Capitalization

As discussed above in Note 1, KMI completed a drop-down transaction with KMP during the first quarter of 2013. This transaction is treated as an intercompany transfer of assets between KMI (an affiliate and shareholder of the Company) and KMP. 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 adjustment to our deferred tax liability as a result of the intercompany transaction, including the transfer of nondeductible goodwill to KMP, is reflected as an offset to our shareholders’ equity. As a result of this transaction, we have recorded a decrease to our deferred tax liability and offsetting increase to our shareholders’ equity in the amount of $26 million.

Share Distributions

Under the terms of our limited liability company agreement, except in connection with our liquidation, we do not pay 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.



	Share Distributions
Distribution Date	Shares Distributed Per Outstanding Share	Equivalent Distribution Value Per Share^(a)	Total Number of Additional Shares Distributed

February 14, 2013	0.015676	$1.29	1,804,595
May 15, 2013(b)	0.014770	$1.30	1,726,952	(c)

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(a)	This is the cash distribution paid to each common unit of KMP during the quarter indicated 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)	Distribution declared on April 17, 2013 and payable to shareholders of record as of April 29, 2013.


(c)	Distribution determined by dividing $1.30, the cash amount to be distributed per KMP common unit by $88.015, the average of our shares’ closing market prices from April 11 - 24, 2013, the ten consecutive trading days preceding the date on which our shares began to trade ex-dividend under the rules of the New York Stock Exchange.