TARGA RESOURCES CORP. (NYSE:TRGP) Files An 8-K Entry into a Material Definitive Agreement
Item1.01
| Entry into a Material Definitive Agreement. |
On January22, 2017, Targa Resources Partners LP (the
Partnership), a subsidiary of Targa Resources Corp. (the Company
or Targa), entered into a Membership Interest Purchase and Sale
Agreement with Outrigger Delaware Midstream, LLC (the Outrigger
Delaware Purchase Agreement), a Membership Interest Purchase and
Sale Agreement with Outrigger Energy, LLC (the Outrigger Energy
Purchase Agreement) and a Membership Interest Purchase and Sale
Agreement with Outrigger Midland Midstream, LLC (the Outrigger
Midland Purchase Agreement and together with the Outrigger
Delaware Purchase Agreement and Outrigger Energy Purchase
Agreement, the Purchase Agreements), to which Targa will acquire
50% of the membership interests of Outrigger Delaware Operating,
LLC (Outrigger Delaware Operating), Outrigger Southern Delaware
Operating, LLC (Outrigger Southern Delaware Operating and
together with Outrigger Delaware Operating, Outrigger Delaware)
and Outrigger Midland Operating, LLC (Outrigger Midland and
together with Outrigger Delaware, Outrigger) (the Outrigger
Permian Acquisition). Targa will pay $475million in cash at
closing and $90million within 90 days of closing. Subject to
certain performance-linked measures and other conditions,
additional cash of up to $935million may be received by the
owners of Outrigger Delaware and Outrigger Midland in earn-out
payments that may occur in 2018 and 2019. Targa currently expects
to close the transaction during the first quarter of 2017,
subject to customary regulatory approvals and closing conditions.
Outrigger Delaware owns and operates gas gathering and processing
and crude gathering systems located in Loving, Winkler and Ward
counties, and Outrigger Midland owns and operates gas gathering
and processing and crude gathering systems located in Howard,
Martin and Borden counties.
Targa expects to fund the initial purchase price of the Outrigger
Permian Acquisition with borrowings under its revolving credit
facility or, subject to market conditions, proceeds from the
private or public issuance of securities.
The description of the Purchase Agreements set forth above in
Item 1.01 is qualified in its entirety by the Purchase
Agreements, which are filed herewith as Exhibit 2.1, Exhibit 2.2
and Exhibit 2.3, respectively, and are incorporated herein by
reference.
This Item 1.01 of Form 8-K contains 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. All statements, other than statements of
historical facts, included in this Form 8-K that address
activities, events or developments that the Company expects,
believes or anticipates will or may occur in the future are
forward-looking statements. These forward-looking statements rely
on a number of assumptions concerning future events and are
subject to a number of uncertainties, factors and risks, many of
which are outside the Companys control, which could cause results
to differ materially from those expected by management of the
Company. Such risks and uncertainties include, but are not
limited to, weather, political, economic and market conditions,
including a decline in the price and market demand for natural
gas and natural gas liquids, the timing and success of business
development efforts; and other uncertainties. These and other
applicable uncertainties, factors and risks are described more
fully in the Companys filings with the Securities and Exchange
Commission, including its Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q and Current Reports on Form 8-K. The Company does not
undertake an obligation to update or revise any forward-looking
statement, whether as a result of new information, future events
or otherwise.
| Item2.02 |
Results of Operations and Financial Condition. |
Subject to further
review, in connection with Targas annual evaluation of goodwill,
an impairment in the value of the acquisition goodwill associated
with the WestTX and SouthTX operations will be recorded in the
fourth quarter of 2016. Targa is in the process of finalizing the
amount of the impairment. Any such impairment would be a non-cash
charge that would impact net income, but would not impact
Adjusted EBITDA or distributable cash flow. Adjusted EBITDA and
distributable cash flow are financial measures not calculated in
accordance with U.S. generally accepted accounting principles
(GAAP). Please see Non-GAAP Financial Measures. As of
September30, 2016, WestTX and SouthTX had goodwill balances of
$312.5million and $80.5million, respectively.
Targa expects to
report that LPG export volumes for the fourth quarter of 2016
were approximately 205 MBbl/d. Targas performance in the fourth
quarter is expected to result in dividend coverage (defined as
Targas total distributable cash flow divided by dividends paid)
that exceeds 1.2 times the total dividends to be paid with
respect to the fourth quarter 2016. Annual dividend coverage for
2016 is expected to exceed 1.05 times.
1
Non-GAAP Financial
Measures
This Item 2.02 of
Form 8-K includes references to the Companys non-GAAP financial
measures Adjusted EBITDA and distributable cash flow. The
Companys non-GAAP financial measures should not be considered as
alternatives to GAAP measures such as net income or any other
GAAP measure of liquidity or financial performance.
Adjusted
EBITDA
The Company
defines Adjusted EBITDA as net income (loss) available to the
Company before: interest; income taxes; depreciation and
amortization; impairment of goodwill; gains or losses on debt
repurchases, redemptions, amendments, exchanges and early debt
extinguishments and asset disposals; risk management activities
related to derivative instruments including the cash impact of
hedges acquired in a merger with Atlas Pipeline Partners
L.P.;non-cash compensation on equity grants; transaction costs
related to business acquisitions; net income attributable to the
Partnerships preferred limited partners; earnings/losses from
unconsolidated affiliates net of distributions, distributions
from preferred interests, change in contingent consideration and
the noncontrolling interest portion of depreciation and
amortization expenses. Adjusted EBITDA is used as a supplemental
financial measure by the Company and by external users of its
financial statements such as investors, commercial banks and
others. The economic substance behindthe Companysuse of Adjusted
EBITDA is to measure the ability of its assets to generate cash
sufficient to pay interest costs, support its indebtedness and
pay dividends to its investors.
