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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 March 31, 2016
 
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 April 21, 2016, the registrant had 2,231,555,976 Class P shares outstanding.




KINDER MORGAN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015
 
 
Consolidated Balance Sheets - March 31, 2016 and December 31, 2015
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015
 
Consolidated Statements of Stockholders’ Equity - Three Months Ended March 31, 2016 and 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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.
Hiland
=
Hiland Partners, LP
SLNG
=
Southern LNG Company, L.L.C.
KMEP
=
Kinder Morgan Energy Partners, L.P.
SNG
=
Southern Natural Gas Company, L.L.C.
KMGP
=
Kinder Morgan G.P., Inc.
TGP
=
Tennessee Gas Pipeline Company, L.L.C.
 
 
 
 
 
 
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
EPA
=
United States Environmental Protection Agency
BBtu
=
billion British Thermal Units
FASB
=
Financial Accounting Standards Board
Bcf
=
billion cubic feet
FERC
=
Federal Energy Regulatory Commission
CERCLA
=
Comprehensive Environmental Response,
GAAP
=
United States Generally Accepted Accounting
 
 
Compensation and Liability Act
 
 
Principles
CO2
=
carbon dioxide or our CO2 business segment
LLC
=
limited liability company
DCF
=
distributable cash flow
MBbl
=
thousand barrels
DD&A
=
depreciation, depletion and amortization
MMBbl
=
million barrels
EBDA
=
earnings before depreciation, depletion and
NGL
=
natural gas liquids
 
 
amortization expenses, including amortization of
OTC
=
over-the-counter
 
 
excess cost of equity investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2015 (2015 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 March 31,
 
 
2016
 
2015
 
Revenues
 
 
 
 
Natural gas sales
$
543

 
$
785

 
Services
2,114

 
1,970

 
Product sales and other
538

 
842

 
Total Revenues
3,195

 
3,597

 
 
 
 
 
 
Operating Costs, Expenses and Other
 
 
 
 
Costs of sales
731

 
1,090

 
Operations and maintenance
565

 
505

 
Depreciation, depletion and amortization
551

 
538

 
General and administrative
190

 
216

 
Taxes, other than income taxes
108

 
115

 
Loss on impairments and disposals of long-lived assets, net
235

 
54

 
Other (income) expense, net
(1
)
 
1

 
Total Operating Costs, Expenses and Other
2,379

 
2,519

 
 
 
 
 
 
Operating Income
816

 
1,078

 
 
 
 
 
 
Other Income (Expense)
 
 
 
 
Earnings from equity investments
94

 
76

 
Amortization of excess cost of equity investments
(14
)
 
(12
)
 
Interest, net
(441
)
 
(512
)
 
Other, net
13

 
13

 
Total Other Expense
(348
)
 
(435
)
 
 
 
 
 
 
Income Before Income Taxes
468

 
643

 
 
 
 
 
 
Income Tax Expense
(154
)
 
(224
)
 
 
 
 
 
 
Net Income
314

 
419

 
 
 
 
 
 
Net Loss Attributable to Noncontrolling Interests
1

 
10

 
 
 
 
 
 
Net Income Attributable to Kinder Morgan, Inc.
315

 
429

 
 
 
 
 
 
Preferred Stock Dividends
(39
)
 

 
 


 


 
Net Income Available to Common Stockholders
$
276

 
$
429

 
 
 
 
 
 
Class P Shares
 
 
 
 
Basic Earnings Per Common Share
$
0.12

 
$
0.20

 
 
 
 
 
 
Basic Weighted Average Common Shares Outstanding
2,229

 
2,141

 
 
 
 
 
 
Diluted Earnings Per Common Share
$
0.12

 
$
0.20

 
 
 
 
 
 
Diluted Weighted Average Common Shares Outstanding
2,229

 
2,151

 
 
 
 
 
 
Dividends Per Common Share Declared for the Period
$
0.125

 
$
0.480

 

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 March 31,
 
2016
 
2015
 
 
 
 
Net income
$
314

 
$
419

Other comprehensive income (loss), net of tax
 

 
 

Change in fair value of hedge derivatives (net of tax (expense) benefit of $(43) and $1, respectively)
73

 
(2
)
Reclassification of change in fair value of derivatives to net income (net of tax benefit of $64 and $41, respectively)
(108
)
 
