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El Paso Pipeline Partners Increases Quarterly Distribution To $0.61 Per Unit

El Paso Pipeline Partners (NYSE: EPB) is a publicly traded pipeline limited partnership. It owns an interest in or operates more than 13,000 miles of interstate natural gas transportation pipelines in the Rockies and the Southeast, natural gas storage facilities with a capacity of nearly 100 billion cubic feet and LNG assets in Georgia. The general partner of EPB is owned by Kinder Morgan, Inc. (NYSE: KMI). 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. 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 and www.eppipelinepartners.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 which will include a discussion of EPB’s fourth quarter earnings.

The non-generally accepted accounting principles, or non-GAAP, financial measures of distributable cash flow before certain items, both in the aggregate and per unit, and earnings before depreciation, depletion, amortization, or DD&A, and certain items, are presented in this news release. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or any other GAAP measure of liquidity or financial performance. Distributable cash flow before certain items 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 distributions we expect to pay our unitholders on an ongoing basis. Management uses this metric to evaluate our overall performance. It also allows management to simply calculate the coverage ratio of estimated ongoing cash flows to expected cash distributions. Distributable cash flow before certain items is also an important non-GAAP financial measure for our unitholders 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 distributions we are paying pursuant to our partnership agreement. Our partnership agreement requires us to distribute all available cash. Distributable cash flow before certain items and similar measures used by other publicly traded partnerships are also quantitative measures used in the investment community because the value of a unit of such an entity is generally determined by the unit’s yield (which in turn is based on the amount of cash distributions the entity pays to a unitholder). The economic substance behind our use of distributable cash flow before certain items is to measure and estimate the ability of our assets to generate cash flows sufficient to make distributions to our investors.

We define distributable cash flow before certain items to be limited partners’ pretax income before certain items and DD&A, less sustaining capital expenditures for EPB, plus DD&A less sustaining capital expenditures for Bear Creek and WYCO our equity method investees, plus other income and expenses, net (which primarily includes deferred revenue, AFUDC equity and other non-cash items). Distributable cash flow before certain items per unit is distributable cash flow before certain items divided by average outstanding units. “Certain items” are items that are required by GAAP to be reflected in net income, but typically either (1) do not have a cash impact, for example, goodwill impairments, allocated compensation for which we will never be responsible, and results from assets prior to our ownership that are required to be reflected in our results due to accounting rules regarding entities under common control, or (2) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically, for example legal settlements, hurricane impacts and casualty losses. Management uses this measure and believes it is important to users of our financial statements because it believes the measure more effectively reflects our business’ ongoing cash generation capacity than a similar measure with the certain items included. For similar reasons, management uses earnings before DD&A and certain items in its analysis of the performance and management of our business. We believe earnings before DD&A and certain items is a significant performance metric because it enables us and external users of our financial statements to better understand our ability to generate cash on an ongoing basis. We believe it is useful to investors because it is a measure that management believes is important and that our chief operating decision makers use for purposes of making decisions and assessing our performance.

We believe the GAAP measure most directly comparable to distributable cash flow before certain items is net income. Our calculation of distributable cash flow before certain items, which begins with net income after subtracting certain items that are specifically identified in the accompanying tables, is set forth in those tables. Net income before certain items is presented primarily because we use it in this calculation. Earnings before DD&A as presented in our GAAP financials is the measure most directly comparable to earnings before DD&A and certain items. Earnings before DD&A and certain items is calculated by removing the certain items attributable to the partnership, which are specifically identified in the footnotes to the accompanying tables, from earnings before DD&A. In addition, earnings before DD&A as presented in our GAAP financials is included on the first page of the tables presenting our financial results.

Our non-GAAP measures described above should not be considered as an alternative to GAAP net income, earnings before DD&A or any other GAAP measure. Distributable cash flow before certain items and earnings before DD&A and certain items are not financial measures in accordance with GAAP and have important limitations as analytical tools. You should not consider either of these non-GAAP measures in isolation or as a substitute for an analysis of our results as reported under GAAP. Because distributable cash flow before certain items excludes some but not all items that affect net income and because distributable cash flow measures are defined differently by different companies in our industry, our distributable cash flow before certain items may not be comparable to distributable cash flow measures of other companies. Earnings before DD&A and certain items has similar limitations. Management compensates for the limitations of these non-GAAP measures 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 EPB 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 EPB’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, EPB 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.

