Targa Resources Corp. 10-Q

Item 1. Financial Statements. TARGA RESOURCES CORP. CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (Unaudited) (In millions) ASSETS Current assets: Cash and cash equivalents $ 228.6 $ 242.8 Trade receivables, net of allowances of $ 3.6 million and $ 0.1 million at September 30, 2021 and December 31, 2020 1,291.0 862.8 Inventories 316.8 181.5 Assets from risk management activities 82.7 85.5 Other current assets 74.2 87.7 Total current assets 1,993.3 1,460.3 Property, plant and equipment, net 11,922.4 12,173.6 Intangible assets, net 1,284.2 1,382.4 Long-term assets from risk management activities 13.4 49.3 Investments in unconsolidated affiliates 674.6 714.0 Other long-term assets 84.8 96.1 Total assets $ 15,972.7 $ 15,875.7 LIABILITIES, SERIES A PREFERRED STOCK AND OWNERS' EQUITY Current liabilities: Accounts payable $ 1,652.3 $ 833.8 Accrued liabilities 240.2 186.4 Distributions payable 71.0 115.4 Interest payable 79.9 132.6 Liabilities from risk management activities 472.3 142.6 Current debt obligations 352.6 368.6 Total current liabilities 2,868.3 1,779.4 Long-term debt 6,434.1 7,387.1 Long-term liabilities from risk management activities 151.2 43.4 Deferred income taxes, net 78.7 152.1 Other long-term liabilities 290.8 309.1 Contingencies (see Note 13) Series A Preferred 9.5 % Stock, $ 1,000 per share liquidation preference, ( 1,200,000 shares authorized, 919,300 shares issued and outstanding), net of discount (see Note 7) 749.7 301.4 Owners' equity: Targa Resources Corp. stockholders' equity: Common stock ($ 0.001 par value, 450,000,000 shares authorized) 0.2 0.2 Issued Outstanding September 30, 2021 236,086,963 228,962,972 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 4,299.7 4,839.9 Retained earnings (deficit) ( 1,508.7 ) ( 1,893.5 ) Accumulated other comprehensive income (loss) ( 442.1 ) ( 141.8 ) Treasury stock, at cost ( 7,123,991 shares as of September 30, 2021 and 6,731,035 shares as of December 31, 2020) ( 164.0 ) ( 150.9 ) Total Targa Resources Corp. stockholders' equity 2,185.1 2,653.9 Noncontrolling interests 3,214.8 3,249.3 Total owners' equity 5,399.9 5,903.2 Total liabilities, Series A Preferred Stock and owners' equity $ 15,972.7 $ 15,875.7 See notes to consolidated financial statements. 4 TARGA RESOURCES CORP. CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (Unaudited) (In millions, except per share amounts) Revenues: Sales of commodities $ 4,118.1 $ 1,840.8 $ 10,577.3 $ 4,900.8 Fees from midstream services 341.6 274.3 930.9 786.7 Total revenues 4,459.7 2,115.1 11,508.2 5,687.5 Costs and expenses: Product purchases and fuel 3,614.7 1,322.9 9,159.8 3,405.1 Operating expenses 189.4 162.2 545.3 506.8 Depreciation and amortization expense 222.8 203.7 650.9 647.3 General and administrative expense 67.3 58.6 192.4 180.6 Impairment of long-lived assets — — — 2,442.8 Other operating (income) expense ( 1.0 ) 72.2 3.4 73.8 Income (loss) from operations 366.5 295.5 956.4 ( 1,568.9 ) Other income (expense): Interest expense, net ( 91.0 ) ( 97.7 ) ( 284.2 ) ( 292.4 ) Equity earnings (loss) 14.3 18.6 38.9 54.1 Gain (loss) from financing activities — ( 13.7 ) ( 16.6 ) 47.4 Other, net 0.2 1.4 0.3 2.2 Income (loss) before income taxes 290.0 204.1 694.8 ( 1,757.6 ) Income tax (expense) benefit ( 2.0 ) ( 31.9 ) ( 23.5 ) 286.6 Net income (loss) 288.0 172.2 671.3 ( 1,471.0 ) Less: Net income (loss) attributable to noncontrolling interests 105.8 102.9 286.5 116.5 Net income (loss) attributable to Targa Resources Corp. 182.2 69.3 384.8 ( 1,587.5 ) Dividends on Series A Preferred Stock 21.8 22.9 65.5 68.8 Deemed dividends on Series A Preferred Stock — 9.5 — 27.7 Net income (loss) attributable to common shareholders $ 160.4 $ 36.9 $ 319.3 $ ( 1,684.0 ) Net income (loss) per common share - basic $ 0.70 $ 0.16 $ 1.40 $ ( 7.22 ) Net income (loss) per common share - diluted $ 0.66 $ 0.16 $ 1.38 $ ( 7.22 ) Weighted average shares outstanding - basic 228.8 233.4 228.6 233.2 Weighted average shares outstanding - diluted 276.4 233.8 231.6 233.2 See notes to consolidated financial statements. 5 TARGA RESOURCES CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three Months Ended September 30, 2021 2020 Pre-Tax Related Income Tax After Tax Pre-Tax Related Income Tax After Tax (Unaudited) (In millions) Net income (loss) $ 288.0 $ 172.2 Other comprehensive income (loss): Commodity hedging contracts: Change in fair value $ ( 294.7 ) $ 71.2 ( 223.5 ) $ ( 128.7 ) $ 31.7 ( 97.0 ) Settlements reclassified to revenues 100.4 ( 24.6 ) 75.8 ( 19.2 ) 3.8 ( 15.4 ) Other comprehensive income (loss) ( 194.3 ) 46.6 ( 147.7 ) ( 147.9 ) 35.5 ( 112.4 ) Comprehensive income (loss) 140.3 59.8 Less: Comprehensive income (loss) attributable to noncontrolling interests 105.8 102.9 Comprehensive income (loss) attributable to Targa Resources Corp. $ 34.5 $ ( 43.1 ) Nine Months Ended September 30, 2021 2020 Pre-Tax Related Income Tax After Tax Pre-Tax Related Income Tax After Tax (Unaudited) (In millions) Net income (loss) $ 671.3 $ ( 1,471.0 ) Other comprehensive income (loss): Commodity hedging contracts: Change in fair value $ ( 698.9 ) $ 167.1 ( 531.8 ) $ ( 102.6 ) $ 23.5 ( 79.1 ) Settlements reclassified to revenues 303.8 ( 72.3 ) 231.5 ( 139.4 ) 35.2 ( 104.2 ) Other comprehensive income (loss) ( 395.1 ) 94.8 ( 300.3 ) ( 242.0 ) 58.7 ( 183.3 ) Comprehensive income (loss) 371.0 ( 1,654.3 ) Less: Comprehensive income (loss) attributable to noncontrolling interests 286.5 116.5 Comprehensive income (loss) attributable to Targa Resources Corp. $ 84.5 $ ( 1,770.8 ) See notes to consolidated financial statements. 