<PAGE> 1
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4174
THE WILLIAMS COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 73-0569878
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
</TABLE>
Registrant's telephone number:
(918) 588-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange and the
Preferred Stock Purchase Rights Pacific Stock Exchange
$2.21 Cumulative Preferred Stock, New York Stock Exchange
$1.00 par value
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates as of the close of business on February 28, 1995, was
approximately $2.6 billion.
The number of shares of the registrant's Common Stock outstanding at
February 28, 1995, was 90,986,242, excluding 964,988 shares held by the Company
and 13,383,977 shares owned by a subsidiary of the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement prepared for the solicitation
of proxies in connection with the Annual Meeting of Stockholders of the Company
for 1995 are incorporated by reference in Part III.
================================================================================
<PAGE> 2
THE WILLIAMS COMPANIES, INC.
FORM 10-K
PART I
ITEM I. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The Williams Companies, Inc. (the "Company" or "Williams") was incorporated
under the laws of the State of Nevada in 1949 and was reincorporated under the
laws of the State of Delaware in 1987. The principal executive offices of the
Company are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone
(918) 588-2000). Unless the context otherwise requires, references to the
"Company" and "Williams" herein include The Williams Companies, Inc. and its
subsidiaries.
On January 5, 1995, the Company sold the network services operations of
Williams Telecommunications Group, Inc., its telecommunications subsidiary, to
LDDS Communications, Inc. for $2.5 billion in cash, (the "WNS Sale"). The
Company retained Williams Telecommunications Systems, Inc., a telecommunications
equipment supplier and service company, and Vyvx, Inc., which operates a video
network specializing in broadcast television applications. The Company has
reported the network services operations as discontinued operations for
financial reporting purposes beginning with the third quarter of 1994 with prior
period operating results restated. See Note 2 of Notes to Consolidated Financial
Statements. The description of the Company's telecommunications business
contained elsewhere herein describes only those assets retained by the Company.
The Company used the proceeds from the WNS Sale to pay off short-term
credit facilities, fund the acquisition of Transco Energy Company ("Transco")
discussed below, finance its ongoing capital program and other uses.
On December 12, 1994, the Company announced that it had entered into a
merger agreement with Transco. Under the agreement, the Company acquired 24.6
million shares (approximately 60 percent) of Transco's common stock through a
cash tender offer completed in January 1995. The agreement also provides for a
merger (the "Transco Merger") in which Transco will become a wholly owned
subsidiary of the Company and each share of Transco's common stock not acquired
through the tender offer will be exchanged for 0.625 shares of the Company's
Common Stock. It is anticipated that a meeting of Transco's common stockholders
will be held in April 1995 to vote on the merger. Given that the Company owns
sufficient shares to approve the Transco Merger without the affirmative vote of
any other stockholders, the Transco Merger will be approved and is expected to
be completed immediately thereafter. The acquisition will be accounted for as a
purchase. The purchase price is approximately $775 million, including fees
related to the transaction but excluding assumed debt and preferred stock.
Transco owns Transcontinental Gas Pipe Line Corporation, Texas Gas
Transmission Corporation and Transco Gas Marketing Company and has investments
in other energy assets. Transcontinental Gas Pipe Line, headquartered in
Houston, Texas, owns and operates 10,500 miles of pipeline extending from the
Gulf of Mexico through the South and along the Eastern Seaboard to New York
City. Its primary customers are natural gas and electric utility companies in
the East and Northeast. Texas Gas Transmission, headquartered in Owensboro,
Kentucky, owns and operates 6,050 miles of pipeline extending from the Louisiana
Gulf Coast up the Mississippi River Valley to Indiana and Ohio. In addition to
serving markets in this area, Texas Gas Transmission also serves the Northeast
through connections with other pipelines. Transco Gas Marketing buys, sells and
arranges transportation for natural gas primarily in the eastern and midwestern
United States and Gulf Coast region, processes natural gas and sells natural gas
liquids.
It is the Company's intention to cause Transco, as promptly as practicable
after the Transco Merger and subject to receipt of any necessary consents, to
declare and pay as dividends to the Company all of Transco's interest in
Transcontinental Gas Pipe Line, Texas Gas Transmission and Transco Gas
Marketing. In addition, the Company intends to continue Transco's program of
disposing of noncore assets. The Company has also initiated a plan to
recapitalize Transco to, among other things, reduce consolidated interest and
preferred stock dividend requirements. See Note 16 of Notes to Consolidated
Financial Statements.
<PAGE> 3
Other than as set forth above, the description of the Company's business
contained in this Item 1 does not include a description of Transco's business.
For a description of such business, reference is made to filings by Transco with
the Securities and Exchange Commission.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company, through subsidiaries, is engaged in the transportation and
sale of natural gas and related activities, natural gas gathering and processing
operations, the transportation of petroleum products, the telecommunications
business and provides a variety of other products and services to the energy
industry and financial institutions. In 1994, the Company's subsidiaries owned
and operated: (i) two interstate natural gas pipeline systems and had a 50
percent interest in a third; (ii) a common carrier petroleum products pipeline
system; and (iii) natural gas gathering and processing facilities and production
properties. The Company also markets natural gas and natural gas liquids. In
1994, the Company's telecommunications subsidiaries offered data, voice and
video-related products and services and customer premises equipment nationwide.
The Company also has investments in the equity of certain other companies. See
Note 3 of Notes to Consolidated Financial Statements.
Substantially all operations of Williams are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative and other services for its subsidiaries. Williams' principal
sources of cash are from dividends and advances from its subsidiaries,
investments, payments by subsidiaries for services rendered by its staff and
interest payments from subsidiaries on cash advances. The amount of dividends
available to Williams from subsidiaries largely depends upon each subsidiary's
earnings and operating capital requirements. Certain subsidiaries' debt
instruments with outside lenders limit the amount of dividend payments and
advances to Williams. See Note 11 of Notes to Consolidated Financial Statements.
ENERGY
INTERSTATE NATURAL GAS PIPELINE GROUP
In 1994, the Company's interstate natural gas pipeline group consisted of
Northwest Pipeline Corporation and Williams Natural Gas Company, owners and
operators of interstate natural gas pipeline systems and the Company's 50
percent interest in Kern River Gas Transmission Company.
NORTHWEST PIPELINE CORPORATION (Northwest Pipeline)
Northwest Pipeline owns and operates an interstate natural gas pipeline
system, including facilities for mainline transmission and gas storage.
Northwest Pipeline's transmission and storage activities are subject to
regulation by the Federal Energy Regulatory Commission ("FERC") under the
Natural Gas Act of 1938 ("Natural Gas Act") and under the Natural Gas Policy Act
of 1978 ("NGPA"), and, as such, its rates and charges for the transportation of
natural gas in interstate commerce, the extension, enlargement or abandonment of
its jurisdictional facilities, and its accounting, among other things, are
subject to regulation.
Pipeline System and Customers
Northwest Pipeline owns and operates a pipeline system for the mainline
transmission of natural gas. The system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington. At December 31, 1994, Northwest Pipeline's system, having an
aggregate mainline deliverability
2
<PAGE> 4
of almost 2.5 Bcf* of gas per day, was composed of approximately 3,900 miles of
mainline and branch transmission pipelines, and 43 mainline compressor stations
with a combined capacity of approximately 291,000 horsepower.
Northwest Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers. In 1994, Northwest Pipeline
transported natural gas for a total of 101 customers. Northwest Pipeline
provides services for markets in California, New Mexico, Colorado, Utah, Nevada,
Wyoming, Idaho, Oregon and Washington, directly or indirectly through
interconnections with other pipelines. Transportation customers include
distribution companies, municipalities, interstate and intrastate pipelines, gas
marketers and direct industrial users. The three largest customers of Northwest
Pipeline in 1994 accounted for approximately 20.2 percent, 12.4 percent and 10.7
percent, respectively, of total operating revenues. No other customer accounted
for more than 10 percent of total operating revenues. Northwest Pipeline's firm
transportation agreements are generally long-term agreements with various
expiration dates and account for the major portion of Northwest Pipeline's
business. Additionally, Northwest Pipeline offers interruptible transportation
service under agreements that are generally short term. Northwest Pipeline's
transportation services represented 100 percent of its total throughput in 1994.
Northwest Pipeline has filed applications for FERC approval to build
additional mainline expansions totaling 164 MMcf of gas per day of increased
system capacity at an estimated cost of approximately $100 million to be in
service by the end of 1995.
As a part of its transportation services, Northwest Pipeline utilizes
underground storage facilities in Utah and Washington enabling it to balance
daily receipts and deliveries. Northwest Pipeline also owns and operates a
liquefied natural gas storage plant in Washington which provides a
needle-peaking service for the system. These storage facilities have an
aggregate delivery capacity of approximately 873 MMcf of gas per day.
Operating Statistics
The following table summarizes gas sales and transportation data for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gas Volumes (TBtu):
Gas sales.................................................... -- 18 19
Transportation............................................... 679 606 591
---- ---- ----
Total throughput..................................... 679 624 610
=== === =====
Average Daily Transportation Volumes (TBtu).................... 1.9 1.7 1.6
Average Daily Firm Reserved Capacity (TBtu).................... 2.4 -- --
</TABLE>
In 1992, FERC issued Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional sales services and to
implement various changes in forms of service. On November 1, 1993, Northwest
Pipeline implemented its restructured tariff under Order 636. Under the
restructured tariff, Northwest Pipeline's sales service terminated effective
November 1, 1993.
Regulatory Matters
Northwest Pipeline's transportation of natural gas in interstate commerce
is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Northwest Pipeline holds certificates of public convenience
- ---------------
* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet
and "Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit.
The term "MMBtu" means one million British Thermal Units and "TBtu" means one
trillion British Thermal Units.
3
<PAGE> 5
and necessity issued by FERC authorizing it to own and operate all pipelines,
facilities and properties considered jurisdictional for which certificates are
required under the Natural Gas Act.
Northwest Pipeline is subject to the Natural Gas Pipeline Safety Act of
1968, as amended by Title I of the Pipeline Safety Act of 1979, which regulates
safety requirements in the design, construction, operation and maintenance of
interstate gas transmission facilities.
Current FERC policy associated with FERC Orders 436 and 500 requires
interstate natural 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 such policy, Northwest
Pipeline has filed to recover a portion of previously incurred take-or-pay and
contract reformation costs through direct bill and surcharge mechanisms. The
FERC initially approved a method for Northwest Pipeline to collect its direct
billed costs, but when challenged on appeal, sought a remand to reassess such
method. Subsequently, Northwest Pipeline received an order from FERC requiring a
different allocation of such costs. Although reallocation will require refunds
of certain amounts, Northwest Pipeline expects to be permitted to recover
substantially all of these costs from other customers.
On July 28, 1994, Northwest Pipeline received an initial decision from an
Administrative Law Judge on a rate case filed October 1, 1992. This decision
will be reviewed further by FERC prior to issuance of a final order. Northwest
Pipeline has raised certain exceptions to the decision and believes the outcome
of the final order is not likely to have a significant effect on Northwest
Pipeline's financial position.
On November 1, 1994, Northwest Pipeline began collecting new rates, subject
to refund, under the provisions of a rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract terminated
subsequent to the rate case filed on October 1, 1992.
Competition
No other interstate natural gas pipeline company presently provides
significant service to Northwest Pipeline's primary gas consumer market area.
However, competition with other interstate carriers exists for expansion
markets. Competition also exists with alternate fuels. Electricity and
distillate fuel oil are the primary alternate energy sources in the residential
and commercial markets. In the industrial markets, high sulfur residual fuel oil
is the main alternate fuel source.
Ownership of Property
Northwest Pipeline's system is owned in fee. However, a substantial portion
of Northwest Pipeline's system is constructed and maintained pursuant to
rights-of-way, easements, permits, licenses or consents on and across properties
owned by others. The compressor stations of Northwest Pipeline, with appurtenant
facilities, are located in whole or in part upon lands owned by Northwest
Pipeline and upon sites held under leases or permits issued or approved by
public authorities. The LNG plant is located on lands owned in fee by Northwest
Pipeline. Northwest Pipeline's debt indentures restrict the sale or disposal of
a major portion of its pipeline system.
Environmental Matters
Northwest Pipeline is subject to the National Environmental Policy Act and
other Federal and state legislation regulating the environmental aspects of its
business. Management believes that Northwest Pipeline is in substantial
compliance with existing environmental requirements. Northwest Pipeline believes
that, with respect to any capital expenditures required to meet applicable
environmental standards and regulations, FERC would grant the requisite rate
relief so that, for the most part, such expenditures and a return thereon would
be permitted to be recovered. Northwest Pipeline believes that compliance with
applicable environmental requirements is not likely to have a material effect
upon its earnings or competitive position.
4
<PAGE> 6
WILLIAMS NATURAL GAS COMPANY (Williams Natural Gas)
Williams Natural Gas is an interstate natural gas transmission company
which owns and operates a natural gas pipeline system located in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. The system serves
customers in seven states, including major metropolitan areas of Kansas and
Missouri, its chief market areas.
Williams Natural Gas is subject to regulation by FERC under the Natural Gas
Act and under the NGPA, and, as such, its rates and charges for transportation
of natural gas in interstate commerce, the extension, enlargement or abandonment
of facilities, and its accounting, among other things, are subject to
regulation.
Pipeline System and Customers
At December 31, 1994, Williams Natural Gas' system, having a mainline
delivery capacity of approximately 2.2 Bcf of gas per day, was composed of
approximately 6,300 miles of mainline and branch transmission and storage
pipelines and 48 compressor stations having a sea level rated capacity totaling
approximately 259,000 horsepower.
Williams Natural Gas operates nine underground storage fields with an
aggregate working gas storage capacity of approximately 43 Bcf and an aggregate
delivery capacity of approximately 1.2 Bcf of gas per day. Williams Natural Gas'
customers inject gas in these fields when demand is low and withdraw it to
supply their peak requirements. During periods of peak demand, approximately
two-thirds of the firm gas delivered to customers is supplied from these storage
fields. Storage capacity enables the system to operate more uniformly and
efficiently during the year.
In 1994, Williams Natural Gas transported gas to customers in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. Gas was transported for
76 distribution companies and municipalities for resale to residential,
commercial and industrial users in approximately 530 cities and towns.
Transportation services were provided to approximately 350 industrial customers,
federal and state institutions and agricultural processing plants located
principally in Kansas, Missouri and Oklahoma. At December 31, 1994, Williams
Natural Gas had transportation contracts with approximately 206 shippers.
Transportation shippers included distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers.
In 1994, approximately 44 percent and 36 percent, respectively, of total
operating revenues were generated from gas transportation services to Williams
Natural Gas' two largest customers, Western Resources, Inc. and Missouri Gas
Energy Company. Western Resources sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Kansas. Missouri Gas Energy sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Missouri. No other customer accounted for more than 10 percent of
operating revenues during 1994.
Western Resources has entered into a twenty-year transportation service
agreement with Williams Natural Gas for a portion of its capacity needs. After
the initial two-year period, the contract contains a competitive out option.
Transportation services are provided to Missouri Gas Energy under contracts
primarily varying in terms from two to five years.
5
<PAGE> 7
The following table summarizes gas sales and transportation data for the
periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
Volumes (TBtu):
Resale sales................................................. -- 50 65
Direct and gas processing plant sales........................ -- 1 1
Transportation............................................... 346 344 320
----- ---- ----
Total throughout..................................... 346 395 386
===== ==== ====
Average Daily Transportation Volumes (TBtu).................... .9 .9 .9
Average Daily Firm Reserved Capacity (TBtu).................... 2.0 -- --
</TABLE>
In 1992, FERC promulgated Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional on system sales services
(except to certain small customers) before the 1993-1994 heating season and to
implement various changes in forms of service, including unbundling of
gathering, transmission and storage services; terms and conditions of service;
rate design; gas supply realignment cost recovery and other major rate and
tariff revisions. Williams Natural Gas' restructuring tariff became effective on
October 1, 1993.
Williams Natural Gas' restructured firm services are offered on a
"contract-demand" basis with the fixed costs, including return and tax
allowance, recovered through levelized monthly demand charges in accordance with
FERC specified straight fixed-variable rate design methodology. This results in
a more consistent level of operating results throughout the year, rather than
the historical operating results which were most favorable during the winter
heating season. In addition, effective October 1, 1993, Williams Natural Gas was
granted blanket authority to sell gas at negotiated prices and terms. Such sales
must take place prior to the entry of that gas into Williams Natural Gas'
transmission system. Pursuant to Order 636, Williams Natural Gas filed for
recovery of $36 million of transition costs in June 1994. This amount was direct
billed to certain former sales customers in September 1994, subject to FERC's
final approval. Williams Natural Gas expects to recover these costs which were
associated with its previous gas sales functions.
As part of Williams Natural Gas' restructuring, certain gathering and
processing assets have been or will be transferred to third parties including
subsidiaries of Williams Field Services Group, Inc., as discussed elsewhere
herein. Applications for orders permitting and approving abandonment of certain
natural gas facilities have been filed with FERC and final approval has been
granted by FERC on two of these filings. Preliminary approval on all other
systems, with the exception of the Kansas-Hugoton area, was granted by FERC in
December 1994, with final approval conditioned on negotiated or default
contracts for each gathering customer and a tariff filing by Williams Natural
Gas requesting termination of the gathering service. As discussed below, the
abandonment of the Kansas-Hugoton area was filed in October 1994, as part of the
producer settlement agreement.
Williams Natural Gas' total estimated proved developed gas reserves under
contract as of December 31, 1994, were 195 Bcf. Except for new wells drilled on
previously dedicated acreage under existing gas purchase contracts, virtually no
new dedicated gas supplies have been connected since 1982.
Williams Natural Gas' total estimated contracted gas reserves, in Bcf, were
195, 1,805 and 2,088 at December 31, 1994, 1993 and 1992, respectively. In 1994,
approximately 1,375 Bcf of contracted gas reserves were terminated under the
terms of the producer settlement agreement discussed below.
At December 31, 1994, Williams Natural Gas' remaining contracted reserves
were primarily attributable to approximately 97 gas purchase contracts with
independent producers. The independent producers' supplies are located in
Colorado, Kansas, Oklahoma, the Texas Panhandle and Wyoming.
Regulatory Matters
The transportation of natural gas by Williams Natural Gas in interstate
commerce is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Williams Natural Gas holds certificates of public
6
<PAGE> 8
convenience and necessity issued by FERC authorizing it to own and operate all
pipelines, facilities and properties now in operation for which certificates are
required under the Natural Gas Act.
Williams Natural Gas is also subject to the Natural Gas Pipeline Safety Act
of 1968, as amended, which regulates safety requirements in the design,
construction, operation and maintenance of interstate gas transmission and
storage facilities.
Williams Natural Gas has been involved in the reformation of its gas
purchase contracts in order to obtain releases from future gas purchase
obligations and to provide market-responsive terms in its remaining gas supply
contracts. Through December 31, 1994, Williams Natural Gas has paid
approximately $96.2 million to producers for contract reformations and
take-or-pay settlements and has accrued on its balance sheet an additional $47.2
million for future settlement costs. Although Williams Natural Gas believes the
accrual to be adequate, the amounts ultimately paid 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. As
of December 31, 1994, Williams Natural Gas had an asset recorded on its balance
sheet for $40 million in recoverable contract reformation and take-or-pay costs.
This amount has not yet been paid nor has a filing for recovery of such costs
been made. See Note 15 of Notes to Consolidated Financial Statements.
On January 1, 1993, all federal price controls on wellhead sales of natural
gas were removed by the Natural Gas Wellhead Price Decontrol Act of 1989.
However, some contracts require Williams Natural Gas to continue to pay prices
based upon prior regulation. Other contracts revert to contractually specified
pricing mechanisms or to market-based pricing.
All remaining nonmarket responsive contracts will be reformed where
possible and the associated costs included in a transmission cost recovery
mechanism filing. Williams Natural Gas has filed an uncontested stipulation and
agreement which has been approved by FERC. This settlement resolved two rate
cases and established the cost sharing responsibility up to $50 million between
Williams Natural Gas and its customers for contract reformation costs filed by
Williams Natural Gas and its former pipeline suppliers under Orders 500 and 528
as well as Order 636 gas supply realignment costs.
Under the terms of the settlement, Williams Natural Gas absorbed 25 percent
of costs incurred prior to July 31, 1992, and filed for under Orders 500 and
528. After such date, any additional gas supply realignment costs that may be
incurred by Williams Natural Gas will be absorbed on a sliding scale from 9.5
percent of total costs up to $20 million to 22 percent if total costs do not
exceed $50 million. Williams Natural Gas will not absorb any costs incurred by
its former pipeline suppliers. Williams Natural Gas cannot predict the outcome
of its contract realignment efforts. It is likely that the $50 million amount
will be exceeded. While the settlement does not preclude Williams Natural Gas
from recovery of costs in excess of $50 million, the agreed sliding scale
sharing arrangement would not apply. Williams Natural Gas' restructured tariff
also allows recovery of above-market gas costs incurred under contracts not
reformed, subject to the same allocations and some additional restrictions.
Pursuant to the foregoing, Williams Natural Gas has made two filings to
direct bill take-or-pay and gas supply realignment costs recoverable under
Orders 436, 500 and 528. 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. One party has challenged the prudency of
Williams Natural Gas' settlements and has requested FERC to schedule a prudency
hearing. Williams Natural Gas will make additional filings in the future under
the stipulation and agreement to recover such further contract reformation costs
as may be incurred.
In October 1994, Williams Natural Gas and a producer executed a number of
definitive agreements to resolve outstanding issues between the two companies
and restructure their relationship. The agreements terminate Williams Natural
Gas' largest gas purchase contract and resolve a number of disputes, including
claims by the producer for take-or-pay deficiencies and a gas pricing dispute.
With respect to the gas pricing 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 Williams Natural Gas
believes it will
7
<PAGE> 9
be permitted to recover from certain of its former sales customers. As part of
the settlement agreements, Williams Natural Gas filed for the abandonment of the
Kansas-Hugoton gathering assets. Upon abandonment approval, the gathering assets
will be owned by an affiliate of Williams Natural Gas and will be operated by
the producer. The only portions of the settlement subject to regulatory
approvals are the settlement payment for the gas pricing dispute and the
regulatory abandonment of the Kansas-Hugoton gathering facilities on terms
acceptable to Williams Natural Gas. See Note 15 of Notes to Consolidated
Financial Statements.
Competition
Williams Natural Gas competes with both interstate and intrastate pipelines
and, to a more limited extent, marketers of natural gas, customers who reassign
firm transportation capacity and alternate energy forms in all significant
markets. Electricity and distillate fuel oil are the primary competitive forms
of energy for residential and commercial markets. Coal and residual fuel oil
compete for industrial and electric-generating markets. Some nuclear power and
power purchased from "grid" arrangements among electric utilities also compete
with gas-fired power generation in the markets served by Williams Natural Gas.
Effective October 1, 1993, when Williams Natural Gas' restructured tariff became
effective under Order 636, all suppliers of natural gas were able to compete for
any gas markets capable of being served by Williams Natural Gas' system, using
nondiscriminatory transportation services provided by Williams Natural Gas.
Effective October 1, 1993, Williams Natural Gas also received blanket sales
authority, enabling it to sell gas prior to the entry of that gas into its
transmission system at individually negotiated prices and terms in the same
manner as other natural gas merchants.
Many areas served by Williams Natural Gas are served or can be served by
other pipelines providing transportation services. In this regard, the City of
Springfield, Missouri, notified Williams Natural Gas in 1993 of its intention to
construct and operate its own pipeline to connect a portion of its existing load
to a competitor. Negotiations continued during 1994 to retain their entire load
on Williams Natural Gas' system.
Ownership of Property
Williams Natural Gas' pipeline system is owned in fee. However, a
substantial portion of Williams Natural Gas' system is constructed and
maintained pursuant to rights-of-way, easements, permits, licenses or consents
on and across properties owned by others. The compressor stations of Williams
Natural Gas, with appurtenant facilities, are located in whole or in part either
on lands owned by Williams Natural Gas or on sites held under leases or permits
issued or approved by public authorities. The storage facilities are either
owned or contracted for under long-term leases.
Environmental Matters
Williams Natural Gas is subject to various federal, state and local laws
and regulations relating to environmental quality control. Management believes
that Williams Natural Gas' operations are in substantial compliance with
existing environmental legal requirements.
Williams Natural Gas believes that, with respect to any capital
expenditures required to meet applicable environmental standards and
regulations, FERC would grant the requisite rate relief so that, for the most
part, such expenditures would be recoverable in rates. Williams Natural Gas
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon its earnings or competitive position.
Williams Natural Gas has identified polychlorinated biphenyl ("PCB")
contamination in air compressor systems, disposal pits and various other areas
at certain compressor station sites. Williams Natural Gas has been involved in
negotiations with the 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 December 31, 1994, Williams Natural Gas has a
liability recorded of approximately $28 million representing the current
estimate of future environmental cleanup costs to be incurred over the next six
to ten years. Although the accrual is believed to be adequate, the actual costs
8
<PAGE> 10
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 EPA and other governmental authorities and other factors.
Williams Natural Gas will seek recovery of these costs through future rates and
other means. See Note 15 of Notes to Consolidated Financial Statements.
KERN RIVER GAS TRANSMISSION COMPANY (Kern River)
Kern River is an interstate natural gas transmission company which owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. Kern River is jointly owned and operated by Williams
Western Pipeline Company, a subsidiary of Williams, and a subsidiary of an
unaffiliated company. See Note 3 of Notes to Consolidated Financial Statements.
The transmission system, which commenced operations in February 1992 following
completion of construction, delivers natural gas primarily to the enhanced
oil-recovery fields in southern California. The system also transports natural
gas for utilities, municipalities and industries in California, Nevada and Utah.
Kern River is subject to regulation by FERC under the Natural Gas Act and
under NGPA, and, as such, its rates and charges for the transportation of
natural gas in interstate commerce, the extension, enlargement or abandonment of
facilities and its accounting, among other things, are subject to regulation.
Pipeline System and Customers
As of December 31, 1994, Kern River's pipeline system was composed of 667
miles of pipeline and three mainline compressor stations having an aggregate
mainline delivery capacity of 700 MMcf of gas per day. The pipeline system
interconnects with the pipeline facilities of another pipeline company at
Daggett, California. From the point of interconnection, Kern River and the other
pipeline company have a single 337-mile pipeline which is owned 63.6 percent by
Kern River and 36.4 percent by the other pipeline company, as tenants in common,
and is designed to accommodate the combined throughput of both systems. This
common facility has a capacity of 1.1 Bcf of gas per day.
Kern River operates under an open-access transportation certificate wherein
gas is transported for others under firm long-term transportation contracts
totaling 675 MMcf of gas per day. During 1994, one shipper exercised adjustment
rights under its contract which had the affect of reducing firm transportation
commitments by 25 MMcf of gas per day. Another shipper exercised its adjustment
rights and increased its firm transportation commitment by 5 MMcf of gas per
day.
In 1994, Kern River transported 262 Bcf of natural gas for customers in
California, Nevada and Utah. Gas was transported for five customers in Kern
County, California, for reinjection as a part of enhanced oil recovery
operations and for 19 local distribution customers, electric utilities,
cogeneration projects and commercial and other industrial customers. The five
largest customers of Kern River in 1994 accounted for approximately 14 percent,
14 percent, 12 percent, 12 percent and 12 percent, respectively, of operating
revenues. Three of these customers serve the enhanced oil recovery fields. No
other customer accounted for more than 10 percent of operating revenues in 1994.
Regulatory Matters
The transportation of natural gas by Kern River in interstate commerce is
subject to regulation by FERC under the Natural Gas Act or the NGPA. Kern River
owns certificates of public convenience and necessity issued by FERC authorizing
it to own and operate all pipelines, facilities and properties now in operation
for which certificates are required under the Natural Gas Act. Kern River is
also subject to regulation under the Natural Gas Pipeline Safety Act of 1968, as
amended, which regulates safety requirements in the design, construction,
operation and maintenance of interstate gas transmission facilities.
On March 1, 1993, Kern River began collecting new rates, subject to refund,
under the provisions of a rate case filed August 31, 1992. Kern River is seeking
an increase in rates to cover increased operating costs, recovery of capital for
construction of the initial system and a fair rate of return. A settlement has
been entered into by and between Kern River, FERC staff and Kern River
customers. The settlement was submitted to
9
<PAGE> 11
FERC for approval on October 18, 1994 and a FERC Order approving the settlement
without modification was received on January 25, 1995. Subsequently, Kern River
filed for a clarification of certain elements of the FERC Order.
Kern River has filed an application with FERC for authorization to expand
capacity to bring an additional 452 MMcf of gas per day of Canadian natural gas
into California and Nevada. On August 18, 1994, Kern River submitted a letter to
FERC requesting postponement in the issuance of a certificate, pending a re-
evaluation of market conditions.
Competition
One other natural gas pipeline presently provides significant service to
the enhanced oil recovery fields in Kern County. Pipeline competition also
exists for Kern River's other customers as well as for expansion markets.
Competition for the customer base is also provided from alternate fuels.
Electricity and distillate fuel oil are the primary alternate energy sources
competing with gas in the commercial market. In the industrial and cogeneration
markets, high sulfur residual fuel oil is the main alternate fuel source
providing competition.
Ownership of Property
The Kern River pipeline system is owned in fee. However, a substantial
portion of the system is constructed and maintained on rights-of-way, easements,
permits, licenses or consents on and across properties owned by others. The
compressor stations, with appurtenant facilities, are located in whole or in
part on lands owned by Kern River or on sites held under leases or permits
issued or approved by public authorities.
Environmental Matters
Kern River is subject to the National Environmental Policy Act and other
federal, state and local laws and regulations relating to the environmental
aspects of the pipeline operations. Management believes that Kern River is in
substantial compliance with existing environmental legal requirements for its
business.
Kern River believes that, with respect to any capital expenditures required
to meet applicable environmental standards and regulations, FERC would grant
requisite rate relief so that, for the most part, such expenditures and a return
thereon would be permitted to be recovered. Kern River believes that compliance
with applicable environmental requirements pertaining to its business is not
likely to have a material effect upon earnings or its competitive position.
WILLIAMS FIELD SERVICES GROUP, INC. (WILLIAMS FIELD SERVICES)
Williams Field Services, through subsidiaries, owns and/or operates both
regulated and nonregulated natural gas gathering and processing facilities,
markets natural gas and owns and operates natural gas leasehold properties.
Williams Field Services was established as a separate business unit in 1993 and
all of the Company's natural gas gathering and processing, marketing and
production activities have been, or will be, consolidated under Williams Field
Services' control and management. As part of Williams Natural Gas' restructuring
as previously discussed, certain gathering and processing assets will be
transferred to Williams Field Services upon FERC approval.
In 1994 and 1993, gathering and processing activities represented 87
percent and 89 percent, respectively, of Williams Field Services' operating
profit. Production and natural gas marketing represented the balance.
In 1994, Williams Field Services increased the capacity of the Manzanares
coal seam gas gathering systems in northwestern New Mexico to 750 MMcf of gas
per day. Further expansions will be completed in early 1995 which will increase
the capacity of the Manzanares system to over 1 Bcf of gas per day. A 120 MMcf
of gas per day processing plant in the Wamsutter field of south-central Wyoming
began operations in early 1994 and plans are underway to double the capacity in
1995. Williams Field Services completed the construction and acquisition of a 74
MMcf of gas per day processing complex in the Texas Panhandle which was the
first grassroots construction project outside Williams Field Services'
traditional western market area.
10
<PAGE> 12
In February 1994, Williams Field Services reached agreement with Public
Service Company of New Mexico to acquire its natural gas gathering and
processing assets in the San Juan and Permian basins of New Mexico for $155
million. Subsequently, Williams Field Services entered into an agreement to sell
the southeastern New Mexico portion of the acquired assets for $14.2 million.
The assets retained consist of approximately 1,500 miles of gathering pipelines
and three gas processing plants which have an aggregate daily inlet capacity of
300 MMcf of gas. The acquisition is subject to approval from federal and state
regulatory agencies and is not expected to close until mid-year 1995.
Gathering and Processing
Williams Field Services, through subsidiaries, owns and operates natural
gas gathering and processing facilities located in the San Juan Basin, southwest
Wyoming, and the Rocky Mountains of Utah and Colorado. Williams Field Services,
through subsidiaries, also operates natural gas gathering and processing
facilities located in the Texas Panhandle and the Hugoton Basin in northwest
Oklahoma and southwest Kansas which are owned by Williams Natural Gas but which
are the subject of applications for orders permitting abandonment, discussed
elsewhere herein. Gathering services provided include the gathering of gas and
the treating of coal seam gas. The operating information below includes
operations attributed to the facilities when they were owned and operated by
affiliated entities and operations for facilities currently owned by Williams
Natural Gas but operated by Williams Field Services.
Customers and Operations. Williams Field Services' facilities, including
those currently owned by Williams Natural Gas, consist of approximately 6,900
miles of gathering pipelines, three gas treating plants and ten gas processing
plants (one of which is 20 percent owned and one of which is 66 percent owned)
which have an aggregate daily inlet capacity of 2.3 Bcf of gas. Gathering and
processing customers have direct access to interstate pipelines, including
Northwest Pipeline, Williams Natural Gas and Kern River, which provide access to
multiple markets.
During 1994, Williams Field Services gathered natural gas for 157
customers. The two largest gathering customers accounted for approximately 33
percent and 10 percent, respectively, of total gathered volumes. During 1994,
natural gas was processed for a total of 108 customers. The three largest
customers accounted for approximately 22 percent, 14 percent and 12 percent,
respectively, of total processed volumes. No other customer accounted for more
than 10 percent of gathered or processed volumes. Williams Field Services'
gathering and processing agreements with large customers are generally long-term
agreements with various expiration dates. These long-term agreements account for
the majority of the gas gathered and processed by Williams Field Services.
Liquids extracted at the processing plants are ethane, propane, butane and
natural gasoline. Liquid products retained by Williams Field Services' are
marketed by an affiliate for a fee. During 1994, liquid products were sold to a
total of 20 customers under short-term contracts. The three largest customers
accounted for approximately 33 percent, 13 percent and 10 percent, respectively,
of total liquid products volumes sold. No other customer accounted for more than
10 percent of volumes sold.
Operating Statistics. The following table summarizes gathering, processing
and natural gas liquid volumes for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gas volumes (TBtu, except where noted):
Gathering..................................................... 895 789 672
Processing.................................................... 392 323 * 283 *
Natural gas liquid sales (millions of gallons)................ 281 295 278
</TABLE>
- ---------------
* Restated to exclude treating volumes.
11
<PAGE> 13
Natural Gas Marketing and Supply
Williams Gas Marketing, a subsidiary of Williams Field Services, markets
natural gas primarily west of the Mississippi River and in certain eastern and
southeastern states. Williams Gas Marketing also markets gas in the Midcontinent
and Western regions of the U.S. off both interstate and intrastate pipelines,
including Williams Natural Gas, Northwest Pipeline and Kern River.
During 1994, no single customer accounted for 10 percent or more of volumes
sold. Typically, natural gas sales are made under short-term contracts. Renewal
of these contracts is dependent upon, among other things, the ability to provide
competitively priced gas.
Williams Gas Marketing supplies its sales commitments through short-term
and spot gas purchases as well as purchases under long-term contracts. The
suppliers' ability to meet their delivery commitments and Williams Gas
Marketing's ability to service its customers may be adversely affected by
factors beyond their respective control, such as occasions of force majeure.
Certain of these gas purchase contracts obligate Williams Gas Marketing to
purchase minimum percentages of the total deliverability of the wells covered by
the contracts. During 1994, Williams Gas Marketing incurred no purchase
deficiencies under these contracts.
Production
Williams Field Services, through a subsidiary, owns and operates producing
gas leasehold properties in the San Juan Basin.
Gas Reserves. As of December 31, 1994, 1993 and 1992, Williams Field
Services had proved developed natural gas reserves of 269 Bcf, 229 Bcf and 352
Bcf, respectively, and proved undeveloped reserves of 220 Bcf, 319 Bcf and 287
Bcf, respectively. As discussed below, Williams Field Services conveyed gas
reserves to the Williams Coal Seam Gas Royalty Trust in 1993. No major discovery
or other favorable or adverse event has caused a significant change in estimated
gas reserves since year end.
Customers and Operations. As of December 31, 1994, the gross and net
developed leasehold acres owned by Williams Field Services totaled 228,863 and
98,716, respectively, and the gross and net undeveloped acres owned were 29,369
and 13,669, respectively. As of such date, Williams Field Services owned
interests in 2,682 gross producing wells (369 net) on its leasehold lands. The
following table summarizes drilling activity for the periods indicated:
<TABLE>
<CAPTION>
DEVELOPMENT
---------------
COMPLETED GROSS NET
DURING WELLS WELLS
- --------- ----- -----
<S> <C> <C>
1994.................................................................. 66 19
1993.................................................................. 39 5
1992.................................................................. 95 11
</TABLE>
The majority of Williams Field Services' gas production is currently being
sold in the spot market at market prices. Total net production sold during 1994,
1993 and 1992 was 22.6 TBtu, 16.3 TBtu and 23.4 TBtu, respectively. The average
production costs per MMBtu of gas produced were $.14, $.17 and $.17 in 1994,
1993 and 1992, respectively. The average sales price per MMBtu was $1.21, $1.44
and $1.14, respectively, for the same periods.
In 1993, Williams Field Services conveyed a net profits interest in certain
of its properties to the Williams Coal Seam Gas Royalty Trust. Trust Units were
subsequently sold to the public by Williams in an underwritten public offering.
Williams continues to hold 3,568,791 Trust Units representing 36.8 percent of
outstanding Units. Substantially all of the production attributable to the
properties conveyed to the Trust was from the Fruitland coal formation and
constituted coal seam gas. Proved developed coal seam gas reserves at December
31, 1994, attributed to the properties conveyed were 162 Bcf. Production
information reported herein includes Williams Field Services' interest in such
Units. See Note 4 to Notes to Consolidated Financial Statements.
12
<PAGE> 14
Regulatory Matters
Historically, an issue has existed as to whether FERC has authority under
the Natural Gas Act to regulate gathering and processing prices and services.
