Partners’ Capital
Limited Partner Units
As of December 31, 2013 and 2012, our partners’ capital included the following limited partner units:
|
| | | | | |
| December 31, |
| 2013 | | 2012 |
Common units: | | | |
Held by third parties | 290,504,106 |
| | 231,718,422 |
|
Held by KMI and affiliates (excluding our general partner) | 20,563,455 |
| | 19,314,003 |
|
Held by our general partner | 1,724,000 |
| | 1,724,000 |
|
Total common units | 312,791,561 |
| | 252,756,425 |
|
Class B units(a) | 5,313,400 |
| | 5,313,400 |
|
i-units(b) | 125,323,734 |
| | 115,118,338 |
|
Total limited partner units | 443,428,695 |
| | 373,188,163 |
|
__________
| |
(a) | As of both December 31, 2013 and December 31, 2012, all of our Class B units were held by a wholly-owned subsidiary of KMI. The Class B units are similar to our common units except that they are not eligible for trading on the NYSE |
| |
(b) | As of both December 31, 2013 and 2012, all of our i-units were held by KMR. Our i-units are a separate class of limited partner interests in us and are not publicly traded. In accordance with KMR’s LLC agreement, KMR’s activities are restricted to being a limited partner in us, and to controlling and managing our business and affairs and the business and affairs of our operating limited partnerships and their subsidiaries. Through the combined effect of the provisions in our partnership agreement and the provisions of KMR’s LLC agreement, the number of outstanding KMR shares and the number of our i-units will at all times be equal. The number of i-units we distribute to KMR is based upon the amount of cash we distribute to the owners of our common units. When cash is paid to the holders of our common units, we issue additional i-units to KMR. The fraction of an i-unit paid per i-unit owned by KMR will have a value based on the cash payment on the common units. |
The total limited partner units represent our limited partners’ interest and an effective 98% interest in us, exclusive of our general partner’s right to receive incentive distributions. Our general partner has an effective 2% interest in us, excluding its right to receive incentive distributions.
Equity Issuances
2013 Issuances
On June 3, 2013, we entered into a fourth amended and restated equity distribution agreement with UBS Securities LLC, referred to as UBS, which increased the aggregate offering price of our common units to up to $2.175 billion (up from $1.9 billion), and on August 7, 2013, we replaced the amended and restated equity agreement with a new equity distribution agreement with UBS. The terms of this new equity distribution agreement are substantially similar to those in our previous agreement, and it allows us to offer and sell from time to time additional common units having an aggregate offering price of up to $1.9 billion through UBS, as sales agent. During the year ended December 31, 2013, we issued 10,814,474 of our common units pursuant to our equity distribution agreements with UBS. We received net proceeds from the issuance of these common units of $900 million, and we used the proceeds to reduce the borrowings under our commercial paper program.
Sales of common units pursuant to our equity distribution agreement are made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, in block transactions or as otherwise agreed between us and UBS. Under the terms of this agreement, we also may sell common units to UBS as principal for its own account at a price agreed upon at the time of the sale. Any sale of common units to UBS as principal would be pursuant to the terms of a separate agreement between us and UBS.
Our equity distribution agreement provides us the right, but not the obligation, to sell common units in the future, at prices we deem appropriate. We retain at all times complete control over the amount and the timing of each sale, and we will designate the maximum number of common units to be sold through UBS, on a daily basis or otherwise as we and UBS agree. UBS will then use its reasonable efforts to sell, as our sales agent and on our behalf, all of the designated common units. We may instruct UBS not to sell common units if the sales cannot be effected at or above the price designated by us in any such instruction. Either we or UBS may suspend the offering of common units pursuant to the agreement by notifying the other party.
Additionally, during the year ended December 31, 2013, we issued 2,640,196 i-units to KMR. We received net proceeds of $210 million for the issuance of these i-units, and we used the proceeds to reduce the borrowings under our commercial paper program. KMR realized net proceeds of $210 million from the issuance of 2,640,196 of its shares pursuant to its equity distribution agreement with Credit Suisse, and KMR used the net proceeds received from the issuance of these shares to buy the additional i-units from us. KMR entered into its equity distribution agreement with Credit Suisse on May 4, 2012. The terms of this agreement are substantially similar to the terms of our equity distribution agreement with UBS, and it allows KMR to sell from time to time through Credit Suisse, as KMR’s sales agent, KMR’s shares representing limited liability company interests having an aggregate offering price of up to $500 million.
