10-Q 1 kmi-03312019x10q.htm 10-Q Document
 
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, 2019
 
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
image0a30a06.gif

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 Web site, 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, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging Growth Company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 18, 2019, the registrant had 2,263,742,572 Class P shares outstanding.




KINDER MORGAN, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
Consolidated Statements of Income - Three Months Ended March 31, 2019 and 2018
 
 
Consolidated Balance Sheets - March 31, 2019 and December 31, 2018
 
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018
 
 
 
 
 
 Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
Liquidity and Capital Resources
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


KINDER MORGAN, INC. AND SUBSIDIARIES
GLOSSARY

Company Abbreviations

CIG
=
Colorado Interstate Gas Company, L.L.C.
KMP
=
Kinder Morgan Energy Partners, L.P. and its
EIG
=
EIG Global Energy Partners
majority-owned and/or controlled subsidiaries
ELC
=
Elba Liquefaction Company, L.L.C.
SFPP
=
SFPP, L.P.
EPNG
=
El Paso Natural Gas Company, L.L.C.
SNG
=
Southern Natural Gas Company, L.L.C.
KMBT
=
Kinder Morgan Bulk Terminals, Inc.
TGP
=
Tennessee Gas Pipeline Company, L.L.C.
KMI
=
Kinder Morgan, Inc. and its majority-owned and/or
TMEP
=
Trans Mountain Expansion Project
controlled subsidiaries
TMPL
=
Trans Mountain Pipeline System
KML
=
Kinder Morgan Canada Limited and its majority-owned and/or controlled subsidiaries
Trans Mountain
=
Trans Mountain Pipeline ULC
KMLT
=
Kinder Morgan Liquid Terminals, LLC
 
 
 
 
 
 
 
 
 
Unless the context otherwise requires, references to “we,” “us,” “our,” or “the Company” are intended to mean Kinder Morgan, Inc. and its majority-owned and/or controlled subsidiaries.
 
 
 
 
 
 
Common Industry and Other Terms
2017 Tax
=
The Tax Cuts & Jobs Act of 2017
EPA
=
U.S. Environmental Protection Agency
Reform
FASB
=
Financial Accounting Standards Board
/d
=
per day
FERC
=
Federal Energy Regulatory Commission
BBtu
=
billion British Thermal Units
GAAP
=
U.S. Generally Accepted Accounting
Bcf
=
billion cubic feet
Principles
CERCLA
=
Comprehensive Environmental Response,
IPO
=
Initial Public Offering
Compensation and Liability Act
LLC
=
limited liability company
C$
=
Canadian dollars
MBbl
=
thousand barrels
CO2
=
carbon dioxide or our CO2 business segment
MMBbl
=
million barrels
DCF
=
distributable cash flow
NGL
=
natural gas liquids
DD&A
=
depreciation, depletion and amortization
NYMEX
=
New York Mercantile Exchange
EBDA
=
earnings before depreciation, depletion and
OTC
=
over-the-counter
 
 
amortization expenses, including amortization of
ROU
=
right of use
 
 
excess cost of equity investments
U.S.
=
United States of America
 
 
 
WTI
=
West Texas Intermediate
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,” “will,” “shall,” or the negative of those terms or other variations of them or comparable terminology. In particular, expressed or implied statements concerning future actions, conditions or events, future operating results or 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, 2018 (2018 Form 10-K) for a more detailed description of factors that may affect the forward-looking statements. You should keep these risk factors in mind when considering forward-looking statements. These risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement. 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,
 
2019
 
2018
Revenues
 
 
 
Services
$
2,036

 
$
1,967

Natural gas sales
774

 
827

Product sales and other
619

 
624

Total Revenues
3,429

 
3,418

 
 
 
 
Operating Costs, Expenses and Other
 
 
 

Costs of sales
948

 
1,019

Operations and maintenance
598

 
619

Depreciation, depletion and amortization
593

 
570

General and administrative
154

 
173

Taxes, other than income taxes
118

 
88

Total Operating Costs, Expenses and Other
2,411

 
2,469

 
 
 
 
Operating Income
1,018

 
949

 
 
 
 
Other Income (Expense)
 
 
 

Earnings from equity investments
192

 
220

Amortization of excess cost of equity investments
(21
)
 
(32
)
Interest, net
(460
)
 
(467
)
Other, net
10

 
36

Total Other Expense
(279
)
 
(243
)
 
 
 
 
Income Before Income Taxes
739

 
706

 
 
 
 
Income Tax Expense
(172
)
 
(164
)
 
 
 
 
Net Income
567

 
542

 
 
 
 
Net Income Attributable to Noncontrolling Interests
(11
)
 
(18
)
 
 
 
 
Net Income Attributable to Kinder Morgan, Inc.
556

 
524

 
 
 
 
Preferred Stock Dividends

 
(39
)
 
 
 
 
Net Income Available to Common Stockholders
$
556

 
$
485

 
 
 
 
Class P Shares
 
 
 