During 1994, after reviewing its legal authority in a Public Comment Proceeding,
FERC determined that while it retains some regulatory jurisdiction over
gathering and processing performed by pipelines, pipeline affiliated gathering
and processing companies are outside its authority under the Natural Gas Act.
Orders issued in 1994 which implement FERC's conclusion that it lacks
jurisdiction have been appealed to the Court of Appeals for the District of
Columbia Circuit. Williams Field Services believes that these FERC decisions
will be upheld on appeal.
As a result of FERC action, several of the states in which Williams Field
Services operates may consider whether to impose regulatory requirements on
gathering companies. No state in which Williams Field Services operates
currently regulates gathering or processing rates or services.
Competition
Williams Field Services competes for gathering and processing business with
interstate pipelines, producers and independent gatherers and processors.
Numerous factors impact any given customer's choice of a gathering or processing
services provider, including rate, term, timeliness of well connections,
pressure obligations and the willingness of the provider to process for either a
fee or for liquids taken in-kind.
Ownership of Property
Williams Field Services' gathering and processing facilities are owned in
fee. Gathering systems are constructed and maintained pursuant to rights-of-way,
easements, permits, licenses and consents on and across properties owned by
others. The compressor stations and gas processing and treating facilities are
located in whole or in part on lands owned by Williams Field Services or on
sites held under leases or permits issued or approved by public authorities.
Environmental Matters
Williams Field Services is subject to various federal, state and local laws
and regulations relating to environmental quality control. Management believes
that Williams Field Services' operations are in substantial compliance with
existing environmental legal requirements.
WILLIAMS PIPE LINE COMPANY (WILLIAMS PIPE LINE)
Williams Pipe Line, a wholly owned subsidiary of Williams, operates a
petroleum products pipeline system which covers an eleven-state area extending
from Oklahoma in the south to North Dakota and Minnesota in the north and
Illinois in the east. The system is operated as a common carrier offering
transportation and terminalling services on a nondiscriminatory basis under
published tariffs. The system transports crude oil and products, including
gasolines, distillates, aviation fuels and LP-gases.
On September 30, 1994, Williams Pipe Line acquired 114 miles of pipeline in
Kansas, Missouri and Illinois from ARCO Pipe Line Company. In a related
transaction, Williams Pipe Line added a new offline delivery connection to serve
markets in northern Missouri and southern Iowa.
Shippers and Pipeline System
At December 31, 1994, the system traversed approximately 7,000 miles of
right-of-way and included over 9,200 miles of pipeline in various sizes up to 16
inches. The system includes 81 pumping stations, 23 million barrels of storage
capacity and 47 delivery terminals. The terminals are equipped to deliver
products into tank trucks and tank cars. The maximum number of barrels which the
system can transport per day depends upon the operating balance achieved at a
given time between various segments of the system. Since the balance is
dependent upon the mix of products to be shipped and the demand levels at the
various delivery points, the exact capacity of the system cannot be stated.
13
<PAGE> 15
The operating statistics set forth below relate to the system's operations
for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines.......................................... 120,682 109,841 92,643
Distillates........................................ 61,129 51,508 45,920
Aviation fuels..................................... 9,523 11,123 11,180
LP-Gases.............................................. 10,849 9,778 11,362
Crude oil............................................. 1,062 3,388 4,481
-------- -------- --------
Total shipments............................... 203,245 185,638 165,586
======= ======= =======
Daily average (thousands of barrels).................. 557 509 454
Average haul (miles).................................. 284 279 295
Barrel miles (millions)............................... 57,631 51,821 48,825
Revenues (millions):
Transportation........................................ $168.0 $153.0 $137.7
Nontransportation..................................... 41.7 26.3 10.8
-------- -------- --------
Total revenues................................ $209.7 $179.3 $148.5
======= ======= =======
Average transportation revenue per barrel............. $.83 $.82 $.83
</TABLE>
On December 1, 1993, Williams Pipe Line acquired a 300-mile pipeline, two
loading terminals and related storage from Sun Pipe Line Company. The pipeline
connects to Williams Pipe Line's systems in Oklahoma and adds Arkansas to its
market. Volumes originating on this system accounted for approximately 10
percent of the shipments and transportation revenues in 1994.
In 1994, 75 shippers transported volumes through the system. The seven
largest shippers accounted for 55 percent of transportation revenues. These same
shippers have accounted for approximately the same percentage of transportation
revenues over the past three years. Due to Williams Pipe Line's geographic
location within existing supply and demand patterns, including connections to
pipelines and refineries within the region, Williams Pipe Line expects to remain
the competitive choice in these relationships. The highest revenue-producing
shipper accounted for approximately 11 percent of transportation revenues in
1994.
Nontransportation activities accounted for 20 percent of total revenues in
1994. The increase in nontransportation revenues is primarily due to expanded
gas liquids and fractionator operations.
At December 31, 1994, the system was directly connected to, and received
products from 11 operating refineries reported to have an aggregate crude oil
refining capacity of approximately 888,000 barrels per day. Eight of these
refineries are located in Kansas and Oklahoma, two in Minnesota and one in
Wisconsin. The system also received products through connecting pipelines from
other refineries located in Illinois, Indiana, Kansas, Louisiana, Montana, North
Dakota, Oklahoma and Texas. Crude oil is received through connections in Kansas
and Oklahoma. The refineries, which are connected directly or indirectly to the
system, have access to a broad range of crude oil producing areas, including
foreign sources. LP-gases are transported from gas producing and storage areas
in central Kansas through connecting pipelines in Iowa, Kansas, Missouri and
Illinois. In addition to making deliveries to company-owned terminals, the
system delivers products to third-party terminals and connecting pipelines.
The refining industry continues to be affected by environmental regulations
and changing crude supply patterns. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes and
products shipped on the Williams Pipe Line system. EPA regulations, driven by
the Clean Air Act, require refiners to change the composition of fuel
manufactured. A pipeline's ability to respond to the effects of regulation and
changing supply patterns will determine its ability to maintain and capture new
market shares. Williams Pipe Line has successfully responded to changes in
diesel fuel composition and product supply and has adapted to new gasoline
additive requirements. Reformulated gasoline regulations have not yet
significantly affected Williams Pipe Line. Williams Pipe Line will continue to
position itself to
14
<PAGE> 16
respond to changing regulations and supply patterns, but it is not possible to
predict how future changes in the marketplace will affect Williams Pipe Line's
market areas.
Regulatory Matters
General. Williams Pipe Line, as an interstate common carrier pipeline, is
subject to the provisions and regulations of the Interstate Commerce Act. Under
this Act, Williams Pipe Line is required, among other things, to establish just,
reasonable and nondiscriminatory rates, to file its tariffs with FERC, to keep
its records and accounts pursuant to the Uniform System of Accounts for Oil
Pipeline Companies, to make annual reports to FERC and to submit to examination
of its records by the audit staff of FERC. Authority to regulate rates, shipping
rules and other practices and to prescribe depreciation rates for common carrier
pipelines is exercised by FERC. The Department of Transportation, as authorized
by the 1992 Pipeline Safety Reauthorization Act, is the oversight authority for
interstate liquids pipelines. Williams Pipe Line is also subject to the
provisions of various state laws which are applicable to intrastate pipelines.
Rate Proceeding. On December 31, 1989, a rate cap, which resulted from a
settlement with several shippers, effectively freezing Williams Pipe Line's
rates for the previous five years, expired. Williams Pipe Line filed a revised
tariff on January 16, 1990, with FERC and the state commissions. The tariff set
an average increase in rates of 11 percent and established volume incentives and
proportional rate discounts. Certain shippers on the Williams Pipe Line system
and a competing pipeline carrier filed protests with FERC alleging that the
revised rates are not just and reasonable and are unlawfully discriminatory. As
a result of these protests, FERC suspended the effective date of the tariff for
seven months (until September 16, 1990), at which time it became effective,
subject to refund. The revised intrastate tariffs filed with state commissions
were voluntarily withdrawn and refiled to be effective at the same time as the
interstate tariff.
Williams Pipe Line elected to bifurcate this proceeding in accordance with
the then-current FERC policy. Phase I of the FERC's bifurcated proceeding
provides a carrier the opportunity to justify its rates and rate structure by
demonstrating that its markets are workably competitive. Any issues unresolved
in Phase I will require cost justification in Phase II. FERC hearings in Phase I
were held before an administrative law judge in the summer of 1991. The Judge's
decision, issued January 24, 1992, ruled solely on market power issues and
certain discrimination claims. This Initial Decision concluded that Williams
Pipe Line had sustained its burden of proof in demonstrating that it "lacks
significant market power" and is "workably competitive" in 22 of 32 of its
markets and that the alleged discrimination was justified by competitive
conditions. On July 27, 1994, FERC issued a Phase I decision, Order 391. The
Commission, while citing considerable agreement with the theoretical concepts
employed by the administrative law judge, reversed his initial decision
regarding the competitive nature of nine specific markets, thus finding that
Williams Pipe Line had sustained its burden of proof in showing that it is
workably competitive in 13 of 32 markets under investigation. In response to
this order, Williams Pipe Line filed a motion to stay Phase II along with a
request for reconsideration of nine markets on August 29, 1994. On September 28,
1994, FERC issued a tolling order granting Williams Pipe Line's request for
rehearing but denying its motion to stay the Phase II proceedings. Williams Pipe
Line filed its direct evidence in Phase II on January 23, 1995, with hearings to
begin around September 1995. The current procedural schedule forecasts an
initial decision in Phase II in the beginning of 1996. While Williams Pipe Line
cannot predict the final outcome of these proceedings, it believes its revised
tariffs will ultimately be found lawful.
In June 1993, FERC ruled that Williams Pipe Line must file tariffs and cost
justification for transaction charges that are collected for certain bookkeeping
services, Product Transfer Orders and Product Authorizations. Williams Pipe Line
had previously considered these charges as nonjurisdictional. In order to comply
with the ruling, Williams Pipe Line immediately filed tariffs establishing these
charges in its tariff. The FERC order to provide cost justification is currently
stayed pending rehearing of the case.
On October 22, 1993, FERC issued a new rule making and two companion
Notices of Inquiry intended to establish "simplified and generally applicable
rate making" as well as procedural streamlining as mandated by the Energy Policy
Act of 1992. On July 27, 1994, FERC issued a final rule establishing a
"simplified and generally applicable rate making" methodology as mandated by the
Energy Policy Act of 1992. FERC has
15
<PAGE> 17
attempted to streamline the rate making process via generic rules and a rate cap
mechanism, or index, based on the annual Producer Price Index for Finished Goods
less one percentage point ("PPI-1"). The final rule, which became effective
January 1, 1995, requires pipelines to use indexing as their primary rate making
methodology in markets not determined to be workably competitive. The
Association of Oil Pipelines has filed an appeal of this order in the Court of
Appeals for the District of Columbia Circuit citing, among other things, the
inadequacy of the PPI-1 index. Williams Pipe Line has intervened in this
proceeding.
On October 28, 1994, FERC released two additional rule makings. The first
established procedures for seeking "market-based" rates. The second sets forth
procedures for cost justifying rate increases which exceed the PPI-1 index and
establishes several changes in existing accounting and reporting requirements.
Competition
Williams Pipe Line operates without the protection of a federal certificate
of public convenience and necessity that might preclude other entrants from
providing like service in its area of operations. Further, Williams Pipe Line
must plan, operate and compete without the operating stability inherent in a
broad base of contractually obligated or owner-controlled usage. Since Williams
Pipe Line is a common carrier, its shippers need only meet the requirements set
forth in its published tariffs in order to avail themselves of the
transportation services offered by Williams Pipe Line.
Competition exists from other pipelines, refineries, barge traffic,
railroads and tank trucks. Competition is affected by trades of products or
crude oil between refineries which have access to the system and by trades among
brokers, traders and others who control products. Such trades can result in the
diversion from the Williams Pipe Line system of volume which might otherwise be
transported on the system. Shorter, lower revenue hauls may also result from
such trades. Williams Pipe Line also is exposed to interfuel competition whereby
an energy form shipped by a liquids pipeline, such as heating fuel, is replaced
by a form not transported by a liquids pipeline, such as electricity or natural
gas. While Williams Pipe Line faces competition from a variety of sources
throughout its marketing areas, the principal competition is other pipelines. A
number of pipeline systems, competing on a broad range of price and service
levels, provide transportation service to various areas served by the system.
The possible construction of additional competing products or crude oil
pipelines, conversions of crude oil or natural gas pipelines to products
transportation, changes in refining capacity, refinery closings, changes in the
availability of crude oil to refineries located in its marketing area, or
conservation and conversion efforts by fuel consumers may adversely affect the
volumes available for transportation by Williams Pipe Line.
Ownership of Property
Williams Pipe Line's system is owned in fee. However, a substantial portion
of the system is operated, constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. The terminals, pump stations and all other facilities of the system are
located on lands owned in fee or on lands held under long-term leases, permits
or contracts. Management believes that the system is in such a condition and
maintained in such a manner that it is adequate and sufficient for the conduct
of business.
Environmental Matters
Williams Pipe Line's operations are subject to various federal, state and
local laws and regulations relating to environmental quality control. Management
believes that Williams Pipe Line's operations are in substantial compliance with
existing environmental legal requirements. Williams Pipe Line has initiated a
broad scope of projects related to environmental controls. Under Williams Pipe
Line's philosophy of proactive environmental management, $5.7 million was
expended in 1994 for environmental-related capital projects.
Williams Pipe Line has been named by the EPA as a potentially responsible
party as defined in Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act, for a site in Sioux Falls, South Dakota. This
site was placed on the National Priorities List in July 1990. In April 1991,
Williams Pipe Line and the EPA executed an administrative consent order under
which Williams Pipe Line
16
<PAGE> 18
agreed to conduct a remedial investigation and feasibility study for this site.
The EPA issued its "No Action" Record of Decision in 1994 concluding that there
were no significant hazards associated with the site subject to two additional
years of monitoring for arsenic in certain existing monitoring wells.
WILLIAMS ENERGY VENTURES, INC. (WILLIAMS ENERGY VENTURES)
Williams Energy Ventures, a wholly owned subsidiary of Williams, provides
price risk management products and services, natural gas liquid marketing
services, electronic information services and business development capabilities
through three major business groups: Commodities, Information Services and New
Ventures.
Commodities Group
In addition to providing commodity price risk management products and
services for other Williams subsidiaries, Williams Energy Ventures, through a
subsidiary, offers financial instruments and derivatives to producers and
consumers of energy as well as to financial entities participating in energy
price-risk management. Williams Energy Ventures enters into energy-related
financial instruments to hedge against market price fluctuations of certain
refined products inventories and natural gas sales and purchase commitments.
Williams Energy Ventures expanded these services during the year as transactions
increased over 100 percent from 1993 levels, while also being selected to supply
a cogeneration facility with a ten-year supply of natural gas beginning in 1997.
See Note 13 of Notes to Consolidated Financial Statements.
Williams Energy Ventures also markets the gas liquids produced by Williams
Field Services and by unaffiliated companies. Natural gas liquids are sold in
the Gulf Coast petrochemical markets under short-term contracts. Propane is
marketed primarily in the Rocky Mountain area via truck and railcar loading
terminals owned by Williams Field Services.
Information Services Group
Through its information services group, Williams Energy Ventures offers
various trading and brokering services in the energy field. Chalkboard, an
electronic trading and brokering system for purchases and sales of liquid fuels
and crude oil, continues to establish market acceptance following its
introduction in 1993. During 1994, Williams Energy Ventures implemented
Streamline (a computer-based gas trading and clearing system) at five locations
in the United States and at two gas trading hubs in Canada through a joint
development partner. Also introduced during the year was Capacity Central, a
computer-based gas pipeline capacity sales system.
Williams Energy Ventures also provides computer-based operator training
primarily to the energy industry. Williams Energy Ventures has licensing
agreements with over 150 customers in the oil and gas pipeline, terminal and
trucking industries.
New Ventures Group
Williams Energy Ventures' new ventures group consists primarily of
nonjurisdictional businesses based in petroleum-related and technology-based
processes. During 1994, this group initiated the construction of an underground
coal gasification facility in Wyoming, with initial operations to determine the
commercial feasibility of the process scheduled for early 1995. In support of
this and future similar projects, Williams Energy Ventures completed the
acquisition of Energy International, a company with technological rights and
expertise in conversion of coal into market quality gas. In addition, Williams
Energy Ventures entered into a 71 percent majority interest in a joint venture
to construct a 25 million gallon per year ethanol plant in Nebraska, with
completion scheduled for the fourth quarter of 1995. Development
responsibilities also extend to those energy-based projects which employ newly
developed technologies and information systems.
17
<PAGE> 19
TELECOMMUNICATIONS
WILLIAMS TELECOMMUNICATIONS SYSTEMS, INC. (WILTEL)
WilTel provides data, voice and video communications products and services
to a wide variety of customers nationally. WilTel is strategically positioned in
the marketplace with more than 100 sales and service locations throughout the
United States, over 2,500 employees and over 1,300 stocked service vehicles.
WilTel believes it is one of only two national providers of customer premise
telecommunications equipment.
WilTel employs more than 1,200 technicians and more than 400 sales
representatives and sales support personnel to serve an estimated 30,000
commercial, governmental and institutional customers. WilTel's customer base
ranges from Fortune 500 corporations and the Federal Government to small
privately-owned entities.
WilTel offers its customers a full array of network interconnect products
including digital key systems (generally designed for voice applications with
fewer than 100 lines), private branch exchange (PBX) systems (generally designed
for voice applications with greater than 100 lines), voice processing systems,
interactive voice response systems, automatic call distribution applications,
call accounting systems, network monitoring and management systems, desktop
video, routers, channel banks, intelligent hubs and cabling for all voice and
data applications. WilTel's services also include the design, configuration and
installation of voice and data networks and the management of customers'
telecommunications operations and facilities. In addition, WilTel possesses
multicustomer service capabilities, including three specialized functions that
provide customers with on-line order entry and trouble reporting services,
advanced technical assistance and training. Other service capabilities include
Local Area Network and PBX remote monitoring and toll fraud detection.
In 1994, WilTel derived approximately 67 percent of its revenues from its
existing customer base and approximately 33 percent from the sale of new
telecommunications systems. The distribution of revenues for the periods
indicated are shown in the following table:
<TABLE>
<CAPTION>
REVENUES 1994 1993 1992
--------------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
New System Sales............................................... 33% 39% 41%
System Modifications........................................... 36% 30% 28%
Maintenance.................................................... 24% 23% 25%
Other.......................................................... 7% 8% 6%
</TABLE>
The 1994 decrease in the percentage of revenue derived from the sale of new
telecommunications systems was attributed to the March 1994, acquisition of
BellSouth's customer premise equipment sales and service operations in the 29
states outside of BellSouth's local operating region and the October 1994,
acquisition of Jackson Voice Data, a New York City-based customer premise
equipment company. The acquired companies generated the vast majority of their
revenue from their existing customer bases. The acquisition of these businesses
has allowed WilTel to capitalize on its existing infrastructure, strengthen its
national market presence and geographic customer density and has provided more
diversity in product offerings.
Although the percentage of revenue attributable to new system sales
continues to decline relative to total revenue, year end revenue backlog
continues to increase. Estimated year end revenue backlog balances, comprised of
new system sales and major system upgrades, were as follows: $92 million in
1994, $52 million in 1993 and $39 million in 1992.
The total number of ports maintained and served by WilTel at the end of
1994 increased to 4.1 million. The bulk of the increase from prior years is
attributable to the acquisitions of the BellSouth and Jackson Voice Data
customer bases. The two acquisitions contributed in excess of 1.0 million ports
to the total WilTel count. A port is defined as an electronic address physically
resident in a customer's PBX or key system that supports the operation of a
peripheral device such as a station, trunk or data port. The year end port
counts were as follows: 4.1 million in 1994, 2.7 million in 1993 and 2.6 million
in 1992.
18
<PAGE> 20
WilTel Data Network Services, an affiliated company, was merged into WilTel
December 31, 1994. WilTel Data Network Services provides customer premise data
equipment and services for wide and local area networks. The merger allows
WilTel to expand its activities into the faster growing data communications
marketplace. Expansion into the data market has allowed WilTel to differentiate
itself from its traditional competitors, most of whom remain principally
involved only in the distribution of PBX and key systems.
WilTel's three largest suppliers accounted for 91 percent of equipment sold
in 1994. A single manufacturer supplied 80 percent of all equipment sold. In
this case, WilTel is the largest distributor of certain of this company's
products. About 70 percent of WilTel's active customer base consists of this
manufacturer's products. The distribution agreement with this supplier is
scheduled to expire in 1997. This agreement is expected to be renewed upon
expiration. There is minimal risk as to the availability of product from
suppliers.
WilTel has many competitors ranging from AT&T and the Regional Bell
Operating Companies to small individually owned companies which sell and service
customer premise equipment. Competitors include companies that sell equipment
that is comparable or identical to that sold by WilTel.
WilTel is subject to Federal Communications Commission rules governing the
connection of equipment to telephone networks. A subsidiary of WilTel is subject
to FCC regulations as a common carrier and as a microwave licensee.
VYVX, INC. (VYVX)
Vyvx offers switched fiber-optic television transmission services
nationwide. It provides switched, broadcast-quality, fiber-optic television
transmission services as an alternative to satellite and microwave television
transmissions. Vyvx primarily provides backhaul transmission of news and other
programming between two or more customer locations. For example, the Vyvx
network is used for the broadcast coverage of major professional sporting
events. Vyvx's customers include all of the major broadcast and cable networks.
Vyvx also provides videoconferencing/business television services.
OTHER INFORMATION
Williams believes that it has adequate sources and availability of raw
materials to assure the continued supply of its services and completed products
for existing and anticipated business needs. Williams' pipeline systems are all
regulated in various ways resulting in the financial return on the investments
made in the systems being limited to standards permitted by the regulatory
bodies. Each of the pipeline systems have ongoing capital requirements for
efficiency and mandatory improvements, with expansion opportunities also
necessitating periodic capital outlays.
A fertilizer plant site at Pensacola, Florida, that was operated for three
years by a former subsidiary of Williams has been placed on the National
Priorities List. Williams has been notified by the EPA that it is a potentially
responsible party for the site, an assertion which Williams is contesting. This
former subsidiary has also been identified as a potentially responsible party
along with numerous other parties with respect to the Forest Waste Disposal Site
located in Michigan. This site is now a National Priorities List cleanup site. A
third active site, located in Lakeland, Florida, which was formerly owned and
operated by this subsidiary, is under investigation by the Florida Department of
Environmental Protection and cleanup is anticipated. Williams does not believe
that the ultimate resolution of the foregoing matters, taken as a whole and
after consideration of insurance coverage, contribution or other indemnification
arrangements, will have a material adverse financial effect on the Company. See
Note 15 of Notes to Consolidated Financial Statements.
On January 25, 1995, Texasgulf Inc. filed a registration statement with the
Securities and Exchange Commission providing for the sale of the Company's 15
percent interest in Texasgulf as a registered public offering. The Company
anticipates that a sale of its interest in Texasgulf, either through this public
offering or in a privately negotiated transaction, will occur in 1995. See Note
3 of Notes to Consolidated Financial Statements.
19
<PAGE> 21
At December 31, 1994, the Company had approximately 8,200 full-time
employees, of whom approximately 636 were represented by unions and covered by
collective bargaining agreements. In connection with the WNS Sale in January
1995, as previously discussed, the work force was reduced by approximately 2,070
employees, none of whom were covered by a collective bargaining agreement. In
connection with the acquisition of Transco Energy Company in 1995, as previously
discussed, the Company expects to add approximately 4,500 employees. The Company
considers its relations with its employees to be generally good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams has no significant foreign operations.
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
Other than as described under Item 1 -- Business and in Note 15 of Notes to
Consolidated Financial Statements, there are no material pending legal
proceedings. Williams is subject to ordinary routine litigation incidental to
its businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF WILLIAMS
The names, ages, positions and election dates of the executive officers of
Williams are:
<TABLE>
<CAPTION>
HELD
OFFICE
NAME AGE POSITIONS AND OFFICES HELD SINCE
- ------------------------------ --- ----------------------------------------------- --------
<S> <C> <C> <C>
Keith E. Bailey............... 52 Chairman of the Board, President, Chief 05-19-94
Executive Officer and Director
John C. Bumgarner, Jr......... 52 Senior Vice President -- Corporate Development 01-01-79
and Planning
James R. Herbster............. 53 Senior Vice President -- Administration 01-01-92
J. Furman Lewis............... 60 Senior Vice President and General Counsel 07-15-86
Jack D. McCarthy.............. 52 Senior Vice President -- Finance (Principal 01-01-92
Financial Officer)
Gary R. Belitz................ 45 Controller (Chief Accounting Officer) 01-01-92
Stephen L. Cropper............ 45 President -- Williams Pipe Line and Williams 01-22-86
Energy Ventures
Lloyd A. Hightower............ 60 President -- Williams Field Services 05-11-93
Henry C. Hirsch............... 52 President -- Williams Telecommunications 08-21-92
Systems
Howard E. Janzen.............. 40 Chairman of the Board -- Vyvx 12-01-94
Brian E. O'Neill.............. 59 President -- Northwest Pipeline and Williams 01-01-88
Natural Gas
</TABLE>
All of the above officers have been employed by Williams or its
subsidiaries as officers or otherwise for more than the past five years and have
had no other employment during such period.
20
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Williams' Common Stock is listed on the New York and Pacific Stock
Exchanges under the symbol "WMB." At the close of business on December 31, 1994,
Williams had 7,400 holders of record of its Common Stock. The daily closing
price ranges (composite transactions) and dividends declared by quarter for each
of the past two years are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------- -------------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------------------------- ---- ---- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1st........................ $27 1/4 $22 3/4 $.21 $24 1/8 $18 1/8 $.19
2nd........................ $30 1/8 $22 1/8 $.21 $27 3/8 $23 11/16 $.19
3rd........................ $32 7/8 $28 3/8 $.21 $31 9/16 $26 5/16 $.19
4th........................ $30 1/4 $24 1/8 $.21 $31 9/16 $24 3/8 $.21
</TABLE>
In January 1995, the Board of Directors of the Company approved a 28.5
percent increase in the Common Stock dividend. The dividend approved for the
first quarter of 1995 was $.27 per share.
Terms of certain subsidiaries' borrowing arrangements limit transfer of
funds to Williams. Terms of other borrowing arrangements limit the payment of
dividends on Williams' Common Stock. These restrictions have not impeded, nor
are they expected to in the future, Williams' ability to meet its cash
obligations. See Note 11 of Notes to Consolidated Financial Statements.
21
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA
The following financial data are an integral part of, and should be read in
conjunction with, the consolidated financial statements and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages F-1 through F-8 of this report.
<TABLE>
<CAPTION>
1994 1993* 1992* 1991* 1990*
------- ------- ------- ------- -------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues**................................. $1,751.1 $1,793.4 $1,983.5 $1,704.5 $1,445.9
Income from continuing operations**........ 164.9 185.4 103.1 69.7 36.0
Income from discontinued operations........ 94.0 46.4 25.2 40.3 41.0
Fully diluted earnings per share:
Income from continuing operations........ 1.52 1.71 .97 .69 .29
Income from discontinued operations...... .92 .45 .28 .48 .50
Cash dividends per common share............ .84 .78 .76 .70 .70
Total assets at December 31................ 5,226.1 5,020.4 4,982.3 4,247.4 4,034.4
Long-term obligations at December 31....... 1,307.8 1,604.8 1,683.2 1,541.9 1,374.5
Stockholders' equity at December 31........ 1,505.5 1,724.0 1,518.3 1,220.0 1,166.5
</TABLE>
- ---------------
* Certain amounts have been restated as described in Note 2 of Notes to
Consolidated Financial Statements.
** See Note 4 of Notes to Consolidated Financial Statements for discussion of
significant asset dispositions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULT OF OPERATIONS
1994 vs. 1993
Northwest Pipeline's revenues decreased 14 percent as expanded firm
transportation service was more than offset by the absence of natural gas sales
following the fourth-quarter 1993 implementation of Federal Energy Regulatory
Commission (FERC) Order 636, and the completion of contract-reformation
surcharges. Total mainline throughput increased 9 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 placed new increased transportation rates into effect on November 1,
1994, and April 1, 1993, subject to refund. The April 1, 1993, rates reflected
the new mainline expansion and straight-fixed-variable rate design that
moderates seasonal swings in operating revenues. Costs and operating expenses
decreased 32 percent, due primarily to the absence of natural gas purchase
volumes and the completion of contract-reformation amortization, slightly offset
by increased operating expenses primarily related to the full-year effect on
1994 of the mainline expansion. Operating profit increased 5 percent due
primarily to expanded firm transportation service related to the company's
mainline system expansion.
Williams Natural Gas' revenues decreased 21 percent, primarily as a result
of the absence of natural gas sales resulting from implementation of FERC Order
636 on October 1, 1993. The decrease in revenues was partially offset by the
implementation of new rates required by the Order, direct billing of net
purchased gas cost adjustment amounts of approximately $40 million and higher
direct billing of recoverable contract-reformation costs of approximately $17
million. Costs and operating expenses decreased 30 percent, primarily as a
result of lower gas purchase costs resulting from the implementation of FERC
Order 636, partially offset by the costs that were direct billed as discussed
above. Operating profit increased 19 percent, primarily as a result of the
full-year effect of new rates, implementation of Order 636 and the reversal of
excess contract-reformation accruals recorded in other income -- net ($7.4
million in 1994 and $2.5 million in 1993), partially offset by the absence of
the regulatory accounting effect of an income tax rate increase in 1993 (which
was offset in income tax expense). FERC Order 636 utilizes a
straight-fixed-variable rate design that is applied to each customer's annual
firm contract demand for transportation.
F-1
<PAGE> 24
Williams Field Services Group's revenues decreased 17 percent, due
primarily to 22 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. Liquids volumes and prices, average natural
gas sales prices and average gathering and processing prices also decreased, but
were somewhat offset by increased gathering and processing volumes of 13 percent
and 21 percent, respectively. Costs and operating expenses decreased, due
primarily to lower natural gas purchase volumes and per-unit costs and the
effects of a favorable adjustment of an accrual related to operating taxes,
partially offset by higher operations, maintenance and depreciation expenses at
expanded gathering facilities. Operating profit increased 5 percent, due
primarily to higher gathering and processing volumes, a favorable operating
taxes adjustment and other revenues, partially offset by lower per-unit liquids
margins, lower average gathering and processing prices and higher operations and
maintenance expenses associated with expanded facilities. Operating profit in
1993 included a favorable settlement involving processing revenues from prior
periods.
Williams Pipe Line's shipments increased 9 percent, due primarily to new
volumes resulting from the December 1993 acquisition of a pipeline system in
southern Oklahoma. Revenues increased 17 percent, due primarily to higher
shipments and increased gas liquids and fractionator operations. The slightly
higher average transportation rate resulted primarily from longer hauls into the
northern region and overall increases in tariff rates, effective December 1,
1994, and June 1, 1993, partially offset by lower rates on shorter haul
movements from new business. Costs and operating expenses increased, due
primarily to gas liquids and fractionator operations, and additional operating
expenses. Operating profit increased 25 percent, due primarily to increased
shipments and a favorable insurance settlement, partially offset by higher
operating and maintenance expenses.
Williams Energy Ventures' revenues increased 72 percent, due primarily to
newly established petroleum services activities, partially offset by lower
refined product trading margins and the effect of reporting these trading
activities on a "net margin" basis effective July 1, 1993. Costs and operating
expenses increased as a result of the newly established petroleum services
activities and the cost of developing long-term energy industry businesses,
partially offset by the effect of reporting refined product trading activities
on a "net margin" basis. General and administrative expenses increased,
reflecting the costs of establishing appropriate administrative and project
support groups to serve growing business activities. An operating loss of $10.8
million in 1994 compares to operating profit of $7.8 million in 1993, reflecting
costs of developing long-term energy industry investment opportunities and lower
results from price-risk management services, partially offset by improved
petroleum services activities. Included in 1994's other income -- net is
approximately $5 million of costs for evaluating and determining whether to
build an oil refinery near Phoenix. Price-risk management services' results
continued to be profitable but were lower in 1994 than 1993 because of reduced
gasoline and distillate margins and the effect of location pricing differentials
in refined products trading activities, partially offset by an improvement in
natural gas trading margins reflecting increased volumes.
Williams Telecommunications Systems' revenues increased 31 percent, due in
large part to the March 31, 1994, acquisition of BellSouth's customer equipment
sales and service operations in 29 states, as evidenced by a 52 percent increase
in the number of ports. Costs and operating expenses and selling, general and
administrative expenses increased 31 percent and 20 percent, respectively, due
to the increase in volume of equipment sales and services. Operating profit
nearly doubled from higher sales volumes, partially offset by an increase in
selling, general and administrative expenses. Margins were level between 1994
and 1993, while selling, general and administrative expenses as a percent of
revenue decreased in 1994 compared to 1993.
General corporate expenses decreased, reflecting lower supplemental
retirement benefits (see Note 7) and incentive compensation accruals. Interest
accrued decreased primarily because of lower effective interest rates, partially
offset by higher average borrowing levels. Interest capitalized decreased,
reflecting 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 and lower equity earnings for Apco Argentina Inc., 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
gain on sales of assets in 1993 results from the sale of 6.1 million units in
the Williams Coal Seam
F-2
<PAGE> 25
Gas Royalty Trust and the sale of the intrastate natural gas pipeline system and
other related assets in Louisiana (see Note 4). Other income (expense) -- net in
1994 includes a credit for $4.8 million from the reversal of previously accrued
liabilities associated with certain Royalty Trust contingencies that 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 (expense) -- net in 1993
includes $6 million of expense accruals for certain costs associated with
businesses previously sold, offset with $6 million of equity allowance for funds
used during construction (AFUDC) related to the Northwest Pipeline mainline
expansion.
The decrease in the provision for income taxes on continuing operations is
primarily a result of lower pre-tax income and the $15.8 million cumulative
effect in 1993 of the 1 percent increase in the federal income tax rate. The
effective income tax rate in 1994 is lower than the statutory rate, primarily
because of income tax credits from coal-seam gas production, partially offset by
state income taxes. The effective income tax rate in 1993 is higher than the
statutory rate, primarily because of the effect of the federal income tax rate
increase and state income taxes, partially offset by income tax credits from
coal-seam gas production (see Note 5).
The network services operations of WilTel have been presented in the
Consolidated Financial Statements as discontinued operations, with prior period
operating results restated (see Note 2). Income from discontinued operations
more than doubled to $94 million. The increase reflects a 93 percent increase in
switched services minutes and a 24 percent increase in private line billable
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.
Income was also impacted by a decrease in interest accrued, due to the early
extinguishment of network services' long-term debt. 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 credit (loss) results from early extinguishment of debt
(see Note 6). Preferred stock dividends decreased, reflecting the redemption of
3,000,000 shares of outstanding $3.875 convertible exchangeable preferred stock
during the second quarter of 1993 (see Note 12).
1993 vs. 1992
Northwest Pipeline's revenues increased 10 percent, reflecting increased
firm transportation service and higher average transportation rates, partially
offset by lower average gas sales prices. Total mainline throughput increased 2
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 (subject to refund) into effect on April 1, 1993, that reflected the new
mainline expansion and straight-fixed-variable rate design that moderates
seasonal swings in operating revenues. Costs and operating expenses decreased 10
percent, due primarily to lower gas purchase volumes and per-unit costs and
decreased operation and maintenance expenses, partially offset by increased
depreciation. General and administrative expenses increased, due primarily to
higher supplemental retirement expenses and increased outside technical and
professional fees. Operating profit increased 49 percent, due primarily to
increased firm transportation service, higher average transportation rates and
lower operation and maintenance expenses, partially offset by higher
depreciation and general and administrative expenses and lower gas sales
margins.
Williams Natural Gas' revenues decreased 7 percent, primarily as a result
of lower natural gas sales volumes reflecting implementation of FERC Order 636
on October 1, 1993, partially offset by higher average transportation rates and
volumes and revenues generated from the sale of working gas in storage. Total
throughput increased 2 percent, due primarily to cooler weather in the first
quarter of 1993 and increased on-system industrial demand, partially offset by
lower off-system activity. Costs and operating expenses decreased 9 percent,
primarily as a result of decreased gas supply volumes, partially offset by
increased operating and maintenance expenses, increased amortization of
recoverable contract-reformation costs and higher per-unit gas supply costs.
Operating profit increased 4 percent, primarily due to higher average
transportation rates and volumes, reversal of excess contract-reformation costs
that had been previously accrued and the regulatory
F-3
<PAGE> 26
accounting for an income tax rate increase. Largely offsetting operating profit
increases were lower natural gas sales volumes and higher operating and
maintenance expenses. The impact of the regulatory accounting adjustment was
offset by additional deferred income tax expense.
Williams Field Services Group's revenues decreased 24 percent, due
primarily to lower natural gas sales volumes, partially offset by increased
gathering, liquids products and processing volumes, and higher average
gathering, processing and natural gas sales prices. Gathering volumes increased
18 percent, natural gas liquids volumes increased 11 percent and processing
volumes increased 14 percent when compared with volumes from the prior year. The
lower natural gas sales volumes were due to the March 1993 sale of Williams'
intrastate natural gas pipeline system and related marketing operations in
Louisiana. Costs and operating expenses decreased, due primarily to lower
natural gas purchase volumes, partially offset by higher gas costs associated
with the liquids extraction process and increased operating and maintenance
expenses at expanded gathering and processing facilities. Operating profit
increased 9 percent, due primarily to increased volumes at expanded facilities
and a favorable settlement involving processing revenues from prior periods,
partially offset by decreased gas sales volumes, lower liquids margins and
increased operating costs from expanded facilities. Other income -- net and
operating profit in 1992 also included a gain on the sale of a gathering
facility and the reversal of a loss accrual made in prior years.
