Kinder Morgan Market Opportunity and Financial Overview
Use of Non-GAAP Financial Measures (Continued)
KINDER MORGAN
Adjusted Segment EBDA is calculated by adjusting segment earnings before DD&A and amortization of excess cost of equity investments (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. General and administrative expenses and certain
corporate charges are generally not under the control of our segment operating managers, and therefore, are not included when we measure business segment operating performance. 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.
Adjusted EBITDA is calculated by adjusting net income attributable to Kinder Morgan, Inc. before interest expense, income taxes, DD&A, and amortization of excess cost of equity investments
(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 our leverage. Therefore, we believe Adjusted EBITDA is useful to investors. We believe the GAAP
measure most directly comparable to Adjusted EBITDA is net income attributable to Kinder Morgan, Inc.
Amounts from Joint Ventures - Certain Items, DCF and Adjusted EBITDA reflect amounts from unconsolidated joint ventures (JVs) and consolidated JVs utilizing the same recognition and
measurement methods used to record "Earnings from equity investments" and "Noncontrolling interests (NCI)," respectively. The calculations of DCF and Adjusted EBITDA related to our
unconsolidated and consolidated JVs 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 JVS
as those included in the calculations of DCF and Adjusted EBITDA for our wholly-owned consolidated subsidiaries. Although these amounts related to our unconsolidated JVs 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 JVs. Adjusted EBITDA are further adjusted for certain KML activities attributable to our NCI in KML for the periods presented through KML's sale on December 16, 2019.
Net Debt is calculated by subtracting from total debt (i) cash and cash equivalents, (ii) debt fair value adjustments, and (iii) the foreign exchange impact on Euro-denominated bonds for which
we have entered into currency swaps. Net Debt, on its own and as part of a ratio of Net Debt-to-Adjusted EBITDA, is a non-GAAP financial measure that management believes 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 total debt.
Net revenue means aggregate budgeted revenue which includes, where applicable, revenue minus cost of goods sold. Management uses net revenue to track customer types and customer
credit ratings in our contract portfolio.
Project EBITDA is calculated for an individual capital project as earnings before interest expense, taxes, DD&A and general and administrative expenses attributable to such project, or for JV
projects, consistent with the methods described above under "Amounts from Joint Ventures." Management uses Project EBITDA to evaluate our return on investment for capital projects before
expenses that are generally not controllable by operating managers in our business segments. We believe the GAAP measure most directly comparable to Project EBITDA is the portion of net
income attributable to a capital project.
Free Cash Flow or FCF is calculated by reducing cash flow from operations for capital expenditures (sustaining and expansion). FCF is used by external users as an additional leverage
metric. Therefore, we believe FCF is useful to our investors. We believe the GAAP measure most directly comparable to FCF is cash flow from operations.
CO2 EOR & Transport Free Cash Flow is calculated by reducing EBDA (GAAP) for our CO2 EOR & Transport assets by Certain Items, capital expenditures (sustaining and expansion) and
acquisitions attributable to the EOR & Transport assets. Management uses CO2 EOR & Transport Free Cash Flow as an additional performance measure for our CO2 EOR & Transport assets.
We believe the GAAP measure most directly comparable to CO2 EOR & Transport Free Cash Flow is EBDA (GAAP) for our CO2 EOR & Transport assets.
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