What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 129 added, 326 removed, 565 unchanged (45% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30, 2020

March 31, 2021

December 31, 2020

2 unchanged sentences

Cash and cash equivalents

Trade receivables, net of allowances of $ 0.1 and $ 0.0 million at September 30, 2020 and December 31, 2019

Trade receivables, net of allowances of $ 4.9 and $ 0.1 million at March 31, 2021 and December 31, 2020

Assets from risk management activities

Held for sale assets

Other current assets

9 unchanged sentences

Accrued liabilities

Dividends payable

Distributions payable

Interest payable

Accrued taxes

Liabilities from risk management activities

Current debt obligations

Held for sale liabilities

Total current liabilities

10 unchanged sentences

Issued Outstanding

September 30, 2020 234,745,594 233,517,921

March 31, 2021 235,670,430 228,654,590

December 31, 2020 234,792,888 228,061,853

4 unchanged sentences

Accumulated other comprehensive income (loss)

Treasury stock, at cost ( 1,227,673 shares as of September 30, 2020 and 1,009,284 shares as of December 31, 2019)

Treasury stock, at cost ( 7,015,840 shares as of March 31, 2021 and 6,731,035 shares as of December 31, 2020)

Total Targa Resources Corp.

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CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions, except per share amounts)

3 unchanged sentences

Costs and expenses:

Product purchases

Product purchases and fuel

Operating expenses

8 unchanged sentences

Gain (loss) from financing activities

Gain (loss) from sale of equity-method investment

Change in contingent considerations

Income (loss) before income taxes

13 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30,

Related Income Tax

(In millions)

Net income (loss)

Other comprehensive income (loss):

Commodity hedging contracts:

Change in fair value

Settlements reclassified to revenues

Other comprehensive income (loss)

Comprehensive income (loss)

Comprehensive income (loss) attributable to noncontrolling interests

Comprehensive income (loss) attributable to Targa Resources Corp.

Nine Months Ended September 30,

Three Months Ended March 31,

Related Income Tax

17 unchanged sentences

(In millions, except shares in thousands)

Balance, June 30, 2020

Compensation on equity grants

Distribution equivalent rights

Shares issued under compensation program

Shares and units tendered for tax withholding obligations

Series A Preferred Stock dividends

Dividends - $ 23.75 per share

Dividends in excess of retained earnings

Deemed dividends - accretion of beneficial conversion feature

Common stock dividends

Dividends - $ 0.10 per share

Dividends in excess of retained earnings

Distributions to noncontrolling interests

Contributions from noncontrolling interests

Non-cash allocation to noncontrolling interests

Other comprehensive income (loss)

Net income (loss)

Balance, September 30, 2020

See notes to consolidated financial statements.

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK

Comprehensive

Noncontrolling

Income (Loss)

(In millions, except shares in thousands)

Balance, June 30, 2019

Compensation on equity grants

Distribution equivalent rights

Shares issued under compensation program

Shares and units tendered for tax withholding obligations

Series A Preferred Stock dividends

Dividends - $ 23.75 per share

Dividends in excess of retained earnings

Deemed dividends - accretion of beneficial conversion feature

Common stock dividends

Dividends - $ 0.91 per share

Dividends in excess of retained earnings

Distributions to noncontrolling interests

Contributions from noncontrolling interests

Other comprehensive income (loss)

Net income (loss)

Balance, September 30, 2019

See notes to consolidated financial statements.

TARGA RESOURCES CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY AND SERIES A PREFERRED STOCK

Comprehensive

Noncontrolling

Income (Loss)

(In millions, except shares in thousands)

Balance, December 31, 2020

Impact of accounting standard adoption (see Note 3)

Compensation on equity grants

5 unchanged sentences

Dividends in excess of retained earnings

Deemed dividends - accretion of beneficial conversion feature

Common stock dividends

3 unchanged sentences

Contributions from noncontrolling interests

Non-cash allocation to noncontrolling interests

Other comprehensive income (loss)

Net income (loss)

Balance, September 30, 2020

Balance, March 31, 2021

See notes to consolidated financial statements.

