Williams Partners Reports Third-Quarter 2013 Financial Results, Updates Guidance

Williams Partners L.P. (NYSE: WPZ):

 
       
Summary Financial Information 3Q YTD

Amounts in millions, except per-unit and coverage ratio amounts.

All income amounts attributable to Williams Partners L.P.
  2013   2012     2013   2012  
(Unaudited)
 
Net income $ 279 $ 290   $ 856 $ 941  
Net income per common L.P. unit $ 0.52 $ 0.38   $ 1.34 $ 1.47  
               
 
Distributable cash flow (DCF) (1) $ 378 $ 374 $ 1,262 $ 1,256
Less: Pre-partnership DCF (2)   0   (58 )   0   (172 )
DCF attributable to partnership operations $ 378 $ 316   $ 1,262 $ 1,084  
 
Cash distribution coverage ratio (1)(3) 0.86x .80x .90x .96x
 

(1) Distributable Cash Flow and Cash Distribution Coverage Ratio are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are attached to this news release.

(2) This amount represents DCF from the Gulf Olefins assets during 2012, since these periods were prior to the receipt of cash flows from the assets.

(3) Includes benefit of IDR waivers.

Williams Partners L.P. (NYSE: WPZ) today announced unaudited third-quarter 2013 net income attributable to Williams Partners L.P. of $279 million, or $0.52 per common limited-partner unit, compared with net income of $290 million, or $0.38 per common limited-partner unit for third-quarter 2012. Earnings per common limited-partner unit were favorably impacted by a significant increase in waived incentive distribution rights, which resulted in a shift of net income from the general partner to the limited partners. Prior-period results throughout this release have been recast to include the results of the Geismar olefins production facility acquired from Williams in November 2012 and to reflect the revised segment reporting resulting from the organizational restructuring effective Jan. 1, 2013.

The $11 million decrease in third-quarter net income was primarily due to $76 million lower olefin margins from lost production at the Geismar olefins plant as well as $49 million (or 29%) lower natural gas liquids (NGL) margins driven by continued ethane rejection. The decrease was offset by a $61 million increase in transportation and gathering and processing fee revenues as well as $19 million in lower costs in the quarter. Third-quarter 2013 also benefited from $50 million of income recognized associated with initial insurance recoveries related to the Geismar incident.

For the first nine months of 2013, Williams Partners reported net income of $856 million, or $1.34 per common limited-partner unit, compared with $941 million, or $1.47 per common limited-partner unit, for the same time period in 2012.

The $85 million decrease in year-to-date income was primarily due to $254 million (or 42 percent) lower NGLs margins driven by continued ethane rejection. The decrease was offset by a $151 million increase in transportation and gathering and processing fee revenues.

Distributable Cash Flow & Distributions

For third-quarter 2013, Williams Partners generated $378 million in distributable cash flow (DCF) attributable to partnership operations, compared with $316 million in third-quarter 2012.

The $61 million growth in fee-based revenues and $50 million lower maintenance capital expenditures drove the increase in DCF, more than offsetting $49 million lower NGL margins. The Geismar olefins plant was not in operation in the third quarter; however, business interruption insurance recoveries contributed $15 million in DCF for the quarter.

Williams Partners recently announced that it increased its quarterly cash distribution to unitholders to $0.8775 per unit, an 8.7-percent increase over the prior year amount. It is also a 1.7-percent increase over the partnership's second-quarter 2013 distribution of $0.8625 per unit.

CEO Perspective

Alan Armstrong, chief executive officer of Williams Partners’ general partner, made the following comments:

“During the quarter, 9 percent growth in our fee-based business, primarily in the Northeast U.S., and our continued focus on cost control across our businesses, partially offset the challenges of the unplanned downtime at our Geismar olefins plant and the lower NGL margins. In fact, DCF grew 20 percent year over year despite the limited contributions from last years’ Geismar acquisition.

“Importantly, we are pleased to announce the partnership’s planned acquisition of Williams’ currently cash-flowing Canadian operations. This Canadian business has unique competitive advantages that will allow it to produce very strong free cash flows for many years to come. It is expected to contribute approximately $200 million of DCF to Williams Partners in 2014 and 2015, and Williams continues to invest in large scale drop down candidates for the future.

“We remain committed to safe operations as we continue our steadfast execution on a portfolio of primarily fee-based projects, including further expansions of our well-positioned Transco natural gas pipeline to serve the growing markets for low cost natural gas all along the eastern seaboard and the southeast United States.”

Business Segment Performance

Beginning with its first-quarter 2013 results, Williams Partners’ operations are reported through four business segments. Prior-period results have been recast to reflect the partnership’s updated segment reporting structure.
   
