form10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-34991
TARGA RESOURCES CORP.
(Exact name of registrant as specified in its charter)
 
Delaware
 
20-3701075
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1000 Louisiana St, Suite 4300, Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)

(713) 584-1000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
  (Do not check if a smaller reporting company)  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

As of April 30, 2013, there were 42,329,987 shares of the registrant’s common stock, $0.001 par value, outstanding.
 


 
 

 
 
PART I—FINANCIAL INFORMATION
   
 
4
   
 
  Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012
4
   
 
  Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012
5
   
 
  Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012
6
   
 
  Consolidated Statements of Changes in Owners' Equity for the three months ended March 31, 2013 and 2012
7
   
 
  Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012
8
   
 
  Notes to Consolidated Financial Statements
9
   
 
23
   
 
47
   
 
50
   
 
PART II—OTHER INFORMATION
   
 
51
   
 
Item 1A. Risk Factors.
51
   
 
51
   
 
51
   
 
51
   
 
51
   
 
Item 6. Exhibits.
52
   
 
SIGNATURES
   
 
54

 
1


CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Targa Resources Corp.’s (together with its subsidiaries, other than Targa Resources Partners LP (the “Partnership”), collectively “we,” “us,” “Targa,” “TRC,” or the “Company”) reports, filings and other public announcements may from time to time contain statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements.” You can typically identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, by the use of forward-looking statements, such as “may,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” “forecast” and other similar words.

All statements that are not statements of historical facts, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.

These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the risks set forth in “Part II-Other Information, Item 1A. Risk Factors.” of this Quarterly Report on Form 10-Q (“Quarterly Report”) as well as the following risks and uncertainties:

 
·
the Partnership’s and our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations;

 
·
the amount of collateral required to be posted from time to time in the Partnership’s transactions;

 
·
the Partnership’s success in risk management activities, including the use of derivative instruments to hedge commodity risks;

 
·
the level of creditworthiness of counterparties to transactions;

 
·
changes in laws and regulations, particularly with regard to taxes, safety and protection of the environment;

 
·
the timing and extent of changes in natural gas, natural gas liquids (“NGL”), crude oil and other commodity prices, interest rates and demand for the Partnership’s services;

 
·
weather and other natural phenomena;

 
·
industry changes, including the impact of consolidations and changes in competition;

 
·
the Partnership’s ability to obtain necessary licenses, permits and other approvals;

 
·
the level and success of crude oil and natural gas drilling around the Partnership’s assets, its success in connecting natural gas supplies to its gathering and processing systems, oil supplies to its gathering systems and NGL supplies to its logistics and marketing facilities and the Partnership’s success in connecting its facilities to transportation and markets;

 
·
the Partnership’s and our ability to grow through acquisitions or internal growth projects and the successful integration and future performance of such assets;

 
·
general economic, market and business conditions; and

 
·
the risks described elsewhere in “Part II-Other Information, Item 1A. Risk Factors.” of this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2012 (“Annual Report”) and our reports and registration statements filed from time to time with the United States Securities and Exchange Commission (“SEC”).

 
2


Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report will prove to be accurate. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in “Part II-Other Information, Item 1A. Risk Factors.” in this Quarterly Report and in our Annual Report. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events or otherwise.

As generally used in the energy industry and in this Quarterly Report, the identified terms have the following meanings:

Bbl
Barrels (equal to 42 U.S. gallons)
Btu
British thermal units, a measure of heating value
BBtu
Billion British thermal units
/d
Per day
/hr
Per hour
gal
U.S. gallons
GPM
Liquid volume equivalent expressed as gallons per 1000 cu. ft. of natural gas
LPG
Liquefied petroleum gas
MBbl
Thousand barrels
MMBbl
Million barrels
MMBtu
Million British thermal units
MMcf
Million cubic feet
NGL(s)
Natural gas liquid(s)
NYMEX
New York Mercantile Exchange
GAAP
Accounting principles generally accepted in the United States of America
NYSE
New York Stock Exchange
   
Price Index Definitions
IF-NGPL MC
Inside FERC Gas Market Report, Natural Gas Pipeline, Mid-Continent
IF-PB
Inside FERC Gas Market Report, Permian Basin
IF-WAHA
Inside FERC Gas Market Report, West Texas WAHA
NY-WTI
NYMEX, West Texas Intermediate Crude Oil
OPIS-MB
Oil Price Information Service, Mont Belvieu, Texas

 
3


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

TARGA RESOURCES CORP.
CONSOLIDATED BALANCE SHEETS

 
 
March 31,
   
December 31,
 
   
2013
   
2012
 
 
 
 
   
 
 
   
(Unaudited)
 
   
(In millions)
 
ASSETS
 
Current assets:
 
 
   
 
 
Cash and cash equivalents
  $ 112.7     $ 76.3  
Trade receivables, net of allowances $0.9 million and $0.9 million
    427.6       514.9  
Inventories
    66.0       99.4  
Assets from risk management activities
    18.2       29.3  
Other current assets
    6.7       13.4  
Total current assets
    631.2       733.3  
Property, plant and equipment
    4,919.6       4,708.0  
Accumulated depreciation
    (1,227.2 )     (1,170.0 )
Property, plant and equipment, net
    3,692.4       3,538.0  
Other intangible assets, net
    674.1       680.8  
Long-term assets from risk management activities
    3.2       5.1  
Investment in unconsolidated affiliate
    54.8       53.1  
Other long-term assets
    92.8       94.7  
Total assets
  $ 5,148.5     $ 5,105.0  
                 
LIABILITIES AND OWNERS' EQUITY
 
Current liabilities:
               