6 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 (Unaudited) (In millions, except shares in thousands) Balance, June 30, 2021 228,655 $ 0.2 $ 4,330.8 $ ( 1,690.9 ) $ ( 294.4 ) 7,016 $ ( 159.5 ) $ 3,210.3 $ 5,396.5 $ 749.7 Compensation on equity grants — — 14.7 — — — — — 14.7 — Distribution equivalent rights — — ( 1.1 ) — — — — — ( 1.1 ) — Shares issued under compensation program 416 — — — — — — — — — Shares and units tendered for tax withholding obligations ( 108 ) — — — — 108 ( 4.5 ) — ( 4.5 ) — Series A Preferred Stock dividends Dividends - $ 23.75 per share — — — ( 21.8 ) — — — — ( 21.8 ) — Dividends in excess of retained earnings — — ( 21.8 ) 21.8 — — — — — — Common stock dividends Dividends - $ 0.10 per share — — — ( 22.9 ) — — — — ( 22.9 ) — Dividends in excess of retained earnings — — ( 22.9 ) 22.9 — — — — — — Distributions to noncontrolling interests — — — — — — — ( 110.4 ) ( 110.4 ) — Contributions from noncontrolling interests — — — — — — — 9.1 9.1 — Other comprehensive income (loss) — — — — ( 147.7 ) — — — ( 147.7 ) — Net income (loss) — — — 182.2 — — — 105.8 288.0 — Balance, September 30, 2021 228,963 $ 0.2 $ 4,299.7 $ ( 1,508.7 ) $ ( 442.1 ) 7,124 $ ( 164.0 ) $ 3,214.8 $ 5,399.9 $ 749.7 See notes to consolidated financial statements. 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 (Unaudited) (In millions, except shares in thousands) Balance, June 30, 2020 233,177 $ 0.2 $ 4,949.1 $ ( 1,996.4 ) $ 21.6 1,116 $ ( 56.9 ) $ 3,351.5 $ 6,269.1 $ 297.0 Compensation on equity grants — — 16.4 — — — — — 16.4 — Distribution equivalent rights — — 1.9 — — — — — 1.9 — Shares issued under compensation program 453 — — — — — — — — — Shares and units tendered for tax withholding obligations ( 112 ) — — — — 112 ( 2.1 ) — ( 2.1 ) — Series A Preferred Stock dividends Dividends - $ 23.75 per share — — — ( 22.9 ) — — — — ( 22.9 ) — Dividends in excess of retained earnings — — ( 22.9 ) 22.9 — — — — — — Deemed dividends - accretion of beneficial conversion feature — — ( 9.5 ) — — — — — ( 9.5 ) 9.5 Common stock dividends Dividends - $ 0.10 per share — — — ( 23.3 ) — — — — ( 23.3 ) — Dividends in excess of retained earnings — — ( 23.3 ) 23.3 — — — — — — Distributions to noncontrolling interests — — — — — — — ( 113.1 ) ( 113.1 ) — Contributions from noncontrolling interests — — — — — — — 7.7 7.7 — Non-cash allocation to noncontrolling interests — — — — — — — 27.5 27.5 — Other comprehensive income (loss) — — — — ( 112.4 ) — — — ( 112.4 ) — Net income (loss) — — — 69.3 — — — 102.9 172.2 — Balance, September 30, 2020 233,518 $ 0.2 $ 4,911.7 $ ( 1,927.1 ) $ ( 90.8 ) 1,228 $ ( 59.0 ) $ 3,376.5 $ 6,211.5 $ 306.5 See notes to consolidated financial statements. 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 (Unaudited) (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 — — 44.6 — — — — — 44.6 — Distribution equivalent rights — — ( 2.4 ) — — — — — ( 2.4 ) — Shares issued under compensation program 1,294 — — — — — — — — — Shares and units tendered for tax withholding obligations ( 393 ) — — — — 393 ( 13.1 ) — ( 13.1 ) — Series A Preferred Stock dividends Dividends - $ 71.25 per share — — — ( 65.5 ) — — — — ( 65.5 ) — Dividends in excess of retained earnings — — ( 65.5 ) 65.5 — — — — — — Common stock dividends Dividends - $ 0.30 per share — — — ( 68.6 ) — — — — ( 68.6 ) — Dividends in excess of retained earnings — — ( 68.6 ) 68.6 — — — — — — Distributions to noncontrolling interests — — — — — — — ( 334.2 ) ( 334.2 ) — Contributions from noncontrolling interests — — — — — — — 13.2 13.2 — Other comprehensive income (loss) — — — — ( 300.3 ) — — — ( 300.3 ) — Net income (loss) — — — 384.8 — — — 286.5 671.3 — Balance, September 30, 2021 228,963 $ 0.2 $ 4,299.7 $ ( 1,508.7 ) $ ( 442.1 ) 7,124 $ ( 164.0 ) $ 3,214.8 $ 5,399.9 $ 749.7 See notes to consolidated financial statements. 