<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, 1995
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, 1995
- ----------------------------------- -----------------------------------
Common Stock, $1 par value 104,985,788 Shares
<PAGE> 2
THE WILLIAMS COMPANIES, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Income--Three Months and
Nine Months Ended September 30, 1995 and 1994 2
Consolidated Balance Sheet--September 30, 1995 and
December 31, 1994 4
Consolidated Statement of Cash Flows--Nine Months
Ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 28
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
</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,
----------------------- -------------------------
1995 1994* 1995 1994*
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Revenues:
Williams Interstate Natural
Gas Systems (Note 4) $354.3 $131.6 $1,029.8 $ 345.6
Williams Field Services Group 142.4 91.0 419.5 269.8
Williams Energy Services 18.7 65.1 65.6* 205.0
Williams Pipe Line 86.9 93.4 220.4 223.9
Williams Telecommunications Systems 120.7 104.7 364.2 276.1
Other 14.9 5.5 43.5 13.8
Intercompany eliminations (25.5) (24.0) (124.3) (60.4)
------ ------ -------- --------
Total revenues 712.4 467.3 2,018.7 1,273.8
------ ------ -------- --------
Profit-center costs and expenses:
Costs and operating expenses 438.9 335.4 1,190.1* 857.9
Selling, general and administrative expenses 119.0 55.4 354.0 167.3
Other income--net (6.9) (2.2) (8.9) (5.3)
------ ------ -------- --------
Total profit-center costs and expenses 551.0 388.6 1,535.2 1,019.9
------ ------ -------- --------
Operating profit (loss):
Williams Interstate Natural
Gas Systems (Note 4) 86.7 34.5 273.1 115.1
Williams Field Services Group 43.6 28.5 114.4 88.9
Williams Energy Services 4.4 .5 29.7 4.4
Williams Pipe Line 20.0 11.4 50.5 40.1
Williams Telecommunications Systems 7.1 5.7 21.1 12.2
Other (.4) (1.9) (5.3) (6.8)
------ ------ -------- --------
Total operating profit 161.4 78.7 483.5 253.9
General corporate expenses (7.5) (6.0) (25.6) (21.0)
Interest accrued (67.4) (34.7) (204.2) (105.1)
Interest capitalized 4.7 1.1 10.5 4.4
Investing income 13.3 8.0 81.2 38.8
Gain (loss) on sales of investments (Note 5) - - (12.6) 22.7
Other income (expense)--net .7 1.5 (13.3) 2.3
------ ------ -------- --------
Income from continuing operations
before income taxes 105.2 48.6 319.5 196.0
Provision for income taxes (Note 6) 36.7 16.4 84.5 65.3
------ ------ -------- --------
Income from continuing operations 68.5 32.2 235.0 130.7
Income from discontinued operations (Note 7) - 23.4 1,005.7 51.7
------ ------ -------- --------
Income before extraordinary loss 68.5 55.6 1,240.7 182.4
Extraordinary loss from early extinguishment
of debt (Note 8) - - - (11.1)
------ ------ -------- --------
Net income 68.5 55.6 1,240.7 171.3
Preferred stock dividends (Note 10) 7.1 2.2 12.6 6.6
------ ------ -------- --------
Income applicable to common stock $ 61.4 $ 53.4 $1,228.1 $ 164.7
====== ====== ======== ========
</TABLE>
*Reclassified or 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,
----------------------- -----------------------
1995 1994 1995 1994
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Primary earnings per common and
common-equivalent share:
Income from continuing operations $.58 $.29 $ 2.22 $1.19
Income from discontinued operations (Note 7) - .22 10.02 .49
---- ---- ------ -----
Income before extraordinary loss .58 .51 12.24 1.68
Extraordinary loss (Note 8) - - - (.11)
---- ---- ------ -----
Net income $.58 $.51 $12.24 $1.57
==== ==== ====== =====
Average shares (thousands) 105,507 104,786 100,373 104,595
Fully diluted earnings per common and
common-equivalent share:
Income from continuing operations $.58 $.29 $ 2.20 $1.19
Income from discontinued operations (Note 7) - .22 9.79 .49
---- ---- ------ -----
Income before extraordinary loss .58 .51 11.99 1.68
Extraordinary loss (Note 8) - - - (.11)
---- ---- ------ -----
Net income $.58 $.51 $11.99 $1.57
==== ==== ====== =====
Average shares (thousands) 109,587 104,786 102,730 104,639
Cash dividends per common share $.27 $.21 $.81 $.63
==== ==== ==== ====
</TABLE>
See accompanying notes.
-3-
<PAGE> 5
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
-----------------------------------
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 63.6 $ 36.1
Receivables 495.6 443.1
Transportation and exchange gas receivable 158.0 9.2
Inventories 212.8 112.3
Net assets held for sale (Notes 3 and 7) 33.9 743.6
Deferred income taxes 166.2 57.1
Other 132.2 55.4
--------- ---------
Total current assets 1,262.3 1,456.8
Investments (Note 5) 252.1 379.1
Property, plant and equipment, at cost (Note 3) 9,258.9 4,311.1
Less accumulated depreciation and depletion (1,444.2) (1,187.1)
--------- ---------
7,814.7 3,124.0
Other assets and deferred charges 769.9 266.2
--------- ---------
Total assets $10,099.0 $ 5,226.1
========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE> 6
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
--------------------------------
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable $ 39.2 $ 507.0
Accounts payable 348.8 205.8
Transportation and exchange gas payable 141.7 16.7
Accrued liabilities (Note 9) 1,222.6 361.4
Long-term debt due within one year (Note 10) 192.3 383.0
--------- --------
Total current liabilities 1,944.6 1,473.9
Long-term debt (Note 10) 2,907.9 1,307.8
Deferred income taxes 1,373.6 662.9
Deferred income and other liabilities 791.4 276.0
Contingent liabilities and commitments (Note 11)
Stockholders' equity:
Preferred stock, $1 par value, 30,000,000 shares
authorized, 3,739,452 shares issued in 1995 and
4,000,000 shares issued in 1994 (Notes 3 and 10) 173.5 100.0
Common stock, $1 par value, 240,000,000 shares
authorized, 104,958,747 shares issued in
1995 and 104,401,819 shares issued in 1994 105.0 104.4
Capital in excess of par value 1,029.4 991.0
Retained earnings 1,868.8 716.5
Unamortized deferred compensation (2.6) (1.3)
--------- --------
3,174.1 1,910.6
Less treasury stock (at cost), 2,839,714 shares of
common stock in 1995 and 13,516,994 shares of
common stock in 1994, 369,900 shares of preferred
stock in 1995 and 258,800 shares of preferred
stock in 1994 (92.6) (405.1)
--------- --------
Total stockholders' equity 3,081.5 1,505.5
--------- --------
Total liabilities and stockholders' equity $10,099.0 $5,226.1
========= ========
</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,
---------------------
1995 1994
--------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,240.7 $ 171.3
Adjustments to reconcile to cash provided from
operations:
Discontinued operations (1,005.7) (51.7)
Extraordinary loss - 11.1
Depreciation and depletion 272.8 110.8
Provision for deferred income taxes 22.7 13.6
(Gain) loss on sale of investments 12.6 (22.7)
Changes in receivables sold 32.5 -
Changes in receivables 108.2 (50.4)
Changes in inventories (19.9) (8.8)
Changes in other current assets 31.5 (31.7)
Changes in accounts payable (73.7) (13.2)
Changes in accrued liabilities 20.8 16.7
Other, including changes in non-current assets
and liabilities (90.7) 17.2*
--------- -------
Net cash provided by continuing operations 551.8 162.2
Net cash provided by discontinued operations - 152.8*
--------- -------
Net cash provided by operating activities 551.8 315.0
--------- -------
FINANCING ACTIVITIES:
Proceeds from notes payable 90.4 134.5
Payments of notes payable (558.2) -
Proceeds from long-term debt 111.9 225.0
Payments of long-term debt (823.6) (315.2)*
Proceeds from issuance of common stock 18.8 25.0
Purchases of treasury stock (2.9) (106.2)
Dividends paid (88.4) (72.1)
Subsidiary preferred stock redemptions (193.7) -
Other--net 5.4 14.5
--------- -------
Net cash used by financing activities (1,440.3) (94.5)
--------- -------
</TABLE>
*Reclassified to conform to current classification.
