General and Basis of Presentation
The following discussion and analysis should be read in conjunction with our accompanying interim consolidated financial statements and related notes included elsewhere in this report, and in conjunction with (i) our consolidated financial statements and related notes and (ii) our management's discussion and analysis of financial condition and results of operations included in our 2019 Form 10-K.
Sale of
On
COVID-19
The COVID-19 pandemic-related reduction in energy demand and the dramatic decline in commodity prices that began to impact us in the first quarter of 2020 continued to cause disruptions and volatility. Sharp declines in crude oil and natural gas production along with reduced demand for refined products due to the economic shutdown in the wake of the pandemic also affected our business in the second quarter and continues to do so. Further, significant uncertainty remains regarding the duration and extent of the impact of the pandemic on the energy industry, including demand and prices for the products handled by our pipelines, terminals, shipping vessels and other facilities.
The events as described above resulted in decreases of current and estimated
long-term crude oil and NGL sale prices and volumes we expect to realize and in
significant reductions to the market capitalization of many midstream and oil
and gas producing companies. These events triggered us to review the carrying
value of our long-lived assets and recoverability of goodwill as of
We have placed a priority on protecting our employees during this pandemic while
continuing to provide essential services to our customers. We continue to follow
the
2020 Outlook
As previously announced, for 2020 our original budget contemplated DCF of
approximately
Market conditions also negatively impacted a number of planned expansion
projects such that they are not needed at this time or no longer meet our
internal return thresholds. We therefore expect the budgeted
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which would have been a 25% increase. We expect that our 2020 dividend payments as well as our 2020 discretionary spending will be fully funded with internally generated cash flow.
We do not provide budgeted net income attributable to
Considerable uncertainty exists with respect to the future pace and extent of a global economic recovery from the effects of the COVID-19 pandemic. Our updated expectations for 2020 discussed above involve risks, uncertainties and assumptions, and are not guarantees of performance. Many of the factors that will determine these expectations are beyond our ability to control or predict, and because of these uncertainties, it is advisable not to put undue reliance on any forward-looking statements. Please read Part II, Item 1A. "Risk Factors" below and "Information Regarding Forward-Looking Statements" at the beginning of this report for more information. Furthermore, we disclaim any obligation, other than as required by applicable law, to publicly update or revise any of our forward-looking statements to reflect future events or developments.
Results of Operations
Overview
As described in further detail below, our management evaluates our performance
primarily using the GAAP financial measures of Segment EBDA (as presented in
Note 7, "Reportable Segments"), net income (loss) and net income (loss)
attributable to
GAAP Financial Measures
The Consolidated Earnings Results for the three and nine months ended
Non-GAAP Financial Measures
Our non-GAAP financial measures described below should not be considered alternatives to GAAP net income (loss) or other GAAP measures and have important limitations as analytical tools. Our computations of these non-GAAP financial measures may differ from similarly titled measures used by others. You should not consider these non-GAAP financial measures in isolation or as substitutes for an analysis of our results as reported under GAAP. Management compensates for the limitations of these non-GAAP financial 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
Certain Items, as adjustments used to calculate our non-GAAP financial measures, are items that are required by GAAP to be reflected in net income (loss), but typically either (i) do not have a cash impact (for example, 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 legal settlements, enactment of new tax legislation and casualty losses). We also include adjustments related to joint ventures (see "Amounts from Joint Ventures" below and the tables included in "-Consolidated Earnings Results (GAAP)-Certain Items Affecting Consolidated Earnings Results," "-Non-GAAP Financial Measures-Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA" and "-Non-GAAP Financial Measures-Supplemental Information" below). In addition, Certain Items are described in more detail in the footnotes to tables included in "-Segment Earnings Results" and "-General and Administrative and Corporate Charges, Interest, net, and Noncontrolling Interests" below.
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Adjusted Earnings
Adjusted Earnings is calculated by adjusting net income (loss) attributable to
DCF
DCF is calculated by adjusting net income (loss) attributable to
Adjusted Segment EBDA
Adjusted Segment EBDA is calculated by adjusting Segment EBDA for Certain Items attributable to the segment. Adjusted Segment EBDA is used by management in its analysis of segment performance and management of our business. We believe Adjusted Segment EBDA is a useful performance metric because it provides management and external users of our financial statements additional insight into the ability of our segments to generate segment cash earnings on an ongoing basis. We believe it is useful to investors because it is a measure that management uses to allocate resources to our segments and assess each segment's performance. We believe the GAAP measure most directly comparable to Adjusted Segment EBDA is Segment EBDA. See "-Consolidated Earnings Results (GAAP)-Certain Items Affecting Consolidated Earnings Results" for a reconciliation of Segment EBDA to Adjusted Segment EBDA by business segment.
Adjusted EBITDA
Adjusted EBITDA is calculated by adjusting EBITDA for Certain Items. We also include amounts from joint ventures for income taxes and DD&A (see "Amounts from Joint Ventures" below). Adjusted EBITDA is used by management and external users, in conjunction with our Net Debt (as described further below), to evaluate certain leverage metrics. Therefore, we believe Adjusted EBITDA is useful to investors. We believe the GAAP measure most directly comparable to Adjusted EBITDA is net income (loss). See "-Adjusted Segment EBDA to Adjusted EBITDA to DCF" and "-Non-GAAP Financial Measures-Reconciliation of Net Income (Loss) (GAAP) to Adjusted EBITDA" below.
Amounts from Joint Ventures
Certain Items, DCF and Adjusted EBITDA reflect amounts from unconsolidated joint
ventures and consolidated joint ventures utilizing the same recognition and
measurement methods used to record "Earnings from equity investments" and
"Noncontrolling interests," respectively. The calculations of DCF and Adjusted
EBITDA related to our unconsolidated and consolidated joint ventures include the
same items (DD&A and income tax expense, and for DCF only, also cash taxes and
sustaining capital expenditures) with respect to the joint ventures as those
included in the calculations of DCF and Adjusted EBITDA for our wholly-owned
consolidated subsidiaries. (See "-Non-GAAP Financial Measures-Supplemental
Information" below.) Although these amounts related to our unconsolidated joint
ventures are included in the calculations of DCF and Adjusted EBITDA, such
inclusion should not be understood to imply that we have control over the
operations and resulting revenues, expenses or cash flows of such unconsolidated
joint ventures. DCF and Adjusted EBITDA are further adjusted for certain KML
activities attributable to our noncontrolling interests in KML for the periods
presented through KML's sale on
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Net Debt
Net Debt is calculated by subtracting from debt (i) cash and cash equivalents;
(ii) the preferred interest in the general partner of KMP (which was redeemed in
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