9 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 (Unaudited) (In millions, except shares in thousands) 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 — — 49.5 — — — — — 49.5 — Distribution equivalent rights — — ( 3.5 ) — — — — — ( 3.5 ) — Shares issued under compensation program 892 — — — — — — — — — Shares and units tendered for tax withholding obligations ( 218 ) — — — — 218 ( 5.5 ) — ( 5.5 ) — Series A Preferred Stock dividends Dividends - $ 71.25 per share — — — ( 68.8 ) — — — — ( 68.8 ) — Dividends in excess of retained earnings — — ( 68.8 ) 68.8 — — — — — — Deemed dividends - accretion of beneficial conversion feature — — ( 27.7 ) — — — — — ( 27.7 ) 27.7 Common stock dividends Dividends - $ 1.11 per share — — — ( 259.0 ) — — — — ( 259.0 ) — Dividends in excess of retained earnings — — ( 259.0 ) 259.0 — — — — — — Distributions to noncontrolling interests — — — — — — — ( 322.9 ) ( 322.9 ) — Contributions from noncontrolling interests — — — — — — — 33.3 33.3 — Non-cash allocation to noncontrolling interests — — — — — — — 27.5 27.5 — Other comprehensive income (loss) — — — — ( 183.3 ) — — — ( 183.3 ) — Net income (loss) — — — ( 1,587.5 ) — — — 116.5 ( 1,471.0 ) — Balance, September 30, 2020 233,518 $ 0.2 $ 4,911.7 $ ( 1,927.1 ) $ ( 90.8 ) 1,228 $ ( 59.0 ) $ 3,376.5 $ 6,211.5 $ 306.5 See notes to consolidated financial statements. 10 TARGA RESOURCES CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2021 2020 (Unaudited) (In millions) Cash flows from operating activities Net income (loss) $ 671.3 $ ( 1,471.0 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization in interest expense 7.8 8.5 Compensation on equity grants 44.6 49.5 Depreciation and amortization expense 650.9 647.3 Impairment of long-lived assets — 2,442.8 Accretion of asset retirement obligations 3.0 2.6 Deferred income tax expense (benefit) 21.5 ( 269.8 ) Equity (earnings) loss of unconsolidated affiliates ( 38.9 ) ( 54.1 ) Distributions of earnings received from unconsolidated affiliates 64.5 65.5 Risk management activities 55.6 ( 214.2 ) (Gain) loss on sale or disposition of business and assets ( 1.7 ) 58.0 Write-downs of assets 5.0 13.5 (Gain) loss from financing activities 16.6 ( 47.4 ) Changes in operating assets and liabilities: Receivables and other assets ( 359.8 ) 168.7 Inventories ( 128.0 ) ( 115.8 ) Accounts payable, accrued liabilities and other liabilities 839.1 ( 158.0 ) Interest payable ( 52.7 ) ( 30.4 ) Net cash provided by operating activities 1,798.8 1,095.7 Cash flows from investing activities Outlays for property, plant and equipment ( 321.6 ) ( 803.1 ) Proceeds from sale of business and assets 7.9 135.9 Investments in unconsolidated affiliates ( 0.6 ) ( 2.2 ) Return of capital from unconsolidated affiliates 14.5 10.7 Other, net 0.2 4.7 Net cash used in investing activities ( 299.6 ) ( 654.0 ) Cash flows from financing activities Debt obligations: Proceeds from borrowings under credit facilities 620.0 1,460.0 Repayments of credit facilities ( 1,455.0 ) ( 1,360.0 ) Proceeds from borrowings under accounts receivable securitization facility 570.0 476.4 Repayments of accounts receivable securitization facility ( 580.0 ) ( 596.4 ) Proceeds from issuance of senior notes 1,000.0 1,000.0 Redemption of senior notes ( 1,132.0 ) ( 831.0 ) Principal payments of finance leases ( 9.4 ) ( 9.3 ) Costs incurred in connection with financing arrangements ( 9.6 ) ( 9.6 ) Repurchase of shares and units under compensation plans ( 13.1 ) ( 5.5 ) Contributions from noncontrolling interests 13.2 33.3 Distributions to noncontrolling interests ( 377.3 ) ( 310.6 ) Distributions to Partnership unitholders — ( 8.4 ) Dividends paid to common and Series A Preferred shareholders ( 140.2 ) ( 336.7 ) Net cash provided by (used in) financing activities ( 1,513.4 ) ( 497.8 ) Net change in cash and cash equivalents ( 14.2 ) ( 56.1 ) Cash and cash equivalents, beginning of period 242.8 331.1 Cash and cash equivalents, end of period $ 228.6 $ 275.0 See notes to consolidated financial statements. 11 TARGA RESOURCES CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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”) is a publicly traded Delaware corporation formed in October 2005. Our common stock is listed on the New York Stock Exchange under the symbol “TRGP.” We own, operate, acquire, and develop a diversified portfolio of complementary domestic midstream infrastructure assets. In this Quarterly 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.” 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”); and • the impacts of TRC’s treatment as a corporation for U.S. federal income tax purposes. Our Operations The Company is primarily engaged in the business of: • gathering, compressing, treating, processing, transporting, and purchasing and selling natural gas; • transporting, storing, fractionating, treating, and purchasing and selling NGLs and NGL products, including services to LPG exporters; and • gathering, storing, terminaling, and purchasing and selling crude oil. See Note 17 – Segment Information for certain financial information regarding our business segments. Note 2 — Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and disclosures required by GAAP. Therefore, this information should be read in conjunction with our consolidated financial statements and notes contained in our Annual Report. 