Accounts payable and accrued liabilities
  $ 621.1     $ 679.0  
Deferred income taxes
    3.8       0.2  
Liabilities from risk management activities
    8.2       7.4  
Total current liabilities
    633.1       686.6  
Long-term debt
    2,522.4       2,475.3  
Long-term liabilities from risk management activities
    5.0       4.8  
Deferred income taxes
    127.2       131.2  
Other long-term liabilities
    57.6       53.7  
                 
Commitments and contingencies (see Note 14)
               
                 
Owners' equity:
               
Targa Resources Corp. stockholders' equity:
               
Common stock ($0.001 par value, 300,000,000 shares authorized, 42,528,118 shares issued and 42,330,387 shares outstanding as of March 31, 2013, and 42,492,233 shares issued and 42,294,502 shares outstanding as of December 31, 2012)
    -       -  
Preferred stock ($0.001 par value, 100,000,000 shares authorized, no shares issued and outstanding as of March 31, 2013 and December 31, 2012)
    -       -  
Additional paid-in capital
    173.4       184.4  
Accumulated deficit
    (18.6 )     (32.0 )
Accumulated other comprehensive income
    0.1       1.2  
Treasury stock, at cost (197,731 shares as of March 31, 2013 and as of December 31, 2012)
    (9.5 )     (9.5 )
Total Targa Resources Corp. stockholders' equity
    145.4       144.1  
Noncontrolling interests in subsidiaries
    1,657.8       1,609.3  
Total owners' equity
    1,803.2       1,753.4  
Total liabilities and owners' equity
  $ 5,148.5     $ 5,105.0  

See notes to consolidated financial statements.
 
 
4


TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Three Months Ended March 31,
 
 
 
2013
   
2012
 
 
 
 
   
 
 
 
 
(Unaudited)
 
 
 
(In millions, except per share amounts)
 
Revenues
  $ 1,397.8     $ 1,645.8  
Costs and expenses:
               
Product purchases
    1,137.5       1,384.2  
Operating expenses
    86.1       71.6  
Depreciation and amortization expenses
    64.0       47.4  
General and administrative expenses
    36.3       34.9  
Income from operations
    73.9       107.7  
Other income (expense):
               
Interest expense, net
    (32.1 )     (30.5 )
Equity earnings
    1.6       2.1  
Other
    (0.2 )     -  
Income before income taxes
    43.2       79.3  
Income tax expense:
               
Current
    (9.2 )     (8.7 )
Deferred
    (0.2 )     (1.4 )
      (9.4 )     (10.1 )
Net income
    33.8       69.2  
Less: Net income attributable to noncontrolling interests
    20.4       59.6  
Net income available to common shareholders
  $ 13.4     $ 9.6  
                 
Net income available per common share - basic
  $ 0.32     $ 0.23  
Net income available per common share - diluted
  $ 0.32     $ 0.23  
Weighted average shares outstanding - basic
    41.6       41.0  
Weighted average shares outstanding - diluted
    42.0       41.8  

See notes to consolidated financial statements.
 
 
5


TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended March 31,
 
   
2013
   
2012
 
   
Pre-
Tax
   
Related
Income
Tax
   
After
Tax
   
Pre-
Tax
   
Related
Income
Tax
   
After
Tax
 
 
 
 
   
 
   
 
   
 
   
 
   
 
 
 
 
(Unaudited)
 
   
(In millions)
 
Net income  attributable to Targa Resources Corp.
 
 
   
 
    $ 13.4    
 
   
 
    $ 9.6  
Other comprehensive income (loss) attributable to Targa Resources Corp.
 
 
   
 
           
 
   
 
         
Commodity hedging contracts:
 
 
   
 
           
 
   
 
         
Change in fair value
  $ (1.2 )   $ 0.5       (0.7 )   $ 2.4     $ (0.9 )     1.5  
Settlements reclassified to revenues
    (0.9 )     0.4       (0.5 )     (0.6 )     0.2       (0.4 )
Interest rate swaps:
                                               
Settlements reclassified to interest expense, net
    0.2       (0.1 )     0.1       0.4       (0.2 )     0.2  
Other comprehensive income (loss) attributable to Targa Resources Corp.
  $ (1.9 )   $ 0.8       (1.1 )   $ 2.2     $ (0.9 )     1.3  
Comprehensive income attributable to Targa Resources Corp.
                  $ 12.3                     $ 10.9  
                                                 
Net income attributable to noncontrolling interests
                  $ 20.4                     $ 59.6  
Other comprehensive income (loss) attributable to noncontrolling interests
                                               
Commodity hedging contracts:
                                               
Change in fair value
  $ (6.4 )   $ -       (6.4 )   $ 13.1     $ -       13.1  
Settlements reclassified to revenues
    (5.7 )     -       (5.7 )     (1.9 )     -       (1.9 )
Interest rate swaps:
                                               
Settlements reclassified to interest expense, net
    1.5       -       1.5       1.9       -       1.9  
Other comprehensive income (loss) attributable to noncontrolling interests
  $ (10.6 )   $ -       (10.6 )   $ 13.1     $ -       13.1  
Comprehensive income attributable to noncontrolling interests
                    9.8                       72.7  
                                                 
Total comprehensive income
                  $ 22.1                     $ 83.6  

See notes to consolidated financial statements.
 
