The Company was incorporated under the Business Corporations Act (Alberta) on April 7, 2017. On May 30, 2017, we completed an IPOInitial Public Offering (“IPO”) of our Restricted Voting Shares and used the net proceeds of approximately $1,671.0 million to acquire an approximate 30% indirect economic interest in the Limited Partnership from certain affiliates of Kinder Morgan, who retained an approximate 70% ownershipeconomic interest of the limited partnership units in the Limited Partnership.

In January 2018, we completed the registration of our Restricted Voting Shares pursuant to Section 12(g) of the United StatesU.S. Securities Exchange Act of 1934 (the “Exchange Act”) and are subject to the reporting requirements of Section 13(a) of the Exchange Act.

We have prepared the accompanying unaudited consolidated financial statements in accordance with the accounting principles contained in the FASB Accounting Standards Codification, the single source of U.S. GAAP and referred to in this report

AmountsUnless otherwise noted, amounts are stated in Canadian dollars, unless otherwise noted which is the functional currency of mostour continuing operations. Additionally, certain amounts from prior periods have been reclassified to conform to the current presentation.

As of and forKinder Morgan Interest represents the reporting periods after May 30, 2017,interest in our consolidated subsidiaries that are not owned by us. Kinder Morgan’s economic interest in the Limited Partnership is reflected within “Kinder Morgan interest” in our consolidated balance sheets and earningsin the accompanying consolidated statements of equity. Earnings attributable to Kinder Morgan’s economic ownership interest in the Limited Partnership is presented in “Net Income Attributable to Kinder Morgan Interest” in ourthe accompanying consolidated statements of income.

As of March 31, 2019, we had $50.0 million of outstanding borrowings under our 4-year $500.0 million unsecured revolving credit facility due August 31, 2022 (“2018 Credit Facility”), with $443.7 million available under the 2018 Credit Facility, after reducing the $500.0 million capacity for $6.3 million in letters of credit, which includes approximately $3.2 million issued on behalf of Trans Mountain for which it has issued a backstop letter of credit to us. As of March 31, 2019, the weighted average interest rate on our 2018 Credit Facility borrowings was 3.42% and we were in compliance with all required covenants under our Credit Facility.covenants. As of MarchDecember 31, 2018, and December 31, 2017, we had $100.0 million and no outstanding borrowings on our Credit Facility, respectively. As of March 31,under the 2018 the weighted average interest rate on our Credit Facility borrowings was 3.14%. For the three months ended March 31, 2018 and 2017, we incurred standby fees of $4.0 million and none, respectively.

As of March 31, 2018,2019, we had (i) 103.734.9 million and 243.481.4 million of Restricted Voting Shares and Special Voting Shares outstanding, respectively, with no par value, for an aggregate of 347.1116.3 million voting shares outstandingoutstanding; (ii) 12.0 million and 10.0 million of Series 1 Preferred Shares and Series 3 Preferred Shares outstanding, respectively,respectively; and (iii) 0.80.2 million of restricted stock awards outstanding.

The following table provides information regarding dividends declared and paid, and declared, but not yetor to be paid, as applicable, on our Preferred Shares during the three months ended March 31, 2018:2019.

The following table provides information regarding dividends declared and paid, and declared, but not yetor to be paid, as applicable, on our Restricted Voting ShareShares during the three months ended March 31, 2018.2019.

The following table provides information regarding distributions declared and paid, and declared, but not yetor to be paid, as applicable, to Kinder Morgan during the three months ended March 31, 2018.2019.

    

We calculate earnings per share from continuing and discontinued operations using the two-class method. Earnings were allocated to Restricted Voting Shares and participating securities based on the amount of dividends paid in the current period plus an allocation of the undistributed earnings or excess distributions over earnings to the extent that each security participates in earnings or excess distributions over earnings. Our unvested restricted stock awards, which may be settled in Restricted Voting Shares issued to employees and non-employee directors and include dividend equivalent payments, do not participate in excess distributions over earnings.