3Q   YTD
           
Segment Profit * Segment Profit + DD&A * Segment Profit * Segment Profit + DD&A *
Amounts in millions   2013     2012     2013     2012   2013       2012     2013     2012

 
Northeast G&P ($1 ) ($4 ) $ 32 $ 19 $ 2 ($20 ) $ 96 $ 25
Atlantic-Gulf 137 124 229 221 448 416 720 697
West 207 223 265 281 555 773 732 946
NGL & Petchem Services   62       86         69       93     259       202         281       218
Total $ 405 $ 429 $ 595 $ 614 $ 1,264 $ 1,371 $ 1,829 $ 1,886
 
Adjustments   (17 )   15     (17 )   15   (22 )   29     (22 )   29
 
Total $ 388   $ 444   $ 578   $ 629 $ 1,242   $ 1,400   $ 1,807   $ 1,915
 

* Schedules reconciling segment profit to adjusted segment profit and adjusted segment profit + DD&A are attached to this press release.
                 
Williams Partners 2012 2013  
Key Operational Metrics 1Q     2Q     3Q     4Q 1Q     2Q     3Q 3Q Change
Year-over-year Sequential
Fee-based Revenues (millions) $ 651 $ 647 $ 659 $ 694 $ 684 $ 704 $ 720 9 % 2 %
 
NGL Margins (millions) $ 242 $ 189 $ 167 $ 154 $ 121 $ 105 $ 118 -29 % 12 %
Ethane Equity sales (million gallons) 176 166 163 141 23 37 52 -68 % 41 %
Per-Unit Ethane NGL Margins ($/gallon) $ 0.36 $ 0.22 $ 0.12 $ 0.04 $ 0.03 $ 0.02 ($0.01 ) -108 % -150 %
Non-Ethane Equity sales (million gallons) 132 129 138 138 123 128 128 -7 % 0 %
Per-Unit Non-Ethane NGL Margins ($/gallon) $ 1.36 $ 1.17 $ 1.07 $ 1.08 $ 0.97 $ 0.83 $ 0.92 -14 % 11 %
 
Olefin Margins (millions) $ 74 $ 70 $ 77 $ 77 $ 118 $ 88 N/A N/A N/A
Geismar ethylene sales volumes (millions of lbs.) 284 250 263 261 246 211 N/A N/A N/A
Geismar ethylene margin ($/pound) $ 0.18 $ 0.20 $ 0.22 $ 0.23 $ 0.37 $ 0.33 N/A N/A N/A
 

Northeast G&P

Northeast G&P includes the partnership’s midstream gathering and processing business in the Marcellus and Utica shale regions, including Susquehanna Supply Hub and Ohio Valley Midstream, as well as its 51-percent equity investment in Laurel Mountain Midstream, and its 47.5-percent equity investment in Caiman Energy II. This segment is in the early stages of developing large-scale energy infrastructure solutions for the Marcellus and Utica shale regions.

Northeast G&P reported segment loss of $1 million for third-quarter 2013, compared with segment loss of $4 million in third-quarter 2012. Year-to-date through Sept. 30, Northeast G&P reported segment profit of $2 million, compared with segment loss of $20 million for the same time period in 2012.

Improved results are primarily due to an increase in fee revenues in the Susquehanna Supply Hub and Ohio Valley Midstream businesses and higher Laurel Mountain Midstream equity earnings, partially offset by costs associated with growth in the Ohio Valley Midstream system.

Atlantic-Gulf

Atlantic-Gulf includes the Transco interstate gas pipeline and a 41-percent interest in the Constitution project. The segment also includes the partnership’s significant natural gas gathering and processing and crude production handling and transportation in the Gulf Coast region. These operations include a 51-percent interest in the Gulfstar project, a 50-percent interest in Gulfstream and a 60-percent interest in Discovery.

Atlantic-Gulf reported segment profit of $137 million for third-quarter 2013, compared with $124 million for third-quarter 2012. Year-to-date through Sept. 30, Atlantic-Gulf reported segment profit of $448 million, compared with segment profit of $416 million for same time period of 2012.

Segment profit for the third quarter and for the first nine months of 2013 increased primarily due to higher transportation fee revenues associated with expansion projects and new transportation rates effective in 2013 for Transco, as well as lower project development costs, partially offset by lower NGL margins.

West

West includes the partnership’s gathering, processing and treating operations in Wyoming, the Piceance Basin and the Four Corners area, as well as the Northwest Pipeline interstate gas pipeline system.

West reported third-quarter 2013 segment profit of $207 million, compared with $223 million for third-quarter 2012. Year-to-date through Sept. 30, West reported segment profit of $555 million, compared with segment profit of $773 million for the same time period in 2012.

The lower segment profit during third-quarter 2013 and the first nine months of the year was due to lower NGL margins, including the effects of system-wide ethane rejection and higher natural gas prices. Decreases for the year-to-date period in gathering and processing fee revenue were due to severe winter weather causing production freeze-offs in the first quarter and to declines in production in the Piceance basin area. Increased natural gas transportation revenues associated with Northwest Pipeline’s new rates partially offset these declines.