(72
)
Foreign currency translation adjustments (net of tax (expense) benefit of $(45) and $62, respectively)
78

 
(108
)
Benefit plan adjustments (net of tax expense of $(3) and $(3), respectively)
4

 
6

Total other comprehensive income (loss)
47

 
(176
)
 
 
 
 
Comprehensive income
361

 
243

Comprehensive loss attributable to noncontrolling interests
1

 
10

Comprehensive income attributable to KMI
$
362

 
$
253


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)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
175

 
$
229

Accounts receivable, net
1,203

 
1,315

Fair value of derivative contracts
454

 
507

Inventories
364

 
407

Other current assets
285

 
366

Total current assets
2,481

 
2,824

 
 
 
 
Property, plant and equipment, net
41,042

 
40,547

Investments
6,035

 
6,040

Goodwill
23,801

 
23,790

Other intangibles, net
3,496

 
3,551

Deferred income taxes
5,103

 
5,323

Deferred charges and other assets
2,271

 
2,029

Total Assets
$
84,229

 
$
84,104

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Current portion of debt
$
1,702

 
$
821

Accounts payable
1,017

 
1,324

Accrued interest
506

 
695

Accrued contingencies
276

 
298

Other current liabilities
895

 
927

Total current liabilities
4,396

 
4,065

 
 
 
 
Long-term liabilities and deferred credits
 

 
 

Long-term debt
 

 
 

Outstanding
40,093

 
40,632

Preferred interest in general partner of KMP
100

 
100

Debt fair value adjustments
1,912

 
1,674

Total long-term debt
42,105

 
42,406

Other long-term liabilities and deferred credits
2,182

 
2,230

Total long-term liabilities and deferred credits
44,287

 
44,636

Total Liabilities
48,683

 
48,701

 
 
 
 
Commitments and contingencies (Notes 3 and 9)


 


Stockholders’ Equity
 

 
 

Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,229,232,375 and 2,229,223,864 shares, respectively, issued and outstanding
22

 
22

Preferred stock, $0.01 par value, 10,000,000 shares authorized, 9.75% Series A Mandatory Convertible, $1,000 per share liquidation preference, 1,600,000 shares issued and outstanding

 

Additional paid-in capital
41,678

 
41,661

Retained deficit
(6,106
)
 
(6,103
)
Accumulated other comprehensive loss
(414
)
 
(461
)
Total Kinder Morgan, Inc.’s stockholders’ equity
35,180

 
35,119

Noncontrolling interests
366

 
284

Total Stockholders’ Equity
35,546

 
35,403

Total Liabilities and Stockholders’ Equity
$
84,229

 
$
84,104


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)
 
Three Months Ended March 31,
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
Net income
$
314

 
$
419

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

Depreciation, depletion and amortization
551

 
538

Deferred income taxes
179

 
221

Amortization of excess cost of equity investments
14

 
12

Loss on impairments and disposals of long-lived assets, net
235

 
54

Earnings from equity investments
(94
)
 
(76
)
Distributions from equity investment earnings
91

 
92

Changes in components of working capital, net of the effects of acquisitions
 
 
 
Accounts receivable, net
116

 
216

Income tax receivable

 
195

Inventories
46

 
6

Other current assets
16

 

Accounts payable
(172
)
 
(241
)
Accrued interest, net of interest rate swaps
(159
)
 
(89
)
Accrued contingencies and other current liabilities
(23
)
 
(12
)
Rate reparations, refunds and other litigation reserve adjustments
31

 
60

Other, net
(95
)
 
(139
)
Net Cash Provided by Operating Activities
1,050

 
1,256

 
 
 
 
Cash Flows From Investing Activities
 
 
 
Acquisitions of assets and investments, net of cash acquired
(330
)
 
(1,864
)
Capital expenditures
(811
)
 
(897
)
Contributions to investments
(44
)
 
(30
)
Distributions from equity investments in excess of cumulative earnings
43

 
50

Other, net
(2
)
 
(34
)
Net Cash Used in Investing Activities
(1,144
)
 
(2,775
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Issuances of debt
4,610

 
7,136

Payments of debt
(4,336
)
 
(6,305
)
Debt issue costs
(6
)
 
(16
)
Issuances of common shares

 
1,626

Cash dividends - common shares
(279
)
 
(962
)
Cash dividends - preferred shares
(37
)
 

