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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4174
THE WILLIAMS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 73-0569878
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE WILLIAMS CENTER TULSA, OKLAHOMA 74172
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code:
(918) 588-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange and the
Preferred Stock Purchase Rights Pacific Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
nonaffiliates as of the close of business on March 23, 1998, was approximately
$10.3 billion.
The number of shares of the registrant's Common Stock outstanding at March
23, 1998, was 323,219,054, excluding 6,541,475 shares held by the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement prepared for the solicitation
of proxies in connection with the Annual Meeting of Stockholders of the Company
for 1998 are incorporated by reference in Part III.
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THE WILLIAMS COMPANIES, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
The Williams Companies, Inc. (the "Company" or "Williams") was incorporated
under the laws of the State of Nevada in 1949 and was reincorporated under the
laws of the State of Delaware in 1987. The principal executive offices of the
Company are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone
(918) 588-2000). Unless the context otherwise requires, references to the
"Company" and "Williams" herein include The Williams Companies, Inc. and its
subsidiaries.
On November 24, 1997, the Company announced that it had entered into a
definitive merger agreement to acquire MAPCO Inc. ("MAPCO") in a stock-for-stock
transaction based upon a fixed exchange ratio of 1.665 shares of the Company's
Common Stock and .555 associated preferred stock purchase rights (adjusted to
reflect the Company's two-for-one stock split on December 29, 1997) for each
share of MAPCO Common Stock and associated preferred stock purchase rights. The
Company's and MAPCO's shareholders approved actions necessary to complete the
transaction at special stockholder meetings on February 26, 1998. See Note 19 to
Notes to Consolidated Financial Statements. The Federal Trade Commission
announced on March 27, 1998, that it would allow the parties to consummate the
transaction, and the parties closed the transaction on March 28, 1998.
MAPCO is a Tulsa, Oklahoma-based diversified energy company. Subsidiaries
of MAPCO engage in the transportation by pipeline of natural gas liquids
("NGLs"), anhydrous ammonia, crude oil, and refined petroleum products; the
transportation by truck and rail of NGLs and refined petroleum products; the
refining of crude oil; the marketing and trading of NGLs, refined petroleum
products, and crude oil; NGL storage; and the marketing of motor fuel and
merchandise through convenience store operations. MAPCO's subsidiary,
Mid-America Pipeline Company, owns and operates 7,668 miles of pipeline and
related pumping, metering, and storage facilities. Subsidiaries of MAPCO also
own and operate two petroleum products refineries, one in Alaska, which markets
approximately 44,000 barrels of refined products per day in Alaska, Canada, and
the Pacific Rim, and one in Tennessee, which markets approximately 110,000
barrels of refined products per day. MAPCO's subsidiary, Thermogas Company, is
the fourth largest propane marketer in the United States and sells propane in 18
states to more than 350,000 customers. Its MAPCO Express subsidiaries operate
approximately 230 convenience stores and travel centers primarily in Tennessee
and Alaska. MAPCO also owns subsidiaries providing fleet operators with motor
fuel and data management and providing energy-related information services.
MAPCO also holds equity investments in other businesses.
Management believes the acquisition furthers its strategy of seeking growth
through strategic acquisitions and alliances and that MAPCO's assets and
operations complement the Company's existing lines of business. Following the
acquisition, the Company will operate the MAPCO businesses through Williams
Energy Group.
On January 5, 1998, the Company's three-year non-compete agreement
resulting from the 1995 sale of the network services operations of its
telecommunications subsidiary expired, and the Company announced plans to
re-enter the long-distance telecommunications market as a provider of wholesale
communications services over an 18,000-mile network expected to be in operation
by the beginning of 1999.
In April 1997, the Company merged its wholly owned subsidiary, Williams
Telecommunications Systems, Inc. with Nortel Communications Systems, Inc., which
was a wholly owned subsidiary of Northern Telecom, Inc. The Company holds a 70
percent interest in the newly formed entity, Williams Communications Solutions,
LLC. See Note 2 of Notes to Consolidated Financial Statements.
In January 1996, the Company acquired a 49.9 percent interest from its
partner in Kern River Gas Transmission Company giving the Company 99.9 percent
ownership of this natural gas pipeline system. The purchase price was $206
million. See Note 2 of Notes to Consolidated Financial Statements. The Company
acquired the remaining 0.1 percent interest in the partnership in February 1997,
for $387,600.
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(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(c) NARRATIVE DESCRIPTION OF BUSINESS
The Company, through subsidiaries, engages in the transportation and sale
of natural gas and related activities; natural gas gathering, processing, and
treating activities; the transportation and terminaling of petroleum products;
hydrocarbon exploration and production activities; the production and marketing
of ethanol; and energy commodity marketing and trading and provides a variety of
other products and services, including price risk management services, to the
energy industry. The Company also engages in the communications business. In
1997, the Company's energy subsidiaries owned and operated: (i) five interstate
natural gas pipeline systems; (ii) natural gas production properties; (iii)
natural gas gathering and processing facilities; (iv) a common carrier petroleum
products and crude oil pipeline system; (v) petroleum products terminals; and
(vi) ethanol production facilities. The Company's communications subsidiaries
offer: (i) data-, voice- and video-related products and services; (ii)
advertising distribution services; (iii) video services and other multimedia
services for the broadcast industry; (iv) enhanced facsimile and audio- and
videoconferencing services for businesses; (v) customer-premise voice and data
equipment, including installation, maintenance, and integration; and (vi)
network integration and management services nationwide. The Company also has
investments in the equity of certain other companies.
Substantially all operations of Williams are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative, and other services for its subsidiaries. Williams' principal
sources of cash are from external financings, dividends and advances from its
subsidiaries, investments, payments by subsidiaries for services rendered and
interest payments from subsidiaries on cash advances. The amount of dividends
available to Williams from subsidiaries largely depends upon each subsidiary's
earnings and operating capital requirements. The terms of certain subsidiaries'
borrowing arrangements limit the transfer of funds to the Company.
To achieve organizational and operating efficiencies, the Company's
interstate natural gas pipelines are grouped together under its wholly owned
subsidiary, Williams Interstate Natural Gas Systems, Inc. All other operating
companies are owned by Williams Holdings of Delaware, Inc., a wholly-owned
subsidiary of the Company. The energy operations of Williams Holdings of
Delaware, Inc. are grouped into a wholly-owned subsidiary, Williams Energy
Group, and its communications operations are grouped into a wholly-owned
subsidiary, Williams Communications Group, Inc. Item 1 of this report is
formatted to reflect this structure.
WILLIAMS INTERSTATE NATURAL GAS SYSTEMS, INC.
The Company's interstate natural gas pipeline group, comprised of Williams
Interstate Natural Gas Systems, Inc. and its subsidiaries, owns and operates a
combined total of approximately 27,000 miles of pipelines with a total annual
throughput of approximately 3,700 TBtu* of natural gas and peak-day delivery
capacity of approximately 15 Bcf of natural gas. The interstate natural gas
pipeline group consists of Transcontinental Gas Pipe Line Corporation, Northwest
Pipeline Corporation, Kern River Gas Transmission Company, Texas Gas
Transmission Corporation and Williams Gas Pipelines Central, Inc. The pipeline
group also holds minority interests in joint venture interstate natural gas
pipeline systems. The Company acquired Transcontinental Gas Pipe Line
Corporation and Texas Gas Transmission Corporation in 1995. For the accounting
treatment of the acquisition, see Note 2 of Notes to Consolidated Financial
Statements. As noted above, the Company acquired an additional 49.9 percent
interest in Kern River Gas Transmission Company in January 1996 and the
remaining 0.1 percent interest in February 1997.
- - ---------------
* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet and
"Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees
Fahrenheit. The term "Btu" means British Thermal Unit, "MMBtu" means one
million British Thermal Units and "TBtu" means one trillion British Thermal
Units. The term "Dth" means dekatherm. The term "Mbbl" means one thousand
barrels. The term "GWh" means gigawatt hour.
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In 1997, the Company's gas pipeline group began the process of combining
certain administrative functions, such as human resources, information services,
technical services, and finance, of its operating companies in an effort to
lower costs and increase effectiveness. In addition, the Company combined the
management teams of two of the operating companies, Northwest Pipeline
Corporation and Kern River Gas Transmission Company, in 1997. Also in 1997, the
senior vice president and general manager of Texas Gas Transmission Corporation
assumed additional responsibilities as senior vice president and general manager
of Williams Gas Pipelines Central, Inc. The Company made these management
changes to increase the organizational efficiency of its natural gas pipeline
group; however, each of these operating companies continues to operate as a
separate legal entity. The Company's gas pipeline subsidiaries employ
approximately 3,600 employees.
The interstate natural gas pipeline group's transmission and storage
activities are subject to regulation by the Federal Energy Regulatory Commission
("FERC") under the Natural Gas Act of 1938 ("Natural Gas Act") and under the
Natural Gas Policy Act of 1978 ("NGPA"), and, as such, their rates and charges
for the transportation of natural gas in interstate commerce, the extension,
enlargement or abandonment of jurisdictional facilities, and accounting, among
other things, are subject to regulation. Each pipeline holds certificates of
public convenience and necessity issued by FERC authorizing ownership and
operation of all pipelines, facilities and properties considered jurisdictional
for which certificates are required under the Natural Gas Act. Each pipeline is
also subject to the Natural Gas Pipeline Safety Act of 1968, as amended by Title
I of the Pipeline Safety Act of 1979, which regulates safety requirements in the
design, construction, operation and maintenance of interstate gas transmission
facilities.
A business description of each company in the interstate natural gas
pipeline group follows.
TRANSCONTINENTAL GAS PIPE LINE CORPORATION (TRANSCO)
Transco is an interstate natural gas transmission company that owns a
10,500-mile natural gas pipeline system extending from Texas, Louisiana,
Mississippi and the offshore Gulf of Mexico through the states of Alabama,
Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania, and
New Jersey to the New York City metropolitan area. The system serves customers
in Texas and eleven southeast and Atlantic seaboard states, including major
metropolitan areas in Georgia, North Carolina, New York, New Jersey and
Pennsylvania. Effective May 1, 1995, Transco transferred the operation of
certain production area facilities to Williams Field Services Group, Inc., an
affiliated company.
Pipeline System and Customers
At December 31, 1997, Transco's system had a mainline delivery capacity of
approximately 3.8 Bcf of gas per day from production areas to its primary
markets. Using its Leidy Line and market-area storage capacity, Transco can
deliver an additional 2.9 Bcf of gas per day for a system-wide delivery capacity
total of approximately 6.7 Bcf of gas per day. Excluding the production area
facilities operated by Williams Field Services Group, Inc., Transco's system is
composed of approximately 7,300 miles of mainline and branch transmission
pipelines, 39 compressor stations and six storage locations. Compression
facilities at a sea level-rated capacity total approximately 1.3 million
horsepower.
Transco's major gas transportation customers are public utilities and
municipalities that provide service to residential, commercial, industrial and
electric generation end users. Shippers on Transco's pipeline system include
public utilities, municipalities, intrastate pipelines, direct industrial users,
electrical generators, marketers and producers. Transco's largest customer in
1997 accounted for approximately 12 percent of Transco's total operating
revenues. No other customer accounted for more than 10 percent of total
operating revenues in 1997. Transco's firm transportation agreements are
generally long-term agreements with various expiration dates and account for the
major portion of Transco's business. Additionally, Transco offers interruptible
transportation services under shorter term agreements.
Transco has natural gas storage capacity in five underground storage fields
located on or near its pipeline system and/or market areas and operates three of
these storage fields and a liquefied natural gas (LNG) storage facility. The
total top gas storage capacity available to Transco and its customers in such
storage fields
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and LNG facility is approximately 216 Bcf of gas. Storage capacity permits
Transco's customers to inject gas into storage during the summer and off-peak
periods for delivery during peak winter demand periods.
Expansion Projects
In February 1997, Pine Needle LNG Company, LLC, which is owned by Transco
and several of its major customers, commenced construction of an LNG storage
project in Guilford County, North Carolina. The project will have 4 Bcf of
storage capacity and 400 MMcf per day of withdrawal capacity, and is expected to
be placed into service on or about May 1, 1999. The project is estimated to cost
approximately $107 million. Transco will operate the facility and have a 35
percent ownership interest. Transco expects to make equity investments of
approximately $19 million in this project.
In March 1997, Transco announced its MarketLink Expansion Project.
MarketLink will expand Transco's Leidy Line and market-area mainline facilities,
providing the final transportation link for several pipeline projects designed
to transport Canadian and Rocky Mountain gas supplies to eastern markets. The
total cost and capacity of the project, which is targeted to be in service for
the 1999-2000 winter heating season, will be determined based on market
subscriptions. Transco plans to file for FERC approval of the project during the
first quarter of 1998.
In March 1997, Independence Pipeline Company filed with FERC an
application, which was amended in December 1997, for approval to construct and
operate a pipeline consisting of approximately 400 miles of 36-inch diameter
pipe from ANR Pipeline Company's existing compressor station at Defiance, Ohio
to Transco's facilities at Leidy, Pennsylvania. Independence will provide
approximately 916 MMcf per day of firm gas transportation capacity and is
expected to be in service in the 1999-2000 time frame. The estimated cost of the
project is $678 million, and Transco's equity contributions will be
approximately $68 million based on its expected one-third ownership interest in
the project.
In April 1997, Transco withdrew its FERC certificate application for the
Seaboard Expansion Project and filed an application with the FERC for the Pocono
Expansion Project, which was completed and placed into service in November 1997.
Pocono added 35 MMcf per day of firm gas transportation capacity on Transco's
Leidy Line in Pennsylvania. The cost of the expansion is approximately $10
million.
In August 1997, FERC issued a certificate authorizing Transco to expand its
existing Maiden Lateral to Piedmont Natural Gas Company, Inc. in Lincoln and
Catawba Counties, North Carolina. The project facilities include approximately
18 miles of 16-inch pipeline loop and an expansion of Transco's existing
Lowesville Meter Station. The project was placed into service in November 1997.
The cost for the facilities is approximately $13 million.
In November 1997, Transco completed and placed into service the SunBelt
Expansion Project. This project added approximately 146 MMcf per day of firm gas
transportation capacity to markets in Georgia, South Carolina, and North
Carolina. The total cost of the expansion was approximately $85 million, of
which $61 million was expended in 1997.
In November 1997, the North Carolina Utilities Commission issued an order
approving the Cardinal Pipeline System Project. Wholly owned subsidiaries of
Transco and three of its North Carolina customers will own the pipeline, which
will involve the acquisition of the existing 37-mile Cardinal pipeline in North
Carolina and construction of an approximately 67-mile extension of the pipeline
to new interconnections near Clayton County, North Carolina. This project will
provide 140 MMcf per day of additional firm gas transportation capacity to North
Carolina markets and is expected to be placed into service by the end of 1999. A
wholly owned subsidiary of Transco will operate the pipeline and have a 45
percent ownership interest in the project. Transco expects to make equity
investments of approximately $22 million in this project, of which approximately
$900,000 was invested during 1997.
In December 1997, Transco and AGL Resources Inc. (AGL) formed Cumberland
Gas Pipeline Company. Under this project, existing pipeline facilities of
Transco and AGL will be expanded northward into Tennessee, establishing a
135-mile pipeline that is expected to provide firm transportation capacity to
markets in Georgia and Tennessee by the 2000-2001 winter heating season. The
project is expected to be submitted for
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FERC approval in the third quarter of 1998. Transco will operate the pipeline
facilities and have a 50 percent ownership interest. Transco estimates that the
total cost of this project will be up to $115 million, and expects to make
equity investments of up to $29 million. To complement the Cumberland project,
Transco will offer additional pipeline capacity from the terminus of its
existing Mobile Bay Lateral in Choctaw County, Alabama, to its interconnect with
Cumberland at Transco's Station 125 in Walton County, Georgia, at a cost of up
to $120 million.
In January 1998, the FERC approved the Mobile Bay Lateral Expansion
Project, an expansion of Transco's existing 123-mile Mobile Bay Lateral. The
project is expected to provide new firm transportation capacity of 350 MMcf of
gas per day from the outer continental shelf to Transco's Station 82 and
increase capacity on the existing onshore lateral from 520 MMcf of gas per day
to 784 MMcf of gas per day. The project is targeted to be placed into service in
two phases during 1998 at a cost of approximately $120 million, of which
approximately $36 million was invested during 1997.
In January 1998, FERC approved the 1998 Cherokee Expansion Project, an
incremental expansion of Transco's pipeline system in its southern market area
which will provide approximately 84 MMcf of gas per day of new firm gas
transportation capacity on Transco's system by a proposed in-service date of
November 1, 1998. The estimated cost for this project is $68 million, of which
$9.3 million was invested during 1997.
In January 1998, Transco and Duke Energy Corporation announced plans to
form a joint venture to develop a new natural gas pipeline project into New York
City. The project, called the Cross Bay Pipeline, will combine Duke's previously
announced Excelsior(sm) project with the existing Long Beach delivery facilities
on Transco's system into a new integrated delivery pipeline. The project will
provide up to 700 MMcf of gas per day on a phased-in basis, with the in-service
date of the initial phase being targeted for 1999.
Operating Statistics. The following table summarizes transportation data
for the periods indicated, including the portion of 1995 during which the
Company did not own Transco (in TBtus):
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1997 1996 1995
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System Deliveries (TBtu)
Market-area deliveries:
Long-haul transportation........................... 940.2 948.9 858.4
Market-area transportation......................... 438.9 428.1 467.3
------- ------- -------
Total market-area deliveries.................. 1,379.1 1,377.0 1,325.7
Production-area transportation........................ 186.8 210.0 165.9
------- ------- -------
Total system deliveries....................... 1,565.9 1,587.0 1,491.6
======= ======= =======
Average Daily Transportation Volumes.................... 4.3 4.3 4.1
Average Daily Firm Reserved Capacity.................... 5.5 5.2 5.2
</TABLE>
NORTHWEST PIPELINE CORPORATION (NORTHWEST PIPELINE)
Northwest Pipeline is an interstate natural gas transmission company that
owns and operates a pipeline system for the mainline transmission of natural gas
extending from the San Juan Basin in northwestern New Mexico and southwestern
Colorado through Colorado, Utah, Wyoming, Idaho, Oregon and Washington to a
point on the Canadian border near Sumas, Washington. Northwest Pipeline provides
services for markets in California, New Mexico, Colorado, Utah, Nevada, Wyoming,
Idaho, Oregon and Washington, directly or indirectly through interconnections
with other pipelines.
Pipeline System and Customers
At December 31, 1997, Northwest Pipeline's system, having an aggregate
mainline deliverability of approximately 2.5 Bcf of gas per day, was composed of
approximately 3,900 miles of mainline and branch transmission pipelines and 40
mainline compressor stations with a combined capacity of approximately 307,000
horsepower.
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In 1997, Northwest Pipeline transported natural gas for a total of 153
customers. Transportation customers include distribution companies,
municipalities, interstate and intrastate pipelines, gas marketers and direct
industrial users. The five largest customers of Northwest Pipeline in 1997
accounted for approximately 17 percent, 16.9 percent, 11.8 percent, 10.6 percent
and 10.4 percent, respectively, of its total operating revenues. No other
customer accounted for more than 10 percent of total operating revenues.
Northwest Pipeline's firm transportation agreements are generally long-term
agreements with various expiration dates and account for the major portion of
Northwest Pipeline's business. Additionally, Northwest Pipeline offers
interruptible transportation service under agreements that are generally short
term.
As a part of its transportation services, Northwest Pipeline utilizes
underground storage facilities in Utah and Washington enabling it to balance
daily receipts and deliveries. Northwest Pipeline also owns and operates a
liquefied natural gas storage facility in Washington that provides a
needle-peaking service for the system. These storage facilities have an
aggregate delivery capacity of approximately 973 MMcf of gas per day.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtus):
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1997 1996 1995
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Transportation Volumes...................................... 714 834 826
Average Daily Transportation Volumes........................ 2.0 2.3 2.3
Average Daily Firm Reserved Capacity........................ 2.5 2.5 2.4
</TABLE>
Transportation volumes declined from 1996 to 1997 as a result of Northwest
Pipeline's sale in late 1996 of a majority of its South End Facilities.
KERN RIVER GAS TRANSMISSION COMPANY (KERN RIVER)
Kern River is an interstate natural gas transmission company that owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. Kern River had been jointly owned and operated by Williams
Western Pipeline Company, a subsidiary of the Company, and a subsidiary of an
unaffiliated company. As previously indicated, the Company acquired an
additional 49.9 percent interest in Kern River in January 1996. See Note 2 of
Notes to Consolidated Financial Statements. In February 1997, the Company
acquired the remaining 0.1 percent interest in Kern River. The transmission
system, which commenced operations in February 1992 following completion of
construction, delivers natural gas primarily to the enhanced oil recovery fields
in southern California. The system also transports natural gas for utilities,
municipalities and industries in California, Nevada and Utah.
Pipeline System and Customers
As of December 31, 1997, Kern River's pipeline system was composed of
approximately 705 miles of mainline and branch transmission pipelines and five
compressor stations having an aggregate mainline delivery capacity of 700 MMcf
of gas per day. The pipeline system interconnects with the pipeline facilities
of another pipeline company at Daggett, California. From the point of
interconnection, Kern River and the other pipeline company have a common
219-mile pipeline which is owned 63.6 percent by Kern River and 36.4 percent by
the other pipeline company, as tenants in common, and is designed to accommodate
the combined throughput of both systems. This common facility has a capacity of
1.1 Bcf of gas per day.
Kern River transports gas for others under firm long-term transportation
contracts totaling 694 MMcf of gas per day. In 1997, Kern River transported
natural gas for customers in California, Nevada, and Utah. Gas was transported
for reinjection as a part of enhanced oil recovery in Kern County, California,
and for local distribution customers, electric utilities, cogeneration projects,
and commercial and other industrial customers. The four largest customers of
Kern River in 1997 accounted for approximately 16 percent, 14 percent, 12
percent, and 10 percent, respectively, of its total operating revenues. Three of
these customers serve the enhanced oil recovery fields. No other customer
accounted for more than 10 percent of total operating revenues in 1997.
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Kern River has executed a seasonal firm transportation contract to deliver
natural gas into the Las Vegas, Nevada, market area during the winter months.
Kern River began deliveries of approximately 10 MMcf of gas per day during 1997
and expects to escalate such deliveries to 40 MMcf of gas per day on a seasonal
basis by 1999.
Operating Statistics. The following table summarizes transportation data
for the periods indicated, including periods during which the Company owned less
than 100 percent of Kern River (in TBtus):
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
Transportation Volumes...................................... 285 281 286
Average Daily Transportation Volumes........................ .78 .77 .78
Average Daily Firm Reserved Capacity........................ .73 .71 .72
</TABLE>
TEXAS GAS TRANSMISSION CORPORATION (TXG)
TXG is an interstate natural gas transmission company that owns and
operates a natural gas pipeline system originating in the Louisiana Gulf Coast
area and in east Texas and running generally north and east through Louisiana,
Arkansas, Mississippi, Tennessee, Kentucky, Indiana and into Ohio, with smaller
diameter lines extending into Illinois. TXG's direct market area encompasses
eight states in the South and Midwest, and includes the Memphis, Tennessee;
Louisville, Kentucky; Cincinnati and Dayton, Ohio; and Indianapolis, Indiana,
metropolitan areas. TXG also has indirect market access to the Northeast through
interconnections with unaffiliated pipelines.
Pipeline System and Customers
At December 31, 1997, TXG's system, having a mainline delivery capacity of
approximately 2.8 Bcf of gas per day, was composed of approximately 6,000 miles
of mainline and branch transmission pipelines and 32 compressor stations having
a sea level-rated capacity totaling approximately 549,000 horsepower.
In 1997, TXG transported gas to customers in Louisiana, Arkansas,
Mississippi, Tennessee, Kentucky, Indiana, Illinois, and Ohio and to customers
in the Northeast served indirectly by TXG. TXG transported gas for 110
distribution companies and municipalities for resale to residential, commercial
and industrial users. TXG provided transportation services to approximately 20
industrial customers located along the system. At December 31, 1997, TXG had
transportation contracts with approximately 588 shippers. Transportation
shippers include distribution companies, municipalities, intrastate pipelines,
direct industrial users, electrical generators, marketers and producers. The
largest customer of TXG in 1997 accounted for approximately 12.4 percent of its
total operating revenues. No other customer accounted for more than 10 percent
of total operating revenues during 1997. TXG's firm transportation and storage
agreements are generally long-term agreements with various expiration dates and
account for the major portion of TXG's business. Additionally, TXG offers
interruptible transportation and storage services under agreements that are
generally short-term.
TXG owns and operates natural gas storage reservoirs in 10 underground
storage fields located on or near its pipeline system and/or market areas. The
storage capacity of TXG's certificated storage fields is approximately 177 Bcf
of gas. TXG's storage gas is used in part to meet operational balancing needs on
its system, in part to meet the requirements of TXG's firm and interruptible
storage customers, and in part to meet the requirements of TXG's "no-notice"
transportation service, which allows TXG's customers to temporarily draw from
TXG's storage gas to be repaid in-kind during the following summer season. A
large portion of the gas delivered by TXG to its market area is used for space
heating, resulting in substantially higher daily requirements during winter
months.
Operating Statistics. The following table summarizes total system
transportation volumes for the periods indicated, including the portion of 1995
during which the Company did not own TXG (in TBtus):
<TABLE>
<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
Transportation Volumes...................................... 773.6 794.5 693.3
Average Daily Transportation Volumes........................ 2.1 2.2 1.9
Average Daily Firm Reserved Capacity........................ 2.2 2.1 2.0
</TABLE>
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WILLIAMS GAS PIPELINES CENTRAL, INC. (CENTRAL)
Central, formerly known as Williams Natural Gas Company, is an interstate
natural gas transmission company that owns and operates a natural gas pipeline
system located in Colorado, Kansas, Missouri, Nebraska, Oklahoma, Texas, and
Wyoming. The system serves customers in seven states, including major
metropolitan areas of Kansas and Missouri, its chief market areas.
Pipeline System and Customers
At December 31, 1997, Central's system, having a mainline delivery capacity
of approximately 2.2 Bcf of gas per day, was composed of approximately 6,000
miles of mainline and branch transmission and storage pipelines and 42
compressor stations having a sea level-rated capacity totaling approximately
218,000 horsepower.
In 1997, Central transported gas to customers in Colorado, Kansas,
Missouri, Nebraska, Oklahoma, Texas, and Wyoming. Gas was transported for 70
distribution companies and municipalities for resale to residential, commercial
and industrial users in approximately 530 cities and towns. Transportation
services were provided to approximately 303 industrial customers, federal and
state institutions and agricultural processing plants located principally in
Kansas, Missouri and Oklahoma. At December 31, 1997, Central had transportation
contracts with approximately 201 shippers. Transportation shippers included
distribution companies, municipalities, intrastate pipelines, direct industrial
users, electrical generators, marketers and producers.
In 1997, approximately 68 percent (approximately 34 percent each) of total
operating revenues were generated from gas transportation services to Central's
two largest customers, Kansas Gas Service Company, a division of Oneok, Inc.,
formerly Western Resources, Inc., and Missouri Gas Energy Company. Kansas Gas
Service Company sells or resells gas to residential, commercial and industrial
customers principally in certain major metropolitan areas of Kansas. Missouri
Gas Energy sells or resells gas to residential, commercial and industrial
customers principally in certain major metropolitan areas of Missouri. No other
customer accounted for more than 10 percent of operating revenues during 1997.
In 1997, Central reached agreement with its two major customers to renew a
major portion of their firm capacity that was to expire under then-existing
contracts. The majority of the new contracts have terms ranging from four to
five years. Central's remaining firm transportation agreements have various
expiration dates ranging from one year to twenty years, with the majority
expiring in three to eight years. Additionally, Central offers interruptible
transportation services under agreements that are generally short term.
Central operates nine underground storage fields with an aggregate working
gas storage capacity of approximately 43 Bcf and an aggregate delivery capacity
of approximately 1.2 Bcf of gas per day. Central's customers inject gas in these
fields when demand is low and withdraw it to supply their peak requirements.
During periods of peak demand, approximately two-thirds of the firm gas
delivered to customers is supplied from these storage fields. Storage capacity
enables the system to operate more uniformly and efficiently during the year.
During 1997, Central completed four expansion projects which resulted in
additional firm transportation contracts totaling over 71,000 Dth per day.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtus):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 337 341 334
Average Daily Transportation Volumes........................ .9 .9 .9
Average Daily Firm Reserved Capacity........................ 2.1 1.9 2.0
</TABLE>
REGULATORY MATTERS
In 1992, FERC issued Order 636, which required interstate pipeline
companies to restructure their tariffs to eliminate traditional on-system sales
services. In addition, the Order required implementation of various
8
<PAGE> 10
changes in forms of service, including unbundling of gathering, transmission and
storage services; terms and conditions of service; rate design; gas supply
realignment cost recovery; and other major rate and tariff revisions. Kern River
implemented its restructuring on August 1, 1993; Central implemented its
restructuring on October 1, 1993; and Transco, Northwest Pipeline and TXG
implemented their restructurings on November 1, 1993. Certain aspects of three
pipeline companies' Order 636 restructurings are under appeal.
Each interstate natural gas pipeline has various regulatory proceedings
pending. Rates are established primarily through FERC's ratemaking process. Key
determinants in the ratemaking process are (1) costs of providing service,
including depreciation rates, (2) allowed rate of return, including the equity
component of the capital structure, and (3) volume throughput assumptions. FERC
determines the allowed rate of return in each rate case. Rate design and the
allocation of costs between the demand and commodity rates also impact
profitability. As a result of such proceedings, the pipeline companies have
collected a portion of their revenues subject to refund. See Note 13 of Notes to
Consolidated Financial Statements for the amount of revenues reserved for
potential refund as of December 31, 1997.
Each of the interstate natural gas pipeline companies that were formerly
gas supply merchants has undertaken the reformation of its respective gas supply
contracts. None of the pipelines have any significant pending supplier
take-or-pay, ratable-take or minimum-take claims. Central has an accrued
liability recorded of $94 million for its estimated remaining contract
reformation and gas supply realignment costs under Order 636. These contracts
are presently subject to certain FERC proceedings. For information on
outstanding issues with respect to contract reformation, gas purchase
deficiencies and related regulatory issues, see Note 18 of Notes to Consolidated
Financial Statements.
COMPETITION
FERC continues to regulate each of the Company's interstate natural gas
pipeline companies pursuant to the Natural Gas Act and the NGPA. However,
competition for natural gas transportation has intensified in recent years due
to customer access to other pipelines, rate competitiveness among pipelines,
customers' desire to have more than one transporter and regulatory developments.
FERC's stated purpose for implementing Order 636 was to improve the competitive
structure of the natural gas pipeline industry. Future utilization of pipeline
capacity will depend on competition from other pipelines, use of alternative
fuels, the general level of natural gas demand and weather conditions.
Electricity and distillate fuel oil are primary competitive forms of energy for
residential and commercial markets. Coal and residual fuel oil compete for
industrial and electric generation markets. Nuclear and hydroelectric power and
power purchased from grid arrangements among electric utilities also compete
with gas-fired power generation in certain markets.
As mentioned, when restructured tariffs became effective under Order 636,
all suppliers of natural gas were able to compete for any gas markets capable of
being served by the pipelines using nondiscriminatory transportation services
provided by the pipelines. As the Order 636 regulated environment has matured,
many pipelines have faced reduced levels of subscribed capacity as contractual
terms expire and customers opt to reduce firm capacity under contract in favor
of alternative sources of transmission and related services. This situation,
known in the industry as "capacity turnback," is forcing the pipelines to
evaluate the consequences of major demand reductions in traditional long-term
contracts. It could also result in significant shifts in system utilization, and
possible realignment of cost structure for remaining customers since all
interstate natural gas pipeline companies continue to charge rates approved by
FERC on a cost of service basis.
The Company is aware that several state jurisdictions have been involved in
implementing changes similar to the changes that have occurred at the federal
level under Order 636. Such activity, frequently referred to as "LDC
unbundling," has been most pronounced in the states of New York, New Jersey,
Georgia, and Pennsylvania. New York and New Jersey began establishing LDC
unbundling regulations in 1995 and continue to develop regulations regarding LDC
unbundling. Georgia enacted an LDC unbundling program in 1997. Pennsylvania is
currently considering LDC unbundling and may enact such legislation in 1998. In
addition, Maryland and Delaware currently have pilot unbundling programs for
industrial, commercial, and
9
<PAGE> 11
residential end-users. Management expects these regulations to encourage greater
competition in the natural gas marketplace.
OWNERSHIP OF PROPERTY
Each of the Company's interstate natural gas pipeline subsidiaries
generally owns its facilities in fee. However, a substantial portion of each
pipeline's facilities is constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. Compressor stations, with appurtenant facilities, are located in whole
or in part either on lands owned or on sites held under leases or permits issued
or approved by public authorities. The storage facilities are either owned or
contracted under long-term leases or easements.