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 intercompany balances and transactions have been eliminated in consolidation. Operating results for the three and nine months ended September 30, 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. 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 and nine months ended September 30, 2021, we reclassified $ 14.3 million and $ 49.2 million in fuel and power costs, respectively. For the three and nine months ended September 30, 2020, we reclassified $ 19.7 million and $ 58.3 million in fuel and power costs, respectively. 12 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, 2021. Recent Accounting Pronouncements Recently adopted accounting pronouncements Convertible Debt and Equity Instruments 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. 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 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 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 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, 2021 December 31, 2020 Estimated Useful Lives (In Years) Gathering systems $ 9,279.7 $ 9,216.1 5 to 20 Processing and fractionation facilities 6,365.1 6,276.8 5 to 25 Terminaling and storage facilities 1,313.5 1,555.1 5 to 25 Transportation assets 2,628.4 2,567.7 10 to 50 Other property, plant and equipment 355.3 32.4 3 to 50 Land 160.8 160.8 — Construction in progress 263.1 324.3 — Finance lease right-of-use assets 55.2 51.8 Property, plant and equipment 20,421.1 20,185.0 Accumulated depreciation, amortization and impairment ( 8,498.7 ) ( 8,011.4 ) Property, plant and equipment, net $ 11,922.4 $ 12,173.6 Intangible assets 2,643.5 2,643.5 10 to 20 Accumulated amortization and impairment ( 1,359.3 ) ( 1,261.1 ) Intangible assets, net $ 1,284.2 $ 1,382.4 During the three and nine months ended September 30, 2021, depreciation expense was $ 190.2 million and $ 552.7 million, respectively. During the three and nine months ended September 30, 2020, depreciation expense was $ 168.5 million and $ 538.5 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. 13 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 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. 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 (inclusive of impairments of intangible assets) 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 2020 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 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 14.0 % when deriving the fair value of the asset groups impaired during the first quarter 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 nine months 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 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 the first quarter of 2020, we recognized a non-cash pre-tax impairment loss of $ 208.6 million associated with certain intangible customer relationships for which undiscounted future net cash flows were not sufficient to recover the net book value. The estimated annual amortization expense for intangible assets is approximately $ 130.9 million, $ 122.7 million, $ 117.5 million, $ 113.7 million and $ 110.6 million for each of the years 2021 through 2025, respectively. The changes in our intangible assets are as follows: September 30, 2021 Balance at December 31, 2020 $ 1,382.4 Amortization ( 98.2 ) Balance at September 30, 2021 $ 1,284.2 14 Note 5 — Debt Obligations September 30, 2021 December 31, 2020 Current: Obligations of the Partnership: (1) Accounts receivable securitization facility, due April 2022 (2) $ 340.0 $ 350.0 TPL notes, 4¾ % fixed rate, due November 2021 (3) — 6.5 340.0 356.5 Finance lease liabilities 12.6 12.1 Current debt obligations 352.6 368.6 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 (6) — 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 ( 46.3 ) ( 45.5 ) Finance lease liabilities 14.7 18.7 Long-term debt 6,434.1 7,387.1 Total debt obligations $ 6,786.7 $ 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) 48.8 44.4 $ 48.8 $ 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. (2) As of September 30, 2021, the Partnership had $ 340.0 million of qualifying receivables under its $ 400.0 million accounts receivable securitization facility (“Securitization Facility”), resulting in $ 60.0 million availability. During the second quarter of 2021, the Partnership amended the Securitization Facility to increase the facility size from $ 350.0 million to $ 400.0 million to more closely align with our expectation for borrowing needs given current commodity prices and to extend the facility termination date to April 21, 2022 . (3) “TPL” refers to Targa Pipeline Partners LP. ( 4 ) As of September 30, 2021, availability under TRC’s $ 670.0 million senior secured revolving credit facility (“TRC Revolver”) was $ 670.0 million. ( 5 ) As of September 30, 2021, availability under the Partnership’s $ 2.2 billion senior secured revolving credit facility (“TRP Revolver”) was $ 2,151.2 million. (6) On May 17, 2021, the Partnership redeemed all of the remaining outstanding 4¼% Senior Notes due 2023. 