Note 10—Partners’ Capital and Distributions

Units Outstanding

At December 31, 2015, Partners’ capital consisted of 397,727,624 common units outstanding, representing a 98% effective aggregate ownership interest in the Partnership and its subsidiaries after giving effect to the 2% general partner interest.

In January 2016, we completed the private placement of a newly authorized series of preferred units. See “Equity Offerings” below for additional information.

Distributions

We distribute 100% of our available cash within 45 days following the end of each quarter to unitholders of record and to our general partner. Available cash is generally defined as all of our cash and cash equivalents on hand at the end of each quarter, less reserves established in the discretion of our general partner for future requirements.

General Partner Distributions. Our general partner is entitled to receive (i) distributions representing its 2% general partner interest and (ii) incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in our partnership agreement. Under the quarterly distribution provisions, the general partner is entitled, without duplication and except for the agreed upon adjustments discussed below, to 2% of amounts we distribute up to $0.2250 per unit, referred to as our MQD, 15% of amounts we distribute in excess of $0.2250 per unit, 25% of the amounts we distribute in excess of $0.2475 per unit and 50% of amounts we distribute in excess of $0.3375 per unit.

Per unit cash distributions on our outstanding common units and the portion of the distributions representing an excess over the MQD were as follows for the periods indicated:

	Year
	2015				2014				2013
			Excess				Excess				Excess
	Distribution (1)		over MQD		Distribution (1)		over MQD		Distribution (1)		over MQD
First Quarter	$	0.6750	$	0.4500	$	0.6150	$	0.3900	$	0.5625	$	0.3375
Second Quarter	$	0.6850	$	0.4600	$	0.6300	$	0.4050	$	0.5750	$	0.3500
Third Quarter	$	0.6950	$	0.4700	$	0.6450	$	0.4200	$	0.5875	$	0.3625
Fourth Quarter	$	0.7000	$	0.4750	$	0.6600	$	0.4350	$	0.6000	$	0.3750

(1)

Distributions represent those declared and paid in the applicable period shown.

During the years ended December 31, 2015, 2014 and 2013, our general partner’s incentive distributions were reduced by approximately $22 million, $23 million and $15 million, respectively. These reductions were agreed to in connection with the BP NGL Acquisition and the PNG Merger. In addition, our general partner has agreed to reduce the amount of its incentive distribution by $5.0 million per quarter in 2016 and $3.75 million per quarter thereafter. In connection with our January 2016 private placement of preferred units, as discussed further in “Equity Offerings” below, our general partner agreed to further modify its IDRs such that when the preferred units convert into common units, the IDRs associated with the resulting common units will only participate in distribution growth above an annualized distribution level of $2.80 per converted common unit.

The following table details distributions, net of reductions in our general partner’s incentive distributions, paid during the periods indicated (in millions, except per unit data):

	Distributions Paid						Distributions per
Year	Common Unitholders		General Partner		Total		common unit
2015	$	1,081	$	590	$	1,671	$	2.755
2014	$	934	$	473	$	1,407	$	2.550
2013	$	791	$	369	$	1,160	$	2.325

On January 12, 2016, we declared a cash distribution of $0.70 per unit on our outstanding common units. The distribution was paid on February 12, 2016 to unitholders of record on January 29, 2016, for the period October 1, 2015 through December 31, 2015. The total distribution paid was $433 million, with $278 million paid to our common unitholders and $155 million paid to our general partner for its 2% general partner and incentive distribution interests.

Equity Offerings

Common Unit Issuances. We have entered into several equity distribution agreements under our Continuous Offering Program, pursuant to which we may offer and sell, through sales agents, common units representing limited partner interests. In addition to our Continuous Offering Program, we may sell common units through overnight or underwritten offerings.

The following table summarizes our issuance of common units in connection with our Continuous Offering Program and underwritten offerings during the periods indicated (net proceeds in millions):

Year	Type of Offering	Units Issued	Net Proceeds (1)(2)
2015	Continuous Offering Program	1,133,904	$	59	(3)
2015	Underwritten Offering	21,000,000	1,062

2015 Total		22,133,904	$	1,121


2014 Total	Continuous Offering Program	15,375,810	$	866	(3)


2013 Total	Continuous Offering Program	8,644,807	$	477	(3)

(1)

Amounts are net of costs associated with the offerings.

(2)

Amounts include our general partner’s proportionate capital contributions of $22 million, $18 million and $9 million during 2015, 2014 and 2013, respectively.

(3)

We pay commissions to our sales agents in connection with common unit issuances under our Continuous Offering Program. We paid $1 million, $9 million and $5 million of such commissions during 2015, 2014 and 2013, respectively.

