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EX-31.1 - EXHIBIT 31.1 - KINDER MORGAN, INC.kmi-09302015ex311.htm
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EX-32.2 - EXHIBIT 32.2 - KINDER MORGAN, INC.kmi-09302015ex322.htm
EX-32.1 - EXHIBIT 32.1 - KINDER MORGAN, INC.kmi-09302015ex321.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
F O R M   10-Q
 
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
 
or
 
o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____to_____
 
Commission file number: 001-35081

KINDER MORGAN, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
80-0682103
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

1001 Louisiana Street, Suite 1000, Houston, Texas 77002
(Address of principal executive offices)(zip code)
Registrant’s telephone number, including area code: 713-369-9000
 
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.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No þ
 
As of October 21, 2015, the registrant had 2,231,514,695 Class P shares outstanding.




KINDER MORGAN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


KINDER MORGAN, INC. AND SUBSIDIARIES
GLOSSARY

Company Abbreviations

CIG
=
Colorado Interstate Gas Company, L.L.C.
KMI
=
Kinder Morgan, Inc. and its majority-owned and/or
Copano
=
Copano Energy, L.L.C.
 
 
controlled subsidiaries
CPG
=
Cheyenne Plains Gas Pipeline Company, L.L.C.
KMLP
=
Kinder Morgan Louisiana Pipeline LLC
Elba Express
=
Elba Express Company, L.L.C.
KMP
=
Kinder Morgan Energy Partners, L.P. and its
EPB
=
El Paso Pipeline Partners, L.P. and its majority-
 
 
majority-owned and controlled subsidiaries
 
 
owned and controlled subsidiaries
KMR
=
Kinder Morgan Management, LLC
EPNG
=
El Paso Natural Gas Company, L.L.C.
SFPP
=
SFPP, L.P.
EPPOC
=
El Paso Pipeline Partners Operating Company,
SLNG
=
Southern LNG Company, L.L.C.
 
 
L.L.C.
SNG
=
Southern Natural Gas Company, L.L.C.
KMEP
=
Kinder Morgan Energy Partners, L.P.
TGP
=
Tennessee Gas Pipeline Company, L.L.C.
KMGP
=
Kinder Morgan G.P., Inc.
 
 
 
 
 
 
 
 
 
Unless the context otherwise requires, references to “we,” “us,” or “our,” are intended to mean Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries.
 
 
 
 
 
 
Common Industry and Other Terms
/d
=
per day
FASB
=
Financial Accounting Standards Board
AFUDC
=
allowance for funds used during construction
FERC
=
Federal Energy Regulatory Commission
BBtu
=
billion British Thermal Units
GAAP
=
United States Generally Accepted Accounting
Bcf
=
billion cubic feet
 
 
Principles
CERCLA
=
Comprehensive Environmental Response,
LLC
=
limited liability company
 
 
Compensation and Liability Act
MBbl
=
thousand barrels
CO2
=
carbon dioxide or our CO2 business segment
MMBbl
=
million barrels
CPUC
=
California Public Utilities Commission
NGL
=
natural gas liquids
DCF
=
distributable cash flow
NYMEX
=
New York Mercantile Exchange
DD&A
=
depreciation, depletion and amortization
NYSE
=
New York Stock Exchange
EBDA
=
earnings before depreciation, depletion and
OTC
=
over-the-counter
 
 
amortization expenses, including amortization of
PHMSA
=
United States Department of Transportation
 
 
excess cost of equity investments
 
 
Pipeline and Hazardous Materials Safety
EPA
=
United States Environmental Protection Agency
 
 
Administration
 
 
 
 
 
 
When we refer to cubic feet measurements, all measurements are at a pressure of 14.73 pounds per square inch.




2


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,” 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 the 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.

See “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, 2014 (2014 Form 10-K) and Item 1A “Risk Factors” included elsewhere in this report 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. We plan to provide updates to projections included in this report when we believe previously disclosed projections no longer have a reasonable basis.


3


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Millions, Except Per Share Amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
Natural gas sales
$
744

 
$
1,043

 
$
2,206

 
$
3,154

Services
2,015

 
2,050

 
5,948

 
5,655

Product sales and other
948

 
1,198

 
2,613

 
3,466

Total Revenues
3,707

 
4,291

 
10,767

 
12,275

 
 
 
 
 
 
 
 
Operating Costs, Expenses and Other
 
 
 
 
 

 
 

Costs of sales
1,106

 
1,642

 
3,281

 
4,895

Operations and maintenance
612

 
557

 
1,707

 
1,580

Depreciation, depletion and amortization
617

 
520

 
1,725

 
1,518

General and administrative
160

 
135

 
540

 
461

Taxes, other than income taxes
108

 
105

 
339

 
326

Loss on impairments and disposals of long-lived assets, net
385

 

 
489

 
3

Other income, net
(2
)
 

 
(5
)
 

Total Operating Costs, Expenses and Other
2,986

 
2,959

 
8,076

 
8,783

 
 
 
 
 
 
 
 
Operating Income
721

 
1,332

 
2,691

 
3,492

 
 
 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
 

 
 

Earnings from equity investments
114

 
107

 
330

 
306

Loss on impairments of equity investments

 

 
(26
)
 

Amortization of excess cost of equity investments
(13
)
 
(12
)
 
(39
)
 
(33
)
Interest, net
(540
)
 
(432
)
 
(1,524
)
 
(1,320
)
Other, net
9

 
30

 
33

 
56

Total Other Expense
(430
)
 
(307
)
 
(1,226
)
 
(991
)
 
 
 
