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Kinder Morgan, Inc. Increases Quarterly Dividend To $0.37 Per Share

Kinder Morgan is the largest midstream and the third largest energy company in North America with a combined enterprise value of approximately $100 billion. It owns an interest in or operates approximately 75,000 miles of pipelines and 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. Kinder Morgan, Inc. (NYSE: KMI) owns the general partner interest of Kinder Morgan Energy Partners, L.P. (NYSE: KMP) and El Paso Pipeline Partners, L.P. (NYSE: EPB), along with limited partner interests in KMP and EPB and shares in Kinder Morgan Management, LLC (NYSE: KMR). For more information please visit www.kindermorgan.com.

Please join Kinder Morgan at 4:30 p.m. Eastern Time on Wednesday, Jan. 16 at www.kindermorgan.com for a LIVE webcast conference call on the company’s fourth 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. These forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although Kinder Morgan believes that these forward-looking statements 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 reports filed with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they were made, and except to the extent required by law, Kinder Morgan undertakes no obligation to update or review any forward-looking statement because of new information, future events or other factors. Because of these uncertainties, readers should not place undue reliance on these forward-looking statements.

           
Kinder Morgan, Inc. and Subsidiaries Preliminary Cash Available to Pay Dividends (Non-GAAP, Unaudited) (In millions)
 
Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
KMP distributions to us

From ownership of general partner interest (1)

$ 397 $ 313 $ 1,454 $ 1,217
On KMP units owned by us (2) 34 26 120 100
On KMR shares owned by us (3)   20     16     73     63  
Total KMP distributions to us (4) 451 355 1,647 1,380
EPB distributions to us
From ownership of general partner interest (5) 46 - 118 -
On EPB units owned by us (6)   55     -     157     -  
Total EPB distributions to us 101 - 275 -
NGPL cash available for distribution to us (4)   4     7     11     30  
 
Total cash generated 556 362 1,933 1,410
General and administrative expenses and sustaining capital expenditures (4 ) (2 ) (18 ) (9 )
Interest expense   (14 )   (6 )   (181 )   (167 )
 
Cash available to pay dividends before cash taxes 538 354 1,734 1,234
Cash taxes   (109 )   (111 )   (419 )   (368 )
 
Subtotal - Cash available to pay dividends (4) 429 243 1,315 866
 
El Paso Corporation's cash available for distribution
EP operations - EBITDA (7) 140 - 518 -
Interest expense (8) (96 ) - (315 ) -
EP general and administrative expenses (2 ) - (37 ) -
Sustaining capital expenditures (9)   (32 )   -     (70 )   -  
EP's net cash available (10) 10 - 96 -
       
Total - Consolidated cash available to pay dividends (11) $ 439   $ 243   $ 1,411   $ 866  
Average Shares Outstanding 1,039 708 908 708
 
Cash Available Per Average Share Outstanding $ 0.42 $ 0.34 $ 1.55 $ 1.22
Declared Dividend $ 0.37 $ 0.31 $ 1.40 $ 1.05
 
Notes
(1)  