13 unchanged sentences

Dividends in excess of retained earnings

Deemed dividends - accretion of beneficial conversion feature

Deemed dividends - accretion of beneficial conversion

Common stock dividends

3 unchanged sentences

Contributions from noncontrolling interests

Sale of ownership interests in subsidiaries, net

Other comprehensive income (loss)

Net income (loss)

Balance, September 30, 2019

Balance, March 31, 2020

See notes to consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

14 unchanged sentences

(Gain) loss from financing activities

(Gain) loss from sale of equity-method investment

Change in contingent considerations

Changes in operating assets and liabilities, net of business acquisitions:

7 unchanged sentences

Investments in unconsolidated affiliates

Proceeds from sale of equity-method investment

Return of capital from unconsolidated affiliates

10 unchanged sentences

Costs incurred in connection with financing arrangements

Payment of contingent consideration

Repurchase of shares and units under compensation plans

Sale of ownership interests in subsidiaries

Contributions from noncontrolling interests

16 unchanged sentences

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.”

We conduct our operations through our direct and indirect subsidiaries in Targa Resources Partners LP (the “Partnership” or “TRP”).

Targa consolidates TRP and its subsidiaries under GAAP.

Our consolidated financial statements do not differ materially from the consolidated financial statements of TRP.

The most noteworthy differences are:

the inclusion of the TRC revolving credit facility (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);

the inclusion of Series A Preferred Stock (“Series A Preferred”);

the impacts of TRC’s treatment as a corporation for U.S.

federal income tax purposes.

Our Operations

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The information furnished herein reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods reported.

All significant intercompany balances and transactions have been eliminated in consolidation.

All intercompany balances and transactions have been eliminated in consolidation.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Certain amounts in prior periods have been reclassified to conform to the current year presentation.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

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 three months ended March 31, 2021 and 2020, we reclassified $ 22.9 million and $ 19.1 million in fuel and power costs, respectively.

Note 3 — Significant Accounting Policies

The accounting policies that we follow are set forth in Note 3 – Significant Accounting Policies of the Notes to Consolidated Financial Statements in our Annual Report.

Other than the updates noted below, there were no significant updates or revisions to our accounting policies during the nine months ended September 30, 2020.

Other than the updates noted below, there were no significant updates or revisions to our accounting policies during the three months ended March 31, 2021.

Recent Accounting Pronouncements

Recently issued accounting pronouncements not yet adopted

Recently adopted accounting pronouncements

Convertible Debt and Equity Instruments

In August 2020, the FASB issued 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):

In August 2020, the Financial Accounting Standards Board (“FASB”) 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.

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This update permits the use of either the modified retrospective or full retrospective method of adoption.

We are currently evaluating the effects of such amendments on our consolidated financial statements.

Recently adopted accounting pronouncements

Measurement of Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The amendments in this update modify the impairment model for financial instruments, including trade and other receivables, held-to-maturity debt securities and other instruments.

The amendments require entities to consider historical information, current conditions, and supportable forecasts to estimate expected credit losses, which may result in earlier recognition of losses.

The amendments were effective for us on January 1, 2020 and were adopted by applying the modified retrospective transition approach.

The adoption did not result in a cumulative effect adjustment to retained earnings on January 1, 2020.

As a result of our adoption, see Accounting Policy Updates – Allowance for Doubtful Accounts below.

Accounting Policy Updates

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.

These procedures also include performing account reconciliations, dispute resolution and payment confirmation.

We may involve our legal counsel to pursue the recovery of defaulted trade receivables.

As the financial condition of any counterparty changes, circumstances develop or additional information becomes available, adjustments to our allowance may be required.

On a modified retrospective basis, we adopted the amendments early, effective January 1, 2021.

The primary effect of the adoption on the Company was attributable to the elimination of the beneficial conversion accounting model, which results in the presentation of the Series A Preferred Stock as a single unit of account, without bifurcation of the beneficial conversion feature and corresponding discount.

Therefore, upon adoption, the carrying value of the Series A Preferred Stock was reflected at $ 749.7 million, which is the allocated amount based on the initial relative fair value allocation of net proceeds of $ 787.1 million, less the carrying value of the portion repurchased in December 2020.

The adoption did not have an impact on retained earnings (deficit), but rather, the adoption impact flowed through additional paid-in capital where the beneficial conversion feature was previously included.

In addition, the adoption also eliminates the corresponding discount attributable to the beneficial conversion feature and therefore, accretion of the discount as a deemed dividend is no longer required.