Basic and Diluted Earnings Per Common Share
$
0.24

 
$
0.22

 
 
 
 
Basic and Diluted Weighted Average Common Shares Outstanding
2,262

 
2,207

 
 
 
 
Dividends Per Common Share Declared for the Period
$
0.25

 
$
0.20


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,
 
2019
 
2018
 
 
 
 
Net income
$
567

 
$
542

Other comprehensive (loss) income, net of tax
 
 
 
Change in fair value of hedge derivatives (net of tax benefit (expense) of $64 and $(11), respectively)
(215
)
 
34

Reclassification of change in fair value of derivatives to net income (net of tax (expense) benefit of $(4) and $5, respectively)
13

 
(16
)
Foreign currency translation adjustments (net of tax (expense) benefit of $(5) and $12, respectively)
10

 
(65
)
Benefit plan adjustments (net of tax expense of $2 and $2, respectively)
8

 
6

Total other comprehensive loss
(184
)
 
(41
)
 
 
 
 
Comprehensive income
383

 
501

Comprehensive (income) loss attributable to noncontrolling interests
(5
)
 
6

Comprehensive income attributable to Kinder Morgan, Inc.
$
378

 
$
507


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)
(Unaudited)
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
221

 
$
3,280

Restricted deposits
49

 
51

Accounts receivable, net
1,310

 
1,498

Fair value of derivative contracts
57

 
260

Inventories
429

 
385

Other current assets
196

 
248

Total current assets
2,262

 
5,722

 
 
 
 
Property, plant and equipment, net
37,782

 
37,897

Investments
7,770

 
7,481

Goodwill
21,965

 
21,965

Other intangibles, net
2,826

 
2,880

Deferred income taxes
1,647

 
1,566

Deferred charges and other assets
2,040

 
1,355

Total Assets
$
76,292

 
$
78,866

 
 
 
 
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Current portion of debt
$
2,502

 
$
3,388

Accounts payable
1,012

 
1,337

Distributions payable to KML noncontrolling interests

 
876

Accrued interest
336

 
579

Accrued taxes
289

 
483

Other current liabilities
870

 
894

Total current liabilities
5,009

 
7,557

Long-term liabilities and deferred credits
 

 
 

Long-term debt
 

 
 

Outstanding
32,368

 
33,105

Preferred interest in general partner of KMP
100

 
100

Debt fair value adjustments
860

 
731

Total long-term debt
33,328

 
33,936

Other long-term liabilities and deferred credits
2,794

 
2,176

Total long-term liabilities and deferred credits
36,122

 
36,112

Total Liabilities
41,131

 
43,669

Commitments and contingencies (Notes 3, 10 and 11)


 


Redeemable Noncontrolling Interest
705

 
666

Stockholders’ Equity
 

 
 

Class P shares, $0.01 par value, 4,000,000,000 shares authorized, 2,262,423,688 and 2,262,165,783 shares, respectively, issued and outstanding
23

 
23

Additional paid-in capital
41,716

 
41,701

Retained deficit
(7,619
)
 
(7,716
)
Accumulated other comprehensive loss
(508
)
 
(330
)
Total Kinder Morgan, Inc.’s stockholders’ equity
33,612

 
33,678

Noncontrolling interests
844

 
853

Total Stockholders’ Equity
34,456

 
34,531

Total Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
$
76,292

 
$
78,866


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,
 
2019
 
2018
Cash Flows From Operating Activities
 
 
 
Net income
$
567

 
$
542

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

Depreciation, depletion and amortization
593

 
570

Deferred income taxes
(31
)
 
149

Amortization of excess cost of equity investments
21

 
32

Change in fair market value of derivative contracts
10

 
40

Earnings from equity investments
(192
)
 
(220
)
Distributions from equity investment earnings
124

 
127

Changes in components of working capital
 
 
 
Accounts receivable, net
193

 
126

Inventories
(52
)
 
(15
)
Other current assets
128

 
4

Accounts payable
(189
)
 
(140
)
Accrued interest, net of interest rate swaps
(236
)
 
(195
)
Accrued taxes
(202
)
 
(45
)
Other current liabilities
(149
)
 
(91
)
Other, net
50

 
90

Net Cash Provided by Operating Activities
635

 
974

 
 
 
 
Cash Flows From Investing Activities
 
 
 
Acquisitions of assets and investments

 
(20
)
Capital expenditures
(554
)
 
(707
)
Sales of assets and equity investments, net of working capital settlements
(16
)
 
33

Sales of property, plant and equipment, net of removal costs
14

 
1

Contributions to investments
(331
)
 
(66
)
Distributions from equity investments in excess of cumulative earnings
81

 
42

Loans to related party
(8
)
 
(8
)
Net Cash Used in Investing Activities
(814
)
 
(725
)
 
 
 
 
Cash Flows From Financing Activities
 
 
 
Issuances of debt
1,399

 
6,039

Payments of debt
(2,990
)
 
(5,684
)
Debt issue costs
(2
)
 
