<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
--------------------------------------------------
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
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THE WILLIAMS COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 73-0569878
- ---------------------------------- --------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
- --------------------------------------- ---------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number: (918) 588-2000
--------------------------------
NO CHANGE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class Outstanding at October 31, 1996
- --------------------------------- --------------------------------------
Common Stock, $1 par value 104,654,812 Shares
<PAGE> 2
The Williams Companies, Inc.
Index
<TABLE>
<CAPTION>
Part I. Financial Information Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Statement of Income--Three Months and Nine Months
Ended September 30, 1996 and 1995 2
Consolidated Balance Sheet--September 30, 1996 and
December 31, 1995 3
Consolidated Statement of Cash Flows--Nine Months
Ended September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Exhibit 3--By-laws as amended on September 19, 1996
Exhibit 11--Computation of Earnings Per Common and Common-
equivalent Share
Exhibit 12--Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividend
Requirements
</TABLE>
Portions of this document may constitute "forward-looking statements" as
defined by federal law. Although The Williams Companies, Inc. believes any
such statements are based on reasonable assumptions, there is no assurance that
actual outcomes will not be materially different. Additional information about
issues that could lead to material changes in performance is contained in The
Williams Companies, Inc.'s annual report on Form 10-K.
1
<PAGE> 3
The Williams Companies, Inc.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
(Millions, except per-share amounts)
------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Williams Interstate Natural Gas Systems (Note 4) $390.9 $354.3 $1,249.3 $1,029.8
Williams Field Services Group 161.0 142.4 527.7 419.5
Williams Energy Services 24.7 18.7 74.9 65.6
Williams Pipe Line 119.9 86.9 382.7 220.4
Williams Communications Group 189.0 131.9* 491.1* 394.0*
Other 12.1 3.7 37.3 13.7
Intercompany eliminations (55.4) (25.5) (189.6) (124.3)
------------------------------------------------------------
Total revenues 842.2 712.4 2,573.4 2,018.7
------------------------------------------------------------
Profit-center costs and expenses:
Costs and operating expenses 509.3 438.9 1,502.6 1,190.1
Selling, general and administrative expenses 138.0 119.0 415.4 354.0
Other income--net (2.9) (6.9) (3.9) (8.9)
------------------------------------------------------------
Total profit-center costs and expenses 644.4 551.0 1,914.1 1,535.2
------------------------------------------------------------
Operating profit (loss):
Williams Interstate Natural Gas Systems (Note 4) 121.8 86.7 409.9 273.1
Williams Field Services Group 45.1 43.6 138.4 114.4
Williams Energy Services 13.5 4.4 43.1 29.7
Williams Pipe Line 14.8 20.0 58.9 50.5
Williams Communications Group 2.1 6.6* 6.0* 17.0*
Other .5 .1 3.0 (1.2)
------------------------------------------------------------
Total operating profit 197.8 161.4 659.3 483.5
General corporate expenses (11.6) (7.5) (29.8) (25.6)
Interest accrued (93.5) (67.4) (265.6) (204.2)
Interest capitalized 2.1 4.7 4.5 10.5
Investing income 6.6 13.3 14.7 81.2
Loss on sale of investment (Note 5) -- -- -- (12.6)
Other income (expense)--net 2.2 .7 (4.1) (13.3)
------------------------------------------------------------
Income from continuing operations before income taxes 103.6 105.2 379.0 319.5
Provision for income taxes (Notes 5 and 6) 32.6 36.7 122.7 84.5
------------------------------------------------------------
Income from continuing operations 71.0 68.5 256.3 235.0
Income from discontinued operations (Note 7) -- -- -- 1,005.7
------------------------------------------------------------
Net income 71.0 68.5 256.3 1,240.7
Preferred stock dividends 2.6 7.1 7.8 12.6
------------------------------------------------------------
Income applicable to common stock $ 68.4 $ 61.4 $ 248.5 $1,228.1
============================================================
Primary earnings per common and common-equivalent share:
Income from continuing operations $ .63 $ .58 $ 2.30 $ 2.22
Income from discontinued operations (Note 7) -- -- -- 10.02
------------------------------------------------------------
Net income $ .63 $ .58 $ 2.30 $ 12.24
============================================================
Average shares (thousands) 108,275 105,507 108,094 100,373
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ .63 $ .58 $ 2.27 $ 2.20
Income from discontinued operations (Note 7) -- -- -- 9.79
------------------------------------------------------------
Net income $ .63 $ .58 $ 2.27 $ 11.99
============================================================
Average shares (thousands) 112,311 109,587 112,126 102,730
Cash dividends per common share $ .34 $ .27 $ 1.02 $ .81
============================================================
</TABLE>
*Reclassified as described in Note 2.
See accompanying notes.
2
<PAGE> 4
The Williams Companies, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
--------------------------------------
September 30, December 31,
1996 1995
--------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40.5 $ 90.4
Receivables 641.9 525.0
Transportation and exchange gas receivable 97.6 152.3
Inventories 197.3 189.0
Deferred income taxes 248.7 213.9
Other 218.7 173.2
--------------------------------------
Total current assets 1,444.7 1,343.8
Investments 169.7 307.6
Property, plant and equipment, at cost (Note 3) 11,026.6 9,478.7
Less accumulated depreciation and depletion (1,815.8) (1,464.0)
--------------------------------------
9,210.8 8,014.7
Other assets and deferred charges 968.7 828.7
--------------------------------------
Total assets $11,793.9 $10,494.8
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 10) $ 300.3 $ -
Accounts payable 408.4 472.0
Transportation and exchange gas payable 67.3 127.8
Accrued liabilities (Note 8) 1,032.9 1,130.2
Long-term debt due within one year (Note 10) 54.1 319.9
--------------------------------------
Total current liabilities 1,863.0 2,049.9
Long-term debt (Note 10) 4,137.3 2,874.0
Deferred income taxes 1,614.6 1,568.2
Other liabilities 834.9 815.6
Contingent liabilities and commitments (Note 12)
Stockholders' equity:
Preferred stock, $1 par value, 30,000,000 shares authorized, 3,244,052 shares
issued in 1996 and 3,739,452 shares issued in 1995 161.1 173.5
Common stock, $1 par value, 240,000,000 shares authorized, 106,536,630
shares issued in 1996 and 105,337,948 shares issued in 1995 106.5 105.3
Capital in excess of par value 1,092.1 1,051.1
Retained earnings 2,057.1 1,915.6
Unamortized deferred compensation (2.3) (2.3)
--------------------------------------
3,414.5 3,243.2
Less treasury stock (at cost), 1,967,627 shares of common stock in 1996
and 1,573,203 shares of common stock in 1995, 401,600 shares of
preferred stock in 1995 (Note 11) (70.4) (56.1)
--------------------------------------
Total stockholders' equity 3,344.1 3,187.1
--------------------------------------
Total liabilities and stockholders' equity $11,793.9 $10,494.8
======================================
</TABLE>
See accompanying notes.
3
<PAGE> 5
The Williams Companies, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
----------------------------------
Nine months ended September 30,
----------------------------------
1996 1995
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 256.3 $ 1,240.7
Adjustments to reconcile to cash provided from operations:
Discontinued operations - (1,005.7)
Depreciation and depletion 326.4 272.8
Provision for deferred income taxes 10.5 22.7
Loss on sale of investment - 12.6
Changes in receivables sold (49.3) 32.5
Changes in receivables 100.7 108.2
Changes in inventories (14.3) (19.9)
Changes in other current assets (28.8) 31.5
Changes in accounts payable (49.4) (73.7)
Changes in accrued liabilities (26.9) 20.8
Net change in non-current unrealized trading assets and liabilities (45.6) (48.5)
Other, including changes in non-current assets and liabilities 32.2 (42.2)
----------------------------------
Net cash provided by operating activities 511.8 551.8
----------------------------------
FINANCING ACTIVITIES:
Proceeds from notes payable 356.8 90.4
Payments of notes payable (56.5) (558.2)
Proceeds from long-term debt 1,549.0 111.9
Payments of long-term debt (1,187.1) (823.6)
Proceeds from issuance of common stock 42.7 18.8
Purchases of treasury stock (33.8) (2.9)
Dividends paid (114.8) (88.4)
Subsidiary preferred stock redemptions - (193.7)
Other--net (3.3) 5.4
----------------------------------
Net cash provided (used) by financing activities 553.0 (1,440.3)
----------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures (528.2) (597.6)
Proceeds from sales 24.3 27.4
Acquisition of businesses, net of cash acquired (295.5) (817.1)
Proceeds from sale of businesses - 2,572.8
Income tax and other payments related to discontinued operations (255.2) (317.1)
Proceeds from sale of investment - 125.1
Purchase of note receivable - (75.1)
Purchase of investments (57.3) (4.4)
Other--net (2.8) 2.0
----------------------------------
Net cash provided (used) by investing activities (1,114.7) 916.0
----------------------------------
Increase (decrease) in cash and cash equivalents (49.9) 27.5
Cash and cash equivalents at beginning of period 90.4 36.1
----------------------------------
Cash and cash equivalents at end of period $ 40.5 $ 63.6
==================================
</TABLE>
See accompanying notes.
4
<PAGE> 6
The Williams Companies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
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' 1995 Annual Report on Form
10-K. The accompanying unaudited financial statements have not been audited by
independent auditors, but include all adjustments both normal recurring and
others which, in the opinion of Williams' management, are necessary to present
fairly its financial position at September 30, 1996, results of operations for
the three months and nine months ended September 30, 1996 and 1995, and cash
flows for the nine months ended September 30, 1996 and 1995.
Operating profit of operating companies may vary by quarter. Based on
current rate structures and/or historical maintenance schedules,
Transcontinental Gas Pipe Line and Texas Gas Transmission experience lower
operating profits in the second and third quarters as compared to the first and
fourth quarters.