The other aspects of the ASU did not have a material effect on our consolidated financial statements.

Note 4 — Property, Plant and Equipment and Intangible Assets

September 30, 2020

March 31, 2021

December 31, 2020

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Intangible assets, net

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.

During the three and nine months ended September 30, 2020, depreciation expense was $ 168.5 million and $ 538.5 million, respectively.

During the three and nine months ended September 30, 2019, depreciation expense was $ 201.4 million and $ 590.1 million, respectively.

Asset Impairments

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, and changes to our estimates could have an impact on our assessment of asset recoverability .

During the nine months ended September 30, 2020, global commodity prices declined due to factors that significantly impacted both demand and supply.

During the three months ended March 31, 2021 and 2020, depreciation expense was $ 183.4 million and $ 200.7 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.

During the first quarter of 2020, global commodity prices declined 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 from certain major oil producing nations increasing production also significantly contributed to the sharp drop in commodity prices.

While these major oil and gas producing countries subsequently agreed to collectively decrease production and global economies are beginning to re-open, these events, combined with the outbreak of the COVID-19 pandemic, contributed to volatility and depressed commodity prices.

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.

Commodity prices remain weak relative to historical levels and have remained volatile as uncertainty around global commodity supply and demand continues due to the COVID-19 pandemic.

In the first quarter of 2020, we determined that indicators of impairment existed for certain asset groups reported primarily within our Gathering and Processing segment.

For each asset group for which undiscounted future net cash flows were not sufficient to recover the net book value, fair value was determined through use of discounted estimated cash flows to measure the impairment loss.

As a result, we determined that indicators of impairment existed for certain asset groups reported primarily within our Gathering and Processing segment, and recorded non-cash pre-tax impairments 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 full impairment of our Coastal operations.

Our first quarter impairment assessment forecasted continuing decline in natural gas production across the Mid-Continent and Gulf of Mexico regions.

The carrying value adjustments are included in Impairment of long-lived assets in our Consolidated Statements of Operations.

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 discount rate.

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 terminal value exit multiples.

The significant unobservable inputs used include discount rates and determination of terminal values.

We utilized a weighted average discount rate of 14.0 % when deriving the fair value of the asset groups impaired during the first quarter of 2020.

The weighted average discount rate and exit multiples reflect management’s best estimate of inputs a market participant would utilize.

In the first quarter of 2020, we recorded non-cash pre-tax impairments of $ 2,442.8 million primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations - all of which are in our Gathering and Processing segment.

Our first quarter impairment assessment forecasted further decline in natural gas production across the Mid-Continent and Gulf of Mexico.

The carrying value adjustments are included in Impairment of long-lived assets in our Consolidated Statements of Operations.

There were no indicators of impairment identified during the second or third quarters of 2020.

The weighted average discount rate and terminal values reflect management’s best estimate of inputs a market participant would utilize.

While commodity prices remain volatile and uncertainties associated with the impacts of COVID-19 continue, production from wells that were previously shut-in during the first half of 2020 across our operating areas has largely resumed.

There were no indicators of impairment identified during the remainder of 2020 or first quarter of 2021.

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

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Balance at December 31, 2020

Balance at September 30, 2020

Assets and L iabilities H eld for S ale

In October 2020, we executed agreements to sell our assets in Channelview, Texas for approximately $ 58 million (the “October 2020 Sale”).

As of September 30, 2020, we classified our assets as held for sale and measured the fair value of the disposal group using the expected sales price under a contract with a third party (an input within Level 3 of the fair value hierarchy).

We recognized a loss of $ 58.3 million included within other operating (income) expense in our Consolidated Statements of Operations for the three and nine months ended September 30, 2020 to reduce the carrying value of our assets to their recoverable amounts.

The sale closed in October 2020, and we used the proceeds for general corporate purposes.

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.

