<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ---------------------
Commission file number 1-4174
--------------------------------------------------------
THE WILLIAMS COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 73-0569878
- --------------------------------------- ----------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
- --------------------------------------- ----------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (918) 588-2000
---------------------------------------
NO CHANGE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at October 31, 1994
- --------------------------------------- ----------------------------------------
Common Stock, $1 par value 95,969,347 Shares
<PAGE> 2
THE WILLIAMS COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income--Three Months and Nine Months
Ended September 30, 1994 and 1993 2
Consolidated Balance Sheet--September 30, 1994 and
December 31, 1993 4
Consolidated Statement of Cash Flows--Nine Months
Ended September 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Part II. Other Information 22
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 2--Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
Exhibit 11--Computation of Earnings Per Common and Common-
equivalent Share
Exhibit 12--Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
Exhibit 27--Financial Data Schedule
</TABLE>
-1-
<PAGE> 3
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
-----------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1994 1993* 1994 1993*
------ ------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
Interstate Natural Gas Pipelines:
Northwest Pipeline $ 57.0 $ 74.6 $ 179.5 $ 214.0
Williams Natural Gas 74.6 19.9 166.1 232.0
Williams Field Services Group 146.9 136.0 441.6 551.9
Liquids Pipeline/Energy Ventures:
Williams Pipe Line 52.6 53.5 152.5 128.9
Williams Energy Ventures 46.9 10.4 99.5 67.9
WilTel Communications Systems 104.7 81.2 276.1 220.4
Other 5.4 2.8 12.6 8.0
Intercompany eliminations (20.8) (7.4) (54.1) (50.1)
------ ------ -------- --------
Total revenues 467.3 371.0 1,273.8 1,373.0
------ ------ -------- --------
Profit-center costs and expenses:
Costs and operating expenses 335.4 267.1 857.9 995.1
Selling, general and administrative expenses 55.4 45.7 167.3 147.7
Other income--net (2.2) (2.7) (5.3) (8.6)
------ ------ -------- --------
Total profit-center costs and expenses 388.6 310.1 1,019.9 1,134.2
------ ------ -------- --------
Operating profit (loss):
Interstate Natural Gas Pipelines:
Northwest Pipeline 24.1 29.0 81.4 78.7
Williams Natural Gas 10.4 (7.4) 33.7 27.4
Williams Field Services Group 28.7 24.3 92.1 93.7
Liquids Pipeline/Energy Ventures:
Williams Pipe Line 12.2 15.3 40.3 37.5
Williams Energy Ventures (.8) 1.4 .2 7.7
WilTel Communications Systems 5.7 2.9 12.2 5.7
Other (1.6) (4.6) (6.0) (11.9)
------ ------ -------- --------
Total operating profit 78.7 60.9 253.9 238.8
General corporate expenses (6.0) (6.7) (21.0) (22.5)
Interest accrued (34.7) (37.6) (105.1) (114.7)
Interest capitalized 1.1 1.6 4.4 8.3
Investing income 8.0 15.5 38.8 51.7
Gain on sales of assets (Note 3) - - 22.7 97.5
Other income--net 1.5 .2 2.3 .2
------ ------ -------- --------
Income from continuing operations
before income taxes 48.6 33.9 196.0 259.3
Provision for income taxes (Note 4) 16.4 27.0 65.3 109.1
------ ------ -------- --------
Income from continuing operations 32.2 6.9 130.7 150.2
</TABLE>
*Restated as described in Note 2.
See accompanying notes.
-2-
<PAGE> 4
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1994 1993* 1994 1993*
------ ------ -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $ 32.2 $ 6.9 $ 130.7 $ 150.2
Income from discontinued operations (Note 2) 23.4 11.1 51.7 29.5
-------- -------- -------- --------
Income before extraordinary loss 55.6 18.0 182.4 179.7
Extraordinary loss (Note 5) - - (11.1) -
-------- -------- -------- --------
Net income 55.6 18.0 171.3 179.7
Preferred stock dividends 2.2 2.2 6.6 9.5
-------- -------- -------- --------
Income applicable to common stock $ 53.4 $ 15.8 $ 164.7 $ 170.2
======== ======== ======== ========
Primary earnings per common and
common-equivalent share:
Income from continuing operations $ .29 $ .04 $ 1.19 $ 1.43
Income from discontinued operations .22 .11 .49 .30
-------- -------- -------- --------
Income before extraordinary loss .51 .15 1.68 1.73
Extraordinary loss - - (.11) -
-------- -------- -------- --------
Net income $ .51 $ .15 $ 1.57 $ 1.73
======== ======== ======== ========
Average shares (thousands) 104,786 103,634 104,595 98,538
Fully diluted earnings per common and
common-equivalent share:
Income from continuing operations $ .29 $ .04 $ 1.19 $ 1.39
Income from discontinued operations .22 .11 .49 .29
-------- -------- -------- --------
Income before extraordinary loss .51 .15 1.68 1.68
Extraordinary loss - - (.11) -
-------- -------- -------- --------
Net income $ .51 $ .15 $ 1.57 $ 1.68
======== ======== ======== ========
Average shares (thousands) 104,786 103,732 104,639 102,894
Cash dividends per common share $ .21 $ .19 $ .63 $ .57
======== ======== ======== ========
</TABLE>
*Restated as described in Note 2.
See accompanying notes.
