UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
F O R M   10-Q
 
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIESEXCHANGEACT OF 1934
 
For the quarterly period ended September 30, 20182019


or
oTRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from _____to_____
Commission file number: 000-55864
kml-20190930_g1.jpg
Kinder Morgan Canada Limited
(Exact name of registrant as specified in its charter)
Alberta, CanadaN/A
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)


Suite 3000, 300 - 5th Avenue S.W. Calgary, Alberta T2P 5J2
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: 403-514-6780877-867-2464
____________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Restricted Voting Shares


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   þ   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” (inin Rule 12b-2 of the Exchange Act).Act.
Large accelerated filer o Accelerated filer o  Non-accelerated filer þ   Smaller reporting company o Emerging growth company þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o  No þ
As of October 23, 2018,22, 2019, the registrant had 104,588,58134,944,993 Restricted Voting Shares and 244,061,46081,353,820 Special Voting Shares outstanding.








KINDER MORGAN CANADA LIMITED
TABLE OF CONTENTS

Page
Number
KINDER MORGAN CANADA LIMITEDGlossary
TABLE OF CONTENTS1
2
Page
Number
Glossary
1
Information Regarding Forward-Looking Statements
2
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income - Three and Nine Months Ended September 30, 20182019 and 20172018
3
 Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, 20182019 and 20172018
4
Consolidated Balance Sheets - September 30, 20182019 and December 31, 20172018
5
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 20182019 and 20172018
6
Consolidated Statements of Equity - Three and Nine Months Ended September 30, 20182019 and 20172018
7
Notes to Consolidated Financial Statements
9
2723
Recent Business Developments
2723
Results of Operations
2825
Segment Earnings Results
32
Liquidity and Capital Resources
3835
Equity, Dividends, Distributions and DistributionsShare Buyback Program
4138
4239
4239
4340
4340
4340
4340
4340
4340
4441
4542




EXPLANATORY NOTE


Capitalized terms used throughout this document are defined in “Glossary” below. References to “we,” “us,” “our”“our,” “KML” and the “Company” are to Kinder Morgan Canada Limited and its majority-owned and/or controlled subsidiaries. We state our consolidated financial statements in Canadian dollars. References in this document to “dollars,” “$” or “CAD$“$” are to the currency of Canada, and references to “U.S.$” or “U.S. dollar” are to the currency of the U.S.
GLOSSARY
GLOSSARYCompany Abbreviations
Company Abbreviations
Class A Units=the Class A limited partnership units of the Limited Partnership
Class B Units=the Class B limited partnership units of the Limited Partnership
Cochin=Canadian portion of the U.S. and Canadian Cochin pipeline system
General Partner=Kinder Morgan Canada GP Inc.
IPO=Initial Public Offering of KML’s Restricted Voting Shares in May 2017
Jet Fuel=Jet Fuel pipeline system
KMCI=Kinder Morgan Canada Inc.
KML=Kinder Morgan Canada Limited and its majority-owned and/or controlled subsidiaries
Kinder Morgan or KMI=Kinder Morgan, Inc.
Limited Partnership=Kinder Morgan Canada Limited Partnership
LP Units=collectively, the Class A Units and the Class B Units
Pembina=Pembina Pipeline Corporation
Preferred LP Units=the preferred limited partnership units inof the Limited Partnership
Preferred SharesShare(s)=collectively all outstanding preferred shares in the capital of KML (if and when issued)
Puget Sound=Puget Sound pipeline system
Restricted Voting SharesShare(s)=the restricted voting shares in the capital of KML
Series 1 Preferred SharesShare(s)=the 12,000,000 cumulative redeemable minimum rate reset Preferred Shares, Series 1 in the capital of KML
Series 3 Preferred SharesShare(s)=the 10,000,000 cumulative redeemable minimum rate reset Preferred Shares, Series 3 in the capital of KML
Special Voting SharesShare(s)=the special voting shares in the capital of KML
TMEPTrans Mountain=Trans Mountain Expansion ProjectPipeline ULC
TMPL=Trans Mountain pipeline system
Trans Mountain Asset Group=the assets sold, collectively, TMPL,Trans Mountain pipeline system, along with its associated Puget Sound, the TMEP,Trans Mountain Expansion Project, and KMCI,Kinder Morgan Canada Inc., the Canadian employer of the staff that operates the businessthose businesses
Trans MountainTSX=Trans Mountain Pipeline ULCthe Toronto Stock Exchange
Common Industry and Other Terms
/d=per day
Adjusted EBITDA=adjusted earnings before interest expense, taxes, depreciation and amortization
DCFD&A=depreciation and amortization
DCF=distributable cash flow
D&AEBDA=depreciation and amortization
EBDA=earnings before depreciation and amortization expenses
FASB=Financial Accounting Standards Board
GAAP or U.S. GAAP=United States Generally Accepted Accounting Principles
MBbl=thousand barrels
MMBblMBbl=millionthousand barrels
MMtonnesMMBbl=million barrels
MMtons=million metric tonnes.tonnes
U.S.=
ROU=right of use
U.S.=United States of America


1

Information Regarding Forward-Looking Statements

This report includes forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as “anticipate,” “believe,” “intend,” “plan,” “projection,” “forecast,” “strategy,” “position,” “continue,” “estimate,” “expect,” “may,” “will,” “shall,” or the negative of those terms or other variations of them or comparable terminology. In particular, expressed or implied statements concerning future actions, conditions or events, future operating results, or theour ability to generate sales, income or cash flow or to pay dividends are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict.

Our business, financial condition and results of operations, including our ability to pay cash dividends, are substantially dependent on our financial condition and results of operations. As a result, factors or events that impact our business are likely to have a commensurate impact on us, the market price and value of the Restricted Voting Shares, Preferred Shares, and our ability to pay dividends.

Forward-looking statements in this report include statements, express or implied, concerning, without limitation: the use of net proceeds from the sale of the TMPL and TMEP,Pembina Transactions, including the Returntiming of Capitalcompletion thereof, the anticipated receipt of requisite approvals and associated Stated Capital Reduction,consents, including shareholder and court approvals, and satisfaction or waiver of required closing conditions; the Share Consolidation (each defined herein), including (in each case) the timing thereof; the Base Line Terminal andexpansion project at our Vancouver Wharves expansion projects,terminal, including completion or potential termination of such projects, anticipated costs, scheduling and in-service dates, future benefits and utilization, anticipated project returns and the impacts of such projects; remaining performance obligations for contracted revenue; and litigation and contingencies, including anticipated liability, resolution and outcome of such actions and proceedings.

See Part II, Item 1A and Item 1 “Notes to Consolidated Financial Statements—Note 2. Trans Mountain Transaction” and Item 2. “Management’s Discussion and Analysis—Recent Developments—Outlook” included1A. “Risk Factors” in this report and“Information Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 (20172018 (2018 Form 10-K) for a more detailed description of factors that may affect the forward-looking statements. You should keep these risk factors in mind when considering forward-looking statements. These risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement. Any financial outlook or other forward-looking statements included in this report are included for the purpose of providing information relating to management’s current expectations and plans for the future, are based on a number of significant assumptions and may not be appropriate, and should not be used, for any purpose other than those for which such forward-looking statements are disclosed herein.
Important Additional Information Regarding the Reduction
Forward-looking statements in Stated Capital and Share Consolidation Will Be Filed with the SEC and on SEDAR
Thisthis report is neither a solicitation of a proxy nor an offer to purchase nor a solicitation of an offer to sell any securities. This report is also not a substitute for any proxy statement or other filings that may be made with the Securities Exchange Commission (the “SEC”) with respect to the proposed Reduction in Stated Capital and the Share Consolidation described under Item 1 “Notes to Consolidated Financial Statements—Note 2. Trans Mountain Transaction” and Item 2. “Management’s Discussion and Analysis—Recent Developments—Outlook.” Approval of these proposed transactions will be submitted to the Company’s shareholders for their consideration, and the Company will file a definitive proxy statement to be used to solicit shareholder approvalare given only as of the transaction with the SECdate of this report, and on SEDAR. Detailed information about these transactions will be containedwe disclaim any obligation to update or revise any forward-looking statements included in the definitive proxy statement and other documents to be filed with the SEC and on SEDAR and mailed to shareholders prior to the meeting.this report, except as required by law.
Investors and security holders will be able to obtain free copies of the definitive proxy statement and other documents filed with the SEC by the Company through the web site maintained by the SEC at www.sec.gov or on the Company’s website at https://ir.kindermorgancanadalimited.com/, and under the Company’s profile on SEDAR at www.sedar.com.
The Company and its directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the Reduction in Stated Capital and the Share Consolidation. Information regarding the Company’s directors and executive officers is contained in the 2017 Form 10-K and KML’s information circular and proxy statement for its 2018 Annual Meeting of Shareholders, which are filed with the SEC. A more complete description will be available in the proxy statement to be used to solicit shareholder approval of the proposed transactions.


2

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements.

KINDER MORGAN CANADA LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(In millions of Canadian dollars, except per share amounts)
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 
2017
(Note 2)
 2018 
2017
(Note 2)
Revenues       
Services94.3
 85.4
 278.6
 263.4
Product sales and other—
 0.5
 —
 0.5
Total Revenues94.3
 85.9
 278.6
 263.9
        
Operating Costs, Expenses and Other       
Operations and maintenance39.2
 39.0
 116.8
 124.8
Depreciation and amortization21.1
 19.3
 61.1
 53.7
General and administrative7.1
 7.6
 26.6
 22.2
Taxes, other than income taxes1.4
 1.7
 4.0
 5.3
Other (income) expense, net(0.9) 0.8
 (9.3) 3.0
Total Operating Costs, Expenses and Other67.9
 68.4
 199.2
 209.0
        
Operating Income26.4
 17.5
 79.4
 54.9
        
Other Income (Expense)   
    
Interest income (expense), net6.1
 2.0
 6.1
 (4.6)
Foreign exchange loss(0.6) (2.0) (0.4) (5.3)
Other, net(0.4) —
 (0.4) 0.7
Total Other Income (Expense)5.1
 —
 5.3
 (9.2)
        
Income from Continuing Operations Before Income Taxes31.5
 17.5
 84.7
 45.7
        
Income Tax Expense(9.3) (7.7) (25.0) (17.7)
        
Income from Continuing Operations22.2
 9.8
 59.7
 28.0
        
Discontinued Operations (Note 2)       
  Income from operations of the Trans Mountain Asset Group, net of tax19.2
 32.6
 39.8
 86.3
  Gain on sale of the Trans Mountain Asset Group, net of tax1,308.0
 —
 1,308.0
 —
Income from Discontinued Operations, Net of Tax1,327.2
 32.6
 1,347.8
 86.3
        
Net Income1,349.4

42.4
 1,407.5

114.3
        
Preferred share dividends(7.2) (2.0) (21.6) (2.0)
        
Net Income Attributable to Kinder Morgan Interest(940.7) (28.7) (971.8) (96.4)
        
Net Income Available to Restricted Voting Stockholders401.5
 11.7
 414.1
 15.9
        
Restricted Voting Shares       
Basic and Diluted Earnings Per Restricted Voting Share from Continuing Operations0.05
 0.02
 0.11
 0.06
Basic and Diluted Earnings Per Restricted Voting Share from Discontinued Operations3.78
 0.09
 3.85
 0.16
        
Basic and Diluted Weighted Average Restricted Voting Shares Outstanding104.3
 103.0
 103.9
 72.1
        
Dividends Per Restricted Voting Share Declared for the Period0.1625
 0.1625
 0.4875
 0.2196
KINDER MORGAN CANADA LIMITED

CONSOLIDATED STATEMENTS OF INCOME
(In millions of Canadian dollars, except per share amounts, Unaudited)


Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Revenues
Services86.3  78.9  261.3  232.5  
Services-affiliate16.0  15.4  47.9  46.1  
Total Revenues102.3  94.3  309.2  278.6  
Operating Costs, Expenses and Other
Operations and maintenance40.4  39.2  118.2  116.8  
Depreciation and amortization22.1  21.1  65.9  61.1  
General and administrative13.4  7.1  33.8  26.6  
Taxes, other than income taxes2.3  1.4  6.9  4.0  
Other expense (income), net—  (0.9) 0.2  (9.3) 
Total Operating Costs, Expenses and Other78.2  67.9  225.0  199.2  
Operating Income24.1  26.4  84.2  79.4  
Other Income (Expense)   
Interest income, net0.1  6.1  0.7  6.1  
Foreign exchange gain (loss)0.1  (0.6) (0.1) (0.4) 
Other, net(0.1) (0.4) 0.1  (0.4) 
Total Other Income (Expense)0.1  5.1  0.7  5.3  
Income from Continuing Operations Before Income Taxes24.2  31.5  84.9  84.7  
Income Tax Expense(7.6) (9.3) (25.4) (25.0) 
Income from Continuing Operations16.6  22.2  59.5  59.7  
Discontinued Operations(Note 2)
Income from operations of the Trans Mountain Asset Group, net of tax—  19.2  —  39.8  
Gain on sale of Trans Mountain Asset Group, net of tax—  1,308.0  —  1,308.0  
Income from Discontinued Operations, net of tax—  1,327.2  —  1,347.8  
Net Income16.6  1,349.4  59.5  1,407.5  
Preferred Share dividends(7.2) (7.2) (21.6) (21.6) 
Net Income Attributable to Kinder Morgan Interest(6.6) (940.7) (26.5) (971.8) 
Net Income Available to Restricted Voting Shareholders2.8  401.5  11.4  414.1  
Restricted Voting Shares(Note 4) 
Basic and Diluted Earnings Per Restricted Voting Share from Continuing Operations0.08  0.14  0.32  0.32  
Basic and Diluted Earnings Per Restricted Voting Share from Discontinued
   Operations
—  11.40  —  11.64  
Basic and Diluted Weighted Average Restricted Voting Shares Outstanding34.9  34.8  34.9  34.6  

The accompanying notes are an integral part of these consolidated financial statements.


3

KINDER MORGAN CANADA LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions of Canadian dollars)dollars, Unaudited)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Net income16.6  1,349.4  59.5  1,407.5  
Other comprehensive income    
     Benefit plans—  36.4  —  37.5  
     Foreign currency translation adjustments—  (10.5) —  (8.2) 
Total other comprehensive income—  25.9  —  29.3  
Comprehensive income16.6  1,375.3  59.5  1,436.8  
Comprehensive income attributable to Kinder Morgan interest(6.6) (958.9) (26.5) (992.3) 
Comprehensive income attributable to Kinder Morgan Canada Limited10.0  416.4  33.0  444.5  
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
Net income1,349.4
 42.4
 1,407.5
 114.3
        
Other comprehensive income (loss) 
  
  
  
     Benefit plans (Note 10)36.4
 (0.1) 37.5
 (0.7)
     Foreign currency translation adjustments (Note 6)(10.5) (1.3) (8.2) (1.8)
        
Total other comprehensive income (loss)25.9
 (1.4) 29.3
 (2.5)
Comprehensive income1,375.3
 41.0
 1,436.8
 111.8
        
Comprehensive income attributable to Kinder Morgan interest(958.9) (27.8) (992.3) (94.9)
        
Comprehensive income attributable to Kinder Morgan Canada Limited416.4
 13.2
 444.5
 16.9


The accompanying notes are an integral part of these consolidated financial statements.


4

KINDER MORGAN CANADA LIMITED
CONSOLIDATED BALANCE SHEETS
(In millions of Canadian dollars, except share and per share amounts)
(Unaudited)


 September 30, 2018 
December 31, 2017
(Note 2)
ASSETS   
Current assets   
Cash and cash equivalents4,350.1
 110.7
Accounts receivable41.2
 23.3
Inventories7.7
 7.3
Current assets held for sale (Note 2)—
 192.7
Other current assets7.8
 6.6
Total current assets4,406.8
 340.6
    
Property, plant and equipment, net985.3
 988.4
Long-term assets held for sale (Note 2)—
 3,050.4
Deferred charges and other assets9.2
 73.3
Total Assets5,401.3
 4,452.7
    
LIABILITIES AND EQUITY 
  
Current liabilities 
  
Credit facility (Note 3)—
 —
Accounts payable75.2
 54.5
Accrued taxes304.7
 8.7
Current liabilities held for sale (Note 2)—
 207.3
Other current liabilities32.1
 27.8
Total current liabilities412.0
 298.3
    
Long-term liabilities and deferred credits 
  
Deferred income taxes1.3
 299.3
Deferred revenues66.7
 53.5
Long-term liabilities held for sale (Note 2)—
 163.2
Other deferred credits2.4
 0.8
Total long-term liabilities and deferred credits70.4
 516.8
Total Liabilities482.4
 815.1
    
Commitments and contingencies (Notes 3 and 12)

 

    
Equity   
Preferred share capital, 12,000,000 shares of Series 1 and 10,000,000 shares of Series 3, issued and outstanding (Note 4)537.2
 537.2
Restricted Voting Share capital, 104,588,581 and 103,366,905 Restricted Voting Shares, respectively, issued and outstanding (Note 4)1,724.9
 1,707.5
Retained deficit(405.7) (770.0)
Accumulated other comprehensive loss—
 (8.8)
Total Kinder Morgan Canada Limited equity1,856.4
 1,465.9
Kinder Morgan interest, 244,061,460 and 242,882,897 Special Voting Shares, respectively, issued and outstanding (Note 3)3,062.5
 2,171.7
Total Equity4,918.9
 3,637.6
Total Liabilities and Equity5,401.3
 4,452.7
KINDER MORGAN CANADA LIMITED

CONSOLIDATED BALANCE SHEETS
(In millions of Canadian dollars, except share and per share amounts, Unaudited)

September 30, 2019December 31, 2018
ASSETS
Current assets 
Cash and cash equivalents65.2  4,338.1  
Accounts receivable31.6  26.2  
Prepayments3.7  3.5  
Inventories8.0  7.5  
Other current assets1.2  2.4  
Total current assets109.7  4,377.7  
Property, plant and equipment, net950.6  981.3  
ROU assets(Note 11)510.2  —  
Deferred charges and other assets11.0  10.6  
Total Assets1,581.5  5,369.6  
LIABILITIES AND EQUITY  
Current liabilities
Credit facility(Note 3)45.0  —  
Accounts payable45.0  49.4  
Distribution payable—  1,195.1  
Distribution payable-affiliate—  2,782.3  
Accrued taxes5.6  310.6  
Current lease liabilities(Note 11)17.0  —  
Current contract liabilities(Note 7)16.9  12.8  
Other current liabilities8.6  50.4  
Total current liabilities138.1  4,400.6  
Long-term liabilities and deferred credits    
Lease liabilities(Note 11)493.3  —  
Contract liabilities(Note 7)55.4  67.5  
Other deferred credits19.6  9.0  
Total long-term liabilities and deferred credits568.3  76.5  
Total Liabilities706.4  4,477.1  
Commitments and contingencies(Notes 3, 11, and 12)
Equity
Preferred Share capital, 12,000,000 shares of Series 1 and 10,000,000 shares of Series 3, issued and outstanding537.3  537.2  
Restricted Voting Share capital, 34,944,993 Restricted Voting Shares issued and outstanding279.4  278.1  
Retained deficit(171.5) (165.8) 
Total Kinder Morgan Canada Limited equity645.2  649.5  
Kinder Morgan interest, 81,353,820 Special Voting Shares issued and outstanding229.9  243.0  
Total Equity875.1  892.5  
Total Liabilities and Equity1,581.5  5,369.6  

The accompanying notes are an integral part of these consolidated financial statements.