Based on (i) Kinder Morgan Energy Partners, L.P. (KMP) distributions of $1.29 and $4.98 per common unit declared for the three months and year ended December 31, 2012, respectively, and $1.16 and $4.61 per common unit declared for the three months and year ended December 31, 2011, respectively, (ii) 340 million and 319 million aggregate common units, Class B units and i-units (collectively, KMP units) outstanding as of April 30, 2012 and April 29, 2011, respectively, (iii) 347 million and 330 million aggregate KMP units outstanding as of July 31, 2012 and July 29, 2011, respectively, (iv) 365 million and 333 million aggregate KMP units outstanding as of October 31, 2012 and October 31, 2011, respectively, and (v) 373 million KMP units estimated to be outstanding as of January 31, 2013 and 336 million aggregate KMP units outstanding as of January 31, 2012, respectively, and (vi) waived incentive distributions of $7 million and $26 million for the three months and year ended December 31, 2012, respectively, and $7 million and $29 million for the three months and year ended December 31, 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 of KMP have agreed to waive receipt of 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 26 million KMP units owned by us for the six months ended December 31, 2012 and 22 million KMP units owned by us in the prior periods 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 and year ended December 31, 2012 and received as distributions for the three months and year ended December 31, 2011, respectively. We did not sell any KMR shares in 2012 or 2011. We intend periodically to sell the KMR shares we receive as distributions to generate cash.
(4) 2011 KMP distributions to us have been presented on a declared basis and NGPL amounts have been presented on a cash available basis to be consistent with the current year presentation.
(5) Based on (i) El Paso Pipelines Partners, L.P. (EPB) distributions of $0.61 and $1.74 per common unit declared for the three months and nine months ended December 31, 2012, respectively, and (ii) 208 million, 216 million and 216 million common units outstanding as of July 31, 2012, October 31, 2012 and estimated to be outstanding as of January 31, 2013, respectively.
(6) Based on 90 million EPB units owned by us multiplied by the EPB per unit distribution declared, as outlined in footnote (5) above.
(7) Includes an add back for our share of depreciation expense incurred by our equity investees.
(8) 2012 amounts include interest associated with Kinder Morgan, Inc.'s (KMI) incremental debt issued to finance the cash portion of the El Paso Corporation (EP) acquisition purchase price as well as EP consolidated interest expense, excluding EPB. EP interest expense is shown on an accrual basis (rather than a cash basis, as KMI is shown). Due to the timing of the EP cash interest payments, more than 7/12 of the payments occur after May 24.
(9) Includes our share of sustaining capital expenditures incurred by our equity investees.
(10) Represents cash available from El Paso Corporation (EP), exclusive of EPB operations for the period after May 25, 2012 and EP assets dropped down to KMP in the 3rd quarter of 2012.
(11) Excludes $310 million in after-tax expenses associated with the EP acquisition and El Paso Energy (EPE) sale for the year ended December 31, 2012. The year ended December 31, 2012 includes (i) $101 million in employee severance, retention and bonus costs, (ii) $55 million of accelerated EP stock based compensation allocated to the post-combination period under applicable GAAP rules, (iii) $37 million in advisory fees, (iv) $68 million write-off associated with the EP acquisition (primarily due to debt repayments) or amortization of capitalized financing fees, and (v) $67 million for legal fees and reserves.
           
Kinder Morgan, Inc. and Subsidiaries Preliminary Consolidated Statements of Income (1) (Unaudited) (In millions, except per share amounts)
 
Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
 
Revenues $ 3,079   $ 1,937   $ 9,973   $ 7,943  
 
Costs, expenses and other
Operating expenses 1,504 1,056 4,759 4,770
Depreciation, depletion and amortization 409 279 1,419 1,068
General and administrative 113 116 929 515
Taxes, other than income taxes 79 40 286 174
Other expense (income)   9     5     (13 )   (7 )
  2,114     1,496     7,380     6,520  
 
Operating income 965 441 2,593 1,423
 
Other income (expense)
Earnings from equity investments 115 70 353 226
Amortization of excess cost of equity investments (14 ) (2 ) (23 ) (7 )
Interest, net (406 ) (175 ) (1,399 ) (682 )
Other, net   (10 )   6     19     (150 )
 
Income before income taxes 650 340 1,543 810
 
Income tax expense   (45 )   (112 )   (210 )   (361 )
 
Income from continuing operations 605 228 1,333 449
 
Income from discontinued operations 14 65 159 211
Loss on remeasurement to fair value and disposal of discontinued operations   (3 )   -     (937 )   -  
Income (loss) from discontinued operations   11     65     (778 )   211  
 
Net income 616 293 555 660
 
Net income attributable to noncontrolling interests   (267 )   (138 )   (111 )   (66 )
 
Net income attributable to KMI $ 349   $ 155   $ 444   $ 594  
 
Class P Shares
Basic Earnings Per Common Share From Continuing Operations (2) (3) $ 0.34 $ 0.21 $ 0.70 $ 0.70
Basic Earnings (Loss) Per Common Share From Discontinued Operations (1)   -     0.01     (0.21 )   0.04  
Total Basic Earnings Per Common Share $ 0.34   $ 0.22   $ 0.49   $ 0.74  
 
Class A Shares
Basic Earnings Per Common Share From Continuing Operations (2) (3) $ 0.32 $ 0.19 $ 0.61 $ 0.64
Basic Earnings (Loss) Per Common Share From Discontinued Operations (1)   -     0.01     (0.21 )   0.04  
Total Basic Earnings Per Common Share $ 0.32   $ 0.20   $ 0.40   $ 0.68  
 
Basic Weighted Average Number of Shares Outstanding
Class P Shares   742     136     461     118  
Class A Shares   294     571     446     589  
 
