KINDER MORGAN ENERGY PARTNERS L P | 2013 | FY | 3


Guarantee of Securities of Subsidiaries

KMEP has guaranteed the payment of Copano’s outstanding series of senior notes that mature on April 1, 2021 (referred to in this report as the “Guaranteed Notes”). Copano Energy Finance Corporation (Copano Finance Corp), a direct subsidiary of Copano, is the co-issuer of the Guaranteed Notes. Excluding fair value adjustments, as of December 31, 2013, Copano had $332 million of Guaranteed Notes outstanding. Copano Finance Corp’s obligations as a co-issuer and primary obligor are the same as and joint and several with the obligations of Copano as issuer, however, it has no subsidiaries and no independent assets or operations. Subject to the limitations set forth in the applicable supplemental indentures, KMEP’s guarantee is full and unconditional and guarantees the Guaranteed Notes through their maturity date.
A significant amount of KMEP’s income and cash flow is generated by its respective subsidiaries. As a result, the funds necessary to meet its debt service and/or guarantee obligations are provided in large part by distributions or advances it receives from its respective subsidiaries. For purposes of the condensed consolidating financial information, distributions from our wholly owned subsidiaries have been presented as operating cash flows whether or not distributions exceeded cumulative earnings. In addition, we utilize a centralized cash pooling program among our majority-owned and consolidated subsidiaries, including the subsidiary issuers and non-guarantor subsidiaries. The following Condensed Consolidating Statements of Cash Flows present the intercompany loan and distribution activity, as well as cash collection and payments made on behalf of our subsidiaries, as cash activities.
Included among the non-guarantor subsidiaries are KMEP’s five operating limited partnerships and their majority-owned and controlled subsidiaries, along with Copano’s remaining majority-owned and controlled subsidiaries. In the following condensed consolidating financial information, KMEP is “Parent Guarantor,” and Copano and Copano Finance Corp are the “Subsidiary Issuers.” The Subsidiary Issuers are 100% owned by KMEP.

Condensed Consolidating Balance Sheets as of December 31, 2013
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
10

 
$
1

 
$
393

 
$

 
$
404

All other current assets
3,071

 
13

 
2,151

 
(2,971
)
 
2,264

Property, plant and equipment, net

 
170

 
27,235

 

 
27,405

Investments

 

 
2,233

 

 
2,233

Investments in subsidiaries
13,931

 
4,430

 

 
(18,361
)
 

Goodwill

 
813

 
5,734

 

 
6,547

Notes receivable from affiliates
17,284

 

 

 
(17,284
)
 

Deferred charges and all other assets
233

 

 
3,678

 

 
3,911

Total Assets
$
34,529

 
$
5,427

 
$
41,424

 
$
(38,616
)
 
$
42,764

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Current portion of debt
$
1,504

 
$

 
$

 
$

 
$
1,504

All other current liabilities
407

 
107

 
5,530

 
(2,971
)
 
3,073

Total long-term debt
15,644

 
393

 
3,587

 

 
19,624

Notes payable to affiliates

 
907

 
16,377

 
(17,284
)
 

Deferred income taxes

 
2

 
283

 

 
285

All other long-term liabilities
173

 

 
884

 

 
1,057

Total Liabilities
17,728

 
1,409

 
26,661

 
(20,255
)
 
25,543

 
 
 
 
 
 
 
 
 
 
Partners’ Capital
 
 
 
 
 
 
 
 
 
Total KMEP Partners’ Capital
16,801

 
4,018

 
14,343

 
(18,361
)
 
16,801

Noncontrolling interests

 

 
420

 

 
420

Total Partners’ Capital
16,801

 
4,018

 
14,763

 
(18,361
)
 
17,221

Total Liabilities and Partners’ Capital
$
34,529

 
$
5,427

 
$
41,424

 
$
(38,616
)
 
$
42,764




Condensed Consolidating Balance Sheets as of December 31, 2012
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
95

 
$

 
$
434

 
$

 
529

All other current assets
2,235

 

 
1,752

 
(2,139
)
 
1,848

Property, plant and equipment, net

 

 
22,330

 