The adjusted carrying amounts of the assets and liabilities held for sale as of September 30, 2020 are as follows:

September 30, 2020

Current assets:

Property, plant and equipment, net of accumulated depreciation and estimated loss on sale

Other current assets

Total assets held for sale

Current liabilities:

Accounts payable and accrued liabilities

Other long-term obligations

Total liabilities held for sale

Balance at March 31, 2021

Note 5 — Debt Obligations

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Accounts receivable securitization facility, due April 2021 (2)

TPL notes, 4¾ % fixed rate, due November 2021 (3)

Finance lease liabilities

1 unchanged sentence

TRC obligations:

TRC Senior secured revolving credit facility, variable rate, due

June 2023 (3)

TRC Senior secured revolving credit facility, variable rate, due June 2023 (4)

Obligations of the Partnership:

2 unchanged sentences

Senior unsecured notes:

5¼% fixed rate, due May 2023

4¼ % fixed rate, due November 2023 (6)

6¾% fixed rate, due March 2024

5⅛ % fixed rate, due February 2025

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4⅞ % fixed rate, due February 2031

TPL notes, 4¾% fixed rate, due November 2021 (5)

4 % fixed rate, due January 2032

TPL notes, 5⅞ % fixed rate, due August 2023 (3)

10 unchanged sentences

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.

As of September 30, 2020, the Partnership had $ 250.0 million of qualifying receivables under its $ 250.0 million accounts receivable securitization facility (“Securitization Facility”), resulting in zero availability.

During the second quarter of 2020, the Partnership amended the Securitization Facility to decrease the facility size from $ 400.0 million to $ 250.0 million to more closely align with our expectations for borrowing needs given commodity prices and to extend the facility termination date to April 21, 2021 .

As of September 30, 2020, availability under TRC’s $ 670.0 million senior secured revolving credit facility (“TRC Revolver”) was $ 235.0 million.

As of September 30, 2020, availability under the Partnership’s $ 2.2 billion senior secured revolving credit facility (“TRP Revolver”) was $ 2,064.7 million .

As of March 31, 2021, the Partnership had $ 270.0 million of qualifying receivables under its $ 350.0 million accounts receivable securitization facility (“Securitization Facility”), resulting in $ 80.0 million availability.

“TPL” refers to Targa Pipeline Partners LP.

The following table shows the range of interest rates and weighted average interest rate incurred on variable-rate debt obligations during the nine months ended September 30, 2020:

As of March 31, 2021, availability under TRC’s $ 670.0 million senior secured revolving credit facility (“TRC Revolver”) was $ 595.0 million.

As of March 31, 2021, availability under the Partnership’s $ 2.2 billion senior secured revolving credit facility (“TRP Revolver”) was $ 2,098.1 million .

On April 1, 2021, the Partnership issued a notice of redemption to redeem all of the outstanding 4¼ % Senior Notes due 2023 on May 17, 2021 .

The following table shows the range of interest rates and weighted average interest rate incurred on variable-rate debt obligations during the three months ended March 31, 2021:

Range of Interest Rates Incurred

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Compliance with Debt Covenants

As of September 30, 2020, we were in compliance with the covenants contained in our various debt agreements.

Senior Unsecured Notes Issuance

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 $ 991.0 million.

As of March 31, 2021, we were in compliance with the covenants contained in our various debt agreements.

Senior Unsecured Notes Issuance and Redemptions

In February 2021, the Partnership issued $ 1.0 billion aggregate principal amount of 4 % Senior Notes due 2032, 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 were used to fund the concurrent cash tender offer (the “Tender Offer”) of the Partnership’s 6¾ % Senior Notes due 2024 and redeem any 6¾ % Senior Notes due 2024 that remained outstanding after consummation of the Tender Offer, with the remainder used for repayment of borrowings under the Partnership’s senior secured revolving credit facility.

See “Debt Extinguishments and Repurchases” for further details of the concurrent tender offer.

Debt Extinguishments and Repurchases

Concurrent with the August 2020 Offering, the Partnership commenced the Tender Offer to purchase for cash, subject to certain terms and conditions, any and all of our outstanding 6¾ % Senior Notes due 2024.

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 Tender Offer in August 2020, the Partnership redeemed the 6¾ % Senior Notes due 2024 for the remaining note balance of $ 318.0 million (the “2024 Note Redemption”).

As a result of the 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.

Debt Repurchases

The following table summarizes the Partnership’s senior note repurchases for the nine months ended September 30, 2020:

Debt Repurchased

Write-off of Debt Issuance Costs

5⅛% Senior Notes due 2025

5⅞% Senior Notes due 2026

5⅜% Senior Notes due 2027

6½% Senior Notes due 2027

5% Senior Notes due 2028

6⅞% Senior Notes due 2029

5½% Senior Notes due 2030

6¾% Senior Notes due 2024

A portion of the net proceeds from the issuance were 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 TRP Revolver and TRC Revolver.

