EX-99.1 3 kminewsrelease.htm KMI NEWS RELEASE Kinder Morgan, Inc. News Release 1-21-04

Exhibit 99.1

[Kinder Morgan Logo]

Larry Pierce
Media Relations
(713) 369-9407

Irene Twardowski Broussard
Investor Relations
(713) 369-9490
www.kindermorgan.com

KINDER MORGAN, INC. REPORTS RECORD EARNINGS;
RAISES DIVIDEND 41%; INCREASES 2004 ESTIMATE

     HOUSTON, Jan. 21, 2004 - Kinder Morgan, Inc. (NYSE: KMI) today reported record earnings for 2003, increased its quarterly dividend by 41 percent to $0.5625 per share ($2.25 annualized) and raised its diluted earnings per share estimate for 2004 to $3.71 from $3.67.

     Diluted earnings per share from continuing operations in 2003 before special items were $3.33, up 17 percent from $2.84 per share in 2002, and above consensus estimates of $3.29 per share. Comparable earnings per share for the fourth quarter were $0.89, up 10 percent from $0.81 in 2002, and above consensus estimates of $0.86. Consistent with the company's third quarter earnings announcement, the principal special item in 2003 was the non-cash revaluation of its interest in a power plant located in Wrightsville, Ark., which was recently placed into bankruptcy by Mirant. The following table details the special items.

   4Q '03 4Q '02 2003 2002
Diluted EPS From Cont. Ops. Before Special Items $0.89 $0.81 $3.33 $2.84
Special Items            
  Revaluation of Power Investments (0.24) (0.68) (0.24) (0.68)
  Income Tax Adjustments    --  0.42    --  0.34
  Other    -- (0.01) (0.01) (0.01)
Diluted EPS From Continuing Operations $0.65 $0.54 $3.08 $2.49

     Including special items, 2003 income from continuing operations was $381.7 million, or $3.08 per share, compared to $307.7 million, or $2.49 per share, in

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KMI-2003 Earnings

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2002. For the fourth quarter, income from continuing operations was $80.8 million, or $0.65 per share, compared to $66.5 million, or $0.54 per share, for the same period in 2002.

     Chairman and CEO Richard D. Kinder said KMI's fee-based businesses and its ownership of the general partner of Kinder Morgan Energy Partners, L.P. (NYSE: KMP) combined to produce outstanding financial results in 2003. "We are delighted with KMI's results for the fourth quarter and the year. We significantly exceeded our published 2003 budget target of $3.18 recurring earnings per share and generated almost $560 million in cash flow, ahead of our revised full-year forecast of approximately $530 million and our original 2003 budget of about $470 million." (Cash flow is defined as pre-tax income before DD&A, less cash paid for income taxes and sustaining capital expenditures.)

     "KMI's significant cash flow enabled us to substantially increase our dividend for the second time in less than a year, while at the same time paying down more than $350 million in debt in 2003," Kinder said. He noted that KMI's total debt-to-capital ratio improved to less than 43 percent at year-end, down from 48 percent at year-end 2002.

     KMI has increased its quarterly dividend by over 10 times from $0.05 to $0.5625 per share in the past 18 months, driven primarily by the passage of federal legislation in 2003 that substantially reduced taxes on dividends. "Given our strong and growing cash flow, we expect to continue to increase our dividend on an annual basis, thereby returning significant cash to our shareholders," Kinder said. "We expect annual dividend increases in the future will approximate KMI's annual growth in earnings. At the new $2.25 annualized rate, our dividend represents less than 50 percent of KMI's expected free cash flow in 2004 and approximately 60 percent of our expected earnings."

     The increased quarterly dividend of $0.5625 per share ($2.25 annualized) - up from $0.40 per share ($1.60 annualized) - will be payable on Feb. 13, 2004, to shareholders of record as of Jan. 30, 2004.