2. Basis of presentation
Williams Communications Group is a new business entity formed by
combining WilTel and WilTech Group, previously reported separately. As a
result of this combination, revenues and operating profit amounts for the three
months and nine months ended September 30, 1995, have been reclassified to
conform to current classifications.
Revenues and operating profit amounts for the three months and nine
months ended September 30, 1995, include the operating results of Transco
Energy Company since its January 18, 1995, acquisition by Williams.
3. Kern River Gas Transmission acquisition
On January 16, 1996, Williams acquired the remaining interest in Kern
River Gas Transmission Company (Kern River) for $206 million in cash. The
acquisition is accounted for as a purchase and the acquired assets and
liabilities have been recorded based on an allocation of the purchase price.
Substantially all of the purchase price in excess of the carrying value from
the January acquisition of Kern River has been allocated to property, plant and
equipment. Revenues and operating profit amounts for the three months and nine
months ended September 30, 1996, include the operating results of Kern River
since the acquisition date. Prior to this acquisition, Williams accounted for
its 50 percent ownership in Kern River using the equity method of accounting,
with its share of equity earnings recorded in investing income.
4. Williams Interstate Natural Gas Systems
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
(Millions) Revenues Operating Profit
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Northwest Pipeline $ 69.1 $ 75.7 $ 36.1 $37.3
Williams Natural Gas 43.4 34.0 11.9 12.0
Transcontinental Gas
Pipe Line 180.6 188.0 40.5 33.9
Texas Gas Transmission 55.0 56.6 2.7 3.5
Kern River Gas
Transmission 42.8 - 30.6 -
- --------------------------------------------------------------------------------------------------------------------
$390.9 $354.3 $121.8 $86.7
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
(Millions) Revenues Operating Profit
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Northwest Pipeline $ 205.6 $ 193.8 $103.1 $ 90.6
Williams Natural Gas 131.8 113.3 33.9 29.5
Transcontinental Gas
Pipe Line 572.8 535.6 133.6 117.6
Texas Gas Transmission 220.6 187.1 55.6 35.4
Kern River Gas
Transmission 118.5 - 83.7 -
- --------------------------------------------------------------------------------------------------------------------
$1,249.3 $1,029.8 $409.9 $273.1
====================================================================================================================
</TABLE>
5. Sale of investment
In the second quarter of 1995, Williams sold its 15 percent interest in
Texasgulf Inc. for approximately $124 million in cash, which resulted in an
after-tax gain of approximately $16 million because of previously unrecognized
tax benefits included in the provision for income taxes.
6. Provision for income taxes
The provision (credit) for income taxes from continuing operations includes:
<TABLE>
<CAPTION>
Three months ended Nine months ended
(Millions) September 30, September 30,
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $28.4 $35.4 $101.3 $46.3
State (4.0) 5.5 10.9 15.5
- --------------------------------------------------------------------------------------------------------------------
24.4 40.9 112.2 61.8
Deferred:
Federal 7.8 (6.2) 8.6 23.2
State .4 2.0 1.9 (.5)
- --------------------------------------------------------------------------------------------------------------------
8.2 (4.2) 10.5 22.7
- --------------------------------------------------------------------------------------------------------------------
Total provision $32.6 $36.7 $122.7 $84.5
====================================================================================================================
</TABLE>
5
<PAGE> 7
The Williams Companies, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
The effective income tax rate in 1996 is less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. Both 1996
periods include approximately $6 million, net of federal income tax effect, from
the effects of state income tax adjustments related to 1995. In addition, the
nine months ended September 30, 1996, include the second quarter recognition of
favorable adjustments totaling $10 million related to research credits and
previously provided deferred income taxes on certain regulated capital
projects.
The effective income tax rate in 1995 is less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes and minority
interest. In addition, the nine months ended September 30, 1995, include the
previously unrecognized tax benefits related to the sale of Texasgulf Inc. (see
Note 5) and recognition of an $8 million income tax benefit resulting from
settlements with taxing authorities, both recorded in the second quarter.
Cash payments for income taxes for continuing and discontinued
operations for the nine months ended September 30, 1996 and 1995, are $352
million and $343 million, respectively.
7. Discontinued operations
On January 5, 1995, Williams sold its 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 $732 million) which is
reported as income from discontinued operations. Under the terms of the
agreement, Williams retained Williams Telecommunications Systems, Inc.
(WilTel), a national telecommunications equipment supplier and service company,
and Vyvx, Inc. (included in WilTech Group), which operates a national video
network specializing in broadcast television applications and satellite
transmission. Both companies are included in Williams Communications Group
(see Note 2).
8. Accrued liabilities
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
Rate refunds $ 269.4 $ 180.6
Employee costs 162.3 135.9
Income taxes payable 130.5 371.6
Taxes other than income taxes 80.7 51.2
Interest 73.8 72.9
Other 316.2 318.0
- -------------------------------------------------------------------------------------
$1,032.9 $1,130.2
=====================================================================================
</TABLE>
9. Adoption of accounting standard
Effective January 1, 1996, Williams adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Adoption of the standard had no
effect on Williams' financial position or results of operations.
10. Long-term debt
Long-term debt consists of the following amounts:
<TABLE>
<CAPTION>
Weighted
average
interest September 30, December 31,
(Millions) rate* 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans - $ - $ 50.0
Debentures, 8.875% -
10.25%, payable 2012,
2020, 2021 and 2025 9.6 587.5 587.7
Notes, 7.5% - 9.625%,
payable through 2001 8.8 818.4 842.4
Northwest Pipeline
Debentures, 7.125% -
10.65%, payable
through 2025 9.0 360.0 369.2
Adjustable rate notes,
payable through 2002 9.0 10.0 11.7
Williams Natural Gas
Variable rate notes,
payable 1999 5.9 130.0 130.0
Transcontinental Gas Pipe Line
Debentures, 7.08% and
9.125%, payable 1998
through 2026 8.0 351.6 153.0
Notes, 8.125% - 9%,
payable 1996, 1997
and 2002 8.7 378.2 381.1
Adjustable rate notes,
payable 2000 - - 125.1
Texas Gas Transmission
Notes, 9.625% and
8.625%, payable 1997
and 2004 9.0 254.1 255.9
Kern River Gas Transmission
Notes, 6.42% and 6.72%,
payable through 2001 6.6 617.7 -
Williams Holdings of Delaware
Revolving credit loans 5.9 303.0 150.0
Debentures, 6.25%,
due 2006 6.3 248.8 -
Williams Pipe Line
Notes, 8.95% and 9.78%,
payable through 2001 9.4 100.0 110.0
Williams Energy Ventures
Adjustable rate notes,
payable through 2002 8.1 25.6 21.0
Other, payable through 1999 7.7 6.5 6.8
- ------------------------------------------------------------------------------------------------------------
4,191.4 3,193.9
Current portion of long-term debt (54.1) (319.9)
- ------------------------------------------------------------------------------------------------------------
$4,137.3 $2,874.0
============================================================================================================
</TABLE>
*At September 30, 1996.
In January 1996, Williams entered into a $205 million short-term borrowing
agreement to finance the purchase of the
6
<PAGE> 8
The Williams Companies, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
remaining interest in Kern River Gas Transmission Company (See Note 3).
Under Williams' $800 million credit agreement, Northwest Pipeline,
Transcontinental Gas Pipe Line, Texas Gas Transmission, Williams Pipe Line and
Williams Holdings of Delaware, Inc. (Williams Holdings) have access to varying
amounts of the facility while Williams (parent) has access to all unborrowed
amounts. Interest rates vary with current market conditions.
For financial statement reporting purposes, $351 million in current debt
obligations have been classified as non-current obligations based on Williams'
intent and ability to refinance on a long-term basis. At September 30, 1996,
the amount available on the $800 million credit agreement of $497 million is
sufficient to complete these refinancings.
During March 1996, the Kern River floating-rate bank loan was refinanced
through the issuance of 6.42 percent and 6.72 percent fixed-rate notes.
Interest-rate swap agreements entered into by Kern River in prior years which
effectively converted floating-rate debt to a fixed 9.1 percent remain
outstanding. Concurrent with the refinancing, Kern River entered into
additional interest-rate swap agreements which effectively offset the original
interest-rate swaps and adjust the new fixed-rate notes to an effective
interest rate of 8.5 percent.
In April 1996, Williams Holdings entered into an interest-rate swap
agreement which effectively converted its 6.25 percent fixed rate debentures to
floating-rate debt (4.66 percent at September 30, 1996).
Cash payments for interest (net of amounts capitalized) for the nine months
ended September 30, 1996 and 1995, are $279 million and $197 million,
respectively.
11. Treasury stock
In the third quarter of 1996, the Williams' board of directors authorized
the open-market purchase of up to $800 million of Williams common stock. At
September 30, 1996, 638,500 shares had been repurchased at a total cost of
$31.2 million.
12. 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 $231 million at September 30, 1996; 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 8 for the amount of revenues reserved for potential refund
as of September 30, 1996.
In 1992, the Federal Energy Regulatory Commission (FERC) issued Order 636,
Order 636-A and Order 636-B. These orders, which were challenged in various
respects by various parties in proceedings recently ruled on by 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. Kern River Gas Transmission
implemented its restructuring on August 1, 1993, 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
have been under appeal.
On July 16, 1996, the U.S. Court of Appeals for the D.C. Circuit issued an
order which in part affirmed and in part remanded Order No. 636. However, the
court stated that Order No. 636 would remain in effect until FERC issued a
final order on remand after considering the remanded issues. With the issuance
of this decision, the stay on the appeals of individual pipeline's
restructuring cases will be lifted. The only appeal challenging Northwest
Pipeline's restructuring has been dismissed.