 
 
 
 
 
Income Before Income Taxes
291

 
1,025

 
1,465

 
2,501

 
 
 
 
 
 
 
 
Income Tax Expense
(108
)
 
(246
)
 
(521
)
 
(624
)
 
 
 
 
 
 
 
 
Net Income
183

 
779

 
944

 
1,877

 
 
 
 
 
 
 
 
Net Loss (Income) Attributable to Noncontrolling Interests
3

 
(450
)
 
4

 
(977
)
 
 
 
 
 
 
 
 
Net Income Attributable to Kinder Morgan, Inc.
$
186

 
$
329

 
$
948

 
$
900

 
 
 
 
 
 
 
 
Class P Shares
 
 
 
 
 
 
 
Basic Earnings Per Common Share
$
0.08

 
$
0.32

 
$
0.43

 
$
0.87

 
 
 
 
 
 
 
 
Basic Weighted Average Shares Outstanding
2,203

 
1,028

 
2,173

 
1,028

 
 
 
 
 
 
 
 
Diluted Earnings Per Common Share
$
0.08

 
$
0.32

 
$
0.43

 
$
0.87

 
 
 
 
 
 
 
 
Diluted Weighted Average Shares Outstanding
2,203

 
1,028

 
2,181

 
1,028

 
 
 
 
 
 
 
 
Dividends Per Common Share Declared for the Period
$
0.51

 
$
0.44

 
$
1.48

 
$
1.29


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

4


KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Millions)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Net income
$
183

 
$
779

 
$
944

 
$
1,877

Other comprehensive income (loss), net of tax
 

 
 

 
 
 
 
Change in fair value of hedge derivatives (net of tax (expense) benefit of $(60), $(37), $(25) and $4, respectively)
104

 
121

 
44

 
(20
)
Reclassification of change in fair value of derivatives to net income (net of tax benefit (expense) of $37, $1, $111 and $(8), respectively)
(63
)
 
(1
)
 
(192
)
 
29

Foreign currency translation adjustments (net of tax benefit of $45, $23, $98 and $24, respectively)
(79
)
 
(73
)
 
(170
)
 
(79
)
Benefit plan adjustments (net of tax expense of $-, $(1), $(4) and $-, respectively)
1

 
(1
)
 
7

 

Total other comprehensive (loss) income
(37
)
 
46

 
(311
)
 
(70
)
 
 
 
 
 
 
 
 
Comprehensive income
146

 
825

 
633

 
1,807

Comprehensive loss (income) attributable to noncontrolling interests
3

 
(478
)
 
4

 
(933
)
Comprehensive income attributable to KMI
$
149

 
$
347

 
$
637

 
$
874


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

5


KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Per Share Amounts)
 
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
179

 
$
315

Accounts receivable, net
1,404

 
1,641

Inventories
445

 
459

Fair value of derivative contracts
529

 
535

Deferred income taxes
50

 
56

Other current assets
460

 
746

Total current assets
3,067

 
3,752

 
 
 
 
Property, plant and equipment, net
40,608

 
38,564

Investments
5,943

 
6,036

Goodwill
24,952

 
24,654

Other intangibles, net
3,619

 
2,302

Deferred income taxes
5,327

 
5,651

Deferred charges and other assets
2,161

 
2,090

Total Assets
$
85,677

 
$
83,049

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Current portion of debt
$
3,003

 
$
2,717

Accounts payable
1,226

 
1,588

Accrued interest
563

 
637

Accrued contingencies
322

 
383

Other current liabilities
1,077

 
1,037

Total current liabilities
6,191

 
6,362

 
 
 
 
Long-term liabilities and deferred credits
 

 
 

Long-term debt
 

 
 

Outstanding
39,675

 
38,212

Preferred interest in general partner of KMP
100

 
100

Debt fair value adjustments
1,855

 
1,785

Total long-term debt
41,630

 
40,097

Other long-term liabilities and deferred credits
2,014

 
2,164

Total long-term liabilities and deferred credits
43,644

 
42,261

Total Liabilities
49,835

 
48,623

 
 
 
 
Commitments and contingencies (Notes 3 and 9)


 


Stockholders’ Equity
 

 
 

Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,227,894,462 and 2,125,147,116 shares, respectively, issued and outstanding
22

 
21

Preferred stock, $0.01 par value, 10,000,000 shares authorized, none outstanding

 

Additional paid-in capital
40,062

 
36,178

Retained deficit
(4,242
)
 
(2,106
)
Accumulated other comprehensive loss
(328
)
 
(17
)
Total Kinder Morgan, Inc.’s stockholders’ equity
35,514

 
34,076

Noncontrolling interests
328

 
350

Total Stockholders’ Equity
35,842

 
34,426

Total Liabilities and Stockholders’ Equity
$
85,677

 
$
83,049

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

6


KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
 
Nine Months Ended September 30,
 
2015
 
2014
Cash Flows From Operating Activities
 
 
 
Net income
$
944

 
$
1,877

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 

Depreciation, depletion and amortization
1,725

 
1,518

Deferred income taxes
524

 
369

Amortization of excess cost of equity investments
39

 
33

Loss on impairments and disposals of long-lived assets and equity investments, net
515

 
3

Earnings from equity investments
(330
)
 
(306
)
Distributions from equity investment earnings
289

 
294

Pension contributions and noncash pension benefit credits
(78
)
 
(79
)
Changes in components of working capital, net of the effects of acquisitions
 
 
 
Accounts receivable, net
304

 
23

Income tax receivable
195

 

Inventories
2

 
(29
)
Other current assets
82

 
3

Accounts payable
(264
)
 
