Williams : Reports Year-End 2014 Financial Results, Updates Guidance

Williams (NYSE: WMB) today announced unaudited 2014 financial results which includes pre-merger financial results of its two master limited partnerships (MLPs), Williams Partners L.P. and Access Midstream Partners, L.P. Effective Feb. 2, 2015, the two MLPs merged to form one leading, natural gas-focused MLP named Williams Partners L.P. (NYSE: WPZ).

(1) The quarterly cash distributions in this table are declared and received in the following quarter.

(2) Schedules reconciling segment profit to adjusted segment profit + DD&A and income from continuing operations to adjusted income from continuing operations (non-GAAP measures) are available at www.williams.com and as an attachment to this news release.

Williams reported 2014 total MLP cash distributions from Williams Partners and Access Midstream Partners of $2 billion, a $447 million, or 29 percent, increase from total MLP cash distributions received for 2013. Quarterly cash distributions discussed in this news release are declared and received in the following quarter, as these distributions relate to the prior quarter’s cash flow.

For fourth quarter 2014, Williams reported total MLP cash distributions of $515 million, a $70 million, or 16 percent, increase from total MLP cash distributions for fourth quarter 2013. The fourth quarter cash distribution of $0.85 per unit for common unitholders of the merged MLP was paid on Feb. 13 to common unitholders of record at the close of business on Feb. 9.

Williams reported 2014 adjusted segment profit + DD&A of $3.32 billion, compared with $2.689 billion for 2013. The $631 million, or 23 percent, year-over-year growth in adjusted segment profit + DD&A was driven by a $632 million increase in adjusted segment profit + DD&A for Access Midstream.

For fourth quarter 2014, Williams reported $944 million in adjusted segment profit + DD&A, compared with $728 million in the fourth quarter 2013. The $216 million, or 30 percent, increase for the quarter was primarily driven by a $386 million increase in adjusted segment profit + DD&A for Access Midstream, partially offset by a $170 million decrease in adjusted segment profit + DD&A for Williams Partners. The variance in adjusted segment profit + DD&A for the year and the quarter are discussed in the Business Segment results shown below.

Williams reported 2014 adjusted income from continuing operations of $582 million, or $0.80 per share, compared with $559 million, or $0.81 per share, for 2013. Fourth quarter 2014 adjusted income from continuing operations was $124 million, or $0.16 per share, compared with $148 million, or $0.22 per share, for fourth quarter 2013. The variance in adjusted income for the full-year and quarterly periods was driven by the changes in adjusted segment profit + DD&A as described in the Business Segment results shown below, as well as higher net interest expense, including interest associated with the acquisition of Access Midstream Partners and the consolidation of Access Midstream Partners’ debt beginning in third quarter 2014.

Williams reported unaudited 2014 net income attributable to Williams of $2.114 billion, or $2.92 per share on a diluted basis, compared with 2013 net income of $430 million, or $0.62 per share on a diluted basis. Fourth quarter 2014 net income attributable to Williams was $193 million, or $0.26 per share on a diluted basis, compared with net loss of $14 million, or $0.02 per share on a diluted basis for fourth quarter 2013.

The $1.684 billion increase in net income attributable to Williams was primarily the result of a $2.5 billion non-cash pre-tax gain resulting from measuring our previous equity-method investment in Access Midstream Partners at fair value related to our acquisition. This gain has been adjusted out of the adjusted income from continuing operations measure previously discussed.

CEO Commentary

Alan Armstrong, Williams’ president and chief executive officer, made the following comments:

“Williams’ rapidly growing cash distributions from Williams Partners and Access Midstream Partners totaled $2 billion in 2014. With the two partnerships now merged into a leading large-cap MLP focused on natural gas infrastructure, we’re further positioned to take advantage of long-term natural gas demand growth for power generation, manufacturing and exports. We expect the new Williams Partners to generate approximately $4.5 billion of adjusted EBITDA in 2015 from a gross margin that is about 88 percent fee-based, the majority of which consists of contracts with demand payments, cost-of-service rates or minimum volume commitments.

“In the fourth quarter, Williams Partners’ fee-based revenues continued to grow and we began commissioning major new assets including Gulfstar One, Keathley Canyon Connector and our Geismar plant. These large-scale assets are ramping up in the first quarter of 2015 and are expected to deliver strong contributions for the balance of the year and beyond. However, the sharp decline in commodity prices, the delay in the startup of Geismar and higher costs associated with the commissioning of these large-scale assets, reduced our overall results.