Williams Pipe Line's revenues increased 21 percent, due primarily to 12
percent higher shipments, increased other revenues primarily related to gas
liquids and fractionator operations, partially offset by a slightly lower
transportation rate per barrel. The lower average transportation rate per barrel
reflects a 5 percent decrease in the length of the average haul, partially
offset by increased tariff rates for portions of both 1992 and 1993. Costs and
operating expenses increased, due primarily to gas liquids and fractionator
operations. Operating profit increased primarily as a result of higher shipments
and lower general and administrative expenses. During the fourth quarter,
Williams Pipe Line completed the acquisition of a 300-mile pipeline that
connects with the southern portion of its system in Oklahoma. The additional
pipeline will provide more direct access to key refining areas and open new
markets.
Williams Energy Ventures' revenues and operating costs decreased
approximately 27 percent, due primarily to reporting refined product trading
activities on a "net margin" basis effective July 1, 1993. Selling, general and
administrative expenses increased significantly from costs associated with
establishing this company's operations, pursuing new business development and
equipping the company to pursue a growing range of financial and
information-based opportunities in the energy industry. Operating profit
decreased as improved results from price-risk management activities were more
than offset by the expense associated with the development and marketing of new
information-based products and exploring other growth opportunities in the
energy industry. Improved results in price-risk management activities relate to
increases in marketing of commodities and derivatives products, in addition to
increased refined product trading volumes.
Williams Telecommunications Systems' revenues increased 12 percent, due
primarily to higher equipment sales and services. Costs and operating expenses
increased 9 percent, due primarily to the increased volume of equipment sales
and services. Selling, general and administrative expenses decreased 9 percent
as 1992 was negatively impacted by the costs associated with restructuring this
business. Operating profit increased to $9.5 million in 1993, compared with an
operating loss of $9.8 million in 1992 due to increased margins and volumes and
a decrease in selling, general and administrative expenses.
General corporate expenses increased, reflecting higher supplemental
retirement benefits (see Note 7) and incentive compensation accruals, in
addition to a contribution to The Williams Companies Foundation. Interest
accrued increased, primarily because of higher average borrowing levels,
partially offset by a lower effective interest rate including the effects of
interest-rate swap agreements (see Note 11). Investing income increased,
reflecting higher equity earnings from the Kern River Gas Transmission Company
pipeline, which became operational February 1992, and higher levels of
short-term investments. The gain on sales of assets in 1993 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. The 1992 gain on sales of assets results from the sale of a tract of
land in Florida that had been retained from the assets of Agrico Chemical
Company, which was sold in 1987. Other income (expense) -- net is unfavorable to
1992, primarily
F-4
<PAGE> 27
because of decreased equity AFUDC related to Northwest Pipeline's mainline
expansion and expense accruals for certain costs associated with businesses
previously sold.
The increase in the provision for income taxes is primarily a result of
higher pre-tax income and the $15.8 million cumulative effect of the 1 percent
increase in the federal income tax rate. The effective income tax rate in 1993
is higher than the statutory rate, primarily because of the effect of the
federal income tax rate increase and state income taxes, partially offset by
income tax credits from coal-seam gas production. The effective income tax rate
in 1992 is lower than the statutory rate, primarily because of income tax
credits from coal-seam gas production, partially offset by state income taxes
(see Note 5).
Income from discontinued operations related to WilTel's network services
operations increased 84 percent to $46.4 million in 1993 (see Note 2). The
increase is due primarily to a 122 percent increase in switched services
minutes, a 32 percent increase in private line billable circuits and lower
provisions for bad debt expense, partially offset by a decrease in the weighted
average price per circuit. The effective income tax rate for both 1993 and 1992
is greater than the federal statutory rate due to the effect of state income
taxes.
Preferred stock dividends decreased, reflecting the redemption of 3,000,000
shares of outstanding $3.875 convertible exchangeable preferred stock during the
second quarter of 1993 (see Note 12).
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 December
31, 1994, Williams had access to $495 million of liquidity, representing the
available portion of its $600 million bank-credit facility (see Note 11). This
compares with liquidity of $639 million at December 31, 1993, and $780 million
at December 31, 1992, including $178 million from Northwest Pipeline. During
1993, Williams filed a $300 million shelf registration statement with the
Securities and Exchange Commission, increasing the total amount available to
$400 million. The registration statement may be used to issue Williams common or
preferred stock, preferred stock purchase rights, debt securities, warrants to
purchase Williams common stock or warrants to purchase debt securities. In
addition, Northwest Pipeline has $50 million remaining on a registration
statement filed with the Securities and Exchange Commission in 1992. Williams
does not anticipate the need for additional financing arrangements; however,
Williams believes it could be obtained on reasonable terms if required.
Williams had a net working-capital deficit of $17 million at December 31,
1994, including net assets of discontinued operations of $744 million, compared
with $106 million at December 31, 1993. Subsequent to December 31, 1994, $398
million of notes payable and $350 million of revolving credit loans (see Note
11) were repaid from proceeds of the sale of WilTel's network services
operations. Williams manages its borrowings to keep cash and cash equivalents at
a minimum and has relied on bank-credit facilities to provide flexibility for
its cash needs. As a result, it historically has reported negative working
capital.
Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries. The restrictions have not impeded, nor are they expected
to impede, Williams' ability to meet its cash requirements in the future.
Subsequent to December 31, 1994, Williams completed the sale of WilTel's
network services operations, and also acquired 60 percent of Transco Energy
Company (Transco). See Notes 2 and 16 and the subsequent events section of
Management's Discussion and Analysis for additional information regarding the
impact these transactions will have on Williams' financial condition and
liquidity. During 1995, Williams expects to finance capital expenditures, the
Transco acquisition, investments and working-capital requirements through the
use of its $600 million bank-credit facility or public debt/equity offerings and
the proceeds from the sale of WilTel's network services operations.
F-5
<PAGE> 28
Operating Activities
Cash provided by continuing operating activities was: 1994 -- $189 million;
1993 -- $187 million; and 1992 -- $141 million. Accounts receivable increased
because of expanded activities of Williams Energy Ventures and acquisitions made
by Williams Telecommunications Systems, partially offset by the reclassification
of WilTel's network services receivables to net assets of discontinued
operations (see Note 2). Accounts payable and accrued liabilities also declined
as a result of the network services reclassification.
Cash provided by discontinued operations was: 1994 -- $179 million;
1993 -- $162 million; 1992 -- $113 million. The increases during the periods
primarily reflect improved operating results.
Financing Activities
Net cash provided (used) by financing activities was: 1994 -- $31 million;
1993 -- ($220) million; 1992 -- $421 million. Long-term debt proceeds, net of
principal payments and early extinguishments of debt, were $24 million during
1994. Long-term debt principal payments totaled $192 million during 1993. Long-
term debt proceeds, net of principal payments, during 1992 were $264 million.
The increase in net new borrowings during 1992 was primarily to fund capital
expenditures and investments and advances to affiliates.
During 1994, Williams and one of its subsidiaries purchased 13.8 million
shares of Williams common stock on the open market for $407 million.
Substantially all of the purchases were financed with a $400 million bank-credit
agreement. Subsequent to December 31, 1994, the outstanding amounts under the
credit agreement were repaid from the proceeds of the sale of WilTel's network
services operations, and the credit agreement was terminated. Williams also
repurchased 258,800 shares of its $2.21 cumulative preferred stock on the open
market for $6 million.
The majority of the proceeds from issuance of common stock in 1994 and 1993
resulted from certain Williams benefit plan stock purchases and exercise of
stock options under Williams' stock plan (see Note 12). During 1992, Williams
received net proceeds of $96 million from the sale of 4,000,000 shares of $2.21
cumulative preferred stock and $119 million from the sale of 7,100,000 shares of
common stock.
During 1993, Williams called for redemption of its 3,000,000 shares of
outstanding $3.875 convertible exchangeable preferred stock. Substantially all
of the preferred shares were converted into 7,600,000 shares of Williams common
stock.
Long-term debt at December 31, 1994, was $1.3 billion, compared with $1.6
billion at December 31, 1993, and $1.7 billion at December 31, 1992. The
long-term debt to debt-plus-equity ratio was 46.5 percent at year-end, compared
with 48.2 percent and 52.6 percent at December 31, 1993 and 1992, respectively.
If short-term notes payable and long-term debt due within one year are included
in the calculations, these ratios would be 59.3 percent, 49 percent and 54.9
percent, respectively. Included in long-term debt due within one year is $350
million outstanding under Williams' revolving credit loan (see Note 11).
See Note 6 for information regarding early extinguishment of debt by
Williams and its subsidiaries during 1994 and 1992.
Investing Activities
Net cash used by investing activities was: 1994 -- $427 million;
1993 -- $277 million; 1992 -- $511 million. Capital expenditures for
discontinued operations were $143 million in 1994; $101 million in 1993; and $59
million in 1992, primarily to expand and enhance WilTel's network. Capital
expenditures of pipeline subsidiaries, primarily to expand and modernize
systems, were $272 million in 1994; $405 million in 1993; and $500 million in
1992. Expenditures in 1994 include Northwest Pipeline's additional mainline
expansion and the expansion of various gathering and processing facilities.
Expenditures in 1993 include the completion of Northwest Pipeline's first
mainline expansion and the expansion of various gathering and processing
facilities. Approximately two-thirds of the 1992 expenditures relate to
Northwest Pipeline's mainline expansion. Budgeted capital expenditures for 1995
are approximately $1.3 billion, primarily to expand pipeline systems
F-6
<PAGE> 29
and gathering and processing facilities, develop an underground coal
gasification project and acquire certain gathering and processing assets in New
Mexico.
During 1994, Williams received net proceeds of $80 million from the sale of
limited partner units in Northern Border Partners, L.P. During 1993, Williams
received net proceeds of $113 million from the sale of 6.1 million units in the
Williams Coal Seam Gas Royalty Trust. In addition, Williams sold its intrastate
natural gas pipeline system and other related assets in Louisiana for $170
million (see Note 4).
Subsequent to December 31, 1994, Williams announced that Texasgulf Inc. (in
which Williams owns 15 percent) had filed registration statements with the
Securities and Exchange Commission covering the initial public offering for all
of Texasgulf's common stock and certain senior subordinated notes (see Note 3).
EFFECTS OF INFLATION
Williams has experienced increased costs in recent years due to the effects
of inflation. However, approximately 90 percent of Williams' property, plant and
equipment has been purchased since 1982, a period of relatively low inflation. A
substantial portion of Williams' property, plant and equipment is subject to
regulation, which limits recovery to historical cost. While Williams believes it
will be allowed the opportunity to earn a return based on the actual cost
incurred to replace existing assets, competition or other market factors may
limit the ability to recover such increased costs.
OTHER
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 (see
Note 15).
Williams is a participant in certain environmental activities in various
stages involving assessment studies, cleanup operations and/or remedial
processes. The sites, some of which are not currently owned by Williams (see
Note 15), are being monitored by Williams, other potentially responsible
parties, U.S. Environmental Protection Agency (EPA), or other governmental
authorities in a coordinated effort. In addition, Williams maintains an active
monitoring program for its continued remediation and cleanup of certain sites
connected with its refined products pipeline activities. Williams has both joint
and several liability in some of these activities and sole responsibility in
others. Current estimates of the most likely costs of such cleanup activities,
after payments by other parties, are approximately $40 million, all of which is
accrued at December 31, 1994. Williams expects to seek recovery of approximately
$28 million of these costs through future rates. Williams will fund these costs
from operations and/or available bank-credit facilities. The actual costs
incurred will depend on the final amount, type and extent of contamination
discovered at these sites, the final cleanup standards mandated by the EPA or
other governmental authorities, and other factors.
See Note 7 for the effects of a new accounting standard on postemployment
benefits; Note 13 for fair value and off-balance-sheet risk of financial
instruments; and Note 15 for contingencies.
SUBSEQUENT EVENTS
In January 1995, the Williams Board of Directors increased the quarterly
cash dividend on Williams common stock to $.27 per share, a 28.5 percent
increase over the previous amount.
Subsequent to December 31, 1994, Williams completed its previously
announced sale of WilTel's network services operations for $2.5 billion in cash.
The estimated after-tax gain of approximately $1 billion will be recorded in the
first quarter of 1995 (see Note 2). Net proceeds from the sale have been or will
be used to reduce Williams bank debt, finance the cash tender offer for shares
of Transco's common stock, retire certain Transco borrowings and preferred
stock, and finance Williams' 1995 capital expenditures program.
F-7
<PAGE> 30
Subsequent to December 31, 1994, Williams acquired 60 percent of Transco in
a cash tender offer for $430.5 million. Williams will acquire the remaining 40
percent of Transco's outstanding common stock through a merger, which will
result in the issuance of approximately 10.2 million shares of Williams common
stock (see Note 16). In connection with the acquisition, Williams plans to
redeem for cash $150 million in Transco's $4.75 preferred stock, issue $125
million in Williams preferred stock in exchange for Transco's $3.50 preferred
stock and retire approximately $550 million of Transco's borrowings and
subsidiary preferred stock, interest-rate swaps and sale of receivables
facilities. Williams may also provide funds for Transco working capital and
other needs.
F-8
<PAGE> 31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors...................................................... F-10
Consolidated Statement of Income.................................................... F-11
Consolidated Balance Sheet.......................................................... F-13
Consolidated Statement of Stockholders' Equity...................................... F-14
Consolidated Statement of Cash Flows................................................ F-15
Notes to Consolidated Financial Statements.......................................... F-16
Quarterly Financial Data (Unaudited)................................................ F-39
</TABLE>
F-9
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
To The Stockholders of
The Williams Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Williams
Companies, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Williams Companies, Inc. at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 10, 1995
F-10
<PAGE> 33
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993* 1992*
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
Revenues:
Interstate Natural Gas Pipelines:
Northwest Pipeline...................................... $ 238.5 $ 276.5 $ 251.4
Williams Natural Gas.................................... 231.3 294.1 314.7
Williams Field Services Group.............................. 589.0 707.0 925.3
Liquids Pipeline/Energy Ventures:
Williams Pipe Line...................................... 209.7 179.3 148.5
Williams Energy Ventures................................ 137.6 80.0 109.8
Williams Telecommunications Systems........................ 396.6 302.8 271.1
Other...................................................... 18.2 10.4 8.6
Intercompany eliminations (Note 14)........................ (69.8) (56.7) (45.9)
------- ------- -------
Total revenues..................................... 1,751.1 1,793.4 1,983.5
------- ------- -------
Profit-center costs and expenses:
Costs and operating expenses............................... 1,187.7 1,283.9 1,560.3
Selling, general and administrative expenses............... 229.2 203.2 194.5
Other income -- net........................................ (8.1) (7.8) (7.6)
------- ------- -------
Total profit-center costs and expenses............. 1,408.8 1,479.3 1,747.2
------- ------- -------
Operating profit (loss):
Interstate Natural Gas Pipelines:
Northwest Pipeline...................................... 104.1 98.8 66.4
Williams Natural Gas.................................... 48.8 41.0 39.4
Williams Field Services Group.............................. 131.4 125.5 114.9
Liquids Pipeline/Energy Ventures:
Williams Pipe Line...................................... 60.1 48.2 33.0
Williams Energy Ventures................................ (10.8) 7.8 10.1
Williams Telecommunications Systems........................ 18.9 9.5 (9.8)
Other...................................................... (10.2) (16.7) (17.7)
------- ------- -------
Total operating profit............................. 342.3 314.1 236.3
General corporate expenses................................... (28.0) (38.4) (27.2)
Interest accrued............................................. (145.8) (151.2) (145.4)
Interest capitalized......................................... 6.0 10.4 8.9
Investing income (Note 3).................................... 49.6 65.2 50.5
Gain on sales of assets (Note 4)............................. 22.7 97.5 14.6
Other income (expense) -- net................................ (.2) .4 7.8
------- ------- -------
Income from continuing operations before income taxes........ 246.6 298.0 145.5
Provision for income taxes (Note 5).......................... 81.7 112.6 42.4
------- ------- -------
Income from continuing operations............................ 164.9 185.4 103.1
Income from discontinued operations (Note 2)................. 94.0 46.4 25.2
------- ------- -------
Income before extraordinary credit (loss).................... 258.9 231.8 128.3
Extraordinary credit (loss) (Note 6)......................... (12.2) -- 9.9
------- ------- -------
Net income................................................... 246.7 231.8 138.2
Preferred stock dividends.................................... 8.8 11.8 14.5
------- ------- -------
Income applicable to common stock............................ $ 237.9 $ 220.0 $ 123.7
======= ======= =======
</TABLE>
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-11
<PAGE> 34
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME -- (CONCLUDED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993* 1992*
----- ----- -----
<S> <C> <C> <C>
Primary earnings per common and common-equivalent share
(Notes 1, 2 and 6):
Income from continuing operations................................. $1.52 $1.74 $ .97
Income from discontinued operations............................... .92 .46 .28
----- ----- -----
Income before extraordinary credit (loss)......................... 2.44 2.20 1.25
Extraordinary credit (loss)....................................... (.12) -- .11
----- ----- -----
Net income........................................................ $2.32 $2.20 $1.36
===== ===== =====
Fully diluted earnings per common and common-equivalent share
(Notes 1, 2 and 6):
Income from continuing operations................................. $1.52 $1.71 $ .97
Income from discontinued operations............................... .92 .45 .28
----- ----- -----
Income before extraordinary credit (loss)......................... 2.44 2.16 1.25
Extraordinary credit (loss)....................................... (.12) -- .11
----- ----- -----
Net income........................................................ $2.32 $2.16 $1.36
===== ===== =====
</TABLE>
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-12
<PAGE> 35
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1993
------- -------
(MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 36.1 $ 64.3
Receivables less allowance of $7.9 million ($10.2 million in
1993).......................................................... 452.3 360.1
Inventories (Note 8).............................................. 112.3 108.2
Net assets of discontinued operations (Note 2).................... 743.6 --
Deferred income taxes (Note 5).................................... 57.1 40.3
Other............................................................. 55.4 53.6
-------- --------
Total current assets...................................... 1,456.8 626.5
Investments (Note 3)................................................ 379.1 437.1
Property, plant and equipment -- net (Note 9)....................... 3,124.0 3,678.6
Other assets and deferred charges................................... 266.2 278.2
-------- --------
Total assets.............................................. $5,226.1 $5,020.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 11)........................................... $ 507.0 $ --
Accounts payable (Note 10)........................................ 222.5 298.4
Accrued liabilities (Note 10)..................................... 361.4 380.3
Long-term debt due within one year (Note 11)...................... 383.0 54.0
-------- --------
Total current liabilities................................. 1,473.9 732.7
Long-term debt (Note 11)............................................ 1,307.8 1,604.8
Deferred income taxes (Note 5)...................................... 662.9 625.2
Deferred income and other liabilities............................... 276.0 333.7
Contingent liabilities and commitments (Note 15)
Stockholders' equity (Note 12):
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,
104,401,819 shares issued in 1994 and 103,078,505 shares issued
and outstanding in 1993........................................ 104.4 103.1
Capital in excess of par value.................................... 991.0 959.1
Retained earnings (Note 11)....................................... 716.5 563.7
Unamortized deferred compensation................................. (1.3) (1.9)
-------- --------
1,910.6 1,724.0
Less treasury stock, 13,516,994 shares of common stock and 258,800
shares of preferred stock, at cost............................. (405.1) --
-------- --------
Total stockholders' equity................................ 1,505.5 1,724.0
-------- --------
Total liabilities and stockholders' equity................ $5,226.1 $5,020.4
======== ========
</TABLE>
See accompanying notes.
F-13
<PAGE> 36
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN UNAMORTIZED
PREFERRED COMMON EXCESS OF RETAINED DEFERRED TREASURY
STOCK STOCK PAR VALUE EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- --------- ------------ -------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991............ $150.0 $83.5 $621.1 $365.8 $(.4) $-- $1,220.0
Net income -- 1992.................... -- -- -- 138.2 -- -- 138.2
Cash dividends --
Common stock ($.76 per share)....... -- -- -- (68.2) -- -- (68.2)
Preferred stock (Note 12)........... -- -- -- (14.5) -- -- (14.5)
Issuance of shares --
8,780,080 common.................... -- 8.8 138.0 -- (.7) -- 146.1
4,000,000 preferred................. 100.0 -- (3.8) -- -- -- 96.2
Amortization of deferred
compensation........................ -- -- -- -- .4 -- .4
Other................................. -- -- .1 -- -- -- .1
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1992............ 250.0 92.3 755.4 421.3 (.7) -- 1,518.3
Net income -- 1993.................... -- -- -- 231.8 -- -- 231.8
Cash dividends --
Common stock ($.78 per share)....... -- -- -- (77.6) -- -- (77.6)
Preferred stock (Note 12)........... -- -- -- (11.8) -- -- (11.8)
Issuance of shares -- 3,174,439
common.............................. -- 3.2 55.2 -- (1.7) -- 56.7
Conversion of preferred stock (Note
12)................................. (150.0) 7.6 141.8 -- -- -- (.6)
Tax benefit of non-qualified stock
option exercises.................... -- -- 6.7 -- -- -- 6.7
Amortization of deferred
compensation........................ -- -- -- -- .5 -- .5
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1993............ 100.0 103.1 959.1 563.7 (1.9) -- 1,724.0
Net income -- 1994.................... -- -- -- 246.7 -- -- 246.7
Cash dividends --
Common stock ($.84 per share)....... -- -- -- (85.1) -- -- (85.1)
Preferred stock (Note 12)........... -- -- -- (8.8) -- -- (8.8)
Issuance of shares -- 1,596,409
common.............................. -- 1.3 30.1 -- (1.3) 8.1 38.2
Purchase of treasury stock --
Common 13,790,089................... -- -- -- -- -- (406.8) (406.8)
Preferred 258,800................... -- -- -- -- -- (6.4) (6.4)
Tax benefit of non-qualified stock
option exercises.................... -- -- 1.8 -- -- -- 1.8
Amortization of deferred
compensation........................ -- -- -- -- 1.9 -- 1.9
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1994............ $100.0 $104.4 $991.0 $716.5 $(1.3) $(405.1) $1,505.5
======== ====== ======= ======= ====== ======== ========
</TABLE>
See accompanying notes.
F-14
<PAGE> 37
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993* 1992*
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
Operating Activities:
Net income.................................................... $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations.................................... (94.0) (46.4) (25.2)
Extraordinary (credit) loss................................ 12.2 -- (9.9)
Depreciation and depletion................................. 150.3 137.8 122.2
Provision (credit) for deferred income taxes............... 25.8 8.1 (8.6)
(Gain) loss on sales of property, plant and equipment...... .9 (102.0) (18.9)
Gain on sale of investment................................. (22.7) -- --
Changes in receivables sold................................ -- (94.7) (32.4)
Changes in receivables..................................... (175.0) 99.9 (105.7)
Changes in inventories..................................... 10.2 (.8) 9.9
Changes in other current assets............................ (2.8) (16.9) 25.3
Changes in accounts payable................................ 20.7 (37.6) 29.9
Changes in accrued liabilities............................. 8.1 (43.2) 42.7
Other, including changes in non-current assets and
liabilities.............................................. 8.0 50.9 (26.2)
------- ------- -------
Net cash provided by continuing operations............ 188.4 186.9 141.3
Net cash provided by discontinued operations.......... 179.2 162.6 112.7
------- ------- -------
Net cash provided by operating activities............. 367.6 349.5 254.0
------- ------- -------
Financing Activities:
Changes in notes payable...................................... 507.0 -- --
Proceeds from long-term debt.................................. 480.0 -- 476.3
Payments of long-term debt:
Continuing operations...................................... (328.5) (169.6) (167.4)
Discontinued operations.................................... (128.0) (22.6) (45.1)
Premium on early extinguishment of debt....................... (18.6) -- --
Proceeds from issuance of preferred stock..................... -- -- 96.2
Proceeds from issuance of common stock........................ 26.4 63.4 146.1
Purchases of treasury stock................................... (413.2) -- --
Dividends paid................................................ (93.9) (89.4) (82.7)
Other--net.................................................... -- (2.1) (2.0)
------- ------- -------
Net cash provided (used) by financing activities...... 31.2 (220.3) 421.4
------- ------- -------
Investing Activities:
Property, plant and equipment:
Capital expenditures:
Continuing operations.................................... (325.5) (428.3) (526.7)
Discontinued operations.................................. (142.8) (100.8) (59.6)
Proceeds from sales........................................ 1.6 295.4 29.5
Changes in accounts payable and accrued liabilities........ 19.1 (48.4) 65.2
Acquisition of businesses..................................... (56.5) -- --
Proceeds from sale of investments............................. 80.6 8.8 --
Other -- net.................................................. (3.5) (3.9) (19.7)
------- ------- -------
Net cash used by investing activities................. (427.0) (277.2) (511.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents...... (28.2) (148.0) 164.1
Cash and cash equivalents at beginning of year.................. 64.3 212.3 48.2
------- ------- -------
Cash and cash equivalents at end of year........................ $ 36.1 $ 64.3 $ 212.3
======= ======= =======
</TABLE>
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-15
<PAGE> 38
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of The Williams
Companies, Inc. and majority-owned subsidiaries (Williams). Companies in which
Williams and its subsidiaries own 20 percent to 50 percent of the voting common
stock, or otherwise exercise sufficient influence over operating and financial
policies of the company, are accounted for under the equity method.
Cash and cash equivalents
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
Inventory valuation
Inventories are stated at cost, which is not in excess of market, except
for those held by Williams Energy Ventures (see Commodity price-risk management
activities accounting policy). Inventories of natural gas are determined using
the average-cost method. Williams Pipe Line's inventories of petroleum products
are also principally determined using average cost. The cost of materials and
supplies inventories is determined principally using the first-in, first-out
method by Williams Telecommunications Systems and the average-cost method by
other subsidiaries.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is provided
primarily on the straight-line method over estimated useful lives. Gains or
losses from the ordinary sale or retirement of property, plant and equipment for
regulated pipeline subsidiaries are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.
Treasury stock
Treasury stock purchases are accounted for under the cost method whereby
the entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to capital
in excess of par value using the average-cost method.
Revenue recognition
Revenues generally are recorded when services have been performed or
products have been delivered. Natural gas transportation revenues are recognized
based upon contractual terms and the related transported volume through
month-end. Williams Pipe Line bills customers when products are shipped and
defers the estimated revenues for shipments in transit.
Commodity price-risk management activities
Williams Energy Ventures enters into energy-related financial instruments
(primarily futures contracts, options contracts and swap agreements) to hedge
against market price fluctuations of certain refined products inventories and
natural gas sales and purchase commitments. Gains and losses on these hedge
contracts are recognized in income when the related hedged item is recognized.
Williams Energy Ventures also uses energy-related financial instruments
(forward contracts, futures contracts, options contracts and swap agreements)
and physical inventory to provide price-risk management services to its
customers. These investments are valued at market and are primarily recorded in
other current assets and other accrued liabilities in the Consolidated Balance
Sheet. The resulting change in unrealized
F-16
<PAGE> 39
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market gains and losses is recognized in income currently and is recorded as
revenues in the Consolidated Statement of Income. Such market values reflect
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of the
contract, credit considerations, time value and volatility factors underlying
the positions.
Capitalization of interest
Williams capitalizes interest on major projects during construction.
Interest is capitalized on borrowed funds and, where regulation by the Federal
Energy Regulatory Commission (FERC) exists, on internally generated funds. The
rates used by regulated companies are calculated in accordance with FERC rules.
Rates used by unregulated companies approximate the average interest rate on
related debt. Interest capitalized on internally generated funds is included in
other income (expense) -- net.
Income taxes
Williams includes the operations of its subsidiaries in its consolidated
federal income tax return. Deferred income taxes are computed using the
liability method and are provided on all temporary differences between the
financial basis and the tax basis of Williams' assets and liabilities.
Earnings per share
Primary earnings per share are based on the sum of the average number of
common shares outstanding and common-share equivalents resulting from stock
options and deferred shares. Fully diluted earnings per share for 1993 assumes
conversion of the convertible exchangeable preferred stock (CEPS) into common
stock effective January 1, 1993. The CEPS were not dilutive in 1992. Shares used
in determination of primary earnings per share are as follows (in thousands):
1994 -- 102,470; 1993 -- 99,911; and 1992 -- 90,816. Shares used in
determination of fully diluted earnings per share are as follows (in thousands):
1994 -- 102,502; 1993 -- 103,171; and 1992 -- 90,816.
NOTE 2 -- DISCONTINUED OPERATIONS
In August 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 closed January 5, 1995, yielding an after-tax gain of
approximately $1 billion, which will be recorded in the first quarter of 1995.
Under the terms of the agreement, Williams retained WilTel Communications
Systems, Inc. (which has been renamed 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. The Consolidated Financial Statements have been
prepared to present operating results of network services as discontinued
operations, with prior period operating results restated.
Summarized operating results of discontinued operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Revenues..................................................... $921.8 $663.8 $494.2
Operating profit............................................. 163.1 97.0 58.6
Provision for income taxes................................... 60.9 32.2 16.2
Income from discontinued operations.......................... 94.0 46.4 25.2
</TABLE>
The assets and liabilities that were transferred to LDDS in the sale of the
network services operations are presented in the Consolidated Balance Sheet on a
net basis at December 31, 1994. Net assets consist of current assets ($86.5
million), net property, plant and equipment ($797.8 million), other assets and
deferred
F-17
<PAGE> 40
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
charges ($144.3 million), less current liabilities ($218.3 million) and deferred
income and other liabilities ($66.7 million).
NOTE 3 -- INVESTING ACTIVITIES
<TABLE>
<CAPTION>
1994 1993
------ ------
(MILLIONS)
<S> <C> <C>
Investments:
Kern River Gas Transmission Company (50%)*......................... $179.4 $179.3
Northern Border Pipeline partnerships (3.2% in 1994 and 12.25% in
1993)* (Note 4)................................................. 20.0 78.6
Texasgulf Inc. (15%)............................................... 150.0 150.0
Other*............................................................. 29.7 29.2
------ ------
$379.1 $437.1
====== ======
</TABLE>
- ---------------
* Accounted for on the equity method.
Williams' investment in Texasgulf Inc. is subject to certain rights under a
shareholder agreement. Williams has the right to sell the shares to the majority
owner under various specified terms and to require Texasgulf to register the
shares for public offering. Most of the rights under the shareholder agreement,
including the right to sell to the majority owner, are not transferable in the
event Williams sells the shares or there is a change in control of Williams.
Subsequent to December 31, 1994, Williams and the majority owner of
Texasgulf filed registration statements with the Securities and Exchange
Commission covering an initial public offering of all Texasgulf's common stock
and certain senior subordinated notes. If the common stock offering is completed
as filed, Williams will sell all of its interests in Texasgulf except for
certain nonproducing phosphate reserves. After giving consideration to the
expected effect of these transactions, the estimated net realizable value of
certain properties which are expected to be retained, dividends already received
from Texasgulf in 1995 and previously unrecognized income tax benefits, Williams
does not expect to incur an after-tax loss on the disposition. If the above
public offerings do not occur or are significantly altered, Williams believes it
will ultimately realize its after-tax investment in Texasgulf through other
rights or alternatives.
At December 31, 1994, other investments carried at $30 million have a
market value of $73 million.
Investing income from continuing operations:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Interest.................................................... $ 5.5 $10.0 $ 4.7
Dividends................................................... 4.5 5.6 5.2
Equity earnings............................................. 39.6 49.6 40.6
----- ----- -----
$49.6 $65.2 $50.5
===== ===== =====
</TABLE>
Dividends and distributions received from companies carried on an equity
basis were $43 million in 1994; $39 million in 1993; and $10 million in 1992.
F-18
<PAGE> 41
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial position and results of operations for Kern River Gas
Transmission Company are presented below. Kern River operations began in
February 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
Current assets....................................... $ 114.1 $ 78.7 $ 46.6
Non-current assets, principally natural gas
transmission plant................................. 1,026.3 1,026.8 1,003.5
Current liabilities.................................. (86.4) (60.2) (34.2)
Long-term debt....................................... (643.2) (662.9) (675.9)
Other non-current liabilities........................ (109.5) (65.5) (16.3)
------- ------- -------
Partners' equity..................................... $ 301.3 $ 316.9 $ 323.7
======= ======= =======
Revenues............................................. $ 179.0 $ 178.7 $ 127.5
Costs and expenses................................... 54.9 50.6 31.7
Net income........................................... 38.1 42.1 34.1
</TABLE>
NOTE 4 -- SALES OF ASSETS
In 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 Northern Border partnerships
has been reduced to 3.2 percent.
In a 1993 public offering, Williams sold 6.1 million units in the Williams
Coal Seam Gas Royalty Trust (Trust), which resulted in net proceeds of $113
million and a pre-tax gain of $51.6 million. The Trust owns defined net profits
interests in the developed coal-seam properties in the San Juan Basin of New
Mexico and Colorado, which were conveyed to the Trust by Williams Production
Company. Ownership of an additional 3.6 million units remains with Williams.
In March 1993, Williams sold its intrastate natural gas pipeline system and
other related assets in Louisiana for $170 million in cash, resulting in a
pre-tax gain of $45.9 million.
The 1992 gain of $14.6 million resulted from the sale of a tract of land in
Florida that had been retained from the assets of Agrico Chemical Company, which
was sold several years ago.
NOTE 5 -- PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal.................................................. $45.8 $ 84.1 $40.5
State.................................................... 10.1 20.4 10.5
----- ------ -----
55.9 104.5 51.0
----- ------ -----
Deferred:
Federal.................................................. 23.7 15.8 (6.3)
State.................................................... 2.1 (7.7) (2.3)
----- ------ -----
25.8 8.1 (8.6)
----- ------ -----
Total provision............................................ $81.7 $112.6 $42.4
===== ====== =====
</TABLE>
F-19
<PAGE> 42
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1993 provision for income taxes includes the effect of a 1 percent
increase in the federal income tax rate, which was made retroactive to January
1, 1993. Effective January 1, 1993, Williams adopted Statement of Financial
Accounting Standards (FAS) No. 109, "Accounting for Income Taxes." Adoption of
the standard had a cumulative favorable effect of approximately $2 million on
net income. The effect is recorded in income tax expense because of
immateriality. Prior to 1993, Williams accounted for deferred income taxes under
FAS No. 96. As permitted under the new rules, prior years' financial statements
have not been restated.
Reconciliations from the provision for income taxes attributable to
continuing operations at the statutory rate to the provision for income taxes
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ -----
(MILLIONS)
<S> <C> <C> <C>
Provision at statutory rate............................... $ 86.3 $104.3 $49.5
Increases (reductions) in taxes resulting from:
Increase in statutory tax rate on beginning of year
deferred tax balances................................ -- 15.8 --
State income taxes...................................... 8.0 8.2 5.3
Income tax credits...................................... (14.9) (12.8) (9.5)
Other -- net............................................ 2.3 (2.9) (2.9)
------ ------ -----
Provision for income taxes................................ $ 81.7 $112.6 $42.4
====== ====== =====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes.
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment.................................... $732.1 $703.4
Investments...................................................... 85.1 114.8
Other............................................................ 82.5 101.7
------ ------
Total deferred tax liabilities........................... 899.7 919.9
Deferred tax assets:
Deferred revenues................................................ 42.1 49.3
Investments...................................................... 59.0 88.9
Rate refunds..................................................... 33.7 17.5
Regulatory liabilities........................................... 14.4 16.1
Accrued liabilities.............................................. 67.7 54.9
State deferred taxes............................................. 24.9 22.7
Minimum tax credits.............................................. -- 8.5
Other............................................................ 84.1 110.8
------ ------
Total deferred tax assets................................ 325.9 368.7
Valuation allowance for deferred tax assets.............. 32.0 33.7
------ ------
Net deferred tax assets.................................. 293.9 335.0
------ ------
Net deferred tax liabilities....................................... $605.8 $584.9
====== ======
</TABLE>
The valuation allowance for deferred tax assets decreased $1.7 million and
$3.4 million during 1994 and 1993, respectively.
F-20
<PAGE> 43
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash payments for income taxes are as follows: 1994 -- $113 million, before
refunds of $6 million; 1993 -- $129 million; and 1992 -- $50 million.
NOTE 6 -- EXTRAORDINARY CREDIT (LOSS)
The extraordinary items in 1994 and 1992 result from early extinguishment
of debt. During 1994, Williams and one of its subsidiaries paid $316.7 million
to redeem higher interest rate debt for a $12.2 million net loss (net of a $7.7
million benefit for income taxes). In 1992, two of Williams' subsidiaries paid a
total of $55.7 million to redeem debt resulting in a $9.9 million net gain
(including a $.7 million benefit for income taxes).
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Pensions
Williams maintains non-contributory defined-benefit pension plans covering
the majority of employees. Benefits are based on years of service and average
final compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.
Net pension expense consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year........... $ 13.9 $ 10.9 $ 10.5
Interest cost on projected benefit obligation.............. 21.8 21.1 18.9
Actual return on plan assets............................... 3.1 (28.3) (17.9)
Amortization and deferrals................................. (24.2) 8.2 (.7)
Settlement loss............................................ -- 5.7 --
------ ------ ------
Net pension expense........................................ $ 14.6 $ 17.6 $ 10.8
====== ====== ======
Net pension expense:
Continuing operations.................................... $ 10.0 $ 14.9 $ 8.5
Discontinued operations.................................. 4.6 2.7 2.3
------ ------ ------
$ 14.6 $ 17.6 $ 10.8
====== ====== ======
</TABLE>
During 1993, certain supplemental retirement plan participants elected to
receive lump-sum benefits, which resulted in a settlement loss of $5.7 million.
F-21
<PAGE> 44
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the funded status of the plans:
<TABLE>
<CAPTION>
1994 1993
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits..................................................... $191 $229
Non-vested benefits................................................. 10 14
---- ----
Accumulated benefit obligations..................................... 201 243
Effect of projected salary increases................................ 58 75
---- ----
Projected benefit obligations....................................... 259 318
Assets at market value................................................ 251 275
---- ----
Assets less than projected benefit obligations........................ 8 43
Unrecognized net loss................................................. (12) (38)
Unrecognized prior-service cost....................................... (10) (9)
Unrecognized transition asset......................................... 5 6
---- ----
Pension (asset) liability............................................. $ (9) $ 2
==== ====
</TABLE>
Williams has retained all liabilities and obligations of WilTel's network
services operations' plan participants up to the date of sale (see Note 2).