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, 2021: Range of Interest Rates Incurred Weighted Average Interest Rate Incurred TRC Revolver 1.9% - 1.9% 1.9 % TRP Revolver 1.6% - 1.9% 1.8 % Partnership's Securitization Facility 1.1% - 1.8% 1.3 % Compliance with Debt Covenants As of September 30, 2021, we were in compliance with the covenants contained in our various debt agreements. 15 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 “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 redeemed all of the outstanding TPL 4¾ % Senior Notes due 2021 and TPL 5⅞ % Senior Notes due 2023 (collectively, the “TPL Notes”) 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. The Partnership redeemed all of the outstanding 4¼% Senior Notes due 2023 (the “4¼% Senior Notes”) on May 17, 2021 with available liquidity under the 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. 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. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material . Contractual Obligations The following table summarizes payment obligations for debt instruments after giving effect to the debt extinguishments detailed above: Payments Due By Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years Long-term debt obligations (1) $ 6,465.7 $ — $ — $ 963.2 $ 5,502.5 Interest on debt obligations (2) 2,547.3 359.4 707.3 674.6 806.0 $ 9,013.0 $ 359.4 $ 707.3 $ 1,637.8 $ 6,308.5 (1) Represents scheduled future maturities of consolidated debt obligations for the periods indicated. (2) Represents interest expense on debt obligations based on both fixed debt interest rates and prevailing September 30, 2021 rates for floating debt. Note 6 — Other Long-term Liabilities Other long-term liabilities are comprised of deferred revenue, asset retirement obligations and operating lease liabilities. Deferred Revenue We have certain long-term contractual arrangements for which we have received consideration that we are not yet able to recognize as revenue. The resulting deferred revenue will be recognized once all conditions for revenue recognition have been met. Deferred revenue as of September 30, 2021 and December 31, 2020, was $ 165.8 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 to a gas gathering and processing agreement and consideration received for other construction activities of facilities connected to our systems. See Part II—Item 1. Legal Proceedings for further details on the related litigation. 16 Note 7 — Preferred Stock Preferred Stock Dividends As of September 30, 2021, we have accrued cumulative preferred dividends of $ 21.8 million on our Series A Preferred, which will be paid on November 12, 2021 . During the three and nine months ended September 30, 2021, we paid $ 21.8 million and $ 65.5 million of dividends to preferred shareholders, respectively. Preferred Stock Redemptions or Repurchases We may redeem all or a portion of our Series A Preferred in the future pursuant to its terms or repurchase Series A Preferred shares in privately negotiated transactions. Such redemptions or repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. 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, 2021: 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) 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 December 31, 2020 February 16, 2021 23.3 22.9 0.4 0.10000 (1) Represents accrued dividends on restricted stock and restricted stock units that are payable upon vesting. 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 each quarter. The following table details the distributions declared and paid by the Partnership for the nine months ended September 30, 2021: Three Months Ended Date Paid or To Be Paid Total Distributions Distributions to Targa Resources Corp. 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 December 31, 2020 February 11, 2021 54.3 47.6 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. During the nine months ended September 30, 2021, we made a total of $ 46.0 million in contributions to the Partnership. 17 Note 10 — 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: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In millions, except per share amounts) Net income (loss) attributable to Targa Resources Corp. $ 182.2 $ 69.3 $ 384.8 $ ( 1,587.5 ) Less: Dividends on Series A Preferred Stock 21.8 22.9 65.5 68.8 Less: Deemed dividends on Series A Preferred Stock — 9.5 — 27.7 Net income (loss) attributable to common shareholders for basic earnings per share $ 160.4 $ 36.9 $ 319.3 $ ( 1,684.0 ) Weighted average shares outstanding - basic 228.8 233.4 228.6 233.2 Dilutive effect of unvested stock awards 3.3 0.4 3.0 — Dilutive effect of Series A Preferred Stock (1) 44.3 — — — Weighted average shares outstanding - diluted 276.4 233.8 231.6 233.2 Net income (loss) available per common share - basic $ 0.70 $ 0.16 $ 1.40 $ ( 7.22 ) Net income (loss) available per common share - diluted $ 0.66 $ 0.16 $ 1.38 $ ( 7.22 ) 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): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Unvested restricted stock awards — 2.8 0.3 2.5 Series A Preferred Stock (1) — 46.5 44.3 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. Note 11 — 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. 