filings.toolsItem 1. Financial Statements.
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Item 1. Financial Statements.
TARGA RESOURCES CORP.
CONSOLIDATED BALANCE SHEETS
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 158.5 | $ | 242.8 | ||||
| Trade receivables, net of allowances of $0.1 million and $0.1 million at December 31, 2021 and December 31, 2020 | 1,331.9 | 862.8 | ||||||
| Inventories | 153.4 | 181.5 | ||||||
| Assets from risk management activities | 43.1 | 85.5 | ||||||
| Other current assets | 82.9 | 87.7 | ||||||
| Total current assets | 1,769.8 | 1,460.3 | ||||||
| Property, plant and equipment, net | 11,667.7 | 12,173.6 | ||||||
| Intangible assets, net | 1,094.8 | 1,382.4 | ||||||
| Long-term assets from risk management activities | 7.7 | 49.3 | ||||||
| Investments in unconsolidated affiliates | 586.5 | 714.0 | ||||||
| Other long-term assets | 81.7 | 96.1 | ||||||
| Total assets | $ | 15,208.2 | $ | 15,875.7 | ||||
| LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,402.3 | $ | 833.8 | ||||
| Accrued liabilities | 272.2 | 186.4 | ||||||
| Distributions payable | 64.5 | 115.4 | ||||||
| Interest payable | 138.5 | 132.6 | ||||||
| Liabilities from risk management activities | 258.2 | 142.6 | ||||||
| Current debt obligations | 162.8 | 368.6 | ||||||
| Total current liabilities | 2,298.5 | 1,779.4 | ||||||
| Long-term debt | 6,434.4 | 7,387.1 | ||||||
| Long-term liabilities from risk management activities | 109.3 | 43.4 | ||||||
| Deferred income taxes, net | 136.0 | 152.1 | ||||||
| Other long-term liabilities | 301.6 | 309.1 | ||||||
| Contingencies (see Note 19) | ||||||||
| Series A Preferred 9.5% Stock, $1,000 per share liquidation preference (1,200,000 shares authorized, 919,300 shares issued and outstanding as of December 31, 2021 and 2020), net of discount (see Note 11) | 749.7 | 301.4 | ||||||
| Owners' equity: | ||||||||
| Targa Resources Corp. stockholders' equity: | ||||||||
| Common stock ($0.001 par value, 450,000,000 shares authorized as of December 31, 2021 and 300,000,000 shares authorized as of December 31, 2020) | 0.2 | 0.2 | ||||||
| Issued Outstanding | ||||||||
| December 31, 2021 236,105,293 228,221,122 | ||||||||
| December 31, 2020 234,792,888 228,061,853 | ||||||||
| Preferred stock ($0.001 par value, after designation of Series A Preferred Stock: 98,800,000 shares authorized, no shares issued and outstanding) | — | — | ||||||
| Additional paid-in capital | 4,268.9 | 4,839.9 | ||||||
| Retained earnings (deficit) | (1,822.3 | ) | (1,893.5 | ) | ||||
| Accumulated other comprehensive income (loss) | (230.9 | ) | (141.8 | ) | ||||
| Treasury stock, at cost (7,884,171 shares as of December 31, 2021 and 6,731,035 shares as of December 31, 2020) | (204.1 | ) | (150.9 | ) | ||||
| Total Targa Resources Corp. stockholders' equity | 2,011.8 | 2,653.9 | ||||||
| Noncontrolling interests | 3,166.9 | 3,249.3 | ||||||
| Total owners' equity | 5,178.7 | 5,903.2 | ||||||
| Total liabilities, Series A Preferred Stock and owners' equity | $ | 15,208.2 | $ | 15,875.7 |
See notes to consolidated financial statements.
F-5
TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | |||||||||
| (In millions, except per share amounts) | |||||||||||
| Revenues: | |||||||||||
| Sales of commodities | $ | 15,602.5 | $ | 7,171.0 | $ | 7,393.8 | |||||
| Fees from midstream services | 1,347.3 | 1,089.3 | 1,277.3 | ||||||||
| Total revenues | 16,949.8 | 8,260.3 | 8,671.1 | ||||||||
| Costs and expenses: | |||||||||||
| Product purchases and fuel | 13,729.5 | 5,186.5 | 6,208.0 | ||||||||
| Operating expenses | 747.0 | 698.4 | 703.4 | ||||||||
| Depreciation and amortization expense | 870.6 | 865.1 | 971.6 | ||||||||
| General and administrative expense | 273.2 | 254.6 | 280.7 | ||||||||
| Impairment of long-lived assets | 452.3 | 2,442.8 | 225.3 | ||||||||
| Other operating (income) expense | 12.4 | 116.6 | 89.2 | ||||||||
| Income (loss) from operations | 864.8 | (1,303.7 | ) | 192.9 | |||||||
| Other income (expense): | |||||||||||
| Interest expense, net | (387.9 | ) | (391.3 | ) | (337.8 | ) | |||||
| Equity earnings (loss) | (23.9 | ) | 72.6 | 39.0 | |||||||
| Gain (loss) from financing activities | (16.6 | ) | 45.6 | (1.4 | ) | ||||||
| Gain (loss) from sale of equity-method investment | — | — | 69.3 | ||||||||
| Change in contingent considerations | (0.1 | ) | 0.3 | (8.7 | ) | ||||||
| Other, net | 0.6 | 3.4 | — | ||||||||
| Income (loss) before income taxes | 436.9 | (1,573.1 | ) | (46.7 | ) | ||||||
| Income tax (expense) benefit | (14.8 | ) | 248.1 | 87.9 | |||||||
| Net income (loss) | 422.1 | (1,325.0 | ) | 41.2 | |||||||
| Less: Net income (loss) attributable to noncontrolling interests | 350.9 | 228.9 | 250.4 | ||||||||
| Net income (loss) attributable to Targa Resources Corp. | 71.2 | (1,553.9 | ) | (209.2 | ) | ||||||
| Dividends on Series A Preferred Stock | 87.3 | 91.7 | 91.7 | ||||||||
| Deemed dividends on Series A Preferred Stock | — | 39.2 | 33.1 | ||||||||
| Net income (loss) attributable to common shareholders | $ | (16.1 | ) | $ | (1,684.8 | ) | $ | (334.0 | ) | ||
| Net income (loss) per common share - basic | $ | (0.07 | ) | $ | (7.26 | ) | $ | (1.44 | ) | ||
| Net income (loss) per common share - diluted | $ | (0.07 | ) | $ | (7.26 | ) | $ | (1.44 | ) | ||
| Weighted average shares outstanding - basic | 228.6 | 232.2 | 232.5 | ||||||||
| Weighted average shares outstanding - diluted | 228.6 | 232.2 | 232.5 |
See notes to consolidated financial statements.
F-6
TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||||||||
| Pre-Tax | Related Income Tax | After Tax | Pre-Tax | Related Income Tax | After Tax | Pre-Tax | Related Income Tax | After Tax | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 422.1 | $ | (1,325.0 | ) | $ | 41.2 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
| Commodity hedging contracts: | ||||||||||||||||||||||||||||||||||||
| Change in fair value | $ | (534.6 | ) | $ | 128.4 | (406.2 | ) | $ | (218.3 | ) | $ | 51.5 | (166.8 | ) | $ | 135.6 | $ | (32.3 | ) | 103.3 | ||||||||||||||||
| Settlements reclassified to revenues | 417.3 | (100.2 | ) | 317.1 | (90.8 | ) | 23.3 | (67.5 | ) | (138.0 | ) | 32.9 | (105.1 | ) | ||||||||||||||||||||||
| Other comprehensive income (loss) | (117.3 | ) | 28.2 | (89.1 | ) | (309.1 | ) | 74.8 | (234.3 | ) | (2.4 | ) | 0.6 | (1.8 | ) | |||||||||||||||||||||
| Comprehensive income (loss) | 333.0 | (1,559.3 | ) | 39.4 | ||||||||||||||||||||||||||||||||
| Less: Comprehensive income (loss) attributable to noncontrolling interests | 350.9 | 228.9 | 250.4 | |||||||||||||||||||||||||||||||||
| Comprehensive income (loss) attributable to Targa Resources Corp. | $ | (17.9 | ) | $ | (1,788.2 | ) | $ | (211.0 | ) |
See notes to consolidated financial statements.
F-7
TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK
| Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Earnings | Other | Treasury | Total | Series A | |||||||||||||||||||||||||||||||||||
| Common Stock | Paid in | (Accumulated | Comprehensive | Shares | Noncontrolling | Owner's | Preferred | |||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | Income (Loss) | Shares | Amount | Interests | Equity | Stock | |||||||||||||||||||||||||||||||
| (In millions, except shares in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 231,791 | $ | 0.2 | $ | 6,154.9 | $ | (130.4 | ) | $ | 94.3 | 666 | $ | (39.6 | ) | $ | 1,391.4 | $ | 7,470.8 | $ | 245.7 | ||||||||||||||||||||
| Compensation on equity grants | — | — | 60.3 | — | — | — | — | — | 60.3 | — | ||||||||||||||||||||||||||||||
| Distribution equivalent rights | — | — | (14.2 | ) | — | — | — | — | — | (14.2 | ) | — | ||||||||||||||||||||||||||||
| Shares issued under compensation program | 1,397 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Shares and units tendered for tax withholding obligations | (344 | ) | — | — | — | — | 344 | (13.9 | ) | — | (13.9 | ) | — | |||||||||||||||||||||||||||
| Series A Preferred Stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $95.00 per share | — | — | — | (91.7 | ) | — | — | — | — | (91.7 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (91.7 | ) | 91.7 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Deemed dividends - accretion of beneficial conversion feature | — | — | (33.1 | ) | — | — | — | — | — | (33.1 | ) | 33.1 | ||||||||||||||||||||||||||||
| Common stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $3.64 per share | — | — | — | (846.8 | ) | — | — | — | — | (846.8 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (846.8 | ) | 846.8 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (294.7 | ) | (294.7 | ) | — | ||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | — | 555.3 | 555.3 | — | ||||||||||||||||||||||||||||||
| Sale of ownership interests in subsidiaries, net | — | — | (8.2 | ) | — | — | — | — | 1,619.7 | 1,611.5 | — | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (1.8 | ) | — | — | — | (1.8 | ) | — | ||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | (209.2 | ) | — | — | — | 250.4 | 41.2 | — | |||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 232,844 | 0.2 | 5,221.2 | (339.6 | ) | 92.5 | 1,010 | (53.5 | ) | 3,522.1 | 8,442.9 | 278.8 | ||||||||||||||||||||||||||||
| Compensation on equity grants | — | — | 66.2 | — | — | — | — | — | 66.2 | — | ||||||||||||||||||||||||||||||
| Distribution equivalent rights | — | — | (5.4 | ) | — | — | — | — | — | (5.4 | ) | — | ||||||||||||||||||||||||||||
| Shares issued under compensation program | 939 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Shares and units tendered for tax withholding obligations | (235 | ) | — | — | — | — | 235 | (5.9 | ) | — | (5.9 | ) | — | |||||||||||||||||||||||||||
| Repurchases of common stock | (5,486 | ) | — | — | — | — | 5,486 | (91.5 | ) | — | (91.5 | ) | — | |||||||||||||||||||||||||||
| Series A Preferred Stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $95.00 per share | — | — | — | (91.7 | ) | — | — | — | — | (91.7 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (91.7 | ) | 91.7 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Deemed dividends - accretion of beneficial conversion feature / partial repurchase of Series A Preferred Stock | — | — | (39.2 | ) | — | — | — | — | — | (39.2 | ) | 37.6 | ||||||||||||||||||||||||||||
| Common stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $1.21 per share | — | — | — | (282.0 | ) | — | — | — | — | (282.0 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (282.0 | ) | 282.0 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Partial repurchase of Series A Preferred Stock | — | — | (29.2 | ) | — | — | — | — | — | (29.2 | ) | (15.0 | ) | |||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (570.7 | ) | (570.7 | ) | — | ||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | — | 41.5 | 41.5 | — | ||||||||||||||||||||||||||||||
| Non-cash allocation to noncontrolling interests | — | — | — | — | — | — | — | 27.5 | 27.5 | — | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (234.3 | ) | — | — | — | (234.3 | ) | — | ||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | (1,553.9 | ) | — | — | — | 228.9 | (1,325.0 | ) | — | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 228,062 | $ | 0.2 | $ | 4,839.9 | $ | (1,893.5 | ) | $ | (141.8 | ) | 6,731 | $ | (150.9 | ) | $ | 3,249.3 | $ | 5,903.2 | $ | 301.4 |
See notes to consolidated financial statements.
F-8
TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK
| Retained | Accumulated | |||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional | Earnings | Other | Treasury | Total | Series A | |||||||||||||||||||||||||||||||||||
| Common Stock | Paid in | (Accumulated | Comprehensive | Shares | Noncontrolling | Owner's | Preferred | |||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | Income (Loss) | Shares | Amount | Interests | Equity | Stock | |||||||||||||||||||||||||||||||
| (In millions, except shares in thousands) | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 228,062 | $ | 0.2 | $ | 4,839.9 | $ | (1,893.5 | ) | $ | (141.8 | ) | 6,731 | $ | (150.9 | ) | $ | 3,249.3 | $ | 5,903.2 | $ | 301.4 | |||||||||||||||||||
| Impact of accounting standard adoption (see Note 3) | — | — | (448.3 | ) | — | — | — | — | — | (448.3 | ) | 448.3 | ||||||||||||||||||||||||||||
| Compensation on equity grants | — | — | 59.2 | — | — | — | — | — | 59.2 | — | ||||||||||||||||||||||||||||||
| Distribution equivalent rights | — | — | (3.1 | ) | — | — | — | — | — | (3.1 | ) | — | ||||||||||||||||||||||||||||
| Shares issued under compensation program | 1,312 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Shares and units tendered for tax withholding obligations | (397 | ) | — | — | — | — | 397 | (13.2 | ) | — | (13.2 | ) | — | |||||||||||||||||||||||||||
| Repurchases of common stock | (756 | ) | — | — | — | — | 756 | (40.0 | ) | — | (40.0 | ) | — | |||||||||||||||||||||||||||
| Series A Preferred Stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $95.00 per share | — | — | — | (87.3 | ) | — | — | — | — | (87.3 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (87.3 | ) | 87.3 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Common stock dividends | ||||||||||||||||||||||||||||||||||||||||
| Dividends - $0.40 per share | — | — | — | (91.5 | ) | — | — | — | — | (91.5 | ) | — | ||||||||||||||||||||||||||||
| Dividends in excess of retained earnings | — | — | (91.5 | ) | 91.5 | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | — | — | — | — | — | — | — | (449.1 | ) | (449.1 | ) | — | ||||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | — | — | — | — | 15.8 | 15.8 | — | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (89.1 | ) | — | — | — | (89.1 | ) | — | ||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | 71.2 | — | — | — | 350.9 | 422.1 | — | ||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 228,221 | $ | 0.2 | $ | 4,268.9 | $ | (1,822.3 | ) | $ | (230.9 | ) | 7,884 | $ | (204.1 | ) | $ | 3,166.9 | $ | 5,178.7 | $ | 749.7 |
See notes to consolidated financial statements.
F-9
TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| (In millions) | ||||||||||||
| Cash flows from operating activities | ||||||||||||
| Net income (loss) | $ | 422.1 | $ | (1,325.0 | ) | $ | 41.2 | |||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Amortization in interest expense | 10.3 | 11.1 | 10.3 | |||||||||
| Compensation on equity grants | 59.2 | 66.2 | 60.3 | |||||||||
| Depreciation and amortization expense | 870.6 | 865.1 | 971.6 | |||||||||
| Impairment of long-lived assets | 452.3 | 2,442.8 | 225.3 | |||||||||
| (Gain) loss on sale or disposition of business and assets | 2.0 | 58.4 | 71.1 | |||||||||
| Write-downs of assets | 10.3 | 55.6 | 17.9 | |||||||||
| Accretion of asset retirement obligations | 4.0 | 3.6 | 4.7 | |||||||||
| Increase (decrease) in redemption value of mandatorily redeemable preferred interests | 13.6 | — | — | |||||||||
| Deferred income tax expense (benefit) | 12.1 | (232.7 | ) | (87.9 | ) | |||||||
| Equity (earnings) loss of unconsolidated affiliates | 23.9 | (72.6 | ) | (39.0 | ) | |||||||
| Distributions of earnings received from unconsolidated affiliates | 84.0 | 86.8 | 49.6 | |||||||||
| Risk management activities | 116.0 | (228.2 | ) | 112.8 | ||||||||
| (Gain) loss from financing activities | 16.6 | (45.6 | ) | 1.4 | ||||||||
| (Gain) loss from sale of equity-method investment | — | — | (69.3 | ) | ||||||||
| Change in contingent considerations | 0.1 | (0.3 | ) | 8.7 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Receivables and other assets | (392.4 | ) | (25.6 | ) | (24.7 | ) | ||||||
| Inventories | 40.6 | (27.7 | ) | (45.0 | ) | |||||||
| Accounts payable, accrued liabilities and other liabilities | 551.7 | 105.7 | 35.0 | |||||||||
| Interest payable | 5.9 | 6.9 | 45.8 | |||||||||
| Net cash provided by operating activities | 2,302.9 | 1,744.5 | 1,389.8 | |||||||||
| Cash flows from investing activities | ||||||||||||
| Outlays for property, plant and equipment | (505.1 | ) | (951.6 | ) | (2,877.8 | ) | ||||||
| Proceeds from sale of business and assets | 12.2 | 198.7 | 14.8 | |||||||||
| Investments in unconsolidated affiliates | (0.6 | ) | (2.7 | ) | (266.8 | ) | ||||||
| Proceeds from sale of equity-method investment | — | — | 70.3 | |||||||||
| Return of capital from unconsolidated affiliates | 20.2 | 13.2 | 3.5 | |||||||||
| Other, net | 0.1 | 4.3 | (15.9 | ) | ||||||||
| Net cash used in investing activities | (473.2 | ) | (738.1 | ) | (3,071.9 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Debt obligations: | ||||||||||||
| Proceeds from borrowings under credit facilities | 620.0 | 2,195.0 | 3,100.0 | |||||||||
| Repayments of credit facilities | (1,455.0 | ) | (1,795.0 | ) | (3,800.0 | ) | ||||||
| Proceeds from borrowings under accounts receivable securitization facility | 630.0 | 576.4 | 944.2 | |||||||||
| Repayments of accounts receivable securitization facility | (830.0 | ) | (596.4 | ) | (854.2 | ) | ||||||
| Proceeds from issuance of senior notes | 1,000.0 | 1,000.0 | 2,500.0 | |||||||||
| Redemption of senior notes | (1,132.0 | ) | (1,390.6 | ) | (749.4 | ) | ||||||
| Principal payments of finance leases | (12.5 | ) | (12.4 | ) | (11.5 | ) | ||||||
| Costs incurred in connection with financing arrangements | (9.6 | ) | (9.9 | ) | (35.5 | ) | ||||||
| Payment of contingent consideration | — | — | (317.1 | ) | ||||||||
| Repurchase of shares and units | (53.2 | ) | (97.4 | ) | (13.9 | ) | ||||||
| Sale of ownership interests in subsidiaries | — | — | 1,619.7 | |||||||||
| Contributions from noncontrolling interests | 15.8 | 41.5 | 555.3 | |||||||||
| Redemption of Preferred Units | — | (125.0 | ) | — | ||||||||
| Distributions to noncontrolling interests | (500.0 | ) | (439.2 | ) | (191.7 | ) | ||||||
| Partial repurchase of Series A Preferred Stock | — | (45.8 | ) | — | ||||||||
| Distributions to Partnership unitholders | — | (11.7 | ) | (11.3 | ) | |||||||
| Dividends paid to common and Series A Preferred shareholders | (187.5 | ) | (384.2 | ) | (953.5 | ) | ||||||
| Net cash provided by (used in) financing activities | (1,914.0 | ) | (1,094.7 | ) | 1,781.1 | |||||||
| Net change in cash and cash equivalents | (84.3 | ) | (88.3 | ) | 99.0 | |||||||
| Cash and cash equivalents, beginning of period | 242.8 | 331.1 | 232.1 | |||||||||
| Cash and cash equivalents, end of period | $ | 158.5 | $ | 242.8 | $ | 331.1 |
See notes to consolidated financial statements.
F-10
TARGA RESOURCES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in millions of dollars.
Note 1 — Organization and Operations
Our Organization
Targa Resources Corp. (“TRC”) owns, operates, acquires, and develops a diversified portfolio of complementary domestic midstream infrastructure assets.
In this Annual Report, unless the context requires otherwise, references to “we,” “us,” “our,” “the Company” or “Targa” are intended to mean our consolidated business and operations. TRC controls the general partner of and owns all of the outstanding common units representing limited partner interests in Targa Resources Partners LP, referred to herein as the “Partnership” or “TRP.” Targa consolidates TRP and its subsidiaries under accounting principles generally accepted in the United States of America (“GAAP”). Targa’s consolidated financial statements include differences from the consolidated financial statements of TRP; however, such differences are immaterial. Such immaterial differences include:
| • | the inclusion of the TRC revolving credit facility; |
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| • | the inclusion of Series A Preferred Stock (“Series A Preferred”); and |
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| • | the impacts of TRC’s treatment as a corporation for U.S. federal income tax purposes. |
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Our Operations
The Company is primarily engaged in the business of:
| • | gathering, compressing, treating, processing, transporting, and purchasing and selling natural gas; |
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| • | transporting, storing, fractionating, treating, and purchasing and selling NGLs and NGL products, including services to LPG exporters; and |
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| • | gathering, storing, terminaling, and purchasing and selling crude oil. |
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See Note 25 – Segment Information for certain financial information regarding our business segments.