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,
--------------------
1995 1994
-------- -------
<S> <C> <C>
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures:
Continuing operations (597.6) (199.6)
Discontinued operations - (93.5)
Proceeds from sales 27.4 1.0
Acquisition of businesses, net of cash acquired (817.1) (47.1)
Proceeds from sales of businesses 2,572.8 -
Income tax and other payments
related to discontinued operations (317.1) (1.1)
Proceeds from sales of investments 125.1 80.6
Purchase of note receivable (75.1) -
Other--net (2.4) 2.9
-------- -------
Net cash provided (used) by investing activities 916.0 (256.8)
-------- -------
Increase (decrease) in cash and cash equivalents 27.5 (36.3)
Cash and cash equivalents at beginning of period 36.1 64.3
-------- -------
Cash and cash equivalents at end of period $ 63.6 $ 28.0
======== =======
</TABLE>
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' 1994 Annual Report Form 10-K. The
accompanying unaudited financial statements have not been audited by
independent auditors but include all adjustments both normal recurring and
others which, in the opinion of Williams' management, are necessary to present
fairly its financial position at September 30, 1995, and results of operations
for the three months and nine months ended September 30, 1995 and 1994, and
cash flows for the nine months ended September 30, 1995 and 1994. The 1995
after-tax gain from the sale of WilTel's network services operations and its
related 1994 results are presented as discontinued operations (See Note 7). On
January 18, 1995, Williams acquired 60 percent of Transco Energy Company's
(Transco) outstanding common stock and on May 1, 1995, acquired the remaining
40 percent of Transco's outstanding common stock (See Note 3).
Operating profit of operating companies may vary by quarter. Based on current
rate structures and historical maintenance schedules, Transcontinental Gas Pipe
Line's and Texas Gas Transmission's operating profits were lower in the second
and third quarters as compared to the first quarter and what is expected for
the fourth quarter.
Note 2. Basis of presentation
Revenues and operating profit amounts include the operating results of Transco
since its January 18, 1995, acquisition by Williams (See Note 3). The
transportation operations from Transco's two interstate natural gas pipelines
are reported separately within Williams Interstate Natural Gas Systems (See
Note 4). Transco's gas gathering operations are included as part of Williams
Field Services Group, and Transco's gas marketing operations are included in
Williams Energy Services.
Williams Energy Services' revenues and costs and operating expenses for the six
months ended June 30, 1995, have been reclassified to report natural gas sales
net of related gas purchase costs.
Revenues and operating profit amounts for the three months and nine months
ended September 30, 1994, have been restated to conform to current year
classifications. The previously reported operations of Williams Energy
Ventures have been divided into the following entities. The commodity
price-risk management and trading operations and energy-related information
services operations are now included in Williams Energy Services. The liquids
ventures operations are now reported as part of Williams Pipe Line and continue
with the Williams Energy Ventures name. Williams Field Services Group now
includes the natural gas venture operations. In addition, certain natural gas
marketing operations formerly reported as part of Williams Field Services Group
are included in Williams Energy Services.
-8-
<PAGE> 10
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Transco acquisition
On January 18, 1995, Williams acquired 60 percent of Transco's outstanding
common stock in a cash tender offer for $430.5 million. Williams acquired the
remaining 40 percent of Transco's outstanding common stock on May 1, 1995,
through a merger by exchanging the remaining Transco common stock for
approximately 10.4 million shares of Williams common stock valued at $334
million. The acquisition is accounted for as a purchase with 60 percent of
Transco's results of operations included in Williams' Consolidated Statement of
Income for the period January 18, 1995, through April 30, 1995, and 100 percent
included beginning May 1, 1995. The purchase price, including transaction fees
and other related costs, is approximately $800 million, excluding $2.3 billion
in preferred stock and debt obligations of Transco. The acquired assets and
liabilities have been recorded based on a preliminary allocation of the
purchase price, and substantially all of the cost in excess of Transco's
historical carrying amounts has been allocated to property, plant and
equipment. The cash portion of the acquisition was financed from the proceeds
of the WilTel network services sale (See Note 7).
Williams has sold a significant portion of Transco's coal operations, coalbed
methane properties and certain pipeline operations and intends to sell, within
one year, other Transco assets including certain gathering operations and other
assets, all of which are recorded at estimated net realizable value in net
assets held for sale. Estimated results of operations and changes in the
carrying amount of these businesses during the holding period are reflected in
the purchase price and are not material.
In connection with the acquisition, Williams made payments to retire and/or
terminate approximately $700 million of Transco borrowings, preferred stock,
interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco's $3.50 preferred stock for Williams' $3.50
preferred stock.
The following unaudited pro forma information combines the results of
operations of Williams and Transco as if the purchase of the 100 percent
occurred at the beginning of the earliest period presented.
<TABLE>
<CAPTION>
Unaudited
---------
(Millions, except per-share amounts)
------------------------------------
Nine months ended
September 30,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues $2,079.4 $2,094.0
Income from continuing operations 250.0 142.6
Income before extraordinary loss 1,255.7 194.3
Net income 1,255.7 183.2
Primary earnings per share:
Income from continuing operations 2.37 1.30
Income before extraordinary loss 12.39 1.79
Net income 12.39 1.68
Fully diluted earnings per share:
Income from continuing operations 2.35 1.30
Income before extraordinary loss 12.14 1.79
Net income 12.14 1.68
</TABLE>
-9-
<PAGE> 11
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the acquisition had been at the
beginning of each year presented or of future results of operations of the
combined companies.