Contributions from noncontrolling interests
87

 

Distributions to noncontrolling interests
(4
)
 
(10
)
Other, net

 
(1
)
Net Cash Provided by Financing Activities
35

 
1,468

 
 
 
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents
5

 
(5
)
 
 
 
 
Net decrease in Cash and Cash Equivalents
(54
)
 
(56
)
Cash and Cash Equivalents, beginning of period
229

 
315

Cash and Cash Equivalents, end of period
$
175

 
$
259

 
Non-cash Investing and Financing Activities
 
 
 
Assets acquired by the assumption or incurrence of liabilities
$
43

 
$
1,606

Net assets contributed to equity investment
$

 
$
27

 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the period for interest (net of capitalized interest)
$
659

 
$
592

Cash refunded during the period for income taxes, net
$
(2
)
 
$
(196
)

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)
 
Common stock
 
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued shares
 
Par value
 
Issued shares
 
Par value
 
Additional
paid-in
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 
Stockholders’
equity
attributable
to KMI
 
Non-controlling
interests
 
Total
Balance at December 31, 2015
2,229

 
$
22

 
2

 
$

 
$
41,661

 
$
(6,103
)
 
$
(461
)
 
$
35,119

 
$
284

 
$
35,403

Restricted shares
 
 
 
 
 
 
 
 
17

 
 
 
 
 
17

 
 
 
17

Net income
 
 
 
 
 
 
 
 
 
 
315

 
 
 
315

 
(1
)
 
314

Distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(4
)
 
(4
)
Contributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
87

 
87

Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
(39
)
 
 
 
(39
)
 
 
 
(39
)
Common stock dividends
 
 
 
 
 
 
 
 
 
 
(279
)
 
 
 
(279
)
 
 
 
(279
)
Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
47

 
47

 

 
47

Balance at March 31, 2016
2,229

 
$
22

 
2

 
$

 
$
41,678

 
$
(6,106
)
 
$
(414
)
 
$
35,180

 
$
366

 
$
35,546


 
Common stock
 
Preferred stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Issued shares
 
Par value
 
Issued shares
 
Par value
 
Additional
paid-in
capital
 
Retained
deficit
 
Accumulated
other
comprehensive
loss
 
Stockholders’
equity
attributable
to KMI
 
Non-controlling
interests
 
Total
Balance at December 31, 2014
2,125

 
$
21

 

 
$

 
$
36,178

 
$
(2,106
)
 
$
(17
)
 
$
34,076

 
$
350

 
$
34,426

Issuances of common shares
39

 
1

 
 
 
 
 
1,625

 
 
 
 
 
1,626

 
 
 
1,626

EP Trust I Preferred security conversions
1

 
 
 
 
 
 
 
19

 
 
 
 
 
19

 
 
 
19

Warrants exercised
 
 
 
 
 
 
 
 
1

 
 
 
 
 
1

 
 
 
1

Restricted shares
 
 
 
 
 
 
 
 
16

 
 
 
 
 
16

 
 
 
16

Net income
 
 
 
 
 
 
 
 
 
 
429

 
 
 
429

 
(10
)
 
419

Distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(10
)
 
(10
)
Common stock dividends
 
 
 
 
 
 
 
 
 
 
(962
)
 
 
 
(962
)
 
 
 
(962
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(176
)
 
(176
)
 
 
 
(176
)
Balance at March 31, 2015
2,165

 
$
22

 

 
$

 
$
37,839

 
$
(2,639
)
 
$
(193
)
 
$
35,029

 
$
330

 
$
35,359



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 company in North America. We own an interest in or operate approximately 84,000 miles of pipelines and 180 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, which transactions are referred to collectively as the “Merger Transactions.”

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.  

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 2015 Form 10-K.