NGL & Petchem Services

NGL & Petchem Services includes the partnership’s NGL and natural gas marketing business, an NGL fractionator and storage facilities near Conway, Kan., a 50-percent interest in Overland Pass Pipeline, and an 83.3% interest in an olefins production facility in Geismar, La., along with a refinery grade propylene splitter and pipelines in the Gulf Coast region.

NGL & Petchem Services reported third-quarter 2013 segment profit of $62 million, compared with $86 million for third-quarter 2012. Year-to-date through Sept. 30, NGL & Petchem reported segment profit of $259 million, compared with segment profit of $202 million for the same time period of 2012.

Third-quarter segment profit declined $24 million primarily due to $77 million lower olefin margins resulting from the Geismar plant downtime, partially offset by $50 million of initial insurance recoveries related to the Geismar incident. For adjusted segment profit and DCF, $35 million of the $50 million of insurance recognized for GAAP accounting has been removed, leaving $15 million, which represents the amount of the actual business interruption claim that has been submitted for the third quarter. The remaining $35 million will be included in adjusted segment profit and DCF in future quarters.

Year-to-date segment profit increased primarily due to higher NGL marketing margins and $50 million of initial insurance recoveries in the third quarter related to the Geismar incident, partially offset by lower olefin product margins and lower equity earnings.

Recent Operational Achievements for Business Segments

Northeast G&P
  • Steadily increased the Northeast gathered volumes, reaching a new monthly average record of 2.0 Bcf/d in August 2013.
  • Continued expanding the Susquehanna Supply Hub gathering system to keep pace with producer demand. On track to increase horsepower by 126 percent to a total of 121,000 horsepower by the end of 2013.
  • Laurel Mountain Midstream reached a daily record of 400 MMcf/d in October.

Atlantic-Gulf
  • Concluded a successful open season on Atlantic Sunrise, a Transco expansion that would provide firm transportation service from various supply points along Transco’s Leidy Line in Pennsylvania to Dominion’s Cove Point Pipeline interconnect located in Fairfax County, Virginia and south to Alabama.
  • Achieved an early in-service date for half of the capacity (125 Mdt/d) of the Transco Northeast Supply Link project. The remaining portion of the $390 million expansion is on schedule to be placed into service in November 2013, expanding Transco's existing system into the New York market by 250 Mdt/d.
  • Filed an application with the Federal Energy Regulatory Commission (FERC) to expand Transco’s existing Leidy Line in northern Pennsylvania and its mainline from New Jersey through Alabama by 525 Mdt/d. The project is fully subscribed by shippers with long-term contracts.
  • Filed an application with FERC for the Mobile Bay South III Expansion Project, which is designed to provide 225 Mdt/d of firm transportation service on the Transco Mobile Bay Lateral from receipt points in Alabama to interconnections with Florida Gas Transmission and Bay Gas Storage in Mobile County, Ala. by spring of 2015.

NGL & Petchem Services
  • Executing on a plan to rebuild, turnaround and expand the Geismar Olefins plant by April 2014, which will increase the ethylene production capacity by 600 million pounds per year to a total capacity of 1.935 billion pounds per year.

Guidance

Williams Partners is updating its guidance for cash distributions per limited partner unit, reaffirming an annual growth rate for 2013 of about 9 percent and revising the expected annual growth rate for 2014 and 2015 to 6 percent, which is within its prior guidance range of 6 to 8 percent for 2014 and 2015.

Williams Partners is raising its 2013 guidance for adjusted earnings and distributable cash flow primarily to reflect an expectation of improved NGL margins, lower costs and lower interest expense. The partnership is raising its 2014 and 2015 guidance for adjusted earnings and distributable cash flow primarily to reflect a planned January 2014 drop-down to Williams Partners of Williams’ currently in-service Canadian assets, offset by lower volume growth rate projections at Ohio Valley Midstream. The planned drop-down of Williams’ Canadian assets currently in-service is subject to successful negotiation of a transaction between Williams and Williams Partners. Williams Partners’ Conflicts Committee, consisting wholly of independent directors and their independent legal and financial advisors, will represent Williams Partners interests in such negotiations. The periods of 2013 through 2015 include a number of other guidance revisions across the partnership’s operations.