(90
)
Accrued interest, net of interest rate swaps
(72
)
 
(113
)
Accrued contingencies and other current liabilities
6

 
228

Other, net
(374
)
 
(239
)
Net Cash Provided by Operating Activities
3,507

 
3,492

 
 
 
 
Cash Flows From Investing Activities
 
 
 
Business acquisitions, net of cash acquired
(1,864
)
 
(961
)
Acquisitions of other assets and investments
(55
)
 
(139
)
Capital expenditures
(2,999
)
 
(2,678
)
Contributions to investments
(69
)
 
(342
)
Distributions from equity investments in excess of cumulative earnings
181

 
138

Other, net
84

 
(38
)
Net Cash Used in Investing Activities
(4,722
)
 
(4,020
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Issuances of debt
12,281

 
13,399

Payments of debt
(11,893
)
 
(11,585
)
Debt issue costs
(20
)
 
(52
)
Issuances of shares
3,833

 

Cash dividends
(3,084
)
 
(1,304
)
Repurchases of shares and warrants
(12
)
 
(192
)
Contributions from noncontrolling interests
7

 
1,638

Distributions to noncontrolling interests
(25
)
 
(1,491
)
Other, net
(1
)
 
(2
)
Net Cash Provided by Financing Activities
1,086

 
411

 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
(7
)
 
(9
)
 
 
 
 
Net decrease in Cash and Cash Equivalents
(136
)
 
(126
)
Cash and Cash Equivalents, beginning of period
315

 
598

Cash and Cash Equivalents, end of period
$
179

 
$
472

 
Non-cash Investing and Financing Activities
 
 
 
Assets acquired by the assumption or incurrence of liabilities
$
1,680

 
$
73

Net assets contributed to equity investment
$
46

 
$

 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the period for interest (net of capitalized interest)
$
1,596

 
$
1,446

Cash (refunded) paid during the period for income taxes, net
$
(183
)
 
$
228


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

7


KINDER MORGAN, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Millions)
(Unaudited)
 
Nine Months Ended September 30, 2015
 
Outstanding shares
 
Par value of common shares
 
Additional
paid-in
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 
Stockholders’
equity
attributable
to KMI
 
Non-controlling
interests
 
Total
Beginning Balance at
 December 31, 2014
2,125

 
$
21

 
$
36,178

 
$
(2,106
)
 
$
(17
)
 
$
34,076

 
$
350

 
$
34,426

Issuances of shares
101

 
1

 
3,832

 
 
 
 
 
3,833

 
 
 
3,833

Warrants repurchased
 
 
 
 
(12
)
 
 
 
 
 
(12
)
 
 
 
(12
)
EP Trust I Preferred security conversions
1

 
 
 
23

 
 
 
 
 
23

 
 
 
23

Warrants exercised
 
 
 
 
2

 
 
 
 
 
2

 
 
 
2

Restricted shares
1

 
 
 
40

 
 
 
 
 
40

 
 
 
40

Net income
 
 
 
 
 
 
948

 
 
 
948

 
(4
)
 
944

Distributions
 
 
 
 
 
 
 
 
 
 

 
(25
)
 
(25
)
Contributions
 
 
 
 
 
 
 
 
 
 

 
7

 
7

Cash dividends
 
 
 
 
 
 
(3,084
)
 
 
 
(3,084
)
 
 
 
(3,084
)
Other
 
 
 
 
(1
)
 
 
 
 
 
(1
)
 
 
 
(1
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(311
)
 
(311
)
 

 
(311
)
Ending Balance at
 September 30, 2015
2,228

 
$
22

 
$
40,062

 
$
(4,242
)
 
$
(328
)
 
$
35,514

 
$
328

 
$
35,842


 
Nine Months Ended September 30, 2014
 
Outstanding shares
 
Par value of common shares
 
Additional
paid-in
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 
Stockholders’
equity
attributable
to KMI
 
Non-controlling
interests
 
Total
Beginning Balance at
 December 31, 2013
1,031

 
$
10

 
$
14,479

 
$
(1,372
)
 
$
(24
)
 
$
13,093

 
$
15,192

 
$
28,285

Shares repurchased
(3
)
 

 
(94
)
 

 

 
(94
)
 

 
(94
)
Warrants repurchased
 
 
 
 
(98
)
 
 
 
 
 
(98
)
 
 
 
(98
)
Restricted shares
 
 
 
 
38

 
 
 
 
 
38

 
 
 
38

Impact from equity transactions of KMP, EPB and KMR
 
 
 
 
29

 
 
 
 
 
29

 
(44
)
 
(15
)
Net income
 
 
 
 


 
900

 
 
 
900

 
977

 
1,877

Distributions
 
 
 
 
 

 
 
 
 
 

 
(1,491
)
 
(1,491
)
Contributions
 
 
 
 
 

 
 
 
 
 

 
1,638

 
1,638

Cash dividends
 
 
 
 
 
 
(1,304
)
 
 
 
(1,304
)
 
 
 
(1,304
)
Other
 
 
 
 
7

 
 
 
 
 
7

 
(4
)
 
3

Other comprehensive loss
 
 
 
 
 
 
 
 
(26
)
 
(26
)
 
(44
)
 
(70
)
Ending Balance at
 September 30, 2014
1,028

 
$
10

 
$
14,361

 
$
(1,776
)
 
$
(50
)
 
$
12,545

 
$
16,224

 
$
28,769



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

8


KINDER MORGAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.  General
 
Organization

We are the largest energy infrastructure and the third largest energy company in North America with an enterprise value of approximately $110 billion. We own an interest in or operate approximately 84,000 miles of pipelines and 165 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals transload and store petroleum products, ethanol and chemicals, and handle such products as coal, petroleum coke and steel. We are also the leading producer and transporter of CO2, which is utilized for enhanced oil recovery projects in North America.

