Capitalization
Our authorized capital structure consists of two classes of interests: (1) our listed shares and (2) our voting shares, collectively referred to in this document as our “shares.” Prior to the May 2001 initial public offering of our shares, our issued capitalization consisted of $100,000 contributed by Kinder Morgan, G.P., Inc. for two voting shares. At December 31, 2013, KMI owned approximately 16 million, or approximately 12.7% of our outstanding shares.
In the third quarter of 2012, we issued 10,120,000 of our shares in a public offering at a price of approximately $73.50 per share, less commissions and underwriting expenses. We used the net proceeds received of $727 million from the issuance of these 10,120,000 shares to buy additional i-units from KMP. KMP used the proceeds to pay a portion of the purchase price for the drop-down transaction. None of the shares from our offering were purchased by KMI.
On May 4, 2012, we entered into an equity distribution agreement with Credit Suisse Securities (USA) LLC (“Credit
Suisse”). Pursuant to the provisions of the equity distribution agreement, we may sell from time to time through Credit Suisse, as our sales agent, our shares having an aggregate offering amount of up to $500 million. During the year ended December 31, 2013, we issued 2,640,196 of our shares pursuant to our equity distribution agreement with Credit Suisse. We received net proceeds of $210 million from the issuance of these shares and we used the proceeds to purchase additional KMP i-units.
Sales of shares pursuant to our equity distribution agreement are made by means of ordinary brokers’ transactions on the
NYSE at market prices, in block transactions or as otherwise agreed between us and Credit Suisse. Under the terms of this agreement, we also may sell shares to Credit Suisse as principal for its own account at a price agreed upon at the time of the sale. Any sale of shares to Credit Suisse as principal would be pursuant to the terms of a separate agreement between us and Credit Suisse.
Our equity distribution agreement provides us the right, but not the obligation, to sell shares 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 shares to be sold through Credit Suisse, on a daily basis or otherwise as we and Credit Suisse agree. Credit Suisse will then use its reasonable efforts to sell, as our sales agent and on our behalf, all of the designated shares. We may instruct Credit Suisse not to sell shares if the sales cannot be effected at or above the price designated by us in any such instruction. Either we or Credit Suisse may suspend the offering of shares pursuant to the agreement by notifying the other party.
As discussed above in Note 1, KMI completed the August 2012 drop-down transaction with KMP during the third quarter of 2012, the March 2013 drop-down transaction with KMP during the first quarter of 2013 and during the second quarter of 2013, KMP acquired Copano. The August 2012 and March 2013 drop-down transactions were treated as common control transfers of assets between KMI (an affiliate and shareholder of us) and KMP. The second quarter of 2013 KMP acquisition of Copano in a unit for unit transaction with an exchange ratio of 0.4563 KMP common units for each Copano common unit resulted in KMP recording approximately $1.1 billion of nondeductible goodwill. Our and KMI’s accounting policy is to apply the look-through method of recording deferred taxes on the outside book tax basis difference in its investments without regard to nondeductible goodwill. The adjustments to our deferred tax liability as a result of (i) the 2013 and 2012 common control transactions (including the associated transfer of nondeductible goodwill to KMP); and (ii) the increase in KMP’s nondeductible goodwill related to the 2013 Copano acquisition are reflected as offsets to our shareholders equity. As a result of these transactions, we have recorded decreases of $91 million and $235 million to our deferred tax liability and an offsetting increase to our shareholders’ equity in the years ended December 31, 2013 and 2012, respectively.
Subsequent Event
Shares issued subsequent to December 31, 2013 were comprised of 76,100 of our shares, 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 with Credit Suisse. We received net proceeds $6 million from the issuance of these additional shares and we used the proceeds to purchase additional KMP i-units.
Share Distributions
Under the terms of our LLC agreement, except in connection with our liquidation, we do not pay cash distributions on our shares in cash but instead make distributions on our shares in additional shares or fractions of shares. At the same time KMP makes a distribution on its common units and i-units, we distribute on each of our shares that fraction of a share determined by dividing the amount of the cash distribution to be made by KMP on each common unit by the average closing market price of a share determined for the ten-trading day period ending on the trading day immediately prior to the ex-dividend date for our shares. The following table presents share distributions we have paid or declared in 2013, 2012 and 2011.
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2013 | | 2012 | | 2011 |
Equivalent distribution value per share declared for the period(a) | | $ | 5.33 |
| | $ | 4.98 |
| | $ | 4.61 |
|
Total number of additional shares declared for the period(b) | | $ | 7,997,862 |
| | $ | 6,829,396 |
| | $ | 6,466,991 |
|
Equivalent distribution value per share paid in the period(a) | | $ | 5.26 |
| | $ | 4.85 |
| | $ | 4.58 |
|
Total number of additional share distributions paid in the period(b) | | 7,565,200 |
| | 6,488,946 |
| | 6,601,402 |
|
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| |
(a) | This is the cash distribution for each KMP common unit declared for the period or paid in the period indicated, as applicable, and is used to calculate our distribution of shares as discussed above. Because of this calculation, the market value of the shares distributed on the date of distribution may be less or more than the cash distribution per common unit of KMP. |
| |
(b) | 2013 includes a share distribution declared on January 15, 2014, paid on February 14, 2014 to shareholders of record as of January 31, 2014. This share distribution of 0.017841 shares per outstanding share (2,237,258 total shares) was determined by dividing $1.36, the cash amount to be distributed per KMP common unit by $76.230, the average of our shares’ closing market prices from January 14-28, 2014, the ten consecutive trading days preceding the date on which our shares began to trade ex-dividend under the rules of the NYSE. |