“Over the next three years, we’re deploying 99 percent of Williams Partners’ planned $9 billion of growth capital toward fully-contracted, fee-based projects. As a result, we’re confident in our ability to deliver one of the highest rates of distribution growth amongst our large-cap peers, despite lower commodity prices.”

Business Segment Results

Williams’ business segments for 2014 financial reporting include results for pre-merger Williams Partners, pre-merger Access Midstream and Williams NGL & Petchem Services.

Prior to July 1, 2014, the Access Midstream segment included Williams’ equity earnings from its 50-percent interest in privately held Access Midstream Partners GP, L.L.C. and an approximate 23-percent limited-partner interest in Access Midstream Partners, L.P. As a result of our acquisition of additional ownership interests, periods after July 1, 2014 include the consolidated results of Access Midstream Partners.

Following the dropdown of certain of Williams’ Canadian assets to Williams Partners in February 2014, Williams NGL & Petchem Services segment is comprised of projects in various stages of development, including the offgas processor for the CNRL’s Horizon upgrader plant as well as petchem projects on the Gulf Coast. Prior period segment results have been recast to reflect our contribution of certain Canadian assets to Williams Partners.

* Schedules reconciling segment profit to adjusted segment profit and adjusted segment profit + DD&A are attached to this news release.

**Adjustments for Williams Partners consist primarily of assumed business interruption insurance related to the Geismar plant and the removal of a contingency gain. Adjustments for Access Midstream consist primarily of the non-cash remeasurement gain related to the change from equity-method accounting to consolidated discussed in the body of this news release. Adjustments to Williams NGL & Petchem Services consist primarily of charges related to the canceled Bluegrass Pipeline project.

(1) Williams NGL & Petchem Services segment is comprised of projects in various stages of development, including the CNRL Horizon offgas processing project in Canada as well as NGL and petrochemical pipeline projects on the Gulf Coast.

Pre-Merger Williams Partners

Williams Partners is focused on natural gas and natural gas liquids (NGL) transportation, gathering, treating, processing and storage; NGL fractionation; olefins production; and crude oil transportation.

Williams Partners reported 2014 adjusted segment profit + DD&A of $2.586 billion, compared with $2.589 billion for 2013. The results include a $199 million increase in fee-based revenues, offset by $56 million lower Geismar results (including actual and assumed business interruption insurance proceeds of $123 million and $311 million for 2013 and 2014, respectively). Additionally, 2014 adjusted segment profit + DD&A was reduced by $181 million as a result of commodity price declines including $130 million lower NGL margins and $51 million primarily related to unfavorable inventory adjustments.

Fourth quarter 2014 adjusted segment profit + DD&A was $521 million, compared with $691 million for fourth quarter 2013. The decrease for the quarter was primarily due to $137 million lower Geismar results (including actual and assumed business interruption insurance proceeds of $108 million for fourth quarter 2013). The partnership estimates that adjusted segment profit + DD&A would have been approximately $160 million higher had the expanded Geismar plant been in operation during fourth quarter 2014. Additionally, a $55 million increase in fee-based revenues was more than offset by $88 million of commodity price declines, including $47 million primarily related to unfavorable inventory adjustments and $41 million lower NGL margins.

Pre-merger Williams Partners’ complete financial results for 2014 are provided in the year-end earnings news release issued today by the newly merged MLP.

Pre-Merger Access Midstream

Due primarily to Williams’ acquisition of additional ownership interests in and consolidation of Access Midstream as described above, 2014 adjusted segment profit + DD&A increased to $725 million, compared with $93 million for 2013. Similarly, for fourth quarter 2014, adjusted segment profit + DD&A increased to $422 million, compared with $36 million for fourth quarter 2013.

On a standalone basis, pre-merger Access Midstream’s 2014 adjusted EBITDA was $1.161 billion, an increase of $302 million, or 35.2 percent, compared to 2013 adjusted EBITDA of $859 million. Adjusted EBITDA for fourth quarter 2014 totaled $317 million, an increase of $76 million, or 31.5 percent, from fourth quarter 2013 adjusted EBITDA of $241 million.

Pre-merger Access Midstream’s complete financial results for 2014 are provided in the year-end earnings news release issued today by the newly merged MLP.