On November 26, 2014, we completed our acquisition, pursuant to three separate merger agreements, of all of the outstanding common units of KMP and EPB and all of the outstanding shares of KMR that we did not already own. The transactions, valued at approximately $77 billion, are referred to collectively as the “Merger Transactions.” On January 1, 2015, EPB and its subsidiary, EPPOC merged with and into KMP. References to EPB refer to EPB for periods prior to its merger into KMP.
 
Prior to the Merger Transactions, we owned an approximate 10% limited partner interest (including our interest in KMR) and the 2% general partner interest including incentive distribution rights in KMP, and an approximate 39% limited partner interest and the 2% general partner interest and incentive distribution rights in EPB. Effective with the Merger Transactions, the incentive distribution rights held by the general partner of KMP were eliminated.

The earnings recorded by KMP, EPB and KMR that are attributed to their units and shares, respectively, held by the public prior to the Merger Transactions are reported as “Net loss (income) attributable to noncontrolling interests” in our accompanying consolidated statements of income.

Basis of Presentation
 
General

Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars, unless stated otherwise. Our accompanying unaudited consolidated financial statements have been prepared under the rules and regulations of the United States Securities and Exchange Commission (SEC). These rules and regulations conform to the accounting principles contained in the FASB’s Accounting Standards Codification, the single source of GAAP. Under such rules and regulations, all significant intercompany items have been eliminated in consolidation. Additionally, certain amounts from prior years have been reclassified to conform to the current presentation.  

In the nine months ended September 30, 2015, we adopted Accounting Standards Updates (ASU) 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” and ASU 2015-15, “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update).” These ASUs are designed to simplify presentation of debt issuance costs. The standards require that debt issuance costs related to a recognized debt liability, except for line-of-credit debt issuance costs, be presented in the balance sheet as an offset to the carrying amount of that debt liability, consistent with debt discounts.  The application of this new accounting guidance resulted in the reclassification of $149 million of debt issuance costs from “Deferred charges and other assets” to “Debt fair value adjustments” in our accompanying consolidated balance sheet as of December 31, 2014.

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 2014 Form 10-K.

Impairments

During the three and nine months ended September 30, 2015, we recorded non-cash pre-tax impairment charges of $387 million and $523 million, respectively. These amounts include $388 million and $397 million for the three and nine months ended September 30, 2015, respectively, within our CO2 business segment primarily related to our Goldsmith oil and gas field,

9


primarily driven by a decrease in commodity prices during the quarter. The nine months ended September 30, 2015 amount also includes $99 million of impairments, related to the sale of certain gas gathering and processing assets within our Oklahoma midstream operations and the continued deterioration of the commodity price environment, and $26 million related to our investments in Fort Union Gas Gathering L.L.C. and Bighorn Gas Gathering L.L.C., which are all included in our Natural Gas Pipelines business segment.

As conditions warrant, we routinely evaluate our assets for potential triggering events that could impact the fair value of certain assets or our ability to recover the carrying value of long-lived assets. Such assets include accounts receivable, equity investments, goodwill, other intangibles and property plant and equipment, including oil and gas properties and in-process construction. Depending on the nature of the asset, these evaluations require the use of significant judgments including but not limited to judgments related to customer credit worthiness, future cash flow estimates, future volume expectations, current and future commodity prices, management’s decisions to dispose of certain assets, as well as general economic conditions and the related demand for products handled or transported by our assets. In the current commodity price environment and to the extent conditions further deteriorate, we may identify additional triggering events that may necessitate further impairments to the carrying value of our assets. Such non-cash impairments could have a significant effect on our results of operations.

Earnings per Share
 
We calculate earnings per share using the two-class method. Earnings were allocated to Class P shares of common stock and participating securities based on the amount of dividends paid in the current period plus an allocation of the undistributed earnings or excess distributions over earnings to the extent that each security participates in earnings or excess distributions over earnings. Our unvested restricted stock awards do not participate in excess distributions over earnings.

The following tables set forth the allocation of net income available to shareholders of Class P shares and participating securities and the reconciliation of Basic Weighted Average Shares Outstanding to Diluted Weighted Average Shares Outstanding (in millions):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,

2015
 
2014
 
2015
 
2014
Class P
$
182

 
$
327

 
$
938

 
$
892

Participating securities(a)
4

 
2

 
10

 
8

Net Income Attributable to Kinder Morgan, Inc.
$
186

 
$
329

 
$
948

 
$
900


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Basic Weighted Average Shares Outstanding
2,203

 
1,028

 
2,173

 
1,028

Effect of dilutive securities:
 
 
 
 
 
 
 
   Warrants(b)

 

 
8

 

Diluted Weighted Average Shares Outstanding
2,203

 
1,028

 
2,181

 
1,028

________
(a)
Participating securities are unvested restricted stock awards, which may be stock or stock units issued to management employees and include non-forfeitable dividend equivalent payments. As of September 30, 2015, there were approximately 8 million such restricted stock awards.
(b)
Each warrant entitles the holder to purchase one share of our common stock for an exercise price of $40 per share, payable in cash or by cashless exercise, at any time until May 25, 2017.


