Kinder Morgan Canada Limited Announces 2019 Financial Expectations

CALGARY, Dec. 3, 2018 /PRNewswire/ - Kinder Morgan Canada Limited (TSX: KML) today announced its preliminary 2019 financial projections.

"We expect 2019 to be a good year for Kinder Morgan Canada Limited business," said KML Chairman and CEO Steve Kean.  "KML's strategic assets include the Canadian portion of the Cochin Pipeline system transporting light condensate from the United States to Fort Saskatchewan, Alberta, one of the largest integrated networks of crude tank storage and rail terminals in Western Canada, and the largest mineral concentrate export/import facility on the west coast of North America.  Those assets are expected to continue to generate substantial value for KML shareholders in 2019.

"As we have said previously, the original purpose of KML was to hold a strong set of midstream assets to provide a funding mechanism for the Trans Mountain expansion," continued Kean.  "In light of the Trans Mountain sale, which closed Aug. 31, 2018, KML is evaluating all options in order to maximize value to KML shareholders.  Those options include, among others, continuing to operate as a standalone enterprise, a disposition by sale or a strategic combination with another company." 

"We are continuing our evaluation of options with the KML board.  As we have previously said, we will not provide further updates until we have something more definitive to announce." Kean concluded.

Below is a summary of KML's expectations for 2019:

• Generate $213 million of Adjusted EBITDA and $109 million of distributable cash flow (DCF).  These figures reflect significant reductions from 2017 actuals and from our 2018 budget due to the Trans Mountain sale.
  
  
• Generate DCF of $0.90 per split-adjusted restricted voting share, with an expected declared dividend of $0.65 per split-adjusted restricted voting share, on an annualized basis.
  
  
• Invest $32 million in expansion projects.
  
  
• End 2019 with a Net Debt-to-Adjusted EBITDA ratio of approximately 1.3 times, taking into account 50 percent debt treatment of the existing outstanding preferred shares. 

KML does not provide budgeted net income attributable to common stockholders and net income, the GAAP financial measures most directly comparable to the non-GAAP financial measures DCF and Adjusted EBITDA, respectively, due to the impracticality of quantifying certain components required by GAAP such as: realized and unrealized foreign currency gains and losses on derivatives marked to market; and, potential changes in estimates for certain contingent liabilities.

On Nov. 29, 2018, KML shareholders approved a KML board proposal calling for a reduction in the stated capital of the restricted voting shares, in part to enable a return of capital to distribute the net proceeds (after capital gains taxes, customary purchase price adjustments and repayment of KML debt) from the Trans Mountain sale.  KML shareholders also approved a proposal to effect a consolidation, or "reverse stock split," of restricted voting shares and special voting shares on a one-for-three basis (three shares consolidating to one share).  The return of capital of $11.40 per restricted voting share is scheduled to be paid on Jan. 3, 2019, to shareholders of record as of Dec. 14, 2018. TSX has determined to implement "due bill" trading for the distribution. Restricted voting shares will commence trading on a due bill basis from Dec. 13, 2018 (at the opening), until Jan. 3, 2019 (at the close), and will commence trading "ex-distribution" on Jan. 4, 2019.  The due bill redemption date (i.e., the date when holders of due bill entitlements are expected to settle their entitlements) will be Jan. 7, 2019. The effective date for the share consolidation is scheduled for Jan. 4, 2019, and KML expects restricted voting shares to commence trading on a post-consolidated basis on Jan. 8, 2019.  KML expects that on Jan. 4, 2019, and Jan. 7, 2019, – the two days that will be ex-distribution but pre-share-consolidation – the per-share trading price for restricted voting shares will decrease by approximately $11.40 as a result of the return of capital. 

About Due Bill Trading.  Due bills represent entitlements to cash, and will attach to restricted voting shares between the first trading day prior to the record date for the return of capital and the payment date, allowing restricted voting shares to carry the value of the entitlement to the return of capital until such is paid. When due bills are used, the ex-distribution date is deferred to the first trading day after the payment date.

About Kinder Morgan Canada Limited (TSX: KML). KML manages and is the holder of an approximately 30 percent minority interest in a portfolio of strategic energy infrastructure assets across Western Canada.  Kinder Morgan, Inc. (NYSE: KMI) holds an approximately 70 percent majority voting interest in KML and a corresponding 70 percent economic interest in KML's business and assets.  KML focuses on stable, fee-based energy transportation and storage assets that are central to the energy infrastructure of Western Canada. We strive to promote shareholder value by increasing utilization of our existing assets while controlling costs and operating in a safe and environmentally responsible way.  For more information visit www.kindermorgancanadalimited.com.

Important Information Relating to Forward-Looking Statements
This news release includes "forward-looking information," "financial outlook," and "forward-looking statements" within the meaning of applicable securities laws (forward-looking statements). Forward-looking statements in this news release include statements, express or implied, concerning, without limitation: KML's expected Adjusted EBITDA and DCF for 2019; KML's expected DCF and declared dividends per split-adjusted restricted voting share; KML's expected investments in expansion projects in 2019; and KML's expected Net Debt to Adjusted EBITDA ratio at the end of 2019, and the expected impact of the return of capital and the share consolidation on the trading price of restricted voting shares, including timing thereof. Forward-looking statements are not guarantees of performance. They involve significant risks, uncertainties and assumptions. Any financial outlook or other forward-looking statements provided in this news release have been included for the purpose of providing information relating to management's current expectations and plans for the future, are based on a number of significant assumptions and may not be appropriate, and should not be used, for any other purpose. Future actions, conditions or events and future results of operations may differ materially from those expressed in forward-looking statements. Many of the factors that will determine these results, including the ability of KML to pay dividends, are beyond the ability of KML to control or predict.

