<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-4174
THE WILLIAMS COMPANIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-0569878
--------------------------------------- ----------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
--------------------------------------- ----------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (918) 588-2000
</TABLE>
NO CHANGE
---------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at July 31, 1995
-------------------------- ----------------------------
Common Stock, $1 par value 102,033,593 Shares
<PAGE> 2
THE WILLIAMS COMPANIES, INC.
INDEX
<TABLE>
<S> <C>
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Statement of Income--Three Months and
Six Months Ended June 30, 1995 and 1994 2
Consolidated Balance Sheet--June 30, 1995 and
December 31, 1994 4
Consolidated Statement of Cash Flows--Six Months
Ended June 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
Exhibit 11--Computation of Earnings Per Common and Common-
equivalent Share
Exhibit 12--Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
Exhibit 27--Financial Data Schedule
</TABLE>
-1-
<PAGE> 3
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
-------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
1995 1994* 1995 1994*
------ ------ -------- ------
<S> <C> <C> <C> <C>
Revenues:
Williams Interstate Natural
Gas Systems (Note 4) $354.2 $103.5 $ 675.5 $214.0
Williams Field Services Group 145.0 89.1 277.1 178.8
Williams Energy Services 295.3 62.7 646.1 139.9
Williams Pipe Line 69.1 79.6 133.5 130.5
Williams Telecommunications Systems 116.8 97.4 243.5 171.4
Other 13.4 5.3 28.6 8.3
Intercompany eliminations (46.4) (17.7) (98.9) (36.4)
------ ------ -------- ------
Total revenues 947.4 419.9 1,905.4 806.5
------ ------ -------- ------
Profit-center costs and expenses:
Costs and operating expenses 683.6 274.0 1,350.3 522.5
Selling, general and administrative expenses 121.3 57.4 235.0 111.9
Other income--net (1.9) - (2.0) (3.1)
------ ------ -------- ------
Total profit-center costs and expenses 803.0 331.4 1,583.3 631.3
------ ------ -------- ------
Operating profit (loss):
Williams Interstate Natural
Gas Systems (Note 4) 89.8 36.0 186.4 80.6
Williams Field Services Group 34.4 32.5 70.8 60.4
Williams Energy Services .3 2.7 25.3 3.9
Williams Pipe Line 15.7 14.0 30.5 28.7
Williams Telecommunications Systems 6.1 4.9 14.0 6.5
Other (1.9) (1.6) (4.9) (4.9)
------ ------ -------- ------
Total operating profit 144.4 88.5 322.1 175.2
General corporate expenses (6.2) (6.9) (18.1) (15.0)
Interest accrued (68.2) (34.0) (136.8) (70.4)
Interest capitalized 4.5 1.6 5.8 3.3
Investing income 23.7 18.7 67.9 30.8
Gain (loss) on sales of investments (Note 5) (12.6) 22.7 (12.6) 22.7
Other income (expense)--net (4.2) (.5) (14.0) .8
------ ------ -------- ------
Income from continuing operations
before income taxes 81.4 90.1 214.3 147.4
Provision (credit) for income taxes (Note 6) (1.9) 32.2 47.8 48.9
------ ------ -------- ------
Income from continuing operations 83.3 57.9 166.5 98.5
Income from discontinued operations (Note 7) - 16.1 1,005.7 28.3
------ ------ -------- ------
Income before extraordinary loss 83.3 74.0 1,172.2 126.8
Extraordinary loss from early extinguishment
of debt (Note 8) - (11.1) - (11.1)
------ ------ -------- ------
Net income 83.3 62.9 1,172.2 115.7
Preferred stock dividends 3.4 2.2 5.5 4.4
------ ------ -------- ------
Income applicable to common stock $ 79.9 $ 60.7 $1,166.7 $111.3
====== ====== ======== ======
</TABLE>
*Restated as described in Notes 2 and 7.
See accompanying notes.
-2-
<PAGE> 4
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME (concluded)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- --------------------
1995 1994* 1995 1994*
---- ----- ------ -----
<S> <C> <C> <C> <C>
Primary earnings per common and
common-equivalent share:
Income from continuing operations $.79 $.54 $ 1.65 $ .90
Income from discontinued operations (Note 7) - .15 10.27 .27
---- ---- ------ -----
Income before extraordinary loss .79 .69 11.92 1.17
Extraordinary loss (Note 8) - (.11) - (.11)
---- ---- ------ -----
Net income $.79 $.58 $11.92 $1.06
==== ==== ====== =====
Average shares (thousands) 101,739 104,757 97,849 104,500
Fully diluted earnings per common and
common-equivalent share:
Income from continuing operations $.78 $.54 $ 1.64 $ .90
Income from discontinued operations (Note 7) - .15 10.12 .27
---- ---- ------ -----
Income before extraordinary loss .78 .69 11.76 1.17
Extraordinary loss (Note 8) - (.11) - (.11)
---- ---- ------ -----
Net income $.78 $.58 $11.76 $1.06
==== ==== ====== =====
Average shares (thousands) 104,518 104,887 99,330 104,565
Cash dividends per common share $.27 $.21 $.54 $.42
==== ==== ==== ====
</TABLE>
*Restated as described in Note 7.
See accompanying notes.
-3-
<PAGE> 5
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
---------------------------------
June 30, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 382.9 $ 36.1
Receivables 470.8 443.1
Transportation and exchange gas receivable 152.8 9.2
Inventories 186.3 112.3
Net assets held for sale (Notes 3 and 7) 36.5 743.6
Deferred income taxes 169.2 57.1
Other 138.0 55.4
--------- ---------
Total current assets 1,536.5 1,456.8
Investments (Note 5) 259.4 379.1
Property, plant and equipment, at cost (Note 3) 8,704.9 4,311.1
Less accumulated depreciation and depletion (1,367.7) (1,187.1)
--------- ---------
7,337.2 3,124.0
Other assets and deferred charges 747.5 266.2
--------- ---------
Total assets $ 9,880.6 $ 5,226.1
========= =========
</TABLE>
See accompanying notes.
-4-
<PAGE> 6
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
-----------------------------------
June 30, December 31,
1995 1994
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable $ - $ 507.0
Accounts payable 371.7 205.8
Transportation and exchange gas payable 137.5 16.7
Accrued liabilities (Note 9) 1,204.4 361.4
Long-term debt due within one year (Note 10) 185.9 383.0
-------- --------
Total current liabilities 1,899.5 1,473.9
Long-term debt (Note 10) 2,841.7 1,307.8
Deferred income taxes 1,349.1 662.9
Deferred income and other liabilities 676.8 276.0
Contingent liabilities and commitments (Note 11)
Stockholders' equity:
Preferred stock, $1 par value, 30,000,000 shares
authorized, 6,500,000 shares issued in 1995 and
4,000,000 shares issued in 1994 (Notes 3 and 12) 242.5 100.0
Common stock, $1 par value, 240,000,000 shares
authorized, 104,813,194 shares issued in
1995 and 104,401,819 shares issued in 1994 104.8 104.4
Capital in excess of par value 1,029.1 991.0
Retained earnings 1,831.5 716.5
Unamortized deferred compensation (1.8) (1.3)
-------- --------
3,206.1 1,910.6
Less treasury stock (at cost), 2,839,714 shares of
common stock in 1995 and 13,516,994 shares of
common stock in 1994, 369,900 shares of preferred
stock in 1995 and 258,800 shares of preferred
stock in 1994 (92.6) (405.1)
-------- --------
Total stockholders' equity 3,113.5 1,505.5
-------- --------
Total liabilities and stockholders' equity $9,880.6 $5,226.1
======== ========
</TABLE>
See accompanying notes.