10


The following potential common stock equivalents are antidilutive and, accordingly, are excluded from the determination of diluted earnings per share (in millions on a weighted-average basis):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Unvested restricted stock awards
8

 
7

 
7

 
7

Warrants to purchase our Class P shares
296

 
298

 
290

 
316

Convertible trust preferred securities
8

 
10

 
8

 
10


2.  Acquisitions
 
Hiland Partners, LP

On February 13, 2015, we acquired Hiland Partners, LP, a privately held Delaware limited partnership (Hiland) for aggregate consideration of approximately $3,120 million, including assumed debt. Approximately $368 million of the debt assumed was immediately paid down after closing. Hiland’s assets consist primarily of crude oil gathering and transportation pipelines and gas gathering and processing systems, primarily handling production from the Bakken Formation in North Dakota and Montana. The acquired gathering and processing assets are included in our Natural Gas Pipelines business segment while the acquired crude oil transport pipeline (Double H pipeline) is included in our Products Pipelines business segment.

Vopak Terminal Assets

On February 27, 2015, we acquired three U.S. terminals and one undeveloped site from Royal Vopak (Vopak) for approximately $158 million in cash. The acquisition included (i) a 36-acre, 1,069,500-barrel storage facility at Galena Park, Texas that handles base oils, biodiesel and crude oil and is immediately adjacent to our Galena Park terminal facility; (ii) two terminals in North Carolina: one in North Wilmington that handles chemicals and black oil and the other in South Wilmington that is not currently operating; and (iii) an undeveloped waterfront access site in Perth Amboy, New Jersey. We include the acquired assets as part of the Terminals business segment.

Allocation of Purchase Price

The evaluation of the assigned fair values for the above acquisitions is ongoing and subject to adjustment. Our preliminary allocation of the purchase price for each of our significant acquisitions during the nine months ended September 30, 2015 is detailed below (in millions).
 
Acquisitions
 
Hiland
 
Vopak Terminal Assets
Purchase Price Allocation:
 
 
 
Current assets
$
82

 
$
2

Property, plant and equipment
1,504

 
155

Goodwill
316

 
7

Other intangibles(a)
1,481

 

Total assets acquired
3,383

 
164

Current liabilities
(259
)
 
(2
)
Debt
(1,411
)
 

Other liabilities
(4
)
 
(4
)
Cash consideration
$
1,709

 
$
158

_______
(a)
Relates to customer contracts and relationships with a weighted average amortization period of 16.4 years.

After measuring all of the identifiable tangible and intangible assets acquired and liabilities assumed at fair value on the acquisition date, goodwill is an intangible asset representing the future economic benefits expected to be derived from an acquisition that are not assigned to other identifiable, separately recognizable assets.  We believe the primary items that generated our goodwill are both the value of the synergies created between the acquired assets and our pre-existing assets, and

11


our expected ability to grow the business we acquired by leveraging our pre-existing business experience. We expect our recorded goodwill associated with the above acquisitions to be deductible for tax purposes.

Asset Purchase

On July 15, 2015, we purchased from Shell US Gas & Power LLC (Shell) its 49% interest in a joint venture, Elba Liquefaction Company (ELC), that was in the pre-construction stage of development for liquefaction facilities at Elba Island, Georgia. The transaction was treated as an asset purchase with the net cash consideration of $185 million attributed to incremental costs of construction. The purchase gives us full ownership and control of ELC. Therefore, we prospectively changed our method of accounting for ELC from the equity method to full consolidation. Shell continues to subscribe to 100% of the liquefaction capacity.

3. Debt

We classify our debt based on the contractual maturity dates of the underlying debt instruments.  We defer costs associated with debt issuance over the applicable term. These costs are then amortized as interest expense in our accompanying consolidated statements of income. The following table provides detail on the principal amount of our outstanding debt balances. The table amounts exclude all debt fair value adjustments, including debt discounts and premiums (in millions):
 
 
September 30, 2015
 
December 31, 2014
KMI
 
 
 
 
Senior notes, 1.50% through 8.25%, due 2015 through 2098(a)
 
$
13,385

 
$
11,438

Credit facility due November 26, 2019(b)
 
275

 
850

Commercial paper borrowings(b)
 
193

 
386

KMP
 
 
 
 
Senior notes, 2.65% through 9.00%, due 2015 through 2044(c)
 
20,360

 
20,660

TGP senior notes, 7.00% through 8.375%, due 2016 through 2037
 
1,790

 
1,790

EPNG senior notes, 5.95% through 8.625%, due 2017 through 2032
 
1,115

 
1,115

Copano senior notes, 7.125%, due April 1, 2021
 
332

 
332

CIG senior notes, 5.95% through 6.85%, due 2015 through 2037
 
440

 
475

SNG notes, 4.40% through 8.00%, due 2017 through 2032
 
1,211

 
1,211

Other Subsidiary Borrowings (as obligor)
 
 
 
 
Kinder Morgan Finance Company, LLC, senior notes, 5.70% through 6.40%, due 2016 through 2036
 
1,636

 
1,636

Hiland Partners Holdings LLC, senior notes, 5.50% and 7.25%, due 2020 and 2022
 
974

 

EPC Building, LLC, promissory note, 3.967%, due 2015 through 2035
 
445

 
453

Preferred securities, 4.75%, due March 31, 2028
 
221

 
280

KMGP, $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock
 
100

 
100

Other miscellaneous debt
 
301

 
303

Total debt – KMI and Subsidiaries
 
42,778

 
41,029

Less: Current portion of debt(d)
 
3,003

 
2,717

Total long-term debt – KMI and Subsidiaries(e)
 