Class P Shares
Diluted Earnings Per Common Share From Continuing Operations (2) (3) $ 0.34 $ 0.21 $ 0.70 $ 0.70
Diluted Earnings (Loss) Per Common Share From Discontinued Operations (1)   -     0.01     (0.21 )   0.04  
Total Diluted Earnings per Common Share $ 0.34   $ 0.22   $ 0.49   $ 0.74  
 
Class A Shares
Diluted Earnings Per Common Share From Continuing Operations (2) (3) $ 0.32 $ 0.19 $ 0.61 $ 0.64
Diluted Earnings (Loss) Per Common Share From Discontinued Operations (1)   -     0.01     (0.21 )   0.04  
Total Diluted Earnings per Common Share $ 0.32   $ 0.20   $ 0.40   $ 0.68  
 
Diluted Weighted Average Number of Shares Outstanding (4)
Class P Shares   1,039     708     908     708  
Class A Shares   294     571     446     589  
 
Declared dividend per common share (5) $ 0.37   $ 0.31   $ 1.40   $ 1.05  
 
Notes
(1)   Includes the operations of EP and its consolidated subsidiaries for the periods after May 25, 2012 and earnings per share reflect the issuance of 330 million shares that were used to provide for the equity portion of the EP acquisition purchase price.
(2) Year ended December 31, 2011 earnings exclude $71 million of Members’ interest in net income prior to our Initial Public Offering, $67 million of which has been allocated to continuing operations and $4 million of which has been allocated to discontinued operations.
(3) The Class A shares earnings per share as compared to the Class P shares earnings per share has been primarily reduced by the dividends paid to the Class B shares on February 15, May 15, August 15, and November 15, 2012. On December 26, 2012, all remaining Class A, B and C shares were converted into Class P shares and cancelled.
(4) Outstanding KMI warrants and convertible preferred securities (assumed from the May 25, 2012 EP acquisition) were anti-dilutive during the three months and year ended December 31, 2012.
(5) Year ended 2011 dividend per share has been prorated for the portion of the first quarter we were a public company ($0.14 per share). If KMI had been a public company for the entire year, the year to date declared dividend would have been $1.20 per share ($0.29, $0.30, $0.30 and $0.31 per share for the first, second, third and fourth quarter of 2011, respectively).
           
Kinder Morgan, Inc. and Subsidiaries Preliminary Reconciliation of Cash Available to Pay Dividends from Continuing Operations (Unaudited) (In millions)
 
Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
Income from continuing operations (1) $ 605 $ 228 $ 1,333 $ 449
Income from discontinued operations (1) 14 65 159 211
Income attributable to EPB (2) - - (37 ) -
Distributions declared by EPB (2) - - 82 -
Depreciation, depletion and amortization (3) 409 285 1,426 1,092
Amortization of excess cost of equity investments (1) 14 2 23 7
Earnings from equity investments (4) (121 ) (98 ) (423 ) (313 )
Distributions from equity investments 91 86 381 287
Distributions from equity investments in excess of cumulative earnings 41 51 200 236
KMP certain items (5) 59 13 92 493
EP acquisition related costs (6) (5 ) - 463 -
EP certain items (7) 3 - 19 -
KMI deferred tax adjustment (8) (92 ) - (57 ) -
Difference between cash and book taxes 19 (3 ) (193 ) (32 )
Difference between cash and book interest expense for KMI 37 36 23 (1 )
Sustaining capital expenditures (9) (161 ) (72 ) (393 ) (213 )
KMP declared distribution on its limited partner units owned by the public (10) (428 ) (350 ) (1,583 ) (1,357 )
EPB declared distribution on its limited partner units owned by the public (11) (77 ) - (214 ) -
Other (12)   31     -     110     7  
 
Cash available to pay dividends (13) $ 439   $ 243   $ 1,411   $ 866  
 
Notes
(1) Consists of the corresponding line items in the preceding Preliminary Unaudited Consolidated Statements of Income.
(2) On May 25, 2012, we began recognizing income from our investment in EPB, and we received in the third quarter the full distribution for the second quarter as we were the holder of record as of July 31, 2012.
 