-5-
<PAGE> 7
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
--------------------------
Six months ended
June 30,
--------------------------
1995 1994*
--------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,172.2 $ 115.7
Adjustments to reconcile to cash provided from
operations:
Discontinued operations (1,005.7) (28.3)
Extraordinary loss - 11.1
Depreciation and depletion 173.4 71.5
Provision for deferred income taxes 26.9 5.3
(Gain) loss on sale of investments 12.6 (22.7)
Changes in receivables sold 27.5 32.0
Changes in receivables 136.3 5.4
Changes in inventories 9.4 (13.6)
Changes in other current assets 18.9 (.5)
Changes in accounts payable (107.9) .8
Changes in accrued liabilities (40.9) (1.2)
Other, including changes in non-current assets
and liabilities (49.3) (21.2)
--------- -------
Net cash provided by continuing operations 373.4 154.3
Net cash provided by discontinued operations - 112.1
--------- -------
Net cash provided by operating activities 373.4 266.4
--------- -------
FINANCING ACTIVITIES:
Proceeds from notes payable - 48.8
Payment of notes payable (507.0) -
Proceeds from long-term debt 95.5 150.0
Payments of long-term debt (808.4) (352.8)
Proceeds from issuance of common stock 15.5 19.4
Dividends paid (57.2) (48.1)
Subsidiary preferred stock redemptions (193.7) -
Other--net 2.5 .2
--------- -------
Net cash used by financing activities (1,452.8) (182.5)
--------- -------
</TABLE>
*Restated as described in Note 7.
See accompanying notes.
-6-
<PAGE> 8
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
-------------------------
Six months ended
June 30,
-------------------------
1995 1994*
--------- -------
<S> <C> <C>
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital Expenditures:
Continuing operations (349.5) (109.5)
Discontinued operations - (50.5)
Proceeds from sales 31.4 .9
Changes in accounts payable and accrued liabilities 19.0 8.1
Acquisition of businesses, net of cash acquired (648.1) (45.2)
Proceeds from sales of businesses 2,570.4 -
Income tax and other payments
related to discontinued operations (250.3) -
Proceeds from sales of investments 123.7 80.6
Purchase of note receivable (75.1) -
Other--net 4.7 (3.2)
--------- --------
Net cash provided (used) by investing activities 1,426.2 (118.8)
--------- --------
Increase (decrease) in cash and cash equivalents 346.8 (34.9)
Cash and cash equivalents at beginning of period 36.1 64.3
--------- --------
Cash and cash equivalents at end of period $382.9 $29.4
========= ========
</TABLE>
*Restated as described in Note 7.
See accompanying notes.
-7-
<PAGE> 9
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
The accompanying interim consolidated financial statements of The Williams
Companies, Inc. (Williams) do not include all notes in annual financial
statements and therefore should be read in conjunction with the financial
statements and notes thereto in Williams' 1994 Annual Report Form 10-K. The
accompanying unaudited financial statements have not been audited by
independent auditors but include all adjustments which, in the opinion of
Williams' management, are normal recurring and are necessary to present fairly
its financial position at June 30, 1995 and results of operations and cash
flows for the three months and six months ended June 30, 1995 and 1994. The
1995 after-tax gain from the sale of WilTel's network services operations and
its related 1994 results are presented as discontinued operations (See Note 7).
On January 18, 1995, Williams acquired 60 percent of Transco Energy Company's
(Transco) outstanding common stock and on May 1, 1995, acquired the remaining
40 percent of Transco's outstanding common stock (See Note 3).
Operating profit of operating companies may vary by quarter. Based on current
rate structures and historical maintenance schedules, Texas Gas Transmission's
operating profit is expected to be lower in the second and third quarters as
compared to the first and fourth quarters. Transcontinental Gas Pipe Line's
operating profit is expected to be lower in the third quarter, rebounding in
the fourth quarter.
Note 2. Basis of presentation
Revenues and operating profit amounts for the three months and six months ended
June 30, 1995 include the operating results of Transco since its January 18,
1995 acquisition by Williams (See Note 3). The transportation operations from
Transco's two interstate natural gas pipelines are reported separately within
Williams Interstate Natural Gas Systems (See Note 4). Transco's gas gathering
operations are included as part of Williams Field Services Group, and Transco's
gas marketing operations are included in Williams Energy Services.
Revenues and operating profit amounts for the three months and six months ended
June 30, 1994 have been restated to conform to current year classifications.
The previously reported operations of Williams Energy Ventures have been
divided into the following entities. The commodity price-risk management and
trading operations and energy-related information services operations are now
included in Williams Energy Services. The liquids ventures operations are now
reported as part of Williams Pipe Line and continue with the Williams Energy
Ventures name. Williams Field Services Group now includes the natural gas
venture operations. In addition, certain natural gas marketing operations
formerly reported as part of Williams Field Services Group are included in
Williams Energy Services.
Note 3. Transco acquisition
On January 18, 1995, Williams acquired 60 percent of Transco's outstanding
common stock in a cash tender offer for $430.5 million. Williams acquired the
remaining 40 percent of Transco's outstanding common stock on May 1, 1995
through a merger by exchanging the remaining Transco common stock for
approximately 10.4 million shares of Williams common stock valued at $334
million. The acquisition is accounted for as a purchase with 60 percent of
Transco's results of operations
-8-
<PAGE> 10
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
included in Williams' Consolidated Statement of Income for the period January
18, 1995, through April 30, 1995, and 100 percent included beginning May 1,
1995. The cash portion of the acquisition was financed from the proceeds of
the WilTel network services sale (See Note 7). The purchase price, including
transaction fees and other related costs, is approximately $800 million,
excluding $2.3 billion in preferred stock and debt obligations of Transco. The
acquired assets and liabilities have been recorded based on a preliminary
allocation of the purchase price, and substantially all of the cost in excess
of Transco's historical carrying amounts has been allocated to property, plant
and equipment.
Williams has sold a significant portion of Transco's coal operations and
coalbed methane properties and intends to sell, within one year, other Transco
assets including certain pipeline and gathering operations and other assets,
all of which are recorded at estimated net realizable value in net assets held
for sale. Estimated results of operations and changes in the carrying amount
of these businesses during the holding period are reflected in the purchase
price and are not material.
In connection with the acquisition, Williams made payments to retire and/or
terminate approximately $700 million of Transco borrowings, preferred stock,
interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco's $3.50 preferred stock for Williams' $3.50
preferred stock.
The following unaudited pro forma information combines the results of
operations of Williams and Transco as if the purchase of the 100 percent
occurred at the beginning of each year presented.
<TABLE>
<CAPTION>
Unaudited
---------
(Millions, except per-share amounts)
------------------------------------
Six months ended
June 30,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Revenues $2,024.9 $2,227.6
Income from continuing operations 181.7 117.0
Income before extraordinary loss 1,187.4 145.3
Net income 1,187.4 134.2
Primary earnings per share:
Income from continuing operations 1.80 1.08
Income before extraordinary loss 12.07 1.35
Net income 12.07 1.25
Fully diluted earnings per share:
Income from continuing operations 1.79 1.08
Income before extraordinary loss 11.91 1.35
Net income 11.91 1.25
</TABLE>
Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the acquisition had been at the
beginning of each year presented or of future results of operations of the
combined companies.