For the year ended December 31, 2013, in addition to the issuance of units described above, our significant equity issuances consisted of the following:
| |
• | on February 26, 2013, we issued, in a public offering, 4,600,000 of our common units at a price of $86.35 per unit, less commissions and underwriting expenses. We received net proceeds of $385 million for the issuance of these 4,600,000 common units, and we used the proceeds to pay a portion of the purchase price for the March 2013 drop-down transaction; |
| |
• | on March 1, 2013, in connection with the March 2013 drop-down transaction, we issued 1,249,452 of our common units to KMI. We valued the units at $108 million, based on the $86.72 closing market price of a common unit on the NYSE on March 1, 2013; and |
| |
• | on May 1, 2013, we issued 43,371,210 common units to Copano unitholders as our purchase price for Copano. We valued the units at $3,733 million, based on the $86.08 closing market price of a common unit on the NYSE on May 1, 2013. |
2012 Issuances
On February 27, 2012, we entered into a third amended and restated equity distribution agreement with UBS which increased the aggregate offering price of our common units to up to $1.9 billion (up from $1.2 billion). During the year ended December 31, 2012, we issued 6,932,576 of our common units pursuant to our equity distribution agreement with UBS. We received net proceeds of $560 million from the issuance of these common units and we used the proceeds to reduce the borrowings under our commercial paper program.
For the year ended December 31, 2012, in addition to the issuance of common units pursuant to our equity distribution agreement, our significant equity issuances consisted of the following:
| |
• | on June 4, 2012, we issued 3,792,461 common units as our purchase price for our initial 50% equity ownership interest in the EP midstream assets we acquired from KKR. For more information about this issuance, see Note 3 “Acquisitions and Divestitures—Business Combinations and Acquisitions of Investments—(6) EP Midstream Assets (1 of 2);” |
| |
• | on August 13, 2012, in connection with the drop-down transaction, we issued 4,667,575 of our common units to KMI. We valued the units at $381 million, based on the $81.52 closing market price of the common units on the NYSE on August 13, 2012. For more information on the drop-down transaction, see Note 3 “Acquisitions and Divestitures—KMI Asset Drop-Downs—August 2012 KMI Asset Drop-Down;” |
| |
• | in the third quarter of 2012, KMR issued 10,120,000 of its shares in a public offering at a price of approximately $73.50 per share, less commissions and underwriting expenses. KMR used the net proceeds received from the issuance of these 10,120,000 shares to buy additional i-units from us, and we received net proceeds of $727 million. We used the proceeds to pay a portion of the purchase price for the August 2012 drop-down transaction; and |
| |
• | on December 14, 2012, we issued, in a public offering, 4,485,000 of our common units at a price of $78.60 per unit, less commissions and underwriting expenses. We received net proceeds, after deducting the underwriter discount, of $349 million for the issuance of these 4,485,000 common units, and we used the proceeds to reduce the borrowings under our commercial paper program. |
Adjustment to Partners’ Capital from KMI Asset Drop-Downs
We accounted for the drop-down transactions as combinations of entities under common control, and accordingly, we recognized the assets we acquired and the liabilities we assumed at KMI’s carrying value (including all purchase accounting adjustments from KMI’s acquisition of the drop-down asset groups from EP effective May 25, 2012). We then recognized the difference between our purchase price and the carrying value of the assets acquired and liabilities assumed as an adjustment to our Partners’ Capital. As of December 31, 2012, the carrying value of the assets we acquired and the liabilities we assumed from the drop-down transactions totaled $7,477 million. We paid to KMI $3,465 million in cash, issued to KMI 4,667,575 common units valued at $381 million, and recognized a non-cash increase of $3,631 million in our Partners’ Capital. The increase to Partners’ Capital consisted of (i) a $3,594 million increase in our general partner’s 1% general partner capital interest in us; (ii) a $36 million increase in our general partner’s 1.0101% general partner capital interest in our subsidiary Kinder Morgan Operating L.P. “A” (a noncontrolling interest to us); and (iii) a $1 million increase in our “Accumulated other comprehensive income” (related to a small tax adjustment on the drop-down asset group’s deferred pension gains from periods prior to our acquisition of August 1, 2012).
In 2013, we paid to KMI $994 million in cash, issued to KMI 1,249,452 common units valued at $108 million, and recognized a $35 million increase from net contributions KMI made to the March 2013 drop-down asset group in periods prior to our March 1, 2013 acquisition date. These consideration exchanges resulted in a $1,067 million decrease in our Partners’ Capital in 2013, consisting of (i) a $1,057 million decrease in our general partner’s capital interest in us and (ii) a $10 million decrease in our noncontrolling interests.
Income Allocation and Declared Distributions
For the purposes of maintaining partner capital accounts, our partnership agreement specifies that items of income and loss shall be allocated among the partners, other than owners of i-units, in accordance with their percentage interests. Normal allocations according to percentage interests are made, however, only after giving effect to any priority income allocations in an amount equal to the incentive distributions that are allocated 100% to our general partner. Incentive distributions are generally defined as all cash distributions paid to our general partner that are in excess of 2% of the aggregate value of cash and i-units being distributed, and we determine the allocation of incentive distributions to our general partner by the amount quarterly distributions to unitholders exceed certain specified target levels, according to the provisions of our partnership agreement.