Note 4. Williams Interstate Natural Gas Systems
<TABLE>
<CAPTION>
(Millions)
------------------------------------------------------------
Three months ended September 30,
Revenues Operating Profit
--------------------- -----------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Northwest Pipeline $ 75.7 $ 57.0 $ 37.3 $ 24.1
Williams Natural Gas 34.0 74.6 12.0 10.4
Transcontinental Gas
Pipe Line 188.0 - 33.9 -
Texas Gas Transmission 56.6 - 3.5 -
------ ------ ------ ------
$354.3 $131.6 $ 86.7 $ 34.5
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(Millions)
-----------------------------------------------------------
Nine months ended September 30,
Revenues Operating Profit
-------------------- -----------------------
1995 1994 1995 1994
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Northwest Pipeline $ 193.8 $179.5 $ 90.6 $ 81.4
Williams Natural Gas 113.3 166.1 29.5 33.7
Transcontinental Gas
Pipe Line 535.6 - 117.6 -
Texas Gas Transmission 187.1 - 35.4 -
-------- ------ ------ ------
$1,029.8 $345.6 $273.1 $115.1
======== ====== ====== ======
</TABLE>
Note 5. Sale of investments
In the second quarter of 1995, Williams sold its 15 percent interest in
Texasgulf Inc. for approximately $124 million in cash, which resulted in a
second quarter after-tax gain of approximately $16 million because of
previously unrecognized tax benefits included in the provision for income
taxes.
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.
-10-
<PAGE> 12
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. 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,
------------------------ -----------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal $35.4 $ 6.4 $46.3 $46.0
State 5.5 1.7 15.5 5.7
----- ----- ----- -----
40.9 8.1 61.8 51.7
Deferred:
Federal (6.2) 16.8 23.2 12.4
State 2.0 (8.5) (.5) 1.2
----- ----- ----- -----
(4.2) 8.3 22.7 13.6
----- ----- ----- -----
Total provision $36.7 $16.4 $84.5 $65.3
===== ===== ===== =====
</TABLE>
The effective income tax rate in 1995 is significantly less than the federal
statutory rate due primarily to the previously unrecognized tax benefits
related to the sale of Texasgulf Inc. (See Note 5), income tax credits from
coal-seam gas production and recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities, partially offset by the
effects of state income taxes and minority interest.
The effective income tax rate in 1994 is slightly less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production and a favorable prior-year state income tax adjustment,
substantially offset by state income taxes related to 1994.
Cash payments for income taxes for the nine months ended September 30, 1995 and
1994, are $343 million and $81 million (before refunds of $6 million in 1994),
respectively.
Note 7. Discontinued operations
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. (LDDS) for $2.5 billion in cash. The sale yielded a gain
of $1 billion (net of income taxes of approximately $724 million) which is
reported as income from discontinued operations. Prior period operating
results for WilTel's network services operations are reported as discontinued
operations. The assets and liabilities that were transferred to LDDS in the
sale of the network services operations are included in net assets held for
sale at December 31, 1994. Under the terms of the agreement, Williams retained
Williams Telecommunications Systems, Inc., a national telecommunications
equipment supplier and service company, and Vyvx, Inc., which operates a
national video network specializing in broadcast television applications.
-11-
<PAGE> 13
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Extraordinary loss
The 1994 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 9. Accrued liabilities
<TABLE>
<CAPTION>
(Millions)
--------------------------------------
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Income taxes payable $ 527.3 $ 38.0
Employee costs 129.8 51.7
Rate refunds 144.6 83.8
Interest 70.9 39.9
Taxes other than income taxes 68.8 41.8
Other 281.2 106.2
-------- ------
$1,222.6 $361.4
======== ======
</TABLE>
-12-
<PAGE> 14
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Long-term debt
Long-term debt consists of the following amounts:
<TABLE>
<CAPTION>
(Millions)
----------------------------------
Weighted average September 30, December 31,
interest rate* 1995 1994
---------------- ------------- ------------
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans 8.8 $ 35.0 $ 350.0
Debentures, 8.875% - 10.25%,
payable 2012, 2020 and 2021 9.6 511.3 379.7
Notes, 7.5% - 13%,
payable through 2001 8.9 984.0 363.8
Subordinated debentures,
9.6%, payable 2025 9.6 72.5 -
Capital lease obligations,
11.1%, payable through 2014 11.1 30.7 31.0
Northwest Pipeline
Debentures, 9% - 10.65%,
payable through 2022 9.6 284.1 293.0
Adjustable rate notes,
payable through 2002 9.0 11.7 13.3
Williams Natural Gas
Variable rate notes,
payable 1999 6.6 130.0 130.0
Transcontinental Gas Pipe Line
Debentures, 9.125%, payable
1998 through 2017 9.1 150.0 -
Notes, 8.125% - 9%,
payable 1996, 1997 and 2002 8.7 378.0 -
Adjustable rate note,
payable 2000 6.2 123.9 -
Texas Gas Transmission
Notes, 9.625% and 8.625%,
payable 1997 and 2004 9.0 252.4 -
Williams Pipe Line
Notes, 8.95% and 9.78%,
payable through 2001 9.3 110.0 120.0
Williams Energy Ventures
Adjustable rate notes,
payable 1996 through 2002 8.3 18.9 -
Other, payable through 1999 8.0 7.7 10.0
-------- --------
3,100.2 1,690.8
Current portion of long-term debt (192.3) (383.0)
-------- --------
$2,907.9 $1,307.8
======== ========
</TABLE>
*At September 30, 1995.
-13-
<PAGE> 15
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During first quarter 1995, Williams replaced its $600 million credit agreement,
which was scheduled to terminate in December 1995, with a new $800 million
agreement. Under the new credit agreement, Northwest Pipeline,
Transcontinental Gas Pipe Line, Texas Gas Transmission, Williams Pipe Line and
Williams Holdings of Delaware, Inc. have access to various amounts of the
facility while Williams (parent) has access to all unborrowed amounts. The
available amount at September 30, 1995, was $765 million. Interest rates vary
with current market conditions.
During the third quarter of 1995, Williams exchanged 2.8 million shares of its
$2.21 cumulative preferred stock with a carrying value of $69 million for 9.6
percent subordinated debentures with a fair value of $72.5 million. The
difference in the fair value of the new securities and the carrying value of
the preferred stock exchanged is recorded as a non-cash decrease in capital in
excess of par value. This amount did not impact net income, but is included in
preferred stock dividends on the income statement and in the computation of
earnings per share.
Cash payments for interest (net of amounts capitalized) for the nine months
ended September 30, 1995 and 1994, are $197 million and $118 million,
respectively.
Note 11. Contingent liabilities and commitments
Rate and regulatory matters and related litigation
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 $159 million at September 30, 1995; 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, see Note 9 for the amount of revenues reserved for potential refund
as of September 30, 1995.
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, Texas Gas and Transcontinental Gas Pipe Line
implemented their restructurings on November 1, 1993. Certain aspects of each
pipeline company's restructuring are under appeal.
Contract reformations and gas purchase deficiencies
Each of the natural gas pipeline subsidiaries 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, 1995, total pending supplier
take-or-pay, ratable take and minimum take claims for all of the pipeline
companies were not significant.
-14-
<PAGE> 16
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 a $203 million claim by the producer for
take-or-pay deficiencies and a gas pricing dispute. With respect to the latter
dispute, Williams Natural Gas paid 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. On May 2, 1995, the FERC issued orders
granting the requisite approvals; however, one party has requested rehearing of
the decision regarding abandonment of the gathering system.
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. 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.