In May 2013, Williams agreed to waive incentive distribution rights of up to $200 million over the subsequent four quarters to boost Williams Partners’ expected cash distribution coverage ratio. Third quarter cash distributions are being reduced by $90 million of waived incentive distribution rights and the balance of $110 million remains available. Williams Partners’ 2013 guidance assumes that $50 million is utilized in the fourth quarter in order to achieve the targeted .90x cash coverage ratio. These IDR waivers provide Williams Partners with short-term cash distribution support as a large platform of growth projects moves toward completion and as Geismar returns to operations. Williams Partners expects a return to stronger coverage ratios in 2014 and beyond as new projects come into service and as the planned Canadian asset acquisition is completed (guidance assumes a January 1, 2014 acquisition closing). Williams Partners expects cash coverage of .97x in 2014 and 1.03x in 2015. The 2013 and 2014 cash coverage guidance includes expected recoveries from business interruption insurance related to the Geismar incident.

Williams Partners’ Geismar plant is expected to be out of service until April 2014 as a result of the incident on June 13, 2013. Williams Partners has $500 million of combined business interruption and property damage insurance related to this event (subject to deductibles and other limitations) that is expected to significantly mitigate the financial loss. The partnership’s current estimate of uninsured business interruption loss, property damage loss and other losses totals $73 million. The partnership currently estimates $343 million of cash recoveries from insurers related to business interruption losses.

Under generally accepted accounting principles Williams Partners expects to recognize insurance recovery amounts as income when they are agreed to in writing by insurers or paid in cash. As such, adjusted segment profit, distributable cash flow and cash coverage have been adjusted to accrue assumed business interruption insurance recoveries while unadjusted GAAP amounts reflect estimated timing of written agreements with or cash recoveries from insurers. GAAP financial guidance assumes a 60 day lag from period of business interruption loss to related income recognition.

Williams Partners’ preliminary damage assessment and preliminary repair plan indicates an estimated cost of $102 million to repair the plant. The partnership expects to complete the plant repairs, turnaround and expansion and resume operations by April 2014. The assumed expanded plant restart date and repair cost estimate are subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. The assumed property damage and business interruption insurance proceeds are also subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions.
       
Williams Partners L.P.
Geismar incident: Items impacting 3Q 2013 2Q 3Q 4Q 2013 Total
Amounts in millions
Estimated business interruption (BI) claim* (amounts included in WPZ DCF and Adjusted Profit) $ 0

$15

**
$ 141 $ 156
Estimated value of the 60-day waiting period for BI insurance 18 42 0 60
Estimated value of the scheduled 50-day turnaround and expansion   0   37   13   50
Geismar unusual items $ 18 $ 79 $ 13 $ 110

 

*The estimated BI insurance claim amounts are subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. Total property damage and BI insurance coverage for this incident is limited to $500 million.

**$50 million of insurance recoveries were recognized during 3Q '13 related to the Geismar incident, but WPZ DCF and Adjusted Segment Profit have been adjusted to only reflect the amounts associated with the BI claims related to 3Q.

***Distributable Cash Flow (DCF) and Adjusted Segment Profit are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are provided in this presentation.
     
Williams Partners L.P.
Geismar incident: Projected business interruption insurance proceeds and income recognition* 2013 2014 Total
Amounts in millions
Estimated business interruption (BI) proceeds (adjusted segment profit and DCF basis**) $ 156 $ 187 $ 343
Adjustment for expected timing lag in BI cash recoveries and GAAP income recognition   (126 )   126   0
Estimated BI proceeds - GAAP basis $ 30   $ 313 $ 343

*Total projected financial impact is $73 million, which is the sum of the value of the 60-day waiting period on the BI insurance, other known policy limits and $13 million of additional deductibles. It includes an estimate of property damage of $102 million and BI insurance proceeds of $343 million and assumes the company completes the plant repairs, turnaround and expansion and resumes operations by April 2014. The assumed plant restart date and repair cost estimate are subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. The assumed property damage and BI insurance proceeds are also subject to various uncertainties and risks that could cause the actual results to be materially different from these assumptions. Total property damage and BI insurance coverage for this incident is limited to $500 million.

**For Williams Partners, adjusted segment profit and distributable cash flow (DCF) are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are provided in this news release.

Capital expenditures included in guidance for the full three-year period have been increased by $375 million with decreases to 2013 and increases in 2014 and 2015. The overall capital expenditure increase was primarily driven by a $200 million increase in the cost estimate to complete the Gulfstar I Project. Williams Partners has a 51 percent share of the Gulfstar I Project and as such will bear $102 million of the capital expenditure increase with the balance funded by a partner in the project. Capital expenditures guidance revisions also include the addition of two new Transco expansion projects and various project timing shifts between years. Additionally, the revised guidance assumes Williams Partners acquires the Canadian assets by issuing Williams a class of units that do not pay cash distributions during the guidance period. However, capital expenditure guidance does not include the planned acquisition of Williams Canadian assets as the acquisition price will be determined by the negotiation between Williams and Williams Partners described above. During the guidance period it is assumed that the units issued as consideration for the assets will be “payment-in-kind” LP units that will provide Williams with additional LP units rather than cash.