-3-
<PAGE> 5
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Millions)
------------------------------------
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 28.0 $ 64.3
Receivables 393.8 360.1
Inventories 123.8 108.2
Recoverable contract-reformation and gas costs 36.4 24.4
Net assets of discontinued operations (Note 2) 595.7 -
Deferred income taxes 43.1 40.3
Other 49.9 29.2
--------- ---------
Total current assets 1,270.7 626.5
Investments (Note 3) 372.0 437.1
Property, plant and equipment, at cost 4,215.6 5,033.1
Less accumulated depreciation and depletion (1,166.8) (1,354.5)
--------- ---------
3,048.8 3,678.6
Recoverable contract-reformation and gas costs 47.7 59.9
Other assets and deferred charges 168.1 218.3
--------- ---------
Total assets $ 4,907.3 $ 5,020.4
========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE> 6
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Millions)
------------------------------------
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable (Note 8) $ 134.5 $ -
Accounts payable 208.5 298.4
Accrued liabilities 363.3 380.3
Long-term debt due within one year (Note 7) 33.0 54.0
-------- --------
Total current liabilities 739.3 732.7
Long-term debt (Notes 5 and 7) 1,544.0 1,604.8
Deferred income taxes 649.6 625.2
Deferred income and other liabilities 226.6 333.7
Contingent liabilities and commitments (Note 9)
Stockholders' equity:
Preferred stock, $1 par value, 30,000,000 shares
authorized, 4,000,000 shares issued 100.0 100.0
Common stock, $1 par value, 240,000,000 shares
authorized, 104,346,814 shares issued in
1994 and 103,078,505 shares issued in 1993 104.3 103.1
Capital in excess of par value 989.4 959.1
Retained earnings 662.9 563.7
Unamortized deferred compensation (2.6) (1.9)
-------- --------
1,854.0 1,724.0
-------- --------
Less treasury stock, 3,442,189 shares of common stock
at cost (Note 8) (106.2) -
-------- --------
Total stockholders' equity 1,747.8 1,724.0
-------- --------
Total liabilities and stockholders' equity $4,907.3 $5,020.4
======== ========
</TABLE>
See accompanying notes.
-5-
<PAGE> 7
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
---------------------------
Nine months ended
September 30,
---------------------------
1994 1993*
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 171.3 $ 179.7
Adjustments to reconcile to cash provided from
operations:
Income from discontinued operations (51.7) (29.5)
Extraordinary loss 11.1 -
Depreciation and depletion 110.8 102.8
Provision for deferred income taxes 13.6 19.8
(Gain) loss on sales of property, plant and equipment .9 (100.9)
Gain on sale of investment (22.7) -
Changes in receivables sold - (94.7)
Changes in receivables (50.4) 154.6
Changes in inventories (8.8) 5.1
Changes in other current assets (31.7) (24.6)
Changes in accounts payable (13.2) (89.0)
Changes in accrued liabilities 16.7 (73.1)
Other, including changes in non-current assets
and liabilities 23.7 73.7
------- -------
Net cash provided by continuing operations 169.6 123.9
Net cash provided by discontinued operations 162.6 121.5
------- -------
Net cash provided by operating activities 332.2 245.4
------- -------
FINANCING ACTIVITIES:
Changes in notes payable 134.5 -
Proceeds from long-term debt 225.0 -
Payments of long-term debt:
Continuing operations (194.6) (169.1)
Discontinued operations (137.8) -
Proceeds from issuance of common stock 25.0 54.3
Purchases of treasury stock (Note 8) (106.2) -
Dividends paid (72.1) (65.6)
Other--net 14.5 (2.1)
------- -------
Net cash used by financing activities (111.7) (182.5)
------- -------
</TABLE>
*Restated as described in Note 2.
See accompanying notes.
-6-
<PAGE> 8
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
--------------------------
Nine months ended
September 30,
--------------------------
1994 1993*
------- -------
<S> <C> <C>
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures:
Continuing operations (199.6) (302.1)
Discontinued operations (93.5) (62.6)
Proceeds from sales 1.0 294.1
Changes in accounts payable and accrued liabilities 3.6 (59.8)
Acquisition of businesses (47.1) -
Proceeds from sale of investments 80.6 8.8
Other--net (1.8) (4.3)
------- -------
Net cash used by investing activities (256.8) (125.9)
------- -------
Decrease in cash and cash equivalents (36.3) (63.0)
Cash and cash equivalents at beginning of period 64.3 212.3
------- -------
Cash and cash equivalents at end of period $ 28.0 $ 149.3
======= =======
</TABLE>
*Restated as described in Note 2.
See accompanying notes.
-7-
<PAGE> 9
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
The accompanying interim consolidated financial statements of The Williams
Companies, Inc. (Williams) do not include all notes in annual financial
statements and therefore should be read in conjunction with the financial
statements and notes thereto in Williams' 1993 Annual Report Form 10-K. The
accompanying unaudited financial statements have not been audited by
independent auditors but include all adjustments which Williams considers
necessary to present fairly its financial position at September 30, 1994 and
results of operations for the three months and nine months ended September 30,
1994 and 1993, and cash flows for the nine months ended September 30, 1994 and
1993. WilTel's network services operations are presented as discontinued
operations (see Note 2). The 1993 third quarter provision for income taxes
includes the effect of a one-percent increase in the federal income tax rate
(see Note 4).
Prior to the fourth quarter of 1993 when Federal Energy Regulatory Commission
(FERC) Order 636 was adopted, operating profit of reported business units
varied substantially by quarter. While Northwest Pipeline and Williams Natural
Gas historically have experienced their greatest profitability in the first and
fourth quarters, implementation of Order 636 is moderating seasonal
fluctuations in operating profit (see Note 9).
Note 2. Discontinued operations
In the third quarter of 1994, Williams signed a definitive agreement to sell
WilTel's network services operations to LDDS Communications, Inc. (LDDS) for
$2.5 billion in cash. The sale, subject to various federal and state agency
approvals, is expected to close by year-end or early 1995 and is expected to
yield an estimated after-tax gain of at least $950 million. Under the terms of
the agreement, Williams will retain WilTel Communications Systems, Inc., a
national telecommunications equipment supplier and service company, and Vyvx,
Inc., which operates a national video network specializing in broadcast
television applications. The Consolidated Financial Statements have been
prepared to present operating results of network services as discontinued
operations, with prior period operating results and cash flows restated.
Summarized operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
(Millions)
--------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------- ----------------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues $243.6 $175.5 $657.0 $475.7
Operating profit 40.4 24.1 93.5 65.0
Provision for income taxes 15.6 8.9 34.5 21.0
Income from
discontinued operations 23.4 11.1 51.7 29.5
</TABLE>
The assets and liabilities that will be transferred to LDDS in the sale of the
network services operations are presented in the Consolidated Balance Sheet on
a net basis at September 30, 1994. The balance sheet at December 31, 1993 has
not been restated.
-8-
<PAGE> 10
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Sales of assets
In the second quarter of 1994, Williams sold 3,461,500 limited partner common
units in Northern Border Partners, L.P. Net proceeds from the sale were
approximately $80 million and the sale resulted in a pre-tax gain of $22.7
million. As a result of the sale, Williams' original 12.25 percent interest in
the Northern Border partnerships has been reduced to 3.2 percent.