Guidance Updates

Earnings and cash flow guidance for Williams and the newly merged MLP, which is named Williams Partners, reflects the following key assumptions:

a. Substantially lower commodity price assumptions (see accompanying table)

b. Lower expected fee-based volumes in certain areas as a result of the lower commodity price environment

c. Our Geismar plant, which restarted in February 2015, will continue to ramp up to expanded capacity through March. Production during February and March is expected to be intermittent, resulting in limited financial contribution for the first quarter.

d. Deferral of the planned dropdown of Williams’ remaining NGL & Petchem Services projects in order to reduce Williams Partners’ near-term capital requirements

Updated guidance for Williams Partners’ 2015 common unit cash distributions is $3.40 with an annual growth rate of 7 percent to 11 percent through 2017 with growing coverage.

Based on Williams Partners’ updated cash distribution guidance, Williams is updating guidance for its expected dividends per share. Guidance for Williams’ 2015 cash dividend is $2.38 per share with an annual growth rate of 10 percent to 15 percent through 2017 with growing coverage.

Williams plans to utilize revolver borrowings to fund its NGL & Petchem segment growth capital totaling about $260 million in 2015. Williams’ financial guidance does not require any Williams’ equity financing. Williams’ current guidance assumes approximately $600 million of Williams Partners’ equity financing for 2015. We anticipate meeting these equity needs through Williams Partners’ at-the-market program. Additional Williams Partners’ financing needs are expected to be met primarily through issuance of long-term debt as well as revolver and commercial paper borrowings. The company expects to maintain investment-grade credit ratings for both Williams and Williams Partners.

Current guidance is provided in the following table:

(1) Adjusted EBITDA, distributable cash flow, cash distribution coverage ratio and cash available for dividends are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are attached to this news release.

(2) We estimate the 2015 cash distribution coverage ratio would have been approximately 1.05x, assuming Geismar, Keathley Canyon Connector and Gulfstar One were in service at expected capacity for full-year 2015.

(3) Crack spread is based on delivered U.S. Gulf Coast ethylene and Mont Belvieu ethane.

Year-End 2014 Materials to be Posted Shortly; Conference Call Scheduled for Tomorrow

Williams’ year-end 2014 financial results package will be posted shortly at www.williams.com. The package will include the data book and analyst package.

Williams and Williams Partners plan to jointly host a conference call and live webcast on Thursday, Feb. 19, at 9:30 a.m. EST. A limited number of phone lines will be available at (800) 768-6570. International callers should dial (785) 830-1942. A link to the webcast, as well as replays of the webcast in both streaming and downloadable podcast formats, will be available for two weeks following the event at www.williams.com.

Form 10-K

The company plans to file its 2014 Form 10-K with the Securities and Exchange Commission next week. Once filed, the document will be available on both the SEC and Williams’ websites.

Definitions and Non-GAAP Measures

This news release includes certain financial measures – adjusted EBITDA, adjusted segment profit and adjusted segment profit + DD&A, adjusted income from continuing operations (“earnings”), adjusted earnings per share, cash available for dividends, dividend coverage ratio, distributable cash flow and cash distribution coverage ratio – that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission. For the following definitions, depreciation and amortization (DD&A) includes amortization of basis differences related to equity-method investments.

Adjusted EBITDA is defined as net income (loss) before income tax expense, net interest expense, depreciation and amortization expense (including amortization of basis differences related to equity-method investments) and equity earnings from investments, adjusted for certain other items management believes affect the comparability of operating results. We also add our proportional ownership share of net income (loss) before income tax expense, net interest expense, depreciation and amortization expense of equity investments.

Adjusted income from continuing operations and adjusted segment profit excludes items of income or loss that we characterize as unrepresentative of our ongoing operations and may include assumed business interruption insurance related to the Geismar plant. Adjusted segment profit + DD&A is adjusted to add back depreciation and amortization expense. Management believes these measures provide investors meaningful insight into results from ongoing operations.

For Williams, cash available for dividends is defined as cash received from its ownership in MLPs, cash received (used) by its NGL & Petchem Services segment (other than cash for capital expenditures) less interest, taxes and maintenance capital expenditures associated with Williams and not the underlying MLPs. We also calculate the ratio of cash available for dividends to the total cash dividends paid (dividend coverage ratio). This measure reflects Williams’ cash available for dividends relative to its actual cash dividends paid.