For the three months ended March 31, 2018,2019, the weighted average maximum number of potential Restricted Voting Share equivalents of 0.80.2 million of unvested restricted stock awards are antidilutive and, accordingly, are excluded from the determination of diluted earnings per Restricted Voting Share.

Accounts receivable-affiliate and accounts payable-affiliate are non-interest bearing and are settled on demand and sincegenerally settled monthly. The following table summarizes our IPO, settled monthly.affiliate balances:

We are exposed to credit risk, which is the risk that a customer or other counterparty will fail to perform an obligation or settle a liability, resulting in a financial loss to our business, which is primarily concentrated in the crude oil and refined products transportation industry and is dependent upon the ability of our customers to pay for these services. A majority of our customers operate in the oil and gas exploration and development, or energy marketing or transportation industries. We may be exposed to long-term downturns in energy commodity prices, including the price for crude oil, or other credit events impacting these industries. We limit our exposure to credit risk by requiring shippers who fail to maintain specified credit ratings or a suitable financial position to provide acceptable security, generally in the form of guarantees from credit worthy parties or letters of credit from well rated financial institutions. Our cash and cash equivalents are held with major financial institutions, minimizing the risk of non-performance by counter parties.

We are exposed to interest rate risk attributed to floating rate debt, which is used to finance capital expansion projects, including the TMEP, and general corporate operations. The changes in interest rates may impact future cash flows and the fair value of our financial instruments.

Foreign currency transaction gains or losses result from a change in exchange rates between the functional currency of an entity and the currency in which a transaction is denominated. Unrealized and realized gains and losses generated from these transactions are recorded in foreign exchange (loss) gainloss in the accompanying consolidated statements of income and include:

Liquidity risk is the risk that we will not be able to meet our financial obligations, including commitments, as they become due. We manage our liquidity risk by ensuring access to sufficient funds to meet our obligations. We forecast cash requirements to ensure funding is available to settle financial liabilities when they become due. Our primary sources of liquidity and capital resources are funds generated from operations and our 2018 Credit Facility, see Note 2.3.

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. We recognize contract assets in those instances where billing occurs subsequent to revenue recognition and our right to invoice the customer is conditioned on something other than the passage of time. Our contract liabilities are substantially related to (i) capital improvements paid for in advance by certain customers, generally in our non-regulated businesses, which we subsequently recognize as revenue on a straight-line basis over the initial term of the related customer contracts and (ii) consideration received from customers for temporary deficiency quantities under minimum volume contracts that we expect will be made up in a future period, which we subsequently recognize as revenue when the customer makes up the volumes or the likelihood that the customer will exercise its right for deficiency volumes becomes remote (e.g., there is insufficient capacity to make up the volumes, the deficiency makeup period expires).

Our contractually committed revenue for purposes of the tabular presentation above is generally limited to service customer contracts, which have fixed pricing and fixed volume terms and conditions, generally including contracts with take-or-pay or minimum volume commitment payment obligations. Our contractually committed revenue amounts generally exclude based on the following practical expedients that we elected to apply, remaining performance obligations for: (i) contracts with index-based pricing or variable volume attributes in which such variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service that forms part of a series of distinct services; (ii) contracts with an original expected duration of one year or less; and (iii) contracts for which we recognize revenue at the amount for which we have the right to invoice for services performed.

The effective tax raterates for the three months ended March 31, 2019 and 2018 was consistent with the statutory federal and provincial rate of 27%. The effective tax rate for the three months ended March 31, 2017 was lowerwere higher than the statutory federal and provincial rate of 27%27.0% primarily due to the impact of exchange rate fluctuations in respect of the KMI Loans which resulted in the release of the valuation allowance.non-deductible inter-corporate charges.