-9-
<PAGE> 11
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Williams Interstate Natural Gas Systems
<TABLE>
<CAPTION>
(Millions)
------------------------------------------------------------
Three months ended June 30,
Revenues Operating Profit
--------------------- ----------------------
1995 1994 1995 1994
------ ------ ----- -----
<S> <C> <C> <C> <C>
Northwest Pipeline $ 59.0 $ 57.8 $26.8 $27.0
Williams Natural Gas 39.3 45.7 8.2 9.0
Transcontinental Gas
Pipe Line 194.1 - 45.4 -
Texas Gas Transmission 61.8 - 9.4 -
------ ------ ----- -----
$354.2 $103.5 $89.8 $36.0
====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
(Millions)
------------------------------------------------------------
Six months ended June 30,
Revenues Operating Profit
--------------------- -----------------------
1995 1994 1995 1994
------ ------ ------ -----
<S> <C> <C> <C> <C>
Northwest Pipeline $118.1 $122.5 $ 53.3 $57.3
Williams Natural Gas 79.3 91.5 17.5 23.3
Transcontinental Gas
Pipe Line 347.6 - 83.7 -
Texas Gas Transmission 130.5 - 31.9 -
------ ------ ------ -----
$675.5 $214.0 $186.4 $80.6
====== ====== ====== =====
</TABLE>
Note 5. Sale of investments
In the second quarter of 1995, Williams sold its 15 percent interest in
Texasgulf Inc. for approximately $124 million in cash, which resulted in a
second quarter after-tax gain of approximately $16 million because of
previously unrecognized tax benefits included in the provision (credit) for
income taxes.
In the second quarter of 1994, Williams sold 3,461,500 limited partner common
units in Northern Border Partners, L.P. Net proceeds from the sale were
approximately $80 million and the sale resulted in a pre-tax gain of $22.7
million. As a result of the sale, Williams' original 12.25 percent interest in
the Northern Border partnerships has been reduced to 3.2 percent.
-10-
<PAGE> 12
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Provision for income taxes
The provision (credit) for income taxes from continuing operations includes:
<TABLE>
<CAPTION>
(Millions)
--------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
---------------------- ---------------------
1995 1994 1995 1994
------ ----- ----- -----
<S> <C> <C> <C> <C>
Current:
Federal $(16.8) $28.7 $10.9 $39.5
State (1.3) 8.1 10.0 4.1
------ ----- ----- -----
(18.1) 36.8 20.9 43.6
Deferred:
Federal 14.1 (2.2) 29.4 5.2
State 2.1 (2.4) (2.5) 0.1
------ ----- ----- -----
16.2 (4.6) 26.9 5.3
------ ----- ----- -----
Total provision (credit) $ (1.9) $32.2 $47.8 $48.9
====== ===== ===== =====
</TABLE>
The effective income tax rate in 1995 is less than the federal statutory rate
due primarily to the previously unrecognized tax benefits related to the sale
of Texasgulf Inc. (See Note 5), recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities and income tax credits from
coal-seam gas production, partially offset by the effects of state income taxes
and minority interest.
The effective income tax rate in 1994 is slightly less than the federal
statutory rate as the effect of state income taxes is offset by the effects of
income tax credits from coal-seam gas production and a favorable prior-year
state income tax adjustment.
Cash payments for income taxes for the six months ended June 30, 1995 and 1994
are $279 million and $32 million (before refunds of $6 million in 1994),
respectively.
Note 7. Discontinued operations
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. (LDDS) for $2.5 billion in cash. The sale yielded a gain
of $1 billion (net of income taxes of approximately $724 million) which is
reported as income from discontinued operations. Prior period operating
results for WilTel's network services operations were restated and are reported
as discontinued operations. The assets and liabilities that were transferred
to LDDS in the sale of the network services operations are included in net
assets held for sale at December 31, 1994. Under the terms of the agreement,
Williams retained Williams Telecommunications Systems, Inc., a national
telecommunications equipment supplier and service company, and Vyvx, Inc.,
which operates a national video network specializing in broadcast television
applications.
-11-
<PAGE> 13
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Extraordinary loss
The 1994 extraordinary loss results from early extinguishment of debt.
Williams paid $295 million to redeem higher interest rate debt for an $11.1
million after-tax loss (net of $7.1 million benefit for income taxes).
Note 9. Accrued liabilities
<TABLE>
<CAPTION>
(Millions)
------------------------------
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Income taxes payable $ 550.2 $ 38.0
Employee costs 118.2 51.7
Rate refunds 137.9 83.8
Interest 72.3 39.9
Taxes other than income taxes 56.0 41.8
Other 269.8 106.2
-------- ------
$1,204.4 $361.4
======== ======
</TABLE>
-12-
<PAGE> 14
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Long-term debt
Long-term debt consists of the following amounts:
<TABLE>
<CAPTION>
(Millions)
-------------------------------
Weighted average June 30, December 31,
interest rate* 1995 1994
---------------- -------- ------------
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans - $ - $ 350.0
Debentures, 8.875% - 10.25%,
payable 2012, 2020 and 2021 9.6 511.3 379.7
Notes, 7.5% - 13%,
payable through 2001 8.9 989.3 363.8
Capital lease obligations,
11.1%, payable through 2014 11.1 30.8 31.0
Northwest Pipeline
Debentures, 9% - 10.65%,
payable through 2022 9.6 284.1 293.0
Adjustable rate notes,
payable through 2002 9.0 11.7 13.3
Williams Natural Gas
Variable rate notes,
payable in 1999 6.8 130.0 130.0
Transcontinental Gas Pipe Line
Revolving credit loans 6.5 30.0 -
Debentures, 9.125%,
payable 2017 9.1 150.0 -
Notes, 8.125% - 9%,
payable 1996, 1997 and 2002 8.7 378.2 -
Adjustable rate note
due 2000 6.2 123.5 -
Texas Gas Transmission
Notes, 8.625% and 9.625%,
payable 1997 and 2004 9.0 252.7 -
Williams Pipe Line
Notes, 8.95% through 9.78%,
payable through 2001 9.3 120.0 120.0
Other, payable through 1999 8.2 16.0 10.0
-------- --------
3,027.6 1,690.8
Current portion of long-term debt (185.9) (383.0)
-------- --------
$2,841.7 $1,307.8
======== ========
</TABLE>
*At June 30, 1995.
During first quarter 1995, Williams replaced its $600 million credit agreement,
which was scheduled to terminate in December 1995, with a new $800 million
agreement. Under the new credit agreement, Northwest Pipeline,
Transcontinental Gas Pipe Line, Texas Gas Transmission, Williams Pipe Line and
Williams Holdings of Delaware, Inc. have access to various amounts of the
facility while Williams (parent) has access to all unborrowed amounts. The
available amount at June 30, 1995, was $770 million. Interest rates vary with
current market conditions.
Cash payments for interest (net of amounts capitalized) for the six months
ended June 30, 1995 and 1994 are $133 million and $78 million, respectively.
-13-
<PAGE> 15
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Contingent liabilities and commitments
Rate and regulatory matters and related litigation
Williams' interstate pipeline subsidiaries, including Williams Pipe Line, have
various regulatory proceedings pending. As a result of rulings in certain of
these proceedings, a portion of the revenues of these subsidiaries has been
collected subject to refund. As to Williams Pipe Line, revenues collected
subject to refund were $142 million at June 30, 1995; it is not expected that
the amount of any refunds ordered would be significant. Accordingly, no
portion of these revenues has been reserved for refund. As to the other
pipelines, see Note 9 for the amount of revenues reserved for potential refund
as of June 30, 1995.
In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These orders,
which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1,
1993, and Northwest Pipeline, Texas Gas and Transcontinental Gas Pipe Line
implemented their restructurings on November 1, 1993. Certain aspects of each
pipeline company's restructuring are under appeal.
Contract reformations and gas purchase deficiencies
Each of the natural gas pipeline subsidiaries has undertaken the reformation of
its respective gas supply contracts to settle gas purchase deficiencies, avoid
future gas purchase deficiencies, reduce prices to market levels or make other
appropriate modifications. As of June 30, 1995, total pending supplier
take-or-pay, ratable take and minimum take claims for all of the pipeline
companies 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. On May 2, 1995, the FERC issued orders
granting the requisite approvals; however, one party has requested rehearing of
the decision regarding abandonment of the gathering system.