Contract reformations and gas purchase deficiencies
Each of the natural gas pipeline subsidiaries has undertaken the
reformation or termination of its respective gas supply contracts. None of the
pipelines has any significant pending supplier take-or-pay, ratable take or
minimum take claims.
In 1994, Williams Natural Gas and a producer executed a number of
agreements to resolve outstanding issues. Portions of the settlement were
subject to regulatory approvals, including the regulatory abandonment of a
certain Williams Natural Gas gathering system on terms acceptable to Williams
Natural Gas. In May 1995, the FERC issued orders granting the requisite
approvals. One party requested rehearing of the decision regarding abandonment
of the gathering system and in April 1996, the FERC affirmed its May 1995
decision, and on July 23, 1996, FERC issued an order denying rehearing.
Current FERC policy associated with Orders 436 and 500 requires interstate
gas pipelines to absorb some of the cost of reforming gas supply contracts
before allowing any recovery through direct bill or surcharges to
transportation as well as sales commodity rates. Under Orders 636, 636-A and
636-B, costs incurred to comply with these rules are permitted to be recovered
in full, although 10 percent of such costs must be allocated to interruptible
transportation service.
The previously mentioned July 16, 1996, D.C. Circuit Court of Appeals
decision concerning Order No. 636 has remanded to FERC the issues of whether
pipelines should absorb any portion of Order No. 636 transition costs and
whether 10 percent of such costs should have been allocated to interruptible
transportation services.
Pursuant to a stipulation and agreement approved by the FERC, Williams
Natural Gas has made six 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 gas supply realignment
costs, and provided for an offset of $3 million. The third filing covered
7
<PAGE> 9
The Williams Companies, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
$6.5 million in gas supply realignment costs. The remaining filings covered
additional costs of $12 million, which are similar in nature to the costs in
the second filing. An intervenor has filed a protest seeking to have the
Commission review the prudence of certain of the costs covered by all of the
filings made subsequent to the first filing, except for the third filing. On
July 31, 1996, the administrative law judge issued an initial decision
rejecting the intervenor's prudency challenge on the second filing. As of
September 30, 1996, this subsidiary had an accrual of $81 million for its
then-estimated remaining contract-reformation and gas supply realignment costs.
Williams Natural Gas will make additional filings under the applicable FERC
orders to recover such further costs as may be incurred in the future.
Williams Natural Gas has recorded a regulatory asset of approximately $81
million for estimated future recovery of the foregoing costs.
In September 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. The settlement
provides that Texas Gas will recover 100 percent of such costs up to $50
million, will share in costs incurred between $50 million and $80 million, and
will absorb any such costs above $80 million. The settlement also extends Texas
Gas' pricing differential mechanism to November 1, 1996, and beyond that date
for contracts in litigation as of that date. Through September 30, 1996, Texas
Gas has paid or expects to pay approximately $80 million, previously accrued,
for gas supply realignment costs, primarily as a result of contract
terminations. Texas Gas has recovered approximately $54 million plus interest
in gas supply realignment costs and, in accordance with the terms of its
settlement, has a regulatory asset recorded at September 30, 1996, of
approximately $13 million for the estimated future recovery of such costs, which
is expected to be collected from customers prior to December 31, 1997. Ninety
percent of the cost recovery is collected through demand surcharges on Texas
Gas' firm transportation rates; the remaining 10 percent is recoverable from
interruptible transportation service.
The foregoing accruals are in accordance with Williams' accounting policies
regarding the establishment of such accruals which take into consideration
estimated total exposure, as discounted and risk-weighted, as well as costs and
other risks associated with the difference between the time costs are incurred
and the time such costs are recovered from customers. The estimated portion of
such costs recoverable from customers is deferred or recorded as a regulatory
asset based on an estimate of expected recovery of the amounts allowed by FERC
policy. While Williams believes that these accruals are adequate and the
associated regulatory assets are appropriate, costs actually incurred and
amounts actually recovered from customers will depend upon the outcome of
various court and FERC proceedings, the success of settlement negotiations and
various other factors, not all of which are presently foreseeable.
Environmental matters
Since 1989, Texas Gas and Transcontinental Gas Pipe Line have had studies
underway to test certain of their facilities for the presence of toxic and
hazardous substances to determine to what extent, if any, remediation may be
necessary. Transcontinental Gas Pipe Line has responded to data requests
regarding such potential contamination of certain of its sites. The costs of
any such remediation will depend upon the scope of the remediation. At
September 30, 1996, these subsidiaries had reserves totaling approximately $42
million for these costs.
Certain Williams subsidiaries, including Texas Gas and Transcontinental Gas
Pipe Line, have been identified as potentially responsible parties (PRP) at
various Superfund and state waste disposal sites. Although no assurances can
be given, Williams does not believe that the PRP status of these subsidiaries
will have a material adverse effect on its financial position, results of
operations or net cash flows.
Transcontinental Gas Pipe Line, Texas Gas and Williams Natural Gas have
identified polychlorinated biphenyl (PCB) contamination in air compressor
systems, soils and related properties at certain compressor station sites.
Transcontinental Gas Pipe Line, 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 with certain environmental authorities and other
programs concerning investigative and remedial actions relative to potential
mercury contamination at certain gas metering sites have been commenced by
Williams Natural Gas, Texas Gas and Transcontinental Gas Pipe Line. As of
September 30, 1996, Williams Natural Gas had recorded a liability for
approximately $24 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 $43 million reserve mentioned above.
Actual costs incurred will depend on the actual number of contaminated sites
identified, the actual amount and extent of contamination discovered, the final
cleanup standards mandated by the EPA and other governmental authorities and
other factors. Texas Gas, Transcontinental Gas Pipe Line and Williams Natural
Gas have deferred these costs pending recovery as incurred through future rates
and other means.
In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
costs exceed a specified amount. It appears certain that such costs will
exceed this amount. At September 30, 1996, Williams had approximately $9
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 in May 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. In June 1994,
the lawsuit was dismissed for failure to join an indispensable party over which
the state court had no jurisdiction. The Colorado court of appeals has affirmed
the dismissal and remanded the
8
<PAGE> 10
The Williams Companies, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
case to Colorado district court for action consistent with the appeals court's
decision. Since June 1994, eight individual lawsuits have been filed against
Northwest Pipeline and others in U.S. district court in Colorado, making
essentially the same claims. Northwest Pipeline is vigorously defending these
lawsuits.
Other legal matters
In December 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit
against Williams Production, a wholly owned subsidiary of Williams, and other
gas producers in the San Juan Basin area, alleging that certain coal strata
were reserved by the United States for the benefit of the Tribe and that the
extraction of coal-seam gas from the coal strata was wrongful. The Tribe seeks
compensation for the value of the coal-seam gas. The Tribe also seeks an order
transferring to the Tribe ownership of all of the defendants' equipment and
facilities utilized in the extraction of the coal-seam gas. In September 1994,
the court granted summary judgment in favor of the defendants and the Tribe
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.
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. In September 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 Energy Company, 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.
In March 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. In October 1994, the FERC issued an
order consolidating Transcontinental Gas Pipe Line's petition for approval of
the settlement with similar 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. In
December 1995, the administrative law judge issued an initial decision in which
he rejected the settlement agreements, finding that they were not prudent, and
he ordered the pipeline companies to refund to their customers amounts
collected since May 1993, in excess of the amounts he determined were
appropriate. At the time of the ruling, Transcontinental Gas Pipe Line
estimated that its share of the refunds the administrative law judge would
require was approximately $75 million. The pipelines would be entitled to
collect the amount of any such customer refunds from Dakota. The
administrative law judge's decision is subject to review by the FERC. In
February 1996, certain parties filed with the FERC a motion requesting that the
FERC establish an additional proceeding to consider claims for additional
refunds. Transcontinental Gas Pipe Line's share of these claimed additional
refunds is $90 million and pertain to amounts paid to Dakota from November 1,
1988, to May 1, 1993. The pipelines have opposed this motion. The FERC held
oral argument September 25, 1996.
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 each entered into certain settlements with producers which may
require the indemnification of certain claims for additional royalties which
the producers may be required to pay as a result of such settlements. As a
result of such settlements, Transcontinental Gas Pipe Line and Texas Gas were
named as defendants in, respectively, six and two lawsuits. Six of the eight
lawsuits have been settled for cash payments aggregating approximately $8.9
million, all of which have previously been accrued, and of which approximately
$3 million is recoverable as transition costs under Order 636. Damages,
including interest, of approximately $29 million, have been asserted in the
remaining cases. Producers have received and may receive other demands which
could result in additional claims. 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 additional amounts it may be required to pay pursuant to
indemnities for royalties under the provisions of Order 528.
In November 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 Hazelton, Pennsylvania (the
Facility). Hazelton Fuel Management Company (HFMC), a subsidiary of Transco
Energy, formerly supplied natural gas and fuel oil to the Facility. As of
September 30, 1996, HFMC had current outstanding receivables from the
Partnership of approximately $20 million, all of which has been reserved. 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
9
<PAGE> 11
The Williams Companies, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
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. In March 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. The Partnership recently negotiated favorable buyouts of its power
purchase agreements with two electric utilities. The buyouts are subject to
Bankruptcy Court and Pennsylvania Public Utility Commission approvals.
On July 18, 1996, an individual filed a lawsuit in the United States
District Court for the District of Columbia against 70 natural gas pipelines
and other gas purchasers or former gas purchasers. All of Williams' natural
gas pipeline subsidiaries are named as defendants in the lawsuit. The
plaintiff claims, on behalf of the United States under the False Claims Act,
that the pipelines have incorrectly measured the heating value or volume of gas
purchased by the defendants. The plaintiff claims that the United States has
lost royalty payments as a result of these practices. The pipelines intend to
vigorously defend against these claims.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries which are 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, recovery from customers
or other indemnification arrangements, will have a materially adverse effect
upon Williams' future financial position, results of operations and cash flow
requirements.