In the first quarter of 1993, Williams sold its intrastate natural gas pipeline
system and other related assets in Louisiana for approximately $170 million in
cash, resulting in a pre-tax gain of $45.9 million. In addition, Williams sold
a total of 6.1 million units in the Williams Coal Seam Gas Royalty Trust. The
offering resulted in net proceeds of approximately $113 million and a pre- tax
gain of $51.6 million, including $2.1 million in the second quarter.
Note 4. Provision for income taxes
The provision (credit) for income taxes from continuing operations includes:
<TABLE>
<CAPTION>
(Millions)
---------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
----------------------- ----------------------
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal $ 6.4 $(3.7) $46.0 $ 69.0
State 1.7 (1.2) 5.7 20.3
----- ----- ----- ------
8.1 (4.9) 51.7 89.3
----- ----- ----- ------
Deferred:
Federal 16.8 28.6 12.4 21.4
State (8.5) 3.3 1.2 (1.6)
----- ----- ----- ------
8.3 31.9 13.6 19.8
----- ----- ----- ------
Total provision $16.4 $27.0 $65.3 $109.1
===== ===== ===== ======
</TABLE>
The effective income tax rate in 1994 is less than the federal statutory rate
due primarily to the effects of income tax credits from coal-seam gas
production and a favorable prior-year state income tax adjustment, partially
offset by state income taxes related to 1994.
The effective income tax rate in 1993 is greater than the federal statutory
rate as the cumulative effect of a one-percent increase in the federal income
tax rate and the effect of state income taxes are partially offset by the
effects of income tax credits from coal-seam gas production. The 1993
provision for income taxes includes the effect of a one-percent increase in the
federal income tax rate which was made retroactive to January 1, 1993. Third
quarter net income was reduced by $15 million, representing the $20 million
cumulative effect on deferred income taxes through June 30, 1993, net of $5
million in related regulatory effects included in revenues.
Cash payments for income taxes for the nine months ended September 30, 1994 and
1993 are $81 million (before refunds of $6 million) and $99 million,
respectively.
-9-
<PAGE> 11
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Extraordinary loss
The extraordinary loss results from early extinguishment of debt. Williams
paid $295 million to redeem higher interest rate debt for an $11.1 million
after-tax loss (net of $7.1 million benefit for income taxes).
Note 6. Postemployment benefits
Effective January 1, 1994, Williams adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," which
requires the accrual of benefits provided to former or inactive employees after
employment but before retirement. Adoption of the standard reduced first
quarter 1994 net income by approximately $2 million and is not reported as a
change in accounting principle due to immateriality.
Note 7. Long-term debt
Long-term debt consists of the following amounts:
<TABLE>
<CAPTION>
Weighted (Millions)
average ---------------------------------
interest September 30, December 31,
rate* 1994 1993
-------- ------------ ------------
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans 5.2% $ 225.0 $ -
Debentures, 8.875% - 10.25%,
payable 2012, 2020 and 2021 9.5 400.0 400.0
Notes, 7.5% - 13%,
payable through 2001 8.3 363.8 524.8
Capital lease obligations,
11.1%, payable through 2014 11.1 31.1 31.4
Northwest Pipeline
Debentures, 9% - 10.65%,
payable through 2022 9.6 293.0 304.3
Adjustable rate notes,
payable through 2002 9.0 13.3 15.0
Williams Natural Gas
Debentures, 10.25%,
payable in 1997 10.3 120.0 120.0
Williams Field Services Group
Other, payable through 1999 8.0 6.0 -
Williams Pipe Line
Notes, 8.95% and 9.78%,
payable through 2001 9.3 120.0 130.0
WilTel
Notes at 9.61% and 9.81% - - 127.5
Other 8.0 4.8 5.8
-------- --------
1,577.0 1,658.8
Current portion of long-term debt (33.0) (54.0)
-------- --------
$1,544.0 $1,604.8
======== ========
</TABLE>
* September 30, 1994
-10-
<PAGE> 12
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Cash payments for interest (net of amounts capitalized) for the nine months
ended September 30, 1994 and 1993 are $118 million and $124 million,
respectively.
Note 8. Treasury stock
During the third quarter of 1994, the Williams board of directors authorized
the open-market purchase of up to $800 million of Williams' common stock over
the next twelve months. At September 30, 1994, 3,442,189 shares had been
purchased at a total cost of $106.2 million. In connection with these
purchases, Williams has borrowed, through one of its subsidiaries, $92 million
under a short-term $400 million bank credit agreement.
Note 9. Contingent liabilities and commitments
Rate and Regulatory Matters and Related Litigation
In June 1990, a producer brought suit against Williams Natural Gas alleging
antitrust and interference with contract claims regarding the transportation of
gas and seeking actual, treble and punitive damages and injunctive relief.
Williams Natural Gas has denied any liability. In April 1991, Williams Natural
Gas was granted summary judgment on the antitrust claim and at the close of the
plaintiff's case, a directed verdict was granted in favor of Williams Natural
Gas on the remaining claims. The plaintiff filed an appeal on November 18,
1992.
Williams' interstate pipeline subsidiaries, including Williams Pipe Line, have
various regulatory proceedings pending. As a result of rulings in certain of
these proceedings, a portion of the revenues of these subsidiaries has been
collected subject to refund. As to Williams Pipe Line, revenues collected
subject to refund were $123 million at September 30, 1994; it is not expected
that the amount of any refunds ordered would be significant. Accordingly, no
portion of these revenues has been reserved for refund. As to the other
pipelines, $75 million of revenues has been reserved for potential refund as of
September 30, 1994.
In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These orders,
which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1,
1993, and Northwest Pipeline implemented its restructuring on November 1, 1993.
Certain aspects of each pipeline company's restructuring are under appeal.
-11-
<PAGE> 13
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Contract Reformations and Gas Purchase Deficiencies
Williams Natural Gas has undertaken the reformation of its respective gas
supply contracts to settle gas purchase deficiencies, avoid future gas purchase
deficiencies, reduce prices to market levels or make other appropriate
modifications. As of September 30, 1994, Williams Natural Gas had total
supplier take-or-pay, ratable take and minimum take claims totaling
approximately $227 million, including a producer's take-or-pay claim of $203
million plus interest and ratable take claims exceeding $23 million plus
interest which Williams Natural Gas believes were resolved on October 3, 1994,
as discussed below.
