The Williams Companies, Inc. — 2014 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2014, with fourth-quarter data also disclosed. Williams is an energy infrastructure company focused on natural gas transmission, gathering, processing, NGLs, olefins and related services, principally in the United States and Canada. Reportable segments were Williams Partners, Access Midstream, Williams NGL & Petchem Services and Other.
Williams acquired control of Access Midstream Partners, L.P. (ACMP) on July 1, 2014, and consolidated its results beginning in the third quarter. On February 2, 2015, after year-end, ACMP and pre-merger Williams Partners L.P. merged into Williams Partners L.P.; Williams owns approximately 60% of the merged partnership, including the general partner interest and incentive distribution rights.
Financial performance and key metrics
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Total revenues | $7.637 billion | $6.860 billion | +11% |
| Service revenues | $4.116 billion | $2.939 billion | +40% |
| Product sales | $3.521 billion | $3.921 billion | -10% |
| Operating income | $1.569 billion | $1.375 billion | +14% |
| Income from continuing operations attributable to WMB | $2.110 billion | $441 million | +378% |
| Diluted EPS from continuing operations | $2.91 | $0.64 | +2.27 |
| Net cash from operating activities | $2.115 billion | $2.217 billion | -5% |
| Capital expenditures | $4.031 billion | $3.572 billion | +13% |
Operating margin was approximately 20.5% in 2014 versus 20.0% in 2013. The reported earnings increase was heavily affected by a $2.544 billion gain from remeasuring Williams’ prior ACMP equity investment to fair value. The company also recognized $232 million of net insurance recoveries related to the Geismar incident and a $154 million contingency settlement gain.
At December 31, 2014, total assets were $50.563 billion, stockholders’ equity was $8.777 billion, and total equity including noncontrolling interests was $20.172 billion. Long-term debt, including the current portion, was $20.892 billion, compared with $11.354 billion at year-end 2013. Commercial paper outstanding was $798 million. Cash and cash equivalents were $240 million, and reported working capital was negative $677 million.
Available liquidity at December 31, 2014 was approximately $4.180 billion, consisting of cash and available capacity under WMB, pre-merger WPZ and ACMP credit facilities. The company reported investment-grade ratings at two of three agencies and sub-investment-grade ratings at the third; Fitch had a negative outlook.
Common dividends declared increased to approximately $1.96 per share in 2014 from $1.44 in 2013. The quarterly dividend rose from $0.38 per share in the fourth quarter of 2013 to $0.57 in the fourth quarter of 2014. The board approved a first-quarter 2015 dividend of $0.58 per share.
Material changes versus the prior comparable period
- ACMP became consolidated in the third quarter, adding $781 million of 2014 service revenue and materially increasing assets, debt, intangible assets and noncontrolling interests.
- Service revenue growth reflected ACMP, higher gathering volumes and rates, Transco expansion projects and new Ohio Valley facilities. Product sales declined because the Geismar olefins plant was unavailable for most of 2014 and NGL volumes were lower.
- Williams Partners’ segment profit increased to $1.743 billion from $1.677 billion despite $192 million lower olefin margins, $130 million lower NGL margins and $59 million lower marketing margins.
- NGL margins were approximately 25% lower, primarily due to lower volumes and higher natural gas prices. Lower fourth-quarter NGL prices also produced inventory adjustments.
- The company issued 61 million common shares for net proceeds of $3.378 billion and incurred significant new debt to help finance the $5.995 billion ACMP acquisition.
- Bluegrass Pipeline and Moss Lake projects were discontinued and related capitalized development costs were written off, contributing to approximately $78 million of pretax equity losses.
- Capital spending increased to $4.031 billion, while operating cash flow declined modestly because of working-capital effects, lower olefin margins and higher interest payments.
Guidance, outlook, commentary and risks
Management expected 2015 consolidated capital and investment expenditures of $3.96 billion to $4.59 billion, including $490 million of maintenance capital and $3.47 billion to $4.10 billion of expansion capital. Management anticipated improved 2015 operating results, driven by a full year of consolidated Access Midstream results, higher fee-based activity and the restart and expansion of Geismar, partly offset by lower NGL margins and higher operating expenses.
Management expected natural gas, NGL and olefin prices to remain below 2014 levels following the sharp fourth-quarter 2014 decline. Producer drilling economics and gathering volumes could weaken, although Transco expansions, Northeast growth, Gulfstar production handling and higher Geismar volumes were expected to support results.
The Geismar plant restarted in February 2015 and was expected to ramp to expanded capacity through March, with limited first-quarter contribution because production would be intermittent. Williams had received $296 million of Geismar insurance proceeds through December 31, 2014 and was pursuing approximately $200 million of remaining policy limits, but recovery of the full amount was uncertain.
- Key risks include commodity-price and margin volatility, lower producer drilling and throughput, customer or supplier concentration, competition and contract renewals.
- Regulatory risks include FERC rate proceedings and refunds, pipeline safety requirements, environmental rules, permitting delays and potential changes affecting gathering lines and emissions.
- Operational risks include pipeline or storage failures, fires, explosions, offshore weather, cybersecurity incidents and uninsured losses.
- Debt, refinancing, interest-rate and credit-rating risks are significant given the increase in leverage and reliance on partnership distributions.
- Material contingencies include Geismar litigation, Alaska sulfolane contamination matters, royalty-related claims and other environmental obligations. Environmental liabilities accrued at year-end totaled $44 million; the company stated that some potential exposures could not yet be estimated.
- Contractual obligations totaled approximately $37.295 billion, including $20.700 billion of long-term debt principal, $12.693 billion of long-term debt interest, $2.677 billion of purchase obligations and $2.677 billion of lease and other obligations.
Most important facts an investor should verify
- Separate recurring operating earnings and cash flow from the $2.544 billion noncash ACMP remeasurement gain, Geismar insurance recoveries and $154 million settlement gain.
- Confirm the post-merger Williams Partners ownership, distribution mechanics, incentive distribution rights and the extent to which WMB cash flow depends on partnership distributions.
- Reconcile consolidated debt, commercial paper, credit-facility availability and post-merger refinancing activity, including the February 2015 replacement facilities.
- Track Geismar production ramp-up, insurance recovery collections, remaining claims and related litigation or regulatory costs.
- Assess the sensitivity of NGL and olefin margins, gathering volumes and project economics to lower commodity prices and reduced producer activity.
- Review funding requirements and execution risks for the 2015 capital plan, including Transco expansions, Constitution Pipeline, Canadian projects and other growth investments.
- Evaluate unresolved environmental, royalty, indemnification and legal matters for potential losses beyond recorded accruals.