 
22,330

Investments

 

 
1,864

 

 
1,864

Investments in subsidiaries
10,124

 

 

 
(10,124
)
 

Goodwill

 

 
5,417

 

 
5,417

Notes receivable from affiliates
14,787

 

 

 
(14,787
)
 

Deferred charges and all other assets
674

 

 
2,314

 

 
2,988

Total Assets
$
27,915

 
$

 
$
34,111

 
$
(27,050
)
 
$
34,976

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Current portion of debt
$
1,155

 
$

 
$

 
$

 
1,155

All other current liabilities
341

 

 
3,890

 
(2,139
)
 
2,092

Total long-term debt
13,876

 

 
3,729

 

 
17,605

Notes payable to affiliates

 

 
14,787

 
(14,787
)
 

Deferred income taxes

 

 
249

 

 
249

All other long-term liabilities
48

 

 
1,065

 

 
1,113

Total Liabilities
15,420

 

 
23,720

 
(16,926
)
 
22,214

 
 
 
 
 
 
 
 
 
 
Partners’ Capital
 
 
 
 
 
 
 
 
 
Total KMEP Partners’ Capital
12,495

 

 
10,124

 
(10,124
)
 
12,495

Noncontrolling interests

 

 
267

 

 
267

Total Partners’ Capital
12,495

 

 
10,391

 
(10,124
)
 
12,762

Total Liabilities and Partners’ Capital
$
27,915

 
$

 
$
34,111

 
$
(27,050
)
 
$
34,976






Condensed Consolidating Statements of Income for the Year ended December 31, 2013
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Revenues
$

 
$

 
$
12,530

 
$

 
$
12,530

Operating Costs, Expenses and Other
 
 
 
 
 
 
 
 
 
Costs of sales

 

 
5,207

 

 
5,207

Depreciation, depletion and amortization

 

 
1,446

 

 
1,446

Other operating expenses

 
39

 
2,609

 

 
2,648

Total Operating Costs, Expenses and Other

 
39

 
9,262

 

 
9,301

Operating (Loss) Income

 
(39
)
 
3,268

 

 
3,229

Other Income (Expense), Net
3,292

 
127

 
251

 
(3,414
)
 
256

Income from Continuing Operations Before Income Taxes
3,292

 
88

 
3,519

 
(3,414
)
 
3,485

Income Tax Expense
(11
)
 

 
(153
)
 

 
(164
)
Income from Continuing Operations
3,281

 
88

 
3,366

 
(3,414
)
 
3,321

Loss from Discontinued Operations

 

 
(4
)
 

 
(4
)
Net Income
3,281

 
88

 
3,362

 
(3,414
)
 
3,317

Net Income Attributable to Noncontrolling Interests

 

 
(36
)
 

 
(36
)
Net Income Attributable to KMEP
$
3,281

 
$
88

 
$
3,326

 
$
(3,414
)
 
$
3,281


Condensed Consolidating Statements of Income for the Year ended December 31, 2012
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Revenues
$

 
$

 
$
9,035

 
$

 
$
9,035

Operating Costs, Expenses and Other
 
 
 
 
 
 
 
 
 
 Costs of sales

 

 
3,029

 

 
3,029

Depreciation, depletion and amortization

 

 
1,159

 

 
1,159

Other operating expenses

 

 
2,363

 

 
2,363

Total Operating Costs, Expenses and Other

 

 
6,551

 

 
6,551

Operating Income

 

 
2,484

 

 
2,484

Other Income (Expense), Net
1,392

 

 
(416
)
 
(1,351
)
 
(375
)
Income from Continuing Operations Before Income Taxes
1,392

 

 
2,068

 
(1,351
)
 
2,109

Income Tax Expense
(9
)
 

 
(30
)
 

 
(39
)
Income from Continuing Operations
1,383

 

 
2,038

 
(1,351
)
 
2,070

Loss from Discontinued Operations

 

 
(669
)
 

 
(669
)
Net Income
1,383

 

 
1,369

 
(1,351
)
 
1,401

Net Income Attributable to Noncontrolling Interests

 

 
(18
)
 