5

KINDER MORGAN CANADA LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions of Canadian dollars)dollars, Unaudited)
(Unaudited)
Nine Months Ended September 30,  
20192018
Operating Activities  
Net income59.5  1,407.5  
Non-cash items:   
Depreciation and amortization65.9  107.9  
Deferred income taxes(0.7) (341.0) 
Capitalized equity financing costs—  (34.8) 
Write-off of unamortized debt issuance cost—  60.5  
Gain on sale of the Trans Mountain Asset Group(Note 2)—  (1,235.1) 
Other non-cash items1.8  8.6  
Change in operating assets and liabilities(Note 10)(310.6) 331.5  
Cash (used in) provided by operating activities(Note 2)(184.1) 305.1  
Investing Activities  
Capital expenditures(38.0) (507.5) 
Contributions to trusts(2.5) (9.6) 
Sales of property, plant and equipment, net of removal costs—  16.0  
Proceeds from the sale of Trans Mountain Asset group, net of cash disposed and working capital settlements(Note 2)(37.1) 3,921.2  
Other, net—  0.6  
Cash (used in) provided by investing activities(Note 2)(77.6) 3,420.7  
Financing Activities
Issuances of debt121.0  792.6  
Repayments of debt(76.0) (232.7) 
Distributions - Restricted Voting Shareholders - Return of Capital(1,195.1) —  
Dividends - Restricted Voting Shareholders(17.1) (36.8) 
Dividends - Preferred Shares(21.6) (20.5) 
Distributions - Kinder Morgan interest - Return of Capital(2,782.3) —  
Distributions - Kinder Morgan interest(39.6) (102.3) 
Debt and Preferred Shares issuance costs(0.9) (9.5) 
Other, net—  (6.0) 
Cash (used in) provided by financing activities(4,011.6) 384.8  
Change in Cash, Cash Equivalents, and Restricted Deposits held by the Trans Mountain Asset Group—  128.3  
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Deposits(0.1) 0.5  
Net (decrease) increase in Cash, Cash Equivalents and Restricted Deposits(4,273.4) 4,239.4  
Cash, Cash Equivalents and Restricted Deposits, beginning of period(Note 10)4,338.6  111.2  
Cash, Cash Equivalents and Restricted Deposits, end of period(Note 10)65.2  4,350.6  
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for interest (net of capitalized interest)0.7  —  
Cash paid during the period for income taxes329.3  9.3  
Non-cash Investing and Financing Activities
ROU assets and operating lease obligations recognized(Note 11)531.8  
Increase in property, plant and equipment due to foreign currency translation adjustments—  1.5  
 Nine Months Ended September 30,
 2018 2017
Operating Activities   
Net income1,407.5
 114.3
Non-cash items:   
Depreciation and amortization107.9
 107.6
Deferred income taxes(341.0) 38.5
Capitalized equity financing costs(34.8) (19.6)
Unrealized foreign exchange (gain) loss(0.2) 5.7
Write-off of unamortized debt issuance costs60.5
 —
Gain on sale of the Trans Mountain Asset Group (Note 2)(1,235.1) —
Other non-cash items8.8
 9.4
Change in operating assets and liabilities (Note 11)331.5
 (97.1)
Cash provided by operating activities (Note 2)305.1
 158.8
    
Investing Activities 
  
Capital expenditures(507.5) (409.1)
Contributions to trusts(9.6) (10.3)
Sales of property, plant and equipment, net of removal costs16.0
 (0.2)
Proceeds from the sale of Trans Mountain Asset Group, net of cash disposed (Note 2)3,921.2
 —
Other, net0.6
 —
Cash provided by (used in) investing activities (Note 2)3,420.7
 (419.6)
    
Financing Activities   
Issuances of debt792.6
 287.3
Repayments of debt(232.7) (122.3)
Proceeds received from IPO, net—
 1,671.0
Issuance of preferred shares, net—
 293.5
Repayments of debt with affiliates—
 (1,606.3)
Cash dividends - restricted shares(36.8) (4.3)
Dividends - preferred shares(20.5) —
Distributions - Kinder Morgan interest(102.3) (10.4)
Debt and preferred shares issuance costs(9.5) (74.7)
Other, net(6.0) —
Cash provided by financing activities384.8
 433.8
    
Change in Cash, Cash Equivalents, and Restricted Deposits held by the Trans Mountain Asset Group128.3
 (18.9)
    
Effect of exchange rate changes on cash, cash equivalents and restricted deposits0.5
 (1.3)
    
Net increase in Cash, Cash Equivalents and Restricted Deposits4,239.4
 152.8
Cash, Cash Equivalents and Restricted Deposits, beginning of period111.2
 110.3
Cash, Cash Equivalents and Restricted Deposits, end of period4,350.6
 263.1
    
Cash and Cash Equivalents, beginning of period110.7
 109.8
Restricted Deposits, beginning of period0.5
 0.5
Cash, Cash Equivalents, and Restricted Deposits, beginning of period111.2
 110.3
    
Cash and Cash Equivalents, end of period4,350.1
 261.9
Restricted Deposits, end of period0.5
 1.2
Cash, Cash Equivalents, and Restricted Deposits, end of period4,350.6
 263.1
    
Net increase in Cash, Cash Equivalents and Restricted Deposits4,239.4
 152.8
    
Supplemental Disclosures of Cash Flow Information   
Cash paid including to affiliates during the period for interest (net of capitalized interest)—
 60.6
Cash paid during the period for income taxes9.3
 1.4
Non-cash Investing and Financing Activities   
Increase in property, plant and equipment from both accruals and contractor retainage

 42.0
Increase (decrease) in property, plant and equipment due to foreign currency translation adjustments1.5
 (2.2)

The accompanying notes are an integral part of these consolidated financial statements.


6
KINDER MORGAN CANADA LIMITED
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited
 Issued shares (in millions) Canadian dollars (in millions)
 Preferred shares Restricted Voting SharesKinder Morgan Interest - Special Voting Shares Preferred share capital 
Restricted Voting Share
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 Kinder Morgan interest Total
Balance at June 30, 201822.0
 104.0
 244.1
 537.2
 1,720.3
 (790.2) (7.7) 2,143.9
 3,603.5
Net income          408.7
   940.7
 1,349.4
Preferred share dividend          (7.2)     (7.2)
Restricted voting share dividends          (17.0)     (17.0)
Special voting share distributions              (40.3) (40.3)
Dividend/Distribution reinvestment plan  0.6
     3.1
       3.1
Stock-based compensation        1.5
       1.5
Other comprehensive income            7.7
 18.2
 25.9
Balance at September 30, 201822.0
 104.6
 244.1
 537.2
 1,724.9
 (405.7) —
 3,062.5
 4,918.9
KINDER MORGAN CANADA LIMITED

CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)

Issued shares (in millions)Canadian dollars (in millions)
 Preferred Shares  Restricted Voting Shares  Kinder Morgan Interest - Special Voting Shares  Preferred Share capital  Restricted Voting Share
capital 		 Retained
deficit 		 Kinder Morgan interest  Total  
Balance at June 30, 201922.0  34.9  81.4  537.3  278.9  (168.6) 236.5  884.1  
Net income10.0  6.6  16.6  
Preferred Share dividends(7.2) (7.2) 
Restricted Voting Share dividends(5.7) (5.7) 
Special Voting Share distributions(13.2) (13.2) 
Share-based compensation0.5  0.5  
Balance at September 30, 201922.0  34.9  81.4  537.3  279.4  (171.5) 229.9  875.1  


Issued shares (in millions)Canadian dollars (in millions)
 Preferred Shares  Restricted Voting Shares  Kinder Morgan Interest - Special Voting Shares  Preferred Share capital  Restricted Voting Share
capital 		 Retained
deficit 		 Accumulated
other
comprehensive
loss 		 Kinder Morgan interest  Total  
Balance at June 30, 201822.0  34.7  81.4  537.2  1,720.3  (790.2) (7.7) 2,143.9  3,603.5  
Net income408.7  940.7  1,349.4  
Preferred Share dividends(7.2) (7.2) 
Restricted Voting Share dividends(17.0) (17.0) 
Special Voting Share distributions(40.3) (40.3) 
Dividend/Distribution reinvestment plan0.2  3.1  —  3.1  
Share-based compensation1.5  1.5  
Other comprehensive income7.7  18.2  25.9  
Balance at September 30, 201822.0  34.9  81.4  537.2  1,724.9  (405.7) —  3,062.5  4,918.9  



















7
 Issued shares (in millions) Canadian dollars (in millions)
 Preferred shares Restricted Voting Shares Kinder Morgan Interest - Special Voting Shares Preferred share capital 
Restricted Voting Share
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 Kinder Morgan interest Total
Balance at June 30, 2017—
 102.9
 242.1
 —
 1,699.1
 (773.7) (8.0) 2,153.7
 3,071.1
Reallocation of equity on common control transaction          0.2
   (0.2) —
Equity issuance
  fees
      (7.0) (0.2)       (7.2)
Issuance of preferred shares12.0
     300.0
         300.0
Net income          13.7
   28.7
 42.4
Restricted voting share dividends          (5.9)     (5.9)
Special voting share distributions              (13.8) (13.8)
Dividend/Distribution reinvestment plan  0.1
 0.2
   1.6
     3.5
 5.1
Stock-based compensation        0.9
       0.9
Deferred tax liability adjustments      0.5
       1.1
 1.6
Other comprehensive loss            (0.5) (0.9) (1.4)
Balance at September 30, 201712.0
 103.0
 242.3
 293.5
 1,701.4
 (765.7) (8.5) 2,172.1
 3,392.8
KINDER MORGAN CANADA LIMITED

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(Unaudited)

KINDER MORGAN CANADA LIMITED
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited)
 Issued shares (in millions) Canadian dollars (in millions)
 Preferred shares Restricted Voting SharesKinder Morgan Interest - Special Voting Shares Preferred share capital 
Restricted Voting Share
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 Kinder Morgan interest Total
Balance at December 31, 201722.0
 103.4
 242.9
 537.2
 1,707.5
 (770.0) (8.8) 2,171.7
 3,637.6
Net income          435.7
   971.8
 1,407.5
Preferred share dividend          (20.5)     (20.5)
Restricted voting share dividends          (50.9)     (50.9)
Special voting share distributions              (122.1) (122.1)
Dividend/Distribution reinvestment plan  1.2
 1.2
   14.1
     19.8
 33.9
Stock-based compensation        4.1
       4.1
Other        (0.8)     0.8
 —
Other comprehensive income            8.8
 20.5
 29.3
Balance at September 30, 201822.0
 104.6
 244.1
 537.2
 1,724.9
 (405.7) —
 3,062.5
 4,918.9
Issued shares (in millions)Canadian dollars (in millions)
 Preferred Shares  Restricted Voting Shares  Kinder Morgan Interest - Special Voting Shares  Preferred Share capital  Restricted Voting Share
capital 		 Retained
deficit 		 Kinder Morgan interest  Total  
Balance at December 31, 201822.0  34.9  81.4  537.2  278.1  (165.8) 243.0  892.5  
Net income33.0  26.5  59.5  
Preferred Share dividends(21.6) (21.6) 
Restricted Voting Share dividends(17.1) (17.1) 
Special Voting Share distributions(39.6) (39.6) 
Share-based compensation1.3  1.3  
Other0.1  0.1  
Balance at September 30, 201922.0  34.9  81.4  537.3  279.4  (171.5) 229.9  875.1  



 Issued shares (in millions) Canadian dollars (in millions)
 Preferred Voting Shares Restricted Voting Shares Kinder Morgan Interest - Special Voting Shares Equity attributable to Kinder Morgan pre-IPO Preferred Share Capital 
Restricted Voting Share
capital
 Retained deficit Accumulated other comprehensive loss Kinder Morgan interest Total
Balance at December 31, 2016—
 —
 —
 1,475.0
 —
 —
 (13.1) (25.9) —
 1,436.0
Activity attributable to Kinder Morgan prior to IPO:                  
Equity interests issued      126.9
           126.9
Distribution      (261.7)           (261.7)
Issuance of restricted voting shares  102.9
       1,750.0
       1,750.0
Issuance of special voting shares and reallocation of Kinder Morgan pre-IPO carrying basis    242.1
 (1,340.2)     13.1
 25.9
 1,301.2
 —
Reallocation of equity on common control transaction            (777.7) (7.5) 785.2
 —
Equity issuance fees        (7.0) (69.9)       (76.9)
Issuance of preferred shares12.0
       300.0
         300.0
Net income            17.9
   96.4
 114.3
Restricted voting share dividends            (5.9)     (5.9)
Special voting share distributions                (13.8) (13.8)
Dividend/Distribution reinvestment plan  0.1
 0.2
     1.6
     3.5
 5.1
Stock-based compensation          0.9
       0.9
Deferred tax liability adjustment        0.5
 18.8
     1.1
 20.4
Other comprehensive loss              (1.0) (1.5) (2.5)
Balance at September 30, 201712.0
 103.0

242.3
 —
 293.5
 1,701.4
 (765.7) (8.5) 2,172.1
 3,392.8


Issued shares (in millions)Canadian dollars (in millions)
 Preferred SharesRestricted Voting SharesKinder Morgan Interest - Special Voting SharesPreferred Share capitalRestricted Voting Share
capital		Retained
deficit		Accumulated
other
comprehensive
loss		Kinder Morgan interestTotal
Balance at December 31, 201722.0  34.5  81.0  537.2  1,707.5  (770.0) (8.8) 2,171.7  3,637.6  
Net income435.7  971.8  1,407.5  
Preferred Share dividends(20.5) (20.5) 
Restricted Voting Share dividends(50.9) (50.9) 
Special Voting Share distributions(122.1) (122.1) 
Dividend/Distribution reinvestment plan0.4  0.4  14.1  19.8  33.9  
Share-based compensation4.1  4.1  
Other(0.8) 0.8  —  
Other comprehensive income8.8  20.5  29.3  
Balance at September 30, 201822.0  34.9  81.4  537.2  1,724.9  (405.7) —  3,062.5  4,918.9  

The accompanying notes are an integral part of these consolidated financial statements.

8

KINDER MORGAN CANADA LIMITED


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1. General


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. After the IPO, we issued an aggregate of $550.0 million of Series 1 Preferred Shares and Series 3 Preferred Shares; as a result, our and Kinder Morgan’s respective interests in the Limited Partnership are subject to the preferred shareholders’ priority on distributions and upon liquidation.


Pending Sale to Pembina

On August 21, 2019, we announced that Pembina agreed to acquire all of our outstanding common equity, including the approximate 70% majority voting and economic interest held by Kinder Morgan. On closing, holders of Restricted Voting Shares will receive 0.3068 of a Pembina common share for each Restricted Voting Share and holders of Special Voting Shares will receive a cash payment of $0.000001 for each Special Voting Share and 0.3068 of a Pembina common share for each associated Class B Unit. In addition, Pembina has agreed to purchase the U.S. portion of the Cochin Pipeline from Kinder Morgan. The closing of the two transactions are cross-conditioned upon each other, and, in the case of Pembina's acquisition of KML, subject to our shareholder, Court of Queen's Bench of Alberta and regulatory approvals. Collectively, these transactions are referred herein as the “Pembina Transactions.”

On September 10, 2019, we announced that, as part of its acquisition of KML, Pembina agreed to exchange our outstanding Preferred Shares for Pembina preferred shares with the same commercial terms and conditions as our Preferred Shares. The exchange will be subject to the approval of our preferred shareholders and will close concurrently with the acquisition by Pembina of our common equity, although this approval is not a condition to closing of the Pembina Transactions described above.

Basis of Presentation


General


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 as the Codification.(the “Codification”) U.S. GAAP meansare generally accepted accounting principles that the SECSecurities Exchange Commission has identified as having substantial authoritative support, as supplemented by Regulation S-X under the Exchange Act, as amended from time to time. UnderIn compliance with such rules and regulations, all significant intercompany items have been eliminated in consolidation.


In our opinion, all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of our financial position and operating results for the interim periods have been included in the accompanying consolidated financial statements. Interim results are not necessarily indicative of results for a full year; accordingly, you should read these consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our 20172018 Form 10-K.
Unless otherwise noted, amounts are stated in Canadian dollars, which is the functional currency of our continuing operations. Additionally, certain amounts from prior periods have been reclassified to conform to the current presentation.


For a discussion of the Accounting Standards Update (“ASU”) we adopted on January 1, 2019, see Note 11.

9

Presentation of Kinder Morgan Interest


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.

Prior to the IPO, Kinder Morgan controlled all of our equity which is presented as “Equity attributable to Kinder Morgan pre-IPO” in our statement of equity for the nine months ended September 30, 2017. For the periods after the IPO, “Kinder Morgan interest” is separately presented in our consolidated statement of equity for the three and nine months ended September 30, 2018 and 2017, and includes its share of our net income and other comprehensive loss, along with its Class B Units distributions and distribution reinvestment plan activities.
Accounting Policy Changes

Adoption of New Accounting Pronouncements

On January 1, 2018, we adopted Accounting Standards Updates (ASU) No. 2014-09, “Revenue from Contracts with Customers,” and a series of related accounting standard updates designed to create improved revenue recognition and disclosure comparability in financial statements. For more information, see Note 7.

On January 1, 2018, we retroactively adopted ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” This ASU requires the statements of cash flows to present the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are now included with cash and cash equivalents when reconciling the beginning of period and end of period amounts presented on the statements of cash flows. The retrospective application of this new accounting guidance

resulted in a decrease of $0.7 million in “Cash used in investing activities,” an increase of $0.5 million in “Cash, Cash Equivalents, and Restricted Deposits, beginning of the period,” and an increase of $1.2 million in “Cash, Cash Equivalents, and Restricted Deposits, end of period” in our accompanying consolidated statement of cash flows from what was previously presented in our Quarterly Report for the quarterly period ended September 30, 2017.

On January 1, 2018, we adopted ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715).”  This ASU requires an employer to disaggregate the service cost component from the other components of net benefit cost, allows only the service cost component of net benefit cost to be eligible for capitalization, and establishes how to present the service cost component and the other components of net benefit cost in the income statement. Topic 715 required us to retrospectively reclassify other components of net benefit costs (excluding the service cost component) from “General and administrative” to “Other, net” in our accompanying consolidated statement of income.  We prospectively applied Topic 715 related to net benefit costs eligible for capitalization. These costs are included within our Discontinued Operations, and therefore are not reflected within the income statement line items presented and are net within the “Income from Operations of the Trans Mountain Asset Group, net of tax.”


2. Trans Mountain Transaction


On August 31, 2018, we closed on the sale of the Trans Mountain Asset Group, which werewas indirectly acquired by the Government of Canada, through Trans Mountain Corporation (a subsidiary of the Canada Development Investment Corporation) for cash consideration of approximately $4.43 billion, which is the contractual purchase price of $4.5 billion net of a preliminary working capital adjustment (the “Transaction”“Trans Mountain Transaction”). The contractual purchase price is subject to a customary final true upAdditionally, in February 2019, we paid the remaining $37.0 million of the estimated working capital calculationadjustments that were accrued as provided in the purchase agreement. The Augustof December 31, 2018 Trans Mountain Asset Group balance sheet included $502.4 million of cash and cash equivalents, along with $559.8 million of debt.2018.


On September 4, 2018, we announced that our boardJanuary 3, 2019, distributions of directors approved a plan to distribute the net proceeds from the Transaction, after capital gains taxes, customary purchase price adjustments and repayment of debt outstanding under our Temporary Credit Facility (see Note 3),approximately $1.2 billion were made as a return of capital to shareholders. The return of capital to holders of our Restricted Voting Shares ($11.40 per Restricted Voting Share) and approximately $2.8 billion to KMI as the indirect holder of our Special Voting Shares (the “Return of Capital”) is expected to be approximately $1.2 billion or approximately $11.40 per Restricted Voting Share.. To facilitate the Return of Capital and provide flexibility for dividends going forward, weour voting shareholders also announced that we will seek voting shareholders’ two-thirds majority approval to reduceapproved (i) a reduction of the stated capital of our Restricted Voting Shares by $1.45 billion (the “Stated Capital Reduction”). Our board of directors also approved and (ii) a proposal to effect a consolidation or "reverse“reverse stock split"split” of our Restricted Voting Shares and Special Voting Shares on a one-for-three basis (three shares consolidating to one share) (the “Share Consolidation”). These proposals will be voted, which occurred on at a special meeting of our shareholders currently scheduled to be held on November 29, 2018January 4, 2019. The Restricted Voting Shares and Kinder Morgan has stated that it intends to voteSpecial Voting Shares outstanding and earnings per share information in favor of these proposals with its approximate 70% voting interest in us. Subject to the Stated Capital Reduction and Share Consolidation being approved by shareholders, and the board's subsequent confirmation thereof, the anticipated payment date for the Return of Capital is expected to be January 3, 2019, withthis report reflect the Share Consolidation to occur a few days thereafter.for all periods presented.

We have recorded a Gain on sale of the Trans Mountain Asset Group, net of tax of $1,308.0 million as presented in the accompanying consolidated statements of income for the three and nine months ended September 30, 2018. The gain included a tax benefit of approximately $69.5 million comprised of the release of deferred income taxes of approximately $388.5 million, which were partially offset by an adjustment to accrued taxes of approximately $319.0 million on the accompanying consolidated balance sheet as of September 30, 2018.

The underlying assets in the Trans Mountain Asset Group were primarily within our Pipelines business segment, and the operating results for the Trans Mountain Asset Group are included in Income“Income from operationsDiscontinued Operations, Net of the Trans Mountain Asset Group, net of taxTax” in the accompanying consolidated statements of income for the three and nine months ended September 30, 2018 and 2017. Majorits major income and expense line items associated with the Trans Mountain Asset Group that have been presented within the caption Discontinued Operations in the accompanying consolidated statements of income were as follows:

Three MonthsNine Months
 Ended September 30, 2018 (a)
(In millions of Canadian dollars)
  Revenues56.4  214.3  
  Depreciation and amortization(11.8) (46.8) 
  Operating expenses, including general and administrative(27.5) (89.8) 
  Interest and other income (expense), net11.3  (22.9) 
Income from operations of the Trans Mountain Asset Group before income taxes28.4  54.8  
   Gain on sale of the Trans Mountain Asset Group before income taxes1,235.1  1,235.1  
Income from Discontinued Operations before income taxes1,263.5  1,289.9  
    Income tax benefit63.7  57.9  
  Income from Discontinued Operations, Net of Tax1,327.2  1,347.8  
 Three Months Ended September 30,Nine Months Ended September 30,
 2018(a) 20172018(a) 2017
(In millions of Canadian dollars)      
  Revenues56.4
 81.1
214.3
 236.3
  Depreciation and amortization(11.8) (17.9)(46.8) (53.9)
  Operating expenses(27.5) (30.0)(89.8) (84.8)
  Interest and other income (expense) (b)11.3
 6.4
(22.9) 13.4
Income from operations of the Trans Mountain Asset Group before income taxes28.4
 39.6
54.8
 111.0
   Gain on sale of the Trans Mountain Asset Group before income taxes1,235.1
 —
1,235.1
 —
Income from Discontinued Operations before income taxes1,263.5
 39.6
1,289.9
 111.0
    Income tax benefit (expense)63.7
 (7.0)57.9
 (24.7)
  Income from Discontinued Operations, Net of Tax1,327.2
 32.6
1,347.8
 86.3

The Trans Mountain Asset Group’s carrying value of assets and liabilities have been presented as held for sale in the accompanying consolidated balance sheet as of December 31, 2017 and include:
December 31, 2017
(In millions of Canadian dollars)
  Cash and cash equivalents128.1
  Accounts receivable46.0
  Other current assets18.6
  Property, plant and equipment, net2,719.6
  Goodwill248.0
  Non-current regulatory assets29.1
  Other non-current assets53.7
Total assets of the Trans Mountain Asset Group3,243.1
  Credit Facility—
  Accounts payable98.0
  Current regulatory liabilities103.0
  Other current liabilities6.3
  Pension and postretirement benefits75.4
  Non-current regulatory liabilities43.3
  Other non-current liabilities44.5
Total liabilities of the Trans Mountain Asset Group370.5


Our net cash flows from operating and investing activities from the Trans Mountain Asset Group included in the accompanying consolidated statementsstatement of cash flows were as follows:
Nine Months Ended September 30,2018(a)
 2017
(Net cash provided by (used in) in millions of Canadian dollars)   
Operating activities182.3
 71.7
Investing activities(507.3) (305.6)
______
(a)Nine Months
Ended September 30, 2018 (a)
(Net cash provided by (used in) in millions of Canadian dollars)
Operating activities182.3 
Investing activities(507.3)
_______
(a)Amounts are for the periods ending on August 31, 2018, the closing of the Transaction.
(b)Nine months ended September 30, 2018 includes approximately $60.5 million pre-tax write off of deferred financing costs, see Note 3. Amounts also include interest expenses from our credit facilities and KMI Loans that were allocated to discontinued operations for borrowings that were directly related to the Trans Mountain Asset Group.