Williams Natural Gas and a producer have executed a number of definitive
agreements to resolve outstanding issues between the two companies and
restructure their relationship. Among other things, the agreements terminate
Williams Natural Gas' largest gas purchase contract and resolve a number of
disputes and litigation, including the above-described claim by the producer
for the take-or-pay deficiencies and a gas pricing dispute. With respect to
the latter dispute, Williams Natural Gas will pay the producer $35 million in
cash and is committed to pay an additional $40 million under certain
circumstances, all but a small portion of which payments Williams Natural Gas
believes it will be permitted to recover from certain of its former sales
customers. Portions of the settlement are subject to regulatory approvals,
including the regulatory abandonment of a certain Williams Natural Gas
gathering system on terms acceptable to Williams Natural Gas. Williams Natural
Gas believes that recorded accruals are adequate, in light of its expectation
that almost all of the cash payments can be recovered from its customers.
Williams Natural Gas also has commitments under gas supply contracts reflecting
prices in excess of market-based prices. The estimated commitment amounts at
December 31, 1993, attributable to these contracts were:
<TABLE>
<CAPTION>
Post
1994 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Millions)
Commitments $6 $9 $12 $15 $15 $45
</TABLE>
Northwest Pipeline's only remaining significant gas purchase contract with a
non-market responsive pricing provision has been assigned to certain customers.
Williams has an accounting policy of determining accruals taking into
consideration both historical and future gas quantities and appropriate prices
to determine an estimated total exposure. This exposure is discounted and
risk-weighted to determine the appropriate accrual. The estimated portion
recoverable from sales and transportation customers is deferred based on
Williams' estimate of its expected recovery of the amounts allowed by FERC
policy. As of September 30, 1994, Williams Natural Gas had a remaining accrual
of $49 million for take-or-pay settlements and reformation of the non-market
responsive contracts. Although Williams believes these accruals are adequate,
the actual amount paid for take-or-pay settlements and contract reformation
will depend on the outcome of various court proceedings; the provisions and
enforceability of each gas purchase contract; the success of settlement
negotiations; and other factors.
Current FERC policy associated with Orders 436 and 500 requires interstate gas
pipelines to absorb some of the cost of reforming gas supply contracts before
allowing any recovery through direct bill or surcharges to transportation as
well as sales commodity rates. Pursuant to FERC Order 500, Williams Natural
Gas has filed to recover a portion of previously incurred take-or-pay and
contract-reformation costs. As of September 30, 1994, this subsidiary had $48
million included in recoverable contract-reformation and take- or-pay
settlement costs, $41 million of which had not yet been paid and filed for
recovery with the FERC. Under Orders 636, 636-A and 636-B, costs incurred to
comply with these rules are permitted to be recovered in full, although 10
percent of such costs must be allocated to interruptible transportation
service.
-12-
<PAGE> 14
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The FERC initially approved a method for Northwest Pipeline to direct bill its
contract-reformation costs, but when challenged on appeal, sought a remand to
reassess such method. Northwest Pipeline has received an order from the FERC
that requires a different allocation of such costs which is now being
challenged by certain customers. Northwest Pipeline expects to be permitted to
recover these costs in excess of amounts previously charged to expense.
Pursuant to a stipulation and agreement approved by the FERC, Williams Natural
Gas has made a cost-sharing direct recovery filing covering amounts that had
been paid to producers and in part previously billed to Williams Natural Gas
customers under Orders 436, 500 and 528. Williams Natural Gas will make
further filings under the stipulation and agreement to recover future contract-
reformation payments under those orders and Order 636.
Other Legal Matters
Williams Natural Gas has identified polychlorinated biphenyl (PCB)
contamination in air compressor systems, disposal pits and related properties
at certain compressor station sites and has been involved in negotiations with
the U.S. Environmental Protection Agency (EPA) to develop additional screening,
detailed sampling and cleanup programs. In addition, negotiations concerning
investigative and remedial actions relative to potential mercury contamination
at certain gas metering sites have commenced with certain environmental
authorities. As of September 30, 1994, Williams Natural Gas had recorded a
liability for approximately $28 million, representing the current estimate of
future environmental cleanup costs to be incurred over the next six to 10
years. Actual costs incurred will depend on the actual number of contaminated
sites identified, the actual amount and extent of contamination discovered, the
final cleanup standards mandated by the EPA and other governmental authorities
and other factors. Williams Natural Gas deferred these costs pending recovery
as incurred through future rates and other means.
In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
costs exceed a specified amount. It appears probable that such costs will
exceed this amount. At September 30, 1994, Williams had approximately $6
million
-13-
<PAGE> 15
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
accrued for such excess costs. The actual costs incurred will depend on the
actual amount and extent of contamination discovered, the final cleanup
standards mandated by the EPA or other governmental authorities and other
factors.
A lawsuit was filed on May 14, 1993, in a state court in Colorado in which
certain claims have been made against various defendants, including Northwest
Pipeline, contending that gas exploration and development activities in
portions of the San Juan Basin have caused air, water and other contamination.
The plaintiffs in the case sought certification of a plaintiff class. On June
28, 1994, the lawsuit was dismissed for failure to join an indispensable party
over which the state court had no jurisdiction. This decision is being
appealed by the plaintiffs. Subsequently on July 14, 1994, two plaintiffs
filed an individual lawsuit against Northwest Pipeline and others in U.S.
district court in Colorado, making essentially the same claims. Northwest
Pipeline intends to vigorously defend this lawsuit.
On December 31, 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit
against Williams Production Company, a wholly owned subsidiary of Williams, and
other gas producers in the San Juan Basin area, alleging that certain coal
strata were reserved by the United States for the benefit of the Tribe and that
the extraction of coal-seam gas from the coal strata was wrongful. The Tribe
seeks compensation for the value of the coal-seam gas. The Tribe also seeks an
order transferring to the Tribe ownership of all of the defendants' equipment
and facilities utilized in the extraction of the coal-seam gas. On September
13, 1994, the Court granted summary judgment in favor of the defendants; the
Tribe has indicated it intends to appeal. Williams Production agreed to
indemnify the Williams Coal Seam Gas Royalty Trust (Trust) against any losses
that may arise in respect of certain properties subject to the lawsuit. In
addition, if the Tribe is successful in showing that Williams Production has no
rights in the coal-seam gas, Williams Production has agreed to pay to the Trust
for distribution to then-current unitholders, an amount representing a return
of a portion of the original purchase price paid for the units. While Williams
believes that such a payment is not probable, it has reserved a portion of the
proceeds from the sale of the units in the Trust.