 
(18
)
Net Income Attributable to KMEP
$
1,383

 
$

 
$
1,351

 
$
(1,351
)
 
$
1,383




Condensed Consolidating Statements of Income for the Year ended December 31, 2011
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Revenues
$

 
$

 
$
7,889

 
$

 
$
7,889

Operating Costs, Expenses and Other
 
 
 
 
 
 
 
 
 
 Costs of sales

 

 
3,278

 

 
3,278

Depreciation, depletion and amortization

 

 
928

 

 
928

Other operating expenses

 

 
2,126

 

 
2,126

Total Operating Costs, Expenses and Other

 

 
6,332

 

 
6,332

Operating Income

 

 
1,557

 

 
1,557

Other Income (Expense), Net
1,267

 

 
(487
)
 
(1,225
)
 
(445
)
Income from Continuing Operations Before Income Taxes
1,267

 

 
1,070

 
(1,225
)
 
1,112

Income Tax Expense
(9
)
 

 
(36
)
 

 
(45
)
Income from Continuing Operations
1,258

 

 
1,034

 
(1,225
)
 
1,067

Loss from Discontinued Operations

 

 
201

 

 
201

Net Income
1,258

 

 
1,235

 
(1,225
)
 
1,268

Net Income Attributable to Noncontrolling Interests

 

 
(10
)
 

 
(10
)
Net Income Attributable to KMEP
$
1,258

 
$

 
$
1,225

 
$
(1,225
)
 
$
1,258


Condensed Consolidating Statements of Comprehensive Income
for the Year ended December 31, 2013
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Income
$
3,281

 
$
88

 
$
3,362

 
$
(3,414
)
 
$
3,317

Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
Change in fair value of derivatives utilized for hedging purposes
(60
)
 

 
(60
)
 
60

 
(60
)
Reclassification of change in fair value of derivatives to net income
18

 

 
18

 
(18
)
 
18

Foreign currency translation adjustments
(136
)
 

 
(137
)
 
136

 
(137
)
Adjustments to pension and other postretirement benefit plan liabilities, net of tax
43

 

 
43

 
(43
)
 
43

Total Other Comprehensive Loss
(135
)
 

 
(136
)
 
135

 
(136
)
Comprehensive Income
3,146

 
88

 
3,226

 
(3,279
)
 
3,181

Comprehensive Income Attributable to Noncontrolling Interests

 

 
(35
)
 

 
(35
)
Comprehensive Income Attributable to KMEP
$
3,146

 
$
88

 
$
3,191

 
$
(3,279
)
 
$
3,146


Condensed Consolidating Statements of Comprehensive Income
for the Year ended December 31, 2012
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Income
$
1,383

 
$

 
$
1,369

 
$
(1,351
)
 
$
1,401

Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
Change in fair value of derivatives utilized for hedging purposes
115

 

 
117

 
(115
)
 
117

Reclassification of change in fair value of derivatives to net income
(8
)
 

 
(8
)
 
8

 
(8
)
Foreign currency translation adjustments
44

 

 
44

 
(44
)
 
44

Adjustments to pension and other postretirement benefit plan liabilities, net of tax
14

 

 
14

 
(14
)
 
14

Total Other Comprehensive Income
165

 

 
167

 
(165
)
 
167

Comprehensive Income
1,548

 

 
1,536

 
(1,516
)
 
1,568

Comprehensive Income Attributable to Noncontrolling Interests

 

 
(20
)
 

 
(20
)
Comprehensive Income Attributable to KMEP
$
1,548

 
$

 
$
1,516

 
$
(1,516
)
 
$
1,548


Condensed Consolidating Statements of Comprehensive Income
for the Year ended December 31, 2011
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Income
$
1,258

 
$

 
$
1,235

 
$
(1,225
)
 
$
1,268

Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
 
Change in fair value of derivatives utilized for hedging purposes
14

 

 
13

 
(13
)
 
14

Reclassification of change in fair value of derivatives to net income
253

 

 
256

 
(253
)
 
256

Foreign currency translation adjustments
(44
)
 

 
(45
)
 
