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; (ii) our management's discussion and
analysis of financial condition and results of operations included in our 2020
Form 10-K; (iii) "Information Regarding Forward-Looking Statements" at the
beginning of this report and in our 2020 Form 10-K; and (iv) "Risk Factors" in
our 2020 Form 10-K.
Sale of an Interest in NGPL Holdings LLC
On March 8, 2021, we and Brookfield Infrastructure Partners L.P. (Brookfield)
completed the sale of a combined 25% interest in our joint venture, NGPL
Holdings LLC (NGPL Holdings), to a fund controlled by ArcLight Capital Partners,
LLC (ArcLight). We received net proceeds of $413 million for our proportionate
share of the interests sold which included the transfer of $125 million of our
$500 million related party promissory note receivable from NGPL Holdings to
ArcLight with quarterly interest payments at 6.75%. We recognized a pre-tax gain
of $206 million for our proportionate share, which is included within "Other,
net" in our accompanying consolidated statement of operations for the three
months ended March 31, 2021. Upon closing, we and Brookfield each hold a 37.5%
interest in NGPL Holdings.
February 2021 Winter Storm
Our first quarter earnings reflect impacts of the February 2021 winter storm
that affected Texas, which are largely nonrecurring. See "-Segment Earnings
Results" below. Some of the transactions executed during the winter storm remain
subject to risks, including counterparty financial risk, potential disputed
purchases and sales and potential legislative or regulatory action in response
to, or litigation arising out of, the unprecedented circumstances of the winter
storm, which could adversely affect our future earnings, cash flows and
financial condition.
2021 Dividends and Discretionary Capital
We expect to declare dividends of $1.08 per share for 2021, a 3% increase from
the 2020 declared dividends of $1.05 per share. We also expect to invest $0.8
billion in expansion projects and contributions to joint ventures during 2021.
The expectations for 2021 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 statement. Furthermore, we plan to provide updates to these
2021 expectations when we believe previously disclosed expectations no longer
have a reasonable basis.
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") and net income (loss) attributable to Kinder
Morgan, Inc., along with the non-GAAP financial measures of Adjusted Earnings
and DCF, both in the aggregate and per share for each, Adjusted Segment EBDA,
Adjusted EBITDA, Net Debt and Net Debt to Adjusted EBITDA.
GAAP Financial Measures
The Consolidated Earnings Results for the three months ended March 31, 2021 and
2020 present Segment EBDA and net income (loss) attributable to Kinder Morgan,
Inc. which are prepared and presented in accordance with GAAP. Segment EBDA is a
useful measure of our operating performance because it measures the operating
results of our segments before DD&A and certain expenses that are generally not
controllable by our business segment operating managers, such as general and
administrative expenses and corporate charges, interest expense, net, and income
taxes. Our general and administrative expenses and corporate charges include
such items as unallocated employee benefits, insurance, rentals, unallocated
litigation and environmental expenses, and shared corporate services including
accounting, information technology, human resources and legal services.
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Non-GAAP Financial Measures
Our non-GAAP financial measures described below should not be considered
alternatives to GAAP net income (loss) attributable to Kinder Morgan, Inc. 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)
attributable to Kinder Morgan, Inc., 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) Attributable to Kinder Morgan, Inc. (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 "-DD&A, General and Administrative and
Corporate Charges, Interest, net, and Noncontrolling Interests" below.
Adjusted Earnings
Adjusted Earnings is calculated by adjusting net income (loss) attributable to
Kinder Morgan, Inc. for Certain Items. Adjusted Earnings is used by us and
certain external users of our financial statements to assess the earnings of our
business excluding Certain Items as another reflection of our ability to
generate earnings. We believe the GAAP measure most directly comparable to
Adjusted Earnings is net income (loss) attributable to Kinder Morgan, Inc.
Adjusted Earnings per share uses Adjusted Earnings and applies the same
two-class method used in arriving at basic earnings (loss) per share. See
"-Non-GAAP Financial Measures-Reconciliation of Net Income (Loss) Attributable
to Kinder Morgan, Inc. (GAAP) to Adjusted Earnings to DCF" below.
DCF
DCF is calculated by adjusting net income (loss) attributable to Kinder Morgan,
Inc. for Certain Items (Adjusted Earnings), and further by DD&A and amortization
of excess cost of equity investments, income tax expense, cash taxes, sustaining
capital expenditures and other items. We also include amounts from joint
ventures for income taxes, DD&A and sustaining capital expenditures (see
"Amounts from Joint Ventures" below). DCF is a significant performance measure
useful to management and external users of our financial statements in
evaluating our performance and in measuring and estimating the ability of our
assets to generate cash earnings after servicing our debt, paying cash taxes and
expending sustaining capital, that could be used for discretionary purposes such
as dividends, stock repurchases, retirement of debt, or expansion capital
expenditures. 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 (loss) attributable to Kinder Morgan,
Inc. DCF per share is DCF divided by average outstanding shares, including
restricted stock awards that participate in dividends. See "-Non-GAAP Financial
Measures-Reconciliation of Net Income (Loss) Attributable to Kinder Morgan, Inc.
(GAAP) to Adjusted Earnings to DCF" and "-Adjusted Segment EBDA to Adjusted
EBITDA to DCF" below.
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 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.
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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) attributable to Kinder Morgan, Inc. In
prior periods Net income (loss) was considered the comparable GAAP measure and
has been updated to Net income (loss) attributable to Kinder Morgan, Inc. for
consistency with our other non-GAAP performance measures. See "-Adjusted Segment
EBDA to Adjusted EBITDA to DCF" and "-Non-GAAP Financial Measures-Reconciliation
of Net Income (Loss) Attributable to Kinder Morgan, Inc. (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.
Net Debt
Net Debt is calculated, based on amounts as of March 31, 2021, by subtracting
the following amounts from our debt balance of $33,234 million: (i) cash and
cash equivalents of $1,377 million; (ii) debt fair value adjustments of $1,054
million; and (iii) the foreign exchange impact on Euro-denominated bonds of $109
million for which we have entered into currency swaps. Net Debt is a non-GAAP
financial measure that is useful to investors and other users of our financial
information in evaluating our leverage. We believe the most comparable measure
to Net Debt is debt net of cash and cash equivalents.
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