The partnership’s current commodity price assumptions and the corresponding guidance for its earnings, distributable cash flow and capital expenditures are displayed in the following table:

Commodity Price Assumptions and Financial Outlook   2013   2014   2015
  Low   Mid   High   Low   Mid   High   Low   Mid   High
Commodity Price Assumptions                
Ethane ($ per gallon) $ 0.24 $ 0.26 $ 0.27 $ 0.23 $ 0.28 $ 0.33 $ 0.20 $ 0.30 $ 0.40
Propane ($ per gallon) $ 0.96 $ 0.98 $ 0.99 $ 1.00 $ 1.10 $ 1.20 $ 1.00 $ 1.15 $ 1.30
Natural Gas - Henry Hub ($/MMBtu) $ 3.55 $ 3.67 $ 3.80 $ 3.50 $ 4.00 $ 4.50 $ 3.75 $ 4.25 $ 4.75
Ethylene Spot ($ per pound) $ 0.55 $ 0.58 $ 0.60 $ 0.48 $ 0.58 $ 0.68 $ 0.50 $ 0.60 $ 0.70
Propylene Spot ($ per pound) $ 0.67 $ 0.69 $ 0.72 $ 0.55 $ 0.65 $ 0.75 $ 0.55 $ 0.65 $ 0.75
Crude Oil - WTI ($ per barrel) $ 96 $ 100 $ 104 $ 80 $ 95 $ 110 $ 80 $ 95 $ 110
 
NGL to Crude Oil Relationship (1) 32 % 32 % 31 % 36 % 35 % 33 % 35 % 36 % 36 %
 
Crack Spread ($ per pound) (2) $ 0.45 $ 0.47 $ 0.49 $ 0.38 $ 0.46 $ 0.54 $ 0.42 $ 0.47 $ 0.53
Composite Frac Spread ($ per gallon) (3) $ 0.45 $ 0.45 $ 0.46 $ 0.41 $ 0.46 $ 0.50 $ 0.37 $ 0.47 $ 0.56
 
Williams Partners Guidance                                                      
Amounts are in millions except coverage ratio. Low   Mid   High   Low   Mid   High   Low   Mid   High
DCF attributable to partnership ops. (4) (6) $ 1,710 $ 1,720 $ 1,730 $ 2,220 $ 2,350 $ 2,480 $ 2,605 $ 2,785 $ 2,965
 
Total Cash Distribution (5) $ 1,907 $ 1,909 $ 1,911 $ 2,351 $ 2,419 $ 2,487 $ 2,632 $ 2,714 $ 2,796
 
Cash Distribution Coverage Ratio (4) (6)

.90

x

.90

x

.91

x

.94

x

.97

x

1.00

x

.99

x

1.03

x

1.06

x
 
Adjusted Segment Profit (4) (6):
Northeast G&P $ 45 $ 195 $ 355
Atlantic Gulf 570 630 965
West 715 620 595
NGL & Petchem         400                   900                   915        
Total Adjusted Segment Profit $ 1,695 $ 1,730 $ 1,765 $ 2,165 $ 2,345 $ 2,525 $ 2,610 $ 2,830 $ 3,050
 
Adjusted Segment Profit + DD&A (4) (6):
Northeast G&P $ 175 $ 365 $ 565
Atlantic Gulf 945 1,060 1,460
West 950 855 830
NGL & Petchem         425                   985                   1,010        
Total Adjusted Segment Profit + DD&A $ 2,440 $ 2,495 $ 2,550 $ 3,060 $ 3,265 $ 3,470 $ 3,620 $ 3,865 $ 4,110
 
Capital Expenditures (6):
Maintenance $ 275 $ 305 $ 335 $ 305 $ 340 $ 375 $ 295 $ 325 $ 355
Growth   3,135       3,300       3,465       2,575       2,780       2,985       1,315       1,465       1,615  
Total Capital Expenditures $ 3,410 $ 3,605 $ 3,800 $ 2,880 $ 3,120 $ 3,360 $ 1,610 $ 1,790 $ 1,970

 

(1) Calculated as the price of natural gas liquids as a percentage of the price of crude oil on an equal volume basis.

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

(3) Composite frac spread is based on Henry Hub natural gas and Mont Belvieu NGLs.

(4) Distributable Cash Flow, Cash Distribution Coverage Ratio, Adjusted Segment Profit and Adjusted Segment Profit + DD&A are non-GAAP measures. Reconciliations to the most relevant measures included in GAAP are attached to this news release.

(5) The cash distributions in guidance are on an accrual basis and reflect an approximate annual growth rate in limited partner distributions of 8% to 9% for 2013 and 6% for each 2014 and 2015. Total cash distributions for 2013 are reduced by expected Williams IDR waivers.