Relative to a proposal for the acquisition of WilTel submitted to Williams by
LDDS Communications, Inc. (LDDS), contained in a letter dated May 3, 1994, and
attached as an exhibit to a report on Form 8-K filed by LDDS on that day, two
class action lawsuits were filed on May 9, 1994, in the Chancery Court of
Delaware alleging that Williams' directors breached their fiduciary duty to the
plaintiff and the members of the putative class by summarily rejecting the LDDS
proposal and by issuing false and misleading statements. On September 26,
1994, both suits were dismissed without prejudice. (See Note 2 for information
regarding the sale of WilTel's network services operations.)
On October 6, 1994, the Antitrust Division of the Department of Justice issued
a civil investigation demand to Williams Natural Gas concerning its provision
of transportation services in Kansas and Missouri. Williams Natural Gas is
preparing a response, but believes that it has not violated the antitrust laws
in the conduct of its business.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.
-14-
<PAGE> 16
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary
Williams does not believe that the ultimate resolution of the foregoing
matters, taken as a whole and after consideration of amounts accrued, insurance
coverage or other indemnification arrangements, will have a materially adverse
financial effect upon Williams in the future.
Other matters
WilTel is selling, with limited recourse, certain receivables related to the
network services operations. The aggregate limit under the facility is $80
million and $80 million of such receivables had been sold at September 30,
1994.
-15-
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Third Quarter 1994 vs. Third Quarter 1993
Northwest Pipeline's revenues decreased 24 percent due primarily to the absence
of natural gas sales following the fourth quarter 1993 implementation of
Federal Energy Regulatory Commission's (FERC) Order 636. In addition revenues
declined because of the 1993 regulatory accounting effect of an increase in
federal income tax rates. Total mainline throughput increased 6 percent.
Costs and operating expenses decreased 35 percent due primarily to the absence
of natural gas purchase volumes. Operating profit decreased 17 percent due
primarily to increased accruals related to rate issues, and the 1993 regulatory
accounting effect of an increase in federal income tax rates (the impact of
which was offset by additional deferred income tax expense). Since Northwest
Pipeline began preparing for FERC Order 636 long before it was formally
implemented on November 1, 1993, the order had little impact on the
quarter-to-quarter operating profit variance.
Williams Natural Gas' revenues and costs and operating expenses increased
significantly in the third quarter of 1994, as compared to the third quarter of
1993. The increase resulted primarily from the direct billing of purchased gas
adjustment amounts of $30 million. Operating profit of $10.4 million for the
third quarter of 1994 compares to an operating loss of $7.4 million for the
third quarter of 1993. 1993 included a $2.5 million reversal of excess
contract-reformation costs that had been previously accrued in addition to the
regulatory accounting effect of an increase in the federal income tax rate.
Operating profit increased primarily as a result of the implementation of FERC
Order 636 on October 1, 1993 and new rates required by the Order. FERC Order
636 utilizes a straight-fixed-variable rate design which is applied to each
customer's annual firm contract demand for transportation. This provides
relatively consistent earnings from quarter-to-quarter versus the historical
one-part rate which was applied to seasonal volume patterns and produced high
levels of earnings in the first and fourth quarters. See Note 9 for disclosures
regarding the favorable resolution of litigation involving Williams Natural
Gas.
Williams Field Services Group's revenues increased 8 percent due primarily to
increased natural gas sales volumes from company owned production, higher
natural gas marketing sales volumes and increased gathering and processing
volumes of 11 percent, partially offset by lower average gathering and
processing rates and natural gas sales prices. Costs and operating expenses
increased due primarily to higher operating and maintenance and depreciation
expenses at expanded gathering facilities and higher gas marketing purchase
volumes, partially offset by lower per-unit gas marketing supply costs and
reduced gas costs associated with the liquids extraction process. Operating
profit increased 18 percent due to higher gathering and processing volumes,
increased liquids margins, improved company owned gas production activities,
and higher other revenues from certain gas processing sharing arrangements
partially offset by lower average gathering and processing rates and increased
operating and depreciation expenses from expanded facilities.
Williams Pipe Line's shipments increased 13 percent due primarily to new
volumes resulting from the December 1993 acquisition of a pipeline system in
southern Oklahoma. Revenues decreased 2 percent as revenues generated by the
additional volumes were offset by lower gas liquids and fractionator revenues.
The average
-16-
<PAGE> 18
length of haul and transportation rate decreased primarily as a result of
shorter hauls and lower average rates associated with new volumes on the
southern Oklahoma system. Operating profit decreased 20 percent due primarily
to lower transportation rates and higher operating and general and
administrative expenses, partially offset by higher shipments. Results in the
third quarter of 1993 were improved as a result of delayed routine maintenance
expenditures during a period of major flooding in the midwest.
Williams Energy Ventures' revenues increased $36.5 million (350 percent) due to
newly established petroleum services activities slightly offset by lower
refined product trading activities. An operating loss of $.8 million for the
third quarter of 1994 compares to an operating profit of $1.4 million in 1993
reflecting the costs of developing numerous other long-term energy industry
investment opportunities in addition to lower results from the price-risk
management services. Price-risk management services continued to be profitable
but were lower in the third quarter of 1994 than the same period last year
because of location pricing differentials in refined product trading
activities.
WilTel Communications Systems' revenues increased 29 percent due in large part
to the March 31 acquisition of BellSouth's customer revenues and equipment
sales and service operations in 29 states as evidenced by a 41 percent increase
in number of ports. Costs and operating expenses and selling, general and
administrative expenses increased 29 percent and 19 percent, respectively, due
to the increase in volumes of equipment sales and services. Operating profit
increased 95 percent due to the higher volumes and a decrease in selling,
general and administrative expenses as a percent of revenue.
Interest accrued decreased 8 percent reflecting a lower average interest rate
due primarily to the redemption during the second quarter 1994 of higher
interest rate debt. Investing income decreased due primarily to lower Kern
River Gas Transmission Company equity earnings and lower investment levels, in
addition to the sale of a portion of Williams' interest in Northern Border
Partners, L.P.. Kern River's equity earnings include an unfavorable adjustment
to rate refund accruals related to Kern River's current rate case. The
effective income tax rate in 1994 is less than the federal statutory rate due
primarily to the effects of income tax credits from coal-seam gas production,
partially offset by state income taxes. The effective income tax rate in 1993
exceeds the federal statutory rate as the cumulative effect of a one-percent
increase in the federal income tax rate (see Note 4 for additional information)
and the effect of state income taxes are partially offset by the effects of
income tax credits from coal-seam gas production.