We and our subsidiaries are parties to various legal, regulatory and other matters arising from the day-to-day operations of our businesses or certain predecessor operations that may result in claims against the Company. Although no assurance can be given, we believe, based on our experiences to date and taking into account established reserves and insurance, that the ultimate resolution of such items will not have a material adverse impact on our business, financial position, results of operations, cash flows, or dividends to our shareholders. We believe we have meritorious defenses to the matters to which we are a party and intend to vigorously defend the Company. When we determine a loss is probable of occurring and is reasonably estimable, we accrue an undiscounted liability for such contingencies based on our best estimate using information available at that time. If the estimated loss is a range of potential outcomes and there is no better estimate within the range, we accrue the amount at the low end of the range. We disclose contingencies where an adverse outcome may be material, or in the judgment of management, we conclude the matter should otherwise be disclosed. We had no accruals for any outstanding legal proceedings as of March 31, 20182019 and December 31, 2017.2018.

On March 2, 2018, Arnett & Burgess Oilfield Construction Limited (“A&B”) filed a statement of claim and certificate of lis pendens, in the Court of Queen’s Bench of Alberta, against Alberta Envirofuels Inc. (“AEF”) and Base Line Terminal East Limited Partnership, by its general partner, KM Canada Rail Holdings GP Limited (“BLTELP”). A&B was a contractor on the Base Line

On March 26, 2018, A&B filed a separate statement of claim, in the Court of Queen’s Bench of Alberta, against BLTELP solely, asserting that BLTELP failed to pay for work performed under a separate construction services agreement also related to the BTT Project. With respect to the second claim, A&B has claimed it is owed approximately $1$1.0 million, inclusive of goods and services tax. We dispute both claims and intend to defend both claimsagainst them vigorously.

On October 26, 2017June 5, 2018, Barrier Coating Inc. (“Barrier”) filed a statement of claim and November 14, 2017,certificate of lis pendens in the Court of Queen’s Bench of Alberta against Enbridge Pipelines Inc., AEF, Strathcona County, BLTELP, KM Canada Rail Holdings GP Limited, Keyera Energy Ltd., Trans Mountain and Fabricom Inc. (“Fabricom”). Barrier is a subcontractor on the BTT Project and has a construction agreement with Fabricom (the “Fabricom Agreement”). In its claim, Barrier asserts that Fabricom has breached its obligations under the Fabricom Agreement and, as such, Fabricom owes damages to Barrier. The remaining defendants, including BLTELP, KM Canada Rail Holdings GP Limited and Trans Mountain, have been named in the claim as parties with registered interests on lands affected by the work performed by Barrier under the Fabricom Agreement. Barrier asserts that these parties were, collectively, unjustly enriched in the amount of $2.5 million. This matter was resolved and dismissed without any payment from any KM affiliate.

On September 6, 2018, Fabricom filed motionsa statement of claim and certificate of lis pendens in the Court of Queen’s Bench of Alberta, against KM Canada Terminals ULC, BLTELP, Trans Mountain, AEF, Doran Stewart Oilfield Services (1990) Ltd., Alberta Envirofuels Inc., Enbridge Pipelines Inc., and Strathcona County. Fabricom was a contractor on the BTT Project, and claims that it is owed $30.4 million by BLTELP above the contract value for work performed on the BTT Project under a construction services agreement. Fabricom subsequently sent a notice of arbitration incorporating its claim. Pursuant to a provision in the construction services agreement, the dispute will be resolved by arbitration and the Court of Queen’s Bench matter will be stayed. We dispute this claim and intend to defend against it vigorously.