ENVIRONMENTAL MATTERS
Each interstate natural gas pipeline is subject to the National
Environmental Policy Act and federal, state and local laws and regulations
relating to environmental quality control. Management believes that, with
respect to any capital expenditures and operation and maintenance expenses
required to meet applicable environmental standards and regulations, FERC would
grant the requisite rate relief so that, for the most part, the pipeline
subsidiaries could recover such expenditures in their rates. For this reason,
management believes that compliance with applicable environmental requirements
by the interstate pipelines is not likely to have a material effect upon the
Company's earnings or competitive position.
For a discussion of specific environmental issues involving the interstate
pipelines, including estimated cleanup costs associated with certain pipeline
activities, see "Environmental" under Management's Discussion and Analysis of
Financial Condition and Results of Operations and "Environmental Matters" in
Note 18 of Notes to Consolidated Financial Statements.
WILLIAMS HOLDINGS OF DELAWARE, INC. (WILLIAMS HOLDINGS)
Williams Holdings' energy subsidiaries are engaged in exploration and
production; natural gas gathering, processing and treating activities; petroleum
products transportation and terminaling; ethanol production and marketing; and
energy commodity marketing and trading and price risk management and energy
finance services. In addition, these subsidiaries provide a variety of other
products and services to the energy industry. Williams Holdings' communications
subsidiaries offer data-, voice-, and video-related products and services and
customer premise voice and data equipment, including installation, maintenance,
and integration, nationwide. Williams Holdings also has certain other equity
investments.
WILLIAMS ENERGY GROUP (WILLIAMS ENERGY)
In 1996, Williams Holdings reorganized its energy operations under a newly
created, wholly owned subsidiary, Williams Energy Group, and began reporting
such operations for financial reporting purposes on this basis in the fourth
quarter of 1996.
Williams Energy is comprised of four major business units: Exploration and
Production, Field Services, Petroleum Services, and Energy Marketing and
Trading. Through its business units, Williams Energy engages in energy
production and exploration activities; natural gas gathering, processing, and
treating; petroleum liquids transportation and terminal services; ethanol
production; and energy commodity marketing and trading.
Williams Energy, through its subsidiaries, owns 600 Bcf of proved natural
gas reserves located primarily in the San Juan Basin of Colorado and New Mexico
and owns or operates approximately 11,000 miles of gathering pipelines
(including certain gathering lines owned by an affiliate but operated by Field
Services), 10 gas treating plants, 10 gas processing plants, 53 petroleum
products terminals, and approximately 9,100 miles of liquids pipeline. Physical
and notional volumes marketed and traded by Williams Energy's Energy Marketing
and Trading unit approximated 11,018 TBtu equivalents in 1997. In support of its
power marketing activities, Williams Energy acquired a cogeneration plant in
Hazleton, Pennsylvania, in 1997 and also owns a cogeneration plant in
northwestern New Mexico. These facilities add approximately 113
10
<PAGE> 12
megawatts of capacity to its portfolio. Williams Energy, through its
subsidiaries, employs approximately 2,800 employees.
Revenues and operating profit for Williams Energy by business unit are
reported in Note 4 of Notes to Consolidated Financial Statements herein.
A business description of each of Williams Energy's business units follows.
EXPLORATION AND PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production
Company (Williams Production), owns and operates producing natural gas leasehold
properties in the United States. In addition, Williams Production is actively
exploring for oil and gas.
Oil and gas properties. Exploration and production properties are located
primarily in the Rocky Mountains and Gulf Coast areas. Rocky Mountain properties
are located in the San Juan Basin in New Mexico and Colorado, in Wyoming, and in
Utah. Gulf Coast properties include North Louisiana, the Houma Embayment and
Transition Zone in Southern Louisiana, Pinnacle Reef play in East Texas, Sligo
and Wilcox trends in South Texas, and offshore Gulf of Mexico.
Gas Reserves. As of December 31, 1997, 1996, and 1995, Williams Production
had proved developed natural gas reserves of 362 Bcf, 323 Bcf, and 292 Bcf,
respectively, and proved undeveloped reserves of 238 Bcf, 208 Bcf, and 222 Bcf,
respectively. Of Williams Production's total proved reserves, 89 percent are
located in the San Juan Basin of Colorado and New Mexico. No major discovery or
other favorable or adverse event has caused a significant change in estimated
gas reserves since year end.
Customers and Operations. As of December 31, 1997, the gross and net
developed leasehold acres owned by Williams Production totaled 268,331 and
115,728 respectively, and the gross and net undeveloped acres owned were 447,458
and 121,351 respectively. As of such date, Williams Production owned interests
in 3,113 gross producing wells (558 net) on its leasehold lands. The following
tables summarize drilling activity for the periods indicated:
<TABLE>
<CAPTION>
1997 WELLS GROSS NET
---------- ----- -----
<S> <C> <C>
Development
Drilled............................................. 198 32.6
Completed........................................... 198 32.6
Exploration
Drilled............................................. 12 4.6
Completed........................................... 9 2.8
</TABLE>
<TABLE>
<CAPTION>
COMPLETED GROSS NET
DURING WELLS WELLS
--------- ----- -----
<S> <C> <C>
1997................................................ 207 35
1996................................................ 65 11
1995................................................ 61 22
</TABLE>
The majority of Williams Production's gas production is currently being
sold in the spot market at market prices. Total net production sold during 1997,
1996, and 1995 was 37.1 Bcf, 31.0 Bcf, and 30.0 Bcf, respectively. The average
production costs, including production taxes, per Mcf of gas produced were $.42,
$.23, and $.23, in 1997, 1996, and 1995, respectively. The average wellhead
sales price per Mcf was $1.62, $.98, and $.88, respectively, for the same
periods. Net production sold and average production costs for 1996 and 1995 have
been restated to include net profits volumes not previously reported.
In 1993, Williams Production conveyed a net profits interest in certain of
its properties to the Williams Coal Seam Gas Royalty Trust. Williams
subsequently sold Trust Units to the public in an underwritten public offering.
Williams Holdings owns 3,568,791 Trust Units representing 36.8 percent of
outstanding Units. Substantially all of the production attributable to the
properties conveyed to the Trust was from the Fruitland
11
<PAGE> 13
coal formation and constituted coal seam gas. Production information reported
herein includes Williams Production's interest in such Units.
FIELD SERVICES
Williams Energy, through Williams Field Services Group, Inc. and its
subsidiaries (Field Services), owns and operates natural gas gathering,
processing, and treating facilities located in northwestern New Mexico,
southwestern Colorado, southwestern Wyoming, northwestern Oklahoma, southwestern
Kansas, and also in areas offshore and onshore in Texas and Louisiana. Field
Services also operates gathering facilities that are owned by Transco, an
affiliated company, and that are currently regulated by the FERC. In February
1996, Field Services and Transco filed applications with FERC to spindown all of
Transco's gathering facilities to Field Services. FERC subsequently denied the
request in September 1996. Field Services and Transco sought rehearing in
October 1996. In August 1997, Field Services and Transco filed a second request
for expedited treatment of the rehearing request. FERC has yet to rule on this
request for rehearing.
Expansion Projects. Field Services continued to expand its operations in
the gulf coast region during 1997 primarily through the Mobile Bay Project.
During the year, Field Services obtained a life-of-reserves commitment from SOCO
Offshore to anchor the construction of the Field Services' facilities required
to gather and process near the Outer Continental Shelf. These committed reserves
along with existing production from the Mobile Bay area will more than
adequately supply this plant, scheduled to begin operations in early 1999. In
addition, Field Services has acquired the remaining 50 percent interest in the
500 MMcfd Cameron Meadows processing plant in south Texas, has reached an
agreement to partner in a 200 MMcfd processing plant in Louisiana, and finalized
construction plans for a deep water gathering line to Green Canyon Federal Block
205 off Transco's Southeast Louisiana gathering system where planned capacity is
expected to reach 90 MMcfd in the fourth quarter of 1998.
Customers and Operations. Facilities owned and/or operated by Field
Services consist of approximately 11,000 miles of gathering pipelines (including
certain gathering lines owned by an affiliate but operated by Field Services),
10 gas treating plants and 10 gas processing plants (one of which is partially
owned). The aggregate daily inlet capacity is approximately 7.9 Bcf for the
gathering systems and 6.7 Bcf of gas for the gas processing, treating, and
dehydration facilities. Gathering and processing customers have direct access to
interstate pipelines, including affiliated pipelines, which provide access to
multiple markets.
During 1997, Field Services gathered natural gas for 296 customers. The
largest gathering customer accounted for approximately 17 percent of total
gathered volumes. During 1997, Field Services processed natural gas for a total
of 130 customers. The largest customer accounted for approximately 24 percent of
total processed volumes. No other customer accounted for more than 10 percent of
gathered or processed volumes. Field Services' gathering and processing
agreements with large customers are generally long-term agreements with various
expiration dates. These long-term agreements account for the majority of the gas
gathered and processed by Field Services.
Operating Statistics. The following table summarizes gathering, processing,
and natural gas liquid sales volumes for the periods indicated. The information
includes operations attributed to facilities owned by affiliated entities but
operated by Field Services, including the portion of 1995 during which the
Company did not own such facilities:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Gas volumes (TBtu, except liquids sales):
Gathering................................................. 2,153 2,155 1,806
Processing................................................ 520 484 406
Natural gas liquid sales (millions of gallons)............ 551 403 284
</TABLE>
12
<PAGE> 14
PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum
Services unit, owns and operates a petroleum products and crude oil pipeline
system, two ethanol production plants (one of which is partially owned), and
petroleum products terminals and provides services and markets products related
thereto.
Transportation. A subsidiary in the Petroleum Services unit, Williams Pipe
Line Company (Williams Pipe Line), owns and operates a petroleum products and
crude oil pipeline system which covers an 11-state area extending from Oklahoma
in the south to North Dakota and Minnesota in the north and Illinois in the
east. The system is operated as a common carrier offering transportation and
terminaling services on a nondiscriminatory basis under published tariffs. The
system transports refined products, LP-gases, lube extracted fuel oil, and crude
oil.
At December 31, 1997, the system traversed approximately 7,100 miles of
right-of-way and included approximately 9,100 miles of pipeline in various sizes
up to 16 inches in diameter. The system includes 77 pumping stations, 23 million
barrels of storage capacity, and 40 delivery terminals. The terminals are
equipped to deliver refined products into tank trucks and tank cars. The maximum
number of barrels which the system can transport per day depends upon the
operating balance achieved at a given time between various segments of the
system. Because the balance is dependent upon the mix of products to be shipped
and the demand levels at the various delivery points, the exact capacity of the
system cannot be stated.
An affiliate of Williams Pipe Line, Longhorn Enterprises of Texas, Inc.
("LETI"), owns a 31.5 percent interest in Longhorn Partners Pipeline, LP, a
joint venture formed to construct and operate a refined products pipeline from
Houston to El Paso, Texas. The pipeline is expected to commence operations in
1998. Williams Pipe Line will design, construct, and operate the pipeline, and
LETI has irrevocably committed to contribute $87.4 million to the joint venture
in 1998.
Operating Statistics. The operating statistics set forth below relate to
the system's operations for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines........................................ 132,428 134,296 125,060
Distillates...................................... 71,694 68,628 61,238
Aviation fuels................................... 10,557 11,189 12,535
LP-Gases......................................... 13,322 15,618 12,839
Lube extracted fuel oil.......................... 7,471 8,555 4,462
Crude oil........................................ 31 891 860
------- ------- -------
Total Shipments............................. 235,503 239,177 216,994
======= ======= =======
Daily average (thousands of barrels).................. 645 655 595
Average haul (miles).................................. 259 259 269
Barrel miles (millions)............................... 61,086 61,969 58,326
</TABLE>
Environmental regulations and changing crude supply patterns continue to
affect the refining industry. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes and
products shipped on the Williams Pipe Line system. Environmental Protection
Agency ("EPA") regulations, driven by the Clean Air Act, require refiners to
change the composition of fuel manufactured. A pipeline's ability to respond to
the effects of regulation and changing supply patterns will determine its
ability to maintain and capture new market shares. Williams Pipe Line has
successfully responded to changes in diesel fuel composition and product supply
and has adapted to new gasoline additive requirements. Reformulated gasoline
regulations have not yet significantly affected Williams Pipe Line. Williams
Pipe Line will continue to attempt to position itself to respond to changing
regulations and supply patterns but cannot predict how future changes in the
marketplace will affect its market areas.
13
<PAGE> 15
Ethanol. Williams Energy, through its wholly owned subsidiary Williams
Energy Ventures, Inc. (WEV), is engaged in the production and marketing of
ethanol. WEV owns and operates two ethanol plants of which corn is the principal
feedstock. The Pekin, Illinois, plant, which WEV purchased in 1995, has an
annual production capacity of 100 million gallons of fuel-grade and industrial
ethanol and also produces various coproducts. The Aurora, Nebraska, plant (in
which WEV owns a 74.68 percent interest) began operations in November 1995 and
has an annual production capacity of 30 million gallons. WEV also markets
ethanol produced by third parties.
The sales volumes set forth below include ethanol produced by third parties
as well as by WEV for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Ethanol sold (thousands of gallons).................... 145,612 119,800 53,500
Coproducts sold (thousands of tons).................... 494 398 159
</TABLE>
Terminals and Services. Williams Energy, through its subsidiary WEV,
operates petroleum products terminals in the western and southeastern United
States and provides services including performance additives and ethanol
blending. In September 1996, WEV acquired a 45.5 percent interest in eight
petroleum products terminals located in the southeast United States. In 1997,
these terminals loaded approximately 17.3 million barrels of refined products.
In December 1997, WEV acquired a terminal in Dallas, Texas. The preceding volume
data do not reflect activity at this terminal.
ENERGY MARKETING AND TRADING
Williams Energy, through subsidiaries, primarily Williams Energy Services
Company and its subsidiaries ("WESCO"), is a national energy services provider
that buys, sells, and transports a full suite of energy commodities, including
natural gas, electricity, refined products, natural gas liquids, crude oil, and
liquefied natural gas, on a wholesale and retail level, serving over 3,500
companies. In addition, WESCO offers a comprehensive array of price-risk
management products and services and capital services to the diverse energy
industry.
WESCO markets natural gas throughout North America and grew its total
volumes (physical and notional) to an average of 22.3 Bcf per day in 1997. The
core of WESCO's business has traditionally been the Gulf Coast and eastern
regions, using the pipeline systems owned by the Company, but also includes
marketing on approximately 50 non-Williams' pipelines. During 1997,
approximately one-third of WESCO's volumes were from the Mid-Continent region,
up from 10 percent in 1996. WESCO's natural gas customers include producers,
industrials, local distribution companies, utilities, and other marketers.
During 1997, WESCO also marketed refined products, natural gas liquids,
crude, and liquefied natural gas with total volumes (physical and notional)
averaging 1,208.2 Mbbl per day. WESCO's acquisition in 1997 of the wholesale
propane business of Level Energy significantly enhanced its natural gas liquids
marketing effort.
WESCO entered the power marketing and trading business in 1996. During
1997, WESCO marketed 8.3 GWh per hour (physical and notional) of electricity.
WESCO provides price-risk management services through a variety of
financial instruments including forwards, futures, and option and swap
agreements related to various energy commodities. Through its energy capital
services, WESCO provides participants in both the upstream and downstream
portions of the energy industry with capital for energy-related projects
including acquisitions of proved reserves and related drilling projects.
During 1997, WESCO has continued to develop its retail energy services
group through acquisitions and alliances. As part of that strategy, WESCO
acquired Utility Management Corporation, an energy management services and
marketing company in the southeastern United States, serving small- to mid-sized
14
<PAGE> 16
commercial, industrial, and municipal customers. WESCO also has signed a letter
of intent with GPU Advanced Resources to form an alliance which will serve
markets in six mid-Atlantic states.
Operating Statistics. The following table summarizes operating profit and
marketing volumes for the periods indicated:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Average marketing volumes (physical and notional):
Natural gas (Bcfd)...................................... 22.3 15.9 10.2
Refined products, natural gas liquids, crude (MBpd)..... 1,208 384 19
Electricity (GWh/hr).................................... 8.3 0.5 --
</TABLE>
REGULATORY MATTERS
Field Services. In May 1994, after reviewing its legal authority in a
Public Comment Proceeding, FERC determined that while it retains some regulatory
jurisdiction over gathering and processing performed by interstate pipelines,
pipeline-affiliated gathering and processing companies are outside its authority
under the Natural Gas Act. An appellate court has affirmed FERC's determination
and the U.S. Supreme Court has denied requests for certiorari. As a result of
these FERC decisions, some of the individual states in which Field Services
conducts its operations have considered whether to impose regulatory
requirements on gathering companies. Kansas, Oklahoma, and Texas currently
regulate gathering activities using complaint mechanisms under which the state
commission may resolve disputes involving an individual gathering arrangement.
Other states may also consider whether to impose regulatory requirements on
gathering companies.
Petroleum Services. Williams Pipe Line, as an interstate common carrier
pipeline, is subject to the provisions and regulations of the Interstate
Commerce Act. Under this Act, Williams Pipe Line is required, among other
things, to establish just, reasonable and nondiscriminatory rates, to file its
tariffs with FERC, to keep its records and accounts pursuant to the Uniform
System of Accounts for Oil Pipeline Companies, to make annual reports to FERC
and to submit to examination of its records by the audit staff of FERC.
Authority to regulate rates, shipping rules, and other practices and to
prescribe depreciation rates for common carrier pipelines is exercised by FERC.
The Department of Transportation, as authorized by the 1995 Pipeline Safety
Reauthorization Act, is the oversight authority for interstate liquids
pipelines. Williams Pipe Line is also subject to the provisions of various state
laws applicable to intrastate pipelines.
On December 31, 1989, a rate cap, which resulted from a settlement with
several shippers, effectively freezing Williams Pipe Line's rates for the
previous five years, expired. Williams Pipe Line filed a revised tariff on
January 16, 1990, with FERC and the state commissions. The tariff set an average
increase in rates of 11 percent and established volume incentives and
proportional rate discounts. Certain shippers on the Williams Pipe Line system
and a competing pipeline carrier filed protests with FERC alleging that the
revised rates are not just and reasonable and are unlawfully discriminatory.
Williams Pipe Line elected to bifurcate this proceeding in accordance with the
then-current FERC policy. Phase I of FERC's bifurcated proceeding provides a
carrier the opportunity to justify its rates and rate structure by demonstrating
that its markets are workably competitive. Any issues unresolved in Phase I
require cost justification in Phase II.
FERC's Presiding Judge issued the Initial Decision in Phase II on May 29,
1996. The Judge ruled that Williams Pipe Line failed to demonstrate that the
rates at issue for the 12 less competitive markets were just and reasonable and
that Williams Pipe Line must roll back those rates to pre-1990 levels and pay
refunds with interest to its shippers. The Initial Decision held that Williams
Pipe Line's individual rates must be judged on the basis of cost allocations,
although Williams Pipe Line was given no notice of this particular basis of
judgment and the Commission expressly declined to adopt such standards in its
Opinion No. 391. Moreover, the Commission clarified its final order in Phase I
(Opinion No. 391-A) by stating that Williams Pipe Line was not required to
defend its rates with cost allocations. Primarily on this basis, Williams Pipe
Line sought a review of the Initial Decision by the full Commission by filing a
brief on exceptions on June 28, 1996. The review of the Phase II Initial
Decision is pending before the Commission, and a shipper's appeal of the Phase I
15
<PAGE> 17
order in the United States Court of Appeals for the District of Columbia Circuit
has been stayed pending the completion of Phase II. Williams Pipe Line is not
required to comply with the Initial Decision in Phase II prior to the
Commission's issuance of a final order. Williams Pipe Line continues to believe
that its revised tariffs will ultimately be found lawful. See Note 18 of Notes
to Consolidated Financial Statements.
Energy Marketing and Trading. Management believes that WESCO's activities
are conducted in substantial compliance with the marketing affiliate rules of
FERC Order 497. Order 497 imposes certain nondiscrimination, disclosure, and
separation requirements upon interstate natural gas pipelines with respect to
their natural gas trading affiliates. WESCO has taken steps to ensure it does
not share employees with affiliated interstate natural gas pipelines and does
not receive information from such affiliates that is not also available to
unaffiliated natural gas trading companies.
COMPETITION
Exploration and Production. Williams Energy's exploration and production
unit competes with a wide variety of independent producers as well as integrated
oil and gas companies for markets for its production.
Field Services. Williams Energy competes for gathering and processing
business with interstate and intrastate pipelines, producers, and independent
gatherers and processors. Numerous factors impact any given customer's choice of
a gathering or processing services provider, including rate, term, timeliness of
well connections, pressure obligations, and the willingness of the provider to
process for either a fee or for liquids taken in-kind.
Petroleum Services. Williams Energy's petroleum services operations are
subject to competition because Williams Pipe Line operates without the
protection of a federal certificate of public convenience and necessity that
might preclude other entrants from providing like service in its area of
operations. Further, Williams Pipe Line must plan, operate and compete without
the operating stability inherent in a broad base of contractually obligated or
owner-controlled usage. Because Williams Pipe Line is a common carrier, its
shippers need only meet the requirements set forth in its published tariffs in
order to avail themselves of the transportation services offered by Williams
Pipe Line.
Competition exists from other pipelines, refineries, barge traffic,
railroads, and tank trucks. Competition is affected by trades of products or
crude oil between refineries that have access to the system and by trades among
brokers, traders and others who control products. Such trades can result in the
diversion from the Williams Pipe Line system of volume that might otherwise be
transported on the system. Shorter, lower revenue hauls may also result from
such trades. Williams Pipe Line also is exposed to interfuel competition whereby
an energy form shipped by a liquids pipeline, such as heating fuel, is replaced
by a form not transported by a liquids pipeline, such as electricity or natural
gas. While Williams Pipe Line faces competition from a variety of sources
throughout its marketing areas, the principal competition is other pipelines. A
number of pipeline systems, competing on a broad range of price and service
levels, provide transportation service to various areas served by the system.
The possible construction of additional competing products or crude oil
pipelines, conversions of crude oil or natural gas pipelines to products
transportation, changes in refining capacity, refinery closings, changes in the
availability of crude oil to refineries located in its marketing area, or
conservation and conversion efforts by fuel consumers may adversely affect the
volumes available for transportation by Williams Pipe Line.
Williams Energy's ethanol operations compete in local, regional, and
national fuel additive markets with one large ethanol producer, numerous smaller
ethanol producers, and other fuel additive producers, such as refineries.
Energy Marketing and Trading. Williams Energy's energy marketing and
trading operations directly compete with large independent energy marketers,
marketing affiliates of regulated pipelines and utilities, electric wholesalers
and retailers, and natural gas producers. The financial trading business
competes with other energy-based companies offering similar services as well as
certain brokerage houses. This level of competition contributes to a business
environment of constant pricing and margin pressure.
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<PAGE> 18
OWNERSHIP OF PROPERTY
The majority of Williams Energy's ownership interests in exploration and
production properties are held as working interests in oil and gas leaseholds.
Williams Energy's gathering and processing facilities are owned in fee.
Gathering systems are constructed and maintained pursuant to rights-of-way,
easements, permits, licenses, and consents on and across properties owned by
others. The compressor stations and gas processing and treating facilities are
located in whole or in part on lands owned by subsidiaries of Williams Energy or
on sites held under leases or permits issued or approved by public authorities.
Williams Energy's petroleum pipeline system is owned in fee. However, a
substantial portion of the system is operated, constructed and maintained
pursuant to rights-of-way, easements, permits, licenses, or consents on and
across properties owned by others. The terminals, pump stations, and all other
facilities of the system are located on lands owned in fee or on lands held
under long-term leases, permits, or contracts. Management believes that the
system is in such a condition and maintained in such a manner that it is
adequate and sufficient for the conduct of business.
The primary assets of Williams Energy's energy marketing and trading unit
are its term contracts, employees, and related systems and technological
support.
ENVIRONMENTAL MATTERS
Williams Energy is subject to various federal, state, and local laws and
regulations relating to environmental quality control. Management believes that
Williams Energy's operations are in substantial compliance with existing
environmental legal requirements. Management expects that compliance with such
existing environmental legal requirements will not have a material adverse
effect on the capital expenditures, earnings, and competitive position of
Williams Energy.
The EPA has named Williams Pipe Line as a potentially responsible party as
defined in Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act, for a site in Sioux Falls, South Dakota. The
EPA placed this site on the National Priorities List in July 1990. In April
1991, Williams Pipe Line and the EPA executed an administrative consent order
under which Williams Pipe Line agreed to conduct a remedial investigation and
feasibility study for this site. The EPA issued its "No Action" Record of
Decision in 1994, concluding that there were no significant hazards associated
with the site subject to two additional years of monitoring for arsenic in
certain existing monitoring wells. Williams Pipe Line completed monitoring in
the second quarter of 1997 and has submitted a report of results to the EPA.
Management believes no significant additional expenditures will be required for
investigation and follow-up at this site.
WILLIAMS COMMUNICATIONS GROUP, INC. (WILLIAMS COMMUNICATIONS)
As of December 31, 1997, Williams Communications has organized its
operating companies into three business units: Solutions, which provides
customer-premise voice and data equipment, including installation, integration,
and maintenance; Network, which operates the Company's fiber optic network; and
Applications, which provides video services and other multimedia services for
the broadcast industry; advertising distribution; business television
applications; and audio- and videoconferencing services and enhanced facsimile
services for businesses. Management believes that the new structure will better
position it to provide total enterprise network solutions and superior customer
service. In addition, management believes this structure will facilitate growth
and diversification while recognizing the convergence of customers, markets and
product offerings of its communications entities. In Canada, Solutions operates
through its subsidiary, WilTel Communications (Canada), Inc. In late 1997,
Williams Communications announced plans to sell its product and content training
services business, Williams Learning Network, Inc. See Note 6 of Notes to
Consolidated Financial Statements.
Williams Communications and its subsidiaries own an approximately
11,000-mile communications network (with an additional 21,000-route miles
planned or under construction), maintain 155 offices primarily across North
America but also in London, Singapore, and Australia, service approximately
133,000 customer
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sites with approximately 11 million customer ports. In addition, Williams
Communications owns or manages five teleports in the United States and has
rights to capacity on domestic and international satellite transponders.
Williams Communications employed approximately 8,000 employees as of December
31, 1997.
Consolidated revenues by business unit and operating profit/loss for
Williams Communications were as follows for 1997 (dollars in millions):
<TABLE>
<S> <C>
Revenues:
Solutions................................................ $1,206.5
Network.................................................. 43.0
Application.............................................. 222.4
Eliminations............................................. (26.6)
--------
Total.................................................... $1,445.3
========
Operating loss............................................. $ (55.7)
========
</TABLE>
The revenues for the Solutions business unit include only eight months of
revenues resulting from the merger, which is discussed below, with Nortel
Communications Systems, Inc., effective April 30, 1997. The operating loss
includes $49.8 million in fourth quarter charges related to the previously noted
decision to sell the learning content business and the write-down of assets and
the development costs associated with certain advanced applications.
A business description of each of Williams Communications' business units
follows.
SOLUTIONS
The Solutions unit of Williams Communications provides data, voice and
video communications products and services to customers in the United States and
Canada. In April 1997, Williams Communications merged its wholly owned
subsidiary, Williams Telecommunications Systems, Inc. with Nortel Communications
Systems Inc., which was a wholly owned subsidiary of Northern Telecom, Inc.
(Northern Telecom). Williams Communications holds a 70 percent interest in the
newly formed entity, Williams Communications Solutions, LLC (WCS). Northern
Telecom owns the remaining 30 percent. This merger effectively doubled the size
of Williams Communications Solutions Customer premise and network solutions
operations.
Williams Communications, through subsidiaries including WCS, serves its
customers through more than 120 sales and service locations throughout the
United States, over 6,000 employees and over 2,200 stocked service vehicles. WCS
employs more than 2,500 technicians and more than 700 sales representatives and
sales support personnel to serve an estimated 133,000 commercial, governmental
and institutional customer sites. WCS's customer base ranges from large,
publicly-held corporations and the federal government to small privately-owned
entities.
WCS offers its customers a full array of data, multimedia, voice and video
network interconnect products including digital key systems (generally designed
for voice applications with fewer than 100 lines), private branch exchange (PBX)
systems (generally designed for voice applications with greater than 100 lines),
voice processing systems, interactive voice response systems, automatic call
distribution applications, call accounting systems, network monitoring and
management systems, desktop video, routers, channel banks, intelligent hubs and
cabling. WCS's services also include the design, configuration and installation
of voice and data networks and call centers and the management of customers'
telecommunications operations and facilities. WCS's National Technical Resource
Center provides customers with on-line order entry and trouble reporting
services, advanced technical assistance and training. Other service capabilities
include Local Area Network and PBX remote monitoring and toll fraud detection.
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Operating Statistics. The following table summarizes the results of
operations for Williams Communications Solutions for the periods indicated
(dollars and ports in millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ ------
<S> <C> <C> <C>
Revenues................................................... $1,206.5 $568.1 $494.9
Percentage of revenues by type of service:
New system sales......................................... 52% 40% 34%
System modifications..................................... 28 34 36
Maintenance.............................................. 19 24 25
Other.................................................... 1 2 2
Backlog.................................................... $ 202.5 $112.2 $ 85.0
Total ports................................................ 11.0 5.1 4.7
</TABLE>
A port is defined as an electronic address resident in a customer's PBX or
key system that supports a station, trunk, or data port.
In 1997, WCS derived approximately 47.8 percent of its revenues from its
existing customer base and approximately 52.2 percent from the sale of new
telecommunications systems. WCS's three largest suppliers accounted for
approximately 86 percent of equipment sold in 1997. A single manufacturer,
Northern Telecom, supplied 73 percent of all equipment sold. In this case, WCS
is the largest independent distributor in the United States of certain of this
company's products. About 63 percent of WCS's active customer base consists of
this manufacturer's products. The distribution agreement with this supplier is
scheduled to expire at the end of 2000. Management believes there is minimal
risk as to the availability of products from suppliers.
NETWORK
The Network unit of Williams Communications owns and operates an
approximately 11,000-route mile communications network, which is restricted to
multi-media applications, and is currently constructing an unrestricted network
along a 1,600 mile route from Houston to Washington, D.C. in proximity to
pipeline right-of-way owned by an affiliated company. Williams Communications
Inc., a subsidiary of Williams Communications, has entered into an exchange
agreement with IXC Communications under which it will provide IXC Communications
rights to use dark fiber along the Houston-to-Washington, D.C. route and obtain
rights to use dark fiber along a 4,500-mile route from Los Angeles to New York,
which IXC Communications is constructing. In addition, Williams Communications,
Inc. also owns an interest in a joint venture constructing a 1,600-mile fiber
optic network on a route connecting Portland, Salt Lake City, and Las Vegas,
with a dark fiber agreement extending the network to Los Angeles. With these
construction projects and dark fiber agreements and other projects, Williams
Communications, Inc. anticipates having an 18,000-route mile fiber optic network
in operation by the end of 1998. Williams Communications, Inc. has also signed
an agreement to acquire a 350-mile fiber network in Florida and plans to
construct additional fiber to connect the Florida network to its existing
network in the southeastern United States, and to construct a new fiber route in
the Midwestern United States from Chicago westward. The Network unit has
ultimate plans for a 32,000-route mile network.
Upon the expiration of the non-compete agreement related to the Company's
1995 sale of its network services operations on January 5, 1998, Williams
Communications announced that it was re-entering the long-distance
communications market as a wholesale provider of telecommunications services and
had entered into a five-year, multimillion dollar agreement with U S WEST
Communications Group to provide wholesale services using its fiber optic
network. Williams Communications has also entered into an agreement with
Concentric Network Corporation to provide wholesale communications services.
During 1997, Williams Communications acquired Critical Technologies, Inc.,
a professional services company deriving revenue from integrating, designing,
building, implementing, and maintaining large-scale business communications
systems. In addition, Williams Communications acquired a 12.5 percent interest
in Concentric Network Corporation, a provider of Internet protocol-based
networking services for business and consumer markets.
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<PAGE> 21
APPLICATIONS
Vyvx
Vyvx, an unincorporated business unit of Williams Communications, Inc.,
offers broadcast-quality television and multimedia transmission services
nationwide by means of Network's 11,000-mile multimedia network, five satellite
uplink/downlink facilities and satellite capacity on 30 transponders. Vyvx owns
53 television switching centers, 20 sales and service locations in the United
States, and sales and service offices in London, Singapore, and Australia. Vyvx
primarily provides backhaul or point-to-point transmission of sports, news and
other programming between two or more customer locations. With satellite
facilities, Vyvx provides point-to-multipoint transmission service. Vyvx's
customers include all of the major broadcast and cable networks. Vyvx is also
engaged in the business of advertising distribution and is exploring other
multimedia communication opportunities.
Vyvx owns four teleports (including satellite earth station facilities)
located near Atlanta, Denver, Los Angeles, and New York, and operates a fifth
teleport in Kansas City. Vyvx also owns assets for the distribution of
television advertising, which provide connectivity and presence in more than 550
television broadcast stations around the country.
Global Access
Global Access, offers multi-point videoconferencing, audioconferencing and
enhanced facsimile services as well as single point to multi-point business
television services. Global Access enables Williams Communications to provide
customers with integrated media conferences, bringing together voice, video and
facsimile by utilizing Williams Communications's existing fiber-optic and
satellite services.