In the third quarter of 1994, Williams signed a definitive agreement to sell
WilTel's network services operations to LDDS Communications, Inc.. The sale is
expected to close by year-end or early 1995. The network services operations
have been presented in the Consolidated Financial Statements as discontinued
operations, with prior period operating results restated (see Note 2 for
additional information). WilTel network services' revenues increased 39
percent due to increases in switched services and private line of $58 million
and $11 million, respectively. Switched services revenues increased reflecting
an 87 percent increase in switched minutes. Private line services
interexchange revenues increased primarily as a result of a 25 percent increase
in billable circuits. Costs and operating expenses and selling, general and
administrative expenses increased primarily as a result of increased volumes.
Operating profit increased 67 percent due primarily to the higher demand for
switched services and private line circuits. These increases more than offset
a major carrier's long expected removal of traffic from WilTel's system to the
carrier's expanded
-17-
<PAGE> 19
network. The effective income tax rate for both 1994 and 1993 is greater than
the federal statutory rate due to the effect of state income taxes.
Nine Months Ended September 30, 1994 vs. Nine Months Ended September 30, 1993
Northwest Pipeline's revenues decreased 16 percent as expanded firm
transportation service was more than offset by the absence of natural gas sales
following the fourth quarter 1993 implementation of FERC Order 636. Total
mainline throughput increased 7 percent. Firm transportation service increased
due to a mainline expansion, supported by 15-year firm transportation
contracts, being placed into service on April 1, 1993. Northwest Pipeline also
placed new, increased transportation rates into effect on April 1, 1993
(subject to refund), that reflected the new mainline expansion and
straight-fixed-variable rate design that moderates seasonal swings in operating
revenues. Costs and operating expenses decreased 35 percent due primarily to
the absence of natural gas purchase volumes, slightly offset by increased
depreciation related to the mainline expansion. Operating profit increased 3
percent due primarily to expanded firm transportation service. Partially
offsetting were the absence of natural gas sales volumes in 1994, increased
accruals related to rate issues, the 1993 regulatory accounting effect of an
increase in federal income tax rates and increased depreciation.
Williams Natural Gas' revenues and costs and operating expenses decreased 28
percent and 41 percent, respectively, primarily as a result of implementation
of FERC Order 636, partially offset by the direct billing of purchased gas
adjustment amounts of $30 million and increased amortization of recoverable
contract reformation costs. Operating profit increased 23 percent, primarily
as a result of the implementation of FERC Order 636 on October 1, 1993 and new
rates required by the Order. FERC Order 636 utilizes a straight-fixed-variable
rate design which is applied to each customer's annual firm contract demand for
transportation. This provides relatively consistent earnings from
quarter-to-quarter versus the historical one-part rate which was applied to
seasonal volume patterns and produced high levels of earnings in the first and
fourth quarters. 1993 included a $2.5 million reversal of excess
contract-reformation costs that had been previously accrued in addition to the
regulatory accounting effect of an increase in the federal income tax rate. See
Note 9 for disclosures regarding the favorable resolution of litigation
involving Williams Natural Gas.
Williams Field Services Group's revenues decreased 20 percent due primarily to
30 percent lower natural gas sales volumes as a result of the March 1993 sale
of Williams' intrastate natural gas pipeline system and related marketing
operations in Louisiana. Ethane sales volumes, average natural gas sales
prices and average gathering and processing rates also decreased, somewhat
offset by increased gathering and processing volumes of 13 percent and 17
percent, respectively. Costs and operating expenses decreased due primarily to
lower natural gas purchase volumes, lower gas purchase costs associated with
the liquids extraction process and the effects of a favorable adjustment of an
accrual related to operating taxes, partially offset by higher operating and
maintenance expenses at expanded gathering facilities. Operating profit
decreased 2 percent due primarily to lower liquids per-unit margins, lower
average gathering and processing rates and higher operations and maintenance
expenses associated with expanded facilities, largely offset by higher
gathering and processing volumes and a favorable operating taxes adjustment.
Depressed gas liquids margins that prevented this company from being more
profitable in the first half of 1994 have improved.
Williams Pipe Line's shipments increased 12 percent due primarily to new
volumes
-18-
<PAGE> 20
resulting from the December 1993 acquisition of a pipeline system in southern
Oklahoma. Revenues increased 18 percent due primarily to higher shipments and
increased liquids and fractionator revenues. The slightly lower average
transportation rate resulted primarily from lower rates on shorter haul
movements on the newly acquired system, partially offset by an overall increase
in tariff rates effective June 1993. Operating profit increased 7 percent due
primarily to increased shipments, increased gas liquids and fractionator
operations and a favorable insurance settlement, largely offset by higher
operating and maintenance expenses.
Williams Energy Ventures' revenues increased $31.6 million (46 percent) due
primarily to newly established petroleum services activities, partially offset
by the effect of reporting refined product trading activities on a "net margin"
basis, effective July 1, 1993. Operating profit decreased $7.5 million
reflecting the costs of developing numerous other long-term energy industry
investment opportunities in addition to lower results from price-risk
management services, partially offset by improved petroleum services
activities. Price-risk management services continued to be profitable but were
lower in 1994 than 1993 because of location pricing differentials in refined
product trading activities.
WilTel Communications Systems' revenues increased 25 percent due in large part
to the BellSouth acquisition. Costs and operating expenses and selling,
general and administrative expenses increased 26 percent and 12 percent,
respectively, due to the increase in volume of equipment sales and services.
Operating profit increased 114 percent due to the higher volumes and a decrease
in selling, general and administrative expenses as a percent of revenue.
Interest accrued decreased 8 percent due primarily to lower borrowing levels
and a lower average interest rate reflecting the redemption during the second
quarter 1994 of higher interest rate debt. Interest capitalized decreased due
primarily to the completion of Northwest Pipeline's mainline expansion which
was placed in service April 1, 1993. Investing income decreased due primarily
to lower investment levels, lower equity earnings for Apco Argentina Inc. and a
decline in Texasgulf Inc. dividends, in addition to the sale of a portion of
Williams' interest in Northern Border Partners, L.P.. The 1994 gain on sales
of assets results from the sale of 3,461,500 limited partner common units in
Northern Border Partners, L.P. The 1993 gain on sales of assets results from
the sale of 6.1 million units in the Williams Coal Seam Gas Royalty Trust and
the sale of the intrastate natural gas pipeline system and other related assets
in Louisiana (see Note 3 for additional information). Other income--net in
1994 includes a credit for $4.8 million from the reversal of previously accrued
liabilities associated with certain Royalty Trust contingencies which expired.