10
<PAGE> 12
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Third Quarter 1996 vs. Third Quarter 1995
NORTHWEST PIPELINE'S revenues decreased $6.6 million, or 9 percent, due
primarily to the effect of a 1995 reversal of approximately $16 million of
certain accrued liabilities for estimated rate refunds, partially offset by
approximately $3 million in 1996 related to a favorable regulatory decision. In
addition, transportation rates increased effective February 1, 1996, associated
with the expansion of mainline capacity placed into service on December 1, 1995.
Total throughput increased 10.3 TBtu, or 6 percent, associated with the
expansion of mainline capacity. Operating profit decreased $1.2 million, or 3
percent, due primarily to the approximate $11 million net effect of two reserve
accrual adjustments in 1995. One was a $16 million favorable adjustment of rate
refund accruals based on recent rate case developments. Partially offsetting
this was a loss accrual (included in other income--net) in connection with a
lawsuit involving a former transportation customer. In addition, operating
profit this quarter benefitted from increased rates associated with the
expansion of mainline capacity.
WILLIAMS NATURAL GAS' revenues increased $9.4 million, or 27 percent, due
primarily to the effect of the 1995 direct bill refund of gas purchases of
approximately $8 million and increased transportation revenue of $2 million. The
increase in transportation revenue is due primarily to the collection of gas
supply realignment costs. Total throughput decreased 7.1 TBtu, or 11 percent,
due primarily to lower interruptible volumes. Costs and operating expenses
increased $11 million, or 80 percent, due primarily to the effect of the 1995
direct bill refund of gas purchases and the amortization in 1996 of gas supply
realignment costs. Operating profit decreased $100,000, or 1 percent.
TRANSCONTINENTAL GAS PIPE LINE'S revenues decreased $7.4 million, or 4
percent, due primarily to lower transportation costs charged to Transco by
others and recovered in Transco's rates, partially offset by approximately $7
million in higher transportation revenue. Transportation revenue increased due
primarily to increased throughput and new rates effective September 1, 1995,
which allow the passthrough of increased costs. Total throughput increased 12.1
TBtu, or 4 percent, due primarily to increased long haul and firm production
area transportation volumes. Costs and expenses decreased $14 million, or 9
percent, due primarily to lower transportation costs charged to Transco by
others. Operating profit increased $6.6 million, or 19 percent, due primarily to
higher transportation revenue and lower general and administrative expenses of
approximately $2 million, partially offset by increased operation and
maintenance expense of approximately $3 million. Because of its rate structure
and historical maintenance schedule, Transco typically experiences lower
operating profit in the second and third quarters as compared to the first and
fourth quarters of the year.
TEXAS GAS TRANSMISSION'S revenues decreased $1.6 million, or 3 percent, due
primarily to a lower level of recoverable costs. Total throughput increased 19.1
TBtu, or 13 percent. Operating profit decreased $800,000, or 23 percent, due
primarily to higher operating and maintenance expense. Because of its rate
structure, Texas Gas typically experiences lower operating profit in the second
and third quarters as compared to the first and fourth quarters.
KERN RIVER GAS TRANSMISSION (KERN RIVER) operates a natural gas pipeline
system extending from Wyoming through Nevada to California. On January 16, 1996,
Williams acquired the remaining interest in Kern River. Revenues were $42.8
million in the third quarter of 1996, while costs and operating expenses were $9
million, selling, general and administrative expenses were $3 million and
operating profit was $30.6 million. Prior to the acquisition, Williams accounted
for its 50 percent ownership in Kern River using the equity method of
accounting, with its share of equity earnings recorded in investing income.
Equity earnings for the third quarter of 1995 was $8 million. Throughput was
68.5 TBtu in the third quarter of 1996. Throughput for the third quarter of 1996
is comparable to third-quarter 1995.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $18.6 million, or 13
percent, due primarily to higher processing and natural gas liquids sales
revenues of $3 million and $14 million, respectively. Processing and natural gas
liquids volumes increased 14 percent and 49 percent, respectively, and average
natural gas liquids prices also increased. A 21 percent increase in gathering
volumes was offset by lower average gathering rates. Costs and operating
expenses increased $6 million, or 6 percent, due primarily to expanded
facilities and increased operations. Other income--net for 1996 includes a $3
million gain from the sale of a small gathering system in the Texas panhandle.
Other income--net for 1995 includes $12 million in operating profit from the net
effect of two unrelated items. One was $20 million of income from the favorable
resolution of contingency issues involving previously regulated gathering and
processing assets. This was partially offset by an $8 million loss accrual for a
future minimum price natural gas purchase commitment. Operating profit increased
$1.5 million, or 3 percent, due primarily to increased gas liquids margins and
higher processing revenues, largely offset by higher costs and operating
expenses associated with expanded facilities and increased operations and the
1995 $12 million net effect of two unrelated items in other income--net.
WILLIAMS ENERGY SERVICES' revenues increased $6 million, or 32 percent, due
primarily to higher price-risk management revenues of $14 million, partially
offset by lower natural gas physical trading and contract origination revenues
of $5 million and $2 million, respectively. The
11
<PAGE> 13
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
natural gas physical trading volumes increase of 12 percent from growth in
west and mid-continent trading activity was more than offset by lower physical
trading margins of $7 million. Operating profit increased $9.1 million from $4.4
million in 1995 due primarily to the increase in revenues combined with a
reduction of development costs associated with its information products
business, partially offset by higher selling, general and administrative
expenses.
WILLIAMS PIPE LINE'S (INCLUDING WILLIAMS ENERGY VENTURES) revenues increased
$33 million, or 38 percent, due primarily to an increase in non-transportation
revenue combined with a 3 percent increase in shipments. The increase in
non-transportation revenue is due primarily to Williams Energy Ventures' ethanol
sales following the August 1995 acquisition of Pekin Energy and the
fourth-quarter 1995 completion of the Nebraska Energy plant, combined with
higher product marketing and services revenue. Costs and operating expenses
increased $37 million, or 64 percent, due primarily to ethanol production
activities. Operating profit (including Williams Energy Ventures) decreased $5.2
million, or 26 percent, due primarily to the decision to suspend ethanol
production to perform efficiency maintenance on ethanol production plants during
the third-quarter 1996, a period of record high corn prices. This was slightly
offset by the increase in transportation revenue. Williams Energy Ventures'
results declined $6.3 million to a $5.2 million operating loss in 1996. During
the fourth-quarter 1996, corn prices returned to more traditionally normal
levels. In September 1996, Williams Energy Ventures announced it had acquired a
45.5 percent interest in eight petroleum products terminals in the Southeast,
giving it a platform to market services in the southeastern region of the
country.
WILLIAMS COMMUNICATIONS GROUP'S revenues increased $57.1 million, or 43
percent, due primarily to $31 million from the acquisitions of Global Access
Telecommunications Services, ComLink, Inc., NUS Training, the teleports of ICG
Wireless Services, ITC mediaConferencing and SoftIRON Systems. Additionally,
increased business activity resulted in an $18 million revenue increase in new
systems. Billable minutes from occasional service and the number of ports in
service at September 30, 1996, increased 30 percent and 11 percent,
respectively, compared to September 30, 1995. Costs and operating expenses
increased $47 million, or 47 percent, and selling, general and administrative
expenses increased $15 million, or 60 percent, due primarily to the overall
increase in business activity and higher expenses for developing additional
products and services, including expenses of the acquired operations. Operating
profit decreased $4.5 million, or 68 percent, due primarily to the expense of
developing additional products and services along with integrating the most
recent acquisitions.
GENERAL CORPORATE EXPENSES increased $4.1 million, or 55 percent, due
primarily to higher professional services. Interest accrued increased $26.1
million, or 39 percent, due primarily to higher borrowing levels including $643
million of debt assumed with the acquisition of Kern River (see Note 3),
slightly offset by lower average interest rates. Interest capitalized decreased
$2.6 million, or 56 percent, due primarily to lower capital expenditures for
gathering and processing facilities. Investing income decreased $6.7 million, or
50 percent, due primarily to $8 million lower equity earnings from Williams' 50
percent ownership in Kern River. Kern Rivers' 1996 operating results are
included in operating profit (see Note 3). The effective income tax rate in 1996
is less than the federal statutory rate due primarily to income tax credits from
coal-seam gas production, partially offset by the effects of state income taxes.
In addition, 1996 includes approximately $6 million, net of federal income tax
effect, from the effects of state income tax adjustments related to 1995. The
effective income tax rate in 1995 approximates the federal statutory rate as the
effect of state income taxes was offset by income tax credits from coal-seam gas
production.
Preferred stock dividends decreased $4.5 million, or 64 percent, due primarily
to the difference in the fair value of subordinated debentures issued and the
carrying value of the $2.21 cumulative preferred stock exchanged in 1995.
Nine Months Ended September 30, 1996 vs. Nine Months Ended September 30, 1995
NORTHWEST PIPELINE'S revenues increased $11.8 million, or 6 percent, due
primarily to increased transportation rates, effective February 1, 1996,
associated with the expansion of mainline capacity placed into service on
December 1, 1995, and approximately $8 million related to reserve reversals and
favorable regulatory decisions, partially offset by the effect of the 1995
reversal of approximately $16 million of certain accrued liabilities for
estimated rate refund accruals. Total throughput increased 52.1 TBtu, or 9
percent. Operating profit increased $12.5 million, or 14 percent, due primarily
to increased transportation rates associated with the expansion of mainline
capacity, and the reserve reversals and favorable regulatory decisions,
partially offset by the effect of the 1995 approximately $11 million net effect
of two reserve accrual adjustments. One was a $16 million favorable adjustment
of rate refund accruals based on recent rate case developments. Partially
offsetting this was a loss accrual (included in other income--net) in connection
with a lawsuit involving a former transportation customer.