In March 1997, Global Access acquired Satellite Management, Inc., a
U.S.-based satellite integrator for business television applications,
interactive long distance learning, and corporate communications.
In December 1996, Williams Communications announced the formation of The
Business Channel, a joint venture with the Public Broadcast Service (PBS), to
utilize Internet, video-on-demand, fiber-optic and satellite technologies to
bring professional development and training services to the business community.
REGULATORY MATTERS
The equipment WCS sells must meet the requirements of Part 68 of the
Federal Communications Commission (FCC) rules governing the equipment
registration, labeling and connection of equipment to telephone networks. WCS
relies on the equipment manufacturers' compliance with these requirements for
its own compliance regarding the equipment it distributes. These regulations
have a minimal impact on WCS's operations.
Williams Communications, Inc. is subject to FCC regulations as common
carriers with regard to certain of their transmission services and are subject
to the laws of certain states governing public utilities. An FCC rulemaking to
eliminate domestic, common carrier tariffs has been stayed pending judicial
review. In the interim, the FCC is requiring such carriers to operate under
traditional tariff rules. Operations of intrastate microwave communications,
satellite earth stations and certain other related transmission facilities are
also subject to FCC licensing and other regulations. These regulations do not
significantly impact Williams Communications, Inc.'s operations. In 1997, the
FCC began implementation of the Universal Service Fund contemplated in the
Telecommunications Act of 1996. Williams Communications, Inc. is required to
contribute to this fund based upon certain revenues. Although Williams
Communications, Inc. intends to pass on such charges to its customers, FCC
rulings raise questions about the right of companies like Williams
Communications, Inc. to do so.
COMPETITION
WCS has many competitors ranging from Lucent Technologies and the Regional
Bell Operating Companies to small individually-owned companies that sell and
service customer premise equipment.
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<PAGE> 22
Competitors include companies that sell equipment comparable or identical to
that sold by WCS. There are virtually no barriers to entry into this market.
Vyvx's video and multimedia transmission operations compete primarily with
companies offering video or multimedia transmission services by means of
satellite facilities and to a lesser degree with companies offering transmission
services via microwave facilities or fiber-optic cable.
Network faces existing competition from a number of large, well-established
interexchange carriers, some with extensive fiber optic networks. Several other
carriers are constructing or have plans to construct new fiber optic networks or
are establishing networks based on dark fiber rights obtained from
facilities-based carriers.
Federal telecommunications reform legislation enacted in February 1996 is
designed to increase competition both in the long distance market and local
exchange market by significantly liberalizing current restrictions on market
entry. In particular, the legislation establishes procedures permitting Regional
Bell Operating Companies to provide long distance services including, but not
limited to, video transmission services, subject to certain restrictions and
conditions precedent. Moreover, electric and gas utilities may provide
telecommunications services, including long distance services, through separate
subsidiaries. The legislation also calls for elimination of federal tariff
filing requirements and relaxation of regulation over common carriers. At this
time, management cannot predict the impact such legislation may have on the
operations of Williams Communications, Inc.
In late 1997, a Federal District Court decision, which has been stayed
pending appeal, invalidated provisions of the 1996 federal legislation. While
legislation or rulings by appellate courts may overturn this lower court ruling,
the Regional Bell Operating companies continue to seek regulatory approval to
provide national long distance services. As courts or regulators remove
restrictions on the Regional Bell Operating Companies, they will be both
important potential customers and important potential competitors of Network.
OWNERSHIP OF PROPERTY
Williams Communications owns part of its fiber-optic transmission
facilities and leases the remainder. Approximately 11,000-route miles of its
owned facilities are comprised of a single fiber, which is on a portion of the
fiber optic network of WorldCom, Inc. ("WorldCom") and is restricted to
multimedia content usage. Williams Communications retained this fiber when a
predecessor of WorldCom purchased the Company's network services operations in
1995. Williams Communications and WorldCom are currently in litigation to
clarify, among other things, whether the usage restriction would permit internet
services and Williams Communications' right to purchase additional WorldCom
fiber. Williams Communications carries signals by means of its own fiber-optics
facilities, as well as carrying signals over fiber-optic facilities leased from
third-party interexchange carriers and the various local exchange carriers.
Williams Communications holds its satellite transponder capacity under various
agreements. Williams Communications owns part of its teleport facilities and
holds the remainder under either a management agreement or long-term facilities
leases.
Williams Network intends to obtain capacity primarily by means of the fiber
optic networks Williams Communications is constructing or plans to construct or
acquire, as well as acquiring dark fiber rights on fiber optic facilities of
other carriers. Network obtains dark fiber rights in the form of the purchase or
lease of "indefeasible rights of use" or "IRUs" in specific fiber strands.
Purchased IRUs have many of the characteristics of ownership, including many of
the associated risks, but the owner of the fiber optic cable retains legal title
to the fibers.
ENVIRONMENTAL MATTERS
Williams Communications is subject to federal, state, and local laws and
regulations relating to the environmental aspects of its business. Management
believes that Williams Communications' operations are in substantial compliance
with existing environmental legal requirements. Management expects that
compliance with such existing environmental legal requirements will not have a
material adverse effect on the capital expenditures, earnings and competitive
position of Williams Communications.
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<PAGE> 23
OTHER INFORMATION
Williams believes that it has adequate sources and availability of raw
materials to assure the continued supply of its services and products for
existing and anticipated business needs. Williams' pipeline systems are all
regulated in various ways resulting in the financial return on the investments
made in the systems being limited to standards permitted by the regulatory
bodies. Each of the pipeline systems has ongoing capital requirements for
efficiency and mandatory improvements, with expansion opportunities also
necessitating periodic capital outlays.
A plant site in Pensacola, Florida, that was previously operated by a
former subsidiary of Williams, has been placed on the National Priorities List.
This former subsidiary has also been identified as a potentially responsible
party at a National Priorities List cleanup site in Michigan. A third site,
located in Lakeland, Florida, which was formerly owned and operated by this
subsidiary, is under investigation by the Florida Department of Environmental
Protection and cleanup is anticipated. Williams does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of insurance coverage, contribution or other indemnification
arrangements, will have a material adverse financial effect on the Company. See
Note 18 of Notes to Consolidated Financial Statements.
At December 31, 1997, the Company had approximately 15,000 full-time
employees, of whom approximately 2,300 were represented by unions and covered by
collective bargaining agreements. The Company considers its relations with its
employees to be generally good.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although the Company believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be reached. Such statements are made in
reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
As required by such Act, the Company hereby identifies the following
important factors that could cause actual results to differ materially from any
results projected, forecasted, estimated or budgeted by the Company in
forward-looking statements: (i) risks and uncertainties impacting the Company as
a whole relate to changes in general economic conditions in the United States;
the availability and cost of capital; changes in laws and regulations to which
the Company is subject, including tax, environmental and employment laws and
regulations; the cost and effects of legal and administrative claims and
proceedings against the Company or its subsidiaries or which may be brought
against the Company or its subsidiaries; conditions of the capital markets
utilized by the Company to access capital to finance operations; and, to the
extent the Company increases its investments and activities abroad, such
investments and activities will be subject to foreign economies, laws, and
regulations; (ii) for the Company's regulated businesses, risks and
uncertainties primarily relate to the impact of future federal and state
regulations of business activities, including allowed rates of return and the
resolution of other matters discussed herein; and (iii) risks and uncertainties
associated with the Company's unregulated businesses primarily relate to energy
prices and the ability of such entities to develop expanded markets and product
offerings as well as their ability to maintain existing markets. It is also
possible that certain aspects of the Company's businesses that are currently
unregulated may be subject to both federal and state regulation in the future.
In addition, future utilization of pipeline capacity will depend on energy
prices, competition from other pipelines and alternate fuels, the general level
of natural gas and petroleum product demand and weather conditions, among other
things. Further, gas prices, which directly impact transportation and gathering
and processing throughput and operating profit, may fluctuate in unpredictable
ways as may corn prices, which directly affect the Company's ethanol business.
Factors impacting future results of the Company's communications business
include successful completion of its network build, technological developments,
high levels of competition, lack of customer diversification, and general
uncertainties of governmental regulation.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams has no significant foreign operations.
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<PAGE> 24
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
For information regarding certain proceedings pending before federal
regulatory agencies, see Note 18 of Notes to Consolidated Financial Statements.
Williams is also subject to other ordinary routine litigation incidental to its
businesses.
Contract reformations and gas purchase deficiencies
As a result of FERC Order 636, which requires interstate gas pipelines to
change the way they do business, 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.
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, 636-B and 636-C,
costs incurred to comply with these rules are permitted to be recovered in full,
although a percentage of such costs must be allocated to interruptible
transportation service.
Pursuant to a stipulation and agreement approved by the FERC, Williams Gas
Pipelines Central (Central) has made 11 filings to direct bill take-or-pay and
gas supply realignment costs. The total amount approved for direct billing, net
of certain amounts collected subject to refunds, is $67 million. An intervenor
has filed protests seeking to have the FERC review the prudence and eligibility
of approximately $40 million of costs covered by these filings. On July 31,
1996, the administrative law judge issued an initial decision rejecting the
intervenor's prudency challenge. On September 30, 1997, the FERC, by a
two-to-one vote, reversed the administrative law judge and determined that three
life-of-lease producer contracts were imprudently entered into in 1982. Central
has filed for rehearing, and management plans to vigorously defend the prudency
of these contracts. An intervenor has also filed a protest seeking to have the
FERC decide whether non-settlement costs are eligible for recovery under Order
No. 636. In January 1997, the FERC held that none of the non-settlement costs
could be recovered by Central if these costs were not eligible for recovery
under Order No. 636. This order was affirmed on rehearing in April 1997. An
initial decision from the administrative law judge is expected in the first
quarter of 1998. If the FERC's final ruling on eligibility is unfavorable,
Central will appeal these orders to the courts. Central will make additional
filings under the applicable FERC orders to recover such additional costs as may
be incurred in the future.
Because of the uncertainties pertaining to the outcome of these issues
currently pending at the FERC and the status of settlement negotiation and
various other factors, Central cannot reasonably estimate the costs that may be
incurred nor the related amounts that could be recovered from customers. Central
is actively pursuing negotiations with the producers to resolve all outstanding
obligations under the contracts. Based on the terms of what Central believes
would be a reasonable settlement, $94 million has been accrued as a liability at
December 31, 1997, including a $5 million fourth-quarter 1997 charge to expense
for additional absorption of future costs. Central also has an $88 million
regulatory asset at December 31, 1997, for estimated recovery of future costs
from customers. Central cannot predict the final outcome of the FERC's rulings
on contract prudency and cost recovery under Order No. 636 and is unable to
determine the ultimate liability and loss, if any, at this time. If Central does
not prevail in these FERC proceedings or any subsequent appeals, and if Central
is able to reach a settlement with the producers consistent with the $94 million
accrued liability, the loss could be the total of the regulatory asset and the
$40 million of protested assets. Central continues to believe that it entered
into the gas purchase contracts in a prudent manner under FERC rules in place at
the time. Central also believes that the future recovery of these costs would be
in accordance with the terms of Order No. 636.
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<PAGE> 25
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
under way 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 December 31,
1997, these subsidiaries had reserves totaling approximately $28 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. In addition, these
subsidiaries have incurred, or are alleged to have incurred, various other
hazardous materials removal or remediation obligations under environmental laws.
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 Central 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 Central 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 Central, Texas Gas and Transcontinental
Gas Pipe Line. As of December 31, 1997, Central had recorded a liability for
approximately $17 million, representing the current estimate of future
environmental cleanup costs to be incurred over the next six to ten years. The
Field Services unit of Energy Services had recorded an aggregate liability of
approximately $12 million, representing the current estimate of its future
environmental and remediation costs, including approximately $5 million relating
to former Central facilities. Texas Gas and Transcontinental Gas Pipe Line
likewise had recorded liabilities for these costs which are included in the $28
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 Central 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. Such costs have exceeded this amount. At
December 31, 1997, Williams had approximately $11 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
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<PAGE> 26
indispensable party over which the state court had no jurisdiction. The Colorado
court of appeals has affirmed the dismissal and remanded the 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. The district court has stayed all of the cases involving Northwest
Pipeline until the plaintiffs exhaust their remedies before the Southern Ute
Indian Tribal Court. Some plaintiffs filed cases in the Tribal court, but none
named Northwest Pipeline as a defendant.
Other legal matters
Williams Communications owns one fiber, which is restricted to media
content usage, on a portion of the fiber optic network of WorldCom, Inc.
("WorldCom"). Williams Communications retained this fiber, along with an option
to purchase additional fiber from WorldCom in connection with WorldCom's
subsequent fiber builds, acquisitions, and expansions, when a predecessor of
WorldCom purchased the Company's network services operations in 1995. On March
20, 1998, Williams Communications filed suit in Oklahoma District Court in Tulsa
County against WorldCom claiming that WorldCom had failed to fulfill its
obligations associated with the single fiber as well as a number of other
obligations arising from the agreements entered into in 1995 in conjunction with
the network services operations sale.
In 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit against
Williams Production Company (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. On July 16, 1997, the
U.S. Court of Appeals for the Tenth Circuit reversed the decision of the
district court, held that the Tribe owns the coal-seam gas produced from certain
coal strata on fee lands within the exterior boundaries of the Tribe's
reservation, and remanded the case to the district court for further
proceedings. On September 16, 1997, Amoco Production Company, the class
representative for the defendant class (of which Williams Production is a part),
filed its motion for rehearing en banc before the Court of Appeals. On December
4, 1997, the Tenth Circuit Court of Appeals agreed to rehear the appeal.
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. In one of the
two remaining cases, a jury verdict found that Transcontinental Gas Pipe Line
was required to pay to a producer damages of $23.3 million including $3.8
million in attorneys' fees. Transcontinental Gas Pipe Line is considering an
appeal. In the other remaining case, a producer has asserted damages, including
interest calculated through December 31, 1996, of approximately $6 million.
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 or cash flow
requirements.
25
<PAGE> 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF WILLIAMS
The names, ages, positions and earliest election dates of the executive
officers of Williams are:
<TABLE>
<CAPTION>
HELD OFFICE
NAME AGE POSITIONS AND OFFICES HELD SINCE
---- --- -------------------------- -----------
<S> <C> <C> <C>
Keith E. Bailey........... 55 Chairman of the Board, President, Chief 05-19-94
Executive Officer and Director (Principal
Executive Officer)
John C. Bumgarner, Jr. ... 55 Senior Vice President -- Corporate 01-01-79
Development and Planning;
President -- Williams
International Company
James R. Herbster......... 56 Senior Vice President -- Administration 01-01-92
Jack D. McCarthy.......... 55 Senior Vice President -- Finance (Principal 01-01-92
Financial Officer)
William G. von Glahn...... 54 Senior Vice President and General Counsel 08-01-96
Gary R. Belitz............ 48 Controller (Principal Accounting Officer) 01-01-92
Stephen L. Cropper........ 48 President -- Williams Energy Group 10-01-96
Howard E. Janzen.......... 44 President and Chief Operating Officer -- 02-11-97
Williams Communications, Inc.
Brian E. O'Neill.......... 62 President -- Williams Interstate Natural 01-01-88
Gas
Systems, Inc.
</TABLE>
All of the above officers have been employed by Williams or its
subsidiaries as officers or otherwise for more than five years and have had no
other employment during such period.
26
<PAGE> 28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Williams' Common Stock is listed on the New York and Pacific Stock
exchanges under the symbol "WMB." At the close of business on December 31, 1997,
Williams had approximately 12,250 holders of record of its Common Stock. The
daily closing price ranges (composite transactions) and dividends declared by
quarter for each of the past two years (adjusted to reflect the December 29,
1997, two-for-one common stock split and distribution) are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1st........................................ $23.38 $18.19 $.13 $17.00 $14.25 $.114
2nd........................................ $23.50 $20.00 $.13 $17.71 $15.58 $.113
3rd........................................ $24.59 $21.56 $.13 $17.29 $15.25 $.113
4th........................................ $28.50 $23.09 $.15 $19.16 $16.25 $ .13
</TABLE>
On December 29, 1997, the Company distributed one additional share of
Common Stock of the Company, $1 par value, for every share of Common Stock
outstanding on December 5, 1997, pursuant to a two-for-one stock split.
27
<PAGE> 29
ITEM 6. SELECTED FINANCIAL DATA
The following financial data are an integral part of, and should be read in
conjunction with, the consolidated financial statements and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages F-1 THROUGH F-13 of this report.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- -------- --------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 4,409.6 $ 3,531.2 $ 2,855.7 $1,751.1 $1,793.4
Income from continuing operations(1)..... 350.5 362.3 299.4 164.9 185.4
Income from discontinued operations(2)... -- -- 1,018.8 94.0 46.4
Extraordinary loss(3).................... (79.1) -- -- (12.2) --
Diluted earnings per share:(4)
Income from continuing operations...... 1.04 1.07 .92 .51 .57
Income from discontinued operations.... -- -- 3.25 .30 .15
Extraordinary loss(3).................. (.24) -- -- (.04) --
Cash dividends per common share(4)....... .54 .47 .36 .28 .26
Total assets at December 31.............. 13,879.0 12,418.8 10,561.2 5,226.1 5,020.4
Long-term obligations at December 31..... 4,565.3 4,376.9 2,874.0 1,307.8 1,604.8
Stockholders' equity at December 31...... 3,571.7 3,421.0 3,187.1 1,505.5 1,724.0
</TABLE>
- - ---------------
(1) See Notes 2 and 6 of Notes to Consolidated Financial Statements for
discussion of the gain on sale of interest in subsidiary, significant asset
sales and write-offs in 1997, 1996 and 1995. Income from continuing
operations in 1994 includes a $22.7 million pre-tax gain from the sale of a
portion of Williams' interest in Northern Border Partners, L.P. Income from
continuing operations in 1993 includes a pre-tax gain of $51.6 million as a
result of the sale of 6.1 million units in the Williams Coal Seam Gas
Royalty Trust.
(2) See Note 3 of Notes to Consolidated Financial Statements for discussion of
the gain from the 1995 sale of discontinued operations. Amounts prior to
1995 reflect operating results of the network services' operations.
(3) See Note 8 of Notes to Consolidated Financial Statements for discussion of
the 1997 extraordinary loss.
(4) Per-share amounts reflect the adoption of Statement of Financial Accounting
Standards No. 128, "Earnings per Share," and the effect of the December 29,
1997, common stock split and distribution as discussed in Notes 1 and 15,
respectively, of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS, AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1997 vs. 1996
CENTRAL'S revenues increased $6 million, or 3 percent, due primarily to the
net effect of adjustments to certain accruals in 1997. Total throughput
decreased 4.2 TBtu, or 1 percent, due primarily to lower interruptible volumes.
Other (income) expense -- net includes a $7 million gain from the
sale-in-place of natural gas from a decommissioned storage field.
Operating profit increased $12.2 million, or 27 percent, due primarily to
the gain from the sale-in-place of natural gas, lower operating and maintenance
expenses, an increase in firm reserved capacity and lower general and
administrative expenses.
KERN RIVER GAS TRANSMISSION'S (KERN RIVER) revenues increased $6.5 million,
or 4 percent, due primarily to a full year of Williams' ownership in 1997 as
compared to 1996 and increased transportation revenues. Results for 1996 reflect
operations from January 16, 1996, when Williams acquired the remaining interest
in
F-1
<PAGE> 30
Kern River. Total throughput increased 15.5 TBtu, or 6 percent, due primarily to
the full year of Williams' ownership in 1997 and increased firm transportation
volumes during the last half of 1997.
Operating profit increased $7.3 million, or 6 percent, due primarily to the
full year of Williams' ownership in 1997, higher transportation revenues and
lower operations and maintenance expenses, partially offset by the impact of
Kern River's levelized rate design.
NORTHWEST PIPELINE'S revenues increased $3.4 million, or 1 percent, due
primarily to a new rate design, effective March 1, 1997, that enabled greater
short-term firm and interruptible transportation volumes and a $3.5 million gain
on the sale of system balancing gas. Largely offsetting these increases were $7
million of adjustments to rate refund accruals in 1997 and the effect of $9
million of revenue in 1996 associated with reserve reversals and favorable
regulatory decisions. Total throughput decreased 120.3 TBtu, or 14 percent, as a
result of the 1996 sale of the south-end facilities.
Operating profit decreased $900,000, or 1 percent, due primarily to the
combined impact of the increase to rate reserve accruals in 1997 and recognition
in 1996 of favorable regulatory actions, significantly offset by the new
transportation rates effective in 1997, lower operating and maintenance expenses
and the $3.5 million gain on the sale of system balancing gas.
TEXAS GAS TRANSMISSION'S revenues decreased $13.1 million, or 4 percent,
and costs and operating expenses decreased $13 million, or 8 percent, due
primarily to lower reimbursable costs passed through to customers as provided in
Texas Gas' rates including $6 million related to the suspension of gas supply
realignment cost recovery from firm transportation customers. Total throughput
decreased 20.9 TBtu, or 3 percent.
Operating profit increased $2.5 million, or 3 percent, due primarily to
cost reductions and efficiency efforts and the favorable resolutions in 1997 of
certain contractual and regulatory issues, partially offset by lower gas
processing revenue and favorable 1996 adjustments to rate refund accruals.
TRANSCONTINENTAL GAS PIPE LINE'S (TRANSCO) revenues increased $5.9 million,
or 1 percent, due primarily to the effects of a mainline expansion placed into
service in late 1996, new services begun in late 1997, new rates effective May
1, 1997, to recover costs associated with increased capital expenditures, and
the effects of a 1996 downward adjustment (offset in costs) of $14 million to
reflect a rate case settlement, partially offset by $23 million of lower
reimbursable costs passed through to customers as provided in Transco's rates.
Total throughput decreased 21.1 TBtu, or 1 percent, due primarily to milder
weather during 1997 as compared to 1996, which lowered firm long-haul and
production area interruptible transportation volumes.
Costs and operating expenses decreased $17.3 million, or 4 percent, due
primarily to the lower reimbursable costs charged to Transco and passed through
to customers, lower operation and maintenance expenses and a $5.4 million
settlement related to a prior rate proceeding, partially offset by the effect of
a 1996 downward adjustment (offset in revenues) of $14 million to depreciation
expense to reflect a rate case settlement and higher depreciation expense in
1997 associated with recent capital expenditures.
Operating profit increased $30.7 million, or 16 percent, due primarily to
lower operation and maintenance expenses, the $5.4 million settlement and the
effects of the mainline expansion, new services and the new rates effective May
1, 1997, slightly offset by higher depreciation expense.
ENERGY MARKETING & TRADING'S revenues decreased $125.3 million, or 48
percent, and costs and operating expenses decreased $141 million, or 93 percent,
due primarily to the 1997 reporting on a net margin basis of certain natural gas
and gas liquids marketing operations previously not considered to be included in
trading operations. Excluding this decrease, revenues increased $16 million due
primarily to the initial income recognition from long-term electric power
contracts, increased physical and notional natural gas volumes of 22 percent and
44 percent, respectively, and higher petroleum trading volumes, partially offset
by lower natural gas trading margins as a result of decreased price volatility.
Revenues also increased from project financing services for energy producers and
the sale of excess transportation capacity.
F-2
<PAGE> 31
Operating profit increased $4.2 million, or 6 percent, due primarily to the
$16 million increase in net revenues and a $6.3 million recovery of an account
previously written off, largely offset by the expenses associated with expansion
of business growth platforms.
EXPLORATION & PRODUCTION'S revenues increased $47.7 million, or 58 percent,
due primarily to higher average natural gas sales prices for company-owned
production and from the marketing of Williams Coal Seam Gas Royalty Trust
(Royalty Trust) natural gas, and a 21 percent increase in company-owned
production volumes.
Costs and operating expenses increased $23 million, or 32 percent, due
primarily to higher Royalty Trust natural gas purchase prices, increased
production activities and higher dry hole costs.
Operating profit increased $27.5 million, from $2.8 million in 1996, due
primarily to the increase in average natural gas prices and company-owned
production volumes, partially offset by higher expenses associated with
increased activity levels.
FIELD SERVICES' revenues increased $74 million, or 12 percent, due
primarily to higher natural gas liquids sales of $44 million, receipt of $8
million of business interruption insurance proceeds related to a 1996 claim, and
higher gathering, processing and condensate revenues of $7 million, $5 million
and $11 million, respectively. Natural gas liquids sales increased due to a 37
percent increase in volumes, slightly offset by lower average sales prices.
Costs and operating expenses increased $79 million, or 20 percent, due
primarily to $56 million higher fuel and replacement gas purchases, a $9 million
increase in operating and maintenance expenses, and $8 million higher
depreciation.
Other (income) expense -- net for 1996 includes a $20 million gain from the
property insurance coverage associated with construction of replacement
gathering facilities and $6 million of gains from the sale of two small
gathering systems, partially offset by $5 million of environmental remediation
accruals.
Operating profit decreased $24.4 million, or 13 percent, due primarily to
lower per-unit liquids margins, the $12 million net effect of lower insurance
recoveries between 1997 and 1996, higher operating and maintenance expenses,
increased depreciation, and higher gathering fuel and replacement gas purchase
costs, partially offset by increased liquids and processing volumes.
PETROLEUM SERVICES' revenues increased $55.4 million, or 11 percent, due
primarily to a $24 million increase in product sales from transportation
activities and a $27 million increase in ethanol sales. Ethanol sales increased
as a result of 22 percent higher sales volumes, partially offset by lower
average ethanol sales prices. Ethanol production was reduced during the second
half of 1996 due to unfavorable market conditions. Pipeline shipments and
average rates were comparable to 1996.
Costs and operating expenses increased $33 million, or 9 percent, due
primarily to the increase in refined product sales and ethanol production,
partially offset by lower corn costs.
Operating profit increased $21.3 million, or 28 percent, due primarily to
increased ethanol sales volumes and per-unit margins.
COMMUNICATIONS' revenues increased $734 million, or 103 percent, due
primarily to acquisitions which contributed revenues of approximately $650
million, including $536 million from the acquisition of the customer premise
equipment sales and services operations of Northern Telecom. Additionally,
increased business activity resulted in a $119 million revenue increase in new
system sales, partially offset by a $46 million decrease in system modification
revenues. The number of ports in service at December 31, 1997, more than doubled
as compared to December 31, 1996, due primarily to the Nortel acquisition. Fiber
billable minutes from occasional service increased 47 percent. Dedicated service
voice-grade equivalent miles at December 31, 1997, increased 26 percent as
compared with December 31, 1996.
Costs and operating expenses increased $550 million, or 102 percent, due
primarily to acquired operations, the overall increase in business activity,
higher expenses for developing advanced network applications and increased
depreciation associated with added capacity. Selling, general and administrative
F-3
<PAGE> 32
expenses increased $198 million, or 121 percent, due primarily to acquired
operations, the overall increase in business activity, higher expenses for
developing advanced network applications and expanding the infrastructure of
this business for future growth.
Other (income) expense -- net includes $49.8 million of charges in 1997
related to the decision to sell the learning content business, and the
write-down of assets and the development expenses associated with certain
advanced applications.
Operating profit decreased $62.3 million from a $6.6 million operating
profit in 1996 to a $55.7 million operating loss in 1997, due primarily to the
other expense charges of $49.8 million and the expense of developing
infrastructure while integrating the most recent acquisitions, partially offset
by improved operating profit from Communications Solutions including the impact
of the Nortel acquisition.
GENERAL CORPORATE EXPENSES increased $9.5 million, or 23 percent, due
primarily to costs related to the pending MAPCO acquisition and higher
consulting fees. Interest accrued increased $44.6 million, or 12 percent, due
primarily to higher borrowing levels including increased borrowing under the $1
billion bank-credit facility and Williams Holdings' commercial paper program,
partially offset by a lower average interest rate. The lower average interest
rate reflects lower rates on new 1997 borrowings as compared to previously
outstanding borrowings. Interest capitalized increased $9 million, or 132
percent, due primarily to capital expenditures for Communications' fiber-optic
network. For information concerning the 1997 gain on sale of interest in
subsidiary, see Note 2. The 1996 gain on sales of assets results from the sale
of certain communication rights. The minority interest in income of consolidated
subsidiaries in 1997 is related primarily to the 30 percent interest held by
Williams Communications Solutions, LLC's minority shareholders (see Note 2). The
$12 million unfavorable change in other income (expense) -- net in 1997 is due
primarily to the costs associated with expansion of the sale of receivables
program in 1997 and the effect of $10 million of reserve reversals in 1996,
partially offset by lower environmental accruals in 1997.
The provision for income taxes on continuing operations decreased $5.1
million, or 3 percent. The effective income tax rate in 1997 is less than the
federal statutory rate due primarily to the effect of the non-taxable gain
recognized in 1997 (see Note 2) and income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. The effective
tax rate in 1996 is less than the federal statutory rate due primarily to income
tax credits from research activities and coal-seam gas production, partially
offset by the effects of state income taxes. In addition, 1996 includes
recognition of favorable adjustments totaling $13 million related to previously
provided deferred income taxes on certain regulated capital projects and state
income tax adjustments.
The 1997 extraordinary loss results from the early extinguishment of debt
(see Note 8).
1996 vs. 1995
CENTRAL'S revenues increased $4.1 million, or 2 percent, due primarily to
increased transportation revenue resulting from new tariff rates that became
effective August 1, 1995. Total throughput increased 6.9 TBtu, or 2 percent.
Operating profit was substantially the same as the prior year as the effect
of a $4 million 1995 reversal of a regulatory accrual was offset by new tariff
rates that became effective August 1, 1995.
KERN RIVER'S remaining interest was acquired by Williams on January 16,
1996. Revenues and operating profit amounts for 1996 include the operating
results of Kern River since the acquisition date. Kern River's revenues were
$160.6 million for 1996, while costs and operating expenses were $35 million,
selling, general and administrative expenses were $13 million and operating
profit was $113 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. Throughput was 269.9 TBtu
during 1996 (for the period subsequent to the acquisition date). Throughput for
1996 is comparable to 1995.
NORTHWEST PIPELINE'S revenues increased $14.5 million, or 6 percent, due
primarily to increased transportation rates, effective February 1, 1996,
associated with the expansion of mainline capacity placed into
F-4
<PAGE> 33
service on December 1, 1995. In addition, $9 million of revenue in 1996
associated with reserve reversals and favorable regulatory decisions was more
than offset by the effect of the 1995 reversal of approximately $16 million of
accrued liabilities for estimated rate refund accruals. Total throughput
increased 8 TBtu, or 1 percent.
Operating profit increased $9.2 million, or 8 percent, due primarily to
increased transportation rates associated with the expansion of mainline
capacity, and the reserve reversals and favorable regulatory decisions.
Partially offsetting were higher depreciation expense associated with the
mainline expansion and the approximate $11 million net favorable effect of two
1995 reserve accrual adjustments. The 1995 reserve accrual adjustments included
a $16 million favorable adjustment of rate refund accruals based on a favorable
rate case order, partially offset by a loss accrual (included in other (income)
expense -- net) in connection with a lawsuit involving a former transportation
customer.
TEXAS GAS TRANSMISSION'S revenues and operating profit increased $29.8
million, or 11 percent, and $21.1 million, or 33 percent, respectively, due
primarily to new rates that became effective April 1, 1995, and an adjustment to
regulatory accruals based upon a recent rate case settlement. Also, 1995
reflected operations from January 18, when Williams acquired a majority interest
in Transco Energy. Revenues associated with the period January 1 through January
17, 1995, were $16 million. Total throughput increased 141.1 TBtu, or 22
percent, due primarily to a full year of Williams' ownership in 1996 compared to
a partial year in 1995 and the impact of a colder winter in 1996.
TRANSCO'S revenues increased $35.1 million, or 5 percent, due primarily to
higher natural gas transportation revenues and liquids and liquefiable
transportation revenues of $20 million and $9 million, respectively.
Additionally, revenue for 1996 reflects a full year of Williams' ownership as
compared with 1995, which reflected operations from January 18, 1995, when
Williams acquired a majority interest in Transco Energy. Revenues associated
with the period January 1 through January 17, 1995, were approximately $36
million. Offsetting these increases were lower revenues resulting from lower
transportation costs charged to Transco by others and passed through to
customers as provided in Transco's rates. Transportation revenues increased due
primarily to increased long-haul throughput, which benefitted from a two-phase
system expansion placed in service in late 1996 and late 1995, and new rates
effective September 1, 1995, which allowed the passthrough of increased costs.
Total throughput increased 176.1 TBtu, or 12 percent, due primarily to a full
year of Williams' ownership in 1996 compared to a partial year in 1995.
Operating profit increased $29.6 million, or 18 percent, due primarily to
increased transportation revenues, lower general and administrative expenses and
a full year of Williams' ownership in 1996, partially offset by higher operation
and maintenance expenses and higher taxes other than income taxes.
ENERGY MARKETING & TRADING'S revenues increased $107.6 million, or 70
percent, due primarily to higher natural gas and gas liquids marketing,
price-risk management activities and petroleum product marketing of $77 million,
$24 million and $18 million, respectively, partially offset by lower contract
origination revenues of $10 million. Natural gas and gas liquids marketing
revenues increased due to higher marketing volumes and prices. In addition, net
physical trading revenues increased $3 million, due to a 19 percent increase in
natural gas physical trading volumes from 754 TBtu to 896 TBtu, largely offset
by lower physical trading margins.