Assumptions underlying forward-looking statements in this news release include completion of the return of capital and subsequent share consolidation as described above.  Assumptions underlying our projected Adjusted EBITDA and DCF include anticipated revenue consisting primarily of firm, take-or-pay revenue plus a relatively small amount of variable, volume-sensitive revenue, less operating expenses. Forecasted take-or-pay revenue is equal to contracted capacity multiplied by the corresponding contract rates. Forecasted volume-sensitive revenue is based on forecasted uncontracted volume throughput multiplied by a forecasted market rate, or where applicable, the tariff rate.  If uncontracted volume throughput were higher or lower than forecasted by 10%, the estimated impact on Adjusted EBITDA would be an increase or decrease of approximately 5% on a full-year basis. Our estimates of operating expenses are based on our historical experience with operating similar assets and consist of labor, power, property taxes and other operating costs. Our assumptions for 2019 also include a CAD$/U.S.$ dollar exchange rate of $0.76.

Other specific factors that could cause actual results to differ from those indicated in the forward-looking statements provided in this news release include, without limitation: changes in demand for KML's services; issues, delays or stoppages associated with expansion projects; significant unanticipated cost increases or required capital expenditures; the breakdown or failure of equipment, pipelines and facilities, releases or spills, operational disruptions or service interruptions; the ability of KML's counterparties to perform; and changes in the regulatory environment.

The foregoing list should not be construed to be exhaustive. In addition to the foregoing, important additional information respecting the material assumptions, expectations and risks applicable to forward-looking statements included in this news release are set out in KML's Annual Report on Form 10-K for the year-ended December 31, 2017 (under the headings "Risk Factors," "Information Regarding Forward-Looking Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere) and KML's subsequent reports, which are available through the SEC's EDGAR system at www.sec.gov, under KML's profile on SEDAR at www.sedar.com and on KML's website at ir.kindermorgancanadalimited.com.  Shareholders and prospective investors are urged to review and carefully consider such information prior to making any investment decision in respect of KML's restricted voting shares.  The risk factors applicable to KML could cause actual results to vary materially from those contained in any forward-looking statements. KML disclaims any obligation, other than as required by applicable law, to update the forward-looking statements included in this release.

Non-GAAP Financial Measures
KML's financial information has been prepared in accordance with United States generally accepted accounting principles (GAAP).  In addition to using measures prescribed by GAAP, this news release includes references to DCF (both in the aggregate and per share), net income before interest expense, taxes, depreciation, depletion and amortization (DD&A) and adjusted for Certain Items (Adjusted EBITDA), which are financial measures that do not have any standardized meaning as prescribed by GAAP (non-GAAP measures).  DCF and Adjusted EBITDA should not be considered alternatives to GAAP net cash provided by operating activities or net income, respectively, computed under GAAP or any other GAAP measures, and such non-GAAP measures have important limitations as analytical tools.  The computations of DCF, and Adjusted EBITDA may differ from similarly titled measures used by others.  Accordingly, the use of such terms may not be comparable to similarly defined measures presented by other entities and investors should not consider these non-GAAP measures in isolation or as a substitute for an analysis of results reported under GAAP.  Management compensates for the limitations of these non-GAAP measures by reviewing our comparable GAAP measures, understanding the differences between the measures and taking this information into account in its analysis and its decision-making processes.

Certain Items are items that are required by GAAP to be reflected in net income, but typically either (i) do not have a cash impact (for example, unrealized and realized foreign exchange gains and losses on the KMI loans and asset impairments), or (ii) by their nature are separately identifiable from our normal business operations and in our view are likely to occur only sporadically (for example, certain gains or losses on asset sales, divestiture costs, legal settlements and casualty losses).

DCF is net income before DD&A adjusted for (i) income tax expense and cash income taxes (paid) refunded; (ii) sustaining capital expenditures; and (iii) Certain Items. DCF is an important performance measure used by us and by external users of our financial statements to evaluate our performance and to measure and estimate our ability to generate cash earnings after servicing our debt and preferred stock dividends, paying cash taxes and expending sustaining capital, that could be used for discretionary purposes such as distributions or expansion capital expenditures.  KML uses this performance measure and believes it provides users of its financial statements a useful performance measure reflective of our ability to generate cash earnings to supplement the comparable GAAP measure.  DCF should not be used as an alternative to net cash provided by operating activities computed under GAAP.  We believe the GAAP measure most directly comparable to DCF is net income. DCF per Restricted Voting Share is DCF divided by average outstanding Restricted Voting Shares, including stock awards that participate in dividends.

Adjusted EBITDA is used by the Company and external users of its financial statements, in conjunction with net debt, to evaluate certain leverage metrics.  Adjusted EBITDA is EBITDA adjusted for Certain Items, as applicable.  We believe the GAAP measure most directly comparable to Adjusted EBITDA is net income. The Company evaluates adjusted EBTIDA in total and does not allocate Adjusted EBITDA amongst equity interest holders as it views Adjusted EBITDA as a measure against our overall leverage.

SOURCE Kinder Morgan Canada Limited

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