At December 31, 1994, assets of two of Williams' pension plans exceeded the
projected benefit obligations by $5 million. However, the preceding table
includes pension plans that had projected benefit obligations of $26 million and
assets of $13 million at December 31, 1994.
The discount rate used to measure the present value of benefit obligations
is 8 1/2 percent (7 1/4 percent in 1993); the assumed rate of increase in future
compensation levels is 5 percent; and the expected long-term rate of return on
assets is 10 percent. Plan assets consist primarily of commingled funds and
assets held in a master trust. The master trust is comprised primarily of
domestic and foreign common and preferred stocks, corporate bonds, United States
government securities and commercial paper.
Postretirement benefits other than pensions
Williams sponsors a health care plan that provides postretirement medical
benefits to retired employees who were employed full time, hired prior to
January 1, 1992, have worked five years, attained age 55 while in service with
Williams and are a participant in the Williams pension plans. The plan provides
for retiree contributions and contains other cost-sharing features such as
deductibles and coinsurance. The accounting for the plan anticipates future
cost-sharing changes to the written plan that are consistent with Williams'
expressed intent to increase the retiree contribution rate annually for the
expected general inflation rate for that year. A portion of the cost has been
funded in trusts by Williams' FERC-regulated natural gas pipeline subsidiaries
to the extent recovery from customers can be achieved. Plan assets consist of
assets held in a master trust (previously described) and money market funds.
Effective January 1, 1993, Williams prospectively adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Application of the standard reduced 1993 net income by approximately $2 million.
F-22
<PAGE> 45
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement benefit expense consists of the following:
<TABLE>
<CAPTION>
1994 1993
----- -----
(MILLIONS)
<S> <C> <C>
Service cost for benefits earned during the year..................... $ 3.9 $ 3.7
Interest cost on accumulated postretirement benefit obligation....... 7.8 8.2
Actual return on plan assets......................................... (.6) (.7)
Amortization of unrecognized transition obligation................... 5.1 5.2
Amortization and deferrals........................................... .1 (3.5)
----- -----
Net postretirement benefit expense................................... $16.3 $12.9
===== =====
Net postretirement benefit expense:
Continuing operations.............................................. $14.7 $11.4
Discontinued operations............................................ 1.6 1.5
----- -----
$16.3 $12.9
===== =====
</TABLE>
The estimated expense of providing these benefits to retirees was $8
million in 1992 ($1 million for discontinued operations) and included accruals
of $4 million for future benefits payable to eligible active employees.
The following table presents the funded status of the plan:
<TABLE>
<CAPTION>
1994 1993
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of postretirement benefit obligation:
Retirees............................................................ $ 55 $ 65
Fully eligible active plan participants............................. 11 11
Other active plan participants...................................... 34 41
---- ----
Accumulated postretirement benefit obligation....................... 100 117
Assets at market value................................................ 16 10
---- ----
Assets less than accumulated postretirement benefit obligation........ 84 107
Unrecognized net gain (loss).......................................... 19 (4)
Unrecognized transition obligation.................................... (78) (83)
---- ----
Postretirement benefit liability...................................... $ 25 $ 20
==== ====
</TABLE>
The postretirement benefit liability at December 31, 1994, includes
approximately $5 million for WilTel's network services operations' plan
participants. Williams has no obligation to pay postretirement medical benefits
for these participants after the date of sale (see Note 2).
The discount rate used to measure the present value of benefit obligations
is 8 1/2 percent (7 1/4 percent in 1993). The expected long-term rate of return
on plan assets is 10 percent. The annual assumed rate of increase in the health
care cost trend rate for 1995 is 10 to 14 percent, systematically decreasing to
6 percent by 2003. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost trend
rate by 1 percent in each year would increase the aggregate of the service and
interest cost components of postretirement benefit expense for the year ended
December 31, 1994, by $2 million and the accumulated postretirement benefit
obligation as of December 31, 1994, by $14 million.
F-23
<PAGE> 46
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other
Williams maintains various defined-contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. Company contributions
are invested primarily in Williams common stock. Williams' contributions to
these plans were $14 million in 1994, $13 million in 1993 and $11 million in
1992. Contributions to these plans made by discontinued operations were $3
million in 1994 and 1993, and $2 million in 1992.
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 1994 net income by approximately $2 million and is not reported as a
change in accounting principle due to immateriality.
NOTE 8 -- INVENTORIES
<TABLE>
<CAPTION>
1994 1993
------ ------
(MILLIONS)
<S> <C> <C>
Natural gas in underground storage................................. $ 9.9 $ 12.1
Petroleum products:
Williams Pipe Line............................................... 12.1 11.6
Williams Energy Ventures......................................... 25.6 22.8
Other............................................................ 3.7 3.8
Materials and supplies:
Williams Telecommunications Systems.............................. 28.6 22.6
Other............................................................ 32.4 35.3
------ ------
$112.3 $108.2
====== ======
</TABLE>
NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1993
-------- --------
(MILLIONS)
<S> <C> <C>
Cost:
Northwest Pipeline.......................................... $1,275.4 $1,221.6
Williams Natural Gas........................................ 745.0 721.6
Williams Field Services Group............................... 1,274.4 1,117.6
Williams Pipe Line.......................................... 781.9 750.0
Williams Energy Ventures.................................... 31.4 6.3
Williams Telecommunications Systems......................... 32.1 25.3
Discontinued operations (Note 2)............................ -- 1,052.8
Other....................................................... 170.9 137.9
-------- --------
4,311.1 5,033.1
Accumulated depreciation...................................... (1,187.1) (1,354.5)
-------- --------
$3,124.0 $3,678.6
======== ========
</TABLE>
Commitments for construction and acquisition of property, plant and
equipment are approximately $70 million at December 31, 1994.
F-24
<PAGE> 47
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' cash-management system, certain subsidiaries' cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amounts of these credit balances included in accounts payable are
$41 million at December 31, 1994, and $53 million at December 31, 1993.
<TABLE>
<CAPTION>
1994 1993
------ ------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Rate refunds...................................................... $ 83.8 $ 42.7
Employee costs.................................................... 51.7 62.3
Interest.......................................................... 39.9 42.9
Deferred revenue.................................................. 24.5 54.8
Income taxes payable.............................................. 38.0 22.2
Taxes other than income taxes..................................... 41.8 38.5
Other............................................................. 81.7 116.9
------ ------
$361.4 $380.3
====== ======
</TABLE>
NOTE 11 -- LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1994, a subsidiary of Williams entered into a $400 million
short-term credit agreement to finance the acquisition of Williams common stock.
Notes payable totaling $398 million were outstanding under this agreement at
December 31, 1994. These notes were repaid in January 1995.
The weighted average interest rate on the $507 million outstanding
short-term borrowings at December 31, 1994, was 6.75 percent. There were no
short-term borrowings outstanding at December 31, 1993.
F-25
<PAGE> 48
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE (MILLIONS)
INTEREST ------------------
RATE* 1994 1993
-------- ------- -------
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans............................... 6.6% $ 350.0 $ --
Debentures, 8.875% -- 10.25%, payable 2012, 2020
and 2021.......................................... 9.5 379.7 400.0
Notes, 7.5% -- 13%, payable through 2001............. 8.3 363.8 524.8
Capital lease obligations, 11.1%, payable through
2014.............................................. 11.1 31.0 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
Variable rate notes, payable 1999.................... 6.2 130.0 --
Debentures at 10.25%................................. -- -- 120.0
Williams Field Services Group
Other, payable through 1999.......................... 8.0 5.7 --
Williams Pipe Line
Notes, 8.95% and 9.78%, payable through 2001......... 9.3 120.0 130.0
Williams Telecommunications Systems
Other................................................ 7.9 4.3 5.8
Discontinued operations (Note 2)
Notes at 9.61% and 9.81%............................. -- -- 127.5
-------- --------
1,690.8 1,658.8
Current portion of long-term debt...................... (383.0) (54.0)
-------- --------
$1,307.8 $1,604.8
======== ========
</TABLE>
- ---------------
* At December 31, 1994.
Under Williams' $600 million credit agreement, Northwest Pipeline, Williams
Natural Gas and Williams Pipe Line have access to various amounts of the
facility while Williams (parent) has access to all unborrowed amounts. Interest
rates vary with current market conditions. Certain amounts outstanding at
December 31, 1994, under this facility do not reduce amounts available to
Williams in the future. The available amount at December 31, 1994, is $495
million. The agreement terminates in December 1995 and Williams expects to
replace it with a similar agreement.
In conjunction with the issuance of $130 million of variable rate debt by
Williams Natural Gas in November 1994, Williams entered into an interest-rate
swap agreement under which Williams pays a 7.78 percent fixed rate in exchange
for a variable rate (5.81 percent at December 31, 1994). The difference between
the fixed and variable rate is included in interest expense.
During 1993, Williams sold to financial institutions options to enter into
future interest-rate swap agreements on $220 million of fixed-rate debt. Net
proceeds of $22 million from the sale of these options were deferred and
amortized as a reduction of interest expense over the remaining term of the
original debt agreements. In 1994, the original debt was prepaid, the options
were terminated and the remaining deferred proceeds from the sale of the options
have been included in the extraordinary loss on the debt extinguishments (see
Note 6).
F-26
<PAGE> 49
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1992, Williams entered into interest-rate swap agreements to
effectively convert $450 million of fixed-rate debt to variable-rate debt.
Subsequently, Williams entered into a forward termination of the agreements,
effective March 1993, which resulted in Williams receiving $29 million in net
proceeds. This amount has been deferred and is being amortized as a reduction of
interest expense over the remaining term of the original agreements.
Terms of borrowings require maintenance of certain financial ratios, limit
the sale or encumbrance of assets and limit the amount of additional borrowings.
In addition, certain debt agreements include a restriction on the payment of
dividends on common stock and the amount that can be expended to acquire
Williams common stock. At December 31, 1994, Williams had $565 million available
under this covenant. Terms of certain subsidiaries' borrowing arrangements with
institutional lenders limit the transfer of funds to Williams. Net assets of
consolidated subsidiaries at December 31, 1994, are $2.7 billion, of which
approximately $432 million is restricted. Undistributed earnings of companies
and partnerships accounted for under the equity method of $64 million are
included in Williams' consolidated retained earnings at December 31, 1994.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
1995.............................................................. $381
1996.............................................................. 44
1997.............................................................. 21
1998.............................................................. 131
1999.............................................................. 302
</TABLE>
Cash payments for interest (net of amounts capitalized) related to
continuing operations are as follows: 1994 -- $143 million; 1993 -- $144
million; and 1992 -- $119 million. Cash payments for interest (net of amounts
capitalized) related to discontinued operations are as follows: 1994 -- $6
million; 1993 -- $16 million; and 1992--$18 million.
Leases
Future minimum annual rentals under non-cancelable leases related to
continuing operations are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(MILLIONS)
<S> <C> <C>
1995.............................................................. $ 5 $21
1996.............................................................. 5 19
1997.............................................................. 4 17
1998.............................................................. 4 14
1999.............................................................. 4 12
Thereafter........................................................ 57 83
----- -------
Total minimum annual rentals...................................... 79 $166
=======
Imputed interest at 11%........................................... 46
-----
Present value of net minimum annual rentals....................... $33
=====
</TABLE>
Total rent expense from continuing operations was $26 million in 1994, $22
million in 1993, and $23 million in 1992. Total rent expense from discontinued
operations was $70 million in 1994, $59 million in 1993, and $48 million in
1992.
F-27
<PAGE> 50
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- STOCKHOLDERS' EQUITY
The outstanding $2.21 cumulative preferred shares are redeemable by
Williams at a price of $25, beginning in September 1997. Dividends per share of
$2.21, $2.21 and $.72 were recorded during 1994, 1993 and 1992, respectively.
During 1993, Williams called for redemption of its 3,000,000 shares of
outstanding $3.875 convertible exchangeable preferred stock. Substantially all
of the preferred shares were converted into 7.6 million shares of Williams
common stock. Dividends per share of $.97 and $3.875 were recorded during 1993
and 1992, respectively.
Each outstanding share of common stock has one-half of a preferred stock
purchase right attached. Under certain conditions, each right may be exercised
to purchase, at an exercise price of $75 (subject to adjustment), one
two-hundredth of a share of a new series of junior participating preferred
stock. The rights may be exercised only if an Acquiring Person acquires (or
obtains the right to acquire) 20 percent or more of Williams common stock; or
commences an offer for 30 percent or more of Williams common stock; or the board
of directors determines an Adverse Person has become the owner of 10 percent or
more of Williams common stock. The rights, which do not have voting rights,
expire in 1996 and may be redeemed at a price of $.05 per right prior to their
expiration, or within a specified period of time after the occurrence of certain
events. In the event a person becomes the owner of more than 20 percent of
Williams common stock or the board of directors determines that a person is an
Adverse Person, each holder of a right (except an Acquiring Person or an Adverse
Person) shall have the right to receive, upon exercise, common stock having a
value equal to two times the exercise price of the right. In the event Williams
is acquired in a merger or other business combination, each holder of a right
(except an Acquiring Person or an Adverse Person) shall have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the right.
The 1990 Stock Plan (the Plan) permits granting of various types of awards
including, but not limited to, stock options, stock-appreciation rights,
restricted stock and deferred stock. The Plan provides for granting of awards to
key employees, including officers and directors who are employees. Such awards
may be granted for no consideration other than prior and future services. The
purchase price per share for stock options and stock-appreciation rights may not
be less than the fair-market value of the stock on the date of grant. Another
stock option plan provides for the granting of non-qualified options to
non-employee directors. Options generally become exercisable in three annual
installments beginning within one year after grant, and they expire 10 years
after grant.
The following summary reflects option transactions during 1994.
<TABLE>
<CAPTION>
OPTION PRICE
-----------------------
SHARES PER SHARE TOTAL
-------- --------- ----------
(MILLIONS)
<S> <C> <C> <C>
Shares under option:
December 31, 1993................................... 2,455,785 $11-27 $48
Granted............................................. 824,679 25-30 24
Canceled or surrendered............................. (27,310) 14-30 (1)
Exercised........................................... (369,146) 11-27 (6)
---------- ----
December 31, 1994................................... 2,884,008 $11-30 $65
=========== ====
Shares exercisable December 31, 1994.................. 1,305,971
===========
</TABLE>
Under the Plan, Williams granted 127,706, 97,504 and 108,920 deferred
shares in 1994, 1993 and 1992, respectively, to key employees. Deferred shares
are valued at the date of award and generally charged to expense in the year of
award. Williams issued 45,298, 191,007 and 70,958 of previously deferred shares
in
F-28
<PAGE> 51
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, 1993 and 1992, respectively. Williams also issued 44,800, 62,000 and
40,000 shares of restricted stock in 1994, 1993 and 1992, respectively.
Restricted stock is valued on the issuance date, and the related expense is
amortized over varying periods of three to ten years.
During November 1994, Williams entered into a deferred share agreement (the
Agreement) in connection with the sale of WilTel's network services operations.
Under the terms of the Agreement, Williams will distribute up to approximately
2.6 million shares of Williams common stock to key employees over various
periods through 1998. During 1994, the initial stock distribution of 273,095
shares was made.
At December 31, 1994, 7,131,209 shares of common stock were reserved for
stock awards, of which 1,835,014 were available for future grants (3,200,354 at
December 31, 1993).
NOTE 13 -- FINANCIAL INSTRUMENTS
Fair value methods
The following methods and assumptions were used by Williams in estimating
its fair-value disclosures for financial instruments:
Cash and cash equivalents and notes payable: The carrying amounts
reported in the balance sheet approximate fair value due to the short-term
maturity of these instruments.
Notes and other non-current receivables: For those notes with interest
rates approximating market or maturities of less than three years, fair
value is estimated to approximate historically recorded amounts. For those
notes with maturities beyond three years and fixed interest rates, fair
value is calculated using discounted cash flow analysis based on current
market rates.
Long-term debt: The fair value of Williams' long-term debt is valued
using indicative year-end traded bond market prices for publicly traded
issues, while private debt is valued based on the prices of similar
securities with similar terms and credit ratings. At December 31, 1994 and
1993, 59 percent and 76 percent, respectively, of Williams' long-term debt
was publicly traded. Williams used the expertise of an outside investment
banking firm to estimate the fair value of long-term debt.
Call options sold on interest-rate swaps: Fair value is determined by
discounting estimated future cash flows using forward interest rates
implied by the year-end yield curve and standard option pricing techniques.
Fair value was calculated by the two financial institutions holding the
options.
Interest-rate swap: Fair value is determined by discounting estimated
future cash flows using forward interest rates implied by the year-end
yield curve. Fair value was calculated by the financial institution who is
the counterparty to the swap.
Energy-related futures, swaps and options: Fair value reflects
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of
the contract, credit considerations, time value and volatility factors
underlying the positions.
F-29
<PAGE> 52
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams' financial instruments
Asset (liability)
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................... $ 36.1 $ 36.1 $ 64.3 $ 64.3
Notes and other non-current receivables..... 63.1 62.3 31.7 31.3
Investment in Texasgulf Inc. (see Note 3)... 150.0 150.0 150.0 150.0
Notes payable............................... (507.0) (507.0) -- --
Long-term debt, including current portion... (1,657.6) (1,679.9) (1,624.1) (1,807.0)
Call options sold on interest-rate swaps.... -- -- (18.4) (25.4)
Interest-rate swap.......................... (.3) 1.4 -- --
Energy-related trading:
Futures................................... (2.0) (2.0) 2.0 2.0
Swaps and options:
Assets................................. 22.7 22.7 7.0 7.0
Liabilities............................ (13.8) (13.8) (6.3) (6.3)
Energy-related hedging:
Futures................................... (3.3) (3.3) (.9) (.9)
Swaps and options:
Assets................................. .3 .3 -- --
Liabilities............................ (5.2) (5.2) -- --
</TABLE>
The above asset and liability amounts for energy-related hedging represent
unrealized gains or losses and do not include the related deferred amounts.
The 1994 average fair value of the energy-related trading futures contracts
is a liability of $1.5 million. The 1994 average fair value of the trading swaps
and options assets and liabilities are $9.2 million and $7 million,
respectively.
Williams has recorded liabilities of $27 million and $37 million at
December 31, 1994 and 1993, respectively, for certain guarantees that qualify as
financial instruments. It is not practicable to estimate the fair value of these
guarantees because of their unusual nature and unique characteristics.
Off-balance-sheet credit and market risk
Williams is a participant in numerous transactions and arrangements that
involve financial instruments that have off-balance-sheet risk of accounting
loss. It is not practicable to estimate the fair value of these off-
balance-sheet financial instruments because of their unusual nature and unique
characteristics.
Williams sold, with limited recourse, certain receivables. The aggregate
limit under these receivables facilities was $80 million at December 31, 1994
(all related to discontinued operations) and $180 million at December 31, 1993.
Williams received $45 million of additional net proceeds in 1994, none in 1993
and $171 million in 1992. At December 31, 1994 and 1993, $80 million and $35
million (all related to discontinued operations) of such receivables had been
sold, respectively. Under a different arrangement, one of Williams' subsidiaries
sold $18 million of receivables with limited recourse in 1992. Williams has no
risk of credit loss because amounts outstanding relate to discontinued
operations (see Note 2).
In connection with certain assets disposed in 1987, Williams has been
providing, for the benefit of the mortgage lender, a guarantee of the
sufficiency of certain lease rentals to meet a portion of the debt service
associated with the assets. At December 31, 1994 and 1993, the maximum possible
loss under this
F-30
<PAGE> 53
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arrangement was approximately $16 million and $15 million, respectively, before
consideration of future contractual and estimated sublease income, which is
expected to be substantial. In January 1995, Williams acquired from the lender
the underlying debt and mortgage and believes that under the arrangement the
guarantee terminated by its terms. The debtor and owner of the assets has
disputed Williams' interpretation of the guarantee.
In connection with the sale of units in the Williams Coal Seam Gas Royalty
Trust (Trust), Williams indemnified the Trust against losses from certain
litigation (see Note 15), guaranteed certain minimum ownership interests based
on natural gas reserve volumes through 1993 only and guaranteed minimum gas
prices through 1997. At December 31, 1994 and 1993, Williams has a recorded
liability of $10 million and $15 million, respectively, for these items,
representing the maximum amounts for the first two guarantees and an estimate of
the gas price exposure based on historical operating trends and an assessment of
market conditions. While Williams' maximum exposure from this guarantee exceeds
amounts accrued, it is not practicable to determine such amount because of the
unique aspects of the guarantee.
In connection with the sale of WilTel's network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $200 million for lease rental obligations. LDDS is negotiating
with the guaranteed parties to remove Williams as guarantor.
Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $9 million and $20 million at
December 31, 1994 and 1993, respectively. Williams believes it will not have to
perform under these agreements because the likelihood of default by the primary
party is remote and/or because of certain indemnifications received from other
third parties.
In accordance with historical industry practice, Williams' natural gas
subsidiaries have gas purchase contracts with commitments to buy minimum
quantities of natural gas, primarily at market prices, for varying periods
estimated to extend through at least 2014. The subsidiaries currently have or
will enter into gas sales contracts for these volumes, or the subsidiaries will
negotiate the termination of contracts that are not required to meet gas sales
demand (see Note 15).
Commodity price-risk management services
Williams Energy Ventures provides price-risk management services associated
with the energy industry to its customers. These services are provided through a
variety of financial instruments, including forward contracts, futures
contracts, options contracts and swap agreements. See Note 1 for a description
of the accounting for these trading activities. The net gain for 1994 from all
trading activities was $14.2 million and is reported as revenues in the
Consolidated Statement of Income.
Williams Energy Ventures manages risk from financial instruments by making
various logistical commitments which manage profit margins through offsetting
financial instruments. As a result, price movements can result in losses on
certain contracts offset by gains on others.
Williams Energy Ventures takes an active role in managing and controlling
market and counterparty risks and has established formal control procedures
which are reviewed on an ongoing basis. Williams Energy Ventures attempts to
minimize credit-risk exposure to trading counterparties and brokers through
formal credit policies and monitoring procedures. In the normal course of
business, collateral is not required for financial instruments with credit risk.
F-31
<PAGE> 54
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notional quantities and average prices for natural gas related swap
agreements, options contracts and futures contracts at December 31, 1994, are as
follows:
<TABLE>
<CAPTION>
PAYOR RECEIVER
----- --------
<S> <C> <C>
Trading:
Fixed-price swaps:
Quantities (TBtu).............................................. 86.0 100.9
Average price (per MMBtu)...................................... $2.01 $1.86
Location differential swaps:
Quantities (TBtu).............................................. 85.0 136.3
Average price (per MMBtu)...................................... $1.42 $1.43
Options:
Quantities (TBtu).............................................. 15.1 17.9
Average strike price (per MMBtu)............................... $1.91 $2.19
Futures:
Quantities (TBtu).............................................. 80.3 60.7
Average price (per MMBtu)...................................... $1.91 $1.92
Hedging:
Fixed-price swaps:
Quantities (TBtu).............................................. 28.4 4.1
Average price (per MMBtu)...................................... $2.21 $2.16
Options:
Quantities (TBtu).............................................. 5.5 3.7
Average strike price (per MMBtu)............................... $2.07 $2.05
Futures:
Quantities (TBtu).............................................. 21.3 3.1
Average price (per MMBtu)...................................... $1.90 $1.91
</TABLE>
At December 31, 1993, Williams Energy Ventures was the payor and receiver
under natural gas fixed-price swap agreements having notional quantities of 44.1
TBtu and 43.9 TBtu, respectively. Average prices are $2.24 and $2.18,
respectively. In addition, Williams Energy Ventures was the payor and receiver
under location differential variable-priced swap agreements having notional
quantities of 26.3 TBtu and 38.8 TBtu, respectively, at December 31, 1993. The
average price under these agreements was $1.77.
The swap agreements call for Williams Energy Ventures to make payments to
(or receive payments from) counterparties based upon the differential between a
fixed and variable price or variable prices for different locations. The
variable prices are generally based on either industry pricing publications or
exchange quotations. Williams Energy Ventures buys and sells options contracts
which give the buyer the right to exercise the options and receive the
difference between a predetermined strike price and a market price at the date
of exercise. The market prices used for natural-gas-related contracts are
generally exchange quotations. Williams Energy Ventures also enters into futures
contracts which are commitments to either purchase or sell a commodity at a
future date for a specified price and are generally settled in cash, but may be
settled through delivery of the underlying commodity. The market prices for
futures contracts are based on exchange quotations. The swap agreements extend
for various periods through 2000; options contracts and futures contracts extend
for various periods through 1996. Average prices are based on weighted averages
for contracts outstanding at December 31, 1994 and 1993. Average prices for
location differential swaps incorporate forward prices based on the appropriate
index.
Williams Energy Ventures enters into energy-related financial instruments
to hedge against market price fluctuations of certain refined products
inventories and natural gas sales and purchase commitments. Net
F-32
<PAGE> 55
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred losses at December 31, 1994, on anticipated sales and purchase
commitments were $9 million. It is expected that substantially all of these
deferred amounts will be recognized in income during 1995. See Note 1 for a
description of the accounting for these hedging activities.
Concentration of credit risk
Williams' cash equivalents consist of high quality securities placed with
various major financial institutions with high credit ratings. Williams'
investment policy limits the company's credit exposure to any one financial
institution.
At December 31, 1994 and 1993, approximately 40 percent and 48 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 30 percent and 43 percent of
receivables at December 31, 1994 and 1993, respectively, are for
telecommunications and related services. Natural gas customers include
pipelines, distribution companies, producers, gas marketers and industrial users
primarily located in the northwestern and central United States.
Telecommunications customers include numerous corporations. As a general policy,
collateral is not required for receivables, but customers' financial conditions
and credit worthiness are evaluated regularly.
NOTE 14 -- OTHER FINANCIAL INFORMATION
Intercompany revenues (at prices that generally apply to sales to
unaffiliated parties) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
(MILLIONS)
<S> <C> <C> <C>
Northwest Pipeline............................................ $ 3.4 $ 3.6 $ 8.6
Williams Natural Gas.......................................... 14.2 5.4 5.4
Williams Field Services Group................................. 7.8 37.8 20.6
Williams Pipe Line............................................ 28.6 6.8 --
Williams Energy Ventures...................................... 15.5 3.1 11.3
Williams Telecommunications Systems........................... .3 -- --
----- ----- -----
$69.8 $56.7 $45.9
===== ===== =====
</TABLE>
Williams Natural Gas had sales to a natural gas distributor that accounted
for 15 percent in 1993 and 11 percent in 1992 of Williams' revenues.
F-33
<PAGE> 56
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for business segments is as follows:
<TABLE>
<CAPTION>
1994 1993* 1992*
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
Identifiable assets at December 31:
Northwest Pipeline................................. $1,028.0 $1,032.6 $1,064.2
Williams Natural Gas............................... 719.8 697.0 704.8
Williams Field Services Group...................... 1,097.5 996.5 1,081.2
Williams Pipe Line................................. 599.5 587.8 535.8
Williams Energy Ventures........................... 172.7 57.8 13.3
Williams Telecommunications Systems................ 255.5 169.1 157.0
Investments........................................ 379.1 437.1 434.9
General corporate and other........................ 230.4 147.3 141.3
Discontinued operations............................ 743.6 895.2 849.8
------- ------- -------
Consolidated............................... $5,226.1 $5,020.4 $4,982.3
======= ======= =======
Additions to property, plant and equipment:
Northwest Pipeline................................. $ 62.6 $ 175.7 $ 297.6
Williams Natural Gas............................... 32.9 54.9 47.8
Williams Field Services Group...................... 153.8 117.3 142.7
Williams Pipe Line................................. 35.5 61.4 26.9
Williams Energy Ventures........................... 24.6 3.0 --
Williams Telecommunications Systems................ 4.9 1.9 5.0
General corporate and other........................ 11.2 14.1 6.7
------- ------- -------
Consolidated............................... $ 325.5 $ 428.3 $ 526.7
======= ======= =======
Depreciation and depletion:
Northwest Pipeline................................. $ 33.9 $ 30.7 $ 24.2
Williams Natural Gas............................... 27.2 27.3 26.0
Williams Field Services Group...................... 47.2 44.0 38.9
Williams Pipe Line................................. 22.3 21.4 21.2
Williams Energy Ventures........................... .3 .1 --
Williams Telecommunications Systems................ 5.3 4.7 3.7
General corporate and other........................ 14.1 9.6 8.2
------- ------- -------
Consolidated............................... $ 150.3 $ 137.8 $ 122.2
======= ======= =======
</TABLE>
- ---------------
* Restated as described in Note 2.
NOTE 15 -- 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,
and on January 12, 1995, the lower court's judgment was affirmed.
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
F-34
<PAGE> 57
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
refund were $111 million at December 31, 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, see Note
10 for the amount of revenues reserved for potential refund as of December 31,
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.
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 December 31, 1994, Williams Natural Gas' total supplier
take-or-pay, ratable take and minimum take claims were not significant.
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.
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, 1994, attributable to these contracts were:
<TABLE>
<CAPTION>
POST
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Commitments........................... $10 $10 $12 $12 $13 $133
</TABLE>
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 December 31, 1994, Williams Natural Gas had a remaining accrual of
$47 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 December 31, 1994, this subsidiary had $40
million included in recoverable contract-reformation and take-or-pay settlement
costs which had not yet been paid and filed for recovery with the FERC. Under
Orders 636, 636-A and 636-B,
F-35
<PAGE> 58
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 which is now being challenged
by certain customers. Northwest Pipeline does not expect any reallocation 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 two filings to direct bill take-or-pay and gas supply
realignment costs recoverable under Orders 436, 500 and 528. 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. Williams Natural Gas believes that the
filing will most likely be approved and will make additional filings in the
future under the stipulation and agreement to recover such further
contract-reformation costs as may be incurred.
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 December 31, 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 ten
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 December 31, 1994, Williams had approximately $6 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
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, four 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.
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
F-36
<PAGE> 59
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
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 January 5, 1995.
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 has filed a response, and believes that it has not violated the antitrust
laws in the conduct of its business.
On December 21, 1994, Williams Natural Gas received a second civil
investigative demand from the Antitrust Division of the Department of Justice
concerning certain gathering activities of Williams Natural Gas and Williams'
other operating subsidiaries. Williams is preparing a response but believes that
none of its subsidiaries has violated the antitrust laws in the conduct of its
business.
Relative to a certain Agreement and Plan of Merger, dated December 12,
1994, among Williams, a Williams subsidiary and Transco Energy Company
(Transco), seven class action lawsuits were filed on December 12, 1994, and
later, in the Chancery Court of Delaware, challenging the transaction and
alleging a breach of fiduciary duties by Transco's directors. In six of the
lawsuits, Williams was named as a party defendant, the plaintiffs alleging that
Williams aided and abetted the alleged breach of duty. On January 6, 1995, the
parties to all of the lawsuits entered into an agreement in principle and on
January 9, 1995, a stipulation and agreement of compromise, settlement and
release was executed subject to approval of the Court. See Note 16 for
information regarding the acquisition of Transco.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.
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.
NOTE 16 -- TRANSCO ACQUISITION
Subsequent to December 31, 1994, Williams acquired 60 percent of Transco's
outstanding common stock in a cash tender offer for $430.5 million. Williams
also plans to acquire the remaining 40 percent of Transco's
F-37
<PAGE> 60
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding common stock through a merger which will exchange the remaining
Transco common stock for approximately 10.2 million shares of Williams common
stock. The cash portion of the acquisition was financed from the proceeds of the
WilTel network services sale.
Transco is engaged primarily in the natural gas pipeline and natural gas
marketing businesses. Williams plans to sell certain other Transco operations,
such as coal mining and coalbed methane extraction in 1995. The estimated
purchase price, including transaction fees and other related costs, is
approximately $775 million, excluding $2.3 billion in preferred stock and debt
obligations of Transco. The acquisition will be accounted for as a purchase in
1995 and it is expected that the excess purchase price will be allocated to
Transco's property, plant and equipment.
F-38
<PAGE> 61
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions, except
per-share amounts). Certain amounts have been restated as described in Note 2 of
Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
----------------------------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues....................................... $386.6 $419.9 $467.3 $477.3
Costs and operating expenses................... 248.5 274.0 335.4 329.8
Income before extraordinary loss............... 52.8 74.0 55.6 76.5
Net income..................................... 52.8 62.9 55.6 75.4
Primary earnings per common and
common-equivalent share:
Income before extraordinary loss.......... .48 .69 .51 .77
Net income................................ .48 .58 .51 .76
Fully diluted earnings per common and common-
equivalent share:
Income before extraordinary loss.......... .48 .69 .51 .77
Net income................................ .48 .58 .51 .76
1993
Revenues....................................... $613.2 $388.8 $371.0 $420.4
Costs and operating expenses................... 448.2 279.8 267.1 288.8
Net income..................................... 125.6 36.1 18.0 52.1
Primary earnings per common and
common-equivalent share...................... 1.28 .33 .15 .48
Fully diluted earnings per common and common-
equivalent share............................. 1.21 .32 .15 .48
</TABLE>
The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.
Second-quarter 1994 includes a $23 million gain from the sale of assets
(see Note 4 of Notes to Consolidated Financial Statements).
First-quarter 1993 includes gains totaling $95 million from the sales of
assets (see Note 4 of Notes to Consolidated Financial Statements). Third-quarter
1993 net income was reduced $15 million related to the cumulative effect of the
1 percent increase in the federal income tax rate.
F-39
<PAGE> 62
Selected comparative fourth-quarter data are as follows (millions, except
per-share amounts). Certain 1993 amounts have been restated as described in Note
2 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Operating profit (loss):
Interstate Natural Gas Pipelines:
Northwest Pipeline........................................... $ 22.7 $ 20.1
Williams Natural Gas......................................... 15.1 13.6
Williams Field Services Group................................... 39.3 31.8
Liquids Pipeline/Energy Ventures:
Williams Pipe Line........................................... 19.8 10.7
Williams Energy Ventures..................................... (11.0) .1
Williams Telecommunications Systems............................. 6.7 3.8
Other........................................................... (4.2) (4.8)
------ ------
Total operating profit.................................. 88.4 75.3
General corporate expenses........................................ (7.0) (15.9)
Interest expense -- net........................................... (39.1) (34.4)
Investing income.................................................. 10.8 13.5
Other income (expense) -- net..................................... (2.5) .2
------ ------
Income from continuing operations before income taxes............. 50.6 38.7
Provision for income taxes........................................ 16.4 3.5
------ ------
Income from continuing operations................................. 34.2 35.2
Income from discontinued operations............................... 42.3 16.9
------ ------
Income before extraordinary loss.................................. 76.5 52.1
Extraordinary loss................................................ (1.1) --
------ ------
Net income........................................................ $ 75.4 $ 52.1
====== ======
Primary and fully diluted earnings per common and
common-equivalent share......................................... $ .76 $ .48
====== ======
</TABLE>
In fourth-quarter 1994, Williams Natural Gas recorded a $7 million reversal
of excess contract-reformation accruals. Williams Energy Ventures'
fourth-quarter operating loss includes $5 million in costs for evaluating and
determining whether to build an oil refinery. Fourth-quarter 1994 discontinued
operations includes favorable adjustments of approximately $15 million relating
to bad debt recoveries and accrual reversals.
In fourth-quarter 1993, Williams Field Services Group recorded an $11
million favorable settlement involving processing revenues from prior periods.
General corporate expenses in the fourth quarter of 1993 include $5 million of
additional accruals for supplemental retirement benefits. Fourth-quarter 1993
discontinued operations includes favorable adjustments of approximately $6
million relating to bad debt recoveries and accrual reversals.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-40
<PAGE> 63
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Directors and nominees for Director of
Williams required by Item 401 of Regulation S-K is presented under the heading
"Election of Directors" in Williams' Proxy Statement prepared for the
solicitation of proxies in connection with the Annual Meeting of Stockholders of
the Company for 1995 (the "Proxy Statement"), which information is incorporated
by reference herein. A copy of the Proxy Statement will be filed as an exhibit
to the Form 10-K. Information regarding the executive officers of Williams is
presented following Item 4 herein, as permitted by General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Information
required by Item 405 of Regulation S-K is included under the heading "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy
Statement, which information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement, which
information is incorporated by reference herein. Notwithstanding the foregoing,
the information provided under the headings "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation" in the
Proxy Statement are not incorporated by reference herein. A copy of the Proxy
Statement will be filed as an exhibit to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement, which information is incorporated by reference herein. A
copy of the Proxy Statement will be filed as an exhibit to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no information regarding certain relationships and related
transactions required by Item 404 of Regulation S-K to be reported in response
to this Item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedules listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.
(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.
Exhibit 2 --
*(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as Exhibit
(c)(1) to Schedule 14D-1, dated December 16, 1994).
*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to Schedule
13D, dated February 23, 1995).
*(c) Stock Option Agreement, dated as of December 12, 1994, by and
between Williams and Transco (filed as Exhibit (c)(2) to Schedule 14D-1,
dated December 16, 1994).
F-41
<PAGE> 64
Exhibit 3 --
*(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20, 1987).
*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the Registration
Statement on Form S-3, filed August 19, 1992).
*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit 3(c) to
Form 10-K for the year ended December 31, 1988).
(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.
*(e) Amended and Restated Rights Agreement, dated as of July 12,
1988, between Williams and First Chicago Trust Company of New York
(filed as Exhibit 4(c) to Williams Form 8, dated July 28, 1988).
*(f) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between the Company and Chemical
Bank, Trustee, relating to the 10 1/4% Debentures, due 2020; the 9 3/8%
Debentures, due 2021; the 8 1/4% Notes, due 1998; Medium-Term Notes
(8.50%-9.31%), due 1996 through 2001; the 7 1/2% Notes, due 1999, and
the 8 7/8% Debentures, due 2012 (filed as Exhibit 4.1 to Form S-3
Registration Statement No. 33-33294, filed February 2, 1990).
(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the banks named
therein and Citibank, N.A., as agent.
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to Form
10-K for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii) (d) to
Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit 10(iii)
(e) to Form 10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy Statement,
dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 12, 1990).