The tariff and associated rates charged by Kinder Morgan Canada (Jet Fuel) Inc. (“KMJF”) are subject to an ongoing proceeding at the BCUC. On November 29, 2018, KMJF filed with the NEB. The first motion soughtBCUC an application of a tariff to resolve delays experienced by Trans Mountain in obtaining preliminary plan approvals fromextend the Cityexisting terms and settlement rates for the transportation of Burnaby. The second motion soughtturbine fuel to establish an NEB process to backstop provincialthe Vancouver International Airport and municipal processes in a fair, transparent and expedited fashion.the Burnaby Terminal, effective January 1, 2019. On December 7, 2017,14, 2018, the NEBBCUC issued an order grantingaccepting the relief requested by Trans Mountain in respect of its motion relatedrates, subject to Burnaby (the “Burnaby Order”refund, and established a process for evaluating KMJF’s Annual Revenues and Gathering Line Fee (“Annual Revenue Requirement”). On January 19,April 5, 2019, Parkland Refining (BC) Ltd., Air Canada, and Vancouver Airport Fuel Facilities Corporation filed written submissions on the merits of continuing the existing methodology for the Annual Revenue Requirement in KMJF’s November 29, 2018 filing. We estimate that the NEB granted, in part, Trans Mountain’s second motion by establishingshippers are seeking approximately a generic process to hear any future motions as they relate to provincial and municipal permitting issues. On February 16, 2018, Burnaby and B.C. applied to the Federal Court of Appeal for leave to appeal the Burnaby Order. On March 23, 2018, the Federal Court of Appeal denied the application. Burnaby or B.C., or both of them, may appeal the decision to the Supreme Court of Canada. A successful appeal at the Supreme Court of Canada could result50% reduction in the Burnaby Order being quashed.

We and our subsidiaries are subject to various legal and regulatory actions and proceedings which arise in the normal course of business. While the final outcome of such actions and proceedings cannot be predicted with certainty, we believe that the resolution of such actions and proceedings will not have a material impact on our financial position or results of operations.

We and our subsidiaries are also subject to environmental cleanup and enforcement actions from time to time. Although we believe our operations are in substantial compliance with applicable environmental law and regulations, risks of additional costs and liabilities are inherent in pipeline and terminal operations, and there can be no assurance that we will not incur significant costs and liabilities. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies under the terms of authority of those laws, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us.

Although it is not possible to predict the ultimate outcomes, we believe that the resolution of the environmental matters to which we and our subsidiaries are a party will not have a material adverse effect on our business, financial position, results of operations or cash flows. As of both March 31, 20182019 and December 31, 2017,2018, we had $7.1$0.1 million and $7.3 million, respectively, accrued for our outstanding environmental matters.

 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 20172018 Form 10-K.

OurKML's 2019 budget for 2018 contemplates that we will generate $474 million of Adjusted EBITDA and $349 million of DCF, respectively, and generate DCF to holders of Restricted Voting Shares of $0.96 per Restricted Voting Share, with an expected declareddeclaring a dividend of $0.65 per Restricted Voting Share. Excluding capitalized equity financing costs,Share, generating Adjusted EBITDA of $213 million and DCF from continuing operations of approximately $109 million, representing DCF of $0.90 per Restricted Voting Share. KML's budget also contemplates investing approximately $32 million in expansion projects.

All material permits have been secured and construction activities will commence shortly on the distillate storage expansion project at our Vancouver Wharves terminal in North Vancouver, British Columbia. The approximately $43 million capital project, which calls for the construction of two new distillate tanks with combined storage capacity of 200,000 barrels and enhancements to the railcar unloading capabilities, is supported by a 20-year initial term, take-or-pay contract with an affiliate of a large, international integrated energy company. The project is expected to be $403placed in service late first quarter of 2021.

As previously disclosed in our 2018 Form 10-K, a material contractual arrangement at the Edmonton Rail Terminal expires in April 2020 and includes a right of renewal on favorable terms for our customer related to rail terminal and associated pipeline connection service fees.  We expect this will result in lower revenues of approximately $43 million and $278$11 million on an annual basis for rail terminal fees and associated pipeline connection fees, respectively.  As previously announced, weWe expect to generate results for 2018 consistent withthis revenue reduction will be partially offset by expansion projects as well as favorable renewal rates on expiring contracts at our budget, excluding the effects of capitalized financing costs.  However, actual capitalized financing costs will vary depending on the amount and timing of TMEP expenditures.other terminal facilities.