WILLIAMS NATURAL GAS' revenues increased $18.5 million, or 16 percent, due
primarily to the effect of the 1995 reversal of direct bill refund of gas
purchases of approximately $8 million, in addition to increased transportation
revenue of $12 million. The increase in transportation revenue is due primarily
to new tariff rates
12
<PAGE> 14
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
that became effective August 1, 1995, and $6 million related to the collection
of gas supply realignment costs. Total throughput increased 3.2 TBtu, or 1
percent. Costs and operating expenses increased $15 million, or 27 percent,
due primarily to the effect of the 1995 reversal of direct bill refund of gas
purchases and the 1996 amortization of gas supply realignment costs. Operating
profit increased $4.4 million, or 15 percent, due primarily to new tariff rates
that became effective August 1, 1995.
TRANSCONTINENTAL GAS PIPE LINE'S revenues increased $37.2 million, or 7
percent, due primarily to a full year of operations in 1996 compared with 1995,
which reflected operations from January 18, 1995, when Williams acquired
majority interest in Transco Energy. Revenues associated with the period
January 1 through January 17, 1995, were $35.8 million. Revenues also
increased due to $20 million in higher transportation revenue, partially offset
by lower transportation costs charged to Transco by others and recovered in
Transco's rates. Transportation revenue increased due primarily to increased
throughput, which benefitted from a system expansion placed in service in late
1995, and new rates effective September 1, 1995, which allow the passthrough of
increased costs. Total throughput increased 165.8 TBtu, or 17 percent, due
primarily to a full year of operations in 1996 compared to a partial year in
1995. Operating profit increased $16 million, or 14 percent, due primarily to
a full year of operations in 1996, increased transportation revenue and lower
general and administrative expenses, partially offset by higher operation,
maintenance and depreciation expense. Because of its rate structure and
historical maintenance schedule, Transco typically experiences lower operating
profit in the second and third quarters as compared to the first and fourth
quarters of the year.
TEXAS GAS TRANSMISSION'S revenues and operating profit increased $33.5
million, or 18 percent, and $20.2 million, or 57 percent, respectively, due
primarily to new rates that became effective April 1, 1995, and an adjustment
to regulatory accruals based on a recent rate-case settlement. Also, the first
quarter of 1995 reflected operations from January 18, when Williams acquired
majority interest in Transco Energy. Revenues associated with the period
January 1 through January 17, 1995, were $16 million. Total throughput
increased 119.7 TBtu, or 26 percent, due primarily to a full year of operations
in 1996 compared to a partial year in 1995. Because of its rate structure,
Texas Gas typically experiences lower operating profits in the second and third
quarters as compared to the first and fourth quarters of the year.
KERN RIVER GAS TRANSMISSION'S (KERN RIVER) remaining interest was acquired
by Williams on January 16, 1996. Revenues and operating profit amounts for the
nine months ended September 30, 1996, include the operating results of Kern
River since the acquisition date. Kern River's revenues were $118.5 million
for the nine months of 1996, while costs and operating expenses were $26
million, selling, general and administrative expenses were $9 million and
operating profit was $83.7 million. Prior to the acquisition, Williams
accounted for its 50 percent ownership in Kern River using the equity method of
accounting, with its share of equity earnings recorded in investing income.
Equity earnings for the nine months of 1996 includes $2 million for the period
prior to the acquisition date, compared to $23 million for the first nine
months of 1995. Throughput was 199.6 TBtu for the nine months of 1996 (for the
period subsequent to the acquisition date). Throughput for the first nine
months of 1996 is comparable to 1995.
WILLIAMS FIELD SERVICES GROUP'S revenues increased $108.2 million, or 26
percent, due primarily to higher gathering, processing and natural gas liquids
sales revenues of $25 million, $11 million, and $37 million, respectively,
combined with increased natural gas sales volumes. Gathering, processing and
natural gas liquids volumes increased 26 percent, 25 percent and 40 percent,
respectively. Average natural gas liquids prices also increased while average
gathering rates decreased. Costs and expenses (excluding other income--net)
increased $71 million, or 22 percent, due primarily to increased natural gas
purchase volumes, expanded facilities and increased operations. Other
income--net for 1996 includes a $3 million environmental remediation accrual
offset by a $3 million gain from the sale of a small gathering system in the
Texas panhandle. Other income--net for 1995 includes $12 million in operating
profit from the net effect of two unrelated items. One was $20 million from
the favorable resolution of contingency issues involving previously regulated
gathering and processing assets. This was partially offset by an $8 million
loss accrual for a future minimum price natural gas purchase commitment.
Operating profit increased $24 million, or 21 percent, due primarily to
increased natural gas liquids margins and higher gathering and processing
revenues, partially offset by higher costs and operating expenses associated
with expanded facilities and increased operations and the 1995 $12 million net
effect of two unrelated items in other income--net.
WILLIAMS ENERGY SERVICES' revenues increased $9.3 million, or 14 percent,
due primarily to higher price-risk management revenues of $29 million,
partially offset by lower contract origination and natural gas physical trading
revenues of $16 million and $3 million, respectively. Natural gas physical
trading volumes increased 26 percent from 525 TBtu to 661 TBtu (an average of
2.4 Bcf/day), due primarily to increased trading activity in the west and mid-
continent regions. This volume increase was more than offset by lower physical
trading margins of $12 million. Operating profit increased $13.4 million, or
45 percent, due primarily to the increase in revenues combined with a reduction
of development costs associated with its information products business,
partially
13
<PAGE> 15
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
offset by higher selling, general and administrative expenses.
WILLIAMS PIPE LINE'S (INCLUDING WILLIAMS ENERGY VENTURES) revenues increased
$162.3 million, or 74 percent, due primarily to an increase in
non-transportation revenue combined with a 10 percent increase in shipments.
Shipments increased due primarily to new business and the impact during 1995 of
unfavorable weather conditions and a November 1994 fire at a truck-loading rack.
Average length of haul and transportation rate per barrel decreased 3 percent
and 1 percent, respectively, due primarily to shorter haul movements. The
increase in non-transportation revenue is due primarily to Williams Energy
Ventures' ethanol sales following the August 1995 acquisition of Pekin Energy
and the fourth-quarter 1995 completion of the Nebraska Energy plant, combined
with higher product marketing and services revenues. Costs and expenses
increased $154 million, or 91 percent, due primarily to ethanol production
activities. Operating profit (including Williams Energy Ventures) increased $8.4
million, or 17 percent, due primarily to increased transportation revenue,
partially offset by the decision to suspend ethanol production to perform
efficiency maintenance on ethanol production plants during the third-quarter
1996, a period of record high corn prices. Williams Energy Ventures' operating
loss increased $4.8 million to $5.6 million. During the fourth-quarter 1996,
corn prices returned to more traditionally normal levels. In September 1996,
Williams Energy Ventures announced it had acquired a 45.5 percent interest in
eight petroleum products terminals in the Southeast, giving it a platform to
market services in the southeastern region of the country.
WILLIAMS COMMUNICATIONS GROUP'S revenues increased $97.1 million, or 25
percent, due primarily to $60 million from the acquisitions of Global Access
Telecommunications Services, ComLink, Inc., NUS Training, the teleports of ICG
Wireless Services, ITC mediaConferencing and SoftIRON Systems. Additionally,
increased business activity resulted in a $20 million revenue increase in new
systems and an $11 million revenue increase in digital fiber television
services. Billable minutes from occasional service and the number of ports in
service at September 30, 1996, each increased 11 percent compared to September
30, 1995. Costs and operating expenses increased $72 million, or 24 percent,
and selling, general and administrative expenses increased $36 million, or 49
percent, due primarily to the overall increase in business activity and higher
expenses for developing additional products and services, including the cost of
integrating the most recent acquisitions. Operating profit decreased $11
million, or 65 percent, due primarily to the expense of developing additional
products and services along with integrating the most recent acquisitions.
GENERAL CORPORATE EXPENSES increased $4.2 million, or 16 percent, due
primarily to higher employee compensation expense and professional services,
partially offset by the effect of a $4 million contribution in 1995 to The
Williams Companies Foundation. Interest accrued increased $61.4 million, or 30
percent, due primarily to higher borrowing levels including $643 million of
debt assumed with the acquisition of Kern River (see Note 3), slightly offset
by lower average interest rates. Interest capitalized decreased $6 million, or
57 percent, due primarily to lower capital expenditures for gathering and
processing facilities, in addition to the completion of a Northwest Pipeline
mainline expansion in 1995. Investing income decreased $66.5 million, or 82
percent, due primarily to the effect of a 1995 $15 million dividend from
Texasgulf Inc. and interest earned in 1995 on the invested portion of the cash
proceeds from the sale of Williams' network services operations, in addition to
$22 million lower equity earnings from Williams' 50 percent ownership in Kern
River. Kern River's 1996 operating results are included in operating profit
since the acquisition date (see Note 3). The 1995 loss on sale of investment
results from the sale of the 15 percent interest in Texasgulf Inc. (see Note
5). Other income (expense)--net in 1995 included $10 million for minority
interest expense associated with the Transco merger. The effective income tax
rate in 1996 is less than the federal statutory rate due primarily to income
tax credits from coal-seam gas production, partially offset by the effects of
state income taxes. In addition, 1996 includes recognition of favorable
adjustments totaling $16 million related to research credits, previously
provided deferred income taxes on certain regulated capital projects and state
income tax adjustments related to 1995. The effective income tax rate in 1995
was less than the federal statutory rate due primarily to income tax credits
from coal-seam gas production, partially offset by the effects of state income
taxes and minority interest. In addition, 1995 included the previously
unrecognized tax benefits related to the sale of Texasgulf Inc. (see Note 5)
and recognition of an $8 million income tax benefit resulting from settlements
with taxing authorities.