Impairments and Disposals

During the three months ended March 31, 2016 and 2015, we had non-cash pre-tax impairment charges and losses on disposals of assets of $254 million and $80 million, respectively. The three months ended March 31, 2016 amount includes (i) $106 million of project write-offs within our regulated natural gas pipeline assets, primarily associated with our Northeast Energy Direct (NED) Market project, and $13 million related to an equity investment in a gas gathering entity, which are all included in our Natural Gas Pipelines business segment; (ii) $27 million of project write-offs within our CO2 business segment; (iii) $20 million related to certain terminals with significant coal operations within our Terminals business segment; (iv) $64 million of write-offs associated with our Palmetto project and a $13 million loss on a held-for-sale Transmix facility, both within our Products Pipelines business segment; and (v) $11 million of net losses on other disposals of assets. The project write-offs recorded in the three months ended March 31, 2016 were driven by management's current assessment of the probability of those projects moving forward based on insufficient progress in obtaining contractual commitments from customers in the New England market, in the case of the NED Market project, and a recent unfavorable action by the Georgia legislature regarding eminent domain authority and permitting for refined products pipelines affecting the Palmetto project. The three months ended March 31, 2015 amount includes (i) $51 million of impairments and project write-offs, related to certain gas gathering and processing assets within our midstream operations and $26 million primarily related to an equity investment in a gathering entity, both within our Natural Gas Pipelines business segment; and (ii) $3 million of net losses on other disposals of assets.

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, regulatory environment, management’s decisions to dispose of certain assets and estimates of the fair values of our reporting units, as well as general economic conditions and the related demand for products handled or

9


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 require future evaluations of the recoverability of the carrying value of our long-lived assets, investments and goodwill which could result in further impairment charges. Because certain of our assets, including our oil and gas producing properties have been written down to fair value, any deterioration in fair value that exceeds the rate of depletion of the related asset would result in further impairments. Such non-cash impairments could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value is determined to not be recoverable.

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, which may be stock or stock units issued to management employees and include dividend equivalent payments, 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 Common Shares Outstanding to Diluted Weighted Average Common Shares Outstanding (in millions):
 
Three Months Ended March 31,

2016
 
2015
Class P
$
275

 
$
426

Participating securities:
 
 
 
   Restricted stock awards(a)
1

 
3

Net Income Available to Common Stockholders
$
276

 
$
429


 
Three Months Ended March 31,
 
2016
 
2015
Basic Weighted Average Common Shares Outstanding
2,229

 
2,141

Effect of dilutive securities:
 
 
 
   Warrants

 
10

Diluted Weighted Average Common Shares Outstanding
2,229

 
2,151

________
(a)
As of March 31, 2016, there were approximately 8 million such restricted stock awards.

The following maximum number of 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 March 31,
 
2016
 
2015
Unvested restricted stock awards
8

 
7

Warrants to purchase our Class P shares(a)
293

 
289

Convertible trust preferred securities
8

 
9

Mandatory convertible preferred stock(b)
58

 
n/a

_______
n/a - not applicable
(a) 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. The potential dilutive effect of the warrants does not consider the assumed proceeds to KMI upon exercise.
(b) Until our mandatory convertible preferred shares are converted to common shares, on or before the expected mandatory conversion date of October 26, 2018, the holder of each preferred share participates in our earnings by receiving preferred dividends.


10


2.  Acquisitions
 
Acquisition of Terminal Assets from and Joint Venture With BP Products North America Inc. (BP)

On February 1, 2016, we completed the acquisition of 15 products terminals and associated infrastructure from BP for $348 million, including a transaction deposit paid in 2015. In conjunction with this transaction, we and BP formed a joint venture, with an equity ownership interest of 75% and 25%, respectively. Subsequent to the acquisition, we contributed 14 of the acquired terminals to the joint venture, which we operate, and the remaining terminal is solely owned by us. BP acquired its 25% interest in the joint venture for $84 million, which we reported as “Contributions from noncontrolling interests” within our accompanying consolidated statement of cash flows for three months ended March 31, 2016. Of the acquired assets, 10 terminals are included in our Terminals business segment and 5 terminals are included in our Products Pipelines business segment based on synergies with their respective existing operations.

Allocation of Purchase Price

The evaluation of the assigned fair values for the BP terminals acquisition is ongoing and subject to adjustment. As of March 31, 2016, our preliminary allocation of the purchase price for the BP terminals acquisition and the adjusted purchase price allocations for the Hiland acquisition and Royal Vopak terminals acquisition, both completed in February 2015, are detailed below (in millions).
 
