01—Abstract
Summary
Summary of the 10-K filed February 16, 2016. Cited figures are marked; the original filing is the authoritative source.
Kinder Morgan's FY2015 10-K shows a sharp earnings reset driven by non-cash charges, while underlying cash generation remained strong.
Net income attributable to KMI fell to $253 milliona (net income available to common stockholders of $227 million, or $0.10 per share) from $1,026 million in 2014. The decline reflects roughly $1.78 billion of pre-tax 'certain items,' including a $1.15 billion goodwill impairment on non-regulated Natural Gas Pipelines assets, $929 million of long-lived asset and equity investment impairments (including $399 million on CO2 oil and gas properties and $207 million of CO2 project write-offs), and $175 million on a coal-related terminal. Segment earnings before DD&A fell to $5.78 billion from $7.49 billion, mainly because CO2 segment earnings fell with lower oil and NGL prices, while Products Pipelines, Terminals and Natural Gas Pipelines (excluding impairments) grew.
Cash flow from operations rose 19% to $5.30 billionb, helped by $347 million of tax refunds. Management reports DCF before certain items of $4.73 billion available to equity ($2.14 per common share), but the company cut its common dividend to $0.125 per quarter ($0.50 annualized) starting with the Q4 2015 payment on February 16, 2016, to retain cash and reduce reliance on capital markets. Management expects roughly $4.9 billion of DCF available to equity in 2016 under a $38/bbl WTI assumption.
Consolidated debt is about $41.6 billionc (principal), roughly 27% of it variable-rate after swaps, and the company faces a goodwill cushion of only about 3% at Natural Gas Pipelines Regulated. Legal exposure includes the Brinckerhoff judgment of about $100.2 million (under appeal), SFPP rate complaints, and the San Diego Mission Valley case.
02—Key points
Key Highlights
- Net income attributable to KMI plunged to $253 million in 2015 from $1,026 million in 2014, driven by about $1.78 billion of pre-tax non-cash charges, principally a $1.15 billion goodwill impairment in non-regulated Natural Gas Pipelines.
- Impairments totaled roughly $2.1 billion in total losses on impairments and disposals, including $399 million on CO2 oil and gas properties and $207 million on CO2 source and transportation project write-offs, reflecting the sustained decline in commodity prices.
- Segment EBDA before DD&A fell 23% to $5.78 billion, as lower oil and NGL prices cut CO2 segment earnings by about $405 million, partly offset by growth in Products Pipelines (up to $1.10 billion) and Terminals.
- Operating cash flow rose 19% to $5.30 billion, supported by $347 million of federal and state tax refunds, while DCF before certain items was $4.73 billion ($2.14 per common share).
- The common dividend was cut to $0.125 per quarter ($0.50 annualized) starting with the February 16, 2016 payment, a roughly 69% reduction from the $0.51 Q3 2015 level, to retain cash and avoid dependence on capital markets for growth.
- Management guides 2016 to about $4.9 billion of DCF available to equity, $3.6 billion of cash flow above the dividend, and $8 billion of segment EBDA before DD&A, assuming $38/bbl WTI and $2.50/MMBtu Henry Hub gas.
- Balance sheet risk remains elevated: about $41.6 billion of debt principal, roughly 27% variable-rate after swaps, and a 3% goodwill fair value cushion at Natural Gas Pipelines Regulated; the company also took on a new $1 billion term loan and expanded its revolver to $5 billion in January 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Kinder Morgan, Inc. kept $0.02.
- Revenue$14.40B100.0%
- Cost of revenue−$4.06B28.2%
- Gross profit$10.34B71.8%
- Operating costs−$7.90B54.8%
- Operating income$2.45B17.0%
- Interest, other & tax−$2.19B15.2%
- Net income$253.0M1.8%
Where FY2015 revenue went
$14.40B- Operating costs: $7.90B, 55% of revenue
- Cost of revenue: $4.06B, 28% of revenue
- Interest, other & tax: $2.19B, 15% of revenue
- Net income: $253.0M, 1.8% of revenue
Kept 1.8% as net incomeNet income $253.0M · 1.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 16, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $14.40B$16.23B | −11.2% |
| Cost of Revenue | $4.06B$6.28B | −35.3% |
| Gross Profit | $10.34B$9.95B | +4.0% |
| Operating Expenses | $11.96B$11.78B | +1.5% |
| Operating Income | $2.45B$4.45B | −45.0% |
| Net Income | $253.00M$1.03B | −75.3% |
| EPS (Basic) | $0.10$0.89 | −88.8% |
| EPS (Diluted) | $0.10$0.89 | −88.8% |
| Shares Outstanding (Basic) | 2.19B1.14B | +92.3% |
| Shares Outstanding (Diluted) | 2.19B1.14B | +92.9% |
05—Questions
Frequently Asked Questions
Why did Kinder Morgan's 2015 net income fall so sharply?
The decline was driven mainly by non-cash charges rather than operating deterioration. KMI recorded a $1.15 billion goodwill impairment on non-regulated Natural Gas Pipelines assets, roughly $929 million of long-lived asset and equity investment impairments (including $399 million on CO2 oil and gas properties and $207 million of CO2 project write-offs), and a $175 million terminal impairment tied to a coal customer. Certain items totaled about $1.78 billion pre-tax. Excluding these, the remaining decline in pre-tax income was about $550 million, mainly from higher DD&A, G&A and interest expense.
Why was the dividend cut, and what is the new level?
The board reduced the quarterly common dividend to $0.125 per share ($0.50 annualized) from $0.51 in Q3 2015, beginning with the Q4 2015 dividend paid February 16, 2016. Management said the lower payout lets the company fund its 2016 growth projects from retained cash flow, eliminating the need to issue equity or long-term debt for growth capital, which had become more expensive amid weak capital markets.
How exposed is Kinder Morgan to commodity prices?
Most cash flow is fee-based, but the CO2 segment has direct oil and NGL exposure. Management estimates each $1 change in the average WTI price changes 2016 DCF by about $6.5 million, each $0.10/MMBtu gas price change about $0.6 million, and each 1% change in the NGL-to-WTI price ratio about $2.0 million. The company also states that about 99% of CO2 third-party revenue is based on fixed fees or floor prices, and that it hedges most of its next-12-month oil production.
What are the main balance sheet and financing risks?
Consolidated debt principal was about $41.6 billion at year-end 2015, with roughly 27% subject to variable rates after swaps. The company and most domestic subsidiaries are parties to a cross-guarantee agreement, so KMI is liable for subsidiary debt. Credit ratings are BBB-/Baa3/BBB- with stable outlooks, but a downgrade would increase collateral requirements modestly. Working capital was a deficit of $1.24 billion, and the company refinanced maturities with a $1 billion three-year term loan in January 2016.
What legal matters could affect investors?
Key matters include a Delaware judgment in Brinckerhoff of about $100.2 million plus interest (under appeal to the Delaware Supreme Court), SFPP rate complaints at FERC seeking about $40 million in annual rate reductions and $160 million in refunds, the Union Pacific easement and rent litigation, and the City of San Diego Mission Valley case, where claimed damages were reduced from about $365 million to about $160 million with trial set for April 2016. The company reserved $463 million for legal matters and $284 million for environmental liabilities at year-end 2015.
06—Continue