Note 2 — Basis of Presentation
These accompanying financial statements and related notes present our consolidated financial position as of December 31, 2021 and 2020, and the results of operations, comprehensive income (loss), cash flows, and changes in owners’ equity for the years ended December 31, 2021, 2020 and 2019. We have prepared these consolidated financial statements in accordance with GAAP. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior periods have been reclassified to conform to the current year presentation. Beginning in 2021, we reclassified certain fuel and power costs previously included in Operating expenses to Product purchases and fuel within our Consolidated Statements of Operations to better reflect the direct relationship of these costs to our revenue-generating activities and align with our evaluation of the performance of the business. For the years ended December 31, 2021, 2020 and 2019, we reclassified $64.9 million, $81.4 million and $89.5 million in fuel and power costs, respectively.
Note 3 — Significant Accounting Policies
Consolidation Policy
Our consolidated financial statements include the accounts of all entities that we control and our proportionate interest in the accounts of certain gas gathering and processing facilities in which we own an undivided interest and are responsible for our proportionate share of the costs and expenses of the facilities. Third party ownership interests in our controlled subsidiaries are presented as noncontrolling interests within the equity section of our Consolidated Balance Sheets. In our Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income (Loss), noncontrolling interests reflect the attribution of results to third-party investors. All intercompany balances and transactions have been eliminated in consolidation.
F-11
We apply the equity method of accounting to investments over which we exercise significant influence over the operating and financial policies of our investee, but do not exercise control. We evaluate our equity investments for impairment when evidence indicates the carrying amount of our investment is no longer recoverable. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the equity method investee to sustain an earnings capacity that would justify the carrying amount of the investment. When the estimated fair value of an equity investment is less than its carrying value and the loss in value is determined to be other than temporary, we recognize the excess of the carrying value over the estimated fair value as a non-cash pre-tax impairment loss within Equity earnings (loss) in our Consolidated Statements of Operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Estimates and judgments are based on information available at the time such estimates and judgments are made. Changes in facts and circumstances may result in revised estimates and actual results could differ materially from those estimates. Estimates and judgments are used in, among other things, (1) estimating unbilled revenues, product purchases and operating and general and administrative cost accruals, (2) developing fair value assumptions, including estimates of future cash flows and discount rates, (3) analyzing long-lived assets for possible impairment, (4) estimating the useful lives of assets, (5) estimating contingencies, guarantees and indemnifications and (6) estimating redemption value of mandatorily redeemable preferred interests.
Cash and Cash Equivalents
Cash and cash equivalents include all cash on hand, demand deposits, and short-term, highly liquid investments that are readily convertible into cash, and have original maturities of three months or less.
Allowance for Doubtful Accounts
Estimated losses on accounts receivable are provided through an allowance for doubtful accounts. We estimate the allowance for doubtful accounts through various procedures, including extensive review of our trade receivable balances by counterparty, assessing economic events and conditions, our historical experience with counterparties, the counterparty’s financial condition and the amount and age of past due accounts.
We continuously evaluate our ability to collect amounts owed to us. Receivables are considered past due if full payment is not received by the contractual due date. Our evaluation procedures also include performing account reconciliations, dispute resolution and payment confirmation.
As the financial condition of any counterparty changes, circumstances develop or additional information becomes available, adjustments to our allowance may be required.
Inventories
Our inventories consist primarily of NGL product inventories, which are valued at the lower of cost or net realizable value, using the average cost method. Most NGL product inventories turn over monthly, but some inventory, primarily propane, is acquired and held during the year to meet anticipated heating season requirements of our customers. Commodity inventories that are not physically or contractually available for sale under normal operations (“deadstock”) are included in Property, plant and equipment.
Product Exchanges
Exchanges of NGL products are executed to satisfy timing and logistical needs of the exchange parties. Volumes received and delivered under exchange agreements are recorded as inventory. If the locations of receipt and delivery are in different markets, an exchange differential may be billed or owed. The exchange differential is recorded as either accounts receivable or accrued liabilities.
Gas Processing Imbalances
Quantities of natural gas and/or NGLs over-delivered or under-delivered, related to certain gas plant operational balancing agreements, are recorded monthly as inventory or as a payable using the weighted average price at the time the imbalance was created. Inventory imbalances receivable are valued at the lower of cost or net realizable value using the average cost method; inventory imbalances payable are valued at replacement cost. These imbalances are settled either by current cash-out settlements or by adjusting future receipts or deliveries of natural gas or NGLs.
F-12
Derivative Instruments
We utilize derivative instruments to manage the volatility of our cash flows due to fluctuating energy commodity prices. For balance sheet classification purposes, we analyze the fair values of the derivative instruments on a contract by contract basis and report the related fair values and any related collateral by counterparty on a gross basis. Cash flows from derivative instruments designated as hedges are recognized in the same financial statement line item as the cash flows from the respective item being hedged.
We formally document all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking the hedge. This documentation includes the specific identification of the hedging instrument and the hedged item, the nature of the risk being hedged and the manner in which the hedging instrument’s effectiveness will be assessed. At the inception of the hedge and on an ongoing basis, we assess whether the derivatives used in hedging transactions are highly effective in achieving the offset of changes in cash flows attributable to the hedged risk.
We record all derivative instruments at fair value with the exception of those that we apply the normal purchases and normal sales election.
The table below summarizes the accounting treatment for our derivative instruments, and the impact on our consolidated financial statements:
| Recognition and Measurement | ||
| Derivative Treatment | Balance Sheet | Income Statement |
| Normal Purchases and Normal Sales | Fair value not recorded | Earnings recognized when volumes are physically delivered or received |
| Mark-to-Market | Recorded at fair value | Change in fair value recognized currently in earnings |
| Cash Flow Hedge | Recorded at fair value with changes in fair value deferred in Accumulated Other Comprehensive Income ("AOCI") | The gain/loss on the derivative instrument is reclassified out of AOCI into earnings when the forecasted transaction occurs |
We will discontinue hedge accounting on a prospective basis when a hedge instrument is terminated, ceases to be highly effective or the forecasted transaction is no longer probable to occur. Gains and losses deferred in AOCI related to cash flow hedges for which hedge accounting has been discontinued remain deferred until the forecasted transaction occurs. If it is probable that a hedged forecasted transaction will not occur, deferred gains or losses on the hedging instrument are reclassified to earnings immediately.
Property, Plant and Equipment
Property, plant and equipment is recorded at acquisition cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The determination of the useful lives of property, plant and equipment requires us to make various assumptions, including our expected use of the asset and the supply of and demand for hydrocarbons in the markets served, normal wear and tear of the facilities, and the extent and frequency of maintenance programs. Upon disposition or retirement of property, plant and equipment, any gain or loss is recorded to operations.
Expenditures for routine maintenance and repairs are expensed as incurred. Expenditures to refurbish an asset that increases its existing service potential or prevents environmental contamination are capitalized and depreciated over the remaining useful life of the asset or major asset component. Certain costs directly related to the construction of assets, including internal labor costs, interest and engineering costs, are capitalized.
Impairment of Long-Lived Assets
We evaluate long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate our carrying amount of an asset may not be recoverable, including changes to our estimates that could have an impact on our assessment of asset recoverability. Asset recoverability is measured by comparing the carrying value of the asset or asset group with its expected future pre-tax undiscounted cash flows. Individual assets are grouped at the lowest level for which the related identifiable cash flows are largely independent of the cash flows of other assets and liabilities. These cash flow estimates require us to make judgments and assumptions related to operating and cash flow results, economic obsolescence, the business climate, contractual, legal and other factors.
F-13
If the carrying amount exceeds the expected future undiscounted cash flows, we recognize a non-cash pre-tax impairment loss equal to the excess of net book value over fair value as determined by quoted market prices in active markets or present value techniques if quotes are unavailable. The estimated cash flows used to assess recoverability of our long-lived assets and measure fair value of our asset groups are derived from current business plans, which are developed using near-term price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include volume projections, operating costs, timing of incurring such costs, and the use of an appropriate terminal value and discount rate. Any changes we make to these projections and assumptions could result in significant revisions to our evaluation of recoverability of our long-lived assets and the recognition of additional impairments. We believe our estimates and models used to determine fair value are similar to what a market participant would use.
Goodwill
Goodwill is a residual intangible asset that results when the cost of an acquisition exceeds the fair value of the net identifiable assets of the acquired business. Goodwill is not subject to amortization but is tested for impairment at least annually. This test requires us to attribute goodwill to an appropriate reporting unit, which is an operating segment or one level below an operating segment (also known as a component). We evaluate goodwill for impairment on November 30 of each year, or whenever impairment indicators are present. Prior to us conducting the goodwill impairment test, we complete a review of the carrying values of our long-lived assets, including property, plant and equipment and other intangible assets. If it is determined that the carrying values are not recoverable, we reduce the carrying values of the long-lived assets pursuant to our policy on property, plant and equipment.
As part of our goodwill impairment test, we may first assess qualitative factors to determine if the quantitative goodwill impairment test is necessary. If we choose to bypass this qualitative assessment or determine that a goodwill impairment test is required, our annual goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount (including attributed goodwill). We recognize an impairment loss in our Consolidated Statements of Operations and a corresponding reduction of goodwill on our Consolidated Balance Sheets for the amount by which the carrying amount exceeds the reporting unit’s fair value. The goodwill impairment loss will not exceed the total amount of goodwill allocated to that reporting unit. Additionally, when measuring goodwill, we consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit, if applicable.
Intangible Assets
Our intangible assets include producer dedications under long-term contracts and customer relationships associated with business and asset acquisitions. The fair value of these acquired intangible assets was determined at the date of acquisition based on the present value of estimated future cash flows. We amortize the costs of our assets in a manner that closely resembles the expected benefit pattern of the intangible assets or on a straight-line basis, where such pattern is not readily determinable, over the periods in which we benefit from services provided to customers.
Asset Retirement Obligations
Asset retirement obligations (“AROs”) are legal obligations associated with the retirement of tangible long-lived assets that result from their acquisition, construction, development and/or normal operation. We record a liability and increase the basis in the underlying asset for the present value of each expected ARO when there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal construction.
Our obligations are estimated based on discounted cash flow (“DCF”) estimates. Over time, the ARO liability is accreted to its present value as a period cost and the capitalized amount is depreciated over the asset’s respective useful life. At least annually, we review the projected timing and amount of AROs and reflect revisions as an increase or decrease in the carrying amount of the liability and the basis in the underlying asset. Upon settlement, we will recognize any difference between the recorded amount and the actual settlement cost as a gain or loss.
Debt Issuance Costs
Costs incurred in connection with the issuance of long-term debt and any original issue discount or premium are deferred and charged to interest expense over the term of the related debt. Debt issuance costs related to revolving credit facilities are presented as other long-term assets, and debt issuance costs related to long-term debt obligations with scheduled maturities are reflected as a deduction to the carrying amount of long-term debt on the Consolidated Balance Sheets. Gains or losses on debt repurchases, redemptions and debt extinguishments include any associated unamortized debt issuance costs.
F-14
Accounts Receivable Securitization Facility
Proceeds from the sale or contribution of certain receivables under the Partnership’s accounts receivable securitization facility (the “Securitization Facility”) are treated as collateralized borrowings in our financial statements. Proceeds and repayments under the Securitization Facility are reflected as cash flows from financing activities in our Consolidated Statements of Cash Flows.
Environmental Liabilities and Other Loss Contingencies
We accrue a liability for loss contingencies, including environmental remediation costs arising from claims, assessments, litigation, fines, penalties and other sources, when the loss is probable and reasonably estimable.
Income Taxes
We file many income tax returns with the United States Department of the Treasury, as well as numerous states. We are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax payable and related tax expense, together with assessing temporary differences resulting from differing treatment of certain items, such as depreciation, for tax and accounting purposes. These differences can result in deferred tax assets and liabilities, which are reported on a net basis by jurisdiction within our Consolidated Balance Sheets. We report these timing differences based on statutory tax rates applicable to the scheduled timing difference reversal periods.
We assess the likelihood that we will recover our deferred tax assets from future taxable income. We establish a valuation allowance if we believe that it is more likely than not (a likelihood of more than 50 percent) that some portion or all of the deferred tax assets will not be realized. Any change in the valuation allowance would impact our income tax provision and net income in the period in which such a determination is made. We consider all available evidence to determine whether, based on the weight of the evidence, we need a valuation allowance. Evidence used includes information about our current financial position and our results of operations for the current and preceding years, as well as all currently available information about future years, including our anticipated future performance, the reversal of deferred tax liabilities and tax planning strategies.
Dividends
Preferred and common dividends declared are recorded as a reduction of retained earnings to the extent that retained earnings was available at the close of the prior quarter, with any excess recorded as a reduction of additional paid-in capital.
Mandatorily Redeemable Preferred Interests
Mandatorily redeemable preferred interests are included in other long-term liabilities on our Consolidated Balance Sheets, and such interests with multiple or indeterminate redemption dates are reported at their estimated redemption value as of the reporting date. This point-in-time value does not represent the amount that ultimately would be redeemed in the future. Changes in the redemption value are included in interest expense, net in our Consolidated Statements of Operations.
Our consolidated financial statements include our interest in two joint ventures that, separately, own a 100% interest in the WestOK natural gas gathering and processing system and a 72.8% undivided interest in the WestTX natural gas gathering and processing system. Our partner in the joint ventures holds preferred interests in each joint venture that are redeemable: (i) at our or our partner’s election, on or after July 27, 2022; and (ii) mandatorily, in July 2037.
The joint ventures, collectively, hold $1.9 billion face value in notes receivable from our partner, which are due July 2042. The interest rate payable under the notes receivable is a variable LIBOR-based rate. For the years ended December 31, 2021, 2020 and 2019, interest earned on the notes receivable of $12.3 million, $8.6 million, and $8.1 million, exclusive of the return payable to our partner, is reflected within Interest expense, net in our Consolidated Statements of Operations. We have accounted for the notes receivable at fair value. Upon redemption: (i) the distributable value of our partner’s interest in each joint venture is required to be adjusted by mutual agreement or under a valuation procedure outlined in each joint venture agreement based, among other things, on changes in the market value of the joint venture’s assets allocable to our partner (including the value of the notes receivable); and (ii) the parties are obligated to set off the value of the notes receivable from our partner against the value of our partner’s interest in the applicable joint venture. For reporting purposes under GAAP, an estimate of our partner’s interest in each joint venture is required to be recorded as if the redemption had occurred on the reporting date. Because redemption will not be required until at least 2022, the actual value of our partner’s allocable share of each joint venture’s assets at the time of redemption may differ from our estimate of redemption value.
F-15
Comprehensive Income
Comprehensive income includes net income and other comprehensive income (“OCI”), which includes changes in the fair value of derivative instruments that are designated as cash flow hedges.
Revenue Recognition
Our operating revenues are primarily derived from the following activities:
| • | sales of natural gas, NGLs, condensate and crude oil; |
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| • | services related to compressing, gathering, treating, and processing of natural gas; and |
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| • | services related to NGL fractionation, terminaling and storage, transportation and treating. |
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We have multiple types of contracts with commercial counterparties and many of these contracts contain embedded fees with settlement provisions that deduct these fees from the sales price paid by Targa in exchange for commodities. The commercial relationship of the counterparty in such contracts is inherently one of a supplier, rather than a customer, and therefore, such contracts are excluded from the provisions of the revenue recognition guidance in Topic 606, Revenue from Contracts with Customers. Any cash inflows or fees that are realized on these supply type contracts are reported as a reduction of Product purchases and fuel.
Our revenues, therefore, are measured based on consideration specified in a contract with parties designated as customers. We recognize revenue when we satisfy a performance obligation by transferring control over a commodity or service to a customer. Sales and other taxes we collect, that are both imposed on and concurrent with revenue-producing activities, are excluded from revenues.
We generally report sales revenues on a gross basis in our Consolidated Statements of Operations, as we typically act as the principal in the transactions where we receive and control commodities. However, buy-sell transactions that involve purchases and sales of inventory with the same counterparty, which are legally contingent or in contemplation of one another, as well as other instances where we do not control the commodities, but rather are acting as an agent to the supplier, are reported as a single revenue transaction on a combined net basis.
Our commodity sales contracts typically contain multiple performance obligations, whereby each distinct unit of commodity to be transferred to the customer is a separate performance obligation. Under such contracts, revenue is recognized at the point in time each unit is transferred to the customer because the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the commodity at that time. In certain instances, it may be determinable that the customer receives and consumes the benefits of each unit as it is transferred. Under such contracts, we have a single performance obligation comprised of a series of distinct units of commodity; and in such instance, revenue is recognized over time using the units delivered output method, as each distinct unit is transferred to the customer. Our commodity sales contracts are typically priced at a market index, but may also be set at a fixed price. When our sales are priced at a market index, we apply the allocation exception for variable consideration and allocate the market price to each distinct unit when it is transferred to the customer. The fixed price in our commodity sales contracts generally represents the standalone selling price, and therefore, when each distinct unit is transferred to the customer, we recognize revenue at the fixed price.
Our service contracts typically contain a single performance obligation. The underlying activities performed by us are considered inputs to an integrated service and not separable because such activities in combination are required to successfully transfer the single overall service that the customer has contracted for and expects to receive. Therefore, the underlying activities in such contracts are not considered to be distinct services. However, in certain instances, the customer may contract for additional distinct services and therefore additional performance obligations may exist. In such instances, the transaction price is allocated to the multiple performance obligations based on their relative standalone selling prices. The performance obligation(s) in our service contracts is a series of distinct days of the applicable service over the life of the contract (fundamentally a stand-ready service), whereby we recognize revenue over time using an output method of progress based on the passage of time (i.e., each day of service). This output method is appropriate because it directly relates to the value of service transferred to the customer to date, relative to the remaining days of service promised under the contract.
F-16
The transaction price for our service contracts is typically comprised of variable consideration, which is primarily dependent on the volume and composition of the commodities delivered and serviced. The variable consideration is generally commensurate with our efforts to perform the service and the terms of the variable payments relate specifically to our efforts to satisfy each day of distinct service. Therefore, the variable consideration is typically not estimated at contract inception, but rather the allocation exception for variable consideration is applied, whereby the variable consideration is allocated to each day of service and recognized as revenue when each day of service is provided. When we are entitled to noncash consideration in the form of commodities, the variability related to the form of consideration (market price) and reasons other than form (volume and composition) are interrelated to the service, and therefore, we measure the noncash consideration at the point in time when the volume, mix and market price related to the commodities retained in-kind are known. This results in the recognition of revenue based on the market price of the commodity when the service is performed. In addition, if the transaction price includes a fixed component (i.e., a fixed capacity reservation fee), the fixed component is recognized ratably on a straight line basis over the contract term, as each day of service has elapsed, which is consistent with the output method of progress selected for the performance obligation.
Our customers are typically billed on a monthly basis, or earlier, if final delivery and sale of commodities is made prior to month-end, and payment is typically due within 10 to 30 days. As a practical matter, we define the unit of account for revenue recognition purposes based on the passage of time ranging from one month to one quarter, rather than each day. This is because the financial reporting outcome is the same regardless of whether each day or month/quarter is treated as the distinct service in the series. That is, at the end of each month or quarter, the variability associated with the amount of consideration for which we are entitled to, is resolved, and can be included in that month or quarter’s revenue.
We have certain long-term contractual arrangements under which we have received consideration, but for which all conditions for revenue recognition have not been met. These arrangements result in deferred revenue, which will be recognized over the periods that performance will be provided.
Contract Assets
We classify our contract assets as receivables because we generally have an unconditional right to payment for the commodities sold or services performed at the end of reporting period.
Share-Based Compensation
We award share-based compensation to employees, directors and non-management directors in the form of restricted stock, restricted stock units and performance share units. Compensation expense on our equity-classified awards is recorded at grant-date fair value. Compensation expense is recognized in general and administrative expense over the requisite service period of each award, and forfeitures are recognized as they occur. We may purchase a portion of the shares issued to satisfy employees’ tax withholding obligations on vested awards. These shares are recorded in treasury stock, at cost, and cash paid is classified as a financing activity in our Consolidated Statements of Cash Flows. All excess tax benefits and tax deficiencies related to share-based compensation are recognized as income tax benefit or expense in our Consolidated Statements of Operations, with the tax effects of exercised or vested awards treated as discrete items in the reporting period which they occur. Excess tax benefits are classified as an operating activity.
Earnings per Share
Basic earnings (loss) per common share (“EPS”) is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock, restricted stock units and performance share units. Diluted EPS includes any dilutive effect of preferred stock, unvested restricted stock, restricted stock units and performance share units. The dilutive effect is calculated through the application of i) the if-converted method for convertible preferred stock, and ii) the treasury stock method for unvested stock awards.
Leases
We recognize the following for all leases (with the exception of short-term leases) at the commencement date:
| • | A lease liability, which is a lessee’s obligation to make lease payments arising from a lease. |
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| • | A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. |
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F-17
We determine if an arrangement is or contains a lease at inception. Leases with an initial term of twelve months or less are considered short-term leases, which are excluded from the balance sheet. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of future lease payments over the lease term. The right-of-use asset also includes any lease prepayments and excludes lease incentives. As most of the Company’s leases do not provide an implicit interest rate, we use our incremental borrowing rate as the discount rate to compute the present value of our lease liability. The discount rate applied is determined based on information available on the date of adoption for all leases existing as of that date, and on the date of lease commencement for all subsequent leases.