Subsequent to the sale of the Trans Mountain Asset Group, we continue to have two business segments: (i) the Pipelines segment, which includes Cochin, a 12-inch diameter multi-product pipeline which spans approximately 1,000 kilometers in Saskatchewan and Alberta and Jet Fuel serving the Vancouver International Airport and (ii) the Terminals segment, which includes the ownership or operation of liquid product merchant storage and rail terminals in the Edmonton, Alberta market as well as a predominantly dry cargo import/export facility in Vancouver, the Province of British Columbia (“B.C.”)Transaction.


Also, see Note 3 “Debt” for information on our 4-year, $500 million unsecured revolving credit facility.



10

3. Debt


Credit FacilitiesFacility


In conjunction with the announcementAs of the Transaction described in Note 2, on MaySeptember 30, 2018, approximately $100.0 million of borrowings outstanding under our June 16, 2017 revolving credit facility (the “2017 Credit Facility”) were repaid, the underlying credit facilities were terminated, and approximately $60.5 million of deferred costs associated with the 2017 Credit Facility that were being amortized as interest expense over its term were written off.

On May 30, 2018 and concurrently with the termination of our 2017 Credit Facility,2019, we established a $500.0 million revolving credit facility (the “Temporary Credit Facility”), for general corporate purposes, including working capital during the period from June 1, 2018 through the closing of the Transaction. The approximate $100.0 million of borrowings outstanding under the terminated 2017 Credit Facility were repaid pursuant to an initial drawdown under the Temporary Credit Facility.

On June 14, 2018, our former subsidiary, Trans Mountain, as the borrower, entered into a non-revolving, unsecured construction credit agreement (the “Trans Mountain Non-recourse Credit Agreement”) in an aggregate principal amount of up to approximately$1 billion to facilitate the resumption of the TMEP planning and construction work until the close of the Transaction. The $559.8had $45.0 million of outstanding borrowings under the Trans Mountain Non-recourse Credit Agreement were included in the Trans Mountain Asset Group’s assets and liabilities included in the Transaction (see Note 2).

Upon the closing of the Transaction on August 31, 2018, the Temporary Credit Facility was replaced with a newour 4-year $500.0 million unsecured revolving credit facility for working capital purposesdue August 31, 2022 (“2018 Credit Facility”) under a credit agreement, with the Royal Bank of Canada (the “Credit Agreement”). In addition, the $132.6 million of outstanding borrowings under the Temporary Credit Facility were paid off prior to its termination with a portion of the proceeds from the Transaction.

Depending on the type of loan requested, interest on loans outstanding will be calculated based on: (i) a Canadian prime rate of interest; (ii) a U.S. base rate; (iii) LIBOR; or (iv) bankers’ acceptance fees, plus (i) in the case of Canadian prime rate or U.S. base rate loans, an applicable margin of up to 1.25%; or (ii) in the case of LIBOR or banker’s acceptance loans, an applicable margin ranging from 1.00% to 2.25%, which such margin in any case is determined by our debt credit rating. Standby fees for the unused portion of the 2018 Credit Facility will be calculated at a rate ranging from 0.20% to 0.45% based upon our debt credit rating.

The Credit Agreement contains various financial and other covenants that apply to us and our subsidiaries and that are common in such agreements, including a maximum ratio of consolidated total funded debt to consolidated earnings before interest, income taxes, DD&A, and non-cash adjustments as defined in the Credit Agreement, of 5.00:1.00 and restrictions on our ability to incur debt, grant liens, make dispositions, engage in transactions with affiliates, make restricted payments, make investments, enter into sale leaseback transactions, amend our organizational documents and engage in corporate reorganization transactions.
In addition, the Credit Agreement contains customary events of default, including non-payment; non-compliance with covenants (in some cases, subject to grace periods); payment default under, or acceleration events affecting, certain other indebtedness; bankruptcy or insolvency events involving us or guarantors; and changes of control. If an event of default under the Credit Agreement exists and is continuing, the lenders could terminate their commitments and accelerate the maturity of our outstanding obligations under the Credit Agreement.

As of September 30, 2018, we had no outstanding borrowings under our 2018 Credit Facility, and had $446.0$451.6 million available under the 2018 Credit Facility, after further reducing the $500.0 million capacity for the $54.0$3.4 million in letters of credit. Of the total $54.0 million of letters of credit issued, approximately $50.5 million are issued on behalf of Trans Mountain for which it has issued a backstop letter of credit to us. As of September 30, 2019, the weighted average interest rate on our 2018 Credit Facility borrowings was 3.41% and we were in compliance with all required covenants. As of December 31, 2017,2018, we had no0 borrowings outstanding under our 2017the 2018 Credit Facility. For the three and nine months ended September 30, 2018, we incurred standby fees of $0.8 million and $7.6 million, respectively. For the three and nine months ended September 30, 2017, we incurred standby fees of $4.0 million and $4.6 million, respectively.


4. Equity


As of September 30, 2018,2019, we had (i) 104.634.9 million and 244.181.4 million of Restricted Voting Shares and Special Voting Shares outstanding, respectively, with no par value, for an aggregate of 348.7116.3 million voting shares outstanding,outstanding; (ii) 12.0 million and 10.0 million of Series 1 Preferred Shares and Series 3 Preferred Shares outstanding, respectively,respectively; and (iii) 0.20.3 million of restricted stockshare unit (“RSU”) awards outstanding.


On July 17, 2019, we announced that our board of directors approved a normal course issuer bid (the “NCIB”) to repurchase up to 1,999,902 Restricted Voting Shares for cancellation during the 12-month period from July 22, 2019 to July 21, 2020. Subsequently, under terms of the agreement for the Pembina Transactions, we agreed to not repurchase any Restricted Voting Shares under the NCIB. No Restricted Voting Shares have been purchased under the NCIB.

Preferred Share Dividends


The following table provides information regarding dividends declared and paid, or to be paid, as applicable, on our Preferred Shares during the nine months ended September 30, 2018:2019.
PeriodSeries 1 quarterly dividend per share for the periodSeries 3 quarterly dividend per share for the periodDate of declarationDate of recordDate of dividendTotal amount of dividends paid in cash
(In millions of Canadian dollars, except per share amounts)
November 15, 2018 to February 14, 2019  0.328125  0.325  January 15, 2019January 31, 2019February 15, 20197.2  
February 15, 2019 to May 14, 2019  0.328125  0.325  April 16, 2019April 30, 2019May 15, 20197.2  
May 15, 2019 to August 14, 2019  0.328125  0.325  July 16, 2019July 31, 2019August 15, 20197.2  
August 15, 2019 to November 14, 2019  0.328125  0.325  October 15, 2019October 31, 2019November 15, 2019
Period Total Series 1 quarterly dividend per share for the periodTotal Series 3 quarterly dividend per share for the period Date of declaration Date of record Date of dividendTotal amount of dividends paid in cash
(In millions of Canadian dollars, except per share amounts)     
November 15, 2017 to February 14, 2018 (a) 0.328125
0.22082
 January 17, 2018 January 31, 2018 February 15, 20186.1
February 15, 2018 to May 14, 2018 0.328125
0.325
 April 18, 2018 April 30, 2018 May 15, 20187.2
May 15, 2018 to August 14, 2018 0.328125
0.325
 July 18, 2018 July 31, 2018 August 15, 20187.2
August 15, 2018 to November 14, 2018 0.328125
0.325
 October 10, 2018 October 31, 2018 November 15, 2018

________
(a) Series 3 per share amount reflects that the shares were outstanding for 62 days during the period ended February 14, 2018.


Restricted Voting Share Dividends


The following table provides information regarding dividends declared and paid, or to be paid, as applicable, on our Restricted Voting Shares during the nine months ended September 30, 2018.2019.
For the three month period endedDividend rate per shareDate of declarationDate of recordDate of dividendTotal amount of dividends paid in cash
(In millions of Canadian dollars, except per share amounts) 
December 31, 20180.1625  January 15, 2019January 31, 2019February 15, 20195.7  
March 31, 20190.1625  April 16, 2019April 30, 2019May 15, 20195.7  
June 30, 20190.1625  July 16, 2019July 31, 2019August 15, 20195.7  
September 30, 20190.1625  October 15, 2019October 31, 2019November 15, 2019

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For the three month period ended Dividend rate per share Date of declaration Date of record Date of dividend Total amount of dividends paid in cash(a) Total amount of dividends paid in form of additional shares
(In millions of Canadian dollars, except per share amounts)    
December 31, 2017 0.1625
 January 17, 2018 January 31, 2018 February 15, 2018 11.8
 5.1
March 31, 2018 0.1625
 April 18, 2018 April 30, 2018 May 15, 2018 11.1
 5.9
June 30, 2018 0.1625
 July 18, 2018 July 31, 2018 August 15, 2018 13.9
 3.1
September 30, 2018 0.1625
 October 17, 2018 October 31, 2018 November 15, 2018 
 
Effective January 16, 2019, our board of directors suspended the dividend reinvestment plan for our Restricted Voting Shares, including with respect to the dividend we paid on February 15, 2019.
________
(a)Amount includes notional dividends on outstanding restricted stock awards of $0.4 million.











Kinder Morgan Interest Distributions

The following table provides information regarding distributions declared and paid, or to be paid, as applicable, to Kinder Morgan during the nine months ended September 30, 2018.2019.
For the three month period endedDividend rate per shareDate of declarationDate of distributionTotal amount of distribution paid in cash
(In millions of Canadian dollars, except per share amounts)
December 31, 20180.1625  January 15, 2019February 15, 201913.2  
March 31, 20190.1625  April 16, 2019May 15, 201913.2  
June 30, 20190.1625  July 16, 2019August 15, 201913.2  
September 30, 20190.1625  October 15, 2019November 15, 2019
For the three month period ended Dividend rate per share Date of declaration Date of distribution Total amount of distribution paid in cash Total amount of distribution paid in form of additional shares (a)
(In millions of Canadian dollars, except per share amounts) (In millions of Canadian dollars)
December 31, 2017 0.1625
 January 17, 2018 February 15, 2018 31.0
 9.9
March 31, 2018 0.1625
 April 18, 2018 May 15, 2018 31.0
 9.9
June 30, 2018 0.1625
 July 18, 2018 August 15, 2018 40.3
 —
September 30, 2018 0.1625
 October 17, 2018 November 15, 2018 
 
________
(a)Due to our reduced need for capital after our May 29, 2018 announcement of the Transaction, Kinder Morgan elected to suspend its participation in the Limited Partnership's distribution reinvestment plan.
Proposed Return of Capital, Stated Capital Reduction and Share Consolidation

As discussed in Note 2, subject to the Stated Capital Reduction and Share Consolidation being approved by a two-thirds majority of voting shareholders, and the board's subsequent confirmation thereof, the anticipated payment date for the Return of Capital is expected to be January 3, 2019, with the Share Consolidation to occur a few days thereafter. KMI has stated that it intends to vote in favor of these proposals with its approximate 70% voting interest in us.


Earnings per Restricted Voting Share


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 stockRSU 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.



12

The following table setstables set forth the allocation of income from continuing operations and net incomediscontinued operations available to shareholders of Restricted Voting Shares and participating securities:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
(In millions of Canadian dollars, except per share amounts)       
Income from Continuing Operations Available to Restricted Voting Stockholders4.9
 1.9
 11.3
 3.9
Participating securities:       
    Less: Income from Continuing Operations allocated to restricted stock awards(a)(0.2) —
 (0.4) —
Income from Continuing Operations Allocated to Restricted Voting Stockholders4.7
 1.9
 10.9
 3.9
        
Basic Weighted Average Restricted Voting Shares Outstanding104.3
 103.0
 103.9
 72.1
Basic Earnings from Continuing Operations Per Restricted Voting Share0.05
 0.02
 0.11
 0.06
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars, except per share amounts)
Income from Continuing Operations Available to Restricted Voting
  Shareholders
2.8  4.9  11.4  11.3  
Participating securities:
    Less: Income from Continuing Operations allocated to RSU awards(a)—  (0.2) (0.2) (0.4) 
Income from Continuing Operations Allocated to Restricted Voting
  Shareholders
2.8  4.7  11.2  10.9  
Basic Weighted Average Restricted Voting Shares Outstanding34.9  34.8  34.9  34.6  
Basic Earnings Per Restricted Voting Share from Continuing Operations0.08  0.14  0.32  0.32  


 Three Months Ended September 30, Nine Months Ended September 30,
 2018 2017 2018 2017
(In millions of Canadian dollars, except per share amounts)       
Income from Discontinued Operations Available to Restricted Voting Stockholders396.7
 9.3
 402.9
 11.5
Participating securities:       
    Less: Income from Discontinued Operations allocated to restricted stock awards(a)(2.3) (0.1) (2.9) (0.1)
Income from Discontinued Operations Allocated to Restricted Voting Stockholders394.4
 9.2
 400
 11.4
        
Basic Weighted Average Restricted Voting Shares Outstanding104.3
 103.0
 103.9
 72.1
Basic Earnings from Discontinued Operations Per Restricted Voting Share3.78
 0.09
 3.85
 0.16
Three Months Ended September 30,Nine Months Ended September 30,
20182018
(In millions of Canadian dollars, except per share amounts)
Income from Discontinued Operations Available to Restricted Voting Shareholders396.7  402.9  
Participating securities:
    Less: Income from Discontinued Operations allocated to RSU awards—  —  
Income from Discontinued Operations Allocated to Restricted Voting
   Shareholders
396.7  402.9  
Basic Weighted Average Restricted Voting Shares Outstanding34.8  34.6  
Basic earnings Per Restricted Voting Share from Discontinued Operations11.40  11.64  
_______
(a)As of September 30, 2018, there were approximately 0.2 million unvested restricted stock awards.

(a)As of September 30, 2019, there were approximately 0.3 million unvested RSU awards.

For the three and nine months ended September 30, 2018,2019, the weighted average maximum number of potential Restricted Voting Share equivalents of 0.3 million and 0.2 million, respectively, of unvested restricted stockRSU awards are antidilutive and, accordingly, are excluded from the determination of diluted earnings per Restricted Voting Share.


5. Transactions with Related Parties


Affiliate Activities


The following table summarizes our related partyrelated-party income statement activity. Revenues, operating costs and capitalized costs are under normal trade terms.
 Three Months Ended September 30,Nine Months Ended September 30,
 2018 20172018 2017
(In millions of Canadian dollars)      
Income Statement location      
Revenues-Services(a)15.4
 14.6
46.1
 44.2
Operations and maintenance and general and administrative expenses0.4
 0.2
3.7
 0.9
Operations and maintenance and general and administrative expenses included in discontinued operations0.4
 1.0
1.8
 1.5
Interest expense(b)—
 —
—
 19.6
Other      
Capitalized costs from affiliates in property, plant and equipment—
 1.2
0.1
 5.2
Capitalized costs from affiliates included in assets sold in the Transaction1.7
 —
1.9
 —
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars)
Revenues-Services-affiliate(a)16.0  15.4  47.9  46.1  
Operations and maintenance and general and administrative expenses3.0  0.4  9.3  3.7  
_________
(a)Amounts represent sales to a customer who is a related party through joint ownership of a joint venture.
(b)2017 amounts primarily represent interest on long-term debt with affiliates (“KMI Loans”) that was repaid with proceeds from our IPO.

(a)Amounts represent sales to customers who are related-party through joint ownership of joint-ventures.
Accounts receivable and payable

13

Affiliate Balances

Accounts receivable-affiliate and accounts payable-affiliate are non-interest bearing and are settled on demand and since our IPO, primarilygenerally settled monthly. The following table summarizes our affiliate balances:
September 30, December 31,September 30,December 31,
2018 201720192018
(In millions of Canadian dollars)   (In millions of Canadian dollars)
Accounts receivable(a)13.6
 9.0
Accounts receivable(a)5.5  0.2  
Accounts payable(b)—
 0.7
Contract accounts receivable(b)Contract accounts receivable(b)—  0.7  
Accounts payable(c)Accounts payable(c)1.7  4.7  
Contract liabilities(d)Contract liabilities(d)0.1  —  
________
(a)Included in “Accounts receivable” on our accompanying consolidated balance sheets.
(b)Included in “Accounts payable” on our accompanying consolidated balance sheets.

(a)Included in “Accounts receivable” on our accompanying consolidated balance sheets.
(b)Included in “Other current assets” on our accompanying consolidated balance sheets.
(c)Included in “Accounts payable” on our accompanying consolidated balance sheets.
(d)Included in “Current contract liabilities” on our accompanying consolidated balance sheets.

6.  Risk Management and Financial Instruments


Credit risk


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.counterparties.



Interest Rate Risk


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


Foreign Currency Transactions and Translation


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“Foreign exchange loss in(loss) gain” on the accompanying consolidated statements of income and include:


As a result of the Transaction, we released foreign currency translation gains previously held within Accumulated other comprehensive income to the Gain on sale of the Trans Mountain Asset Group, net of tax in the accompanying consolidated statements of income of $10.1 million for both the three and nine months ended September 30, 2018.

Prior to repayment of the KMI Loans utilizing proceeds from our IPO, we were exposed to foreign currency risk related to the U.S. dollar denominated KMI Loans. For the three and nine months ended September 30, 2017, our continuing operations had unrealized foreign exchange gain of $0.5 million and $0.2 million, respectively, and our discontinued operations had unrealized foreign exchange gain of $0.1 million and a foreign exchange loss of $2.6 million, respectively, related to the KMI Loans.

•Our continuing operations unrealized foreign exchange gains and (losses) for the three and nine months ended September 30, 20182019 were 0 and $(0.1) million, respectively, and $(0.6) million and $0.4 million respectively, andfor the three and nine months ended September 30, 2017 were $(2.8) million and $(5.7) million,2018, respectively, due to changes in exchange rates between the Canadian dollar and the U.S. dollar on U.S. dollar denominated balances. Our discontinued operations unrealized foreign exchange gains and (losses) for the three and nine months ended September 30, 2018 were $0.1 million and $(0.2) million, respectively, and the three and nine months ended September 30, 2017 were $1.4 million and $2.5 million, respectively,These currency exchange rate fluctuations affect the expected Canadian dollar cash flows on unsettled U.S. dollar denominated transactions, primarily related to cash bank accounts that are denominated in U.S. dollars and affiliate receivables or payables that are denominated in U.S. dollars. Prior to the closing of the Transaction, we translated the assets and liabilities of Puget Sound that has the U.S. dollar as its functional currency to Canadian dollars at period-end exchange rates.


Puget Sound operates in the state of Washington, and earns its revenues and incurs most of its expenses in U.S. dollars and •Cochin earns its revenues in U.S. dollars. Therefore, fluctuations in the U.S. dollar to Canadian dollar exchange rate can affect the earnings contributed by Cochin and prior to the closing of the Transaction, Puget Sound, to our overall results. Our continuing operations had realized foreign exchange gains andgain (losses) of $(0.8) million for the nine months ended September 30, 2018, and $0.3$0.1 million and $0.2 million0 for the three and nine months ended September 30, 2017, respectively. Our discontinued operations had realized foreign exchange gains2019, and (losses) of $(0.6) million0 and $(0.2)$(0.8) million for the three and nine months ended September 30, 2018, respectively, and $0.3 million and $0.1respectively.

•As a result of the Trans Mountain Transaction, we released foreign currency translation gains previously held within
14

Accumulated other comprehensive loss to the Gain on sale of the Trans Mountain Asset Group, net of tax in the
accompanying consolidated statement of income of $10.1 million for the three and nine months ended September 30, 2017, respectively.2018.


Liquidity risk


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 3.


7.  Revenue Recognition

Adoption of Topic 606
Effective January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers” and the series of related accounting standard updates that followed (collectively referred to as “Topic 606”). We utilized the modified retrospective method to adopt Topic 606, which required us to apply the new revenue standard to (i) all new revenue contracts entered into after January 1, 2018, and (ii) revenue contracts that were not completed as of January 1, 2018. In accordance with this approach, our consolidated revenues for periods prior to January 1, 2018 were not revised. The cumulative effect of the adoption of Topic 606 as of January 1, 2018 and the impact to the financial statement line items for the current year was not material.

