Partners’ Capital

Limited Partner Units

As of March 31, 2014 and December 31, 2013, our Partners’ Capital included the following limited partner units:



	March 31, 2014	December 31, 2013
Common units:
Held by third parties	298,637,216	290,504,106
Held by KMI and affiliates (excluding our general partner)	20,563,455	20,563,455
Held by our general partner	1,724,000	1,724,000
Total Common units	320,924,671	312,791,561
Class B units(a)	5,313,400	5,313,400
i-units(b)	127,637,092	125,323,734
Total limited partner units	453,875,163	443,428,695

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(a)	As of both March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013, 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

For the three month period ended March 31, 2014, our equity issuances consisted of the following:

•

on February 24, 2014, we issued, in a public offering, 7,935,000 of our common units at a price of $78.32 per unit, less commissions and underwriting expenses. We received net proceeds of $603 million for the issuance of these 7,935,000 common units, and used the proceeds to reduce the borrowings under our commercial paper program (by reducing the incremental borrowings we made under our commercial paper program in January 2014 to fund our APT acquisition);


•	in January 2014, we issued 198,110 of our common units pursuant to our equity distribution agreements with UBS (to settle sales made on or before December 31, 2013). We received net proceeds from the issuance of these common units of $16 million, and we used the proceeds to reduce the borrowings under our commercial paper program; and


•	in January 2014, we issued 76,100 i-units to KMR (to settle sales made on or before December 31, 2013). We received net proceeds of $6 million for the issuance of these i-units, and we used the proceeds to reduce the borrowings under our commercial paper program.

Income Allocations

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.

Partnership Distributions

The following table provides information about our distributions for each of the three month periods ended March 31, 2014 and 2013 (in millions except per unit and i-unit distributions amounts):



	Three Months Ended March 31,
	2014		2013
Per unit cash distribution declared for the period	$	1.38	$	1.30
Per unit cash distribution paid in the period	$	1.36	$	1.29
Cash distributions paid in the period to all partners(a)(b)	$	895	$	730
i-unit distributions made in the period to KMR(c)	2,237,258		1,804,596
General Partner’s incentive distribution(d):
Declared for the period(e)	$	449	$	398
Paid in the period(b)(c)(f)	$	445	$	384

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(a)	Consisting of our common and Class B unitholders, our general partner and noncontrolling interests.


(b)	The period-to-period 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 $1.36 and $1.29 per unit paid to our common unitholders during the first quarters of 2014 and 2013, respectively.


(d)	Incentive distribution does not include the general partner’s initial 2% distribution of available cash.

(e)

2014 amount includes a decrease of $30 million for waived general partner incentive amounts related to common units issued to finance our May 2013 Copano acquisition, and a decrease of $3 million for waived general partner incentive amounts related to common units issued to finance a portion of our January 2014 APT acquisition. 2013 amount includes a decrease of $4 million for waived general partner incentive amounts related to common units issued to finance a portion of our July 2011 KinderHawk acquisition.


(f)	2014 amount includes a decrease of $25 million for waived general partner incentive amounts related to common units issued to finance our May 2013 Copano acquisition. 2013 amount includes a decrease of $7 million for waived general partner incentive amounts related to common units issued to finance a portion of our July 2011 KinderHawk acquisition.

For additional information about our partnership distributions, see Note 11 “Related Party Transactions—Partnership Interests and Distributions” to our consolidated financial statements included in our 2013 Form 10-K.

Subsequent Events

On April 16, 2014, we declared a cash distribution of $1.38 per unit for the quarterly period ended March 31, 2014. The distribution will be paid on May 15, 2014 to unitholders of record as of April 30, 2014. Our common unitholders and our Class B unitholder will receive cash. KMR will receive a distribution of 2,386,814 additional i-units based on the $1.38 distribution per common unit. For each outstanding i-unit that KMR holds, a fraction of an i-unit (0.018700) will be issued. This fraction was determined by dividing:


•	$1.38, the cash amount distributed per common unit


•	$73.796, the average of KMR’s shares’ closing market prices from April 11-25, 2014, the ten consecutive trading days preceding the date on which the shares began to trade ex-dividend under the rules of the NYSE.