(21
)
Cash dividends - common shares
(455
)
 
(277
)
Cash dividends - preferred shares

 
(39
)
Repurchases of common shares
(2
)
 
(250
)
Contributions from investment partner
38

 
38

Contributions from noncontrolling interests

 
3

Distribution to noncontrolling interests - KML distribution of the TMPL sale proceeds
(879
)
 

Distributions to noncontrolling interests - other
(14
)
 
(17
)
Other, net
(3
)
 
(1
)
Net Cash Used in Financing Activities
(2,908
)
 
(209
)
 
 
 
 
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Deposits
26

 
(3
)
 
 
 
 
Net (decrease) increase in Cash, Cash Equivalents and Restricted Deposits
(3,061
)
 
37

Cash, Cash Equivalents, and Restricted Deposits, beginning of period
3,331

 
326

Cash, Cash Equivalents, and Restricted Deposits, end of period
$
270

 
$
363


7


KINDER MORGAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Millions)
(Unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
Cash and Cash Equivalents, beginning of period
$
3,280

 
$
264

Restricted Deposits, beginning of period
51

 
62

Cash, Cash Equivalents, and Restricted Deposits, beginning of period
3,331

 
326

 
 
 
 
Cash and Cash Equivalents, end of period
221

 
294

Restricted Deposits, end of period
49

 
69

Cash, Cash Equivalents, and Restricted Deposits, end of period
270

 
363

 
 
 
 
Net (decrease) increase in Cash, Cash Equivalents and Restricted Deposits
$
(3,061
)
 
$
37

 
 
 
 
Non-cash Investing and Financing Activities
 
 
 
ROU assets and operating lease obligations recognized (Note 10)
701

 

Increase in property, plant and equipment from both accruals and contractor retainage


 
44

Supplemental Disclosures of Cash Flow Information
 
 
 
Cash paid during the period for interest (net of capitalized interest)
690

 
657

Cash paid during the period for income taxes, net
345

 
15


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

8


KINDER MORGAN, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Millions)
(Unaudited)

 
Common stock
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2018
2,262

 
$
23

 
$
41,701

 
$
(7,716
)
 
$
(330
)
 
$
33,678

 
$
853

 
$
34,531

Impact of adoption of ASU 2017-12 (Note 5)
 
 
 
 
 
 
(4
)
 


 
(4
)
 
 
 
(4
)
Balance at January 1, 2019
2,262

 
23

 
41,701

 
(7,720
)
 
(330
)
 
33,674

 
853

 
34,527

Repurchase of shares

 
 
 
(2
)
 
 
 
 
 
(2
)
 
 
 
(2
)
Restricted shares

 
 
 
17

 
 
 
 
 
17

 
 
 
17

Net income
 
 
 
 
 
 
556

 
 
 
556

 
11

 
567

Distributions
 
 
 
 
 
 
 
 
 
 

 
(14
)
 
(14
)
Common stock dividends
 
 
 
 
 
 
(455
)
 
 
 
(455
)
 
 
 
(455
)
Other comprehensive loss
 
 
 
 
 
 
 
 
(178
)
 
(178
)
 
(6
)
 
(184
)
Balance at March 31, 2019
2,262

 
$
23

 
$
41,716

 
$
(7,619
)
 
$
(508
)
 
$
33,612

 
$
844

 
$
34,456


 
Preferred stock
 
Common 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, 2017
2

 
$

 
2,217

 
$
22

 
$
41,909

 
$
(7,754
)
 
$
(541
)
 
$
33,636

 
$
1,488

 
$
35,124

Impact of adoption of ASUs (Note 4)
 
 
 
 
 
 
 
 
 
 
175

 
(109
)
 
66

 
 
 
66

Balance at January 1, 2018
2

 

 
2,217

 
22

 
41,909

 
(7,579
)
 
(650
)
 
33,702

 
1,488

 
35,190

Repurchase of shares
 
 
 
 
(13
)
 
 
 
(250
)
 
 
 
 
 
(250
)
 
 
 
(250
)
Restricted shares
 
 
 
 
 
 
 
 
18

 
 
 
 
 
18

 
 
 
18

Net income
 
 
 
 
 
 
 
 
 
 
524

 
 
 
524

 
18

 
542

Distributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(21
)
 
(21
)
Contributions
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
7

 
7

Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
(39
)
 
 
 
(39
)
 
 
 
(39
)
Common stock dividends
 
 
 
 
 
 
 
 
 
 
(277
)
 
 
 
(277
)
 
 
 
(277
)
Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(17
)
 
(17
)
 
(24
)
 
(41
)
Balance at March 31, 2018
2

 
$

 
2,204

 
$
22

 
$
41,677

 
$
(7,371
)
 
$
(667
)
 
$
33,661

 
$
1,468

 
$
35,129



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


9


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

1.  General
 
Organization

We are one of the largest energy infrastructure companies in North America. We own an interest in or operate approximately 84,000 miles of pipelines and 157 terminals. Our pipelines transport natural gas, refined petroleum products, crude oil, condensate, CO2 and other products, and our terminals transload and store liquid commodities, including petroleum products, ethanol and chemicals, and bulk products, including petroleum coke, metals and ores.