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KMI-2003 Earnings

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2004 Outlook

     Today, KMI announced an increase in its 2004 earnings expectations to $3.71 per diluted share from $3.67 per share. The expectations include contributions from assets currently owned by Kinder Morgan and do not include any benefits from unidentified acquisitions. KMI's expected cash flow in 2004 is approximately $580 million, and generally represents the amount of cash KMI will have available to pay dividends, repurchase stock, retire debt and fund expansion capital projects.

     "We will detail KMI's 2004 financial plan on Friday, Jan. 23, at our annual investor conference in Houston and, as in past years, post it on our web site so that investors may follow our progress throughout the year," Kinder explained. "Our 2004 budget will be the standard by which we measure our success this year. We remain committed to transparency, and we will continue to review and explain any variances to the plan during our quarterly earnings calls."

Overview of Business Segments

     KMI's interest in KMP contributed $398.3 million of pre-tax earnings to KMI in 2003, up 18 percent over $338.5 million in 2002, and $105.5 million of pre-tax earnings in the fourth quarter, compared to $90.9 million in the same period the previous year. KMI will receive $421.4 million in total distributions from its investment in KMP for the year, up from $355.3 million for 2002, and $111.6 million in the fourth quarter compared to $95.4 million in the same period the previous year. As KMP's cash flow grows, KMI's general partner share of that cash flow grows as well, up to 50 percent of incremental cash flow. "KMP's cash flow continued to increase in 2003 primarily due to internal growth on its pipeline, terminal and CO2 assets, along with solid performances from acquired assets," Kinder said.

     Natural Gas Pipeline Company of America (NGPL) reported segment earnings of $372.0 million for 2003 and $95.4 million for the fourth quarter. Results were 3 and 4 percent higher, respectively, than in the comparable periods of 2002. "NGPL had another terrific year, successfully re-contracting firm transportation and storage capacity

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KMI-2003 Earnings

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and increasing throughput," Kinder said. For the winter heating season, approximately 98 percent of the firm transportation capacity is sold out on NGPL, and storage is fully sold out through 2004. Results also reflect the benefits of a full year of earnings contributions from the St. Louis lateral and Horizon Pipeline expansions. Also contributing to earnings was a 10.7 billion cubic feet of NSS storage service expansion at the existing North Lansing storage facility located in east Texas, all of which is fully subscribed under long-term contracts that began in April 2003. Construction on the approximately $38 million project is expected to be completed in May 2004. In addition, throughput increased in this segment by nearly 2 percent for the year and 3.7 percent for the fourth quarter. "Although increased throughput does not directly correlate to an increase in short-term earnings on NGPL (the vast majority of firm transportation and storage revenues come from demand charges secured by contracts that customers pay regardless of the amount of natural gas they ship through the pipeline), it does mean our customers are more fully utilizing their capacity, which bodes well for future business," Kinder said.

     TransColorado reported segment earnings of $23.1 million for the year and $5.6 million for the fourth quarter. Full year results were nearly double the previous year, in part due to KMI's increased ownership stake in TransColorado from 50 to 100 percent as of October 2002, while quarterly results were flat with last year. "TransColorado performed very well, significantly surpassing its $16.0 million published annual budget, and we are excited about its future," Kinder said. He noted Colorado and Wyoming are the fastest growing on-shore natural gas production areas in the 48 contiguous United States and that there is significant demand to access that gas and connect the supply to other pipelines. As previously announced, KMI is expanding TransColorado, a 292-mile interstate pipeline that stretches from northwestern Colorado into northern New Mexico, following the signing of a 10-year, firm natural gas transportation contract with an undisclosed shipper. The approximately $33 million expansion will provide an additional 125,000 dekatherms per day of firm transportation capacity on TransColorado and is expected to be completed in the third quarter of 2004.