Current FERC policy associated with Orders 436 and 500 requires interstate gas
pipelines to absorb some of the cost of reforming gas supply contracts before
allowing any recovery through direct bill or surcharges to transportation as
well as sales commodity rates. Under Orders 636, 636-A and 636-B, costs
incurred to comply with these rules are permitted to be recovered in full,
although 10 percent of such costs must be allocated to interruptible
transportation service.
-14-
<PAGE> 16
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The FERC initially approved a method for Northwest Pipeline to direct bill its
contract-reformation costs, but when challenged on appeal, sought a remand to
reassess such method. Northwest Pipeline has received an order from the FERC
that requires a different allocation of such costs which is now being
challenged by certain customers. Northwest Pipeline 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. 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. As of June 30, 1995, Williams Natural Gas had an accrual of $43
million for its then estimated remaining contract-reformation and gas supply
realignment costs. It will make additional filings under the applicable FERC
orders to recover such further costs as may be incurred in the future.
As of June 30, 1995, Texas Gas had made filings to recover $48 million, plus
interest, of $50 million of gas supply realignment costs then incurred.
Certain parties are challenging Texas Gas' right to fully recover such costs.
As of June 30, 1995, Texas Gas had an accrual of $30 million for its then
estimated remaining gas supply realignment costs. It will make additional
filings to recover such further costs as may be incurred in the future.
In 1983, the FERC issued Order 94-A, which permitted producers to collect
certain production related costs from pipelines on a retroactive basis.
Pursuant to FERC orders, Texas Gas and Transcontinental Gas Pipe Line direct
billed their customers for such costs paid to producers. In 1990, the U.S.
Court of Appeals for the D.C. Circuit overturned the FERC's orders authorizing
direct billing for such costs. Through settlements and refunds, Texas Gas and
Transcontinental Gas Pipe Line have resolved their respective refund
obligations as to these costs, except, in the case of Texas Gas, for an amount
of approximately $9 million and, in the case of Transcontinental Gas Pipe
Line, for an amount of approximately $7 million. Each of these subsidiaries
has either made the required refund reserving the right to recover the amount
paid if the ruling is reversed on appeal or provided for a reserve which it
believes is adequate to provide for any costs associated with any remaining
refund obligation which it may be required to absorb.
The foregoing accruals are in accordance with Williams' accounting policies
regarding the establishment of such accruals which take into consideration
estimated total exposure, as discounted and risk-weighed, as well as costs and
other risks associated with the difference between the time costs are incurred
and the time such costs are recovered from customers. The estimated portion of
such costs recoverable from customers is deferred or recorded as a regulatory
asset based on an estimate of expected recovery of the amounts allowed by FERC
policy. While Williams believes that these accruals are adequate and the
associated regulatory assets are appropriate, costs actually incurred and
amounts
-15-
<PAGE> 17
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
actually recovered from customers will depend upon the outcome of various court
and FERC proceedings, the success of settlement negotiations and various other
factors, not all of which are presently foreseeable.
Environmental matters
Certain Williams subsidiaries, including Texas Gas and Transcontinental Gas
Pipe Line, have been named as potentially responsible parties at various
Superfund waste disposal sites. Since 1989, Texas Gas and Transcontinental
Gas Pipe Line have had studies underway to test certain of their facilities
for the presence of toxic and hazardous substances to determine to what extent,
if any, remediation may be necessary. The costs of any such remediation will
depend upon the scope of the remediation. At June 30, 1995, these subsidiaries
had reserves totaling approximately $52 million for these costs.
In February 1995, Transcontinental Gas Pipe Line was served as a defendant in a
lawsuit filed in U.S. district court in Virginia by three individuals for
alleged violations of several provisions of both federal and state air and
other laws and regulations. Since 1991, Transcontinental Gas Pipe Line has
worked with the appropriate Virginia authorities pursuant to an agreement to
resolve certain emissions issues also raised by the individuals.
Transcontinental Gas Pipe Line believes the state environmental agency is in
agreement with the actions proposed by Transcontinental Gas Pipe Line which
will resolve the emission issues at its Virginia facilities. Transcontinental
Gas Pipe Line believes the citizens' claims are without merit and is prepared
to vigorously defend the suit.
Texas Gas, Transcontinental Gas Pipe Line and Williams Natural Gas each has
identified polychlorinated biphenyl (PCB) contamination in air compressor
systems, disposal pits and related properties at certain compressor station
sites. Transcontinental Gas Pipe Line has responded to an informal data
request and Texas Gas and Williams Natural Gas have also been involved in
negotiations with the U.S. Environmental Protection Agency (EPA) and state
agencies to develop screening, sampling and cleanup programs. In addition,
negotiations concerning investigative and remedial actions relative to
potential mercury contamination at certain gas metering sites have commenced
with certain environmental authorities by Williams Natural Gas, and
Transcontinental Gas Pipe Line has responded to data requests regarding such
potential contamination of certain of its sites. As of June 30, 1995, Williams
Natural Gas had recorded a liability for approximately $27 million,
representing the current estimate of future environmental cleanup costs to be
incurred over the next six to ten years. Texas Gas and Transcontinental Gas
Pipe Line likewise had recorded liabilities for these costs which are included
in the $52 million reserve mentioned above. Actual costs incurred will depend
on the actual number of contaminated sites identified, the actual amount and
extent of contamination discovered, the final cleanup standards mandated by the
EPA and other governmental authorities and other factors. Texas Gas,
Transcontinental Gas Pipe Line and Williams Natural Gas have deferred these
costs pending recovery as incurred through future rates and other means.
In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
-16-
<PAGE> 18
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
costs exceed a specified amount. It appears probable that such costs will
exceed this amount. At June 30, 1995, Williams had approximately $7 million
accrued for such excess costs. The actual costs incurred will depend on the
actual amount and extent of contamination discovered, the final cleanup
standards mandated by the EPA or other governmental authorities, and other
factors.
A lawsuit was filed on May 14, 1993, in a state court in Colorado in which
certain claims have been made against various defendants, including Northwest
Pipeline, contending that gas exploration and development activities in
portions of the San Juan Basin have caused air, water and other contamination.
The 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, five individual lawsuits have
been filed against Northwest Pipeline in U.S. district court in Colorado,
making essentially the same claims. Northwest Pipeline is vigorously defending
these lawsuits.
Other legal matters
On December 31, 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit
against Williams Production Company, a wholly owned subsidiary of Williams, and
other gas producers in the San Juan Basin area, alleging that certain coal
strata was reserved by the United States for the benefit of the Tribe and that
the extraction of coal-seam gas from the coal strata were wrongful. The Tribe
seeks compensation for the value of the coal-seam gas. The Tribe also seeks an
order transferring to the Tribe ownership of all of the defendants' equipment
and facilities utilized in the extraction of the coal-seam gas. On September
13, 1994, the court granted summary judgment in favor of the defendants. The
Tribe sought a certification of an interlocutory appeal from the court which
was denied. Nevertheless, the Tribe has lodged an interlocutory appeal with
the U.S. Court of Appeals for the Tenth Circuit. Williams Production agreed to
indemnify the Williams Coal Seam Gas Royalty Trust (Trust) against any losses
that may arise in respect of certain properties subject to the lawsuit. In
addition, if the Tribe is successful in showing that Williams Production has no
rights in the coal-seam gas, Williams Production has agreed to pay to the Trust
for distribution to then-current unitholders, an amount representing a return
of a portion of the original purchase price paid for the units. While Williams
believes that such a payment is not probable, it has reserved a portion of the
proceeds from the sale of the units in the Trust.
On October 6, 1994, the Antitrust Division of the Department of Justice issued
a civil investigation demand to Williams Natural Gas concerning its provision
of transportation services in Kansas and Missouri. Williams Natural Gas 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 filed a response and has been advised
that the file has been closed.
-17-
<PAGE> 19
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. On May 11, 1995, the settlement was approved
by the Court. See Note 3 for information regarding the acquisition of Transco.
In October 1990, Dakota Gasification Company (Dakota), the owner of the Great
Plains Coal Gasification Plant (Plant), filed suit in the U.S. district court
in North Dakota against Transcontinental Gas Pipe Line and three other pipeline
companies alleging that the pipeline companies had not complied with their
respective obligations under certain gas purchase and gas transportation
contracts. On September 8, 1992, Dakota and the Department of Justice on
behalf of the Department of Energy filed an amended complaint adding as
defendants in the suit, Transco, Transco Coal Gas Company and all of the other
partners in the partnership that originally constructed the Plant and each of
the parent companies of these entities. Dakota and the Department of Justice
sought declaratory and injunctive relief and the recovery of damages, alleging
that the four pipeline defendants underpaid for gas, collectively, as of June
30, 1992, by more than $232 million plus interest and for additional damages
for transportation services and costs and expenses including attorneys' fees.
On March 30, 1994, the parties executed definitive agreements which would
settle the litigation subject to final non-appealable regulatory approvals.
The settlement is also subject to a FERC ruling that Transcontinental Gas Pipe
Line's existing authority to recover in rates certain costs related to the
purchase and transportation of gas produced by Dakota will pertain to gas
purchase and transportation costs Transcontinental Gas Pipe Line will pay
Dakota under the terms of the settlement. On October 18, 1994, the FERC issued
an order consolidating Transcontinental Gas Pipe Line's petition with petitions
pending relative to two of the other three pipeline companies (the third
pipeline having entered into a settlement) and setting the matter for hearing
before an administrative law judge. The hearing commenced on June 20, and
ended on July 14, 1995. In the event that the necessary regulatory approvals
are not obtained, Transcontinental Gas Pipe Line, Transco and Transco Coal Gas
Company intend to vigorously defend the suit.
In connection with agreements to resolve take-or-pay and other contract claims
and to amend gas purchase contracts, Transcontinental Gas Pipe Line and Texas
Gas have each entered into certain settlements which may require the
indemnification by Transcontinental Gas Pipe Line or Texas Gas of certain
claims for additional royalties which the producers may be required to pay as a
result of such settlements. In October 1992, the U.S. Court of Appeals for the
Fifth Circuit and the Louisiana Supreme Court, with respect to the same issue
under Louisiana law, determined that royalties are due on take-or-pay payments
under the royalty clauses of the specific mineral leases reviewed by the
courts. As a result of these and related developments, Transcontinental Gas
Pipe Line and Texas Gas have been named as defendants in, respectively, six and
two lawsuits in which damages aggregated in excess of $133 million. On July
17, 1995, a judge in a Texas state court granted a motion by Transcontinental
Gas Pipe Line for partial summary
-18-
<PAGE> 20
THE WILLIANS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
judgment, rejecting a major portion of the plaintiff's claims in one of these
lawsuits. Producers may receive other demands which could result in additional
claims against Transcontinental Gas Pipe Line and Texas Gas pursuant to the
indemnification provisions in their respective settlements. Indemnification
for royalties will depend on, among other things, the specific lease provisions
between the producer and the lessor and the terms of the settlement between the
producer and either Transcontinental Gas Pipe Line or Texas Gas. Texas Gas may
file to recover 75 percent of any such amounts it may be required to pay
pursuant to indemnities for royalties under the provisions of Order 528.
On November 14, 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazleton, Pennsylvania (the
Facility). Hazleton Fuel Management Company (HFMC), a subsidiary of Transco,
supplies natural gas and fuel oil to the Facility. As of June 30, 1995, it had
current outstanding receivables from the Partnership of approximately $19
million, for which HFMC has established a reserve of $18 million. The
construction of the Facility was funded by several banks that have a security
interest in all of the Partnership's assets. HFMC has asserted to the
Bankruptcy Court that payment of its receivables is superior to the lien of the
banks and intends to vigorously pursue the collection of such amounts. HFMC
has also filed suit against the lead bank with respect to this and other
matters, including the alleged tortious interference with HFMC's contractual
relations with the Partnership and other parties. On March 21, 1995, the
Bankruptcy Court approved the rejection of the gas supply contract between the
Partnership and HFMC. HFMC has in turn asserted force majeure under a contract
with a producer under which HFMC purchased natural gas for the Facility.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.
Summary
While no assurances may be given, Williams does not believe that the ultimate
resolution of the foregoing matters, taken as a whole and after consideration
of amounts accrued, insurance coverage or other indemnification arrangements,
will have a materially adverse effect upon Williams' future financial position,
results of operations and cash flow requirements.
Note 12. Subsequent events
In August, a subsidiary of Williams purchased Pekin Energy Co., the nation's
second-largest ethanol producer, for $167 million in cash.
In July, Williams initiated an offer to exchange up to 3,630,100 shares of its
$2.21 cumulative preferred stock for approximately $91 million of 9.6 percent
debentures.
-19-
<PAGE> 21
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Second Quarter 1995 vs. Second Quarter 1994
NORTHWEST PIPELINE'S revenues increased $1.2 million due primarily to increased
transportation rates put into effect in November 1994. Operating profit
decreased slightly by $.2 million due primarily to increased costs for
operating and maintenance and higher depreciation, partially offset by
increased rates. Although total mainline throughput increased 23 percent,
operating profit remained stable due to the effects of the straight-fixed-
variable rate design prescribed by the Federal Energy Regulatory Commission.
Also during the quarter, Northwest Pipeline received a favorable decision from
the FERC regarding its rate of return and other issues. A final ruling in this
1993 rate proceeding is expected in several months.
WILLIAMS NATURAL GAS' revenues and costs and operating expenses decreased $6.4
million and $5.3 million, respectively, due primarily to the absence of 1994
contract-reformation recovery. Operating profit decreased $.8 million due
primarily to the absence of 1994 regulatory adjustments of $1.7 million,
partially offset by higher transportation revenue of $1.3 million excluding
contract-reformation recovery. Although transportation volumes increased 14
percent the effects of a straight- fixed- variable rate design required by the
FERC contribute to a stable operating profit.
TRANSCONTINENTAL GAS PIPE LINE owns an interstate natural gas pipeline that
extends from the onshore and offshore Louisiana producing areas through the
Southeast and up into much of the Eastern Seaboard, including New York City.
Transcontinental Gas Pipe Line's revenues were $194.1 million in the second
quarter of 1995, while costs and expenses were $148.7 million and operating
profit was $45.4 million. Throughput was 325.2 TBtu's in the second quarter of
1995. Market-area deliveries declined 2 percent in 1995 compared to 1994.
Transco currently has a rate structure and a historical maintenance schedule
that together are expected to reduce operating profit in the third quarter of
this year, rebounding during the fourth quarter.
TEXAS GAS TRANSMISSION operates an interstate natural gas pipeline system that
serves eight states in the South and Midwest. Texas Gas' revenues were $61.8
million in the second quarter of 1995, while costs and expenses were $52.4
million and operating profit was $9.4 million. Throughput was 150.5 TBtu's in
the second quarter of 1995. Texas Gas placed new, higher rates into effect
April 1, 1995, subject to refund. Responding to its customers' needs, Texas
Gas in late 1993 implemented seasonal contract demands as a component of its
FERC Order 636 rate structure. This is expected to result in lower operating
profit during the second and third quarters, improving during the first and
fourth quarters.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $55.9
million due primarily to 103 percent increase in gathering volumes, including
$32 million attributable to Transco's gathering operations and an increase of
$5 million from other gathering activities. Costs and operating expenses and
selling, general and administrative expenses increased $49 million and $6
million, respectively, of which Transco's gathering activities contributed $26
million and $3 million, respectively. Operating profit increased $1.9
million, including $8 million operating profit from Transco's gathering
activities and $5 million higher other
-20-
<PAGE> 22
gathering revenues, partially offset by higher operating and maintenance
expenses, depreciation and selling, general and administrative expenses from
expanded facilities. Operating profit in 1994 was favorably affected by an
adjustment to operating taxes of $4 million.
WILLIAMS ENERGY SERVICES' revenues increased $232.6 million, primarily as a
result of the addition of Transco's gas marketing operations. Natural gas
sales were 157.5 TBtu's in 1995 compared to 34.1 TBtu's in 1994. Costs and
expenses increased by $234.9 million due primarily to Transco's gas marketing
operations. Operating profit decreased $2.4 million, reflecting increased
costs from supporting information technology and business development of $1.3
million, reduced operating profit from refined products trading activity of
$2.8 million, in addition to non-recurring costs associated with merging
Transco's marketing operations into Williams. Transco's gas marketing
operations contributed $5.5 million to operating profit. Included in 1994
operating profit was a $2.3 million favorable contract-reformation settlement.
WILLIAMS PIPE LINE'S revenues decreased $10.5 million due primarily to a
decrease of $14.7 million related to Williams Energy Ventures primarily from
the discontinuance of certain petroleum-product services due to adverse market
conditions. An increase in transportation revenue resulting from a 5 percent
increase in volumes and a slightly higher average transportation rate,
resulting from a December 1994 tariff increase are partially offset by shorter
haul movements. Costs and expenses decreased $12.2 million as compared to 1994
due primarily to Williams Energy Ventures' discontinuance of certain
petroleum-product services. Operating profit was $1.7 million higher than 1994
due primarily to higher transportation and non-transportation revenue of $2.4
million and $1.9 million, respectively, partially offset by higher pipeline
transportation costs and operating expenses of $2.1 million. Results for
Williams Energy Ventures declined due to lower refined-product and ethanol
sales margins and increased costs from business development.
WILLIAMS TELECOMMUNICATIONS SYSTEMS' revenues increased $19.4 million due
primarily to new systems and system enhancements revenues. Contributing to
revenue growth was the Jackson Voice Data acquisition completed in October
1994. Costs of sales increased $15.6 million due to increased sales activity.
Selling, general and administrative expenses increased $2.8 million due
primarily to increased operations. Operating profit increased $1.2 million due
primarily to the increase in revenues. Product per-unit margins declined in
1995 compared to 1994 due to the aggressive maintenance pricing by competitors.
Interest accrued increased due primarily to the $2 billion outstanding debt
assumed as a result of the Transco acquisition. Interest capitalized increased
due primarily to increased capital expenditures for gathering and processing
facilities. Investing income increased $5 million due primarily to interest
earned on the invested portion of the cash proceeds from the sale of WilTel's
network services operations, partially offset by $4 million lower equity
earnings from Kern River Gas Transmission Company and the second-quarter 1994
$5 million Texasgulf Inc. dividend. Kern River's 1994 equity earnings included
a favorable adjustment to rate refund accruals related to a rate case. The
1995 loss on sales of investments results from the sale of the 15 percent
interest in Texasgulf Inc. (see Note 5 for additional information). The 1994
gain on sales of investments results from the sale of 3,461,500 limited partner
common units in Northern Border Partners, L.P. Other income (expense) - net in
1995 includes approximately $2.5 million of minority interest expense
associated with the Transco merger.
-21-
<PAGE> 23
The effective income tax rate in 1995 is less than the federal statutory rate
due primarily to the recognition of previously unrecognized tax benefits
associated with the investment in Texasgulf Inc., an $8 million income tax
benefit resulting from settlements with taxing authorities and income tax
credits from coal-seam gas production, partially offset by state income taxes
and minority interest. The effective income tax rate in 1994 approximates the
federal statutory rate as the effect of state income taxes is largely offset by
income tax credits from coal-seam gas production.
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. Prior period operating results
for WilTel's network services operations were restated and are reported as
discontinued operations (see Note 7 for additional information).
The 1994 extraordinary loss results from the early extinguishment of debt (see
Note 8 for additional information).
Six Months Ended June 30, 1995 vs. Six Months Ended June 30, 1994
NORTHWEST PIPELINE'S revenues decreased $4.4 million due primarily to the
completion in 1994 of billing contract- reformation surcharges, partially
offset by increased transportation rates put into effect in November 1994.
Operating profit decreased $4 million due primarily to higher operating and
maintenance expenses from increased maintenance projects and higher third-party
compression charges, partially offset by increased rates.
WILLIAMS NATURAL GAS' revenues decreased $12.2 million due primarily to the
absence of 1994 contract-reformation recovery of $7 million and regulatory
adjustments of $1.8 million, in addition to lower 1995 average firm reserved
capacity of $1.3 million. Costs and operating expenses decreased $7.2 million
due largely to the 1994 contract- reformation recovery. Operating profit
decreased $5.8 million due primarily to the absence of 1994 regulatory
adjustments, lower 1995 average firm reserved capacity and higher general and
administrative expenses ($1 million).
TRANSCONTINENTAL GAS PIPE LINE'S revenues were $347.6 million in the first six
months of 1995, while costs and expenses were $263.9 million and operating
profit was $83.7 million. Throughput was 640.7 TBtu's in the first six months
of 1995 (for the period subsequent to the acquisition date).
TEXAS GAS TRANSMISSION'S revenues were $130.5 million in the first six months
of 1995, while costs and expenses were $98.6 million and operating profit was
$31.9 million. Throughput was 313.8 TBtu's in the first six months of 1995
(for the period subsequent to the acquisition date). Texas Gas placed new,
higher rates into effect April 1, 1995, subject to refund.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $98.3 million due primarily
to a 97 percent increase in gathering volumes, including $62 million
attributable to Transco's gathering operations and an increase of $12 million
from other gathering activities. Costs and operating expenses and selling,
general and administrative expenses increased $76 million and $13 million,
respectively, of which Transco's gathering activities contributed $41 million
and $7 million, respectively. Operating profit increased $10.4 million
primarily resulting from Transco's gathering activities of $16.5 million and
-22-
<PAGE> 24
increases in liquids volumes of $3 million and other gathering activities of
$12 million. Partially offsetting these are increases in operating and
maintenance expenses, depreciation and selling, general and administrative
expenses from expanded facilities. Operating profit in 1994 was favorably
affected by an adjustment to operating taxes of $4 million.
WILLIAMS ENERGY SERVICES' revenues increased $506.2 million, primarily from the
addition of Transco's gas marketing operations. Natural gas sales were 350.2
TBtu's in 1995 compared to 70.4 TBtu's in 1994. Costs and expenses increased
$484.8 million due primarily to Transco's gas marketing operations. Operating
profit increased $21.4 million, as Transco's gas marketing operations
contributed $13.5 million and the first quarter 1995 income recognition from
mark-to- market valuation of long-term natural gas supply contracts added $21
million. Partially offsetting the increases were the costs from supporting
information technology and business development of $1.8 million, reduced
profits from refined-products trading activities of $5 million, in addition to
non-recurring costs associated with merging Transco's marketing operations.
Included in 1994 operating profit was a $2.3 million favorable
contract-reformation settlement.
WILLIAMS PIPE LINE'S revenues increased by $3 million primarily as a result of
increases in transportation and non- transportation revenue of $3.3 million and
$11.4 million, respectively, substantially offset by a decrease of $11.6
million due primarily to Williams Energy Ventures and the discontinuance of
certain petroleum- product services due to adverse market conditions. A
slightly higher average transportation rate, resulting from a December 1994
tariff increase, was partially offset by shorter haul movements. Shipments,
while 3 percent higher than 1994, were reduced by the November 1994 Minneapolis
rack fire and unfavorable weather conditions in the first and second quarters
of 1995. Costs and expenses were $1.2 million higher due primarily to higher
costs of $5.1 million related to non-transportation revenue, largely offset by
Williams Energy Ventures' discontinuance of certain petroleum-product services.