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 U.S. Securities and Exchange Commission (SEC). These rules and regulations conform to the accounting principles contained in the FASB’s Accounting Standards Codification (ASC), the single source of GAAP. Under such rules and regulations, all significant intercompany items have been eliminated in consolidation.

In our opinion, all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of our financial position and operating results for the interim periods have been included in the accompanying consolidated financial statements, and certain amounts from prior periods 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 2018 Form 10-K.

The accompanying unaudited consolidated financial statements include our accounts and the accounts of our subsidiaries over which we have control or are the primary beneficiary. We evaluate our financial interests in business enterprises to determine if they represent variable interest entities where we are the primary beneficiary.  If such criteria are met, we consolidate the financial statements of such businesses with those of our own.

For a discussion of Accounting Standards Updates (ASU) we adopted on January 1, 2019, see Notes 5 and 10.

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


10


The following table sets forth the allocation of net income available to shareholders of Class P shares and participating securities (in millions):
 
Three Months Ended March 31,

2019
 
2018
Net Income Available to Common Stockholders
$
556

 
$
485

Participating securities:
 
 
 
   Less: Net Income allocated to restricted stock awards(a)
(3
)
 
(2
)
Net Income allocated to Class P stockholders
$
553

 
$
483

 
 
 
 
Basic Weighted Average Common Shares Outstanding
2,262

 
2,207

Basic Earnings Per Common Share
$
0.24

 
$
0.22

________
(a)
As of March 31, 2019, there were approximately 13 million restricted stock awards outstanding.

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,
 
2019
 
2018
Unvested restricted stock awards
13

 
10

Convertible trust preferred securities
3

 
3

Mandatory convertible preferred stock(a)

 
58

_______
(a)
The holder of each convertible preferred share participated in our earnings by receiving preferred stock dividends through the mandatory conversion date of October 26, 2018, at which time our convertible preferred shares were converted to common shares.

2. Divestiture

Sale of Trans Mountain Pipeline System and Its Expansion Project

On August 31, 2018, KML completed the sale of the TMPL, the TMEP, Puget Sound pipeline system and Kinder Morgan Canada Inc., the Canadian employer of our staff that operate the business, which were indirectly acquired by the Government of Canada through Trans Mountain Corporation (a subsidiary of the Canada Development Investment Corporation) for net cash consideration of C$4.43 billion (U.S.$3.4 billion), net of working capital adjustments (TMPL Sale). Additionally, during the three months ended March 31, 2019, KML settled the remaining C$37.0 million (U.S.$28 million) of working capital adjustments, which amount is included in the accompanying consolidated statement of cash flows within “Sales of assets and equity investments, net of working capital settlements” for the three months ended March 31, 2019 and for which we had substantially accrued for as of December 31, 2018.

On January 3, 2019, KML distributed the net proceeds from the TMPL Sale to its shareholders as a return of capital. Public owners of KML’s restricted voting shares, reflected as noncontrolling interests by us, received approximately $0.9 billion (C$1.2 billion), and most of our approximate 70% portion of the net proceeds of $1.9 billion (C$2.5 billion) (after Canadian tax) were used to repay our outstanding commercial paper borrowings of $0.4 billion, and in February 2019, to pay down approximately $1.3 billion of maturing long-term debt.

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.

11



The following table provides additional information 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, 2019
 
December 31, 2018
Current portion of debt
 
 
 
$500 million, 364-day credit facility due November 15, 2019
$

 
$

$4 billion credit facility due November 16, 2023

 

Commercial paper notes(a)
109

 
433

KML $500 million credit facility, due August 31, 2022(b)(c)
38

 

Current portion of senior notes
 
 
 
9.00%, due February 2019

 
500

2.65%, due February 2019

 
800

3.05%, due December 2019
1,500

 
1,500

6.85%, due February 2020
700

 

Trust I preferred securities, 4.75%, due March 2028
111

 
111

Current portion - Other debt
44

 
44

  Total current portion of debt
2,502

 
3,388

 
 
 
 
Long-term debt (excluding current portion)
 
 
 
Senior notes
31,649

 
32,380

EPC Building, LLC, promissory note, 3.967%, due 2017 through 2035
405

 
409

Kinder Morgan G.P. Inc., $1,000 Liquidation Value Series A Fixed-to-Floating Rate Term Cumulative Preferred Stock
100

 
100

Trust I preferred securities, 4.75%, due March 2028
110

 
110

Other
204

 
206

Total long-term debt
32,468

 
33,205

Total debt(d)
$
34,970

 
$
36,593

_______
(a)
Weighted average interest rates on borrowings outstanding as of March 31, 2019 and December 31, 2018 were 2.75% and 3.10%, respectively.
(b)
Weighted average interest rate on borrowings outstanding as of March 31, 2019 was 3.42%.
(c)
Borrowings under the KML 2018 Credit Facility are denominated in C$ and are converted to U.S. dollars. At March 31, 2019, the exchange rate was 0.7483 U.S. dollars per C$. See “—Credit Facilities” below.
(d)
Excludes our “Debt fair value adjustments” which, as of March 31, 2019 and December 31, 2018, increased our combined debt balances by $860 million and $731 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 parties 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 13.