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KMI-2003 Earnings

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     Segment earnings for Retail were $65.5 million for 2003 and $20.7 million for the fourth quarter. Results for the year were approximately $200,000 higher than the company's annual budget projection of $65.3 million and about 2 percent above 2002. As explained in the first quarter 2003 earnings release, a timing shift resulted in fourth quarter results being lower than in the same period in 2002. "Retail's record annual earnings were primarily attributable to above average irrigation demand in Nebraska, meter growth in Colorado and the benefit of a full year of the expanded Choice Gas program in Wyoming," Kinder said. KMI's hedging program, designed to normalize winter heating load, continued to reduce revenue volatility related to weather and produced more stable and reliable cash flows. Retail also began construction on a 60-mile Montrose to Ouray, Colo., natural gas pipeline that will add several thousand new customers. The first phase of the approximately $20 million project is expected to be brought on-line in the summer of 2004.

     Power, which represented about 2 percent of KMI's total segment earnings in 2003, recorded earnings of $22.1 million for the year and $3.1 million for the fourth quarter, in each case before special items. Results were about $2.7 million better than the company's annual published budget of $19.4 million for this segment. The expected earnings reduction in this segment in comparison to 2002 reflected the discontinuation of power plant development activities.

     As noted in special items, the non-cash revaluation of KMI's interest in the Wrightsville power plant amounted to less than $28 million after tax. In addition, KMI has agreed to sell natural gas reserves associated with its Power operations, resulting in the receipt of approximately $3 million in cash and the recognition of a $2 million after-tax book loss.

     Kinder Morgan, Inc. is one of the largest energy transportation and storage companies in America, operating more than 35,000 miles of natural gas and products pipelines and approximately 90 terminals. Kinder Morgan, Inc. owns the general partner interest of Kinder Morgan Energy Partners, L.P., the largest publicly traded pipeline limited partnership in the U.S. in terms of market capitalization. Combined, the two

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KMI-2003 Earnings

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companies have an enterprise value of almost $24 billion. (Enterprise value is market value of the equity securities plus net debt, excluding interest rate swaps.)

Please join us at 4:30 p.m. Eastern Time on Wednesday, Jan. 21, at www.kindermorgan.com for a LIVE webcast conference call on the company's 2003 and fourth quarter earnings.

Additionally, you are invited to join us on Friday, Jan. 23, at www.kindermorgan.com for a LIVE webcast of the company's annual investor conference beginning at 9 a.m. Eastern Time.

     In this release, we present a measure of cash flow that differs from cash flow measures prepared under Generally Accepted Accounting Principles (GAAP). In this release, we have defined cash flow to be pre-tax income before depletion, depreciation and amortization (DD&A), less cash paid for income taxes and less sustaining capital expenditures. In each case, the amounts included in the calculation of these measures are computed in accordance with GAAP, with the exception of sustaining capital expenditures, which is not a defined term under GAAP. Sustaining capital expenditures are defined as capital expenditures (determined in accordance with GAAP) which do not increase the capacity of the asset. We routinely calculate and communicate this measure to investors. We believe that continuing to provide this information results in consistency in our financial reporting. In addition, we believe that this measure is useful to investors because it provides investors with a quick, simple and reasonable estimate of our cash flow available for expansion projects, debt repayment, dividends and share repurchases.

     We believe the most directly comparable cash flow measure computed under GAAP is "cash flow provided by operating activities." This GAAP measure differs from the cash flow measure used in this release in that (1) it is not reduced for sustaining capital expenditures, and (2) it is affected by a number of items that are not taken into account in the cash flow measure used in this release, including (i) adjustments for equity in earnings, (ii) distributions from equity investments, (iii) minority interests in income of unconsolidated subsidiaries, (iv) deferred purchased gas costs, (v) deferred revenues, (vi) changes in gas in underground storage, (vii) changes in other working capital items, (viii) net gains or losses on sale of facilities, (ix) proceeds from termination of interest rate swaps, and (x) other, net. We have attached a reconciliation of cash flow to preliminary cash provided from operations for actual reported results. Cash flow should be considered in conjunction with cash provided from operations, as defined by GAAP.

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KMI-2003 Earnings

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     This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Kinder Morgan believes that its expectations 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 are enumerated in Kinder Morgan's Forms 10-K and 10-Q as filed with the Securities and Exchange Commission.