Acquisitions
 
BP Terminal Assets
 
Hiland
 
Royal Vopak Terminal Assets
Purchase Price Allocation:
 
 
 
 
 
Current assets
$
2

 
$
79

 
$
2

Property, plant and equipment
395

 
1,492

 
155

Goodwill

 
310

 
6

Deferred charges and other assets(a)

 
1,498

 

Total assets acquired
397

 
3,379

 
163

Current liabilities

 
(253
)
 
(1
)
Debt

 
(1,413
)
 

Other liabilities
(49
)
 
(4
)
 
(4
)
Cash consideration
$
348

 
$
1,709

 
$
158

_______
(a)
Primarily consists of 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 our expected ability to grow the business we acquired by leveraging our pre-existing business experience. Additionally, we adjust goodwill as a result of applying the look-through method of recording deferred taxes on the outside book tax basis differences in our investments without regard to non-tax deductible goodwill.


11


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, premiums and issuance costs (in millions):
 
 
March 31, 2016
 
December 31, 2015
KMI
 
 
 
 
Unsecured term loan facility, variable rate, due January 26, 2019(a)
 
$
1,000

 
$

Senior notes, 1.50% through 8.25%, due 2016 through 2098(b)
 
13,344

 
13,346

Credit facility due November 26, 2019(c)
 
900

 

Commercial paper borrowings(c)
 
48

 

KMP
 
 
 
 
Senior notes, 2.65% through 9.00%, due 2016 through 2044
 
19,485

 
19,985

TGP senior notes, 7.00% through 8.375%, due 2016 through 2037(a)
 
1,540

 
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, 6.85%, due June 15, 2037
 
100

 
100

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(a)
 
786

 
1,636

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

 
974

EPC Building, LLC, promissory note, 3.967%, due 2016 through 2035
 
440

 
443

Trust I preferred securities, 4.75%, due March 31, 2028
 
221

 
221

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

 
100

Other miscellaneous debt
 
299

 
300

Total debt – KMI and Subsidiaries
 
41,895

 
41,553

Less: Current portion of debt(a)(d)
 
1,702

 
821

Total long-term debt – KMI and Subsidiaries(e)
 
$
40,193

 
$
40,732

_______
(a)
On January 26, 2016, we entered into a $1.0 billion three-year unsecured term loan facility with a variable interest rate, which is determined in the same manner as interest on our revolving credit facility borrowings. In January 2016, we repaid $850 million of maturing 5.70% senior notes, and in February 2016, we repaid $250 million of maturing 8.00% senior notes primarily using proceeds from the three-year term loan.
(b)
Amount includes senior notes that are denominated in Euros and have been converted and are respectively reported above at the March 31, 2016 exchange rate of 1.1380 U.S. dollars per Euro and the December 31, 2015 exchange rate of 1.0862 U.S. dollars per Euro. For the three months ended March 31, 2016, our debt increased by $65 million as a result of the change in the exchange rate of U.S. dollars per Euro. At the time of issuance, we entered into cross-currency swap agreements associated with these senior notes, effectively converting these Euro-denominated senior notes to U.S. dollars (see Note 5 “Risk Management—Foreign Currency Risk Management”).
(c)
As of March 31, 2016, the weighted average interest rate on our credit facility borrowings, including commercial paper borrowings, was 1.86%.
(d)
Amounts include outstanding credit facility borrowings, commercial paper borrowings and other debt maturing within 12 months (see “—Current Portion of Debt” below).
(e)
Excludes our “Debt fair value adjustments” which, as of March 31, 2016 and December 31, 2015, increased our combined debt balances by $1,912 million and $1,674 million, respectively. In addition to all unamortized debt discount/premium amounts, debt issuance costs 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.

We and substantially all of our wholly owned domestic subsidiaries are a party to a cross guarantee agreement whereby each party to the agreement unconditionally guarantees, jointly and severally, the payment of specified indebtedness of each other party to the agreement. Also, see Note 11.

12



Credit Facilities
 
On January 26, 2016, in accordance with the terms of our revolving credit agreement, we increased the capacity of our revolving credit agreement from $4.0 billion to $5.0 billion. The other terms of the revolving credit agreement remain the same. Our availability under this facility as of March 31, 2016 was $3,937 million, which is net of borrowings, and $115 million in letters of credit. 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.