$
39,775

 
$
38,312

_______
(a)
September 30, 2015 amount includes senior notes that are denominated in Euros and have been converted and are reported at the September 30, 2015 exchange rate of 1.1177 U.S. dollars per Euro. From the issuance date of these senior notes in March 2015 through September 30, 2015, our debt increased by $40 million as a result of the change in the exchange rate of U.S. dollars per Euro. We entered into cross-currency swap agreements associated with these senior notes (see Note 5 “Risk Management—Foreign Currency Risk Management”).
(b)
As of September 30, 2015 and December 31, 2014, the weighted average interest rates on our credit facility borrowings, including commercial paper borrowings, were 1.34% and 1.54%, respectively.
(c)
On January 1, 2015, EPB and EPPOC merged with and into KMP. On that date, KMP succeeded EPPOC as the issuer of approximately $2.9 billion of EPPOC’s senior notes, which were guaranteed by EPB, and EPB and EPPOC ceased to be obligors for those senior notes.
(d)
Amounts include outstanding credit facility and commercial paper borrowings.
(e)
Excludes our “Debt fair value adjustments” which, as of September 30, 2015 and December 31, 2014, increased our combined debt balances by $1,855 million and $1,785 million, respectively. In addition to all unamortized debt discount/premium amounts, debt

12


issuance costs (resulting from the implementation of ASU Nos. 2015-03 and 2015-15) and purchase accounting on our debt balances, our debt fair value adjustments also include amounts associated with the offsetting entry for hedged debt and any unamortized portion of proceeds received from the early termination of interest rate swap agreements.

Credit Facilities
 
As of September 30, 2015, we had $275 million outstanding under our five-year $4.0 billion revolving credit facility, $193 million outstanding under our $4.0 billion commercial paper program and $117 million in letters of credit. Our availability under this facility as of September 30, 2015 was $3,415 million. Borrowings under our revolving credit facility can be used for working capital and other general corporate purposes and as a backup to our commercial paper program. Borrowings under our commercial paper program reduce the borrowings allowed under our credit facility.

On February 13, 2015, in connection with the Hiland acquisition, we entered into and made borrowings of $1,641 million under a new six-month bridge credit facility with UBS AG, Stamford Branch. Interest under this bridge credit facility was charged at the same rate as our $4.0 billion revolving credit facility. Prior to March 31, 2015, we repaid the outstanding borrowings and the facility was terminated on April 6, 2015.

Hiland Debt Acquired

As of the February 13, 2015 Hiland acquisition date, we assumed (i) $975 million in principal amount of senior notes (which were valued at $1,043 million as of the acquisition date) and (ii) $368 million of other borrowings that were immediately repaid after closing, primarily consisting of borrowings outstanding under a revolving credit facility. The senior notes are subject to our cross guarantee agreement discussed in Note 11.

Long-term Debt Issuances and Repayments
Apart from the assumption of the Hiland debt discussed above, following are significant long-term debt issuances and repayments made during the nine months ended September 30, 2015:
  Issuances
 
$800 million 5.05% notes due 2046
 
 
$815 million 1.50% notes due 2022(a)
 
 
$543 million 2.25% notes due 2027(a)
 
 
 
  Repayments
 
$300 million 5.625% notes due 2015
 
 
$250 million 5.15% notes due 2015
_______
(a)
Senior notes are denominated in Euros and are presented above in U.S. dollars at the exchange rate on the issuance date of 1.0860 U.S. dollars per Euro. At the time of issuance, we entered into cross-currency swap agreements effectively converting these senior notes to U.S. dollars (see Note 5 “Risk Management—Foreign Currency Risk Management”).

4.  Stockholders’ Equity
 
Common Equity
 
As of September 30, 2015, our common equity consisted of our Class P common stock. For additional information regarding our Class P common stock, see Note 10 to our consolidated financial statements included in our 2014 Form 10-K.

On June 12, 2015, we announced that our board of directors approved a warrant repurchase program authorizing us to repurchase in the aggregate up to $100 million of warrants. As of September 30, 2015, we had $91 million of availability remaining under the above announced program. As of December 31, 2014, we had $2 million available for repurchases under our 2014 repurchase program, which was exhausted in June 2015.

On December 19, 2014, we entered into an equity distribution agreement authorizing us to issue and sell through or to the managers party thereto, as sales agents and/or principals, shares of our Class P common stock having an aggregate offering of up to $5.0 billion from time to time during the term of this agreement. During the nine months ended September 30, 2015, we issued and sold 101,290,190 shares of our Class P common stock pursuant to the equity distribution agreement, and issued an additional 1,324,318 shares after September 30, 2015 to settle sales made on or before September 30, 2015, resulting in net proceeds of $3.9 billion.


13



Dividends
 
Holders of our common stock share equally in any dividend declared by our board of directors, subject to the rights of the holders of any outstanding preferred stock. The following table provides information about our per share dividends:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Per common share cash dividend declared for the period
$
0.51

 
$
0.44

 
$
1.48

 
$
1.29

Per common share cash dividend paid in the period
$
0.49

 
$
0.43

 
$
1.42

 
$
1.26


On October 21, 2015, our board of directors declared a cash dividend of $0.51 per share for the quarterly period ended September 30, 2015, which is payable on November 13, 2015 to shareholders of record as of November 2, 2015.

5.  Risk Management
 
Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil.  We also have exposure to interest rate and foreign currency risk as a result of the issuance of our debt obligations.  Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks. In addition, we have legacy power forward and swap contracts for which we entered into offsetting positions that eliminate the price risks associated with these power contracts.