# # #

 

KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2003

2002

2003

2002
Operating Revenues:
Natural Gas Transportation and Storage

$180,362 

$176,165 

$  689,566 

$  628,172 
Natural Gas Sales

  87,241 

  86,579 

   351,349 

   312,764 
Other

  12,578 

  22,265 

    56,982 

    74,319 
    Total Operating Revenues

 280,181 

 285,009 

 1,097,897 

 1,015,255 
  
Operating Costs and Expenses:
Gas Purchases and Other Costs of Sales

  88,939 

  99,376 

   354,261 

   311,224 
Operations and Maintenance

  30,984 

  30,556 

   123,188 

   125,565 
General and Administrative

  17,786 

  20,145 

    71,741 

    73,496 
Depreciation and Amortization

  29,631 

  28,100 

   117,528 

   106,496 
Taxes, Other Than Income Taxes

   7,868 

   5,532 

    30,573 

    27,282 
Revaluation of Power Investments

  44,513 

 134,525 

    44,513 

   134,525 
    Total Operating Costs and Expenses

 219,721 

 318,234 

   741,804 

   778,588 
  
Operating Income (Loss)

  60,460 

 (33,225)

   356,093 

   236,667 
  
Other Income and (Expenses):
Equity in Earnings of Kinder Morgan Energy Partners

 123,081 

 107,108 

   464,967 

   392,135 
Equity in Earnings (Losses) of Other Equity Investments

    (809)

    (260)

     7,451 

    12,791 
Interest Expense, Net

 (33,549)

 (41,652)

  (139,588)

  (161,935)
Interest Expense - Capital Trust Securities

  (5,478)

       - 

   (10,956)

         - 
Minority Interests

 (10,913)

 (16,171)

   (52,493)

   (55,720)
Other, Net

     690 

  13,402 

       830 

    18,792 
    Total Other Income and (Expenses)

  73,022 

  62,427 

   270,211 

   206,063 
  
Income From Continuing Operations Before Income Taxes

 133,482 

  29,202 

   626,304 

   442,730 
Income Tax Expense (Benefit)

  52,672 

 (37,266)

   244,600 

   135,019 
Income From Continuing Operations

  80,810 

  66,468 

   381,704 

   307,711 
Loss on Disposal of Discontinued Operations

       - 

  (4,986)

         - 

    (4,986)
Net Income

$ 80,810 

$ 61,482 

$  381,704 

$  302,725 
========  ========  ==========  ========== 
  
  
Basic Earnings Per Common Share:
Income From Continuing Operations

$   0.66 

$   0.55 

$     3.11 

$     2.52 
Loss on Disposal of Discontinued Operations

       - 

   (0.04)

         - 

     (0.04)
    Total Basic Earnings Per Common Share

$   0.66 

$   0.51 

$     3.11 

$     2.48 
========  ========  ==========  ========== 
Number of Shares Used in Computing Basic
      Earnings Per Common Share

 123,196 

 121,688 

   122,605 

   122,184 
========  ========  ==========  ========== 
  
  
Diluted Earnings Per Common Share:
Income From Continuing Operations

$   0.65 

$   0.54 

$     3.08 

$     2.49 
Loss on Disposal of Discontinued Operations

       - 

   (0.04)

         - 

     (0.04)
    Total Diluted Earnings Per Common Share

$   0.65 

$   0.50 

$     3.08 

$     2.45 
========  ========  ==========  ========== 
  
Number of Shares Used in Computing Diluted
      Earnings Per Common Share

 124,365 

 122,638 

   123,824 

   123,402 
========  ========  ==========  ========== 
  
Dividends Per Common Share

$   0.40 

$   0.10 

 $    1.10 

 $    0.30 
========  ========  ==========  ========== 

KINDER MORGAN, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2003

2002

2003

2002
Equity in Earnings of Kinder Morgan Energy Partners

$ 123,081 

$ 107,108 

$ 464,967 

$ 392,135 
Segment Earnings:(1)
    NGPL

   95,401 

   91,612 

  372,017 

  359,911 
    TransColorado

    5,636 

    5,706 

   23,112 

   12,648 
    Retail

   20,730 

   25,524 

   65,482 

   64,056 
    Power

    3,065 

   14,023 

   22,076 

   36,673 

  247,913 

  243,973 

  947,654 

  865,423 
General and Administrative Expenses

  (17,786)