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. 18 At September 30, 2021, the notional volumes of our commodity derivative contracts were: Commodity Instrument Unit 2021 2022 2023 2024 2025 Natural Gas Swaps MMBtu/d 188,998 131,613 59,250 16,421 7,479 Natural Gas Basis Swaps MMBtu/d 483,779 308,740 250,000 225,000 110,041 NGL Swaps Bbl/d 39,568 29,424 12,557 2,186 — NGL Futures Bbl/d 45,315 740 — — — Condensate Swaps Bbl/d 5,029 3,853 2,155 265 — 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 September 30, 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 $ 36.1 $ ( 464.3 ) $ 24.2 $ ( 140.2 ) Long-term 0.2 ( 148.3 ) 5.1 ( 43.4 ) Total derivatives designated as hedging instruments $ 36.3 $ ( 612.6 ) $ 29.3 $ ( 183.6 ) Derivatives not designated as hedging instruments Commodity contracts Current $ 46.6 $ ( 8.0 ) $ 61.3 $ ( 2.4 ) Long-term 13.2 ( 2.9 ) 44.2 — Total derivatives not designated as hedging instruments $ 59.8 $ ( 10.9 ) $ 105.5 $ ( 2.4 ) Total current position $ 82.7 $ ( 472.3 ) $ 85.5 $ ( 142.6 ) Total long-term position 13.4 ( 151.2 ) 49.3 ( 43.4 ) Total derivatives $ 96.1 $ ( 623.5 ) $ 134.8 $ ( 186.0 ) 19 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 September 30, 2021 Asset Liability Collateral Asset Liability Current Position Counterparties with offsetting positions or collateral $ 75.9 $ ( 338.2 ) $ 27.0 $ 10.9 $ ( 246.2 ) Counterparties without offsetting positions - assets 6.8 — — 6.8 — Counterparties without offsetting positions - liabilities — ( 134.1 ) — — (134.1 ) 82.7 ( 472.3 ) 27.0 17.7 ( 380.3 ) Long Term Position Counterparties with offsetting positions or collateral 13.4 ( 106.9 ) — 3.4 ( 96.9 ) Counterparties without offsetting positions - assets — — — — — Counterparties without offsetting positions - liabilities — ( 44.3 ) — — ( 44.3 ) 13.4 ( 151.2 ) — 3.4 ( 141.2 ) Total Derivatives Counterparties with offsetting positions or collateral 89.3 ( 445.1 ) 27.0 14.3 ( 343.1 ) Counterparties without offsetting positions - assets 6.8 — — 6.8 — Counterparties without offsetting positions - liabilities — ( 178.4 ) — — ( 178.4 ) $ 96.1 $ ( 623.5 ) $ 27.0 $ 21.1 $ ( 521.5 ) 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 TRP Revolver that ranks equal in right of payment with liens granted in favor of the Partnership’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 ($ 527.4 ) million as of September 30, 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. 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 Other comprehensive income (“OCI”) and amounts reclassified from OCI to revenue for the periods indicated: Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) Derivatives in Cash Flow Three Months Ended September 30, Nine Months Ended September 30, Hedging Relationships 2021 2020 2021 2020 Commodity contracts $ ( 294.7 ) $ ( 128.7 ) $ ( 698.9 ) $ ( 102.6 ) 20 Gain (Loss) Reclassified from OCI into Income (Effective Portion) Three Months Ended September 30, Nine Months Ended September 30, Location of Gain (Loss) 2021 2020 2021 2020 Revenues $ ( 100.4 ) $ 19.2 $ ( 303.8 ) $ 139.4 Based on valuations as of September 30, 2021, we expect to reclassify commodity hedge-related deferred losses of ($ 581.7 ) million included in accumulated other comprehensive income (loss) into earnings before income taxes through the end of 2025, with ($ 433.7 ) 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 three months ended September 30, 2021, the unrealized mark-to-market gains are primarily attributable to favorable movements in natural gas forward prices, as compared to our positions. For the nine months ended September 30, 2021, the unrealized mark-to-market losses are primarily attributable to unfavorable movements in natural gas forward prices, as compared to our positions. Location of Gain (Loss) Gain (Loss) Recognized in Income on Derivatives Derivatives Not Designated Recognized in Income on Three Months Ended September 30, Nine Months Ended September 30, as Hedging Instruments Derivatives 2021 2020 2021 2020 Commodity contracts Revenue $ 16.7 $ 90.0 $ ( 24.8 ) $ 197.9 See Note 12 – Fair Value Measurements and Note 17 – Segment Information for additional disclosures related to derivative instruments and hedging activities. 