(6) Guidance assumes the planned dropdown to Williams Partners of Williams' currently in-service Canadian assets is completed in January 2014. The planned drop-down is subject to successful negotiation of a transaction between Williams and Williams Partners. Guidance assumes Williams Partners acquires the Canadian assets by issuing Williams a class of units that do not pay cash distributions during the guidance period. However, capital expenditure guidance does not include the planned acquisition of Williams' Canadian assets as the acquisition price will be determined by the negotiation between Williams and Williams Partners.

Third-Quarter 2013 Materials to be Posted Shortly, Q&A Webcast Scheduled for Tomorrow

Williams Partners’ third-quarter 2013 financial results will be posted shortly at www.williamslp.com. The information will include the data book and analyst package.

Williams Partners and Williams will host a joint Q&A live webcast on Thursday, Oct. 31, at 9:30 a.m. EDT. A limited number of phone lines will be available at (888) 352-6798. International callers should dial (719) 325-2444. 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 and  www.williamslp.com.

Form 10-Q

The partnership plans to file its third-quarter 2013 Form 10-Q with the Securities and Exchange Commission this week. Once filed, the document will be available on both the SEC and Williams Partners websites.

Definitions of Non-GAAP Financial Measures

This press release includes certain financial measures – distributable cash flow, cash distribution coverage ratio, adjusted segment profit and adjusted segment profit + DD&A – that are non-GAAP financial measures as defined under the rules of the SEC.

For Williams Partners L.P., adjusted segment profit excludes items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted segment profit + DD&A is further adjusted to add back depreciation and amortization expense. Management believes these measures provide investors meaningful insight into Williams Partners L.P.'s results from ongoing operations.

For Williams Partners L.P. we define distributable cash flow as net income plus depreciation and amortization and cash distributions from our equity investments less our earnings from our equity investments, distributions to noncontrolling interests and maintenance capital expenditures. We also adjust for payments and/or reimbursements under omnibus agreements with Williams and certain other items.

For 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 press 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 segment profit, adjusted segment profit + DD&A 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 Partners L.P. (NYSE: WPZ)

Williams Partners L.P. is a leading diversified master limited partnership focused on natural gas transportation; gathering, treating, and processing; storage; natural gas liquid (NGL) fractionation; and oil transportation. The partnership owns interests in three major interstate natural gas pipelines that, combined, deliver 14 percent of the natural gas consumed in the United States. The partnership’s gathering and processing assets include large-scale operations in the U.S. Rocky Mountains and both onshore and offshore along the Gulf of Mexico. Williams (NYSE: WMB) owns approximately 64 percent of Williams Partners, including the general-partner interest. More information is available at www.williamslp.com, where the partnership routinely posts important information.

Williams Partners L.P. is a limited partnership formed by The Williams Companies, Inc. Our reports, filings, and other public announcements 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. You typically can identify forward-looking statements by various forms of words such as "anticipates," "believes," "seeks," "could," "may," "should," "continues," "estimates," "expects," "assumes," "forecasts," "intends," "might," "goals," "objectives," "targets," "planned," "potential," "projects," "scheduled," "will," "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:
  • 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;
  • The levels of cash distributions to unitholders;
  • Seasonality of certain business components;
  • Natural gas, natural gas liquids, and olefins prices, supply and demand;
  • 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 announcement. 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 we have sufficient cash from operations to enable us to pay current and expected levels of cash distributions, if any, following establishment of cash reserves and payment of fees and expenses, including payments to our general partner;
  • Availability of supplies, market demand and volatility of prices;
  • Inflation, interest rates and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers);
  • The strength and financial resources of our competitors and the effects of competition;
  • Ability to acquire new businesses and assets and 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 development hazards and unforeseen interruptions;
  • Costs of, changes in, or the results of laws, government regulations (including safety and environmental regulations), environmental liabilities, litigation and rate proceedings;
  • Our allocated costs for defined benefit pension plans and other postretirement benefit plans sponsored by our 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 strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings 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;
  • 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 to 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 announcement. 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.

Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business.

Investors are urged to closely consider the disclosures and risk factors in our annual report on Form 10-K filed with the SEC on February 27, 2013, and our quarterly reports on Form 10-Q available from our offices or from our website.

Reconciliation of Non-GAAP Measures(UNAUDITED)

This press release includes certain financial measures, adjusted segment profit, adjusted segment profit + DD&A, 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 Williams Partners L.P., adjusted segment profit excludes items of income or loss that we characterize as unrepresentative of our ongoing operations. Adjusted segment profit + DD&A is further adjusted to add back depreciation and amortization expense. Management believes these measures provide investors meaningful insight into Williams Partners L.P.'s results from ongoing operations.

For Williams Partners L.P., we define distributable cash flow as net income plus depreciation and amortization and cash distributions from our equity investments less our earnings from equity investments, distributions to noncontrolling interest and maintenance capital expenditures. We also adjust for payments and/or reimbursements under omnibus agreements with Williams and certain other adjustments. Total distributable cash flow is reduced by any amounts associated with operations which occurred prior to our ownership of the underlying assets to arrive at distributable cash flow attributable to partnership operations.

