01—Abstract
Summary
Summary of the 10-K/A filed March 30, 2011. Cited figures are marked; the original filing is the authoritative source.
Targa Resources Corp. (TRGP) reported 2010 revenues of $5,469.2 milliona, up about 21% from $4,536.0 million in 2009, but operating income fell to $196.1 million from $217.2 million.
Net income attributable to Targa was a loss of $15.0 millionb, compared with income of $29.3 million in 2009. The loss to common shareholders was larger, at $202.3 million or $(30.94) per share, mainly because of $177.8 million in dividends on common equivalents and $9.5 million in Series B preferred dividends. These figures reflect the company's December 10, 2010 IPO, when its Series B preferred stock converted into about 35.4 million common shares.
Investors should note that the per-share loss is driven by a one-time capital-structure event and is not comparable to 2009 per-share results, which were not reported because preferred holders were entitled to undistributed earnings. The company's economics are increasingly tied to Targa Resources Partners LP (the Partnership). During 2010 Targa sold its Permian and Straddle assets ($420.0 millionc), its 63% Versado interest ($247.2 million), and its Venice operations ($175.6 million) to the Partnership, and it sold Partnership units in secondary offerings.
These dropdowns generated large cash tax payments of $92.6 milliond, and cash flow from operations declined to $208.5 million from $335.8 million. Consolidated debt was $1,534.7 million at year-end, of which $765.3 million was drawn on the Partnership's $1.1 billion revolver. Management concluded internal control over financial reporting was effective, and PricewaterhouseCoopers issued an unqualified opinion dated February 25, 2011.
Note that the audit report on the schedule refers to a Form 10-K/A, so investors should confirm which version of the filing they are reviewing. Looking ahead, the company has hedged a significant portion of its expected natural gas, NGL and condensate equity volumes through 2014, and the Partnership raised additional capital in early 2011, including a $325 million 6 7/8% senior notes offering and an 8.0 million unit common offering with 1.2 million units of overallotment. Remaining risks include commodity price exposure outside hedged volumes, the WTG Gas Processing litigation (for which Targa has agreed to indemnify the Partnership, with the Texas Supreme Court having denied review), and insurance market conditions.
02—Key points
Key Highlights
- Revenue grew 20.6% to $5,469.2 million in 2010 from $4,536.0 million in 2009, though still below the $7,998.9 million reported in 2008. Product purchases of $4,687.7 million drove most of the cost base.
- Operating income declined to $196.1 million from $217.2 million, and net income fell to $63.3 million from $79.1 million. Net income attributable to Targa was a $15.0 million loss versus $29.3 million of income in 2009.
- Net loss available to common shareholders was $202.3 million, or $(30.94) per share on 6.5 million weighted average shares, reflecting $177.8 million in common equivalent dividends and $9.5 million in Series B preferred dividends following the December 2010 IPO.
- Operating cash flow fell to $208.5 million from $335.8 million, partly due to $92.6 million in cash income taxes paid on gains from the 2010 asset sales and equity offerings to the Partnership.
- Total assets were $3,393.8 million and total owners' equity was $1,036.1 million, including $891.8 million of noncontrolling interests in the Partnership. Total debt was $1,534.7 million, versus $1,606.0 million a year earlier.
- Asset dropdowns to Targa Resources Partners LP totaled roughly $843 million in 2010 (Permian/Straddle $420.0 million, Versado $247.2 million, Venice $175.6 million), and the company continues to rely on the Partnership for growth and distributions.
- Management assessed internal control over financial reporting as effective as of December 31, 2010, and PricewaterhouseCoopers issued an unqualified audit opinion dated February 25, 2011.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2010filed March 30, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Operating Expenses | $5.28B$4.33B | +22.1% |
| Operating Income | $196.10M$217.20M | −9.7% |
| Interest Expense | $110.90M$132.10M | −16.0% |
| Net Income | -$15.00M$29.30M | −151.2% |
| EPS (Basic) | $-30.94— | — |
| EPS (Diluted) | $-30.94— | — |
| Shares Outstanding (Basic) | 6.50M3.80M | +71.1% |
| Shares Outstanding (Diluted) | 6.50M3.80M | +71.1% |
05—Questions
Frequently Asked Questions
Why did Targa report a net loss to common shareholders despite growing revenue?
The loss to common shareholders of $202.3 million ($30.94 per share) was driven mainly by $177.8 million in dividends paid on common equivalent shares and $9.5 million in Series B preferred dividends, which were tied to the December 10, 2010 IPO conversion. The attributable net loss of $15.0 million also reflected higher interest and noncontrolling interest allocations. Revenue growth came from higher NGL and natural gas sales prices and volumes, but operating income still declined to $196.1 million.
How much of Targa's economics depends on Targa Resources Partners LP?
A large share. Targa consolidates the Partnership, but it owns only a 2% general partner interest, all incentive distribution rights, and 11,645,659 common units (about 15.4% of the limited partner interests) at year-end 2010. Noncontrolling interests in the Partnership were $891.8 million of the $1,036.1 million in total owners' equity, and the Partnership's $765.3 million credit facility borrowings are a major part of consolidated debt. Targa also sold most of its operating assets to the Partnership in 2010.
Why was cash flow from operations lower in 2010?
Operating cash flow fell to $208.5 million from $335.8 million in 2009. The company paid $92.6 million of cash income taxes in 2010 on taxable gains from the Permian/Straddle and Venice dropdowns and the secondary offering of Partnership units. Working capital changes also consumed cash, including $119.2 million in accounts receivable and other assets and $15.6 million in accounts payable and other liabilities.
What are the company's main debt obligations and near-term financing activities?
At year-end 2010, total debt was $1,534.7 million. The largest component was $765.3 million under the Partnership's senior secured revolving credit facility, due July 2015, with $233.4 million of availability. Other obligations included the TRC Holdco loan facility ($89.3 million), and Partnership senior unsecured notes at 8 1/4% ($209.1 million), 11 1/4% ($231.3 million) and 7 7/8% ($250.0 million). After year-end, the Partnership issued $325 million of 6 7/8% notes due 2021 in February 2011 and exchanged $158.6 million of its 11 1/4% notes into them.
Are there material legal or hedging risks investors should watch?
The WTG Gas Processing lawsuit alleging tortious interference remains a contingency. The Texas Supreme Court denied WTG's petition for review in January 2011, and WTG has requested rehearing. Targa has agreed to indemnify the Partnership for any liability arising from the suit. On hedging, the Partnership has hedged a significant portion of expected natural gas, NGL and condensate equity volumes through 2014 and has $300 million of interest rate swaps through 2014, with a net fair value liability of $20.1 million. Hedges protect against price declines but reduce upside if prices rise.
06—Continue