On January 3, 2011, we purchased 50,000 Class A preferred shares of Watco Companies, LLC for $50.0 million in cash in a private transaction. In connection with our purchase of these preferred shares, the most senior equity security of Watco, we entered into a limited liability company agreement with Watco that provides us certain priority and participating cash distribution and liquidation rights. Pursuant to the agreement, we receive priority, cumulative cash distributions from the preferred shares at a rate of 3.25% per quarter, and we participate partially in additional profit distributions at a rate equal to 0.5%. The preferred shares have no conversion features and hold no voting powers, but do provide us certain approval rights, including the right to appoint one of the members to Watco's Board of Managers. As of December 31, 2010, we placed our $50.0 million investment in a cash escrow account and we included this amount within "Restricted Deposits" on our accompanying consolidated balance sheet. As of June 30, 2011, our net equity investment in Watco totaled $51.6 million and is included within "Investments" on our accompanying consolidated balance sheet. We account for our investment under the equity method of accounting, and we include it in our Terminals business segment.

Watco Companies, LLC is a privately owned, Pittsburg, Kansas based transportation company that was formed in 1983. It is the largest privately held short line railroad company in the United States, operating 22 short line railroads on approximately 3,500 miles of leased and owned track. It also operates transload/intermodal and mechanical services divisions. Our investment provides capital to Watco for further expansion of specific projects, complements our existing terminal network, provides our customers more transportation services for many of the commodities that we currently handle, and offers us the opportunity to share in additional growth opportunities through new projects.

On February 17, 2011, Deeprock Energy Resources, LLC, Mecuria Energy Trading, Inc., and our subsidiary Kinder Morgan Cushing LLC, entered into formal agreements for a crude oil storage joint venture located in Cushing, Oklahoma. On this date, we contributed $15.9 million for a 50% ownership interest in an existing crude oil tank farm that has storage capacity of one million barrels, and we expect to invest an additional $8.8 million for the construction of three new storage tanks that will provide incremental storage capacity of 750,000 barrels. The new tanks are expected to be placed in service during the fourth quarter of 2011. The joint venture is named Deeprock North, LLC. Deeprock Energy owns a 12.02% member interest in Deeprock North, LLC and will remain construction manager and operator of the joint venture. Mecuria owns the remaining 37.98% member interest and will remain the anchor tenant for the joint venture's crude oil capacity for the next five years with an option to extend. In addition, we entered into a development agreement with Deeprock Energy that gives us an option to participate in future expansions on Deeprock's remaining 254 acres of undeveloped land.

We account for our investment under the equity method of accounting, and our investment and our pro rata share of Deeprock North LLC's operating results are included as part of our Terminals business segment. As of June 30, 2011, our net equity investment in Deeprock North, LLC totaled $20.6 million and is included within "Investments" on our accompanying consolidated balance sheet.

On June 10, 2011, we acquired a newly constructed petroleum coke terminal located in Port Arthur, Texas from TGS Development, L.P. (TGSD) for an aggregate consideration of $74.1 million, consisting of $42.9 million in cash, $23.7 million in common units, and an obligation to pay additional consideration of $7.5 million. We estimate our remaining $7.5 million obligation will be paid to TGSD approximately one year from the closing (in May or June 2012), and will be settled in a combination of cash and common units, depending on TGSD's election.

All of the acquired assets are located in Port Arthur, Texas, and include long-term contracts to provide petroleum coke handling and cutting services to improve the refining of heavy crude oil at Total Petrochemicals USA Inc.'s recently expanded Port Arthur refinery. The refinery is expected to produce more than one million tons of petroleum coke annually. Based on our measurement of fair values for all of the identifiable tangible and intangible assets acquired, we preliminarily assigned $42.6 million of our combined purchase price to "Property, plant and equipment, net," and the remaining $31.5 million to "Other Intangibles, net," representing the combined fair values of two separate intangible customer contracts with Total. The acquisition complements our existing Gulf Coast bulk terminal facilities and expands our pre-existing petroleum coke handling operations. All of the acquired assets are included as part of our Terminals business segment.

Pro forma consolidated income statement information that gives effect to all of the acquisitions we have made and all of the joint ventures we have entered into since January 1, 2010 as if they had occurred as of January 1, 2010 is not presented because it would not be materially different from the information presented in our accompanying consolidated statements of income.

Effective July 1, 2011, we acquired from Petrohawk Energy Corporation both the remaining 50% equity ownership interest in KinderHawk Field Services LLC that we did not already own and a 25% equity ownership interest in Petrohawk's natural gas gathering and treating business located in the Eagle Ford shale formation in South Texas for an aggregate consideration of $911.9 million, consisting of $834.9 million in cash (consisting of $836.2 million in cash paid, offset by $1.3 million in cash acquired) and assumed debt of $77.0 million. We then repaid the outstanding $154.0 million of borrowings under KinderHawk's bank credit facility, and following this repayment, KinderHawk had no outstanding debt.