Our lease arrangements may include variable lease payments based on an index or market rate, or may be based on performance. For variable lease payments based on an index or market rate, we estimate and apply a rate based on information available at the commencement date. Variable lease payments based on performance are excluded from the calculation of the right-of-use asset and lease liability, and are recognized in our Consolidated Statements of Operations when the contingency underlying such variable lease payments is resolved. Our lease terms may include options to extend or terminate the lease. Such options are included in the measurement of our right-of-use asset and liability, provided we determine that we are reasonably certain to exercise the option.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
Convertible Debt and Equity Instruments
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in this update simplify the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and embedded conversion features that can be recognized separately from the primary contract. These amendments also enhance transparency and improve disclosures for convertible instruments and earnings per share guidance. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2021, with early adoption permitted. This update permits the use of either the modified retrospective or full retrospective method of adoption.
On a modified retrospective basis, we adopted the amendments early, effective January 1, 2021. The primary effect of adoption on the Company was attributable to the elimination of the beneficial conversion feature accounting model (“BCF”), which resulted in the presentation of the Series A Preferred as a single unit of account, without bifurcation of the BCF and corresponding discount. Therefore, upon adoption, the carrying value of the Series A Preferred was reflected at $749.7 million, which is the allocated amount based on the initial relative fair value allocation of net proceeds at issuance (prior to the allocation to the BCF) of $787.1 million, less the carrying value of the portion repurchased in December 2020 (refer to Note 11 – Preferred Stock). The adoption did not have an impact on retained earnings (deficit), but rather, the adoption impact flowed through additional paid-in capital where the BCF was previously included. In addition, the adoption also eliminates the corresponding discount attributable to the BCF and therefore, accretion of the discount as a deemed dividend is no longer required. The other aspects of this guidance did not have a material effect on our consolidated financial statements.
Note 4 – Joint Ventures and Divestitures
Joint Ventures
Little Missouri 4 Joint Venture
In January 2018, we formed a 50/50 joint venture in Little Missouri 4 LLC (“Little Missouri 4”) with Hess Midstream Partners LP to construct a new 200 MMcf/d natural gas processing plant (“LM4 plant”) at Targa’s existing Little Missouri facility. Little Missouri 4 began operations in the third quarter of 2019. Targa is the operator of the LM4 plant. See Note 7 – Investments in Unconsolidated Affiliates for activity related to Little Missouri 4.
F-18
DevCo Joint Ventures
In February 2018, we formed three development joint ventures (“DevCo JVs”) with investment vehicles affiliated with Stonepeak Infrastructure Partners (“Stonepeak”) to fund portions of Grand Prix Pipeline (“Grand Prix”), Gulf Coast Express Pipeline (“GCX”) and an approximately 110 MBbl/d fractionator in Mont Belvieu, Texas (“Train 6”). As of December 31, 2021, Stonepeak owned a 95% interest in the Grand Prix DevCo JV, which owned a 20% interest in the Grand Prix Pipeline LLC (the “Grand Prix Joint Venture”) (which does not include the extensions into Southern Oklahoma and Central Oklahoma). Additionally, Stonepeak owned an 80% interest in both Targa GCX Pipeline LLC (“GCX DevCo JV”), which owned our 25% interest in GCX, and Targa Train 6 LLC (“Train 6 DevCo JV”), which owned a 100% interest in the fractionation train. The Train 6 DevCo JV did not include certain fractionation-related infrastructure such as brine and storage, which were funded and owned 100% by us. As of December 31, 2021, we held the remaining interests in the DevCo JVs as well as controlled the management and operation of Grand Prix and Train 6 and consolidated each of the DevCo JVs in our financial statements. We accounted for the Grand Prix Joint Venture on a consolidated basis in our consolidated financial statements and for GCX as an equity method investment, as disclosed in Note 7 – Investments in Unconsolidated Affiliates.
For a four-year period beginning on the date that all three projects commenced commercial operations, we had the option to acquire all or part of Stonepeak’s interests in the DevCo JVs (the “DevCo JV Call Right”). The purchase price payable for such partial or full interests was based on a predetermined fixed return or multiple on invested capital, including distributions received by Stonepeak from the DevCo JVs. Targa would control the management of the DevCo JVs unless and until Targa declined to exercise its option to acquire Stonepeak's interests.
Subsequent Events
In January 2022, we exercised the DevCo JV Call Right and closed on the repurchase of our interests in the DevCo JVs from Stonepeak for approximately $925 million (the “DevCo JV Repurchase”). Following the DevCo JV Repurchase, we own a 75% interest in the Grand Prix Joint Venture, a 100% interest in Train 6 and owned a 25% equity interest in GCX, prior to the sale of our GCX equity interest in February 2022.
In February 2022, we announced that we executed agreements to sell GCX DevCo JV, which held our 25% equity interest in GCX, for approximately $857 million (the “GCX Sale”). We expect to receive the full proceeds from the sale in the second quarter of 2022 following a customary call right period in favor of the other members of GCX.
Carnero Joint Venture
In May 2018, we merged our 50% interests in the Carnero gathering and Carnero processing joint ventures with Evolve Transition Infrastructure LP’s respective 50% interests in the Carnero gathering and Carnero processing joint ventures, which own the high-pressure Carnero gathering line and Raptor natural gas processing plant, to form an expanded 50/50 joint venture in South Texas (the “Carnero Joint Venture”). We operate the gas gathering and processing facilities in the joint venture. The Carnero Joint Venture is a consolidated subsidiary and its financial results are presented on a gross basis in our reported financials.
Divestitures
Sale of Versado Gathering System
In December 2018, we exchanged a portion of our Versado gathering system, located primarily in Yoakum County, Texas, and Lea County, New Mexico, and associated contracts and assets, with a third party for consideration that includes 1) a gathering system located primarily in Lea County, New Mexico, and associated contracts and assets, 2) an initial cash payment and 3) deferred payments due semi-annually beginning on June 30, 2019, through December 31, 2022. We later agreed to accept a lump sum payment from the third party in October 2019 to satisfy the third party’s payment obligations. The acquired gathering system has been integrated into the Versado gathering system. Due to the significant monetary portion of the consideration received, the exchange of these assets was accounted for as a derecognition of nonfinancial assets, and a gain of $44.4 million was recognized in our Consolidated Statements of Operations for the year ended December 31, 2018 as part of Other operating (income) expense. The gain was calculated as the difference between the fair value of the consideration received, including the fair value of the acquired gathering system, less our book basis of the assets transferred.
F-19
Sale of Interest in Train 7
In February 2019, we announced an extension of Grand Prix from Southern Oklahoma to the STACK region of Central Oklahoma where it will connect with the Williams Companies, Inc. (“Williams”) Bluestem Pipeline and link the Conway, Kansas, and Mont Belvieu, Texas, NGL markets. In connection with this project, Williams has committed significant volumes to us that we will transport on Grand Prix and fractionate at our Mont Belvieu facilities. Williams also exercised its option to acquire a 20% equity interest in Train 7 and subsequently executed a joint venture agreement with us in the second quarter of 2019. Certain fractionation-related infrastructure for Train 7, including storage caverns and brine handling, were funded and are owned 100% by Targa. We present Train 7 on a consolidated basis in our consolidated financial statements.
Sale of Interest in Targa Badlands LLC
In April 2019, we closed on the sale of a 45% interest in Targa Badlands LLC (“Targa Badlands”), the entity that holds substantially all of the assets previously wholly owned by Targa in North Dakota, to funds managed by Blackstone Credit (“Blackstone”) for $1.6 billion in cash. We used the net cash proceeds to repay debt and for general corporate purposes, including funding our growth capital program. Future growth capital of Targa Badlands is expected to be funded on a pro rata ownership basis. Targa Badlands pays a minimum quarterly distribution (“MQD”) to Blackstone and Targa, with Blackstone having a priority right on such MQDs. Once Blackstone receives funds sufficient to meet a predetermined fixed return on their invested capital, their interest will convert to a 7.5% equity interest in Targa Badlands, and it will no longer have a priority right on MQDs. Additionally, upon a sale of Targa Badlands, Blackstone’s capital contributions would have a liquidation preference equal to a predetermined fixed return on their invested capital.
After the seventh anniversary of the closing date or upon the occurrence of certain triggering events, we have the option to acquire all of Blackstone’s interest in Targa Badlands for a purchase price payable to Blackstone based on their liquidation preference after taking into account all prior distributions to Blackstone, plus a set percentage on a multiple of the trailing twelve-month EBITDA of Targa Badlands. Targa will continue to control the management of Targa Badlands pending the occurrence of certain triggering events, including if Blackstone has not received funds sufficient to meet its liquidation preference and Targa has not exercised its purchase right to acquire Blackstone’s interest by April 3, 2029.
We continue to be the operator of Targa Badlands and hold majority governance rights. As a result, we continue to present Targa Badlands on a consolidated basis in our consolidated financial statements and Blackstone’s contributions are reflected as noncontrolling interests. The sale of interest in Targa Badlands is included in our Gathering and Processing segment. Targa Badlands is a discrete entity and the assets and credit of Targa Badlands are not available to satisfy the debts and other obligations of Targa or its other subsidiaries.
Sale of Delaware Crude System
In January 2020, we closed on the sale of our Delaware crude system for approximately $134 million, which was effective December 1, 2019. As a result of the sale, we recognized a loss of $59.5 million included within Other operating (income) expense in our Consolidated Statements of Operations for the year ended December 31, 2019. The Delaware crude system is included in our Gathering and Processing segment and does not qualify for reporting as a discontinued operation as its divestiture did not represent a strategic shift that would have a major effect on our operations and financial results.
Sale of Assets in Channelview, Texas
In October 2020, we closed on the sale of our assets in Channelview, Texas for approximately $58 million. As a result of the sale, we recognized a loss of $58.3 million included within Other operating (income) expense in our Consolidated Statements of Operations to reduce the carrying value of our assets to their recoverable amounts. The sale of the assets is included in our Logistics and Transportation segment and does not qualify for reporting as a discontinued operation, as its divestiture did not represent a strategic shift that would have a major effect on our operations or financial results.
F-20
Note 5 — Property, Plant and Equipment and Intangible Assets
Property, Plant and Equipment and Intangible Assets
| December 31, 2021 | December 31, 2020 | Estimated Useful Lives (In Years) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gathering systems | $ | 9,318.2 | $ | 9,216.1 | 5 to 20 | |||||
| Processing and fractionation facilities | 6,388.8 | 6,276.8 | 5 to 25 | |||||||
| Terminaling and storage facilities | 1,313.8 | 1,555.1 | 5 to 25 | |||||||
| Transportation assets | 2,671.0 | 2,567.7 | 10 to 50 | |||||||
| Other property, plant and equipment | 340.9 | 32.4 | 3 to 50 | |||||||
| Land | 160.8 | 160.8 | — | |||||||
| Construction in progress | 347.0 | 324.3 | — | |||||||
| Finance lease right-of-use assets | 55.6 | 51.8 | ||||||||
| Property, plant and equipment | 20,596.1 | 20,185.0 | ||||||||
| Accumulated depreciation, amortization and impairment | (8,928.4 | ) | (8,011.4 | ) | ||||||
| Property, plant and equipment, net | $ | 11,667.7 | $ | 12,173.6 | ||||||
| Intangible assets | 2,642.9 | 2,643.5 | 10 to 20 | |||||||
| Accumulated amortization and impairment | (1,548.1 | ) | (1,261.1 | ) | ||||||
| Intangible assets, net | $ | 1,094.8 | $ | 1,382.4 |
During the preparation of the Company's 2020 consolidated financial statements, the Company identified certain gathering pipelines that should not have had value ascribed to them as part of a prior acquisition as these assets were inactive. The Company does not believe this error is material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. The Company wrote these assets down in 2020 and recognized a non-cash loss of $32.4 million in Other operating (income) expense in our Consolidated Statements of Operations.
During the preparation of the Company's first quarter 2019 consolidated financial statements, the Company identified an error related to depreciation expense on certain assets that should have been placed in service during 2018. The Company does not believe this error is material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. The Company recorded the cumulative impact of a one-time $12.5 million overstatement of depreciation expense during the first quarter of 2019.
For each of the years ended December 31, 2021, 2020, and 2019 depreciation expense was $739.6 million, $721.1 million and $800.0 million, respectively.
Impairments of Long-Lived Assets
We review and evaluate our long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the related carrying amount of such assets may not be recoverable, including changes to our estimates that could have an impact on our assessment of asset recoverability.
2021
In the fourth quarter of 2021, we recorded a non-cash pre-tax impairment charge of $452.3 million for the partial impairment of certain gas processing facilities and gathering systems associated with our Central operations in our Gathering and Processing segment. The impairment was a result of our assessment that forecasted undiscounted future net cash flows from operations, while positive, will not be sufficient to recover the existing total net book value of the underlying assets. Underlying our assessment were lower expectations regarding volumes and rates associated with the renewal of future expiring contracts and negotiation of new contracts in the South Texas region.
F-21
2020
In the first quarter of 2020, we recorded a non-cash pre-tax impairment charge of $2,442.8 million primarily associated with the partial impairment of certain gas processing facilities and gathering systems associated with our Central operations and the full impairment of our Coastal operations in our Gathering and Processing segment. The impairment was a result of our assessment that forecasted undiscounted future net cash flows from operations, while positive, will not be sufficient to recover the existing total net book value of the underlying assets. Underlying our assessment was an observed global commodity price decline due to factors that significantly impacted both demand and supply. As the COVID-19 pandemic spread, causing travel and other restrictions to be implemented globally, the demand for commodities declined. Additionally, the supply shock late in the first quarter of 2020 from certain major oil producing nations increasing production also significantly contributed to the sharp drop in commodity prices. The drop in commodity prices resulted in prompt reactions from some domestic producers, including significantly reducing capital budgets and resultant drilling activity and shutting-in production. Our impairment assessment forecasted continued decline in natural gas production across the Mid-Continent and Gulf of Mexico regions.
2019
In the fourth quarter of 2019, we recorded a non-cash pre-tax impairment charge of $225.3 million for the partial impairment of certain gas processing facilities and gathering systems associated with our Central and Coastal operations in our Gathering and Processing segment. The impairment was a result of our assessment that forecasted undiscounted future net cash flows from operations, while positive, will not be sufficient to recover the existing total net book value of the underlying assets. Underlying our assessment was the expected continuing decline in natural gas production across the Barnett Shale in North Texas and Gulf of Mexico due to a sustained low commodity price environment.
For the 2021, 2020, and 2019 impairment assessments discussed above, we determined fair value through the use of discounted estimated cash flows to measure the impairment loss for each asset group for which undiscounted future net cash flows were not sufficient to recover the net book value.
The estimated cash flows used to assess recoverability of our long-lived assets and measure fair value of our asset groups are derived from current business plans, which are developed using near-term price and volume projections reflective of the current environment and management's projections for long-term average prices and volumes. In addition to near and long-term price assumptions, other key assumptions include volume projections, operating costs, timing of incurring such costs, and the use of an appropriate terminal value and discount rate. We believe our estimates and models used to determine fair value are similar to what a market participant would use.
The fair value measurement of our long-lived assets was based, in part, on significant inputs not observable in the market (as discussed above) and thus represents a Level 3 measurement. The significant unobservable inputs used include discount rates and determination of terminal values. We utilized a weighted average discount rate of 9.5%, 14.0% and 8.5% when deriving the fair value of the asset groups impaired during 2021, 2020 and 2019, respectively. The weighted average discount rate and terminal values reflect management’s best estimate of inputs a market participant would utilize. The carrying value adjustments are included in Impairment of long-lived assets in our Consolidated Statements of Operations.
We may identify additional triggering events in the future, which will require additional evaluations of the recoverability of the carrying value of our long-lived assets and may result in future impairments.
Intangible Assets
Intangible assets consist of customer contracts and customer relationships acquired in prior business combinations. The fair value of these acquired intangible assets were determined at the date of acquisition based on the present values of estimated future cash flows. Amortization expense attributable to these assets is recorded over the periods in which we benefit from services provided to customers.
As a result of the triggering events and analysis described above, in 2021 and 2020, we recognized non-cash pre-tax impairment losses of $156.6 million and $208.6 million, respectively, associated with certain intangible customer relationships for which undiscounted future net cash flows were not sufficient to recover the net book value.
For each of the years ended December 31, 2021, 2020, and 2019 amortization expense for our intangible assets was $131.0 million, $144.0 million and $171.6 million, respectively. The estimated annual amortization expense for intangible assets is approximately $112.0 million, $106.8 million, $103.0 million, $99.9 million and $97.6 million for each of the years 2022 through 2026. As of December 31, 2021, the weighted average amortization period for our intangible assets was approximately 11.3 years.
F-22
The changes in our intangible assets are as follows:
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance at beginning of period | $ | 1,382.4 | $ | 1,735.0 | ||||
| Impairment | (156.6 | ) | (208.6 | ) | ||||
| Amortization | (131.0 | ) | (144.0 | ) | ||||
| Balance at end of period | $ | 1,094.8 | $ | 1,382.4 |
Note 6 – Goodwill
We recognized goodwill of $46.6 million related to the March 1, 2017 acquisition of gas gathering and processing and crude oil gathering assets in the Permian Basin. At December 31, 2021, we had $45.2 million of goodwill included in Other long-term assets on the Consolidated Balance Sheets.
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Permian Midland | $ | 23.2 | $ | 23.2 | ||||
| Permian Delaware | 22.0 | 22.0 | ||||||
| Goodwill | $ | 45.2 | $ | 45.2 |
The future cash flows and resulting fair values of these reporting units are sensitive to changes in crude oil, natural gas and NGL prices. The direct and indirect effects of significant declines in commodity prices from the date of acquisition would likely cause the fair values of these reporting units to fall below their carrying values, and could result in an impairment of goodwill.
As described in Note 3 – Significant Accounting Policies, we evaluate goodwill for impairment at least annually on November 30, or more frequently if we believe necessary based on events or changes in circumstances. For our 2021 and 2020 annual evaluations, we performed a qualitative assessment, which indicated that it is not more likely than not that the fair values of the Permian Midland and Permian Delaware reporting units were less than their carrying amounts, and therefore, a quantitative goodwill impairment test was not necessary. Our qualitative assessment considered, among other things, the overall financial performance and future outlook of the Permian Midland and Permian Delaware reporting units, industry and market considerations, and other relevant entity specific events.
Our annual quantitative evaluation in 2019 utilized an income approach including a terminal value to estimate the fair values of our reporting units based on a DCF analysis. The future cash flows for our reporting units are based on our estimates, at that time, of future revenues, income from operations and other factors, such as working capital and timing of capital expenditures. We take into account current and expected industry and market conditions, including commodity pricing and volumetric forecasts in the basins in which the reporting units operate. The discount rates used in our DCF analysis are based on a weighted average cost of capital determined from relevant market comparisons. We did not record any goodwill impairment charges for the year ended December 31, 2019, as the fair values of the respective reporting units exceeded their carrying values. While no impairment was recorded, a portion of goodwill attributable to the former Permian Supersystem reporting unit was allocated to held for sale assets, which were subsequently sold in January 2020.
The fair value measurements utilized for the evaluation of goodwill for impairment are based on inputs that are not observable in the market and therefore represent Level 3 inputs, as defined in Note 16 – Fair Value Measurements. These inputs require significant judgments and estimates at the time of valuation.
F-23
Note 7 – Investments in Unconsolidated Affiliates
Our investments in unconsolidated affiliates consist of the following:
Gathering and Processing Segment
| • | two operated joint ventures in South Texas: a 75% interest in T2 LaSalle Gathering Company L.L.C. (“T2 LaSalle”) and a 50% interest in T2 Eagle Ford Gathering Company L.L.C. (“T2 Eagle Ford”), (together the “T2 Joint Ventures”); and |
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| • | a 50% operated ownership interest in Little Missouri 4. |
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Logistics and Transportation Segment
| • | a 25% non-operated ownership interest in GCX (prior to the GCX Sale); |
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| • | a 38.8% operated ownership interest in Gulf Coast Fractionators LP (“GCF”); and |
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| • | a 50% operated ownership interest in Cayenne Pipeline LLC (“Cayenne”). |
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The terms of these joint venture agreements do not afford us the degree of control required for consolidating them in our consolidated financial statements, but do afford us the significant influence required to employ the equity method of accounting.
See Note 4 – Joint Ventures and Divestitures for further discussion of GCX and Little Missouri 4.