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 and has rebilled its
customers accordingly. While certain customers continue to challenge the FERC
methodology, Northwest Pipeline does not expect the reallocation or the
challenge to result in a significant financial impact upon the company.
Pursuant to a stipulation and agreement approved by the FERC, Williams Natural
Gas has made three filings to direct bill take-or-pay and gas supply
realignment costs. The first provided for the offset of certain amounts
collected subject to refund against previous take-or-pay direct-billed amounts
and, in addition, covered $24 million in new costs. This filing was approved,
and the final direct-billed amount, taking into consideration the offset, was
$15 million. The second filing covered $18 million in additional costs, and
provided for an offset of $3 million. An intervenor has filed a protest
seeking to have the Commission review the prudence of certain of the costs
covered by the second filing. The third filing covered additional costs of $8
million which are similar in nature to the costs challenged for prudency in the
second filing. Williams Natural Gas believes that the second and third filings
will most likely be approved. As of September 30, 1995, this subsidiary had an
accrual of $41 million for its then estimated remaining contract-reformation
and gas supply realignment costs. It will make additional filings under the
applicable FERC orders to recover such further costs as may be incurred in the
future.
On September 18, 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. The settlement
provides that Texas Gas will recover 100 percent of such costs up to $50
million, will share in costs incurred between $50 million and $80 million, and
will absorb any such costs above $80 million. The settlement also extends
Texas Gas' pricing differential mechanism to November 1, 1996, and beyond that
date for contracts
-15-
<PAGE> 17
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in litigation as of that date. Through September 30, 1995, Texas Gas has paid
approximately $52 million for gas supply realignment costs, primarily as a
result of contract terminations, and has recorded a liability of approximately
$28 million for its estimated remaining gas supply realignment costs. Texas
Gas has recovered approximately $41 million in gas supply realignment costs,
and in accordance with the terms of its settlement has recorded a regulatory
asset of approximately $29 million for the estimated future recovery of such
costs, which will be collected from customers over the next two years. Ninety
percent of the cost recovery is collected through demand surcharges on Texas
Gas' firm transportation rates; the remaining 10 percent is recoverable from
interruptible transportation service.
In 1983, the FERC issued Order 94-A, which permitted producers to collect
certain production related costs from pipelines on a retroactive basis.
Pursuant to FERC orders, Texas Gas and Transcontinental Gas Pipe Line direct
billed their customers for such costs paid to producers. In 1990, the U.S.
Court of Appeals for the D.C. Circuit overturned the FERC's orders authorizing
direct billing for such costs. Through settlements and refunds, Texas Gas and
Transcontinental Gas Pipe Line have resolved their respective refund
obligations as to these costs, except, in the case of Texas Gas, for an amount
of approximately $9 million and, in the case of Transcontinental Gas Pipe
Line, for an amount of approximately $7 million. Each of these subsidiaries
has either made the required refund reserving the right to recover the amount
paid if the ruling is reversed on appeal or provided for a reserve which it
believes is adequate to provide for any costs associated with any remaining
refund obligation which it may be required to absorb.
The foregoing accruals are in accordance with Williams' accounting policies
regarding the establishment of such accruals which take into consideration
estimated total exposure, as discounted and risk-weighted, as well as costs and
other risks associated with the difference between the time costs are incurred
and the time such costs are recovered from customers. The estimated portion of
such costs recoverable from customers is deferred or recorded as a regulatory
asset based on an estimate of expected recovery of the amounts allowed by FERC
policy. While Williams believes that these accruals are adequate and the
associated regulatory assets are appropriate, costs actually incurred and
amounts actually recovered from customers will depend upon the outcome of
various court and FERC proceedings, the success of settlement negotiations and
various other factors, not all of which are presently foreseeable.
Environmental matters
Since 1989, Texas Gas and Transcontinental Gas Pipe Line have had studies
underway to test certain of their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. The costs of any such remediation will depend upon the scope of the
remediation. At September 30, 1995, these subsidiaries had reserves totaling
approximately $48 million for these costs.
Certain Williams subsidiaries, including Texas Gas and Transcontinental Gas
Pipe Line, have been named as potentially responsible parties (PRP) at various
Superfund waste disposal sites. Although no assurances can be given, Williams
-16-
<PAGE> 18
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
does not believe that the PRP status of these subsidiaries will have a material
adverse effect on its financial position, results of operations or net cash
flows.
In February 1995, Transcontinental Gas Pipe Line was served as a defendant in a
lawsuit filed in U.S. district court in Virginia by three individuals for
alleged violations of several provisions of both federal and state air and
other laws and regulations. Since 1991, Transcontinental Gas Pipe Line has
worked with the appropriate Virginia authorities pursuant to an agreement to
resolve certain emissions issues also raised by the individuals.
Transcontinental Gas Pipe Line believes the state environmental agency is in
agreement with the actions proposed by Transcontinental Gas Pipe Line which
will resolve the emission issues at its Virginia facilities. On October 13,
1995, the court dismissed the lawsuit but provided that the plaintiffs may
amend and refile their complaint to allege a state law nuisance claim.
Transcontinental Gas Pipe Line believes the amended complaint, if filed, is
without merit and is prepared to vigorously defend the suit.
Texas Gas, Transcontinental Gas Pipe Line and Williams Natural Gas each has
identified polychlorinated biphenyl (PCB) contamination in air compressor
systems, disposal pits and related properties at certain compressor station
sites. Transcontinental Gas Pipe Line has responded to an informal data
request and Texas Gas and Williams Natural Gas have also been involved in
negotiations with the U.S. Environmental Protection Agency (EPA) and state
agencies to develop screening, 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 by Williams Natural Gas, and
Transcontinental Gas Pipe Line has responded to data requests regarding such
potential contamination of certain of its sites. As of September 30, 1995,
Williams Natural Gas had recorded a liability for approximately $27 million,
representing the current estimate of future environmental cleanup costs to be
incurred over the next six to ten years. Texas Gas and Transcontinental Gas
Pipe Line likewise had recorded liabilities for these costs which are included
in the $48 million reserve mentioned above. 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. Texas Gas,
Transcontinental Gas Pipe Line and Williams Natural Gas have 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, 1995, Williams had approximately $7
million 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
-17-
<PAGE> 19
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Since June 28, 1994, seven individual lawsuits have been filed
against Northwest Pipeline in U.S. district court in Colorado, making
essentially the same claims. Northwest Pipeline is vigorously defending these
lawsuits.
Other legal matters
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 was reserved by the United States for the benefit of the Tribe and that
the extraction of coal-seam gas from the coal strata were 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 sought a certification of an interlocutory appeal from the court which
was denied. Nevertheless, the Tribe has lodged an interlocutory appeal with
the U.S. Court of Appeals for the Tenth Circuit. 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.
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 filed
a response and has been advised that the file has been closed.