For the newly merged MLP, Williams Partners L.P., we define distributable cash flow as adjusted EBITDA less maintenance capital expenditures, cash paid for interest expense, distributions to noncontrolling interests and cash income taxes.

For the newly merged MLP, Williams Partners L.P., we also calculate the ratio of distributable cash flow to the total cash distributed (cash distribution coverage ratio). This measure reflects the amount of distributable cash flow relative to our cash distribution. We have also provided this ratio calculated using the most directly comparable GAAP measure, net income.

This news release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are accepted financial indicators used by investors to compare company performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the Partnership's assets and the cash that the business is generating.

Neither adjusted EBITDA, adjusted segment profit, adjusted segment profit + DD&A, adjusted income from continuing operations, cash available for dividends, nor distributable cash flow are intended to represent cash flows for the period, nor are they presented as an alternative to net income or cash flow from operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

About Williams

Williams (NYSE: WMB) is a premier provider of large-scale infrastructure to connect North American natural gas and natural gas products to growing demand for cleaner fuel and feedstocks. Headquartered in Tulsa, Okla., Williams owns approximately 60 percent of Williams Partners L.P. (NYSE: WPZ), including the general-partner interest. Williams Partners is an industry-leading, large-cap master limited partnership with operations across the natural gas value chain from gathering, processing and interstate transportation of natural gas and natural gas liquids to petchem production of ethylene, propylene and other olefins. With substantial positions across top U.S. supply basins and also in Canada, Williams Partners owns and operates more than 33,000 miles of pipelines system wide – including the nation’s largest volume and fastest growing pipeline – moving approximately 20 percent of U.S. natural gas for clean-power generation, home heating and industrial use. www.williams.com

Forward-Looking Statements

The reports, filings, and other public announcements of The Williams Companies, Inc. (Williams) and Williams Partners L.P. (WPZ) may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. You typically can identify forward-looking statements by various forms of words such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “assumes,” “guidance,” “outlook,” “in service date” or other similar expressions. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

• Expected levels of cash distributions by WPZ with respect to general partner interests, incentive distribution rights, and limited partner interests;
• The levels of dividends to Williams stockholders;
• Future credit ratings of Williams and WPZ;
• Amounts and nature of future capital expenditures;
• Expansion and growth of our business and operations;
• Financial condition and liquidity;
• Business strategy;
• Cash flow from operations or results of operations;
• Seasonality of certain business components;
• Natural gas, natural gas liquids, and olefins prices, supply, and demand; and
• Demand for our services.

Forward-looking statements are based on numerous assumptions, uncertainties and risks that could cause future events or results to be materially different from those stated or implied in this presentation. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

• Whether WPZ will produce sufficient cash flows to provide the level of cash distributions we expect;
• Whether Williams is able to pay current and expected levels of dividends;
• Availability of supplies, market demand, and volatility of prices;
• Inflation, interest rates, and fluctuation in foreign exchange rates and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);
• The strength and financial resources of our competitors and the effects of competition;
• Whether we are able to successfully identify, evaluate and execute investment opportunities;
• Our ability to acquire new businesses and assets and successfully integrate those operations and assets into our existing businesses as well as successfully expand our facilities;
• Development of alternative energy sources;
• The impact of operational and developmental hazards and unforeseen interruptions;
• The ability to recover expected insurance proceeds related to the Geismar plant;
• Costs of, changes in, or the results of laws, government regulations (including safety and environmental regulations), environmental liabilities, litigation, and rate proceedings;
• Williams’ costs and funding obligations for defined benefit pension plans and other postretirement benefit plans;
• WPZ’s allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by its affiliates;
• Changes in maintenance and construction costs;
• Changes in the current geopolitical situation;
• Our exposure to the credit risk of our customers and counterparties;
• Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally-recognized credit rating agencies and the availability and cost of capital;
• The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate;
• Risks associated with weather and natural phenomena, including climate conditions;
• Acts of terrorism, including cybersecurity threats and related disruptions; and
• Additional risks described in our filings with the Securities and Exchange Commission (SEC).

Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth in this presentation. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.

Investors are urged to closely consider the disclosures and risk factors in Williams’ and WPZ’s annual reports on Form 10-K filed with the SEC on Feb. 26, 2014, and each of our quarterly reports on Form 10-Q available from our offices or from our website at www.williams.com.