On January 5, 1995, Williams sold its 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 (see Note 7).
Preferred stock dividends decreased $4.8 million, or 38 percent, due
primarily to the difference in the fair value of subordinated debentures issued
and the carrying value of the $2.21 cumulative preferred stock exchanged in
1995.
Financial Condition and Liquidity
Liquidity
Williams considers its liquidity to come from two sources: internal
liquidity, consisting of available cash
14
<PAGE> 16
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
investments, and external liquidity, consisting of borrowing capacity from
available bank-credit facilities, which can be utilized without limitation
under existing loan covenants. At September 30, 1996, Williams had access to
$499 million of liquidity representing the available portion of its $800
million bank-credit facility plus cash-equivalent investments. This compares
with liquidity of $656 million at December 31, 1995, and $765 million at
September 30, 1995. The decrease in 1996 is due to additional borrowings under
the bank credit facility.
In 1996, capital expenditures (excluding acquisition of businesses) are
estimated to be approximately $800 million. During 1996, Williams expects to
finance capital expenditures, investments and working-capital requirements
through cash generated from operations, the use of its $800 million bank-credit
facility, or additional borrowings, which include public debt/equity offerings
and/or expanding committed borrowing facilities.
Financing Activities
On January 16, 1996, Williams acquired the remaining interest in Kern River
Gas Transmission Company for $206 million in cash and entered into a $205
million short-term borrowing agreement to finance the purchase (see Note 3).
For financial statement reporting purposes, $351 million of current debt
obligations have been classified as non-current obligations based on Williams'
intent and ability to refinance on a long-term basis. The amount available on
the $800 million credit agreement of $497 million is sufficient to complete
these refinancings.
The consolidated long-term debt to long-term debt-plus-equity ratio
increased to 55.3 percent at September 30, 1996, from 47.4 percent at December
31, 1995. The increase is due primarily to the assumption of Kern River's
debt, combined with the issuance of $250 million of debentures by Williams
Holdings under a $400 million shelf registration statement filed with the
Securities and Exchange Commission in January 1996, and higher borrowings by
Williams Holdings under the bank-credit facility.
During March 1996, the Kern River floating-rate bank loan was refinanced
through the issuance of 6.42 percent and 6.72 percent fixed-rate notes.
Interest-rate swap agreements entered into by Kern River in prior years which
effectively converted floating-rate debt to a fixed 9.1 percent remain
outstanding. Concurrent with the refinancing, Kern River entered into
additional interest-rate swap agreements which effectively offset the original
interest-rate swaps and adjust the new fixed-rate notes to an effective
interest rate of 8.5 percent.
In April 1996, Williams Holdings entered into an interest-rate swap
agreement which effectively converted its 6.25 percent fixed-rate debentures to
floating-rate debt (4.66 percent at September 30, 1996).
During the third quarter of 1996, Williams began the open-market purchase
of its common stock. Purchases of 638,500 shares totaling $31 million were
completed by September 30, 1996. The Williams' board of directors has
authorized up to $800 million of such purchases.
The increase in receivables from December 31, 1995, is due primarily to
increased trading activities by Williams Energy Services. The increase in
property, plant and equipment primarily reflects the consolidation of Kern River
following the January 1996 acquisition. The increase in other assets and
deferred charges is due primarily to regulatory assets associated with debt and
the excess purchase price allocated to intangibles for businesses acquired by
Williams Communications Group.
Other
The Financial Accounting Standards Board has issued a new accounting
standard, FAS No. 123 "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995. As provided for in the
standard, Williams will not adopt the recognition provisions and will provide
the pro forma net income and earnings-per-share disclosures required by the
standard in its 1996 annual financial statements.
Williams currently follows Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees." Under this standard, because the
exercise price of Williams' fixed-plan common stock options equals the market
price of the underlying stock on the date of the grant, no compensation is
recognized.
15
<PAGE> 17
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 3-- By-laws as amended on September 19, 1996
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
(b) During the third quarter of 1996, the Company filed a Form
8-K on July 21, 1996, which reported a significant event
under Item 5 of the Form and included the exhibits required
by Item 7 of the Form.
16
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLIAMS COMPANIES, INC.
---------------------------------
(Registrant)
Gary R. Belitz
---------------------------------
Gary R. Belitz
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
November 14, 1996
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Exhibit 3 --By-laws as amended on September 19, 1996
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>
<PAGE> 1
Exhibit 3
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
(hereinafter called the "Company")
ARTICLE I
OFFICES
Section 1. Registered Office
The registered office of the Company shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. Other Offices
The Company may also have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings
Meetings of the stockholders for the election of Directors or for any other
purpose shall be held at such time and place, either within or without the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting or in a duly executed waiver
of notice thereof.
Section 2. Annual Meetings
The Annual Meetings of the Stockholders shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors
and stated in the notice of the meetings, at which meetings the stockholders
shall elect by a plurality vote the Directors to be elected at such meetings,
and transact such other business as may properly be brought before the
meetings. Written notice of the Annual Meeting stating the place, date and
hour of the meeting shall be given to each stockholder entitled to vote at such
meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 3. Special Meetings
Unless otherwise prescribed by law or by the Restated Certificate of
Incorporation, Special Meetings of Stockholders, for any purpose or purposes,
may be called by either the Chairman of the Board, if one has been elected, or
the President, and shall be called by either such officer or the Secretary at
the request in writing of (i) a majority of the Board of Directors, or (ii) the
stockholders owning of record at least a majority in number of the issued and
outstanding shares of stock of the Company entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting. Written notice of
a Special Meeting stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 4. Quorum
Except as otherwise provided by law or by the Restated Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented by
proxy, any business may be transacted which might have been transacted at the
meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a written notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.
Section 5. Voting
At each meeting of stockholders held for any purpose, each stockholder of
record of Common Stock entitled to vote thereat shall be entitled to one vote
for every share of such stock standing in such stockholder's name on the books
of the Company on the date determined in accordance with Section 5 of Article V
of these By-laws, and each stockholder of record of Preferred Stock entitled to
vote thereat shall be entitled to the vote as set forth in the resolution or
resolutions of the Board of Directors providing for such series for each share
of Preferred Stock standing in such stockholder's name on the books of the
Company on the date determined in accordance with Section 5 of Article V of
these By-laws. On any matter on which the holders of the Preferred Stock or
any series thereof shall be entitled to vote separately as a class or series,
they shall be entitled to one vote for each share held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize not in excess of three persons to act for such stockholder by a proxy
signed by such stockholder or such stockholder's attorney-in-fact. Any such
proxy shall be delivered to the secretary of such meeting at or prior to the
time designated for holding such meeting, but in any event not later than the
time designated in the order of business for so delivering such proxies. No
such proxy shall be voted or acted
<PAGE> 2
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
upon after three years from its date, unless the proxy provides for a longer
period. Except as otherwise provided by law or by the Restated Certificate of
Incorporation, at each meeting of the stockholders, all corporate actions to be
taken by vote of the stockholders shall be authorized by a majority of the
votes cast by the stockholders entitled to vote thereon, present in person or
represented by proxy, and where a separate vote by class is required, a
majority of the votes cast by the stockholders of such class, present in person
or represented by proxy, shall be the act of such class.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of Directors, need
not be by written ballot. In the case of a vote by written ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
Section 6. List of Stockholders Entitled to Vote
The officer of the Company who has charge of the stock ledger of the Company
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged
in alphabetical order, and showing the address of each stockholder and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder or person representing a
stockholder by proxy, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Company who is present.
Section 7. Stock Ledger
The stock ledger of the Company shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by Section
6 of this Article II or the books of the Company, or to vote in person or by
proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors
The number of Directors constituting the Board of Directors shall be no more
than seventeen nor less than five, the precise number within such limitations
to be fixed by resolution of the Board of Directors from time to time. Except
as provided in Section 2 of this Article III, the Directors to be elected at
each Annual Meeting of Stockholders shall be elected by a plurality of the
votes cast at such Annual Meeting of Stockholders, and each Director so elected
shall hold office until the third Annual Meeting of Stockholders following such
election and until a successor is duly elected and qualified, or until earlier
resignation or removal. Any Director may resign at any time upon notice to the
Company. Directors need not be stockholders.
Notwithstanding the foregoing, whenever the holders of any Preferred Stock,
as may at any time be provided in the Restated Certificate of Incorporation or
in any resolution or resolutions of the Board of Directors establishing any
such Preferred Stock, shall have the right, voting as a class or as classes, to
elect Directors at any Annual or Special Meeting of Stockholders, the then
authorized number of Directors of the Company may be increased by such number
as may therein be provided, and at such meeting the holders of such Preferred
Stock shall be entitled to elect the additional Directors as therein provided.
Any Directors so elected, unless so reelected at the Annual Meeting of
Stockholders or Special Meeting held in place thereof, next succeeding the time
when the holders of any such Preferred Stock became entitled to elect Directors
as above provided, shall not hold office beyond such Annual or Special Meeting.
Any such provision for election of Directors by holders of the Preferred Stock
shall apply notwithstanding the maximum number of Directors set forth in the
provisions hereinabove.