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 issued notices of redemption for all of the outstanding TPL 4¾ % Senior Notes due 2021 and TPL 5⅞ % Senior Notes due 2023 (collectively, the “TPL Notes”).

These notes were redeemed on February 22, 2021 with available liquidity under the TRP Revolver.

As a result of the redemptions of the TPL Notes, we recorded a gain due to debt extinguishment of $ 0.2 million comprised of a write-off of $ 0.2 million of debt issuance premiums.

We or the Partnership may retire or purchase various series of the Partnership’s outstanding debt through cash purchases and/or exchanges for other debt, in open market purchases, privately negotiated transactions or otherwise.

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Contractual Obligations

The following table summarizes payment obligations for debt instruments after giving effect to the debt repurchases detailed above:

The following table summarizes payment obligations for debt instruments after giving effect to the debt extinguishments detailed above:

Payments Due By Period

(in millions)

Long-term debt obligations (1)

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Represents scheduled future maturities of consolidated debt obligations for the periods indicated.

Represents interest expense on debt obligations based on both fixed debt interest rates and prevailing September 30, 2020 rates for floating debt.

Represents interest expense on debt obligations based on both fixed debt interest rates and prevailing March 31, 2021 rates for floating debt.

Subsequent Event

On November 2, 2020, the Partnership redeemed the $ 559.6 million remaining balance of its 5¼ % Senior Notes due 2023.

On April 1, 2021, the Partnership issued a notice of redemption to redeem all of the outstanding 4¼ % Senior Notes due 2023 on May 17, 2021 .

Note 6 — Other Long-term Liabilities

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The resulting deferred revenue will be recognized once all conditions for revenue recognition have been met.

Deferred revenue as of September 30, 2020 and December 31, 2019, was $ 169.4 million and $ 172.0 million, respectively, which includes $ 129.0 million of payments received from Vitol Americas Corp.

Deferred revenue as of March 31, 2021 and December 31, 2020, was $ 167.6 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.

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Preferred Stock Dividends

As of September 30, 2020, we have accrued cumulative preferred dividends of $ 22.9 million on our Series A Preferred Stock (“Series A Preferred”), which will be paid on November 13, 2020 .

During the three and nine months ended September 30, 2020, we paid $ 22.9 million and $ 68.8 million of dividends to preferred shareholders, and recorded deemed dividends of $ 9.5 million and $ 27.7 million attributable to accretion of the preferred discount resulting from beneficial conversion feature accounting.

Such accretion is included in the book value of the Series A Preferred.

As of March 31, 2021, we have accrued cumulative preferred dividends of $ 21.8 million on our Series A Preferred Stock, which will be paid on May 13, 2021 .

During the three months ended March 31, 2021, we paid $ 21.8 million of dividends to preferred shareholders.

Note 8 — Common Stock and Related Matters

Common Stock Dividends

The following table details the dividends declared and/or paid by us to common shareholders for the nine months ended September 30, 2020:

The following table details the dividends declared and/or paid by us to common shareholders for the three months ended March 31, 2021:

Three Months Ended

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(In millions, except per share amounts)

September 30, 2020

November 16, 2020

June 30, 2020

August 17, 2020

March 31, 2021

2 unchanged sentences

Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting.

Subsequent Event

In October 2020, our Board of Directors approved a share repurchase program (the “Share Repurchase Program”) for the repurchase of up to $ 500 million of our outstanding common stock.

As of November 2, 2020, we have repurchased 4,505,507 shares at a weighted average price of $ 16.33 for a total net cost of $ 73.6 million.

There is approximately $ 426 million remaining under the Share Repurchase Program.

We may discontinue the Share Repurchase Program at any time and are not obligated to repurchase any specific dollar amount or number of shares.

Note 9 — Partnership Units and Related Matters

Distributions

We are entitled to receive all Partnership distributions from available cash on the Partnership’s common units after payment of preferred unit distributions each quarter.

The following table details the distributions declared and paid by the Partnership for the nine months ended September 30, 2020:

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 paid by the Partnership for the three months ended March 31, 2021:

Three Months Ended

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Targa Resources Corp.