The following table shows the activity related to our investments in unconsolidated affiliates:
| Balance at December 31, 2018 | Equity Earnings (Loss) | Cash Distributions | Disposition | Contributions | Balance at December 31, 2019 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| GCX (1) | $ | 211.6 | $ | 27.7 | $ | (25.3 | ) | $ | — | $ | 233.5 | $ | 447.5 | |||||||||||
| Little Missouri 4 | 67.3 | 3.4 | — | — | 33.0 | 103.7 | ||||||||||||||||||
| T2 Eagle Ford (2) | 99.0 | (9.4 | ) | — | — | — | 89.6 | |||||||||||||||||
| T2 LaSalle (2) | 49.3 | (4.5 | ) | — | — | — | 44.8 | |||||||||||||||||
| GCF | 40.3 | 16.1 | (19.2 | ) | — | — | 37.2 | |||||||||||||||||
| Cayenne | 16.6 | 7.2 | (8.2 | ) | — | 0.3 | 15.9 | |||||||||||||||||
| Agua Blanca | 6.4 | (1.5 | ) | (0.4 | ) | (4.5 | ) | — | — | |||||||||||||||
| Total | $ | 490.5 | $ | 39.0 | $ | (53.1 | ) | $ | (4.5 | ) | $ | 266.8 | $ | 738.7 | ||||||||||
| Balance at December 31, 2019 | Equity Earnings (Loss) | Cash Distributions | Disposition | Contributions | Balance at December 31, 2020 | |||||||||||||||||||
| GCX (1) | $ | 447.5 | $ | 66.3 | $ | (81.3 | ) | $ | — | $ | 2.7 | $ | 435.2 | |||||||||||
| Little Missouri 4 | 103.7 | 10.8 | (9.8 | ) | — | — | 104.7 | |||||||||||||||||
| T2 Eagle Ford | 89.6 | (8.9 | ) | (0.9 | ) | — | — | 79.8 | ||||||||||||||||
| T2 LaSalle | 44.8 | (4.8 | ) | (0.4 | ) | — | — | 39.6 | ||||||||||||||||
| GCF | 37.2 | 2.9 | (1.6 | ) | — | — | 38.5 | |||||||||||||||||
| Cayenne | 15.9 | 6.3 | (6.0 | ) | — | — | 16.2 | |||||||||||||||||
| Total | $ | 738.7 | $ | 72.6 | $ | (100.0 | ) | $ | — | $ | 2.7 | $ | 714.0 | |||||||||||
| Balance at December 31, 2020 | Equity Earnings (Loss) | Cash Distributions | Disposition | Contributions | Balance at December 31, 2021 | |||||||||||||||||||
| GCX (1) | $ | 435.2 | $ | 63.4 | $ | (78.1 | ) | $ | — | $ | 0.5 | $ | 421.0 | |||||||||||
| Little Missouri 4 | 104.7 | 10.9 | (17.5 | ) | — | — | 98.1 | |||||||||||||||||
| T2 Eagle Ford | 79.8 | (57.0 | ) | (1.0 | ) | — | 0.1 | 21.9 | ||||||||||||||||
| T2 LaSalle | 39.6 | (35.0 | ) | (0.4 | ) | — | — | 4.2 | ||||||||||||||||
| GCF (3) | 38.5 | (8.6 | ) | (1.1 | ) | — | — | 28.8 | ||||||||||||||||
| Cayenne | 16.2 | 2.4 | (6.1 | ) | — | — | 12.5 | |||||||||||||||||
| Total | $ | 714.0 | $ | (23.9 | ) | $ | (104.2 | ) | $ | — | $ | 0.6 | $ | 586.5 |
| (1) | Our 25% interest in GCX was owned by GCX DevCo JV, of which we owned a 20% interest as of December 31, 2021. GCX DevCo JV is accounted for on a consolidated basis in our consolidated financial statements. Following the DevCo JV Repurchase in January 2022, we owned a 25% equity interest in GCX. Subsequently, in February 2022, we announced the GCX Sale. See Note 4 – Joint Ventures and Divestitures for further discussion. |
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| (2) | Effective December 31, 2018, we (i) conveyed our 50% ownership interest in T2 EF Cogen to our joint venture partner and received a distribution of certain assets from the joint venture and (ii) were named as operator of the T2 Joint Ventures. On April 1, 2019, we assumed the operatorship of the T2 Joint Ventures. |
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| (3) | Targa assumed operatorship of GCF in the first half of 2021. |
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F-24
Our equity loss for the year ended December 31, 2021 includes the effect of impairments in the carrying values of our investments in T2 Eagle Ford and T2 LaSalle. As a result of the decrease in current and expected future utilization of the underlying assets, we have determined that factors indicate that a decrease in the value of our investments occurred that was other than temporary. As a result of this evaluation, we recorded non-cash pre-tax impairment losses of $47.3 million and $29.9 million on our investments in T2 Eagle Ford and T2 LaSalle, respectively, in the fourth quarter of 2021. The impairment losses represent our proportionate share of impairment charges recorded by the joint ventures, as well as our impairments of the unamortized excess fair values resulting from the purchase accounting related to the mergers with Atlas Energy L.P. and Atlas Pipeline Partners L.P. in 2015.
During 2019, we closed on the sale of an equity-method investment for $73.8 million, of which $3.5 million contingent consideration was received in January 2020. As a result of the sale, we recognized a gain of $69.3 million reported in Gain (loss) from sale of equity-method investment.
Note 8 — Debt Obligations
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Current: | ||||||||
| Obligations of the Partnership: (1) | ||||||||
| Accounts receivable securitization facility, due April 2022 (2) | $ | 150.0 | $ | 350.0 | ||||
| TPL notes, 4¾% fixed rate, due November 2021 (3) | — | 6.5 | ||||||
| 150.0 | 356.5 | |||||||
| Finance lease liabilities | 12.8 | 12.1 | ||||||
| Current debt obligations | 162.8 | 368.6 | ||||||
| Long-term: | ||||||||
| TRC obligations: | ||||||||
| TRC Senior secured revolving credit facility, variable rate, due June 2023 (4) | — | 555.0 | ||||||
| Obligations of the Partnership: (1) | ||||||||
| Senior secured revolving credit facility, variable rate, due June 2023 (5) | — | 280.0 | ||||||
| Senior unsecured notes: | ||||||||
| 4¼% fixed rate, due November 2023 | — | 583.9 | ||||||
| 5⅛% fixed rate, due February 2025 | — | 481.0 | ||||||
| 5⅞% fixed rate, due April 2026 | 963.2 | 963.2 | ||||||
| 5⅜% fixed rate, due February 2027 | 468.1 | 468.1 | ||||||
| 6½% fixed rate, due July 2027 | 705.2 | 705.2 | ||||||
| 5% fixed rate, due January 2028 | 700.3 | 700.3 | ||||||
| 6⅞% fixed rate, due January 2029 | 679.3 | 679.3 | ||||||
| 5½% fixed rate, due March 2030 | 949.6 | 949.6 | ||||||
| 4⅞% fixed rate, due February 2031 | 1,000.0 | 1,000.0 | ||||||
| 4% fixed rate, due January 2032 | 1,000.0 | — | ||||||
| TPL notes, 5⅞% fixed rate, due August 2023 (3) | — | 48.1 | ||||||
| Unamortized premium | — | 0.2 | ||||||
| 6,465.7 | 7,413.9 | |||||||
| Debt issuance costs, net of amortization | (45.0 | ) | (45.5 | ) | ||||
| Finance lease liabilities | 13.7 | 18.7 | ||||||
| Long-term debt | 6,434.4 | 7,387.1 | ||||||
| Total debt obligations | $ | 6,597.2 | $ | 7,755.7 | ||||
| Irrevocable standby letters of credit: | ||||||||
| Letters of credit outstanding under the TRC Senior secured credit facility (4) | $ | — | $ | — | ||||
| Letters of credit outstanding under the Partnership senior secured revolving credit facility (5) | 71.3 | 44.4 | ||||||
| $ | 71.3 | $ | 44.4 |
| (1) | While we consolidate the debt of the Partnership in our financial statements, we do not have the obligation to make interest payments or debt payments with respect to the debt of the Partnership. |
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| (2) | As of December 31, 2021, the Partnership had $150.0 million of qualifying receivables under its $400.0 million Securitization Facility, resulting in $250.0 million availability. |
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| (3) | “TPL” refers to Targa Pipeline Partners LP. |
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| (4) | As of December 31, 2021, availability under TRC’s $670.0 million senior secured revolving credit facility (“Existing TRC Revolver”) was $670.0 million. |
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| (5) | As of December 31, 2021, availability under the Partnership’s $2.2 billion senior secured revolving credit facility (“Existing TRP Revolver”) was $2,128.7 million. |
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F-25
The following table shows the range of interest rates and weighted average interest rate incurred on our variable-rate debt obligations during the year ended December 31, 2021:
| Range of Interest Rates Incurred | Weighted Average Interest Rate Incurred | ||||
|---|---|---|---|---|---|
| Existing TRC Revolver | 1.9% - 1.9% | 1.9% | |||
| Existing TRP Revolver | 1.6% - 1.9% | 1.8% | |||
| Securitization Facility | 1.1% - 1.8% | 1.2% |
Compliance with Debt Covenants
As of December 31, 2021, we were in compliance with the covenants contained in our various debt agreements.
Debt Obligations
New TRC Credit Agreement
In February 2022, the Company entered into a Credit Agreement with Bank of America, N.A., as the Administrative Agent, Collateral Agent and Swing Line Lender, and the other lenders party thereto (the “New TRC Revolver”). The New TRC Revolver provides for a revolving credit facility in an initial aggregate principal amount up to $2.75 billion (with an option to increase such maximum aggregate principal amount by up to $500.0 million in the future, subject to the terms of the New TRC Revolver) and a swing line sub-facility of up to $100.0 million. The New TRC Revolver matures on February 17, 2027.
The New TRC Revolver provides for, among other things, certain changes to occur upon the occurrence of an “Investment Grade Event,” including the release of all security interests in all “Collateral” at the request of the Company.
The revolving credit facility bears interest at the Company’s option at: (a) the Base Rate, which is the highest of Bank of America’s prime rate, the federal funds rate plus 0.5% and the Term SOFR (as such term is defined in the New TRC Revolver) rate plus 1.0% (subject in each case to a floor of 0.0%), plus an applicable margin (i) prior to the occurrence of an Investment Grade Event, ranging from 0.25% to 1.25%, dependent on the Company’s ratio of consolidated funded indebtedness to consolidated adjusted EBITDA (the “Consolidated Leverage Ratio”) and (ii) upon and after the occurrence of an Investment Grade Event, ranging from 0.125% to 0.75%, dependent on the Company’s non-credit-enhanced senior unsecured long-term debt ratings (or, if no such debt is outstanding at such time, then the corporate, issuer or similar rating with respect to the Company that has been most recently announced) (the “Debt Rating”), or (b) Term SOFR (which includes, for Term SOFR loans, a SOFR adjustment of plus 0.10%) plus an applicable margin (i) prior to the occurrence of an Investment Grade Event, ranging from 1.25% to 2.25%, dependent on the Company’s Consolidated Leverage Ratio and (ii) upon and after the occurrence of an Investment Grade Event, ranging from 1.125% to 1.75%, dependent on the Company’s Debt Rating.
The Company is required to pay a commitment fee equal to an applicable rate ranging from (a) prior to the occurrence of an Investment Grade Event, 0.20% to 0.35% (dependent on the Company’s Consolidated Leverage Ratio) and (b) upon and after the occurrence of an Investment Grade Event, 0.125% to 0.35% (dependent on the Company’s Debt Rating), in each case times the actual daily unused portion of the revolving credit facility.
The obligations under the New TRC Revolver are guaranteed by substantially all material wholly-owned domestic subsidiaries of the Company, including by Targa Resources Partners LP and, prior to the occurrence of an Investment Grade Event, secured by substantially all personal property assets of, and certain material real property owned by, the Company and the guarantors.
The New TRC Revolver requires the Company to maintain a Consolidated Leverage Ratio, determined as of the last day of each quarter for the four-fiscal quarter period ending on the date of determination, of no more than 5.50 to 1.00. Prior to the occurrence of an Investment Grade Event, the New TRC Revolver also requires the Company to maintain an interest coverage ratio of no less than 2.25 to 1.00 determined as of the last day of each quarter for the four-fiscal quarter period ending on the date of determination. For any four-fiscal-quarter-period during which a material acquisition or disposition occurs, the total leverage ratio and interest coverage ratio (prior to the occurrence of an Investment Grade Event) will be determined on a pro forma basis as though such event had occurred as of the first day of such four-fiscal-quarter-period.
The New TRC Revolver restricts the Company’s ability to make dividends to stockholders if a default or an event of default (as defined in the New TRC Revolver) exists or would result from such distribution, and if, before the Investment Grade Event, the Company is not in pro forma compliance with the financial covenants. In addition, the New TRC Revolver contains various covenants that may limit, among other things, the Company’s ability to incur indebtedness, grant liens, make investments, repay or amend the terms of certain other indebtedness, merge or consolidate, sell assets, and engage in transactions with affiliates.
F-26
Existing TRC Revolver
The Existing TRC Revolver, which had a maturity date of June 2023, provided available commitments up to $670.0 million and allowed us to request up to $200.0 million in additional commitments. The Existing TRC Revolver’s interest rate was dependent on the consolidated leverage ratio of non-Partnership consolidated funded indebtedness to consolidated Adjusted EBITDA, as defined in the Existing TRC Revolver.
We were required to pay a commitment fee ranging from 0.375% to 0.5% (dependent upon the Company’s consolidated leverage ratio) on the daily average unused portion of the Existing TRC Revolver. Loans under the Existing TRC Revolver accrued interest at either a base rate or LIBOR (at our option) plus (i) for revolving loans, a margin of 0.75% to 1.75% (in the case of base rate loans) or 1.75% to 2.75% (in the case of LIBOR loans), in each case based on our consolidated leverage ratio and (ii) for term loans, 3.75% (in the case of base rate loans) or 4.75% (in the case of LIBOR loans).
The Existing TRC Revolver was secured by a pledge of the Company’s equity interests in the Partnership and required us to maintain a consolidated leverage ratio (the ratio of consolidated funded non-partnership indebtedness to consolidated Adjusted EBITDA) of no more than 4.00 to 1.00 for each fiscal quarter. The Existing TRC Revolver restricted our ability to pay dividends to shareholders if, on a pro forma basis after giving effect to such dividend, (a) any default or event of default has occurred and is continuing or (b) we were not in compliance with our consolidated leverage ratio as of the last day of the most recent test period. In addition, it included various covenants that may have limited, among other things, our ability to incur indebtedness, grant liens, make investments, repay or amend the terms of certain other indebtedness, merge or consolidate, sell assets, and engage in transactions with affiliates.
In February 2022, in connection with entering into the New TRC Revolver, we terminated the Existing TRC Revolver.
Existing TRP Revolver
The Existing TRP Revolver, which had a maturity date of June 2023, provided available commitments up to $2.2 billion and allowed the Partnership to request up to $500.0 million in additional commitments.
The Existing TRP Revolver provided for certain changes to occur upon the Partnership receiving an investment grade credit rating from Moody’s Investors Service, Inc. (“Moody’s”) or Standard & Poor’s Corporation (“S&P”), including the release of the security interests in all collateral at the request of the Partnership.
The Existing TRP Revolver accrued interest, at the Partnership’s option, either at the base rate or the Eurodollar rate. The base rate was equal to the highest of: (i) Bank of America’s prime rate; (ii) the federal funds rate plus 0.5%; or (iii) the one-month LIBOR rate plus 1.0%, plus an applicable margin (a) before the collateral release date, ranging from 0.25% to 1.25% (dependent on the Partnership’s ratio of consolidated funded indebtedness to consolidated Adjusted EBITDA) and (b) upon and after the collateral release date, ranging from 0.125% to 0.75% (dependent on the Partnership’s non-credit-enhanced senior unsecured long-term debt ratings). The Eurodollar rate was equal to LIBOR rate plus an applicable margin (i) before the collateral release date, ranging from 1.25% to 2.25% (dependent on the Partnership’s ratio of consolidated funded indebtedness to consolidated Adjusted EBITDA) and (ii) upon and after the collateral release date, ranging from 1.125% to 1.75% (dependent on the Partnership’s non-credit-enhanced senior unsecured long-term debt ratings).
The Partnership was required to pay a commitment fee equal to an applicable rate ranging from (a) before the collateral release date, 0.25% to 0.375% (dependent on the Partnership’s ratio of consolidated funded indebtedness to consolidated Adjusted EBITDA) and (b) upon and after the collateral release date, 0.125% to 0.35% (dependent on the Partnership’s non-credit-enhanced senior unsecured long-term debt ratings), in each case, times the actual daily average unused portion of the Existing TRP Revolver. Additionally, issued and undrawn letters of credit accrued interest at an applicable margin (i) before the collateral release date, ranging from 1.25% to 2.25% (dependent on the Partnership’s ratio of consolidated funded indebtedness to consolidated Adjusted EBITDA) and (ii) upon and after the collateral release date, ranging from 1.125% to 1.75% (dependent on the Partnership’s non-credit-enhanced senior unsecured long-term debt ratings).
The Existing TRP Revolver was collateralized by a pledge of assets and equity from certain of the Partnership’s subsidiaries. Borrowings were guaranteed by the Partnership’s restricted subsidiaries.
The Existing TRP Revolver required the Partnership to maintain a total leverage ratio (the ratio of consolidated indebtedness to the Partnership’s consolidated Adjusted EBITDA, in each case as defined in the Existing TRP Revolver), determined as of the last day of each quarter for the four-fiscal quarter period ending on the date of determination, of no more than (a) before the collateral release date, 5.50 to 1.00 and (b) upon and after the collateral release date, 5.25 to 1.00 (or 5.50 to 1.00 during a specified acquisition period).
F-27
The Existing TRP Revolver also required the Partnership to maintain an interest coverage ratio of no less than 2.25 to 1.00 determined as of the last day of each quarter for the four-fiscal quarter period ending on the date of determination. For any four-fiscal quarter period during which a material acquisition or disposition occurred, the total leverage ratio and interest coverage ratio would be determined on a pro forma basis as though such event had occurred as of the first day of such four-fiscal quarter period.
The Existing TRP Revolver restricted the Partnership’s ability to make distributions of available cash to unitholders if a default or an event of default (as defined in the Existing TRP Revolver) existed or would result from such distribution. In addition, the Existing TRP Revolver contained various covenants that may have limited, among other things, the Partnership’s ability to incur indebtedness, grant liens, make investments, repay or amend the terms of certain other indebtedness, merge or consolidate, sell assets, and engage in transactions with affiliates (in each case, subject to the Partnership’s right to incur indebtedness or grant liens in connection with, and convey accounts receivable as part of, a permitted receivables financing, the aggregate principal of which shall not exceed $400.0 million).
On June 7, 2019, the Partnership entered into the First Amendment to the Existing TRP Revolver (the “First Amendment”). The First Amendment, among other things, amended the Existing TRP Revolver to (a) increase the maximum percentage of Consolidated EBITDA attributable to Material Project EBITDA Adjustments from 20% to 30% solely for the fiscal periods from and including the fiscal period ending June 30, 2019 until and including the fiscal period ending June 30, 2020, after which time the maximum percentage of Consolidated EBITDA attributable to Material Project EBITDA Adjustments shall revert to 20% of Consolidated EBITDA and (b) include in the calculation of Consolidated EBITDA for a period certain cash distributions received by the Partnership (or and of its consolidated restricted subsidiaries) from unrestricted subsidiaries (or entities that are not subsidiaries) after the end of such period but on or prior to the date that TRP calculates Consolidated EBITDA for such period.
In February 2022, in connection with entering into the New TRC Revolver, we terminated the Existing TRP Revolver.
The Partnership’s Accounts Receivable Securitization Facility
In April 2021, we amended the Securitization Facility to increase the facility size from $350.0 million to $400.0 million to more closely align with our expected borrowing needs given current commodity prices and to extend the facility termination date to April 21, 2022.
The Securitization Facility provides up to $400.0 million of borrowing capacity at LIBOR market index rates plus a margin through April 21, 2022. Under the Securitization Facility, certain Partnership subsidiaries sell or contribute certain qualifying receivables, without recourse, to another of its consolidated subsidiaries (Targa Receivables LLC or “TRLLC”), a special purpose consolidated subsidiary created for the sole purpose of the Securitization Facility. TRLLC, in turn, sells an undivided percentage ownership in the eligible receivables to third-party financial institutions. Sold or contributed receivables up to the amount of the outstanding debt under the Securitization Facility are not available to satisfy the claims of the creditors of the selling or contributing subsidiaries or the Partnership. Any excess receivables are eligible to satisfy the claims.
The Partnership’s Senior Unsecured Notes
All issues of senior unsecured notes are pari passu with existing and future senior indebtedness. They are senior in right of payment to any of our future subordinated indebtedness and are unconditionally guaranteed by the Partnership and the Partnership’s restricted subsidiaries. These notes are effectively subordinated to all secured indebtedness under the New TRC Revolver and the Securitization Facility, which is secured by accounts receivable pledged under the facility, to the extent of the value of the collateral securing that indebtedness. Interest on all issues of senior unsecured notes is payable semi-annually in arrears.
The Partnership’s senior unsecured notes and associated indenture agreements restrict the Partnership’s ability to make distributions to unitholders in the event of default (as defined in the indentures). The indentures also restrict the Partnership’s ability and the ability of certain of its subsidiaries to: (i) incur additional debt or enter into sale and leaseback transactions; (ii) pay certain distributions on or repurchase equity interests (only if such distributions do not meet specified conditions); (iii) make certain investments; (iv) incur liens; (v) enter into transactions with affiliates; (vi) merge or consolidate with another company; and (vii) transfer and sell assets. These covenants are subject to a number of important exceptions and qualifications. If at any time when the notes are rated investment grade by either Moody’s or S&P and no Default or Event of Default (each as defined in the indentures) has occurred and is continuing, many of such covenants will terminate and the Partnership and its subsidiaries will cease to be subject to such covenants.
The Partnership may redeem the senior unsecured notes, in whole or in part, at any time prior to their maturity at a redemption price equal to the principal amount plus an applicable make-whole premium, plus accrued and unpaid interest and liquidation damages, if any, to the redemption date, as specified in the indenture of each series.