KinderHawk Field Services LLC owns and operates the largest natural gas gathering and midstream business in the Haynesville shale formation located in northwest Louisiana, consisting of more than 400 miles of pipeline with over 2.0 billion cubic feet per day of pipeline capacity. Currently, it gathers approximately 1.0 billion cubic feet of natural gas per day; however, it is expected to gather approximately 1.2 billion cubic feet per day by the end of 2011. We operate KinderHawk Field Services LLC, and we acquired our original 50% ownership interest in KinderHawk Field Services LLC on May 21, 2010.

Following our acquisition of the remaining ownership interest on July 1, 2011, we made the change in accounting for our investment from the equity method to full consolidation. In the third quarter of 2011, we will measure the identifiable tangible and intangible assets and liabilities assumed at fair value on the acquisition date and, based on our expected measurement of fair values and the consideration we transferred to Petrohawk for our remaining 50% ownership interest (discussed above), we expect to recognize an approximate $170 million non-cash loss related to the remeasurement of our previously held 50% equity interest in KinderHawk to fair value.

The Eagle Ford natural gas gathering joint venture is named EagleHawk Field Services LLC, and we will account for our 25% investment under the equity method of accounting. Petrohawk will operate EagleHawk Field Services LLC and will own the remaining 75% ownership interest. The joint venture will own two midstream gathering systems in and around Petrohawk's Hawkville and Black Hawk areas of Eagle Ford and combined, the joint venture's assets will consist of more than 280 miles of gas gathering pipelines and approximately 140 miles of condensate lines to be in service by the end of 2011. It will also have a life of lease dedication of Petrohawk's Eagle Ford reserves that will provide Petrohawk and other Eagle Ford producers with gas and condensate gathering, treating and condensate stabilization services.

The acquisition of the remaining ownership interest in KinderHawk and the equity ownership interest in EagleHawk complements and expands our existing natural gas gathering operations, and all of the acquired assets will be included in our Natural Gas Pipelines business segment. Additionally, on July 14, 2011, mining and oil company BHP Billiton and Petrohawk Energy Corporation announced that the companies have entered into a definitive agreement for BHP Billiton to acquire Petrohawk by means of an all-cash tender offer for all of the issued and outstanding shares of Petrohawk. If the transaction closes, the terms of our contracts with Petrohawk would not be affected.

On February 9, 2011, we sold a marine vessel to Kirby Inland Marine, L.P., and additionally, we and Kirby formed a joint venture named Greens Bayou Fleeting, LLC. Pursuant to the joint venture agreement, we sold our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009 to the joint venture for $4.1 million in cash and a 49% ownership interest in the joint venture. Kirby then made cash contributions to the joint venture in exchange for the remaining 51% ownership interest. Related to the above transactions, we recorded a loss of $5.5 million ($4.1 million after tax) in the fourth quarter of 2010 to write down the carrying value of the net assets to be sold to their estimated fair values as of December 31, 2010.

In the first quarter of 2011, after final reconciliation and measurement of all of the net assets sold, we recognized a combined $2.2 million increase in income from the sale of these net assets, primarily consisting of a $1.9 million reduction in income tax expense, which is included within the caption "Income Tax (Expense) Benefit" in our accompanying consolidated statement of income for the six months ended June 30, 2011. Additionally, the sale of our ownership interest resulted in a $10.6 million non-cash reduction in our goodwill (see Note 3), and was a transaction with a related party (see Note 9). Information about our acquisition of assets from Megafleet Towing Co., Inc. is described more fully in Note 3 to our consolidated financial statements included in our 2010 Form 10-K/A.

Effective April 1, 2011, we sold 51% ownership interests in two separate wholly-owned subsidiaries to two separate buyers, for an aggregate consideration of $8.1 million, consisting of a $4.1 million note receivable, $1.0 million in cash, and a $3.0 million receivable for the settlement of working capital items. Following the sale, we continue to own 49% membership interests in both River Consulting, LLC, a company engaged in the business of providing engineering, consulting and management services, and Devco USA L.L.C., a company engaged in the business of processing, handling and marketing sulfur, and selling related pouring equipment. At the time of the sale, the combined carrying value of the net assets (and members' capital on a 100% basis) of both entities totaled approximately $8.8 million and consisted mostly of technology-based assets and trade receivables. We now account for our retained investments under the equity method of accounting.

In the second quarter of 2011, we recognized a $3.6 million pre-tax gain from the sale of these ownership interests (including a $2.1 million gain related to the remeasurement of our retained investment to fair value) and we included this gain within the caption "Other, net" in our accompanying consolidated statements of income for the three and six months ended June 30, 2011. We also recognized a $1.4 million increase in income tax expense related to this gain, which is included within the caption "Income Tax (Expense) Benefit" in our accompanying consolidated statement of income for the six months ended June 30, 2011.