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 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 September 30, 2021, a net liability position of ($ 527.4 ) 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 ($ 676.5 ) 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 ($ 378.3 ) 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: 21 • 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; and • The Partnership’s senior unsecured notes are based on quoted market prices derived from trades of the debt. 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; • 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 • Level 3 – unobservable inputs in which little or no market data exists, therefore we must develop our own assumptions. 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, 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 $ 96.1 $ 96.1 $ — $ 96.1 $ — Liabilities from commodity derivative contracts 623.5 623.5 — 623.4 0.1 Financial Instruments Recorded on Our Consolidated Balance Sheets at Carrying Value: Cash and cash equivalents 228.6 228.6 — — — TRC Revolver — — — — — TRP Revolver — — — — — Partnership's Senior unsecured notes 6,465.7 6,909.8 — 6,909.8 — Partnership's Securitization Facility 340.0 340.0 — 340.0 — 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 $ 134.8 $ 134.8 $ — $ 134.8 $ — Liabilities from commodity derivative contracts 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 — — — TRC Revolver 555.0 555.0 — 555.0 — TRP Revolver 280.0 280.0 — 280.0 — Partnership's Senior unsecured notes 6,585.4 7,036.8 — 7,036.8 — Partnership's Securitization Facility 350.0 350.0 — 350.0 — 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. 22 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. 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, 2021, we had one derivative contract 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 ) New Level 3 derivative instruments — Transfers out of Level 3 (1) 0.2 Unrealized gain (loss) included in OCI ( 0.1 ) Balance, September 30, 2021 $ ( 0.1 ) (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. 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 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. 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 13 — 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. See Part II—Item 1. Legal Proceedings for further details on contingencies related to litigation matters. Note 14 — 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 . 2021 2022 2023 and after Fixed consideration to be recognized as of September 30, 2021 $ 125.9 $ 450.5 $ 2,612.3 23 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. Note 15 — Income Taxes The Company records income taxes using an estimated annual effective tax rate and recognizes specific events discretely as they occur. 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. As of September 30, 2021, our valuation allowance was $ 105.4 million, a decrease of $ 88.8 million from December 31, 2020. After the change in valuation allowance, we have a net deferred tax liability of $ 78.7 million. As we begin achieving sustained profitability, increased consideration will be given to projections of future taxable income to determine whether such projections provide an adequate source of taxable income for the realization of our deferred tax assets and may result in a change to our valuation allowance in the next twelve months. We will continue to evaluate the valuation allowance based on current and expected earnings and other factors and adjust accordingly. Note 16 — Supplemental Cash Flow Information Nine Months Ended September 30, 2021 2020 Cash: Interest paid, net of capitalized interest (1) $ 327.8 $ 315.9 Income taxes (received) paid, net 1.2 ( 44.4 ) Non-cash investing activities: Impact of capital expenditure accruals on property, plant and equipment, net ( 7.5 ) ( 194.7 ) Transfers from materials and supplies inventory to property, plant and equipment 2.4 1.9 Non-cash financing activities: Changes in accrued distributions to noncontrolling interests ( 43.1 ) 3.9 (1) Interest capitalized on major projects was $ 2.7 million and $ 31.1 million for the nine months ended September 30, 2021 and 2020. Note 17 — 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 the 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. 