Current Portion of Debt
In addition to outstanding credit facility borrowings, commercial paper borrowings, and other debt maturing within 12 months, our current portion of debt includes the current portion of the following significant series of long-term notes:
2016
 
$600 million 6.00% notes due February 2017
 
 
 
2015
 
$500 million 3.50% notes due March 2016

Long-term Debt Issuances and Repayments
The following are significant long-term debt issuances and repayments made during the three months ended March 31, 2016:
  Issuances
 
$1.0 billion unsecured term loan facility due 2019
 
 
 
  Repayments
 
$850 million 5.70% notes due 2016
 
 
$500 million 3.50% notes due 2016
 
 
$250 million 8.00% notes due 2016
 
 
$67 million 8.25% notes due 2016

4.  Stockholders’ Equity
 
Common Equity
 
As of March 31, 2016, our common equity consisted of our Class P common stock. For additional information regarding our Class P common stock, see Note 11 to our consolidated financial statements included in our 2015 Form 10-K.

Common Dividends
 
Holders of our common stock participate 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 March 31,
 
2016
 
2015
Per common share cash dividend declared for the period
$
0.125

 
$
0.48

Per common share cash dividend paid in the period
$
0.125

 
$
0.45


On April 20, 2016, our board of directors declared a cash dividend of $0.125 per common share for the quarterly period ended March 31, 2016, which is payable on May 16, 2016 to common shareholders of record as of May 2, 2016.

Mandatory Convertible Preferred Stock

On October 30, 2015, we completed an offering of 32,000,000 depositary shares, each of which represents a 1/20th interest in a share of our 1,600,000 shares of 9.750% Series A mandatory convertible preferred stock, with a liquidating preference of $1,000 per share (equal to a $50 liquidation preference per depositary share). For additional information regarding our mandatory convertible preferred stock, see Note 11 to our consolidated financial statements included in our 2015 Form 10-K.

13



Preferred Dividends

On January 20, 2016, our board of directors declared a cash dividend of $24.375 per share of our mandatory convertible preferred stock (equivalent of $1.21875 per depositary share) for the period from and including January 26, 2016 through and including April 25, 2016, which is payable on April 26, 2016 to mandatory convertible preferred shareholders of record as of April 11, 2016.

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 power forward and swap contracts related to legacy operations of acquired businesses for which we entered into positions that offset the price risks associated with these contracts.

Energy Commodity Price Risk Management
 
As of March 31, 2016, 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
(21.4
)
 
MMBbl
Crude oil basis
(5.6
)
 
MMBbl
Natural gas fixed price
(41.0
)
 
Bcf
Natural gas basis
(31.5
)
 
Bcf
Derivatives not designated as hedging contracts
 

 
 
Crude oil fixed price
(0.4
)
 
MMBbl
Crude oil basis
(1.0
)
 
MMBbl
Natural gas fixed price
(13.0
)
 
Bcf
Natural gas basis
(1.8
)
 
Bcf
NGL and other fixed price
(2.5
)
 
MMBbl

As of March 31, 2016, 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 2020.

Interest Rate Risk Management

 As of March 31, 2016, we had a combined notional principal amount of $9,775 million of fixed-to-variable interest rate swap agreements, of which $8,475 million were designated as fair value hedges.  As of December 31, 2015, we had a combined notional principal amount of $11,000 million of fixed-to-variable interest rate swap agreements, of which $9,700 million were designated as fair value hedges. All of our swap agreements effectively convert the interest expense associated with certain series of senior notes from fixed rates to variable rates based on an interest rate of London Interbank Offered Rate plus a spread and have termination dates that correspond to the maturity dates of the related series of senior notes. As of March 31, 2016, 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 $1,358 million 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. 

14


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
 
 
 
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
 
 
Location
 
Fair value
 
Fair value
Derivatives designated as hedging contracts
 
 
 
 
 
 
 
 
 
 
Natural gas and crude derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
$
287

 
$
359

 
$
(8
)
 
$
(13
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
226

 
244

 
(2
)
 

Subtotal
 
 
 
513

 
603

 
(10
)
 
(13
)
Interest rate swap agreements
 
Fair value of derivative contracts/(Other current liabilities)
 
126

 
111

 

 

 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
529

 
273

 

 
(9
)
Subtotal
 
 
 
655

 
384

 

 
(9
)
Cross-currency swap agreements
 
Fair value of derivative contracts/(Other current liabilities)
 

 

 
(29
)
 
(6
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
56

 

 

 
(46
)
Subtotal
 
 
 
56

 

 
(29
)
 
(52
)
Total
 
 
 
1,224

 
987

 
(39
)
 
(74
)
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging contracts
 
 
 
 

 
 
 
 

 
 
Natural gas, crude, NGL and other derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
27

