0.03   $ 0.12  
 
Class A Shares
Basic Earnings Per Common Share From Continuing Operations (1) (2) $ 0.21 $ 0.11
Basic (Loss) Earnings Per Common Share From Discontinued Operations (1)   (0.20 )   0.01  
Total Basic Earnings Per Common Share $ 0.01   $ 0.12  
 
Basic Weighted Average Number of Shares Outstanding
Class P Shares   171     111  
Class A Shares   536     596  
 
Class P Shares
Diluted Earnings Per Common Share From Continuing Operations (1) (2) $ 0.23 $ 0.11
Diluted (Loss) Earnings Per Common Share From Discontinued Operations (1)   (0.20 )   0.01  
Total Diluted Earnings per Common Share $ 0.03   $ 0.12  
 
Class A Shares
Diluted Earnings Per Common Share From Continuing Operations (1) (2) $ 0.21 $ 0.11
Diluted (Loss) Earnings Per Common Share From Discontinued Operations (1)   (0.20 )   0.01  
Total Diluted Earnings per Common Share $ 0.01   $ 0.12  
 
Diluted Weighted Average Number of Shares Outstanding
Class P Shares   708     707  
Class A Shares   536     596  
 
Declared dividend per share (3) $ 0.32   $ 0.14  
 

Notes

(1)   March 31, 2011 earnings for the first quarter exclude $71 million of Members' interest in net income prior to Kinder Morgan, Inc.'s (KMI) Initial Public Offering, $67 million of which has been allocated to continuing operations and $4 million of which has been allocated to discontinued operations.
(2)

The Class A shares earnings per share as compared to the Class P shares earnings per share has been reduced by the dividend paid to the Class B on February 15, 2012.

(3) March 31, 2011 dividend per share was prorated for the portion of the first quarter KMI was a public company ($0.14 per share). If KMI had been a public company for the entire first quarter of 2011, the declared dividend would have been $0.29 per share.
   
Kinder Morgan, Inc. and Subsidiaries
Preliminary Reconciliation of Cash Available to Pay Dividends to Income from Continuing Operations
Including an Interim Capital Transaction
(Unaudited)
(In millions)
 
Three Months Ended March 31,
2012 2011
Income from continuing operations (1) $ 305 $ 150
Income from discontinued operations (1) 50 51
Depreciation, depletion and amortization (2) 281 256
Amortization of excess cost of investments (1) 2 2
Earnings from equity investments (2) (87 ) (68 )
Distributions from equity investments 80 64
Distributions from equity investments in excess of cumulative earnings 48 84
KMP certain items (3) 4 88
KMI purchase accounting (4) 4 (4 )
Difference between cash and book taxes 89 93
Difference between cash and book interest expense for KMI (36 ) (33 )
Sustaining capital expenditures (5) (44 ) (36 )
KMP declared distribution on its limited partner units owned by the public (6) (364 ) (324 )
Other (7)   (29 )   (56 )
 
Cash available to pay dividends (8) $ 303   $ 267  
           

Notes

(1)  

Consists of the corresponding line items in the preceding PreliminaryUnaudited Consolidated Statement of Income.

