Williams Companies, Inc. 2020 Form 10-K Summary
Business context and reporting period
The filing is an annual report for the fiscal year ended December 31, 2020, filed February 24, 2021. Williams is a U.S. energy infrastructure company operating more than 30,000 miles of pipelines, processing and fractionation facilities, and NGL storage assets. Its reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Other.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $7.719 billion | $8.201 billion | Down 6% |
| Operating income | $2.202 billion | $1.921 billion | Up 15% |
| Net income | $198 million | $714 million | Down $516 million |
| Net income attributable to Williams | $211 million | $850 million | Down $639 million |
| EPS available to common stockholders | $0.17 | $0.70 | Down $0.53 |
| Net cash from operating activities | $3.496 billion | $3.693 billion | Down $197 million |
| Capital expenditures | $1.239 billion | $2.109 billion | Down $870 million |
| Modified EBITDA | $4.851 billion | $4.447 billion | Up 9% |
Operating margin was approximately 28.5%, compared with 23.4% in 2019. Net margin was approximately 2.6%, compared with 8.7% in 2019. Modified EBITDA is a non-GAAP segment measure and should not be viewed as a substitute for GAAP income.
- Segment Modified EBITDA was $2.379 billion for Transmission & Gulf of Mexico, $1.489 billion for Northeast G&P, $998 million for West, and negative $15 million for Other.
- Interest expense was $1.172 billion, compared with $1.186 billion in 2019.
- Equity earnings were $328 million, while impairment of equity-method investments was $1.046 billion.
- Total long-term debt, including current maturities, was $22.344 billion at year-end, including $893 million due within one year. Long-term debt was primarily fixed-rate, with a reported fair value of $27.043 billion.
- Cash and cash equivalents were $142 million. The company reported $4.5 billion of capacity under its revolving credit facility and no commercial paper outstanding, for stated available liquidity of $4.642 billion.
- Working capital was negative $890 million. The company remained in compliance with its credit-facility covenants and reported investment-grade ratings of BBB from S&P, Baa3 from Moody’s, and BBB from Fitch.
- Common dividends paid were $1.941 billion, or $1.60 per share. The quarterly dividend was increased from $0.40 to $0.41 per share for the dividend approved in January 2021.
Material changes versus the prior comparable period
- Revenue declined primarily because of lower West segment volumes, lower NGL and natural gas prices, lower commodity consideration, the expiration of a Barnett Shale minimum-volume commitment, and temporary Gulf of Mexico shut-ins.
- Operating income improved despite lower revenue, supported by lower impairment charges, lower employee-related and maintenance expenses, and the absence of 2019 severance and transaction costs.
- Net income attributable to Williams declined sharply because of $1.046 billion of equity-method investment impairments, a $187 million goodwill impairment, the absence of a $122 million 2019 gain on the sale of Jackalope, and other unfavorable items.
- Northeast G&P Modified EBITDA increased to $1.489 billion from $1.314 billion, benefiting from higher volumes, the consolidation of UEOM, and cost reductions. West Modified EBITDA increased modestly to $998 million from $952 million, while Transmission & Gulf of Mexico increased to $2.379 billion from $2.175 billion.
- Williams paid $157 million, net of cash acquired, for an additional 41% interest in Caiman II and began consolidating Caiman II while continuing to account for its 50% Blue Racer interest under the equity method.
- The company issued approximately $2.2 billion of new long-term debt and retired approximately $2.1 billion during 2020. It also paid $284 million of Transco rate refunds.
- Capital spending declined substantially as major projects were completed or spending was moderated. Transco placed portions of the Hillabee, Southeastern Trail, and Leidy South expansions into service, and the Bluestem NGL pipeline entered service in December 2020.
Guidance, outlook, risks, contingencies, and unusual items
- Management expects 2021 growth capital and investment expenditures of $1.0 billion to $1.2 billion, primarily for fully contracted Transco expansions, Northeast G&P projects, and Haynesville opportunities. The company expects to fund substantially all planned capital spending with cash available after dividends, while retaining flexibility to adjust spending.
- Management expects 2021 results to benefit from Northeast G&P volume growth, Transco expansion projects, and lower anticipated hurricane impacts in the Gulf of Mexico. These benefits are expected to be partly offset by lower West results, lower OPPL NGL transportation volumes, and reduced Haynesville gathering fees associated with upstream property interests received from Chesapeake.
- COVID-19 had not materially affected reported financial condition, results, or liquidity through the filing date, although management continued to identify pandemic-related risks to demand, commodity prices, capital markets, operations, and counterparties.
- Chesapeake Energy filed for Chapter 11 in June 2020. Williams reached a court-approved global resolution under which Chesapeake paid outstanding pre-petition amounts. The resolution included reduced Haynesville fees, continued Eagle Ford and Marcellus agreements, a Transco gas-supply commitment, and the transfer of certain Louisiana properties to Williams.
- Williams recorded $938 million of equity-method investment impairments in the first quarter, including impairments related to Northeast G&P and Discovery, and an additional $108 million RMM impairment in the fourth quarter following customer contract renegotiations in bankruptcy proceedings. RMM and Brazos Permian II were also affected by lower crude-oil-driven producer activity.
- The company recognized a $170 million impairment of Northeast Supply Enhancement project costs after New York and New Jersey environmental approvals were denied and the assessed probability of completion declined. A $187 million goodwill impairment fully eliminated goodwill associated with the UEOM acquisition.
- Material risks include commodity-price volatility, producer drilling and supply declines, customer credit and bankruptcy, FERC and other regulatory actions, permitting delays, environmental and climate regulation, pipeline integrity, severe weather, cybersecurity, competition, access to capital, debt covenants, and the ability to sustain dividends.
- Environmental remediation liabilities were approximately $33 million at year-end, with expected 2021 environmental spending of approximately $11 million. The filing also describes ongoing litigation involving gas-price reporting, Alaska refinery contamination, royalty matters, and other legacy operations; certain potential exposures cannot be reasonably estimated and could be material.
- In February 2021, Williams acquired approximately 2,000 operated Wamsutter basin wells for $79 million and expected to report them in Other.
Important facts for investors to verify
- Reconcile the decline in GAAP net income and EPS with the large noncash equity-method, goodwill, and project impairment charges.
- Assess debt-service capacity, upcoming maturities, refinancing requirements, covenant headroom, and the sustainability of dividends relative to operating cash flow.
- Evaluate whether 2021 growth capital spending of $1.0 billion to $1.2 billion can be funded after dividends without materially increasing leverage.
- Monitor Transco expansion approvals, including Leidy South and the status of Northeast Supply Enhancement, as well as the effect of permitting and regulatory decisions on future capital recovery.
- Track producer activity, volume commitments, rates, and contract changes in the Northeast, Haynesville, West, and other basins, particularly following customer bankruptcies.
- Review the valuation assumptions underlying equity-method investment impairments, including discount rates, EBITDA multiples, commodity prices, and producer-volume forecasts.
- Review the disclosed legal, environmental, pipeline-integrity, climate, weather, and cybersecurity contingencies and compare accrued amounts with potential exposure.