F-28
The Partnership may also redeem up to 35% of the aggregate principal amount of each series of notes at the redemption dates and prices set forth in the indentures plus accrued and unpaid interest and liquidation damages, if any, to the redemption date with the net cash proceeds of one or more equity offerings, provided that: (i) at least 65% of the aggregate principal amount of each of the notes (excluding notes held by us) remains outstanding immediately after the occurrence of such redemption; and (ii) the redemption occurs within 180 days of the date of the closing of such equity offering.
The Partnership may also redeem all or part of each of the series of senior unsecured notes on or after the redemption dates as specified in the indenture of each series at the redemption prices as specified in the indenture of each series plus accrued and unpaid interest to the redemption date and liquidation damages, if any, on the notes redeemed.
Senior Unsecured Notes Issuances
In January 2019, the Partnership issued $750.0 million of 6½% Senior Notes due July 2027 and $750.0 million of 6⅞% Senior Notes due January 2029, resulting in total net proceeds of $1,486.6 million. The net proceeds from the issuance were used to redeem in full the Partnership’s outstanding 4⅛% Senior Notes due 2019 at par value plus accrued interest through the redemption date, with the remainder used to repay borrowings under the Existing TRP Revolver and for general partnership purposes.
In November 2019, the Partnership issued $1.0 billion aggregate principal amount of 5½% Senior Notes due March 2030, resulting in net proceeds of $990.8 million. The net proceeds from the issuance were used to repay borrowings under the Existing TRP Revolver and for general partnership purposes.
In August 2020, the Partnership issued $1.0 billion aggregate principal amount of 4⅞% Senior Notes due 2031 (the “August 2020 Offering”), resulting in net proceeds of approximately $991 million. A portion of the net proceeds from the issuance were used to fund the concurrent cash tender offer (the “August Tender Offer”) of the Partnership’s 6¾% Senior Notes due 2024 (the “6¾% Notes”) and redeem any 6¾% Notes that remained outstanding after consummation of the August Tender Offer, with the remainder used for repayment of borrowings under the Existing TRP Revolver. See “Debt Repurchases and Extinguishments” for further details of the August Tender Offer.
In February 2021, the Partnership issued $1.0 billion aggregate principal amount of 4% Senior Notes due 2032 (the “February 2021 Offering”), resulting in net proceeds of approximately $991 million. The 4% Senior Notes due 2032 have substantially similar terms and covenants as our other series of Senior Notes. A portion of the net proceeds from the issuance was used to fund the concurrent cash tender offer (the “February Tender Offer”) and subsequent redemption payment for the Partnership’s 5⅛% Senior Notes due 2025 (the “5⅛% Notes”), with the remainder used for repayment of borrowings under the Existing TRP Revolver and Existing TRC Revolver. See “Debt Repurchases and Extinguishments” for further details of the February Tender Offer.
May 2019 Shelf Registration
Our universal shelf registration statement on Form S-3 filed in May 2016 (the “May 2016 Shelf”) expired in May 2019. Accordingly, in May 2019, we filed with the SEC a universal shelf registration statement on Form S-3 that registers the issuance and sale of certain debt and equity securities from time to time in one or more offerings (the “May 2019 Shelf”). The May 2019 Shelf will expire in May 2022. See Note 12 – Common Stock and Related Matters.
Debt Repurchases & Extinguishments
In February 2019, the Partnership redeemed in full its outstanding 4⅛% Senior Notes due 2019 at par value plus accrued interest through the redemption date. The redemption resulted in a non-cash loss due to write-off $1.4 million of unamortized debt issuance costs.
During the first half of 2020, the Partnership repurchased a portion of its outstanding senior notes on the open market, paying $239.8 million plus accrued interest to repurchase $303.3 million of the notes. As a result, we recorded a gain due to debt extinguishment of $61.1 million, comprised of $63.5 million discounts and a write-off of $2.4 million in related debt issuance costs.
Concurrent with the August 2020 Offering, the Partnership commenced the August Tender Offer to purchase for cash, subject to certain terms and conditions, any and all of our outstanding 6¾% Notes. We accepted for purchase all the notes that were validly tendered as of the early tender date, which totaled $262.1 million. Subsequent to the closing of the August Tender Offer in August 2020, the Partnership redeemed the 6¾% Notes for the remaining note balance of $318.0 million (the “2024 Note Redemption”). As a result of the August Tender Offer and the 2024 Note Redemption, we recorded a loss due to debt extinguishment of $13.7 million comprised of $11.1 million premiums paid and a write-off of $2.6 million of debt issuance costs.
F-29
In November 2020, the Partnership redeemed the $559.6 million remaining balance of its 5¼% Senior Notes due 2023. As a result, we recorded a loss due to debt extinguishment of $1.8 million related to a write-off of debt issuance costs.
Concurrent with the February 2021 Offering, the Partnership commenced the February Tender Offer to redeem subject to certain terms and conditions, any and all of our outstanding 5⅛% Notes. As a result of the February Tender Offer and the subsequent redemption of the 5⅛% Notes, we recorded a loss due to debt extinguishment of $14.9 million comprised of $12.5 million of premiums paid and a write-off of $2.4 million of debt issuance costs.
Additionally, TPL redeemed all of the outstanding TPL 4¾% Senior Notes due 2021 and TPL 5⅞% Senior Notes due 2023 (collectively, the “TPL Notes”) in February 2021 with available liquidity under the Existing TRP Revolver. As a result of the redemptions of the TPL Notes, we recorded a gain due to debt extinguishment of $0.2 million.
The Partnership redeemed all of the outstanding 4¼% Senior Notes due 2023 (the “4¼% Senior Notes”) in May 2021 with available liquidity under the Existing TRP Revolver. As a result of the redemption of the 4¼% Senior Notes, we recorded a loss due to debt extinguishment of $1.9 million.
Debt Repurchases and Extinguishments Summary
The following table summarizes the impact of debt repurchases and extinguishments that are included in our Consolidated Statements of Operations:
| 2021 | 2020 | 2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Discount (premium) over face value paid upon redemption: | ||||||||||||
| TPL Notes | $ | 0.2 | $ | — | $ | — | ||||||
| Partnership 5⅛% Senior Notes due 2025 | (12.5 | ) | 4.4 | — | ||||||||
| Partnership 6¾% Senior Notes due 2024 | — | (11.1 | ) | — | ||||||||
| Partnership 5⅞% Senior Notes due 2026 | — | 7.1 | — | |||||||||
| Partnership 5⅜% Senior Notes due 2027 | — | 5.3 | — | |||||||||
| Partnership 5% Senior Notes due 2028 | — | 11.7 | — | |||||||||
| Partnership 6½% Senior Notes due 2027 | — | 9.3 | — | |||||||||
| Partnership 6⅞% Senior Notes due 2029 | — | 15.5 | — | |||||||||
| Partnership 5½% Senior Notes due 2030 | — | 10.2 | — | |||||||||
| Write-off of debt issuance costs: | ||||||||||||
| Partnership 5⅛% Senior Notes due 2025 | (2.4 | ) | (0.1 | ) | — | |||||||
| Partnership 4¼% Senior Notes due 2023 | (1.9 | ) | — | — | ||||||||
| Partnership 5¼% Senior Notes due 2023 | — | (1.8 | ) | — | ||||||||
| Partnership 6¾% Senior Notes due 2024 | — | (2.6 | ) | — | ||||||||
| Partnership 5⅞% Senior Notes due 2026 | — | (0.2 | ) | — | ||||||||
| Partnership 5⅜% Senior Notes due 2027 | — | (0.2 | ) | — | ||||||||
| Partnership 5% Senior Notes due 2028 | — | (0.4 | ) | — | ||||||||
| Partnership 6½% Senior Notes due 2027 | — | (0.4 | ) | — | ||||||||
| Partnership 6⅞% Senior Notes due 2029 | — | (0.6 | ) | — | ||||||||
| Partnership 5½% Senior Notes due 2030 | — | (0.5 | ) | — | ||||||||
| Partnership 4⅛% Senior Notes due 2019 | — | — | (1.4 | ) | ||||||||
| Gain (loss) from financing activities | $ | (16.6 | ) | $ | 45.6 | $ | (1.4 | ) |
F-30
The following table shows the contractually scheduled maturities of our debt obligations outstanding at December 31, 2021, for the next five years, and in total thereafter:
| Scheduled Maturities of Debt | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | ||||||||||||||||||||||
| Existing TRC Revolver | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||
| Existing TRP Revolver | — | — | — | — | — | — | — | |||||||||||||||||||||
| Partnership's Senior unsecured notes | 6,465.7 | — | — | — | — | 963.2 | 5,502.5 | |||||||||||||||||||||
| Securitization Facility | 150.0 | 150.0 | — | — | — | — | — | |||||||||||||||||||||
| Total | $ | 6,615.7 | $ | 150.0 | $ | — | $ | — | $ | — | $ | 963.2 | $ | 5,502.5 |
Subsequent Event
In February 2022, we entered into the New TRC Revolver with Bank of America, N.A., as the Administrative Agent, Collateral Agent and Swing Line Lender, and the other lenders party thereto. The New TRC Revolver provides for a revolving credit facility in an initial aggregate principal amount up to $2.75 billion, with an option to increase such maximum aggregate principal amount by up to $500.0 million in the future, subject to the terms of the New TRC Revolver, and a swing line sub-facility of up to $100.0 million. The New TRC Revolver matures on February 17, 2027. In connection with the entry into the New TRC Revolver, we terminated the Existing TRC Revolver and Existing TRP Revolver.
On February 18, 2022, we and certain of our subsidiaries entered into a Parent Guarantee to guarantee all of the obligations of the Partnership and Targa Resources Partners Finance Corp. (together with the Partnership, the “Issuers”) under the respective indentures governing the Issuers’ $6.5 billion of outstanding senior unsecured notes.
Note 9 — Other Long-term Liabilities
Other long-term liabilities are comprised of the following obligations:
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Deferred revenue | $ | 171.8 | $ | 168.5 | ||||
| Asset retirement obligations | 72.1 | 68.3 | ||||||
| Operating lease liabilities | 34.5 | 46.2 | ||||||
| Other liabilities | 23.2 | 26.1 | ||||||
| Total long-term liabilities | $ | 301.6 | $ | 309.1 |
Deferred Revenue
Deferred revenue for the years ended December 31, 2021 and 2020, was $171.8 million and $168.5 million, respectively, which includes $129.0 million of payments received from Vitol Americas Corp. (“Vitol”) (formerly known as Noble Americas Corp.), a subsidiary of Vitol US Holding Co., in 2016, 2017, and 2018 as part of an agreement (the “Splitter Agreement”) related to the construction and operation of a crude oil and condensate splitter. In December 2018, Vitol elected to terminate the Splitter Agreement. The Splitter Agreement provides that the first three annual payments are ours if Vitol elects to terminate, which Vitol disputes. The timing of revenue recognition related to the Splitter Agreement deferred revenue is dependent on the outcome of current litigation with Vitol.
Deferred revenue also includes nonmonetary consideration received in a 2015 amendment (the “gas contract amendment”) to a gas gathering and processing agreement. We measured the estimated fair value of the gathering assets transferred to us using significant other observable inputs representative of a Level 2 fair value measurement. In December 2017, we received monetary consideration to further amend the terms of the gas gathering and processing agreement. The deferred revenue related to these amendments is being recognized on a straight-line basis through the end of the agreement’s term in 2035.
F-31
For the years ended December 31, 2021, 2020 and 2019, we recognized $3.9 million, $3.8 million and $3.9 million of revenue for these transactions, respectively.
The following table shows the components of deferred revenue:
| December 31, 2021 | December 31, 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Splitter agreement | $ | 129.0 | $ | 129.0 | ||||
| Gas contract amendment | 34.8 | 37.3 | ||||||
| Other | 8.0 | 2.2 | ||||||
| Total deferred revenue | $ | 171.8 | $ | 168.5 |
The following table shows the changes in deferred revenue:
| 2021 | 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance at beginning of period | $ | 168.5 | $ | 172.0 | ||||
| Additions | 7.2 | 0.3 | ||||||
| Revenue recognized | (3.9 | ) | (3.8 | ) | ||||
| Balance at end of period | $ | 171.8 | $ | 168.5 |
Asset Retirement Obligations
Our ARO primarily relate to certain gas gathering pipelines and processing facilities and NGL pipelines. The changes in our ARO are as follows:
| 2021 | 2020 | |||||||
|---|---|---|---|---|---|---|---|---|
| Beginning of period | $ | 68.3 | $ | 66.3 | ||||
| Accretion expense | 4.0 | 3.6 | ||||||
| Retirement of ARO | — | 0.2 | ||||||
| Change in cash flow estimate | (0.2 | ) | (1.8 | ) | ||||
| End of period | $ | 72.1 | $ | 68.3 |
Note 10 – Leases
We have non-cancellable operating leases primarily associated with our office facilities, rail assets, land, and storage and terminal assets. We have finance leases primarily associated with our tractors and vehicles. Our leases have remaining lease terms of 1 to 8 years, some of which include options to extend the lease term for up to 20 years.
The balances of right-of-use assets and liabilities of finance leases and operating leases, and their locations on our Consolidated Balance Sheets are as follows:
| Year Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Balance Sheet Location | 2021 | 2020 | ||||||||
| Right-of-use assets | ||||||||||
| Operating leases, gross | Other long-term assets | $ | 50.8 | $ | 52.7 | |||||
| Finance leases, gross | Property, plant and equipment | 55.6 | 51.8 | |||||||
| Lease liabilities | ||||||||||
| Current: | ||||||||||
| Operating leases | Accrued liabilities | $ | 11.7 | $ | 12.0 | |||||
| Finance leases | Current debt obligations | 12.8 | 12.1 | |||||||
| Non-current: | ||||||||||
| Operating leases | Other long-term liabilities | $ | 34.5 | $ | 46.2 | |||||
| Finance leases | Long-term debt | 13.7 | 18.7 |
F-32
Operating lease costs and short-term lease costs are included in Operating expenses or General and administrative expense in our Consolidated Statements of Operations, depending on the nature of the leases. Finance lease costs are included in Depreciation and amortization expense and Interest income (expense) in our Consolidated Statements of Operations. The components of lease expense were as follows:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| Lease cost | ||||||||||||||
| Operating lease cost | $ | 12.2 | $ | 11.6 | $ | 9.9 | ||||||||
| Short-term lease cost | 20.4 | 20.7 | 30.0 | |||||||||||
| Variable lease cost | 5.7 | 5.5 | 6.7 | |||||||||||
| Finance lease cost | ||||||||||||||
| Amortization of right-of-use assets | 13.3 | 13.6 | 13.1 | |||||||||||
| Interest expense | 1.1 | 1.4 | 1.6 | |||||||||||
| Total lease cost | $ | 52.7 | $ | 52.8 | $ | 61.3 |
Other supplemental information related to our leases are as follows:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||
| Operating cash flows for operating leases | $ | 14.1 | $ | 12.3 | $ | 8.7 | ||||||||
| Operating cash flows for finance leases | 1.0 | 1.4 | 1.6 | |||||||||||
| Financing cash flows for finance leases | 12.5 | 12.4 | 11.5 |
The weighted-average remaining lease terms for operating leases and finance leases are 6 years and 3 years, respectively. The weighted-average discount rates for operating leases and finance leases are 4.0% and 3.4%, respectively.
The following table presents the maturities of our lease liabilities under non-cancellable leases as of December 31, 2021:
| Operating Leases | Finance Leases | |||||||
|---|---|---|---|---|---|---|---|---|
| 2022 | $ | 13.3 | $ | 13.1 | ||||
| 2023 | 11.5 | 8.0 | ||||||
| 2024 | 7.1 | 3.5 | ||||||
| 2025 | 4.2 | 2.2 | ||||||
| 2026 | 3.9 | 1.1 | ||||||
| Thereafter | 11.6 | — | ||||||
| Total undiscounted cash flows | 51.6 | 27.9 | ||||||
| Less imputed interest | (5.4 | ) | (1.4 | ) | ||||
| Total lease liabilities | $ | 46.2 | $ | 26.5 |
Note 11 – Preferred Stock
Preferred Stock
Our Series A Preferred has a liquidation value of $1,000 per share and bears a cumulative 9.5% fixed dividend payable quarterly 45 days after the end of each fiscal quarter. The Series A Preferred has no mandatory redemption date, but is redeemable at our election on or prior to March 16, 2022 for a 10% premium to the liquidation preference and for a 5% premium to the liquidation preference thereafter. If the Series A Preferred is not redeemed by the end of year twelve, the investors have the right to convert the Series A Preferred into TRC common stock at an exercise price of $20.77, which represented a 10% premium over the ten-day volume weighted average price (“VWAP”) prior to the February 18, 2016 signing date ($18.88) of the Purchase Agreement underlying the first of two tranches of Series A Preferred sold to investors in a private placement in the first quarter of 2016. If the investors do not elect to convert their Series A Preferred into TRC common stock, Targa has a right after year twelve to force conversion, but only if the VWAP for the ten preceding trading days is greater than 120% of the conversion price. A change of control provision could result in forced redemption, at the option of the investor, if the Series A Preferred could not otherwise remain outstanding or be replaced with a “substantially equivalent security.” The change of control premium to the liquidation preference on the redemption is 10% in years four through six and 5% thereafter.
F-33
The Series A Preferred ranks senior to the common outstanding stock with respect to the payment of dividends and distributions in liquidation. The holders of Series A Preferred generally only have voting rights in certain circumstances, subject to certain exceptions, which include:
| • | the issuance or the increase by the Company of any specific class or series of stock that is senior to the Series A Preferred, |
|---|
| • | the issuance or the increase by any of the Company’s consolidated subsidiaries of any specific class or series of securities, |
|---|
| • | changes to the Certificates of Incorporation or Designations of the Series A Preferred that would materially and adversely affect the Preferred Stock holder, |
|---|
| • | the issuance of stock on parity with the Series A Preferred, subject to certain exceptions, if the Company has exceeded a stipulated fixed charge coverage ratio or an aggregate amount of net proceeds from all future issuances of Parity Stock, or would use the proceeds of such issuance to pay dividends, |
|---|
| • | the incurrence of indebtedness, other than indebtedness that complies with a stipulated fixed charge coverage ratio or under the Existing TRC Revolver and Existing TRP Revolver (or replacement commercial bank facilities) in an aggregate amount up to $2.75 billion. |
|---|
The Series A Preferred does not qualify as a liability instrument because it is not mandatorily redeemable. However, as SEC Regulation S-X, Rule 5-02-27 does not permit a probability assessment for a change of control provision, our Series A Preferred must be presented as mezzanine equity between liabilities and shareholders’ equity on our Consolidated Balance Sheets because a change of control event, although not considered probable, could force the Company to redeem the Series A Preferred. A maximum of 44,260,953 common shares would be issued upon conversion of the Series A Preferred.
Preferred Stock Dividends
As of December 31, 2021, we have accrued cumulative preferred dividends of $21.8 million, which were paid on February 14, 2022. During the years ended December 31, 2021, 2020 and 2019, we paid $87.3 million, $91.7 million and $91.7 million of dividends at a rate of $23.75 per share each quarter to Series A Preferred shareholders, and recorded deemed dividends of $39.2 million and $33.1 million for the years ended December 31, 2020 and 2019, attributable to accretion of the preferred discount resulting from BCF accounting. Such accretion is included in the book value of the Series A Preferred. After adoption of ASU 2020-06 in 2021, we no longer recognize such accretion. See Note 3 – Significant Accounting Policies for further information.
Preferred Stock Partial Redemption
In December 2020, we repurchased 45,800 shares of the Series A Preferred at $1,000 per share (the “Liquidation Preference”), plus an amount equal to all unpaid dividends through the repurchase date. The repurchase was executed at a discount relative to the redemption price of $1,100 per share (the Liquidation Preference multiplied by 110%), which became effective March 16, 2021. The difference between the consideration paid (including unpaid dividends of $1.1 million) and the net carrying value of the shares repurchased was $2.7 million, which was recorded as an addition to preferred stock dividends for the year ended December 31, 2020.
Note 12 — Common Stock and Related Matters
Public Offerings of Common Stock
On May 9, 2017, we entered into an equity distribution agreement under the May 2016 Shelf (the “May 2017 EDA”), pursuant to which we may sell through our sales agents, at our option, up to an aggregated amount of $750.0 million of our common stock (“2017 ATM Program”).
On September 20, 2018, we entered into an equity distribution agreement under the May 2016 Shelf (the “September 2018 EDA”), pursuant to which we may sell through our sales agents, at our option, up to an aggregated amount of $750.0 million of our common stock (“2018 ATM Program”).
In May 2019, we filed (i) the May 2019 Shelf, (ii) a new prospectus supplement to continue the 2017 ATM Program and (iii) a new prospectus supplement to continue the 2018 ATM Program.
During 2020 and 2021, no shares of common stock were issued under either the May 2017 EDA or the September 2018 EDA. As a result, we have $382.1 million and $750.0 million remaining under the May 2017 EDA and September 2018 EDA, respectively, as of December 31, 2021.