September 30, 2020

November 13, 2020

June 30, 2020

August 13, 2020

March 31, 2021

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however, no units will be issued for those contributions.

For the nine months ended September 30, 2020, we made a total of $ 50.0 million in contributions to the Partnership.

Preferred Units

The Partnership’s issued and outstanding Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) rank senior to the Partnership’s common units with respect to the distribution rights.

Distributions on the Partnership’s 5,000,000 Preferred Units are cumulative from the date of original issue in October 2015 and are payable monthly in arrears on the 15th day of each month of each year, when, as and if declared by the board of directors of the Partnership’s general partner.

Distributions on the Preferred Units are payable out of amounts legally available at a rate equal to 9.0 % per annum.

On and after November 1, 2020, distributions on the Preferred Units will accumulate at an annual floating rate equal to the one-month LIBOR plus a spread of 7.71 %.

The Partnership paid $ 2.8 million and $ 8.4 million of distributions to the holders of Preferred Units (“Preferred Unitholders”) for the three and nine months ended September 30, 2020.

The Preferred Units are reported as noncontrolling interests in our financial statements.

Subsequent Event

In October 2020 , the board of directors of the general partner of the Partnership declared a cash distribution of $ 0.1875 per Preferred Unit, resulting in approximately $ 0.9 million in distributions that will be paid on November 16, 2020 .

For the three months ended March 31, 2021, we made a total of $ 36.0 million in contributions to the Partnership.

Note 10 — Earnings per Common Share

The following table sets forth a reconciliation of net income and weighted average shares outstanding (in millions) used in computing basic and diluted net income per common share:

Three Months Ended September 30,

Nine Months Ended September 30,

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:

Three Months Ended March 31,

(In millions, except per share amounts)

Net income (loss) attributable to Targa Resources Corp.

Dividends on preferred stock

Dividends on Series A Preferred Stock

Deemed dividends on Series A Preferred Stock

Net income (loss) attributable to common shareholders for basic earnings per share

Weighted average shares outstanding

Dilutive effect of unvested stock awards (1)

Weighted average shares outstanding - basic

Dilutive effect of common stock equivalents (1)

Weighted average shares outstanding - diluted

Net income (loss) available per common share - basic and diluted

For the three months ended September 30, 2020, on a weighted average basis, 2.3 million unvested restricted stock awards, 0.5 million unvested performance stock units and 46.5 million Series A Preferred Stock were antidilutive, and accordingly, were excluded from the diluted earnings per common share calculation.

For all other periods presented above, all unvested restricted stock awards, unvested performance stock units, and Series A Preferred Stock were antidilutive because a net loss existed for those respective periods.

Net income (loss) available per common share - basic

Net income (loss) available per common share - diluted

For the three months ended March 31, 2021, the dilutive effects of common stock equivalents were computed using the treasury method for unvested stock awards and the if-converted method for convertible preferred stock.

For the three months ended March 31, 2020, all unvested restricted stock awards, unvested performance stock units, and Series A Preferred Stock were antidilutive because a net loss existed.

Note 11 — Derivative Instruments and Hedging Activities

The primary purposes of our commodity risk management activities are to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices.

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 designated as cash flow hedges for accounting purposes.

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.

The hedges generally match the NGL product composition and the NGL delivery points of our physical equity volumes.

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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.

We have not designated these derivatives as hedges and record changes in fair value and cash settlements to revenues.

At September 30, 2020, the notional volumes of our commodity derivative contracts were:

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 March 31, 2021, the notional volumes of our commodity derivative contracts were:

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.

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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 September 30, 2020

Fair Value as of March 31, 2021

Fair Value as of December 31, 2020

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Pro Forma Net Presentation

September 30, 2020

March 31, 2021

Current Position

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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 Deposits on our Consolidated Balance Sheets and is not offset against the fair value of our derivative instruments.

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 $ 15.6 million as of September 30, 2020.

The estimated fair value of our derivative instruments was a net liability of ($ 90.3 ) million as of March 31, 2021.

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.

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Derivatives in Cash Flow

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Hedging Relationships

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Income (Effective Portion)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Location of Gain (Loss)

Based on valuations as of September 30, 2020, we expect to reclassify commodity hedge-related deferred losses of $( 106.0 ) million included in accumulated other comprehensive income into earnings before income taxes through the end of 2023, with $( 57.2 ) million of losses to be reclassified over the next twelve months.