Section 2. Vacancies
Subject to the provisions of the Restated Certificate of Incorporation,
vacancies and newly created directorships resulting from any increase in the
authorized number of Directors may be filled by a majority of the Directors
then in office, though less than a quorum, or by a sole remaining Director, and
the Directors so chosen shall hold office for a term that shall coincide with
the unexpired portion of the term of that directorship, and until their
successors are duly elected and qualified, or until their earlier resignation
or removal.
Section 3. Duties and Powers
The business of the Company shall be managed by or under the direction of the
Board of Directors which may exercise all such powers of the Company and do all
such lawful acts and things as are not by statute or by the Restated
Certificate of Incorporation or by these By-laws directed or required to be
exercised or done by the stockholders.
Section 4. Meetings
The Board of Directors of the Company may hold meetings, both regular and
special, within or without the State of Delaware. Regular meetings of the
Board of Directors may be held without notice at such time and at such place as
may from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the Chairman of the Board,
if one has been elected, or by the President or any three Directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
Director either by mail not less than forty-eight (48) hours
<PAGE> 3
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
before the date of the meeting, by telephone or telegram on twenty-four (24)
hours notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
Section 5. Quorum
Except as may be otherwise specifically provided by law, the Restated
Certificate of Incorporation or these By-laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, a majority of the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of the Board
Unless otherwise provided by the Restated Certificate of Incorporation or
these By-laws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all the members of the Board of Directors or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone
Unless otherwise provided by the Restated Certificate of Incorporation or
these By-laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
Section 8. Committees
The Board of Directors may designate one or more committees, each committee
to consist of one or more of the Directors. The Board of Directors may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of any such committee.
In the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
a quorum, may unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in the By-laws of the Company, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it; but no such committee shall have the power
or authority in reference to the following matters: (i) approving or adopting,
or recommending to the stockholders, any action or matter expressly required by
Delaware law to be submitted to stockholders for approval; or (ii) adopting,
amending or repealing any By-law of the Company. Each committee shall keep
regular minutes and report to the Board of Directors when required.
Section 9. Compensation
The Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and such compensation for serving as a
Director and attending each meeting of the Board of Directors as may be fixed
from time to time by resolution of the Board. No such payment shall preclude
any Director from serving the Company in any other capacity and receiving
compensation therefor. Members of special or standing committees may also be
paid such compensation for committee service or for attending committee
meetings as the Board may establish from time to time.
Section 10. Retirement Policy
The normal retirement date for a Director shall be at the first Annual
Meeting of Stockholders of the Company following the Director's 72nd birthday,
and except as provided in this Section 10, no one shall serve as a Director
beyond this normal retirement date. A Director may be nominated (and elected)
to serve as a Director after the normal retirement date provided that: (i) the
Director expresses to the Board of Directors a willingness to serve as a
Director after the normal retirement date; (ii) at the time of being a nominee
for a term of office that would extend beyond the normal retirement date, such
person was a Director and was so elected by the stockholders of the Company;
(iii) the Director's nomination as a nominee for the term extending beyond the
normal retirement date was by majority vote of all Directors then in office;
(iv) the stockholders of the Company were advised fully regarding the
Director's intent to serve on the Board after the normal retirement date; and
(v) the Director was thereafter elected a Director by the stockholders in
accordance with the Restated Certificate of Incorporation and By-laws of the
Company. Nothing herein shall be construed to create a right of any Director
to be nominated for reelection to the Board or as a limitation upon the right
of the Board of Directors not to nominate any Director for such reelection.
<PAGE> 4
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
ARTICLE IV
OFFICERS
Section 1. General
The officers shall be elected by the Board of Directors and shall include a
President, a Secretary and a Treasurer and, at the discretion of the Board of
Directors, may include a Chairman of the Board, one or more Vice Presidents and
such other officers as the Board of Directors may from time to time deem
necessary or appropriate. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Restated Certificate of
Incorporation or these By-laws. The officers need not be stockholders nor,
except in the case of the Chairman of the Board, need such officers be
Directors.
Section 2. Election
The Board of Directors shall elect the officers of the Company who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors; and
all officers shall hold office until their successors are chosen and qualified,
or until their death, resignation or removal. Any officer elected by the Board
of Directors may be removed at any time by the affirmative vote of a majority
of the Board of Directors. Any vacancy occurring in any office shall be filled
by the Board of Directors.
Section 3. Voting Securities Owned by the Company
Powers of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Company may be executed in the
name of and on behalf of the Company by the Chief Executive Officer, any Vice
President or the Secretary, and any such officer may in the name of and on
behalf of the Company, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Company may own securities and at any such meeting
shall possess ownership of such securities and which, as the owner thereof, the
Company might have exercised and possessed if present. The Board of Directors
may, by resolution, from time to time confer like powers upon any other person
or persons.
Section 4. Chief Executive Officer
If no Chairman of the Board has been elected, the President shall be the
Chief Executive Officer. If a person has been elected as both Chairman of the
Board and President, that person shall be the Chief Executive Officer.
Otherwise, if a Chairman of the Board has been elected, the Board of Directors
shall designate either the Chairman of the Board or the President as Chief
Executive Officer. Subject to the directions of the Board of Directors or any
duly authorized committee of Directors, the Chief Executive Officer shall
direct the policy of the Company and shall have general direction of the
Company's business, affairs and property and over its several officers, in
addition to his duties set forth in Section 5 or 6 of this Article IV, as the
case may be.
Section 5. Chairman of the Board
If one has been elected, the Chairman of the Board shall, if present, preside
at all meetings of the Board of Directors and of the stockholders. The
Chairman of the Board may, with the Treasurer or the Secretary, or an Assistant
Treasurer or an Assistant Secretary, sign certificates for stock of the Company
and any other documents, of whatever nature, in the name of the Company, except
in cases where the signing and execution thereof shall be expressly delegated
by the Board of Directors or by a duly authorized committee of Directors, or by
these By-laws to some other officer or agent of the Company, or shall be
required by law otherwise to be signed or executed and shall perform such other
duties as may from time to time be assigned by the Board of Directors or by any
duly authorized committee of Directors.
Section 6. President
The President, unless he is serving as Chief Executive Officer, shall be
responsible to the Chairman of the Board. During the absence or disability of
the Chairman of the Board, or if one shall not have been elected, the President
shall exercise all the powers and discharge all the duties of the Chairman of
the Board. The President may, with the Treasurer or the Secretary, or an
Assistant Treasurer or an Assistant Secretary, sign certificates for stock of
the Company and any other documents, of whatever nature, in the name of the
Company, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by a duly authorized committee
of Directors, or by these By-laws, to some other officer or agent of the
Company, or shall be required by law otherwise to be signed or executed and
shall perform such other duties as may from time to time be assigned by the
Board of Directors or by any duly authorized committee of Directors.
Section 7. Vice Presidents
In the absence of the President or in the event of inability or refusal of
the President to perform the duties of his office, the Vice Presidents, if any
have been elected, in the order designated by the Board of Directors or, in the
absence of such designation, in the order of seniority in office, shall perform
the duties and possess the authority and powers of the President. Any Vice
President may also sign and execute in the name of the Company deeds,
mortgages, bonds, contracts and other instruments, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by a duly authorized committee of Directors, or by these By-laws,
to some other officer or agent of the Company, or shall be required by law
otherwise to be signed or executed. Each Vice President shall perform such
other duties and have such other
<PAGE> 5
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
powers as the Board of Directors from time to time may prescribe.
Section 8. Secretary
The Secretary shall attend all meetings of the Board of Directors and all
meetings of stockholders and record all of the proceedings thereat in a book or
books to be kept for that purpose; the Secretary shall also perform, or cause
to be performed, like duties for the standing committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or the Chief
Executive Officer. If the Secretary shall be unable or shall refuse to cause
notice to be given of all meetings of the stockholders and special meetings of
the Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors, the Chairman of the Board, if one has been elected, or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Company and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Company and to attest the affixing by such
officers a signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 9. Treasurer
The Treasurer shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Company and shall deposit all moneys and other valuable
effects in the name and to the credit of the Company in such depositories as
may be designated by the Board of Directors. The Treasurer shall disburse the
funds of the Company as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions of the Treasurer and of the financial condition of the
Company.
Section 10. Assistant Secretaries
Except as may be otherwise provided in these By-laws, Assistant Secretaries,
if there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer, any Vice President or the Secretary, and in the absence of the
Secretary or in the event of the disability or refusal of the Secretary to act,
shall perform the duties of the Secretary, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Secretary.
Section 11. Assistant Treasurers
Assistant Treasurers, if there be any, shall perform such duties and have
such powers as from time to time may be assigned to them by the Board of
Directors, the Chief Executive Officer, any Vice President or the Treasurer,
and in the absence of the Treasurer or in the event of the disability or
refusal to act of the Treasurer, shall perform the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Treasurer.
Section 12. Other Officers
Such other officers as the Board of Directors may choose shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors.
ARTICLE V
STOCK
Section 1. Form of Certificates
Every holder of stock in the Company shall be entitled to have a certificate
signed in the name of the Company (i) by the Chairman of the Board, if one has
been elected, or the President; and (ii) by the Secretary or an Assistant
Secretary of the Company, certifying the number of shares owned.
Section 2. Signatures
Where a certificate is countersigned by (i) a transfer agent other than the
Company or its employee, or (ii) a registrar other than the Company or its
employee, any other signature on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, the
certificate may be issued by the Company with the same effect as if such
officer or entity were an officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates
The Board of Directors may direct a new certificate to be issued in place of
any certificate theretofore issued by the Company alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or such owner's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Company a bond in such sum as it may direct as
indemnity against any claim that may be made
<PAGE> 6
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
against the Company and its transfer agents and registrars with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers
Stock of the Company shall be transferable in the manner prescribed by law
and in these By-laws. Transfers of stock shall be made on the books of the
Company only by the person named in the certificate or by such person's
attorney lawfully constituted in writing and filed with the Secretary of the
Company, or a transfer agent for such stock, if any, and upon the surrender of
the certificate therefor, which shall be canceled before a new certificate
shall be issued.