Adjusted EBITDA is
a non-GAAP financial measure. The GAAP measure most directly
comparable to Adjusted EBITDA is net income(loss) attributable to
the Company. Adjusted EBITDA should not be considered as an
alternative to GAAP net income. Adjusted EBITDA has important
limitations as an analytical tool. Investors should not consider
Adjusted EBITDA in isolation or as a substitute for analysis of
the Companysresults as reported under GAAP. Because Adjusted
EBITDA excludes some, but not all, items that affect net income
and is defined differently by different companies in the Companys
industry, the Companys definition of Adjusted EBITDA may not be
comparable to similarly titled measures of other companies,
thereby diminishing its utility.
Management
compensates for the limitations of Adjusted EBITDA as an
analytical tool by reviewing the comparable GAAP measures,
understanding the differences between the measures and
incorporating these insights into its decision-making
processes.
Distributable
Cash Flow
The Company
defines distributable cash flow as Adjusted EBITDA less
distributions to the Partnerships preferred limited partners,
cash interest expense on debt obligations, cash tax (expense)
benefit and maintenance capital expenditures (net of any
reimbursements of project costs). This measure includes the
impact of noncontrolling interests on the prior adjustment
items.
Distributable cash
flow is a significant performance metric used by the Company and
by external users of its financial statements, such as investors,
commercial banks and research analysts, to compare basic cash
flows generated by it (prior to the establishment of any retained
cash reserves by its board of directors) to the cash dividends
the Company expects to pay its shareholders. Using this metric,
management and external users of its financial statements can
quickly compute the coverage ratio of estimated cash flows to
cash dividends. Distributable cash flow is also an important
financial measure for the Companys shareholders since it serves
as an indicator of the Companys success in providing a cash
return on investment. Specifically, this financial measure
indicates to investors whether or not the Company is generating
cash flow at a level that can sustain or support an increase in
its quarterly dividend rates.
Distributable cash
flow is a non-GAAP financial measure. The GAAP measure most
directly comparable to distributable cash flow is net income
(loss) attributable to the Company. Distributable cash flow
should not be considered as an alternative to GAAP net income
(loss) available to common and preferred shareholders. It has
important limitations as an analytical tool. Investors should not
consider distributable cash flow in isolation or as a substitute
for analysis of the Companys results as reported under GAAP.
Because distributable cash flow excludes some, but not all, items
that affect net income and is defined differently by different
companies in the Companys industry, the Companys definition of
distributable cash flow may not be comparable to similarly titled
measures of other companies, thereby diminishing its
utility.
Management
compensates for the limitations of distributable cash flow as an
analytical tool by reviewing the comparable GAAP measure,
understanding the differences between the measures and
incorporating these insights into its decision-making
processes.
Item7.01
Regulation FD Disclosure.
On January 23,
2017, the Company issued a press release announcing the execution
of the Purchase Agreements related to the Outrigger Permian
Acquisition. A copy of the press release is attached hereto as
Exhibit 99.1.
The information in
Item7.01 of this Current Report on Form 8-K and the attached
Exhibit 99.1 is being furnished and shall not be deemed to be
filed for purposes of Section18 of the Securities Exchange Act of
1934, as amended, or otherwise subject to the liabilities of that
section, and is not incorporated by reference into any Company
filing, whether made before or after the date hereof, regardless
of any general incorporation language in such filing.
2
| Item9.01. | Financial Statements and Exhibits. |
(d)
Exhibits.
|
Exhibit Number |
Description of the Exhibits |
|
| 2.1 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Delaware Midstream, LLC* |
|
| 2.2 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Energy, LLC* |
|
| 2.3 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Midland Midstream, LLC* |
|
| 99.1 |
Press release dated January 23, 2017, announcing the execution of the Purchase Agreements. |
| * |
The schedules have been omitted to Item 601(b)(2) of Regulation S-K and will be provided to the Securities and Exchange Commission upon request. |
3
to the
requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
| TARGA RESOURCES CORP. | ||||||
| Date: January23, 2017 | By: |
/s/ Matthew J. Meloy |
||||
| Name: | Matthew J. Meloy | |||||
| Title: | Executive Vice President and Chief Financial Officer |
4
| Item9.01. | Financial Statements and Exhibits. |
(d)
Exhibits.
|
Exhibit Number |
Description of the Exhibits |
|
| 2.1 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Delaware Midstream, LLC* |
|
| 2.2 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Energy, LLC* |
|
| 2.3 |
Membership Interest Purchase and Sale Agreement, dated January22, 2017, by and between Targa Resources Partners LP and Outrigger Midland Midstream, LLC* |
|
| 99.1 |
Press release dated January 23, 2017, announcing the execution of the Purchase Agreements. |
| * | The schedules have been omitted |
About TARGA RESOURCES CORP. (NYSE:TRGP)
Targa Resources Corp., through its general and limited partner interests in Targa Resources Partners LP (the Partnership), is a provider of midstream natural gas and natural gas liquid (NGL) services in the United States. The Partnership is engaged in the business of gathering, compressing, treating, processing and selling natural gas and storing, fractionating, treating, transporting, terminaling and selling NGLs, NGL products, and gathering, storing and terminaling crude oil and refined petroleum products. The Partnership operates in two divisions: Gathering and Processing, and Logistics and Marketing. The Gathering and Processing division consists of two segments: Field Gathering and Processing, and Coastal Gathering and Processing. The Logistics and Marketing division consists of two segments: Logistics Assets, and Marketing and Distribution.