Costs and operating expenses increased $73 million, or 94 percent, due
primarily to higher natural gas purchase volumes and prices.
Operating profit increased $33.2 million, or 100 percent, due primarily to
higher price-risk management revenues, a reduction of development costs
associated with its information products business and increased natural gas
marketing volumes. Partially offsetting were higher selling, general and
administrative expenses and lower contract origination revenues resulting from
the impact of profits realized from certain long-term natural gas supply
obligations in 1995.
EXPLORATION & PRODUCTION'S revenues increased $19.5 million, or 31 percent,
due primarily to higher revenues from the marketing of production from the
Royalty Trust and increased production revenues of $9 million and $8 million,
respectively. The increase in marketing revenues reflects both increased volumes
and higher average gas prices. The increase in production revenues reflects
higher average gas prices.
F-5
<PAGE> 34
Costs and operating expenses increased $18 million due primarily to higher
Royalty Trust natural gas purchase costs. Other (income) expense -- net in 1995
includes an $8 million loss accrual for a future minimum price natural gas
commitment.
Operating profit increased $8.7 million to $2.8 million in 1996 due
primarily to the effect of the $8 million 1995 loss accrual.
FIELD SERVICES' revenues increased $83.4 million, or 16 percent, due
primarily to higher natural gas liquids sales revenues of $64 million combined
with higher gathering and processing revenues of $6 million and $13 million,
respectively. Natural gas liquids sales revenues increased due to a 36 percent
increase in volumes combined with higher average prices. Gathering and
processing volumes each increased 19 percent while average gathering rates
decreased.
Costs and operating expenses increased $52 million, or 15 percent, due
primarily to higher fuel and replacement gas purchases, expanded facilities and
increased operations. Other (income) expense -- net for 1996 includes a $20
million gain from the property insurance coverage associated with construction
of replacement gathering facilities and $6 million of gains from the sale of two
small gathering systems, partially offset by $5 million of environmental
remediation accruals. Other (income) expense -- net for 1995 includes $20
million in operating profit from a favorable resolution of contingency issues
involving previously regulated gathering and processing assets.
Operating profit increased $26.4 million, or 16 percent, due primarily to
higher natural gas liquids margins and higher gathering and processing revenues,
partially offset by higher costs and operating expenses. Operating profit was
favorably impacted in both 1996 and 1995 by approximately $20 million of other
income.
PETROLEUM SERVICES' revenues increased $165.2 million, or 50 percent, due
primarily to an increase in transportation activities and ethanol sales of $31
million and $133 million, respectively. Revenues from transportation activities
increased due primarily to a 10 percent increase in shipments and a $14 million
increase in product sales. Shipments increased as a result of new business and
the 1995 impacts of unfavorable weather conditions and a fire at a truck-loading
rack. Average length of haul and transportation rate per barrel were slightly
below 1995 due primarily to shorter haul movements. Ethanol revenues increased
following the August 1995 acquisition of Pekin Energy and the fourth-quarter
1995 completion of the Aurora plant.
Costs and operating expenses increased $155 million, or 68 percent, due
primarily to a full year of ethanol production activities.
Operating profit increased $6.5 million, or 9 percent, due primarily to
increased shipments, partially offset by lower ethanol margins and production
levels as a result of record high corn prices.
COMMUNICATIONS' revenues increased $172.4 million, or 32 percent, due
primarily to the 1996 acquisitions which contributed revenues of $95 million.
Additionally, increased business activity resulted in a $36 million revenue
increase in new systems sales and a $16 million increase in digital fiber
television services. The number of ports in service at December 31, 1996,
increased 8 percent and billable minutes from occasional service increased 16
percent. Dedicated service voice-grade equivalent miles at December 31, 1996,
decreased 6 percent as compared with December 31, 1995, which in part reflects a
shift to occasional service.
Costs and operating expenses increased $126 million, or 31 percent, and
selling, general and administrative expenses increased $63 million, or 62
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 $18.4 million, or 74 percent, due primarily to
the expenses of developing additional products and services along with
integrating the most recent acquisitions.
GENERAL CORPORATE EXPENSES increased $3.7 million, or 10 percent, due
primarily to higher employee compensation expense and consulting fees, partially
offset by the effect of a $5 million contribution in 1995 to The Williams
Companies Foundation. Interest accrued increased $82 million, or 30 percent, due
primarily to higher borrowing levels including debt associated with the January
1996 acquisition of the remaining interest in Kern River (see Note 2), slightly
offset by lower average interest rates. Interest capitalized decreased
F-6
<PAGE> 35
$7.6 million, or 53 percent, due primarily to lower capital expenditures for
gathering and processing facilities and the 1995 completion of Northwest
Pipeline's mainline expansion. Investing income decreased $75.1 million, or 80
percent, due primarily to the effect of interest earned in 1995 on the invested
portion of the cash proceeds from the sale of Williams' network services
operations, a $15 million dividend in 1995 from Texasgulf Inc. (sold in 1995),
and $31 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 2). The 1996 gain on sales of assets
results from the sale of certain communication rights. The 1995 loss on sales of
assets results from the sale of the 15 percent interest in Texasgulf Inc. The
1995 write-off of project costs results from the cancellation of an underground
coal gasification project in Wyoming (see Note 6). Minority interest in income
of consolidated subsidiaries in 1995 is associated with the Transco merger. The
$2 million favorable change in other income (expense) -- net in 1996 is due
primarily to approximately $10 million of reserve reversals in 1996, partially
offset by higher environmental accruals of $4 million and additional expense of
international activities.
The $81.1 million, or 79 percent, increase in the provision for income
taxes on continuing operations is primarily a result of higher pre-tax income
and a higher effective income tax rate. The increase in the effective income tax
rate is the result of the 1995 recognition of $29.8 million of previously
unrecognized tax benefits realized as a result of the sale of Texasgulf Inc.
(see Note 6). The effective income tax rate in 1996 is less than the federal
statutory rate due primarily to income tax credits from research activities and
coal-seam gas production, partially offset by the effects of state income taxes.
In addition, 1996 includes recognition of favorable adjustments totaling $13
million related to 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 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, 1995
includes the previously unrecognized tax benefits related to the sale of
Texasgulf Inc. (see Note 6) and recognition of an $8 million income tax benefit
resulting from settlements with taxing authorities (see Note 7).
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 3).
Preferred stock dividends decreased $4.9 million, or 32 percent, due
primarily to the 1995 effect of a difference in the fair value of subordinated
debentures issued and the carrying value of the exchanged $2.21 cumulative
preferred stock (see Note 15).
FINANCIAL CONDITION AND LIQUIDITY
Debt Restructuring
In September 1997, Williams initiated a restructuring of a portion of its
debt portfolio (see Note 14). As of December 31, 1997, Williams has paid
approximately $1.4 billion to redeem approximately $1.3 billion of debt with
stated interest rates in excess of 8.8 percent, resulting in an extraordinary
loss of $79.1 million (see Note 8). The restructuring is expected to reduce
interest expense by approximately $25 million annually. The restructuring was
temporarily financed with a combination of borrowings under the $1 billion
bank-credit facility, commercial paper and new short-term bank agreements with
commitments totaling $1.2 billion. Registration statements were filed with the
Securities and Exchange Commission in September 1997 by Williams, Williams
Holdings of Delaware, Northwest Pipeline and Transcontinental Gas Pipe Line
(each a wholly-owned subsidiary of Williams). These additional filings brought
the total shelf financing availability to $900 million, $820 million, $400
million and $500 million, respectively, prior to the restructuring. During the
fourth quarter of 1997 and January 1998, $1.1 billion of debentures and notes
with interest rates ranging from 5.91 percent to 6.625 percent were issued under
these registration statements in connection with the restructuring. The
restructuring is expected to be completed during the first quarter of 1998 with
the issuance of additional long-term debt securities.
F-7
<PAGE> 36
Liquidity
Williams considers its liquidity to come from two sources: internal
liquidity, consisting of available cash investments, and external liquidity,
consisting of borrowing capacity from available bank-credit facilities and
Williams Holdings' commercial paper program, which can be utilized without
limitation under existing loan covenants. At December 31, 1997, Williams had
access to $155 million of liquidity including $132 million available under its
$1 billion bank-credit facility. This compares with liquidity of $550 million at
December 31, 1996, and $656 million at December 31, 1995. The decrease in 1997
is due primarily to additional borrowings under the bank-credit facility to
finance increased capital expenditures and to provide interim financing related
to the debt restructuring program.
During 1997, Williams Holdings entered into a commercial paper program
backed by $650 million of new short-term bank-credit facilities. At December 31,
1997, $645 million of commercial paper was outstanding under the program. After
completion of the debt restructuring, Williams expects approximately $1 billion
of shelf availability to remain under outstanding registration statements. These
registration statements may be used to issue a variety of debt or equity
securities. In addition, short-term uncommitted bank lines are utilized in
managing liquidity. Williams believes any additional financing arrangements can
be obtained on reasonable terms if required.
Williams had a net working-capital deficit of $772 million at December 31,
1997, compared with $309 million at December 31, 1996. Williams manages its
borrowings to keep cash and cash equivalents at a minimum and has relied on
bank-credit facilities to provide flexibility for its cash needs. As a result,
it historically has reported negative working capital. The increase in the
working-capital deficit at December 31, 1997, as compared to prior year-end is
primarily a result of short-term borrowings under the commercial paper program.
Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries. The restrictions have not impeded, nor are they expected
to impede, Williams' ability to meet its cash requirements in the future.
During 1998, Williams expects to finance capital expenditures, investments
and working-capital requirements through cash generated from operations and the
use of the available portion of its $1 billion bank-credit facility, commercial
paper, short-term uncommitted bank lines and debt or equity public offerings.
Operating Activities
Cash provided by operating activities was: 1997 -- $920 million;
1996 -- $710 million; and 1995 -- $829 million. Receivables, inventories and
accounts payable increased due primarily to the combination of customer
equipment sales and services operations with Nortel (see Note 2) and increased
trading activities by Energy Marketing & Trading.
Financing Activities
Net cash provided (used) by financing activities was: 1997 -- $317 million;
1996 -- $734 million; and 1995 -- ($1.4) billion. Long-term debt principal
payments, net of debt proceeds, were $161 million during 1997, and notes payable
proceeds, net of notes payable payments, were $615 million during 1997. The
increase in notes payable at December 31, 1997, reflects borrowings under the
new commercial paper program to fund capital expenditures, investments and
acquisition of businesses. Long-term debt proceeds, net of principal payments,
were $609 million during 1996. The increase in net new borrowings during 1996
was primarily to fund capital expenditures, investments and acquisitions of
businesses. Long-term debt principal payments, net of debt proceeds, were $610
million during 1995. The net payments in 1995 were primarily a result of
payments Williams made to retire and/or terminate approximately $700 million of
Transco Energy's borrowings, preferred stock, interest-rate swaps and sale of
receivable facilities in connection with the acquisition of Transco Energy.
F-8
<PAGE> 37
The proceeds from issuance of common stock in 1997, 1996 and 1995 include
Williams' benefit plan stock purchases and exercise of stock options under
Williams' stock plan. The 1995 proceeds from issuance of common stock also
includes $46.2 million from the sale of 3.6 million shares of Williams common
stock.
The 1996 purchases of Williams' treasury stock include 1.9 million shares
of common stock on the open market for $31 million. The Williams' board of
directors authorized up to $800 million of such purchases. No additional shares
were purchased during 1997, and Williams' board of directors terminated the
repurchase program during the fourth quarter of 1997.
Long-term debt at December 31, 1997, was $4.6 billion, compared with $4.4
billion at December 31, 1996, and $2.9 billion at December 31, 1995. At December
31, 1997 and 1996, $560 million and $200 million, respectively, in current debt
obligations have been classified as non-current obligations based on Williams'
intent and ability to refinance on a long-term basis. The 1996 increase in
long-term debt is due primarily to the $643 million outstanding debt assumed
with the acquisition of Kern River (see Note 2), $300 million in additional
borrowings under the $1 billion bank-credit facility and $250 million of debt
issued by Williams Holdings. The long-term debt to debt-plus-equity ratio was
56.1 percent for 1997 and 1996 compared to 47.4 percent at December 31, 1995. If
short-term notes payable and long-term debt due within one year are included in
the calculations, these ratios would be 59.7 percent, 57.9 percent and 50.1
percent, respectively.
Investing Activities
Net cash provided (used) by investing activities was: 1997 -- ($1.3)
billion; 1996 -- ($1.4) billion; and 1995 -- $585 million. Capital expenditures
of gas pipeline subsidiaries, primarily to expand and modernize systems, were
$419 million in 1997, $441 million in 1996, and $445 million in 1995.
Expenditures in 1997 and 1996 include Transcontinental Gas Pipe Line's
expansion; expenditures in 1995 include Transcontinental Gas Pipe Line and
Northwest Pipeline's expansions. Capital expenditures of Energy Services,
primarily to expand and modernize gathering and processing facilities, were $305
million in 1997, $292 million in 1996, and $336 million in 1995. Capital
expenditures of Communications were $276 million in 1997, $67 million in 1996,
and $32 million 1995. The 1997 expenditures include the fiber-optic network.
Budgeted capital expenditures and investments for 1998 are estimated to be
approximately $2.5 billion, primarily to expand and modernize pipeline systems,
gathering and processing facilities and the fiber-optic network. If the pending
MAPCO acquisition is completed, budgeted capital expenditures will increase an
estimated $400 million.
On April 30, 1997, Williams and Northern Telecom (Nortel) combined their
customer-premise equipment sales and services operations into a limited
liability company, Williams Communications Solutions, LLC (LLC). In addition,
Williams paid $68 million to Nortel. Williams has accounted for its 70 percent
interest in the operations that Nortel contributed to the LLC as a purchase
business combination. Williams recorded the 30 percent reduction in its
operations contributed to the LLC as a sale to the minority shareholders of the
LLC (see Note 2). During 1997, Williams also purchased a 20 percent interest in
a foreign telecommunications business for $65 million in cash. During 1996,
Williams acquired the remaining interest in Kern River for $206 million cash
(see Note 2). In addition, during 1996 Williams acquired various communications
technology businesses totaling $165 million in cash. In 1995, Williams acquired
all of Transco Energy's outstanding common stock for cash of $430.5 million and
31.2 million shares of Williams common stock valued at $334 million (see Note
2). During 1995, Williams also acquired the Gas Company of New Mexico's natural
gas gathering and processing assets in the San Juan and Permian basins for $154
million and Pekin Energy Co., the nation's second largest ethanol producer, for
$167 million in cash.
During 1995, Williams received proceeds of $2.5 billion in cash from the
sale of its network services operations (see Note 3) and proceeds of $124
million from the sale of its 15 percent interest in Texasgulf Inc. (see Note 6).
NEW ACCOUNTING STANDARDS
See Note 1 for the effects of Statement of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."
F-9
<PAGE> 38
MAPCO ACQUISITION
On November 24, 1997, Williams and MAPCO Inc. announced that they had
entered into a definitive merger agreement whereby Williams would acquire MAPCO
by exchanging 1.665 share of Williams common stock for each outstanding share of
MAPCO common stock. In addition, outstanding MAPCO employee stock options would
be converted into Williams common stock. Based on the closing market price of
Williams common stock on December 31, 1997, approximately 96.8 million shares of
Williams common stock valued at approximately $2.8 billion would be issued in
the transaction (see Note 19). The transaction closed on March 28, 1998.
EFFECTS OF INFLATION
Williams has experienced increased costs in recent years due to the effects
of inflation. However, approximately 66 percent of Williams' property, plant and
equipment has been acquired or constructed since 1995, a period of relatively
low inflation. A substantial portion of Williams' property, plant and equipment
is subject to regulation, which limits recovery to historical cost. While
Williams believes it will be allowed the opportunity to earn a return based on
the actual cost incurred to replace existing assets, competition or other market
factors may limit the ability to recover such increased costs.
ENVIRONMENTAL
Williams is a participant in certain environmental activities in various
stages involving assessment studies, cleanup operations and/or remedial
processes. The sites, some of which are not currently owned by Williams (see
Note 18), are being monitored by Williams, other potentially responsible
parties, the U.S. Environmental Protection Agency (EPA), or other governmental
authorities in a coordinated effort. In addition, Williams maintains an active
monitoring program for its continued remediation and cleanup of certain sites
connected with its refined products pipeline activities. Williams has both joint
and several liability in some of these activities and sole responsibility in
others. Current estimates of the most likely costs of such cleanup activities,
after payments by other parties, are approximately $73 million, all of which is
accrued at December 31, 1997. Williams expects to seek recovery of approximately
$41 million of the accrued costs through future natural gas transmission rates.
Williams will fund these costs from operations and/or available bank-credit
facilities. The actual costs incurred will depend on the final amount, type and
extent of contamination discovered at these sites, the final cleanup standards
mandated by the EPA or other governmental authorities, and other factors.
YEAR 2000 COMPLIANCE
Williams has initiated an enterprise-wide project to address the year 2000
compliance issue for all technology hardware and software, external interfaces
with customers and suppliers, operations process control, automation and
instrumentation systems, and facility items. The assessment phase of this
project as it relates to traditional information technology areas should be
substantially complete by the end of the first quarter of 1998. Completion of
the assessment phase for non-traditional information technology areas is
expected in mid-1998. Necessary conversion and replacement activities will begin
in 1998 and continue through mid-1999. Testing of systems has begun and will
continue throughout the process. Williams has initiated a formal communications
process with other companies with which Williams' systems interface or rely on
to determine the extent to which those companies are addressing their year 2000
compliance, and where necessary, Williams will be working with those companies
to mitigate any material adverse effect on Williams.
Williams expects to utilize both internal and external resources to
complete this process. Existing resources will be redeployed and previously
planned system replacements will be accelerated during this time. For example,
implementation of previously planned financial and human resources systems is
currently in process. These systems will address the year 2000 compliance issues
in certain areas. Costs incurred for new software and hardware purchases will be
capitalized and other costs will be expensed as incurred. For the regulated
pipelines, Williams considers costs associated with the year 2000 compliance to
be prudent costs
F-10
<PAGE> 39
incurred in the ordinary course of business, and, therefore, recoverable through
rates. While the total cost of this project is still being evaluated, Williams
estimates that external costs, excluding previously planned system replacements,
necessary to complete the project within the schedule described will total at
least $15 million. Williams will update this estimate as additional information
becomes available. The costs of the project and the completion dates are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party year 2000 compliance modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from these estimates.
MARKET RISK DISCLOSURES
Interest Rate Risk
Williams' interest rate risk exposure results from short-term rates,
primarily LIBOR based borrowings from commercial banks and the issuance of
commercial paper, and long-term U.S. Treasury rates. To mitigate the impact of
fluctuations in interest rates, Williams targets to maintain a significant
portion of its debt portfolio in fixed rate debt. At December 31, 1997, the
amount of Williams' fixed and variable rate debt was approximately the same as a
result of a debt restructuring program begun in 1997 where Williams extinguished
higher cost long-term debt. During early 1998, the percent of fixed rate debt
will increase to targeted levels as Williams completes issuing long-term debt
under the restructuring program and repays its interim financings. The maturity
of Williams' long-term debt portfolio is influenced by the life of its operating
assets. Williams also utilizes interest rate swaps to change the ratio of its
fixed and variable rate debt portfolio based on management's assessment of
future interest rates, volatility of the yield curve and Williams' ability to
access the capital markets in a timely manner. Williams has entered into
interest rate forward contracts to establish an effective borrowing rate for
anticipated long-term debt issuances.
F-11
<PAGE> 40
The following table provides information about Williams' notes payable,
long-term debt, interest rate swaps and interest rate forward contracts that are
subject to interest rate risk. For notes payable and long-term debt, the table
presents principal cash flows and weighted average interest rates by expected
maturity dates. For interest rate swaps and interest rate forward contracts, the
table presents notional amounts and weighted average interest rates by
contractual maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the interest rate swaps and the
settlement amounts under the interest rate forward contracts.
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
1998 1999 2000 2001 2002 THEREAFTER TOTAL 1997
------ ---- ---- ---- ------ ---------- ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable...................... $ 693 $ -- $ -- $ -- $ -- $ -- $ 693 $ 693
Interest rate...................... 6.6%
Long-term debt, including current
portion:
Fixed rate....................... $ 40 $219 $251 $776 $ 441 $1,373 $3,100 $3,188
Interest rate.................... 7.4% 7.4% 7.4% 7.4% 7.4% 7.4%
Variable rate.................... $ -- $130 $ -- $276 $1,071 $ 28 $1,505 $1,505
Interest rate(1).................
Interest rate swaps:
Pay variable/receive fixed....... $ 36 $ 42 $ 47 $461 $ -- $ 450 $1,036 $ 9
Pay rate(2)......................
Receive rate..................... 6.3% 6.3% 6.4% 6.4% 6.8% 6.5%
Pay fixed/receive variable(3).... $ 36 $172 $ 47 $ 53 $ 59 $ 349 $ 716 $ (56)
Pay rate......................... 7.8% 7.8% 7.8% 8.0% 8.0% 8.0%
Receive rate(4)..................
Interest rate forward contracts
purchased related to anticipated
long-term debt issuances......... $1,150 $ -- $ -- $ -- $ -- $ -- $1,150 $ (8)
</TABLE>
Average locked in rate of 5.9 percent referenced to underlying Treasury
securities having a weighted-average maturity of 6 years.
(1) LIBOR plus .33 percent.
(2) LIBOR, except $250 million notional amount maturing after 2002 is at LIBOR
less 1.04 percent.
(3) Counterparties have an option to cancel all outstanding swaps in 2001.
(4) LIBOR.
Commodity Price Risk
Energy Marketing & Trading has trading operations that provide price risk
management services to third-party customers. The trading operations have
commodity price risk exposure associated with the crude oil, natural gas,
refined products, natural gas liquids and electricity energy markets in the
United States and the natural gas markets in Canada. The trading operations
enter into energy-related financial instruments (forward contracts, futures
contracts, option contracts and swap agreements) and have commodity inventories
and purchase and sale commitments which involve the physical delivery of an
energy commodity. These financial instruments and physical positions and
commitments are valued at market value and unrealized gains and losses from
changes in market value are recognized in income. The trading operations are
subject to risk from changes in energy commodity market prices, the portfolio
position of its financial instruments and physical commitments, the liquidity of
the market in which the contract is transacted, changes in interest rates and
credit risk. Energy Marketing & Trading manages risk by maintaining its
portfolio within established trading policy guidelines. A Risk Control Group,
independent of the trading operations, monitors compliance with established
trading policy guidelines and measures the risk associated with the trading
portfolio.
Energy Marketing & Trading uses a value at risk methodology to estimate the
potential one day loss from adverse changes in the market value of its trading
operations. At December 31, 1997, the value at risk for the trading operations
is $4 million. This reflects a 97.5 percent probability that as a result of
changes in
F-12
<PAGE> 41
commodity prices, the one day loss in the market value of the trading portfolio
will not exceed the value at risk. The value at risk includes all the financial
instruments and physical positions and commitments that expose the trading
operations to market risk. The value-at-risk model estimates assume normal
market conditions based upon historical market prices. Value at risk does not
purport to represent actual losses in market value that could be incurred from
the trading portfolio, nor does it consider that changing our trading portfolio
in response to market conditions could affect market prices and could take
longer to execute than the one-day holding period assumed in our value at risk
model.
Foreign Currency Risk
Williams has investments in companies whose operations are located in
foreign countries, of which $87 million are accounted for using the cost method.
Fair value for the cost method investments is deemed to approximate their
carrying amount, because estimating cash flows by year is not practicable given
that the time frame for selling these investments is uncertain. Williams'
financial results could be affected if the investments incur a permanent decline
in value as a result of changes in foreign currency exchange rates and the
economic conditions in foreign countries. Williams attempts to mitigate these
risks by investing in different countries and business segments. Approximately
80 percent of the cost method investments are in Asian countries and 20 percent
in South American countries. Of the Asian investments, approximately 50 percent
are in countries whose currencies have recently suffered significant
devaluations and volatility. The ultimate duration and severity of the
conditions in Asia remains uncertain as does the long-term impact on Williams'
investments.
F-13
<PAGE> 42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-15
Consolidated Statement of Income............................ F-16
Consolidated Balance Sheet.................................. F-17
Consolidated Statement of Stockholders' Equity.............. F-18
Consolidated Statement of Cash Flows........................ F-19
Notes to Consolidated Financial Statements.................. F-20
Quarterly Financial Data (Unaudited)........................ F-47
</TABLE>
F-14
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of
The Williams Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Williams
Companies, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Williams Companies, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 13, 1998
F-15
<PAGE> 44
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Gas Pipelines (Note 4).................................... $1,683.9 $1,675.2 $1,431.1
Energy Services (Note 4).................................. 1,504.9 1,453.1 1,077.4
Communications (Note 2)................................... 1,445.3 711.3 538.9
Other..................................................... 38.4 48.0 17.4
Intercompany eliminations (Note 17)....................... (262.9) (356.4) (209.1)
-------- -------- --------
Total revenues.................................... 4,409.6 3,531.2 2,855.7
-------- -------- --------
Profit-center costs and expenses:
Costs and operating expenses.............................. 2,664.5 2,064.1 1,700.7
Selling, general and administrative expenses.............. 780.1 585.5 488.8
Other (income) expense--net (Note 6)...................... 38.6 (19.8) (4.5)
-------- -------- --------
Total profit-center costs and expenses............ 3,483.2 2,629.8 2,185.0
-------- -------- --------
Operating profit:
Gas Pipelines (Note 4).................................... 614.2 562.4 389.7
Energy Services (Note 4).................................. 360.9 332.3 257.5
Communications (Notes 2 and 6)............................ (55.7) 6.6 25.0
Other..................................................... 7.0 .1 (1.5)
-------- -------- --------
Total operating profit............................ 926.4 901.4 670.7
-------- -------- --------
General corporate expenses.................................. (50.9) (41.4) (37.7)
Interest accrued............................................ (404.5) (359.9) (277.9)
Interest capitalized........................................ 15.9 6.9 14.5
Investing income (Note 5)................................... 19.2 18.8 93.9
Gain on sale of interest in subsidiary (Note 2)............. 44.5 -- --
Gain (loss) on sales of assets (Note 6)..................... -- 15.7 (12.6)
Write-off of project costs (Note 6)......................... -- -- (41.4)
Minority interest in income of consolidated subsidiaries
(Note 2).................................................. (14.0) -- (10.0)
Other income (expense)--net................................. (8.1) 3.9 1.9
-------- -------- --------
Income from continuing operations before income taxes....... 528.5 545.4 401.4
Provision for income taxes (Note 7)......................... 178.0 183.1 102.0
-------- -------- --------
Income from continuing operations........................... 350.5 362.3 299.4
Income from discontinued operations (Note 3)................ -- -- 1,018.8
-------- -------- --------
Income before extraordinary loss............................ 350.5 362.3 1,318.2
Extraordinary loss (Note 8)................................. (79.1) -- --
-------- -------- --------
Net income.................................................. 271.4 362.3 1,318.2
Preferred stock dividends (Note 15)......................... 9.8 10.4 15.3
-------- -------- --------
Income applicable to common stock........................... $ 261.6 $ 351.9 $1,302.9
======== ======== ========
Basic earnings per common share (Notes 1 and 9):
Income from continuing operations......................... $ 1.06 $ 1.10 $ .94
Income from discontinued operations (Note 3).............. -- -- 3.36
-------- -------- --------
Income before extraordinary loss.......................... 1.06 1.10 4.30
Extraordinary loss (Note 8)............................... (.25) -- --
-------- -------- --------
Net income........................................ $ .81 $ 1.10 $ 4.30
-------- -------- --------
Diluted earnings per common share (Notes 1 and 9):
Income from continuing operations......................... $ 1.04 $ 1.07 $ .92
Income from discontinued operations (Note 3).............. -- -- 3.25
-------- -------- --------
Income before extraordinary loss.......................... 1.04 1.07 4.17
Extraordinary loss (Note 8)............................... (.24) -- --
-------- -------- --------
Net income........................................ $ .80 $ 1.07 $ 4.17
======== ======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE> 45
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 81.3 $ 115.3
Receivables less allowance of $19.3 ($9.7 in 1996)........ 1,200.5 952.9
Transportation and exchange gas receivable................ 130.4 117.7
Inventories (Note 11)..................................... 300.5 204.6
Commodity trading assets.................................. 180.3 147.2
Deferred income taxes (Note 7)............................ 224.6 199.5
Other..................................................... 138.3 152.9
--------- ---------
Total current assets.............................. 2,255.9 1,890.1
Investments (Note 5)........................................ 291.4 190.6
Property, plant and equipment--net (Note 12)................ 10,055.6 9,386.3
Goodwill and other intangible assets--net (Notes 1 and 2)... 435.2 198.1
Other assets and deferred charges........................... 840.9 753.7
--------- ---------
Total assets...................................... $13,879.0 $12,418.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 14)................................... $ 693.0 $ 269.5
Accounts payable (Note 13)................................ 886.3 683.3
Transportation and exchange gas payable................... 67.7 73.7
Accrued liabilities (Note 13)............................. 1,157.3 975.3
Commodity trading liabilities............................. 182.0 137.9
Long-term debt due within one year (Note 14).............. 41.1 59.6
--------- ---------
Total current liabilities......................... 3,027.4 2,199.3
Long-term debt (Note 14).................................... 4,565.3 4,376.9
Deferred income taxes (Note 7).............................. 1,718.9 1,626.6
Other liabilities........................................... 878.6 787.5
Minority interest in consolidated subsidiaries (Note 2)..... 117.1 7.5
Contingent liabilities and commitments (Note 18)
Stockholders' equity (Note 15):
Preferred stock, $1 par value, 30,000,000 shares
authorized, 2,497,472 shares issued in 1997 and
3,241,552 shares issued in 1996........................ 142.2 161.0
Common stock, $1 par value, 480,000,000 shares authorized,
325,065,668 shares issued in 1997 and 320,428,326
shares issued in 1996.................................. 325.1 320.4
Capital in excess of par value............................ 957.6 887.5
Retained earnings......................................... 2,209.4 2,119.5
Other..................................................... (4.5) (2.2)
--------- ---------
3,629.8 3,486.2
Less treasury stock (at cost), 4,879,127 shares of common
stock in 1997 and 5,474,674 shares of common stock in
1996................................................... (58.1) (65.2)
--------- ---------
Total stockholders' equity........................ 3,571.7 3,421.0
--------- ---------
Total liabilities and stockholders' equity........ $13,879.0 $12,418.8
========= =========
</TABLE>
See accompanying notes.
F-17
<PAGE> 46
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN
PREFERRED COMMON EXCESS RETAINED TREASURY
STOCK STOCK PAR VALUE EARNINGS OTHER STOCK TOTAL
--------- ------ ---------- -------- ----- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994................ $100.0 $313.2 $782.2 $ 716.5 $(1.3) $(405.1) $1,505.5
Net income -- 1995........................ -- -- -- 1,318.2 -- -- 1,318.2
Cash dividends --
Common stock ($.36 per share)........... -- -- -- (107.2) -- -- (107.2)
Preferred stock (Note 15)............... -- -- -- (11.9) -- -- (11.9)
Issuance of shares --
38,639,762 common....................... -- 2.8 56.9 -- (1.7) 352.7 410.7
2,500,000 preferred..................... 142.5 -- -- -- -- -- 142.5
Exchange of shares for debentures --
2,760,548 preferred (Note 15)........... (69.0) -- (3.5) -- -- -- (72.5)
Purchase of treasury stock -- 142,800
preferred............................... -- -- -- -- -- (3.7) (3.7)
Tax benefit of stock-based awards......... -- -- 4.8 -- -- -- 4.8
Amortization of deferred compensation..... -- -- -- -- .7 -- .7
------ ------ ------ -------- ----- ------- --------
Balance, December 31, 1995................ 173.5 316.0 840.4 1,915.6 (2.3) (56.1) 3,187.1
Net income -- 1996........................ -- -- -- 362.3 -- -- 362.3
Cash dividends --
Common stock ($.47 per share)........... -- -- -- (148.0) -- -- (148.0)
Preferred stock (Note 15)............... -- -- -- (10.4) -- -- (10.4)
Issuance of shares -- 5,574,916 common.... -- 4.4 31.4 -- (.6) 12.0 47.2
Purchase of treasury stock --
1,915,500 common........................ -- -- -- -- -- (31.3) (31.3)
96,300 preferred........................ -- -- -- -- -- (2.6) (2.6)
Retirement of treasury stock -- 497,900
preferred............................... (12.5) -- (.3) -- -- 12.8 --
Tax benefit of stock-based awards......... -- -- 16.0 -- -- -- 16.0
Amortization of deferred compensation..... -- -- -- -- .7 -- .7
------ ------ ------ -------- ----- ------- --------
Balance, December 31, 1996................ $161.0 $320.4 $887.5 $2,119.5 $(2.2) $ (65.2) $3,421.0
Net income -- 1997........................ -- -- -- 271.4 -- -- 271.4
Cash dividends --
Common stock ($.54 per share)........... -- -- -- (171.7) -- -- (171.7)
Preferred stock (Note 15)............... -- -- -- (9.8) -- -- (9.8)
Issuance of shares -- 5,221,039 common.... -- 4.7 48.7 -- (.7) 7.1 59.8
Conversion of preferred stock -- 2,528
shares.................................. (.3) -- .3 -- -- -- --
Redemption of preferred stock -- 741,552
shares (Note 15)........................ (18.5) -- -- -- -- -- (18.5)
Tax benefit of stock-based awards......... -- -- 21.1 -- -- -- 21.1
Amortization of deferred compensation..... -- -- -- -- .8 -- .8
Unrealized loss on marketable equity
securities.............................. -- -- -- -- (2.4) -- (2.4)
------ ------ ------ -------- ----- ------- --------
Balance, December 31, 1997................ $142.2 $325.1 $957.6 $2,209.4 $(4.5) $ (58.1) $3,571.7
====== ====== ====== ======== ===== ======= ========
</TABLE>
Note: Certain amounts have been restated to reflect the December 29, 1997,
two-for-one stock split and distribution.
