The Williams Companies, Inc. 2009 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2009, with unaudited fourth-quarter data also presented. Williams is primarily a natural gas company engaged in exploration and production, gas gathering and processing, interstate pipeline transportation and storage, natural gas liquids and olefins activities, and gas marketing.
At December 31, 2009, reportable segments were Exploration & Production, Gas Pipeline, Midstream Gas & Liquids, Gas Marketing Services, and Other. On February 17, 2010, the company completed a major restructuring that contributed most domestic pipeline and midstream assets to Williams Partners L.P. Future reporting segments will be Williams Partners, Exploration & Production, and Other.
Key financial metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Revenue | $8.255 billion | $11.890 billion | Down 31% |
| Operating income | $1.481 billion | $2.533 billion | Down 42% |
| Income from continuing operations | $584 million | $1.467 billion | Down 60% |
| Income from continuing operations attributable to Williams | $438 million | $1.306 billion | Down $868 million |
| Net income attributable to Williams | $285 million | $1.418 billion | Down 80% |
| Diluted EPS from continuing operations | $0.75 | $2.21 | Down $1.46 |
| Net cash provided by operating activities | $2.572 billion | $3.355 billion | Down 23% |
| Capital expenditures | $2.387 billion | $3.394 billion | Down 30% |
| Cash and cash equivalents | $1.867 billion | $1.438 billion | Up $429 million |
| Long-term debt, including current portion | $8.276 billion | $7.701 billion | Up $575 million |
| Stockholders’ equity | $8.447 billion | $8.440 billion | Approximately flat |
Reported operating margin was approximately 18.0%, compared with approximately 21.3% in 2008. Income from continuing operations attributable to Williams represented approximately 5.3% of revenue, compared with approximately 11.0% in 2008. Net income attributable to Williams represented approximately 3.5% of revenue, compared with approximately 11.9% in 2008.
The company reported approximately $1.9 billion of cash and cash equivalents and approximately $2.1 billion of available credit capacity at year-end, or approximately $4.0 billion of stated liquidity. No loans were outstanding under the principal credit facilities, although $220 million of letters of credit were issued. The company reported no significant debt maturities until 2011.
Segment and operating performance
- Exploration & Production: Revenue was $2.219 billion and segment profit was $418 million, down from $3.121 billion and $1.260 billion, respectively. Production sold increased 8%, but the domestic net realized average price fell 35% to $4.22 per Mcfe. Capital expenditures fell 49% to $1.291 billion.
- Gas Pipeline: Revenue was $1.591 billion and segment profit was $667 million, compared with $1.634 billion and $689 million in 2008. Results were supported by long-term firm transportation and storage contracts and new expansion projects.
- Midstream Gas & Liquids: Revenue was $3.588 billion and segment profit was $640 million, down from $5.180 billion and $871 million. Lower NGL, crude and olefin prices reduced margins, partly offset by higher fee revenues, the Willow Creek facility, and a $40 million gain on the sale of Cameron Meadows.
- Gas Marketing Services: Revenue was $3.052 billion and segment loss was $18 million, compared with revenue of $6.412 billion and profit of $3 million. Lower natural gas prices and reduced storage margins drove the deterioration.
Material changes versus the prior comparable period
- The recession, lower commodity prices and financial-market disruption significantly reduced revenue, earnings, operating cash flow and capital spending versus 2008.
- Natural gas production sold increased, but lower realized prices more than offset volume growth in Exploration & Production.
- Operating cash flow declined $783 million, while capital expenditures declined approximately $1.0 billion as management shifted from growth toward sustaining investment and cost control.
- Proved reserves declined to 4,255 Bcfe from 4,339 Bcfe. The change was substantially affected by new SEC reserve rules, including use of a 12-month average price and revised proved undeveloped reserve criteria.
- Discontinued operations produced a $223 million loss, compared with $125 million of income in 2008, primarily because Venezuela operations were expropriated and deconsolidated.
- The company adopted a net presentation for certain Midstream purchase-and-resale contracts; 2008 revenue and costs were reduced by $295 million with no impact on profit or cash flow.
Guidance, outlook, risks and unusual items
Management expected 2010 operating results and cash flows to improve, primarily due to anticipated higher energy commodity prices. The company estimated 2010 operating cash flow of $2.2 billion to $2.975 billion and total capital and investment expenditures of $2.05 billion to $2.775 billion, with approximately 64% considered nondiscretionary. Management intended to maintain at least $1 billion of liquidity.
Exploration & Production projected 2010 capital expenditures of $1.0 billion to $1.4 billion and domestic production generally consistent with 2009. Midstream projected 2010 capital expenditures of $500 million to $750 million. The filing does not provide consolidated 2010 earnings guidance.
- The February 2010 restructuring involved approximately $3.5 billion of WPZ debt issuance, retirement of $3.0 billion of Williams debt, and $574 million of related premiums, plus other transaction costs. The premiums and certain costs were expected to be recorded in first-quarter 2010.
- 2009 included a $211 million Venezuela property impairment, a $75 million Accroven investment impairment, a $48 million Venezuela bad-debt charge, a $30 million write-off of deferred charges, $32 million of drilling-rig termination penalties, and $20 million of Exploration & Production property impairments.
- Natural gas, NGL and olefin prices remain highly volatile. Hedging reduces but does not eliminate commodity, basis, counterparty and collateral risks.
- Pipeline and midstream operations face FERC and other regulatory requirements, contract-renewal risk, environmental liabilities, construction risks, customer concentration, supply declines and competition.
- Named-windstorm insurance coverage for Gulf of Mexico assets was substantially reduced, with certain assets no longer covered. The filing identifies an aggregate offshore named-windstorm insurance limit of $37.5 million in the event of a material loss.
- Environmental liabilities accrued at year-end were approximately $42 million, with estimated 2010 cleanup and remediation payments of approximately $10 million. Certain legal, royalty, regulatory and environmental matters could have material effects in the period of resolution, although management did not expect the matters collectively to have a material impact on future liquidity or financial position.
- The company maintained investment-grade ratings from certain agencies, but a downgrade below investment grade could require up to $585 million of additional collateral.
Important facts for investors to verify
- Reconcile the 2009 earnings decline with commodity prices, hedge gains, discontinued Venezuela operations and nonrecurring impairments.
- Review the post-filing effects of the February 2010 restructuring on debt, ownership of Williams Partners, segment reporting, cash flows and noncontrolling interests.
- Assess liquidity after the restructuring, including the reduced Williams revolving facility, WPZ’s new $1.75 billion facility and debt maturities beginning in 2011.
- Evaluate reserve sensitivity to natural gas prices, the new SEC reserve methodology and the approximately $1 billion Exploration & Production goodwill balance.
- Monitor Gulf of Mexico insurance coverage, environmental obligations, FERC rate proceedings and pending litigation or arbitration.
- Compare 2010 cash-flow and capital-spending guidance with actual commodity prices, production volumes, NGL margins and project execution.