 
6


TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY
 
   
 
   
 
   
 
   
 
   
Accumulated
   
 
   
 
   
 
   
 
 
   
 
   
 
   
Additional
   
 
   
Other
   
 
   
 
   
 
   
 
 
   
Common Stock
   
Paid in
   
Accumulated
   
Comprehensive
   
Treasury Shares
   
Noncontrolling
   
 
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Income (Loss)
   
Shares
   
Amount
   
Interests
   
Total
 
   
(Unaudited)
 
   
(In millions, except shares in thousands)
 
Balance, December 31, 2012
    42,295     $ -     $ 184.4     $ (32.0 )   $ 1.2       198     $ (9.5 )   $ 1,609.3     $ 1,753.4  
Compensation on equity grants
    35       -       2.1       -       -       -       -       1.7       3.8  
Accrual of distribution equivalent rights
    -       -       -       -       -       -       -       (0.3 )     (0.3 )
Sale of Partnership limited partner interests
    -       -       -       -       -       -       -       105.3       105.3  
Impact of Partnership equity transactions
    -       -       6.3       -       -       -       -       (6.3 )     -  
Dividends
    -       -       (19.4 )     -       -       -       -       -       (19.4 )
Distributions to owners
    -       -       -       -       -       -       -       (61.7 )     (61.7 )
Other comprehensive income (loss)
    -       -       -       -       (1.1 )     -       -       (10.6 )     (11.7 )
Net income
    -       -       -       13.4       -       -       -       20.4       33.8  
Balance, March 31, 2013
    42,330     $ -     $ 173.4     $ (18.6 )   $ 0.1       198     $ (9.5 )   $ 1,657.8     $ 1,803.2  
                                                                         
Balance, December 31, 2011
    42,398     $ -     $ 229.5     $ (70.1 )   $ (1.3 )     -     $ -     $ 1,172.6     $ 1,330.7  
Compensation on equity grants
    43       -       3.9       -       -       -       -       0.6       4.5  
Sale of Partnership limited partner interests
    -       -       -       -       -       -       -       115.2       115.2  
Impact of Partnership equity transactions
    -       -       (18.3 )     -       -       -       -       18.3       -  
Dividends
    -       -       (14.3 )     -       -       -       -       (0.1 )     (14.4 )
Distributions to owners
    -       -       -       -       -       -       -       (54.3 )     (54.3 )
Other comprehensive income (loss)
    -       -       -       -       1.3       -       -       13.1       14.4  
Net income
    -       -       -       9.6       -       -       -       59.6       69.2  
Balance, March 31, 2012
    42,441     $ -     $ 200.8     $ (60.5 )   $ -       -     $ -     $ 1,325.0     $ 1,465.3  

See notes to consolidated financial statements.
 
 
7


TARGA RESOURCES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Three Months Ended March 31,
 
   
2013
   
2012
 
 
 
 
   
 
 
   
(Unaudited)
 
Cash flows from operating activities
 
(In millions)
 
Net income
  $ 33.8     $ 69.2  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization in interest expense
    4.1       4.8  
Compensation on equity grants
    3.8       4.5  
Depreciation and amortization expense
    64.0       47.4  
Accretion of asset retirement obligations
    1.1       1.0  
Deferred income tax expense
    0.2       1.4  
Equity earnings, net of distributions
    (1.6 )     -  
Risk management activities
    (0.2 )     0.9  
Gain on sale or disposition of assets
    (0.1 )     -  
Changes in operating assets and liabilities:
               
Receivables and other assets
    95.1       119.6  
Inventory
    33.7       44.3  
Accounts payable and other liabilities
    (59.9 )     (154.3 )
Net cash provided by operating activities
    174.0       138.8  
Cash flows from investing activities
               
Outlays for property, plant and equipment
    (202.9 )     (103.0 )
Investment in unconsolidated affiliate
    -       (6.2 )
Return of capital from unconsolidated affiliate
    -       0.3  
Other, net
    (4.6 )     0.8  
Net cash used in investing activities
    (207.5 )     (108.1 )
Cash flows from financing activities
               
Partnership loan facilities:
               
Proceeds
    325.0       545.0  
Repayments
    (380.0 )     (643.0 )
Partnership accounts receivable securitization facility:
               
Proceeds
    171.4       -  
Repayments
    (60.0 )     -  
Non-Partnership loan facilities:
               
Proceeds
    5.0       -  
Repayments
    (15.0 )     -  
Costs incurred in connection with financing arrangements
    (1.1 )     (4.4 )
Distributions to owners
    (61.7 )     (54.3 )
Proceeds from sale of common units of the Partnership
    105.3       115.2  
Dividends to common and common equivalent shareholders
    (19.0 )     (13.8 )
Net cash provided by (used in) financing activities
    69.9       (55.3 )
Net change in cash and cash equivalents
    36.4       (24.6 )
Cash and cash equivalents, beginning of period
    76.3       145.8  
Cash and cash equivalents, end of period
  $ 112.7     $ 121.2  

See notes to consolidated financial statements.
 
 
8


TARGA RESOURCES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. 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

Targa Resources Corp. (“TRC”) is a Delaware corporation formed in October 2005. Our common stock is listed on the NYSE under the symbol “TRGP.” 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, including our wholly owned subsidiary TRI Resources Inc. (“TRI”).

Note 2 — Basis of Presentation

We have prepared these unaudited consolidated financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. While we derived the year-end balance sheet data from audited financial statements, this interim report does not include all disclosures required by GAAP for annual periods. These unaudited consolidated financial statements and other information included in this Quarterly Report should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report.

The unaudited consolidated financial statements for the three months ended March 31, 2013 and 2012 include all adjustments which we believe are necessary for a fair presentation of the results for interim periods. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods may have been reclassified to conform to the current year presentation.

Our financial results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2013.

One of our indirect subsidiaries is the sole general partner of Targa Resources Partners LP (the “Partnership”). Because we control the general partner of the Partnership, under GAAP, we must reflect our ownership interests in the Partnership on a consolidated basis. Accordingly, the Partnership’s financial results are included in our consolidated financial statements even though the distribution or transfer of Partnership assets is limited by the terms of the Partnership’s partnership agreement, as well as restrictive covenants in the Partnership’s lending agreements. The limited partner interests in the Partnership not owned by us are reflected in our results of operations as net income attributable to noncontrolling interests and in our balance sheet equity section as noncontrolling interests in subsidiaries. Throughout these footnotes, we make a distinction where relevant between financial results of the Partnership versus those of a standalone parent and its non-partnership subsidiaries.