Credit Facilities

KMI

As of March 31, 2019, we had no borrowings outstanding under our credit facilities, $109 million outstanding under our $4 billion commercial paper program and $84 million in letters of credit. Our availability under these facilities as of March 31, 2019 was $4,307 million. As of March 31, 2019, we were in compliance with all required covenants.

KML

As of March 31, 2019, KML had C$50 million (U.S.$38 million) borrowings outstanding under its 4-year, C$500 million unsecured revolving credit facility, due August 31, 2022, with C$444 million (U.S.$331 million) available after reducing the C$500 million (U.S.$374 million) capacity for the C$6 million (U.S.$5 million) in letters of credit. Of the total C$6 million of letters of credit issued, approximately C$3 million are related to Trans Mountain for which it has issued a backstop letter of

12


credit to KML. As of March 31, 2019, KML was in compliance with all required covenants. As of December 31, 2018, KML had no borrowings outstanding under its credit facility.

4.  Stockholders’ Equity
 
Common Equity
 
As of March 31, 2019, 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 2018 Form 10-K.

On July 19, 2017, our board of directors approved a $2 billion common share buy-back program that began in December 2017. During the three months ended March 31, 2019, we settled repurchases of approximately 0.1 million of our Class P shares for approximately $2 million. Since December 2017, in total, we have repurchased approximately 29 million of our Class P shares under the program for approximately $525 million.

KMI Common Stock Dividends

Holders of our common stock participate in common stock dividends 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,
 
2019
 
2018
Per common share cash dividend declared for the period
$
0.25

 
$
0.20

Per common share cash dividend paid in the period
$
0.20

 
$
0.125


On April 17, 2019, our board of directors declared a cash dividend of $0.25 per common share for the quarterly period ended March 31, 2019, which is payable on May 15, 2019 to common shareholders of record as of the close of business on April 30, 2019.

Noncontrolling Interests

KML Distributions

KML has a dividend policy pursuant to which it may pay a quarterly dividend on its restricted voting shares in an amount based on a portion of its DCF. For additional information regarding our KML distributions, see Note 11 to our consolidated financial statements included in our 2018 Form 10-K.

On January 3, 2019, KML distributed approximately $0.9 billion of the net proceeds from the TMPL Sale to its Restricted Voting Shareholders as a return of capital.

On January 16, 2019, KML’s board of directors suspended KML’s dividend reinvestment plan, which was effective with the payment of the fourth quarter 2018 dividend on February 15, 2019, in light of KML’s reduced need for capital.

During the three months ended March 31, 2019, KML paid dividends to the public on its Restricted Voting Shares and on its Series 1 and Series 3 Preferred Shares of $4 million and $5 million, respectively.

Adoption of Accounting Pronouncements

On January 1, 2018, we adopted ASU No. 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”  This ASU clarifies the scope and application of ASC 610-20 on contracts for the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. This ASU also clarifies that the derecognition of all businesses is in the scope of ASC 810 and defines an “in substance nonfinancial asset.” We utilized the modified retrospective method to adopt the provisions of this ASU, which required us to apply the new standard to (i) all new contracts entered into after January 1, 2018, and (ii) to contracts that were not completed contracts as of January 1, 2018 through a cumulative adjustment to our “Retained deficit” balance. The cumulative effect of the adoption of this ASU was a $66 million, net of income taxes, adjustment to our “Retained deficit” balance as presented in our consolidated statement of stockholders’ equity for the three months ended March 31, 2018.  This ASU also required us to classify EIG

13


cumulative contribution to ELC as mezzanine equity, which we have included as “Redeemable noncontrolling interest” on our consolidated balance sheets as of March 31, 2019 and December 31, 2018, as EIG has the right to redeem their interests for cash under certain conditions.

On January 1, 2018, we adopted ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  Our accounting policy for the release of stranded tax effects in accumulated other comprehensive income is on an aggregate portfolio basis. This ASU permits companies to reclassify the income tax effects of the 2017 Tax Reform on items within accumulated other comprehensive income to retained earnings.  The FASB refers to these amounts as “stranded tax effects.”  Only the stranded tax effects resulting from the 2017 Tax Reform are eligible for reclassification.  The adoption of this ASU resulted in a $109 million reclassification adjustment of stranded income tax effects from “Accumulated other comprehensive loss” to “Retained deficit” on our consolidated statement of stockholders’ equity for the three months ended March 31, 2018.

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 and net investments in foreign operations.  Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to some of these risks.