Revenue from Contracts with Customers

Beginning in 2018, we account for revenue from contracts with customers in accordance with Topic 606. The unit of account in Topic 606 is a performance obligation, which is a promise in a contract to transfer to a customer either a distinct good or service (or bundle of goods or services) or a series of distinct goods or services provided over a period of time. Topic 606 requires that a contract’s transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is to be allocated to each performance obligation in the contract based on relative standalone selling prices and recognized as revenue when (point in time) or as (over time) control of the goods or services transfers to the customer and the performance obligation is satisfied.

Our customer service contracts primarily include transportation service and terminaling service contracts, as described below. Generally, for the majority of these contracts: (i) our promise is to transfer (or stand ready to transfer) a series of distinct integrated services over a period of time, which is a single performance obligation; (ii) the transaction price includes fixed and/or variable consideration, which amount is determinable at contract inception and/or at each month end based on our right to invoice at month end for the value of services provided to the customer that month; and (iii) the transaction price is recognized as revenue over the service period specified in the contract (which can be a day, including each day in a series of promised daily services, a month, a year, or other time increment, including a deficiency makeup period) as the services are rendered using a time-based (passage of time) or units-based (units of service transferred) output method for measuring the transfer of control of the services and satisfaction of our performance obligation over the service period, based on the nature of the promised service (e.g., firm or non-firm) and the terms and conditions of the contract (e.g., contracts with or without makeup rights).

Firm Services

Firm services (also called uninterruptible services) are services that are promised to be available to the customer at all times during the period(s) covered by the contract, with limited exceptions. Our firm service contracts are typically structured with take-or-pay or minimum volume provisions, which specify minimum service quantities a customer will pay for even if it chooses not to receive or use them in the specified service period (referred to as “deficiency quantities”). We typically recognize the portion of the transaction price associated with such provisions, including any deficiency quantities, as revenue depending on whether the contract prohibits the customer from making up deficiency quantities in subsequent periods, or the contract permits this practice, as follows:

Contracts without Makeup Rights: If contractually the customer cannot make up deficiency quantities in future periods, our performance obligation is satisfied, and revenue associated with any deficiency quantities is generally recognized as each service period expires. Because a service period may exceed a reporting period, we determine at inception of the contract and at the beginning of each subsequent reporting period if we expect the customer to take the minimum volume associated with the service period. If we expect the customer to make up all deficiencies in the specified service period (i.e., we expect the customer to take the minimum service quantities), the minimum volume provision is deemed not substantive and we will recognize the transaction price as revenue in the specified service period as the promised units of services are transferred to the customer. Alternatively, if we expect that there will be any deficiency quantities that the customer cannot or will not make up in the specified service period (referred to as “breakage”), we will recognize the estimated breakage amount (subject to the constraint on variable consideration) as revenue ratably over such service period in proportion to the revenue that we will recognize for actual units of service transferred to the customer in the service period. For certain take-or-pay contracts where we make the service, or a part of the service, continuously available over the service period, we typically recognize the take-or-pay amount as revenue ratably over such period based on the passage of time.

Contracts with Makeup Rights: If contractually the customer can acquire the promised service in a future period and make up the deficiency quantities in such future period (the “deficiency makeup period”), we have a performance obligation to deliver those services at the customer’s request (subject to contractual and/or capacity constraints) in the deficiency makeup period. At inception of the contract, and at the beginning of each subsequent reporting period, we estimate if we expect that there will be deficiency quantities that the customer will or will not make up. If we expect the customer will make up all deficiencies it is contractually entitled to, any non-refundable consideration received relating to temporary deficiencies that will be made up in the deficiency makeup period will be deferred as a contract liability, and we will recognize that amount as revenue in the deficiency makeup period when either of the following occurs: (i) the customer makes up the volumes; or (ii) the likelihood that the customer will exercise its right for deficiency volumes then becomes remote (e.g., there is insufficient capacity to make up the volumes, the deficiency makeup period expires). Alternatively, if we expect at inception of the contract, or at the beginning of any subsequent reporting period, that there will be any deficiency quantities that the customer cannot or will not make up (i.e., breakage), we will recognize the estimated breakage amount (subject to the constraint on variable consideration) as revenue ratably over the specified

service periods in proportion to the revenue that we will recognize for actual units of service transferred to the customer in those service periods.

Non-Firm Services

Non-firm services (also called interruptible services) are the opposite of firm services in that such services are provided to a customer on an “as available” basis. Generally, we do not have an obligation to perform these services until we accept a customer’s periodic request for service. For the majority of our non-firm service contracts, the customer will pay only for the actual quantities of services it chooses to receive or use, and we typically recognize the transaction price as revenue as those units of service are transferred to the customer in the specified service period (typically a daily or monthly period).

Nature of Revenue by Segment
Pipelines Segment
We transport light hydrocarbon liquids (primarily to be used as diluent to facilitate bitumen transportation) on a firm or non-firm contractual basis, and jet fuel on a non-firm contractual basis. The regulated tariff for Cochin is designed to provide revenues sufficient to recover the costs of providing transportation to shippers, including a return on invested capital. The majority of Cochin’s transportation service is provided on a firm basis under its current contracts.

We typically promise to transport on a stand-ready basis the shipper’s minimum volume commitment amount. The shipper is obligated to pay for its volume commitment amount, regardless of whether or not it flows quantities in Cochin’s pipeline. The shipper pays a transaction price typically based on a per-unit rate for quantities transported, including amounts attributable to deficiency quantities.

Our non-firm, interruptible transportation services are provided on Cochin’s pipeline when and to the extent we determine capacity is available in this pipeline system. The shippers typically pay a per-unit rate for actual quantities of product transported.

Terminals Segment

We provide various types of liquid tank and bulk terminal services. These services are generally comprised of inbound, storage and outbound handling of customer products.

Our liquid tank storage and handling service contracts generally include a promised tank storage capacity provision and prepaid volume throughput of the stored product. In these contracts, we have a stand-ready obligation to perform this contracted service each day over the life of the contract. The customer pays a transaction price typically in the form of a fixed monthly charge and is obligated to pay whether or not it uses the storage capacity and throughput service (i.e., a take-or-pay payment obligation). These contracts generally include a per-unit rate for any quantities we handle at the request of the customer in excess of the prepaid volume throughput amount and also typically include per-unit rates for additional, ancillary services that may be periodically requested by the customer.

Our bulk storage and handling contracts generally include inbound handling of our customers’ dry bulk material product into our storage facility and outbound handling of these products from our storage facility. These services are provided on both a firm and non-firm basis. In our firm bulk storage and handling contracts, we are committed to handle and store on a stand-ready basis the minimum throughput quantity of bulk materials contracted by the customer. The customer is obligated to pay for its minimum volume commitment amount, regardless of whether or not it uses the storage and handling service. The customer pays a transaction price typically based on a per-unit rate for quantities handled, including amounts attributable to deficiency quantities. For non-firm storage and handling services, the customer pays a transaction price typically based on a per-unit rate for quantities handled on an as requested, non-guaranteed basis.



Disaggregation of Revenues


The following table presents our revenues disaggregated by revenue source and type of revenue for each revenue source:
Three Months Ended
September 30, 2019		Nine Months Ended
September 30, 2019
TerminalsPipelinesTotalTerminalsPipelinesTotal
(In millions of Canadian dollars)
Revenue from contracts with customers
Services
   Firm services(a)65.2  15.5  80.7  202.2  44.0  246.2  
   Fee-based services12.2  0.8  13.0  36.8  2.0  38.8  
        Total revenue from contracts with customers77.4  16.3  93.7  239.0  46.0  285.0  
Other revenues(b)6.8  1.8  8.6  18.9  5.3  24.2  
          Total revenues84.2  18.1  102.3  257.9  51.3  309.2  
 Three Months Ended September 30, 2018
 PipelinesTerminalsTotal
(In millions of Canadian dollars)   
Revenue from contracts with customers   
Services   
   Firm services(a)13.1
59.1
72.2
   Fee-based services0.9
16.7
17.6
        Total services revenues14.0
75.8
89.8
Other revenues(b)1.2
3.3
4.5
          Total revenues15.2
79.1
94.3


Nine Months Ended September 30, 2018Three Months Ended
September 30, 2018		Nine Months Ended
September 30, 2018
PipelinesTerminalsTotalTerminalsPipelinesTotalTerminalsPipelinesTotal
(In millions of Canadian dollars) (In millions of Canadian dollars)
Revenue from contracts with customers Revenue from contracts with customers
Services Services
Firm services(a)38.9
177.1
216.0
 Firm services(a)59.1  13.1  72.2  177.1  38.9  216.0  
Fee-based services1.3
47.3
48.6
 Fee-based services16.7  0.9  17.6  47.3  1.3  48.6  
Total services revenues40.2
224.4
264.6
Total revenue from contracts with customers Total revenue from contracts with customers75.8  14.0  89.8  224.4  40.2  264.6  
Other revenues(b)4.6
9.4
14.0
Other revenues(b)3.3  1.2  4.5  9.4  4.6  14.0  
Total revenues44.8
233.8
278.6
 Total revenues79.1  15.2  94.3  233.8  44.8  278.6  
______
(a) Includes non-cancellable firm service customer contracts with take-or-pay or minimum volume commitment elements, including those contracts where both the price and quantity amount are fixed. In these arrangements, the customer is obligated to pay for the rendered service whether or not the customer chooses to utilize the service. Excludes service contracts with indexed-basedindex-based pricing, which along with revenues from other contracts are reported as Fee-based services.
(b) Amounts recognized as revenue under guidance prescribed in Topics of the Accounting Standards Codification other than in Topic 606 and primarily include leases and regulatory-based adjustments and leases.adjustments. See Note 11 for additional information related to our lessor contracts.


15

Contract Balances


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).


The following table presents the activity in our contract assets and liabilities for the nine months ended September 30, 2018:
liabilities:
Nine Months Ended September 30,
2019
(In millions of Canadian dollars)
Contract Assets(a)
Balance at December 31, 20181.6 
Additions2.7 
Reductions(1.1)
Transfer to accounts receivable(2.4)
Balance at September 30, 20190.8 
(In millions of Canadian dollars)Contract Liabilities
Contract Assets (a)
Balance at December 31, 20172018(b)9.580.3 
Additions14.396.4 
Reductions(9.6)
Transfer to Accounts receivablerevenues(21.7(94.8))
Balance at September 30, 20182019(c)2.172.3 
Contract Liabilities (b)
Balance at December 31, 201768.3
 Additions115.3
 Transfer to Revenues(102.8)
Balance at September 30, 201880.8
_______________
(a) IncludesRepresents current balances reported within “Other current assets” in ourthe accompanying consolidated balance sheets at September 30, 2018 and December 31, 2017.sheets.
(b)Includes current balances of $14.1 million and $14.9 million reported within “Other current liabilities” in our accompanying consolidated balance sheets at September 30, 2018 and December 31, 2017, respectively, and includes non-current balances of $66.7$12.8 million and $53.4$67.5 million, reported within “Deferred revenues” in our accompanying consolidated balance sheets at September 30, 2018respectively.
(c)Includes current and December 31, 2017,non-current balances of $16.9 million and $55.4 million, respectively.


Revenue Allocated to Remaining Performance Obligations


The following table presents our estimated revenue allocated to remaining performance obligations for contracted revenue that has not yet been recognized, representing our “contractually committed” revenue as of September 30, 20182019 that we will invoice or transfer from contract liabilities and recognize in future periods (in millions of Canadian dollars):periods:
YearEstimated Revenue
(In millions of Canadian dollars)
Three months ended December 31, 201975.1  
2020273.2  
2021225.5  
2022197.7  
2023188.4  
Thereafter534.8  
Total1,494.7  
YearEstimated Revenue
Three months ended December 31, 201882.6
2019308.5
2020230.0
2021177.3
2022168.3
Thereafter654.8
Total1,621.5

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.


16

8.  Reportable Segments

Our reportable business segments are based on the way management organizes the enterprise. Each of our reportable business segments represent a component of the enterprise that engages in a separate business activity and for which discrete financial information is available.


Our reportable business segments are:

Pipelines - the ownership and operation of Cochin, a 12-inch diameter multi-product pipeline which spans approximately 1,000 kilometers in Saskatchewan and Alberta and Jet Fuel serving Vancouver International Airport, and

Terminals - the ownership and operation of liquid product merchant storage and rail terminals in the Edmonton, Alberta market as well as a predominantly dry cargo import/export facility in North Vancouver, B.C. Certain Edmonton South Terminal tanks that are owned by TMPL were included in the Trans Mountain Asset Group and continue to be leased to Terminals segment.


We evaluate the performance of our reportable business segments by evaluating our Segmentsegment earnings before depreciation and amortization expenses (“Segment EBDA”). We believe that Segment EBDA is a useful measure of our operating performance because it measures segment operating results before D&A and certain expenses that are generally not controllable by the operating managers of our respective business segments, such as general and administrative expense, interest expense, income tax expense and prior to May 2017, the foreign exchange losses (or gains) on the KMI Loans. Our general and administrative expenses include such items as employee benefits, insurance, rentals, certain litigation and shared corporate services including accounting, information technology, human resources and legal services.

We consider each period’s earnings before all non-cash D&A expenses to be an important measure of business segment performance for our reporting segments. We account for intersegment sales at market prices, while we account for asset transfers at either market value or, in some instances, book value. Intercompany transactions are eliminated in consolidation.

Segment revenues, Segment EBDA and Segment Assets excludeResults from discontinued operations for all periods presented,are summarized within “Income from Discontinued Operations, Net of Tax” in the table below, see Note 2. Financial information by segment for continuing operations is as follows: 
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars)
Revenues  
Terminals84.2  79.1  257.9  233.8  
Pipelines18.1  15.2  51.3  44.8  
Total consolidated revenues102.3  94.3  309.2  278.6  
 Three Months Ended September 30,Nine Months Ended September 30,
 2018 20172018 2017
(In millions of Canadian dollars)      
Revenues      
Pipelines15.2
 14.7
44.8
 45.5
Terminals79.1
 71.2
233.8
 218.4
Total consolidated revenues94.3
 85.9
278.6
 263.9

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars)
Segment EBDA(a)
  
Terminals47.4  44.6  150.1  140.8  
Pipelines12.2  9.0  33.8  25.5  
Total Segment EBDA59.6  53.6  183.9  166.3  
D&A(22.1) (21.1) (65.9) (61.1) 
General and administrative(13.4) (7.1) (33.8) (26.6) 
Interest income, net0.1  6.1  0.7  6.1  
Income tax expense(7.6) (9.3) (25.4) (25.0) 
Income from Continuing Operations16.6  22.2  59.5  59.7  
Income from Discontinued Operations, Net of Tax—  1,327.2  —  1,347.8  
Net Income16.6  1,349.4  59.5  1,407.5  
 Three Months Ended September 30,Nine Months Ended September 30,
 2018 20172018 2017
(In millions of Canadian dollars)      
Segment EBDA(a)(b)
      
Pipelines9.0
 2.4
25.5
 9.4
Terminals44.6
 39.5
140.8
 116.6
Total Segment EBDA53.6
 41.9
166.3
 126.0
D&A(21.1) (19.3)(61.1) (53.7)
Foreign exchange gain on KMI Loans(c)—
 0.5
—
 0.2
General and administrative(7.1) (7.6)(26.6) (22.2)
Interest income (expense), net6.1
 2.0
6.1
 (4.6)
Income tax expense(9.3) (7.7)(25.0) (17.7)
Income from Continuing Operations22.2

9.8
59.7

28.0
Income from Discontinued Operations, Net of Tax1,327.2
 32.6
1,347.8
 86.3
Net Income1,349.4

42.4
1,407.5

114.3


September 30, 2018 December 31, 2017September 30, 2019December 31, 2018
(In millions of Canadian dollars)   (In millions of Canadian dollars)
Assets   Assets  
TerminalsTerminals1,381.6  974.2  
Pipelines(b)4,434.2
 346.6
199.9  4,395.4  
Terminals967.1
 863.0
Assets held for sale—
 3,243.1
Total consolidated assets 5,401.3
 4,452.7
Total consolidated assets 1,581.5  5,369.6  
_______
(a)Includes revenues less operations and maintenance expense, and taxes, other than income taxes and other, net.
(b)Segment EBDA for the three and nine months ended September 30, 2018 and 2017 includes $0.6 million, $2.5 million, $0.4 million, and $5.5 million, respectively, of foreign exchange losses due to changes in exchange rates between our Canadian dollar and the U.S. dollar on U.S. dollar denominated balances.
(c)The KMI Loans, which represented U.S. dollar denominated long-term notes payable to Kinder Morgan, were settled with proceeds from our IPO.

(a)Includes revenues less operations and maintenance expense, taxes, other than income taxes, other expense (income), net, foreign exchange gain (loss), and other, net.
(b)December 31, 2018 amount includes approximately $3,977.4 million of cash distributed to shareholders as a Return of Capital on January 3, 2019 and approximately $307.6 million of cash to pay accrued income taxes related to the gain on the Trans Mountain Transaction.

17

9.  Income Taxes


Income tax expense applicable to continuing operations included in our accompanying consolidated statements of income is as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
2018 20172018 20172019201820192018
(In millions of Canadian dollars, except percentages)     (In millions of Canadian dollars, except percentages)
Income tax expense applicable to continuing operations9.3
 7.7
25.0
 17.7
Income tax expense applicable to continuing operations7.6  9.3  25.4  25.0  
Effective tax rate29.5% 44.0%29.5% 38.7%Effective tax rate31.4 %29.5 %29.9 %29.5 %


The effective tax rates for the three and nine months ended September 30, 20182019 were higher than the statutory federal rate of 15.0% primarily due to (i) provincial income taxes; (ii) tax impact of non-deductible inter-corporate charges; and (iii) the net tax impact on the Preferred Share dividends paid.

The effective tax rates for the three and nine months ended September 30, 2018 were higher than the statutory federal and provincial rate of 15.0% primarily due to theprovincial income taxes and tax impact of capitalized overhead expenditures that are not deductible for tax.non-deductible inter-corporate charges.

The effective tax rates for the three months ended September 30, 2017 and the nine months ended September 30, 2017 were higher than the statutory federal and provincial rate due to the tax impact of capitalized overhead expenditures that are not deductible for tax and the impact of a provincial tax rate change on the deferred income tax liabilities.

Income tax expense in respect of our discontinued operations, includes income tax expense on the Trans Mountain Asset Group earnings for the periods presented until August 31, 2018, and the gain on the sale of the Trans Mountain Asset Group. Our effective tax rate on income from discontinued operations was  (5.0)%  and (4.5)% for the three and nine month periods ended September 30, 2018, respectively.  The effective tax rate on our income from discontinued operations is lower than the statutory federal and provincial rate due to the taxable gain being eligible for a 50.0% capital gains deduction along with the release of the non-cash deferred tax liabilities attributable to the Trans Mountain Asset Group.


As a result of our IPO and subsequent revaluation (or rebalancing) of our investment in the Limited Partnership, our tax basis exceeds our accounting basis in our investment in the Limited Partnership by approximately $489.0 million.$1.0 billion. This excess tax basis results in a deferred tax asset of approximately $66.0 million.$119.3 million as of September 30, 2019. A full valuation allowance was takenrecorded against this deferred tax asset as we determined it was more likely than not to not be realized.

Income Taxes on Discontinued Operations
10.  Benefit Plans

OurIncome tax benefit plans that were providedin respect to our employees prior todiscontinued operations includes income tax benefit on the closing ofTrans Mountain Asset Group earnings and the Transaction were included ingain on the assets and liabilities sold, and we no longer have any obligations for those benefit plans.  For our approximately 150 remaining employees, new other postretirement benefit (“OPEB”) plans became effective after the closing of the Transaction that provide value similar to the prior benefit plans.  Our pension benefits provided prior to the close of the Transaction were under a defined benefit pension formula and are now provided under a defined contribution pension plan and our new OPEB plan benefits are relatively consistent with our prior OPEB plan. As a result of the Transaction, we released $36.3million of benefit plan losses previously recorded in Accumulated other comprehensive income to the Gain on sale of the Trans Mountain Asset Group, net ofGroup. Our effective tax inrate on the accompanying consolidated statements of income from discontinued operations was (5.0%) and (4.5%) for both the three months and nine months ended September 30, 2018.

Components of net benefit cost related to2018, respectively. The effective tax rate on our pension plans and OPEB plans are as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
 Pension OPEB Pension OPEB
 2018
2017
 2018
2017
 2018
2017
 2018
2017
(In millions of Canadian dollars)           
Service cost1.8
2.2
 0.1
0.2
 7.1
6.4
 0.5
0.5
Interest cost1.4
1.9
 0.1
0.2
 5.5
5.8
 0.4
0.5
Expected return on assets(1.5)(1.9) —
—
 (6.1)(5.8) —
—
Amortization of prior service costs—
—
 —
—
 0.1
0.1
 —
—
Amortization of net actuarial losses0.6
1.0
 0.1
—
 2.3
3.1
 0.1
0.1
Total net benefit cost2.3
3.2
 0.3
0.4
 8.9
9.6
 1.0
1.1

The amounts above primarily represent net benefit costs associated with the transferred benefit plans These net benefit costs are included in both continuing operations,income from discontinued operations and were capitalized inis lower than the statutory federal rate of 15.0% primarily due to (i) the taxable gain being eligible for a 50.0% capital gains deduction; (ii) the release of the non-cash deferred tax liabilities attributable to the Trans Mountain Asset Group assets sold along withGroup; and partially offset by provincial income taxes.

For more information regarding our remaining assets.discontinued operations, see Note 2.