Also included is approximately $4 million of expense related to Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits," which relates to postemployment benefits being paid
to employees of companies previously sold. Other income--net in 1993 includes
$6 million of expense accruals for certain costs associated with businesses
previously sold, offset with $6 million of equity AFUDC related to the
Northwest Pipeline mainline expansion. The effective income tax rate in 1994
is less than the federal statutory rate due primarily to the effects of income
tax credits from coal-seam gas production and a favorable prior year state
income tax adjustment, partially offset by state income taxes related to 1994.
The effective income tax rate in 1993 is greater than the federal statutory
rate as the cumulative effect of a one-percent increase in the federal income
tax rate (see Note 4 for additional information) and the effect of state income
taxes are partially offset by the effects of income tax credits from coal-seam
gas production.
-19-
<PAGE> 21
In the third quarter of 1994, Williams signed a definitive agreement to sell
WilTel's network services operations to LDDS Communications, Inc.. The sale is
expected to close by year-end or early 1995. The network services operations
have been presented in the Consolidated Financial Statements as discontinued
operations, with prior period operating results restated (see Note 2 for
additional information). WilTel network services' revenues increased 38
percent due to increases in switched services and private line of $157 million
and $32 million, respectively. Switched services revenues increased reflecting
a 99 percent increase in switched minutes. Private line services interexchange
revenues increased primarily as a result of a 25 percent increase in billable
circuits. Costs and operating expenses and selling, general and administrative
expenses increased primarily as a result of increased volumes. Operating
profit increased 44 percent due primarily to the higher demand for switched
services and private line circuits. These increases more than offset a major
carrier's long expected removal of traffic from WilTel's system to the
carrier's expanded network. The effective income tax rate for both 1994 and
1993 is greater than the federal statutory rate due to the effect of state
income taxes.
The extraordinary loss results from the early extinguishment of debt (see Note
5 for additional information).
Financial Condition and Liquidity
Liquidity
Williams considers its liquidity to come from two sources: internal liquidity,
consisting of available cash investments, and external liquidity, consisting of
borrowing capacity from available bank-credit facilities, which can be utilized
without limitation under existing loan covenants. At September 30, 1994,
Williams had access to $375 million of liquidity representing the unborrowed
portion of its $600 million bank-credit facility. This compares with liquidity
of $639 million at December 31, 1993, and $705 million at September 30, 1993,
including $33 million from Northwest Pipeline.
The increase in receivables is due primarily to the direct billing to customers
of certain costs by Williams Natural Gas, in addition to increased activities
of Williams Energy Ventures partially offset by the reclassification of amounts
related to discontinued operations. The decline in property, plant and
equipment, accounts payable, accrued liabilities, and deferred income and other
liabilities reflects the reclassification of the assets and liabilities of
discontinued operations to "Net assets of discontinued operations" on the
Consolidated Balance Sheet (see Note 2 for additional information).
Financing Activities
The consolidated long-term debt to long-term debt-plus-equity ratio decreased
to 46.9 percent at September 30, 1994, from 48.2 percent at December 31, 1993.
During the third quarter of 1994, Williams began the open-market purchase of
its common stock. In excess of $100 million in purchases were completed by
September 30, 1994 with up to $800 million of purchases authorized by the board
of directors. In connection with these purchases at September 30, 1994,
Williams had borrowed, through one of its subsidiaries, $92 million under a
short-term $400 million bank credit agreement. Through November 9, 1994,
10,121,489 shares have been purchased at a cost of approximately $304 million.
In addition, during the fourth quarter, Williams began the open-market purchase
of its preferred stock with 83,700 shares purchased at a cost of approximately
$2.1 million through November 9, 1994.
-20-
<PAGE> 22
During the second quarter of 1994, Williams paid $295 million to redeem higher
interest rate debt (see Note 5 for additional information). These redemptions
were financed through the use of excess cash, proceeds from the sale of the
Northern Border Partners, L.P. common units, and borrowings.
Other
In an April 1994 public offering, Williams sold 3,461,500 limited partner
common units in Northern Border Partners, L.P. Net proceeds of the offering
were approximately $80 million (see Note 3 for additional information).
In the third quarter of 1994, Williams signed a definitive agreement to sell
WilTel's network services operations to LDDS Communications, Inc. for $2.5
billion in cash. The sale, subject to various federal and state agency
approvals, is expected to close by year-end or early 1995 (see Note 2 for
additional information). Cash proceeds from the transaction net of related
costs and income taxes are estimated to be in excess of $1.6 billion, with an
after-tax gain estimated to be at least $950 million.
See Note 6 for the effect of adopting SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994.
-21-
<PAGE> 23
PART II. OTHER INFORMATION
Item 5. Other Information
Subsequent to September 30, 1994, Williams entered into agreements
with participants in the Williams Telecommunications Group, Inc.
Long-Term Equity Incentive Plan (the "Plan"), with respect to
payments due participants as a result of termination of the Plan.
Under the terms of the agreements, Williams is obligated to pay Plan
participants approximately $5 million ($4.6 million in 1994) in cash
and distribute to participants approximately 2.6 million shares of
Common Stock of Williams over various periods up to three years.
Participants may elect additional deferrals. The initial stock
distribution to participants of approximately 400,000 shares of stock
will occur in 1994. The estimated after-tax gain of approximately
$950 million from the sale of WilTel's network services operations
(see Note 2 of the Notes to Consolidated Financial Statements in this
filing) includes a provision for the payments and distributions
under the agreements.
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 2--The Stock Purchase Agreement relating to Williams'
sale of WilTel's network services operations to
LDDS Communications, Inc. (filed as part of Form
8-K filed August 26, 1994). This exhibit has
heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated
and is incorporated herein by reference.
Exhibit 11--Computation of Earnings Per Common and Common-
equivalent Share
Exhibit 12--Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
Exhibit 27--Financial Data Schedule
(b) During the third quarter of 1994, the Company filed a Form 8-K
dated August 26, 1994, reporting a significant event under Item
5 of the Form and including the exhibits required by Item 7 of
the Form.