On January 1, 2019, we adopted ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The ASU better aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 was applied using a modified retrospective approach for cash flow and fair value hedges existing at the date of adoption and prospectively for the presentation and disclosure guidance. The adoption of ASU 2017-12 did not have a material impact on our consolidated financial statements.

Energy Commodity Price Risk Management
 
As of March 31, 2019, 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 instruments
 
 
 
Crude oil fixed price
(20.2
)
 
MMBbl
Crude oil basis
(12.2
)
 
MMBbl
Natural gas fixed price
(55.7
)
 
Bcf
Natural gas basis
(35.6
)
 
Bcf
NGL fixed price
(0.7
)
 
MMBbl
Derivatives not designated as hedging instruments
 

 
 
Crude oil fixed price
(0.6
)
 
MMBbl
Crude oil basis
(6.1
)
 
MMBbl
Natural gas fixed price
(2.1
)
 
Bcf
Natural gas basis
(11.0
)
 
Bcf
NGL fixed price
(2.6
)
 
MMBbl

As of March 31, 2019, 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 2023.

Interest Rate Risk Management

 As of March 31, 2019 and December 31, 2018, we had a combined notional principal amount of $10,225 million and $10,575 million, respectively, of fixed-to-variable interest rate swap agreements, all of which 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 the London Interbank Offered Rate (LIBOR) plus a spread and have termination dates that correspond to the maturity dates of the related series of senior notes. As of March 31, 2019, the principal amount of hedged senior notes consisted of $2,200 million included in “Current portion of debt” and $8,025 million included in “Long-term debt” on our accompanying consolidated balance sheets. As of March 31, 2019, the maximum length of time over

14


which we have hedged a portion of our exposure to the variability in the value of debt due to interest rate risk is through March 15, 2035.

Foreign Currency Risk Management

As of both March 31, 2019 and December 31, 2018, we had a combined notional principal amount of $1,358 million of cross-currency swap agreements to manage the foreign currency risk related to our Euro-denominated senior notes 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.

During the year ended December 31, 2018, we entered into foreign currency swap agreements with a combined notional principal amount of C$2,450 million (U.S.$1,888 million). These swaps resulted in our selling fixed C$ and receiving fixed U.S.$, effectively hedging the foreign currency risk associated with a substantial portion of our share of the TMPL Sale proceeds which were held in Canadian dollar denominated accounts until KML’s board and shareholder approved distribution of the proceeds was made on January 3, 2019. At such time, our share of the TMPL Sale proceeds were then transferred into a U.S. dollar denominated account, our exposure to foreign currency risk was eliminated, and our foreign currency swaps were settled. These foreign currency swaps were accounted for as net investment hedges as the foreign currency risk was related to our investment in Canadian dollar denominated foreign operations, and the critical risks of the forward contracts coincided with those of the net investment. As a result, the change in fair value of the foreign currency swaps while outstanding were reflected in the “Cumulative Translation Adjustment” section of Other Comprehensive Income.

15



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
 
 
 
 
Derivative Assets
 
Derivative Liabilities
 
 
 
 
March 31,
2019
 
December 31,
2018
 
March 31,
2019
 
December 31,
2018
 
 
Location
 
Fair value
 
Fair value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
$
25

 
$
135

 
$
(122
)
 
$
(45
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
16

 
64

 
(26
)
 

Subtotal
 
 
 
41

 
199

 
(148
)
 
(45
)
Interest rate contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
22

 
12

 
(26
)
 
(37
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
174

 
121

 
(24
)
 
(78
)
Subtotal
 
 
 
196

 
133

 
(50
)
 
(115
)
Foreign currency contracts
 
Fair value of derivative contracts/(Other current liabilities)
 

 
91

 
(29
)
 
(6
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
95

 
106

 

 

Subtotal
 
 
 
95

 
197

 
(29
)
 
(6
)
Total
 
 
 
332

 
529

 
(227
)
 
(166
)
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 

 
 
 
 

 
 
Energy commodity derivative contracts
 
Fair value of derivative contracts/(Other current liabilities)
 
10

 
22

 
(5
)
 
(5
)
 
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 

 

 
(1
)
 

Total
 
 
 
10

 
22

 
(6
)
 
(5
)
Total derivatives
 
 
 
$
342

 
$
551

 
$
(233
)
 
$
(171
)

Effect of Derivative Contracts on the Income Statement
 
The following tables summarize the pre-tax impact of our derivative contracts in our accompanying consolidated statements of income and comprehensive income (in millions): 
Derivatives in fair value hedging relationships
 
Location
 
Gain/(loss) recognized in income
on derivative and related hedged item
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
 
 
 
 
 
 
Interest rate contracts
 
Interest, net
 
$
128

 
$
(173
)
 
 
 
 
 
 
 
Hedged fixed rate debt(a)
 
Interest, net
 
$
(138
)
 
$
168

_______
(a)
As of March 31, 2019, the cumulative amount of fair value hedging adjustments to our hedged fixed rate debt was an increase of $144 million included in “Debt fair value adjustments” on our accompanying consolidated balance sheets.