11.  Change in Operating Assets and Liabilities10.  Additional Consolidated Statements of Cash Flows Information


The following amounts include changes for the Trans Mountain Asset Group’s operating assets and liabilities, see Note 2.
Nine Months Ended September 30,
20192018
(In millions of Canadian dollars)Cash (used in) provided by 
Accounts receivable1.1  10.0  
Prepayments(0.2) (7.1) 
Inventories(0.4) (0.4) 
Other current assets0.6  1.3  
Deferred charges and other assets2.6  (4.4) 
Accounts payable(7.3) (32.7) 
Accrued taxes(304.9) 300.3  
Other current liabilities(3.7) 6.6  
Other deferred credits1.6  57.9  
Change in Operating Assets and Liabilities(310.6) 331.5  

18

 Nine Months Ended September 30,
 2018 2017
(In millions of Canadian dollars)Cash inflow (outflow)
Accounts receivable10.0
 12.1
Prepaid expenses and deposits(7.1) (10.4)
Inventories(0.4) (0.2)
Other current assets1.3
 11.5
Deferred charges and other assets(4.4) (15.8)
Accounts payable(32.7) (17.5)
Accrued interest—
 (61.5)
Accrued taxes and other current liabilities306.9
 0.4
Pension and postretirement benefits(1.3) (2.4)
Regulatory liabilities and other deferred credits59.2
 (13.3)
 331.5
 (97.1)
Additional cash, cash equivalent and restricted deposits information.

Nine Months Ended September 30,
20192018
(In millions of Canadian dollars)
Cash and Cash Equivalents, beginning of period4,338.1  110.7  
Restricted Deposits, beginning of period0.5  0.5  
Cash, Cash Equivalents, and Restricted Deposits, beginning of period4,338.6  111.2  
Cash and Cash Equivalents, end of period65.2  4,350.1  
Restricted Deposits, end of period—  0.5  
Cash, Cash Equivalents, and Restricted Deposits, end of period65.2  4,350.6  

11.  Leases

Effective January 1, 2019, we adopted ASU No. 2016-02, “Leases (Topic 842)” and the series of related Accounting Standards Updates that followed (collectively referred to as “Topic 842”). The most significant changes under the new guidance include clarification of the definition of a lease, and the requirements for lessees to recognize a ROU asset and a lease liability for all qualifying leases with terms longer than 12 months in the consolidated balance sheet. In addition, under Topic 842, additional disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

We elected the practical expedient available to us under ASU 2018-11 “Leases: Targeted Improvements” which allows us to apply the transition provision for Topic 842 at our adoption date instead of at the earliest comparative period presented in our financial statements. Therefore, we recognized and measured leases existing at January 1, 2019 but without retrospective application. In addition, we elected the optional practical expedient permitted under the transition guidance related to land easements which allows us to carry forward our historical accounting treatment for land easements on existing agreements upon adoption. We also elected all other available practical expedients except the hindsight practical expedient.

The impact of Topic 842 on our consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases. Amounts recognized at January 1, 2019 for operating leases were as follows:
January 1, 2019
(In millions of Canadian dollars)
ROU assets518.1 
Current lease liabilities17.3 
Long-term lease liabilities500.8 

No impact was recorded to the income statement or beginning retained earnings for adoption of Topic 842.

Lessee

We lease property including corporate and field offices and facilities, vehicles, heavy work equipment, tanks and pipe racks, and land. Our leases have remaining lease terms of one to 25 years, some of which have options to extend or terminate the lease. We determine if an arrangement is a lease at inception. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at the commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. Leases with variable rate adjustments, such as Consumer Price Index (“CPI”) adjustments, were reflected based on contractual lease payments as outlined within the lease agreement and not adjusted for any CPI increases or decreases. For the majority of our operating leases, we use our contracted rate of return of 7.0% based on lease term information available at the commencement date of the lease in determining the present value of lease payments. We have real estate lease agreements with lease and non-lease components which are accounted for separately, while for the remainder of our agreements we have elected the practical
19

expedient to account for lease and non-lease components as a single lease component. Leases that were grandfathered under various portions of Topic 842, such as land easements, are reassessed when agreements are modified.

Following are components of our lease cost:
Nine Months Ended September 30, 2019
(In millions of Canadian dollars)
Operating leases42.0 
Short-term and variable leases2.5 
Total lease cost44.5 

Other information related to our operating leases are as follows:
Nine Months Ended September 30, 2019
(In millions of Canadian dollars, except lease term and discount rate)
Operating cash flows from operating leases(44.5)
ROU assets obtained in exchange for operating lease obligations13.7 
Amortization of ROU assets21.6 
Weighted average remaining lease term18.64 years
Weighted average discount rate6.87 %

Operating lease liabilities under non-cancellable leases (excluding short-term leases) are as follows:
September 30, 2019December 31, 2018(a) 
(In millions of Canadian dollars)
2019 (three months ended December 31, 2019)13.5  
201952.3  
202052.6  50.4  
202152.1  49.6  
202251.9  49.5  
202350.1  47.6  
Thereafter708.3  699.1  
Total Lease Payments928.5  948.5  
Less: Interest(418.3) 
Present Value of future minimum operating lease payments510.2  
_______
(a)Amounts have been revised from the previously reported in our 2018 Form 10-K for the December 31, 2018 future gross minimum rental commitments under our operating lease obligations to correct amounts previously reported to include an additional $656.0 million of undiscounted future lease payments, primarily in the “Thereafter” amount, associated with the 2018 extension of the Edmonton South lease through December 2038.

Short-term lease costs are not material to us and are anticipated to be similar to the current year short-term lease obligations outlined in this disclosure.

Lessor

Our assets that we lease to others under operating leases consists primarily of specific facilities at which one customer obtains substantially all of the economic benefit from the asset and has the right to direct the use of that asset. These leases primarily consist of storage and pipeline facilities. Our leases have remaining lease terms of one to 25 years, some of which have options to extend the lease for up to an additional 15 years. We determine if an arrangement is a lease at inception or upon modification. None of our leases allow the lessee to purchase the leased asset.

Lease income for the three and nine months ended September 30, 2019 totaled $6.8 million and $18.9 million, respectively, including variable lease payments that are excluded from the following disclosure as the amounts cannot be reasonably estimated for future periods.

20

Future minimum operating lease payments to be received based on contractual agreements are as follows:
September 30, 2019
(In millions of Canadian dollars)
2019 (three months ended December 31, 2019)5.9  
202022.6  
202115.0  
202215.0  
202313.7  
Thereafter108.8  
Total181.0  

Options for a lessee to renew the agreement are not included as part of future minimum operating lease revenues. We elected the practical expedient available to us to not separate lease and non-lease components under these agreements. Any modification of a lease will result in a reevaluation of the lease classification.

12.  Litigation and ContingenciesEnvironmental
 
Legal Proceedings


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 no0 accruals for any outstanding legal proceedings as of September 30, 20182019 and December 31, 2017.2018.



Base Line Terminal Project Litigation


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 Terminal Project (the “BTT Project”) and has claimed it is owed $21.2 million, inclusive of goods and services tax, asserting that BLTELP failed to pay A&B for work performed on the BTT Project under a construction services agreement.


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 $1.0 million, inclusive of goods and services tax. We dispute both claims and intend to defend against them vigorously.


On June 5, 2018, Barrier Coating Inc. (“Barrier”) filed a statement of claim and 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 Pipeline ULC 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, Pipeline ULC, 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. We dispute this claimThis matter was resolved and intend to defend against it vigorously.dismissed without any payment from any Kinder Morgan affiliate.



21

On September 6, 2018, Fabricom Inc. (“Fabricom”) filed a 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, Pipeline ULC, 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 $29.9$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.


ContingenciesBritish Columbia Utilities Commission (“BCUC”) Proceeding


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 BCUC an application of a tariff to extend the existing terms and settlement rates for the transportation of turbine fuel to the Vancouver International Airport and the Burnaby Terminal, effective January 1, 2019. On December 14, 2018, the BCUC issued an order accepting the rates, subject to refund, and established a process for evaluating KMJF’s Annual Revenues and Gathering Line Fee (“Annual Revenue Requirement”). On August 23, 2019, KMJF filed a revised application with the BCUC seeking approval for KMJF's Annual Revenue Requirement and a surcharge to recover abandonment costs of the pipeline. We estimate that the shippers are seeking approximately a 50% reduction in the Annual Revenue Requirement, or approximately $3.5 million. Management believes KMJF’s cost of service supports KMJF’s rates and intends to vigorously defend KMJF’s proposed rates.

Environmental

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 September 30, 2019 and December 31, 2018, , we had $0.1 million accrued for our outstanding environmental matters and no accrual as of December 31, 2017.matters.


13.  Recent Accounting Pronouncements

Topic 842

On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This ASU establishes a comprehensive new lease accounting model, which requires substantially all leases, with the exception for leases with a term of one year or less, to be recorded on the balance sheet as a lease liability measured as the present value of the future lease payments with a corresponding right-of-use asset. The ASU also requires disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.


On January 25, 2018, the FASB issued ASU No. 2018-01, “Land Easement Practical Expedient for Transition to Topic
842.” This ASU permits an entity to elect a transition practical expedient to not apply the provisions of ASU No. 2016-02 to land easements that existed or expired before the effective date of ASU No. 2016-02 and that were not previously accounted for as leases under the previous lease guidance in ASC Topic 840 “Leases.”

On July 30, 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” This ASU permits an entity to elect an additional transition method to the existing modified retrospective transition requirements. Under the new transition method, an entity could adopt the provisions of ASU No. 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with the previous lease guidance in ASC Topic 840. ASU No. 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present.

We are in the process of finalizing our review of our lease agreements in light of Topic 842 guidance, implementing a financial lease accounting system, evaluating internal control changes to support management in the accounting for and disclosure of leasing activities, and assessing available transition practical expedients. While we are still in the process of completing our implementation evaluation of ASU No. 2016-02, we currently believe the most significant changes to our financial statements relate to the recognition of a lease liability and offsetting right-of-use asset in our consolidated balance sheet for operating leases. ASU No. 2016-02 will be effective for us as of January 1, 2019.


ASU No. 2016-13


On June 16, 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU modifies the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will require to utilize an expected lossa new forward-looking “expected loss” methodology in place of the currently used incurred loss methodology, whichthat generally will result in the more timelyearlier recognition of allowance for losses. ASU No. 2016-13 will be effective for us as of January 1, 2020, and earlier adoption is permitted. We are currently reviewing the effect of this ASU to our financial statements.



ASU No. 2018-14


On August 28, 2018, the FASB issued ASU No. 2018-14, “Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.” This ASU amends existing annual disclosure requirements applicable to all employers that sponsor defined benefit pension and other postretirement plans by adding, removing, and clarifying certain disclosures. ASU No. 2018-14 will be effective for us for the fiscal year ending December 31, 2020, and earlier adoption is permitted. We are currently reviewing the effect of this ASU to our financial statements.
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.


 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.


On January 1, 2018, we adopted ASU No. 2014-09, “Revenue from Contracts with Customers” and a series of related
accounting standard updates (collectively referred to as “Topic 606”) designed to create improved revenue recognition and disclosure comparability in financial statements. For more information, see Note 7 “Revenue Recognition” to the accompanying consolidated financial statements.

Recent Developments


OutlookPending Sale to Pembina

ForOn August 21, 2019, we announced that Pembina agreed to acquire all of our outstanding common equity, including the fourth quarter, representingapproximate 70% majority voting and economic interest held by Kinder Morgan. On closing, holders of Restricted Voting Shares will receive 0.3068 of a Pembina common share for each Restricted Voting Share and holders of Special Voting Shares will receive a cash payment of $0.000001 for each Special Voting Share and 0.3068 of a Pembina common share for each associated Class B Unit. In addition, Pembina has agreed to purchase the first full quarter withoutU.S. portion of the Trans Mountain Asset Group earnings, but with nearly a full quarterCochin Pipeline from Kinder Morgan. The closing of Base Line Terminal earnings, KML anticipates that the remaining assetstwo transactions are cross-conditioned upon each other, and, in the Pipelinescase of Pembina's acquisition of KML, subject to our shareholder, Court of Queen's Bench of Alberta and Terminals segments will generate Adjusted EBITDA of $50 millionregulatory approvals. Collectively, these transactions are referred herein as the “Pembina Transactions” and they are expected to $55 million. KML expects the one-for-three reverse stock split to be effective prior to the declaration of the dividend forclose late in the fourth quarter of 2018 and expects2019 or in the first quarter of 2020.

        On September 10, 2019, we announced that, as part of its acquisition of KML, Pembina agreed to pay a dividend of $0.1625 per split-adjusted restricted voting share. KML does not anticipate the proposed return of capital or reverse split to have any impact on theexchange our outstanding Preferred Shares for Pembina preferred shares with the same commercial terms and conditions as our Preferred Shares. The exchange will be subject to the approval of KML orour preferred shareholders and will close concurrently with the acquisition by Pembina of our common equity, although this approval is not a condition to closing of the Pembina Transactions described above.

2019 Outlook

Our 2019 budget contemplates declaring dividends payable thereon.
As disclosed in  “Item 2 —Management’s Discussionof $0.65 (annualized) per Restricted Voting Share, generating Adjusted EBITDA of $213 million and Analysisgenerating DCF from continuing operations of Financial Condition and Resultsapproximately $109 million, representing DCF per Restricted Voting Share of Operations—Outlook” in$0.90. Our current expectation is that our Form 10-Qresults for the quarterly period ended June 30, 2018, other forecastsyear will be consistent with our budget.

We do not provide forecasted income from continuing operations (the GAAP financial measure most directly comparable to the non-GAAP financial measures DCF from continuing operations and forward looking guidance relating to increased Adjusted EBITDA following completion of the TMEP as provided in our IPO prospectus dated May 25, 2017 and as further discussed in Item 7 under the heading “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Outlook” in our 2017 Form 10-K are no longer relevant to usEBITDA) due to the closingimpracticality of the Transaction,quantifying certain amounts required by GAAP, such as realized and as such we have withdrawn such prior forecastsunrealized foreign currency gains and forward-looking information.losses and potential changes in estimates for certain contingent liabilities. See “Results of Operations—Non-GAAP Financial Measures” for more information on DCF and Adjusted EBITDA.


Trans Mountain Transaction


On August 31, 2018, we closed on the sale of the Trans Mountain Asset Group, which werewas indirectly acquired by the Government of Canada through Trans Mountain Corporation (a subsidiary of the Canada Development Investment Corporation) for cash consideration of approximately $4.43 billion, which is the contractual purchase price of $4.5 billion net of a preliminary working capital adjustment. The contractual purchase price is subject to a customary final true upadjustment (the “Trans Mountain Transaction”). Additionally, in February 2019, we paid the remaining $37.0 million of the estimated working capital calculationadjustments that were accrued as provided in the purchase agreement.of December 31, 2018. The underlying assets in the Trans Mountain Asset Group were primarily within our Pipelines business segment and the operating results for the Trans Mountain Asset Group are withinpresented as “Income from Discontinued Operations, presented as Income from operationsNet of the Trans Mountain Asset Group, net of tax in the the accompanying consolidated statements of income for the three and nine months ended September 30, 2018 and 2017.

We have recorded a Gain on sale of the Trans Mountain Asset Group, net of tax of $1,308.0 million as presentedTax” in the accompanying consolidated statements of income and the following “—Results of Operations”for the three2018 periods.

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2019 Return of Capital and nine months ended September 30, 2018. The gain included a tax benefitShare Consolidation

Pursuant to our voting shareholders’ approval on November 29, 2018, distributions of approximately $69.5 million comprised of the release of a Deferred income taxes of approximately $388.5 million, which was partially offset by an adjustment to Accrued taxes of approximately $319.0 million on the accompanying consolidated balance sheet as of September 30, 2018.

On September 4, 2018, we announced that our board of directors approved a plan to distribute the net proceeds from the Transaction, after capital gains taxes, customary purchase price adjustments and repayment of debt outstanding under our Temporary Credit Facility,$1.2 billion were made as a return of capital to shareholders. The return of capital to holders of our Restricted Voting Shares ($11.40 per Restricted Voting Share) and approximately $2.8 billion to KMI as the indirect holder of our Special Voting Shares on January 3, 2019 (the “Return of Capital”) is expected to be approximately $1.2 billion or approximately $11.40 per Restricted Voting Share.. To facilitate the Return of Capital and provide flexibility for dividends going forward, weour voting shareholders also announced that we will seek voting shareholders’ two-thirds majority approval to reduceapproved (i) a reduction of the stated capital of our Restricted Voting Shares by $1.45 billion (the “Stated Capital Reduction”). Our board of directors also approved and (ii) a proposal to effect a consolidation or "reverse“reverse stock split"split” of our Restricted Voting Shares and Special Voting Shares on a one-for-three basis (three shares consolidating to one share) (the “Share Consolidation”). These proposals will be voted, which occurred on at a special meeting of our shareholders currently scheduled to be held on November 29, 2018January 4, 2019. The Restricted Voting Shares and Kinder Morgan has stated it intends to voteSpecial Voting Shares outstanding and earnings per share information in favor of these proposals with its approximate 70% voting interest in us. Subject to the Stated Capital Reduction and Share Consolidation being approved by shareholders, and the board's

subsequent confirmation thereof, the anticipated payment date for the Return of Capital is expected to be January 3, 2019, withthis report reflect the Share Consolidation to occur a few days thereafter.for all periods presented.


2017 Initial Public Offering

Subsequent to our IPO, Kinder Morgan retained control of us and the Limited Partnership. As a result we accounted for our acquisition of an approximate 30% economic interest in the Limited Partnership as a transfer of net assets among entities under common control. Therefore, our consolidated financial statements presented herein were derived from the consolidated financial statements and accounting records of Kinder Morgan. The assets and liabilities in these consolidated financial statements have been reflected at historical carrying value of the immediate parents within the Kinder Morgan organization structure including goodwill and purchase price assigned amounts, as applicable. Prior to May 30, 2017, our historical financial statements were presented as combined consolidated financial statements derived from information included within the consolidated financial statements and accounting records of Kinder Morgan. All significant intercompany balances between the companies included in our accompanying consolidated financial statements have been eliminated.

In addition, as of and for the reporting periods after our IPO, Kinder Morgan’s economic interest in the Limited Partnership is reflected within “Kinder Morgan interest” in our consolidated statements of equity and consolidated balance sheets and earnings attributable to Kinder Morgan’s economic ownership interest in the Limited Partnership are presented in “Net Income Attributable to Kinder Morgan Interest” in our consolidated statements of income.

Terminals Matters


Construction of all major facilities at the Base Line Terminal in Edmonton, Alberta, Canada is materially complete, with the final tanks placed in service in the thirdMaterial permits have been secured and early fourth quarters of this year, slightly ahead of schedule. The 12-tank, 4.8 million barrel facility is fully contracted with long-term, firm take-or-pay agreements with creditworthy customers. The 50-50 joint venture crude oil merchant storage terminal developed by KML and Keyera Corp. is expected to be completed under budget, with our investment expected to be approximately $373 million.

Permitting effortsconstruction activities continue on the distillate storage expansion project at our Vancouver Wharves terminal in North Vancouver, British Columbia. The $43approximately $50 million capital project, includeswhich calls for the construction of two new distillate tanks with combined storage capacity of 200,000 barrels and enhancements to the railcar unloading capabilities. The projectcapabilities, is supported by a 20-year initial term, take-or-pay contract with an affiliate of a large, international integrated energy company andcompany. The project is expected to be placed in service in the first quarter of 2021.


As previously disclosed in our 20172018 Form 10-K, a material contractual arrangement at the Edmonton Rail Terminal expireshas an initial term expiring 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 expectAs anticipated, the customer has exercised this willright of renewal which is expected to result in lower revenues of approximately $43.0$43 million and $11.0$11 million on an annual basis for rail terminal fees and associated pipeline connection fees, respectively.  We expect this revenue reduction will be partially offset by expansion projects as well as favorable renewal rates on expiring contracts at our other terminal facilities.

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Results of Operations


Overview


We evaluateAs described in further detail below, our management evaluates our performance primarily using the performanceGAAP financial measures of our reportable business segments by evaluating Segment EBDA. We believe thatEBDA, Net income and Net income available to Restricted Voting Shareholders, along with the non-GAAP financial measures of Adjusted Earnings and DCF, both in the aggregate and per share for each, and Adjusted Segment EBDA and Adjusted EBITDA.
The earnings (losses) prior to the closing of the Trans Mountain Transaction on August 31, 2018 from the Trans Mountain Asset Group are presented as earnings (losses) from discontinued operations for the 2018 periods.

GAAP Performance Measures
The Consolidated Earnings Results for the three and nine months ended September 30, 2019 and 2018 present Segment EBDA, Net income and Net income Available to Restricted Voting Stockholders which are prepared and presented in accordance with GAAP. Segment EBDA is a useful measure of our operating performance because it measures segmentthe operating results of our segments before depreciation and amortizationD&A and certain expenses that are generally not controllable by our business segment operating managers, such as certain general and administrative expense,expenses, interest expense, net, and income tax expense, and prior to their pay off in the second quarter of 2017, the foreign exchange losses (or gains) on the long-term debt with affiliates (“KMI Loans”).taxes. Our general and administrative expenses include such items as employee benefits, insurance, rentals, certain litigation, and shared corporate services including accounting, information technology, human resources and legal services.
The earnings prior to the closing of the Transaction on August 31, 2018 from the Trans Mountain Asset Group are presented as earnings from discontinued operations for all periods presented.