Based on valuations as of March 31, 2021, we expect to reclassify commodity hedge-related deferred losses of ($ 196.2 ) million included in accumulated other comprehensive income into earnings before income taxes through the end of 2023, with ($ 133.5 ) 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.

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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 three and nine months ended September 30, 2020, the unrealized mark-to-market gains are primarily attributable to favorable movements in natural gas forward basis prices, as compared to our hedged positions.

For the three months ended March 31, 2021, the unrealized mark-to-market gains are primarily attributable to favorable movements in natural gas forward basis prices, as compared to our hedged positions.

Location of Gain

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Recognized in Income on

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

as Hedging Instruments

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See Note 12 – Fair Value Measurements and Note 17 – Segment Information for additional disclosures related to derivative instruments and hedging activities.

Note 1 2 — Fair V alue Measurements

Note 12 — 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 and contingent consideration related to business acquisitions are reported at fair value on our Consolidated Balance Sheets.

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.

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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 September 30, 2020, a net liability position of $ 15.6 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.

The financial position of these derivatives at March 31, 2021, a net liability position of ($ 90.3 ) 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 ($ 182.8 ) million.

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We determined the supplemental fair value disclosures for our long-term debt as follows:

The TRC Revolver, TRP Revolver, and the Partnership’s Securitization Facility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates;

The TRC Revolver, TRP Revolver, and the Partnership’s S ecuritization F acility are based on carrying value, which approximates fair value as their interest rates are based on prevailing market rates;

The Partnership’s senior unsecured notes are based on quoted market prices derived from trades of the debt.

Contingent consideration liabilities related to business acquisitions are carried at fair value until the end of the related earn-out period.

Fair Value Hierarchy

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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:

September 30, 2020

March 31, 2021

Financial Instruments Recorded on Our

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Liabilities from commodity derivative contracts

TPL contingent consideration (2)

Financial Instruments Recorded on Our

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Liabilities from commodity derivative contracts

TPL contingent consideration (2)

Financial Instruments Recorded on Our

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Partnership's Securitization Facility

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 11 –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.

We have a contingent consideration liability for TPL’s previous acquisition of a gas gathering system and related assets, which is carried at fair value.

Additional Information Regarding Level 3 Fair Value Measurements Included on Our Consolidated Balance Sheets

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The change in the fair value of Level 3 derivatives associated with a 10% change in the forward basis curve where prices are not observable was immaterial.

As of September 30, 2020, we had three commodity swap and option contracts categorized as Level 3.

The fair value of the TPL contingent consideration was determined using a probability-based model measuring the likelihood of meeting certain volumetric measures.

The inputs are not observable;

therefore, the entire valuation of the contingent consideration is categorized in Level 3.

As of March 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:

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Asset/(Liability)

Consideration

Balance, December 31, 2020

New Level 3 derivative instruments

Transfers out of Level 3 (1)

Unrealized gain/(loss) included in OCI

Balance, September 30, 2020

Balance, March 31, 2021

Transfers relate to long-term over-the-counter swaps for NGL products for which observable market prices became available for substantially their full term.

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In the first quarter of 2020, we recorded non-cash pre-tax impairments of $ 2,442.8 million.

The impairment charge is primarily associated with the partial impairment of gas processing facilities and gathering systems associated with our Mid-Continent operations and full impairment of our Coastal operations.

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.

For disclosures related to valuation techniques, see Note 4 – Property, Plant and Equipment and Intangible Assets.

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See Part II—Item 1.

Legal Proceedings for further details.

Legal Proceedings for further details on contingencies related to litigation matters.

Note 14 — Revenue

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2023 and after

Fixed consideration to be recognized as of September 30, 2020

Based on the optional exemptions 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.

Fixed consideration to be recognized as of March 31, 2021

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 disclosures related to disaggregated revenue, see Note 17 – Segment Information.

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The Company records income taxes using an estimated annual effective tax rate (“ETR”) and recognizes specific events discretely as they occur.

We have concluded that the annual ETR is a reliable estimate considering recent economic and financial market effects of decreased commodity prices and demand destruction due to the COVID-19 pandemic.