(2) Consists of the following: Three Months Ended March 31,
2012 2011
Depreciation, depletion and amortization from continuing operations $ 274   $ 250  
Depreciation, depletion and amortization from discontinued operations $ 7   $ 6  
Income from equity investments from continuing operations $ (65 ) $ (50 )
Income from equity investments from discontinued operations $ (22 ) $ (18 )
(3)   Consists of items such as hedge ineffectiveness, legal and environmental reserves, gain/loss on sale, insurance proceeds from casualty losses, and asset disposition expenses. First quarter of 2011 also includes KMP's portion ($87 million) of a $100 million special bonus expense for non-senior employees, which KMP is required to recognize in accordance with U.S. generally accepted accounting principles. However, KMP has no obligation, nor did it pay any amounts in respect to such bonuses. The cost of the $100 million special bonus to non-senior employees was not borne by our Class P shareholders. In May of 2011 we paid for the $100 million of special bonuses, which included the amounts allocated to KMP, using $64 million (after-tax) in available earnings and profits reserved for this purpose and not paid in dividends to our Class A shareholders. KMP adds back these certain items in its calculation of distributable cash flow used to determine its distribution. For more information, see KMP's 1st Quarter 2012 Earnings Release filed on Form 8-K with the SEC on April 18, 2012.
(4) Consists of non-cash purchase accounting adjustments related to the Going Private Transaction primarily associated with non-cash income recognized from the revaluation of KMP’s interest rate swap agreements, and in the first quarter of 2011 KMP's crude hedges.
(5) We define sustaining capital expenditures as capital expenditures that do not expand the capacity of an asset.
(6) Declared distribution multiplied by limited partner units outstanding on the applicable record date less units owned by us. Includes distributions on KMR shares. KMP must generate the cash to cover the distributions on the KMR shares, but those distributions are paid in additional shares and KMP retains the cash. We do not have access to that cash.
(7)

Consists of items such as timing and other differences between earnings and cash, KMP's cash flow in excess of its distributions and KMI certain items, which includes for the first quarter of 2011, KMI's portion ($13 million) of the special bonus as described in footnote (3) above.

(8) 2011 KMP distributions to us have been restated to a declared basis and NGPL amounts have been restated to a cash available basis to be consistent with the 2012 presentation.
     
Kinder Morgan, Inc. and Subsidiaries
Preliminary Consolidated Balance Sheet
(Unaudited)
(In millions)
 
March 31, December 31,
2012 2011
ASSETS
 
Cash and cash equivalents - KMI $ 3 $ 2
Cash and cash equivalents - KMP 491 409
Other current assets 3,408 1,252
Property, plant and equipment, net - KMI 2,388 2,330
Property, plant and equipment, net - KMP 14,916 15,596
Investments - KMI 398 398
Investments - KMP 1,782 3,346
Goodwill - KMI 3,473 3,637
Goodwill - KMP 1,356 1,437
Deferred charges and other assets   2,155     2,310  
TOTAL ASSETS $ 30,370   $ 30,717  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Liabilities
Short-term debt:
KMI (1) $ 1,235 $ 1,261
KMP 891 1,638
Other current liabilities 1,582 1,630
Long-term debt:
KMI (2) 1,948 1,945
KMP 12,156 11,160
Preferred interest in general partner of KMP 100 100
Value of interest rate swaps 1,026 1,151
Deferred income taxes 2,239 2,199
Other long-term liabilities   1,071     1,065  
Total liabilities   22,248     22,149  
 
Shareholders' Equity
Accumulated other comprehensive loss (128 ) (115 )
Other shareholders' equity   3,244     3,436  
Total KMI equity 3,116 3,321
Noncontrolling interests   5,006     5,247  
Total shareholders' equity   8,122     8,568  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 30,370   $ 30,717  
 
KMI's debt, net of its cash and cash equivalents (3) $ 3,210 $ 3,236
 
Cash available from KMP and NGPL (4) $ 1,441 $ 1,400
 
Debt to Cash Available 2.2 2.3
 

Notes

(1)   December 31, 2011 amount includes $1 million for an allocation of purchase accounting adjustments associated with our 2007 Going Private Transaction.
(2) Amounts include ($35) million and ($37) million as of March 31, 2012 and December 31, 2011, respectively, for allocations of purchase accounting adjustments.

Amounts also include $5 million and $4 million as of March 31, 2012 and December 31, 2011, respectively, for allocations of purchase accounting adjustments related to KMP.

(3)

Amounts include only KMI's short-term and long-term debt, net of its cash and its cash equivalents and exclude allocation of purchase accounting adjustments described in footnote (1) above and the preferred interest in general partner of KMP.

(4) Cash available from KMP and NGPL is shown net of KMI's G&A and sustaining capital expenditures over last 12 months. 2011 KMP distributions have been restated to a declared basis and NGPL amounts have been restated to a cash available basis to be consistent with the 2012 presentation.




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