See accompanying notes.
F-18
<PAGE> 47
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Operating Activities:
Net income.................................................. $ 271.4 $ 362.3 $ 1,318.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations................................... -- -- (1,018.8)
Extraordinary loss........................................ 79.1 -- --
Premium on early extinguishment of debt................... (171.2) -- --
Depreciation, depletion and amortization.................. 499.5 421.0 375.5
Provision for deferred income taxes....................... 81.8 72.4 125.4
Provision for loss on property and other assets........... 49.8 -- 41.4
(Gain) loss on dispositions of property and interest in
subsidiary............................................. (56.8) (46.4) 10.5
Minority interest in income of consolidated
subsidiaries........................................... 14.0 -- 10.0
Changes in receivables sold............................... 188.6 (13.1) 55.9
Changes in receivables.................................... (180.6) (214.2) 33.2
Changes in inventories.................................... (73.7) (16.1) 11.9
Changes in other current assets........................... 25.5 3.8 1.1
Changes in accounts payable............................... 195.8 204.0 (6.5)
Changes in accrued liabilities............................ (7.9) (24.9) (33.4)
Changes in current commodity trading assets and
liabilities............................................ 11.0 (29.7) 28.1
Changes in non-current commodity trading assets and
liabilities............................................ (47.7) (37.7) (82.1)
Other, including changes in non-current assets and
liabilities............................................ 41.0 29.0 (41.7)
--------- --------- ---------
Net cash provided by operating activities......... 919.6 710.4 828.7
--------- --------- ---------
Financing Activities:
Proceeds from notes payable................................. 1,860.4 356.8 116.8
Payments of notes payable................................... (1,245.9) (87.3) (623.8)
Proceeds from long-term debt................................ 2,007.7 1,996.7 399.0
Payments of long-term debt.................................. (2,169.0) (1,387.7) (1,009.4)
Proceeds from issuance of common stock...................... 62.9 54.3 78.1
Purchases of treasury stock................................. -- (33.9) (3.7)
Dividends paid.............................................. (181.5) (158.4) (119.1)
Subsidiary preferred stock redemptions...................... -- -- (193.7)
Other -- net................................................ (17.7) (6.3) (3.5)
--------- --------- ---------
Net cash provided (used) by financing
activities...................................... 316.9 734.2 (1,359.3)
--------- --------- ---------
Investing Activities:
Property, plant and equipment:
Capital expenditures...................................... (1,162.1) (818.9) (827.5)
Proceeds from dispositions................................ 100.3 60.2 28.2
Acquisition of businesses, net of cash acquired............. (87.0) (366.2) (858.9)
Proceeds from sales of businesses........................... -- -- 2,588.3
Income tax and other payments related to discontinued
operations................................................ (9.7) (261.7) (350.4)
Proceeds from sales of assets............................... 5.2 23.0 125.1
Purchase of investments/advances to affiliates.............. (134.2) (76.9) (49.7)
Purchase of note receivable................................. -- -- (75.1)
Other -- net................................................ 17.0 20.8 4.9
--------- --------- ---------
Net cash provided (used) by investing
activities...................................... (1,270.5) (1,419.7) 584.9
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents..................................... (34.0) 24.9 54.3
Cash and cash equivalents at beginning of year.............. 115.3 90.4 36.1
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 81.3 $ 115.3 $ 90.4
========= ========= =========
</TABLE>
See accompanying notes.
F-19
<PAGE> 48
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Operations of The Williams Companies, Inc. (Williams) are located
principally in the United States and are organized into three operating groups
as follows: (1) Gas Pipelines, which is comprised of five interstate natural gas
pipelines located in the eastern, midsouth, Gulf Coast, midwest and northwest
regions; (2) Energy Services, which is comprised of natural gas gathering and
processing facilities in the Rocky Mountain, midwest and Gulf Coast regions,
energy trading and price-risk management activities throughout the United
States, a petroleum products pipeline and ethanol production/marketing
operations in the midwest region, and hydrocarbon exploration and production
activities in the Rocky Mountain and Gulf Coast regions; and (3) Communications,
which includes network integration and management services; video and other
multimedia transmission services for the broadcast industry; business audio and
video conferencing services; and installation and maintenance of
customer-premise voice and data equipment. Additional information about these
businesses is contained throughout the following notes.
Basis of Presentation
Revenues and operating profit amounts previously reported as Williams
Natural Gas and Merchant Services are now reported as Central and Energy
Marketing & Trading, respectively.
On April 30, 1997, Williams and Northern Telecom (Nortel) combined their
customer-premise equipment sales and service operations into a limited liability
company, Williams Communications Solutions, LLC (LLC), formerly WilTel
Communications, LLC (see Note 2). Communications' revenues and operating profit
amounts for 1997 include the operating results of the LLC beginning May 1, 1997.
Revenues and operating profit amounts include the operating results of Kern
River Gas Transmission Company (Kern River) since the January 16, 1996,
acquisition by Williams of the remaining interest (see Note 2). 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.
Revenues and operating profit amounts include the operating results of
Transco Energy Company (Transco Energy) since its January 18, 1995, acquisition
by Williams (see Note 2). The transportation operations from Transco Energy's
two interstate natural gas pipelines are reported separately within the Gas
Pipelines group. Transco Energy's gas gathering operations are included in Field
Services, and its gas marketing operations are included in Energy Marketing &
Trading.
Principles of Consolidation
The consolidated financial statements include the accounts of Williams and
its majority-owned subsidiaries. Companies in which Williams and its
subsidiaries own 20 percent to 50 percent of the voting common stock, or
otherwise exercise sufficient influence over operating and financial policies of
the company, are accounted for under the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
F-20
<PAGE> 49
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transportation and Exchange Gas Imbalances
In the course of providing transportation services to customers, the
natural gas pipelines may receive different quantities of gas from shippers than
the quantities delivered on behalf of those shippers. Additionally, the
pipelines and other Williams subsidiaries transport gas on various pipeline
systems which may deliver different quantities of gas on their behalf than the
quantities of gas received. These transactions result in gas transportation and
exchange imbalance receivables and payables which are recovered or repaid in
cash or through the receipt or delivery of gas in the future. Settlement of
imbalances requires agreement between the pipelines and shippers as to
allocations of volumes to specific transportation contracts and timing of
delivery of gas based on operational conditions.
Inventory Valuation
Inventories are stated at cost, which is not in excess of market, except
for those held by Energy Marketing & Trading, which are primarily stated at
market. The cost of inventories is primarily determined using the average-cost
method, except for certain inventories held by Transcontinental Gas Pipe Line,
which are determined using the last-in, first-out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is provided
primarily on the straight-line method over estimated useful lives. Gains or
losses from the ordinary sale or retirement of property, plant and equipment for
regulated pipeline subsidiaries are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.
Goodwill and Other Intangible Assets
Goodwill, which represents the excess of cost over fair value of assets of
businesses acquired, is amortized on a straight-line basis over periods not
exceeding 25 years. Other intangible assets are amortized on a straight-line
basis over periods not exceeding 11 years. Accumulated amortization at December
31, 1997 and 1996 was $56 million and $31.8 million, respectively. Amortization
of intangible assets was $24.2 million, $9.6 million and $6.2 million in 1997,
1996 and 1995, respectively.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby
the entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to capital
in excess of par value using the average-cost method.
Revenue Recognition
Revenues generally are recorded when services have been performed or
products have been delivered. Petroleum Services bills customers when products
are shipped and defers the estimated revenues for shipments in transit. The Gas
Pipelines recognize revenues based upon contractual terms and the related
transportation volumes through month-end. These pipelines are subject to Federal
Energy Regulatory Commission (FERC) regulations and, accordingly, certain
revenues are subject to possible refunds pending final FERC orders. Williams
records rate refund accruals based on management's estimate of the expected
outcome of these proceedings. Communications' customer-premise equipment sales
and service business primarily uses the percentage of completion method of
recognizing revenues for services provided.
F-21
<PAGE> 50
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Commodity Price-Risk Management Activities
Energy Marketing & Trading has trading operations that enter into
energy-related derivative financial instruments and derivative commodity
instruments (forward contracts, futures contracts, option contracts and swap
agreements) to provide price-risk management services to its third-party
customers. This trading operation also has commodity inventories and enters into
short- and long-term energy-related purchase and sale commitments which involve
physical delivery of an energy commodity. These financial instruments, physical
inventories and commitments are valued at market and are recorded in commodity
trading assets, other assets and deferred charges, commodity trading liabilities
and other liabilities in the Consolidated Balance Sheet. The change in
unrealized market gains and losses is recognized in income currently and is
recorded as revenues in the Consolidated Statement of Income. Such market values
are subject to change in the near term and reflect management's best estimate of
market prices considering various factors including closing exchange and
over-the-counter quotations, liquidity of the market in which the contract is
transacted, the terms of the contract, credit considerations, time value and
volatility factors underlying the positions. Energy Marketing & Trading reports
its trading operations' physical sales transactions net of the related purchase
costs, consistent with market value accounting for such trading activities.
Certain Energy Marketing & Trading's revenues were not considered to be
trading operations in 1996 and 1995 and, therefore, were not reported net of
related costs to purchase such items.
Williams' operations also enter into energy-related derivative financial
instruments and derivative commodity instruments (primarily futures contracts,
option contracts and swap agreements) to hedge against market price fluctuations
of certain commodity inventories and sales and purchase commitments. Unrealized
and realized gains and losses on these hedge contracts are deferred and
recognized in income when the related hedged item is recognized and recorded
with the related hedged item. These contracts are initially and regularly
evaluated to determine that there is a high correlation between changes in the
market value of the hedge contract and market value of the hedged item.
Interest-Rate Derivatives
Williams enters into interest-rate swap agreements to modify the interest
characteristics of its long-term debt. These agreements are designated with all
or a portion of the principal balance and term of specific debt obligations.
These agreements involve the exchange of amounts based on a fixed-interest rate
for amounts based on variable interest rates without an exchange of the notional
amount upon which the payments are based. The difference to be paid or received
is accrued and recognized as an adjustment of interest expense. Gains and losses
from terminations of interest-rate swap agreements are deferred and amortized as
an adjustment to interest expense over the original term of the terminated swap
agreement.
Kern River specifically has interest-rate swap agreements that are not
designated with long-term debt that are recorded in other liabilities at market
value. Changes in market value are recorded as adjustments to a regulatory asset
which is expected to be recovered in transportation rates.
Williams enters into interest-rate forward contracts to lock-in underlying
treasury rates on anticipated long-term debt issuances. The settlement amounts
upon termination of the contracts are deferred and amortized as an adjustment to
interest expense of the issued long-term debt over the term of the settled
forward contract.
Capitalization of Interest
Williams capitalizes interest on major projects during construction.
Interest is capitalized on borrowed funds and, where regulation by the FERC
exists, on internally generated funds. The rates used by regulated companies are
calculated in accordance with FERC rules. Rates used by unregulated companies
approximate
F-22
<PAGE> 51
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the average interest rate on related debt. Interest capitalized on internally
generated funds is included in non-operating other income (expense) -- net.
Employee Stock-Based Awards
Employee stock-based awards are accounted for under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Williams' fixed plan common stock options do not result in
compensation expense, because the exercise price of the stock options equals the
market price of the underlying stock on the date of grant.
Income Taxes
Williams includes the operations of its subsidiaries in its consolidated
federal income tax return. Deferred income taxes are computed using the
liability method and are provided on all temporary differences between the
financial basis and the tax basis of Williams' assets and liabilities.
Earnings Per Share
Basic earnings per share are based on the sum of the average number of
common shares outstanding and issuable restricted and deferred shares. Diluted
earnings per share assumes issuance of common stock from dilutive stock options
and conversion of the $3.50 cumulative convertible preferred stock into common
stock effective May 1, 1995. The earnings per share amounts and number of shares
for 1996 and 1995 have been restated to reflect the effect of the two-for-one
stock split and distribution (see Note 15) and the adoption of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (see Note
9).
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued two new
accounting standards, SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Both standards, effective for fiscal years beginning after December 15, 1997,
are disclosure-oriented standards. Therefore, neither standard will affect
Williams' reported consolidated net income or cash flows.
NOTE 2. ACQUISITIONS
Nortel
On April 30, 1997, Williams and Nortel combined their customer-premise
equipment sales and service operations into a limited liability company,
Williams Communications Solutions, LLC. In addition, Williams paid $68 million
to Nortel. Williams has accounted for its 70 percent interest in the operations
that Nortel contributed to the LLC as a purchase business combination, and
beginning May 1, 1997, has included the results of operations of the acquired
company in Williams' Consolidated Statement of Income. Accordingly, the acquired
assets and liabilities, including $168 million in accounts receivable, $68
million in accounts payable and accrued liabilities and $150 million in debt
obligations, have been recorded based on an allocation of the purchase price,
with substantially all of the cost in excess of historical carrying values
allocated to goodwill.
Williams recorded the 30 percent reduction in its operations contributed to
the LLC as a sale to the minority shareholders of the LLC. Williams recognized a
gain of $44.5 million based on the excess of the fair value over the net book
value (approximately $71 million) of its operations conveyed to the LLC minority
interest. Income taxes were not provided on the gain, because the transaction
did not affect the difference between the financial and tax bases of
identifiable assets and liabilities.
F-23
<PAGE> 52
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the transaction had occurred on January 1, 1996, Williams' unaudited pro
forma revenues for the years ended 1997 and 1996 would have been $4,658 million
and $4,268 million, respectively. The pro forma effect of the transaction on
Williams' net income is not significant. Pro forma financial information is not
necessarily indicative of results of operations that would have occurred if the
transaction had occurred on January 1, 1996, or of future results of operations
of the combined companies.
Kern River
On January 16, 1996, Williams acquired the remaining interest in Kern River
for $206 million in cash. The acquisition was accounted for as a purchase, and
the acquired assets and liabilities have been recorded based on an allocation of
the purchase price, with substantially all of the cost in excess of Kern River's
historical carrying value allocated to property, plant and equipment.
Transco
On January 18, 1995, Williams acquired 60 percent of Transco Energy's
outstanding common stock in a cash tender offer for $430.5 million. Williams
acquired the remaining 40 percent of Transco Energy's outstanding common stock
on May 1, 1995, through a merger by exchanging the remaining Transco Energy
common stock for approximately 31.2 million shares of Williams common stock
valued at $334 million. The acquisition was accounted for as a purchase with 60
percent of Transco Energy's results of operations included in Williams'
Consolidated Statement of Income for the period January 18, 1995, through April
30, 1995, and 100 percent included beginning May 1, 1995. The purchase price,
including transaction fees and other related costs, was approximately $800
million, excluding $2.3 billion in preferred stock and debt obligations of
Transco Energy.
NOTE 3. DISCONTINUED OPERATIONS
On January 5, 1995, Williams sold its network services operations to LDDS
Communications, Inc. 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.
NOTE 4. REVENUES AND OPERATING PROFIT
Revenues and operating profit of Gas Pipelines and Energy Services for the
years ended December 31, 1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revenues:
Gas Pipelines:
Central......................................... $ 184.4 $ 178.4 $ 174.3
Kern River Gas Transmission..................... 167.1 160.6 --
Northwest Pipeline.............................. 273.1 269.7 255.2
Texas Gas Transmission.......................... 293.0 306.1 276.3
Transcontinental Gas Pipe Line.................. 766.3 760.4 725.3
-------- -------- --------
$1,683.9 $1,675.2 $1,431.1
======== ======== ========
</TABLE>
F-24
<PAGE> 53
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Energy Services:
Energy Marketing & Trading...................... $ 135.8 $ 261.1 $ 153.5
Exploration & Production........................ 130.1 82.4 62.9
Field Services.................................. 690.3 616.3 532.9
Petroleum Services.............................. 548.7 493.3 328.1
-------- -------- --------
$1,504.9 $1,453.1 $1,077.4
======== ======== ========
Operating Profit:
Gas Pipelines:
Central......................................... $ 57.0 $ 44.8 $ 45.0
Kern River Gas Transmission..................... 120.3 113.0 --
Northwest Pipeline.............................. 124.0 124.9 115.7
Texas Gas Transmission.......................... 87.6 85.1 64.0
Transcontinental Gas Pipe Line.................. 225.3 194.6 165.0
-------- -------- --------
$ 614.2 $ 562.4 $ 389.7
======== ======== ========
Energy Services:
Energy Marketing & Trading...................... $ 70.6 $ 66.4 $ 33.2
Exploration & Production........................ 30.3 2.8 (5.9)
Field Services.................................. 163.0 187.4 161.0
Petroleum Services.............................. 97.0 75.7 69.2
-------- -------- --------
$ 360.9 $ 332.3 $ 257.5
======== ======== ========
</TABLE>
NOTE 5. INVESTING ACTIVITIES
Investing income for the years ended December 31, 1997, 1996 and 1995, is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Interest............................................. $ 9.9 $ 11.1 $ 37.2
Dividends............................................ 1.4 1.6 16.1
Equity earnings...................................... 7.9 6.1 40.6
-------- -------- --------
$ 19.2 $ 18.8 $ 93.9
======== ======== ========
</TABLE>
Dividends and distributions received from companies carried on an equity
basis were $7 million in 1997 and 1996, and $44 million in 1995.
At December 31, 1997, certain equity investments, with a carrying value of
$46 million, have a market value of $175 million.
NOTE 6. ASSET SALES AND WRITE-OFFS
In the fourth quarter of 1997, Communications incurred charges totaling
$49.8 million related to the decision to sell the learning content business, and
the write-down of assets and the development costs associated with certain
advanced applications.
In 1996, Williams recognized a pre-tax gain of $15.7 million from the sale
of certain communication rights for approximately $38 million.
F-25
<PAGE> 54
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the development of a commercial coal gasification venture in
south-central Wyoming was canceled, resulting in a $41.4 million pre-tax charge.
In 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.
NOTE 7. PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal................................................ $ 75.9 $ 96.3 $(26.5)
State.................................................. 18.4 14.4 3.1
Foreign................................................ 1.9 -- --
------ ------ ------
96.2 110.7 (23.4)
====== ====== ======
Deferred:
Federal................................................ 70.4 61.9 114.2
State.................................................. 11.4 10.5 11.2
------ ------ ------
81.8 72.4 125.4
------ ------ ------
Total provision.......................................... $178.0 $183.1 $102.0
====== ====== ======
</TABLE>
Reconciliations from the provision for income taxes from continuing
operations at the statutory rate to the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Provision at statutory rate.............................. $185.0 $190.9 $140.5
Increases (reductions) in taxes resulting from:
State income taxes..................................... 19.3 16.1 13.5
Income tax credits..................................... (16.5) (19.0) (18.7)
Non-taxable gain from sale of interest in subsidiary
(Note 2)............................................ (15.6) -- --
Decrease in valuation allowance for deferred tax
assets.............................................. -- -- (29.8)
Reversal of prior tax accruals......................... -- -- (8.0)
Other -- net........................................... 5.8 (4.9) 4.5
------ ------ ------
Provision for income taxes............................... $178.0 $183.1 $102.0
====== ====== ======
</TABLE>
F-26
<PAGE> 55
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996*
-------- --------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $1,839.4 $1,755.8
Investments............................................... 120.9 93.3
Other..................................................... 116.8 120.3
-------- --------
Total deferred tax liabilities.................... 2,077.1 1,969.4
Deferred tax assets:
Deferred revenues......................................... 84.9 31.5
Rate refunds.............................................. 119.9 111.4
Accrued liabilities....................................... 144.5 171.7
Minimum tax credits....................................... 131.3 86.8
Other..................................................... 102.2 140.9
-------- --------
Total deferred tax assets......................... 582.8 542.3
-------- --------
Net deferred tax liabilities................................ $1,494.3 $1,427.1
======== ========
</TABLE>
- - ---------------
* Reclassified to conform to current classifications.
Cash payments for income taxes (net of refunds) were $48 million, $395
million and $339 million in 1997, 1996 and 1995, respectively.
NOTE 8. EXTRAORDINARY LOSS
In September 1997, Williams initiated a restructuring of its debt portfolio
(see Note 14). During 1997, Williams paid approximately $1.4 billion to redeem
approximately $1.3 billion of debt with stated interest rates in excess of 8.8
percent, resulting in an extraordinary loss of $79.1 million (net of a $46.6
million benefit for income taxes). In addition, approximately $30 million of
costs to redeem have been deferred as a regulatory asset for rate recovery.
F-27
<PAGE> 56
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. EARNINGS PER SHARE
Basic and diluted earnings per common share are computed for the years
ended December 31, 1997, 1996 and 1995, as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE
AMOUNTS; SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations..................... $350.5 $362.3 $299.4
Preferred stock dividends............................. (9.8) (10.4) (15.3)
------- ------- -------
Income from continuing operations available to common
stockholders for basic earnings per share........... 340.7 351.9 284.1
Effect of dilutive securities:
Convertible preferred stock dividends............... 8.7 8.8 5.8
------- ------- -------
Income from continuing operations available to common
stockholders for diluted earnings per share......... $349.4 $360.7 $289.9
======= ======= =======
Basic weighted-average shares......................... 321,184 319,048 302,807
Effect of dilutive securities:
Convertible preferred stock......................... 11,717 11,718 7,866
Stock options....................................... 4,638 5,232 3,370
------- ------- -------
16,355 16,950 11,236
------- ------- -------
Diluted weighted-average shares....................... 337,539 335,998 314,043
======= ======= =======
Earnings per share from continuing operations:
Basic............................................... $1.06 $1.10 $.94
======= ======= =======
Diluted............................................. $1.04 $1.07 $.92
======= ======= =======
</TABLE>
Options to purchase approximately 3.1 million shares of common stock at a
weighted-average exercise price of $27.93 were outstanding at December 31, 1997,
but were not included in the computation of diluted earnings per common share.
Inclusion of these shares would be antidilutive, as the exercise prices of the
options exceed the average market price of the common shares.
NOTE 10. EMPLOYEE BENEFIT PLANS
Pensions
Williams maintains non-contributory defined-benefit pension plans covering
substantially all of its employees. Benefits are based on years of service and
average final compensation. Pension costs are funded to satisfy minimum
requirements prescribed by the Employee Retirement Income Security Act of 1974.
Net pension expense consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year....... $ 30.9 $ 30.3 $ 19.5
Interest cost on projected benefit obligation.......... 49.8 43.9 40.1
Actual return on plan assets........................... (94.1) (100.6) (120.3)
Amortization and deferrals............................. 44.1 61.3 82.0
------ ------- -------
Net pension expense.................................... $ 30.7 $ 34.9 $ 21.3
====== ======= =======
</TABLE>
F-28
<PAGE> 57
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension expense increased in 1996 from 1995 as a result of a decrease
in the discount rate from 8 1/2 percent to 7 1/4 percent and an increase in the
number of plan participants.
The following table presents the funded status of the plans:
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits........................................... $507 $407
Non-vested benefits....................................... 42 37
---- ----
Accumulated benefit obligations........................... 549 444
Effect of projected salary increases...................... 208 167
---- ----
Projected benefit obligations............................. 757 611
Assets at market value...................................... 736 637
---- ----
Assets less than (in excess of) projected benefit
obligations............................................... 21 (26)
Unrecognized net (loss) gain................................ (12) 37
Unrecognized prior-service cost............................. (6) (8)
Unrecognized transition asset............................... 3 3
---- ----
Pension liability........................................... $ 6 $ 6
==== ====
</TABLE>
The discount rate used to measure the present value of benefit obligations
is 7 1/4 percent (7 1/2 percent in 1996); the assumed rate of increase in future
compensation levels is 5 percent; and the expected long-term rate of return on
assets is 10 percent. Plan assets consist primarily of commingled funds and
assets held in a master trust. The master trust is comprised primarily of
domestic and foreign common and preferred stocks, corporate bonds, United States
government securities and commercial paper.
Subsequent to December 31, 1997, Williams offered an early retirement
incentive program to a certain group of employees. This program will not have a
material impact on the funded status of the plans or Williams' financial
position.
Postretirement Benefits Other Than Pensions
Williams sponsors health care plans that provide postretirement medical
benefits to retired Williams employees who were employed full time, hired prior
to January 1, 1992 (January 1, 1996, for Transco Energy employees) and have met
certain other requirements.
The plans provide for retiree contributions and contain other cost-sharing
features such as deductibles and coinsurance. The accounting for the plans
anticipates future cost-sharing changes to the written plans that are consistent
with Williams' expressed intent to increase the retiree contribution rate
annually, generally in line with health care cost increases, except for certain
retirees whose premiums are fixed. A portion of the cost has been funded in
trusts by Williams' FERC-regulated natural gas pipeline subsidiaries to the
extent recovery from customers can be achieved. Plan assets consist of assets
held in two master trusts and money market funds. One of the master trusts was
previously described, and the other consists primarily of domestic and foreign
common stocks, government bonds and commercial paper.
F-29
<PAGE> 58
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement benefit expense consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 7.1 $ 6.4 $ 7.4
Interest cost on accumulated postretirement benefit
obligation............................................. 24.4 22.7 23.9
Actual return on plan assets............................. (19.4) (16.4) (17.9)
Amortization of unrecognized transition obligation....... 4.1 5.0 5.0
Amortization and deferrals............................... 21.0 19.7 23.1
------ ------ ------
Net postretirement benefit expense....................... $ 37.2 $ 37.4 $ 41.5
====== ====== ======
</TABLE>
The following table presents the funded status of the plans:
<TABLE>
<CAPTION>
1997 1996
---- ----
(MILLIONS)
<S> <C> <C>
Actuarial present value of postretirement benefit
obligation:
Retirees.................................................. $223 $200
Fully eligible active plan participants................... 34 26
Other active plan participants............................ 126 89
---- ----
Accumulated postretirement benefit obligation..... 383 315
Assets at market value...................................... 185 155
---- ----
Assets less than accumulated postretirement benefit
obligation................................................ 198 160
Unrecognized net gain....................................... 18 60
Unrecognized prior-service credit........................... 4 1
Unrecognized transition obligation.......................... (61) (65)
---- ----
Postretirement benefit liability............................ $159 $156
==== ====
</TABLE>
The amount of postretirement benefit costs deferred as a regulatory asset
at December 31, 1997 and 1996, is $107 million and $118 million, respectively,
and is expected to be recovered through rates over approximately 15 years.
The discount rate used to measure the present value of benefit obligations
is 7 1/4 percent (7 1/2 percent in 1996). The expected long-term rate of return
on plan assets is 10 percent (6 percent after taxes). The annual assumed rate of
increase in the health care cost trend rate for 1998 is 8 1/2 to 9 1/2 percent,
systematically decreasing to 5 percent by 2006. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rate by 1 percent in each year would increase the
aggregate of the service and interest cost components of postretirement benefit
expense for the year ended December 31, 1997, by $5 million and the accumulated
postretirement benefit obligation as of December 31, 1997, by $46 million.
Other
Williams maintains various defined-contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. Company contributions
are invested primarily in Williams common stock. Williams' contributions to
these plans were $29 million in 1997, $23 million in 1996 and $19 million in
1995.
F-30
<PAGE> 59
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS)
<S> <C> <C>
Natural gas in underground storage:
Transcontinental Gas Pipe Line (LIFO)..................... $ 38.3 $ 38.8
Energy Marketing & Trading................................ 3.0 1.5
Other..................................................... 16.5 --
Petroleum products:
Energy Marketing & Trading................................ 68.6 12.7
Other..................................................... 30.1 33.7
Materials and supplies...................................... 140.3 112.0
Other....................................................... 3.7 5.9
------ ------
$300.5 $204.6
====== ======
</TABLE>
If inventories valued on the LIFO method at December 31, 1997, were valued
at current average cost, the amount would increase by approximately $13 million.
Inventories valued on the LIFO method at December 31, 1996, approximate current
average cost.
NOTE 12. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(MILLIONS)
<S> <C> <C>
Cost:
Gas Pipelines:
Central................................................ $ 844.2 $ 787.4
Kern River Gas Transmission............................ 1,003.9 990.5
Northwest Pipeline..................................... 1,478.6 1,447.9
Texas Gas Transmission................................. 1,022.7 958.9
Transcontinental Gas Pipe Line......................... 3,334.8 3,095.7
Energy Services:
Energy Marketing & Trading............................. 43.0 5.4
Exploration & Production............................... 318.5 255.1
Field Services......................................... 2,352.4 2,188.3
Petroleum Services..................................... 1,055.2 1,073.1
Communications............................................ 535.0 257.3
Other..................................................... 296.1 152.7
--------- ---------
12,284.4 11,212.3
Accumulated depreciation and depletion...................... (2,228.8) (1,826.0)
--------- ---------
$10,055.6 $ 9,386.3
========= =========
</TABLE>
Commitments for construction and acquisition of property, plant and
equipment are approximately $530 million at December 31, 1997.
F-31
<PAGE> 60
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' cash-management system, certain subsidiaries' cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amounts of these credit balances included in accounts payable are
$92 million at December 31, 1997, and $95 million at December 31, 1996.
<TABLE>
<CAPTION>
1996 1997
-------- ------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Rate refunds.............................................. $ 337.5 $305.1
Employee costs............................................ 191.5 178.1
Interest.................................................. 79.4 95.2
Income taxes payable...................................... 76.0 77.6
Taxes other than income taxes............................. 72.4 66.2
Other..................................................... 400.5 253.1
-------- ------
$1,157.3 $975.3
======== ======
</TABLE>
NOTE 14. DEBT, LEASES AND BANKING ARRANGEMENTS
Notes Payable
During 1997, Williams Holdings of Delaware, Inc. (Williams Holdings)
entered into a commercial paper program backed by new short-term bank-credit
facilities totaling $650 million. At December 31, 1997, $645 million of
commercial paper was outstanding under the program. In addition, Williams has
entered into various other short-term credit agreements with amounts outstanding
totaling $48 million and $269.5 million at December 31, 1997 and 1996,
respectively. The weighted-average interest rate on the outstanding short-term
borrowings at December 31, 1997 and 1996, was 6.56 percent and 7.85 percent,
respectively.
F-32
<PAGE> 61
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Debt
<TABLE>
<CAPTION>
DECEMBER 31,
WEIGHTED-AVERAGE -------------------
INTEREST RATE* 1997 1996
---------------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
The Williams Companies, Inc.
Revolving credit loans................................... 7.1% $ 383.0 $ --
Debentures, 8.875% -- 10.25%, payable 2012, 2020, 2021
and 2025.............................................. 8.6 137.0 587.5
Notes, 6.365% -- 9.625%, payable through 2004............ 7.0 994.7 817.5
Williams Gas Pipelines Central
Variable rate notes, payable 1999........................ 8.2 130.0 130.0
Kern River Gas Transmission
Notes, 6.42% and 6.72%, payable through 2001............. 6.6 586.4 617.7
Northwest Pipeline
Debentures, 7.125% -- 10.65%, payable through 2025....... 8.3 151.6 360.0
Notes, 6.625%, payable 2007.............................. 6.6 250.0 --
Adjustable rate notes, payable through 2002.............. 9.0 8.3 10.0
Texas Gas Transmission
Debentures, 7.25%, payable 2027.......................... 7.3 99.0 --
Notes, 9.625% and 8.625%, payable 1997 and 2004.......... 8.6 152.4 253.6
Transcontinental Gas Pipe Line
Revolving credit loans................................... 6.3 160.0 --
Debentures, 7.25% and 9.125%, payable through 2026....... 7.3 199.7 352.4
Debentures, 7.08%, payable 2026 (subject to debtholder
redemption in 2001)................................... 7.1 200.0 200.0
Notes, 8.125% and 8.875%, payable 1997 and 2002.......... 8.9 128.2 227.7
Adjustable rate note, payable 2002....................... 5.8 150.0 --
Williams Holdings of Delaware
Revolving credit loans................................... 6.3 200.0 500.0
Debentures, 6.25%, payable 2006.......................... 4.8 248.9 248.8
Notes, 6.365% -- 6.91%, payable through 2002............. 6.7 258.6 --
Williams Pipe Line
Notes, 8.95% and 9.78%, payable through 2001............. 9.0 40.0 100.0
Williams Energy Ventures
Adjustable rate notes.................................... -- -- 25.6
Williams Communications Solutions, LLC
Revolving credit loans................................... 6.2 125.0 --
Other, payable through 2000................................ 7.8 3.6 5.7
-------- --------
4,606.4 4,436.5
Current portion of long-term debt.......................... (41.1) (59.6)
-------- --------
$4,565.3 $4,376.9
======== ========
</TABLE>
- - ---------------
* At December 31, 1997, including the effects of interest-rate swaps.