  (20,145)

  (71,741)

  (73,496)
Interest Expense, Net

  (33,549)

  (41,652)

 (139,588)

 (161,935)
Interest Expense - Capital Trust Securities(2)

   (5,478)

        - 

  (10,956)

        - 
Other

  (10,222)

  (16,652)

  (50,297)

  (50,940)
Income From Continuing Operations
   Before Income Taxes and Special Items

  180,878 

  165,524 

  675,072 

  579,052 
Income Taxes, Excluding Special Items

   70,682 

   66,006 

  263,131 

  229,424 
Income From Continuing Operations
    Before Special Items

  110,196 

   99,518 

  411,941 

  349,628 
Special Items, Net of Tax

  (29,386)

  (33,050)

  (30,237)

  (41,917)
Income From Continuing Operations

$  80,810 

$  66,468 

$ 381,704 

$ 307,711 
=========  =========  =========  ========= 
Diluted Earnings Per Share From Continuing
    Operations Before Special Items

$    0.89 

$    0.81 

$    3.33 

$    2.84 
        Special Items:
        Revaluation of Power Investments(3)

    (0.24)

    (0.68)

    (0.24)

    (0.68)
        Income Tax Adjustments

        - 

     0.42 

        - 

     0.34 
        Other

        - 

    (0.01)

    (0.01)

    (0.01)
Diluted Earnings Per Share From Continuing
    Operations

 $   0.65 

 $   0.54 

 $   3.08 

 $   2.49 
=========  =========  =========  ========= 

Earnings Attributable to Investments in KMP

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2003

2002

2003

2002
General Partner Interest, Including Minority Interest in the OLPs

$  88,774 

$ 75,081 

$ 333,675 

$ 277,024 
Limited Partner Units (KMP)

    9,296 

   9,203 

   36,516 

   42,920 
Limited Partner i-units (KMR)

   25,011 

  22,824 

   94,776 

   72,191 

  123,081 

 107,108 

  464,967 

  392,135 
Pre-tax Minority Interest in KMR(4)

  (17,564)

 (16,214)

  (66,642)

  (53,631)
    Pre-tax KMI Earnings from Investments in
      KMP

$ 105,517 

$ 90,894 

$ 398,325 

$ 338,504 
=========  =========  =========  ========= 

Additional Information

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2003

2002

2003

2002
Average KMP Units Owned by KMI      18.2      18.4       18.3       21.9 
KMP Earnings per Unit  $   0.51   $  0.50   $   2.00   $   1.96 
Average KMR Shares Owned by KMI      14.6      13.2       14.1        9.5 
Average Total KMR Shares Outstanding

     48.6 

    45.2 

     47.4 

     36.8 

Volume Highlights

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2003

2002

2003

2002
Systems Throughput (Trillion Btus):
    NGPL(5)

402.7

388.2

1,508.5

1,480.5
    TransColorado(6)

40.1

42.8

168.9

155.8
    Retail(7)

14.4

12.0

48.0

42.4
  
Btus = British thermal units
(1) Operating income before special items and corporate costs plus gains and losses on
      incidental sales of assets plus earnings from equity method investments.
(2) Due to our adoption of a recently issued accounting standard, $5,478 and $10,956 of expense associated with our Capital
      Trust Securities are recorded as interest expense for the quarter and twelve months ended December 31, 2003, respectively.
      Prior to the third quarter of 2003, expenses associated with these securities were included in "Minority Interests."
(3) Includes, for the three months and twelve months ended December 31, 2003, pre-tax charges of $2,882 reported in the caption
      "Equity in Earnings (Losses) of Other Equity Investments" in the accompanying Consolidated Statements of Income.
(4) Minority interest, net of tax (as reported in the Consolidated Statements of Income), was $10,890 and $10,614 for the
      three months ended December 31, 2003 and 2002, respectively, and $41,318 and $33,251 for the twelve months
      ended December 31, 2003 and 2002, respectively.
(5) Excludes transport for Kinder Morgan Texas and Tejas intrastate pipelines.
(6) Includes 100% of TransColorado transportation volumes for all periods. Effective October 1, 2002,
      we acquired the 50% of TransColorado that we did not previously own.
(7) Excludes transport volumes of intrastate pipelines.