As of December 31, 2014, we had discontinued hedge accounting on certain of our crude derivative contracts as we did not expect them to continue to be highly effective, for accounting purposes, in offsetting the variability in cash flows. This was caused primarily by volatility in basis differentials. As the forecasted transactions are still probable, accumulated gains and losses remain in other comprehensive income until earnings are impacted by the forecasted transactions. Changes in the derivative contracts’ fair value subsequent to the discontinuance of hedge accounting are reported in earnings. We re-designate certain of these hedging relationships as the expected effectiveness improves to required levels.
Energy Commodity Price Risk Management
 
As of September 30, 2015, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales: 
 
Net open position long/(short)
Derivatives designated as hedging contracts
 
 
 
Crude oil fixed price
(23.0
)
 
MMBbl
Crude oil basis
(9.4
)
 
MMBbl
Natural gas fixed price
(41.2
)
 
Bcf
Natural gas basis
(16.7
)
 
Bcf
Derivatives not designated as hedging contracts
 

 
 
Crude oil fixed price
(1.8
)
 
MMBbl
Crude oil basis
(1.7
)
 
MMBbl
Natural gas fixed price
(20.6
)
 
Bcf
Natural gas basis
(15.0
)
 
Bcf
NGL and other fixed price
(1.9
)
 
MMBbl

As of September 30, 2015, the maximum length of time over which we have hedged, for accounting purposes, our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2018. We have additional economic hedge contracts not designated as accounting hedges through December 2019.

Interest Rate Risk Management

As of September 30, 2015 and December 31, 2014, we had a combined notional principal amount of $9,700 million and $9,200 million, respectively, of fixed-to-variable interest rate swap agreements, effectively converting the interest expense

14


associated with certain series of senior notes from fixed rates to variable rates based on an interest rate of London Interbank Offered Rate (LIBOR) plus a spread.  All of our swap agreements have termination dates that correspond to the maturity dates of the related series of senior notes and, as of September 30, 2015, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through March 15, 2035.

Foreign Currency Risk Management

In connection with the issuance of our Euro denominated senior notes in March 2015 (see Note 3), we entered into cross-currency swap agreements to manage the related foreign currency risk by effectively converting all of the fixed-rate Euro denominated debt, including annual interest payments and the payment of principal at maturity, to U.S. dollar denominated debt at fixed rates equivalent to approximately 3.79% and 4.67% for the 7-year and 12-year senior notes, respectively. These cross-currency swaps are accounted for as cash flow hedges. The terms of the cross-currency swap agreements correspond to the related hedged senior notes, and such agreements have the same maturities as the hedged senior notes.
 
Fair Value of Derivative Contracts
 
The following table summarizes the fair values of our derivative contracts included in our accompanying consolidated balance sheets (in millions):
Fair Value of Derivative Contracts
 
 
 
 
Asset derivatives
 
Liability derivatives
 
 
 
 
September 30,
2015
 
December 31,
2014
 
September 30,
2015
 
December 31,
2014
 
 
Location
 
Fair value
 
Fair value
Derivatives designated as hedging contracts
 
 
 
 
 
 
 
 
 
 
Natural gas and crude derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
$
347

 
$
309

 
$
(33
)
 
$
(34
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
233

 
6

 
(4
)
 

Subtotal
 
 
 
580

 
315

 
(37
)
 
(34
)
Interest rate swap agreements
 
Fair value of derivative contracts/(Other current liabilities)
 
153

 
143

 

 

 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
361

 
260

 
(1
)
 
(53
)
Subtotal
 
 
 
514

 
403

 
(1
)
 
(53
)
Cross-currency swap agreements
 
Fair value of derivative contracts/(Other current liabilities)
 

 

 
(14
)
 

 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
1

 

 
(21
)
 

Subtotal
 
 
 
1

 

 
(35
)
 

Total
 
 
 
1,095

 
718

 
(73
)
 
(87
)
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging contracts
 
 
 
 

 
 
 
 

 
 
Natural gas, crude, NGL and other derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
23

 
73

 
(4
)
 
(2
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
13

 
196

 
(1
)
 

Subtotal
 
 
 
36

 
269

 
(5
)
 
(2
)
Power derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
6

 
10

 
(30
)
 
(57
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 

 

 

 
(16
)
Subtotal
 
 
 
6

 
10

 
(30
)
 
(73
)
Total
 
 
 
42

 
279

 
(35
)
 
(75
)
Total derivatives
 
 
 
$
1,137

 
$
997

 
$
(108
)
 
$
(162
)


15



Effect of Derivative Contracts on the Income Statement
 
The following tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income (in millions): 
Derivatives in fair value hedging relationships
 
Location
 
Gain/(loss) recognized in income
 on derivatives and related hedged item
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
Interest, net
 
$
251

 
$
(25
)
 
$
163

 
$
87

 
 
 
 
 
 
 
 
 
 
 
Hedged fixed rate debt
 
Interest, net
 
$
(283
)
 
$
25

 
$
(166
)
 
$
(87
)
Derivatives in cash flow hedging relationships
 
Gain/(loss)
recognized in OCI 
on derivative (effective portion)(a)
 
Location
 
Gain/(loss) reclassified from Accumulated OCI
into income (effective portion)(b)
 
Location
 
Gain/(loss)
recognized in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
 
 
Three Months Ended September 30,
 
 
 
Three Months Ended September 30,
 
 
 
Three Months Ended September 30,
 
 
2015
 
2014
 
 
 
2015
 
2014
 
 
 
