Energy Transitions and Financial Measures
Use of Non-GAAP Financial Measures (Continued)
KINDER MORGAN
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; further, we remove the portion of these adjustments attributable to non-
controlling interests. 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.
Net Debt is calculated by subtracting from debt (1) cash and cash equivalents, (2) debt fair value adjustments, and (3) the foreign exchange impact on Euro-denominated bonds for which we
have entered into currency swaps. Net Debt, on its own and in conjunction with our Adjusted EBITDA as part of a ratio of Net Debt-to-Adjusted EBITDA, is a non-GAAP financial measure that
is used by management, investors and other external users of our financial information to evaluate our leverage. Our ratio of Net Debt-to-Adjusted EBITDA is also used as a supplemental
performance target for purposes of our annual incentive compensation program. We believe the most comparable measure to Net Debt is total debt.
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," and in conjunction with capital expenditures for the project, is the basis for our Project EBITDA
multiple. Management, investors and others use 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. We do not
provide the portion of budgeted net income attributable to individual capital projects (the GAAP financial measure most directly comparable to Project EBITDA) due to the impracticality of
predicting, on a project-by-project basis through the second full year of operations, certain amounts required by GAAP, such as projected commodity prices, unrealized gains and losses on
derivatives marked to market, and potential estimates for certain contingent liabilities associated with the project completion. the portion of budgeted net income attributable to individual capital
projects (the GAAP financial measure most directly comparable to Project EBITDA) due to the impracticality of predicting, on a project-by-project basis through the second full year of
operations, certain amounts required by GAAP, such as projected commodity prices, unrealized gains and losses on derivatives marked to market, and potential estimates for certain
contingent liabilities associated with the project completion.
FCF, or Free Cash Flow is calculated by reducing cash flow from operations for capital expenditures (sustaining and expansion), and FCF after dividends is calculated by further reducing FCF
for dividends paid during the period. FCF is used by management, investors and other external users as an additional leverage metric, and FCF after dividends provides additional insight into
cash flow generation. 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 Segment EBDA from 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 do not provide budgeted CO2 EOR & Transport Segment EBDA (the GAAP financial measure most directly comparable to 2023 budgeted CO2 EOR & Transport FCF) due to the
inherent difficulty and impracticability of predicting certain amounts required by GAAP, such as potential changes in estimates for certain contingent liabilities and unrealized gains and losses
on derivatives marked to market.
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