We evaluate goodwill for impairment on May 31 of each year. For this purpose, we have six reporting units as follows: (i) Products Pipelines (excluding associated terminals); (ii) Products Pipelines Terminals (evaluated separately from Products Pipelines for goodwill purposes, but combined with Products Pipelines for presentation in the table below); (iii) Natural Gas Pipelines; (iv) CO2; (v) Terminals; and (vi) Kinder Morgan Canada. There were no impairment charges resulting from our May 31, 2011 impairment testing, and no event indicating an impairment has occurred previous or subsequent to that date.

The fair value of each reporting unit was determined from the present value of the expected future cash flows from the applicable reporting unit (inclusive of a terminal value calculated using market multiples between six and ten times cash flows) discounted at a rate of 8.0%. The value of each reporting unit was determined on a stand-alone basis from the perspective of a market participant and represented the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date.

	Products Pipelines		Natural Gas Pipelines		CO2		Terminals			Kinder Morgan Canada			Total

Historical Goodwill.	$	263.2	$	337.0	$	46.1	$	337.9		$	626.5		$	1,610.7
Accumulated impairment losses(a).		-		-		-		-			(377.1	)		(377.1	)
Balance as of December 31, 2010		263.2		337.0		46.1		337.9			249.4			1,233.6
Acquisitions.		-		-		-		-			-			-
Disposals(b).		-		-		-		(10.6	)		-			(10.6	)
Impairments		-		-		-		-			-			-
Currency translation adjustments		-		-		-		-			7.8			7.8
Balance as of June30, 2011	$	263.2	$	337.0	$	46.1	$	327.3		$	257.2		$	1,230.8

(a)

On April 18, 2007, we announced that we would acquire the Trans Mountain pipeline system from KMI, and we completed this transaction on April 30, 2007. Following the provisions of U.S. generally accepted accounting principles, the consideration of this transaction caused KMI to consider the fair value of the Trans Mountain pipeline system, and to determine whether goodwill related to these assets was impaired. Based on this determination, KMI recorded a goodwill impairment charge of $377.1 million in the first quarter of 2007, and because we have included all of the historical results of Trans Mountain as though the net assets had been transferred to us on January 1, 2006, this impairment is now included in our accumulated impairment losses. We have no other goodwill impairment losses.

(b)

2011 disposal amount related to the sale of our ownership interest in the boat fleeting business we acquired from Megafleet Towing Co., Inc. in April 2009 (discussed further in Note 2)

In addition, we identify any premium or excess cost we pay over our proportionate share of the underlying fair value of net assets acquired and accounted for as investments under the equity method of accounting. This premium or excess cost is referred to as equity method goodwill and is also not subject to amortization but rather to impairment testing. For all investments we own containing equity method goodwill, no event or change in circumstances that may have a significant adverse effect on the fair value of our equity investments has occurred during the first six months of 2011. As of June 30, 2011 and December 31, 2010, we reported $286.9 million and $283.0 million, respectively, in equity method goodwill within the caption "Investments" in our accompanying consolidated balance sheets.

Excluding goodwill, our other intangible assets include customer relationships, contracts and agreements, technology-based assets, and lease value. These intangible assets have definite lives and are reported separately as "Other intangibles, net" in our accompanying consolidated balance sheets. Following is information related to our intangible assets subject to amortization (in millions):

	June 30, 2011			December 31, 2010
Customer relationships, contracts and agreements
Gross carrying amount	$	430.3		$	399.8
Accumulated amortization		(131.2	)		(112.0	)
Net carrying amount		299.1			287.8

Technology-based assets, lease value and other
Gross carrying amount		10.6			17.9
Accumulated amortization		(3.7	)		(3.5	)
Net carrying amount		6.9			14.4

Total Other intangibles, net	$	306.0		$	302.2

The increase in the carrying amount of our customer relationships, contacts and agreements since December 31, 2010 was mainly due to the acquisition of intangibles included in our June 2011 purchase of terminal assets from TGS Development, L.P., discussed in Note 2.

We amortize the costs of our intangible assets to expense in a systematic and rational manner over their estimated useful lives. Among the factors we weigh, depending on the nature of the asset, are the effects of obsolescence, new technology, and competition. For the three and six months ended June 30, 2011, the amortization expense on our intangibles totaled $9.7 million and $19.4 million, respectively, and for the same prior year periods, the amortization expense on our intangibles totaled $11.1 million and $22.4 million, respectively. As of June 30, 2011, the weighted average amortization period for our intangible assets was approximately 15.4 years, and our estimated amortization expense for these assets for each of the next five fiscal years (2012 - 2016) is approximately $33.1 million, $29.2 million, $26.1 million, $23.3 million and $19.6 million, respectively.