For Williams Partners L.P., we also calculate the ratio of distributable cash flow attributable to partnership operations 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 press 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 segment profit, adjusted segment profit + DD&A, 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.
                     
2012   2013  
(Dollars in millions, except coverage ratios) 1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Year 1st Qtr   2nd Qtr   3rd Qtr   Year
                                       
Williams Partners L.P.
Reconciliation of Non-GAAP "Distributable cash flow" to GAAP "Net income"
 
Net income $ 408 $ 243 $ 290 $ 291 $ 1,232 $ 321 $ 257 $ 280 $ 858
Depreciation and amortization 159 171 185 199 714 190 185 190 565
Non-cash amortization of debt issuance costs included in interest expense 4 3 4 3 14 3 4 4 11
Equity earnings from investments (30 ) (27 ) (30 ) (24 ) (111 ) (18 ) (35 ) (31 ) (84 )
Gain on sale of assets (6 ) (6 )
Acquisition and transition-related costs 19 4 3 26
Allocated reorganization-related costs 8 6 11 25 2 2
Impairment of certain assets 6 6
Loss related to Geismar Incident 6 4 10
Geismar Incident adjustment for insurance timing (35 ) (35 )
Contingency (gain) loss 9 9
Net reimbursements from Williams under omnibus agreements 6 1 4 5 16 4 4 2 10
Maintenance capital expenditures   (62 )     (113 )     (129 )     (103 )     (407 )   (43 )     (75 )     (79 )     (197 )
 
Distributable cash flow excluding equity investments 485 299 340 385 1,509 459 346 344 1,149
Plus: Equity investments cash distributions to Williams Partners L.P.   52       46       34       40       172     38       41       34       113  
 
Distributable cash flow 537 345 374 425 1,681 497 387 378 1,262
Less: Pre-partnership Distributable cash flow   62       52       58       20       192                        
 
Distributable cash flow attributable to partnership operations $ 475     $ 293     $ 316     $ 405     $ 1,489   $ 497     $ 387     $ 378     $ 1,262  
 
 
Total cash distributed $ 362 $ 373 $ 394 $ 442 $ 1,571 $ 473 $ 489 $ 442 $ 1,404
 
Coverage ratios:
Distributable cash flow attributable to partnership operations divided by Total cash distributed   1.31       0.79       0.80       0.92       0.95     1.05       0.79       0.86       0.90  
 
Net income divided by Total cash distributed   1.13       0.65       0.74       0.66       0.78     0.68       0.53       0.63       0.61  
   
Reconciliation of GAAP "Segment Profit" to Non-GAAP "Adjusted Segment Profit" and "Adjusted Segment Profit + DD&A"
(UNAUDITED)                  
 
2012   2013  
(Dollars in millions)   1st Qtr   2nd Qtr   3rd Qtr   4th Qtr   Year 1st Qtr   2nd Qtr   3rd Qtr   Year
                                     
Segment profit (loss):
Northeast G&P $ 4 $ (20 ) $ (4 ) $ (17 ) $ (37 ) $ (9 ) $ 12 $ (1 ) $ 2
Atlantic-Gulf 165 127 124 158 574 159 152 137 448
West 311 239 223 207 980 186 162 207 555
NGL & Petchem Services   71     45       86       93       295     120       77       62       259  
Total segment profit $ 551   $ 391     $ 429     $ 441     $ 1,812   $ 456     $ 403     $ 405     $ 1,264  
 
Adjustments:

Northeast G&P
Acquisition and transition-related costs $ $ 19 $ 4 $ 2 $ 25 $ $ $ $
Share of impairments at equity method investee 5 5
Contingency loss                                         9       9  
Total Northeast G&P adjustments 19 4 7 30 9 9

Atlantic-Gulf
Litigation settlement gain (6 ) (6 )
Gain on sale of certain assets (6 ) (6 )
Net loss (recovery) related to Eminence storage facility leak 1 1 2 (5 ) 5
Impairment of certain assets             6             6                        
Total Atlantic-Gulf adjustments 1 (6 ) 7 2 (6 ) (5 ) 5 (6 )

NGL & Petchem Services
Loss related to Geismar furnace fire 4 1 5
Loss related to Geismar incident 6 4 10
Geismar Incident adjustment for insurance timing                                         (35 )     (35 )
Total NGL & Petchem Services adjustments 4 1 5 6 (31 ) (25 )
                               
Total adjustments included in segment profit $ 1   $ 13     $ 15     $ 8     $ 37   $ (6 )   $ 1     $ (17 )   $ (22 )
 