16


Derivatives in cash flow hedging relationships
 
Gain/(loss)
recognized in OCI on derivative(a)
 
Location
 
Gain/(loss) reclassified from Accumulated OCI
into income(b)
 
 
Three Months Ended March 31,
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
 
2019
 
2018
Energy commodity derivative contracts
 
$
(245
)
 
$
(22
)
 
Revenues—Natural
  gas sales
 
$
3

 
$
1

 
 
 
 
 
 
Revenues—Product
  sales and other
 
10

 
(19
)
 
 
 
 
 
 
Costs of sales
 
1

 

Interest rate contracts(c)
 

 
2

 
Earnings from equity investments
 

 
(1
)
Foreign currency contracts
 
(34
)
 
65

 
Other, net
 
(31
)
 
40

Total
 
$
(279
)
 
$
45

 
Total
 
$
(17
)
 
$
21

_______
(a)
We expect to reclassify an approximate $45 million loss associated with cash flow hedge price risk management activities included in our accumulated other comprehensive loss balance as of March 31, 2019 into earnings during the next twelve months (when the associated forecasted transactions are also expected to impact earnings); 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 in net investment hedging relationships
 
Gain/(loss)
recognized in OCI on derivative
 
Location
 
Gain/(loss) reclassified from Accumulated OCI
into income
 
 
Three Months Ended March 31,
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
 
2019
 
2018
Foreign currency contracts
 
$
(8
)
 
$

 
Loss on impairments and divestitures, net
 
$

 
$

Total
 
$
(8
)
 
$

 
Total
 
$

 
$


Derivatives not designated as hedging instruments
 
Location
 
Gain/(loss) recognized in income on derivatives
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
Energy commodity derivative contracts
 
Revenues—Natural gas sales
 
$
20

 
$
3

 
 
Revenues—Product sales and other
 
(10
)
 
(1
)
 
 
Costs of sales
 
(2
)
 

Total(a)
 
 
 
$
8

 
$
2

_______
(a)
The three months ended March 31, 2019 and 2018 both include approximate gains of $8 million for each respective period, associated with natural gas, crude and NGL derivative contract settlements.

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 March 31, 2019 and December 31, 2018, we had no outstanding letters of credit supporting our commodity price risk management program. As of March 31, 2019, we had cash margins of $4 million posted by us with our counterparties as collateral and reported within “Restricted Deposits” on our accompanying consolidated balance sheet. As of December 31, 2018, we had cash margins of $16 million posted by our counterparties with us as collateral and reported within “Other Current Liabilities” on our accompanying consolidated balance sheet. The balance at March 31, 2019 consisted of initial margin requirements of $15 million offset by variation margin requirements of $11 million. We also use industry standard commercial agreements that allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we generally utilize master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty.
 

17


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, 2019, based on our current mark to market positions and posted collateral, we estimate that if our credit rating were downgraded one notch we would not be required to post additional collateral. If we were downgraded two notches, we would be required to post $73 million of 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, 2018
$
164

 
$
(91
)
 
$
(403
)
 
$
(330
)
Other comprehensive (loss) gain before reclassifications
(215
)
 
16

 
8

 
(191
)
Losses reclassified from accumulated other comprehensive loss
13

 

 

 
13

Net current-period other comprehensive (loss) income
(202
)
 
16

 
8

 
(178
)
Balance as of March 31, 2019
$
(38
)
 
$
(75
)
 
$
(395
)
 
$
(508
)

 
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, 2017
$
(27
)
 
$
(189
)
 
$
(325
)
 
$
(541
)
Other comprehensive gain (loss) before reclassifications
34

 
(41
)
 
6

 
(1
)
Gains reclassified from accumulated other comprehensive loss
(16
)
 

 

 
(16
)
Impact of adoption of ASU 2018-02 (Note 4)
(4
)
 
(36
)
 
(69
)
 
(109
)
Net current-period other comprehensive income (loss)
14

 
(77
)
 
(63
)
 
(126
)
Balance as of March 31, 2018
$
(13
)
 
$
(266
)
 
$
(388
)
 
$
(667
)

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

18


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 ASC (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, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
6

 
$
45

 
$

 
$
51

 
$
(19
)
 
$
(11
)
 
$
21

Interest rate contracts

 
196

 

 
196

 
(8
)
 

 
188

Foreign currency contracts

 
95

 

 
95

 
(29
)
 

 
66

As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
28

 
$
193

 
$

 
$
221

 
$
(39
)
 
$
(25
)
 
$
157

Interest rate contracts

 
133

 

 
133

 
(7
)
 

 
126

Foreign currency contracts

 
197

 

 
197

 
(6
)
 

 
191


 
Balance sheet liability
fair value measurements by level
 
 
 
Net amount
 
Level 1
 
Level 2
 
Level 3
 
Gross amount
 
Contracts available for netting
 
Collateral posted(b)
As of March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
(4
)
 
$
(150
)
 
$

 
$
(154
)
 
$
19

 
$

 
$
(135
)
Interest rate contracts

 
(50
)
 

 
(50
)
 
8

 

 
(42
)
Foreign currency contracts

 
(29
)
 

 
(29
)
 
29

 

 

As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
(11
)
 
$
(39
)
 
$

 
$
(50
)
 
$
39

 
$

 
$
(11
)
Interest rate contracts

 
(115
)
 

 
(115
)
 
7

 

 
(108
)
Foreign currency contracts

 
(6
)
 

 
(6
)
 
6

 

 

_______
(a)
Level 1 consists primarily of NYMEX natural gas futures.  Level 2 consists primarily of OTC WTI swaps and NGL swaps.  
(b)
Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amount associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts, or those that are determined solely on their volumetric notional amounts, are excluded from this table.