Consolidated Earnings Results
Three Months Ended September 30,2018
 2017
Earnings
increase/(decrease)
(In millions of Canadian dollars, except percentages)      
Segment EBDA(a)      
Pipelines9.0
 2.4
6.6
 275 %
Terminals(b)44.6
 39.5
5.1
 13 %
Total Segment EBDA(a)(b)53.6
 41.9
11.7
 28 %
D&A(21.1) (19.3)(1.8) 9 %
Foreign exchange gain on the KMI Loans(c)—
 0.5
(0.5) (100)%
General and administrative(d)(7.1) (7.6)0.5
 (7)%
Interest, net(e)6.1
 2.0
4.1
 205 %
Income from continuing operations before income taxes31.5
 17.5
14.0
 80 %
Income tax expense(9.3) (7.7)(1.6) 21 %
Income from continuing operations22.2
 9.8
12.4
 127 %
Income from discontinued operations, net of tax(f)1,327.2
 32.6
1,294.6
 3,971 %
Net income1,349.4
 42.4
1,307.0
 3,083 %
Preferred share dividends(7.2) (2.0)(5.2) n/a
Net income attributable to Kinder Morgan interest(940.7) (28.7)(912.0) n/a
Net income available to Restricted Voting Stockholders401.5
 11.7
389.8
 n/a

Nine Months Ended September 30,2018
 2017
Earnings
increase/(decrease)
(In millions of Canadian dollars, except percentages)      
Segment EBDA(a)      
Pipelines25.5
 9.4
16.1
 171 %
Terminals(b)140.8
 116.6
24.2
 21 %
Total Segment EBDA(a)(b)166.3
 126.0
40.3
 32 %
D&A(61.1) (53.7)(7.4) 14 %
Foreign exchange gain on the KMI Loans(c)—
 0.2
(0.2) (100)%
General and administrative(d)(26.6) (22.2)(4.4) 20 %
Interest income (expense), net(e)6.1
 (4.6)10.7
 (233)%
Income from continuing operations before income taxes84.7
 45.7
39.0
 85 %
Income tax expense(25.0) (17.7)(7.3) 41 %
Income from continuing operations,59.7
 28.0
31.7
 113 %
Income from discontinued operations, net of tax(f)1,347.8
 86.3
1,261.5
 1,462 %
Net income1,407.5
 114.3
1,293.2
 1,131 %
Preferred share dividends(21.6) (2.0)(19.6) n/a
Net income attributable to Kinder Morgan interest(971.8) (96.4)(875.4) n/a
Net income available to Restricted Voting Stockholders414.1
 15.9
398.2
 n/a
_________
(a)Represents Segment EBDA from continuing operations. Includes revenues and other (income) expense less operating expenses and other, net. Operating expenses primarily include operations and maintenance expenses, and taxes, other than income taxes. Segment EBDA for the three and nine months ended September 30, 2018 include $0.6 million and $0.4 million, respectively and the three and nine months ended September 30, 2017 include $2.5 million and $5.5 million, respectively, of foreign exchange losses due to changes in exchange rates between the Canadian dollar and the U.S. dollar on U.S. dollar denominated balances.
(b)
Segment EBDA for the three and nine months ended September 30, 2018 includes increases to earnings of $0.5 million and $9.5 million, respectively, for a certain item described in footnote (a) to the “—Terminal Segment” table below.
(c)
The KMI Loans, which represented U.S. dollar denominated long-term notes payable with Kinder Morgan, were settled with proceeds from our IPO. The foreign exchange gain on the KMI Loans represents a certain item.

(d)
General and administrative expenses for the three and nine months ended September 30, 2018 includes (decreases) increases to expense of ($1.6) million and $1.4 million respectively, and the three and nine months ended September 30, 2017 includes increases to expense of $0.1 million and $2.6 million, respectively, for certain items described in footnote (a) to the —General and Administrative table below.
(e)
Interest income (expenses), net for the three and nine months ended September 30, 2018 includes a decrease to interest income of $1.0 million in both periods for a certain item described in footnote (a) to the “—Interest (income) expense, Net” table below.
(f)
Consists of certain items summarized in footnote (b) to the “—Discontinued Operations” table below.

Three Months Ended September 30, 2018 vs Three Months Ended September 30, 2017

The certain items described in footnotes (b) through (e) to the table above accounted for a $0.7 million increase in income from continuing operations before income taxes for the third quarter of 2018 as compared to the same prior year period. After giving effect to these certain items, the $13.3 million increase from the prior year quarter in income from continuing operations before income taxes is primarily attributable to increased earnings from both of our segments and higher interest income due to deposits of the proceeds from the Transaction in interest bearing cash equivalent accounts.

Nine Months Ended September 30, 2018 vs Nine Months Ended September 30, 2017

The certain items described in footnotes (b) through (e) to the table above accounted for a $9.5 million increase in income from continuing operations before income taxes for the first nine months of 2018 as compared to the same prior year period. After giving effect to these certain items, the $29.5 million increase from the prior year period in income from continuing operations before income taxes is primarily attributable to increased earnings from both of our segments and higher interest income due to deposits of the proceeds from the Transaction in interest bearing cash equivalent accounts.


Non-GAAP Financial Measures

For reporting periods included in the following DCF and Adjusted EBITDA tables, our discontinued operations (which are comprised of our Trans Mountain Asset Group) are presented as a separate reconciling item labeled as “DCF from discontinued operations” and “Adjusted EBITDA from discontinued operations,” respectively. DCF from discontinued operations and Adjusted EBITDA from discontinued operations are also reconciled to their comparable GAAP measure, income from discontinued operations, in footnote (d) to the accompanying tables.
In addition to using financialOur non-GAAP measures prescribed by GAAP, references are made in this report to DCF, both in the aggregate and per share, Adjusted EBITDA and Segment EBDA before certain items, which are measures that do not have any standardized meaning as prescribed by GAAP. DCF, Adjusted EBITDA and Segment EBDA before certain itemsdescribed below should not be considered an alternativealternatives to GAAP net income or any other GAAP measures and such non-GAAP measures have important limitations as an analytical tool. The computationtools. Our computations of DCF, Adjusted EBITDA and Segment EBDA before certain itemsthese non-GAAP measures may differ from similarly titled measures used by others. Accordingly, use of such terms may not be comparable to similarly defined measures presented by other entities. InvestorsYou should not consider these non-GAAP performance measures in isolation or as a substitutesubstitutes for an analysis of our results as reported under GAAP. TheManagement compensates for the limitations of these non-GAAP performancefinancial measures are compensated for by reviewing theour comparable GAAP measures, understanding the differences between the measures and taking this information into account in ourits analysis and ourits decision making processes. Any use
The format of DCF,the reconciliations between our non-GAAP and comparable GAAP financial measures has been modified to provide further transparency and information on our business performance. The modified reconciliations also include the non-GAAP financial measures of Adjusted EBITDA or Segment EBDA before certain itemsEarnings, both in this management’s discussionaggregate and analysis is expressly qualified by this cautionary statement.per share, and Adjusted EBITDA. The calculations and key components of our non-GAAP financial measures remain unchanged from prior periods.


DCF is income from continuing operations, and income from discontinued operations, before D&A adjusted for: (i) income tax expense and cash income taxes (paid) refunded; (ii) sustaining capital expenditures (also referredCertain Items

Certain Items, as adjustments used to as ‘‘maintenance’’ capital expenditures); and (iii) certaincalculate our non-GAAP measures, are items that are items required by GAAP to be reflected in net income, but typically either (a)(i) do not have a cash impact, or (b)(ii) by their nature are separately identifiable from theour normal business operations and in our view are likely to occur only sporadically (for example, gains orand losses on asset sales, legal settlements and casualty losses). See tables included in “—Certain Items Affecting Consolidated Earnings Results,” and “—Reconciliation of Income from Continuing Operations (GAAP) to Adjusted EBITDA” below. In addition, Certain Items are described in more detail in the footnotes to tables included in “—Segment Earnings Results” and “—General and Administrative Expense, and Interest Income, net” below.


DCFAdjusted Earnings

Adjusted Earnings is an important performance measurecalculated by adjusting net income available to common stockholders for Certain Items. Adjusted Earnings is used by us and bycertain external users of our financial statements to evaluateassess 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 available to common stockholders. Adjusted Earnings per share uses Adjusted Earnings and applies the same two-class method used in arriving at basic earnings per common share. (See “—Reconciliation of Income from Continuing Operations (GAAP) to Adjusted Earnings to DCF” below).

DCF

DCF is calculated by adjusting net income available to common stockholders for Certain Items (Adjusted Earnings) and further by D&A, income tax expense, cash taxes, sustaining capital expenditures and other items. DCF is an important
25

performance measure used by us and external users of our financial statements in evaluating our performance and in measuring and estimating our ability to generate cash earnings after servicing our debt and preferred sharestock dividends, paying cash taxes and expending sustaining capital, that could be used for discretionary purposes such as distributions or expansion capital expenditures (also referred to as ‘‘discretionary’’ capital expenditures). We useexpenditures. KML uses this performance measure and believebelieves it provides users of ourits financial statements a useful performance measure reflective of our ability to generate cash earnings to supplement the comparable GAAP measure. 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 Income from continuing operations. A reconciliation of Income from continuing operations tonet income. DCF is provided in the table below. DCF per split-adjusted Restricted Voting Share is DCF divided by average outstanding split-adjusted Restricted Voting Shares, including restricted stock awards that participate in dividends.

(See “—Reconciliation of Income from continuing operationsContinuing Operations (GAAP) to Adjusted Earnings to DCF” below).
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars, except per share amounts)       
Income from continuing operations22.2
 9.8
 59.7
 28.0
Reconciling items - add/(subtract):       
  Certain items before book tax(a)(1.1) (0.4) (7.1) 2.4
  Book tax certain items(b)0.5
 0.1
 2.1
 (0.7)
  D&A21.1
 19.3
 61.1
 53.7
  Total book taxes before certain items8.8
 7.6
 22.9
 18.4
  Cash taxes(0.1) 0.3
 (8.4) —
  Preferred share dividends(7.2) (2.0) (21.6) (2.0)
  Sustaining capital expenditures(5.2) (6.1) (10.1) (13.1)
  DCF from discontinued operations (d)41.6
 48.6
 150.8
 153.3
DCF80.6
 77.2
 249.4
 240.0
DCF to Kinder Morgan interest(56.5) (54.2) (174.9) (208.5)
U.S. cash taxes attributable to Restricted Voting Stockholders—
 (0.8) (0.9) (0.8)
DCF to Restricted Voting Stockholders24.1
 22.2
 73.6
 30.7
Weighted average Restricted Voting Shares outstanding for dividends (in millions)(c)       
DCF per Restricted Voting Share0.230
 0.214
 0.704
 0.297
Declared dividend per Restricted Voting Share0.1625
 0.1625
 0.4875
 0.2196


Adjusted EBITDA is used by us and by external users of our financial statements, in conjunction with net debt, to evaluate certain leverage metrics. Adjusted EBITDA is earnings from continuing and discontinued operations before interest expense, taxes, depreciation and amortization adjusted for certain items, as applicable. We believe the GAAP measure most directly comparable to Adjusted EBITDA is income from continuing operations. A reconciliation of income from continuing operations to Adjusted EBITDA is provided in the table below. We do not allocate Adjusted EBITDA amongst equity interest holders as we view total Adjusted EBITDA as a measure against our overall leverage.

Reconciliation of Income from continuing operations to Adjusted EBITDA
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars)       
Income from continuing operations22.2
 9.8
 59.7
 28.0
  Reconciling items - add/(subtract):       
    Total certain items (a)(b)(0.6) (0.3) (5.0) 1.7
    D&A21.1
 19.3
 61.1
 53.7
    Total book taxes before certain items8.8
 7.6
 22.9
 18.4
    Interest, net before certain items(7.1) (2.0) (7.1) 4.6
    Adjusted EBITDA from discontinued operations (d)44.8
 60.7
 163.4
 173.8
Adjusted EBITDA89.2
 95.1
 295.0
 280.2
_________
(a)
Consists of certain items summarized in footnotes (b) through (e) to the “—Results of Operations—Consolidated Earnings Results”
table included above, and described in more detail below in the footnotes to tables included in our management’s discussion and
analysis of segment results, “—Segment EBDA” “—General and Administrative,” “—Interest (income) expense, net,
(b)Represents income tax provision on certain items.
(c)Includes stock awards of restricted voting shares that participate in dividends. Also, the 2017 weighted average Restricted Voting Shares
outstanding for dividends calculation is based on the actual days in which the shares were outstanding for the period from May 30, 2017


to June 30, 2017. Therefore, the amounts differ from the GAAP weighted average Restricted Voting Shares outstanding from the date of our formation.
(d)    DCF from discontinued operations and Adjusted EBITDA from discontinued operations reconciliations are as follows:    

DCF from discontinued operations:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars)       
Income from discontinued operations, net of tax1,327.2
 32.6
 1,347.8
 86.3
  Discontinued operations reconciling items - add/(subtract):       
  Certain items before book tax (1)(1,227.8) (0.1) (1,167.3) 2.6
  Book tax certain items (1)(76.8) —
 (92.9) (0.7)
  D&A11.8
 17.9
 46.8
 53.9
  Total book taxes before certain items13.1
 7.0
 35.0
 25.4
  Sustaining capital expenditures(5.9) (8.8) (18.6) (14.2)
DCF from discontinued operations41.6
 48.6
 150.8
 153.3

Adjusted EBITDA from discontinued operations:
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars)       
Income from discontinued operations, net of tax1,327.2
 32.6
 1,347.8
 86.3
  Discontinued operations reconciling items - add/(subtract):       
    Total certain items (1)(1,304.6) (0.1) (1,260.2) 1.9
    D&A11.8
 17.9
 46.8
 53.9
    Total book taxes before certain items13.1
 7.0
 35.0
 25.4
    Interest, net before certain items(2.7) 3.3
 (6.0) 6.3
Adjusted EBITDA from discontinued operations44.8
 60.7
 163.4
 173.8
_________
(1)Described in more detail below in the footnotes to tables included in our management’s discussion and analysis of segment results
“ —Discontinued Operations” below.
Segment EBDA Beforeis calculated by adjusting Segment EBDA for Certain Items

attributable to the segment. Adjusted Segment EBDA before certain items is used by management in its analysis of segment performance and management of our business. General and administrative expenses 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 before certain items is a significantuseful performance metric because it provides usmanagement 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 performance 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 before certain items is Segment EBDA.

In the tables for each of our business segments under See “—SegmentCertain Items Affecting Consolidated Earnings Results” below,below.

Adjusted EBITDA

Adjusted EBITDA is used by our management and external users of its financial statements as an additional performance measure. Adjusted EBITDA is EBITDA adjusted for Certain Items, as applicable. We believe the GAAP measure most directly comparable to Adjusted EBITDA is net income. We evaluate adjusted EBITDA in total and do not allocate Adjusted EBITDA amongst equity interest holders as it views Adjusted EBITDA as a measure against our overall leverage. See “—Reconciliation of Income from Continuing Operations (GAAP) to Adjusted EBITDA” below.

Discontinued Operations

DCF from discontinued operations and Adjusted EBITDA from discontinued operations, are reconciled to income from discontinued operations, the most directly comparable GAAP measure in footnote (c) to the above referenced GAAP to non-GAAP reconciliations.



26

Consolidated Earnings Results (GAAP)
Three Months Ended September 30,20192018Earnings
increase/(decrease)
(In millions of Canadian dollars, except percentages)
Segment EBDA(a)   
Terminals47.4  44.6  2.8  6 %
Pipelines12.2  9.0  3.2  36 %
Total Segment EBDA59.6  53.6  6.0  11 %
D&A(22.1) (21.1) (1.0) (5)%
General and administrative(13.4) (7.1) (6.3) (89)%
Interest income, net0.1  6.1  (6.0) (98)%
Income from continuing operations before income taxes24.2  31.5  (7.3) (23)%
Income tax expense(7.6) (9.3) 1.7  18 %
Income from continuing operations16.6  22.2  (5.6) (25)%
Income from discontinued operations, net of tax(b)—  1,327.2  (1,327.2) (100)%
Net income16.6  1,349.4  (1,332.8) (99)%
Preferred Share dividends(7.2) (7.2) —  — %
Net income attributable to Kinder Morgan interest(6.6) (940.7) (934.1) (99)%
Net income available to Restricted Voting Shareholders2.8  401.5  (398.7) (99)%

Nine Months Ended September 30,20192018Earnings
increase/(decrease)
(In millions of Canadian dollars, except percentages)
Segment EBDA(a)   
Terminals150.1  140.8  9.3  7 %
Pipelines33.8  25.5  8.3  33 %
Total Segment EBDA183.9  166.3  17.6  11 %
D&A(65.9) (61.1) (4.8) (8)%
General and administrative(33.8) (26.6) (7.2) (27)%
Interest income, net0.7  6.1  (5.4) (89)%
Income from continuing operations before income taxes84.9  84.7  0.2  — %
Income tax expense(25.4) (25.0) (0.4) (2)%
Income from continuing operations59.5  59.7  (0.2) — %
Income from discontinued operations, net of tax(b)—  1,347.8  (1,347.8) (100)%
Net income59.5  1,407.5  (1,348.0) (96)%
Preferred Share dividends(21.6) (21.6) —  — %
Net income attributable to Kinder Morgan interest(26.5) (971.8) (945.3) (97)%
Net income available to Restricted Voting Shareholders11.4  414.1  (402.7) (97)%
________
(a)Represents Segment EBDA before certainfrom continuing operations. Includes revenues less operations and maintenance expense, taxes, other than income taxes, other expense (income), net, foreign exchange (loss) gain, and other, net.
(b)See Note 2 “Trans Mountain Transaction” to the accompanying consolidated financial statements.


27

Certain Items is calculated by adjusting the Segment EBDA for the applicable certain item amounts,  which are totaled in the tables and described inAffecting Consolidated Earnings Results

20192018Adjusted amounts
increase/(decrease)
Three Months Ended September 30,GAAPCertain ItemsAdjustedGAAPCertain ItemsAdjusted
(In millions of Canadian dollars, except percentages)
Segment EBDA(a)    
Terminals  47.4  —  47.4  44.6  (0.5) 44.1  3.3  
Pipelines  12.2  —  12.2  9.0  —  9.0  3.2  
Total Segment EBDA  59.6  —  59.6  53.6  (0.5) 53.1  6.5  
D&A  (22.1) —  (22.1) (21.1) (21.1) (1.0) 
General and administrative(a) (13.4) 4.2  (9.2) (7.1) (1.6) (8.7) (0.5) 
Interest income, net(a) 0.1  —  0.1  6.1  1.0  7.1  (7.0) 
Income from continuing operations before income taxes  24.2  4.2  28.4  31.5  (1.1) 30.4  (2.0) 
Income tax expense(b) (7.6) (0.7) (8.3) (9.3) 0.5  (8.8) 0.5  
Income from continuing operations  16.6  3.5  20.1  22.2  (0.6) 21.6  (1.5) 
Income from discontinued operations, net of tax(c) —  —  —  1,327.2  (1,304.6) 22.6  (22.6) 
Net income  16.6  3.5  20.1  1,349.4  (1,305.2) 44.2  (24.1) 

20192018Adjusted amounts
increase/(decrease)
Nine Months Ended September 30,GAAPCertain ItemsAdjustedGAAPCertain ItemsAdjusted
(In millions of Canadian dollars, except percentages)
Segment EBDA(a)
Terminals150.1  —  150.1  140.8  (9.5) 131.3  18.8  
Pipelines33.8  —  33.8  25.5  —  25.5  8.3  
Total Segment EBDA183.9  —  183.9  166.3  (9.5) 156.8  27.1  
D&A(65.9) —  (65.9) (61.1) —  (61.1) (4.8) 
General and administrative(a)(33.8) 5.1  (28.7) (26.6) 1.4  (25.2) (3.5) 
Interest income, net(a)0.7  —  0.7  6.1  1.0  7.1  (6.4) 
Income from continuing operations before income taxes84.9  5.1  90.0  84.7  (7.1) 77.6  12.4  
Income tax expense(b)(25.4) (0.9) (26.3) (25.0) 2.1  (22.9) (3.4) 
Income from continuing operations59.5  4.2  63.7  59.7  (5.0) 54.7  9.0  
Income from discontinued operations, net of tax(c)—  —  —  1,347.8  (1,260.2) 87.6  (87.6) 
Net income59.5  4.2  63.7  1,407.5  (1,265.2) 142.3  (78.6) 
________
(a)For a more detail discussion of these Certain Items, see the footnotes to thosethe tables (if any). within “—Segment Earnings Results.” and “—

General and Administrative Expense and Interest Income, net” below.
(b)The combined net effect of the Certain Items represents the income tax provision on Certain Items plus discrete income tax items.
(c)See Note 2 “Trans Mountain Transaction” to the accompanying consolidated financial statements.


28

Three Months Ended September 30, 2019 vs Three Months Ended September 30, 2018

After giving effect to Certain Items above, which are discussed in more detail in the discussions that follow, the $2.0 million decrease in income from continuing operations before income taxes between the comparable quarters is primarily attributable to lower interest income from the interest earned on cash received from the Trans Mountain Transaction deposited in interest bearing cash equivalent accounts, increased D&A and general and administrative expense partially offset by increased earnings from both of our segments.

Nine Months Ended September 30, 2019 vs Nine Months Ended September 30, 2018

After giving effect to Certain Items above, which are discussed in more detail in the discussions that follow, the $12.4 million increase in income from continuing operations before income taxes between the comparable periods is primarily attributable to increased earnings from both of our segments partially offset by lower interest income from the interest earned on cash received from the Trans Mountain Transaction deposited in interest bearing cash equivalent accounts, and increased D&A and general and administrative expense.