Adjusted segment profit (loss):
Northeast G&P $ 4 $ (1 ) $ $ (10 ) $ (7 ) $ (9 ) $ 12 $ 8 $ 11
Atlantic-Gulf 166 121 131 158 576 153 147 142 442
West 311 239 223 207 980 186 162 207 555
NGL & Petchem Services   71     45       90       94       300     120       83       31       234  
Total adjusted segment profit $ 552   $ 404     $ 444     $ 449     $ 1,849   $ 450     $ 404     $ 388     $ 1,242  
 
Depreciation and amortization (DD&A):
Northeast G&P $ 5 $ 17 $ 23 $ 31 $ 76 $ 29 $ 32 $ 33 $ 94
Atlantic-Gulf 92 92 97 100 381 93 87 92 272
West 58 57 58 61 234 61 58 58 177
NGL & Petchem Services   4     5       7       7       23     7       8       7       22  
Total depreciation and amortization $ 159   $ 171     $ 185     $ 199     $ 714   $ 190     $ 185     $ 190     $ 565  
 
Adjusted segment profit (loss) + DD&A
Northeast G&P $ 9 $ 16 $ 23 $ 21 $ 69 $ 20 $ 44 $ 41 $ 105
Atlantic-Gulf 258 213 228 258 957 246 234 234 714
West 369 296 281 268 1,214 247 220 265 732
NGL & Petchem Services   75     50       97       101       323     127       91       38       256  
Total adjusted segment profit + DD&A $ 711   $ 575     $ 629     $ 648     $ 2,563   $ 640     $ 589     $ 578     $ 1,807  
     
Williams Partners L.P.
2013 Guidance 2014 Guidance 2015 Guidance
(Dollars in millions, except coverage ratios) Midpoint Midpoint Midpoint
             
Reconciliation of Non-GAAP "Distributable Cash Flow" to GAAP "Net income"
 
Net income $ 1045 $ 1,920 $ 2,085
Depreciation and amortization 765 920 1,035
Maintenance capital expenditures (305 ) (340 ) (325 )
Attributable to Noncontrolling Interests (45 ) (105 )
Non-GAAP Geismar incident adjustment for insurance timing 141 (141 )
Other / Rounding   74     36     95  
 
Distributable cash flow $ 1,720   $ 2,350   $ 2,785  
 
Total cash to be distributed $ 1,909 $ 2,419 $ 2,714
 
Coverage ratios:
 
Distributable cash flow divided by Total cash to be distributed   0.90     0.97     1.03  
 
Net income divided by Total cash to be distributed   0.55     0.79     0.77  
 
 
 
Reconciliation of Non-GAAP "Adjusted Segment Profit" and "Adjusted Segment Profit + DD&A" to GAAP "Segment Profit"
 
Segment Profit:
Northeast G&P $ 36 $ 195 $ 355
Atlantic-Gulf 574 630 965
West 715 620 595
NGL & Petchem Services   261     1064     915  
Total Segment Profit $ 1,586   $ 2,509   $ 2,830  
Adjustments:
Northeast G&P- Contingency loss $ 9 $ $
Atlantic-Gulf- Litigation settlement gain (6 )
Atlantic-Gulf- Net loss related to Eminence storage facility leak 2
West
NGL & Petchem Services- Loss related to Geismar incident 13
NGL & Petchem Services - Geismar other income (15 ) 15
NGL & Petchem Services - Geismar involuntary conversion gain (38 )
NGL & Petchem Services- Geismar incident adjustment for insurance timing   141     (141 )    
Total Adjustments $ 144     (164 ) $  
Adjusted segment profit:
Northeast G&P $ 45 $ 195 $ 355
Atlantic-Gulf 570 630 965
West 715 620 595
NGL & Petchem Services   400     900     915  
Adjusted segment profit $ 1,730   $ 2,345   $ 2,830  
Depreciation and amortization (DD&A):
Northeast G&P $ 130 $ 170 $ 210
Atlantic-Gulf 375 430 495
West 235 235 235
NGL & Petchem Services   25     85     95  
Total depreciation and amortization $ 765   $ 920   $ 1,035  
Adjusted segment profit + DD&A:
Northeast G&P $ 175 $ 365 $ 565
Atlantic-Gulf 945 1,060 1,460
West 950 855 830
NGL & Petchem Services   425     985     1010  
Total adjusted segment profit + DD&A $ 2,495   $ 3,265   $ 3,865  
   
Williams Partners L.P.
Reconciliation of GAAP "Segment Profit" to Non-GAAP "Canada Distributable Cash Flow"
(Dollars in millions) 2014 Guidance 2015 Guidance
           
Segment profit contribution $ 155 $ 147
Depreciation and amortization 42 42
General corporate costs (4 ) (4 )
Maintenance capital expenditures (3 ) (2 )
Canadian cash tax   8     12  
 
Canada distributable cash flow $ 198   $ 195  

Copyright Business Wire 2010

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