In October 1990, Dakota Gasification Company (Dakota), the owner of the Great
Plains Coal Gasification Plant (Plant), filed suit in the U.S. district court
in North Dakota against Transcontinental Gas Pipe Line and three other pipeline
companies alleging that the pipeline companies had not complied with their
respective obligations under certain gas purchase and gas transportation
contracts. On September 8, 1992, Dakota and the Department of Justice on
behalf of the Department of Energy filed an amended complaint adding as
defendants in the suit, Transco, Transco Coal Gas Company and all of the other
partners in the partnership that originally constructed the Plant and each of
the parent companies of these entities. Dakota and the Department of Justice
sought declaratory and injunctive relief and the recovery of damages, alleging
that the four pipeline defendants underpaid for gas, collectively, as of June
30, 1992, by more than $232 million plus interest and for additional damages
for transportation services and costs and expenses including attorneys' fees.
On March 30, 1994, the parties executed definitive agreements which would
settle the litigation subject to final non-appealable regulatory approvals.
The settlement is also subject to a FERC ruling that Transcontinental Gas Pipe
Line's existing authority to recover in rates certain costs related to the
purchase and transportation of gas produced by Dakota will pertain to gas
purchase and
-18-
<PAGE> 20
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
transportation costs Transcontinental Gas Pipe Line will pay Dakota under the
terms of the settlement. On October 18, 1994, the FERC issued an order
consolidating Transcontinental Gas Pipe Line's petition with petitions pending
relative to two of the other three pipeline companies (the third pipeline
having entered into a settlement) and setting the matter for hearing before an
administrative law judge. The hearing commenced on June 20, and ended on July
14, 1995. In the event that the necessary regulatory approvals are not
obtained, Transcontinental Gas Pipe Line, Transco and Transco Coal Gas Company
intend to vigorously defend the suit.
In connection with agreements to resolve take-or-pay and other contract claims
and to amend gas purchase contracts, Transcontinental Gas Pipe Line and Texas
Gas have each entered into certain settlements which may require the
indemnification by Transcontinental Gas Pipe Line or Texas Gas of certain
claims for additional royalties which the producers may be required to pay as a
result of such settlements. In October 1992, the U.S. Court of Appeals for the
Fifth Circuit and the Louisiana Supreme Court, with respect to the same issue
under Louisiana law, determined that royalties are due on take-or-pay payments
under the royalty clauses of the specific mineral leases reviewed by the
courts. As a result of these and related developments, Transcontinental Gas
Pipe Line and Texas Gas have been named as defendants in, respectively, six and
two lawsuits in which damages aggregated in excess of $133 million. On July
17, 1995, a judge in a Texas state court granted a motion by Transcontinental
Gas Pipe Line for partial summary judgment, rejecting a major portion of the
plaintiff's claims in one of these lawsuits. Producers may receive other
demands which could result in additional claims against Transcontinental Gas
Pipe Line and Texas Gas pursuant to the indemnification provisions in their
respective settlements. Indemnification for royalties will depend on, among
other things, the specific lease provisions between the producer and the lessor
and the terms of the settlement between the producer and either
Transcontinental Gas Pipe Line or Texas Gas. Texas Gas may file to recover 75
percent of any such amounts it may be required to pay pursuant to indemnities
for royalties under the provisions of Order 528.
On November 14, 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazleton, Pennsylvania (the
Facility). Hazleton Fuel Management Company (HFMC), a subsidiary of Transco,
supplies natural gas and fuel oil to the Facility. As of September 30, 1995,
it had current outstanding receivables from the Partnership of approximately
$19 million, for which HFMC has established a reserve of $18 million. The
construction of the Facility was funded by several banks that have a security
interest in all of the Partnership's assets. HFMC has asserted to the
Bankruptcy Court that payment of its receivables is superior to the lien of the
banks and intends to vigorously pursue the collection of such amounts. HFMC
has also filed suit against the lead bank with respect to this and other
matters, including the alleged tortious interference with HFMC's contractual
relations with the Partnership and other parties. On March 21, 1995, the
Bankruptcy Court approved the rejection of the gas supply contract between the
Partnership and HFMC. HFMC has in turn asserted force majeure under a contract
with a producer under which HFMC purchased natural gas for the Facility.
-19-
<PAGE> 21
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.
Summary
While no assurances may be given, 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 effect upon Williams' future financial position,
results of operations and cash flow requirements.
Note 12. Subsequent event
In October 1995, a subsidiary of Williams sold 1.2 million shares of Williams
common stock, classified as treasury stock in the consolidated balance sheet,
for $46.2 million in cash.
-20-
<PAGE> 22
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Third Quarter 1995 vs. Third Quarter 1994
NORTHWEST PIPELINE'S revenues increased $18.7 million due primarily to the
reversal of a portion of certain accrued liabilities of approximately $16
million for estimated rate refunds and from increased transportation rates put
into effect in November 1994. Operating profit increased $13.2 million
primarily due to higher rates and the approximate $10 million net effect of two
reserve accrual adjustments. One was a $17 million favorable adjustment of
rate refund accruals based on recent rate case developments. Partially
offsetting this was a loss accrual (included in other income--net) in
connection with a lawsuit involving a former transportation customer. Although
total mainline throughput increased 22 percent, operating profit was not
significantly affected because of the effects of the straight-fixed-variable
rate design prescribed by the Federal Energy Regulatory Commission.
WILLIAMS NATURAL GAS' revenues and costs and operating expenses decreased $40.6
million and $44.5 million, respectively, due primarily to the absence of the
1994 direct billing of purchased gas adjustments of $30 million in addition to
the 1994 contract-reformation recovery of $5 million. Operating profit
increased $1.6 million due primarily to $4 million in higher average firm
reserved capacity and higher storage rates effective August 1, 1995, partially
offset by the absence of a 1994 regulatory adjustment of $2 million.
TRANSCONTINENTAL GAS PIPE LINE owns an interstate natural gas pipeline that
extends from the onshore and offshore Louisiana producing areas through the
Southeast and up into much of the Eastern Seaboard, including New York City.
Transcontinental Gas Pipe Line's revenues were $188 million in the third
quarter of 1995, while costs and expenses were $154.1 million and operating
profit was $33.9 million. Throughput was 327.9 TBtu's in the third quarter of
1995. Market-area deliveries increased 5 percent in 1995 compared to 1994.
Transcontinental Gas Pipe Line placed new rates into effect September 1, 1995,
subject to refund. Third quarter operating profit was reduced as compared to
other quarters by the effects of its current rate structure and historical
maintenance schedule. Operating profit is expected to rebound during the
fourth quarter.
TEXAS GAS TRANSMISSION operates an interstate natural gas pipeline system that
serves eight states in the South and Midwest. Texas Gas' revenues were $56.6
million in the third quarter of 1995, while costs and expenses were $53.1
million and operating profit was $3.5 million. Throughput was 144.7 TBtu's in
the third quarter of 1995. Texas Gas placed new, higher rates into effect
April 1, 1995, subject to refund. Responding to its customers' needs, Texas
Gas in late 1993 implemented seasonal contract demands as a component of its
FERC Order 636 rate structure. This resulted in lower operating profit during
the second and third quarters, while the first and fourth quarters are expected
to be considerably higher.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $51.4 million due primarily
to a 90 percent increase in gathering volumes, including $34 million
attributable to Transco's gathering operations and an increase of $12 million
from other gathering activities. Costs and operating expenses and selling,
general and administrative expenses increased $42 million and $7 million,
respectively, of which Transco's activities contributed $27 million and $2
million, respectively. Other income--net includes $12 million in operating
profit from the net effect
-21-
<PAGE> 23
of two unrelated items. One was $20 million of income from the favorable
resolution of contingency issues involving previously regulated gathering and
processing assets. This was partially offset by an $8 million loss accrual for
a future minimum price natural gas purchase commitment. Operating profit
increased $15.1 million primarily from the $12 million in other income-net and
an almost doubling of gathering volumes, primarily a result of the Transco
acquisition. Partially offsetting these increases were the effects of lower
natural gas prices and reduced gas liquids volumes and margins.