Operating profit increased $1.8 million primarily from both higher
transportation and non-transportation revenue, partially offset by higher costs
and operating expenses of $8.3 million. Results from Williams Energy Ventures'
petroleum ventures declined $2.5 million due to lower refined-product sales
margins and increased costs from business development. Results in 1994
benefitted from a $2.8 million insurance settlement. Williams Energy Ventures
is developing two non-regulated facilities expected to be additive to earnings
during the last half of 1995.
WILLIAMS TELECOMMUNICATIONS SYSTEMS' revenues increased $72.1 million due
primarily to new systems and new system enhancements and acquisitions of
BellSouth Communications Systems on March 31, 1994 and Jackson Voice Data
completed in October 1994. The increases in costs of sales of $57.4 million
and selling, general and administrative expenses of $7.4 million primarily
reflects the increased sales activity from the acquisitions. Operating profit
increased $7.5 million due primarily to the increase in sales activity
resulting from the 1994 acquisitions.
General corporate expenses increased due to a $4 million contribution to The
Williams Companies Foundation. Interest accrued increased due primarily to the
$2 billion outstanding debt assumed as a result of the Transco acquisition.
Interest capitalized increased due primarily to increased capital expenditures
for gathering and processing facilities. Investing income increased $37
million due primarily to interest earned on the invested portion of the cash
proceeds from the sale of WilTel's network services operations combined with an
$11 million increase in the dividend from Texasgulf Inc., slightly offset by
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<PAGE> 25
$5 million lower equity earnings from Kern River Gas Transmission Company.
Kern River's 1994 equity earnings included a favorable adjustment to rate
refund accruals related to a rate case. The 1995 loss on sales of investments
results from the sale of the 15 percent interest in Texasgulf Inc. (see Note 5
for additional information). The 1994 gain on sales of investments results
from the sale of 3,461,500 limited partner common units in Northern Border
Partners, L.P. Other income (expense) - net in 1995 includes approximately $10
million of minority interest expense associated with the Transco merger and $4
million of dividends on Transco preferred stock. Other income (expense) - net
in 1994 includes a credit of $4.8 million from the reversal of previously
accrued liabilities associated with certain Royalty Trust contingencies which
expired. Also included in 1994 is approximately $4 million of expense related
to the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," which related to
postemployment benefits being paid to employees of companies previously sold.
The effective income tax rate in 1995 is less than the federal statutory rate
due primarily to the previously unrecognized tax benefits associated with the
investment in Texasgulf Inc., recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities and income tax credits from
coal-seam gas production, partially offset by state income taxes and minority
interest. The effective income tax rate in 1994 is slightly less than the
federal statutory rate as the effect of state income taxes is offset by the
effects of income tax credits from coal-seam gas production and a favorable
prior-year state income tax adjustment.
On January 5, 1995, Williams sold WilTel's network services operations to LDDS
Communications, Inc. for $2.5 billion in cash. The sale yielded an after-tax
gain of approximately $1 billion, which is reported as income from discontinued
operations. Prior period operating results for WilTel's network services
operations were restated and are reported as discontinued operations (see Note
7 for additional information).
The 1994 extraordinary loss results from the early extinguishment of debt (see
Note 8 for additional information).
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 June 30, 1995, Williams
had access to $1.1 billion of liquidity representing the unborrowed portion of
its $800 million bank-credit facility plus cash-equivalent investments. This
compares with liquidity of $495 million at December 31, 1994, and $500 million
at June 30, 1994. The increase in 1995 is due to the remaining cash proceeds
from the sale of WilTel's network services operations and a $200 million
increase in the capacity of the bank-credit facility (see Note 10 for
additional information).
In 1995 capital expenditures are estimated to be approximately $1.2 billion.
During 1995, Williams expects to finance capital expenditures, investments and
working-capital requirements through the use of the remaining network services
operations sale proceeds, its $800 million bank-credit facility or public
debt/equity offerings.
-24-
<PAGE> 26
Financing Activities
The consolidated long-term debt to long-term debt-plus-equity ratio increased
to 47.7 percent at June 30, 1995, from 46.5 percent at December 31, 1994. The
increase is due to the assumption of Transco's outstanding debt, substantially
offset by increased equity primarily from the $1 billion after-tax gain
included in income from discontinued operations related to the sale of WilTel's
network services operations and the issuance of common and preferred stock in
the Transco merger.
Net assets held for sale at June 30, 1995, include certain Transco businesses
which Williams intends to sell within one year (see Note 3 for additional
information). Accrued liabilities increased due primarily to the income tax
and other liabilities associated with the sale of the network services
operations in addition to the acquisition of Transco. Notes payable and
long-term debt due within one year decreased reflecting the repayment of these
amounts with the proceeds from the sale of the network services operations.
The increases in receivables, inventory, other current assets, property, plant
and equipment, other noncurrent assets and deferred charges, payables,
long-term debt, deferred income taxes, and other noncurrent liabilities and
deferred credits primarily reflect the acquisition of Transco.
Other
On January 18, 1995, Williams acquired 60 percent of Transco's outstanding
common stock in a cash tender offer for $430.5 million. Williams acquired the
remaining 40 percent of Transco's outstanding common stock on May 1, 1995,
through a merger which exchanged the remaining Transco common stock for
approximately 10.4 million shares of Williams common stock. The cash portion
of the acquisition was financed from the proceeds of the WilTel network
services sale (see Note 7 for additional information). The purchase price
including transaction fees and other related costs is approximately $800
million, excluding $2.3 billion in preferred stock and debt obligations of
Transco. In connection with the acquisition, Williams made payments to retire
and/or terminate approximately $700 million in Transco borrowings, preferred
stock, interest-rate swaps and sale of receivable facilities. As a part of the
merger, Williams exchanged Transco's outstanding $3.50 preferred stock for
Williams' $3.50 preferred stock (see Note 3 for additional information).
In April 1995, Williams sold its 15 percent interest in Texasgulf Inc. for
approximately $124 million in cash (see Note 5 for additional information).
On June 30, 1995, Williams acquired the Gas Company of New Mexico's natural gas
gathering and processing assets in the San Juan and Permian Basins for $154
million. The acquired natural gas gathering, treating and processing assets in
the Permian Basin (representing approximately 10 percent of the acquired
assets) were then sold to GPM Gas Corporation the same day.
Williams Field Services continues to pursue development of a commercial
underground coal-qualification venture in South-central Wyoming. Design and
construction costs of a demonstration project capitalized to date are
approximately $21 million. The future viability of this venture will be
determined after completion and analysis of development activities currently in
process.
Subsequent Events
In August, a subsidiary of Williams purchased Pekin Energy Co., the nation's
second largest ethanol producer, for $167 million in cash.
In July, Williams initiated an offer to exchange up to 3,630,000 shares of its
$2.21 cumulative preferred stock for approximately $91 million of 9.6 percent
debentures and is considering filing a registration statement to exchange its
$3.50 cumulative preferred stock for subordinated debentures.
-25-
<PAGE> 27
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on May
18, 1995. At the Annual Meeting, five individuals were elected
as directors of the Company. Ten individuals continue to serve
as directors pursuant to their prior election. In addition, the
appointment of Ernst & Young LLP as the independent auditor of
the Company for 1995 was ratified.
A tabulation of the voting at the Annual Meeting with respect to
the matters indicated is as follows:
Election of Directors
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Glenn A. Cox 79,416,824 428,261
Thomas H. Cruikshank 79,415,523 429,562
Patricia L. Higgins 79,364,038 481,047
Gordon R. Parker 79,431,632 413,453
Joseph H. Williams 79,419,972 425,113
</TABLE>
Ratification of Appointment of Independent Auditor
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
79,222,111 309,094 313,880
</TABLE>
To the best of the Company's knowledge, there were no broker
nonvotes with respect to the election of directors or the
ratification of the auditor.