44

 
(45
)
Adjustments to pension and other postretirement benefit plan liabilities, net of tax
(34
)
 

 
(34
)
 
34

 
(34
)
Total Other Comprehensive Income
189

 

 
190

 
(188
)
 
191

Comprehensive Income
1,447

 

 
1,425

 
(1,413
)
 
1,459

Comprehensive Income Attributable to Noncontrolling Interests

 

 
(12
)
 

 
(12
)
Comprehensive Income Attributable to KMEP
$
1,447

 
$

 
$
1,413

 
$
(1,413
)
 
$
1,447





Condensed Consolidating Statements of Cash Flow for the Year ended December 31, 2013
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Cash Provided by (Used in) Operating Activities
$
3,160

 
$
(25
)
 
$
4,529

 
$
(3,792
)
 
$
3,872

 
 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Payment to KMI for drop-down asset groups, net of cash acquired (Note 3)

 

 
(994
)
 

 
(994
)
Acquisitions of assets and investments, net of cash acquired

 
5

 
(297
)
 

 
(292
)
Proceeds from sale of investments in Express pipeline system

 

 
402

 

 
402

Repayments from related party

 

 
1

 

 
1

Capital expenditures

 
(141
)
 
(3,077
)
 

 
(3,218
)
Sale or casualty of property, plant and equipment, investments and other net assets, net of removal costs

 

 
86

 

 
86

Contributions to investments

 

 
(204
)
 

 
(204
)
Distributions from equity investments in excess of cumulative earnings

 

 
66

 

 
66

Funding to affiliates
(5,753
)
 
(287
)
 
(1,762
)
 
7,802

 

Other, net
(12
)
 

 
60

 

 
48

Net Cash Used in Investing Activities
(5,765
)
 
(423
)
 
(5,719
)
 
7,802

 
(4,105
)
 
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of debt
10,213

 

 
14

 

 
10,227

Payment of debt
(7,627
)
 
(854
)
 
(101
)
 

 
(8,582
)
Debt issue costs
(22
)
 

 

 

 
(22
)
Proceeds from issuance of i-units
210

 

 

 

 
210

Funding from affiliates
1,592

 
1,303

 
4,907

 
(7,802
)
 

Proceeds from issuance of common units
1,285

 

 

 

 
1,285

Contributions from noncontrolling interest

 

 
148

 

 
148

Contributions from General Partner
38

 

 

 

 
38

Pre-acquisition contributions and distributions from KMI to drop-down asset group

 

 
35

 

 
35

Cash distributions
(3,168
)
 

 
(3,792
)
 
3,792

 
(3,168
)
Distributions to noncontrolling interests

 

 
(41
)
 

 
(41
)
Other, net
(1
)
 

 

 

 
(1
)
Net Cash Provided by Financing Activities
2,520

 
449

 
1,170

 
(4,010
)
 
129

 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(21
)
 

 
(21
)
 
 
 
 
 
 
 
 
 
 
Net (decrease) increase in Cash and Cash Equivalents
(85
)
 
1

 
(41
)
 

 
(125
)
Cash and Cash Equivalents, beginning of period
95

 

 
434

 

 
529

Cash and Cash Equivalents, end of period
$
10

 
$
1

 
$
393

 
$

 
$
404

Condensed Consolidating Statements of Cash Flow for the Year ended December 31, 2012
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Cash Provided by Operating Activities
$
2,508

 
$

 
$
3,800

 
$
(3,029
)
 
$
3,279

 
 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Payment to KMI for drop-down asset groups, net of cash acquired (Note 3)

 

 
(3,465
)
 

 
(3,465
)
Acquisitions of assets and investments, net of cash acquired

 

 
(83
)
 

 
(83
)
Proceeds from disposal of discontinued operations

 

 
1,791

 

 
1,791

Repayments from related party

 

 
66

 

 
66

Capital expenditures

 

 
(1,900
)
 

 
(1,900
)
Sale or casualty of property, plant and equipment, investments and other net assets, net of removal costs

 

 
100

 

 
100

Contributions to investments

 

 
(177
)
 

 
(177
)
Distributions from equity investments in excess of cumulative earnings

 

