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KMR > SEC Filings for KMR > Form 10-Q on 1-May-2013All Recent SEC Filings

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Form 10-Q for KINDER MORGAN MANAGEMENT LLC


1-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

We are a publicly traded Delaware limited liability company, formed on February 14, 2001, that has elected to be treated as a corporation for federal income tax purposes. Our voting shares are owned by Kinder Morgan G.P., Inc., of which KMI owns all the outstanding common equity. Kinder Morgan G.P., Inc. is the general partner of KMP.

Business

Kinder Morgan G.P., Inc. has delegated to us, to the fullest extent permitted under Delaware law and KMP's limited partnership agreement, all of its rights and powers to manage and control the business and affairs of KMP, subject to the general partner's right to approve specified actions.

See Note 1 to our consolidated financial statements included elsewhere in this report regarding the drop-down of assets from KMI to KMP.

Financial Condition

As indicated by the accompanying interim consolidated balance sheets, there has been no material change in our financial condition during the current quarter.

Results of Operations

Our results of operations consist of the offsetting expenses and receipts associated with our managing and controlling the business and affairs of KMP and our equity in the earnings of KMP attributable to the i-units we own. At March 31, 2013, through our ownership of i-units, we owned approximately 30.7% of all of KMP's outstanding limited partner interests. We use the equity method of accounting for our investment in KMP and record earnings as described below. Our percentage ownership in KMP changes over time upon the distribution of additional i-units to us or upon issuances of additional common units or other equity securities by KMP.

Our earnings, as reported in the accompanying interim consolidated statements of income, represent equity in earnings of KMP attributable to the i-units we own, reduced by a deferred income tax provision. The deferred income tax provision is calculated based on the book/tax basis difference created by our recognition, under GAAP, of our share of the earnings of KMP. Our earnings per share (both basic and diluted) is our net income divided by our weighted-average number of outstanding shares during each period presented. There are no securities outstanding that may be converted into or exercised for our shares.

Following is summarized income statement information and segment earnings contribution by business segment for KMP. This information should be read in conjunction with the KMP 2012 Form 10-K, and the KMP Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.


Table of Contents
                                         Kinder Morgan Management, LLC Form 10-Q


KMP
                                                                    Three Months Ended
                                                                        March 31,
                                                                   2013           2012
                                                                       (In millions)
Segment earnings before depreciation, depletion, amortization
expense and amortization of excess cost of equity
investments(a)
Natural Gas Pipelines(b)                                        $    557       $     222
CO2                                                                  342             334
Products Pipelines                                                   185             176
Terminals                                                            186             187
Kinder Morgan Canada(c)                                              193              50
Total segment earnings before depreciation, depletion,
amortization expense and amortization of excess cost of equity
investments                                                        1,463             969
Depreciation, depletion and amortization                            (328 )          (239 )
Amortization of excess cost of investments                            (2 )            (2 )
General and administrative expenses                                 (134 )          (107 )
Interest expense, net of unallocable interest income                (202 )          (139 )
Unallocable income tax expense                                        (3 )            (2 )
Income from continuing operations                                    794             480
Loss from discontinued operations(d)                                  (2 )          (272 )
Net income                                                           792             208
Net income attributable to noncontrolling interests                   (9 )            (2 )
Net income attributable to KMP                                  $    783       $     206

General Partner's interest in pre-acquisition income from
operations and severance expense of drop-down asset group       $     17       $       -

Remaining General Partner's interest in income from continuing
operations                                                      $    402       $     324
General Partner's interest in loss from discontinued operations $      -       $      (3 )

Limited Partners' interest in income from continuing operations $    366       $     154
Limited Partners' interest in loss from discontinued operations $     (2 )     $    (266 )


___________


(a) Includes revenues, earnings from equity investments, allocable interest income and other, net, less operating expenses,

allocable income taxes and other expense (income). Operating expenses include natural gas purchases and other costs of sales, operations and maintenance expenses, and taxes, other than income taxes.
(b) 2013 amount includes an increase of $62 million attributable to KMP's drop-down asset group for periods prior to its acquisition date of March 1, 2013.