*(g) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and certain
officers of Williams (filed as Exhibit 10(iii) (e) to Form 10-K for the
year ended December 31, 1986).
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.
F-42
<PAGE> 65
Exhibit 20 -- Definitive Proxy Statement of Williams for 1995 (to be
filed by amendment).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Williams with the Securities and
Exchange Commission during the fourth quarter of 1994.
(d) The financial statements of partially owned companies are not presented
herein since none of them individually, or in the aggregate, constitute a
significant subsidiary.
- ---------------
* Each such exhibit has heretofore been filed with the Securities and Exchange
Commission as part of the filing indicated and is incorporated herein by
reference.
F-43
<PAGE> 66
THE WILLIAMS COMPANIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Covered by report of independent auditors:
Consolidated statement of income for the three years ended December 31, 1994........ F-11
Consolidated balance sheet at December 31, 1994 and 1993............................ F-13
Consolidated statement of stockholders' equity for the three years ended December
31, 1994......................................................................... F-14
Consolidated statement of cash flows for the three years ended December 31, 1994.... F-15
Notes to consolidated financial statements.......................................... F-16
Schedules for the three years ended December 31, 1994:
I -- Condensed financial information of registrant.............................. F-45
II -- Valuation and qualifying accounts.......................................... F-49
Not covered by report of independent auditors:
Quarterly financial data (unaudited)................................................ F-39
</TABLE>
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-44
<PAGE> 67
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME (PARENT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993* 1992*
------ ------ ------
(MILLIONS, EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Investing income............................................. $ 29.4 $ 27.3 $ 16.3
Interest accrued............................................. (91.8) (95.8) (90.9)
Gain on sales of assets (Note 2)............................. -- 51.6 --
Other income (expense) -- net................................ 2.9 (16.9) .6
------ ------ ------
Loss from continuing operations before income taxes and
equity in subsidiaries' income............................. (59.5) (33.8) (74.0)
Equity in consolidated subsidiaries' income.................. 195.0 189.8 131.5
------ ------ ------
Income from continuing operations before income taxes........ 135.5 156.0 57.5
Credit for income taxes...................................... (29.4) (29.4) (45.6)
------ ------ ------
Income from continuing operations............................ 164.9 185.4 103.1
Income from discontinued operations (Note 1)................. 94.0 46.4 25.2
------ ------ ------
Income before extraordinary credit (loss).................... 258.9 231.8 128.3
Extraordinary credit (loss) from early extinguishment of
debt....................................................... (12.2) -- 9.9
------ ------ ------
Net income................................................... 246.7 231.8 138.2
Preferred stock dividends.................................... 8.8 11.8 14.5
------ ------ ------
Income applicable to common stock............................ $237.9 $220.0 $123.7
====== ====== ======
Primary earnings per common and common-equivalent share:
Income from continuing operations.......................... $ 1.52 $ 1.74 $ .97
Income from discontinued operations........................ .92 .46 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.20 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.20 $ 1.36
====== ====== ======
Fully diluted earnings per common and common-equivalent
share:
Income from continuing operations.......................... $ 1.52 $ 1.71 $ .97
Income from discontinued operations........................ .92 .45 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.16 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.16 $ 1.36
====== ====== ======
</TABLE>
- ---------------
*Certain amounts have been restated as described in Note 1.
See accompanying notes.
F-45
<PAGE> 68
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BALANCE SHEET (PARENT)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
------- -------
(MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 16.5 $ 26.1
Due from consolidated subsidiaries.................................. 138.4 31.5
Receivables......................................................... 65.3 1.8
Investment in discontinued operations (Note 1)...................... 743.6 --
Other............................................................... 4.9 .5
-------- --------
Total current assets........................................ 968.7 59.9
Investments:
Equity in consolidated subsidiaries................................. 1,634.8 2,658.4
Receivables from consolidated subsidiaries.......................... 387.8 260.2
-------- --------
2,022.6 2,918.6
Other............................................................... 44.0 43.7
-------- --------
2,066.6 2,962.3
Property, plant and equipment -- net.................................. 36.3 47.4
Other assets and deferred charges..................................... 14.8 46.9
-------- --------
Total assets................................................ $3,086.4 $3,116.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................... $ 73.8 $ --
Due to consolidated subsidiaries.................................... 137.6 256.6
Accounts payable and accrued liabilities............................ 84.1 71.2
Long-term debt due within one year (Note 3)......................... 361.5 11.4
-------- --------
Total current liabilities................................... 657.0 339.2
Long-term debt (Note 3)............................................... 763.0 944.8
Other liabilities..................................................... 160.9 108.5
Stockholders' equity:
Preferred stock..................................................... 100.0 100.0
Common stock........................................................ 104.4 103.1
Capital in excess of par value...................................... 991.0 959.1
Retained earnings................................................... 716.5 563.7
Unamortized deferred compensation................................... (1.3) (1.9)
-------- --------
1,910.6 1,724.0
Less treasury stock (Note 4)........................................ (405.1) --
-------- --------
Total stockholders' equity.................................. 1,505.5 1,724.0
-------- --------
Total liabilities and stockholders' equity.................. $3,086.4 $3,116.5
======== ========
</TABLE>
See accompanying notes.
F-46
<PAGE> 69
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
STATEMENT OF CASH FLOWS (PARENT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993* 1992*
------- ------- -------
<S> <C> <C> <C>
(MILLIONS)
Operating activities:
Net income.................................................. $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Equity in subsidiaries' income, net of cash dividends.... 153.1 (60.0) (101.5)
Discontinued operations.................................. (94.0) (46.4) (25.2)
Extraordinary (credit) loss.............................. 12.2 -- (9.9)
Depreciation............................................. 4.3 4.2 4.3
Provision (credit) for deferred income taxes............. 20.8 (1.7) (4.5)
Gain on sales of property, plant and equipment........... -- (52.1) --
Changes in receivables................................... (59.5) 5.0 (7.0)
Changes in other current assets.......................... (7.1) 1.4 (1.5)
Changes in accounts payable.............................. 3.0 (.7) (.2)
Changes in accrued liabilities........................... (12.1) (18.7) 13.1
Other, including changes in non-current assets and
liabilities............................................ 6.4 58.5 (4.2)
------- ------- -------
Net cash provided by operating activities........... 273.8 121.3 1.6
------- ------- -------
Financing activities:
Changes in notes payable.................................... 73.8 -- --
Proceeds from long-term debt................................ 350.0 -- 300.0
Payments of long-term debt.................................. (181.7) (128.8) (44.0)
Premium on early extinguishment of debt..................... (8.9) -- --
Proceeds from issuance of preferred stock................... -- -- 96.2
Proceeds from issuance of common stock...................... 26.4 63.4 146.1
Purchase of treasury stock.................................. (18.4) -- --
Dividends paid.............................................. (93.9) (89.4) (82.7)
Other -- net................................................ -- (.6) --
------- ------- -------
Net cash provided (used) by financing activities.... 147.3 (155.4) 415.6
------- ------- -------
Investing activities:
Property, plant and equipment:
Capital expenditures..................................... (1.1) (1.6) (1.3)
Proceeds from sales of property, plant and equipment..... -- 115.1 --
Investments in consolidated subsidiaries.................... (71.2) (75.3) (184.9)
Changes in advances to subsidiaries......................... (354.4) 1.0 (251.1)
Other -- net................................................ (4.0) (.6) (1.0)
------- ------- -------
Net cash provided (used) by investing activities.... (430.7) 38.6 (438.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents.... (9.6) 4.5 (21.1)
Cash and cash equivalents at beginning of year.............. 26.1 21.6 42.7
------- ------- -------
Cash and cash equivalents at end of year.................... $ 16.5 $ 26.1 $ 21.6
======= ======= =======
</TABLE>
- ---------------
* Certain amounts have been restated as described in Note 1.
See accompanying notes.
F-47
<PAGE> 70
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)
NOTES TO FINANCIAL INFORMATION (PARENT)
NOTE 1. DISCONTINUED OPERATIONS
In August 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 closed January 5, 1995, yielding an after-tax gain of
approximately $1 billion, which will be recorded in the first quarter of 1995.
The Condensed Financial Information of Registrant have been prepared to present
operating results of network services as discontinued operations, with prior
period operating results restated.
NOTE 2. SALES OF ASSETS
In a 1993 public offering, Williams sold 6.1 million units in the Williams
Coal Seam Gas Royalty Trust (Trust), which resulted in net proceeds of $113
million and a pre-tax gain of $51.6 million. The Trust owns defined net profits
interests in the developed coal-seam properties in the San Juan Basin of New
Mexico and Colorado, which were conveyed to the Trust by Williams Production
Company. Ownership of an additional 3.6 million units remains with Williams.
NOTE 3. LONG-TERM DEBT AND LEASES
Long-term debt due within one year includes $350 million of borrowings
under Williams' $600 million credit agreement. This agreement terminates in
December 1995 and Williams expects to replace it with a similar agreement.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows: 1995 -- $361 million;
1996 -- $23 million; 1997 -- none; 1998 -- $110 million; and 1999 -- $150
million.
Future minimum annual rentals under non-cancelable capital leases for each
of the next five years are $4 million. See Note 11 of Notes to Consolidated
Financial Statements for additional information on long-term debt.
NOTE 4. TREASURY STOCK
For financial reporting purposes, treasury stock of $394.8 million held by
a wholly-owned subsidiary of Williams has been presented as a reduction of
stockholders' equity.
NOTE 5. DIVIDENDS RECEIVED
Cash dividends from subsidiaries and companies accounted for on an equity
basis are as follows: 1994 -- $354.2 million; 1993 -- $142.6 million; and
1992 -- $36 million.
NOTE 6. INCOME TAX AND INTEREST PAYMENTS
Cash payments for income taxes are as follows: 1994 -- $112 million;
1993 -- $118 million; and 1992 -- $49.6 million.
Cash payments for interest are as follows: 1994 -- $90 million;
1993 -- $96.6 million; and 1992 -- $79.2 million.
NOTE 7. FINANCIAL INSTRUMENTS
Disclosure of financial instruments for the parent company are included in
the consolidated disclosures. See Note 13 of Notes to Consolidated Financial
Statements.
F-48
<PAGE> 71
THE WILLIAMS COMPANIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ----- ------------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1994................................... $10.2 $ 4.2(c) $ -- $ 6.5(d) $ 7.9
1993................................... 17.3 .5(e) -- 7.6 10.2
1992................................... 22.4 16.2 -- 21.3 17.3
</TABLE>
- ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Excludes $5.7 million related to discontinued operations.
(d) Includes the discontinued operations beginning balance reclassification of
$3.6 million.
(e) Includes $4.1 million reversal of amounts previously accrued.
F-49
<PAGE> 72
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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)
By: /s/ DAVID M. HIGBEE
David M. Higbee
Attorney-in-Fact
Dated: March 2, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ KEITH E. BAILEY* Chairman of the Board, President, Chief
Keith E. Bailey Executive Officer (Principal Executive
Officer) and Director
/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
Jack D. McCarthy Financial Officer)
/s/ GARY R. BELITZ* Controller (Chief Accounting Officer)
Gary R. Belitz
/s/ HAROLD W. ANDERSEN* Director
Harold W. Andersen
Director
Ralph E. Bailey
/s/ GLENN A. COX* Director
Glenn A. Cox
/s/ THOMAS H. CRUIKSHANK* Director
Thomas H. Cruikshank
/s/ ERVIN S. DUGGAN* Director
Ervin S. Duggan
/s/ ROBERT J. LAFORTUNE* Director
Robert J. LaFortune
/s/ JAMES C. LEWIS* Director
James C. Lewis
</TABLE>
II-1
<PAGE> 73
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
/s/ JACK A. MACALLISTER* Director
Jack A. MacAllister
/s/ JAMES A. MCCLURE* Director
James A. McClure
/s/ PETER C. MEINIG* Director
Peter C. Meinig
/s/ KAY A. ORR* Director
Kay A. Orr
/s/ GORDON R. PARKER* Director
Gordon R. Parker
/s/ JOSEPH H. WILLIAMS* Director
Joseph H. Williams
*By /s/ DAVID M. HIGBEE Director
David M. Higbee
Attorney-in-Fact
</TABLE>
Dated: March 2, 1995
II-2
<PAGE> 74
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
Exhibit 2 -- *(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as
Exhibit (c)(1) to Schedule 14D-1, dated December 16, 1994).
*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to
Schedule 13D, dated February 23, 1995).
*(c) Stock Option Agreement, dated as of December 12, 1994, by
and between Williams and Transco (filed as Exhibit (c)(2) to
Schedule 14D-1, dated December 16, 1994).
Exhibit 3 -- *(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20,
1987).
*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the
Registration Statement on Form S-3, filed August 19, 1992).
*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit
3(c) to Form 10-K for the year ended December 31, 1988).
(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.
*(e) Amended and Restated Rights Agreement, dated as of July 12,
1988, between Williams and First Chicago Trust Company of New
York (filed as Exhibit 4(c) to Williams Form 8, dated July
28, 1988).
*(f) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).
Exhibit 4 -- *(a) Form of Senior Debt Indenture between the Company and
Chemical Bank, Trustee, relating to the 10 1/4% Debentures, due
2020; the 9 3/8% Debentures, due 2021; the 8 1/4% Notes, due
1998; Medium-Term Notes (8.50%-9.31%), due 1996 through 2001; the
7 1/2% Notes, due 1999, and the 8 7/8% Debentures, due 2012
(filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990).
(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the
banks named therein and Citibank, N.A., as agent.
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to
Form 10-K for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)
(d) to Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit
10(iii) (e) to Form 10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed
as Exhibit A to Williams' Proxy Statement, dated March 13,
1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy
Statement, dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 12, 1990).
*(g) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and
certain officers of Williams (filed as Exhibit 10(iii) (e) to
Form 10-K for the year ended December 31, 1986).
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 20 -- Definitive Proxy Statement of Williams for 1995 (to be filed by
amendment).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3(d)
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "THE WILLIAMS COMPANIES, INC.", FILED IN THIS OFFICE ON THE
TWENTIETH DAY OF MAY, A.D. 1994, AT 10 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL] /s/ William T. Quillen
William T. Quillen, Secretary of State
2116534 8100 AUTHENTICATION: 7125786
944090114 DATE: 05-20-94
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
********
THE WILLIAMS COMPANIES, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of The Williams Companies,
Inc., at a meeting of the Board of Directors duly called and held on January 23,
1994, adopted a resolution proposing and declaring advisable the following
amendment to the Restated Certificate of Incorporation, as amended, of said
Company:
RESOLVED that the Board of Directors of the Company
hereby declares it advisable to amend Article FOURTH of the Company's
Restated Certificate of Incorporation, as amended, to increase the
authorized Common Stock, $1.00 par value, so that, as amended, the
first paragraph of Article FOURTH shall be, and read, as follows:
"FOURTH: The total number of shares of capital stock
which the Company shall have authority to issue is 270,000,000
shares, consisting of 240,000,000 shares of Common Stock, par
value $1.00 per share (the "Common
<PAGE> 3
Stock") and 30,000,000 shares of Preferred Stock, par value
$1.00 per share (the "Preferred Stock")."
SECOND: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said The Williams Companies, Inc. has
caused this Certificate to be signed by J. Furman Lewis, its Senior Vice
President and General Counsel, and attested by David M. Higbee, its Secretary,
this 20th day of May, 1994.
THE WILLIAMS COMPANIES, INC.
BY: /s/ J. Furman Lewis
J. Furman Lewis
Senior Vice President and
General Counsel
ATTEST:
By: /s/ David M. Higbee
David M. Higbee
Secretary
<PAGE> 1
EXHIBIT 4(b)
U.S. $800,000,000
CREDIT AGREEMENT
Dated as of February 23, 1995
Among
THE WILLIAMS COMPANIES, INC.
NORTHWEST PIPELINE CORPORATION
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
TEXAS GAS TRANSMISSION CORPORATION
WILLIAMS PIPE LINE COMPANY
as Borrowers
and
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.18. Extension of Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.19. Voluntary Conversion of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . 33
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 8.10. Survival of Agreements, Representations and Warranties, Etc. . . . . . . . . . . . . . . . . 61
Section 8.11. Borrowers' Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
-ii-
<PAGE> 4
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted NWP Liens
Schedule IV - Permitted TGPL Liens
Schedule V - Permitted TGT Liens
Schedule VI - Permitted TWC Liens
Schedule VII - Permitted WPL Liens
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of B Borrowing
Exhibit C - Opinion of J. Furman Lewis
Exhibit D - Opinion of William G. von Glahn
Exhibit E - Opinion of David E. Varner
Exhibit F - Opinion of Special Counsel to Agent
Exhibit G - Existing Transfer Restrictions
Exhibit H - Form of Transfer Agreement
Exhibit I - Additional Disclosures
-iii-
<PAGE> 5
CREDIT AGREEMENT
Dated as of February 23, 1995
This Credit Agreement dated as of February 23, 1995, is by and among
the Borrowers, the Agent and the Banks. In consideration of the mutual
covenants and agreements contained herein, the Borrowers, the Agent and the
Banks hereby agree as set forth herein.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Bank to a Borrower as part
of an A Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type to the same Borrower made by each of the
Banks pursuant to Section 2.01.
"A Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the A Advances to such Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent pursuant
to Article VII hereof and any successor Agent pursuant to Section
7.06.
"Agreement" means this Credit Agreement dated as of February
23, 1995 among the Borrowers, the Agent and the Banks, as amended or
modified from time to time.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance
and such Bank's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and,
-1-
<PAGE> 6
in the case of a B Advance, the office of such Bank notified by such
Bank to the Agent as its Applicable Lending Office with respect to
such B Advance.
"Applicable Margin" means
(i) as to any A Advance to any Borrower (other than WPL during such
times as WPL is Unrated), the rate per annum set forth in the
following table for the relevant Type of such A Advance and for the
relevant Rating Category applicable to such Borrower from time to
time:
<TABLE>
<CAPTION>
Rating Eurodollar Rate Base
Category Advance Rate Advance
-------- --------------- ------------
<S> <C> <C>
One .35% 0
Two .40% 0
Three .45% 0
Four .55% 0
Five .75% .25%
Six 1.125% .50%
Seven 1.50% .75%
</TABLE>
and (ii) for each day during such times as WPL is Unrated, as to any A
Advance to WPL, the rate per annum set forth in the following table
for the relevant Type of such A Advance and for the relevant amount of
the Applicable WPL Debt to TNW Ratio for such day:
<TABLE>
<CAPTION>
Applicable
WPL Debt to Eurodollar Rate Base
TNW Ratio Advance Rate Advance
---------- --------------- ------------
<S> <C> <C>
Less than .55 .45% 0
.55 or greater and
less than .60 .55% 0
.60 or greater .75% .25%
</TABLE>
The Applicable Margin determined pursuant to clause (i) of this
definition for any A Advance to any Borrower shall change when and as
the relevant Rating Category applicable to such Borrower changes.
Furthermore, the applicability of clause (i) or (ii) of this
definition to WPL shall change when and as the status of WPL as
Unrated or not Unrated changes. For example, if WPL borrows on
September 15 of a year a Eurodollar Rate Advance with a three month
Interest Period and WPL is Unrated from September 15 through October
15 of such year
-2-
<PAGE> 7
and is not Unrated thereafter, then the Applicable Margin for such
Advance will be determined (1) pursuant to the foregoing clause (ii)
from September 15 through October 15 of such year (and the Applicable
WPL Debt to TNW Ratio (a) for the days from September 15 through
September 30 will be the WPL Debt to TNW Ratio on March 31 of such
year and (b) for the days after September 30 will be the WPL Debt to
TNW Ratio on June 30 of such year), and (2) pursuant to the foregoing
clause (i) during the other days of such Interest Period. Furthermore
if, in such example, the Rating Category applicable to WPL from
October 16 through October 20 was Rating Category Five and thereafter
was Rating Category Four, the Applicable Margin for such Advance would
be .75% from October 16 through October 20 and .55% thereafter.
"Applicable WPL Debt to TNW Ratio" for any day means the WPL
Debt to TNW Ratio as of the end of the calendar quarter which is the
second calendar quarter prior to such day. For example, the Applicable
WPL Debt to TNW Ratio for any day in the calendar quarter ending
September 30 of a year will be the WPL Debt to TNW Ratio as of March
31 of such year.
"Arranger" means Citicorp Securities, Inc.
"Attributable Obligation" of any Person means, with respect to
any Sale and Lease-Back Transaction of such Person as of any
particular time, the present value at such time discounted at the rate
of interest implicit in the terms of the lease of the obligations of
the lessee under such lease for net rental payments during the
remaining term of the lease (including any period for which such lease
has been extended or may, at the option of such Person, be extended).
"B Advance" means an advance by a Bank to a Borrower as part
of a B Borrowing resulting from the auction bidding procedure
described in Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances to the same Borrower from each of the Banks whose offer to
make one or more B Advances as part of such borrowing has been
accepted by such Borrower under the auction bidding procedure
described in Section 2.16.
"B Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-2 hereto,
evidencing the indebtedness of such Borrower to such Bank resulting
from a B Advance made to such Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.01.
-3-
<PAGE> 8
"Banks" means the lenders listed on the signature pages hereof
and each other Person that becomes a Bank pursuant to the last
sentence of Section 8.06(a).
"Base Rate" means a fluctuating interest rate per annum as
shall be in effect from time to time which rate per annum shall at all
times be equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of
deposit of major United States money market banks, such
three-week moving average being determined weekly on each
Monday (or, if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on
the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected
by Citibank, in either case adjusted to the nearest 1/4 of one
percent or, if there is no nearest 1/4 of one percent, to the
next higher 1/4 of one percent; or
(c) 1/2 of one percent per annum above the
Federal Funds Rate in effect from time to time.
"Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.06(a).
"Borrowers" means TWC, NWP, TGPL, TGT and WPL.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and, if the
applicable Business Day relates to any Eurodollar Rate Advances or
relates to any B Advance as to which the related Notice of B Borrowing
is delivered pursuant to clause (B) of Section 2.16(a)(i), on which
dealings are carried on in the London interbank market.
"Citibank" means Citibank, N.A.
-4-
<PAGE> 9
"Code" means, as appropriate, the Internal Revenue Code of
1986, as amended, or any successor Federal tax code, and any reference
to any statutory provision shall be deemed to be a reference to any
successor provision or provisions.
"Commitment" of any Bank to any Borrower means at any time the
lesser of (i) the amount set opposite or deemed (pursuant to clause
(vii) of the last sentence of Section 8.06(a) and as reflected in the
relevant Transfer Agreement referred to in such sentence) to be set
opposite such Bank's name for such Borrower on the signature pages
hereof as such amount may be terminated, reduced or increased pursuant
to Section 2.04, Section 2.17, Section 6.01 or Section 8.06(a), or
(ii) the amount of the Commitment of such Bank to TWC at such time.
"Consolidated" refers to the consolidation of the accounts of
any Person and its subsidiaries in accordance with generally accepted
accounting principles.
"Consolidated Net Worth" of any Person means the Net Worth of
such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the
Tangible Net Worth of such Person and its Subsidiaries on a
Consolidated basis.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.02, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person
evidenced by bonds, debentures or notes, (iii) obligations of such
Person to pay the deferred purchase price of property or services,
(iv) monetary obligations of such Person as lessee under leases which
are, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations of such Person under
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) or clause (vii) of
this definition, (vi) indebtedness or obligations of others of the
kinds referred to in clauses (i) through (v) or clause (vii) of this
definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III, paragraph (y) of
Schedule IV, paragraph (y) of Schedule V, paragraph (y) of Schedule VI
or paragraph (h) of Schedule VII or under or resulting from any
-5-
<PAGE> 10
sale and leaseback referred to in paragraph (aa) of Schedule III,
paragraph (aa) of Schedule IV, paragraph (aa) of Schedule V, paragraph
(bb) of Schedule VI or paragraph (j) of Schedule VII.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or pursuant to Section 8.06(a),
or such other office of such Bank as such Bank may from time to time
specify to the Borrowers and the Agent.
"Environment" shall have the meaning set forth in 42 U.S.C.
Section 9601(8) as defined on the date of this Agreement, and
"Environmental" shall mean pertaining or relating to the Environment.
"Environmental Protection Statute" shall mean any United
States local, state or federal, or any foreign, law, statute,
regulation, order, consent decree or other agreement or Governmental
Requirement arising from or in connection with or relating to the
protection or regulation of the Environment, including, without
limitation, those laws, statutes, regulations, orders, decrees,
agreements and other Governmental Requirements relating to the
disposal, cleanup, production, storing, refining, handling,
transferring, processing or transporting of Hazardous Waste, Hazardous
Substances or any pollutant or contaminant, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and rulings issued thereunder from time to time.
"ERISA Affiliate" of any Borrower means any trade or business
(whether or not incorporated) which is a member of a group of which
such Borrower is a member and which is under common control within the
meaning of the regulations under Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank,
the office of such Bank specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or pursuant to Section 8.06(a)
(or, if no such office is specified, its Domestic Lending Office) or
such other office of such Bank as such Bank may from time to time
specify to the Borrowers and the Agent.
-6-
<PAGE> 11
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing, an
interest rate per annum (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such rate is not such a multiple) equal to
the rate per annum at which deposits in U.S. dollars are offered by
the principal off-ice of Citibank in London, England to prime banks in
the London interbank market at I 1:00 A.M. (London time) two Business
Days before the first day of such Interest Period in an amount
substantially equal to the amount of the Eurodollar Rate Advance of
Citibank comprising part of such A Borrowing to be outstanding during
such Interest Period and for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance which bears
interest as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more than one
such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for such Bank with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
For purposes of clause (iv) of the definition herein of "Interest
Period", Section 2.19 and Section 6.01, an Event of Default exists as
to a particular Borrower if such Event of Default exists wholly or in
part as a result of any event, condition, action, inaction,
representation or other matter of, by or otherwise directly or
indirectly pertaining to such Borrower or any Subsidiary of such
Borrower. Without limiting the foregoing and for purposes of further
clarification, it is agreed that inasmuch as each of NWP, WPL, TGPL
and TGT is a Subsidiary of TWC, any Event of Default that exists as to
any of NWP, WPL, TGPL or TGT also exists as to TWC.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations for such day on
-7-
<PAGE> 12
such transactions received by the Agent from three Federal funds
brokers of recognized standing selected by it.
"Governmental Requirements" means all judgments, orders,
writs, injunctions, decrees, awards, laws, ordinances, statutes,
regulations, rules, franchises, permits, certificates, licenses,
authorizations and the like and any other requirements of any
government or any commission, board, court, agency, instrumentality or
political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42
U.S.C. Section 9601(14) and shall also include each other substance
considered to be a hazardous substance under any Environmental
Protection Statute.
"Hazardous Waste" shall have the meaning set forth in 42
U.S.C. Section 6903(5) and shall also include each other substance
considered to be a hazardous waste under any Environmental Protection
Statute (including, without limitation 40 C.F.R. Section 261.3).
"Insufficiency means, with respect to any Plan, the amount, if
any, by which the present value of the vested benefits under such Plan
exceeds the fair market value of the assets of such Plan allocable to
such benefits.
"Interest Period" means, for each A Advance to a Borrower
comprising part of the same A Borrowing, the period commencing on the
date of such A Advance or the date of the Conversion of any Base Rate
Advance into a Eurodollar Rate Advance and ending on the last day of
the period selected by such Borrower pursuant to the provisions below
and, thereafter, each subsequent period commencing on the last day of
the immediately preceding Interest Period and ending on the last day
of the period selected by such Borrower pursuant to the provisions
below. The duration of each Interest Period shall be one, two, three
or six months, in each case as such Borrower may, upon notice received
by the Agent not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the first day of such Interest Period,
select; provided, however, that:
(i) Interest Periods commencing on the same date
for A Advances comprising part of the same A Borrowing shall
be of the same duration;
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that if such
extension would cause the last day of such Interest Period to
occur in the next following calendar month, the
-8-
<PAGE> 13
last day of such Interest Period shall occur on the next
preceding Business Day;
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have
ended if there were a numerically corresponding day in such
calendar month; and
(iv) no Borrower may select any Interest Period
which ends after the Termination Date, and no Borrower may
select any Interest Period if any Event of Default exists as
to such Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of
trust, security interest, encumbrance or other type of preferential
arrangement to secure or provide for the payment of any obligation of
any Person, whether arising by contract, operation of law or otherwise
(including, without limitation, the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title
retention agreement).
"Majority Banks" means at any time Banks holding at least
66-2/3% of the then aggregate unpaid principal amount of the A Notes
held by Banks, or, if no such principal amount is then outstanding,
Banks having at least 66-2/3% of the Commitments or, if no such
principal amount is then outstanding and all Commitments have
terminated, Banks holding at least 66-2/3% of the then aggregate
unpaid principal amount of the B Notes held by Banks (provided that
for purposes of this definition and Sections 2.17, 6.01 and 7.01
neither any Borrower nor any Subsidiary or Related Party of any
Borrower, if a Bank, shall be included in (i) the Banks holding the A
Notes or B Notes or (ii) determining the aggregate unpaid principal
amount of the A Notes or the B Notes or the amount of the
Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate of any Borrower is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made
or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which any
Borrower or any ERISA Affiliate of any Borrower, and one or more
employers other than any
-9-
<PAGE> 14
Borrower or an ERISA Affiliate of any Borrower, is making or accruing
an obligation to make contributions or, in the event that any such
plan has been terminated. to which any Borrower or any ERISA Affiliate
of any Borrower made or accrued an obligation to make contributions
during any of the five plan years preceding the date of termination of
such plan.
"Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to
be determined in accordance with generally accepted accounting
principles.
"Non-Borrowing Subsidiary" of any Borrower means a Subsidiary
of such Borrower which Subsidiary is not itself a Borrower.
"Note" means an A Note or a B Note.
"Notice of A Borrowing," has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted NWP Liens" means Liens specifically described on
Schedule III.
"Permitted TGPL Liens" means Liens specifically described on
Schedule IV.
"Permitted TGT Liens" means Liens specifically described on
Schedule V.
"Permitted TWC Liens" means Liens specifically described on
Schedule VI.
"Permitted WPL Liens" means Liens specifically described on
Schedule VII.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated
association, joint venture or other entity, or a government or any
political subdivision or agency thereof.
-10-
<PAGE> 15
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) as defined in Section 3(2) of ERISA currently
maintained by, or to which contributions have been made at any time
after December 31, 1984 by, any Borrower or any ERISA Affiliate of any
Borrower for employees of a Borrower or any such ERISA Affiliate and
covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code.
"Public Filing" means TWC'S, NWP'S, TGPL's and TGT's
respective annual reports on Form 10-K for the year ended December 31,
1993, and TWC'S, NWP'S, TGPL's and TGT's respective quarterly reports
on Form 10-Q for the quarters ended March 31, 1994, June 30, 1994 and
September 30, 1994.
"Rating Category" means any of Rating Category One, Rating
Category Two, Rating Category Three, Rating Category Four, Rating
Category Five, Rating Category Six or Rating Category Seven.
"Rating Category One" is applicable to a Borrower at such
times as the senior unsecured long-term debt of such Borrower is rated
A- or better by S&P or A3 or better by Moody's.
"Rating Category Two" is applicable to a Borrower at such
times as (i) Rating Category One is not applicable to such Borrower
and (ii) the senior unsecured long-term debt of such Borrower is rated
BBB+ by S&P or Baal by Moody's.
"Rating, Category Three" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two is
applicable to such Borrower and (ii) the senior unsecured long-term
debt of such Borrower is rated BBB by S&P or Baa2 by Moody's.
"Rating Category Four" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three is applicable to such Borrower and (ii) the
senior unsecured long-term debt of such Borrower is rated BBB- by S&P
or Baa3 by Moody's.
"Rating, Category Five" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four is applicable to such
Borrower and (ii) the senior unsecured long-term debt of such Borrower
is rated BB+ by S&P or Ba1 by Moody's.
"Rating Category Six" is applicable to a Borrower at such
times as (i) neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four nor Rating Category
Five is applicable to such
-11-
<PAGE> 16
Borrower and (ii) the senior unsecured long-term debt of such Borrower
is rated BB by S&P or Ba2 by Moody's.
"Rating Category Seven" is applicable to a Borrower at such
times as neither Rating Category One nor Rating Category Two nor
Rating Category Three nor Rating Category Four nor Rating Category
Five nor Rating Category Six is applicable to such Borrower.
"Related Party" of any, Person means any corporation,
partnership, joint venture or other entity of which more than 10% of
the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity, interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person or which owns at the time directly or indirectly more than 10%
of the outstanding capital stock or other equity interests having
ordinary voting power to elect a majority of the board of directors of
such Person or others performing similar functions (irrespective of
whether or not at the time capital stock or other equity interests of
any other class or classes of such corporation, partnership, joint
venture or other entity shall or might have voting power upon the
occurrence of any contingency); provided, however, that neither TWC
nor any Subsidiary of TWC shall be considered to be a Related Party of
TWC or any Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Group, a division of
Mc-Graw Hill, Inc. on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of such
Person, directly or indirectly, whereby such Person or any Subsidiary
of such Person shall sell or transfer any property, whether now owned
or hereafter acquired, and whereby such Person or any Subsidiary of
such Person shall then or thereafter rent or lease as lessee such
property or any part thereof or other property which such Person or
any Subsidiary of such Person intends to use for substantially the
same purpose or purposes as the property sold or transferred;
provided, however, that any sale and lease-back of cushion gas,
whether now or hereafter existing, shall not be considered to be a
Sale and Lease-Back Transaction and any sale and lease-back of
inventory, whether now or hereafter existing, by WPL or any of its
Subsidiaries (other than another Borrower) shall not be considered to
be a Sale and Lease-Back Transaction.
-12-
<PAGE> 17
"Stated Termination Date" means February 29, 2000 or such
later date, if any as may be agreed to by the Borrowers and the Banks
pursuant to Section 2.18.
"Subordinated Debt" means any Debt of any Borrower which is
effectively subordinated to the obligations of such Borrower hereunder
and under the Notes.
"Subsidiary" of any Person means any corporation, partnership,
joint venture or other entity of which more than 50% of the
outstanding capital stock or other equity interests having ordinary
voting power to elect a majority of the board of directors of such
corporation, partnership, joint venture or other entity or others
performing similar functions (irrespective of whether or not at the
time capital stock or other equity interests of any other class or
classes of such corporation, partnership, joint venture or other
entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such
Person.
"Tangible Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to
be determined in accordance with generally accepted accounting
principles, excluding, however, from the determination of total assets
(i) patents, patent applications, trademarks, copyrights and trade
names, (ii) goodwill, organizational, experimental, research and
development expense and other like intangibles, (iii) treasury stock,
(iv) monies set apart and held in a sinking or other analogous fund
established for the purchase, redemption or other retirement of
capital stock or Subordinated Debt, and (v) unamortized debt discount
and expense.
"Termination Date" means the earlier of (i) the Stated
Termination Date or (ii) the date of termination in whole of the
Commitments pursuant to Section 2.04, 2.17 or 6.01.
"Termination Event" means (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a "reportable
event" not subject to the provision for 30-day notice to the PBGC), or
an event described in Section 4062(f) of ERISA, or (ii) the withdrawal
of any Borrower or any ERISA Affiliate of any Borrower from a Multiple
Employer Plan during a plan year in which it was a "substantial
employer", as such term is defined in Section 4001(a)(2) of ERISA, or
the incurrence of liability by any Borrower or any ERISA Affiliate of
any Borrower under Section 4064 of ERISA upon the termination of a
Plan or Multiple Employer Plan, or (iii) the distribution of a notice
of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA
or the treatment of a Plan amendment as a termination under Section
4041 of
-13-
<PAGE> 18
ERISA, or (iv) the institution of proceedings to terminate a Plan by
the PBGC under Section 4042 of ERISA, or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a
Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware
corporation.
"Transfer Agreement" has the meaning specified in Section 8.06.
"TWC" means The Williams Companies, Inc., a Delaware
corporation.
"Type" has the meaning set forth in the definition herein
of A Advance.
"Unrated" means, as to any Borrower, that no senior unsecured
long-term debt of such Borrower is rated by S&P and no senior
unsecured long-term debt of such Borrower is rated by Moody's.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary
of such Person all of the capital stock and other equity interests of
which is owned by such Person or any Wholly-Owned Subsidiary of such
Person.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WEV" means Williams Energy Ventures, Inc., a Delaware
corporation.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"WNG" means Williams Natural Gas Company, a Delaware
corporation.
"WPL" means Williams Pipe Line Company, a Delaware corporation.
"WPL Debt to TNW Ratio" means at any date the ratio of (i) the
aggregate amount at such date of all Debt of WPL and its Subsidiaries
on a Consolidated basis to (ii) the sum of the Consolidated Tangible
Net Worth at such date of WPL plus the aggregate amount at such date
of all Debt of WPL and its Subsidiaries on a Consolidated basis.
-14-
<PAGE> 19
Section 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding."
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, and each reference herein to "generally
accepted accounting principles" shall mean generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e)(i).
Section 1.04. Miscellaneous. The words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.05. Ratings. A rating, whether public or private,
by S&P or Moody's shall be deemed to be in effect on the date of announcement
or publication by S&P or Moody's, as the case may be, of such rating, or, in
the absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the announcement or publication of, or
in the absence of such announcement or publication, the effective date of, any
change in, or withdrawal or termination of, such rating. In the event the
standards for any rating by Moody's or S&P are revised, or any such rating is
designated differently (such as by changing letter designations to different
letter designations or to numerical designations), the references herein to
such rating shall be deemed to refer to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Majority Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If either
Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of a Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of a Borrower Ba1 and other such debt of such Borrower
Ba2, the senior unsecured long-term debt of such Borrower shall be deemed to be
rated Ba2 by Moody's.
