Form 10-K for the Year Ended December 31, 2020
We note that your revenues associated with leasing services represent about 11% of your consolidated revenues for the year ended December 31, 2020, as disclosed in your tabular presentation of revenues disaggregated by revenue source on page 123. If you are a lessor in the underlying transactions, please provide the disclosures required by ASC 842-30-50.
We acknowledge the Staff’s comment and offer the following information in response. In the preparation of our Form 10-K for the year ended December 31,
2020 (“2020 Form 10-K”), we evaluated the materiality of our revenues from leasing services in the context of both quantitative and qualitative considerations. Based on this evaluation, management determined that the revenues derived from our leasing services were not material for any of the periods presented.Read in the reply ↗Rest of the answer
Factors that resulted in this determination included an analysis of the nature of the customer contracts that generated lease revenues for the periods presented, and the unusual circumstances that impacted our total consolidated revenues for the year ended December 31, 2020.
Our revenues from leasing services are predominantly comprised of specific assets that we lease, as defined under ASC 842-30-50, to customers under operating leases where one customer obtains substantially all the economic benefit from the asset, has the right to direct the use of that asset and are substantially consistent with our customer contracts. These leases primarily consist of specific tanks, treating facilities, marine vessels and gas equipment and pipelines with separate control locations. We are not in the business of leasing assets under arrangements that would qualify as sales-type or finance leases, which we believe might warrant further disclosures in accordance with ASC 842-30-50.
Revenues from our leasing services for the years ended December 31, 2020, 2019 and 2018 were 10.6%, 7.2% and 6.1%, respectively, of total consolidated revenues. The increase in revenues from leasing services as a percentage of total consolidated revenues for the year ended December 31, 2020 was partially impacted by a reduction in our other non-leasing revenues which were adversely impacted by the COVID-19 pandemic-related reduction in energy demand and dramatic decline in commodity prices.
Based on the foregoing, we concluded that our revenues derived from leases were not material from a quantitative and qualitative perspective for the periods presented and as such did not include the lessor disclosures prescribed by ASC 842-30-50 in our 2020 Form 10-K. We will continue to evaluate the materiality of revenues from leasing services in future annual reporting periods, and if we determine that revenues from our leasing services are both quantitatively and qualitatively material, we will include the related lessor disclosures prescribed by ASC 842-30-50.
To provide additional information regarding the nature of customer contracts that generate our lease revenues, for future Form 10-K filings, we will provide a description of the types of leases that generate the majority of our leasing revenues within the revenue recognition disclosures in our notes to consolidated financial statements.
As an example of the disclosure we would include to describe the types of leases that generate the majority of our revenues from leasing services, the following is a revised disclosure that appeared in Note 15 on pages 123 through 124 of our 2020 Form 10-K with the added disclosure referenced as footnote (d) to the tabular disclosure set forth below.
Disaggregation of Revenues
The following tables present our revenues disaggregated by revenue source and type of revenue for each revenue source:
Year Ended December 31, 2020
Natural Gas Pipelines Products Pipelines Terminals
CO2
Corporate and Eliminations Total
(In millions)
Revenues from contracts with customers(a)
Services
Firm services(b) $ 3,345 $ 271 $ 756 $ 1 $ (3) $ 4,370
Fee-based services 714 905 395 42 — 2,056
Total services 4,059 1,176 1,151 43 (3) 6,426
Commodity sales
Natural gas sales 2,038 — — 1 (7) 2,032
Product sales 562 358 14 735 (30) 1,639
Total commodity sales 2,600 358 14 736 (37) 3,671
Total revenues from contracts with customers 6,659 1,534 1,165 779 (40) 10,097
Other revenues(c)
Leasing services(d)
466 166 557 47 — 1,236
Derivatives adjustments on commodity sales 18 — — 203 — 221
Other 116 21 — 9 — 146
Total other revenues 600 187 557 259 — 1,603
Total revenues $ 7,259 $ 1,721 $ 1,722 $ 1,038 $ (40) $ 11,700
Year Ended December 31, 2019
Firm services(b) $ 3,549 $ 319 $ 1,012 $ 1 $ (4) $ 4,877
Fee-based services 780 1,016 560 60 — 2,416
Total services 4,329 1,335 1,572 61 (4) 7,293
Natural gas sales 2,603 — — 1 (9) 2,595
Product sales 805 289 20 1,111 (33) 2,192
Total commodity sales 3,408 289 20 1,112 (42) 4,787
Total revenues from contracts with customers 7,737 1,624 1,592 1,173 (46) 12,080
273 182 442 54 — 951
Derivatives adjustments on commodity sales 70 — — (21) — 49
Other 90 25 — 13 1 129
Total other revenues 433 207 442 46 1 1,129
Total revenues $ 8,170 $ 1,831 $ 2,034 $ 1,219 $ (45) $ 13,209
Year Ended December 31, 2018
Kinder Morgan Canada(e) Corporate and Eliminations Total
Firm services(b) $ 3,387 $ 376 $ 983 $ 2 $ — $ (2) $ 4,746
Fee-based services 692 956 584 67 167 — 2,466
Total services 4,079 1,332 1,567 69 167 (2) 7,212
Natural gas sales 3,327 — — 2 — (11) 3,318
Product sales 1,190 393 20 1,222 — (37) 2,788
Total commodity sales 4,517 393 20 1,224 — (48) 6,106
Total revenues from contracts with customers 8,596 1,725 1,587 1,293 167 (50) 13,318
220 158 440 48 2 — 868
Derivatives adjustments on commodity sales (25) — — (108) — — (133)
Other 64 4 — 22 1 — 91
Total other revenues 259 162 440 (38) 3 — 826
Total revenues $ 8,855 $ 1,887 $ 2,027 $ 1,255 $ 170 $ (50) $ 14,144
(a)Differences between the revenue classifications presented on the consolidated statements of income and the categories for the disaggregated revenues by type of revenue above are primarily attributable to revenues reflected in the “Other revenues” category above (see note (c)).
(b)Includes non-cancellable firm service customer contracts with take-or-pay or minimum volume commitment elements, including those contracts where both the price and quantity amount are fixed. Excludes service contracts with indexed-based pricing, which along with revenues from other customer service contracts are reported as Fee-based services.
(c)Amounts recognized as revenue under guidance prescribed in Topics of the ASC other than in Topic 606 were primarily from leases and derivative contracts. See Note 14 for additional information related to our derivative contracts.
(d)Our revenues from leasing services are predominantly comprised of specific assets that we lease to customers under operating leases where one customer obtains substantially all of the economic benefit from the asset and has the right to direct the use of that asset. These leases primarily consist of specific tanks, treating facilities, marine vessels and gas equipment and pipelines with separate control locations. We do not lease assets that qualify as sales-type or finance leases.
(e)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 4).
If any member of the Staff has any questions regarding the foregoing, or desires further information or clarification in connection therewith, please contact the undersigned at (713) 369-9895.
First report after the company's reply of 2021-03-16: 10-Q filed 2021-04-23 ↗, against the 10-Q filed 2020-10-23 ↗.
Tickdelta does not hold the text of both reports, so they are not compared here.
Also in this review: closing letter, 2021-03-22