 
35

 
(4
)
 
(1
)
Subtotal
 
 
 
27

 
35

 
(4
)
 
(1
)
Interest rate swap agreements
 
Fair value of derivative contracts/(Other current liabilities)
 
11

 
1

 

 
(11
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
27

 

 

 
(5
)
Subtotal
 
 
 
38

 
1

 

 
(16
)
Power derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
3

 
1

 
(6
)
 
(17
)
Subtotal
 
 
 
3

 
1

 
(6
)
 
(17
)
Total
 
 
 
68

 
37

 
(10
)
 
(34
)
Total derivatives
 
 
 
$
1,292

 
$
1,024

 
$
(49
)
 
$
(108
)



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 March 31,
 
 
 
 
2016
 
2015
 
 
 
 
 
 
 
Interest rate swap agreements
 
Interest, net
 
$
280

 
$
145

 
 
 
 
 
 
 
Hedged fixed rate debt
 
Interest, net
 
$
(284
)
 
$
(139
)

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 March 31,
 
 
 
Three Months Ended March 31,
 
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
 
2016
 
2015
 
 
 
2016
 
2015
Energy commodity
 derivative contracts
 
$
27

 
$
35

 
Revenues—Natural
 gas sales
 
$
21

 
$
24

 
Revenues—Natural
 gas sales
 
$

 
$

 
 

 
 
 
Revenues—Product
 sales and other
 
57

 
64

 
Revenues—Product
 sales and other
 
1

 
7

 
 


 
 
 
Costs of sales
 
(10
)
 
(5
)
 
Costs of sales
 

 

Interest rate swap
 agreements(c)
 
(4
)
 
(3
)
 
Interest, net
 
(1
)
 
(1
)
 
Interest, net
 

 

Cross-currency swap
 
50

 
(34
)
 
Other, net
 
41

 
(10
)
 
Other, net
 

 

Total
 
$
73

 
$
(2
)
 
Total
 
$
108

 
$
72

 
Total
 
$
1

 
$
7

_________
(a)
We expect to reclassify an approximate $132 million gain associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balances as of March 31, 2016 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).
(c)
Amounts represent our share of an equity investee’s accumulated other comprehensive income (loss).
Derivatives not designated as accounting hedges
 
Location
 
Gain/(loss) recognized in income on derivatives
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2016
 
2015
Energy commodity derivative contracts
 
Revenues—Natural gas sales
 
$
6

 
$
4

 
 
Revenues—Product sales and other
 
(2
)
 
45

 
 
Costs of sales
 
(5
)
 
(3
)
Interest rate swap agreements
 
Interest, net
 
53

 

Total(a)
 
 
 
$
52

 
$
46

_______
(a) The three months ended March 31, 2016 and 2015 include an approximate gain of $19 million and loss of $5 million, respectively, associated with natural gas, crude and NGL derivative contract settlements.


16


Credit Risks
In conjunction with certain derivative contracts, 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 March 31, 2016 and December 31, 2015, we had $2 million of outstanding letters of credit supporting our commodity price risk management program. As of March 31, 2016 and December 31, 2015, we had cash margins of $1 million and $0, respectively, posted by us as collateral and $8 million and $37 million, respectively, posted by our counterparties 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 March 31, 2016, 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, 2015
$
219

 
$
(322
)
 
$
(358
)
 
$
(461
)
Other comprehensive gain before reclassifications
73

 
78

 
4

 
155

(Gains) losses reclassified from accumulated other comprehensive income (loss)
(108
)
 

 

 
(108
)
Net current-period other comprehensive gain
(35
)
 
78

 
4

 
47

Balance as of March 31, 2016
$
184

 
$
(244
)
 
$
(354
)
 
$
(414
)

 
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
(2
)
 
(108
)
 
6

 
(104
)
(Gains) losses reclassified from accumulated other comprehensive income (loss)
(72
)
 

 

 
(72
)
Net current-period other comprehensive loss
(74
)
 
(108
)
 
6

 
(176
)
Balance as of March 31, 2015
$
253

 
$
(216
)
 
$
(230
)
 
$
(193
)

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

17


Level 3 Inputs—unobservable inputs for the asset or liability. These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
 
Fair Value of Derivative Contracts
 
The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts; (ii) interest rate swap agreements; and (iii) cross-currency swap agreements, based on the three levels established by the Codification (in millions). The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements. 
 
