WMB’s negative operating income
In the fourth quarter of 2015, Williams Companies (WMB) reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.07 billion. However, the company’s EBITDA, including a $1.1 billion goodwill impairment charge, stood at -$298 million.
Williams Companies recorded an impairment charge on certain Williams Partners (WPZ) assets during the quarter. According to the company, it had to increase the discount rates for WPZ’s businesses based on “equity yields of comparable midstream businesses, expectations for future growth, and customer performance considerations.”
Additionally, it determined certain reductions in estimated future cash flows for some of WPZ’s businesses. These resulted in a goodwill impairment charge of $1.1 billion in 4Q15.
Expectations for 1Q16
Williams Companies observed a further significant decline in the market value of WPZ’s equity during the first quarter of 2016. If this continues or declines further, Williams Companies could likely require further impairments. According to the company, “There is the potential for significant additional noncash impairments of our investments in the future.”
Any such impairment will likely hurt Energy Transfer Equity, which is in the process of acquiring Williams Companies. WMB alone constitutes ~1.8% of the iShares Global Infrastructure ETF (IGF).
Kinder Morgan too recorded a $1.1 billion goodwill impairment charge on its nonregulated natural gas pipelines segment during 4Q15.
Comparing EBITDA growth
The above graph compares the quarterly EBITDAs of Enterprise Products Partners (EPD), Williams Companies (WMB), Energy Transfer Equity (ETE), and Kinder Morgan (KMI) over the last four years. As the graph above shows, EPD’s EBITDA showed a consistent rise over the quarters. There is much greater volatility in EBITDAs of the other companies.
Let’s analyze the debt levels of the four companies in the next part.