F-34
Common Stock Dividends
The following table details the dividends declared and/or paid by us to common shareholders for the years ended December 31, 2021, 2020 and 2019:
| Three Months Ended | Date Paid or To Be Paid | Total Common Dividends Declared | Amount of Common Dividends Paid or To Be Paid | Accrued Dividends (1) | Dividends Declared per Share of Common Stock | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share amounts) | ||||||||||||||||||
| 2021 | ||||||||||||||||||
| December 31, 2021 | February 15, 2022 | $ | 81.4 | $ | 80.1 | $ | 1.3 | $ | 0.35000 | |||||||||
| September 30, 2021 | November 15, 2021 | 23.3 | 22.9 | 0.4 | 0.10000 | |||||||||||||
| June 30, 2021 | August 16, 2021 | 23.3 | 22.9 | 0.4 | 0.10000 | |||||||||||||
| March 31, 2021 | May 14, 2021 | 23.3 | 22.9 | 0.4 | 0.10000 | |||||||||||||
| 2020 | ||||||||||||||||||
| December 31, 2020 | February 16, 2021 | $ | 23.3 | $ | 22.9 | $ | 0.4 | $ | 0.10000 | |||||||||
| September 30, 2020 | November 16, 2020 | 23.8 | 23.3 | 0.5 | 0.10000 | |||||||||||||
| June 30, 2020 | August 17, 2020 | 23.7 | 23.3 | 0.4 | 0.10000 | |||||||||||||
| March 31, 2020 | May 15, 2020 | 23.7 | 23.3 | 0.4 | 0.10000 | |||||||||||||
| 2019 | ||||||||||||||||||
| December 31, 2019 | February 18, 2020 | $ | 216.0 | $ | 212.0 | $ | 4.0 | $ | 0.91000 | |||||||||
| September 30, 2019 | November 15, 2019 | 215.5 | 211.8 | 3.7 | 0.91000 | |||||||||||||
| June 30, 2019 | August 15, 2019 | 215.1 | 211.5 | 3.6 | 0.91000 | |||||||||||||
| March 31, 2019 | May 15, 2019 | 215.2 | 211.5 | 3.7 | 0.91000 | |||||||||||||
| (1) | Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting. |
|---|
Note 13 — Partnership Units and Related Matters
Distributions
We are entitled to receive all Partnership distributions from available cash on the Partnership’s common units each quarter.
The following table details the distributions declared and/or paid by the Partnership during 2021, 2020 and 2019:
| Three Months Ended | Date Paid or To Be Paid | Total Distributions | Distributions to Targa Resources Corp. | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except per share amounts) | ||||||||||
| 2021 | ||||||||||
| December 31, 2021 | February 11, 2022 | $ | 103.7 | $ | 103.7 | |||||
| September 30, 2021 | November 11, 2021 | 45.6 | 45.6 | |||||||
| June 30, 2021 | August 12, 2021 | 45.5 | 45.5 | |||||||
| March 31, 2021 | May 12, 2021 | 47.0 | 47.0 | |||||||
| 2020 | ||||||||||
| December 31, 2020 | February 11, 2021 | $ | 54.3 | $ | 47.6 | |||||
| September 30, 2020 | November 13, 2020 | 51.7 | 48.9 | |||||||
| June 30, 2020 | August 13, 2020 | 51.7 | 48.9 | |||||||
| March 31, 2020 | May 13, 2020 | 53.1 | 50.3 | |||||||
| 2019 | ||||||||||
| December 31, 2019 | February 13, 2020 | $ | 241.9 | $ | 239.1 | |||||
| September 30, 2019 | November 13, 2019 | 242.1 | 239.3 | |||||||
| June 30, 2019 | August 13, 2019 | 242.4 | 239.6 | |||||||
| March 31, 2019 | April 5, 2019 | 437.8 | 435.0 |
Contributions
All capital contributions to the Partnership continue to be allocated 98% to the limited partner and 2% to the general partner; however, no units will be issued for those contributions. For the years ended December 31, 2021, 2020 and 2019, we made a total of $46.0 million, $50.0 million and $200.0 million in contributions to the Partnership.
F-35
Preferred Units
In December 2020, the Partnership redeemed all of its 5,000,000 issued and outstanding Preferred Units at a redemption price of $25.00 per unit, plus an amount equal to all unpaid distributions up to the date of redemption. The difference between the consideration paid (including unpaid distributions of $0.5 million) and the net carrying value of the units redeemed was $4.9 million, which was recorded as an increase to Net income (loss) attributable to noncontrolling interests for the year ended December 31, 2020. The Preferred Units were reported as noncontrolling interests in our financial statements and were previously listed on the NYSE under the symbol “NGLS/PA” and are no longer traded following the redemption.
For the years ended December 31, 2020 and 2019, the Partnership paid total distributions of $15.1 million and $11.3 million to the Preferred Unitholders.
Note 14 — Earnings per Common Share
The following table sets forth a reconciliation of net income and weighted average shares outstanding used in computing basic and diluted net income per common share:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| (In millions, except per share amounts) | ||||||||||||
| Net income (loss) attributable to Targa Resources Corp. | $ | 71.2 | $ | (1,553.9 | ) | $ | (209.2 | ) | ||||
| Less: Dividends on Series A Preferred (1) | 87.3 | 91.7 | 91.7 | |||||||||
| Less: Deemed dividends on Series A Preferred (2) | — | 39.2 | 33.1 | |||||||||
| Net income (loss) attributable to common shareholders for basic earnings per share | $ | (16.1 | ) | $ | (1,684.8 | ) | $ | (334.0 | ) | |||
| Weighted average shares outstanding - basic | 228.6 | 232.2 | 232.5 | |||||||||
| Dilutive effect of unvested stock awards (3) | — | — | — | |||||||||
| Weighted average shares outstanding - diluted | 228.6 | 232.2 | 232.5 | |||||||||
| Net income (loss) available per common share - basic | $ | (0.07 | ) | $ | (7.26 | ) | $ | (1.44 | ) | |||
| Net income (loss) available per common share - diluted | $ | (0.07 | ) | $ | (7.26 | ) | $ | (1.44 | ) |
| (1) | Includes $1.1 million attributable to the dividends paid upon the partial repurchase of Series A Preferred in December 2020. |
|---|
| (2) | Includes $1.6 million attributable to the partial repurchase of Series A Preferred in December 2020. Refer to Note 11 – Preferred Stock. |
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| (3) | For all periods presented above, all unvested restricted stock awards and Series A Preferred were antidilutive because a net loss existed for those respective periods. |
|---|
The following potential common stock equivalents are excluded from the determination of diluted earnings per share because the inclusion of such shares would have been anti-dilutive (in millions on a weighted-average basis):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| Unvested restricted stock awards | 3.3 | 2.3 | 1.2 | |||||||||
| Series A Preferred (1) | 44.3 | 46.4 | 46.5 |
| (1) | The Series A Preferred has no mandatory redemption date, but is redeemable at our election for a 10% premium to the liquidation preference on or prior to March 16, 2022 and for a 5% premium to the liquidation preference thereafter. If the Series A Preferred is not redeemed prior to March 16, 2028, the investors have the right to convert the Series A Preferred into TRC common stock. |
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Note 15 — Derivative Instruments and Hedging Activities
The primary purpose of our commodity risk management activities is to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices. We have entered into derivative instruments to hedge the commodity price risks associated with a portion of our expected (i) natural gas, NGL, and condensate equity volumes in our Gathering and Processing operations that result from percent-of-proceeds processing arrangements, (ii) future commodity purchases and sales in our Logistics and Transportation segment and (iii) natural gas transportation basis risk in our Logistics and Transportation segment. The hedge positions associated with (i) and (ii) above will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices and are primarily designated as cash flow hedges for accounting purposes.
F-36
The hedges generally match the NGL product composition and the NGL delivery points of our physical equity volumes. Our natural gas hedges are a mixture of specific gas delivery points and Henry Hub. The NGL hedges may be transacted as specific NGL hedges or as baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon our expected equity NGL composition. We believe this approach avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. Our natural gas and NGL hedges are settled using published index prices for delivery at various locations.
We hedge a portion of our condensate equity volumes using crude oil hedges that are based on the NYMEX futures contracts for West Texas Intermediate light, sweet crude, which approximates the prices received for condensate. This exposes us to a market differential risk if the NYMEX futures do not move in exact parity with the sales price of our underlying condensate equity volumes.
We also enter into derivative instruments to help manage other short-term commodity-related business risks and take advantage of market opportunities. We have not designated these derivatives as hedges and record changes in fair value and cash settlements to revenues as current income.
At December 31, 2021, the notional volumes of our commodity derivative contracts were:
| Commodity | Instrument | Unit | 2022 | 2023 | 2024 | 2025 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Natural Gas | Swaps | MMBtu/d | 152,262 | 83,862 | 34,221 | 7,479 | ||||||||
| Natural Gas | Basis Swaps | MMBtu/d | 339,925 | 275,000 | 240,000 | 110,041 | ||||||||
| NGL | Swaps | Bbl/d | 33,936 | 19,228 | 7,292 | — | ||||||||
| NGL | Futures | Bbl/d | 8,099 | — | — | — | ||||||||
| Condensate | Swaps | Bbl/d | 4,790 | 3,055 | 1,070 | — |
Our derivative contracts are subject to netting arrangements that permit our contracting subsidiaries to net cash settle offsetting asset and liability positions with the same counterparty within the same Targa entity. We record derivative assets and liabilities on our Consolidated Balance Sheets on a gross basis, without considering the effect of master netting arrangements. The following schedules reflect the fair value of our derivative instruments and their location on our Consolidated Balance Sheets as well as pro forma reporting assuming that we reported derivatives subject to master netting agreements on a net basis:
| Fair Value as of December 31, 2021 | Fair Value as of December 31, 2020 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance Sheet | Derivative | Derivative | Derivative | Derivative | ||||||||||||||
| Location | Assets | Liabilities | Assets | Liabilities | ||||||||||||||
| Derivatives designated as hedging instruments | ||||||||||||||||||
| Commodity contracts | Current | $ | 25.5 | $ | (252.6 | ) | $ | 24.2 | $ | (140.2 | ) | |||||||
| Long-term | 6.2 | (84.3 | ) | 5.1 | (43.4 | ) | ||||||||||||
| Total derivatives designated as hedging instruments | $ | 31.7 | $ | (336.9 | ) | $ | 29.3 | $ | (183.6 | ) | ||||||||
| Derivatives not designated as hedging instruments | ||||||||||||||||||
| Commodity contracts | Current | $ | 17.6 | $ | (5.6 | ) | $ | 61.3 | $ | (2.4 | ) | |||||||
| Long-term | 1.5 | (25.0 | ) | 44.2 | — | |||||||||||||
| Total derivatives not designated as hedging instruments | $ | 19.1 | $ | (30.6 | ) | $ | 105.5 | $ | (2.4 | ) | ||||||||
| Total current position | $ | 43.1 | $ | (258.2 | ) | $ | 85.5 | $ | (142.6 | ) | ||||||||
| Total long-term position | 7.7 | (109.3 | ) | 49.3 | (43.4 | ) | ||||||||||||
| Total derivatives | $ | 50.8 | $ | (367.5 | ) | $ | 134.8 | $ | (186.0 | ) |
F-37
The pro forma impact of reporting derivatives on our Consolidated Balance Sheets on a net basis is as follows:
| Gross Presentation | Pro Forma Net Presentation | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2021 | Asset | Liability | Collateral | Asset | Liability | ||||||||||||||||
| Current Position | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | $ | 39.2 | $ | (241.9 | ) | $ | 5.0 | $ | 0.3 | $ | (198.0 | ) | |||||||||
| Counterparties without offsetting positions - assets | 3.9 | — | — | 3.9 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (16.3 | ) | — | — | (16.3 | ) | ||||||||||||||
| 43.1 | (258.2 | ) | 5.0 | 4.2 | (214.3 | ) | |||||||||||||||
| Long-Term Position | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | 7.4 | (95.1 | ) | 3.1 | — | (84.6 | ) | ||||||||||||||
| Counterparties without offsetting positions - assets | 0.3 | — | — | 0.3 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (14.2 | ) | — | — | (14.2 | ) | ||||||||||||||
| 7.7 | (109.3 | ) | 3.1 | 0.3 | (98.8 | ) | |||||||||||||||
| Total Derivatives | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | 46.6 | (337.0 | ) | 8.1 | 0.3 | (282.6 | ) | ||||||||||||||
| Counterparties without offsetting positions - assets | 4.2 | — | — | 4.2 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (30.5 | ) | — | — | (30.5 | ) | ||||||||||||||
| $ | 50.8 | $ | (367.5 | ) | $ | 8.1 | $ | 4.5 | $ | (313.1 | ) | ||||||||||
| Gross Presentation | Pro Forma Net Presentation | ||||||||||||||||||||
| December 31, 2020 | Asset | Liability | Collateral | Asset | Liability | ||||||||||||||||
| Current Position | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | $ | 81.1 | $ | (142.0 | ) | $ | 29.8 | $ | 15.7 | $ | (46.8 | ) | |||||||||
| Counterparties without offsetting positions - assets | 4.4 | — | — | 4.4 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (0.6 | ) | — | — | (0.6 | ) | ||||||||||||||
| 85.5 | (142.6 | ) | 29.8 | 20.1 | (47.4 | ) | |||||||||||||||
| Long-Term Position | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | 37.8 | (42.5 | ) | — | 14.6 | (19.3 | ) | ||||||||||||||
| Counterparties without offsetting positions - assets | 11.5 | — | — | 11.5 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (0.9 | ) | — | — | (0.9 | ) | ||||||||||||||
| 49.3 | (43.4 | ) | — | 26.1 | (20.2 | ) | |||||||||||||||
| Total Derivatives | |||||||||||||||||||||
| Counterparties with offsetting positions or collateral | 118.9 | (184.5 | ) | 29.8 | 30.3 | (66.1 | ) | ||||||||||||||
| Counterparties without offsetting positions - assets | 15.9 | — | — | 15.9 | — | ||||||||||||||||
| Counterparties without offsetting positions - liabilities | — | (1.5 | ) | — | — | (1.5 | ) | ||||||||||||||
| $ | 134.8 | $ | (186.0 | ) | $ | 29.8 | $ | 46.2 | $ | (67.6 | ) |
Our payment obligations in connection with a majority of these hedging transactions are secured by a first priority lien in the collateral securing the New TRC Revolver that ranks equal in right of payment with liens granted in favor of Targa’s senior secured lenders. Some of our hedges are futures contracts executed through brokers that clear the hedges through an exchange. We maintain a margin deposit with the brokers in an amount sufficient enough to cover the fair value of our open futures positions. The margin deposit is considered collateral, which is located within Other current assets on our Consolidated Balance Sheets and is not offset against the fair value of our derivative instruments.
The fair value of our derivative instruments, depending on the type of instrument, was determined by the use of present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. The estimated fair value of our derivative instruments was a net liability of ($316.7) million as of December 31, 2021. As of December 31, 2021, all our commodity derivative instruments were in a net liability position, and as such, we had no counterparty credit risk exposure as of that date. The estimated fair value is net of an adjustment for credit risk based on the default probabilities as indicated by market quotes for the counterparties’ credit default swap rates. The credit risk adjustment was immaterial for all periods presented. Our futures contracts that are cleared through an exchange are margined daily and do not require any credit adjustment.
The following tables reflect amounts recorded in OCI and amounts reclassified from OCI to revenue for the periods indicated:
| Derivatives in Cash Flow | Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Hedging Relationships | 2021 | 2020 | 2019 | |||||||||
| Commodity contracts | $ | (534.6 | ) | $ | (218.3 | ) | $ | 135.6 | ||||
| Gain (Loss) Reclassified from OCI into Income (Effective Portion) | ||||||||||||
| Location of Gain (Loss) | 2021 | 2020 | 2019 | |||||||||
| Revenues | $ | (417.3 | ) | $ | 90.8 | $ | 138.0 |
F-38
Based on valuations as of December 31, 2021, we expect to reclassify commodity hedge related deferred losses of ($304.0) million included in accumulated other comprehensive income (loss) into earnings before income taxes through the end of 2025, with ($225.9) million of losses to be reclassified over the next twelve months.
Our consolidated earnings are also affected by the use of the mark-to-market method of accounting for derivative instruments that do not qualify for hedge accounting or that have not been designated as hedges. The changes in fair value of these instruments are recorded on the balance sheet and through earnings rather than being deferred until the anticipated transaction settles. The use of mark-to-market accounting for financial instruments can cause non-cash earnings volatility due to changes in the underlying commodity price indices. For the year ended December 31, 2021, the unrealized mark-to-market losses are primarily attributable to unfavorable movements in natural gas forward basis prices, as compared to our positions.
| Derivatives Not Designated | Location of Gain (Loss) Recognized in Income | Gain (Loss) Recognized in Income on Derivatives | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| as Hedging Instruments | on Derivatives | 2021 | 2020 | 2019 | ||||||||||
| Commodity contracts | Revenue | $ | (73.3 | ) | $ | 206.1 | $ | (142.1 | ) |
See Item 7A. Quantitative and Qualitative Disclosures About Market Risk, Note 16 – Fair Value Measurements and Note 25 – Segment Information for additional disclosures related to derivative instruments and hedging activities.
Note 16 — Fair Value Measurements
Under GAAP, our Consolidated Balance Sheets reflect a mixture of measurement methods for financial assets and liabilities (“financial instruments”). Derivative financial instruments are reported at fair value on our Consolidated Balance Sheets. Other financial instruments are reported at historical cost or amortized cost on our Consolidated Balance Sheets. The following are additional qualitative and quantitative disclosures regarding fair value measurements of financial instruments.
Fair Value of Derivative Financial Instruments
Our derivative instruments consist of financially settled commodity swaps, futures, option contracts and fixed-price forward commodity contracts with certain counterparties. We determine the fair value of our derivative contracts using present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets. We have consistently applied these valuation techniques in all periods presented and we believe we have obtained the most accurate information available for the types of derivative contracts we hold.
The fair values of our derivative instruments are sensitive to changes in forward pricing on natural gas, NGLs and crude oil. The financial position of these derivatives at December 31, 2021, a net liability position of ($316.7) million, reflects the present value, adjusted for counterparty credit risk, of the amount we expect to receive or pay in the future on our derivative contracts. If forward pricing on natural gas, NGLs and crude oil were to increase by 10%, the result would be a fair value reflecting a net liability of ($458.3) million. If forward pricing on natural gas, NGLs and crude oil were to decrease by 10%, the result would be a fair value reflecting a net liability of ($175.1) million.
Fair Value of Other Financial Instruments
Due to their cash or near-cash nature, the carrying value of other financial instruments included in working capital (i.e., cash and cash equivalents, accounts receivable, accounts payable) approximates their fair value. Long-term debt is primarily the other financial instrument for which carrying value could vary significantly from fair value. We determined the supplemental fair value disclosures for our long-term debt as follows:
| • | The Existing TRC Revolver, Existing TRP Revolver, and the Securitization Facility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates; and |
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| • | The Partnership’s senior unsecured notes are based on quoted market prices derived from trades of the debt. |
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F-39
Fair Value Hierarchy
We categorize the inputs to the fair value measurements of financial assets and liabilities at each balance sheet reporting date using a three-tier fair value hierarchy that prioritizes the significant inputs used in measuring fair value:
| • | Level 1 – observable inputs such as quoted prices in active markets; |
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| • | Level 2 – inputs other than quoted prices in active markets that we can directly or indirectly observe to the extent that the markets are liquid for the relevant settlement periods; and |
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| • | Level 3 – unobservable inputs in which little or no market data exists, therefore we must develop our own assumptions. |
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The following table shows a breakdown by fair value hierarchy category for (1) financial instruments measurements included on our Consolidated Balance Sheets at fair value and (2) supplemental fair value disclosures for other financial instruments:
| December 31, 2021 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying | Fair Value | |||||||||||||||||||
| Value | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Instruments Recorded on Our Consolidated Balance Sheets at Fair Value: | ||||||||||||||||||||
| Assets from commodity derivative contracts (1) | $ | 46.6 | $ | 46.6 | $ | — | $ | 46.6 | $ | — | ||||||||||
| Liabilities from commodity derivative contracts (1) | 363.3 | 363.3 | — | 363.3 | — | |||||||||||||||
| Financial Instruments Recorded on Our Consolidated Balance Sheets at Carrying Value: | ||||||||||||||||||||
| Cash and cash equivalents | 158.5 | 158.5 | — | — | — | |||||||||||||||
| Existing TRC Revolver | — | — | — | — | — | |||||||||||||||
| Existing TRP Revolver | — | — | — | — | — | |||||||||||||||
| Partnership's Senior unsecured notes | 6,465.7 | 6,924.5 | — | 6,924.5 | — | |||||||||||||||
| Securitization Facility | 150.0 | 150.0 | — | 150.0 | — |
| December 31, 2020 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying | Fair Value | |||||||||||||||||||
| Value | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Financial Instruments Recorded on Our Consolidated Balance Sheets at Fair Value: | ||||||||||||||||||||
| Assets from commodity derivative contracts (1) | $ | 134.8 | $ | 134.8 | $ | — | $ | 134.8 | $ | — | ||||||||||
| Liabilities from commodity derivative contracts (1) | 186.0 | 186.0 | — | 185.8 | 0.2 | |||||||||||||||
| Financial Instruments Recorded on Our Consolidated Balance Sheets at Carrying Value: | ||||||||||||||||||||
| Cash and cash equivalents | 242.8 | 242.8 | — | — | — | |||||||||||||||
| Existing TRC Revolver | 555.0 | 555.0 | — | 555.0 | — | |||||||||||||||
| Existing TRP Revolver | 280.0 | 280.0 | — | 280.0 | — | |||||||||||||||
| Partnership's Senior unsecured notes | 6,585.4 | 7,036.8 | — | 7,036.8 | — | |||||||||||||||
| Securitization Facility | 350.0 | 350.0 | — | 350.0 | — |
| (1) | The fair value of derivative contracts in this table is presented on a different basis than the Consolidated Balance Sheets presentation as disclosed in Note 15 – Derivative Instruments and Hedging Activities. The above fair values reflect the total value of each derivative contract taken as a whole, whereas the Consolidated Balance Sheets presentation is based on the individual maturity dates of estimated future settlements. As such, an individual contract could have both an asset and liability position when segregated into its current and long-term portions for Consolidated Balance Sheets classification purposes. |
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Additional Information Regarding Level 3 Fair Value Measurements Included on Our Consolidated Balance Sheets
We reported certain of our swaps and option contracts at fair value using Level 3 inputs due to such derivatives not having observable market prices or implied volatilities for substantially the full term of the derivative asset or liability. For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract length extends into unobservable periods.