As of March 31, 2013, our interests in the Partnership consist of the following:

 
·
a 2% general partner interest, which we hold through our 100% ownership interest in the general partner of the Partnership;

 
·
all Incentive Distribution Rights (“IDRs”); and

 
·
12,945,659 common units of the Partnership, representing a 12.6% limited partnership interest.

The Partnership is engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and NGL products; gathering, storing and terminaling crude oil; and storing, terminaling and selling refined petroleum products.  See Note 15 for an analysis of our and the Partnership’s operations by segment.
 
 
9

 
Note 3 — Significant Accounting Policies

Accounting Policy Updates/Revisions

The accounting policies that we follow are set forth in Note 3 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2012. Significant updates or revisions to these policies during the three months ended March 31, 2013 are shown below.

Accounts Receivable Securitization Facility

Under the Partnership’s Accounts Receivable Securitization Facility (the “Securitization Facility’), proceeds from the sales of certain receivables are treated as collateralized borrowings in our financial statements. All amounts outstanding under the Securitization Facility are reflected as long-term debt on our balance sheets to the extent that the Partnership has the ability and intent to fund the Securitization Facility’s borrowings on a long-term basis. Proceeds and repayments under the Securitization Facility are reflected as cash flows from financing activities on our statements of cash flows.

Intangible Assets

Intangible assets arose from producer dedications under long-term contracts and customer relationships associated with businesses acquisitions. The fair value of these acquired intangible assets was determined at the date of acquisition based on the present value of estimated future cash flows. Amortization expense attributable to these assets is recorded in a manner that closely resembles the expected pattern in which we benefit from services provided to customers.

Recent Accounting Pronouncements

In January 2013, the FASB issued Accounting Standards Update No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies that ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities, applies to financial instruments or derivative transactions accounted for under ASC 815. The amendments require disclosures to present both gross and net amounts of derivative assets and liabilities that are subject to master netting arrangements with counterparties. We currently present the Partnership’s derivative assets and liabilities gross on our statement of financial position. We have provided additional disclosures regarding the gross and net amounts of derivative assets and liabilities in Note 12 in accordance with these new standards updates.

Note 4 –Business Acquisitions

On December 31, 2012, the Partnership completed the acquisition of Saddle Butte Pipeline, LLC’s ownership of its Williston Basin crude oil pipeline and terminal system and its natural gas gathering and processing operations (collectively “Badlands”).

Pursuant to the Membership Interest Purchase and Sale Agreement dated November 19, 2012 (the “MIPSA”), the acquisition is subject to a contingent payment of $50 million (“the contingent consideration”) if aggregate crude oil gathering volumes exceed certain stipulated monthly thresholds during the period from January 2013 through June 2014. If the threshold is not attained during the contingency period, no payment is owed. Accounting standards require that the contingent consideration be recorded at fair value at the date of acquisition and revalued at subsequent reporting dates under the acquisition method of accounting and revalued during the contingency period. At December 31, 2012, the Partnership recorded a $15.3 million accrued liability representing the fair value of this contingent consideration, determined by a probability based model measuring the likelihood of meeting certain volumetric measures identified in the MIPSA.

Future changes in the fair value of this accrued liability are included in earnings and reported as Other income (expense) in the Consolidated Statement of Operations. At March 31, 2013, the Partnership re-estimated the contingent consideration to be $15.6 million, an increase of $0.3 million attributable to accretion of the discount factor due to the passage of time. The current assessment of other valuation variables and factors has not changed since the acquisition date.

 
10


Our Annual Report on Form 10-K included the pro-forma schedule information for the year ended 2012. The following table presents updated 2012 pro forma information to reflect the effects of our 2013 policy decisions regarding depreciation and amortization of acquired properties and intangible assets, as described below. The following table also presents quarterly unaudited pro forma information for the three months ended March 31, 2012 for comparative purposes in this quarterly report.

 
 
Year Ended December 31, 2012
   
Three Months Ended
 
 
 
As reported in 10-K
   
Pro forma
   
March 31, 2012
 
 
 
( In millions except per share amounts)
 
Revenues
  $ 5,885.7     $ 5,909.9     $ 1,648.7  
Net income
    159.3       129.5       59.2  
Less: Net income attributable to noncontrolling interests
    121.2       83.5       47.3  
Net income attributable to Targa Resources Corp.
  $ 38.1     $ 46.0     $ 11.9  
                         
Net income per common share - Basic
  $ 0.93     $ 1.12     $ 0.29  
Net income per common share - Diluted
  $ 0.91     $ 1.10     $ 0.28  

The Partnership applied the same assumptions used in preparing the year-end pro forma schedules reported in its Annual Report on Form 10-K except for the following adjustments to conform to its current accounting policies:

 
·
depreciation expenses associated with the fair value adjustments to property, plant and equipment using straight-line method over a useful life of 15-20 years. The pro forma information included in our 2012 Form 10-K utilized a 30 year useful life;

 
·
amortization expenses associated with the fair value adjustments to definite-lived intangibles in a manner that closely resembles the expected pattern in which we benefit from services provided to customers, over a useful life of 20 years. The pro forma information included in our 2012 10-K utilized a straight-line method over a 30 year life; and

 
·
adjustment to pro forma revenues to report  purchases, and sales on a net, rather than gross, basis  for certain Badlands natural gas processing agreements in which we are in substance an agent rather than a principal.

Note 5 — Inventories

The components of inventories consisted of the following:

 
 
March 31, 2013
   
December 31, 2012
 
Natural gas liquids
  $ 44.2     $ 82.3  
Materials and supplies
    21.8       17.1  
 
  $ 66.0     $ 99.4  

 
11


Note 6 — Property, Plant and Equipment and Intangible Assets

 
 
March 31, 2013
   
December 31, 2012
   
 
 
 
 
 
Targa
Resources
Partners LP
   
TRC Non-
Partnership
   
Targa
Resources
Corp.
Consolidated
   
Targa
Resources
Partners LP
   
TRC Non-
Partnership
   
Targa
Resources
Corp.
Consolidated
   
Estimated
Useful Lives
(In Years)
 
Gathering systems
  $ 2,048.0     $ -     $ 2,048.0     $ 1,975.3     $ -     $ 1,975.3    
5 to 20
 
Processing and fractionation facilities
    1,262.1       6.6       1,268.7       1,251.6       6.6       1,258.2    
5 to 25
 
Terminaling and storage facilities
    502.6       -       502.6       462.0       -       462.0    
5 to 25
 
Transportation assets
    292.6       -       292.6       292.5       -       292.5    
10 to 25
 
Other property, plant and equipment
    86.7       0.2       86.9       84.6       0.2       84.8    
3 to 25
 
Land
    87.1       -       87.1       87.1       -       87.1       -  
Construction in progress
    633.7       -       633.7       548.1       -       548.1       -  
Property, plant and equipment
  $ 4,912.8     $ 6.8     $ 4,919.6     $ 4,701.2     $ 6.8     $ 4,708.0          
Accumulated depreciation
    (1,225.1 )     (2.1 )     (1,227.2 )     (1,168.0 )     (2.0 )     (1,170.0 )        
Property, plant and equipment, net
  $ 3,687.7     $ 4.7     $ 3,692.4     $ 3,533.2     $ 4.8     $ 3,538.0          
                                                         
Intangible assets
  $ 680.8     $ -     $ 680.8     $ 680.8     $ -     $ 680.8       20  
Accumulated amortization
    (6.7 )     -       (6.7 )     -       -       -          
Intangible assets, net
  $ 674.1     $ -     $ 674.1     $ 680.8     $ -     $ 680.8          

Intangible assets consist of customer contracts and customer relationships acquired in business acquisitions. The fair value of these acquired intangible assets was determined at the date of acquisition based on the present value of estimated future cash flows. Key valuation assumptions include probability of contracts under negotiation, renewals of existing contracts, economic incentives to retain customers, past and future volumes, current and future capacity of the gathering system, pricing volatility and the discount rate.

Customer contracts and customer relationships related to the Badlands system have an estimated economic useful life of 20 years. Amortization expense attributable to these assets is recorded using a method that closely reflects the cash flow pattern underlying the intangible asset valuation. Our estimated amortization expense for our intangible assets for each of the next five calendar years (2013-2017) is approximately $27.1 million, $61.4 million, $80.1 million, $88.3 million and $81.5 million.

Note 7 — Accounts Payable and Accrued Liabilities

The components of accounts payable and accrued liabilities consisted of the following:

 
 
March 31, 2013
   
December 31, 2012
 
Commodities
  $ 383.5     $ 416.8  
Other goods and services
    141.0       154.4  
Interest
    35.3       39.5  
Compensation and benefits
    30.4       40.7  
Other
    30.9       27.6  
 
  $ 621.1     $ 679.0  

 
12


Note 8 — Debt Obligations

 
 
2013
   
2012
 
Long-term debt:
 
 
   
 
 
Non-Partnership obligations:
 
 
   
 
 
TRC Senior secured revolving credit facility, variable rate, due October 2017 (1)
  $ 72.0     $ 82.0  
Obligations of the Partnership: (2)
               
Senior secured revolving credit facility, variable rate, due October 2017 (3)
    565.0       620.0  
Senior unsecured notes, 11¼% fixed rate, due July 2017
    72.7       72.7  
Unamortized discount
    (2.4 )     (2.5 )
Senior unsecured notes, 7⅞% fixed rate, due October 2018
    250.0       250.0  
Senior unsecured notes, 6⅞% fixed rate, due February 2021
    483.6       483.6  
Unamortized discount
    (29.9 )     (30.5 )
Senior unsecured notes, 6⅜% fixed rate, due August 2022
    400.0       400.0  
Senior unsecured notes, 5¼% fixed rate, due May 2023
    600.0       600.0  
Accounts receivable securitization facility, due January 2014 (4)
    111.4       -  
Total long-term debt
  $ 2,522.4     $ 2,475.3  
Irrevocable standby letters of credit:
               
Letters of credit outstanding under TRC Senior secured credit facility (1)
  $ -     $ -  
Letters of credit outstanding under the Partnership senior secured revolving credit facility (3)
    53.2       45.3  
    $ 53.2     $ 45.3  
 

(1)
As of March 31, 2013, $78.0 million of TRC’s $150.0 million credit facility was available.
(2)
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.
(3)
As of March 31, 2013, availability under the Partnership’s $1.2 billion senior secured revolving credit facility was $581.8 million.
(4)
All amounts outstanding under the Partnership’s Securitization Facility are reflected as long-term debt in our balance sheet to the extent that the Partnership has  the ability and intent to fund the Securitization Facility’s borrowing with availability under the Partnership’s  long-term Senior Secured Credit Facility (the “TRP Revolver”).

The following table shows the range of interest rates and weighted average interest rate incurred on our and the Partnership’s variable-rate debt obligations during the three months ended March 31, 2013:

 
 
Range of Interest
Rates Incurred
   
Weighted Average
Interest Rate Incurred
 
TRC senior secured revolving credit facility
    2.9% - 3.0%       3.0%  
Partnership's senior secured revolving credit facility
    1.9% - 4.5%       2.2%  
Partnership's accounts receivable securitization facility
    0.9%       0.9%  

Compliance with Debt Covenants

As of March 31, 2013, both the Partnership and we were in compliance with the covenants contained in our various debt agreements.

Accounts Receivable Securitization Facility

In January 2013, the Partnership entered into the Securitization Facility to provide up to $200 million of borrowing capacity at commercial paper rates plus a margin through January 2014. Under this Securitization Facility, one of the Partnership’s consolidated subsidiaries (Targa Liquids Marketing and Trade LLC or “TLMT”) sells or contributes receivables, without recourse, to another of the Partnership’s consolidated subsidiaries (Targa Receivables LLC or “TRLLC”), a special purpose consolidated subsidiary created for the sole purpose of this Securitization Facility. TRLLC, in turn, sells an undivided percentage ownership in the eligible receivables to a third-party financial institution. Eligible TRLLC receivables up to the amount of the outstanding debt under the Securitization Facility are not available to satisfy the claims of the creditors of TLMT or us. Any excess receivables are eligible to satisfy the claims of creditors of TLMT or us.
 
 
13


Note 9 — Partnership Units and Related Matters

Public Offerings of Common Units

In 2012, the Partnership filed with the SEC a universal shelf registration statement that, subject to effectiveness at the time of use, allows the Partnership to issue up to an aggregate of $300 million of debt or equity securities (the “2012 Shelf”). The 2012 Shelf expires in August 2015. In August 2012, the Partnership entered into an Equity Distribution Agreement (“2012 EDA”) with Citigroup Global Markets Inc. (“Citigroup”) pursuant to which the Partnership may sell, at its option, up to an aggregate of $100 million of its common units through Citibank, as sales agent, under the 2012 Shelf. Settlement for sales of common units will occur on the third business day following the date on which any sales were made in return for payment of the net proceeds to the Partnership. During the three months ended March 31, 2013, the Partnership issued 2,420,046 common units under the 2012 EDA and received gross proceeds of $96.7 million pursuant to the 2012 EDA. We contributed $2.0 million to maintain our 2% general partner interest.

In March 2013, the Partnership entered into a second Equity Distribution Agreement (the “2013 EDA”) with Citigroup, Deutsche Bank Securities Inc., Raymond James & Associates, Inc. and UBS Securities LLC, as sales agents, pursuant to which the Partnership may sell, at its option, up to an aggregate of $200 million of the Partnership common units under the 2012 Shelf. During the three months ended March 31, 2013, the Partnership issued 248,252 common units and received gross proceeds of $10.7 million, pursuant to the 2013 EDA. We contributed $0.3 million to maintain its 2% general partner interest.

Distributions

In accordance with the partnership agreement, the Partnership must distribute all of its available cash, as determined by the general partner, to unitholders of record within 45 days after the end of each quarter. The following table details the distributions declared and/or paid by the Partnership during the three months ended March 31, 2013.

       
Distributions
                   
     
Date Paid or to be
 
Limited
Partners
   
General Partner
          Distributions to
Targa Resources 
   
Distributions per 
 
Three Months Ended
 
Paid
 
Common
   
Incentive
    2%    
Total
   
Corp.
   
limited partner unit
 
(In millions, except per unit amounts)
 
March 31, 2013
 
May 15, 2013
  $ 71.7     $ 22.1     $ 1.9     $ 95.7     $ 33.0     $ 0.6975  
December 31, 2012
 
February 14, 2013
    69.0       20.1       1.8       90.9       30.7       0.6800  
 
Subsequent Event

In April 2013, the Partnership filed with the SEC a universal shelf registration statement (the “2013 Shelf”), which provides the Partnership with the ability to offer and sell an unlimited amount of debt and equity securities, subject to market conditions and the Partnership’s capital needs. The 2013 Shelf expires in April 2016.

Note 10 — Common Stock and Related Matters

The following table details the dividends declared and/or paid by us during the three months ended March 31, 2013:

Three Months Ended
 
Date Paid or to be Paid
 
Total
Dividend
Declared
   
Amount of
Dividend Paid
   
Accrued
Dividends (1)
   
Dividend Declared
per Share of Common
Stock
 
 
 
 
 
 
   
 
   
 
   
 
 
(In millions, except per share amounts)
 
March 31, 2013
 
May 16, 2013
  $ 21.0     $ 20.6     $ 0.4     $ 0.49500  
December 31, 2012
 
February 15, 2013
    19.4       19.0       0.4       0.45750  
 

(1)  
Represents accrued dividends on the restricted shares that are payable upon vesting.
 
 
14

 
Note 11 — 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 March 31,
 
 
 
2013
   
2012
 
Net income
  $ 33.8     $ 69.2  
Less: Net income attributable to noncontrolling interests
    20.4       59.6  
Net income attributable to common shareholders
  $ 13.4     $ 9.6  
                 
Weighted average shares outstanding - basic
    41.6       41.0  
                 
Net income available per common share - basic
  $ 0.32     $ 0.23  
                 
Weighted average shares outstanding
    41.6       41.0  
Dilutive effect of unvested stock awards
    0.4       0.8  
Weighted average shares outstanding - diluted
    42.0       41.8  
                 
Net income available per common share - diluted
  $ 0.32     $ 0.23  

Note 12 — Derivative Instruments and Hedging Activities

Partnership Commodity Hedges

The primary purpose of the Partnership’s commodity risk management activities is to manage its exposure to commodity price risk and reduce volatility in its operating cash flow due to fluctuations in commodity prices. The Partnership has hedged the commodity prices associated with a portion of its expected (i) natural gas equity volumes in Field Gathering and Processing Operations and (ii) NGL and condensate equity volumes predominately in Field Gathering and Processing segment and the LOU business unit in Coastal Gathering and Processing segment that result from its percent of proceeds processing arrangements. These hedge positions will move favorably in periods of falling prices and unfavorably in periods of rising prices. The Partnership has designated these derivative contracts as cash flow hedges for accounting purposes.

The hedges generally match the NGL product composition and the NGL and natural gas delivery points to those of the Partnership’s physical equity volumes. The NGL hedges may be transacted as specific NGL hedges or as baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon the Partnership’s 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. The Partnership’s natural gas and NGL hedges are settled using published index prices for delivery at various locations, which closely approximate the Partnership’s actual natural gas and NGL delivery points.

The Partnership hedges a portion of its condensate sales 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 necessarily exposes the Partnership to a market differential risk if the NYMEX futures do not move in exact parity with the sales price of its underlying condensate equity volumes.

At March 31, 2013, the notional volumes of the Partnership’s commodity hedges for equity volumes were:

Commodity
 
Instrument
 
Unit
 
2013
 
2014
 
2015
 
2016
 
Natural Gas
 
Swaps
 
MMBtu/d
 
 31,108
 
 25,500
 
 12,001
 
 5,000
 
NGL
 
Swaps
 
Bbl/d
 
 5,650
 
 1,000
 
 -
 
 -
 
Condensate
 
Swaps
 
Bbl/d
 
 1,962
 
 1,450
 
 -
 
 -
 

The Partnership also enters into derivative instruments to help manage other short-term commodity-related business risks. The Partnership has not designated these derivatives as hedges, and records changes in fair value and cash settlements to revenues.
 
 
15


The Partnership’s derivative contracts are subject to netting arrangements that allow net cash settlement of offsetting asset and liability positions with the same counterparty. 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 values of our derivative instruments and their location in 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 March 31, 2013
   
Fair Value as of December 31, 2012
 
 
Balance Sheet
 
Derivative
   
Derivative
   
Derivative
   
Derivative
 
 
Location
 
Assets
   
Liabilities
   
Assets
   
Liabilities
 
Derivatives designated as hedging instruments
                         
Commodity contracts
Current
  $ 18.1     $ 8.1     $ 29.2     $ 7.2  
 
Long-term
    3.2       5.0       5.1       4.8  
Total derivatives designated as hedging instruments
  $ 21.3     $ 13.1     $ 34.3     $ 12.0  
                                   
Derivatives not designated as hedging instruments
                               
Commodity contracts
Current
  $ 0.1     $ 0.1     $ 0.1     $ 0.2  
 
Long-term
    -       -       -       -  
Total derivatives not designated as hedging instruments
  $ 0.1     $ 0.1     $ 0.1     $ 0.2  
                                   
Total current position
    $ 18.2     $ 8.2     $ 29.3     $ 7.4  
Total long-term position
      3.2       5.0       5.1       4.8  
Total derivatives
    $ 21.4     $ 13.2     $ 34.4     $ 12.2  

The pro forma impact of reporting derivatives in the Consolidated Balance Sheet is as follows:

   
Gross Presentation
   
Pro forma Net Presentation
 
   
Asset
   
Liability
   
Asset
   
Liability
 
March 31, 2013
 
Position
   
Position
   
Position
   
Position
 
Current position
                       
Counterparties with offsetting position
  $ 16.3     $ 7.1     $ 9.2     $ -  
Counterparties without offsetting position - assets
    1.9       -       1.9       -  
Counterparties without offsetting position - liabilities
    -       1.1       -       1.1  
      18.2       8.2       11.1       1.1  
Long-term position
                               
Counterparties with offsetting position
    3.2       0.9       2.3       -  
Counterparties without offsetting position - assets
    -       -       -       -  
Counterparties without offsetting position - liabilities
    -       4.1       -       4.1  
      3.2       5.0       2.3       4.1  
Total derivatives
                               
Counterparties with offsetting position
    19.5       8.0       11.5       -  
Counterparties without offsetting position - assets
    1.9       -       1.9       -  
Counterparties without offsetting position - liabilities
    -       5.2       -       5.2  
    $ 21.4     $ 13.2     $ 13.4     $ 5.2  

December 31, 2012
                       
Current position
                       
Counterparties with offsetting position
  $ 23.8     $ 7.4     $ 16.4     $ -  
Counterparties without offsetting position - assets
    5.5       -       5.5       -  
Counterparties without offsetting position - liabilities
    -       -       -       -  
      29.3       7.4       21.9       -  
Long-term position
                               
Counterparties with offsetting position
    4.4       2.8       1.6       -  
Counterparties without offsetting position - assets
    0.7       -       0.7       -  
Counterparties without offsetting position - liabilities
    -       2.0       -       2.0  
      5.1       4.8       2.3       2.0  
Total derivatives
                               
Counterparties with offsetting position
    28.2       10.2       18.0       -  
Counterparties without offsetting position - assets
    6.2       -       6.2       -  
Counterparties without offsetting position - liabilities
    -       2.0       -       2.0  
    $ 34.4     $ 12.2     $ 24.2     $ 2.0  

The fair value of the Partnership’s 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 the Partnership’s derivative instruments was a net asset of $8.2 million as of March 31, 2013, net of an adjustment for credit risk. The credit risk adjustment is based on the default probabilities by year as indicated by market quotes for the counterparties’ credit default swap rates. These default probabilities have been applied to the unadjusted fair values of the derivative instruments to arrive at the credit risk adjustment, which was immaterial for all periods presented.

The Partnership’s payment obligations in connection with substantially all of these hedging transactions and any additional credit exposure due to a rise in natural gas, NGL and crude oil prices relative to the fixed prices set forth in the hedges are secured by a first priority lien in the collateral securing its senior secured indebtedness that ranks equal in right of payment with liens granted in favor of its senior secured lenders.
 
 
16


The following tables reflect amounts recorded in other comprehensive income (“OCI”) and amounts reclassified from OCI to revenue and expense for the periods indicated:

 
 
Gain (Loss) Recognized in OCI on Derivatives
 
Derivatives in
 
(Effective Portion)
 
Cash Flow Hedging
 
Three Months Ended March 31,
 
Relationships
 
2013
   
2012
 
Commodity contracts
     (7.6 )      15.5  
 
  $ (7.6 )   $ 15.5  
 
 
 
Gain (Loss) Reclassified from OCI into Income
 
 
 
(Effective Portion)
 
 
 
Three Months Ended March 31,
 
Location of Gain (Loss)
    2013       2012  
Interest expense, net
  $ (1.7 )   $ (2.3 )
Revenues
     6.6        2.5  
 
  $ 4.9     $ 0.2  

Hedge ineffectiveness was immaterial for all periods presented.

Our consolidated earnings are also affected by the Partnership’s 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 (i.e., using the “mark-to-market” method) 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. Gain (loss) recognized on derivatives not designated as hedging instruments was immaterial for all periods presented.

The following table shows the deferred gains (losses) included in accumulated OCI that will be reclassified into earnings through the end of 2016:

 
 
March 31, 2013
   
December 31, 2012
 
Commodity hedges, before tax
  $ 1.1     $ 3.2  
Commodity hedges, after tax
    0.6       1.9  
Interest rate swaps, before tax
    (1.0 )     (1.2 )
Interest rate swaps, after tax
    (0.6 )     (0.7 )

As of March 31, 2013, deferred net gains of $10.8 million on commodity hedges and deferred net losses of $5.7 million on terminated interest rate swaps recorded in OCI are expected to be reclassified to revenue and interest expense during the next twelve months.

See Note 13 for additional disclosures related to derivative instruments and hedging activities.

Note 13 — Fair Value Measurements

Under generally accepted accounting principles, our consolidated balance sheet reflects a mixture of measurement methods for financial assets and liabilities (“financial instruments”). Derivative financial instruments are reported at fair value in our consolidated balance sheet. Other financial instruments are reported at historical cost or amortized cost in our consolidated balance sheet, with fair value measurements for these instruments provided as supplemental information.

The following is additional qualitative and quantitative disclosures regarding fair value measurements of financial instruments.
 
 
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Fair Value of Derivative Financial Instruments

The Partnership’s derivative instruments consist of financially settled commodity swap and option contracts and fixed price commodity contracts with certain counterparties. The Partnership determines the fair value of its derivative contracts using a discounted cash flow model for swaps and a standard option pricing-model for options, based on inputs that are readily available in public markets. The Partnership has consistently applied these valuation techniques in all periods presented and we believe the Partnership has obtained the most accurate information available for the types of derivative contracts the Partnership holds.

The fair values of the Partnership’s derivative instruments, which aggregate to a net asset position of $8.2 million as of March 31, 2013, are sensitive to changes in forward pricing on natural gas, NGLs and crude oil. This asset position reflects the present value, adjusted for counterparty credit risk, of the amount the Partnership expects to receive in the future on its 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 $18.7 million, ignoring an adjustment for counterparty credit risk. 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 asset of $35.1 million, ignoring an adjustment for counterparty credit risk.

Fair Value of Other Financial Instruments

The contingent consideration obligation related to the Partnership’s Badlands acquisition is reported at fair value. 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. As such, long-term debt is primarily the other financial instrument for which our carrying value could vary significantly from fair value. We determined the supplemental fair value disclosures for our long-term debt as follows:

 
·
senior secured revolving credit facilities and the Partnership’s Securitization Facility are based on carrying value which approximates fair value as its interest rate is based on prevailing market rates;

 
·
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 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.
 
 
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The following table shows a breakdown by fair value hierarchy category for (1) financial instruments measurements included in our consolidated balance sheet at fair value and (2) supplemental fair value disclosures for other financial instruments:

   
March 31, 2013
 
         
Fair Value
 
   
Carrying
Value
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Financial Instruments Recorded on Our Consolidated Balance Sheet at Fair Value:
 
 
   
 
   
 
   
 
   
 
 
Assets from commodity derivative contracts
  $ 21.4     $ 21.4     $ -     $ 21.4     $ -  
Liabilities from commodity derivative contracts
    13.2       13.2       -       12.2       1.0  
Badlands contingent consideration liability
    15.6       15.6       -       -       15.6  
Financial Instruments Recorded on Our Consolidated Balance Sheet at Carrying Value:
                                       
Cash and cash equivalents
    112.7       112.7                          
TRC Senior secured revolving credit facility
    72.0       72.0       -       72.0       -  
Partnership's Senior secured revolving credit facility
    565.0       565.0       -       565.0       -  
Partnership's Senior unsecured notes
    1,774.0       1,949.8       -       1,949.8       -  
Partnership's accounts receivable securitization facility
    111.4       111.4       -       111.4       -  
                                         
   
December 31, 2012
 
           
Fair Value
 
   
Carrying
Value
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Financial Instruments Recorded on Our Consolidated Balance Sheet at Fair Value:
                                       
Assets from commodity derivative contracts
  $ 34.3     $ 34.3     $ -     $ 34.3     $ -  
Liabilities from commodity derivative contracts
    12.1       12.1       -       11.5       0.6  
Badlands contingent consideration liability
    15.3       15.3       -       -       15.3  
Financial Instruments Recorded on Our Consolidated Balance Sheet at Carrying Value:
                                       
Cash and cash equivalents
    76.3       76.3                          
TRC Senior secured revolving credit facility
    82.0       82.0       -       82.0       -  
Partnership's Senior secured revolving credit facility
    620.0       620.0       -       620.0       -  
Partnership's Senior unsecured notes
    1,773.3       1,945.2       -       1,945.2       -  

Additional Information Regarding Level 3 Fair Value Measurements

As of March 31, 2013, we reported certain of the Partnership’s natural gas basis swaps at fair value using Level 3 inputs due to such derivatives not having observable market prices 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 natural gas basis swaps is determined using a disco