24 Other contains the 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: Three Months Ended September 30, 2021 Gathering and Processing Logistics and Transportation Other Corporate and Eliminations Total Revenues Sales of commodities $ 156.2 $ 3,948.4 $ 13.5 $ — $ 4,118.1 Fees from midstream services 205.3 136.3 — — 341.6 361.5 4,084.7 13.5 — 4,459.7 Intersegment revenues Sales of commodities 1,786.0 108.3 — ( 1,894.3 ) — Fees from midstream services 0.6 11.5 — ( 12.1 ) — 1,786.6 119.8 — ( 1,906.4 ) — Revenues $ 2,148.1 $ 4,204.5 $ 13.5 $ ( 1,906.4 ) $ 4,459.7 Operating margin (1) $ 361.4 $ 280.7 $ 13.5 $ — $ 655.6 Other financial information: Total assets (2) $ 8,560.6 $ 7,180.5 $ 42.3 $ 189.3 $ 15,972.7 Goodwill $ 45.2 $ — $ — $ — $ 45.2 Capital expenditures $ 98.0 $ 16.8 $ — $ 2.7 $ 117.5 (1) Operating margin is calculated by subtracting Product purchases and fuel 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. Three Months Ended September 30, 2020 Gathering and Processing Logistics and Transportation Other Corporate and Eliminations Total Revenues Sales of commodities $ 135.7 $ 1,616.5 $ 88.6 $ — $ 1,840.8 Fees from midstream services 126.2 148.1 — — 274.3 261.9 1,764.6 88.6 — 2,115.1 Intersegment revenues Sales of commodities 611.9 37.4 — ( 649.3 ) — Fees from midstream services 1.7 8.5 — ( 10.2 ) — 613.6 45.9 — ( 659.5 ) — Revenues $ 875.5 $ 1,810.5 $ 88.6 $ ( 659.5 ) $ 2,115.1 Operating margin (1) $ 261.0 $ 280.4 $ 88.6 $ — $ 630.0 Other financial information: Total assets (2) $ 8,929.4 $ 6,841.2 $ 78.2 $ 203.3 $ 16,052.1 Goodwill $ 45.2 $ — $ — $ — $ 45.2 Capital expenditures $ 63.6 $ 69.0 $ — $ 4.0 $ 136.6 (1) Operating margin is calculated by subtracting Product purchases and fuel 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. 25 Nine Months Ended September 30, 2021 Gathering and Processing Logistics and Transportation Other Corporate and Eliminations Total Revenues Sales of commodities $ 446.2 $ 10,186.7 $ ( 55.6 ) $ — $ 10,577.3 Fees from midstream services 496.7 434.2 — — 930.9 942.9 10,620.9 ( 55.6 ) — 11,508.2 Intersegment revenues Sales of commodities 3,940.4 283.5 — ( 4,223.9 ) — Fees from midstream services 2.8 27.0 — ( 29.8 ) — 3,943.2 310.5 — ( 4,253.7 ) — Revenues $ 4,886.1 $ 10,931.4 $ ( 55.6 ) $ ( 4,253.7 ) $ 11,508.2 Operating margin (1) $ 938.2 $ 920.5 $ ( 55.6 ) $ — $ 1,803.1 Other financial information: Total assets (2) $ 8,560.6 $ 7,180.5 $ 42.3 $ 189.3 $ 15,972.7 Goodwill $ 45.2 $ — $ — $ — $ 45.2 Capital expenditures $ 265.4 $ 42.0 $ — $ 9.1 $ 316.5 (1) Operating margin is calculated by subtracting Product purchases and fuel 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. Nine Months Ended September 30, 2020 Gathering and Processing Logistics and Transportation Other Corporate and Eliminations Total Revenues Sales of commodities $ 512.9 $ 4,172.0 $ 215.9 $ — $ 4,900.8 Fees from midstream services 354.5 432.2 — — 786.7 867.4 4,604.2 215.9 — 5,687.5 Intersegment revenues Sales of commodities 1,444.3 140.1 — ( 1,584.4 ) — Fees from midstream services 4.9 23.8 — ( 28.7 ) — 1,449.2 163.9 — ( 1,613.1 ) — Revenues $ 2,316.6 $ 4,768.1 $ 215.9 $ ( 1,613.1 ) $ 5,687.5 Operating margin (1) $ 753.7 $ 806.0 $ 215.9 $ — $ 1,775.6 Other financial information: Total assets (2) $ 8,929.4 $ 6,841.2 $ 78.2 $ 203.3 $ 16,052.1 Goodwill $ 45.2 $ — $ — $ — $ 45.2 Capital expenditures $ 218.0 $ 375.5 $ — $ 16.8 $ 610.3 (1) Operating margin is calculated by subtracting Product purchases and fuel 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. 26 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, 2021 2020 2021 2020 Sales of commodities: Revenue recognized from contracts with customers: Natural gas $ 916.1 $ 351.1 $ 2,371.3 $ 893.9 NGL 3,185.0 1,312.9 8,278.4 3,382.0 Condensate and crude oil 100.7 54.4 256.2 217.8 Petroleum products — 13.2 — 69.8 4,201.8 1,731.6 10,905.9 4,563.5 Non-customer revenue: Derivative activities - Hedge ( 100.4 ) 19.2 ( 303.8 ) 139.4 Derivative activities - Non-hedge (1) 16.7 90.0 ( 24.8 ) 197.9 ( 83.7 ) 109.2 ( 328.6 ) 337.3 Total sales of commodities 4,118.1 1,840.8 10,577.3 4,900.8 Fees from midstream services: Revenue recognized from contracts with customers: Gathering and processing 201.3 123.7 485.7 347.1 NGL transportation, fractionation and services 45.8 43.8 138.5 116.7 Storage, terminaling and export 87.7 96.6 273.1 285.5 Other 6.8 10.2 33.6 37.4 Total fees from midstream services 341.6 274.3 930.9 786.7 Total revenues $ 4,459.7 $ 2,115.1 $ 11,508.2 $ 5,687.5 (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: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Reconciliation of reportable segment operating margin to income (loss) before income taxes: Gathering and Processing operating margin $ 361.4 $ 261.0 $ 938.2 $ 753.7 Logistics and Transportation operating margin 280.7 280.4 920.5 806.0 Other operating margin 13.5 88.6 ( 55.6 ) 215.9 Depreciation and amortization expense ( 222.8 ) ( 203.7 ) ( 650.9 ) ( 647.3 ) General and administrative expense ( 67.3 ) ( 58.6 ) ( 192.4 ) ( 180.6 ) Impairment of long-lived assets — — — ( 2,442.8 ) Interest expense, net ( 91.0 ) ( 97.7 ) ( 284.2 ) ( 292.4 ) Equity earnings (loss) 14.3 18.6 38.9 54.1 Gain (loss) on sale or disposition of business and assets 1.5 ( 58.0 ) 1.7 ( 58.0 ) Write-down of assets ( 0.5 ) ( 13.5 ) ( 5.0 ) ( 13.5 ) Gain (loss) from financing activities — ( 13.7 ) ( 16.6 ) 47.4 Other, net 0.2 0.7 0.2 ( 0.1 ) Income (loss) before income taxes $ 290.0 $ 204.1 $ 694.8 $ ( 1,757.6 ) 27