-22-
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLIAMS COMPANIES, INC.
(Registrant)
Gary R. Belitz
Gary R. Belitz
Controller
(Duly Authorized Officer and Chief
Accounting Officer)
November 14, 1994
23
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
2 --The Stock Purchase Agreement relating to Williams'
sale of WilTel's network services operations to
LDDS Communications, Inc. (filed as part of Form
8-K filed August 26, 1994). This exhibit has
heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated
and is incorporated herein by reference.
11 --Computation of Earnings Per Common and Common-
equivalent Share
12 --Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
27 --Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 11.a
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Three months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
-----------------------
1994* 1993**
-------- -------
<S> <C> <C>
Primary earnings:
Income from continuing operations $ 32,200 $ 6,900
Preferred stock dividends:
$2.21 cumulative preferred stock 2,200 2,200
-------- --------
Income from continuing operations, net of preferred stock dividends 30,000 4,700
Income from discontinued operations 23,400 11,100
-------- --------
Income applicable to common stock $ 53,400 $ 15,800
======== ========
Primary shares:
Average number of common shares outstanding during the period 103,697 102,388
Common-equivalent shares attributable to options and deferred stock 1,089 1,246
-------- --------
Total common and common-equivalent shares 104,786 103,634
======== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ .29 $ .04
Income from discontinued operations .22 .11
-------- --------
Net income $ .51 $ .15
======== ========
Fully diluted earnings:
Income from continuing operations $ 6,900
Preferred stock dividends:
$2.21 cumulative preferred stock 2,200
--------
Income from continuing operations, net of preferred stock dividends 4,700
Income from discontinued operations 11,100
--------
Income applicable to common stock $ 15,800
========
Fully diluted shares:
Average number of common shares outstanding during the period 102,388
Common-equivalent shares attributable to options and deferred stock 1,344
--------
Total common and common-equivalent shares 103,732
========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ .04
Income from discontinued operations .11
--------
Net income $ .15
========
</TABLE>
*Primary and fully diluted earnings per share are the same in 1994.
**Restated as described in Note 2 of Notes to Consolidated Financial
Statements.
<PAGE> 2
Exhibit 11.b
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Nine months ended September 30, 1994 and 1993
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
-----------------------
1994 1993*
----------- ----------
<S> <C> <C>
Primary earnings:
Income from continuing operations $130,700 $150,200
Preferred stock dividends:
$2.21 cumulative preferred stock 6,600 6,600
$3.875 cumulative convertible exchangeable preferred stock - 2,900
-------- --------
Income from continuing operations, net of preferred stock dividends 124,100 140,700
Income from discontinued operations 51,700 29,500
-------- --------
Income before extraordinary loss, net of preferred stock dividends 175,800 170,200
Extraordinary loss (11,100) -
-------- --------
Income applicable to common stock $164,700 $170,200
======== ========
Primary shares:
Average number of common shares outstanding during the period 103,639 97,346
Common-equivalent shares attributable to options and deferred stock 956 1,192
-------- --------
Total common and common-equivalent shares 104,595 98,538
======== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ 1.19 $ 1.43
Income from discontinued operations .49 .30
-------- --------
Income before extraordinary loss 1.68 1.73
Extraordinary loss (.11) -
-------- --------
Net income $ 1.57 $ 1.73
======== ========
Fully diluted earnings:
Income from continuing operations $130,700 $150,200
Preferred stock dividends:
$2.21 cumulative preferred stock 6,600 6,600
-------- --------
Income from continuing operations, net of preferred stock dividends 124,100 143,600
Income from discontinued operations 51,700 29,500
-------- --------
Income before extraordinary loss, net of preferred stock dividends 175,800 173,100
Extraordinary loss (11,100) -
-------- --------
Income applicable to common stock $164,700 $173,100
======== ========
Fully diluted shares:
Average number of common shares outstanding during the period 103,639 97,346
Common-equivalent shares attributable to options and deferred stock 1,000 1,380
Shares attributable to conversion, assumed at January 1, 1993 to the
conversion dates, of convertible exchangeable preferred stock - 4,168
-------- --------
Total common and common-equivalent shares 104,639 102,894
======== ========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ 1.19 $ 1.39
Income from discontinued operations .49 .29
-------- --------
Income before extraordinary loss 1.68 1.68
Extraordinary loss (.11) -
-------- --------
Net income $ 1.57 $ 1.68
======== ========
</TABLE>
*Restated as described in Note 2 of Notes to Consolidated Financial Statements.
<PAGE> 1
Exhibit 12
THE WILLIAMS COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1994*
------------------
<S> <C>
Earnings:
Income from continuing operations before income taxes $196.0
Add:
Interest expense - net 100.7
Rental expense representative of interest factor 6.5
Interest accrued - 50 percent owned company 23.7
Other 1.7
------
Total earnings as adjusted plus fixed charges $328.6
======
Fixed charges and preferred stock dividend requirements:
Interest expense - net $100.7
Capitalized interest 4.4
Rental expense representative of interest factor 6.5
Pretax effect of dividends on preferred stock of
the Company 9.9
Interest accrued - 50 percent owned company 23.7
------
Combined fixed charges and preferred stock dividend
requirements $145.2
======
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements 2.26
======
</TABLE>
*Amounts presented relate to continuing operations.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 28,019
<SECURITIES> 0
<RECEIVABLES> 402,859
<ALLOWANCES> (9,078)
<INVENTORY> 123,795
<CURRENT-ASSETS> 1,270,720
<PP&E> 4,215,610
<DEPRECIATION> (1,166,800)
<TOTAL-ASSETS> 4,907,257
<CURRENT-LIABILITIES> 739,276
<BONDS> 1,544,003
<COMMON> 104,347
0
100,000
<OTHER-SE> 1,543,461
<TOTAL-LIABILITY-AND-EQUITY> 4,907,257
<SALES> 0
<TOTAL-REVENUES> 1,273,756
<CGS> 0
<TOTAL-COSTS> 1,019,838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,431
<INTEREST-EXPENSE> 105,072
<INCOME-PRETAX> 196,032
<INCOME-TAX> 65,332
<INCOME-CONTINUING> 130,700
<DISCONTINUED> 51,724
<EXTRAORDINARY> (11,147)
<CHANGES> 0
<NET-INCOME> 171,277
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
</TABLE>
