01—Abstract
Summary
Summary of the 10-K filed February 10, 2017. Cited figures are marked; the original filing is the authoritative source.
Kinder Morgan, Inc. (KMI) reported FY2016 results in its 10-K filed February 10, 2017.
Net income was $721 milliona (up from $208 million in 2015), and net income available to common stockholders was $552 million ($0.25 per share), compared with $227 million in 2015. Total revenues fell 9% to $13.058 billion, reflecting lower commodity prices and the September 2016 sale of a 50% interest in the SNG pipeline. Results were weighed down by roughly $1.1 billion of pre-tax 'certain items,' including $613 million of equity investment impairments (primarily MEP and Ruby), a $1.0 billion total of impairments and divestiture losses in the income statement, and a $106 million project write-off.
Excluding these items, net income available to common stockholders before certain items was about $1.48 billionb, and DCF was $4.51 billion, or $2.02 per share, versus $2.14 per share in 2015. The dividend was cut sharply. Declared dividends for 2016 were $0.50 per share, down from $1.605 in 2015, with the quarterly rate fixed at $0.125 since the first quarter of 2016.
Management guided to 2017 dividends of $0.50c per share, DCF of about $4.46 billion, and $3.2 billion of expansion capex funded internally without new equity. Balance sheet leverage remains substantial: consolidated debt is about $39 billion (principal) with a current portion of $2.7 billion, a working capital deficit of $2.7 billion, and roughly 28% of debt floating-rate after swaps. Ratings are BBB-/Baa3/BBB- with stable outlooks.
Operating cash flow was $4.79 billiond, down 10% from $5.30 billion. The growth pipeline is large, with more than $5 billion of projects in the 2017 outlook, led by the $5.4 billion Trans Mountain expansion (in service expected December 2019, subject to a planned joint venture partner), the $1.9 billion Elba Island liquefaction project, and the $1.4 billion Jones Act tanker program.
Key litigation and contingency exposures include SFPP rate complaints (about $190 million in refunds sought), the Portland Harbor Superfund cleanup, now estimated at about $1.1 billion, and the Passaic River dioxin site, where the cost range is wide. The company recorded a $302 million environmental reserve and a $407 million legal reserve.
02—Key points
Key Highlights
- Net income available to common stockholders was $552 million ($0.25/share) in 2016, up from $227 million in 2015, but depressed by about $1.1 billion of pre-tax certain items, mainly equity investment impairments of $613 million (MEP and Ruby).
- DCF was $4.51 billion ($2.02/share) in 2016, down about 6% per share from $2.14 in 2015, while declared dividends fell to $0.50/share from $1.605, with the quarterly dividend held at $0.125.
- Total revenues declined 9% to $13.06 billion, driven mainly by lower commodity prices in the CO2 segment (realized oil price $61.52/bbl vs. $73.11 in 2015) and the September 2016 deconsolidation of 50% of SNG.
- Consolidated debt is about $39 billion (principal), with $2.7 billion current, a $2.7 billion working capital deficit, and about 28% of debt at variable rates. Ratings are BBB-/Baa3/BBB- with stable outlooks.
- 2017 guidance calls for $3.2 billion of expansion capex funded internally (no equity issuance planned), $4.46 billion DCF, and $0.50/share dividends, assuming WTI at $53/bbl and Henry Hub at $3/MMBtu.
- The Trans Mountain expansion ($5.4 billion, capacity to 890,000 bbl/d, in service December 2019) and the Elba Island LNG liquefaction project ($1.9 billion, 20-year Shell contract) are the largest growth projects in the backlog.
- Major contingencies include SFPP FERC rate complaints (shippers seek about $190 million in refunds and $40 million per year in rate cuts), the Portland Harbor Superfund cleanup (estimated cost raised to about $1.1 billion), and the Passaic River dioxin site.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Kinder Morgan, Inc. kept $0.05.
- Revenue$13.06B100.0%
- Cost of revenue−$3.43B26.3%
- Gross profit$9.63B73.7%
- Operating costs−$6.09B46.6%
- Operating income$3.54B27.1%
- Interest, other & tax−$2.83B21.7%
- Net income$708.0M5.4%
Where FY2016 revenue went
$13.06B- Operating costs: $6.09B, 47% of revenue
- Cost of revenue: $3.43B, 26% of revenue
- Interest, other & tax: $2.83B, 22% of revenue
- Net income: $708.0M, 5.4% of revenue
Kept 5.4% as net incomeNet income $708.0M · 5.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 10, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $13.06B$14.40B | −9.3% |
| Cost of Revenue | $3.43B$4.06B | −15.5% |
| Gross Profit | $9.63B$10.34B | −6.9% |
| Operating Expenses | $9.52B$11.96B | −20.4% |
| Operating Income | $3.54B$2.45B | +44.6% |
| Net Income | $708.00M$253.00M | +179.8% |
| EPS (Basic) | $0.25$0.10 | +150.0% |
| EPS (Diluted) | $0.25$0.10 | +150.0% |
| Shares Outstanding (Basic) | 2.23B2.19B | +2.0% |
| Shares Outstanding (Diluted) | 2.23B2.19B | +1.7% |
05—Questions
Frequently Asked Questions
Why did KMI cut its dividend, and what is the outlook for 2017?
The 2016 declared dividend was $0.50 per share, compared with $1.605 in 2015. Quarterly payments were reduced to $0.125 beginning in the first quarter of 2016. For 2017, management expects to declare $0.50 per share, with the payout supported by about $4.46 billion of projected DCF. The company said it does not expect to access equity markets for growth projects in the foreseeable future.
How much of 2016's reported loss was driven by one-time or non-cash items?
A large share. Certain items before tax totaled about $915 million, including $613 million of equity investment impairments (primarily MEP and Ruby), $387 million of net losses on impairments and divestitures, and project write-offs such as the $65 million Palmetto write-off and the $106 million NED write-off. Excluding these items, net income available to common stockholders was about $1.48 billion, against $552 million reported.
How exposed is KMI to commodity prices?
Limited directly. The majority of cash flow comes from multi-year fee-based contracts. The primary sensitivity is in the CO2 segment, where most of the next 12 months of oil production is hedged. For 2017, each $1/bbl change in WTI changes DCF by about $6 million, and each $0.10/MMBtu change in natural gas prices changes DCF by about $1 million. In 2016, unhedged crude oil sales would have averaged $41.36/bbl.
What are the main legal and environmental risks disclosed?
The most material items are the SFPP rate complaints at FERC, which seek about $190 million in refunds and about $40 million per year in rate reductions. The Portland Harbor Superfund cleanup estimate rose to about $1.1 billion, though KMI's share is not yet determinable. The Passaic River dioxin remedy, with EPA cost ranges from $365 million to $3.2 billion, also carries significant uncertainty. KMI recorded an environmental reserve of $302 million and a total legal reserve of $407 million at year-end 2016.
How leveraged is KMI, and how will it refinance its debt maturities?
Consolidated principal debt was about $38.9 billion at year-end 2016, with $2.7 billion due in 2017 and $2.3 billion in 2018. The company has a $5.0 billion revolving credit facility (about $4.84 billion available) and a $4.0 billion commercial paper program. Management intends to refinance maturities through credit facility or commercial paper borrowings, or new long-term notes, while noting that the cross-guarantee structure ties KMI to subsidiary debt.
06—Continue