 
144

 

 
144

Funding to affiliates
(4,871
)
 

 
(2,069
)
 
6,940

 

Other, net
(15
)
 

 
(10
)
 

 
(25
)
Net Cash Used in Investing Activities
(4,886
)
 

 
(5,603
)
 
6,940

 
(3,549
)
 
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of debt
9,270

 

 

 

 
9,270

Payment of debt
(8,003
)
 

 
(25
)
 

 
(8,028
)
Debt issue costs
(16
)
 

 

 

 
(16
)
Proceeds from issuance of i-units
727

 

 

 

 
727

Funding from affiliates
2,069

 

 
4,871

 
(6,940
)
 

Proceeds from issuance of common units
909

 

 

 

 
909

Contributions from noncontrolling interests

 

 
62

 

 
62

Contributions from General Partner
45

 

 

 

 
45

Pre-acquisition contributions and distributions from KMI to drop-down asset group

 

 
(26
)
 

 
(26
)
Cash distributions
(2,528
)
 

 
(3,029
)
 
3,029

 
(2,528
)
Distributions to noncontrolling interests

 

 
(32
)
 

 
(32
)
Other, net
(1
)
 

 

 

 
(1
)
Net Cash Provided by Financing Activities
2,472

 

 
1,821

 
(3,911
)
 
382

 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
8

 

 
8

 
 
 
 
 
 
 
 
 
 
Net increase in Cash and Cash Equivalents
94

 

 
26

 

 
120

Cash and Cash Equivalents, beginning of period
1

 

 
408

 

 
409

Cash and Cash Equivalents, end of period
$
95

 
$

 
$
434

 
$

 
$
529


Condensed Consolidating Statements of Cash Flow for the Year ended December 31, 2011
(In Millions)
 
Parent Guarantor
 
Subsidiary Issuers
 
Non-guarantor Subsidiaries
 
Eliminations
 
Consolidated KMP
Net Cash Provided by Operating Activities
$
2,185

 
$

 
$
3,337

 
$
(2,648
)
 
$
2,874

 
 
 
 
 
 
 
 
 
 
Cash Flows from Investing Activities
 
 
 
 
 
 
 
 
 
Acquisitions of assets and investments, net of cash acquired

 

 
(1,179
)
 

 
(1,179
)
Repayments from related party

 

 
31

 

 
31

Capital expenditures

 

 
(1,199
)
 

 
(1,199
)
Sale or casualty of property, plant and equipment, investments and other net assets, net of removal costs

 

 
25

 

 
25

Contributions to investments

 

 
(371
)
 

 
(371
)
Distributions from equity investments in excess of cumulative earnings

 

 
214

 

 
214

Funding to affiliates
(3,419
)
 

 
(1,208
)
 
4,627

 

Other, net
8

 

 
54

 

 
62

Net Cash Used in Investing Activities
(3,411
)
 

 
(3,633
)
 
4,627

 
(2,417
)
 
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
 
 
 
Issuance of debt
7,502

 

 

 

 
7,502

Payment of debt
(6,233
)
 

 
(161
)
 

 
(6,394
)
Debt issue costs
(18
)
 

 

 

 
(18
)
Funding from affiliates
1,208

 

 
3,419

 
(4,627
)
 

Proceeds from issuance of common units
955

 

 

 

 
955

Contributions from noncontrolling interests

 

 
29

 

 
29

Cash distributions
(2,215
)
 

 
(2,648
)
 
2,648

 
(2,215
)
Distributions to noncontrolling interests

 

 
(28
)
 

 
(28
)
Net Cash Provided by Financing Activities
1,199

 

 
611

 
(1,979
)
 
(169
)
 
 
 
 
 
 
 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 
(8
)
 

 
(8
)
 
 
 
 
 
 
 
 
 
 
Net (decrease) increase in Cash and Cash Equivalents
(27
)
 

 
307

 

 
280

Cash and Cash Equivalents, beginning of period
28

 

 
101

 

 
129

Cash and Cash Equivalents, end of period
$
1

 
$

 
$
408

 
$

 
$
409


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