F-33
<PAGE> 62
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1997, Williams initiated a restructuring of its debt
portfolio. As of December 31, 1997, Williams has redeemed approximately $1.3
billion of debt with stated interest rates in excess of 8.8 percent. In January
1998, Williams redeemed $40 million of additional debt obligations. The
restructuring was temporarily financed with the combination of short-term bank
agreements, commercial paper and Williams' existing bank-credit agreement, until
new long-term debt securities were issued. During the fourth quarter of 1997,
Williams issued $550 million of new long-term debt obligations. In January 1998,
Williams issued approximately $700 million in additional debt obligations.
In July 1997, Williams entered into a new $1 billion bank-credit agreement,
replacing the previous agreement. Under the new credit agreement, Northwest
Pipeline, Transcontinental Gas Pipe Line, Texas Gas Transmission, and Williams
Communications Solutions, LLC have access to various amounts of the facility,
while Williams (parent) and Williams Holdings have access to all unborrowed
amounts. Interest rates vary with current market conditions.
For financial statement reporting purposes at December 31, 1997, $560
million in notes payable and current debt obligations, primarily related to the
restructuring noted above, have been classified as non-current obligations based
on Williams' intent and ability to refinance on a long-term basis. Williams'
subsequent issuance of $700 million of long-term debt obligations in January
1998 is sufficient to complete these refinancings.
Interest-rate swaps with a notional value of $450 million are currently
being utilized to convert certain fixed rate debt obligations resulting in an
effective weighted-average floating rate of 5.24 percent at December 31, 1997.
Interest-rate swaps with a notional value of $130 million are currently being
utilized to convert certain variable rate debt obligations resulting in an
effective weighted-average fixed rate of 7.78 percent at December 31, 1997.
Certain interest-rate swap agreements relating to Kern River which preceded
the January 1996 purchase of Kern River by Williams and the subsequent Kern
River debt refinancing, remain outstanding. In 1996, Kern River entered into
additional interest-rate swap agreements to manage the exposure from the
original interest-rate swap agreements. As described in Note 1, these
interest-rate swap agreements are not designated with the Kern River debt, but
when combined with interest on the debt obligations, Kern River's effective
interest rate is 8.5 percent.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments and considering the reclassification of current obligations as
previously described, for each of the next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
<S> <C>
1998.............................................. $ 40
1999.............................................. 349
2000.............................................. 251
2001.............................................. 1,052
2002.............................................. 1,512
======
</TABLE>
Cash payments for interest (net of amounts capitalized) are as follows:
1997 -- $396 million; 1996 -- $347 million; and 1995 -- $266 million.
Leases
Future minimum annual rentals under non-cancelable operating leases are
$113 million in 1998, $99 million in 1999, $84 million in 2000, $59 million in
2001, $55 million in 2002 and $176 million thereafter.
Total rent expense was $126 million in 1997 and $78 million in 1996 and
1995.
F-34
<PAGE> 63
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. STOCKHOLDERS' EQUITY
On November 20, 1997, the board of directors of Williams declared a
two-for-one common stock split and distribution; 160.1 million shares were
issued on December 29, 1997. All references in the financial statements and
notes to the number of common shares outstanding and per-share amounts reflect
the effect of the split.
In the third quarter of 1996, the board of directors authorized the
open-market purchase of up to $800 million of Williams common stock. During
1996, 1.9 million shares were purchased at a total cost of approximately $31
million. No shares were purchased during 1997. In the fourth quarter of 1997,
Williams' board of directors terminated the repurchase program.
In connection with the 1995 merger with Transco Energy, Williams exchanged
all of Transco Energy's outstanding $3.50 cumulative convertible preferred stock
for 2.5 million shares of Williams' $3.50 cumulative convertible preferred
stock. These shares are redeemable by Williams beginning in November 1999, at an
initial price of $51.40 per share. Each share of $3.50 preferred stock is
convertible at the option of the holder into 4.6875 shares of Williams common
stock. Dividends per share of $3.50 were recorded in 1997 and 1996, and $2.33 in
1995.
During 1995, Williams exchanged 2.8 million shares of its $2.21 cumulative
preferred stock with a carrying value of $69 million for 9.6 percent debentures
with a fair value of $72.5 million. The difference in the fair value of the new
securities and the carrying value of the preferred stock exchanged was recorded
as a decrease in capital in excess of par value. This amount did not impact net
income, but is included in preferred stock dividends on the Consolidated
Statement of Income and in the computation of earnings per share. The remaining
shares of $2.21 cumulative preferred stock were redeemed by Williams at par
($25) in September 1997 for a total of $18.5 million. Dividends per share of
$1.47 were recorded in 1997, and $2.21 in 1996 and 1995.
In 1996, the board of directors adopted a Stockholder Rights Plan (the
Rights Plan). Under the Rights Plan, each outstanding share of common stock has
one-third of a preferred stock purchase right attached. Under certain
conditions, each right may be exercised to purchase, at an exercise price of
$140 (subject to adjustment), one two-hundredth of a share of junior
participating preferred stock. The rights may be exercised only if an Acquiring
Person acquires (or obtains the right to acquire) 15 percent or more of Williams
common stock; or commences an offer for 15 percent or more of Williams common
stock; or the board of directors determines an Adverse Person has become the
owner of 10 percent or more of Williams common stock. The rights, which do not
have voting rights, expire in 2006 and may be redeemed at a price of $.01 per
right prior to their expiration, or within a specified period of time after the
occurrence of certain events. In the event a person becomes the owner of more
than 15 percent of Williams common stock or the board of directors determines
that a person is an Adverse Person, each holder of a right (except an Acquiring
Person or an Adverse Person) shall have the right to receive, upon exercise,
common stock having a value equal to two times the exercise price of the right.
In the event Williams is engaged in a merger, business combination or 50 percent
or more of Williams' assets, cash flow or earnings power is sold or transferred,
each holder of a right (except an Acquiring Person or an Adverse Person) shall
have the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the right.
Williams has several plans providing for common-stock-based awards to
employees and to non-employee directors. The plans permit the granting of
various types of awards including, but not limited to, stock options,
stock-appreciation rights, restricted stock and deferred stock. Awards may be
granted for no consideration other than prior and future services. The purchase
price per share for stock options and the grant price for stock-appreciation
rights may not be less than the market price of the underlying stock on the date
of grant. Stock options generally become exercisable after five years, subject
to accelerated vesting if certain future stock prices are achieved. Stock
options expire 10 years after grant. At December 31, 1997, 46.7 million shares
F-35
<PAGE> 64
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of common stock were reserved for issuance pursuant to existing and future stock
awards, of which 21.4 million shares were available for future grants (15.6
million at December 31, 1996).
The following summary reflects stock option activity and related
information for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- ------- ---------
(OPTIONS IN MILLIONS)
<S> <C> <C> <C> <C>
Outstanding -- beginning of year................ 19.7 $12.85 15.7 $10.02
Granted......................................... 6.7 24.83 8.2 16.71
Exercised....................................... (3.8) 11.13 (4.0) 9.14
Canceled........................................ (.3) 19.82 (.2) 21.01
----- ------ ----- ------
Outstanding -- end of year...................... 22.3 $16.66 19.7 $12.85
----- ------ ----- ------
Exercisable at end of year...................... 15.7 $13.21 10.9 $10.29
----- ------ ----- ------
Weighted-average grant date fair value of
options granted during the year............... $ 5.98 $ 3.92
====== ======
</TABLE>
The following summary provides information about stock options outstanding
and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS
OUTSTANDING STOCK OPTIONS
----------------------- EXERCISABLE
WEIGHTED- ----------------------
WEIGHTED- AVERAGE WEIGHTED-
RANGE OF AVERAGE REMAINING AVERAGE
EXERCISE EXERCISE CONTRACTUAL EXERCISE
PRICES OPTIONS PRICE LIFE OPTIONS PRICE
-------- ---------- --------- ----------- ---------- ---------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C>
$4.62 to $17.32.................. 15.4 $12.91 7.5 years 15.4 $12.91
$18.00 to $49.34................. 6.9 24.98 9.6 years .3 28.14
---- ----
Total.................. 22.3 $16.66 8.1 years 15.7 $13.21
==== ====
</TABLE>
The fair value of the stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: expected life of the stock options of five years; volatility of the
expected market price of Williams common stock of 23 percent (24 percent in 1996
and 1995); risk-free interest rate of 6.1 percent (6.2 percent in 1996 and
1995); and a dividend yield of 2.4 percent (3 percent in 1996 and 1995).
Pro forma net income and earnings per share, assuming Williams had applied
the fair-value method of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" in measuring compensation cost beginning with 1995
employee stock-based awards, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -------------------
PRO PRO PRO
FORMA REPORTED FORMA REPORTED FORMA REPORTED
------ -------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (millions)........ $252.8 $271.4 $359.9 $362.3 $1,306.1 $1,318.2
Earnings per share:
Basic...................... $ .76 $ .81 $ 1.10 $ 1.10 $ 4.26 $ 4.30
Diluted.................... $ .74 $ .80 $ 1.07 $ 1.07 $ 4.13 $ 4.17
</TABLE>
F-36
<PAGE> 65
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma amounts for 1997 include the remaining total compensation expense
from the awards made in 1996, as these awards fully vested in 1997 as a result
of the accelerated vesting provisions. Pro forma amounts for 1995 include total
compensation expense from the awards made in 1995, as these awards fully vested
in 1995 as a result of the accelerated vesting provisions. Since compensation
expense from stock options is recognized over the future years' vesting period,
and additional awards generally are made each year, pro forma amounts may not be
representative of future years' amounts.
NOTE 16. FINANCIAL INSTRUMENTS
Fair-Value Methods
The following methods and assumptions were used by Williams in estimating
its fair-value disclosures for financial instruments:
Cash and cash equivalents and notes payable: The carrying amounts reported
in the balance sheet approximate fair value due to the short-term maturity of
these instruments.
Notes and other non-current receivables: For those notes with interest
rates approximating market or maturities of less than three years, fair value is
estimated to approximate historically recorded amounts.
Investments -- cost: Fair value is estimated to approximate historically
recorded amounts as the operations underlying these investments are in their
initial phases.
Long-term debt: The fair value of Williams' long-term debt is valued using
indicative year-end traded bond market prices for publicly traded issues, while
private debt is valued based on the prices of similar securities with similar
terms and credit ratings. At December 31, 1997 and 1996, 57 percent and 69
percent, respectively, of Williams' long-term debt was publicly traded. Williams
used the expertise of an outside investment banking firm to estimate the fair
value of long-term debt.
Interest-rate swaps: Fair value is determined by discounting estimated
future cash flows using forward interest rates derived from the year-end yield
curve. Fair value was calculated by the financial institutions that are the
counterparties to the swaps.
Interest-rate locks: Fair value is determined using year-end traded market
prices for the referenced U.S. Treasury securities underlying the contracts.
Fair value was calculated by the financial institutions that are parties to the
locks.
Energy-related trading and hedging: Includes forwards, options, swaps and
purchase and sales commitments. Fair value reflects management's best estimate
of market prices considering various factors including closing exchange and
over-the-counter quotations, liquidity of the market in which the contract is
transacted, the terms of the contract, credit considerations, time value and
volatility factors underlying the positions.
F-37
<PAGE> 66
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams' financial instruments
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
ASSET (LIABILITY) AMOUNT VALUE AMOUNT VALUE
----------------- --------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 81.3 $ 81.3 $ 115.3 $ 115.3
Notes and other non-current
receivables......................... 32.5 32.5 27.4 27.4
Investments -- cost................... 102.8 102.8 71.2 71.2
Notes payable......................... (693.0) (693.0) (269.5) (269.5)
Long-term debt, including current
portion............................. (4,605.4) (4,693.0) (4,435.1) (4,594.4)
Interest-rate swaps................... (51.1) (46.8) (54.8) (63.7)
Interest-rate locks................... -- (8.3) -- --
Energy-related trading:
Assets.............................. 324.9 324.9 253.6 253.6
Liabilities......................... (383.7) (383.7) (339.1) (339.1)
Energy-related hedging:
Assets.............................. .9 11.0 .9 11.2
Liabilities......................... -- (3.6) (1.3) (12.2)
</TABLE>
The preceding asset and liability amounts for energy-related hedging
represent unrealized gains or losses and do not include the related deferred
amounts.
The 1997 average fair value of the energy-related trading assets and
liabilities is $258 million and $345 million, respectively. The 1996 average
fair value of the energy-related trading assets and liabilities is $196 million
and $322 million, respectively.
Williams has recorded liabilities of $21 million and $18 million at
December 31, 1997 and 1996, respectively, for certain guarantees that represent
the estimated fair value of these financial instruments.
Off-Balance-Sheet Credit and Market Risk
Williams is a participant in the following transactions and arrangements
that involve financial instruments that have off-balance-sheet risk of
accounting loss. It is not practicable to estimate the fair value of these off-
balance-sheet financial instruments because of their unusual nature and unique
characteristics.
In 1997, Williams entered into agreements to sell, on an ongoing basis,
certain of their accounts receivables. Williams also sold certain receivables in
1996 under another revolving receivable sales program. At December 31, 1997 and
1996, $343 million and $152 million have been sold, respectively.
In connection with the sale of Williams' network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $135 million and $158 million at December 31, 1997 and 1996,
respectively, for lease rental obligations.
Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $56 million and $10 million at
December 31, 1997 and 1996, respectively. Williams believes it will not have to
perform under these agreements because the likelihood of default by the primary
party is remote and/or because of certain indemnifications received from other
third parties.
Commodity Price-Risk Management Services
Williams, through Energy Marketing & Trading, provides price-risk
management services associated with the energy industry to its customers. These
services are provided through a variety of financial instruments, including
forward contracts, futures contracts, option contracts, swap agreements and
purchase and sale
F-38
<PAGE> 67
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitments. See Note 1 for a description of the accounting for these trading
activities. The net gain from trading activities was $125.8 million, $99.2
million and $65.8 million in 1997, 1996 and 1995, respectively.
Energy Marketing & Trading enters into forward contracts and purchase and
sale commitments which involve physical delivery of an energy commodity. Prices
under these contracts are both fixed and variable. Swap agreements call for
Energy Marketing & Trading to make payments to (or receive payments from)
counterparties based upon the differential between a fixed and variable price or
variable prices for different locations. The variable prices are generally based
on either industry pricing publications or exchange quotations. Energy Marketing
& Trading buys and sells option contracts which give the buyer the right to
exercise the options and receive the difference between a predetermined strike
price and a market price at the date of exercise. The market prices used for
option contracts are generally exchange quotations. Energy Marketing & Trading
also enters into futures contracts, which are commitments to either purchase or
sell a commodity at a future date for a specified price and are generally
settled in cash, but may be settled through delivery of the underlying
commodity. The market prices for futures contracts are based on exchange
quotations.
Energy Marketing & Trading is subject to market risk from changes in energy
commodity market prices, the portfolio position of its financial instruments and
physical commitments, the liquidity of the market in which the contract is
transacted, and changes in interest rates and credit risk.
Energy Marketing & Trading manages market risk through established trading
policy guidelines, which are monitored on an ongoing basis. Energy Marketing &
Trading attempts to minimize credit-risk exposure to trading counterparties and
brokers through formal credit policies and monitoring procedures. In the normal
course of business, collateral is not required for financial instruments with
credit risk.
The notional quantities for trading activities at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
<S> <C> <C> <C> <C>
Fixed price:
Natural gas (TBtu)................................ 1,327.9 1,702.5 1,066.6 1,196.8
Refined products and crude (MMBbls)............... 337.2 230.7 34.4 26.3
Power (Terawatt Hrs).............................. 20.0 16.7 -- --
Variable price:
Natural gas (TBtu)................................ 2,091.1 1,508.2 1,584.9 1,123.8
Refined products and crude (MMBbls)............... 4.5 3.1 3.7 3.3
Power (Terawatt Hrs).............................. .2 2.1 -- --
</TABLE>
The net cash flow requirement related to these contracts at December 31,
1997 and 1996, was $92 million and $117 million, respectively. At December 31,
1997, the cash flow requirements extend primarily through 2007.
Concentration of Credit Risk
Williams' cash equivalents consist of high quality securities placed with
various major financial institutions with high credit ratings. Williams'
investment policy limits its credit exposure to any one financial institution.
At December 31, 1997 and 1996, approximately 57 percent and 69 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 33 percent and 23 percent of
receivables at December 31, 1997 and 1996, respectively, are for communications
and related services. Natural gas customers include pipelines, distribution
companies, producers, gas marketers and industrial users primarily located in
the eastern, northwestern and midwestern United States. Communica-
F-39
<PAGE> 68
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tions' customers include numerous corporations. As a general policy, collateral
is not required for receivables, but customers' financial condition and credit
worthiness are evaluated regularly.
NOTE 17. OTHER FINANCIAL INFORMATION
Intercompany revenues (at prices that generally apply to sales to unaffiliated
parties) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Gas Pipelines:
Central................................................... $ 6.1 $ 9.2 $ 9.5
Northwest Pipeline........................................ 2.8 1.1 1.8
Texas Gas Transmission.................................... 7.6 20.5 37.7
Transcontinental Gas Pipe Line............................ 40.5 34.6 34.2
Energy Services:
Energy Marketing & Trading*............................... (47.1) 130.7 62.2
Exploration & Production.................................. 126.5 57.1 4.9
Field Services............................................ 32.3 26.2 14.0
Petroleum Services........................................ 81.6 67.7 44.6
Other....................................................... 12.6 9.3 .2
------ ------ ------
$262.9 $356.4 $209.1
====== ====== ======
</TABLE>
* Energy Marketing & Trading intercompany cost of sales, which are netted in
revenues consistent with market-value accounting, exceed intercompany revenues
in 1997.
Information for business segments is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Identifiable assets at December 31:
Gas Pipelines:
Central................................................. $ 854.9 $ 704.8 $ 709.2
Kern River Gas Transmission............................. 1,083.0 1,081.6 --
Northwest Pipeline...................................... 1,161.3 1,153.9 1,147.5
Texas Gas Transmission.................................. 1,162.1 1,132.2 1,151.8
Transcontinental Gas Pipe Line.......................... 3,413.9 3,305.4 3,159.5
Energy Services:
Energy Marketing & Trading.............................. 725.1 839.1 438.2
Exploration & Production................................ 247.1 200.3 164.6
Field Services.......................................... 2,038.4 1,995.0 1,939.3
Petroleum Services...................................... 904.6 906.5 863.2
Communications............................................ 1,312.9 670.6 401.0
Investments............................................... 291.4 190.6 307.6
General corporate and other............................... 684.3 238.8 279.3
--------- --------- ---------
Consolidated.................................... $13,879.0 $12,418.8 $10,561.2
========= ========= =========
</TABLE>
F-40
<PAGE> 69
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Additions to property, plant and equipment:
Gas Pipelines:
Central................................................. $ 60.4 $ 50.9 $ 43.5
Kern River Gas Transmission............................. 15.3 4.7 --
Northwest Pipeline...................................... 44.4 62.8 130.5
Texas Gas Transmission.................................. 74.5 50.1 32.1
Transcontinental Gas Pipe Line.......................... 224.8 272.1 238.7
Energy Services:
Energy Marketing & Trading.............................. 37.6 .6 .4
Exploration & Production................................ 63.3 30.3 15.6
Field Services.......................................... 158.8 205.7 232.1
Petroleum Services...................................... 45.0 55.8 87.9
Communications............................................ 276.3 66.9 32.4
General corporate and other............................... 161.7 19.0 14.3
--------- --------- ---------
Consolidated.................................... $ 1,162.1 $ 818.9 $ 827.5
========= ========= =========
Depreciation, depletion and amortization:
Gas Pipelines:
Central................................................. $ 28.0 $ 27.5 $ 27.3
Kern River Gas Transmission............................. 17.8 15.5 --
Northwest Pipeline...................................... 55.2 43.2 34.9
Texas Gas Transmission.................................. 42.5 41.5 38.9
Transcontinental Gas Pipe Line.......................... 129.5 113.7 109.1
Energy Services:
Energy Marketing & Trading.............................. .7 .6 1.2
Exploration and Production.............................. 12.6 10.5 9.8
Field Services.......................................... 102.7 94.7 100.4
Petroleum Services...................................... 35.0 34.1 26.4
Communications............................................ 66.8 30.9 20.3
General corporate and other............................... 8.7 8.8 7.2
--------- --------- ---------
Consolidated.................................... $ 499.5 $ 421.0 $ 375.5
========= ========= =========
</TABLE>
Identifiable assets are gross assets used by a business segment, including
an allocated portion of assets used jointly by more than one business segment.
Items such as investments are considered to be general corporate assets rather
than identifiable assets of individual business segments.
NOTE 18. 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 $328 million at December 31, 1997; 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, $337 million of revenues has been reserved for potential refund as of
December 31, 1997.
In 1997, the Federal Energy Regulatory Commission (FERC) issued orders
addressing, among other things, the authorized rates of return for three of
Williams' interstate natural gas pipeline subsidiaries. All of
F-41
<PAGE> 70
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the orders involve rate cases that became effective between 1993 and 1995 and,
in each instance, these cases have been superseded by more recently filed rate
cases. In the three orders, the FERC continued its practice of utilizing a
methodology for calculating rates of return that incorporates a long-term growth
rate component. However, the long-term growth rate component used by the FERC is
now a projection of U.S. gross domestic product growth rates. Generally,
calculating rates of return utilizing a methodology which includes a long-term
growth rate component results in rates of return that are lower than they would
be if the long-term growth rate component were not included in the methodology.
Each of the three pipeline subsidiaries challenged its respective FERC order in
an effort to have the FERC change its rate of return methodology with respect to
these and other rate cases. In October 1997, the FERC voted not to reconsider an
order issued in one of the three pipeline proceedings, but convened a conference
on January 30, 1998, to consider, on an industry-wide basis, issues with respect
to pipeline rates of return.
In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These
orders, which were challenged in various respects by various parties in
proceedings 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. Williams' gas pipelines subsidiaries implemented restructurings in
1993. Certain aspects of three of its pipeline companies' restructurings are
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 636. However, the court
stated that Order 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
was lifted. The only appeal challenging Northwest Pipeline's restructuring has
been dismissed. On February 27, 1997, the FERC issued Order No. 636-C which
dealt with the six issues remanded by the D.C. Circuit. In that order, the FERC
reaffirmed that pipelines should be exempt from sharing gas supply realignment
costs. Requests for rehearing have been filed for the order.
Contract reformations and gas purchase deficiencies
As a result of FERC Order 636, which requires interstate gas pipelines to
change the way they do business, 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.
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, 636-B and 636-C,
costs incurred to comply with these rules are permitted to be recovered in full,
although a percentage of such costs must be allocated to interruptible
transportation service.
Pursuant to a stipulation and agreement approved by the FERC, Williams Gas
Pipelines Central (Central) has made 11 filings to direct bill take-or-pay and
gas supply realignment costs. The total amount approved for direct billing, net
of certain amounts collected subject to refunds, is $67 million. An intervenor
has filed protests seeking to have the FERC review the prudence and eligibility
of approximately $40 million of costs covered by these filings. On July 31,
1996, the administrative law judge issued an initial decision rejecting the
intervenor's prudency challenge. On September 30, 1997, the FERC, by a
two-to-one vote, reversed the administrative law judge and determined that three
life-of-lease producer contracts were imprudently entered into in 1982. Central
has filed for rehearing, and management plans to vigorously defend the prudency
of these contracts. An intervenor has also filed a protest seeking to have the
FERC decide whether non-settlement costs are eligible for recovery under Order
No. 636. In January 1997, the FERC held that none of the non-settlement costs
could be recovered by Central if these costs were not eligible for recovery
under Order No. 636. This order was affirmed on rehearing in April 1997. An
initial decision from
F-42
<PAGE> 71
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the administrative law judge is expected in the first quarter of 1998. If the
FERC's final ruling on eligibility is unfavorable, Central will appeal these
orders to the courts. Central will make additional filings under the applicable
FERC orders to recover such additional costs as may be incurred in the future.
Because of the uncertainties pertaining to the outcome of these issues
currently pending at the FERC and the status of settlement negotiation and
various other factors, Central cannot reasonably estimate the costs that may be
incurred nor the related amounts that could be recovered from customers. Central
is actively pursuing negotiations with the producers to resolve all outstanding
obligations under the contracts. Based on the terms of what Central believes
would be a reasonable settlement, $94 million has been accrued as a liability at
December 31, 1997, including a $5 million fourth-quarter 1997 charge to expense
for additional absorption of future costs. Central also has an $88 million
regulatory asset at December 31, 1997, for estimated recovery of future costs
from customers. Central cannot predict the final outcome of the FERC's rulings
on contract prudency and cost recovery under Order No. 636 and is unable to
determine the ultimate liability and loss, if any, at this time. If Central does
not prevail in these FERC proceedings or any subsequent appeals, and if Central
is able to reach a settlement with the producers consistent with the $94 million
accrued liability, the loss could be the total of the regulatory asset and the
$40 million of protested assets. Central continues to believe that it entered
into the gas purchase contracts in a prudent manner under FERC rules in place at
the time. Central also believes that the future recovery of these costs would be
in accordance with the terms of Order No. 636.
In September 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. Through December
31, 1997, Texas Gas has paid approximately $76 million and expects to pay no
more than $80 million for gas supply realignment costs, primarily as a result of
contract terminations. Texas Gas has recovered approximately $66 million, plus
interest, in gas supply realignment costs.
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
under way 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 December 31,
1997, these subsidiaries had reserves totaling approximately $28 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. In addition, these
subsidiaries have incurred, or are alleged to have incurred, various other
hazardous materials removal or remediation obligations under environmental laws.
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.
F-43
<PAGE> 72
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transcontinental Gas Pipe Line, Texas Gas and Central 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 Central 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 Central, Texas Gas and Transcontinental
Gas Pipe Line. As of December 31, 1997, Central had recorded a liability for
approximately $17 million, representing the current estimate of future
environmental cleanup costs to be incurred over the next six to ten years. The
Field Services unit of Energy Services had recorded an aggregate liability of
approximately $12 million, representing the current estimate of its future
environmental and remediation costs, including approximately $5 million relating
to former Central facilities. Texas Gas and Transcontinental Gas Pipe Line
likewise had recorded liabilities for these costs which are included in the $28
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 Central 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. Such costs have exceeded this amount. At
December 31, 1997, Williams had approximately $11 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 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. The district court has
stayed all of the cases involving Northwest Pipeline until the plaintiffs
exhaust their remedies before the Southern Ute Indian Tribal Court. Some
plaintiffs filed cases in the Tribal court, but none named Northwest Pipeline as
a defendant.
Other legal matters
In 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit against
Williams Production Company (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. On July 16, 1997,
F-44
<PAGE> 73
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the U.S. Court of Appeals for the Tenth Circuit reversed the decision of the
district court, held that the Tribe owns the coal-seam gas produced from certain
coal strata on fee lands within the exterior boundaries of the Tribe's
reservation, and remanded the case to the district court for further
proceedings. On September 16, 1997, Amoco Production Company, the class
representative for the defendant class (of which Williams Production is a part),
filed its motion for rehearing en banc before the Court of Appeals. On December
4, 1997, the Tenth Circuit Court of Appeals agreed to rehear the appeal.
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. In one of the
two remaining cases, a jury verdict found that Transcontinental Gas Pipe Line
was required to pay to a producer damages of $23.3 million including $3.8
million in attorneys' fees. Transcontinental Gas Pipe Line is considering an
appeal. In the other remaining case, a producer has asserted damages, including
interest calculated through December 31, 1996, of approximately $6 million.
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
owned a cogeneration facility in Hazleton, Pennsylvania (the Facility). Hazleton
Fuel Management Company (HFMC), a subsidiary of Transco Energy, formerly
supplied natural gas and fuel oil to the Facility. Pursuant to a court-approved
Plan of Reorganization, all litigation involving HFMC has been fully settled,
and HFMC received $6.3 million from the bankruptcy estate, leaving it with
approximately $14 million of outstanding receivables, all of which have been
fully reserved.
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 or cash flow
requirements.
19. MAPCO ACQUISITION
On November 24, 1997, Williams and MAPCO Inc. announced that they had
entered into a definitive merger agreement whereby Williams would acquire MAPCO
by exchanging 1.665 shares of Williams common stock for each outstanding share
of MAPCO common stock. In addition, outstanding MAPCO employee stock options
would be converted into Williams common stock. Approximately 96.8 million shares
of Williams common stock valued at approximately $2.8 billion, based on the
closing market price of Williams common stock on December 31, 1997, would be
issued in the transaction. The transaction, subject to approval by both Williams
and MAPCO stockholders and to review under federal anti-trust laws, is expected
to close during the first quarter of 1998. MAPCO is engaged in the NGL pipeline,
petroleum refining and marketing and propane marketing businesses, and will
become part of the Energy Services business unit.
F-45
<PAGE> 74
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The merger will be accounted for as a pooling of interests. Anticipated
changes in accounting methods as a result of the merger are not expected to have
a material impact on the financial position or results of operations of the
combined entity.
The following unaudited pro forma information combines the results of
operations of Williams and MAPCO as if the companies had been combined
throughout the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(MILLIONS, EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues............................................. $8,241.6 $6,842.9 $5,655.0
Income from continuing operations.................... 458.6 492.5 363.6
Net income........................................... 373.2 459.8 1,392.9
Basic earnings per common share:
Income from continuing operations.................. 1.09 1.16 .87
Net income......................................... .88 1.08 3.43
Diluted earnings per common share:
Income from continuing operations.................. 1.06 1.14 .86
Net income......................................... .86 1.06 3.35
</TABLE>
Pro forma financial information is not necessarily indicative of results of
operations that would have occurred if the companies had been combined
throughout the periods presented or of future results of operations of the
combined companies.
F-46
<PAGE> 75
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions, except
per-share amounts). Per-share amounts reflect the effect of the two-for-one
common stock split and distribution (see Note 15) and the adoption of SFAS No.
128.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
Revenues.......................................... $1,001.4 $1,020.6 $1,121.0 $1,266.6
Costs and operating expenses...................... 581.3 625.1 705.3 752.8
Income before extraordinary loss.................. 105.9 107.8 65.3 71.5
Net income (loss)................................. 105.9 107.8 (8.4) 66.1
Basic earnings per common share:
Income before extraordinary loss................ .32 .33 .20 .21
Net income (loss)............................... .32 .33 (.03) .19
Diluted earnings per common share:
Income before extraordinary loss................ .31 .32 .19 .21
Net income (loss)............................... .31 .32 (.03) .19
1996
Revenues.......................................... $ 893.7 $ 837.5 $ 842.2 $ 957.8
Costs and operating expenses...................... 499.4 493.9 509.3 561.5
Net income........................................ 104.9 80.4 71.0 106.0
Basic earnings per common share................... .32 .24 .21 .32
Diluted earnings per common share................. .31 .24 .21 .31
</TABLE>
The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.
Second-quarter 1997 net income includes a $44.5 million gain related to the
combination of Williams' and Nortel's customer-premise equipment sales and
service business (see Note 2 of Notes to Consolidated Financial Statements).
Third-quarter 1997 net income includes an extraordinary loss of $74 million
related to the restructuring of Williams' debt portfolio (see Note 8 of Notes to
Consolidated Financial Statements).
Second-quarter 1996 net income includes recognition of favorable income tax
adjustments totaling $10 million related to research credits and previously
provided deferred income taxes on certain regulated capital projects.
Third-quarter 1996 net income includes approximately $6 million, net of federal
income tax effect, from the effects of state income tax adjustments related to
1995.
F-47
<PAGE> 76
Selected comparative fourth-quarter data are as follows (millions, except
per-share amounts).
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Operating profit:
Gas Pipelines:
Central................................................ $ 5.6 $ 10.9
Kern River Gas Transmission............................ 29.7 29.3
Northwest Pipeline..................................... 29.5 21.8
Texas Gas Transmission................................. 32.1 29.5
Transcontinental Gas Pipe Line......................... 63.4 61.0
Energy Services:
Energy Marketing & Trading............................. 42.0 13.6
Exploration & Production............................... 10.2 3.7
Field Services......................................... 33.5 56.3
Petroleum Services..................................... 33.9 18.3
Communications............................................ (51.8) .6
Other..................................................... 2.8 (2.9)
------ ------
Total operating profit...................................... 230.9 242.1
General corporate expenses.................................. (18.7) (11.6)
Interest expense net........................................ (97.4) (91.9)
Investing income............................................ 7.4 4.1
Gain on sale of asset....................................... -- 15.7
Minority interest in income of consolidated subsidiaries.... (4.5) --
Other income (expense) net.................................. (1.8) 8.0
------ ------
Income before income taxes.................................. 115.9 166.4
Provision for income taxes.................................. 44.4 60.4
------ ------
Income before extraordinary loss............................ 71.5 106.0
Extraordinary loss.......................................... (5.4) --
------ ------
Net income.................................................. $ 66.1 $106.0
====== ======
Basic earnings per common share............................. $ .19 $ .32
====== ======
Diluted earnings per common share........................... $ .19 $ .31
====== ======
</TABLE>
Communications' fourth-quarter 1997 operating profit includes charges
totaling approximately $49.8 million, related to the decision to sell the
learning content business, the write-down of assets and the development costs
associated with advanced applications. In addition, 1997 general corporate
expenses include approximately $5 million in costs related to the MAPCO
acquisition (see Note 19 of Notes to Consolidated Financial Statements).