(3)

Consists of the following:

Three Months Ended December 31,

Year Ended December 31,
2012 2011 2012 2011
Depreciation, depletion and amortization from continuing operations $ 409   $ 279   $ 1,419   $ 1,068  
Depreciation, depletion and amortization from discontinued operations $ -   $ 6   $ 7   $ 24  
 
(4) Consists of the following: Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
Earnings from equity investments from continuing operations $ (115 ) $ (70 ) $ (353 ) $ (226 )
Earnings from equity investments from discontinued operations $ (6 ) $ (28 ) $ (70 ) $ (87 )
 
(5) Consists of items such as hedge ineffectiveness, legal and environmental reserves, gain/loss on sale, insurance proceeds from casualty losses, and asset disposition expenses. Year ended 2011 includes (i) $167 million non-cash loss on remeasurement of KMP’s previously held equity interest in KinderHawk to fair value, (ii) $234 million increase to KMP’s legal reserve attributable to rate case and other litigation involving KMP’s products pipelines on the West Coast and (iii) 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 had 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 4th Quarter 2012 Earnings Release filed on Form 8-K with the SEC on January 16, 2013.
(6) Includes pre-tax expenses associated with the EP acquisition and EP Energy sale. The year ended December 31, 2012 include (i) $160 million in employee severance, retention and bonus costs, (ii) $87 million of accelerated EP stock based compensation allocated to the post-combination period under applicable GAAP rules, (iii) $37 million in advisory fees, (iv) $108 million write-off (primarily due to repayments) or amortization of capitalized financing fees, and (v) $94 million for legal fees and reserves.
(7) Legacy marketing contracts and associated interest.
(8) Primarily due to a reduction of FIN 48 income tax reserves.
(9) We define sustaining capital expenditures as capital expenditures that do not expand the capacity of an asset.
(10) 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.
(11) Declared distribution multiplied by EPB limited partner units outstanding on the applicable record date less units owned by us.
(12) Consists of items such as timing and other differences between earnings and cash, KMP’s and EPB's cash flow in excess of their distributions, non-cash purchase accounting adjustments related to the EP acquisition and going private transaction primarily associated with non-cash amortization of debt fair value adjustments, and in the year ended 2011 KMP’s crude hedges, 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 (5) above.
(13) 2011 KMP distributions to us have been presented on a declared basis and NGPL amounts have been presented on a cash available basis to be consistent with the current year presentation.
       
Kinder Morgan, Inc. and Subsidiaries Preliminary Consolidated Balance Sheets (Unaudited) (In millions)
 
December 31, December 31,
2012 (1) 2011
ASSETS

 

 
Cash and cash equivalents - KMI $ 82 $ 2
Cash and cash equivalents - KMP 518 409
Cash and cash equivalents - EPB 114 -
Other current assets 2,838 1,252
Property, plant and equipment, net - KMI 5,601 2,330

Property, plant and equipment, net - KMP

19,638 15,596
Property, plant and equipment, net - EPB 5,931 -
Investments 6,091 3,744
Goodwill - KMI 18,940 3,638
Goodwill - KMP 4,606 1,436
Goodwill - EPB 22 -
Deferred charges and other assets   4,139     2,310  
TOTAL ASSETS $ 68,520   $ 30,717  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Liabilities
Short-term debt:
KMI $ 1,068 $ 1,261
KMP 1,155 1,638
EPB 93 -
Other current liabilities 2,982 1,630
Long-term debt:
KMI 10,426 1,978
KMP 14,714 11,183
EPB 4,254 -
Preferred interest in general partner of KMP 100 100
Debt fair value adjustments (2) 2,591 1,095
Deferred income taxes 4,054 2,199
Other long-term liabilities   2,844     1,065  
Total liabilities   44,281     22,149  
 
Shareholders' Equity
Accumulated other comprehensive loss (119 ) (115 )
Other shareholders' equity   14,124     3,436  
Total KMI equity 14,005 3,321
Noncontrolling interests   10,234     5,247  
Total shareholders' equity   24,239     8,568  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 68,520   $ 30,717  
 
Debt, net of cash
KMI (3) $ 11,412 $ 3,237
KMP 15,351 12,412
EPB   4,233     -  
Total Consolidated Debt $ 30,996   $ 15,649  
 
Notes
(1)   Includes the May 25, 2012 acquisition of EP, and its consolidated subsidiaries.
(2) Amounts include the fair value of interest rate swaps, debt discounts and premiums, and as of December 31, 2012, purchase price allocation adjustments to record EP's debt, including EPB debt, at its May 25, 2012 fair value.
(3) Amounts exclude Preferred interest in general partner of KMP.




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