WILLIAMS ENERGY SERVICES' revenues and operating costs decreased $46.4 million
and $50.3 million, respectively, as the addition of Transco's gas trading
activities were more than offset by $60 million related to the reporting of all
natural gas trading activities on a net margin basis. Natural gas physical
trading volumes were 174.9 TBtu's in 1995 compared to 40 TBtu's in 1994,
primarily from the addition of Transco's gas trading operations. Operating
profit increased $3.9 million, as trading activities' operating profit
increased $10 million reflecting the addition of Transco's gas trading
activities of $4 million and a price-risk management adjustment of $3.9 million
from the initial market valuation of certain natural gas supply and sales
contracts, previously excluded from trading activities. Partially offsetting
the increases were reduced operating profit from refined products trading
activities of $4 million, increased costs of supporting information technology
and business development of $1.8 million and $1.6 million of additional costs
associated with developing information products.
WILLIAMS PIPE LINE'S revenues and costs and expenses decreased $6.5 million and
$15 million, respectively, primarily from a $23 million decline as a result of
discontinuance of certain petroleum-product services due to adverse market
conditions and a $10 million decrease in refined-product sales due to the
unavailability of certain refined-product supplies. Partially offsetting were
ethanol sales of $28 million from the August 1995 acquisition of Pekin Energy
Company and a $5 million increase in transportation revenues. A 14 percent
increase in shipments, due in part to new business development volumes, was
partially offset by a slightly shorter average haul and lower average
transportation rates. Operating profit increased $8.6 million primarily from
$7 million higher transportation and non-transportation revenues. Williams
Energy Ventures contributed approximately $1 million to operating profit during
the third quarter.
WILLIAMS TELECOMMUNICATIONS SYSTEMS' revenues increased $16 million or 15
percent due primarily to growth in new systems and existing system enhancements
sales. Revenue growth for the quarter also reflects the effects of the Jackson
Voice Data acquisition completed in October 1994. The 14 percent increase in
cost of sales of $11.4 million and the 17 percent increase in selling, general
and administrative expenses of $3.3 million primarily results from the growth
in revenues. Operating profit increased $1.4 million or 25 percent due
primarily to increased sales activity and improved product margins.
INTEREST ACCRUED increased due primarily to the $2 billion outstanding debt
assumed as a result of the Transco acquisition. Interest capitalized increased
due primarily to increased capital expenditures for gathering and processing
facilities. Investing income increased $5 million due primarily to higher Kern
River Gas Transmission Company equity earnings, including in 1994 an
unfavorable adjustment to rate refund accruals related to a rate case, combined
with interest earned on the invested portion of the cash proceeds from the sale
of WilTel's network services operations.
-22-
<PAGE> 24
The effective income tax rates in 1995 and 1994 approximate the federal
statutory rate as the effect of state income taxes is offset by income tax
credits from coal-seam gas production.
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. Prior period operating results
for WilTel's network services operations are reported as discontinued
operations (see Note 7 for additional information).
Preferred stock dividends increased $4.9 million as a result of the May 1995
issuance of 2.5 million shares of Williams $3.50 preferred stock in exchange
for Transco's $3.50 preferred stock (see Note 10 for additional information).
Nine Months Ended September 30, 1995 vs. Nine Months Ended September 30, 1994
NORTHWEST PIPELINE'S revenues increased $14.3 million due primarily to the
reversal of a portion of certain accrued liabilities reserves of approximately
$16 million associated with estimated rate refunds and increased transportation
rates put into effect in November 1994, partially offset by the completion in
1994 of billing contract-reformation surcharges. Total mainline throughput
increased 21 percent. Operating profit increased $9.2 million primarily due to
higher rates and the approximate $11 million net effect of two reserve accrual
adjustments, partially offset by $3 million of higher operations and
maintenance expenses. One of the reserve accrual adjustments was favorable and
related to recent rate case developments. Partially offsetting this was a loss
accrual (included in other income--net) in connection with a lawsuit involving
a former transportation customer.
WILLIAMS NATURAL GAS' revenues and costs and operating expenses decreased $52.8
million and $51.7 million, respectively, due primarily to the absence of the
1994 direct billing of purchased gas adjustments of $30 million in addition to
the 1994 contract-reformation recovery of $12 million. Operating profit
decreased $4.2 million due primarily to the absence of the 1994 regulatory
adjustments of $5 million, lower 1995 average firm reserved capacity of $1
million and higher general and administrative expenses of $1 million, partially
offset by $3 million higher average firm reserved capacity rates effective
August 1, 1995, and higher storage revenues.
TRANSCONTINENTAL GAS PIPE LINE'S revenues were $535.6 million in the first nine
months of 1995, while costs and expenses were $418 million and operating profit
was $117.6 million. Throughput was 968.6 TBtu's in the first nine months of
1995 (for the period subsequent to the acquisition date). Transcontinental Gas
Pipe Line put new rates into effect September 30, 1995, subject to refund.
Market-area deliveries in 1995 and 1994 were approximately the same.
TEXAS GAS TRANSMISSION'S revenues were $187.1 million in the first nine months
of 1995, while costs and expenses were $151.7 million and operating profit was
$35.4 million. Throughput was 458.5 TBtu's in the first nine months of 1995
(for the period subsequent to the acquisition date). Texas Gas placed new,
higher rates into effect April 1, 1995, subject to refund.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $149.7 million due primarily
to a 95 percent increase in gathering volumes, including $96 million
attributable to Transco's gathering operations and an increase of $25 million
from other gathering activities. Costs and operating expenses and selling,
general and administrative expenses increased $117 million and $20 million,
respectively, of
-23-
<PAGE> 25
which Transco's activities contributed $73 million and $9 million,
respectively. Other income--net includes $12 million in operating profit from
the net effect of two unrelated items. One was $20 million of income from the
favorable resolution of contingency issues involving previously regulated
gathering and processing assets. This was partially offset by an $8 million
accrual for a future minimum price natural gas purchase commitment. Operating
profit increased $25.5 million, primarily from the $12 million in other income
and an almost doubling of gathering volumes, primarily a result of Transco's
gathering activities. Partially offsetting these increases were the effects of
lower natural gas prices and lower gas liquids margins. Operating profit in
1994 was favorably affected by an adjustment to operating taxes of $4 million.