The fair value of these swaps is determined using a discounted cash flow valuation technique based on a forward commodity basis curve. For these derivatives, the primary input to the valuation model is the forward commodity basis curve, which is based on observable or public data sources and extrapolated when observable prices are not available.
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The significant unobservable inputs used in the fair value measurements of our Level 3 derivatives were (i) the forward natural gas liquids pricing curves, for which a significant portion of the derivative’s term is beyond available forward pricing and (ii) implied volatilities, which are unobservable as a result of inactive natural gas liquids options trading. As of December 31, 2021, we had no derivative contracts categorized as Level 3.
The following table summarizes the changes in fair value of our financial instruments classified as Level 3 in the fair value hierarchy:
| Commodity | |||||
|---|---|---|---|---|---|
| Derivative Contracts | |||||
| Asset (Liability) | |||||
| Balance, December 31, 2020 | $ | (0.2 | ) | ||
| Transfers out of Level 3 (1) | 0.2 | ||||
| Balance, December 31, 2021 | $ | — |
| (1) | Transfers relate to long-term over-the-counter swaps for NGL products for which observable market prices became available for substantially their full term. |
|---|
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Nonfinancial assets and liabilities, such as long-lived assets, are measured at fair value on a nonrecurring basis upon impairment. During the year ended December 31, 2021, we recorded a non-cash pre-tax impairment of $452.3 million. The impairment charge is primarily associated with the partial impairment of certain gas processing facilities and gathering systems associated with our Central operations in our Gathering and Processing segment. During the year ended December 31, 2020, we recorded non-cash pre-tax impairments of $2,442.8 million. The impairment charge is primarily associated with the partial impairment of certain gas processing facilities and gathering systems associated with our Central operations and full impairment of our Coastal operations. During the year ended December 31, 2019, we recorded non-cash pre-tax impairments of $225.3 million. The impairment charge is primarily associated with the partial impairment of certain gas processing facilities and gathering systems associated with our Central and Coastal operations. For disclosures related to valuation techniques, see Note 5 – Property, Plant and Equipment and Intangible Assets.
The techniques described above may produce a fair value calculation that may not be indicative or reflective of future fair values. Furthermore, while we believe our valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine fair value of certain financial and nonfinancial assets and liabilities could result in a different fair value measurement at the reporting date.
Note 17 — Related Party Transactions
Transactions with Unconsolidated Affiliates
The following table summarizes transactions with unconsolidated affiliates:
| GCF | T2 Joint Ventures | Cayenne | GCX | Little Missouri 4 | Agua Blanca | Total | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021: | ||||||||||||||||||||||||||||
| Revenues | $ | — | $ | 4.4 | $ | — | $ | — | $ | 10.6 | $ | — | $ | 15.0 | ||||||||||||||
| Product purchases and fuel | — | — | (4.8 | ) | (66.5 | ) | — | — | (71.3 | ) | ||||||||||||||||||
| Operating expenses | (1.1 | ) | (2.3 | ) | (0.2 | ) | — | (2.5 | ) | — | (6.1 | ) | ||||||||||||||||
| General and administrative expenses | — | — | — | — | (0.8 | ) | — | (0.8 | ) | |||||||||||||||||||
| 2020: | ||||||||||||||||||||||||||||
| Revenues | $ | 0.4 | $ | 4.5 | $ | — | $ | 0.2 | $ | 12.6 | $ | — | $ | 17.7 | ||||||||||||||
| Product purchases and fuel | — | — | (5.9 | ) | (67.2 | ) | — | — | (73.1 | ) | ||||||||||||||||||
| Operating expenses | (16.0 | ) | (1.2 | ) | (0.2 | ) | — | (2.2 | ) | — | (19.6 | ) | ||||||||||||||||
| General and administrative expenses | — | — | — | — | (0.8 | ) | — | (0.8 | ) | |||||||||||||||||||
| 2019: | ||||||||||||||||||||||||||||
| Revenues | $ | 0.3 | $ | 3.7 | $ | — | $ | 0.5 | $ | 6.3 | $ | — | $ | 10.8 | ||||||||||||||
| Product purchases and fuel | (7.9 | ) | — | (7.9 | ) | (24.3 | ) | — | — | (40.1 | ) | |||||||||||||||||
| Operating expenses | — | (2.0 | ) | (0.2 | ) | — | — | (1.2 | ) | (3.4 | ) | |||||||||||||||||
| General and administrative expenses | — | — | — | — | (0.3 | ) | — | (0.3 | ) |
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Relationship with Targa Resources Partners LP
We provide general and administrative and other services to the Partnership, associated with the Partnership’s existing assets and assets acquired from third parties. The Partnership Agreement between the Partnership and us, as general partner of the Partnership, governs the reimbursement of costs incurred on behalf of the Partnership.
The employees supporting the Partnership’s operations are our employees. The Partnership reimburses us for the payment of certain operating expenses, including compensation and benefits of operating personnel assigned to the Partnership’s assets, and for the provision of various general and administrative services for the benefit of the Partnership. We perform centralized corporate functions for the Partnership, such as legal, accounting, treasury, insurance, risk management, health, safety and environmental, information technology, human resources, credit, payroll, internal audit, taxes, engineering and marketing. Since October 1, 2010, substantially all of our general and administrative costs have been allocated to the Partnership, other than costs attributable to our status as a separate reporting company.
Note 18 — Commitments
Future non-cancelable commitments related to certain contractual obligations are presented below for each of the next five fiscal years and in aggregate thereafter:
| In Aggregate | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Land sites and rights of way (1) | $ | 237.3 | $ | 4.5 | $ | 4.6 | $ | 5.2 | $ | 6.6 | $ | 8.6 | $ | 207.8 |
| (1) | Land site lease and rights of way provides for surface and underground access for gathering, processing and distribution assets that are located on property not owned by us. These agreements expire at various dates, with varying terms, some of which are perpetual. |
|---|
Total expenses incurred under the above non-cancelable commitments were:
| 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Land sites and rights of way | $ | 5.9 | $ | 6.5 | $ | 6.1 |
Note 19 – Contingencies
Legal Proceedings
We and the Partnership are parties to various legal, administrative and regulatory proceedings that have arisen in the ordinary course of our business. We and the Partnership are also parties to various proceedings with governmental environmental agencies, including, but not limited to the U.S. Environmental Protection Agency, Texas Commission on Environmental Quality, Oklahoma Department of Environmental Quality, New Mexico Environment Department, Louisiana Department of Environmental Quality and North Dakota Department of Environmental Quality, which assert monetary sanctions for alleged violations of environmental regulations, including air emissions, discharges into the environment and reporting deficiencies, related to events that have arisen at certain of our facilities in the ordinary course of our business.
Note 20 – Revenue
Fixed consideration allocated to remaining performance obligations
The following table presents the estimated minimum revenue related to unsatisfied performance obligations at the end of the reporting period, and is comprised of fixed consideration primarily attributable to contracts with minimum volume commitments, for which a guaranteed amount of revenue can be calculated. These contracts are comprised primarily of gathering and processing, fractionation, export, terminaling and storage agreements, with remaining contract terms ranging from 1 to 18 years.
| 2022 | 2023 | 2024 and after | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fixed consideration to be recognized as of December 31, 2021 | $ | 468.4 | $ | 396.2 | $ | 2,290.8 |
Based on the optional exemptions that we elected to apply, the amounts presented in the table above exclude remaining performance obligations for (i) variable consideration for which the allocation exception is met and (ii) contracts with an original expected duration of one year or less.
For additional information on our revenue recognition policy, see Note 3 – Significant Accounting Policies, and for disclosures related to disaggregated revenue, see Note 25 – Segment Information.
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Note 21 – Other Operating (Income) Expense
Other operating (income) expense is comprised of the following:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | |||||||||
| (Gain) loss on sale or disposition of business and assets | $ | 2.0 | $ | 58.4 | $ | 71.1 | |||||
| Write-down of assets (1) | 10.3 | 55.6 | 17.9 | ||||||||
| Other | 0.1 | 2.6 | 0.2 | ||||||||
| $ | 12.4 | $ | 116.6 | $ | 89.2 |
| (1) | Related to the write-down of certain assets to their recoverable amounts. |
|---|
The (Gain) loss on sale or disposition of business and assets is comprised of the following:
| Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | |||||||||
| Channelview asset sale (1) | $ | — | $ | 58.3 | $ | — | |||||
| Delaware crude system (1) | — | — | 59.5 | ||||||||
| Other | 2.0 | 0.1 | 11.6 | ||||||||
| $ | 2.0 | $ | 58.4 | $ | 71.1 |
| (1) | Refer to Note 4 – Joint Ventures and Divestitures for further discussion regarding these sales. |
|---|
Note 22 – Income Taxes
Components of the federal and state income tax provisions for the periods indicated are as follows:
| 2021 | 2020 | 2019 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Current expense (benefit) | $ | 2.7 | $ | (15.4 | ) | $ | — | ||||
| Deferred expense (benefit) | 12.1 | (232.7 | ) | (87.9 | ) | ||||||
| Total income tax expense (benefit) | $ | 14.8 | $ | (248.1 | ) | $ | (87.9 | ) |
Our deferred income tax assets and liabilities as of December 31, 2021 and 2020 consist of recognition differences related to certain types of costs as follows:
| 2021 | 2020 | ||||||
|---|---|---|---|---|---|---|---|
| Deferred tax assets: | |||||||
| Net operating loss | $ | 1,411.3 | $ | 1,573.5 | |||
| Other | — | — | |||||
| Deferred tax assets before valuation allowance | 1,411.3 | 1,573.5 | |||||
| Valuation allowance | (210.6 | ) | (196.5 | ) | |||
| Deferred tax assets | 1,200.7 | 1,377.0 | |||||
| Deferred tax liabilities: | |||||||
| Investments (1) | (1,323.0 | ) | (1,519.4 | ) | |||
| Property, plant, and equipment | (4.1 | ) | (4.0 | ) | |||
| Other | (9.6 | ) | (5.7 | ) | |||
| Deferred tax liabilities | (1,336.7 | ) | (1,529.1 | ) | |||
| Net deferred tax asset (liability) | $ | (136.0 | ) | $ | (152.1 | ) | |
| Net deferred tax asset (liability) | |||||||
| Federal | $ | (106.7 | ) | $ | (147.7 | ) | |
| State | (29.3 | ) | (4.4 | ) | |||
| Long-term deferred tax liability, net | $ | (136.0 | ) | $ | (152.1 | ) |
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| (1) | Our deferred tax liability attributable to investments reflects the differences between the book and tax carrying values of our investment in the Partnership. |
|---|
During the preparation of the Company's 2021 consolidated financial statements, the Company identified errors related to its 2020 state tax provision. The Company does not believe these errors are material to its previously issued historical consolidated financial statements for any of the periods impacted and accordingly, has not adjusted the historical financial statements. In 2021, the Company recorded an additional $23.3 million of income tax expense in the Consolidated Statements of Operations and corresponding increase to its deferred tax liabilities in the Consolidated Balance Sheets.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act provided corporate taxpayers an expanded five-year net operating loss (“NOL”) carryback period for losses generated in tax years 2018 through 2020. Additionally, the CARES Act allowed corporate taxpayers to request an immediate refund of alternative minimum tax credits. We requested a cash refund from the Internal Revenue Service (“IRS”) of approximately $44 million related to the CARES Act provisions and received the refund in the second quarter of 2020.
All federal statutes of limitations for returns filed in 2018 (for calendar year 2017) have expired. For Texas, the statute of limitations has expired for 2017 returns (for calendar year 2016). Similarly, the statute of limitations expired on substantially all other 2017 state income tax returns that were filed prior to October 15, 2018.
As of December 31, 2021, we have total NOL carryforwards of $6.0 billion, $1.4 billion of which will expire between 2036 and 2037. The remaining $4.6 billion NOL will not expire, but is limited to offsetting 80% of taxable income per year. During 2020, we recorded a federal tax-effected valuation allowance of $194.2 million against our deferred tax assets, primarily due to the tax consequences of the impairment of long-lived assets. See Note 5 – Property Plant and Equipment and Intangible Assets. Our total tax effected balance at December 31, 2020 was $196.5 million. As of December 31, 2021, our tax effected valuation allowance was $210.6 million, an increase of $14.1 million from December 31, 2020. Of this valuation allowance, $164.0 million of the valuation allowance is federal, and the remaining $46.6 million is state. The decrease in the federal valuation allowance is primarily because of positive book earnings in 2021, and the increase in the state valuation allowance is due to the establishment of a state valuation allowance in 2021.
As we continue to sustain profitability, we will give more weight to projections of future taxable income to determine whether such projections provide adequate taxable income to realize our deferred tax assets. This evaluation may result in a change to our valuation allowance within the next twelve months. The change could result in a full release of the valuation allowance by year ended 2022.
Set forth below is the reconciliation between our Income tax provision (benefit) computed at the United States statutory rate on income before income taxes and the income tax provision in our Consolidated Statements of Operations for the periods indicated:
| Income tax reconciliation: | 2021 | 2020 | 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Income (loss) before income taxes | $ | 436.9 | $ | (1,573.1 | ) | $ | (46.7 | ) | |||
| Less: Net income attributable to noncontrolling interest | (350.9 | ) | (228.9 | ) | (250.4 | ) | |||||
| Income attributable to TRC before income taxes | 86.0 | (1,802.0 | ) | (297.1 | ) | ||||||
| Federal statutory income tax rate | 21 | % | 21 | % | 21 | % | |||||
| Provision for federal income taxes | 18.1 | (378.4 | ) | (62.4 | ) | ||||||
| Valuation allowance | 14.1 | 194.2 | — | ||||||||
| State income taxes, net of federal tax benefit | (5.4 | ) | (51.2 | ) | (5.8 | ) | |||||
| CARES Act NOL carryback | — | (16.9 | ) | — | |||||||
| Return-to-provision | (39.3 | ) | — | — | |||||||
| Change in statutory income tax rate | 21.0 | — | (14.4 | ) | |||||||
| Permanent adjustments | 4.1 | 4.5 | (6.3 | ) | |||||||
| Stock compensation shortfall | 1.4 | — | — | ||||||||
| Other, net | 0.8 | (0.3 | ) | 1.0 | |||||||
| Income tax provision (benefit) | $ | 14.8 | $ | (248.1 | ) | $ | (87.9 | ) |
We have not identified any uncertain tax positions. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material adverse effect on our financial condition, results of operations or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded.
Subsequent Event
In January 2022, the IRS notified us that it will examine Targa’s NOL carryback previously claimed under the CARES Act. We are cooperating with the IRS in the audit process and do not anticipate material changes in prior year taxable income.
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Note 23 - Supplemental Cash Flow Information
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| Cash: | ||||||||||||||
| Interest paid, net of capitalized interest (1) | $ | 356.0 | $ | 374.1 | $ | 287.7 | ||||||||
| Income taxes (received) paid, net | 1.3 | 43.7 | (1.9 | ) | ||||||||||
| Non-cash investing activities: | ||||||||||||||
| Change in deadstock commodity inventory | $ | (15.0 | ) | $ | 5.3 | $ | 21.8 | |||||||
| Impact of capital expenditure accruals on property, plant and equipment, net | 53.0 | (226.9 | ) | (194.4 | ) | |||||||||
| Transfers from materials and supplies inventory to property, plant and equipment | 2.4 | 2.1 | 25.1 | |||||||||||
| Change in ARO liability and property, plant and equipment due to revised cash flow estimate and additions | (0.2 | ) | (1.8 | ) | 6.7 | |||||||||
| Non-cash financing activities: | ||||||||||||||
| Changes in accrued distributions to noncontrolling interests | $ | (50.9 | ) | $ | (5.2 | ) | $ | 91.7 | ||||||
| Reduction of owner's equity related to accrued dividends on unvested equity awards under share compensation arrangements | 3.1 | 5.4 | 14.2 | |||||||||||
| Accretion of deemed dividends on Series A Preferred | — | 37.6 | 33.1 | |||||||||||
| Non-cash balance sheet movements related to assets held for sale (2): | ||||||||||||||
| Trade receivables | $ | — | $ | — | $ | 6.9 | ||||||||
| Intangible assets, net accumulated amortization and estimated loss on sale | — | — | 52.1 | |||||||||||
| Goodwill | — | — | 1.4 | |||||||||||
| Property, plant and equipment, net of accumulated depreciation and estimated loss on sale | — | — | 77.3 | |||||||||||
| Accounts payable and accrued liabilities | — | — | 6.2 | |||||||||||
| Other long-term obligations | — | — | 0.2 | |||||||||||
| Lease liabilities arising from recognition of right-of-use assets: | ||||||||||||||
| Operating lease | $ | 20.1 | $ | 13.2 | $ | 6.9 | ||||||||
| Finance lease | 24.7 | 6.0 | 10.1 |
| (1) | Interest capitalized on major projects was $4.1 million, $33.0 million and $61.8 million for the years ended December 31, 2021, 2020 and 2019. |
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| (2) | Includes non-cash balance sheet movements related to the sale of our crude gathering and storage business assets in the Permian Delaware, which was classified as held for sale as of December 31, 2019. See Note 4 – Joint Ventures and Divestitures. |
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Note 24 – Compensation Plans
2010 TRC Stock Incentive Plan
In December 2010, we adopted the Targa Resources Corp. 2010 Stock Incentive Plan for employees, consultants and non-employee directors of the Company. In May 2017, the 2010 TRC Plan was amended and restated (the “2010 TRC Plan”). Total authorized shares of common stock under the plan is 15,000,000, comprised of 5,000,000 shares originally available and an additional 10,000,000 shares that became available in May 2017. The 2010 TRC Plan allows for the grant of (i) incentive stock options qualified as such under U.S. federal income tax laws (“Incentive Options”), (ii) stock options that do not qualify as Incentive Options (“Non-statutory Options,” and together with Incentive Options, “Options”), (iii) stock appreciation rights granted in conjunction with Options or Phantom Stock Awards, (iv) restricted stock awards, (v) phantom stock awards, (vi) bonus stock awards, (vii) performance unit awards, or (viii) any combination of such awards.
Unless otherwise specified, the compensation costs for the awards listed below were recognized as expenses over related vesting periods based on the grant-date fair values, reduced by forfeitures incurred.
Restricted Stock Awards - Restricted stock entitles the recipient to cash dividends. Dividends on unvested restricted stock will be accrued when declared and recorded as short-term or long-term liabilities, dependent on the time remaining until payment of the dividends, and paid in cash when the award vests. Upon issuance, the restricted stock awards will be included in the outstanding shares of our common stock.
Director Grants – The Compensation Committee of the Targa board of directors (the “Compensation Committee”) awarded our common stock to our outside directors. In 2021, 2020 and 2019, we issued 67,591, 31,621 and 25,344 shares of director grants with the weighted average grant-date fair value of $30.33, $39.85 and $42.83, respectively.
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Restricted Stock Units Awards – Restricted Stock Units (“RSUs”) are similar to restricted stock, except that shares of common stock are not issued until the RSUs vest. The vesting periods generally vary from one year to six years. In 2021, 2020 and 2019, we issued 848,630, 1,299,592 and 1,042,344 shares of RSUs with the weighted average grant-date fair value of $37.94, $24.64 and $39.95. The 2020 and 2019 issuances include, 16,134 and 85,547 shares of RSUs for our retention program. These shares will vest in October 2022.
Restricted Stock Units in Lieu of Bonus – In 2020 and 2019, we granted 81,336 and 95,687 shares of RSUs in lieu of cash bonuses for our executives at the weighted average grant-date fair value of $41.39 and $42.83. These awards cliff vest over one to three years.
The following table summarizes the restricted stock and RSUs under the 2010 TRC Plan in shares and in dollars for the year indicated.
| Number of shares | Weighted Average Grant-Date Fair Value | |||||||
|---|---|---|---|---|---|---|---|---|
| Outstanding at December 31, 2020 | 3,835,856 | $ | 40.81 | |||||
| Granted | 916,221 | 37.38 | ||||||
| Forfeited | (77,251 | ) | 35.57 | |||||
| Vested | (983,998 | ) | 50.72 | |||||
| Outstanding at December 31, 2021 | 3,690,828 | 37.42 |
Performance Share Units
During 2021, 2020 and 2019, we granted 319,320, 291,365 and 261,245 performance share units (“PSUs”) to executive management for the 2021, 2020 and 2019 compensation cycle that will vest/have vested in January 2024, January 2023 and January 2022. The PSUs granted under the 2010 TRC Plan are three-year equity-settled awards linked to the performance of shares of our common stock. The awards also include dividend equivalent rights (“DERs”) that are based on the notional dividends accumulated during the vesting period.