-26-
<PAGE> 28
PART II. OTHER INFORMATION (concluded)
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 11.a--Computation of Earnings Per Common and
Common-equivalent Share
Exhibit 11.b--Computation of Earnings Per Common and
Common-equivalent Share
Exhibit 12 --Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred
Stock Dividend Requirements
Exhibit 27 --Financial Data Schedule
(b) During the second quarter of 1995, the Company filed a Form
8-K on May 4, 1995 which reported a significant event under
Item 2 of the Form and included the exhibits required by
Item 7 of the Form.
-27-
<PAGE> 29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLIAMS COMPANIES, INC.
---------------------------------------
(Registrant)
Gary R. Belitz
---------------------------------------
Gary R. Belitz
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
August 11, 1995
<PAGE> 30
EXHIBIT INDEX
Exhibit 11.a--Computation of Earnings Per Common and
Common-equivalent Share
Exhibit 11.b--Computation of Earnings Per Common and
Common-equivalent Share
Exhibit 12 --Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
Exhibit 27 --Financial Data Schedule
<PAGE> 1
Exhibit 11.a
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Three months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
------------------------
1995 1994*
-------- --------
<S> <C> <C>
Primary earnings:
Income from continuing operations $ 83,300 $ 57,900
Preferred stock dividends:
$2.21 cumulative preferred stock 1,900 2,200
$3.50 cumulative convertible preferred stock 1,500 -
-------- --------
Income from continuing operations, net of
preferred stock dividends 79,900 55,700
Income from discontinued operations - 16,100
-------- --------
Income before extraordinary loss, net of
preferred stock dividends 79,900 71,800
Extraordinary loss - (11,100)
-------- --------
Income applicable to common stock $ 79,900 $ 60,700
======== ========
Primary shares:
Average number of common shares outstanding
during the period 98,282 103,867
Common-equivalent shares attributable to options
and deferred stock 3,457 890
-------- --------
Total common and common-equivalent shares 101,739 104,757
======== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ .79 $ .54
Income from discontinued operations - .15
-------- --------
Income before extraordinary loss $ .79 $ .69
Extraordinary loss - (.11)
-------- --------
Net income $ .79 $ .58
======== ========
Fully diluted earnings:
Income from continuing operations $ 83,300 $ 57,900
Preferred stock dividends:
$2.21 cumulative preferred stock 1,900 2,200
-------- --------
Income from continuing operations, net of preferred
stock dividends 81,400 55,700
Income from discontinued operations - 16,100
-------- --------
Income before extraordinary loss, net of preferred
stock dividends 81,400 71,800
Extraordinary loss - (11,100)
-------- --------
Income applicable to common stock $ 81,400 $ 60,700
======== ========
Fully diluted shares:
Average number of common shares outstanding
during the period 98,282 103,867
Common-equivalent shares attributable to options
and deferred stock 3,588 1,020
Dilutive preferred shares 2,648 -
-------- --------
Total common and common-equivalent shares 104,518 104,887
======== ========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ .78 $ .54
Income from discontinued operations - .15
-------- --------
Income before extraordinary loss .78 .69
Extraordinary loss - (.11)
-------- --------
Net income $ .78 $ .58
======== ========
</TABLE>
*Restated as described in Note 7 of Notes to Consolidated Financial Statements.
<PAGE> 1
Exhibit 11.b
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON-EQUIVALENT SHARE
Six months ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
(Thousands, except
per-share amounts)
------------------------
1995 1994*
---------- --------
<S> <C> <C>
Primary earnings:
Income from continuing operations $ 166,500 $ 98,500
Preferred stock dividends:
$2.21 cumulative preferred stock 4,000 4,400
$3.50 cumulative convertible preferred stock 1,500 -
---------- --------
Income from continuing operations, net of preferred
stock dividends 161,000 94,100
Income from discontinued operations 1,005,700 28,300
---------- --------
Income before extraordinary loss, net of preferred
stock dividends 1,166,700 122,400
Extraordinary loss - (11,100)
---------- --------
Income applicable to common stock $1,166,700 $111,300
========== ========
Primary shares:
Average number of common shares outstanding
during the period 94,648 103,610
Common-equivalent shares attributable to options and
deferred stock 3,201 890
---------- --------
Total common and common-equivalent shares 97,849 104,500
========== ========
Primary earnings per common and common-equivalent share:
Income from continuing operations $ 1.65 $ .90
Income from discontinued operations 10.27 .27
---------- --------
Income before extraordinary loss 11.92 1.17
Extraordinary loss - (.11)
---------- --------
Net income $11.92 $1.06
========== ========
Fully diluted earnings:
Income from continuing operations $ 166,500 $ 98,500
Preferred stock dividends:
$2.21 cumulative preferred stock 4,000 4,400
---------- --------
Income from continuing operations, net of preferred
stock dividends 162,500 94,100
Income from discontinued operations 1,005,700 28,300
---------- --------
Income before extraordinary loss, net of preferred
stock dividends 1,168,200 122,400
Extraordinary loss - (11,100)
---------- --------
Income applicable to common stock $1,168,200 $111,300
========== ========
Fully diluted shares:
Average number of common shares outstanding
during the period 94,648 103,610
Common-equivalent shares attributable to options
and deferred stock 3,366 955
Dilutive preferred stock 1,316 -
---------- --------
Total common and common-equivalent shares 99,330 104,565
========= ========
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ 1.64 $ .90
Income from discontinued operations 10.12 .27
---------- --------
Income before extraordinary loss 11.76 1.17
Extraordinary loss - (.11)
---------- --------
Net income $11.76 $1.06
========== ========
</TABLE>
*Restated as described in Note 7 of Notes to Consolidated Financial Statements.
<PAGE> 1
Exhibit 12
THE WILLIAMS COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
----------------
<S> <C>
Earnings:
Income from continuing operations before income taxes $214.3
Add:
Interest expense - net 131.0
Rental expense representative of interest factor 10.9
Preferred dividends of subsidiaries 3.7
Interest accrued - 50 percent owned company 15.7
Minority interest expense 10.2
Other 1.5
------
Total earnings as adjusted plus fixed charges $387.3
======
Fixed charges and preferred stock dividend requirements:
Interest expense - net $131.0
Capitalized interest 5.8
Rental expense representative of interest factor 10.9
Pretax effect of dividends on preferred stock of
the Company 8.8
Pretax effect of dividends on preferred stock
of subsidiaries 5.9
Interest accrued - 50 percent owned company 15.7
------
Combined fixed charges and preferred stock dividend
requirements $178.1
======
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements 2.17
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 382,949
<SECURITIES> 0
<RECEIVABLES> 374,997
<ALLOWANCES> (10,489)
<INVENTORY> 186,269
<CURRENT-ASSETS> 1,536,454
<PP&E> 8,704,881
<DEPRECIATION> (1,367,648)
<TOTAL-ASSETS> 9,880,617
<CURRENT-LIABILITIES> 1,899,456
<BONDS> 2,811,062
<COMMON> 104,813
0
242,500
<OTHER-SE> 2,766,190
<TOTAL-LIABILITY-AND-EQUITY> 9,880,617
<SALES> 0
<TOTAL-REVENUES> 1,905,443
<CGS> 0
<TOTAL-COSTS> 1,583,275
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,976
<INTEREST-EXPENSE> 136,823
<INCOME-PRETAX> 214,289
<INCOME-TAX> 47,778
<INCOME-CONTINUING> 166,511
<DISCONTINUED> 1,005,665
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172,176
<EPS-PRIMARY> 11.92
<EPS-DILUTED> 11.76
</TABLE>