-15-
<PAGE> 20
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to each
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount outstanding not to
exceed at any time such Bank's Commitment to such Borrower, provided that the
aggregate amount of the Commitments of the Banks to any Borrower shall, except
for purposes of Section 2.03(a), be deemed used from time to time to the extent
of the aggregate amount of the B Advances then outstanding to, such Borrower
and such deemed use of the aggregate amount of such Commitments shall be
applied to the Banks ratably according to their respective Commitments to such
Borrower (such deemed use of the aggregate amount of the Commitments of any
Borrower being a "B Reduction"), and provided further that the aggregate amount
of all A Advances to all Borrowers by any Bank shall not exceed at any time
outstanding such Bank's Commitment to TWC (determined after giving effect to
such Bank's ratable share of all B Reductions). Each A Borrowing shall be in
an aggregate amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and shall consist of A Advances of the same Type
made to the same Borrower on the same day by the Banks ratably according to
their respective Commitments. Within the limits of each Bank's Commitment to a
Borrower, such Borrower may borrow, prepay pursuant to Section 2.10 and
reborrow under this Section 2.01.
Section 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than (1) in the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City
time) at least three Business Days prior to the date of the proposed Borrowing,
and (2) in the case of a proposed Borrowing comprised of Base Rate Advances,
10:00 A.M. (New York City time) on the date of the proposed Borrowing, by the
Borrower requesting such A Borrowing to the Agent, which shall give to each
Bank prompt notice thereof by telecopy, telex or cable. Each such notice of an
A Borrowing (a "Notice of A Borrowing") shall be by telecopy, telex or cable,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, executed by the Borrower requesting such A Borrowing and specifying
therein the requested (i) date of such A Borrowing (which shall be a Business
Day), (ii) initial Type of A Advances comprising such A Borrowing, (iii)
aggregate amount of such A Borrowing, and (iv) in the case of an A Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each such A
Advance. Each Bank shall, before 11:00 A.M. (New York City time) on the date of
such A Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section 8.02, in
same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will
-16-
<PAGE> 21
make such funds available to the Borrower requesting such A Borrowing at the
Agent's aforesaid address.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to any one
Borrower more than six A Borrowings comprised of Eurodollar Rate
Advances;
(ii) no Borrower may select Eurodollar Rate Advances for
any Borrowing if the aggregate amount of such Borrowing is less than
(x) if such Borrowing is made by WPL, $5,000,000, and (y) if such
Borrowing is made by any other Borrower, $20,000,000;
(iii) if the Majority Banks shall notify the Agent that
either (A) the Eurodollar Rate for any Interest Period for any
Eurodollar Rate Advances will not adequately reflect the cost to such
Banks of making or funding their respective Eurodollar Rate Advances
for such Interest Period, or (B) that U.S. dollar deposits for the
relevant amounts and Interest Period for their respective Advances are
not available to them in the London interbank market, or it is
otherwise impossible to have Eurodollar Rate Advances, the Agent shall
forthwith so notify the Borrowers and the Banks, whereupon (1) each
Eurodollar Rate Advance will automatically, on the last day of the
then existing Interest Period therefor, Convert into a Base Rate
Advance, and (II) the obligations of the Banks to make, or to Convert
Advances into, Eurodollar Rate Advances shall be suspended until the
Agent, at the request of the Majority Banks, shall notify the
Borrowers and the Banks that the circumstances causing such suspension
no longer exist, and, except as provided in Section 2.02(b)(v), each
Advance comprising any requested A Borrowing shall be a Base Rate
Advance;
(iv) if the Agent is unable to determine the Eurodollar
Rate for Eurodollar Rate Advances, the obligation of the Banks to
make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrowers and the Banks
that the circumstances causing such suspension no longer exist, and,
except as provided in Section 2.02(b)(v), each Advance comprising any
requested A Borrowing shall be a Base Rate Advance; and
(v) if a Borrower has requested a proposed A Borrowing
consisting of Eurodollar Rate Advances and as a result of
circumstances referred to in Section 2.02(b)(iii) or (iv) such A
Borrowing would not consist of Eurodollar Rate Advances, such Borrower
may, by notice given not later than 3:00 P.M. (New York City time) at
least one Business Day prior to the date such proposed A Borrowing
would otherwise be made, cancel such A Borrowing, in which case such A
Borrowing shall be cancelled and no Advances shall be made as a
-17-
<PAGE> 22
result of such requested A Borrowing, but such Borrower shall
indemnify the Banks in connection with such cancellation as
contemplated by Section 2.02(c).
(c) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrowers, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, such
Borrower shall indemnify each Bank against any loss, cost or expense incurred
by such Bank as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of reasonably anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired
by such Bank to fund the A Advance to be made by such Bank as part of such A
Borrowing when such A Advance, as a result of such failure, is not made on such
date. A certificate in reasonable detail as to the basis for and the amount of
such loss, cost or expense submitted to such Borrower and the Agent by such
Bank shall be prima facie evidence of the amount of such loss, cost or expense.
If an A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances is not made
as an A Borrowing comprised of Eurodollar Rate Advances as a result of Section
2.02(b), such Borrower shall indemnify each Bank against any loss (excluding
loss of profits), cost or expense incurred by such Bank by reason of the
liquidation or reemployment of deposits or other funds acquired by such Bank
prior to the time such Bank is actually aware that such A Borrowing will not be
so made to fund the A Advance to be made by such Bank as part of such A
Borrowing. A certificate in reasonable detail as to the basis for and the
amount of such loss, cost or expense submitted to such Borrower and the Agent
by such Bank shall be prima facie evidence of the amount of such loss, cost or
expense.
(d) Unless the Agent shall have received notice from a
Bank prior to the date of any A Borrowing to a Borrower that such Bank will not
make available to the Agent such Bank's ratable portion of such A Borrowing,
the Agent may assume that such Bank has made such portion available to the
Agent on the date of such A Borrowing in accordance with subsection (a) of this
Section 2.02 and the Agent may, in reliance upon such assumption, make
available to such Borrower requesting such A Borrowing on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such ratable portion available to the Agent, such Bank and such Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to such Borrower until the date such amount is repaid to the
Agent, at (i) in the case of such Borrower, the interest rate applicable at the
time to A Advances comprising such A Borrowing and (ii) in the case of such
Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Bank's A
Advance as part of such A Borrowing for purposes of this Agreement.
-18-
<PAGE> 23
(e) The failure of any Bank to make the A Advance to be
made by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the A Advance to be made by such other Bank on the date of any A
Borrowing.
Section 2.03. Fees.
(a) Commitment Fee. TWC agrees to pay to the Agent for
the account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.03(a) A Advances made to any Borrower shall be
considered to have been made to TWC, but B Advances to any Borrower shall not,
for purposes of this Section 2.03(a), be considered to be usage of any
Commitment) portion of such Bank's Commitment to TWC from the date hereof until
the Termination Date at a rate per annum from time to time equal to (i) at such
times as Rating Category One is applicable to TWC, .10%, (ii) at such times as
Rating Category Two is applicable to TWC, .125%, (iii) at such times as Rating
Category Three is applicable to TWC, .15%, (iv) at such times as Rating
Category Four is applicable to TWC, .20%, (v) at such times as Rating Category
Five is applicable to TWC, .30%, (vi) at such times as Rating Category Six is
applicable to TWC, .375% and (vii) at such times as Rating Category Seven is
applicable to TWC, .50%, payable in arrears on the last day of each March,
June, September and December during the term such Bank has any Commitment to
any Borrower and on the Termination Date.
(b) Agent's Fees. TWC agrees to pay to the Agent, for its
sole account, such fees as may be separately agreed to in writing by TWC and
the Agent.
Section 2.04. Reduction of the Commitments. (a) Optional.
Each Borrower shall have the right, upon at least three Business Days notice to
the Agent, to terminate in whole or reduce ratably in part the unused portions
of the respective Commitments of the Banks to such Borrower, provided that each
partial reduction shall be in the aggregate amount of at least $20,000,000, and
provided further, that the aggregate amount of the Commitments of the Banks to
any Borrower shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to such Borrower, and
provided further, that the aggregate amount of the Commitments of the Banks to
TWC shall not be reduced to an amount which is less than the aggregate
principal amount of the Advances then outstanding to the Borrower as to which
the aggregate outstanding principal amount of Advances is then the largest.
(b) Termination. If all of the Commitments of the Banks
to a Borrower (other than TWC) are terminated pursuant to Section 2.04(a) and
such Borrower has paid all principal, interest, fees, costs and other amounts
owed by it hereunder and under the Notes executed by it, such Borrower shall
have the right, upon
-19-
<PAGE> 24
at least three Business Days notice to the Agent, to elect to cease to be a
Borrower hereunder, except for purposes of the definition herein of Majority
Banks and for purposes of Sections 2.11, 2.14 and 8.04.
Section 2.05. Repayment of A Advances. Each Borrower shall
repay, on the Stated Termination Date or such earlier date as the Notes may be
declared due pursuant to Article VI, the unpaid principal amount of each A
Advance made by each Bank to such Borrower.
Section 2.06. Interest on A Advances. Each Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Bank to
such Borrower from the date of such A Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance
is a Base Rate Advance, a rate per annum equal at all times to the
Base Rate in effect from time to time plus the Applicable Margin in
effect from time to time for such A Advance, payable quarterly in
arrears on the last day of each March, June, September and December
and on the date such Advance shall be Converted or paid in full;
provided that any amount of principal of any Base Rate Advance,
interest, fees and other amounts payable hereunder (other than
principal of any Eurodollar Rate Advance) which is not paid when due
(whether at stated maturity, by acceleration or otherwise) shall bear
interest, from the date on which such amount is due until such amount
is paid in full, payable on demand, at a rate per annum equal at all
times to the sum of the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Advances to such Borrower in effect
from time to time plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all
times during each Interest Period for such A Advance to the sum of the
Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect from time to time for such A Advance, payable on the last day
of such Interest Period and, if such Interest Period has a duration of
more than three months, on each day which occurs during such Interest
Period every three months from the first day of such Interest Period;
provided that any amount of principal of any Eurodollar Rate Advance
which is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x)
the sum of the Base Rate in effect from time to time plus the
Applicable Margin for Base Rate Advances to such Borrower in effect
from time to time plus 2% per annum and (y) the sum of the rate per
annum required to be paid on such A Advance immediately prior to the
date on which such amount became due plus 2% per annum.
-20-
<PAGE> 25
Section 2.07. Additional Interest on Eurodollar Rate
Advances. Each Borrower shall pay to each Bank, so long as such Bank shall be
required under regulations of the Board of Governors of the Federal Reserve
System to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency Liabilities, additional interest on the unpaid
principal amount of each Eurodollar Rate Advance of such Bank to such Borrower,
from the date of such Advance until such principal amount is paid in full, at
an interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for the Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest shall be determined by such Bank and
notified to such Borrower through the Agent. A certificate as to the amount of
such additional interest submitted to such Borrower and the Agent by such Bank
shall be conclusive and binding for all purposes, absent manifest error. No
Bank shall have the right to recover any additional interest pursuant to this
Section 2.07 for any period more than 90 days prior to the date such Bank
notifies the Borrowers that additional interest may be charged pursuant to this
Section 2.07.
Section 2.08. Interest Rate Determination. The Agent shall
give prompt notice to the Borrower to which an A Advance is made and the Banks
of the applicable interest rate for each Eurodollar Rate Advance determined by
the Agent for purposes of Section 2.06(b).
Section 2.09. Evidence of Debt. The indebtedness of each
Borrower resulting from the A Advances owed to each Bank by such Borrower shall
be evidenced by an A Note of such Borrower payable to the order of such Bank.
Section 2.10. Prepayments.
(a) No Borrower shall have any right to prepay any
principal amount of any A Advance except as provided in this Section 2.10.
(b) Any Borrower may, in respect of Base Rate Advances
upon notice to the Agent before 10:00 A.M. (New York City time) on the date of
prepayment, and in respect of Eurodollar Rate Advances upon at least three
Business Days' notice to the Agent, in each case stating the proposed date
(which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of the A Advances comprising part of the same A
Borrowing in whole or ratably in part, together with accrued interest to the
date of such prepayment on the principal amount prepaid and amounts, if any,
required to be paid pursuant to Section 8.04(b) as a result of such prepayment;
provided, however, that each partial prepayment pursuant to this Section
2.10(b) shall be in an aggregate principal amount not less than $5,000,000 and
in an aggregate
-21-
<PAGE> 26
principal amount such that after giving effect thereto no A Borrowing comprised
of Base Rate Advances shall have a principal amount outstanding of less than
$5,000,000 and no A Borrowing comprised of Eurodollar Rate Advances shall have
a principal amount outstanding of less than (i) if such A Borrowing was made by
WPL, $5,000,000, and (ii) if such A Borrowing was made by any other Borrower,
$20,000,000.
(c) Each Borrower will give notice to the Agent at or
before the time of each prepayment by such Borrower of Advances pursuant to
this Section 2.10 specifying the Advances which are to be prepaid and the
amount of such prepayment to be applied to such Advances, and each payment of
any Advance pursuant to this Section 2.10 or any other provision of this
Agreement shall be made in a manner such that all Advances comprising part of
the same Borrowing are paid in whole or ratably in part.
Section 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation, application or applicability of any
law or regulation or (ii) the compliance with any guideline or request from any
central bank or other governmental authority (whether or not having the force
of law), there shall be any increase in the cost to any Bank of agreeing to
make or making, funding or maintaining Eurodollar Rate Advances to any
Borrower, then such Borrower shall from time to time, upon demand by such Bank
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Bank additional amounts sufficient to compensate such Bank for such
increased cost. A certificate as to the amount of such increased cost,
submitted to such Borrower and the Agent by such Bank, shall be prima facie
evidence of the amount of such increased cost. No Bank shall have the right to
recover any such increased costs for any period more than 90 days prior to the
date such Bank notifies the Borrowers of any such introduction, change,
compliance or proposed compliance.
(b) If any Bank determines that compliance with any law
or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's commitment
to lend to any Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), such
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend hereunder. A
certificate as to the amount of such additional amounts, submitted to such
Borrower and the Agent by such
-22-
<PAGE> 27
Bank, shall be prima facie evidence of the amount of such additional amounts.
No Bank shall have any right to recover any additional amounts under this
Section 2.11(b) for any period more than 90 days prior to the date such Bank
notifies the Borrower of any such compliance.
(c) In the event that any Bank makes a demand for payment
under Section 2.07 or this Section 2.11, TWC may within ninety days of such
demand, if no Event of Default or event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.06(a) (including execution of an
appropriate Transfer Agreement) provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and the Notes payable to such Bank and
all other obligations owed to such Bank hereunder shall be purchased in full
without recourse at par plus accrued interest at or prior to such replacement,
(ii) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (iii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment to each Borrower in the amount of the respective Commitment of such
Bank to such Borrower immediately prior to such replacement (plus, if such
replacement bank is already a Bank prior to such replacement the respective
Commitment of such Bank to such Borrower prior to such replacement), as such
amount may be changed from time to time pursuant hereto, and shall have all of
the rights, duties and obligations hereunder of the Bank being replaced, and
(iv) such other actions shall be taken by the Borrowers, such Bank and such
replacement bank as may be appropriate to effect the replacement of such Bank
with such replacement bank on terms such that such replacement bank has all of
the rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of new Notes of each Borrower to such
replacement bank, redelivery to each Borrower in due course of the Notes of
such Borrower payable to such Bank and specification of the information
contemplated by Schedule I as to such replacement bank).
Section 2.12. Illegality. Notwithstanding any other
provision of this Agreement, if any Bank shall notify the Agent that the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or that any central bank or other
governmental authority shall assert that it is unlawful, for any Bank or its
Eurodollar Lending Office to perform its obligations hereunder to make, or
Convert a Base Rate Advance into, a Eurodollar Rate Advance or to continue to
fund or maintain any Eurodollar Rate Advance, then, on notice thereof to the
Borrowers by the Agent, (i) the obligation of each of the Banks to make, or to
Convert Advances into, Eurodollar Rate Advances shall be suspended until the
Agent, at the request of the Majority Banks, shall notify the Borrowers and the
Banks that the circumstances causing such suspension no longer exist, and (ii)
the Borrowers shall forthwith prepay in full all Eurodollar Rate Advances of
all Banks then outstanding together with all accrued interest thereon and all
amounts payable pursuant to Section 8.04(b), unless
-23-
<PAGE> 28
each Bank shall determine in good faith in its sole opinion that it is lawful
to maintain the Eurodollar Rate Advances made by such Bank to the end of the
respective Interest Periods then applicable thereto or unless the Borrower,
within five Business Days of notice from the Agent, Converts all Eurodollar
Rate Advances of all Banks then outstanding into Base Rate Advances in
accordance with Section 2.19.
Section 2.13. Payments and Computations. (a) Each Borrower
shall make each payment hereunder and under the Notes to be made by it not
later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars
to the Agent at its New York address referred to in Section 8.02 in same day
funds. The Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal, interest or commitment fees ratably
(other than amounts payable pursuant to Section 2.07, 2.11, 2.14, 2.16 or
8.04(b)) to the Banks for the account of their respective Applicable Lending
Offices, and like funds relating to the payment of any other amount payable to
any Bank to such Bank for the account of its Applicable Lending Office, in each
case to be applied in accordance with the terms of this Agreement. In no event
shall any Bank be entitled to share any fee paid to the Agent pursuant to
Section 2.03(b), any auction fee paid to the Agent pursuant to Section
2.16(a)(i) or any other fee paid to the Agent, as such.
(b) Each Borrower hereby authorizes each Bank, if and to
the extent payment owed to such Bank by such Borrower is not made when due
hereunder or under any Note of such Borrower held by such Bank, to charge from
time to time against any or all of such Borrower's accounts with such Bank any
amount so due.
(c) All computations of interest based on clause (a) or
clause (b) of the definition herein of Base Rate and of commitment fees shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made
by the Agent, and all computations of interest pursuant to Section 2.07
shall be made by a Bank, on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or commitment fees are payable.
Each determination by the Agent (or, in the case of Section 2.07, by a Bank) of
an interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest or
commitment fee, as the case may be; provided, however, if such extension would
cause payment of interest on or principal of Eurodollar Rate Advances to be
made in the next following calendar month, such payment shall be made on the
next preceding Business Day.
-24-
<PAGE> 29
(e) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due by such Borrower to any
Bank hereunder that such Borrower will not make such payment in full, the Agent
may assume that such Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank. If and to the extent such Borrower shall not have so made such
payment in full to the Agent, each Bank shall repay to the Agent forthwith on
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Agent, at the Federal Funds Rate.
Section 2.14. Taxes. (a) Any and all payments by any
Borrower hereunder or under the Notes shall be made, in accordance with Section
2.13, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings with respect
thereto, and all liabilities with respect thereto, excluding in the case of
each Bank and the Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or the
Agent (as the case may be) is organized or any political subdivision thereof
and, in the case of each Bank, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If any Borrower shall be required by law to deduct
any Taxes from or in respect of any sum payable hereunder or under any Note to
any Bank or the Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) such Bank or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) such Borrower shall make such
deductions and (iii) such Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, each Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes executed by it or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or such Notes
(hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) owed and paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days
from the date such Bank or the Agent (as the case may be) makes written demand
therefor.
-25-
<PAGE> 30
(d) Within 30 days after the date of the payment of Taxes
by or at the direction of any Borrower, such Borrower will furnish to the
Agent, at its address referred to in Section 8.02, the original or a certified
copy of a receipt evidencing payment thereof. Should any Bank or the Agent
ever receive any refund, credit or deduction from any taxing authority to which
such Bank or the Agent would not be entitled but for the payment by a Borrower
of Taxes as required by this Section 2.14 (it being understood that the
decision as to whether or not to claim, and if claimed, as to the amount of any
such refund, credit or deduction shall be made by such Bank or the Agent, as
the case may be, in its sole discretion), such Bank or the Agent, as the case
may be, thereupon shall repay to such Borrower an amount with respect to such
refund, credit or deduction equal to any net reduction in taxes actually
obtained by such Bank or the Agent, as the case may be, and determined by such
Bank or the Agent, as the case may be, to be attributable to such refund,
credit or deduction.
(e) Without prejudice to the survival of any other
agreement of the Borrowers hereunder, the agreements and obligations of the
Borrowers contained in this Section 2.14 shall survive the payment in full of
principal and interest hereunder and under the Notes.
Section 2.15. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary or involuntary, or through the exercise
of any right of set-off or otherwise) on account of the A Advances made by it
(other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(b)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the A Advances owed to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such Bank's ratable share (according to the
proportion of (i) the amount of the participation purchased from such Bank as a
result of such excess payment to (ii) the total amount of such excess payment)
of such recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered from the purchasing
Bank) of any interest or other amount paid or payable by the purchasing
Bank in respect of the total amount so recovered. Each Borrower agrees
that any Bank so purchasing a participation from another Bank pursuant to
this Section 2.15 may, to the fullest extent permitted by law, exercise all
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Bank were the direct creditor of such
Borrower in the amount of such participation.
Section 2.16. The B Advances. (a) Each Bank severally agrees
that each Borrower may make B Borrowings under this Section 2.16 from time to
time on any Business Day during the period from the date hereof until the
earlier of (I) the
-26-
<PAGE> 31
Termination Date or (II) the date occurring 30 days prior to the Stated
Termination Date in the manner set forth below; provided that, following the
making of each B Borrowing, the aggregate amount of the Advances then
outstanding to such Borrower shall not exceed the aggregate amount of the
Commitments of the Banks to such Borrower (computed without regard to any B
Reduction) and the aggregate amount of all Advances then outstanding shall not
exceed the aggregate amount of the Commitments of the Banks to TWC (computed
without regard to any B Reduction).
(i) A Borrower may request a B Borrowing under this
Section 2.16 by delivering to the Agent, by telecopier, telex or
cable, confirmed immediately in writing, a notice of a B Borrowing (a
"Notice of B Borrowing"), in substantially the form of Exhibit B-2
hereto, specifying the date and aggregate amount of the proposed B
Borrowing, the maturity date for repayment of each B Advance to be
made as part of such B Borrowing (which maturity date may not be
earlier than the date occurring 14 days after the date of such B
Borrowing or later than the earlier of (x) 6 months after the date of
such B Borrowing or (y) the Stated Termination Date), the interest
payment date or dates relating thereto, and any other terms to be
applicable to such B Borrowing (including, without limitation, the
basis to be used by the Banks in determining the rate or rates of
interest to be offered by them as provided in paragraph (ii) below and
prepayment terms, if any, but excluding any waiver or other
modification to any of the conditions set forth in Article III), not
later than 10:00 A.M. (New York City time) (A) at least one Business
Day prior to the date of the proposed B Borrowing, if such Borrower
shall specify in the Notice of B Borrowing that the rates of interest
to be offered by the Banks shall be fixed rates per annum and (B) at
least five Business Days prior to the date of the proposed B
Borrowing, if the Borrower shall instead specify in the Notice of B
Borrowing the basis to be used by the Banks in determining the rates
of interest to be offered by them. The Agent shall in turn promptly
notify each Bank of each request for a B Borrowing received by it from
a Borrower by sending such Bank a copy of the related Notice of B
Borrowing. Each time that a Borrower gives a Notice of B Borrowing,
such Borrower shall pay to the Agent an auction fee equal to $250
times the number of Banks at such time.
(ii) Each Bank may, if in its sole discretion it elects to
do so, irrevocably offer to make one or more B Advances to a Borrower
as part of such proposed B Borrowing at a rate or rates of interest
specified by such Bank in its sole discretion, by notifying the Agent
(which shall give prompt notice thereof to such Borrower), before
10:00 A.M. (New York City time) (x) on the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant
to clause (A) of paragraph (i) above, and (y) three Business Days
before the date of such proposed B Borrowing in the case of a Notice
of B Borrowing delivered pursuant to clause (B) of paragraph (i)
above, of the minimum amount and maximum amount of each B Advance
which such Bank
-27-
<PAGE> 32
would be willing to make as part of such proposed B Borrowing (which
amounts may, subject to the proviso to the first sentence of this
Section 2.16(a), exceed such Bank's Commitment to such Borrower), the
rate or rates of interest therefor and such Bank's Applicable Lending
Office with respect to such B Advance; provided that if the Agent in
its capacity as a Bank shall, in its sole discretion, elect to make
any such offer, it shall notify such Borrower of such offer before
9:45 A.M. (New York City time) on the date on which notice of such
election is to be given to the Agent by the other Banks. If any Bank
shall elect not to make such an offer, such Bank shall so notify the
Agent, before 10:00 A.M. (New York City time) on the date on which
notice of such election is to be given to the Agent by the other
Banks, and such Bank shall not be obligated to, and shall not, make
any B Advance as part of such B Borrowing; provided that the failure
by any Bank to give such notice shall not cause such Bank to be
obligated to make any B Advance as part of such proposed B Borrowing.
(iii) The Borrower requesting such proposed B Borrowing
shall, in turn, before 11:00 A.M. (New York City time) (x) on the
date of such proposed B Borrowing in the case of a Notice of B
Borrowing delivered pursuant to clause (A) of paragraph (i) above and
(y) three Business Days before the date of such proposed B Borrowing
in the case of a Notice of B Borrowing delivered pursuant to clause
(B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the
Agent notice to that effect, or
(B) accept one or more of the offers made
by any Bank or Banks pursuant to paragraph (ii) above, in
order of the lowest to highest rates of interest or margins
(or, if two or more Banks bid at the same rates of interest,
and the amount of accepted offers is less than the aggregate
amount of such offers, the amount to be borrowed from such
Banks as part of such B Borrowing shall be allocated among
such Banks pro rata on the basis of the maximum amount offered
by such Banks at such rates or margin in connection with such
B Borrowing), in any aggregate amount up to the aggregate
amount initially requested by the Borrower in the relevant
Notice of B Borrowing, by giving notice to the Agent of the
amount of each B Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the
maximum amount, notified to such Borrower by the Agent on
behalf of such Bank for such B Advance pursuant to paragraph
(ii) above) to be made by each Bank as part of such B
Borrowing, and reject any remaining offers made by Banks
pursuant to paragraph (ii) above by giving the Agent notice to
that effect.
-28-
<PAGE> 33
(iv) If the Borrower requesting such B Borrowing notifies
the Agent that such B Borrowing is cancelled pursuant to paragraph
(iii)(A) above, the Agent shall give prompt notice thereof to the
Banks and such B Borrowing shall not be made.
(v) If the Borrower requesting such B Borrowing accepts
one or more of the offers made by any Bank or Banks pursuant to
paragraph (iii)(B) above, the Agent shall in turn promptly notify (A)
each Bank that has made an offer as described in paragraph (ii) above,
of the date and aggregate amount of such B Borrowing and whether or
not any offer or offers made by such Bank pursuant to paragraph (ii)
above have been accepted by such Borrower, (B) each Bank that is to
make a B Advance as part of such B Borrowing, of the amount of each B
Advance to be made by such Bank as part of such B Borrowing, and (C)
each Bank that is to make a B Advance as part of such B Borrowing,
upon receipt, that the Agent has received forms of documents appearing
to fulfill the applicable conditions set forth in Article III. Each
Bank that is to make a B Advance as part of such B Borrowing shall,
before 12:00 noon (New York City time) on the date of such B Borrowing
specified in the notice received from the Agent pursuant to clause (A)
of the preceding sentence or any later time when such Bank shall have
received notice from the Agent pursuant to clause (C) of the preceding
sentence, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section
8.02 such Bank's portion of such B Borrowing, in same day funds. Upon
fulfillment of the applicable conditions set forth in Article III and
after receipt by the Agent of such funds, the Agent will make such
funds available to such Borrower at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Bank of the
amount of the B Borrowing, the Borrower to which such B Borrowing was
made, the consequent B Reduction and the dates upon which such B
Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of
not less than $5,000,000 or an integral multiple of $1,000,000 in
excess thereof. Each Borrower agrees that it will not request a B
Borrowing unless, upon the making of such B Borrowing, the limitations
set forth in the proviso to the first sentence of Section 2.16(a) are
complied with.
(c) Within the limits and on the conditions set forth in
this Section 2.16, each Borrower may from time to time borrow under
this Section 2.16, repay or prepay pursuant to subsection (d) below,
and reborrow under this Section 2.16, provided that a B Borrowing
shall not be made by any Borrower within three Business Days of the
date of another B Borrowing to such Borrower.
-29-
<PAGE> 34
(d) Each Borrower shall repay to the Agent for the
account of each Bank which has made a B Advance to such Borrower, or
each other holder of a B Note of such Borrower, on the maturity date
of each B Advance made to such Borrower (such maturity date being that
specified by such Borrower for repayment of such B Advance in the
related Notice of B Borrowing delivered pursuant to subsection (a)(i)
above and provided in the B Note evidencing such B Advance) the then
unpaid principal amount of such B Advance. No Borrower shall have any
right to prepay any principal amount of any B Advance unless, and then
only on the terms, specified by such Borrower for such B Advance in
the related Notice of B Borrowing delivered pursuant to subsection
(a)(i) above and set forth in the B Note evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid
principal amount of each B Advance made to such Borrower from the date
of such B Advance to the date the principal amount of such B Advance
is repaid in full, at the rate of interest for such B Advance
specified by the Bank making such B Advance in its notice with respect
thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by such Borrower for such B
Advance in the related Notice of B Borrowing delivered pursuant to
subsection (a)(i) above, as provided in the B Note evidencing such B
Advance.
(f) The indebtedness of each Borrower resulting from each
B Advance made to such Borrower as part of a B Borrowing shall be
evidenced by a separate B Note of such Borrower payable to the order
of the Bank making such B Advance.
(g) The failure of any Bank to make the B Advance to be
made by it as part of any B Borrowing shall not relieve any other Bank
of its obligation, if any, hereunder to make its B Advance on the date
of such B Borrowing, but no Bank shall be responsible for the failure
of any other Bank to make the B Advance to be made by such other Bank
on the date of any B Borrowing.
Section 2.17. Optional Termination. Notwithstanding anything
to the contrary in this Agreement, if (i) any Person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of TWC or of
any Subsidiary of TWC) or two or more Persons acting in concert (other than any
group of employees of TWC or of any of its Subsidiaries) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of securities of TWC (or other securities convertible into such
securities) representing 20% or more of the combined voting power of all
securities of TWC entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency,
or (ii) during any period of up to 24 consecutive months, commencing before or
after the date of this Agreement, individuals who at the beginning of such
24-month period were
-30-
<PAGE> 35
directors of TWC or who were elected by individuals who at the beginning of
such period were such directors or by individuals elected in accordance with
this clause (ii) shall cease for any reason to constitute a majority of the
board of directors of TWC, or (iii) any Person (other than TWC or a
Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert shall
have acquired by contract or otherwise, or shall have entered into a contract
or arrangement which upon consummation will result in its or their acquisition
of, the power to exercise, directly or indirectly, a controlling influence over
the management or policies of any Borrower; then the Agent shall at the
request, or may with the consent, of the holders of at least 66-2/3% in
principal amount of the A Notes then outstanding or, if no A Notes are then
outstanding, Banks having at least 66-2/3% of the Commitments, by notice to the
Borrowers, declare all of the Commitments and the obligation of each Bank to
make Advances to be terminated, whereupon all of the Commitments and each such
obligation shall forthwith terminate, and no Borrower shall have any further
right to borrow hereunder.
Section 2.18. Extension of Termination Date. By notice given to the
Agent and the Banks, at least thirty days but not more than forty-five days
before February 1 of any year after 1998, the Borrowers may request the Banks
to extend the Stated Termination Date for an additional year to a date which is
an anniversary date of the Stated Termination Date. Within thirty days after
receipt of such request, each Bank that agrees, in its sole and absolute
discretion, to so extend the Stated Termination Date shall notify the Borrowers
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section 2.19. Voluntary Conversion of Advances. Any Borrower may on
any Business Day, if no Event of Default then exists as to such Borrower, upon
notice (which shall be irrevocable) given to the Agent not later than 11:00
A.M. (x) in the case of a proposed Conversion into Eurodollar Rate Advances,
on the third Business Day prior to the date of the proposed conversion, and (y)
in the case of a proposed Conversion into Base Rate Advances, on the date of
the proposed Conversion, and subject to the provisions of Sections 2.02 and
2.12, Convert all Advances of one Type comprising the same A Borrowing into
Advances of the other Type; provided that (i) no Conversion of any Eurodollar
Rate Advances shall occur on a day other than the last day of an Interest
Period for such Eurodollar Rate Advances, except as contemplated by Section
2.12, and (ii) Advances may not be Converted into Eurodollar Rate Advances if
the aggregate unpaid principal amount of the Advances is less than $20,000,000.
Each such notice of a Conversion shall, within the restrictions specified
above, specify (i) the date of such Conversion, (ii) the A Advances to be
Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the Interest Period for each such Advance.
Section 2.20. Automatic Provisions. (a) If any Borrower shall fail to
select the duration of any Interest Period for Eurodollar Rate Advances in
accordance with the provisions contained in the definition of "Interest Period"
in Section 1.01, the
-31-
<PAGE> 36
Agent will forthwith so notify such Borrower and the Lenders, and such Advances
will automatically, on the last day of the then existing Interest Period
therefor, Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal
amount of the Eurodollar Rate Advances of any Borrower shall be
reduced to less than $20,000,000, all of such Eurodollar Rate Advances
shall automatically Convert into Base Rate Advances.
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance is subject to the condition
precedent that the Agent shall have received on or before the day of the
initial Borrowing, each dated on or before such day, in form and substance
satisfactory to the Agent and (except for the Notes) in sufficient copies for
each Bank:
(a) The A Notes executed severally by each of the
respective Borrowers to the order of each of the respective Banks and
this Agreement executed by the Borrowers.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of each Borrower
approving this Agreement and the Notes to be executed by such
Borrower.
(c) A certificate of the Secretary or an Assistant
Secretary of each Borrower certifying (i) that attached thereto are
true and complete copies of the Certificate of Incorporation and
Bylaws of such Borrower as in effect on the date hereof, and (ii) the
names and true signatures of the officers of such Borrower authorized
to sign this Agreement, Notices of A Borrowing, Notices of B Borrowing
and the Notes to be executed by such Borrower and any other documents
to be delivered hereunder by such Borrower.
(d) An opinion of J. Furman Lewis, Esq., General Counsel
of TWC, substantially in the form of Exhibit C hereto and as to such
other matters as any Bank through the Agent may reasonably request.
(e) An opinion of William G. von Glahn, Associate General
Counsel of TWC, substantially in the form of Exhibit D and as to such
other matters as any Bank through the Agent may reasonably request.
-32-
<PAGE> 37
(f) An opinion of David E. Varmer, counsel for TGPL and
TGT, substantially in the form of Exhibit E and as to such other
matters as any Bank through the Agent may reasonably request.
(g) An opinion of Messrs. Bracewell & Patterson, counsel
for the Agent, substantially in the form of Exhibit F hereto.
(h) A statement executed by TWC confirming that the
Credit Agreement dated as of December 23, 1992 among the Borrowers,
Citibank, N.A., as agent, and the lenders parties thereto, as amended,
has been terminated (except as contemplated by the last sentence of
Section 8.10 thereof) and that all principal, interest and other
amounts owed thereunder have been paid in full. Each Bank hereby
waives the requirement of notice of termination contemplated by
Section 2.04(a) of such Credit Agreement, as amended.
(i) A certificate of an officer of each Borrower (other
than WPL) stating the respective ratings by each of S&P and Moody's of
the senior unsecured long-term debt of such Borrower as in effect on
the date of this Agreement and a certificate of an officer of WPL
stating (and showing the calculation of) the WPL Debt to TNW Ratio as
of September 30, 1994.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance to a Borrower on
the occasion of any A Borrowing (including the initial A Borrowing) shall be
subject to the further conditions precedent that on the date of such A
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of A Borrowing and the acceptance by such Borrower of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such A Borrowing, before and after
giving effect to such A Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(ii) No event has occurred and is continuing, or would
result from such A Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both, and
(iii) After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not
-33-
<PAGE> 38
exceed the aggregate of the Commitments of the Banks to TWC (computed
without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each B Borrowing.
The obligation of each Bank which is to make a B Advance to a Borrower on the
occasion of a B Borrowing (including the initial B Borrowing) to make such B
Advance as part of such B Borrowing is subject to the further conditions
precedent that (i) at or before the time required by paragraph (iii) of Section
2.16(a), the Agent shall have received the written confirmatory notice of such
B Borrowing contemplated by such paragraph, (ii) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall have received a B
Note executed by such Borrower payable to the order of such Bank for each of
the one or more B Advances to be made by such Bank as part of such B Borrowing,
in a principal amount equal to the principal amount of the B Advance to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.16, and (iii) on the date of such B
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by such Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in
Section 4.01 pertaining to such Borrower and its Subsidiaries are
correct on and as of the date of such B Borrowing, before and after
giving effect to such B Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date,
(2) No event has occurred and is continuing, or would
result from such B Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both,
(3) Following the making of such B Borrowing and all
other Borrowings to be made on the same day to such Borrower under
this Agreement, the aggregate principal amount of all Advances to such
Borrower then outstanding will not exceed the aggregate amount of the
Commitments to such Borrower (computed without regard to any B
Reduction), and
(4) After giving effect to such B Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not
-34-
<PAGE> 39
exceed the aggregate of the Commitments of the Banks to TWC (computed
without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as to itself and its Subsidiaries as
follows:
(a) Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has all corporate powers and all governmental licenses,
authorizations, certificates, consents and approvals required to carry
on its business as now conducted in all material respects, except for
those licenses, authorizations, certificates, consents and approvals
the failure to have which could not reasonably be expected to have a
material adverse effect on the business, assets, condition or
operation of such Borrower and its Subsidiaries taken as a whole.
Each Subsidiary of each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation, except where the failure to be so
organized, existing and in good standing could not reasonably be
expected to have a material adverse effect on the business, assets,
condition or operations of such Borrower and its Subsidiaries taken as
a whole. Each Subsidiary of a Borrower has all corporate powers and
all governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all
material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could
not reasonably be expected to have a material adverse effect on the
business, assets, condition or operation of such Borrower and its
Subsidiaries taken as a whole.
(b) The execution, delivery and performance by each
Borrower of this Agreement and the Notes and the consummation of the
transactions contemplated by this Agreement are within such Borrower's
corporate powers, have been duly authorized by all necessary corporate
action, do not contravene (i) such Borrower's charter or by-laws or
(ii) law or any contractual restriction binding on or affecting such
Borrower and will not result in or require the creation or imposition
of any Lien prohibited by this Agreement. At the time of each
borrowing of any Advance by a Borrower, such borrowing and the use of
the proceeds of such Advance will be within such Borrower's corporate
powers, will have been duly authorized by all necessary corporate
action, will not contravene (i) such Borrower's charter or by-laws or
(ii) law or any
-35-
<PAGE> 40
contractual restriction binding on or affecting such Borrower and will
not result in or require the creation or imposition of any Lien
prohibited by this Agreement.