KINDER MORGAN, INC. AND SUBSIDIARIES
PRELIMINARY SUMMARIZED BALANCE SHEET INFORMATION (UNAUDITED)
(DOLLARS IN MILLIONS)

December 31,

December 31,

2003

2002
Assets:
   Cash and Cash Equivalents

$     11 

$     36 
   Other Current Assets

     265 

     385 
   Investments

   3,268 

   3,311 
   Property, Plant and Equipment, Net

   6,065 

   6,048 
   Other Assets

     366 

     323 
Total Assets

$  9,975 

$ 10,103 
========  ======== 
Liabilities and Stockholders' Equity:
   Notes Payable and Current Maturities of Long-term Debt

$    133 

$    501 
   Other Current Liabilities

     344 

     365 
   Other Liabilities and Deferred Credits

   2,633 

   2,647 
   Long-term Debt:
    Outstanding Notes and Debentures

   2,837 

   2,852 
    Deferrable Interest Debentures Issued to Subsidiary Trusts

     284 

       - 
    Value of Interest Rate Swaps

      88 

     140 

   3,209 

   2,992 
    Capital Trust Securities

       - 

     275 
    Minority Interests in Equity of Subsidiaries

   1,010 

     968 
    Stockholders' Equity

   2,646 

   2,355 
Total Liabilities and Stockholders' Equity

$  9,975 

$ 10,103 
========  ======== 
Total Debt(1)

$  2,959 

$  3,317 
========  ======== 
Total Capital(2)

$  6,899 

$  6,915 
========  ======== 
Ratio of Total Debt to Total Capital

42.9% 

48.0% 
========  ======== 

(1) Notes payable and current maturities of long-term debt plus outstanding notes and debentures,
      less cash and cash equivalents.
(2) Total debt plus deferrable interest debentures issued to subsidiary trusts plus capital trust securities
      plus minority interests in equity of subsidiaries plus stockholders' equity.

KINDER MORGAN, INC. AND SUBSIDIARIES
RECONCILIATION OF PRELIMINARY CASH FLOW (UNAUDITED)
(DOLLARS IN MILLIONS)

Twelve Months Ended
December 31,

2003

2002
Simplified Calculation of Cash Flow Per Press Release
Income Before Income Taxes and Special Items $  675.1  $  579.1 
Add: Depreciation and Amortization    117.5     106.5 
Less: Sustaining Capital Expenditures    (83.5)    (86.2)
Less: Cash Paid for Income Taxes (  151.1)   (114.3)
Simplified Calculation of Cash Flow Per Press Release $  558.0  $  485.1 
========  ======== 

Reconciliation of Simplified Calculation to Preliminary Statement of Cash Flow

Simplified Calculation of Cash Flow Per Press Release $  558.0  $  485.1 
Add Back: Sustaining Capital Expenditures     83.5      86.2 
Subtotal    641.5     571.3 
Other Adjustments(1)    (52.6)   (123.3)
Net Cash Flows Provided by Continuing Operations $  588.9 

(2)

 $  448.0 
========  ======== 
  
(1) Adjustments for equity in earnings, distributions from equity investments, minority interests in income of
      unconsolidated subsidiaries, deferred purchased gas costs, deferred revenues, changes in gas in underground
      storage, changes in other working capital items, net gain on sale of facilities, proceeds from termination of
      interest rate swap, litigation settlement escrow deposit, pension contributions in excess of expense and other, net.
(2) Preliminary estimate. Final statement of cash flows will be provided on Form 10-K.