Reconciliation of Income from Continuing Operations (GAAP) to Adjusted Earnings to DCF

Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars, except per share amounts)
Income from continuing operations (GAAP)16.6  22.2  59.5  59.7  
Total Certain Items3.5  (0.6) 4.2  (5.0) 
Adjusted earnings from continuing operation(a)20.1  21.6  63.7  54.7  
D&A22.1  21.1  65.9  61.1  
Income tax expense(a)8.3  8.8  26.3  22.9  
Cash taxes9.7  (0.1) (21.6) (8.4) 
Sustaining capital expenditures(5.2) (5.2) (14.2) (10.1) 
Preferred Share dividends(7.2) (7.2) (21.6) (21.6) 
DCF from continuing operations47.8  39.0  98.5  98.6  
DCF from discontinued operations(c)—  41.6  —  150.8  
DCF47.8  80.6  98.5  249.4  
DCF from continuing operations to KMI interest(33.4) (27.3) (68.9) (69.1) 
DCF from continuing operations to Restricted Voting Stockholders14.4  11.7  29.6  29.5  
29

Adjusted Segment EBDA excludesto Adjusted EBITDA to DCF
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars, except per share amounts)
Terminals47.4  44.1  150.1  131.3  
Pipelines12.2  9.0  33.8  25.5  
Total Adjusted Segment EBDA from continuing operations(a)59.6  53.1  183.9  156.8  
General and administrative(a)(9.2) (8.7) (28.7) (25.2) 
Adjusted EBITDA earnings from continuing operation50.4  44.4  155.2  131.6  
Interest income, net(a)0.1  7.1  0.7  7.1  
Cash taxes9.7  (0.1) (21.6) (8.4) 
Sustaining capital expenditures(5.2) (5.2) (14.2) (10.1) 
Preferred stock dividends(7.2) (7.2) (21.6) (21.6) 
DCF from continuing operations47.8  39.0  98.5  98.6  
DCF from discontinued operations(c)—  41.6  —  150.8  
DCF47.8  80.6  98.5  249.4  
DCF from continuing operations to KMI interest(33.4) (27.3) (68.9) (69.1) 
DCF from continuing operations to Restricted Voting Stockholders14.4  11.7  29.6  29.5  
Weighted average split-adjusted Restricted Voting Shares outstanding for
dividends (in millions)(b)		35.2  35.0  35.2  34.9  
 DCF from continuing operations per split-adjusted Restricted Voting Share0.41  0.33  0.84  0.85  

Reconciliation of Income from Continuing Operations (GAAP) to Adjusted EBITDA
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
(In millions of Canadian dollars)
Income from continuing operations (GAAP)16.6  22.2  59.5  59.7  
Certain Items:
Costs of strategic initiatives4.2  —  5.1  —  
Gain on divestitures, net—  (1.1) —  (7.1) 
Income tax Certain Items(0.7) 0.5  (0.9) 2.1  
Total Certain Items3.5  (0.6) 4.2  (5.0) 
D&A22.1  21.1  65.9  61.1  
Income tax expense(a)8.3  8.8  26.3  22.9  
Interest income, net(a)(0.1) (7.1) (0.7) (7.1) 
Adjusted EBITDA from continuing operations50.4  44.4  155.2  131.6  
Adjusted EBITDA from discontinued operations(c)—  44.8  —  163.4  
Adjusted EBITDA50.4  89.2  155.2  295.0  
_________
(a)Amounts are adjusted for Certain Items.
(b)Includes stock awards of Restricted Voting Shares that participate in dividends.
30

(c) DCF from discontinued operations and Adjusted EBITDA from discontinued operations reconciliations are as follows: 

DCF from discontinued operations:
Three MonthsNine Months
Ended September 30, 2018
(In millions of Canadian dollars)
Income from discontinued operations, net of tax1,327.2  1,347.8  
Total Certain Items(1,304.6) (1,260.2) 
Adjusted earnings from discontinued operations22.6  87.6  
D&A11.8  46.8  
Income tax expense(1)13.1  35.0  
Sustaining capital expenditures(5.9) (18.6) 
DCF from discontinued operations41.6  150.8  

Adjusted EBITDA from discontinued operations:
Three MonthsNine Months
Ended September 30, 2018
(In millions of Canadian dollars)
Income from discontinued operations, net of tax1,327.2  1,347.8  
Total Certain Items(1,304.6) (1,260.2) 
D&A11.8  46.8  
Income tax expense(1)13.1  35.0  
Interest income, net(2.7) (6.0) 
Adjusted EBITDA from discontinued operations44.8  163.4  
_________
(1) Amounts are adjusted for all periods presented, see —Discontinued Operations below.Certain Items





31

Segment Earnings Results


PipelinesTerminals Segment
Three Months Ended September 30,  Nine Months Ended September 30,  
2019  2018  2019  2018  
(In millions of Canadian dollars, except operating statistics)
Revenues84.2  79.1  257.9  233.8  
Operating expenses, except D&A(36.8) (34.0) (107.9) (92.7) 
Other income (expense), net—  (0.5) 0.1  (0.3) 
Segment EBDA47.4  44.6  150.1  140.8  
   Certain Items(a)—  (0.5) —  (9.5) 
   Adjusted Segment EBDA47.4  44.1  150.1  131.3  
Change from prior periodIncrease/(Decrease) 
Adjusted revenues5.1  6 %24.1  10 %
   Adjusted Segment EBDA3.3  7 %18.8  14 %
Operating statistics2019201820192018
Bulk transload tonnage (MMtons)1.3  1.1  3.2  2.9  
Liquids tankage capacity available for service (MMBbl)(b)9.6  9.4  9.6  9.4  
Liquids utilization %(c)96 %93 %96 %93 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars, except operating statistics)       
Revenues15.2
 14.7
 44.8
 45.5
Operating expenses, except D&A(5.1) (6.6) (17.9) (24.9)
Other expense, net(1.1) (5.7) (1.4) (11.2)
  Segment EBDA9.0
 2.4
 25.5
 9.4
        
Change from prior periodIncrease/(Decrease)
  Revenues0.5
 3% (0.7) (2)%
Segment EBDA6.6
 275% 16.1
 171 %
        
Operating statistics2018
 2017
 2018
 2017
Cochin transport volumes (MBbl/d)82
 84
 85
 86
________

(a)Represents the gain on the sale of certain assets.
(b)Includes our share of joint venture capacity.
(c)The ratio of our tankage capacity in service to tankage capacity available for service.

Below are the changes in both Adjusted Segment EBDA and revenues before certain items,revenues:

Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018
Adjusted Segment EBDA
increase/(decrease)		Revenues
increase/(decrease)
(In millions of Canadian dollars, except percentages)
Base Line joint venture3.5  50 %4.2  57 %
North 40 Terminal0.3  3 %(0.3) (3)%
Vancouver Wharves Terminal(0.1) (1)%1.4  6 %
Edmonton South Terminal(0.1) (1)%(0.4) (2)%
Edmonton Rail Terminal joint venture(0.2) (2)%0.1  1 %
All others (including eliminations)(0.1) (25)%0.1  5 %
Total Terminals3.3  7 %5.1  6 %

32

Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018
Adjusted Segment EBDA
increase/(decrease)		Revenues
increase/(decrease)
(In millions of Canadian dollars, except percentages)
Base Line joint venture16.2  107 %18.3  110 %
North 40 Terminal4.0  15 %3.1  10 %
Vancouver Wharves Terminal1.5  7 %3.9  6 %
Edmonton South Terminal1.2  5 %1.6  2 %
Edmonton Rail Terminal joint venture(3.4) (8)%(2.9) (6)%
All others (including eliminations)(0.7) (78)%0.1  2 %
Total Terminals18.8  14 %24.1  10 %

The changes in Adjusted Segment EBDA for our Terminals business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine month periodsmonths ended September 30, 20182019 and 2017:2018:


•increase of $3.5 million (50%) and $16.2 million (107%), respectively, from Base Line joint venture as a result of the new tanks being placed into service throughout 2018;

•increase of $4.0 million (15%) for the comparable nine months from North 40 Terminal primarily due to rate increases on re-contracted tank leases and fees associated with a new pipeline connection;

•increase of $1.5 million (7%) for the comparable nine months from Vancouver Wharves Terminal primarily due to higher sulphur and distillate volumes;

•increase of $1.2 million (5%) for the comparable nine months from Edmonton South primarily due to higher pipeline connection fees and contract rate escalations; and

•decrease $3.4 million (8%) for the comparable nine months from Edmonton Rail Terminal primarily due to expiration of a third-party rail terminaling contract.

Pipelines Segment
Three Months Ended September 30,Nine Months Ended September 30,
2019  2018  2019  2018  
(In millions of Canadian dollars, except operating statistics)
Revenues18.1  15.2  51.3  44.8  
Operating expenses, except D&A(5.9) (5.7) (17.4) (18.8) 
Other income (expense), net—  (0.5) (0.1) (0.5) 
   Adjusted Segment EBDA12.2  9.0  33.8  25.5  
Change from prior periodIncrease/(Decrease) 
Revenues2.9  19 %6.5  15 %
Adjusted Segment EBDA3.2  36 %8.3  33 %
Operating statistics2019  2018  2019  2018  
Cochin transport volumes (MBbl/d)96  82  94  85  

33

Three months ended September 30, 2018 versus Three months ended September 30, 2017
 
Segment EBDA
increase/(decrease)
 
Revenues
 increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Cochin6.5
 437% 0.5
 3%
Jet Fuel and other (including eliminations)0.1
 8% —
 —%
Total Pipelines6.6
 275% 0.5
 3%
Below are the changes in both Adjusted Segment EBDA and revenues:

Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018
Segment EBDA
increase/(decrease)		Revenues
increase/(decrease)
(In millions of Canadian dollars, except percentages)
Cochin3.2  41 %2.8  21 %
Jet Fuel—  — %0.1  6 %
Total Pipelines3.2  36 %2.9  19 %

Nine months ended September 30, 2018 versus Nine months ended September 30, 2017
Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018
Segment EBDA
increase/(decrease)
 
Revenues
 increase/(decrease)
Segment EBDA
increase/(decrease)		Revenues
increase/(decrease)
(In millions of Canadian dollars, except percentages) (In millions of Canadian dollars, except percentages)
Cochin15.8
 241% (0.8) (2)%Cochin8.7  39 %6.4  16 %
Jet Fuel and other (including eliminations)0.3
 11% 0.1
 3 %
Jet FuelJet Fuel(0.4) (13)%0.1  2 %
Total Pipelines16.1
 171% (0.7) (2)%Total Pipelines8.3  33 %6.5  15 %


The changes in Adjusted Segment EBDA for our Pipelines business segment are further explained by the following discussion of the significant factors driving Adjusted Segment EBDA in the comparable three and nine month periodsmonths ended September 30, 20182019 and 2017:2018:

•increase of $6.5$3.2 million (437%(41%) and $15.8$8.7 million (241%(39%), respectively, from Cochin primarily due to a third quarter 2017 foreign exchange loss on intercompany receivables,higher revenue due to rate and volume increases in 2019, and a reduction in pipeline integrity expenses and outside servicesservice costs in 2018, and higher revenue due to rate increases in the third quarter of 2018. In addition to the above, the nine months ended increase in earnings was partially offset by a decrease in revenue due to lower delivered volumes for that period compared to the same period in 2017.2019.


Terminals Segment
 Three Months Ended September 30, Nine Months Ended September 30,
 2018
 2017
 2018
 2017
(In millions of Canadian dollars, except operating statistics)       
Revenues79.1
 71.2
 233.8
 218.4
Operating expenses, except D&A(34.1) (32.4) (98.9) (99.9)
Other (expense) income, net(0.4) 0.7
 5.9
 (1.9)
Segment EBDA44.6
 39.5
 140.8
 116.6
   Certain items(a)(0.5) —
 (9.5) —
   Segment EBDA before certain items44.1
 39.5
 131.3
 116.6
        
Change from prior periodIncrease/(Decrease)
Revenues7.9
 11% 15.4
 7%
Segment EBDA before certain items4.6
 12% 14.7
 13%
        
Operating statistics2018
 2017
 2018
 2017
Bulk transload tonnage (MMtonnes)1.1
 1.2
 2.9
 3.2
Liquids tankage capacity available for service (MMBbl)9.4
 7.3
 9.4
 7.3
Liquids utilization %(b)93% 100% 93% 100%
________
(a)Represents the gain on the sale of certain assets.
(b)The ratio of our tankage capacity in service to tankage capacity available for service.


Below are the changes in both Segment EBDA before certain items and revenues in the comparable three and six month periods ended September 30, 2018 and 2017:

Three months ended September 30, 2018 versus Three months ended September 30, 2017
 
Segment EBDA before certain items
increase/(decrease)
 
Revenues
 increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Base Line joint venture6.7
 n/a
 7.3
 n/a
Edmonton South1.0
 14 % 0.8
 4 %
North 40 Terminal0.1
 1 % 1.3
 14 %
Vancouver Wharves Terminal(0.8) (10)% (0.1) — %
Edmonton Rail Terminal joint venture(2.4) (16)% (1.5) (9)%
All others (including eliminations)—
 — % 0.1
 2 %
Total Terminals4.6
 12 % 7.9
 11 %

Nine months ended September 30, 2018 versus Nine months ended September 30, 2017
 
Segment EBDA before certain items
increase/(decrease)
 
Revenues
 increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Base Line joint venture14.8
 n/a
 16.6
 n/a
Edmonton South5.7
 28 % 1.8
 3 %
North 40 Terminal3.2
 13 % 3.8
 14 %
Vancouver Wharves Terminal(3.2) (13)% (5.4) (8)%
Edmonton Rail Terminal joint venture(5.0) (11)% (1.5) (3)%
All others (including eliminations)(0.8)
(40)% 0.1
 2 %
Total Terminals14.7
 12 % 15.4
 7 %
________
n/a - not applicable

The changes in Segment EBDA for our Terminals business segment are further explained by the following discussion of the significant factors driving Segment EBDA in the comparable three and nine month periods ended September 30, 2018 and 2017:
increase of $6.7 million and $14.8 million, respectively, from Base Line joint venture as a result of the new tanks being placed into service;

increase of $1.0 million (14%) and $5.7 million (28%), respectively, from Edmonton South primarily due to higher rates on re-contracted tank leases and contracted rate escalations, partially offset by tank lease costs following the Transaction;

increase of $0.1 million (1%) and $3.2 million (13%), respectively, from North 40 Terminal primarily due to higher rates on re-contracted tank leases;

decrease of $0.8 million (10%) and $3.2 million (13%), respectively, from Vancouver Wharves Terminal primarily due to higher labor costs and lower bulk handling volumes; and

decrease of $2.4 million (16%) and $5.0 million (11%), respectively, from Edmonton Rail Terminal primarily due to expiration of a third party rail terminaling contract.




General and Administrative Expense and Interest Income, Net
Three Months Ended September 30,20192018Increase/(decrease)
(In millions of Canadian dollars, except percentages)
General and administrative (GAAP)13.4  7.1  6.3  89 %
Certain Items(a)(4.2) 1.6  (5.8) (363)%
General and administrative(b)9.2  8.7  0.5  6 %
Interest income, net (GAAP)0.1  6.1  (6.0) (98)%
Certain Items(c)—  1.0  (1.0) (100)%
Interest income, net(b)0.1  7.1  (7.0) (99)%

Nine Months Ended September 30,20192018Increase/(decrease)
(In millions of Canadian dollars, except percentages)
General and administrative (GAAP)33.8  26.6  7.2  27 %
Certain Items(a)(5.1) (1.4) (3.7) (264)%
General and administrative(b)28.7  25.2  3.5  14 %
Interest income, net (GAAP)0.7  6.1  (5.4) (89)%
Certain Items(c)—  1.0  (1.0) (100)%
Interest income, net(b)0.7  7.1  (6.4) (90)%
________
(a)2019 amounts represent costs of strategic initiatives and 2018 amounts represents labor expenses related to the Trans Mountain Transaction.
(b)Amounts are adjusted for Certain Items.
(c)2018 amounts represent costs associated with debt refinancing allocated to continuing operations.

34

Three Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages) 
General and administrative7.1
 7.6
 (0.5) (7)%
Certain items(a)1.6
 (0.1) 1.7
 (1,700)%
General and administrative before certain items8.7
 7.5
 1.2
 16 %
Nine Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages)       
General and administrative26.6
 22.2
 4.4
 20 %
Certain items(a)(1.4) (2.6) 1.2
 (46)%
General and administrative before certain items25.2
 19.6
 5.6
 29 %
______
(a)2018 amounts represent labor expenses related to the Transaction.

The $1.2 million increase in general and administrative before certain itemsexpense adjusted for Certain Items of $0.5 million and $3.5 million for the third quarter of 2018three and nine months ended September 30, 2019, when compared with the third quarter of 2017 wasrespective prior year periods were primarily driven by increased labor and benefit costs.


The $5.6 million increasedecrease in general and administrative before certain itemsinterest income, net adjusted for the nine months ended September 30, 2018 when compared with the respective prior year period was primarily driven by increased audit and legal fees and increased labor and benefit costs.

Interest (income) expense, Net

Three Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Interest (income) expense, net(6.1) (2.0) (4.1) 205%
Certain items(a)(1.0) —
 (1.0) n/a
Interest (income) expense, net before certain items(7.1) (2.0) (5.1) 255%

Nine Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Interest (income) expense, net(6.1) 4.6
 (10.7) (233)%
Certain items(a)(1.0) —
 (1.0) n/a
Interest (income) expense, net before certain items(7.1) 4.6
 (11.7) (254)%
______
(a)     2018 amounts represent costs associated with debt refinancing, see Note 3 “Debt” to the accompanying consolidated financial statements.
The $5.1Certain Items of $7.0 million and $11.7$6.4 million decrease in Interest (income) expense, net before certain items for the three and nine months ended September 30, 20182019, when compared with the respective prior year periods was primarily driven by higher interest income due to deposits madeearned on cash received from the Trans Mountain Transaction proceeds intodeposited in interest bearing cash equivalent accounts.


Income Tax Expense from Continuing Operations

Three Months Ended September 30, 2018 vs Three Months Ended September 30, 2017


Income tax expense from continuing operations for the three months ended September 30, 20182019 was $9.3$7.6 million, as compared with $7.7$9.3 million for the same period of 2017.2018. The $1.6$1.7 million increasedecrease in tax expense is primarily due to higher income from continuing operations before income taxesa decrease in 2018 as compared to the same period in 2017,pre-tax earnings partially offset by the net tax impact of a change inon the provincial tax rate change on our deferred tax liabilities in 2017.Preferred Share dividends paid.

Nine Months Ended September 30, 2018 vs Nine Months Ended September 30, 2017


Income tax expense from continuing operations for the nine months ended September 30, 20182019 was $25.0$25.4 million, as compared with $17.7$25.0 million for the same period of 2017.2018. The $7.3$0.4 million increase in tax expense is primarily higher income from continuing operations before income taxes in 2018 as compared to the same period in 2017, partially offset by the impact of a change in the provincial tax rate change on our deferred tax liabilities in 2017.

Income from Discontinued Operations, Net of Tax
Three Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Income from Discontinued Operations, net of tax(a)1,327.2
 32.6
 1,294.6
 3,971 %
Certain items(b)(1,304.6) (0.1) (1,304.5) n/a
Income from Discontinued Operations, net of tax, before certain items22.6
 32.5
 (9.9) (30)%

Nine Months Ended September 30,2018
 2017
 Increase/(decrease)
(In millions of Canadian dollars, except percentages) 
Income from Discontinued Operations, net of tax(a)1,347.8
 86.3
 1,261.5
 1,462 %
Certain items(b)(1,260.2) 1.9
 (1,262.1) n/a
Income from Discontinued Operations, net of tax, before certain items87.6
 88.2
 (0.6) (1)%
_______
(a)See Note 2 “Trans Mountain Transaction” to the accompanying consolidated financial statements for the income statement line item components of discontinued operations.
(b)The three and nine months ended September 30, 2018 includes $1,308.0 million for the gain on sale of the Trans Mountain Asset Group, (net of tax gain of $69.5 million) and Transaction related expenses of approximately $3.4 million, net of tax. In the second quarter of 2018, approximately $44.4 million of deferred costs, net of tax, associated with our 2017 Credit Facility that were being amortized as interest expense over its term were written off and have been included as a certain item from discontinued operations in the nine months ended September 30, 2018.
The $9.9 million decrease in Income from Discontinued Operations, net of tax, before certain items is primarily driven by one less month of operations for the Trans Mountain Asset Group in 2018 as compared to the comparable three month period ended 2017, partially offset by $1.9 million increase in capitalized equity financing costs associated with TMEP construction.

The $0.6 million decrease in Income from Discontinued Operations, net of tax, before certain items iswas primarily due to increased operating costs in 2018 and one less month of operations for the Trans Mountain Asset Group in 2018 as compared tonet tax impact on the comparable nine month period in 2017, partially offset by $15.2 million increase in capitalized equity financing costs associated with TMEP construction.Preferred Share dividends paid.


Net Income Attributable to Kinder Morgan Interest


Net income attributable to Kinder Morgan interest represents the allocation of our consolidated net income attributable to the outstanding ownership interests in our consolidated subsidiaries that are owned by Kinder Morgan’s wholly-owned subsidiaries. The increasedecrease in net income attributable to Kinder Morgan interest for the three and nine months ended September 30, 20182019 when compared with the respective prior year2018 periods was $912.0were $934.1 million and $875.4$945.3 million, respectively, which waswere primarily attributable to thea gain on the Transaction. See Note 2 “TransTrans Mountain Transaction” to the accompanying consolidated financial statements.Transaction in 2018.