WILLIAMS ENERGY SERVICES' revenues and operating costs decreased $139.4 million
and $164.7 million, respectively. The addition of Transco's gas trading
activities is offset by $142 million related to the reporting of all natural
gas trading activities on a net margin basis. Natural gas sales volumes were
525.1 TBtu's in 1995 compared to 110.4 TBtu's in 1994, primarily from the
addition of Transco's gas trading operations. Operating profit increased $25.3
million. Trading activities' operating profit increased $36 million which
includes the first quarter 1995 income recognition of $21 million from
long-term natural gas supply contracts and the addition of Transco's gas
trading activities. Also included is a price-risk management adjustment of
$3.9 million from the initial market valuation of certain natural gas supply
and sales contracts previously excluded from trading activities. These
increases were partially offset by increased costs of supporting information
technology and business development of $4 million, additional costs associated
with developing information products of $3 million, and non-recurring costs
associated with merging Transco's marketing operations. Included in 1994
operating profit was a $2.3 million favorable contract-reformation settlement.
WILLIAMS PIPE LINE'S revenues and costs and expenses decreased $3.5 million and
$14 million, respectively, primarily from a $40 million decline as a result of
discontinuance of certain petroleum-product services due to adverse market
conditions and a $13 million decrease in refined-product sales due to the
unavailability of certain refined-product supplies. Substantially offsetting
these revenues were $28 million of revenues from the acquisition of Pekin
Energy Company in August 1995 and higher transportation and non-transportation
revenues of $8 million and $14 million, respectively. Shipments, while 7
percent higher than 1994, were reduced by the November 1994 Minneapolis rack
fire and unfavorable weather conditions in the first half of 1995. The average
transportation rate per barrel was approximately the same as 1994, while the
average length of haul was slightly shorter. Operating profit increased $10.4
million primarily from increased shipments and increased demand for
non-transportation services. Results in 1994 also benefitted from a $2.8
million insurance settlement.
WILLIAMS TELECOMMUNICATIONS SYSTEMS' revenues increased $88.1 million or 32
percent due primarily to new systems and existing system enhancements and
acquisitions of BellSouth Communications Systems on March 31, 1994, and Jackson
Voice Data completed in October 1994. The number of ports in service at
September 30, 1995, has increased 18 percent as compared to September 30, 1994.
The 33 percent increase in cost of sales of $68.7 million and the 20 percent
increase in selling, general and administrative expenses (SG&A) of $10.7
million is due primarily to increased sales activity. The increase in SG&A is
due primarily to increased revenues, although the SG&A expense to revenue
percent
-24-
<PAGE> 26
decreased due to the leveraging of the company's existing infrastructure.
Operating profit increased $8.9 million or 73 percent due primarily to the
increase in sales activity from the 1994 acquisitions.
GENERAL CORPORATE EXPENSES increased due to a $4 million contribution to The
Williams Companies Foundation. Interest accrued increased due primarily to the
$2 billion outstanding debt assumed as a result of the Transco acquisition.
Interest capitalized increased due primarily to increased expenditures for
gathering and processing facilities. Investing income increased $42 million
due primarily to interest earned on the invested portion of the cash proceeds
from the sale of WilTel's network services operations in addition to an $11
million increase in the dividend from Texasgulf Inc. The 1995 loss on sales of
investments results from the sale of the 15 percent interest in Texasgulf Inc.
(see Note 5 for additional information). The 1994 gain on sales of investments
results from the sale of 3,461,500 limited partner common units in Northern
Border Partners, L.P. Other income (expense) - net in 1995 includes
approximately $10 million of minority interest expense associated with the
Transco merger. Other income (expense) - net in 1994 includes a credit of $4.8
million from the reversal of previously accrued liabilities associated with
certain Royalty Trust contingencies which expired. Also included in 1994 is
approximately $4 million of expense related to the adoption of Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which related to postemployment benefits being paid
to employees of companies previously sold.
The effective income tax rate in 1995 is significantly less than the federal
statutory rate due primarily to the previously unrecognized tax benefits
associated with the investment in Texasgulf Inc., income tax credits from
coal-seam gas production and recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities, partially offset by the
effects of state income taxes and minority interest. The effective income tax
rate in 1994 is slightly less than the federal statutory rate due primarily to
income tax credits from coal-seam gas production and a favorable prior-year
state income tax adjustment, substantially offset by state income taxes related
to 1994.
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded an after-tax
gain of approximately $1 billion, which is reported as income from discontinued
operations. Prior period operating results for WilTel's network services
operations are reported as discontinued operations (see Note 7 for additional
information).
The 1994 extraordinary loss results from the early extinguishment of debt (see
Note 8 for additional information).
Preferred stock dividends increased $6 million as a result of the May 1995
issuance of 2.5 million shares of Williams $3.50 preferred stock in exchange
for Transco's $3.50 preferred stock (see Note 10 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, 1995,
-25-
<PAGE> 27
Williams had access to $765 million of liquidity representing the unborrowed
portion of its $800 million bank-credit facility. This compares with liquidity
of $495 million at December 31, 1994, and $375 million at September 30, 1994.
The increase in 1995 is due to a $200 million increase in the capacity of the
bank-credit facility (see Note 10 for additional information).
In 1995 capital expenditures (excluding acquisition of businesses) are
estimated to be approximately $1 billion. During 1995, Williams expects to
finance capital expenditures, investments and working-capital requirements
through the use of the remaining network services operations sale proceeds, its
$800 million bank-credit facility or public debt/equity offerings.
Financing Activities
The consolidated long-term debt to long-term debt-plus-equity ratio increased
to 48.6 percent at September 30, 1995, from 46.5 percent at December 31, 1994.
The increase is due to the assumption of Transco's outstanding debt,
substantially offset by increased equity primarily from the $1 billion
after-tax gain included in income from discontinued operations related to the
sale of WilTel's network services operations and the issuance of common and
preferred stock in the Transco merger.
Net assets held for sale at September 30, 1995, include certain Transco
businesses which Williams intends to sell within one year (see Note 3 for
additional information). Accrued liabilities increased due primarily to the
income tax and other liabilities associated with the sale of the network
services operations in addition to the acquisition of Transco. Notes payable
and long-term debt due within one year decreased reflecting the repayment of
these amounts with the proceeds from the sale of the network services
operations. The increases in receivables, inventory, other current assets,
property, plant and equipment, other noncurrent assets and deferred charges,
payables, long-term debt, deferred income taxes, and other noncurrent
liabilities and deferred credits primarily reflect the acquisition of Transco.
In addition, the increase in receivables was partially offset by a $31 million
increase in the level of receivables sold.
Other
On January 18, 1995, Williams acquired 60 percent of Transco's outstanding
common stock in a cash tender offer for $430.5 million. Williams acquired the
remaining 40 percent of Transco's outstanding common stock on May 1, 1995,
through a merger which exchanged the remaining Transco common stock for
approximately 10.4 million shares of Williams common stock. The cash portion
of the acquisition was financed from the proceeds of the WilTel network
services sale (see Note 7 for additional information). The purchase price
including transaction fees and other related costs is approximately $800
million, excluding $2.3 billion in preferred stock and debt obligations of
Transco. In connection with the acquisition, Williams made payments to retire
and/or terminate approximately $700 million in Transco borrowings, preferred
stock, interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco's outstanding $3.50 preferred stock for
Williams $3.50 preferred stock (see Note 3 for additional information).
