Partners’ Capital and Distributions

Units Outstanding

At December 31, 2016, partners’ capital consisted of outstanding common units and Series A preferred units, which represent limited partner interests in us, which give the holders thereof the right to participate in distributions and to exercise the other rights or privileges as outlined in our partnership agreement. Our general partner has a non-economic interest in us. However, prior to the closing of the Simplification Transactions, our outstanding common units and Series A preferred units represented a 98% effective aggregate ownership interest in us and our subsidiaries after giving effect to the 2% general partner interest. See Note 1 for discussion of the Simplification Transactions.

The following table presents the activity for our Series A preferred units and common units:



	Limited Partners
	Preferred Units	Common Units
Outstanding at December 31, 2013	—	359,133,200

Sale of common units	—	15,375,810
Issuance of common units under LTIP	—	598,783
Outstanding at December 31, 2014	—	375,107,793

Sale of common units	—	22,133,904
Issuance of common units under LTIP	—	485,927
Outstanding at December 31, 2015	—	397,727,624

Sale of Series A preferred units	61,030,127	—
Issuance of Series A preferred units in connection with in-kind distributions	3,358,726	—
Sale of common units	—	26,278,288
Issuance of common units under LTIP	—	480,581
Issuance of common units in connection with Simplification Transactions	—	244,707,926
Outstanding at December 31, 2016	64,388,853	669,194,419

Distributions

In accordance with our partnership agreement, after making distributions to holders of outstanding Series A preferred units, we distribute 100% of our available cash within 45 days following the end of each quarter to unitholders of record. 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.

The following table details distributions paid during the year presented (in millions, except per unit data):



	Distributions Paid						Distributions per common unit
Year	Common Unitholders		General Partner ⁽¹⁾		Total		Distributions per common unit
2016	$	1,062	$	565	$	1,627	$	2.65
2015	$	1,081	$	590	$	1,671	$	2.76
2014	$	934	$	473	$	1,407	$	2.55


⁽¹⁾	During the years ended December 31, 2016, 2015 and 2014, our general partner’s incentive distributions were reduced by approximately $18 million, $22 million and $23 million, respectively, which were agreed to in connection with certain acquisitions.

On January 9, 2017, we declared a cash distribution of $0.55 per unit on our outstanding common units. The total distribution of $371 million was paid on February 14, 2017 to unitholders of record on January 31, 2017, for the period October 1, 2016 through December 31, 2016.

General Partner Distributions. Prior to the Simplification Transactions, our general partner was entitled to receive (i) distributions representing its 2% indirect general partner interest and (ii) as the holder of our IDRs, incentive distributions if the amount we distributed with respect to any quarter exceeded certain specified levels. Under the quarterly distribution provisions contained in our partnership agreements effective prior to the Simplification Transactions, our general partner was entitled directly and indirectly, without duplication and except for the agreed upon adjustments discussed below, to 2% of amounts we distributed up to $0.2250 per unit, referred to as our minimum quarterly distribution, 15% of amounts we distributed in excess of $0.2250 per unit, 25% of the amounts we distributed in excess of $0.2475 per unit and 50% of amounts we distributed in excess of $0.3375 per unit.

In-kind distributions. In 2016, we issued 3,358,726 additional Series A preferred units in lieu of cash distributions of $89 million. On February 14, 2017, we issued 1,287,773 additional Series A preferred units in lieu of a cash distribution of $34 million. Since this quarterly distribution was declared as payment-in-kind, the distribution payable was accrued to partners’ capital as of December 31, 2016 and thus had no net impact on the Series A preferred unitholders’ capital account.

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 (net proceeds in millions):



Year	Type of Offering	Units Issued	Net Proceeds ^{(1) (2)}
2016 Total	Continuous Offering Program	26,278,288	$	805	⁽³⁾

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⁾


⁽¹⁾	Amounts are net of costs associated with the offerings.


⁽²⁾	For periods prior to the closing of the Simplification Transactions, amounts include our general partner’s proportionate capital contributions of $9 million, $22 million and $18 million during 2016, 2015 and 2014, respectively.


⁽³⁾	We pay commissions to our sales agents in connection with common unit issuances under our Continuous Offering Program. We paid $8 million, $1 million and $9 million of such commissions during 2016, 2015 and 2014, respectively.

Preferred Unit Issuance. On January 28, 2016 (the “Issuance Date”), we completed the private placement of approximately 61.0 million Series A preferred units representing limited partner interests in us 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 15 for additional information.

The Series A 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 Series A preferred units receive cumulative quarterly distributions, subject to customary antidilution adjustments, equal to $0.525 per unit ($2.10 per unit annualized). With respect to any quarter ending on or prior to December 31, 2017 (the “Initial Distribution Period”), we may elect to pay distributions on the Series A preferred units in additional preferred units, in cash or a combination of both. With respect to any quarter ending after the Initial Distribution Period, we must pay distributions on the Series A preferred units in cash.

The purchasers may convert their Series A preferred units into common 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 Series A preferred units into common 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 Series A 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 Series A preferred units. In addition, upon certain events involving a change of control, the holders of the Series A preferred units may elect, among other potential elections, to convert the preferred units to common units at the then applicable conversion rate.

For a period of 30 days following (a) the fifth anniversary of the Issuance Date of the Series A preferred units and (b) each subsequent anniversary of the Issuance Date, the holders of the Series A preferred units, acting by majority vote, may make a one-time election to reset the distribution rate to equal the then applicable rate of the ten-year U.S. Treasury plus 5.85% (the “Preferred Distribution Rate Reset Option”). The Preferred Distribution Rate Reset Option is accounted for as an embedded derivative. See Note 12 for additional information. If the holders of the Series A preferred units have exercised the Preferred Distribution Rate Reset Option, then, at any time following 30 days after the sixth anniversary of the Issuance Date, we may redeem all or any portion of the outstanding Series A 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.

Income Allocation

We allocate net income for partners’ capital presentation purposes by applying the allocation methodology in our partnership agreement. Following the closing of the Simplification Transactions, net income is allocated 100% to our common unitholders, after giving effect to income allocations for cash distributions to our preferred unitholders. In accordance with our partnership agreement, our preferred unitholders are not allocated income for paid-in-kind distributions for partners’ capital presentation purposes.

For periods prior to the Simplification Transactions, our general partner and common unitholders were allocated income based on their respective partnership percentages, after giving effect to income allocations for (i) incentive distributions, if any, to our general partner for distributions declared and paid following the close of each quarter and (ii) cash distributions to our preferred unitholders. Our preferred unitholders were not allocated income for paid-in-kind distributions for partners’ capital presentation purposes.

For purposes of determining basic and diluted net income per common unit, income is allocated as prescribed in FASB guidance for calculating earnings per unit, including a deduction to income available to common unitholders for cash or paid-in-kind distributions to preferred untiholders. See Note 3 for additional information.

Noncontrolling Interests in Subsidiaries

As of December 31, 2016, noncontrolling interests in our subsidiaries consisted of a 25% interest in SLC Pipeline LLC.