       
El Paso Pipeline Partners, L.P.
Preliminary Consolidated Statements of Income
(Unaudited)
(in millions, except per unit amounts)
 
 
Three Months Ended December 31, Year Ended December 31,
2012

2011 (1)

2012

2011 (1)

 
Revenues $ 390   $ 388   $ 1,515   $ 1,531  
 
Costs, expenses and other
Operations and maintenance 79 112 389 419
Depreciation and amortization 44 45 181 180
Taxes, other than income taxes   19     20     82     83  
  142     177     652     682  
Operating income 248 211 863 849
 
Other income (expense)
Earnings from equity investments 3 3 14 15
Interest expense, net (75 ) (72 ) (293 ) (267 )
Other, net   2     3     5     8  
Net income   178     145     589     605  
 
Net income attributable to noncontrolling interests   -     (6 )   (10 )   (93 )
 
Net income attributable to EPB $ 178   $ 139   $ 579   $ 512  
 
 

Calculation of Limited Partners' interest in net income attributable to EPB

Net income attributable to EPB $ 178 $ 139 $ 579 $ 512
Less: Pre-acquisition earnings allocated to General Partner (2) - (13 ) (22 ) (40 )
Plus: Severance costs allocated to General Partner 2 - 34 -
Less: General Partner's 2% interest allocation (4 ) (2 ) (12 ) (9 )
Less: General Partner's incentive distribution   (43 )   (19 )   (129 )   (62 )
Limited Partners' interest in net income $ 133   $ 105   $ 450   $ 401  
 

Limited Partners' net income per unit

Net income $ 0.62   $ 0.51   $ 2.15   $ 2.03  
Weighted average units outstanding   216     206     209     197  
 
Declared distribution / unit $ 0.61   $ 0.50   $ 2.25   $ 1.93  
 

(1) Retrospectively adjusted to reflect reorganization of entities under common control and change in reporting entity due to EPB's May 24, 2012 acquisition of Cheyenne Plains from El Paso Corporation.

(2) Represents Cheyenne Plains' earnings prior to the May 24, 2012 acquisition.
 
 
El Paso Pipeline Partners, L.P.
Preliminary Reconciliation of Distributable Cash Flow to Net Income
(Unaudited)
(in millions, except per unit amounts)
 
 
Three Months Ended December 31, Year Ended December 31,
2012 2011 2012 2011
Earnings before DD&A and certain items $ 318 $ 278 $ 1,175 $ 1,085
DD&A   44     42     176     168  
Earnings contribution 274 236 999 917
General and administrative expense (17 ) (35 ) (102 ) (124 )
Interest expense, net   (75 )   (69 )   (289 )   (256 )
Net income before certain items 182 132 608 537
Certain items
Cheyenne Plains before dropdown - 13 22 54
CIG environmental reserve adjustment - - 6 -
Loss on write-off of asset (1) - - (11 ) -
Non-cash severance costs (2) (2 ) - (34 ) -
Project cancellation payment (3) - - - 14
Amortization of regulatory asset related to offshore asset sale (4)   (2 )   -     (2 )   -  
Sub-total certain items   (4 )   13     (19 )   68  
Net Income $ 178   $ 145   $ 589   $ 605  
Less: Pre-acquisition earnings allocated to General Partner (5) - (13 ) (22 ) (40 )
Plus: Severance costs allocated to General Partner (2) 2 - 34 -
Less: General Partner's 2% interest allocation (4 ) (2 ) (12 ) (9 )
Less: General Partner's incentive distribution (43 ) (19 ) (129 ) (62 )
Less: Noncontrolling Interests in net income   -     (6 )   (10 )   (93 )
Limited Partners' net income $ 133   $ 105   $ 450   $ 401  
 
Net income before certain items $ 182 $ 132 $ 608 $ 537
Less: Net income attributable to Noncontrolling Interests before certain items   -     (6 )   (10 )   (79 )
Net income attributable to EPB before certain items 182 126 598 458
Less: General Partner's 2% interest allocation (4 ) (2 ) (12 ) (9 )
Less: General Partner's incentive distribution   (43 )   (19 )   (129 )   (62 )
Limited Partners' net income before certain items 135 105 457 387
Depreciation and amortization (6) 44 43 176 169
Net income attributable to noncontrolling interests before certain items - 6 10 79
Declared distributions to noncontrolling interests before certain items (7) - (5 ) (8 ) (47 )
Other (8) 1 - 1 (2 )
Sustaining capital expenditures (9)   (17 )   (35 )   (46 )   (103 )
DCF before certain items - Limited Partners $ 163   $ 114   $ 590   $ 483  
 
Net income / unit before certain items $ 0.63   $ 0.51   $ 2.19   $ 1.96  
DCF / unit before certain items $ 0.75   $ 0.55   $ 2.82   $ 2.45  
Weighted average units outstanding   216     206     209     197  
 
Notes:
(1) Reflects write-off of a canceled software implementation project.

(2) Represents the non-cash severance costs allocated to EPB from El Paso as a result of KMI's and El Paso's merger. EPB does not have any obligation nor did EPB pay any amounts related to this expense.

(3) Reflects $17 million BG cancellation option payments related to Phase B of SLNG's Elba III expansion offset by $3 million write-off of the related project development costs.

(4) Represents amortization of regulatory asset associated with the SNG offshore asset sale.
(5) Represents earnings related to Cheyenne Plains prior to the May 24, 2012 acquisition.
(6) Includes EPB's share of Bear Creek and WYCO DD&A (less than $1 million for each of the periods presented).
(7) Cash distributions made to the noncontrolling interest holder.
(8) Includes deferred revenue and other non-cash items such as AFUDC equity and other items.
(9) Includes EPB's share of Bear Creek and WYCO sustaining capital expenditures (less than $2 million for each of the periods presented).
 
 
Transport Volumes (BBtu/d)   7,835     7,469     7,864     7,364  
   
El Paso Pipeline Partners, L.P.
Preliminary Abbreviated Consolidated Balance Sheet
(Unaudited)
(in millions)
 
December 31, December 31,
2012

2011 (1)

ASSETS
Cash and cash equivalents $ 114 $ 120
Other current assets 241 210
Property, plant and equipment, net 5,931 6,040
Investments 72 71
Regulatory assets and other assets   223     238  
TOTAL ASSETS $ 6,581   $ 6,679  
 
LIABILITIES AND PARTNERS' CAPITAL
 
Liabilities
Notes payable and current maturities of long-term debt $ 93 $ 82
Other current liabilities 188 263
Long-term debt (6) 4,246 4,028
Other   67     75  
Total liabilities 4,594 4,448
 
Partners' capital
Accumulated other comprehensive income (loss) 10 (7 )
Other partners' capital   1,977     2,122  
Total EPB partners' capital 1,987 2,115
Noncontrolling interests   -     116  
Total partners' capital   1,987     2,231  
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 6,581   $ 6,679  
 
Total Debt, net of cash and cash equivalents (7) $ 4,233 $ 3,997

(4)

 
EBITDA (2) (3) $ 1,073 $ 962
 
Debt to EBITDA (7) 3.9 4.2 (5)
 
Twelve Months Ended
December 31, 2012 December 31, 2011
Net Income (1) $ 589 $ 605
Certain items:
Cheyenne Plains before dropdown (22 ) (54 )
CIG environmental reserve adjustment (6 ) -
Loss on write-off of asset 11 -
Non-cash severance costs 34 -
Project cancellation payment - (14 )
Amortization of regulatory asset related to offshore asset sale   2     -  
Subtotal certain items   19     (68 )
Net income before certain items 608 537
Add:
Depreciation and amortization (3) 176 169
Interest expense, net   289     256  
EBITDA $ 1,073   $ 962  
 

(1) Retrospectively adjusted to reflect reorganization of entities under common control and change in reporting entity due to EPB's May 24, 2012 acquisition of Cheyenne Plains from El Paso Corporation.

(2) Amounts represent the last twelve months.

(3) Includes add back of EPB's share of Bear Creek and WYCO DD&A, which was less than $1 million for both the twelve months ended December 31, 2012 and 2011.

(4) Debt as of December 31, 2011 has been retrospectively adjusted to include Cheyenne Plains.

Reported debt net of cash and cash equivalents as of December 31, 2011 was $3,832 million.

(5) As of December 31, 2011, excluding Cheyenne Plains, the Debt to EBITDA ratio would have been 4.0.

(6) Amounts are net of unamortized discount of $8 million and $7 million as of December 31, 2012 and 2011, respectively.

(7) Amounts reflect the gross debt balance before unamortized discount for each of the periods presented.





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