Liquidity and Capital Resources


2018 Credit FacilityShort-term Liquidity

Upon the closing of the Transaction onOn August 31, 2018, we established a 4-year, $500 million unsecured revolving credit facility (the “2018 Credit Facility”) for working capital purposes, replacing a temporary credit facility that was put in place following the announcement of the Transaction on May 30, 2018 (the “Temporary Credit Facility”). The $132.6 million of outstanding borrowings under the Temporary Credit Facility were paid off, prior to its termination, with a portion of the Transaction proceeds.purposes. As of September 30, 2018,2019, we had nocash and cash equivalents of $65.2 million, and outstanding borrowings of $45.0 million, with $451.6 million available (net of $3.4 million of outstanding letters of credit), under our 2018 Credit Facility.


Short-term Liquidity and Funding Capital Expenditures

As of September 30, 2018, we had $4,350.1 million of “Cash and cash equivalents” and $446.0 million of available borrowing capacity under our 2018 Credit Facility, after reducing the $500 million capacity for the $54.0 million in letters of credit. Of the total $54.0 million of letters of credit issued, approximately $50.5 million are issued on behalf of Trans Mountain for which it has issued a backstop letter of credit to us.

As of September 30, 20182019 and December 31, 2017,2018, our principal source of short-term liquidity was our cash from operating activities offrom continuing operations, and as needed, our continuing operations.2018 Credit Facility. We had a working capital (defined as current assets less current liabilities) excessdeficits of $3,994.8$28.4 million and of $42.3$22.9 million as of September 30, 20182019 and December 31, 2017,2018, respectively. The September 30, 2018 excess working capital balance includes the net Transaction proceeds of $3,916.9 million after paying down outstanding borrowings described above and certain Transaction expenses. Generally, our working capital balance varies due to factors such as timing differences in the collection and payment of receivables and payables. Also, see ‘‘—Trans Mountain Transaction” for board approval to distribute the net proceeds from the Transaction in early 2019.


Our operations generated cash flows from operating activities of $305.1 million and $158.8 million, which included $182.3 million and $71.7 million of cash flows from operating activities from our discontinued operations, inDuring the nine months ended September 30, 20182019, we paid $313.9 million of income taxes primarily attributable to the Trans Mountain Transaction gain that were accrued as of December 31, 2018. Excluding this payment, we generated $129.8 million of cash from operating activities during the nine months ended September 30, 2019. The primary investing and 2017, respectively. Also,financing activities related to our continuing operations are expected to be for capital expenditures and distributions to our voting and preferred shareholders. During the nine months ended September 30, 2019, we had cash outflows of $38.0 million for capital expenditures and $78.3 million for combined distributions to voting and preferred shareholders. Also, see ‘‘—Cash Flows — Operating Activities’’ below, and Note 2 to the accompanying consolidated financial statements.below.


We believe our cash position, remaining borrowing capacity on our 2018 Credit Facility, and our cash flows from operating activities from our continuing operations are adequate to allow us to manage our day-to-day cash requirements, capital expenditures discussed below and anticipated obligations including the proposed special dividend as discussed further below.other obligations.

Capital Expenditures
35


Capital Expenditures

We account for our capital expenditures in accordance with GAAP. We also distinguish between capital expenditures that are maintenance/sustaining capital expenditures and those that are expansion capital expenditures. Expansion capital expenditures are those expenditures which increase throughput or capacity from that which existed immediately prior to the addition or improvement, and are not deducted in calculating DCF. Sustaining capital expenditures are those which maintain throughput or capacity. The distinction between maintenance and expansion capital expenditures is a physical determination rather than an economic one, irrespective of the amount by which the throughput or capacity is increased.


Budgeting of sustaining capital expenditures is done annually on a bottom-up basis. For each of our assets, we budget for and make those sustaining capital expenditures that are necessary to maintain safe and efficient operations, meet customer needs and comply with our operating policies and applicable law. We may budget for and make additional sustaining capital expenditures that we expect will produce economic benefits such as increasing efficiency and/or lowering future expenses. Budgeting and approval of expansion capital expenditures are generally made periodically throughout the year on a project-by-project basis in response to specific investment opportunities identified by our business segments from which we generally expect to receive sufficient returns to justify the expenditures. Generally, the determination of whether a capital expenditure is classified as sustaining or as expansion capital expenditures is made on a project level. The classification of capital expenditures as expansion capital expenditures or as sustaining capital expenditures is made consistent with our accounting policies and is generally a straightforward process, but in certain circumstances can be a matter of management judgment and discretion. The classification of capital expenditures has an impact on DCF because capital expenditures that are classified as expansion capital expenditures are not deducted from DCF, while those classified as sustaining capital expenditures are.


Our capital expenditures for the nine months ended September 30, 20182019 for our continuing operations, and the amount that is expected to be spent to sustain and grow our continuing operations for the remainder of 20182019 are as follows.follows:
 Nine Months Ended September 30, 2018 (a) 2018 Remaining for Continuing Operations Total 2018
(In millions of Canadian dollars)     
Sustaining capital expenditures (b)10.1
 9.7
 19.8
Expansion capital expenditures (c)58.7
 43.3
 102.0
Nine Months Ended September 30, 2019(a)2019 RemainingTotal 2019
(In millions of Canadian dollars)
Sustaining capital expenditures14.2  5.1  19.3  
Expansion capital expenditures19.6  15.6  35.2  
________
(a)Nine months ended September 30, 2018 amount includes $24.6 million of net changes from accrued capital expenditures, contractor retainage, capitalized equity financing costs and other.
(b)Nine months ended September 30, 2018 excludes $18.6 million of TMPL sustaining capital expenditures prior to the August 31, 2018 Transaction close date.
(c)Nine months ended September 2018 excludes $444.7 million of TMEP expansion capital expenditures prior to the August 31, 2018 Transaction date.

(a)Nine months ended September 30, 2019 amounts exclude $4.2 million of net changes from accrued capital expenditures, contractor retainage, and other.

Off Balance Sheet Arrangements


As of September 30, 2018,2019, we had no off balance sheet arrangements other than thosethe commercial commitments included below under “—Contractual Obligations and Commercial Commitments.Commitments.”


36

Contractual Obligations and Commercial Commitments
Payments due by period
Payments due by periodTotalLess than 1 year1 - 3 years3 - 5 yearsMore than 5 years
(in millions of Canadian dollars)(in millions of Canadian dollars)
Contractual Obligations:Contractual Obligations:
Leases(a) Leases(a)928.5  13.5  104.7  102.0  708.3  
Pension and postretirement welfare plans(b) Pension and postretirement welfare plans(b)2.2  —  —  0.1  2.1  
Total Less than 1 year 2 - 3 year 4 - 5 years More than 5 years
(In millions of Canadian dollars)         
Contractual obligations:         
Leases and rights-of-way obligations(a)308.0
 20.5
 128.1
 112.2
 47.2
 
Postretirement welfare plans(b)1.5
 —
 0.1
 0.1
 1.3
 
Total309.5
 20.5
 128.2
 112.3
 48.5
  Total930.7  13.5  104.7  102.1  710.4  
Other commercial commitments:         Other commercial commitments:
Standby letters of credit(c)54.0
 50.5
 3.5
 —
 —
 3.4  3.4  —  —  —  
Capital expenditures(d)(c)26.6
 26.6
 —
 —
 —
 16.5  16.5  —  —  —  
________
(a)Represents commitments pursuant to the terms of operating lease agreements and liabilities for rights-of-way.
(b)Represents the amount by which the benefit obligations exceeded the fair value of plan assets for other postretirement benefit plans. The payments by period include estimated benefit payments for unfunded plans in all years.
(c)Includes $50.5 million of Trans Mountain outstanding letters of credit for which it has issued us a backstop letter of credit and $3.5 million of letters of credit for our continuing operations.
(d)Represents commitments for the purchase of plant, property and equipment as of September 30, 2018 including $21.2 million of our proportional share of commitments through joint ownership of a joint venture.

(a)Represents commitments pursuant to the terms of operating lease agreements.

(b)The payments by period include estimated benefit payments for unfunded plans.

(c)Represents commitments for the purchase of plant, property and equipment as of September 30, 2019 including $2.3 million of our proportional share of commitments through joint ownership of a joint venture.


Cash Flows


The following table summarizes our net effects on cash flows from operating, investing and financing activities for each period presented for our combinedrelated to the Trans Mountain Asset Group are included in the following discussion.

Nine Months Ended September 30,20192018(a)
(In millions of Canadian dollars)
Net cash (used in) provided by:
Operating activities(184.1) 305.1  
Investing activities(77.6) 3,420.7  
Financing activities(4,011.6) 384.8  
Change in Cash, Cash Equivalents, and Restricted Deposits held by the Trans Mountain Asset Group—  128.3  
Effect of exchange rate changes on cash, cash equivalents and restricted deposits(0.1) 0.5  
Net (decrease) increase in cash, cash equivalents and restricted deposits(4,273.4) 4,239.4  
________
(a) Amounts include both continuing and discontinued operations:operations.
Nine Months Ended September 30,2018
 2017
(In millions of Canadian dollars)   
Net cash provided by (used in):   
Operating activities305.1
 158.8
Investing activities3,420.7
 (419.6)
Financing activities384.8
 433.8
Change in Cash, Cash Equivalents, and Restricted Deposits held by the Trans Mountain Asset Group128.3
 (18.9)
Effect of exchange rate changes on cash, cash equivalents and restricted deposits0.5
 (1.3)
Net increase in cash, cash equivalents and restricted deposits4,239.4
 152.8


Operating Activities


The net increasedecrease of $146.3$489.2 million (92%) in cash provided by operating activities in the nine months ended September 30, 20182019 compared to the same period in 2017 was2018, primarily attributable to:


•a $428.6$320.0 million net increasedecrease in cash associated with net changes in operating assets and liabilities, primarily attributable to the following: (i) an increases in cash due to an increase in the current income tax liabilitiespayments made in 2019 primarily associated with the tax gain on the sale ofTrans Mountain Transaction; and,
•a $169.2 million decrease in cash primarily due to the Trans Mountain Asset Group; (ii) favorable changesTransaction in the collections and refunds of Westridge Marine Terminal dock premiums; and (iii) an increase in cash due to interest payments made on the KMI Loans that were paid off in the second quarter of 2017; partially offset by,2018.
a $282.3 million decrease in operating cash flow resulting from the combined effects of adjusting the $1,293.2 million increase in net income for the period-to-period changes in non-cash items primarily consisting of the following: (i) a $1,235.1 million gain on the sale of the Trans Mountain Asset Group in 2018; (ii) deferred income taxes, including the deferred tax benefit related to the gain on the sale of the Trans Mountain Asset Group in 2018; (iii) capitalized equity financing costs; (iv) the change in the foreign exchange rate; (v) D&A expense; (vi) 2018 write-off of unamortized debt issuance costs; and (vii) other non-cash items.


Investing Activities


The $3,840.30$3,498.3 million net increasedecrease in cash provided by theused in investing activities in the nine months ended September 30, 20182019 compared to the same period in 20172018 was primarily attributable to:


•a $3,921.2$3,958.3 million increasedecrease in cash reflecting proceeds received from the sale of the Trans Mountain Asset Group,Transaction, net of cash disposed in the 2018 period;period, and a final working capital payment made in the 2019; and
•a $16.2$16.6 million increasedecrease in cash due to higherprovided by proceeds received from the salessale of assets and other activities in the 2018 period comparedperiod; partially offset by,
37

•a $469.5 million decrease in capital expenditures primarily due to the 2017Trans Mountain Transaction in the 2018 period; and
•a $1.3$7.1 million decrease in cash used due to lower contributions made to our reclamation trusts and change in Other, net incompared to the 2018 period, compared towhich included 2018 payments for a reclamation trust in the 2017 period; partially offset by,Trans Mountain Asset Group.
a $98.4 million increase in capital expenditures primarily for the TMEP partially offset by a decrease in capital expenditures for the Base Line expansion project.


Financing Activities


The net decreaseincrease of $49.0$4,396.4 million in cash provided byused in financing activities in the nine months ended September 30, 20182019 compared to the same period in 20172018 was primarily attributable to:


•a $1,671.0combined $3,977.4 million distribution of the Trans Mountain Transaction proceeds. See Note 2 “Trans Mountain Transaction” for further information regarding this activity;
•a $514.9 million decrease in cash reflecting proceeds received fromnet borrowings under our IPO, net of fees paidcredit facilities in the 20172019 period compared with the 2018 period; and
•a $293.5 million decrease in cash reflecting proceeds received from the preferred shares issuance, net of fees paid in the 2017 period;

a $91.9$1.1 million increase in distributions paid to the Kinder Morgan interest in the 2018 period compared to the 2017 period;
a $32.5 million increase in dividends paid to Restricted Voting Stockholders in the 2018 period compared to the 2017 period;
$20.5 million of cash dividends paid to preferred shareholders in the 2018 period; and
$6.0 million of tax payments made related2019 period compared to vested employee restricted share unit awards in the 2018 period; partially offset by,
a $1,606.3•an $82.4 million decrease in cash used reflecting repayments of the KMI Loansquarterly distributions paid to voting shareholders in the 20172019 period using proceeds from the IPO;
a $394.9 million increase in net borrowings under our and TMEP’s credit facilities incompared to the 2018 period compared with borrowings made in the 2017 period. See Note 3 “Debt” for further information regarding our and TMEP’s credit facilities activity; andperiod;
a $65.2•an $8.6 million decrease in cash used associated with a reduction in debt and preferred sharesPreferred Share issuance costs in the 20182019 period compared to the 20172018 period; and
•a $6 million of payments made related to taxes withheld on vested restricted share unit awards in the 2018 period.


Equity, Dividends, Distributions and DistributionsShare Buyback Program


As of both September 30, 20182019 and October 24, 2018,22, 2019, we had (i) 104.6 million34,944,993 and 244.1 million81,353,820 of Restricted Voting Shares and Special Voting Shares outstanding, respectively, with no par value, for an aggregate of 348.7 million116,298,813 voting shares outstanding,outstanding; (ii) 12.0 million and 10.0 million of Series 1 Preferred Shares and Series 3 Preferred Shares outstanding, respectively,respectively; and (iii) 0.2 million312,430 of restricted stockshare unit awards outstanding.


Proposed Return of Capital, Stated Capital Reduction and Share Consolidation


As discussed in Note 2 “Trans Mountain Transaction” toand Part I, Item 2. “Recent Developments”, on January 3, 2019, distributions were made for the accompanying consolidated financial statements, subject toReturn of Capital. To facilitate the Return of Capital and provide flexibility for dividends going forward, our voting shareholders also approved (i) the Stated Capital Reduction and Share Consolidation being approved by a two-thirds majority of voting shareholders, and the board's subsequent confirmation thereof, the anticipated payment date for the Return of Capital is expected to be January 3, 2019, with(ii) the Share Consolidation, to occur a few days thereafter. KMI has stated that it intends to vote in favor of these proposals with its approximate 70% voting interest in us. Accounting for the shareholder approved Share Consolidation will bewhich occurred on a retroactive basis.January 4, 2019.


Dividends and Distributions on Restricted Voting Shares and Special Voting Shares


The Limited Partnership currently makes quarterly cash distributions to the Company (as an indirect holder of Class A
Units and Preferred LP Units, through the General Partner) and to Kinder Morgan (as an indirect holder of Class B Units) in accordance with the terms of the Limited Partnership Agreement. Distributions are not guaranteed and are subject to the approval of the General Partner. To the extent distributions are approved, all distributions on the Class A Units and Preferred LP Units are immediately distributed by the General Partner to the Company, which then uses such distributions to pay dividends to the holders of (i) then outstanding Preferred Shares of the Company (currently being Series 1 Preferred Shares and Series 3 Preferred Shares) pursuant to the terms of such Preferred Shares,Shares; and (ii) Restricted Voting Shares pursuant to the Company's dividend policy.


Effective January 16, 2019, our board of directors suspended the dividend reinvestment plan for our Restricted Voting Shares.

On October 17, 2018,15, 2019, our board of directors approved a quarterly dividend of $0.1625 per Restricted Voting Share for the three month periodmonths ended September 30, 20182019 to be paid on November 15, 20182019 to shareholders of record on October 31, 2018.2019.


Prior to the announced Transaction, our dividend reinvestment plan (DRIP) and the Limited Partnership distribution reinvestment plan, incentivized by a 3% market discount, was an important source of capital for funding the TMEP. Given that TMEP is no longer relevant, the board of directors elected to eliminate the market discount for future periods. All other terms and conditions related to participation in our DRIP remain unchanged. Similarly, due to our reduced need for capital, Kinder Morgan elected to suspend its participation in the Limited Partnership's distribution reinvestment plan.






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Dividends on Series 1 Preferred Shares and Series 3 Preferred Shares


We also pay dividends on our 12,000,000 Series 1 Preferred Shares and 10,000,000 Series 3 Preferred Shares, which are fixed, cumulative, preferential, and payable quarterly in the annual amount of $1.3125 per share and $1.3000 per share, respectively, on the 15th day of February, May, August and November, as and when declared by our board of directors, for the initial fixed rate period to but excluding November 15, 2022 and February 15, 2023, respectively.



On October 15, 2019, our board of directors approved a quarterly dividend of $0.328125 per Series 1 preferred share and $0.3250 per Series 3 preferred share, each payable on November 15, 2019 to Series 1 and Series 3 preferred shareholders of record as of October 31, 2019.
Also, see Item 1, Note 4 “Equity”
Share Buyback Program

On July 17, 2019, we announced that our board of directors approved a normal course issuer bid (the “NCIB”) to the accompanying consolidated financial statements for information concerning outstandingrepurchase up to 1,999,902 Restricted Voting Shares (and associated restricted stock awards), Specialfor cancellation during the 12-month period from July 22, 2019 to July 21, 2020. Subsequently, under terms of the agreement for Pembina's acquisition of our common equity, we agreed to not repurchase any Restricted Voting Shares and Preferredunder the NCIB. No Restricted Voting Shares and 2018 paid and declared dividends and distributions.have been purchased under the NCIB.


Item 3.Quantitative and Qualitative Disclosures About Market Risk.
 
There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 20172018 in Item 7A in our 20172018 Form 10-K. For more information on our risk management activities, see Item 1, Note 6 “Risk“Risk Management and Financial Instruments” to the accompanying consolidated financial statements.


Item 4. Controls and Procedures.


As of September 30, 2018,2019, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  Based upon and as of the date of the evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.   There has been no change in our internal control over financial reporting during the quarter ended September 30, 20182019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We note that, due to the Transaction, we have eliminated certain controls related to the Trans Mountain Asset Group.


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PART II. OTHER INFORMATION


Item 1.  Legal Proceedings.
 
See Part I, Item 1, Note 12 “Litigation“Litigation and Contingencies”Environmental” to the accompanying consolidated financial statements, which is incorporated in this item by reference.


Item 1A. Risk Factors.


See Item 2. “Management’s Discussion and Analysis-RecentAnalysis of Financial Condition and Results of Operations—Recent Business Developments-Trans Mountain Transaction” Developments—Pending Sale to Pembina” included elsewhere in this report; the risk factors set forth under the heading “Risk Factors” in our Preliminary Proxy Statement on Schedule 14A filed with the SEC on June 21, 2018,September 18, 2019, which are incorporated by reference herein pursuant to Rule 12b-23 under the Exchange Act; and “Information Regarding Forward-Looking Statements” “Important Information Regarding the Return of Capital, Reduction in Stated Capital and Share Consolidation” and “Important Additional Information Regarding the Reduction in Stated Capital and Share Consolidation Will Be Filed with the SEC and on SEDAR” included elsewhere in this report. There have been no other material changes to the risk factors disclosed in Part I, Item 1A in our 20172018 Form 10-K.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.


None.On July 17, 2019, we announced that our board of directors approved a normal course issuer bid ("NCIB"). Subsequently, under the terms of the agreement for Pembina's acquisition of our common equity, we agreed to not repurchase any Restricted Voting Shares under the NCIB. Part I, Item 1, Note 4 “Equity” to the accompanying consolidated financial statements.


Item 3. Defaults Upon Senior Securities.


None.


Item 4.  Mine Safety Disclosures.


Not applicable.


Item 5.  Other Information.
 
None.



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Item 6.  Exhibits
 
Exhibit
NumberDescription
2.1*
NumberDescription 2.1 to the current report on Form 8-K of Kinder Morgan Canada Limited filed on August 23, 2019 and Incorporated herein by reference)
2.2
10.1*
31.110.1*
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1101*
Risk Factors under the heading “RISK FACTORS” on pages on pages 37-41 of the Preliminary Proxy Statement on Schedule 14A filed with the SEC on June 21, 2018 and incorporated herein by reference.

101Interactive data files pursuant to Rule 405 of Regulation S-T: (i) our Consolidated Statements of Income for the three and nine months ended September 30, 20182019 and 2017;2018; (ii) our Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 20182019 and 2017;2018; (iii) our Consolidated Balance Sheets as of September 30, 20182019 and December 31, 2017;2018; (iv) our Consolidated Statements of Cash Flows for the nine months ended September 30, 20182019 and 2017;2018; (v) our Consolidated Statements of Equity for the three and nine months ended September 30, 20182019 and 2017;2018; and (vi) the notes to our Consolidated Financial Statements.
_______
*Asterisk indicates exhibits incorporated by reference as indicated; all other exhibits are filed herewith, except as noted otherwise.



SIGNATURES
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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


KINDER MORGAN CANADA LIMITED
Registrant
By: /s/ Dax A. Sanders
Dax A. Sanders

Chief Financial Officer

(principal financial and accounting officer)
Date:October 24, 201823, 2019



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