Fair Value of Financial Instruments
 
The carrying value and estimated fair value of our outstanding debt balances are disclosed below (in millions): 
 
March 31, 2019
 
December 31, 2018
 
Carrying
value
 
Estimated
fair value
 
Carrying
value
 
Estimated
fair value
Total debt
$
35,830

 
$
37,981

 
$
37,324

 
$
37,469

 
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both March 31, 2019 and December 31, 2018.


19


7.  Revenue Recognition

Disaggregation of Revenues

The following tables present our revenues disaggregated by revenue source and type of revenue for each revenue source (in millions):
 
 
Three Months Ended March 31, 2019
 
 
Natural Gas Pipelines
 
Products Pipelines
 
Terminals
 
CO2
 
Corporate and Eliminations
 
Total
Revenues from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
Services
 
 
 
 
 
 
 
 
 
 
 
 
Firm services(a)
 
$
930

 
$
80

 
$
250

 
$

 
$
(1
)
 
$
1,259

Fee-based services
 
192

 
235

 
148

 
16

 
(1
)
 
590

Total services revenues
 
1,122

 
315

 
398

 
16

 
(2
)
 
1,849

Sales
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas sales
 
754

 

 

 
1

 
(2
)
 
753

Product sales
 
240

 
66

 
2

 
268

 
(6
)
 
570

Total sales revenues
 
994

 
66

 
2

 
269

 
(8
)
 
1,323

Total revenues from contracts with customers
 
2,116

 
381

 
400

 
285

 
(10
)
 
3,172

Other revenues(b)
 
85

 
43

 
109

 
20

 

 
257

Total revenues
 
$
2,201

 
$
424

 
$
509

 
$
305

 
$
(10
)
 
$
3,429


 
 
Three Months Ended March 31, 2018
 
 
Natural Gas Pipelines
 
Products Pipelines
 
Terminals
 
CO2
 
Kinder Morgan Canada(c)
 
Corporate and Eliminations
 
Total
Revenues from contracts with customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Firm services(a)
 
$
845

 
$
92

 
$
256

 
$
1

 
$

 
$
(1
)
 
$
1,193

Fee-based services
 
164

 
221

 
144

 
17

 
64

 
1

 
611

Total services revenues
 
1,009

 
313

 
400

 
18

 
64

 

 
1,804

Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural gas sales
 
828

 

 

 

 

 
(2
)
 
826

Product sales
 
219

 
92

 
3

 
317

 

 
(7
)
 
624

Total sales revenues
 
1,047

 
92

 
3

 
317

 

 
(9
)
 
1,450

Total revenues from contracts with customers
 
2,056

 
405

 
403

 
335

 
64

 
(9
)
 
3,254

Other revenues(b)
 
70

 
37

 
92

 
(31
)
 
(3
)
 
(1
)
 
164

Total revenues
 
$
2,126

 
$
442

 
$
495

 
$
304

 
$
61

 
$
(10
)
 
$
3,418

_______
(a)
Includes non-cancellable firm service customer contracts with take-or-pay or minimum volume commitment elements, including those contracts where both the price and quantity are fixed. Excludes service contracts with indexed-based pricing, which along with revenues from other customer service contracts are reported as Fee-based services.
(b)
Amounts recognized as revenue under guidance prescribed in Topics of the Accounting Standards Codification other than in Topic 606 and primarily include leases and derivatives. See Notes 5 and 10 for additional information related to our derivative contracts and lessor contracts, respectively.
(c)
On August 31, 2018, the assets comprising the Kinder Morgan Canada business segment were sold; therefore, this segment does not have results of operations on a prospective basis (see Note 2).

20



Contract Balances

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. We recognize contract assets in those instances where billing occurs subsequent to revenue recognition, and our right to invoice the customer is conditioned on something other than the passage of time. Our contract assets are substantially related to breakage revenue associated with our firm service contracts with minimum volume commitment payment obligations and contracts where we apply revenue levelization (i.e., contracts with fixed rates per volume that increase over the life of the contract for which we record revenue ratably per unit over the life of the contract based on our performance obligations that are generally unchanged over the life of the contract). Our contract liabilities are substantially related to (i) capital improvements paid for in advance by certain customers generally in our non-regulated businesses, which we subsequently recognize as revenue