The following table provides information about our distributions for each of the years ended December 31, 2013, 2012 and 2011 (in millions except per unit and i-unit distributions amounts):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2013 | | 2012 | | 2011 |
Per unit cash distribution declared for the period | $ | 5.33 |
| | $ | 4.98 |
| | $ | 4.61 |
|
Per unit cash distribution paid in the period | $ | 5.26 |
| | $ | 4.85 |
| | $ | 4.58 |
|
Cash distributions paid in the period to all partners(a)(b) | $ | 3,209 |
| | $ | 2,560 |
| | $ | 2,243 |
|
i-Unit distributions made in the period to KMR(c) | 7,565,200 |
| | 6,488,946 |
| | 6,601,402 |
|
General Partner’s incentive distribution(d): | | | | | |
Declared for the period | $ | 1,693 |
| | $ | 1,404 |
| | $ | 1,174 |
|
Paid in the period(b)(e) | $ | 1,632 |
| | $ | 1,322 |
| | $ | 1,147 |
|
__________
| |
(a) | Consisting of our common and Class B unitholders, our general partner and noncontrolling interests. |
| |
(b) | The year-to-year increases in distributions paid primarily reflect the increases in amounts distributed per unit as well as the issuance of additional units. |
| |
(c) | Under the terms of our partnership agreement, we agreed that we will not, except in liquidation, make a distribution on an i-unit other than in additional i-units or a security that has in all material respects the same rights and privileges as our i-units. The number of i-units we distribute to KMR is based upon the amount of cash we distribute to the owners of our common units. When cash is paid to the holders of our common units, we will issue additional i-units to KMR. The fraction of an i-unit paid per i-unit owned by KMR will have a value based on the cash payment on the common units. If additional units are distributed to the holders of our common units, we will issue an equivalent amount of i-units to KMR based on the number of i-units it owns. Based on the preceding, the i-units we distributed were based on the $5.26, $4.85 and $4.58 per unit paid to our common unitholders during 2013, 2012 and 2011, respectively. |
| |
(d) | Incentive distribution does not include the general partner’s initial 2% distribution of available cash. |
| |
(e) | Our general partner’s incentive distributions we paid in 2013 were reduced by a waived incentive amount of $50 million related to common units issued to finance our May 2013 Copano acquisition. Beginning with our distribution payments for the quarterly period ended June 30, 2013, and ending with our distribution payments for the quarterly period ended March 31, 2038, our general partner agreed not to take certain incentive distributions related to our acquisition of Copano. For more information about our May 2013 Copano acquisition, see Note 3 “Acquisitions and Divestitures—Business Combinations and Acquisitions of Investments—(7) Copano.” In addition, our general partner’s incentive distributions we paid in 2013, 2012 and 2011 were reduced by waived incentive amounts equal to $11 million, $27 million and $28 million, respectively, related to common units issued to finance a portion of our May 2010 and July 2011 KinderHawk acquisitions. Beginning with our distribution payments for the quarterly period ended June 30, 2010, and ending with our distribution payments for the quarterly period ended March 31, 2013, our general partner agreed not to take certain incentive distributions related to our acquisition of KinderHawk. For more information about our July 2011 KinderHawk acquisition, see Note 3 “Acquisitions and Divestitures—Business Combinations and Acquisitions of Investments—(3) KinderHawk and EagleHawk.” In addition, with regard to our declared distribution for the quarterly period ended December 31, 2013 (discussed below in “—Subsequent Events”), our general partner agreed not to take certain incentive distributions of $25 million for Copano. |
For further information about our partnership distributions, see Note 11 “Related Party Transactions—Partnership Interests and Distributions.”
Subsequent Events
Units issued subsequent to December 31, 2013 were comprised of (i) 198,110 of our common units and (ii) 76,100 of our i-units, both of which were issued in early January 2014, for the settlement of sales made on or before December 31, 2013 pursuant to our equity distribution agreement and KMR’s equity distribution agreement, respectively. We received net proceeds of $16 million and $6 million from the issuances of these additional common units and i-units, respectively, and we used the proceeds to reduce the borrowings under our commercial paper program.
On January 15, 2014, we declared a cash distribution of $1.36 per unit for the quarterly period ended December 31, 2013. This distribution was paid on February 14, 2014, to unitholders of record as of January 31, 2014. Since this distribution was declared after the end of the quarter, no amount is shown in our December 31, 2013 balance sheet as a distribution payable. Our common unitholders and our Class B unitholder received cash. KMR, our sole i-unitholder, received a distribution in the form of additional i-units based on the $1.36 distribution per common unit. The number of i-units distributed was 2,237,258. For each outstanding i-unit that KMR held, a fraction of an i-unit (0.017841) was issued. The fraction was determined by dividing:
| |
▪ | $1.36, the cash amount distributed per common unit |
by
| |
▪ | $76.230, the average of KMR’s limited liability shares’ closing market prices from January 14-28, 2014, the ten consecutive trading days preceding the date on which the shares began to trade ex-dividend under the rules of the NYSE. |
This February 14, 2014 distribution included an incentive distribution to our general partner in the amount of $445 million. This incentive distribution was affected by a waived incentive distribution amount equal to $25 million related to common units issued to finance our May 2013 Copano acquisition.