(c) No authorization or approval or other action by, and
no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
any Borrower of this Agreement or the Notes or the consummation of the
transactions contemplated by this Agreement. At the time of each
borrowing of any Advance by a Borrower, no authorization or approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body will be required for such borrowing or
the use of the proceeds of such Advance.
(d) This Agreement has been duly executed and delivered
by each Borrower. This Agreement is the legal, valid and binding
obligation of each Borrower enforceable against each Borrower in
accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and by
general principles of equity. The A Notes of each Borrower are, and
when executed the B Notes of such Borrower will be, the legal, valid
and binding obligations of such Borrower enforceable against such
Borrower in accordance with their respective terms, except as such
enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally and by general principles of equity.
(e) (i) The Consolidated and consolidating balance sheets
of TWC and its Subsidiaries as at December 31, 1993, and the related
Consolidated and consolidating statements of income and cash flows of
TWC and its Subsidiaries for the fiscal year then ended, copies of
which have been furnished to each Bank, and the Consolidated and
consolidating balance sheets of TWC and its Subsidiaries as at
September 30, 1994, and the related Consolidated and consolidating
statements of income and cash flows of TWC and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TWC, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheets as at
September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments, the
Consolidated and consolidating financial condition of TWC and its
Subsidiaries as at such dates and the Consolidated and consolidating
results of operations of TWC and its Subsidiaries for the year and
nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1994, there has been no material adverse
change in the condition or operations of TWC or its Subsidiaries. It
is agreed that the sale of Williams
-36-
<PAGE> 41
Telecommunications Group, Inc., a Delaware corporation, and its
Subsidiaries and the purchase of Transco Energy Company, a Delaware
corporation, and its Subsidiaries (and (i) payment of cash by TWC and
issuance of shares by TWC in connection with such purchase, (ii)
assumption by TWC of debt of Transco Energy Company and its
Subsidiaries outstanding on the date hereof, (iii) the proposed merger
related to such purchase with a Subsidiary of TWC that is not a
Borrower, and (iv) contributions of capital to and loans to Transco
Energy Company and its Subsidiaries by TWC in an aggregate amount of
up to $950,000,000) do not constitute a material adverse change with
respect to any Borrower; provided, however, that this sentence shall
not be applicable to any adverse change resulting from or arising in
connection with any event, circumstance or condition (other than those
listed in clauses (i) through (iv) of this sentence) occurring or
existing after the date hereof.
(ii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1993 and September 30, 1994 referred
to in Section 4.01(e)(i), and the related consolidating statements of
income and cash flows of TWC and its Subsidiaries for the fiscal year
and nine months, respectively, then ended referred to in Section
4.01(e)(i), to the extent such balance sheets and statements pertain
to NWP, fairly present (subject, in the case of such balance sheet as
at September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments) the
Consolidated financial condition of NWP and its Subsidiaries as at
such dates and the Consolidated results of operations of NWP and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of NWP
or its Subsidiaries.
(iii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1993 and September 30, 1994 referred
to in Section 4.01(e)(i), and the related consolidating statements of
income and cash flows of TWC and its Subsidiaries for the fiscal year
and nine months, respectively, then ended referred to in Section 4.01
(e)(i), to the extent such balance sheets and statements pertain to
WPL, fairly present (subject, in the case of such balance sheet as at
September 30, 1994 and such statements of income and cash flows for
the nine months then ended, to year-end audit adjustments) the
Consolidated financial condition of WPL and its Subsidiaries as at
such dates and the Consolidated results of operations of WPL and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of WPL
or its Subsidiaries. It is agreed that the Minneapolis terminal fire
(involving an
-37-
<PAGE> 42
estimated uninsured loss of approximately $750,000) is not a material
adverse change.
(iv) The Consolidated balance sheet of TGPL and its
Subsidiaries as at December 31, 1993, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the fiscal year then ended, copies of which have been furnished to
each Bank, and the Consolidated balance sheet of TGPL and its
Subsidiaries as at September 30, 1994, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for
the nine months then ended, duly certified by an authorized financial
officer of TGPL, copies of which have been furnished to each Bank,
fairly present, subject, in the case of such balance sheet as at
September 30, 1994 and such statement of income and cash flows for the
nine months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGPL and its Subsidiaries as at
such dates and the Consolidated results of operations of TGPL and its
Subsidiaries for the year and nine month period, respectively, ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1994, there has
been no material adverse change in the condition or operations of TGPL
or its Subsidiaries. It is agreed that the $6,000,000 increase in the
reserve for refund obligations that has been made since September 30,
1994 but prior to the date hereof is not a material adverse change.
(v) The Consolidated balance sheet of TGT and its
Subsidiaries as at December 31, 1993, and the related Consolidated
statement of income and cash flows of TGT and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each
Bank, and the Consolidated balance sheet of TGT and its Subsidiaries
as at September 30, 1994, and the related Consolidated statement of
income and cash flows of TGT and its Subsidiaries for the nine months
then ended, duly certified by an authorized financial officer of TGT,
copies of which have been furnished to each Bank, fairly present,
subject, in the case of such balance sheet as at September 30, 1994
and such statement of income and cash flows for the nine months then
ended, to year-end audit adjustments, the Consolidated financial
condition of TGT and its Subsidiaries as at such dates and the
Consolidated results of operations of TGT and its Subsidiaries for the
year and nine month period, respectively, ended on such dates, all in
accordance with generally accepted accounting principles consistently
applied. Since September 30, 1994, there has been no material adverse
change in the condition or operations of TGT or its Subsidiaries.
(f) Except as set forth in the Public Filings or in
Exhibit I or as otherwise disclosed in writing by a Borrower to the
Banks and the Agent after the date hereof and approved by the Majority
Banks, there is, as to each Borrower, no pending or, to the knowledge
of such Borrower, threatened action
-38-
<PAGE> 43
or proceeding affecting such Borrower or any Subsidiary of such
Borrower before any court, governmental agency or arbitrator, which
could reasonably be expected to materially and adversely affect the
financial condition or operations of such Borrower and its
Subsidiaries taken as a whole or which purports to affect the
legality, validity, binding effect or enforceability of this Agreement
or any Note.
(g) No proceeds of any Advance will be used for any
purpose or in any manner not permitted by Section 5.02(k).
(h) No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used
to purchase or carry any such margin stock (other than purchases of
common stock expressly permitted by Section 5.02(k)) or to extend
credit to others for the purpose of purchasing or carrying any such
margin stock. Following the application of the proceeds of each
Advance, not more than 25% of the value of the assets of any Borrower
will be represented by such margin stock and not more than 25% of the
value of the assets of any Borrower and its Subsidiaries will be
represented by such margin stock.
(i) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan for which an Insufficiency
exists. No Borrower nor any ERISA Affiliate of any Borrower has
received any notification that any Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV
of ERISA, and no Borrower is aware of any reason to expect that any
Multiemployer Plan is to be in reorganization or to be terminated
within the meaning of Title IV of ERISA.
(k) As of the date of this Agreement, the United States
federal income tax returns of each Borrower and the Subsidiaries of
each Borrower have been examined through the fiscal year ended
December 31, 1989. Each Borrower and the Subsidiaries of each Borrower
have filed all United States Federal income tax returns and all other
material domestic tax returns which are required to be filed by them
and have paid, or provided for the payment before the same become
delinquent of, all taxes due pursuant to such returns or pursuant to
any assessment received by any Borrower or any such Subsidiary, other
than those taxes contested in good faith by appropriate proceedings.
The charges, accruals
-39-
<PAGE> 44
and reserves on the books of each Borrower and the Subsidiaries of
each Borrower in respect of taxes are adequate.
(l) No Borrower is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding
company" or of a "subsidiary company"' of a "holding company", or a
"public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
(m) Except as set forth in the Public Filings or as
otherwise disclosed in writing by a Borrower to the Banks and the
Agent after the date hereof and approved by the Majority Banks, the
Borrowers and their respective Subsidiaries are in compliance in all
material respects with all Environmental Protection Statutes to the
extent material to their respective operations or financial condition.
Except as set forth in the Public Filings or as otherwise disclosed in
writing by a Borrower to the Banks and the Agent after the date hereof
and approved by the Majority Banks, the aggregate contingent and
non-contingent liabilities of each Borrower and its Subsidiaries
(other than those reserved for in accordance with generally accepted
accounting principles and set forth in the financial statements
regarding such Borrower referred to in Section 4.01(e) and delivered
to each Bank) which are reasonably expected to arise in connection
with (i) the requirements of Environmental Protection Statutes or (ii)
any obligation or liability to any Person in connection with any
Environmental matters (including, without limitation, any release or
threatened release (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980) of any
Hazardous Waste, Hazardous Substance, other waste, petroleum or
petroleum products into the Environment) does not exceed 10% of the
Consolidated Tangible Net Worth of such Borrower (excluding
liabilities to the extent covered by insurance if the insurer has
confirmed that such insurance covers such liabilities or which such
Borrower reasonably expects to recover from ratepayers).
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
each Borrower will, unless the Majority Banks shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply, and cause each of
its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders (except where failure
to comply could not reasonably be expected to have a material adverse
effect on the business, assets, condition or
-40-
<PAGE> 45
operations of such Borrower and its Subsidiaries taken as a whole),
such compliance to include, without limitation, the payment and
discharge before the same become delinquent of all taxes, assessments
and governmental charges or levies imposed upon it or any of its
Subsidiaries or upon any of its property or any property of any of its
Subsidiaries, and all lawful claims which, if unpaid, might become a
Lien upon any property of it or any of its Subsidiaries, provided
that no Borrower nor any Subsidiary of a Borrower shall be required
to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings and with respect to
which reserves in conformity with generally accepted accounting
principles, if required by such principles, have been provided on the
books of such Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the Banks:
(i) as soon as possible and in any event within
five days after the occurrence of each Event of Default or
each event which, with the giving of notice or lapse of time
or both, would constitute an Event of Default, continuing on
the date of such statement, a statement of an authorized
financial officer of such Borrower setting forth the details
of such Event of Default or event and the actions, if any,
which such Borrower has taken and proposes to take with
respect thereto;
(ii) as soon as available and in any event not
later than 60 days after the end of each of the first three
quarters of each fiscal year of such Borrower, the
Consolidated and, in the case of TWC, consolidating balance
sheets of such Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated and, in the case of TWC,
consolidating statements of income and cash flows of such
Borrower and its Subsidiaries for the period commencing at the
end of the previous year and ending with the end of such
quarter, all in reasonable detail and duly certified (subject
to year-end audit adjustments) by an authorized financial
officer of such Borrower as having been prepared in accordance
with generally accepted accounting principles, together with a
certificate of said officer (a) stating that he has no
knowledge that an Event of Default, or an event which, with
notice or lapse of time or both, would constitute an Event of
Default has occurred and is continuing or, if an Event of
Default or such an event has occurred and is continuing, a
statement as to the nature thereof and the action, if any,
which such Borrower proposes to take with respect thereto, and
(b) showing in detail the calculation supporting such
statement in respect of Section 5.02(b);
(iii) as soon as available and in any event not
later than 105 days after the end of each fiscal year of such
Borrower, a copy of the
-41-
<PAGE> 46
annual audit report for such year for such Borrower and its
Subsidiaries, including therein Consolidated and, in the case
of TWC, consolidating balance sheets of such Borrower and its
Subsidiaries as of the end of such fiscal year and
Consolidated and, in the case of TWC, consolidating statements
of income and cash flows of such Borrower and its Subsidiaries
for such fiscal year, in each case prepared in accordance with
generally accepted accounting principles and certified by
Ernst & Young or other independent certified public
accountants of recognized standing acceptable to the Majority
Banks, together with a certificate of such accounting firm to
the Banks (a) stating that, in the course of the regular audit
of the business of such Borrower and its Subsidiaries, which
audit was conducted by such accounting firm in accordance with
generally accepted auditing standards, such accounting firm
has obtained no knowledge that an Event of Default or an
event which, with notice or lapse of time or both, would
constitute an Event of Default, has occurred and is
continuing, or if, in the opinion of such accounting firm, an
Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof, and (b)
showing in detail the calculations supporting such statement
in respect of Section 5.02(b); provided, however, that in the
case of NWP the primary audited financial statements required
by this Section 5.01(b)(iii) may be presented on a historical
cost basis, but such audited financial statements shall
include, as additional information, on a push-down basis
reflecting the purchase price of NWP paid by TWC, a
Consolidated balance sheet, a Consolidated statement of income
and a Consolidated cash flow statement of NWP and its
Subsidiaries as of the end of and for the relevant fiscal
year, all prepared in accordance with generally accepted
accounting principles but excluding footnotes for the
push-down financial statements;
(iv) such other information respecting the
business or properties, or the condition or operations,
financial or otherwise, of such Borrower or any of its
Subsidiaries as any Bank through the Agent may from time to
time reasonably request;
(v) promptly after the sending or filing thereof,
copies of all proxy material, reports and other information
which such Borrower sends to any of its security holders, and
copies of all reports and registration statements which such
Borrower or any Subsidiary of such Borrower files with the
Securities and Exchange Commission or any national securities
exchange;
(vi) as soon as possible and in any event (A)
within 30 Business Days after such Borrower or any ERISA
Affiliate of such Borrower
-42-
<PAGE> 47
knows or has reason to know that any Termination Event
described in clause (i) of the definition of Termination Event
with respect to any Plan has occurred and (B) within 30
Business Days after such Borrower or any ERISA Affiliate of
such Borrower knows or has reason to know that any other
Termination Event with respect to any Plan has occurred or is
reasonably expected to occur, a statement of the chief
financial officer or chief accounting officer of such Borrower
describing such Termination Event and the action, if any,
which such Borrower or such ERISA Affiliate of such Borrower
proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower, copies of each notice received by
such Borrower or any ERISA Affiliate of such Borrower from the
PBGC stating its intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(viii) within 30 days following request therefor by
any Bank, copies of each Schedule B (Actuarial Information) to
each annual report (Form 5500 Series) of such Borrower or any
ERISA Affiliate of such Borrower with respect to each Plan;
(ix) promptly and in any event within 25 Business
Days after receipt thereof by such Borrower or any ERISA
Affiliate of such Borrower from the sponsor of a Multiemployer
Plan, a copy of each notice received by such Borrower or any
ERISA Affiliate of such Borrower concerning (A) the imposition
of a Withdrawal Liability by a Multiemployer Plan, (B) the
determination that a Multiemployer Plan is, or is expected to
be, in reorganization within the meaning of Title IV of ERISA,
(C) the termination of a Multiemployer Plan within the meaning
of Title IV of ERISA, or (D)the amount of liability incurred,
or expected to be incurred, by such Borrower or any ERISA
Affiliate of such Borrower in connection with any event
described in clause (A), (B) or (C) above;
(x) not more than 45 days (or 90 days in the case
of the last fiscal quarter of a fiscal year of such Borrower)
after the end of each fiscal quarter of such Borrower, a
certificate of an authorized financial officer of such
Borrower (a) stating the respective ratings, if any, by each
of S&P and Moody's of the senior unsecured long-term debt of
such Borrower as of the last day of such quarter, and (b) if
such Borrower is WPL, stating (and showing the calculation
of) the WPL Debt to TNW Ratio on the last day of such
quarter; and
-43-
<PAGE> 48
(xi) promptly after any change in, or withdrawal
or termination of, the rating of any senior unsecured
Iong-term debt of such Borrower by S&P or Moody's, notice
thereof.
(c) Maintenance of Insurance. Maintain, and cause each of
its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which such
Borrower or its Subsidiaries operate, provided that such Borrower or
any of its Subsidiaries may self-insure to the extent and in the
manner normal for companies of like size, type and financial
condition.
(d) Preservation of Corporate Existence, Etc. Preserve
and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which qualification
is necessary or desirable in view of its business and operations or
the ownership of its properties, except (1) in the case of any
Non-Borrowing Subsidiary of such Borrower, where the failure of such
Subsidiary to so preserve, maintain, qualify and remain qualified
could not reasonably be expected to have a material adverse effect on
the business, assets, condition or operations of such Borrower and its
Subsidiaries taken as a whole and (2) in the case of such Borrower,
where the failure of such Borrower to preserve and maintain such
rights, franchises and privileges and to so qualify and remain
qualified could not reasonably be expected to have a material adverse
effect on the business, assets, condition or operations of such
Borrower and its Subsidiaries taken as a whole.
Section 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
no Borrower will, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to
exist, or permit any of its Subsidiaries to create, assume, incur or
suffer to exist, any Lien on or in respect of any of its property,
whether now owned or hereafter acquired, or assign or otherwise
convey, or permit any such Subsidiary to assign or otherwise convey,
any right to receive income, in each case to secure or provide for the
payment of any Debt of any Person, except that:
(i) TWC and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower may create, incur,
assume or suffer to exist Permitted TWC Liens;
-44-
<PAGE> 49
(ii) NWP and its Subsidiaries may create, incur,
assume or suffer to exist Permitted NWP Liens;
(iii) TGPL and its Subsidiaries may create, incur,
assume or suffer to exist Permitted TGPL Liens;
(iv) TGT and its Subsidiaries may create, incur,
assume or suffer to exist Permitted TGT Liens; and
(v) WPL and its Subsidiaries may create, incur,
assume or suffer to exist Permitted WPL Liens.
(b) Debt. (i) In the case of TWC, permit the ratio of (A)
the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed 0.65 to 1.0 at any time; and
(ii) In the case of any Borrower (other than TWC), permit
the ratio of (A) the aggregate amount of all Debt of such Borrower and
its Subsidiaries on a Consolidated basis to (B) the sum of the
Consolidated Net Worth of such Borrower plus the aggregate amount of
all Debt of such Borrower and its Subsidiaries on a Consolidated basis
to exceed 0.60 to 1.0 at any time.
(c) Merger and Sale of Assets. Merge or consolidate with
or into any other Person, or sell, lease or otherwise transfer all or
substantially all of its assets, or permit any of its Subsidiaries
(except immaterial Subsidiaries (other than WNG and WFS) that are not
Borrowers) to merge or consolidate with or into any other Person, or
sell, lease or otherwise transfer all or substantially all of its
assets, except that this Section 5.02(c) shall not prohibit:
(i) any Borrower and its Subsidiaries from
selling, leasing or otherwise transferring their respective
assets in the ordinary course of business;
(ii) if, but only if, (x) there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default and
(y) in the case of each transaction referred to in this
paragraph (ii) involving any Borrower or any of its
Subsidiaries, such transaction could not reasonably be
expected to impair materially the ability of such Borrower to
perform its obligations hereunder and under the Notes and such
Borrower shall continue to exist, any merger, consolidation or
sale, lease or other transfer of assets that does not involve
any Person other than TWC and its Subsidiaries;
-45-
<PAGE> 50
(iii) if, but only if,, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any Borrower and its Subsidiaries from selling, leasing or
otherwise transferring their respective gathering assets and
other production area facilities, or the stock of any Person
substantially all of the assets of which are gathering assets
and other production area facilities, to TWC or to any
Subsidiary of TWC for consideration that is not materially
less than the net book value of such assets and facilities;
(iv) any sale and lease-back of cushion gas by any
Borrower or any of its Subsidiaries or any sale and lease-back
of inventory by WPL or any of its Subsidiaries (other than
another Borrower);
(v) sales of receivables of any kind; or
(vi) if, but only if, there shall not exist or
result an Event of Default or an event which with notice or
lapse of time or both would constitute an Event of Default,
any sale, lease or other transfer of any stock or assets of
Transco Energy Company and its Subsidiaries so long as prior
to the time of such sale, lease or other transfer Transco
Energy Company and its Subsidiaries shall have transferred to
TWC all of their respective interests in TGPL and TGT and
shall not have reacquired any such interest.
(d) Agreements to Restrict Dividends and Certain
Transfers. Enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any consensual
encumbrance or restriction on the ability of any Subsidiary of TWC (i)
to pay, directly or indirectly, dividends or make any other
distributions in respect of its capital stock or pay any Debt or other
obligation owed to TWC or to any Subsidiary of TWC; or (ii) to make
loans or advances to TWC or any Subsidiary of TWC, except (1)
encumbrances and restrictions on any immaterial Non-Borrowing
Subsidiary of TWC (other than WNG and WFS), (2) those encumbrances and
restrictions existing on the date hereof and described in Exhibit G,
(3) other encumbrances and restrictions now or hereafter existing of
any Borrower or any of its Subsidiaries that are not more restrictive
in any material respect than the encumbrances and restrictions with
respect to such Borrower or its Subsidiaries described in Exhibit G,
and (4) any encumbrances and restrictions created in connection with
any sale and lease-back of cushion gas by any Borrower or any
Subsidiary of any Borrower or any sale and lease-back of inventory by
WPL or any of its Subsidiaries (other than another Borrower).
-46-
<PAGE> 51
(e) Loans and Advances. Borrow or otherwise receive any
loan or advance from TWC, and TWC will not make or permit to remain
outstanding any loan or advance to, or own, purchase or acquire any
obligations or debt securities of, any Subsidiary of TWC, except that
TWC may make and permit to remain outstanding loans and advances to
its Subsidiaries (and such Subsidiaries may borrow or otherwise
receive such loans and advances) if each such loan or advance
(excluding loans and advances to a Subsidiary of TWC if the aggregate
principal amount of all such excluded loans and advances to such
Subsidiary does not exceed $100,000) is evidenced by a written
instrument duly executed by the Subsidiary of TWC to which such loan
or advance is made, bears interest at TWC's or such Subsidiary's
market rate of interest and matures on or before the Termination Date.
(f) Maintenance of Ownership of Certain Subsidiaries.
Sell, issue or otherwise dispose of, or create, assume, incur or
suffer to exist any Lien on or in respect of, or permit any of its
Subsidiaries to sell, issue or otherwise dispose of or create, assume,
incur or suffer to exist any Lien on or in respect of, any shares of
or any interest in any shares of the capital stock of (1) WNG, WFS,
WPL, TGPL, TGT or NWP or any of their respective material Subsidiaries
or (2) any Subsidiary of TWC at the time it owns any shares of or any
interest in any shares of the capital stock of WNG, WFS, WPL, TGPL,
TGT or NWP or any of their respective material Subsidiaries; provided,
however, that if, but only if, (x) there shall not exist or result an
Event of Default or an event which with notice or lapse of time or
both would constitute an Event of Default and (y) in the case of each
sale or other disposition referred to in this proviso involving any
Borrower or any of its Subsidiaries, such sale or other disposition
could not reasonably be expected to impair materially the ability of
such Borrower to perform its obligations hereunder and under the Notes
and such Borrower shall continue to exist, this Section 5.02(f) shall
not prohibit the sale or other disposition of the stock of any
Subsidiary of TWC to TWC or any Wholly-Owned Subsidiary of TWC.
(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate of such Borrower to terminate, any Plan so as to
result in any liability of such Borrower or any such ERISA Affiliate
to the PBGC in excess of $5,000,000, or (ii) permit to exist any
occurrence of any Termination Event with respect to a Plan for which
there is an Insufficiency in excess of $5,000,000.
(h) Transactions with Related Parties. Make any sale to,
make any purchase from, extend credit to, make payment for services
rendered by, or enter into any other transaction with, or permit any
Subsidiary of such Borrower to make any sale to, make any purchase
from, extend credit to, make payment for services rendered by, or
enter into any other transaction with, any Related Party
-47-
<PAGE> 52
of such Borrower or of such Subsidiary unless as a whole such sales,
purchases, extensions of credit, rendition of services and other
transactions are (at the time such sale, purchase, extension of
credit, rendition of services or other transaction is entered into) on
terms and conditions reasonably fair in all material respects to such
Borrower or such Subsidiary in the good faith judgment of such
Borrower.
(i) Guarantees. Guarantee or otherwise become
contingently liable for, or permit any of its Subsidiaries to
guarantee or otherwise become contingently liable for, Debt of any
Subsidiary of TWC (other than Williams Energy Company and its
Subsidiaries which are not Borrowers) while an Event of Default is
continuing.
(j) Sale and Lease-Back Transactions. Enter into, or
permit any of its Subsidiaries to enter into, any Sale and Lease-Back
Transaction, if after giving effect thereto such Borrower would not be
permitted to incur at least $1.00 of additional Debt secured by a Lien
permitted by (i) paragraph (z) of Schedule III in the case of NWP and
its Subsidiaries, (ii) paragraph (z) of Schedule VI in the case of TWC
and its Non-Borrowing Subsidiaries which are not Subsidiaries of any
other Borrower, (iii) paragraph (z) of Schedule IV in the case of TGPL
and its Subsidiaries, (iv) paragraph (z) of Schedule V in the case of
TGT and its Subsidiaries, and (v) paragraph (i) of Schedule VII in the
case of WPL and its Subsidiaries.
(k) Use of Proceeds. Use any proceeds of any Advance for
any purpose other than general corporate purposes (including, without
limitation, working capital and capital expenditures) or use any such
proceeds in any manner which violates or results in a violation of
law; provided, however that no proceeds of any Advance will be used to
acquire any equity security of a class which is registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended,
(other than any purchase of common stock of any corporation, if such
purchase is not subject to Sections 13 and 14 of the Securities
Exchange Act of 1934 and is not opposed, resisted or recommended
against by such corporation or its management or directors, provided
that the aggregate amount of common stock of any corporation (other
than Apco Argentina Inc., a Cayman Islands corporation) purchased
during any calendar year shall not exceed 1% of the common stock of
such corporation issued and outstanding at the time of such purchase)
or in any manner which contravenes law, and no proceeds of any Advance
will be used to purchase or carry any margin stock (within the meaning
of Regulation G or Regulation U issued by the Board of Governors of
the Federal Reserve System).
-48-
<PAGE> 53
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any
Note executed by it when the same becomes due and payable, or shall
fail to pay any interest on any such Note or any fee or other amount
to be paid by it hereunder within ten days after the same becomes due
and payable; or
(b) Any certification, representation or warranty made by
any Borrower herein or by any Borrower (or any officer of any
Borrower) in writing under or in connection with any Note or this
Agreement (including, without limitation, representations and
warranties deemed made pursuant to Section 3.02 or 3.03) shall prove
to have been incorrect in any material respect when made or deemed
made; or
(c) Any Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.01(b) on its part
to be performed or observed and such failure shall continue for five
Business Days after the earlier of the date notice thereof shall have
been given to such Borrower by the Agent or any Bank or the date such
Borrower shall have knowledge of such failure, or (ii) any term,
covenant or agreement contained in this Agreement (other than a term,
covenant or agreement contained in Section 5.01(b)) or any Note on its
part to be performed or observed; or
(d) Any Borrower or any Subsidiary of any Borrower shall
fail to pay any principal of or premium or interest on any Debt which
is outstanding in a principal amount of at least $20,000,000 in the
aggregate (excluding Debt evidenced by the Notes) of such Borrower or
such Subsidiary (as the case may be), when the same becomes due and
payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be
due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment or as required pursuant to an
-49-
<PAGE> 54
illegality event of the type set forth in Section 2.12), prior to the
stated maturity thereof; or
(e) Any Borrower or any Subsidiary of any Borrower
(except any immaterial Subsidiary of such Borrower other than WNG, WEV
and WFS) shall generally not pay its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WNG, WEV and WFS) seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part
of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), shall remain undismissed or
unstayed for a period of 30 days; or any Borrower or any Subsidiary
of any Borrower (except any immaterial Subsidiary of such Borrower
other than WNG, WEV and WFS) shall take any corporate action to
authorize any of the actions set forth above in this subsection (e);
or
(f) Any judgment or order for the payment of money in
excess of $20,000,000 shall be rendered against any Borrower or any
Subsidiary of any Borrower (except any immaterial Subsidiary of such
Borrower other than WEV, WNG and WFS) and remain unsatisfied and
either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period
of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(g) Any Termination Event with respect to a Plan shall
have occurred and, 30 days after notice thereof shall have been given
to any Borrower by the Agent, (i) such Termination Event shall still
exist and (ii) the sum (determined as of the date of occurrence of
such Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and then exist (or in the case
of a Plan with respect to which a Termination Event described in
clause (ii) of the definition of Termination Event shall have occurred
and then exist, the liability related thereto) is equal to or greater
than $5,000,000; or
(h) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
it has incurred
-50-
<PAGE> 55
Withdrawal Liability to such Multiemployer Plan in an amount which,
when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities
(determined as of the date of such notification), exceeds $715,000,000
in the aggregate or requires payments exceeding $10,000,000 per annum;
or
(i) Any Borrower or any ERISA Affiliate of any Borrower
shall have been notified by the sponsor of a Multiemployer Plan that
such Multiemployer Plan is in reorganization or is being terminated,
within the meaning of Title IV of ERISA, if as a result of such
reorganization or termination the aggregate annual contributions of
the Borrowers and their respective ERISA Affiliates to all
Multiemployer Plans which are then in reorganization or being
terminated have been or will be increased over the amounts contributed
to such Multiemployer Plans for the respective plan years which
include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the holders of at least 66-2/3% in principal amount of the A
Notes then outstanding or, if no A Notes are then outstanding, Banks having at
least 66-2/3% of the Commitments, by notice to the Borrowers, declare all of
the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and (ii) shall at the request, or may with the consent,
of the holders of at least 66-2/3% in principal amount of the A Notes then
outstanding or if no A Notes are then outstanding, Banks having at least
66-2/3% of the Commitments, or, if no A Notes are then outstanding and all
Commitments have terminated, the holders of at least 66-2/3% in principal
amount of the B Notes then outstanding, by notice to the Borrower as to which
an Event of Default exists (determined as contemplated by the definition herein
of Events of Default), declare the Notes of such Borrower, all interest thereon
and all other amounts payable by such Borrower under this Agreement to be
forthwith due and payable, whereupon such Notes, such interest and all such
amounts shall become and be forthwith due and payable, without requirement of
any presentment, demand, protest, notice of intent to accelerate, further
notice of acceleration or other further notice of any kind (other than the
notice expressly provided for above), all of which are hereby expressly waived
by each Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A)the obligation of each Bank to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby expressly
waived by each Borrower.
-51-
<PAGE> 56
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
holders of at least 66-2/3% in principal amount of the A Notes then outstanding
or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the
Commitments (or, if no A Notes are then outstanding and all Commitments have
terminated, upon the instructions of holders of at least 66-2/3% in principal
amount of the B Notes then outstanding), and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to any Note, this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by any Borrower pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
any Note or this Agreement, except for its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Agent: (i) may treat the payee of any Note as the holder thereof until the
Agent receives and accepts a Transfer Agreement executed by a Borrower, the
Bank which is the payee of such Note, as assignor, and the assignee in
accordance with the last sentence of Section 8.06(a); (ii) may consult with
legal counsel (including counsel for any Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations (whether written or oral) made in or
in connection with any Note or this Agreement; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of any Note or this Agreement on the part of any
Borrower or to inspect the property (including the books and records) of any
Borrower; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of any
Note or this Agreement or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of any Note or
this Agreement by acting upon any notice, consent,
-52-
<PAGE> 57
certificate or other instrument or writing (which may be by telecopier,
telegram, cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties.
Section 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under any Note and this Agreement as any other
Bank and may exercise the same as though it was not the Agent; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include Citibank
in its individual capacity. Citibank and its affiliates may accept deposits
from, lend money to, act as trustee under indentures of, and generally engage
in any kind of business with, any Borrower, any Subsidiary of any Borrower, any
Person who may do business with or own, directly or indirectly, securities of
any Borrower or any such Subsidiary and any other Person, all as if Citibank
were not the Agent and without any duty to account therefor to the Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank and based on the financial statements referred to in Section 4.01(e) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under any Note or this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed by the Borrowers), ratably according to
the respective principal amounts of the A Notes then held by each of them (or
if no A Notes are at the time outstanding or if any A Notes are held by Persons
which are not Banks, ratably according to either (i) the respective amounts of
their Commitments to TWC, or (ii) if all Commitments to TWC have terminated,
the respective amounts of the Commitments to TWC immediately prior to the time
the Commitments to TWC terminated), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or
arising out of any Note or this Agreement or any action taken or omitted by the
Agent under any Note or this Agreement, provided that no Bank shall be liable
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of
-53-
<PAGE> 58
rights or responsibilities under, any Note or this Agreement to the extent that
the Agent is not reimbursed for such expenses by the Borrowers.
Section 7.06. Successor Agent. The Agent may resign at any
time as Agent under this Agreement by giving written notice thereof to the
Banks and the Borrowers and may be removed at any time with or without cause by
the Majority Banks. Upon any such resignation or removal, the Majority
Banks shall have the right to appoint, with the consent of TWC (which consent
shall not be unreasonably withheld), a successor Agent from among the Banks.
If no successor Agent shall have been so appointed by the Majority Banks with
such consent, and shall have accepted such appointment, within 30 days after
the retiring Agent's giving of notice of resignation or the Majority Banks'
removal of the retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a Bank which is a commercial
bank organized under the laws of the United States of America or of any State
thereof and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as Agent under this Agreement by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent
and shall function as the Agent under this Agreement, and the retiring Agent
shall be discharged from its duties and obligations as Agent under this
Agreement. After any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this Article VII shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Note or this Agreement, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following: (a)
waive any of the conditions specified in Article III, (b) increase the
Commitments of the Banks or subject the Banks to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) take any action which requires the signing of all the Banks
pursuant to the terms of this Agreement, (f) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the A Notes or B
Notes, or the number of Banks, which shall be
-54-
<PAGE> 59
required for the Banks or any of them to take any action under this Agreement,
or (g) amend this Section 8.01; and provided, further, that no amendment,
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Banks required above to take such action, affect the rights or duties of
the Agent under any Note or this Agreement.
Section 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Bank, as specified opposite its name on
Schedule I hereto or specified pursuant to Section 8.06(a); if to any Borrower,
as specified opposite its name on Schedule II hereto; and if to Citibank, as
Agent, to its address at 399 Park Avenue, New York, New York 10043, (telecopier
number: (212) 527-1084), Attention: John Sahr, with a copy to Citicorp North
America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas 77002
(telecopier number: (713) 654-2849; telex number 127001 (Attn: Route Code
HOUAA)), Attention: The Williams Companies, Inc. Account Officer; or, as to
any Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrowers and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
in the mail, sent by telecopier to any party to the telecopier number as set
forth herein or on Schedule I or Schedule II or specified pursuant to Section
8.06(a) (or other telecopy number specified by such party in a written notice
to the other parties hereto), delivered to the telegraph company, telexed to
any party to the telex number set forth herein or on Schedule I or Schedule II
or specified pursuant to Section 8.06(a) (or other telex number designated by
such party in a written notice to the other parties hereto), confirmed by telex
answerback, or delivered to the cable company, respectively, except that
notices and communications to the Agent shall not be effective until received
by the Agent.
Section 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Agent to exercise, and no delay in exercising, any right under
any Note or this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
any Note and this Agreement are cumulative and not exclusive of any remedies
provided by law.
Section 8.04. Costs, Expenses and Taxes. (a) (i) TWC agrees to
pay on demand all reasonable out-of-pocket costs and expenses of the Arranger
and the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered under this Agreement, including, without
limitation, the reasonable fees and out-of-pocket
-55-
<PAGE> 60
expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under any Note and
this Agreement, and (ii) each Borrower agrees to pay on demand all costs and
expenses, if any (including, without limitation, reasonable counsel fees and
expenses, which may include allocated costs of in-house counsel), of the Agent
and each Bank in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) against such Borrower of any Note of such
Borrower or this Agreement and the other documents to be delivered by such
Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section
2.11(c) or Section 8.06(b)) of principal of, or Conversion of, any Eurodollar
Rate Advance or B Advance made to any Borrower is made other than on the last
day of an Interest Period relating to such Advance (or in the case of a B
Advance, other than on the original scheduled maturity date thereof), as a
result of a payment pursuant to Section 2.10 or 2.12 or acceleration of the
maturity of the Notes pursuant to Section 6.01 or for any other reason or as a
result of any such purchase or any Conversion, such Borrower shall, upon demand
by any Bank (with a copy of such demand to the Agent), pay to the Agent for
the account of such Bank any amounts required to compensate such Bank for any
additional losses, costs or expenses which it may reasonably incur as a result
of any such payment, purchase or Conversion, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Bank to fund or maintain such Advance.
(c) Each Borrower agrees, to the fullest extent permitted
by law, to indemnify and hold harmless the Agent, the Arranger and each Bank
and each of their respective directors, officers, employees and agents from and
against any and all claims, damages, liabilities and out-of-pocket expenses
(including, without limitation, reasonable fees and disbursements of counsel)
for which any of them may become liable or which may be incurred by or asserted
against the Agent, the Arranger or such Bank or any such director, officer,
employee or agent (other than by another Bank or any successor or assign of
another Bank), in each case in connection with or arising out of or by reason
of any investigation, litigation, or proceeding, whether or not the Agent, the
Arranger or such Bank or any such director, officer, employee or agent is a
party thereto, arising out of, related to or in connection with this Agreement
or the Notes or any transaction in which any proceeds of all or any part of the
Advances are applied (other than any such claim, damage, liability or expense
to the extent attributable to the gross negligence or willful misconduct of, or
violation of any law or regulation by, either the party seeking indemnity under
this Section 8.04(c) or any of its directors, officers, employees or agents).
Section 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes of
-56-
<PAGE> 61
a Borrower due and payable pursuant to the provisions of Section 6.01, each
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Bank to or for the credit or the account
of such Borrower against any and all of the obligations of such Borrower now or
hereafter existing under this Agreement and the Notes held by such Bank,
irrespective of whether or not such Bank shall have made any demand under this
Agreement or such Notes and although such obligations may be unmatured. Each
Bank agrees promptly to notify such Borrower after such set-off and application
made by such Bank, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of each Bank
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may have.