We regularly evaluate the realizable tax benefits of deferred tax assets and record a valuation allowance, if required, based on an estimate of the amount of deferred tax assets that we believe does not meet the more-likely-than-not criteria of being realized.

We established a valuation allowance against our deferred tax assets during the nine months ended September 30, 2020, primarily due to the tax consequences of the impairment of long-lived assets.

See Note 4 – Property Plant and Equipment and Intangible Assets.

The Company recognized the valuation allowance as an ordinary item in its estimated annual ETR.

After the valuation allowance, we have a net deferred tax liability of $ 131.1 million.

We decreased our existing valuation allowance by $ 22.8 million from December 31, 2020.

The Company recognized the decrease to the valuation allowance as an ordinary item in its estimated annual ETR.

After the change in valuation allowance, we have a net deferred tax liability of $ 161.3 million.

We will continue to evaluate the sufficiency of the valuation allowance based on current and expected earnings and other factors and adjust accordingly.

The valuation allowance decreased by approximately $ 15.5 million from June 30, 2020.

Note 16 — Other Operating (Income) Expense

Other operating (income) expense is comprised of the following:

Three Months Ended September 30,

Nine Months Ended September 30,

(Gain) loss on sale of disposition of business and assets (1)

Write-down of assets (2)

In October 2020, we recognized a loss of $ 58.3 million for the three and nine months ended September 30, 2020 to reduce the carrying value of our assets in Channelview, Texas in connection with the October 2020 Sale.

See Note 4 – Property, Plant and Equipment and Intangible Assets for further details.

Related to the write-down of certain assets to their recoverable amounts .

Note 16 — Supplemental Cash Flow Information

Nine Months Ended September 30,

Three Months Ended March 31,

Interest paid, net of capitalized interest (1)

Income taxes (received), net of payments

Income taxes received (paid), net

Non-cash investing activities:

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Changes in accrued distributions to noncontrolling interests

Interest capitalized on major projects was $ 31.1 million and $ 50.5 million for the nine months ended September 30, 2020 and 2019.

Interest capitalized on major projects was $ 0.7 million and $ 12.3 million for the three months ended March 31, 2021 and 2020.

Note 17 — Segment Information

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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 of natural gas produced from oil and gas wells and processing this raw natural gas into merchantable natural gas by extracting NGLs and removing impurities;

and assets used for crude oil purchase and sale, gathering and terminaling.

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);

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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 the Grand Prix NGL pipeline (“Grand Prix”), as well as our equity interest in Gulf Coast Express Pipeline LLC (“GCX”), a natural gas pipeline transporting volumes from West Texas to the Gulf Coast.

Grand Prix 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 pipelines and smaller terminals, are located predominantly in Mont Belvieu and Galena Park, Texas, and in Lake Charles, Louisiana.

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 NGL Pipeline (“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, as well as our equity interest in Gulf Coast Express Pipeline LLC (“GCX”), a natural gas pipeline connecting the Waha hub in West Texas and other receipt points, including many of our Midland Basin processing facilities, to Agua Dulce in South Texas and other delivery points.

The associated assets, including these pipelines, 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 mark-to-market gains/losses related to derivative contracts that were not designated as cash flow hedges.

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Reportable segment information is shown in the following tables:

Three Months Ended September 30, 2020

Gathering and Processing

Logistics and Transportation

Sales of commodities

Fees from midstream services

Intersegment revenues

Sales of commodities

Fees from midstream services

Operating margin

Other financial information:

Total assets (1)

Capital expenditures

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

Three Months Ended September 30, 2019

Gathering and Processing

Logistics and Transportation

Sales of commodities

Fees from midstream services

Intersegment revenues

Sales of commodities

Fees from midstream services

Operating margin

Other financial information:

Total assets (1)

Capital expenditures

Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Gathering and Processing

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Assets in the Corporate and Eliminations column primarily include tax-related assets, cash, prepaids and debt issuance costs for our revolving credit facilities.

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Gathering and Processing

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The following table shows our consolidated revenues disaggregated by product and service for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Sales of commodities:

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The following table shows a reconciliation of reportable segment operating margin to income (loss) before income taxes for the periods presented:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Reconciliation of reportable segment operating

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Gain (loss) from financing activities

Gain (loss) from sale of equity-method investment

Change in contingent considerations

Income (loss) before income taxes

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements