01—Abstract
Summary
Summary of the 10-K filed February 24, 2014. Cited figures are marked; the original filing is the authoritative source.
Kinder Morgan, Inc. (KMI) reported fiscal 2013 results that were dominated by the Kinder Morgan Energy Partners (KMP) and El Paso Pipeline Partners (EPB) MLP structure.
Consolidated revenues rose to $14.07 billiona from $9.97 billion, and net income attributable to KMI was $1.19 billion, up from $315 million, though the 2012 base was depressed by a $937 million loss on the FTC natural gas pipelines divestiture and $200 million of NGPL impairments. Operating income reached $3.99 billion. Growth came mainly from the full-year contribution of the El Paso acquisition, the May 2013 Copano acquisition by KMP, and a $558 million non-cash gain on remeasuring Eagle Ford, plus a $224 million gain on the Express pipeline sale.
Income tax expense rose to $742 millionb, and noncontrolling interests absorbed $1.5 billion of net income, so investors should focus on the portion attributable to KMI. KMI's economics depend heavily on distributions from KMP and EPB, which made up about 87% of cash generated to KMI in 2013. Cash available to pay dividends was $1.71 billion, or $1.65 per share against a declared dividend of $1.60 per share.
Leverage is high: consolidated debt was about $34 billionc, with roughly 25% variable-rate, and KMI's own credit ratings sit in the BB range. Management guides to 2014 dividends of $1.72 per share (+8%) and a roughly $3.9 billion capital program, funded largely by drop-down asset sales to EPB and continued MLP equity and debt issuance.
Key risks include regulatory and rate-case exposure at KMP's Pacific pipelines (approximately $400 milliond in CPUC reparation claims, with a $624 million total legal reserve), commodity price sensitivity in the CO2 segment, dependence on MLP access to capital markets, and conflicts of interest between KMI and its affiliated MLPs. Overall, the filing reflects a company that is expanding rapidly through acquisitions and drop-downs, with cash flow growing but capital-intensive growth and leverage remaining the central considerations.
02—Key points
Key Highlights
- Revenue of $14.07B (up 41% from $9.97B) and operating income of $3.99B (up 54%), driven by the full-year EP acquisition and the May 2013 Copano acquisition.
- Net income attributable to KMI of $1.19B versus $315M in 2012; 2012 was depressed by a $937M FTC divestiture loss and $200M NGPL impairment, while 2013 included a $558M Eagle Ford remeasurement gain and a $224M Express sale gain.
- Cash available to pay dividends of $1.71B ($1.65/share) covered the $1.60/share declared dividend; 2014 guidance is $1.72/share (+8%).
- About 87% of KMI's cash generation comes from KMP and EPB distributions, making KMI highly dependent on MLP performance and incentive distributions.
- Consolidated debt of about $34B (ex-fair-value adjustments), with roughly $8B (25%) at variable rates; KMI senior secured ratings are BB (S&P), Ba2 (Moody's), and BB+ (Fitch).
- 2014 capital expansion budget of approximately $3.9B, including large projects such as Trans Mountain's $5.4B expansion, Elba liquefaction, and the Houston Ship Channel terminals.
- Legal and environmental reserves rose to $624M (from $425M), mainly from KMP West Coast pipeline rate case liabilities at FERC and CPUC; environmental reserves were $378M.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Kinder Morgan, Inc. kept $0.08.
- Revenue$14.07B100.0%
- Cost of revenue−$5.25B37.3%
- Gross profit$8.82B62.7%
- Operating costs−$4.83B34.3%
- Operating income$3.99B28.4%
- Interest, other & tax−$2.80B19.9%
- Net income$1.19B8.5%
Where FY2013 revenue went
$14.07B- Cost of revenue: $5.25B, 37% of revenue
- Operating costs: $4.83B, 34% of revenue
- Interest, other & tax: $2.80B, 20% of revenue
- Net income: $1.19B, 8.5% of revenue
Kept 8.5% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 24, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $14.07B$9.97B | +41.1% |
| Cost of Revenue | $5.25B$3.06B | +71.8% |
| Gross Profit | $8.82B$6.92B | +27.5% |
| Operating Expenses | $10.08B$7.38B | +36.6% |
| Operating Income | $3.99B$2.59B | +53.9% |
| Interest Expense | $1.69B$1.43B | +18.4% |
| Net Income | $1.19B$315.00M | +278.7% |
| EPS (Basic) | $1.15— | — |
| EPS (Diluted) | $1.15— | — |
| Shares Outstanding (Basic) | 1.04B— | — |
| Shares Outstanding (Diluted) | 1.04B— | — |
05—Questions
Frequently Asked Questions
Is KMI's dividend well covered by cash flow?
For 2013, cash available to pay dividends was $1.71B, or $1.65 per average share, versus a declared dividend of $1.60, so coverage was modestly above 1.0x. Coverage depends heavily on distributions from KMP and EPB and on the timing of drop-down acquisitions, so it is sensitive to MLP performance and any reserves the board sets aside.
How much of KMI's earnings are really KMI's?
Consolidated net income was $2.69B, but $1.50B was attributed to noncontrolling interests (mainly public unitholders in KMP and EPB). Net income attributable to KMI was $1.19B. Investors should look at the attributable figure and at cash available to pay dividends rather than consolidated totals.
What are the main risks to the outlook?
The main risks are rate and refund exposure at KMP's Pacific pipelines (shippers seek about $400M in CPUC reparations), high leverage (about $34B of debt), reliance on MLP access to capital markets for growth, commodity price sensitivity in the CO2 segment (about $7M of cash flow per $1/bbl WTI move), and conflicts of interest with affiliated MLPs.
What is driving growth in 2014?
Management expects full-year contributions from 2013 acquisitions (Copano, EP assets), partial-year contributions from roughly $3.9B of 2014 expansion projects, and continued drop-down sales of Ruby, Gulf LNG, and Young Gas Storage interests to EPB. KMP guides to a $5.58/unit distribution (+5%) and KMI to a $1.72/share dividend (+8%).
06—Continue