Williams Companies, Inc. — FY2011 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2011. Williams is an energy infrastructure company focused on natural gas pipelines, gathering and processing, NGLs, crude oil transportation, and olefins. Its principal segments are Williams Partners and Midstream Canada & Olefins.
On December 31, 2011, Williams completed the tax-free spin-off of its exploration and production business, WPX Energy. Historical WPX results are presented as discontinued operations, while the December 31, 2011 balance sheet excludes WPX.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Revenue | $7.930 billion | $6.638 billion | +19% |
| Operating income | $1.867 billion | $1.407 billion | +33% |
| Income from continuing operations | $1.078 billion | $271 million | + $807 million |
| Continuing income attributable to WMB | $803 million | $104 million | + $699 million |
| Diluted EPS from continuing operations | $1.34 | $0.17 | Improved materially |
| Net income attributable to WMB | $376 million | $(1.097) billion | Returned to profitability |
| Cash flow from operating activities | $3.439 billion | $2.651 billion | +30% |
| Capital expenditures | $2.796 billion | $2.788 billion | Approximately flat |
| Cash and cash equivalents | $889 million | $758 million | + $131 million |
| Total long-term debt, including current portion | $8.722 billion | $9.108 billion | Down $386 million |
Operating margin was approximately 23.5% in 2011 versus 21.2% in 2010. Continuing-operations income attributable to WMB represented approximately 10.1% of revenue. Net income was reduced by $417 million of losses from discontinued operations, including $755 million of impairment charges and a $179 million impairment associated with the WPX spin-off.
Williams had $2.9 billion of available credit capacity at year-end, consisting of a $900 million parent revolver and a $2 billion Williams Partners revolver. Consolidated liquidity, including cash, was approximately $3.789 billion, although $467 million of cash held by certain subsidiaries and international operations was not considered available for general corporate purposes.
Segment results were strong. Williams Partners generated $6.729 billion of revenue and $1.896 billion of segment profit, compared with $5.715 billion and $1.574 billion in 2010. Midstream Canada & Olefins generated $1.312 billion of revenue and $296 million of segment profit, compared with $1.033 billion and $172 million.
Material changes versus the prior comparable period
- Revenue growth reflected higher NGL, crude and olefin prices, higher marketing activity, increased fee revenue, and additional pipeline capacity.
- Williams Partners benefited from a $286 million increase in NGL production margins, higher gathering and processing fees, and $68 million of additional transportation revenue from pipeline expansions.
- Midstream Canada & Olefins benefited from higher ethylene, Canadian NGL and propylene margins, improved volumes, and the product-mix benefits of the Alberta butylene/butane splitter.
- Early debt retirement costs declined to $271 million from $606 million in 2010, although the 2011 amount included approximately $254 million of premiums.
- The company’s equity declined to $3.083 billion from $8.619 billion, primarily because the WPX spin-off distributed approximately $5.5 billion of net equity to shareholders.
- Quarterly fourth-quarter 2011 revenue was $2.103 billion and income from continuing operations was $158 million. Fourth-quarter net loss was $362 million, largely due to debt retirement costs, WPX-related impairments, and spin-off transaction costs.
Guidance, outlook, commentary, risks and unusual items
Management expected 2012 capital and investment expenditures of $3.4 billion to $3.8 billion, including $520 million to $600 million of maintenance capital and $2.88 billion to $3.2 billion of expansion capital. Expected 2012 operating cash flow was $1.85 billion to $2.325 billion, and expected dividends were approximately $1.09 per share, about 41% above 2011.
Management expected to maintain at least $1 billion of consolidated liquidity and anticipated funding growth primarily through operating cash flow, cash on hand, revolving facilities, and debt or equity issuance. Williams also expected WPZ to fund $325 million of debt maturities through a new debt issuance.
Growth priorities included Marcellus gathering and pipeline infrastructure, Gulf of Mexico projects, Transco expansions, Canadian NGL and ethane/ethylene projects, and the Geismar olefins expansion. Williams Partners expected 2012 NGL margins to be comparable to 2011 and higher than its five-year average, subject to commodity-price volatility.
- Key risks include natural gas, NGL and crude price volatility; lower producer drilling and throughput; contract renewals; counterparty credit; access to capital; competition; construction delays and cost overruns; and dependence on distributions from WPZ.
- Pipeline and storage operations face FERC rate proceedings, safety requirements, integrity-related spending, and potential refund or regulatory liabilities.
- The Eminence Storage Field cavern leak required retirement of four caverns. Estimated abandonment costs were approximately $76 million, with $38 million incurred through year-end 2011 and an additional $15 million of 2011 assessment and monitoring expense.
- Environmental liabilities accrued at year-end were approximately $47 million, although additional costs could differ materially as investigations and regulatory requirements develop.
- Williams retained guarantees related to WPX obligations with an estimated maximum potential payment of approximately $266 million, principally extending through 2017 and 2023.
- Fourth-quarter unusual items included $271 million of early debt retirement costs, $560 million of WPX-related property impairments, a $179 million WPX investment impairment, $30 million of spin-off transaction costs, and $33 million of income from reducing a Gulf Liquids litigation accrual.
Most important facts for an investor to verify
- Whether post-spin-off cash flow and distributions from Williams Partners support the planned dividend increases and $3.4 billion to $3.8 billion of 2012 investment spending.
- The sustainability of 2011 NGL and olefin margins and the company’s exposure to commodity-price spreads.
- WPZ’s leverage, debt refinancing requirements, distributions, and compliance with credit-facility covenants.
- Progress, final costs and rate recovery associated with the Eminence Storage Field abandonment and other pipeline integrity requirements.
- Potential liabilities under WPX indemnifications, guarantees, tax-sharing arrangements, environmental matters and unresolved litigation.
- The effect of the WPX spin-off on comparability, retained liabilities, employee obligations, tax attributes and reported equity.