(c) 2013 amount includes a $141 million, net of tax, gain from the sale of KMP's equity and debt investments in the Express pipeline system.

(d) Represents amounts attributable to KMP's FTC Natural Gas Pipelines disposal group. See Note 3 "Acquisitions and Divestitures" of the notes to the consolidated financial statements included in the KMP 2012 Form 10-K. 2013 amount represents an incremental loss related to the sale of KMP's disposal group effective November 2012. 2012 amount includes a $322 million non-cash loss from a remeasurement of net assets to fair value.

For the three months ended March 31, 2013 and 2012, KMP reported limited partners' interest in net income (loss) of $364 million and $(112) million, respectively. Our net income (loss) for the three months ended March 31, 2013 and 2012 was $69 million and $(24) million, respectively.

Our net income for the three months ended March 31, 2013 includes an increase of $27 million, net of income tax, which relates to our share of KMP's $141 million, net of tax, gain from the sale of its equity and debt investments in the Express pipeline system.


Table of Contents
Kinder Morgan Management, LLC Form 10-Q

Our net loss for the three months ended March 31, 2012 includes a reduction of $59 million, net of income tax, which relates to our share of KMP's $322 million non-cash loss from a remeasurement of net assets to fair value as discussed in footnote (d) to the table above.

Liquidity and Capital Resources

Our authorized capital structure consists of two classes of interests: (1) our listed shares and (2) our voting shares, collectively referred to in this document as our "shares." Additional classes of interests may be approved by our board and holders of a majority of our shares, excluding shares held by KMI and its affiliates.

The number of our shares outstanding will at all times equal the number of i-units of KMP, all of which we own. Under the terms of our limited liability company agreement, except in connection with our liquidation, we do not pay distributions on our shares in cash but we make distributions on our shares in additional shares or fractions of shares. At the same time KMP makes a distribution on its common units and i-units, we distribute on each of our shares that fraction of a share determined by dividing the amount of the cash distribution to be made by KMP on each common unit by the average market price of a share determined for a ten-trading day period ending on the trading day immediately prior to the ex-dividend date for our shares. See Note 3 of the accompanying notes to consolidated financial statements for further discussion of our share distribution activity.

We expect that our expenditures associated with managing and controlling the business and affairs of KMP and the reimbursement for these expenditures received by us from KMP will continue to be equal. As stated above, the distributions we expect to receive on the i-units we own will be in the form of additional i-units. Therefore, we expect neither to generate nor to require significant amounts of cash in ongoing operations. We currently have no debt and have no plans to incur any debt. Any cash received from the sale of additional shares will immediately be used to purchase additional i-units. Accordingly, we do not anticipate any other sources or needs for additional liquidity.

Recent Accounting Pronouncements

Please refer to Note 7, "Recent Accounting Pronouncements" to our consolidated financial statements included elsewhere in this report for information concerning recent accounting pronouncements.

Information Regarding Forward-Looking Statements

This report includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future actions, conditions or events, future operating results or the ability to generate sales, income or cash flow, or to pay dividends or to make distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of our operations and those of KMP may differ materially from those expressed in these forward-looking statements. Please see "Information Regarding Forward-Looking Statements" for KMP included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. Many of the factors that will determine these results are beyond our ability to control or predict.

See Part I, Item 1A "Risk Factors" and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations-Information Regarding Forward-Looking Statements" of our 2012 Form 10-K for a more detailed description of factors that may affect the forward-looking statements. When considering forward-looking statements, one should keep in mind the risk factors described in our 2012 Form 10-K, this report, the KMP 2012 Form 10-K and the KMP Quarterly Report on Form 10-Q for the quarter ended March 31, 2013. The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation, other than as required by applicable law, to update any forward-looking statements to reflect future events or developments after the date of this report.

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