Business Context and Reporting Period
The Williams Companies, Inc. filed this Form 10-K for the fiscal year ended December 31, 2013, including fourth-quarter results. Williams is an energy infrastructure company focused on natural gas, natural gas liquids, olefins, gathering, processing, storage, transportation and related midstream services. Its principal segments were Williams Partners, Williams NGL & Petchem Services, Access Midstream Partners and Other. Williams owned approximately 62% of Williams Partners’ limited-partner interests at year-end, and approximately 64% including its general-partner interest and incentive distribution rights.
Financial Highlights
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenue | $6.860 billion | $7.486 billion | Down 8% |
| Service revenue | $2.939 billion | $2.729 billion | Up 8% |
| Product sales | $3.921 billion | $4.757 billion | Down 18% |
| Operating income | $1.375 billion | $1.612 billion | Down 15% |
| Income from continuing operations | $679 million | $929 million | Down 27% |
| Income from continuing operations attributable to Williams | $441 million | $723 million | Down 39% |
| Net income attributable to Williams | $430 million | $859 million | Down 50% |
| Diluted EPS from continuing operations | $0.64 | $1.15 | Down 44% |
| Net cash from operating activities | $2.217 billion | $1.835 billion | Up 21% |
| Capital expenditures | $3.572 billion | $2.529 billion | Up 41% |
Operating margin was approximately 20.0% in 2013 versus 21.5% in 2012. Net income attributable to Williams represented approximately 6.3% of revenue versus 11.5% in 2012. The filing does not present EBITDA as a consolidated GAAP metric in the provided text.
- Cash and cash equivalents were $681 million at December 31, 2013, compared with $839 million at year-end 2012.
- Working capital was negative $300 million, reflecting current liabilities exceeding current assets.
- Total long-term debt, including the current portion, was $11.354 billion, compared with $10.736 billion in 2012. The fair value of long-term debt was $11.971 billion.
- WPZ had $225 million of commercial paper outstanding at year-end and $2.275 billion of available capacity under its credit facility after commercial paper borrowings.
- Williams had $1.5 billion of available capacity under its revolving credit facility. Consolidated available liquidity, including cash and undrawn facility capacity, was approximately $4.456 billion.
- Cash dividends declared increased to $1.4375 per share from $1.19625 per share in 2012. The fourth-quarter dividend rose to $0.38 per share from $0.325.
Material Changes Versus the Prior Comparable Period
- Service revenue increased because of higher fee revenue from acquired and expanded gathering, processing, fractionation and pipeline operations, including Transco expansion projects.
- Product sales and profitability declined primarily because of reduced ethane recoveries, lower NGL prices and margins, and the June 2013 Geismar olefins plant explosion and fire.
- Williams Partners segment profit declined to $1.606 billion from $1.812 billion. The decline included approximately $297 million of lower NGL margins and $92 million of lower olefin margins.
- NGL production volumes declined 31%, NGL equity sales volumes declined 48%, and Geismar ethylene sales volumes declined 56% compared with 2012.
- Access Midstream Partners contributed $61 million of segment profit in 2013, including $93 million of equity earnings, offset by $63 million of noncash amortization and a $31 million noncash gain from equity issuances.
- Williams NGL & Petchem Services segment profit declined to $38 million from $99 million, principally because of a Canadian facility shutdown, higher maintenance expenses, an abandoned-project write-off and higher depreciation.
- Fourth-quarter 2013 income from continuing operations attributable to Williams was a $13 million loss, compared with $151 million of income in the fourth quarter of 2012. Fourth-quarter results included a $99 million deferred tax expense related to undistributed foreign earnings, a $20 million project write-off, a $16 million producer-claim accrual, and Geismar-related expenses.
Guidance, Outlook, Risks and Unusual Items
- Management expected the Geismar plant repairs and expansion to be completed and operations to resume in June 2014. The expansion is expected to increase annual ethylene capacity by 600 million pounds to 1.95 billion pounds.
- Williams expected approximately $4.16 billion to $5.04 billion of 2014 capital and investment expenditures, including $360 million to $440 million of maintenance capital and $3.8 billion to $4.6 billion of expansion capital.
- Management estimated 2014 operating cash flow of $2.85 billion to $3.175 billion and approximately $1.75 of dividends per common share, representing approximately 22% growth over 2013.
- The company expected overall 2014 operating results to improve, supported by higher fee-based, olefins and Canadian midstream activity, but anticipated lower NGL margins and higher operating expenses.
- Geismar insurance coverage included a $500 million combined property-damage and business-interruption limit, $610 million of general-liability coverage, and workers’ compensation coverage. Williams recognized $50 million of Geismar insurance proceeds in 2013 and estimated approximately $430 million of total business-interruption recoveries and $70 million of plant-repair recoveries. A further $125 million installment was expected in the first quarter of 2014.
- Transco recorded a $98 million rate-refund reserve, with refunds expected by April 30, 2014.
- The proposed Bluegrass Pipeline had approximately $113 million of capitalized development costs, of which Williams’ net interest was $56.5 million. The project remained subject to customer commitments, approvals and partner actions; insufficient commitments could result in an impairment or write-off.
- Key risks include commodity-price volatility, producer drilling and throughput levels, competition, regulatory rate proceedings, environmental liabilities, operational accidents, cybersecurity, weather and natural disasters, counterparty credit risk, access to capital, debt covenants, and dependence on distributions from Williams Partners and equity-method investments.
- The Geismar incident resulted in two fatalities, injuries, regulatory investigations, potential penalties and lawsuits. The filing states that a potential loss range for related litigation could not be reasonably estimated.
- Environmental liabilities accrued at year-end totaled $47 million. The company also disclosed possible additional obligations related to Alaska refinery contamination, with the ultimate remediation liability not currently estimable.
- Auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Actual timing, cost and insurance recoveries associated with the Geismar repair and expansion.
- Whether NGL margins and ethane recovery economics improve or remain pressured by natural gas and NGL price relationships.
- 2014 capital spending, operating cash flow and dividend growth relative to management’s stated ranges.
- Williams Partners’ distributions, incentive distribution rights and ability to fund growth while maintaining credit metrics.
- WPZ commercial paper balances, debt maturities, covenant compliance and available liquidity.
- Customer commitments, regulatory approvals and impairment exposure for Bluegrass Pipeline and other development projects.
- Outcomes of Geismar-related regulatory matters and lawsuits, Transco rate refunds, producer claims, Gulf Liquids litigation and Alaska environmental matters.
- The effect of the planned Canadian operations contribution to Williams Partners, including the approximately $1.2 billion consideration and estimated $111 million tax payment.