The vesting of the PSUs is dependent on the satisfaction of a combination of certain service-related conditions and the Company’s total shareholder return (“TSR”) relative to the TSR of the members of a specified comparator group of publicly-traded midstream companies (the “LTIP Peer Group”) measured over designated periods. For the PSUs granted in 2019, the TSR performance factor is determined by the Compensation Committee at the end of the overall performance period based on relative performance over the designated weighting periods as follows: (i) 25% based on annual relative TSR for the first year; (ii) 25% based on annual relative TSR for the second year; (iii) 25% based on annual relative TSR for the third year; and (iv) the remaining 25% based on cumulative three-year relative TSR over the entirety of the performance period. For the PSUs granted in 2020 and 2021, the TSR performance factor is determined by the Compensation Committee based on relative TSR over a cumulative three-year performance period.
With respect to the PSUs granted in 2019, the weighting period(s), the Compensation Committee determines a guideline performance percentage, which could range from 0% to 250%, based upon the Company’s relative TSR performance for the applicable period. The TSR performance factor will be calculated by averaging the guideline performance percentage for each weighting period, and the average percentage may then be decreased or increased by the Compensation Committee at its discretion. With respect to the three year performance period of the PSUs granted in 2020 and 2021, the Compensation Committee determines a guideline performance percentage for the performance period and the percentage may then be decreased or increased by the Compensation Committee at its discretion. The grantee will become vested in a number of PSUs equal to the target number awarded multiplied by the TSR performance factor, and vested PSUs will be settled by the issuance of Company common stock. The value of dividend equivalent rights will be paid in cash when the awards vest.
Compensation cost for equity-settled PSUs was recognized as an expense over the performance period based on fair value at the grant date. The compensation cost will be reduced if forfeitures occur. Fair value was calculated using a simulated share price that incorporates peer ranking. DERs associated with equity-settled PSUs were accrued over the performance period as a reduction of owners’ equity. We evaluated the grant date fair value using a Monte Carlo simulation model and historical volatility assumption with an expected term of three years. The expected volatilities were 83%, 73% and 32% - 37% for PSUs granted in 2021, 2020 and 2019.
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The following table summarizes the PSUs under the 2010 TRC Plan in shares and in dollars for the years indicated.
| Number of shares | Weighted Average Grant-Date Fair Value | |||||||
|---|---|---|---|---|---|---|---|---|
| Outstanding at December 31, 2020 | 719,054 | $ | 70.53 | |||||
| Granted | 319,320 | 56.36 | ||||||
| Vested | (171,165 | ) | 81.02 | |||||
| Outstanding at December 31, 2021 | 867,209 | 63.24 |
Cash-settled Awards
During 2019, we issued 7,836 shares of cash-settled awards for our retention program. These awards are liability awards and vest each quarter for one year. The fair value of the awards is evaluated based on the average of TRC stock prices for the last ten trading days at the end of each quarter. All cash-settled awards vested in 2019. Payments for the cash-settled awards are classified within operating activities in the Consolidated Statements of Cash Flows.
Stock Compensation Expenses
Stock compensation expense under our plans totaled $59.2 million, $66.3 million, and $61.8 million for the years ended December 31, 2021, 2020 and 2019. As of December 31, 2021, we have $69.2 million of unrecognized compensation expense associated with share-based awards and an approximate remaining weighted average vesting periods of 1.9 years related to our various compensation plans.
The fair values of share-based awards vested in 2021, 2020 and 2019 were $73.8 million, $62.7 million and $55.4 million. Cash dividends paid for the vested awards were $8.7 million, $9.4 million and $15.0 million for 2021, 2020 and 2019.
In relation to our equity compensation plans, we recognized $1.6 million and $2.0 million of tax deficiencies for the years ended December 31, 2021 and December 31, 2020, respectively, and $7.7 million in windfall tax benefits for the year ended December 31, 2019.
Subsequent Events
In January 2022, the Compensation Committee made the following awards under the 2010 TRC Plan.
| • | 31,117 shares of restricted stock to our outside directors that will vest in January 2023. |
|---|
| • | 182,365 shares of RSUs to executive management for the 2022 compensation cycle that will vest in January 2025. |
|---|
| • | 173,013 shares of PSUs to executive management for the 2022 compensation cycle that will vest in January 2025. |
|---|
In January 2022, 63,907 shares of director grants vested with no shares withheld to satisfy tax withholding obligations.
In January 2022, 513,048 shares of 2019 PSUs vested with 203,759 shares withheld to satisfy tax withholding obligations.
In January 2022, 508,266 shares of RSUs vested with 181,835 shares withheld to satisfy tax withholding obligations.
Targa 401(k) Plan
We have a 401(k) plan whereby we match 100% of up to 5% of an employee’s contribution (subject to certain limitations in the plan). We also contribute an amount equal to 3% of each employee’s eligible compensation to the plan as a retirement contribution and may make additional contributions at our sole discretion. All Targa contributions are made 100% in cash. As part of our cost reduction measures in response to the COVID-19 pandemic, we temporarily suspended our matching contributions in the second quarter of 2020, and reinstated such contributions on January 1, 2021. We made contributions to the 401(k) plan totaling $21.8 million, $16.2 million and $23.7 million during 2021, 2020 and 2019.
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Note 25 — Segment Information
We operate in two primary segments: (i) Gathering and Processing, and (ii) Logistics and Transportation (also referred to as the Downstream Business). Our reportable segments include operating segments that have been aggregated based on the nature of the products and services provided.
Our Gathering and Processing segment includes assets used in the gathering and/or purchase and sale of natural gas produced from oil and gas wells, removing impurities and processing this raw natural gas into merchantable natural gas by extracting NGLs; and assets used for the gathering and terminaling and/or purchase and sale of crude oil. The Gathering and Processing segment's assets are located in the Permian Basin of West Texas and Southeast New Mexico (including the Midland, Central and Delaware Basins); the Eagle Ford Shale in South Texas; the Barnett Shale in North Texas; the Anadarko, Ardmore, and Arkoma Basins in Oklahoma (including the SCOOP and STACK) and South Central Kansas; the Williston Basin in North Dakota (including the Bakken and Three Forks plays); and the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.
Our Logistics and Transportation segment includes the activities and assets necessary to convert mixed NGLs into NGL products and also includes other assets and value-added services such as transporting, storing, fractionating, terminaling, and marketing of NGLs and NGL products, including services to LPG exporters and certain natural gas supply and marketing activities in support of our other businesses. The Logistics and Transportation segment also includes Grand Prix, which connects our gathering and processing positions in the Permian Basin, Southern Oklahoma and North Texas with our Downstream facilities in Mont Belvieu, Texas. The associated assets are generally connected to and supplied in part by our Gathering and Processing segment and, except for the pipelines and smaller terminals, are located predominantly in Mont Belvieu and Galena Park, Texas, and in Lake Charles, Louisiana.
Other contains the unrealized mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges. Elimination of inter-segment transactions are reflected in the corporate and eliminations column.
Reportable segment information is shown in the following tables:
| Year Ended December 31, 2021 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gathering and Processing | Logistics and Transportation | Other | Corporate and Eliminations | Total | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Sales of commodities | $ | 606.8 | $ | 15,111.6 | $ | (115.9 | ) | $ | — | $ | 15,602.5 | |||||||||
| Fees from midstream services | 747.3 | 600.0 | — | — | 1,347.3 | |||||||||||||||
| 1,354.1 | 15,711.6 | (115.9 | ) | — | 16,949.8 | |||||||||||||||
| Intersegment revenues | ||||||||||||||||||||
| Sales of commodities | 6,067.9 | 409.5 | — | (6,477.4 | ) | — | ||||||||||||||
| Fees from midstream services | 3.5 | 38.6 | — | (42.1 | ) | — | ||||||||||||||
| 6,071.4 | 448.1 | — | (6,519.5 | ) | — | |||||||||||||||
| Revenues | $ | 7,425.5 | $ | 16,159.7 | $ | (115.9 | ) | $ | (6,519.5 | ) | $ | 16,949.8 | ||||||||
| Operating margin (1) | $ | 1,325.3 | $ | 1,264.3 | $ | (115.9 | ) | |||||||||||||
| Other financial information: | ||||||||||||||||||||
| Total assets (2) | $ | 8,010.0 | $ | 7,030.0 | $ | 14.0 | $ | 154.2 | $ | 15,208.2 | ||||||||||
| Goodwill | $ | 45.2 | $ | — | $ | — | $ | — | $ | 45.2 | ||||||||||
| Capital expenditures | $ | 471.7 | $ | 78.1 | $ | — | $ | 10.7 | $ | 560.5 |
| (1) | Operating margin is calculated by subtracting Product purchases and fuel and Operating expenses from Revenues. |
|---|
| (2) | Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities. |
|---|
F-48
| Year Ended December 31, 2020 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gathering and Processing | Logistics and Transportation | Other | Corporate and Eliminations | Total | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Sales of commodities | $ | 659.9 | $ | 6,281.4 | $ | 229.7 | $ | — | $ | 7,171.0 | ||||||||||
| Fees from midstream services | 487.2 | 602.1 | — | — | 1,089.3 | |||||||||||||||
| 1,147.1 | 6,883.5 | 229.7 | — | 8,260.3 | ||||||||||||||||
| Intersegment revenues | ||||||||||||||||||||
| Sales of commodities | 2,173.2 | 205.9 | — | (2,379.1 | ) | — | ||||||||||||||
| Fees from midstream services | 6.5 | 31.5 | — | (38.0 | ) | — | ||||||||||||||
| 2,179.7 | 237.4 | — | (2,417.1 | ) | — | |||||||||||||||
| Revenues | $ | 3,326.8 | $ | 7,120.9 | $ | 229.7 | $ | (2,417.1 | ) | $ | 8,260.3 | |||||||||
| Operating margin (1) | $ | 1,017.7 | $ | 1,128.0 | $ | 229.7 | ||||||||||||||
| Other financial information: | ||||||||||||||||||||
| Total assets (2) | $ | 8,743.5 | $ | 6,860.0 | $ | 86.3 | $ | 185.9 | $ | 15,875.7 | ||||||||||
| Goodwill | $ | 45.2 | $ | — | $ | — | $ | — | $ | 45.2 | ||||||||||
| Capital expenditures | $ | 293.9 | $ | 414.0 | $ | — | $ | 18.9 | $ | 726.8 |
| (1) | Operating margin is calculated by subtracting Product purchases and fuel and Operating expenses from Revenues. |
|---|
| (2) | Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities. |
|---|
| Year Ended December 31, 2019 | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gathering and Processing | Logistics and Transportation | Other | Corporate and Eliminations | Total | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Sales of commodities | $ | 1,101.6 | $ | 6,406.1 | $ | (113.9 | ) | $ | — | $ | 7,393.8 | |||||||||
| Fees from midstream services | 728.0 | 549.3 | — | — | 1,277.3 | |||||||||||||||
| 1,829.6 | 6,955.4 | (113.9 | ) | — | 8,671.1 | |||||||||||||||
| Intersegment revenues | ||||||||||||||||||||
| Sales of commodities | 2,628.4 | 132.2 | — | (2,760.6 | ) | — | ||||||||||||||
| Fees from midstream services | 7.4 | 28.7 | — | (36.1 | ) | — | ||||||||||||||
| 2,635.8 | 160.9 | — | (2,796.7 | ) | — | |||||||||||||||
| Revenues | $ | 4,465.4 | $ | 7,116.3 | $ | (113.9 | ) | $ | (2,796.7 | ) | $ | 8,671.1 | ||||||||
| Operating margin (1) | $ | 1,006.4 | $ | 867.2 | $ | (113.9 | ) | |||||||||||||
| Other financial information: | ||||||||||||||||||||
| Total assets (2) | $ | 11,929.8 | $ | 6,741.8 | $ | 1.0 | $ | 142.5 | $ | 18,815.1 | ||||||||||
| Goodwill | $ | 45.2 | $ | — | $ | — | $ | — | $ | 45.2 | ||||||||||
| Capital expenditures | $ | 1,273.3 | $ | 1,412.2 | $ | — | $ | 23.0 | $ | 2,708.5 |
| (1) | Operating margin is calculated by subtracting Product purchases and fuel and Operating expenses from Revenues. |
|---|
| (2) | Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities. |
|---|
F-49
The following table shows our consolidated revenues disaggregated by product and service for the periods presented:
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||
| Sales of commodities: | ||||||||||||
| Revenue recognized from contracts with customers: | ||||||||||||
| Natural gas | $ | 3,523.9 | $ | 1,359.0 | $ | 1,321.7 | ||||||
| NGL | 12,210.8 | 5,181.3 | 5,233.8 | |||||||||
| Condensate and crude oil | 358.4 | 264.0 | 716.1 | |||||||||
| Petroleum products | — | 69.8 | 126.3 | |||||||||
| 16,093.1 | 6,874.1 | 7,397.9 | ||||||||||
| Non-customer revenue: | ||||||||||||
| Derivative activities - Hedge | (417.3 | ) | 90.8 | 138.0 | ||||||||
| Derivative activities - Non-hedge (1) | (73.3 | ) | 206.1 | (142.1 | ) | |||||||
| (490.6 | ) | 296.9 | (4.1 | ) | ||||||||
| Total sales of commodities | 15,602.5 | 7,171.0 | 7,393.8 | |||||||||
| Fees from midstream services: | ||||||||||||
| Revenue recognized from contracts with customers: | ||||||||||||
| Gathering and processing | 730.3 | 476.0 | 722.4 | |||||||||
| NGL transportation, fractionation and services | 190.6 | 163.1 | 169.4 | |||||||||
| Storage, terminaling and export | 379.7 | 401.9 | 356.4 | |||||||||
| Other | 46.7 | 48.3 | 29.1 | |||||||||
| Total fees from midstream services | 1,347.3 | 1,089.3 | 1,277.3 | |||||||||
| Total revenues | $ | 16,949.8 | $ | 8,260.3 | $ | 8,671.1 |
| (1) | Represents derivative activities that are not designated as hedging instruments under ASC 815. |
|---|
The following table shows a reconciliation of reportable segment Operating margin to Income (loss) before income taxes for the periods presented:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2019 | ||||||||||||
| Reconciliation of reportable segment operating margin to income (loss) before income taxes: | ||||||||||||||
| Gathering and Processing operating margin | $ | 1,325.3 | $ | 1,017.7 | $ | 1,006.4 | ||||||||
| Logistics and Transportation operating margin | 1,264.3 | 1,128.0 | 867.2 | |||||||||||
| Other operating margin | (115.9 | ) | 229.7 | (113.9 | ) | |||||||||
| Depreciation and amortization expense | (870.6 | ) | (865.1 | ) | (971.6 | ) | ||||||||
| General and administrative expense | (273.2 | ) | (254.6 | ) | (280.7 | ) | ||||||||
| Impairment of long-lived assets | (452.3 | ) | (2,442.8 | ) | (225.3 | ) | ||||||||
| Interest expense, net | (387.9 | ) | (391.3 | ) | (337.8 | ) | ||||||||
| Equity earnings (loss) | (23.9 | ) | 72.6 | 39.0 | ||||||||||
| Gain (loss) on sale or disposition of business and assets | (2.0 | ) | (58.4 | ) | (71.1 | ) | ||||||||
| Write-down of assets | (10.3 | ) | (55.6 | ) | (17.9 | ) | ||||||||
| Gain (loss) from financing activities | (16.6 | ) | 45.6 | (1.4 | ) | |||||||||
| Gain (loss) from sale of equity-method investment | — | — | 69.3 | |||||||||||
| Change in contingent considerations | (0.1 | ) | 0.3 | (8.7 | ) | |||||||||
| Other, net | 0.1 | 0.8 | (0.2 | ) | ||||||||||
| Income (loss) before income taxes | $ | 436.9 | $ | (1,573.1 | ) | $ | (46.7 | ) |
Note 26 — Condensed Parent Only Financial Statements
The condensed parent only financial statements represent the financial information required by Rule 5-04 of the Securities and Exchange Commission Regulation S-X for Targa Resources Corp.
In the condensed financial statements, Targa’s Investments in consolidated subsidiaries are presented under the equity method of accounting. Under this method, the assets and liabilities of affiliates are not consolidated. The investments in net assets of the consolidated subsidiaries are recorded in the balance sheets. The Income (loss) from operations of the consolidated subsidiaries is reported as Equity in income (loss) of consolidated subsidiaries. Other comprehensive income has been adjusted for Targa’s share of the investees’ currently reported Other comprehensive income (loss).
F-50
A substantial amount of Targa’s operating, investing and financing activities are conducted by its affiliates. The condensed financial statements should be read in conjunction with Targa’s consolidated financial statements, which begin on page F-1 in this Annual Report.
| TARGA RESOURCES CORP. | |||||||
|---|---|---|---|---|---|---|---|
| PARENT ONLY | |||||||
| CONDENSED BALANCE SHEETS | |||||||
| December 31, | |||||||
| 2021 | 2020 | ||||||
| ASSETS | |||||||
| Investment in consolidated subsidiaries | $ | 2,746.2 | $ | 3,507.2 | |||
| Deferred income taxes | 65.1 | 59.7 | |||||
| Debt issuance costs | 1.7 | 2.9 | |||||
| Other long-term assets | 8.8 | 9.4 | |||||
| Total assets | $ | 2,821.8 | $ | 3,579.2 | |||
| LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY | |||||||
| Accrued current liabilities | $ | 30.8 | $ | 30.5 | |||
| Long-term debt | — | 555.0 | |||||
| Other long-term liabilities | 29.5 | 38.4 | |||||
| Series A Preferred, net of discount | 749.7 | 301.4 | |||||
| Targa Resources Corp. stockholders' equity | 2,011.8 | 2,653.9 | |||||
| Total liabilities, Series A Preferred and owners' equity | $ | 2,821.8 | $ | 3,579.2 |
| TARGA RESOURCES CORP. | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| PARENT ONLY | |||||||||||
| CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) | |||||||||||
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | 2019 | |||||||||
| Equity in net income (loss) of consolidated subsidiaries | $ | 89.1 | $ | (1,534.9 | ) | $ | (186.2 | ) | |||
| General and administrative expense | (17.3 | ) | (12.4 | ) | (13.1 | ) | |||||
| Income (loss) from operations | 71.8 | (1,547.3 | ) | (199.3 | ) | ||||||
| Other income (expense): | |||||||||||
| Interest expense | (6.0 | ) | (12.5 | ) | (17.0 | ) | |||||
| Income (loss) before income taxes | 65.8 | (1,559.8 | ) | (216.3 | ) | ||||||
| Deferred income tax (expense) benefit | 5.4 | 5.9 | 7.1 | ||||||||
| Net income (loss) attributable to Targa Resources Corp. | 71.2 | (1,553.9 | ) | (209.2 | ) | ||||||
| Other comprehensive income (loss) | (89.1 | ) | (234.3 | ) | (1.8 | ) | |||||
| Total comprehensive income (loss) | $ | (17.9 | ) | $ | (1,788.2 | ) | $ | (211.0 | ) | ||
| Dividends on Series A Preferred | 87.3 | 91.7 | 91.7 | ||||||||
| Deemed dividends on Series A Preferred | — | 39.2 | 33.1 | ||||||||
| Net income (loss) attributable to common shareholders | (16.1 | ) | (1,684.8 | ) | (334.0 | ) | |||||
| Net income (loss) attributable to Targa Resources Corp. | $ | 71.2 | $ | (1,553.9 | ) | $ | (209.2 | ) |
F-51
| TARGA RESOURCES CORP. | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| PARENT ONLY | ||||||||||||
| CONDENSED STATEMENTS OF CASH FLOWS | ||||||||||||
| Year Ended December 31, | ||||||||||||
| 2021 | 2020 | 2019 | ||||||||||
| Net cash provided by (used in) operating activities | $ | (54.4 | ) | $ | (193.9 | ) | $ | 48.3 | ||||
| Cash flows from investing activities | ||||||||||||
| Advances to consolidated subsidiaries | 133.5 | 214.1 | (222.5 | ) | ||||||||
| Distributions from consolidated subsidiaries (1) | 716.6 | 387.2 | 1,152.4 | |||||||||
| Net cash provided by (used in) investing activities | 850.1 | 601.3 | 929.9 | |||||||||
| Cash flows from financing activities | ||||||||||||
| Proceeds from long-term debt borrowings | 30.0 | 155.0 | (450.0 | ) | ||||||||
| Repayments of long-term debt | (585.0 | ) | (35.0 | ) | 450.0 | |||||||
| Transaction costs incurred related to sale of ownership interests | — | — | (10.8 | ) | ||||||||
| Repurchase of common stock | (53.2 | ) | (97.4 | ) | (13.9 | ) | ||||||
| Dividends paid to common and Series A Preferred shareholders | (187.5 | ) | (384.2 | ) | (953.5 | ) | ||||||
| Partial repurchase of Series A Preferred | — | (45.8 | ) | — | ||||||||
| Net cash provided by (used in) financing activities | (795.7 | ) | (407.4 | ) | (978.2 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | — | — | — | |||||||||
| Cash and cash equivalents - beginning of year | — | — | — | |||||||||
| Cash and cash equivalents - end of year | $ | — | $ | — | $ | — |
(1) Amounts reflect distributions from consolidated subsidiaries in excess of earnings.
F-52
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