2015
 
2014
Energy commodity
 derivative contracts
 
$
119

 
$
121

 
Revenues—Natural
 gas sales
 
$
4

 
$
9

 
Revenues—Natural
 gas sales
 
$

 
$

 
 

 
 
 
Revenues—Product
 sales and other
 
60

 
(5
)
 
Revenues—Product
 sales and other
 
(6
)
 
26

 
 


 
 
 
Costs of sales
 
(2
)
 
(2
)
 
Costs of sales
 

 

Interest rate swap
 agreements
 
(4
)
 

 
Interest, net
 
(1
)
 
(1
)
 
Interest, net
 

 

Cross-currency swap
 
(11
)
 

 
Other, net
 
2

 

 
 
 
 
 
 
Total
 
$
104

 
$
121

 
Total
 
$
63

 
$
1

 
Total
 
$
(6
)
 
$
26

Derivatives in cash flow hedging relationships
 
Gain/(loss)
recognized in OCI 
on derivative (effective portion)(a)
 
Location
 
Gain/(loss) reclassified from Accumulated OCI
into income (effective portion)(b)
 
Location
 
Gain/(loss)
recognized in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
 
 
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
2015
 
2014
 
 
 
2015
 
2014
 
 
 
2015
 
2014
Energy commodity
 derivative contracts
 
$
72

 
$
(10
)
 
Revenues—Natural
 gas sales
 
$
29

 
$

 
Revenues—Natural
 gas sales
 
$

 
$

 
 
 
 
 
 
Revenues—Product
 sales and other
 
161

 
(30
)
 
Revenues—Product
 sales and other
 
4

 
(6
)
 
 
 
 
 
 
Costs of sales
 
(21
)
 
4

 
Costs of sales
 

 

Interest rate swap
 agreements
 
(6
)
 
(10
)
 
Interest, net
 
(2
)
 
(3
)
 
Interest, net
 

 

Cross-currency swap
 
(22
)
 

 
Other, net
 
25

 

 
 
 
 
 
 
Total
 
$
44

 
$
(20
)
 
Total
 
$
192

 
$
(29
)
 
Total
 
$
4

 
$
(6
)
_________
(a)
We expect to reclassify an approximate $161 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balances as of September 30, 2015 into earnings during the next twelve months (when the associated forecasted sales and purchases are also expected to occur), however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices. 
(b)
Amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred).

16


Derivatives not designated as accounting hedges
 
Location
 
Gain/(loss) recognized in income on derivatives
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
Energy commodity derivative contracts
 
Revenues—Natural gas sales
 
$
6

 
$
4

 
$
9

 
$
(12
)
 
 
Revenues—Product sales and other
 
169

 
5

 
173

 
6

 
 
Costs of sales
 

 
(3
)
 

 
4

 
 
Other expense (income)
 

 

 

 
(2
)
Total(a)
 
 
 
$
175

 
$
6

 
$
182

 
$
(4
)
_______
(a) For the three and nine months ended September 30, 2015, includes approximate gains of $19 million and $21 million, respectively, associated with natural gas, crude and NGL derivative contract settlements.

Credit Risks
In conjunction with the purchase of exchange-traded derivative contracts or when the market value of our derivative contracts with specific counterparties exceeds established limits, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts.  As of both September 30, 2015 and December 31, 2014, we had $2 million and $20 million, respectively, of outstanding letters of credit supporting our commodity price risk management program. As of September 30, 2015 and December 31, 2014, we had cash margins of $14 million and $47 million posted as collateral and $32 million and $13 million, respectively, held as collateral.
 
We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in our credit rating.  As of September 30, 2015, based on our current mark to market positions and posted collateral, we estimate that if our credit rating were downgraded one or two notches, we would not be required to post additional collateral.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Loss
Cumulative revenues, expenses, gains and losses that under GAAP are included within our comprehensive income but excluded from our earnings are reported as “Accumulated other comprehensive loss” within “Stockholders’ Equity” in our consolidated balance sheets. Changes in the components of our “Accumulated other comprehensive loss” not including non-controlling interests are summarized as follows (in millions):
 
Net unrealized
gains/(losses)
on cash flow
hedge derivatives
 
Foreign
currency
translation
adjustments
 
Pension and
other
postretirement
liability adjustments
 
Total
accumulated other
comprehensive loss
Balance as of December 31, 2014
$
327

 
$
(108
)
 
$
(236
)
 
$
(17
)
Other comprehensive loss before reclassifications
44

 
(170
)
 
7

 
(119
)
Amounts reclassified from accumulated other comprehensive loss
(192
)
 

 

 
(192
)
Net current-period other comprehensive loss
(148
)
 
(170
)
 
7

 
(311
)
Balance as of September 30, 2015
$
179

 
$
(278
)
 
$
(229
)
 
$
(328
)
 
Net unrealized
gains/(losses)
on cash flow
hedge derivatives
 
Foreign
currency
translation
adjustments
 
Pension and
other
postretirement
liability adjustments
 
Total
accumulated other
comprehensive loss
Balance as of December 31, 2013
$
(3
)
 
$
2

 
$
(23
)
 
$
(24
)
Other comprehensive loss before reclassifications
(8
)
 
(31
)
 
2

 
(37
)
Amounts reclassified from accumulated other comprehensive loss
11

 

 

 
11

Net current-period other comprehensive loss
3

 
(31
)
 
2

 
(26
)
Balance as of September 30, 2014
$

 
$
(29
)
 
$
(21
)
 
$
(50
)

17


6.  Fair Value
 
The fair values of our financial instruments are separated into three broad levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.

The three broad levels of inputs defined by the fair value hierarchy are as follows:
Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs