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EX-32.1 - EXHIBIT 32.1 - Targa Resources Corp.ex32_1.htm
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EX-31.2 - EXHIBIT 31.2 - Targa Resources Corp.ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - Targa Resources Corp.ex31_1.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 June 30, 2011

or

¨ 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 R No £

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 £ No £.

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 £
Accelerated filer £
Non-accelerated filer R
Smaller reporting company £
(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 £ No R.

As of August 1, 2011, there were 42,349,738 shares of the registrant’s common stock, $0.001 par value, outstanding.

 
 

 

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PART II—OTHER INFORMATION
 
 
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SIGNATURES
 
 
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Targa Resources Corp.’s (together with its subsidiaries, other than Targa Resources Partners LP, 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 words, 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:

·  
Targa Resources Partners LP’s (the “Partnership”) 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 financial instruments to hedge commodity and interest rate 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”) 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 oil and natural gas drilling around the Partnership’s assets and its success in connecting natural gas supplies to its gathering and processing systems and NGL supplies to its logistics and marketing facilities;

·  
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, 2010 (“Annual Report”) and, our reports and registration statements filed from time to time with the Securities and Exchange Commission.

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 gallons)
Btu
British thermal units, a measure of heating value
BBtu
Billion British thermal units
/d
Per day
gal
Gallons
LPG
Liquefied petroleum gas
MBbl
Thousand barrels
MMBtu
Million British thermal units
MMcf
Million cubic feet
NGL(s)
Natural gas liquid(s)
NYMEX
New York Mercantile 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

 
PART I – FINANCIAL INFORMATION


TARGA RESOURCES CORP.
CONSOLIDATED BALANCE SHEETS
 
 
 
   
 
 
 
 
June 30,
   
December 31,
 
 
 
2011
   
2010
 
 
 
(Unaudited)
 
 
 
(In millions)
 
ASSETS
Current assets:
 
 
   
 
 
Cash and cash equivalents
  $ 154.7     $ 188.4  
Trade receivables, net of allowances of $7.9 million
    495.8       466.6  
Inventory
    69.9       50.4  
Deferred income taxes
    13.8       3.6  
Assets from risk management activities
    22.5       25.2  
Other current assets
    22.7       16.3  
Total current assets
    779.4       750.5  
Property, plant and equipment, at cost
    3,498.3       3,331.4  
Accumulated depreciation
    (910.9 )     (822.4 )
Property, plant and equipment, net
    2,587.4       2,509.0  
Long-term assets from risk management activities
    13.2       18.9  
Other long-term assets
    121.3       115.4  
Total assets
  $ 3,501.3     $ 3,393.8  
 
               
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
               
Accounts payable
  $ 326.4     $ 254.2  
Accrued liabilities
    319.4       335.8  
Liabilities from risk management activities
    56.9       34.2  
Total current liabilities
    702.7       624.2  
Long-term debt
    1,265.8       1,534.7  
Long-term liabilities from risk management activities
    44.5       32.8  
Deferred income taxes
    119.9       111.6  
Other long-term liabilities
    64.4       54.4  
 
               
Commitments and contingencies (see Note 12)
               
 
               
Owners' equity:
               
Targa Resources Corp. stockholders' equity:
               
Common stock ($0.001 par value, 300.0 million shares authorized, 42.4 million and 42.3 million shares issued and outstanding as of June 30, 2011 and December 31, 2010)
    -       -  
Preferred stock ($0.001 par value, 100.0 million shares authorized, no shares issued and outstanding as of June 30, 2011 and December 31, 2010)
    -       -  
Additional paid-in capital
    257.2       244.5  
Accumulated deficit
    (83.5 )     (100.8 )
Accumulated other comprehensive income (loss)
    (4.2 )     0.6  
Total Targa Resources Corp. stockholders' equity
    169.5       144.3  
Noncontrolling interests in subsidiaries
    1,134.5       891.8  
Total owners' equity
    1,304.0       1,036.1  
Total liabilities and owners' equity
  $ 3,501.3     $ 3,393.8  
 
               
See notes to consolidated financial statements


CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
   
 
 
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2011
   
2010
   
2011
   
2010
 
 
 
(Unaudited)
 
 
 
(In millions, except per share amounts)
 
Revenues
  $ 1,727.7     $ 1,240.1     $ 3,345.8     $ 2,723.7  
Costs and expenses:
                               
Product purchases
    1,477.2       1,057.9       2,877.8       2,355.6  
Operating expenses
    71.6       61.9       137.6       124.2  
Depreciation and amortization expenses
    45.3       43.9       88.7       86.7  
General and administrative expenses
    35.1       28.0       69.7       54.0  
 
    1,629.2       1,191.7       3,173.8       2,620.5  
Income from operations
    98.5       48.4       172.0       103.2  
Other income (expense):
                               
Interest expense, net
    (28.0 )     (26.4 )     (56.5 )     (53.9 )
Equity in earnings of unconsolidated investment
    1.3       2.4       3.0       2.7  
Gain (loss) on debt repurchases (see Note 5)
    -       -       -       (17.4 )
Gain (loss) on early debt extinguishment, net (see Note 5)
    -       (10.2 )     -       18.7  
Gain (loss) on mark-to-market derivative instruments
    (3.2 )     -       (3.2 )     (0.3 )
Other income (expense), net
    -       0.1       (0.1 )     0.2  
Income before income taxes
    68.6       14.3       115.2       53.2  
Income tax benefit (expense):
                               
Current
    (4.6 )     (0.9 )     (10.1 )     (1.7 )
Deferred
    (0.7 )     (6.0 )     (1.0 )     (8.2 )
 
    (5.3 )     (6.9 )     (11.1 )     (9.9 )
Net income
    63.3       7.4       104.1       43.3  
Less: Net income attributable to noncontrolling interests
    52.8       19.0       86.8       33.0  
Net income (loss) attributable to Targa Resources Corp.
    10.5       (11.6 )     17.3       10.3  
Dividends on Series B preferred stock
    -       (2.4 )     -       (7.0 )
Dividends on common equivalents
    -       (177.8 )     -       (177.8 )
Net income (loss) available to common shareholders
  $ 10.5     $ (191.8 )   $ 17.3     $ (174.5 )
 
                               
Net income (loss) available per common share - basic
  $ 0.26     $ (48.10 )   $ 0.42     $ (21.36 )
Net income (loss) available per common share - diluted
  $ 0.25     $ (48.10 )   $ 0.42     $ (21.36 )
Weighted average shares outstanding - basic
    41.0       4.0       41.0       8.2  
Weighted average shares outstanding - diluted
    41.4       4.0       41.3       8.2  
 
                               
See notes to consolidated financial statements


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
   
 
 
 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
 
2011
   
2010
   
2011
   
2010
 
 
 
(Unaudited)
 
 
 
(In millions)
 
Net income (loss) attributable to Targa Resources Corp.
  $ 10.5     $ (11.6 )   $ 17.3     $ 10.3  
Other comprehensive income (loss) attributable to Targa Resources Corp.
                               
Commodity hedging contracts:
                               
Change in fair value
    0.3       9.7       (9.0 )     45.2  
Settlements reclassified to revenues
    -       (2.8 )     0.1       (0.1 )
Interest rate swaps:
                               
Change in fair value
    (0.4 )     (0.1 )     (0.1 )     (1.9 )
Settlements reclassified to interest expense, net
    0.4       0.6       0.8       1.1  
Related income taxes
    (0.1 )     (3.9 )     3.3       (18.1 )
Other comprehensive income (loss) attributable to Targa Resources Corp.
    0.2       3.5       (4.9 )     26.2  
Comprehensive income (loss) attributable to Targa Resources Corp.
    10.7       (8.1 )     12.4       36.5  
 
                               
Net income attributable to noncontrolling interests
    52.8       19.0       86.8       33.0  
Other comprehensive income (loss) attributable to noncontrolling interests
                               
Commodity hedging contracts:
                               
Change in fair value
    4.1       22.6       (47.9 )     45.0  
Settlements reclassified to revenues
    9.7       (2.7 )     13.6       (0.6 )
Interest rate swaps:
                               
Change in fair value
    (1.8 )     (10.0 )     (1.8 )     (14.9 )
Settlements reclassified to interest expense, net
    1.8       2.8       3.8       3.9  
Other comprehensive income (loss) attributable to noncontrolling interests
    13.8       12.7       (32.3 )     33.4  
Comprehensive income (loss) attributable to noncontrolling interests
    66.6       31.7       54.5       66.4  
 
                               
Total comprehensive income (loss)
  $ 77.3     $ 23.6     $ 66.9     $ 102.9  
 
                               
See notes to consolidated financial statements


CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
 
 
 
   
 
   
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
Accumulated
   
 
   
 
 
 
 
 
   
 
   
Additional
   
 
   
Other
   
Non
   
 
 
 
 
Common Stock
   
Paid in
   
Accumulated
   
Comprehensive
   
Controlling
   
 
 
 
 
Shares
   
Amount
   
Capital
   
Deficit
   
Income (Loss)
   
Interests
   
Total
 
 
 
(Unaudited)
 
 
 
(In millions, except shares in thousands)
 
Balance, December 31, 2010
  42,292     $ -     $ 244.5     $ (100.8 )   $ 0.6     $ 891.8     $ 1,036.1  
Compensation on equity grants
  58       -       7.7       -       -       -       7.7  
Sale of limited partner interests in the Partnership
  -       -       -       -       -       298.0       298.0  
Impact of equity transactions of the Partnership
  -       -       19.1       -       -       (19.1 )     -  
Dividends
  -       -       (14.1 )     -       -       -       (14.1 )
Distributions to noncontrolling interests
  -       -       -       -       -       (92.3 )     (92.3 )
Contributions from noncontrolling interests
  -       -       -       -       -       1.6       1.6  
Other comprehensive income
  -       -       -       -       (4.8 )     (32.3 )     (37.1 )
Net income
  -       -       -       17.3       -       86.8       104.1  
Balance, June 30, 2011
  42,350     $ -     $ 257.2     $ (83.5 )   $ (4.2 )   $ 1,134.5     $ 1,304.0  
 
                                                     
See notes to consolidated financial statements


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
   
 
 
 
 
Six Months Ended June 30,
 
 
 
2011
   
2010
 
 
 
(Unaudited)
 
Cash flows from operating activities
 
(In millions)
 
Net income
  $ 104.1     $ 43.3  
Adjustments to reconcile net income to net cash provided by operating activities:
               
 Amortization in interest expense
    5.9       4.7  
 Paid-in-kind interest expense
    -       6.0  
 Compensation on equity grants
    7.7       0.4  
 Depreciation and amortization expense
    88.7       86.7  
 Accretion of asset retirement obligations
    1.8       1.6  
 Deferred income tax expense
    1.0       8.2  
 Equity in earnings (losses) of unconsolidated investment, net of distributions
    -       (0.6 )
 Risk management activities
    1.2       14.4  
 (Gain) loss on debt repurchases
    -       17.4  
 (Gain) loss on early debt extinguishment
    -       (18.7 )
 Changes in operating assets and liabilities:
               
    Receivables and other assets
    (33.2 )     34.2  
    Inventory
    (17.4 )     (10.4 )
    Accounts payable and other liabilities
    61.7       (37.8 )
Net cash provided by (used in) operating activities
    221.5       149.4  
Cash flows from investing activities
               
 Outlays for property, plant and equipment
    (138.2 )     (46.9 )
 Business acquisition
    (29.0 )     -  
 Investment in unconsolidated affiliate
    (6.0 )     -  
 Unconsolidated affiliate distributions in excess of accumulated earnings
    0.6       -  
 Proceeds from sales of assets
    -       0.2  
 Other
    -       1.9  
Net cash provided by (used in) investing activities
    (172.6 )     (44.8 )
Cash flows from financing activities
               
 Loan Facilities of the Partnership:
               
Borrowings
    611.0       635.8  
Repayments
    (1,178.3 )     (385.2 )
Proceeds from issuance of senior notes
    325.0       -  
Cash paid on note exchange
    (27.7 )     -  
 Loan Facilities- Non-Partnership:
               
Borrowings
    -       495.0  
Repayments
    -       (713.9 )
 Contributions from noncontrolling interests
    1.6       -  
 Distributions to noncontrolling interests
    (92.3 )     (65.3 )
 Proceeds from sale of Partnership interests
    -       224.7  
 Partnership equity transactions
    298.0       139.7  
 Repurchases of common stock
    -       (0.1 )
 Stock options exercised
    -       0.9  
 Dividends to common and common equivalent shareholders
    (13.7 )     (200.0 )
 Dividends to preferred shareholders
    -       (219.9 )
 Costs incurred in connection with financing arrangements
    (6.2 )     (19.3 )
Net cash provided by (used in) financing activities
    (82.6 )     (107.6 )
Net change in cash and cash equivalents
    (33.7 )     (3.0 )
Cash and cash equivalents, beginning of period
    188.4       252.4  
Cash and cash equivalents, end of period
  $ 154.7     $ 249.4  
 
               
See notes to consolidated financial statements


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 accounting principles generally accepted in the United States of America. 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 New York Stock Exchange 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 accounting principles generally accepted in the United States of America (“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. Certain amounts in the prior periods have been reclassified to conform to the current year presentation. In the Statement of Cash Flows presented in this Quarterly Report, we have reclassified $22.8 million of redemption payments of interest associated with our Holdco loan facility for the six months ended June 30, 2010 from operating activities to financing activities to conform to our presentation of such redemption payments which we previously adopted in connection with the preparation of our financial statements for the year ended December 31, 2010. We believe such presentation better reflects the characteristics of such payments as those were at amounts below the original principal of the redeemed notes. During the preparation of this Quarterly Report, we noted that we had inadvertently omitted such reclassification in our Statement of Cash Flows for the three months ended March 31, 2010 in our Form 10-Q for the period ended March 31, 2011. However, we have concluded that the resulting misclassification of redemption payments of $22.8 million as operating rather than as financing cash flows for the three months ended March 31, 2010 was not material. See Note 11. The unaudited consolidated financial statements for the three and six months ended June 30, 2011 and 2010 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.

Our financial results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2011. 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 for the year ended December 31, 2010.

Targa Resources GP LLC (the “General Partner”), an indirect wholly owned subsidiary of ours, is the 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 interest in the Partnership on a consolidated basis. Accordingly, our financial results are combined with the Partnership’s financial results in our consolidated financial statements, even though the distribution or transfer of Partnership assets are limited by the terms of the partnership agreement, as well as restrictive covenants in the Partnership’s lending agreements. The limited partner interests in the Partnership not owned by our controlled affiliates are reflected in our results of operations as net income attributable to non-controlling 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 June 30, 2011, 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

·  
11,645,659 common units of the Partnership, representing a 13.7% 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; and storing and terminaling refined petroleum products and crude oil. See Note 14 for an analysis of our and the Partnership’s operations by segment.
 
Note 3 — Significant Accounting Policies

Accounting Policy Updates/Revisions

The accounting policies followed by the Company are set forth in Note 4 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes to these policies during the six months ended June 30, 2011.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendment, which becomes effective during interim and annual periods beginning after December 15, 2011, requires additional disclosures with regard to fair value measurements categorized within Level 3 of the fair value hierarchy. Early adoption is not permitted.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendment, which becomes effective during interim and annual periods beginning after December 15, 2011, stipulates the financial statement presentation requirements for other comprehensive income. Our financial statement presentation complies with this standards update.

Note 4 — Property, Plant and Equipment

 
 
June 30, 2011
 
December 31, 2010
 
 
 
 
 
Targa
 
 
 
Targa
 
 
 
 
 
Targa
 
Estimated
 
 
 
Resources
 
TRC
 
Resources
 
Targa
 
TRC
 
Resources
 
Useful
 
 
 
Partners
 
Non-
 
Corp.
 
Resources
 
Non-
 
Corp.
 
Lives
 
 
 
LP
 
Partnership
 
Consolidated
 
Partners LP
 
Partnership
 
Consolidated
 
(In Years)
 
Natural gas gathering systems
  $ 1,678.0   $ -   $ 1,678.0   $ 1,630.9   $ -   $ 1,630.9  
5 to 20
 
Processing and fractionation facilities
    1,037.6     6.6     1,044.2     961.9     6.6     968.5  
5 to 25
 
Terminaling and storage facilities (1)
    272.2     -     272.2     244.7     -     244.7  
5 to 25
 
Transportation assets
    277.2     -     277.2     275.6     -     275.6  
10 to 25
 
Other property, plant and equipment
    50.9     22.7     73.6     46.8     22.6     69.4  
3 to 25
 
Land
    53.2     -     53.2     51.2     -     51.2    -  
Construction in progress
    96.1     3.8     99.9     88.4     2.7     91.1    -  
 
  $ 3,465.2   $ 33.1   $ 3,498.3   $ 3,299.5   $ 31.9   $ 3,331.4        
_________
(1)  
Includes the March 2011 acquisition of a refined petroleum products and crude oil storage facility, for which the Partnership paid $29.0 million.


Note 5 — Debt Obligations

 
 
June 30,
   
December 31,
 
 
 
2011
   
2010
 
Long-term debt:
 
 
   
 
 
Non-Partnership obligations:
 
 
   
 
 
TRC Holdco loan facility, variable rate, due February 2015
  $ 89.3     $ 89.3  
TRI Senior secured revolving credit facility, variable rate, due July 2014 (1)
    -       -  
Obligations of the Partnership: (2)
               
Senior secured revolving credit facility, variable rate, due July 2015 (3)
    198.0       765.3  
Senior unsecured notes, 8¼% fixed rate, due July 2016
    209.1       209.1  
Senior unsecured notes, 11¼% fixed rate, due July 2017
    72.7       231.3  
Unamortized discounts
    (3.1 )     (10.3 )
Senior unsecured notes, 7⅞% fixed rate, due October 2018
    250.0       250.0  
Senior unsecured notes, 6⅞% fixed rate, due February 2021
    483.6       -  
Unamortized discounts
    (33.8 )     -  
Total long-term debt
  $ 1,265.8     $ 1,534.7  
Irrevocable standby letters of credit:
               
Letters of credit outstanding under TRI's Senior secured credit facility (1)
  $ -     $ -  
Letters of credit outstanding under the Partnership's Senior secured revolving credit facility (3)
    86.3       101.3  
 
  $ 86.3     $ 101.3  
_________
(1)  
As of June 30, 2011, the entire amount of TRI’s $75.0 million credit facility was available for letters of credit and includes a limited borrowing capacity for borrowings on same-day notice referred to as swing line loans. Our available capacity under this facility was $75.0 million.
(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 June 30, 2011, availability under the Partnership’s $1.1 billion senior secured revolving credit facility was $815.7 million.

The following table shows the range of interest rates paid and weighted average interest rate paid on our and the Partnership’s variable-rate debt obligations during the six months ended June 30, 2011:

 
 
Range of Interest
 
Weighted Average
 
 
Rates Paid
 
Interest Rate Paid
Holdco loan facility of Targa
3.2% - 3.3%
 
3.3%
Senior secured term loan facility of TRI, due 2014
N/A
 
N/A
Senior secured revolving credit facility of the Partnership
2.4% - 5.8%
 
2.9%

Compliance with Debt Covenants

As of June 30, 2011, both we and the Partnership were in compliance with the covenants contained in our various debt agreements.

Holdco Credit Agreement

During the six months ended June 30, 2010, we completed transactions that have been recognized in our consolidated financial statements as a debt extinguishment, and recognized a pretax gain of $32.8 million. The transactions included payments of $131.4 million to acquire $164.2 million of outstanding borrowings under our Holdco credit agreement and write offs of associated debt issue costs totaling $1.2 million.

Senior Secured Credit Agreement of TRI

During the six months ended June 30, 2010, we incurred a loss on debt repurchases of $17.4 million comprising $10.9 million of premiums paid and $6.5 million from the write-off of debt issue costs related to the repurchase of our 8½% senior notes. The premiums paid were included as a cash outflow from a financing activity in the Statement of Cash Flows.

During the six months ended June 30, 2010, we also incurred a loss on debt extinguishments of $12.9 million from the write-off of debt issue costs related to the repayments of our term loan and terminations of our synthetic letter of credit and revolving credit facilities.

 
6⅞% Senior Notes of the Partnership

On February 2, 2011, the Partnership closed a private placement of $325.0 million in aggregate principal amount of 6⅞% Senior Notes due 2021 (“the 6⅞% Notes”). The net proceeds of this offering were $318.8 million after deducting expenses of the offering. The Partnership used the net proceeds from the offering to reduce borrowings under its senior secured credit facility and for general partnership purposes.

On February 4, 2011, the Partnership exchanged an additional $158.6 million principal amount of its 6⅞% Notes plus payments of $28.6 million including $0.9 million of accrued interest for $158.6 million aggregate principal amount of its 11¼% Senior Notes due 2017 (the “11¼% Notes”). The holders of the exchanged Notes are subject to the provisions of the 6⅞% Notes described below. The debt covenants related to the remaining $72.7 million of face value of the 11¼% Notes were removed. This exchange was accounted for as a debt modification whereby the financial effects of the exchange will be recognized over the term of the new debt issue.

The 6⅞% Notes are unsecured senior obligations that rank pari passu in right of payment with existing and future senior indebtedness, including indebtedness under the Partnership’s credit facility. They are senior in right of payment to any of the Partnership’s future subordinated indebtedness and are unconditionally guaranteed by certain of the Partnership’s subsidiaries. These notes are effectively subordinated to all secured indebtedness under the Partnership’s credit agreement, which is secured by substantially all of the Partnership’s assets, to the extent of the value of the collateral securing that indebtedness.
 
Interest on the 6⅞% Notes accrues at the rate of 6⅞% per annum and is payable semi-annually in arrears on February 1 and August 1, commencing on August 1, 2011.
 
The Partnership may redeem 35% of the aggregate principal amount of the 6⅞% Notes at any time prior to February 1, 2014, with the net cash proceeds of one or more equity offerings. The Partnership must pay a redemption price of 106.875% of the principal amount, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date provided that:
 
1)  
at least 65% of the aggregate principal amount of the 6⅞% Notes (excluding 6⅞% Notes held by the Partnership) remains outstanding immediately after the occurrence of such redemption; and
 
2)  
the redemption occurs within 90 days of the date of the closing of such equity offering.
 
The Partnership may also redeem all or part of the 6⅞% Notes on or after August 1, 2016 at the redemption prices set forth below plus accrued and unpaid interest and liquidated damages, if any, on the notes redeemed, if redeemed during the twelve-month period beginning on August 1 of each year indicated below:

Year
 
Percentage
2016
 
103.44%
2017
 
102.29%
2018
 
101.15%
2019 and thereafter
 
100.00%

Note 6 — Partnership Units and Related Matters

On January 24, 2011, the Partnership completed a public offering of 8,000,000 common units representing limited partner interests in the Partnership (“common units”) under an existing shelf registration statement on Form S-3 at a price of $33.67 per common unit ($32.41 per common unit, net of underwriting discounts), providing net proceeds of $259.2 million. Pursuant to the exercise of the underwriters’ overallotment option, on February 3, 2011, the Partnership issued an additional 1,200,000 common units, providing net proceeds of $38.8 million. In addition, we contributed $6.3 million to the Partnership for 187,755 general partner units to maintain our 2% interest in the Partnership.

Distributions for the six months ended June 30, 2011 and 2010 were as follows:

 
 
 
 
Distributions (1)
 
 
 
 
 
 
 
For the Three
 
Limited Partners
 
General Partner
 
 
 
Distributions to Targa Resources
 
Distributions per limited
 
Date Paid
 
Months Ended
 
Common
 
Incentive
    2%  
Total
 
Corp.
 
partner unit
 
 
 
 
 
(In millions, except per unit amounts)
 
 
 
 
 
 
 
 
 
 
 
 
       
 
 
 
 
 
 
May 13, 2011
 
March 31, 2011
  $ 47.3   $ 6.8   $ 1.1   $ 55.2   $ 14.4   $ 0.5575  
February 14, 2011
 
December 31, 2010
    46.4     6.0     1.1     53.5     13.5     0.5475  
August 13, 2010
 
June 30, 2010
    35.9     3.5     0.8     40.2     10.4     0.5275  
May 14, 2010
 
March 31, 2010
    35.2     2.8     0.8     38.8     9.6     0.5175  
February 12, 2010
 
December 31, 2009
    35.2     2.8     0.8     38.8     14.0     0.5175  
_________
(1)  
On July 11, 2011, the Partnership announced a cash distribution of $0.57 per common unit on its outstanding common units for the three months ended June 30, 2011, to be paid on August 12, 2011. The distribution to be paid is $41.7 million to the Partnership’s third-party limited partners, and $6.6 million, $7.8 million and $1.2 million to Targa for its ownership of common units, incentive distribution rights and its 2% general partner interest in the Partnership.

Note 7 — Common Stock and Related Matters

Secondary Offering

On April 26, 2011, certain of our stockholders sold, in a secondary public offering, 5,650,000 shares of our common stock under a registration statement on Form S-1 at a price of $31.73 per share of common stock ($30.65 per share, net of underwriting discounts), providing additional net proceeds of $173.2 million to selling stockholders. We received no proceeds from the sale of shares by the selling stockholders. Pursuant to the exercise of the underwriters’ overallotment option, selling stockholders also sold an additional 847,500 shares of our common stock, providing net proceeds of $26.0 million. We incurred approximately $0.6 million of expenses in connection with the offering, including all expenses of the selling stockholders which we have paid.

Dividends

Dividends since our initial public offering on December 10, 2010 through June 30, 2011 were as follows:

Date Paid
 
For the Three Months Ended
 
Total Dividend Declared
 
Amount of Dividend Paid
 
Accrued Dividends (1)
 
Dividend Declared per Share of Common Stock (2)
 
 
(In millions, except per share amounts)
 
 
May 13, 2011
 
March 31, 2011
  $ 11.5   $ 11.2   $ 0.3   $ 0.2725  
 
February 14, 2011
 
December 31, 2010
    2.6     2.5     0.1     0.0616  (3)  
_________
(1)  
Represents accrued dividends on the 2011 Long Term Incentive Plan, to be paid August 2014.
(2)  
On July 11, 2011, we announced a quarterly dividend of $0.29 per share of our common stock on our outstanding common stock for the three months ended June 30, 2011, to be paid on August 16, 2011.
(3)  
Represents a prorated dividend for the portion of the fourth quarter of 2010 that the Company was public.
 

Note 8 — 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 June 30,
 
Six Months Ended June 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
Net income
  $ 63.3   $ 7.4   $ 104.1   $ 43.3  
Less: Net income attributable to noncontrolling interest
    52.8     19.0     86.8     33.0  
Net income attributable to Targa Resources Corp.
    10.5     (11.6 )   17.3     10.3  
Dividends on Series B preferred stock
    -     (2.4 )   -     (7.0 )
Distributions to common equivalents
    -     (177.8 )   -     (177.8 )
Net income attributable to common shareholders
  $ 10.5   $ (191.8 ) $ 17.3   $ (174.5 )
 
                         
Weighted average shares outstanding - basic
    41.0     4.0     41.0     8.2  
 
                         
Net income (loss) available per common share - basic
  $ 0.26   $ (48.10 ) $ 0.42   $ (21.36 )
 
                         
Weighted average shares outstanding
    41.0     4.0     41.0     8.2  
Dilutive effect of unvested stock awards
    0.4     -     0.3     -  
Weighted average shares outstanding - diluted
    41.4     4.0     41.3     8.2  
 
                         
Net income (loss) available per common share - diluted
  $ 0.25   $ (48.10 ) $ 0.42   $ (21.36 )

Note 9 — Derivative Instruments and Hedging Activities

Commodity Hedges

The primary purpose of the Partnership’s commodity risk management activities is to hedge the exposure to commodity price risk and reduce fluctuations in the Partnership’s operating cash flow despite fluctuations in commodity prices. In an effort to reduce the variability of cash flows, the Partnership has hedged the commodity price associated with a portion of its expected natural gas and NGL equity volumes through 2013 and condensate equity volumes through 2014 by entering into derivative financial instruments including swaps and purchased puts (floors).

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 cover baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon the Partnership’s expected equity NGL composition, as well as specific NGL hedges of ethane and propane. We believe this strategy avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. Additionally, the NGL hedges are based on published index prices for delivery at Mont Belvieu and the natural gas hedges are based on published index prices for delivery at Permian Basin, Mid-Continent and WAHA, which closely approximate the Partnership’s actual NGL and natural gas 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 West Texas condensate equity volumes.

Hedge ineffectiveness has been immaterial for all periods.

At June 30, 2011, the notional volumes of the Partnership’s commodity hedges were:

Commodity
 
Instrument
 
Unit
 
2011 
 
2012 
 
2013 
 
2014 
Natural Gas
 
Swaps
 
MMBtu/d
 
 38,470 
 
 31,790 
 
 17,089 
 
 - 
NGL
 
Swaps
 
Bbl/d
 
 10,118 
 
 9,361 
 
 4,150 
 
 - 
NGL
 
Floors
 
Bbl/d
 
 253 
 
 294 
 
 - 
 
 - 
Condensate
 
Swaps
 
Bbl/d
 
 1,730 
 
 1,660 
 
 1,795
 
 700 
 
Interest Rate Swaps

As of June 30, 2011, the Partnership had $198.0 million outstanding under its credit facility, with interest accruing at a base rate plus an applicable margin. In order to mitigate the risk of changes in cash flows attributable to changes in market interest rates, the Partnership has entered into interest rate swaps and interest rate basis swaps as shown below:

Period
 
Fixed Rate
   
Notional Amount
   
Fair Value
 
Remainder of 2011
    3.52%     $ 300     $ (5.0 )
2012
    3.40%       300       (7.1 )
2013 
    3.39%       300       (6.3 )
1/1/2014 - 4/24/2014
    3.39%       300       (1.9 )
 
                  $ (20.3 )

Derivative Instruments Not Designated as Hedging Instruments

The Partnership’s fixed interest rate swaps, which total $300.0 million in notional principal, and interest rate basis swaps, which total $200.0 million in notional principal, had been designated as cash flow hedges of variable rate interest payments on borrowings under the Partnership’s credit facility until February 11, 2011, when the Partnership de-designated $125.0 million notional principal of fixed interest rate swaps and $25.0 million notional principal of interest rate basis swaps. The Partnership de-designated the swaps as its borrowings under its credit facility reduced below $300.0 million, which is the total notional amount of the Partnership’s fixed interest rate swaps. The de-designated swaps receive mark-to-market treatment, with changes in fair value, cash and accrued settlements recorded to other income (expense).

The Partnership frequently enters into derivative instruments to manage location basis differentials. Based on the current application of the basis derivatives, the Partnership does not account for these derivatives as hedges and records changes in fair value and cash settlements to revenues.

The following schedules reflect the fair values of the Partnership’s derivative instruments in our financial statements:
 
 
 
Derivative Assets
 
Derivative Liabilities
 
     Balance     Fair Value as of  
Balance
 
Fair Value as of
 
     Sheet  
June 30,
   
December 31,
 
Sheet
 
June 30,
   
December 31,
 
     Location  
2011
   
2010
 
Location
 
2011
   
2010
 
Designated as hedging instruments
     
 
   
 
 
 
 
 
   
 
 
Commodity contracts
  Current assets    $ 22.1     $ 24.8  
Current liabilities
  $ 48.4     $ 25.5  
    Long-term assets      12.8       18.9  
Long-term liabilities
    32.0       20.5  
Interest rate contracts
  Current assets      -       -  
Current liabilities
    4.8       7.8  
    Long-term assets      -       -  
Long-term liabilities
    7.5       12.3  
Total designated  as hedging instruments
      $ 34.9     $ 43.7  
 
  $ 92.7     $ 66.1  
 
                   
 
               
Not designated as hedging instruments
                   
 
               
Commodity contracts
  Current assets    $ 0.4     $ 0.4  
Current liabilities
  $ 0.7     $ 0.9  
    Long-term assets      0.4       -  
Long-term liabilities
    -       -  
Interest rate contracts
  Current assets      -       -  
Current liabilities
    3.0       -  
    Long-term assets      -       -  
Long-term liabilities
    5.0       -  
Total not designated as hedging instruments
      $ 0.8     $ 0.4  
 
  $ 8.7     $ 0.9  
Total derivatives
      $ 35.7     $ 44.1  
 
  $ 101.4     $ 67.0  
 
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 following tables reflect amounts recorded in accumulated other comprehensive income (“OCI”) and amounts reclassified from OCI to revenue and expense:

 
 
Gain (Loss)
 
 
 
Recognized in OCI on
 
Derivatives in
 
Derivatives (Effective Portion)
 
Cash Flow Hedging
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Relationships
 
2011
 
2010
 
2011
 
2010
 
Interest rate contracts
  $ (2.2 ) $ (10.1 ) $ (1.9 $ (16.8 )
Commodity contracts
    4.4     32.3     (56.9   90.2  
 
  $ 2.2   $ 22.2   $ (58.8 $ 73.4  
 
                         
 
 
Gain (Loss)
 
 
 
Reclassified from OCI into
 
 
 
Income (Effective Portion)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
Location of Loss
    2011     2010     2011     2010  
Interest expense, net
  $ (2.2 ) $ (3.4 ) $ (4.6 $ (5.0 )
Revenues
    (9.7 )   5.5     (13.7   0.7  
 
  $ (11.9 ) $ 2.1   $ (18.3 $ (4.3 )

Our earnings are also affected by the use of the mark-to-market method of accounting for the Partnership’s derivative financial 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 price indices. For the three and six months ended June 30, 2011, the Partnership recorded losses of $3.2 million related to de-designated interest rate swaps. For the three and six months ending June 30, 2010, gain or loss from mark-to-market derivative instruments was immaterial.

The following table shows the unrealized gains (losses) included in OCI:

 
 
June 30,
   
December 31,
 
 
 
2011
   
2010
 
Unrealized gain (loss) on commodity hedges, before tax
  $ (4.4 )   $ 4.5  
Unrealized gain (loss) on commodity hedges, net of tax
    (2.6 )     2.7  
Unrealized gain (loss) on interest rate swaps, before tax
    (2.7 )     (3.4 )
Unrealized gain (loss) on interest rate swaps, net of tax
    (1.6 )     (2.1 )

As of June 30, 2011, deferred net losses of $27.8 million on commodity hedges and $8.1 million on interest rate swaps recorded in OCI are expected to be reclassified to revenue and interest expense during the next twelve months.

In July 2008, Targa and the Partnership paid $9.6 million and $77.8 million to terminate certain out-of-the-money natural gas and NGL commodity swaps. Targa and the Partnership also entered into new natural gas and NGL commodity swaps at then current market prices that match the production volumes of the terminated swaps. Prior to the terminations, these swaps were designated as hedges. During the three and six months ended June 30, 2011, $0.1 million and $0.2 million of deferred losses related to the terminated swaps were reclassified from OCI as a non-cash reduction to revenue. During the three and six months ended June 30, 2010, $7.6 million and $15.1 million of deferred losses related to the terminated swaps were reclassified from OCI as a non-cash reduction to revenue.

See Note 3 and Note 10 for additional disclosures related to derivative instruments and hedging activities.

Note 10 — Fair Value Measurements

We categorize the inputs to the fair value of financial assets and liabilities 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 are either directly or indirectly observable; and

  
Level 3 – unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Partnership’s derivative instruments consist of financially settled commodity and interest rate swap and option contracts and fixed price commodity contracts with certain counterparties. The Partnership determines the value of its derivative contracts utilizing 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.

Contracts classified as Level 3 are valued using price inputs available from public markets to the extent that the markets are liquid for the relevant settlement periods.

The following tables present the fair value of the Partnership’s financial assets and liabilities according to the fair value hierarchy. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Partnership’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 
 
June 30, 2011
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets from commodity derivative contracts
  $ 35.7   $ -   $ 35.7   $ -  
 Total assets
  $ 35.7   $ -   $ 35.7   $ -  
Liabilities from commodity derivative contracts
  $ 81.1   $ -   $ 80.2   $ 0.9  
Liabilities from interest rate derivatives
    20.3     -     20.3     -  
 Total liabilities
  $ 101.4   $ -   $ 100.5   $ 0.9  
 
                         
 
 
December 31, 2010
 
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets from commodity derivative contracts
  $ 44.1   $ -   $ 43.9   $ 0.2  
 Total assets
  $ 44.1   $ -   $ 43.9   $ 0.2  
Liabilities from commodity derivative contracts
  $ 46.9   $ -   $ 35.1   $ 11.8  
Liabilities from interest rate derivatives
    20.1     -     20.1     -  
Total liabilities
  $ 67.0   $ -   $ 55.2   $ 11.8  

The following table sets forth a reconciliation of the changes in the fair value of the Partnership’s financial instruments classified as Level 3 in the fair value hierarchy:

 
Commodity Derivative Contracts
 
Balance, December 31, 2010
$ (11.6 )
   Unrealized losses included in OCI
  (0.4 )
   Settlements included in Net Income
  3.7  
   Transfers out of Level 3
  7.4  
Balance, June 30, 2011
$ (0.9 )

The Partnership transferred $7.4 million in derivative liabilities from Level 3 to Level 2 in the second quarter. The transfer is attributable to increased transparency and liquidity in the NGL markets, specifically with regard to 2013 prices.

The Partnership designated all Level 3 derivative instruments as cash flow hedges, and, as such, all changes in their fair value are reflected in OCI. Therefore, there are no unrealized gains or losses reflected in revenues or other income (expense) with respect to Level 3 derivative instruments.

 
17

 
Note 11 — Fair Value of Financial Instruments

The estimated fair values of assets and liabilities classified as financial instruments have been determined using available market information and the valuation methodologies described below. Considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

The carrying values of items comprising current assets and current liabilities approximate fair values due to the short-term maturities of these instruments. Derivative financial instruments included in our financial statements are stated at fair value.

The carrying value of the senior secured revolving credit facilities approximate their fair value, as its interest rate is based on prevailing market rates. The fair value of the Partnership’s senior unsecured notes is based on quoted market prices based on trades of such debt as of the dates indicated in the following table:

 
 
June 30, 2011
 
December 31, 2010
 
 
 
Carrying
 
Fair
 
Carrying
 
Fair
 
 
 
Amount
 
Value
 
Amount
 
Value
 
Holdco loan facility (1)
  $ 89.3   $ 87.5   $ 89.3   $ 86.8  
Senior unsecured notes of the Partnership, 8¼% fixed rate
    209.1     223.9     209.1     219.4  
Senior unsecured notes of the Partnership, 11¼% fixed rate
    69.6     84.8     221.0     253.2  
Senior unsecured notes of the Partnership, 7⅞% fixed rate
    250.0     261.7     250.0     259.7  
Senior unsecured notes of the Partnership, 6⅞% fixed rate
    449.8     473.9     N/A     N/A  
_________
(1)  
The Holdco Loan is not widely held, and we are not able to obtain an indicative quote from external sources. The December 31, 2010 fair value was based on the November 2010 repurchases. The June 30, 2011 fair value is based on management’s consideration of changes in settlement value given the trades that took place in November 2010.

Note 12 — Commitments and Contingencies

Environmental

For environmental matters, we record liabilities when remedial efforts are probable and the costs can be reasonably estimated. Environmental reserves do not reflect management’s assessment of any insurance coverage that may be applicable to the matters at issue. Management has assessed each of the matters based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success.

The Partnership’s environmental liability at June 30, 2011 and December 31, 2010 was $1.4 million and $1.6 million. The Partnership’s June 30, 2011 liability consisted of $1.4 million for ground water assessment and remediation.

In May 2007, the New Mexico Environment Department (“NMED”) alleged air emissions violations at the Eunice, Monument and Saunders gas processing plants, which are operated by the Partnership and owned by Versado Gas Processors, LLC (“Versado”), a joint venture that owns these plants and in which the Partnership owns a 63% interest, were identified in the course of an inspection of the Eunice plant conducted by the NMED in August 2005.

In January 2010, Versado settled the alleged violations with NMED for a penalty of approximately $1.5 million. As part of the settlement, Versado agreed to install two acid gas injection wells, additional emission control equipment and monitoring equipment. We estimate the total cost to complete these projects to be approximately $33.4 million, of which the Partnership’s portion of the cost is projected to be $21.0 million. As of June 30, 2011, $14.5 million has been paid by Versado ($9.1 million by the Partnership).

Under the terms of the Versado acquisition purchase and sale agreement between us and the Partnership, we are obligated to reimburse the Partnership for maintenance capital expenditures required pursuant to the NMED settlement agreement.

Legal Proceedings

We are a party to various legal proceedings and/or regulatory proceedings and certain claims, suits and complaints arising in the ordinary course of business that have been filed or are pending against us. We believe all such matters are without merit or involve amounts which, if resolved unfavorably, would not have a material effect on our financial position, results of operations, or cash flows.

Note 13 — Supplemental Cash Flow Information

Supplemental cash flow information was as follows for the periods indicated:

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2011
 
2010
   
2011
 
2010
 
Interest paid
  $ 17.6   $ 10.2     $ 46.8   $ 48.0  
Taxes paid
    5.2     4.0       34.1     4.1  
Non-cash adjustment to line-fill
    -     0.5       (2.1   0.5  

Note 14 — Segment Information

With the conveyance of all of our remaining operating assets to the Partnership in September 2010, all operating assets are now owned by the Partnership.

The Partnership reports its operations in two divisions: (i) Natural Gas Gathering and Processing, consisting of two reportable segments – (a) Field Gathering and Processing and (b) Coastal Gathering and Processing; and (ii) Logistics and Marketing consisting of two reportable segments – (a) Logistics Assets and (b) Marketing and Distribution.  The financial results of the Partnership’s hedging activities are reported in Other.

The Partnership’s Natural Gas Gathering and Processing division includes assets used in the gathering of natural gas produced from oil and gas wells and processing such raw natural gas into merchantable natural gas by extracting natural gas liquids and removing impurities. The Field Gathering and Processing segment’s assets are located in North Texas and the Permian Basin of West Texas and New Mexico. The Coastal Gathering and Processing segment’s assets are located in the onshore and near offshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

The Partnership’s Logistics and Marketing division is also referred to as the Downstream Business. The Downstream Business includes all the activities necessary to convert raw natural gas liquids into NGL products and provides certain value added services such as storing, terminaling, transporting, distributing and marketing of NGLs, crude oil and refined petroleum products. It also includes certain natural gas supply and marketing activities in support of the Partnership’s other businesses.

The Partnership’s Logistics Assets segment is involved in transporting, storing, and fractionating mixed NGLs; storing, terminaling, and transporting finished NGLs; and storing and terminaling crude oil and refined petroleum products. These assets are generally connected to and supplied, in part, by the Partnership’s Natural Gas Gathering and Processing segments and are predominantly located in Mont Belvieu, Texas and Southwestern Louisiana. This segment includes the activities associated with the March 2011 acquisition of a refined petroleum products and crude oil storage and terminaling facility located on the Houston Ship Channel.

The Partnership’s Marketing and Distribution segment covers all activities required to distribute and market raw and finished natural gas liquids and all natural gas marketing activities. It includes: (1) marketing the Partnership’s natural gas liquids production and purchasing natural gas liquids products in selected United States markets; (2) providing liquefied petroleum gas balancing services to refinery customers; (3) transporting, storing and selling propane and providing related propane logistics services to multi-state retailers, independent retailers and other end users; and (4) marketing natural gas available to the Partnership from the Partnership’s Natural Gas Gathering and Processing division and the purchase and resale of  natural gas in selected United States markets.

Other contains the results of the Partnership’s commodity hedging transactions. Eliminations of inter-segment transactions are reflected in the eliminations column.

Segment information is shown in the following tables. We have segregated the following segment information between Partnership and non-Partnership activities. Partnership activities have been presented on a common control accounting basis which reflects the dropdown transactions as if they occurred in prior periods similar to a pooling of interests. The non-Partnership results include activities related to certain assets and liabilities contractually excluded from the dropdown transactions and certain historical hedge activities that could not be reflected under GAAP in the Partnership common control results.

 
 
Three Months Ended June 30, 2011
 
 
 
Partnership
 
 
 
 
 
 
 
Field
 
Coastal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gathering
 
Gathering
 
 
 
Marketing
 
 
 
Corporate
 
 
 
 
 
 
 
and
 
and
 
Logistics
 
and
 
 
 
and
 
TRC Non-
 
 
 
 
 
Processing
 
Processing
 
Assets
 
Distribution
 
Other
 
Eliminations
 
Partnership
 
Consolidated
 
Revenues
  $ 58.2   $ 94.3   $ 33.1   $ 1,552.9   $ (13.2 ) $ 0.1   $ 2.3   $ 1,727.7  
Intersegment revenues
    367.2     244.9     24.7     171.9     -     (808.7 )   -     -  
Revenues
  $ 425.4   $ 339.2   $ 57.8   $ 1,724.8   $ (13.2 ) $ (808.6 ) $ 2.3   $ 1,727.7  
Operating margin
  $ 80.2   $ 45.7   $ 33.4   $ 30.5   $ (13.2 ) $ -   $ 2.3   $ 178.9  
Other financial information:
                                                 
   Total assets
  $ 1,650.4   $ 430.5   $ 546.9   $ 573.1   $ 35.7   $ 91.8   $ 172.9   $ 3,501.3  
 Capital expenditures
  $ 40.0   $ 4.2   $ 42.5   $ 0.8   $ -   $ 0.5   $ 0.7   $ 88.7  

 
 
Three Months Ended June 30, 2010
 
 
 
Partnership
 
 
 
 
 
 
 
Field
 
Coastal
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gathering
 
Gathering
 
 
 
Marketing
 
 
 
Corporate
 
 
 
 
 
 
 
and
 
and
 
Logistics
 
and
 
 
 
and
 
TRC Non-
 
 
 
 
 
Processing
 
Processing
 
Assets
 
Distribution
 
Other
 
Eliminations
 
Partnership
 
Consolidated
 
Revenues
  $ 57.5   $ 103.2   $ 19.9   $ 1,054.4   $ 2.7   $ (0.1 ) $ 2.5   $ 1,240.1  
Intersegment revenues
    247.8     199.0