Preferred Unit Issuance. In January 2016, we completed the private placement of approximately 61.0 million Series A Convertible Preferred Units representing limited partner interests in us (the “preferred units”), for a cash purchase price of $26.25 per unit (the “Issue Price”), resulting in total net proceeds to us, after deducting offering expenses and the 2% transaction fee due to the purchasers and including our general partner’s proportionate capital contribution, of approximately $1.6 billion. Certain of the purchasers or their affiliates are related parties. See Note 14 for additional information.

The preferred units are a new class of equity security that ranks senior to all classes or series of our equity securities with respect to distribution rights and rights upon liquidation. The holders of the preferred units will receive quarterly distributions, subject to customary anti-dilution adjustments, equal to an annual rate of 8% of the Issue Price ($2.10 per unit annualized). Our general partner will be entitled to participate in distributions on the preferred units equal to its 2% interest. For a period of 30 days following (a) the fifth anniversary of the issue date of the preferred units and (b) each subsequent anniversary of the issue date, the holders of preferred units, acting by majority vote, may make a one-time election to reset the preferred unit distribution rate (the “Distribution Rate Reset”). If the holders of the preferred units have exercised the Distribution Rate Reset, then, at any time following 30 days after the sixth anniversary of the issue date of the preferred units, we may redeem all or any portion of the outstanding preferred units in exchange for cash, common units (valued at 95% of the volume-weighted average price of the common units for a trading day period specified in our partnership agreement) or a combination of cash and common units at a redemption price equal to 110% of the Issue Price, plus any accrued and unpaid distributions.

The purchasers may convert their preferred units, generally on a one-for-one basis and subject to customary anti-dilution adjustments, at any time after the second anniversary of the issuance date (or prior to a liquidation), in whole or in part, subject to certain minimum conversion amounts. We may convert the preferred units at any time (but not more often than once per quarter) after the third anniversary of the issuance date, in whole or in part, subject to certain minimum conversion amounts, if the closing price of our common units is greater than 150% of the Issue Price for the preceding 20 trading days. The preferred units will vote on an as-converted basis with our common units and will have certain other class voting rights with respect to any amendment to our partnership agreement that would adversely affect any rights, preferences or privileges of the preferred units. In addition, upon certain events involving a change of control, the holders of the preferred units may elect, among other potential elections, to convert the preferred units to common units at the then applicable conversion rate.

Noncontrolling Interests in Subsidiaries

As of December 31, 2015, noncontrolling interests in our subsidiaries consisted of a 25% interest in SLC Pipeline LLC.

PNG Merger

Prior to the PNG Merger, which was completed on December 31, 2013, we owned 100% of the outstanding subordinated units of PNG and approximately 46% of the 61.2 million outstanding common units of PNG. Under the terms of the PNG Merger Agreement, we issued 0.445 PAA common units for each outstanding PNG common unit (the “Merger Exchange Ratio”) held by unitholders other than us, plus cash in lieu of any fractional PAA common units otherwise issuable in the PNG Merger. Also in conjunction with the PNG Merger, our general partner agreed to reduce the amount of its incentive distributions. See “Distributions” above.

As a result of the PNG Merger, we purchased the noncontrolling interests in PNG for consideration of approximately 14.7 million PAA common units valued at $760 million. Such purchase resulted in an equity-classified loss of $290 million, which we recorded as a decrease to our partners’ capital. In addition, in conjunction with the PNG Merger, our general partner made a proportional contribution of $16 million associated with our issuance of PAA common units and we incurred transaction costs of $4 million resulting in a net increase in partners’ capital associated with the PNG Merger of $12 million.

Issuance of PNG Common Units

PNG issued approximately 1.9 million common units during the year ended December 31, 2013. As a result of PNG’s common unit issuances, we recorded an increase in noncontrolling interest of $32 million and an increase to our partners’ capital of $8 million in 2013. These increases represent the portion of the proceeds attributable to the respective ownership interests in PNG, adjusted for the impact of the dilution of our ownership interest.

The following table as required by GAAP sets forth the impact on net income attributable to PAA giving effect to the changes in our ownership interest in PNG during 2013 discussed above, which was recognized in partners’ capital (in millions):

	Year Ended
	December 31, 2013
Net income attributable to PAA	$	1,361

Transfers to/from noncontrolling interests:
Increase in capital from sale of PNG common units	8
Decrease in capital from purchase of PNG common units in conjunction with the PNG Merger	(290		)

Net transfers to/from noncontrolling interests	(282		)

Change from net income attributable to PAA and transfers to/from noncontrolling interests	$	1,079