Section 8.06. Binding Effect; Transfers. (a) This
Agreement shall become effective when it shall have been executed by the
Borrowers and the Agent and when each Bank listed on the signature pages hereof
has delivered an executed counterpart hereof to the Agent, has sent to the
Agent a facsimile copy of its signature hereon or has notified the Agent that
such Bank has executed this Agreement and thereafter shall be binding upon and
inure to the benefit of the Borrowers, the Agent and each Bank and their
respective successors and assigns, except that the Borrowers shall not have the
right to assign any of their respective rights hereunder or any interest herein
without the prior written consent of the Banks. Each Bank may assign to one or
more banks, financial institutions or government entities all or any part of,
or may grant participations to one or more banks, financial institutions or
government entities in or to all or any part of, any Advance or Advances owing
to such Bank, any Note or Notes held by such Bank and all or any portion of
such Bank's Commitments, and to the extent of any such assignment or
participation (unless otherwise stated therein) the assignee or purchaser of
such assignment or participation shall, to the fullest extent permitted by law,
have the same rights and benefits hereunder and under such Note or Notes as it
would have if it were such Bank hereunder, provided that, except in the case
of an assignment meeting the requirements of the next sentence hereof, (1) such
Bank's obligations under this Agreement, including, without limitation, its
Commitments to the Borrowers hereunder, shall remain unchanged, such Bank shall
remain responsible for the performance thereof, such Bank shall remain the
holder of any such Note or Notes for all purposes under this Agreement, and the
Borrowers, the other Banks and the Agent shall continue to deal solely with and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; and (2) no Bank shall assign or grant a participation
that conveys to the assignee or participant the right to vote or consent under
this Agreement, other than the right to vote upon or consent to (i) any
increase in the amount of any Commitment of such Bank; (ii) any reduction of
the principal amount of, or interest to be paid on, such Bank's Advance or
Advances or Note or Notes; (iii) any reduction of any fee or other amount
payable hereunder to such
-57-
<PAGE> 62
Bank; or (iv) any postponement of any date fixed for any payment of principal
of, or interest on, such Bank's Advance or Advances or Note or Notes or any fee
or other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or (2) is
approved in writing by the Agent and the Borrowers or (3) is approved in
writing by the Agent and either an Event of Default exists or the Borrowers
have relinquished the right to approve the assignment pursuant to Section
8.06(b), and (II) such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
to TWC assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000) of each of the Commitments of such assigning Bank to the respective
Borrowers (either all of each such Commitment shall be assigned or the
percentage portion of each such Commitment assigned shall be the same as to
each Borrower) by executing a document in the form of Exhibit H (or with such
changes thereto as have been approved in writing by the Agent in its sole
discretion as evidenced by its execution thereof duly executed by the Agent,
the Borrowers (unless an Event of Default exists or the Borrowers have
relinquished the right to approve the assignment pursuant to Section 8.06(b)),
such assigning Bank and such assignee and delivered to the Agent ("Transfer
Agreement"), then upon such delivery, (i) such assigning Bank shall be released
from its obligations under this Agreement with respect to all or such portion,
as the case may be, of its Commitments, (ii) such assignee shall become
obligated for all or such portion, as the case may be, of such Commitments and
all other obligations of such assigning Bank hereunder with respect to or
arising as a result of all or such portion, as the case may be, of such
Commitments, (iii) such assignee shall be assigned the right to vote or consent
under this Agreement, to the extent of all or such portion, as the case may be,
of such Commitments, (iv) each Borrower shall deliver, in replacement of the A
Note of such Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of such Borrower in the amount of the Commitment of such
assigning Bank to such Borrower which is being so assumed by such assignee
plus, in the case of any assignee which is already a Bank hereunder, the amount
of such assignee's Commitment to such Borrower immediately prior to such
assignment (any such assignee which is already a Bank hereunder agrees to
cancel and return to such Borrower, with reasonable promptness following the
delivery of such new A Note, the A Note being replaced thereby), (b) to such
assigning Bank, a new A Note in the amount of the balance, if any, of the
Commitment of such assigning Bank to such Borrower (without giving effect to
any B Reduction) retained by such assigning Bank (and such assigning Bank
agrees to cancel and return to such Borrower, with reasonable promptness
following delivery of such new A Notes, the A Note being replaced thereby), and
(c) to the Agent, photocopies of such new A Notes, (v) if such assignment is of
all of such assigning Bank's Commitments to the Borrowers, all of the
outstanding A Advances made by such assigning Bank shall be transferred to such
assignee, (vi) if such assignment is not of all of such Commitments, a part of
each A Advance to each Borrower equal to the
-58-
<PAGE> 63
amount of such Advance multiplied by a fraction, the numerator of which is the
amount of such portion of such assigning Bank's Commitment to such Borrower so
assumed and the denominator of which is the amount of the Commitment of such
assigning Bank to such Borrower (without giving effect to any B Reduction)
immediately prior to such assumption, shall be transferred to such assignee and
evidenced by such assignee's A Note from such Borrower, and the balance of such
A Advance shall be evidenced by such assigning Bank's new A Note from such
Borrower delivered pursuant to clause (iv)(b) of this sentence, (vii) if such
assignee is not a "Bank" hereunder prior to such assignment, such assignee
shall become a party to this Agreement as a Bank and shall be deemed to be a
"Bank" hereunder, and the amount of all or such portion, as the case may be, of
the Commitments to the respective Borrowers so assumed shall be deemed to be
the amount set opposite such assignee's name on the signature pages hereof for
purposes of this Agreement, and (viii) if such assignee is not a Bank hereunder
prior to such assignment, such assignee shall be deemed to have specified the
offices of such assignee named in the respective Transfer Agreement as its
"Domestic Lending Office" and "Eurodollar Lending Office" for all purposes of
this Agreement and to have specified for purposes of Section 8.02 the notice
information set forth in such Transfer Agreement; and the Agent shall promptly
after execution of any Transfer Agreement by the Agent and the other parties
thereto notify the Bank's of the parties to such Transfer Agreement and the
amounts of the assigning Bank's Commitments assumed thereby.
(b) If the Borrowers do not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), TWC may, within 15 days
of its receipt of a request that it consent to such assignment nominate by
notice to the Agent and such Bank a bank which, if it is not a Bank, is
acceptable to the Agent, and which unconditionally offers in writing (with a
copy to the Agent) to purchase and assume, to the extent of the amount of such
proposed assignment, in accordance with all of the provisions of the last
sentence of Section 8.06(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitments) hereunder and interest in the Advances owing to
such Bank and the Notes held by such Bank without recourse at par plus interest
accrued thereon to the date of such purchase on a date therein specified (not
less than three nor greater than five Business Days after such nomination).
Such Bank at its option may elect to accept or not accept such purchase offer.
If a Bank accepts such an offer and the bank first nominated by TWC pursuant to
this Section 8.06(b) fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, TWC may, within 15
days of such failure, repeat the process contemplated by the first sentence of
this Section 8.06(b) by nominating another bank for purposes of this Section
8.06(b) by notice to the Agent and such Bank. If TWC does not so nominate such
a bank within 15 days of its receipt of such request that it consent to such
assignment or if TWC fails to nominate another bank following such a failure to
purchase or if such second nominated bank fails to purchase in accordance with
the
-59-
<PAGE> 64
terms of an offer complying with the first sentence of this Section 8.06(b),
the Borrowers shall be deemed to have relinquished their right to consent to
such assignment. If such Bank elects to not accept such a purchase offer under
this Section 8.06(b) as to a particular proposed assignment, the Borrowers
shall not be deemed to have relinquished their right to consent to such
assignment.
(c) The Borrowers agree to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrowers of the
assignee is not required by clause (1) of the last sentence of Section 8.06(a).
(d) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under this Agreement or an), of the Notes to any
Federal Reserve Bank without notice to or consent of any Borrower or the Agent.
Section 8.07. Governing Law. This Agreement and the Notes
shall be governed by, and construed in accordance with, the laws of the State
of New York.
Section 8.08. Interest. It is the intention of the parties
hereto that the Agent and each Bank shall conform strictly to usury laws
applicable to it, if any. Accordingly, if the transactions with the Agent or
any Bank, contemplated hereby would be usurious under applicable law, then, in
that event, notwithstanding anything to the contrary in the Notes, this
Agreement or any other agreement entered into in connection with or as security
for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be cancelled automatically and, if
theretofore paid, shall at the option of the Agent or such Bank, as the case
may be, be credited by the Agent or such Bank, as the case may be, on the
principal amount of the obligations owed to the Agent or such Bank, as the
case may be, by the appropriate Borrower or refunded by the Agent or such
Bank, as the case may be, to the appropriate Borrower, and (ii) in the event
that the maturity of any Note or other obligation payable to the Agent or such
Bank, as the case may be, is accelerated or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to the Agent or such Bank, as the case may be, may never
include more than the maximum amount allowed by such applicable law and excess
interest, if any, to the Agent or such Bank, as the case may be, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of the Agent or such Bank, as the case may be, be credited by the Agent
or such Bank, as the case may be, on the principal amount of the obligations
-60-
<PAGE> 65
owed to the Agent or such Bank, as the case may be, by the appropriate Borrower
or refunded by the Agent or such Bank, as the case may be, to the appropriate
Borrower.
Section 8.09. Execution in Counterparts. This Agreement may
be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.10. Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by any
Borrower or any officer of any Borrower herein or in any certificate or other
document delivered in connection with this Agreement shall be considered to
have been relied upon by the Banks and shall survive the issuance and delivery
of the Notes and the making of the Advances regardless of any investigation.
The indemnities and other payment obligations of each Borrower contained in
this Agreement, and the indemnities by the Banks in favor of the Agent and its
officers, directors, employees and agents, will survive the repayment of the
Advances and the termination of this Agreement.
Section 8.11. Borrowers' Right to Apply Deposits. In the
event that any Bank is placed in receivership or enters a similar proceeding,
each Borrower may, to the full extent permitted by law, make any payment due to
such Bank hereunder, to the extent of finally collected unrestricted deposits
of such Borrower in U.S. dollars held by such Bank, by giving notice to the
Agent and such Bank directing such Bank to apply such deposits to such
indebtedness. If the amount of such deposits is insufficient to pay such
indebtedness then due and owing in full, such Borrower shall pay the balance of
such insufficiency in accordance with this Agreement.
Section 8.12. Confidentiality. Each Bank agrees that it will
use best efforts, to the extent not inconsistent with practical business
requirements, not to disclose without the prior consent of TWC -(other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrowers or their
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrowers in good faith consider to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrowers to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation
-61-
<PAGE> 66
or ruling applicable to such Bank, (e) to the prospective transferee in
connection with any contemplated transfer of any of the Notes or any interest
therein by such Bank, provided that such prospective transferee executes an
agreement with or for the benefit of the Borrowers containing provisions
substantially identical to those contained in this Section 8.12, and provided
further that if the contemplated transfer is a grant of a participation in a
Note (and not an assignment), no such information shall be authorized to be
delivered to such participant pursuant to this clause (e) except (i) such
information delivered pursuant to Section 4.01(e) or Section 5.01(b) (other
than paragraph (iv) thereof), and (ii) if prior notice of the delivery thereof
is given to TWC, such information as may be required by law or regulation to be
delivered, (f) in connection with the exercise of any remedy by such Bank
pertaining to this Agreement, any of the Notes or any other document delivered
in connection herewith, (g) in connection with any litigation involving such
Bank pertaining to this Agreement, any of the Notes or any other document
delivered in connection herewith, (h) to any Bank or the Agent, or (i) to any
affiliate of any Bank, provided that such affiliate executes an agreement with
or for the benefit of the Borrowers containing provisions substantially
identical to those contained in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWERS,
THE AGENT, AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
ANY NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
BORROWERS
THE WILLIAMS COMPANIES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
NORTHWEST PIPELINE CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
-62-
<PAGE> 67
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
TEXAS GAS TRANSMISSION
CORPORATION
By: /s/ E.J. Ralph
------------------------------
Name:
----------------------------
Title:
---------------------------
WILLIAMS PIPE LINE COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
AGENT:
CITIBANK, N.A., as Agent
By:
------------------------------
Authorized Officer
-63-
<PAGE> 68
Commitments BANKS
TWC Commitment $60,000,000 CITIBANK, N.A.
NWP Commitment $30,000,000
TGPL Commitment $30,000,000
TGT Commitment $15,000,000 By:
WPL Commitment $ 7,500,000 ------------------------------
Authorized Officer
TWC Commitment $50,000,000 BANK OF AMERICA NATIONAL TRUST
NWP Commitment $25,000,000 AND SAVINGS ASSOCIATION
TGPL Commitment $25,000,000
TGT Commitment $12,500,000
WPL Commitment $ 6,250,000 By:
------------------------------
Authorized Officer
TWC Commitment $50,000,000 CHEMICAL BANK
NWP Commitment $25,000,000
TGPL Commitment $25,000,000
TGT Commitment $12,500,000 By:
WPL Commitment $ 6,250,000 ------------------------------
Authorized Officer
TWC Commitment $50,000,000 CIBC INC.
NWP Commitment $25,000,000
TGPL Commitment $25,000,000
TGT Commitment $12,500,000 By:
WPL Commitment $ 6,250,000 ------------------------------
Authorized Officer
TWC Commitment $42,000,000 BARCLAYS BANK PLC
NWT Commitment $21,000,000
TGPL Commitment $21,000,000
TGT Commitment $10,500,000 By:
WPL Commitment $ 5,250,000 ------------------------------
Authorized Officer
-64-
<PAGE> 69
TWC Commitment $42,000,000 THE FIRST NATIONAL BANK OF
NWP Commitment $21,000,000 CHICAGO
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By:
------------------------------
Authorized Officer
TWC Commitment $42,000,000 FIRST INTERSTATE BANK OF
NWP Commitment $21,000,000 CALIFORNIA
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By:
------------------------------
Authorized Officer
TWC Commitment $42,000,000 MORGAN GUARANTY TRUST
NWP Commitment $21,000,000 COMPANY OF NEW YORK
TGPL Commitment $21,000,000
TGT Commitment $10,500,000
WPL Commitment $ 5,250,000 By:
------------------------------
Authorized Officer
TWC Commitment $42,000,000 ROYAL BANK OF CANADA
NWP Commitment $21,000,000
TGPL Commitment $21,000,000
TGT Commitment $10,500,000 By:
WPL Commitment $ 5,250,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 THE FIRST NATIONAL BANK
NWP Commitment $17,500,000 OF BOSTON
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By:
------------------------------
Authorized Officer
TWC Commitment $35,000,000
NWP Commitment $17,500,000 THE BANK OF NEW YORK
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By:
------------------------------
Authorized Officer
-65-
<PAGE> 70
TWC Commitment $35,000,000 THE BANK OF NOVA SCOTIA
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 THE CHASE MANHATTAN BANK, N.A.
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 CREDIT LYONNAIS
NWP Commitment $17,500,000 CAYMAN ISLAND BRANCH
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By:
------------------------------
Authorized Officer
TWC Commitment $35,000,000 THE FUJI BANK, LIMITED
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 MELLON BANK, N.A.
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 SOCIETE GENERALE
NWP Commitment $17,500,000 SOUTHWEST AGENCY
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000
WPL Commitment $ 4,375,000 By:
------------------------------
Authorized Officer
-66-
<PAGE> 71
TWC Commitment $35,000,000 BANK OF SCOTLAND
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $35,000,000 BANK OF MONTREAL
NWP Commitment $17,500,000
TGPL Commitment $17,500,000
TGT Commitment $ 8,750,000 By:
WPL Commitment $ 4,375,000 ------------------------------
Authorized Officer
TWC Commitment $10,000,000 BANK OF OKLAHOMA, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000 By:
WPL Commitment $ 1,250,000 ------------------------------
Authorized Officer
TWC Commitment $10,000,000 COMMERCE BANK, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000 By:
WPL Commitment $ 1,250,000 ------------------------------
Authorized Officer
TWC Commitment $10,000,000 BANK IV OKLAHOMA, N.A.
NWP Commitment $ 5,000,000
TGPL Commitment $ 5,000,000
TGT Commitment $ 2,500,000 By:
WPL Commitment $ 1,250,000 ------------------------------
Authorized Officer
- -----------------
$800,000,000 Total of the TWC Commitments
$400,000,000 Total of the NWP Commitments
$400,000,000 Total of the TGPL Commitments
$200,000,000 Total of the TGT Commitments
$100,000,000 Total of the WPL Commitments
-67-
<PAGE> 1
Exhibit 11
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------
1994 1993* 1992*
-------- -------- --------
(Thousands, except
per-share amounts)
<S> <C> <C> <C>
Primary earnings:
Income from continuing operations $164,900 $185,400 $103,100
Preferred stock dividends:
$2.21 cumulative preferred stock 8,800 8,900 2,900
$3.875 cumulative convertible exchangeable preferred stock - 2,900 11,600
-------- -------- --------
Income from continuing operations, net of preferred stock dividends 156,100 173,600 88,600
Income from discontinued operations 94,000 46,400 25,200
-------- -------- --------
Income before extraordinary credit (loss), net of preferred stock dividends 250,100 220,000 113,800
Extraordinary credit (loss) (12,200) - 9,900
-------- -------- --------
Income applicable to common stock $237,900 $220,000 $123,700
======== ======== ========
Primary shares:
Average number of common shares outstanding during the period 101,235 98,735 89,964
Common-equivalent shares attributable to options and deferred stock 1,235 1,176 852
-------- -------- --------
Total common and common-equivalent shares 102,470 99,911 90,816
======== ======== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ 1.52 $ 1.74 $ .97
Income from discontinued operations .92 .46 .28
-------- -------- --------
Income before extraordinary credit (loss) 2.44 2.20 1.25
Extraordinary credit (loss) (.12) - .11
-------- -------- --------
Net income $ 2.32 $ 2.20 $ 1.36
======== ======== ========
Fully diluted earnings:
Income from continuing operations $164,900 $185,400 $103,100
Preferred stock dividends:
$2.21 cumulative preferred stock 8,800 8,900 2,900
$3.875 cumulative convertible exchangeable preferred stock - - 11,600
-------- -------- --------
Income from continuing operations, net of preferred stock dividends 156,100 176,500 88,600
Income from discontinued operations 94,000 46,400 25,200
-------- -------- --------
Income before extraordinary credit (loss), net of preferred stock dividends 250,100 222,900 113,800
Extraordinary credit (loss) (12,200) - 9,900
-------- -------- --------
Income applicable to common stock $237,900 $222,900 $123,700
======== ======== ========
Fully diluted shares:
Average number of common shares outstanding during the period 101,235 98,735 89,964
Common-equivalent shares attributable to options and deferred stock 1,267 1,318 852
Shares attributable to conversion, assumed at January 1, 1993 to the
conversion dates, of convertible exchangeable preferred stock - 3,118 -
-------- -------- --------
Total common and common-equivalent shares 102,502 103,171 90,816
======== ======== ========
Fully diluted earnings per common and common-equivalent shares:
Income from continuing operations $ 1.52 $ 1.71 $ .97
Income from discontinued operations .92 .45 .28
-------- -------- --------
Income before extraordinary credit (loss) 2.44 2.16 1.25
Extraordinary credit (loss) (.12) - .11
-------- -------- --------
Net income $ 2.32 $ 2.16 $ 1.36
======== ======== ========
<FN>
*Restated as described in Note 2 of the Notes to Consolidated Financial Statements.
</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>
Years Ended December 31,
----------------------------------------------------------
1994 1993* 1992* 1991* 1990*
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before income taxes $246.6 $298.0 $145.5 $ 93.1 $ 39.6
Add:
Interest expense--net 139.8 140.8 136.5 134.2 108.5
Rental expense representative
of interest factor 9.2 8.1 8.3 5.3 3.0
Preferred dividends of
subsidiaries - - .3 .8 1.6
Interest accrued--50% owned
company 31.7 31.3 27.3 10.3 -
Other 2.0 4.1 .4 .9 (.7)
------ ------ ------ ------ ------
Total earnings as adjusted
plus fixed charges $429.3 $482.3 $318.3 $244.6 $152.0
====== ====== ====== ====== ======
Fixed charges and preferred stock
dividend requirements:
Interest expense--net $139.8 $140.8 $136.5 $134.2 $108.5
Capitalized interest 6.0 10.4 8.9 4.7 2.8
Rental expense representative
of interest factor 9.2 8.1 8.3 5.3 3.0
Pretax effect of dividends on
preferred stock of the Company 13.1 19.1 19.4 15.9 15.4
Pretax effect of preferred
dividends of subsidiaries - - .4 1.2 2.5
Interest accrued--50% owned
company 31.7 31.3 27.3 10.3 -
------ ------ ------ ------ ------
Combined fixed charges and
preferred stock dividend
requirements $199.8 $209.7 $200.8 $171.6 $132.2
====== ====== ====== ====== ======
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 2.15 2.30 1.59 1.43 1.15
====== ====== ====== ====== ======
</TABLE>
*Restated as described in Note 2 of the Notes to Consolidated Financial
Statements.
<PAGE> 1
Exhibit 21
THE WILLIAMS COMPANIES, INC. & AFFILIATES
March 1, 1995
<TABLE>
<CAPTION>
Percent
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ------
<S> <C> <C>
The Williams Companies, Inc. . . . . . . . . . . . . . . . . . . Delaware 62.60%
Apco Argentina Inc. . . . . . . . . . . . . . . . . . . . . . Cayman Islands 100%
Apco Properties Ltd. . . . . . . . . . . . . . . . . . . Cayman Islands 50%
Kern River Gas Supply Corporation . . . . . . . . . . . . . Delaware 50%
Kern River Service Corporation . . . . . . . . . . . . . . Delaware 100%
Langside Limited . . . . . . . . . . . . . . . . . . . . . Bermuda 100%
Northwest Pipeline Corporation . . . . . . . . . . . . . . Delaware 100%
Northwest Exploration Company . . . . . . . . . . . . . . . Delaware 100%
Realco Realty Corp. . . . . . . . . . . . . . . . . . . . . Delaware 100%
Realco of Crown Center, Inc. . . . . . . . . . . . . . . Delaware 100%
Realco of San Antonio, Inc. . . . . . . . . . . . . . . . Delaware 100%
Realco Realty Developments, Inc. . . . . . . . . . . . . Delaware 100%
Transco Energy Company* . . . . . . . . . . . . . . . . . . Delaware 60%
Tulsa Williams Company . . . . . . . . . . . . . . . . . . Delaware 100%
WTG Holdings, Inc. . . . . . . . . . . . . . . . . . . . . Delaware 100%
WCS Communications Systems, Inc. . . . . . . . . . . . . Delaware 100%
Williams Telecommunications Systems, Inc. . . . . . . . Delaware 100%
WCS, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware 100%
WCS Microwave Services, Inc. . . . . . . . . . . . . Nevada 100%
Vyvx, Inc. . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
WilTel Financial Corporation . . . . . . . . . . . . . . . Delaware 100%
WilTel Technology Ventures, Inc. . . . . . . . . . . . . . Delaware 100%
Wilko, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Acquisition Holding Company, Inc. . . . . . . . . New Jersey 100%
Agrico Foreign Sales Corporation . . . . . . . . . . . . Guam 100%
Fishhawk Ranch, Inc. . . . . . . . . . . . . . . . . . . Florida 100%
Texasgulf Inc. . . . . . . . . . . . . . . . . . . . . . Delaware 15%
Williams Energy Company . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Energy Ventures, Inc. . . . . . . . . . . . . . Delaware 100%
Carbon County UCG, Inc. . . . . . . . . . . . . . . . . Delaware 100%
Energy International Corporation . . . . . . . . . . . . Pennsylvania 100%
F T & T, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware 100%
Nebraska Energy, L.L.C. . . . . . . . . . . . . . . . . Kansas 71%
Williams Brokering Services, Inc. . . . . . . . . . . . Delaware 100%
Williams Canadian Holding, Inc. . . . . . . . . . . . . Delaware 100%
Williams Energy Brokering Company . . . . . . . . . . . Delaware 100%
Williams Energy Derivatives and Trading Company . . . . Delaware 100%
Williams Energy Systems Company . . . . . . . . . . . . Delaware 100%
Williams Knowledge Systems, Inc. . . . . . . . . . . . Delaware 100%
Williams Producer's Services Company . . . . . . . . . . Delaware 100%
Williams U.S. Holding, Inc. . . . . . . . . . . . . . Delaware 100%
Williams Exploration Company . . . . . . . . . . . . . . . Delaware 100%
Rainbow Resources, Inc. . . . . . . . . . . . . . . . Colorado 100%
</TABLE>
*The Exhibit 21 for Transco Energy Company & Affiliates is attached.
<PAGE> 2
<TABLE>
<CAPTION>
Percent
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- ------
<S> <C> <C>
Williams Field Services Group, Inc. . . . . . . . . . . . . . Delaware 100%
Williams CNG Company . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Field Services Company . . . . . . . . . . . . . . Utah 100%
Williams Field Services - Michigan Company . . . . . . . . Delaware 100%
Williams Gas Company . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Gas Management Company . . . . . . . . . . . . . . Delaware 100%
Williams Gas Marketing Company . . . . . . . . . . . . . . Delaware 100%
Williams Gas Processing - Blanco, Inc. . . . . . . . . . . Delaware 100%
Williams Gas Processing Company . . . . . . . . . . . . . . Delaware 100%
Williams Gas Processing - Kansas Hugoton Company . . . . . Delaware 100%
Williams Gas Processing - Mid-Continent Region Company . . Delaware 100%
Williams Gas Processing - Wamsutter Company . . . . . . . . Delaware 100%
Williams Gas Supply Company . . . . . . . . . . . . . . . . Delaware 100%
Williams Power Company . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Power Investments, Inc. . . . . . . . . . . . . . Delaware 100%
Williams Power Services, Inc. . . . . . . . . . . . . . . . Delaware 100%
Williams Production Company . . . . . . . . . . . . . . . . Delaware 100%
Williams Washington Power Services, Inc. . . . . . . . . . Delaware 100%
Williams Information Services Corporation . . . . . . . . . . . Delaware 100%
Williams International Company . . . . . . . . . . . . . . . . Delaware 100%
Williams International Ventures Company . . . . . . . . . . Delaware 100%
WEV, Inc. (New Zealand) . . . . . . . . . . . . . . . . Delaware 100%
Williams Energy Ventures Corporation (New Zealand) . . . Delaware 100%
Williams International Pipeline Company . . . . . . . . . . . . Delaware 100%
Williams International Pipeline Company - Colombia . . . . Delaware 100%
Williams Natural Gas Company . . . . . . . . . . . . . . . . . Delaware 100%
WNG - Kansas Hugoton, Inc. . . . . . . . . . . . . . . . . Delaware 100%
WNG - Oklahoma Hugoton, Inc. . . . . . . . . . . . . . . . Delaware 100%
WNG - Wamsutter, Inc. . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Gathering Company . . . . . . . . . . . . . . . . Delaware 100%
Williams Pipe Line Company . . . . . . . . . . . . . . . . . . Delaware 100%
WillBros Terminal Company . . . . . . . . . . . . . . . . . Delaware 100%
Williams Terminals Company . . . . . . . . . . . . . . . . Delaware 100%
Williams Relocation Services, Inc. . . . . . . . . . . . . . . Delaware 100%
Williams Storage Company . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Underground Gas Storage Company . . . . . . . . . . . Delaware 100%
Williams Western Holding Company, Inc. . . . . . . . . . . . . Delaware 100%
Northwest Alaskan Pipeline Company . . . . . . . . . . . . Delaware 100%
Northwest Argentina Corporation . . . . . . . . . . . . . . Utah 100%
Northwest Border Pipeline Company . . . . . . . . . . . . . Delaware 100%
Northern Border Partners, L.P. . . . . . . . . . . . . . Delaware(Limited Partnership) 4.375%
Northern Border Intermediate Limited Partnership . . . . Delaware(Limited Partnerehip) 0.175%
Northwest Land Company . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Western Pipeline Company . . . . . . . . . . . . . . . Delaware 100%
Kern River Gas Transmission Company . . . . . . . . . . . . Texas(Partnership) 50%
WilMart, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
</TABLE>
-2-
<PAGE> 3
TRANSCO ENERGY COMPANY SUBSIDIARIES
<TABLE>
<CAPTION>
% Owned State of
Subsidiary Name By Parent Incorporation
<S> <C> <C>
Energy Tech, Inc. 100.00 Delaware
Gasco Insurance Company Limited 100.00 Bermuda
Hazleton Fuel Management Company 100.00 Delaware
Hazleton Pipeline Company 100.00 Delaware
TM Cogeneration Company 100.00 Delaware
Transco Coal Company 100.00 Delaware
Cross Mtn. Coal, Inc. 100.00 Tennessee
Farmer Coal Company, Inc. 100.00 Kentucky
Highland Coal, Inc. 100.00 Kentucky
Interstate Coal Company, Inc. 100.00 Kentucky
Beech Grove Processing Company 100.00 Tennessee
Bledsoe Coal Leasing Company 100.00 Delaware
Inland Ports, Inc. 100.00 Tennessee
Leeco, Inc. 100.00 Kentucky
Mountain Clay, Inc. 100.00 Kentucky
Randall Fuel Company, Inc. 100.00 Georgia
Stansbury & Company, Inc. 100.00 Delaware
Typo Mining, Inc. 100.00 Delaware
Aceco, Inc. 100.00 Kentucky
Bituminous-Laurel Mining, Inc. 100.00 Kentucky
New Brush Creek Mining, Inc. 100.00 Kentucky
Polls Creek Coal Co., Inc. 100.00 Kentucky
Oswayo Mining, Inc 100.00 Kentucky
Sizemore Trucking, Inc. 100.00 Kentucky
Pro-Land, Inc. 100.00 Kentucky
River Coal Company, Inc. 100.00 Kentucky
Valley View Coal, Inc. 100.00 Tennessee
Transco Coal Gas Company 100.00 Delaware
Transco Energy Investment Company 100.00 Delaware
Transco Exploration Company 100.00 Delaware
Transco Gas Company 100.00 Delaware
Border Gas, Inc. 10.00 Delaware
Liberty Operating Company 100.00 Delaware
NESP Supply Corp. 33.33 Delaware
Texas Gas Investment Co. 100.00 Delaware
Texas Gas Transmission Corporation 100.00 Delaware
Trans-Jeff Chemical Corporation 50.00 Delaware
Transco Blue Ridge Pipeline Company 100.00 Delaware
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Transco Gas Gathering Company 100.00 Delaware
Magnolia Pipeline Corporation 100.00 Alabama
Nuval lntrastate Transmission Company I00.00 Delaware
Transco Brine Services Company 100.00 Delaware
Transco Industrial Pipeline Company 100.00 Delaware
Transco Matagorda Pipeline Company 100.00 Delaware
Transco Offshore Gathering Company 100.00 Delaware
Transco Terminal Company 100.00 Delaware
Transco-Louisiana Intrastate
Pipeline Company 100.00 Delaware
Transco-Texas Intrastate
Pipeline Company 100.00 Delaware
Transco Gas Marketing Company 100.00 Delaware
Transco Energy Marketing Company 100.00 Delaware
Transco Liquids Company 100.00 Delaware
HI-BOL Pipeline Company 100.00 Delaware
Transco Power Trading Co. 100.00 Delaware
TXG Energy Services Company 100.00 Delaware
TXG Gas Marketing Company 100.00 Delaware
TXG Intrastate Pipeline Company 100.00 Delaware
Transco Liberty Pipeline Company 100.00 Delaware
Transco Production Services Company 100.00 Delaware
Transcontinental Gas Pipe Line Corporation 100.00 Delaware
Transeastern Gas Pipeline Company, Inc. 100.00 Delaware
TXG Engineering, Inc. 100.00 Delaware
Transco P-S Company 100.00 Delaware
Transco Resources, Inc. 100.00 Delaware
ForTran Exploration Company 100.00 Delaware
Magnolia Methane Corp. 100.00 Delaware
Transco Transportation Company 100.00 Delaware
Tubexpress, Inc. 50.00 Delaware
Transco Tower Realty, Inc. 100.00 Delaware
TREN-FUELS, Inc. 100.00 Texas
Fleet Star, Inc. 100.00 Delaware
Enfuels Corporation 37.50 Delaware
FST Holdings, Inc. 50.00 Delaware
Fleet Star of Texas, L.C. 50.00 Texas
TRANSTAR Technologies, L.C. 50.00 Texas
Tren-Fuels Services, Inc. 100.00 Colorado
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following
registration statements on Form S-3 and related prospectuses and
in the following registration statements on Form S-8 of The
Williams Companies, Inc. of our report dated February 10, 1995,
with respect to the consolidated financial statements and
schedules of The Williams Companies, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1994.
Form S-3: Registration No. 33-47061; Registration No. 33-53662;
Registration No. 33-49835
Form S-8: Registration No. 33-2442; Registration No. 33-24322;
Registration No. 33-36770; Registration No. 33-44381;
Registration No. 33-40979; Registration No. 33-45550;
Registration No. 33-43999; Registration No. 33-51539;
Registration No. 33-51543; Registration No. 33-51551;
Registration No. 33-51549; Registration No. 33-51547;
Registration No. 33-51545; Registration No. 33-56521
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 1, 1995
<PAGE> 1
Exhibit 24
THE WILLIAMS COMPANIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned
individuals, in their capacity as a director or officer, or both, as
hereinafter set forth below their signature, of THE WILLIAMS COMPANIES, INC., a
Delaware corporation ("Williams"), does hereby constitute and appoint J. FURMAN
LEWIS, BOBBY E. POTTS and DAVID M. HIGBEE their true and lawful attorneys and
each of them (with full power to act without the others) their true and lawful
attorneys for them and in their name and in their capacity as a director or
officer, or both, of Williams, as hereinafter set forth below their signature,
to sign Williams' Annual Report to the Securities and Exchange Commission on
Form 10-K for the fiscal year ended December 31, 1994, and any and all
amendments thereto or all instruments necessary or incidental in connection
therewith; and
THAT the undersigned Williams does hereby constitute and appoint J.
FURMAN LEWIS, BOBBY E. POTTS and DAVID M. HIGBEE its true and lawful attorneys
and each of them (with full power to act without the others) its true and
lawful attorney for it and in its name and on its behalf to sign said Form 10-K
and any and all amendments thereto and any and all instruments necessary or
incidental in connection therewith.
Each of said attorneys shall have full power of substitution and
resubstitution, and said attorneys or any of them or any substitute appointed
by any of them hereunder shall have full power and authority to do and perform
in the name and on behalf of each of the undersigned, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully to all intents and purposes as each of the undersigned might
or could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys or any of them or of any such substitute pursuant hereto.
IN WITNESS WHEREOF, the undersigned have executed this instrument,
all as of the 22nd day of January, 1995.
/s/ Keith E. Bailey /s/ Jack D. McCarthy
Keith E. Bailey Jack D. McCarthy
Chairman of the Board, Senior Vice President
President and (Principal Financial Officer)
Chief Executive Officer
(Principal Executive Officer)
/s/ Gary R. Belitz
Gary R. Belitz
Controller
(Chief Accounting Officer)
<PAGE> 2
Page 2
/s/ Harold W. Andersen __________________________
Harold W. Andersen Ralph E. Bailey
Director Director
/s/ Glenn A. Cox /s/ Thomas H. Cruikshank
Glenn A. Cox Thomas H. Cruikshank
Director Director
/s/ Ervin S. Duggan /s/ Robert J. LaFortune
Ervin S. Duggan Robert J. LaFortune
Director Director
/s/ James C. Lewis /s/ Jack A. MacAllister
James C. Lewis Jack A. MacAllister
Director Director
/s/ James A. McClure /s/ Peter C. Meinig
James A. McClure Peter C. Meinig
Director Director
/s/ Kay A. Orr /s/ Gordon R. Parker
Kay A. Orr Gordon R. Parker
Director Director
/s/ Joseph H. Williams
Joseph H. Williams
Director
THE WILLIAMS COMPANIES, INC.
By /s/ J. Furman Lewis
J. Furman Lewis
ATTEST: Senior Vice President
/s/ David M. Higbee
David M. Higbee
Secretary
<PAGE> 3
[THE WILLIAMS COMPANIES, INC. LOGO]
Exhibit 24
I, the undersigned, DAVID M. HIGBEE, Secretary of THE WILLIAMS
COMPANIES, INC., a Delaware company (hereinafter called the "Company") , do
hereby certify that at a meeting of the Board of Directors of the Company, duly
convened and held on January 22, 1995, at which a quorum of said Board was
present and acting throughout, the following resolution was duly adopted:
RESOLVED that the Chairman of the Board, the President or any
Vice President of the Company be, and each of them hereby is,
authorized and empowered to execute a Power of Attorney for use in
connection with the execution and filing, for and on behalf of the
Company, under the Securities Exchange Act of 1934, of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1994.
I further certify that the foregoing resolution has not been
modified, revoked or rescinded and is in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal
of THE WILLIAMS COMPANIES, INC., this 27th day of February, 1995.
/s/ David M. Higbee
David M. Higbee
Secretary
(CORPORATE SEAL)
One Williams Center - P.0. Box 2400 - Tulsa, Oklahoma 74102
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 36,145
<SECURITIES> 0
<RECEIVABLES> 460,183
<ALLOWANCES> (7,878)
<INVENTORY> 112,313
<CURRENT-ASSETS> 1,456,753
<PP&E> 4,311,090
<DEPRECIATION> (1,187,137)
<TOTAL-ASSETS> 5,226,086
<CURRENT-LIABILITIES> 1,473,879
<BONDS> 1,307,787
<COMMON> 104,402
0
100,000
<OTHER-SE> 1,301,113
<TOTAL-LIABILITY-AND-EQUITY> 5,226,086
<SALES> 0
<TOTAL-REVENUES> 1,751,109
<CGS> 0
<TOTAL-COSTS> 1,408,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,651
<INTEREST-EXPENSE> 145,787
<INCOME-PRETAX> 246,627
<INCOME-TAX> 81,720
<INCOME-CONTINUING> 164,907
<DISCONTINUED> 94,001
<EXTRAORDINARY> (12,163)
<CHANGES> 0
<NET-INCOME> 246,745
<EPS-PRIMARY> 2.32
<EPS-DILUTED> 2.32
</TABLE>
