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Targa Resources Corp. Annual Report, Year Ended Dec 31, 2014

Filing Date
Filed February 17, 2015
Period End
December 31, 2014
Security
TRGP
In the record · 2016–202610-K1110-Q328-K170

TRGP filed 11 annual reports (10-K), 32 quarterly reports (10-Q) and 170 current reports (8-K) between 2016 and 2026.

  1. Leadership change8-K · May ’17May ’17
  2. Material agreement8-K · Dec ’19Dec ’19
  3. Leadership change8-K · Dec ’21Dec ’21
  4. Material agreement8-K · Nov ’25Nov ’25

01—Abstract

Summary

Summary of the 10-K filed February 17, 2015. Cited figures are marked; the original filing is the authoritative source.

Targa Resources Corp. (NYSE: TRGP) reported full-year 2014 consolidated revenues of $8,616.5 milliona (up 36% from $6,314.7 million) and net income attributable to Targa of $102.3 million ($2.43 diluted EPS), versus $65.1 million in 2013.

Targa owns no operating assets directly; its cash flow comes from a 2% general partner interest, all incentive distribution rights (IDRs), and a 10.9% limited partner stake in Targa Resources Partners LP (NYSE: NGLS). Partnership Adjusted EBITDA rose to $970.3 millionb from $635.2 million, and distributable cash flow at the parent level was $124.7 million, against declared common dividends of $2.84 per share for the year (roughly 2.4x coverage on the parent's distributable cash flow, based on the filing's own figures). The most important forward-looking items are the pending Atlas mergers, under which the Partnership would acquire Atlas Pipeline Partners and Targa would acquire Atlas Energy (which owns APL's general partner).

The filing expects closing on February 28, 2015, subject to stockholder and unitholder approvals. Targa would issue roughly 10.35 million shares and pay about $522 millionc in cash to ATLS holders, and the combined entity's debt would rise sharply (Partnership borrowings pro forma about $867.7 million at January 31, 2015, before additional merger-related financing). Targa also agreed to reduce its IDRs over four years after closing, which lowers future incremental distributions to the parent.

Several shareholder and unitholder lawsuits relating to the mergers were filed and are being settled through supplemental disclosures. Investors should also weigh the sharp commodity-price decline in late 2014 and early 2015. Management flagged that producers are likely to cut drilling in 2015, prompting it to reevaluate the timing and capacity of the 300 MMcf/d Delaware Basin and 200 MMcf/d McKenzie County plants.

Growth capital for 2015 is estimated at $490 to $675 milliond for the Partnership, and CBF Train 5 remains on track for mid-2016. Roughly 42% of plant volumes are supported by percent-of-proceeds contracts (51% of gathered gas volumes), so commodity exposure remains meaningful despite hedging and a growing fee-based downstream business.

02—Key points

Key Highlights

  1. Revenue grew 36% to $8.6 billion in 2014, driven mainly by higher NGL volumes and fee-based revenue; operating margin rose 42% to $1,136.5 million.
  2. Partnership Adjusted EBITDA reached $970.3 million (up about 53% from $635.2 million), and Partnership distributable cash flow reached $763.2 million (up from $446.3 million).
  3. Targa's parent-level distributable cash flow was $124.7 million, up from $116.6 million, supporting a quarterly dividend of $0.775 per share (annualized about $3.10).
  4. Pending Atlas mergers would add APL's Woodford/SCOOP, Mississippi Lime, Eagle Ford and Permian assets, with Targa paying roughly $522 million in cash plus 10.35 million shares for ATLS units; closing was targeted for February 28, 2015.
  5. Partnership debt rises materially post-merger: $867.7 million pro forma borrowings at January 31, 2015, plus $1.1 billion of committed financing and $1.1 billion of new 5% notes issued to fund the APL tender and change-of-control offers.
  6. Management flagged 2015 downside: lower commodity prices are expected to reduce producer drilling, and two announced processing plants are being re-evaluated for capacity and timing.
  7. Export and fractionation expansion continues: LPG export capacity reached about 7.0 MMBbl/month, and CBF Train 5 (100 MBbl/d, about $385 million) is expected in mid-2016.

03—One dollar

04—Financials

Financial Highlights

Figures from 10-KFY2014filed February 17, 2015
Net Income$102.30MEPS (Diluted)$2.43Total Assets$6.42BCash & Equivalents$81.00MFree Cash Flow-$400K

Financial Statements

FY2014 against FY2013

Line itemFY2014FY2013Change
Gross Profit$1.57B$1.18B+33.3%
Operating Income$640.50M$368.20M+74.0%
Net Income$102.30M$65.10M+57.1%
EPS (Basic)$2.44$1.56+56.4%
EPS (Diluted)$2.43$1.55+56.8%
Shares Outstanding (Basic)42.00M41.60M+1.0%
Shares Outstanding (Diluted)42.10M42.10M0.0%

05—Questions

Frequently Asked Questions

  1. What does Targa Resources Corp. actually own, and where does its cash flow come from?

    Targa does not directly own operating assets. Its cash flow comes from distributions on its 2% general partner interest, 100% of the incentive distribution rights (IDRs), and 12,945,659 common units (about 10.9% of the Partnership) in Targa Resources Partners LP. IDRs pay 13%, 23% and 48% of incremental cash distributions above defined thresholds, so the parent's distributions grow faster than the Partnership's when distributions rise.

  2. How did earnings and cash flow change in 2014?

    Net income attributable to Targa common shareholders rose to $102.3 million ($2.43 diluted EPS) from $65.1 million ($1.55) in 2013. Consolidated net income was $423.0 million, but most of it (320.7 million) was attributable to noncontrolling interests in the Partnership. Parent-level distributable cash flow was $124.7 million, versus $116.6 million in 2013.

  3. What are the main risks to the Atlas merger deal and to future dividends?

    Risks include failure to obtain stockholder and unitholder approvals, pending shareholder and unitholder lawsuits (being settled through supplemental disclosures), integration difficulties, and higher leverage after closing. Dividends depend entirely on Partnership distributions, which are constrained by the Partnership's leverage covenants (for example, a 5.5x funded debt to EBITDA maximum on the TRP Revolver). The IDR reductions agreed in the APL merger also reduce future incremental cash to Targa for four years.

  4. How exposed is the business to commodity prices?

    Exposure is meaningful but partly mitigated. About 51% of gathered gas volumes in 2014 were under percent-of-proceeds contracts, which move with NGL and gas prices. The Partnership hedges a portion of its natural gas and condensate equity volumes through 2017 and NGL volumes through 2015. Its Downstream Business, Badlands and most of the logistics assets are fee-based, which reduces sensitivity. Management warned that producer activity and volumes may decline in 2015 as drilling is cut back.

06—Continue

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