Balance sheet asset
fair value measurements by level
 
 
 
Net amount
 
Level 1
 
Level 2
 
Level 3
 
Gross amount
 
Contracts available for netting
 
Cash collateral held(b)
As of March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
20

 
$
520

 
$
3

 
$
543

 
$
(12
)
 
$
(8
)
 
$
523

Interest rate swap agreements
$

 
$
693

 
$

 
$
693

 
$

 
$

 
$
693

Cross-currency swap agreements
$

 
$
56

 
$

 
$
56

 
$
(29
)
 
$

 
$
27

As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
48

 
$
589

 
$
2

 
$
639

 
$
(12
)
 
$
(37
)
 
$
590

Interest rate swap agreements
$

 
$
385

 
$

 
$
385

 
$
(8
)
 
$

 
$
377

Cross-currency swap agreements
$

 
$

 
$

 
$

 
$

 
$

 
$


 
Balance sheet liability
fair value measurements by level
 
 
 
Net amount
 
Level 1
 
Level 2
 
Level 3
 
Gross amount
 
Contracts available for netting
 
Collateral posted(c)
As of March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
(2
)
 
$
(13
)
 
$
(5
)
 
$
(20
)
 
$
12

 
$
1

 
$
(7
)
Interest rate swap agreements
$

 
$

 
$

 
$

 
$

 
$

 
$

Cross-currency swap agreements
$

 
$
(29
)
 
$

 
$
(29
)
 
$
29

 
$

 
$

As of December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
(4
)
 
$
(10
)
 
$
(17
)
 
$
(31
)
 
$
12

 
$

 
$
(19
)
Interest rate swap agreements
$

 
$
(25
)
 
$

 
$
(25
)
 
$
8

 
$

 
$
(17
)
Cross-currency swap agreements
$

 
$
(52
)
 
$

 
$
(52
)
 
$

 
$

 
$
(52
)
_______
(a)
Level 1 consists primarily of New York Mercantile Exchange natural gas futures.  Level 2 consists primarily of OTC West Texas Intermediate swaps and options.  Level 3 consists primarily of power derivative contracts.
(b)
Cash margin deposits held by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current liabilities” on our accompanying consolidated balance sheets.
(c)
Cash margin deposits posted by us associated with our energy commodity contract positions and OTC swap agreements and reported within “Other current assets” on our accompanying consolidated balance sheets.


18


The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts (in millions): 
Significant unobservable inputs (Level 3)
 
Three Months Ended March 31,
 
2016
 
2015
Derivatives-net asset (liability)
 
 
 
Beginning of Period
$
(15
)
 
$
(61
)
Total gains or (losses) included in earnings
(6
)
 

Settlements
19

 
12

End of Period
$
(2
)

$
(49
)
The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets held at the reporting date
$
1

 
$
1


As of March 31, 2016, our Level 3 derivative assets and liabilities consisted primarily of power derivative contracts, where a significant portion of fair value is calculated from underlying market data that is not readily observable. The derived values use industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value.

Fair Value of Financial Instruments
 
The estimated fair value of our outstanding debt balances is disclosed below (in millions): 
 
March 31, 2016
 
December 31, 2015
 
Carrying
value
 
Estimated
fair value
 
Carrying
value
 
Estimated
fair value
Total debt
$
43,807

 
$
40,861

 
$
43,227

 
$
37,481

 
We used Level 2 input values to measure the estimated fair value of our outstanding debt balances as of both March 31, 2016 and December 31, 2015.


19


7.  Reportable Segments
 Financial information by segment follows (in millions):
 
Three Months Ended March 31,
 
2016
 
2015
Revenues
 
 
 
Natural Gas Pipelines
 
 
 
    Revenues from external customers
$
1,970

 
$
2,177

    Intersegment revenues
1

 
3

CO2
302

 
446

Terminals
465

 
457

Products Pipelines
 
 
 
    Revenues from external customers
391

 
444

    Intersegment revenues
5

 

Kinder Morgan Canada
59

 
60

Other

 
4

Total segment revenues
3,193

 
3,591

Other revenues
8

 
9

Less: Total intersegment revenues
(6
)
 
(3
)
Total consolidated revenues
$
3,195

 
$
3,597

 
Three Months Ended March 31,
 
2016
 
2015