On September 1, 1995, Williams exchanged 2.8 million shares of its $2.21
cumulative preferred stock with a carrying value of $69 million for 9.6 percent
subordinated debentures with a fair value of $72.5 million (see Note 10 for
additional information).
-26-
<PAGE> 28
Williams Field Services continues to pursue development of a commercial
underground coal-gasification venture in south-central Wyoming. Design and
construction costs of a demonstration project capitalized to date are
approximately $30 million. The future viability of this venture will be
determined after completion and analysis of development activities currently in
process.
Subsequent Events
In October 1995, a subsidiary of Williams sold 1.2 million shares of Williams
common stock, classified as treasury stock in the consolidated balance sheet,
for $46.2 million in cash.
-27-
<PAGE> 29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 11a--Computation of Earnings Per Common and Common-
Equivalent Share for the three months ended
September 30, 1995 and 1994
Exhibit 11b--Computation of Earnings Per Common and
Common-Equivalent Share for the nine months
ended September 30, 1995 and 1994
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 1995, the Company did not file
a Form 8-K.
-28-
<PAGE> 30
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 13, 1995
<PAGE> 31
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 11a--Computation of Earnings Per Common and Common-
Equivalent Share for the three months ended
September 30, 1995 and 1994
Exhibit 11b--Computation of Earnings Per Common and Common-
Equivalent Share for the nine months ended
September 30, 1995 and 1994
Exhibit 12 --Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
Exhibit 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, 1995 and 1994
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
-----------------------
1995 1994
------- --------
<S> <C> <C>
Primary earnings:
Income from continuing operations $68,500 $ 32,200
Preferred stock dividends:
$2.21 cumulative preferred stock 1,500 2,200
$3.50 cumulative convertible preferred stock 2,100 -
Effect of preferred stock exchange 3,500 -
------- --------
Income from continuing operations, net of preferred stock dividends 61,400 30,000
Income from discontinued operations - 23,400
------- --------
Income applicable to common stock $61,400 $ 53,400
======= ========
Primary shares:
Average number of common shares outstanding during the period 102,054 103,697
Common-equivalent shares attributable to options and deferred stock 3,453 1,089
------- --------
Total common and common-equivalent shares 105,507 104,786
======= ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ .58 $ .29
Income from discontinued operations - .22
----- -----
Net income $ .58 $ .51
===== =====
Fully diluted earnings:
Income from continuing operations $68,500 $ 32,200
Preferred stock dividends:
$2.21 cumulative preferred stock 1,500 2,200
Effect of preferred stock exchange 3,500 -
------- --------
Income from continuing operations, net of preferred stock dividends 63,500 30,000
Income from discontinued operations - 23,400
------- --------
Income applicable to common stock $63,500 $ 53,400
======= ========
Fully diluted shares:
Average number of common shares outstanding during the period 102,054 103,697
Common-equivalent shares attributable to options and deferred stock 3,626 1,089
Dilutive preferred shares 3,907 -
------- --------
Total common and common-equivalent shares 109,587 104,786
======= ========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ .58 $ .29
Income from discontinued operations - .22
----- -----
Net income $ .58 $ .51
===== =====
</TABLE>
<PAGE> 1
Exhibit 11.b
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Nine months ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
--------------------------
1995 1994
------------ ----------
<S> <C> <C>
Primary earnings:
Income from continuing operations $ 235,000 $130,700
Preferred stock dividends:
$2.21 cumulative preferred stock 5,500 6,600
$3.50 cumulative convertible preferred stock 3,600 -
Effect of preferred stock exchange 3,500 -
---------- --------
Income from continuing operations, net of preferred stock dividends 222,400 124,100
Income from discontinued operations 1,005,700 51,700
---------- --------
Income before extraordinary loss, net of preferred stock dividends 1,228,100 175,800
Extraordinary loss - (11,100)
---------- --------
Income applicable to common stock $1,228,100 $164,700
========== ========
Primary shares:
Average number of common shares outstanding during the period 97,144 103,639
Common-equivalent shares attributable to options and deferred stock 3,229 956
---------- --------
Total common and common-equivalent shares 100,373 104,595
========== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ 2.22 $1.19
Income from discontinued operations 10.02 .49
------ -----
Income before extraordinary loss 12.24 1.68
Extraordinary loss - (.11)
------ -----
Net income $12.24 $1.57
====== =====
Fully diluted earnings:
Income from continuing operations $ 235,000 $130,700
Preferred stock dividends:
$2.21 cumulative preferred stock 5,500 6,600
Effect of preferred stock exchange 3,500 -
---------- --------
Income from continuing operations, net of preferred stock dividends 226,000 124,100
Income from discontinued operations 1,005,700 51,700
---------- --------
Income before extraordinary loss, net of preferred stock dividends 1,231,700 175,800
Extraordinary loss - (11,100)
---------- --------
Income applicable to common stock $1,231,700 $164,700
========== ========
Fully diluted shares:
Average number of common shares outstanding during the period 97,144 103,639
Common-equivalent shares attributable to options and deferred stock 3,397 1,000
Dilutive preferred shares 2,189 -
---------- --------
Total common and common-equivalent shares 102,730 104,639
========== ========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ 2.20 $1.19
Income from discontinued operations 9.79 .49
------ -----
Income before extraordinary loss 11.99 1.68
Extraordinary loss - (.11)
------ -----
Net income $11.99 $1.57
====== =====
</TABLE>
<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 1995
------------------
<S> <C>
Earnings:
Income from continuing operations before income taxes $319.5
Add:
Interest expense - net 193.7
Rental expense representative of interest factor 15.3
Preferred dividends of subsidiaries 3.7
Interest accrued - 50 percent owned company 23.3
Minority interest expense 10.2
Other 3.6
------
Total earnings as adjusted plus fixed charges $569.3
======
Fixed charges and preferred stock dividend requirements:
Interest expense - net $193.7
Capitalized interest 10.5
Rental expense representative of interest factor 15.3
Pretax effect of dividends on preferred stock of
the Company 14.5
Pretax effect of dividends on preferred stock
of subsidiaries 5.8
Interest accrued - 50 percent owned company 23.3
------
Combined fixed charges and preferred stock dividend
requirements $263.1
======
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements 2.16
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 63,617
<SECURITIES> 0
<RECEIVABLES> 397,952
<ALLOWANCES> (11,038)
<INVENTORY> 212,820
<CURRENT-ASSETS> 1,262,309
<PP&E> 9,258,851
<DEPRECIATION> (1,444,198)
<TOTAL-ASSETS> 10,098,967
<CURRENT-LIABILITIES> 1,944,637
<BONDS> 2,877,670
<COMMON> 104,959
0
173,486
<OTHER-SE> 2,803,052
<TOTAL-LIABILITY-AND-EQUITY> 10,098,967
<SALES> 0
<TOTAL-REVENUES> 2,018,738
<CGS> 0
<TOTAL-COSTS> 1,535,228
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,540
<INTEREST-EXPENSE> 204,236
<INCOME-PRETAX> 319,529
<INCOME-TAX> 84,472
<INCOME-CONTINUING> 235,057
<DISCONTINUED> 1,005,665
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,240,722
<EPS-PRIMARY> 12.24
<EPS-DILUTED> 11.99
</TABLE>