Section 5. Record Date
In order that the Company may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty days nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action for which a record date is
required. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE VI
NOTICES
Section 1. Notices
Whenever written notice is required by law, the Restated Certificate of
Incorporation or these By-laws, to be given to any Director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
Director, member of a committee or stockholder, at such address as appears on
the records of the Company, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by
telegram, telex or cable.
Section 2. Waivers of Notice
Whenever any notice is required by law, the Restated Certificate of
Incorporation or these By-laws, to be given to any Director, member of a
committee or stockholder, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends
Dividends upon the capital stock of the Company, subject to the provisions of
the Restated Certificate of Incorporation, if any, may be declared by the Board
of Directors at any regular or special meeting, and may be paid in cash, in
property or in shares of the capital stock. Before payment of any dividend,
there may be set aside out of any funds of the Company available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Company, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Fiscal Year
The fiscal year of the Company shall be fixed by resolution of the Board of
Directors.
Section 3. Corporate Seal
The corporate seal shall have inscribed thereon the name of the Company, the
year of its organization and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed, affixed,
reproduced or otherwise.
Section 4. By-laws Subject to Law and Restated Certificate of Incorporation
of the Company
Each provision of these By-laws is subject to any contrary provision of the
Restated Certificate of Incorporation of the Company or of an applicable law as
from time to time in effect, and to the extent any such provision is
inconsistent therewith, such provision shall be superseded thereby for as long
as such inconsistency shall exist, but for all other purposes these By-laws
shall continue in full force and effect.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than
Those by or in the Right of the Company
Subject to Section 3 of this Article VIII, the Company shall indemnify any
person who was or is a party or is threatened to
<PAGE> 7
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Company) by reason of the fact that
such person is or was a Director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Company, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the conduct was
unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Company
Subject to Section 3 of this Article VIII, the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that such
person is or was a Director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company; except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of
Delaware or such other court shall deem proper.
Section 3. Authorization of Indemnification
Any indemnification under this Article VIII (unless ordered by a court) shall
be made by the Company only as authorized in the specific case upon a
determination that indemnification of the Director, officer, employee or agent
is proper in the circumstances because such person has met the applicable
standard of conduct set forth in Section 1 or Section 2 of this Article VIII,
as the case may be. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of Directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a Director, officer, employee or
agent of the Company has been successful on the merits or otherwise in defense
of any action, suit or proceeding described above, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith, without the necessity of authorization in the specific case.
Section 4. Good Faith Defined
For purposes of any determination under Section 3 of this Article VIII, a
person shall be deemed to have acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal action or proceeding, to have had no
reasonable cause to believe such person's conduct was unlawful, if such
person's action is based on the records or books of account of the Company or
another enterprise, or on information supplied to such person by the officers
of the Company or another enterprise in the course of their duties, or on the
advice of legal counsel for the Company or another enterprise or on information
or records given or reports made to the Company or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Company or another enterprise. The term
"another enterprise" as used in this Section 4 shall mean any other corporation
or any partnership, joint venture, trust or other enterprise of which such
person is or was serving at the request of the Company as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections l
or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court
Notwithstanding any contrary determination in the specific case under Section
3 of this Article VIII, and notwithstanding the absence of any determination
thereunder, any Director, officer, employee or agent may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections 1 and 2 of this Article VIII. The
basis of such indemnification by a court shall be a determination by such court
that indemnification of the Director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standards of
conduct set forth in Sections 1 and 2 of this Article VIII, as the case may be.
Notice of any application for indemnification pursuant to this Section 5 shall
be given to the Company promptly upon the filing of such application.
<PAGE> 8
BY-LAWS
OF
THE WILLIAMS COMPANIES, INC.
Section 6. Expenses Payable in Advance
Expenses by an officer or Director incurred in defending a civil or criminal
action, suit or proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the Director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Company as authorized in this Article VIII.
Such expenses incurred by other employees and agents shall be so paid upon
such terms and conditions, if any, as the Board of Directors deems appropriate.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses
The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any By-law, agreement, contract, vote of stockholders or
disinterested Directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the Company that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be
deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Company has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware or otherwise.
Section 8. Insurance
The Company may purchase and maintain insurance on behalf of any person who
is or was a Director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the Company would have the power or the obligation to indemnify such
person against such liability under the provisions of this Article VIII.
Section 9. Meaning of "Company" and "Other Enterprises" for the Purposes of
Article VIII
A. For purposes of this Article VIII, references to "the Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
B. For purposes of this Article VIII, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a Director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such Director, officer, employee or agent with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interests of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE IX
AMENDMENTS
Section 1. Amendments of By-laws
These By-laws may be altered, amended, supplemented or repealed and new By-
laws may be adopted by the stockholders entitled to vote at any duly
constituted Annual or Special Meeting of Stockholders, and, except as otherwise
expressly provided in a By-law made by the stockholders, by the Board of
Directors at any duly constituted regular or special meeting thereof; provided
that no amendment of these By-laws changing the place named therein for the
annual election of Directors shall be made within sixty days next before the
day on which any such election is to be held.
<PAGE> 1
Exhibit 11
The Williams Companies, Inc.
Computation of Earnings Per Common and Common-Equivalent Share
<TABLE>
<CAPTION>
(Thousands, except per-share amounts)
-----------------------------------------------
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------------
1996 1995 1996 1995
-----------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings:
Income from continuing operations $ 71,000 $ 68,500 $256,300 $ 235,000
Preferred stock dividends:
$2.21 cumulative preferred stock 400 1,500 1,200 5,500
$3.50 cumulative convertible preferred stock 2,200 2,100 6,600 3,600
Effect of preferred stock exchange -- 3,500 -- 3,500
-----------------------------------------------
Income from continuing operations, net of preferred stock dividends 68,400 61,400 248,500 222,400
Income from discountinued operations -- -- -- 1,005,700
-----------------------------------------------
Income applicable to common stock $ 68,400 $ 61,400 $248,500 $1,228,100
===============================================
Primary shares:
Average number of common shares outstanding during the period 104,899 102,054 104,701 97,144
Common-equivalent shares attributable to options and deferred stock 3,376 3,453 3,393 3,229
-----------------------------------------------
Total common and common-equivalent shares 108,275 105,507 108,094 100,373
===============================================
Primary earnings per common and common-equivalent share:
Income from continuing operations $ .63 $ .58 $ 2.30 $ 2.22
Income from discontinued operations -- -- -- 10.02
-----------------------------------------------
Net income $ .63 $ .58 $ 2.30 $ 12.24
===============================================
Fully diluted earnings:
Income from continuing operations $ 71,000 $ 68,500 $256,300 $ 235,000
Preferred stock dividends:
$2.21 cumulative preferred stock 400 1,500 1,200 5,500
Effect of preferred stock exchange -- 3,500 -- 3,500
-----------------------------------------------
Income from continuing operations, net of preferred stock dividends 70,600 63,500 255,100 226,000
Income from discontinued operations -- -- -- 1,005,700
-----------------------------------------------
Income applicable to common stock $ 70,600 $ 63,500 $255,100 $1,231,700
===============================================
Fully diluted shares:
Average number of common shares outstanding during the period 104,899 102,054 104,701 97,144
Common-equivalent shares attributable to options and deferred stock 3,506 3,627 3,519 3,397
Dilutive preferred shares 3,906 3,906 3,906 2,189
-----------------------------------------------
Total common and common-equivalent shares 112,311 109,587 112,126 102,730
===============================================
Fully diluted earnings per common and common-equivalent share:
Income from continuing operations $ .63 $ .58 $ 2.27 $ 2.20
Income from discontinued operations -- -- -- 9.79
-----------------------------------------------
Net income $ .63 $ .58 $ 2.27 $ 11.99
===============================================
</TABLE>
<PAGE> 1
Exhibit 12
The Williams Companies, Inc. and Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements
(Dollars in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30, 1996
------------------
<S> <C>
Earnings:
Income from continuing operations before income taxes $379.0
Add:
Interest expense - net 261.1
Rental expense representative of interest factor 19.6
Interest accrued - 50 percent owned company 1.3
Other 2.8
------
Total earnings as adjusted plus fixed charges $663.8
======
Fixed charges and preferred stock dividend requirements:
Interest expense - net $261.1
Capitalized interest 4.5
Rental expense representative of interest factor 19.6
Pretax effect of dividends on preferred stock of
the Company 12.4
Interest accrued - 50 percent owned company 1.3
------
Combined fixed charges and preferred stock dividend
requirements $298.9
======
Ratio of earnings to combined fixed charges and
preferred stock dividend requirements 2.22
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 40,459
<SECURITIES> 0
<RECEIVABLES> 755,961
<ALLOWANCES> (16,468)
<INVENTORY> 197,299
<CURRENT-ASSETS> 1,444,712
<PP&E> 11,026,570
<DEPRECIATION> (1,815,770)
<TOTAL-ASSETS> 11,793,891
<CURRENT-LIABILITIES> 1,863,048
<BONDS> 4,137,370
0
161,101
<COMMON> 106,537
<OTHER-SE> 3,076,499
<TOTAL-LIABILITY-AND-EQUITY> 11,793,891
<SALES> 0
<TOTAL-REVENUES> 2,573,407
<CGS> 0
<TOTAL-COSTS> 1,914,168
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,495)
<INTEREST-EXPENSE> 265,611
<INCOME-PRETAX> 379,033
<INCOME-TAX> 122,703
<INCOME-CONTINUING> 256,330
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256,330
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.27
</TABLE>
