Williams Companies, Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Williams is a U.S. energy infrastructure company focused on interstate natural gas transmission, gathering, processing, fractionation, transportation, storage, and related marketing activities. The filing covers the three months ended March 31, 2020, compared with the same period in 2019. Effective January 1, 2020, Northwest Pipeline was moved from the West segment to Transmission & Gulf of Mexico; prior-period segment information was recast.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenues | $1.913 billion | $2.054 billion | Down $141 million |
| Operating income | $431 million | $561 million | Down $130 million |
| Net income (loss) | $(570) million | $214 million | Decline of $784 million |
| Net income (loss) attributable to Williams | $(517) million | $195 million | Decline of $712 million |
| Net income (loss) available to common stockholders | $(518) million | $194 million | Decline of $712 million |
| Diluted EPS | $(0.43) | $0.16 | Down $0.59 |
| Operating margin | Approximately 22.5% | Approximately 27.3% | Lower |
| Cash flow from operations | $787 million | $775 million | Up $12 million |
| Capital expenditures | $306 million | $422 million | Down $116 million |
| Cash and cash equivalents | $400 million | $289 million at Dec. 31, 2019 | Up $111 million |
Service revenues increased 2% to $1.474 billion, while service revenues received as commodity consideration declined 56% to $28 million and product sales declined 25% to $411 million. Modified EBITDA, management’s non-GAAP segment measure, increased to $1.253 billion from $1.187 billion. By segment, Modified EBITDA was $662 million for Transmission & Gulf of Mexico, $369 million for Northeast G&P, and $215 million for West.
Total debt was $22.476 billion at March 31, 2020, including $628 million due within one year and $21.848 billion of long-term debt. The company had $400 million of cash, no commercial paper outstanding, and $2.8 billion of available capacity under its $4.5 billion revolving credit facility, for stated available liquidity of $3.2 billion. Williams reported compliance with its credit-facility covenants. Working capital was negative $551 million.
Material changes versus the prior comparable period
- Results included a $938 million impairment of equity-method investments, compared with $74 million in Q1 2019, driven by lower commodity prices, higher discount rates, lower valuation multiples, and reduced producer activity expectations.
- Williams recorded a $187 million goodwill impairment in Northeast G&P related to the 2019 UEOM acquisition. The noncontrolling interest share was $65 million.
- Operating income declined despite higher service revenues because of the goodwill impairment, lower commodity margins, lower deferred-revenue amortization, and weaker West and Gulf of Mexico activity.
- West Modified EBITDA declined to $215 million from $256 million, primarily because of lower NGL and natural gas prices, lower volumes, lower deferred-revenue amortization, and expiration of a Barnett Shale minimum-volume-commitment agreement.
- Northeast G&P Modified EBITDA increased to $369 million from $299 million, supported by higher volumes and the consolidation of UEOM, although the segment recorded the goodwill impairment.
- Transmission & Gulf of Mexico Modified EBITDA increased to $662 million from $636 million, supported by Transco rate-case benefits, expansion projects, and lower costs.
- Cash flow from operations remained strong, while capital expenditures fell. Financing activities included $1.702 billion of new long-term debt, $1.518 billion of long-term debt repayments, and $485 million of common dividends.
- The quarterly dividend increased approximately 5% to $0.40 per share from $0.38 per share in 2019.
Guidance, outlook, risks, contingencies, and unusual items
Management’s 2020 growth capital and investment expenditure outlook was $1.1 billion to $1.3 billion. The company expected to fund substantially all planned capital spending with cash available after dividends, while retaining flexibility to adjust spending. Planned projects include Transco expansions and the Bluestem NGL pipeline.
Management stated that COVID-19 had not materially affected financial condition, results, or liquidity through March 31, 2020, and that the company had access to debt markets and significant unused revolver capacity. However, prolonged economic weakness, lower commodity prices, reduced drilling, production shut-ins, counterparty stress, project delays, regulatory approvals, and capital-market disruption could materially affect future results.
Management expected lower NGL margins and lower West and Eastern Gulf fee revenues, partly offset by higher Northeast volumes, Transco and Northwest Pipeline expansion contributions, Transco’s rate settlement, the Norphlet project, and lower organizational costs. The filing does not provide a formal full-year earnings or cash-flow guidance figure.
- COVID-19 and the oil-price collapse contributed to a 40% first-quarter decline in Williams’ common stock price and triggered impairment testing.
- Transco’s FERC rate-case settlement was approved March 24, 2020 and was scheduled to become effective June 1, 2020. Williams had accrued $248 million for potential rate refunds.
- Williams retired $1.514 billion of long-term debt during the quarter and had an additional $607 million of long-term debt maturing in 2020.
- A limited-duration stockholder rights agreement was adopted March 19, 2020 and expires March 20, 2021.
- Two natural-gas price-index litigation matters remained unresolved, with trial scheduled for June 2021; potential exposure could be material, but a loss range was not reasonably estimable.
- An Alaska refinery contamination judgment had estimated damages of $86 million; Williams recorded an accrued liability and filed an appeal in April 2020.
- Environmental liabilities accrued at March 31, 2020 totaled $30 million. Additional litigation and indemnification matters were disclosed, including the Energy Transfer litigation, for which the trial was rescheduled to August 2020.
Important facts for investors to verify
- Whether the $938 million equity-investment impairments and $187 million goodwill impairment represent the full expected reduction in carrying values under continuing weak commodity and equity-market conditions.
- The sustainability of the $0.40-per-share quarterly dividend relative to operating cash flow, capital spending, debt maturities, and credit metrics.
- Progress on refinancing or repaying the remaining 2020 debt maturities and preservation of investment-grade credit ratings.
- The final economic impact of Transco rate refunds and the timing of the approved rate settlement.
- Actual COVID-19 effects on producer customers, gathering volumes, NGL margins, counterparty credit, and access to capital markets after March 31, 2020.
- Regulatory approvals and execution schedules for Northeast Supply Enhancement, Southeastern Trail, Leidy South, and Bluestem.
- Potential outcomes and cash exposure from disclosed litigation, environmental obligations, guarantees, and indemnifications.