Field Services' fourth-quarter 1996 operating profit includes a gain of
approximately $20 million from the property insurance coverage associated with
construction of replacement gathering facilities. In addition, 1996 segment
operating profit and general corporate expenses together include approximately
$10 million related to an all-employee bonus that was linked to achieving record
financial performance. In fourth-quarter 1996, Williams recognized a pre-tax
gain of $15.7 million from the sale of certain communication rights.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
F-48
<PAGE> 77
THE WILLIAMS COMPANIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(a) 1 AND 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Covered by report of independent auditors:
Consolidated statement of income for the three years ended
December 31, 1997...................................... F-16
Consolidated balance sheet at December 31, 1997 and
1996................................................... F-17
Consolidated statement of stockholders' equity for the
three years ended December 31, 1997.................... F-18
Consolidated statement of cash flows for the three years
ended December 31, 1997................................ F-19
Notes to consolidated financial statements................ F-20
Schedule for the three years ended December 31, 1997:
II -- Valuation and qualifying accounts................ F-50
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-47
</TABLE>
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-49
<PAGE> 78
THE WILLIAMS COMPANIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(a)
<TABLE>
<CAPTION>
ADDITIONS
--------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER(C) DEDUCTIONS(B) BALANCE
--------- -------- -------- ------------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1997................................. $ 9.7 $8.8 $7.8 $7.0 $19.3
1996................................. 11.3 4.1 1.3 7.0 9.7
1995................................. 7.9 3.8 1.6 2.0 11.3
</TABLE>
- - ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Primarily relates to acquisitions of businesses.
F-50
<PAGE> 79
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Directors and nominees for Director of
Williams required by Item 401 of Regulation S-K is presented under the heading
"Election of Directors" in Williams' Proxy Statement prepared for the
solicitation of proxies in connection with the Annual Meeting of Stockholders of
the Company for 1998 (the "Proxy Statement"), which information is incorporated
by reference herein. A copy of the Proxy Statement is filed as an exhibit to the
Form 10-K. Information regarding the executive officers of Williams is presented
following Item 4 herein, as permitted by General Instruction G(3) to Form 10-K
and Instruction 3 to Item 401(b) of Regulation S-K. Information required by Item
405 of Regulation S-K is included under the heading "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement, which
information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement, which
information is incorporated by reference herein. Notwithstanding the foregoing,
the information provided under the headings "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation" in the
Proxy Statement are not incorporated by reference herein. A copy of the Proxy
Statement is filed as an exhibit to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement, which information is incorporated by reference herein. A
copy of the Proxy Statement is filed as an exhibit to the Form 10-K.
F-51
<PAGE> 80
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no information regarding certain relationships and related
transactions required by Item 404 of Regulation S-K to be reported.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedule listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.
(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.
Exhibit 2 --
*(a) Agreement and Plan of Merger, dated as of November 23, 1997, and
as amended on January 25, 1998, among The Williams Companies, Inc., MAPCO
Inc. and TML Acquisition Corp. (filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4, filed January 27, 1998).
Exhibit 3 --
*(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20, 1987).
*(b) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994 (filed as Exhibit 3(d) to Form 10-K for
the fiscal year ended December 31, 1994).
*(c) Certificate of Amendment of Restated Certificate of Incorporation
dated May 16, 1997 (filed as Exhibit 4.3 to the Registration Statement on
Form S-8 filed November 21, 1997).
(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated February 26, 1998.
*(e) Certificate of Designation with respect to the $3.50 Cumulative
Convertible Preferred Stock (filed as Exhibit 3.1(c) to the Prospectus and
Information Statement to Amendment No. 2 to the Registration Statement on
Form S-4, filed March 30, 1995).
*(f) Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock (filed as Exhibit 3(f) to Form 10-K
for the fiscal year ended December 31, 1995).
(g) Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock, dated December 31, 1997.
*(h) Rights Agreement, dated as of February 6, 1996, between Williams
and First Chicago Trust Company of New York (filed as Exhibit 4 to Williams
Form 8-K, filed January 24, 1996).
*(i) By-laws of Williams, as amended (filed, as amended, as Exhibit 3
to Form 10-Q for the quarter ended September 30, 1996).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between the Company and Chase
Manhattan Bank (formerly Chemical Bank), Trustee, relating to the 10 1/4%
Debentures, due 2020; the 9 3/8% Debentures, due 2021; the 8 1/4% Notes,
due 1998; Medium-Term Notes (9.10%-9.31%), due 2001; the 7 1/2% Notes, due
1999, and the 8 7/8% Debentures, due 2012 (filed as Exhibit 4.1 to Form S-3
Registration Statement No. 33-33294, filed February 2, 1990).
*(b) Form of Subordinated Debt Indenture between the Company and Chase
Manhattan Bank (formerly Chemical Bank), Trustee, relating to 9.60%
Quarterly Income Capital Securities, due 2025 (filed as Exhibit 4.2 to Form
S-3 Registration Statement No. 33-60397, filed June 20, 1995).
F-52
<PAGE> 81
(c) U.S. $1,000,000,000 Amended and Restated Credit Agreement, dated
as of July 23, 1997, among Williams and certain of its subsidiaries and the
banks named therein and Citibank, N.A., as agent.
*(d) Form of Senior Debt Indenture between the Company and The First
National Bank of Chicago, Trustee, relating to 6.50% Notes due 2002; 6.625%
Notes due 2004; floating rate notes due 2000; 6 1/8% Notes due 2001; and
6 1/8% Mandatory Putable/Remarketable Securities due 2012 (filed as Exhibit
4.1 to Registration Statement on Form S-3 filed September 8, 1997).
*(e) Form of Debenture representing $360,000,000 principal amount of
6% Convertible Subordinated Debenture Due 2005 (filed as Exhibit 4.7 to the
Registration Statement on Form S-8, filed August 30, 1996).
*(f) Form of Warrant to purchase 11,305,720 shares of the Common Stock
of the Company (filed as Exhibit 4.8 to the Registration Statement on Form
S-8, filed August 30, 1996).
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to Form 10-K
for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)(d) to
Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control Protection
Plan between Williams and employees (filed as Exhibit 10(iii)(e) to Form
10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy Statement,
dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as Exhibit A
to Williams' Proxy Statement, dated March 12, 1990).
*(g) The Williams Companies, Inc. Stock Plan for Non-Officer Employees
(filed as Exhibit 10(iii)(g) to Form 10-K for the fiscal year ended
December 31, 1995).
*(h) The Williams Companies, Inc. 1996 Stock Plan (filed as Exhibit A
to Williams' Proxy Statement, dated March 27, 1996).
*(i) The Williams Companies, Inc. 1996 Stock Plan for Non-Employee
Directors (filed as Exhibit B to Williams' Proxy Statement, dated March 27,
1996).
*(j) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and certain officers
of Williams (filed as Exhibit 10(iii)(e) to Form 10-K for the year ended
December 31, 1986).
Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent
Share.
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividend Requirements.
Exhibit 20 -- Definitive Proxy Statement of Williams for 1998 (as filed
with the Commission on March 27, 1998).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
F-53
<PAGE> 82
Exhibit 27.1 -- Restated Financial Data Schedule for the year ended
December 31, 1996.
Exhibit 27.2 -- Restated Financial Data Schedule for the year ended
December 31, 1995.
(b) Reports on Form 8-K.
On October 29, 1997, the Company filed a report on Form 8-K to report the
results of the Company's debt tender offer.
On November 15, 1997, the Company filed a report on Form 8-K/A to report
the results of the Company's debt tender offer.
On November 27, 1997, the Company filed a report on Form 8-K to report the
Company's execution of an Agreement and Plan of Merger, dated November 23, 1997,
among the Company, MAPCO Inc., and TML Acquisition Corp., providing for the
Company to acquire MAPCO, Inc.
(d) The financial statements of partially-owned companies are not presented
herein since none of them individually, or in the aggregate, constitute a
significant subsidiary.
- - ---------------
* Each such exhibit has heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated and is incorporated
herein by reference.
F-54
<PAGE> 83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE WILLIAMS COMPANIES, INC.
(Registrant)
By: /s/ SHAWNA L. GEHRES
----------------------------------
Shawna L. Gehres
Attorney-in-fact
Dated: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ KEITH E. BAILEY* Chairman of the Board, President, Chief
- - ----------------------------------------------------- Executive Officer (Principal Executive
Keith E. Bailey Officer) and Director
/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
- - ----------------------------------------------------- Financial Officer)
Jack D. McCarthy
/s/ GARY R. BELITZ* Controller (Principal Accounting Officer)
- - -----------------------------------------------------
Gary R. Belitz
/s/ GLENN A. COX* Director
- - -----------------------------------------------------
Glenn A. Cox
/s/ THOMAS H. CRUIKSHANK* Director
- - -----------------------------------------------------
Thomas H. Cruikshank
/s/ WILLIAM E. GREEN* Director
- - -----------------------------------------------------
William E. Green
/s/ PATRICIA L. HIGGINS* Director
- - -----------------------------------------------------
Patricia L. Higgins
/s/ W.R. HOWELL* Director
- - -----------------------------------------------------
W. R. Howell
/s/ ROBERT J. LAFORTUNE* Director
- - -----------------------------------------------------
Robert J. LaFortune
/s/ JAMES C. LEWIS* Director
- - -----------------------------------------------------
James C. Lewis
/s/ JACK A. MACALLISTER* Director
- - -----------------------------------------------------
Jack A. MacAllister
</TABLE>
II-1
<PAGE> 84
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PETER C. MEINIG* Director
- - -----------------------------------------------------
Peter C. Meinig
/s/ KAY A. ORR* Director
- - -----------------------------------------------------
Kay A. Orr
/s/ GORDON R. PARKER* Director
- - -----------------------------------------------------
Gordon R. Parker
/s/ JOSEPH H. WILLIAMS* Director
- - -----------------------------------------------------
Joseph H. Williams
By: /s/ SHAWNA L. GEHRES
-------------------------------------------------
Shawna L. Gehres
Attorney-in-fact
</TABLE>
Dated: March 30, 1998
II-2
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3(d) -- Certificate of Amendment of Restated Certificate of
Incorporation
3(g) -- Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock
4(c) -- Amended Restated Credit Agreement
11 -- Computation of Earnings Per Common and Common-equivalent
Share.
12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
21 -- Subsidiaries of the registrant.
23 -- Consent of Independent Auditors.
24 -- Power of Attorney together with certified resolution.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule for the year ended
December 31, 1996.
27.2 -- Restated Financial Data Schedule for the year ended
December 31, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 3(d)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED
* * * * * * * *
THE WILLIAMS COMPANIES, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of Delaware, DOES
HEREBY CERTIFY:
FIRST: That the Board of Directors of The Williams Companies,
Inc., at a meeting of the Board of Directors duly called and held on November
23, 1997, adopted a resolution proposing and declaring advisable the following
amendment to the Restated Certificate of Incorporation, as amended, of said
Company:
RESOLVED that the Board of Directors of
the Company hereby declares it advisable to amend Article FOURTH of the
Company's Restated Certificate of Incorporation, as amended, to
increase the authorized Common Stock, $1.00 par value, so that, as
amended, the first paragraph of Article FOURTH shall be, and read, as
follows:
"FOURTH: The total number of shares
of capital stock which the Company shall have
authority to issue is 990,000,000 shares,
consisting of 960,000,000 shares of Common
Stock, par value $1.00 per share (the "Common
<PAGE> 2
Stock") and 30,000,000 shares of Preferred
Stock, par value $1.00 per share (the
"Preferred Stock")."
SECOND: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Section 242 of the
General Corporation Law of Delaware.
IN WITNESS WHEREOF, The Williams Companies, Inc. has
caused this Certificate to be signed by William G. von Glahn, its
Senior Vice President and General Counsel, and attested by David M.
Higbee, its Secretary, this 26th day of February, 1998.
THE WILLIAMS COMPANIES, INC.
By: /s/ WILLIAM G. VON GLAHN
-------------------------------
William G. von Glahn
Senior Vice President and
General Counsel
ATTEST:
By: /s/ DAVID M. HIGBEE
-------------------------
David M. Higbee
Secretary
<PAGE> 1
EXHIBIT 3(g)
THE WILLIAMS COMPANIES, INC.
CERTIFICATE OF INCREASE
OF AUTHORIZED NUMBER OF SHARES
OF SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
The Williams Companies, Inc., a corporation organized and
existing under the General Corporation Law of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Restated Certificate of Incorporation of said
Corporation was filed in the office of the Secretary of State of Delaware on
April 27, 1987, and was filed for recording in the office of the Recorder of
Deeds of New Castle County, Delaware, on April 27, 1987, and the Certificate of
the Designations, Preferences and Rights of the Series A Junior Participating
Preferred Stock was included in said Restated Certificate of Incorporation.
SECOND: That Certificates of Increase of Authorized Number of
Shares of Series A Junior Participating Preferred Stock were filed in the office
of the Secretary of State of Delaware on February 7, 1989, and February 6, 1996,
respectively, and were filed for recording in the office of the Recorder of
Deeds of New Castle County, Delaware, on February 7, 1989, and February 6, 1996,
respectively.
THIRD: That the Board of Directors of said Corporation at a
meeting held on November 23, 1997, duly adopted a resolution authorizing and
directing an increase in the authorized number of shares of Series A
Participating Preferred Stock of the Corporation, from 1,200,000 shares to
1,600,000 shares.
IN WITNESS WHEREOF, said The Williams Companies, Inc. has
caused this certificate to be signed by Gary R. Belitz, its Controller and Chief
Accounting Officer, and attested by David M. Higbee, its Secretary, this 30th
day of December, 1997.
THE WILLIAMS COMPANIES, INC.
CORPORATE SEAL By: /s/ GARY R. BELITZ
------------------------
Name: Gary R. Belitz
Title: Controller and
Chief Accounting
Officer
ATTEST:
/s/ DAVID M. HIGBEE
- - ----------------------------------
Name: David M. Higbee
Title: Secretary
<PAGE> 1
EXHIBIT 4(c)
U.S. $1,000,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 23, 1997
Among
THE WILLIAMS COMPANIES, INC.
NORTHWEST PIPELINE CORPORATION
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
TEXAS GAS TRANSMISSION CORPORATION
WILLIAMS PIPE LINE COMPANY
WILLIAMS HOLDINGS OF DELAWARE, INC.
WILTEL COMMUNICATIONS, LLC
as Borrowers
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
Co-Agents:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
BANK OF MONTREAL
CREDIT LYONNAIS NEW YORK BRANCH
THE CHASE MANHATTAN BANK
CIBC INC.
THE FIRST NATIONAL BANK OF CHICAGO
ROYAL BANK OF CANADA
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Computation of Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.03. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.04. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1.05. Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.02. Making the A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.03. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.04. Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.05. Repayment of A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.06. Interest on A Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.07. Additional Interest on Eurodollar Rate Advances . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.08. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.09. Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.10. Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.11. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.12. Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.13. Payments and Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 2.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.15. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.16. The B Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.17. Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.18. Extension of Termination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.19. Voluntary Conversion of Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.20. Automatic Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.02. Additional Conditions Precedent to Each A Borrowing . . . . . . . . . . . . . . . . . . . . . 29
Section 3.03. Conditions Precedent to Each B Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.02. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.02. Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.03. Citibank and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.04. Bank Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.05. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.06. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.02. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.05. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.06. Binding Effect; Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.09. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.10. Survival of Agreements, Representations and Warranties, Etc. . . . . . . . . . . . . . . . . 53
Section 8.11. Borrowers' Right to Apply Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.13. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.14. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted NWP Liens
Schedule IV - Permitted TGPL Liens
Schedule V - Permitted TGT Liens
Schedule VI - Permitted TWC Liens
-ii-
<PAGE> 4
Schedule VII - Permitted WPL Liens
Schedule VIII - Permitted WHD Liens
Schedule IX - Permitted WilTel Liens
Schedule X - Commitments
Schedule XI - Rating Categories
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of B Borrowing
Exhibit C - Opinion of William G. von Glahn
Exhibit D - Opinion of Special Counsel to Agent
Exhibit E - Existing Transfer Restrictions
Exhibit F - Form of Transfer Agreement
-iii-
<PAGE> 5
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of July 23, 1997
This Second Amended and Restated Credit Agreement dated as of July 23,
1997, is by and among the Borrowers, the Agent and the Banks. In consideration
of the mutual covenants and agreements contained herein, the Borrowers, the
Agent and the Banks hereby agree as set forth herein.
PRELIMINARY STATEMENTS
1. The Borrowers, the Agent and certain of the Banks are parties
to the Amended and Restated Credit Agreement dated as of December 20, 1996 (the
"1996 Credit Agreement").
2. The Borrowers have requested that the 1996 Credit Agreement be
further amended and, as so further amended, be restated in its entirety, and
the parties hereto have agreed to do so on the terms and conditions set forth
herein.
3. The parties hereto have agreed to restate the 1996 Credit
Agreement in its entirety for convenience, and this Second Amended and Restated
Credit Agreement constitutes for all purposes an amendment to the 1996 Credit
Agreement, and each reference to an Advance or Borrowing herein shall include
each advance or borrowing made heretofore under the 1996 Credit Agreement as
well as each Advance or Borrowing made hereafter under this Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"A Advance" means an advance by a Bank to a Borrower as part
of an A Borrowing and refers to a Base Rate Advance or a Eurodollar
Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A
Advances of the same Type to the same Borrower made by each of the
Banks pursuant to Section 2.01.
"A Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
evidencing the aggregate indebtedness of such Borrower to such Bank
resulting from the A Advances to such Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent pursuant
to Article VII hereof and any successor Agent pursuant to Section
7.06.
<PAGE> 6
"Agreement" means this Second Amended and Restated Credit
Agreement dated as of July 23, 1997, among the Borrowers, the Agent
and the Banks, as amended or modified from time to time.
"Applicable Commitment Fee Rate" means the rate per annum set
forth on Schedule XI under the heading "Applicable Commitment Fee
Rate" for the relevant Rating Category applicable to TWC from time to
time. The Applicable Commitment Fee Rate shall change when and as the
relevant Rating Category applicable to TWC changes.
"Applicable Lending Office" means, with respect to each Bank,
such Bank's Domestic Lending Office in the case of a Base Rate Advance
and such Bank's Eurodollar Lending Office in the case of a Eurodollar
Rate Advance and, in the case of a B Advance, the office of such Bank
notified by such Bank to the Agent as its Applicable Lending Office
with respect to such B Advance.
"Applicable Margin" means
(i) as to any Eurodollar Rate Advance to any Borrower (other than WPL during
such times as WPL is Unrated and WilTel during such times as WilTel is Unrated),
the rate per annum set forth in Schedule XI under the heading "Applicable
Margin" for the relevant Rating category applicable to such Borrower from time
to time;
(ii) for each day during such times as WPL is Unrated, as to any Eurodollar Rate
Advance to WPL, the rate per annum set forth in the following table for the
relevant amount of the Applicable WPL Debt to TNW Ratio for such day:
<TABLE>
<CAPTION>
Applicable
WPL Debt to Applicable
TNW Ratio Margin
----------- ----------
<S> <C>
Less than .55 .325%
.55 or greater and
less than .60 .40%
.60 or greater .65%
</TABLE>
and (iii) for each day during such times as WilTel is Unrated, as to any
Eurodollar Rate Advance to WilTel (A) as to the time from July 23, 1997, to and
including September 30, 1997, a rate per annum equal to .275%; (B) as to such
times subsequent to September 30, 1997, the rate per annum set forth in the
following table for the relevant amount of Applicable WilTel Debt to EBITDA
Ratio for such day:
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<PAGE> 7
<TABLE>
<CAPTION>
Applicable
WilTel Debt to Applicable
EBITDA Margin
-------------- ----------
<S> <C>
Less than or equal to 1.00 .225%
Greater than 1.00 and less
than or equal to 1.75 .25%
Greater than 1.75 and less
than or equal to 2.50 .275%
Greater than 2.50 and less
than or equal to 3.50 .325%
Greater than 3.50 and less
than or equal to 4.50 .40%
Greater than 4.50 .65%
</TABLE>
The Applicable Margin determined pursuant to clause (i) of this definition for
any Eurodollar Rate Advance to any Borrower shall change when and as the
relevant Rating Category applicable to such Borrower changes. Furthermore, the
applicability of clause (i) or (ii) of this definition to WPL and of clause (i)
or (iii) of this definition to WilTel shall change when and as the status of WPL
or WilTel, as applicable, as Unrated or not Unrated changes. For example, if
WPL borrows on September 15 of a year a Eurodollar Rate Advance with a three
month Interest Period and WPL is Unrated from September 15 through October 15 of
such year and is not Unrated thereafter, then the Applicable Margin for such
Advance will be determined (1) pursuant to the foregoing clause (ii) from
September 15 through October 15 of such year (and the Applicable WPL Debt to TNW
Ratio (a) for the days from September 15 through September 30 will be the WPL
Debt to TNW Ratio on March 31 of such year and (b) for the days after September
30 will be the WPL Debt to TNW Ratio on June 30 of such year), and (2) pursuant
to the foregoing clause (i) during the other days of such Interest Period.
"Applicable WilTel Debt to EBITDA Ratio" for any day means the
WilTel Debt to EBITDA Ratio as of the end of the calendar quarter that is
the second calendar quarter prior to such day.
"Applicable WPL Debt to TNW Ratio" for any day means the WPL Debt
to TNW Ratio as of the end of the calendar quarter which is the second
calendar quarter prior to such day. For example, the Applicable WPL Debt
to TNW Ratio for any day in the calendar quarter ending September 30 of a
year will be the WPL Debt to TNW Ratio as of March 31 of such year.
"Arranger" means Citicorp Securities, Inc.
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<PAGE> 8
"Attributable Obligation" of any Person means, with respect to
any Sale and Lease-Back Transaction of such Person as of any particular
time, the present value at such time discounted at the rate of interest
implicit in the terms of the lease of the obligations of the lessee under
such lease for net rental payments during the remaining term of the lease
(including any period for which such lease has been extended or may, at
the option of such Person, be extended).
"B Advance" means an advance by a Bank to a Borrower as part of a
B Borrowing resulting from the auction bidding procedure described in
Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B
Advances to the same Borrower from each of the Banks whose offer to make
one or more B Advances as part of such borrowing has been accepted by such
Borrower under the auction bidding procedure described in Section 2.16.
"B Note" means a promissory note of a Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-2 hereto, (or,
in the case of B Advances outstanding on July 23, 1997, in substantially
the form of Exhibit A-2 to the 1996 Credit Agreement) evidencing the
indebtedness of such Borrower to such Bank resulting from a B Advance made
to such Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.01.
"Banks" means the lenders listed on the signature pages hereof
and each other Person that becomes a Bank pursuant to the last sentence of
Section 8.06(a).
"Base Rate" means a fluctuating interest rate per annum as shall
be in effect from time to time which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's
base rate; or
(b) 1/2 of one percent per annum above the latest
three-week moving average of secondary market morning offering
rates in the United States for three-month certificates of
deposit of major United States money market banks, such
three-week moving average being determined weekly on each Monday
(or, if any such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates reported
by certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such
rates received by Citibank from three New York certificate of
deposit dealers of recognized standing selected by Citibank, in
either case adjusted to the nearest 1/4 of one percent or, if
there is no nearest 1/4 of one percent, to the next higher 1/4
of one percent; or
(c) 1/2 of one percent per annum above the Federal
Funds Rate in effect from time to time.
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<PAGE> 9
"Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.06(a).
"Borrowers" means TWC, WHD, NWP, TGPL, TGT, WilTel and WPL.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advances or relates to any B
Advance as to which the related Notice of B Borrowing is delivered
pursuant to clause (B) of Section 2.16(a)(i), on which dealings are
carried on in the London interbank market.
"Citibank" means Citibank, N.A.
"Co-Agent" means each of Bank of America National Trust and
Savings Association, Bank of Montreal, Credit Lyonnais New York Branch,
The Chase Manhattan Bank, CIBC Inc., The First National Bank of Chicago,
and Royal Bank of Canada.
"Code" means, as appropriate, the Internal Revenue Code of 1986,
as amended, or any successor federal tax code, and any reference to any
statutory provision shall be deemed to be a reference to any successor
provision or provisions.
"Commitment" of any Bank to any Borrower means at any time the
lesser of (i) the amount set opposite or deemed (pursuant to clause (vii)
of the last sentence of Section 8.06(a) and as reflected in the relevant
Transfer Agreement referred to in such sentence) to be set opposite such
Bank's name for such Borrower on Schedule X as such amount may be
terminated, reduced or increased after July 23, 1997, pursuant to Section
2.04, Section 2.17, Section 6.01 or Section 8.06(a), or (ii) the amount of
the Commitment of such Bank to TWC at such time.
"Consolidated" refers to the consolidation of the accounts of any
Person and its subsidiaries in accordance with generally accepted
accounting principles.
"Consolidated Net Worth" of any Person means the Net Worth of
such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the
Tangible Net Worth of such Person and its Subsidiaries on a Consolidated
basis.
"Convert," "Conversion" and "Converted" each refers to a
conversion of Advances of one Type into Advances of the other Type
pursuant to Section 2.02, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of such
Person for borrowed money, (ii) obligations of such Person evidenced by
bonds, debentures or notes, (iii) obligations of such Person to pay the
deferred purchase price of property or services, (iv) monetary obligations
of such Person as lessee under leases that are, in accordance
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<PAGE> 10
with generally accepted accounting principles, recorded as capital leases,
(v) obligations of such Person under guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
or clause (vii) of this definition, (vi) indebtedness or obligations of
others of the kinds referred to in clauses (i) through (v) or clause (vii)
of this definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III; paragraph (y) of Schedule
IV; paragraph (y) of Schedule V; paragraph (y) of Schedule VI; paragraph
(h) of Schedule VII; paragraph (y) of Schedule VIII; or paragraph ( ) of
Schedule IX or under or resulting from any sale and leaseback referred to
in paragraph (aa) of Schedule III; paragraph (aa) of Schedule IV;
paragraph (aa) of Schedule V; paragraph (bb) of Schedule VI; paragraph (j)
of Schedule VII; paragraph (aa) of Schedule VIII or paragraph ( ) of
Schedule IX.
"Domestic Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or pursuant to Section 8.06(a), or such
other office of such Bank as such Bank may from time to time specify to
the Borrowers and the Agent.
"EBITDA" means for any period the sum of (i) the Consolidated net
income (or loss) of WilTel and its Subsidiaries for such period determined
in accordance with generally accepted accounting principles plus (ii) to
the extent included in the determination of such net income (or loss), the
Consolidated charges for such period for interest, depreciation, depletion
and amortization, plus (or, if there is a benefit from income taxes,
minus) (iii) to the extent included in the determination of such net
income, the amount of the provision for or benefit from income interest;
provided, however, that in determining such Consolidated net income, such
Consolidated charges and such provision for or benefit from income taxes,
there shall be included therefrom (to the extent otherwise included
therein) (a) the net income (or loss) of, charges for interest,
depreciation, depletion and amortization of, and such provision for or
benefit from income taxes of, any Person acquired by WilTel or any
Subsidiary of WilTel in a pooling-of-interest transaction for any period
prior to the date of such transaction, (b) the net income (but not loss)
of, charges for interest, depreciation, depletion and amortization of, and
such provision for (but not benefit from) income taxes of, any Person
which is subject to any restriction which prevents the payment of
dividends or the making of distributions on the capital stock, partnership
interests or other ownership interests of such Person to the extent of
such restrictions, (c) pre-tax gains or losses on the sale, transfer or
other disposition of any property by WilTel or its Subsidiaries (other
than sales, transfer and other dispositions in the ordinary course of
business), (d) all reported extraordinary gains and reported extraordinary
losses, prior to applicable income taxes, and (e) any item constituting
the cumulative effect of a reported change in accounting principles, prior
to applicable income taxes.
"Environment" shall have the meaning set forth in 42 U.S.C.
Section 9601(8) as defined on the date of this Agreement, and
"Environmental" shall mean pertaining or relating to the Environment.
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<PAGE> 11
"Environmental Protection Statute" shall mean any United States
local, state or federal, or any foreign, law, statute, regulation, order,
consent decree or other agreement or Governmental Requirement arising from
or in connection with or relating to the protection or regulation of the
Environment, including, without limitation, those laws, statutes,
regulations, orders, decrees, agreements and other Governmental
Requirements relating to the disposal, cleanup, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Waste, Hazardous Substances or any pollutant or contaminant, wherever
located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder from time to time.
"ERISA Affiliate" of any Borrower means any trade or business
(whether or not incorporated) which is a member of a group of which such
Borrower is a member and which is under common control within the meaning
of the regulations under Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that term
in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank, the
office of such Bank specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or pursuant to Section 8.06(a) (or, if no
such office is specified, its Domestic Lending Office) or such other
office of such Bank as such Bank may from time to time specify to the
Borrowers and the Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same A Borrowing, an
interest rate per annum (rounded upward to the nearest whole multiple of
1/16 of 1% per annum, if such rate is not such a multiple) equal to the
rate per annum at which deposits in U.S. dollars are offered by the
principal office of Citibank in London, England, to prime banks in the
London interbank market at 11:00 A.M. (London time) two Business Days
before the first day of such Interest Period in an amount substantially
equal to the amount of the Eurodollar Rate Advance of Citibank comprising
part of such A Borrowing to be outstanding during such Interest Period and
for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance that bears interest
as provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any Interest
Period for any Eurodollar Rate Advance means the reserve percentage
applicable during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such percentages
for those days in such Interest Period during which any such percentage
shall be so applicable) under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for such Bank with respect to
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<PAGE> 12
liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
For purposes of clause (iv) of the definition herein of "Interest Period",
Section 2.19 and Section 6.01, an Event of Default exists as to a
particular Borrower if such Event of Default exists wholly or in part as a
result of any event, condition, action, inaction, representation or other
matter of, by or otherwise directly or indirectly pertaining to such
Borrower or any material Subsidiary of such Borrower. Without limiting
the foregoing and for purposes of further clarification, it is agreed that
inasmuch as each of WilTel, WHD, NWP, WPL, TGPL and TGT is a Subsidiary of
TWC, any Event of Default that exists as to any of WilTel, WHD, NWP, WPL,
TGPL or TGT also exists as to TWC.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers,
as published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
the Agent from three federal funds brokers of recognized standing selected
by it.
"Governmental Requirements" means all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations,
rules, franchises, permits, certificates, licenses, authorizations and the
like and any other requirements of any government or any commission,
board, court, agency, instrumentality or political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42
U.S.C. Section 9601(14) and shall also include each other substance
considered to be a hazardous substance under any Environmental Protection
Statute.
"Hazardous Waste" shall have the meaning set forth in 42 U.S.C.
Section 6903(5) and shall also include each other substance considered to
be a hazardous waste under any Environmental Protection Statute
(including, without limitation 40 C.F.R. Section 261.3).
"Insufficiency" means, with respect to any Plan, the amount, if
any, by which the present value of the vested benefits under such Plan
exceeds the fair market value of the assets of such Plan allocable to such
benefits.
"Interest Period" means, for each A Advance to a Borrower
comprising part of the same A Borrowing, the period commencing on the date
of such A Advance or the date of the Conversion of any Base Rate Advance
into a Eurodollar Rate Advance and ending on the last day of the period
selected by such Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by such Borrower pursuant to the provisions below. The
duration of each Interest Period shall be one, two, three or six months,
in each case as such Borrower may, upon notice
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<PAGE> 13
received by the Agent not later than 11:00 A.M. (New York City time) on
the third Business Day prior to the first day of such Interest Period,
select (it being agreed that selection of a subsequent Interest Period for
an outstanding Eurodollar Rate Advance does not require that a Notice of A
Borrowing be given, inasmuch as no Advance is being requested or made as a
result of such selection); provided, however, that:
(i) Interest Periods commencing on the same date for
A Advances comprising part of the same A Borrowing shall be of
the same duration;
(ii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided that if such extension
would cause the last day of such Interest Period to occur in the
next following calendar month, the last day of such Interest
Period shall occur on the next preceding Business Day;
(iii) any Interest Period which begins on the last
Business Day of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of
the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month; and
(iv) no Borrower may select any Interest Period that
ends after the Termination Date, and no Borrower may select any
Interest Period if any Event of Default exists as to such
Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, encumbrance or other type of preferential arrangement
to secure or provide for the payment of any obligation of any Person,
whether arising by contract, operation of law or otherwise (including,
without limitation, the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention
agreement).
"Majority Banks" means at any time Banks holding at least 66-2/3%
of the then aggregate unpaid principal amount of the A Notes held by
Banks, or, if no such principal amount is then outstanding, Banks having
at least 66-2/3% of the Commitments or, if no such principal amount is
then outstanding and all Commitments have terminated, Banks holding at
least 66-2/3% of the then aggregate unpaid principal amount of the B Notes
held by Banks (provided that for purposes of this definition and Sections
2.17, 6.01 and 7.01 neither any Borrower nor any Subsidiary or Related
Party of any Borrower, if a Bank, shall be included in (i) the Banks
holding the A Notes or B Notes or (ii) determining the aggregate unpaid
principal amount of the A Notes or the B Notes or the amount of the
Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate
of any Borrower is
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<PAGE> 14
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means an employee benefit plan, other
than a Multiemployer Plan, subject to Title IV of ERISA to which any
Borrower or any ERISA Affiliate of any Borrower, and one or more employers
other than any Borrower or an ERISA Affiliate of any Borrower, is making
or accruing an obligation to make contributions or, in the event that any
such plan has been terminated, to which any Borrower or any ERISA
Affiliate of any Borrower made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Net Worth" of any Person means, as of any date of determination,
the excess of total assets of such Person over total liabilities of such
Person, total assets and total liabilities each to be determined in
accordance with generally accepted accounting principles.
"1996 Credit Agreement" has the meaning specified in the
preliminary statements of this Agreement.
"Non-Borrowing Subsidiary" of any Borrower means a Subsidiary of
such Borrower which Subsidiary is not itself a Borrower.
"Non-Recourse Debt" means Debt incurred by any non-material,
Non-Borrowing Subsidiary to finance the acquisition (other than any
acquisition from TWC or any Subsidiary) or construction of a project,
which Debt does not permit or provide for recourse against TWC or any
Subsidiary of TWC (other than the Subsidiary that is to acquire or
construct such project) or any property or asset of TWC or any Subsidiary
of TWC (other than property or assets of the subsidiary that is to acquire
or construct such project).
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section
2.02(a).
"Notice of B Borrowing" has the meaning specified in Section
2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted NWP Liens" means Liens specifically described on
Schedule III.
"Permitted TGPL Liens" means Liens specifically described on
Schedule IV.
"Permitted TGT Liens" means Liens specifically described on
Schedule V.
"Permitted TWC Liens" means Liens specifically described on
Schedule VI.
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<PAGE> 15
"Permitted WHD Liens" means Liens specifically described on
Schedule VIII.
"Permitted WilTel Liens" means Liens specifically described on
Schedule IX.
"Permitted WPL Liens" means Liens specifically described on
Schedule VII.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan (other than a
Multiemployer Plan) as defined in Section 3(2) of ERISA currently
maintained by, or to which contributions have been made at any time after
December 31, 1984, by, any Borrower or any ERISA Affiliate of any Borrower
for employees of a Borrower or any such ERISA Affiliate and covered by
Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code.
"Public Filings" means TWC's, NWP's, TGPL's and TGT's respective
annual reports on Form 10-K for the year ended December 31, 1996, and
TWC's, NWP's, TGPL's and TGT's respective quarterly reports on Form 10-Q
for the quarter ended March 31, 1997.
"Rating Category" means, as to any Borrower, the relevant
category applicable to such Borrower from time to time as set forth on
Schedule XI, which is based on the ratings (or lack thereof) of such
Borrower's senior unsecured long-term debt by S&P or Moody's.
"Related Party" of any Person means any corporation, partnership,
joint venture or other entity of which more than 10% of the outstanding
capital stock or other equity interests having ordinary voting power to
elect a majority of the board of directors of such corporation,
partnership, joint venture or other entity or others performing similar
functions (irrespective of whether or not at the time capital stock or
other equity interests of any other class or classes of such corporation,
partnership, joint venture or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person or which owns at the time directly or
indirectly more than 10% of the outstanding capital stock or other equity
interests having ordinary voting power to elect a majority of the board of
directors of such Person or others performing similar functions
(irrespective of whether or not at the time capital stock or other equity
interests of any other class or classes of such corporation, partnership,
joint venture or other entity shall or might have voting power upon the
occurrence of any contingency); provided, however, that neither TWC nor
any Subsidiary of TWC shall be considered to be a Related Party of TWC or
any Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Group, a division of
Mc-Graw Hill, Inc. on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of such Person,
directly or indirectly, whereby such
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Person or any Subsidiary of such Person shall sell or transfer any
property, whether now owned or hereafter acquired, and whereby such Person
or any Subsidiary of such Person shall then or thereafter rent or lease as
lessee such property or any part thereof or other property which such
Person or any Subsidiary of such Person intends to use for substantially
the same purpose or purposes as the property sold or transferred;
provided, however, that any sale and lease-back of cushion gas, whether
now or hereafter existing, shall not be considered to be a Sale and
Lease-Back Transaction and any sale and lease-back of inventory, whether
now or hereafter existing, by WPL or any of its Subsidiaries (other than
another Borrower) shall not be considered to be a Sale and Lease-Back
Transaction.
"Stated Termination Date" means July 31, 2002, or such later
date, if any as may be agreed to by the Borrowers and the Banks pursuant
to Section 2.18.
"Subordinated Debt" means any Debt of any Borrower which is
effectively subordinated to the obligations of such Borrower hereunder and
under the Notes.
"Subsidiary" of any Person means any corporation, partnership,
joint venture or other entity of which more than 50% of the outstanding
capital stock or other equity interests having ordinary voting power to
elect a majority of the board of directors of such corporation,
partnership, joint venture or other entity or others performing similar
functions (irrespective of whether or not at the time capital stock or
other equity interests of any other class or classes of such corporation,
partnership, joint venture or other entity shall or might have voting
power upon the occurrence of any contingency) is at the time directly or
indirectly owned by such Person.
"Tangible Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to be
determined in accordance with generally accepted accounting principles,
excluding, however, from the determination of total assets (i) patents,
patent applications, trademarks, copyrights and trade names, (ii)
goodwill, organizational, experimental, research and development expense
and other like intangibles, (iii) treasury stock, (iv) monies set apart
and held in a sinking or other analogous fund established for the
purchase, redemption or other retirement of capital stock or Subordinated
Debt, and (v) unamortized debt discount and expense.
"Termination Date" means the earlier of (i) the Stated
Termination Date or (ii) the date of termination in whole of the
Commitments pursuant to Section 2.04, 2.17 or 6.01.
"Termination Event" means (i) a "reportable event", as such term
is described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC), or an event
described in Section 4062(f) of ERISA, or (ii) the withdrawal of any
Borrower or any ERISA Affiliate of any Borrower from a Multiple Employer
Plan during a plan year in which it was a "substantial employer," as such
term is defined in Section 4001(a)(2) of ERISA, or the incurrence of
liability by any Borrower or any ERISA Affiliate of any Borrower under
Section 4064 of ERISA upon the termination
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<PAGE> 17
of a Plan or Multiple Employer Plan, or (iii) the distribution of a notice
of intent to terminate a Plan pursuant to Section 4041(a)(2) of ERISA or
the treatment of a Plan amendment as a termination under Section 4041 of
ERISA, or (iv) the institution of proceedings to terminate a Plan by the
PBGC under Section 4042 of ERISA, or (v) any other event or condition
which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a
Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware
corporation.
"Transfer Agreement" has the meaning specified in Section 8.06.
"TWC" means The Williams Companies, Inc., a Delaware corporation.
"Type" has the meaning set forth in the definition herein of A
Advance.
"Unrated" means, as to any Borrower, that no senior unsecured
long-term debt of such Borrower is rated by S&P and no senior unsecured
long-term debt of such Borrower is rated by Moody's.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of
such Person all of the capital stock and other equity interests of which
is owned by such Person or any Wholly-Owned Subsidiary of such Person.
"WilTel Pro Forma Income Statements" means the pro forma income
statements for the calendar quarters ended June 30, 1996, September 30,
1996, December 31, 1996, and March 31, 1997, included as Exhibit G hereto.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"WHD" means Williams Holdings of Delaware, Inc., a Delaware
corporation.
"WilTel" means WilTel Communications, LLC, a Delaware limited
liability company.
"WilTel Debt to EBITDA Ratio" means, as of the end of any
calendar quarter, the ratio of (i) the aggregate amount, as of the end of
such quarter, of all Debt of WilTel and its Subsidiaries on a Consolidated
basis to (ii) EBITDA for the period of four consecutive calendar quarters
ending on (and including) the last day of such calendar quarter; provided,
however, in calculating the WilTel Debt to EBITDA Ratio for calendar
quarters ending prior to and including June 30, 1998, the WilTel Debt to
EBITDA Ratio shall be determined based upon the WilTel Pro Forma Income
Statements to the extent necessary because actual income statements are
not available.
"WNG" means Williams Natural Gas Company, a Delaware corporation.
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<PAGE> 18
"WPL" means Williams Pipe Line Company, a Delaware corporation.
"WPL Debt to TNW Ratio" means at any date the ratio of (i) the
aggregate amount at such date of all Debt of WPL and its Subsidiaries on a
Consolidated basis to (ii) the sum of the Consolidated Tangible Net Worth
at such date of WPL plus the aggregate amount at such date of all Debt of
WPL and its Subsidiaries on a Consolidated basis.
Section 1.02. Computation of Time Periods. In this Agreement in
the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding."
Section 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with generally
accepted accounting principles, and each reference herein to "generally
accepted accounting principles" shall mean generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e)(i).
Section 1.04. Miscellaneous. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and Article, Section, Schedule and Exhibit references are to
Articles and Sections of and Schedules and Exhibits to this Agreement, unless
otherwise specified.
Section 1.05. Ratings. A rating, whether public or private, by
S&P or Moody's shall be deemed to be in effect on the date of announcement or
publication by S&P or Moody's, as the case may be, of such rating or, in the
absence of such announcement or publication, on the effective date of such
rating and will remain in effect until the announcement or publication of, or
in the absence of such announcement or publication, the effective date of, any
change in, or withdrawal or termination of, such rating. In the event the
standards for any rating by Moody's or S&P are revised, or any such rating is
designated differently (such as by changing letter designations to different
letter designations or to numerical designations), the references herein to
such rating shall be deemed to refer to the revised or redesignated rating for
which the standards are closest to, but not lower than, the standards at the
date hereof for the rating which has been revised or redesignated, all as
determined by the Majority Banks in good faith. Long-term debt supported by a
letter of credit, guaranty, insurance or other similar credit enhancement
mechanism shall not be considered as senior unsecured long-term debt. If
either Moody's or S&P has at any time more than one rating applicable to senior
unsecured long-term debt of a Borrower, the lowest such rating shall be
applicable for purposes hereof. For example, if Moody's rates some senior
unsecured long-term debt of a Borrower Ba1 and other such debt of such Borrower
Ba2, the senior unsecured long-term debt of such Borrower shall be deemed to be
rated Ba2 by Moody's.
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.01. The A Advances. Each Bank severally agrees, on
the terms and conditions hereinafter set forth, to make A Advances to each
Borrower from time to time on any Business Day during the period from the date
hereof until the Termination Date in an aggregate amount outstanding not to
exceed at any time such Bank's Commitment to such Borrower, provided that the
aggregate amount of the Commitments of the Banks to any Borrower shall, except
for purposes of Section 2.03(a), be deemed used from time to time to the extent
of the aggregate amount of the B Advances then outstanding to such Borrower and
such deemed use of the aggregate amount of such Commitments shall be applied to
the Banks ratably according to their respective Commitments to such Borrower
(such deemed use of the aggregate amount of the Commitments of any Borrower
being a "B Reduction"), and provided further that the aggregate amount of all A
Advances to all Borrowers by any Bank shall not exceed at any time outstanding
such Bank's Commitment to TWC (determined after giving effect to such Bank's
ratable share of all B Reductions). Each A Borrowing shall be in an aggregate
amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, and shall consist of A Advances of the same Type made to the same
Borrower on the same day by the Banks ratably according to their respective
Commitments. Within the limits of each Bank's Commitment to a Borrower, such
Borrower may borrow, prepay pursuant to Section 2.10 and reborrow under this
Section 2.01.
Section 2.02. Making the A Advances. (a) Each A Borrowing
shall be made on notice, given not later than (1) in the case of a proposed
Borrowing comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City
time) at least three Business Days prior to the date of the proposed Borrowing,
and (2) in the case of a proposed Borrowing comprised of Base Rate Advances,
10:00 A.M. (New York City time) on the date of the proposed Borrowing, by the
Borrower requesting such A Borrowing to the Agent, which shall give to each
Bank prompt notice thereof by telecopy, telex or cable. Each such notice of an
A Borrowing (a "Notice of A Borrowing") shall be by telecopy, telex or cable,
confirmed immediately in writing, in substantially the form of Exhibit B-1
hereto, executed by the Borrower requesting such A Borrowing and specifying
therein the requested (i) date of such A Borrowing (which shall be a Business
Day), (ii) initial Type of A Advances comprising such A Borrowing, (iii)
aggregate amount of such A Borrowing, and (iv) in the case of an A Borrowing
comprised of Eurodollar Rate Advances, initial Interest Period for each such A
Advance. Each Bank shall, before 11:00 A.M. (New York City time) on the date
of such A Borrowing, make available for the account of its Applicable Lending
Office to the Agent at its New York address referred to in Section 8.02, in
same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will make such funds available to the
Borrower requesting such A Borrowing at the Agent's aforesaid address.
Notwithstanding the other provisions hereof, each Bank that is to be paid by
any Borrower on July 23, 1997, any principal amount outstanding under the 1996
Credit Agreement as contemplated by Section 8.14 shall apply the proceeds of
any Advance to be made by it to such Borrower on such date to pay such amount
and only an amount equal to the difference (if any) between the amount of such
Advance and the principal amount being so paid shall be made available by such
Bank to the Agent as provided herein, or remitted by such Borrower to the Agent
as provided in Section 2.13, as the case may be.
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(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to any one
Borrower more than six A Borrowings comprised of Eurodollar Rate Advances;
(ii) no Borrower may select Eurodollar Rate Advances for
any Borrowing if the aggregate amount of such Borrowing is less than (x)
if such Borrowing is made by WPL or WilTel, $5,000,000, and (y) if such
Borrowing is made by any other Borrower, $20,000,000;
(iii) if the Majority Banks shall notify the Agent that
either (A) the Eurodollar Rate for any Interest Period for any Eurodollar
Rate Advances will not adequately reflect the cost to such Banks of making
or funding their respective Eurodollar Rate Advances for such Interest
Period, or (B) that U.S. dollar deposits for the relevant amounts and
Interest Period for their respective Advances are not available to them in
the London interbank market, or it is otherwise impossible to have
Eurodollar Rate Advances, the Agent shall forthwith so notify the
Borrowers and the Banks, whereupon (I) each Eurodollar Rate Advance will
automatically, on the last day of the then existing Interest Period
therefor, Convert into a Base Rate Advance, and (II) the obligations of
the Banks to make, or to Convert Advances into, Eurodollar Rate Advances
shall be suspended until the Agent, at the request of the Majority Banks,
shall notify the Borrowers and the Banks that the circumstances causing
such suspension no longer exist, and, except as provided in Section
2.02(b)(v), each Advance comprising any requested A Borrowing shall be a
Base Rate Advance;
(iv) if the Agent is unable to determine the Eurodollar
Rate for Eurodollar Rate Advances, the obligation of the Banks to make, or
to Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Agent shall notify the Borrowers and the Banks that the
circumstances causing such suspension no longer exist, and, except as
provided in Section 2.02(b)(v), each Advance comprising any requested A
Borrowing shall be a Base Rate Advance; and
(v) if a Borrower has requested a proposed A Borrowing
consisting of Eurodollar Rate Advances and as a result of circumstances
referred to in Section 2.02(b)(iii) or (iv) such A Borrowing would not
consist of Eurodollar Rate Advances, such Borrower may, by notice given
not later than 3:00 P.M. (New York City time) at least one Business Day
prior to the date such proposed A Borrowing would otherwise be made,
cancel such A Borrowing, in which case such A Borrowing shall be cancelled
and no Advances shall be made as a result of such requested A Borrowing,
but such Borrower shall indemnify the Banks in connection with such
cancellation as contemplated by Section 2.02(c).
(c) Each Notice of A Borrowing shall be irrevocable and
binding on the Borrowers, except as set forth in Section 2.02(b)(v). In the
case of any A Borrowing requested by a Borrower which the related Notice of A
Borrowing specifies is to be comprised of Eurodollar Rate Advances, such
Borrower shall indemnify each Bank against any loss, cost or expense incurred
by such Bank as a result of any failure to fulfill on or before the date
specified in such Notice of A Borrowing for such A Borrowing the applicable
conditions set forth in Article III,
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including, without limitation, any loss (including loss of reasonably
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank to fund the A
Advance to be made by such Bank as part of such A Borrowing when such A
Advance, as a result of such failure, is not made on such date. A certificate
in reasonable detail as to the basis for and the amount of such loss, cost or
expense submitted to such Borrower and the Agent by such Bank shall be prima
facie evidence of the amount of such loss, cost or expense. If an A Borrowing
requested by a Borrower which the related Notice of A Borrowing specifies is to
be comprised of Eurodollar Rate Advances is not made as an A Borrowing
comprised of Eurodollar Rate Advances as a result of Section 2.02(b), such
Borrower shall indemnify each Bank against any loss (excluding loss of
profits), cost or expense incurred by such Bank by reason of the liquidation or
reemployment of deposits or other funds acquired by such Bank prior to the time
such Bank is actually aware that such A Borrowing will not be so made to fund
the A Advance to be made by such Bank as part of such A Borrowing. A
certificate in reasonable detail as to the basis for and the amount of such
loss, cost or expense submitted to such Borrower and the Agent by such Bank
shall be prima facie evidence of the amount of such loss, cost or expense.
(d) Unless the Agent shall have received notice from a Bank
prior to the date of any A Borrowing to a Borrower that such Bank will not make
available to the Agent such Bank's ratable portion of such A Borrowing, the
Agent may assume that such Bank has made such portion available to the Agent on
the date of such A Borrowing in accordance with subsection (a) of this Section
2.02 and the Agent may, in reliance upon such assumption, make available to
such Borrower requesting such A Borrowing on such date a corresponding amount.
If and to the extent that such Bank shall not have so made such ratable portion
available to the Agent, such Bank and such Borrower severally agree to repay to
the Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to such
Borrower until the date such amount is repaid to the Agent, at (i) in the case
of such Borrower, the interest rate applicable at the time to A Advances
comprising such A Borrowing and (ii) in the case of such Bank, the Federal
Funds Rate. If such Bank shall repay to the Agent such corresponding amount,
such amount so repaid shall constitute such Bank's A Advance as part of such A
Borrowing for purposes of this Agreement.
(e) The failure of any Bank to make the A Advance to be made
by it as part of any A Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its A Advance on the date of such A
Borrowing, but no Bank shall be responsible for the failure of any other Bank
to make the A Advance to be made by such other Bank on the date of any A
Borrowing.
Section 2.03. Fees.
(a) Commitment Fee. TWC agrees to pay to the Agent for the
account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.03(a), A Advances made to any Borrower shall be
considered to have been made to TWC, but B Advances to any Borrower shall not,
for purposes of this Section 2.03(a), be considered to be usage of any
Commitment) portion of such Bank's Commitment to TWC from the date hereof until
the Termination Date at a rate per annum from time to time equal to the
Applicable Commitment Fee Rate from time to time, payable in arrears on the
last day of each March, June,
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September and December during the term such Bank has any Commitment to any
Borrower and on the Termination Date.
(b) Agent's Fees. TWC agrees to pay to the Agent, for its sole
account, such fees as may be separately agreed to in writing by TWC and the
Agent.
Section 2.04. Reduction of the Commitments.
(a) Optional. Each Borrower shall have the right, upon at
least three Business Days notice to the Agent, to terminate in whole or reduce
ratably in part the unused portions of the respective Commitments of the Banks
to such Borrower, provided that each partial reduction shall be in the
aggregate amount of at least $20,000,000, and provided further, that the
aggregate amount of the Commitments of the Banks to any Borrower shall not be
reduced to an amount which is less than the aggregate principal amount of the
Advances then outstanding to such Borrower, and provided further, that the
aggregate amount of the Commitments of the Banks to TWC shall not be reduced to
an amount which is less than the aggregate principal amount of the Advances
then outstanding to the Borrower as to which the aggregate outstanding
principal amount of Advances is then the largest.
(b) Termination. If all of the Commitments of the Banks to a
Borrower (other than TWC) are terminated pursuant to Section 2.04(a) and such
Borrower has paid all principal, interest, fees, costs and other amounts owed
by it hereunder and under the Notes executed by it, such Borrower shall have
the right, upon at least three Business Days notice to the Agent, to elect to
cease to be a Borrower hereunder, except for purposes of the definition herein
of Majority Banks and for purposes of Sections 2.11, 2.14 and 8.04.
Section 2.05. Repayment of A Advances. Each Borrower shall
repay, on the Stated Termination Date or such earlier date as the Notes may be
declared due pursuant to Article VI, the unpaid principal amount of each A
Advance made by each Bank to such Borrower.
Section 2.06. Interest on A Advances. Each Borrower shall pay
interest on the unpaid principal amount of each A Advance made by each Bank to
such Borrower from the date of such A Advance until such principal amount shall
be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance is a
Base Rate Advance, a rate per annum equal at all times to the Base Rate in
effect from time to time, payable quarterly in arrears on the last day of
each March, June, September and December and on the date such Advance
shall be Converted or paid in full; provided that any amount of principal
of any Base Rate Advance, interest, fees and other amounts payable
hereunder (other than principal of any Eurodollar Rate Advance) which is
not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount is due
until such amount is paid in full, payable on demand, at a rate per annum
equal at all times to the sum of the Base Rate in effect from time to time
plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A
Advance is a Eurodollar Rate Advance, a rate per annum equal at all times
during each Interest Period
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for such A Advance to the sum of the Eurodollar Rate for such Interest
Period plus the Applicable Margin in effect from time to time for such A
Advance, payable on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day
which occurs during such Interest Period every three months from the first
day of such Interest Period; provided that any amount of principal of any
Eurodollar Rate Advance which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date
on which such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the greater of (x) the
sum of the Base Rate in effect from time to time plus 2% per annum and (y)
the sum of the rate per annum required to be paid on such A Advance
immediately prior to the date on which such amount became due plus 2% per
annum.
Section 2.07. Additional Interest on Eurodollar Rate Advances.
Each Borrower shall pay to each Bank, so long as such Bank shall be required
under regulations of the Board of Governors of the Federal Reserve System to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency Liabilities, additional interest on the unpaid principal
amount of each Eurodollar Rate Advance of such Bank to such Borrower, from the
date of such Advance until such principal amount is paid in full, at an
interest rate per annum equal at all times to the remainder obtained by
subtracting (i) the Eurodollar Rate for the Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for
such Interest Period, payable on each date on which interest is payable on such
Advance. Such additional interest shall be determined by such Bank and
notified to such Borrower through the Agent. A certificate as to the amount of
such additional interest submitted to such Borrower and the Agent by such Bank
shall be conclusive and binding for all purposes, absent manifest error. No
Bank shall have the right to recover any additional interest pursuant to this
Section 2.07 for any period more than 90 days prior to the date such Bank
notifies the Borrowers that additional interest may be charged pursuant to this
Section 2.07.
Section 2.08. Interest Rate Determination. The Agent shall give
prompt notice to the Borrower to which an A Advance is made and the Banks of
the applicable interest rate for each Eurodollar Rate Advance determined by the
Agent for purposes of Section 2.06(b).
Section 2.09. Evidence of Debt. The indebtedness of each
Borrower resulting from the A Advances owed to each Bank by such Borrower shall
be evidenced by an A Note of such Borrower payable to the order of such Bank.
Section 2.10. Prepayments.
(a) No Borrower shall have any right to prepay any principal
amount of any A Advance except as provided in this Section 2.10.
(b) Any Borrower may, in respect of Base Rate Advances upon
notice to the Agent before 10:00 A.M. (New York City time) on the date of
prepayment, and in respect of Eurodollar Rate Advances upon at least three
Business Days' notice to the Agent, in each case stating the proposed date
(which shall be a Business Day) and aggregate principal amount of the
prepayment, and if such notice is given such Borrower shall, prepay the
outstanding principal amounts of the A Advances comprising part of the same A
Borrowing in whole or ratably in part,
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together with accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to Section
8.04(b) as a result of such prepayment; provided, however, that each partial
prepayment pursuant to this Section 2.10(b) shall be in an aggregate principal
amount not less than $5,000,000 and in an aggregate principal amount such that
after giving effect thereto no A Borrowing comprised of Base Rate Advances
shall have a principal amount outstanding of less than $5,000,000 and no A
Borrowing comprised of Eurodollar Rate Advances shall have a principal amount
outstanding of less than (i) if such A Borrowing was made by WPL or WilTel,
$5,000,000, and (ii) if such A Borrowing was made by any other Borrower,
$20,000,000.
(c) Each Borrower will give notice to the Agent at or before
the time of each prepayment by such Borrower of Advances pursuant to this
Section 2.10 specifying the Advances which are to be prepaid and the amount of
such prepayment to be applied to such Advances, and each payment of any Advance
pursuant to this Section 2.10 or any other provision of this Agreement shall be
made in a manner such that all Advances comprising part of the same Borrowing
are paid in whole or ratably in part.
Section 2.11. Increased Costs.
(a) If, due to either (i) the introduction of or any change
(other than any change by way of imposition or increase of reserve requirements
included in the Eurodollar Rate Reserve Percentage) in or in the
interpretation, application or applicability of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Bank of agreeing to make or making, funding or
maintaining Eurodollar Rate Advances to any Borrower, then such Borrower shall
from time to time, upon demand by such Bank (with a copy of such demand to the
Agent), pay to the Agent for the account of such Bank additional amounts
sufficient to compensate such Bank for such increased cost. A certificate as
to the amount of such increased cost, submitted to such Borrower and the Agent
by such Bank, shall be prima facie evidence of the amount of such increased
cost. No Bank shall have the right to recover any such increased costs for any
period more than 90 days prior to the date such Bank notifies the Borrowers of
any such introduction, change, compliance or proposed compliance.
(b) If any Bank determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by
such Bank or any corporation controlling such Bank and that the amount of such
capital is increased by or based upon the existence of such Bank's commitment
to lend to any Borrower hereunder and other commitments of this type, then,
upon demand by such Bank (with a copy of such demand to the Agent), such
Borrower shall immediately pay to the Agent for the account of such Bank, from
time to time as specified by such Bank, additional amounts sufficient to
compensate such Bank or such corporation in the light of such circumstances, to
the extent that such Bank reasonably determines such increase in capital to be
allocable to the existence of such Bank's commitment to lend hereunder. A
certificate as to the amount of such additional amounts, submitted to such
Borrower and the Agent by such Bank, shall be prima facie evidence of the
amount of such additional amounts. No Bank shall have any right to recover any
additional amounts under this Section 2.11(b) for any period more than 90 days
prior to the date such Bank notifies the Borrowers of any such compliance.
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(c) In the event that any Bank makes a demand for payment
under Section 2.07 or this Section 2.11, TWC may within ninety days of such
demand, if no Event of Default or event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.06(a) (including execution of an
appropriate Transfer Agreement) provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and the Notes payable to such Bank and
all other obligations owed to such Bank hereunder shall be purchased in full
without recourse at par plus accrued interest at or prior to such replacement,
(ii) such replacement bank shall be reasonably satisfactory to the Agent and
the Majority Banks, (iii) such replacement bank shall, from and after such
replacement, be deemed for all purposes to be a "Bank" hereunder with a
Commitment to each Borrower in the amount of the respective Commitment of such
Bank to such Borrower immediately prior to such replacement (plus, if such
replacement bank is already a Bank prior to such replacement the respective
Commitment of such Bank to such Borrower prior to such replacement), as such
amount may be changed from time to time pursuant hereto, and shall have all of
the rights, duties and obligations hereunder of the Bank being replaced, and
(iv) such other actions shall be taken by the Borrowers, such Bank and such
replacement bank as may be appropriate to effect the replacement of such Bank
with such replacement bank on terms such that such replacement bank has all of
the rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of new Notes of each Borrower to such
replacement bank, redelivery to each Borrower in due course of the Notes of
such Borrower payable to such Bank and specification of the information
contemplated by Schedule I as to such replacement bank).
Section 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Bank shall notify the Agent that the introduction of
or any change in or in the interpretation of any law or regulation shall make
it unlawful, or that any central bank or other governmental authority shall
assert that it is unlawful, for any Bank or its Eurodollar Lending Office to
perform its obligations hereunder to make, or Convert a Base Rate Advance into,
a Eurodollar Rate Advance or to continue to fund or maintain any Eurodollar
Rate Advance, then, on notice thereof to the Borrowers by the Agent, (i) the
obligation of each of the Banks to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent, at the request of
the Majority Banks, shall notify the Borrowers and the Banks that the
circumstances causing such suspension no longer exist, and (ii) the Borrowers
shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then
outstanding together with all accrued interest thereon and all amounts payable
pursuant to Section 8.04(b), unless each Bank shall determine in good faith in
its sole opinion that it is lawful to maintain the Eurodollar Rate Advances
made by such Bank to the end of the respective Interest Periods then applicable
thereto or unless the Borrowers, within five Business Days of notice from the
Agent, Convert all Eurodollar Rate Advances of all Banks then outstanding into
Base Rate Advances in accordance with Section 2.19.
Section 2.13. Payments and Computations.
(a) Each Borrower shall make each payment hereunder and
under the Notes to be made by it not later than 11:00 A.M. (New York City time)
on the day when due in U.S. dollars to the Agent at its New York address
referred to in Section 8.02 in same day funds. The Agent will promptly
thereafter cause to be distributed like funds relating to the payment of
principal, interest or commitment fees ratably (other than amounts payable
pursuant to Section 2.07, 2.11, 2.14, 2.16 or 8.04(b)) to the Banks for the
account of their respective Applicable
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Lending Offices, and like funds relating to the payment of any other amount
payable to any Bank to such Bank for the account of its Applicable Lending
Office, in each case to be applied in accordance with the terms of this
Agreement. In no event shall any Bank be entitled to share any fee paid to the
Agent pursuant to Section 2.03(b), any auction fee paid to the Agent pursuant
to Section 2.16(a)(i) or any other fee paid to the Agent, as such.
(b) Each Borrower hereby authorizes each Bank, if and to the
extent payment owed to such Bank by such Borrower is not made when due
hereunder or under any Note of such Borrower held by such Bank, to charge from
time to time against any or all of such Borrower's accounts with such Bank any
amount so due.
(c) All computations of interest based on clause (a) or
clause (b) of the definition herein of Base Rate and of commitment fees shall
be made by the Agent on the basis of a year of 365 or 366 days, as the case may
be, and all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made by
the Agent, and all computations of interest pursuant to Section 2.07 shall be
made by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or commitment fees are payable. Each
determination by the Agent (or, in the case of Section 2.07, by a Bank) of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall
be stated to be due on a day other than a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided, however, if such extension would cause
payment of interest on or principal of Eurodollar Rate Advances to be made in
the next following calendar month, such payment shall be made on the next
preceding Business Day.
(e) Unless the Agent shall have received notice from a
Borrower prior to the date on which any payment is due by such Borrower to any
Bank hereunder that such Borrower will not make such payment in full, the Agent
may assume that such Borrower has made such payment in full to the Agent on
such date and the Agent may, in reliance upon such assumption, cause to be
distributed to each Bank on such due date an amount equal to the amount then
due such Bank hereunder. If and to the extent such Borrower shall not have so
made such payment in full to the Agent, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the Federal Funds
Rate.
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<PAGE> 27
Section 2.14. Taxes.
(a) Any and all payments by any Borrower hereunder or under
the Notes shall be made, in accordance with Section 2.13, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings with respect thereto, and all liabilities
with respect thereto, excluding in the case of each Bank and the Agent, taxes
imposed on its income, and franchise taxes imposed on it, by the jurisdiction
under the laws of which such Bank or the Agent (as the case may be) is
organized or any political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as
"Taxes"). If any Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.14) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower shall make such deductions and (iii)
such Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made by such Borrower
hereunder or under the Notes executed by it or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or such Notes
(hereinafter referred to as "Other Taxes").
(c) Each Borrower will indemnify each Bank and the Agent for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.14) owed and paid by such Bank or the Agent (as the case may be) and
any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. This indemnification shall be made within 30 days from
the date such Bank or the Agent (as the case may be) makes written demand
therefor.
(d) Within 30 days after the date of the payment of Taxes by
or at the direction of any Borrower, such Borrower will furnish to the Agent,
at its address referred to in Section 8.02, the original or a certified copy of
a receipt evidencing payment thereof. Should any Bank or the Agent ever
receive any refund, credit or deduction from any taxing authority to which such
Bank or the Agent would not be entitled but for the payment by a Borrower of
Taxes as required by this Section 2.14 (it being understood that the decision
as to whether or not to claim, and if claimed, as to the amount of any such
refund, credit or deduction shall be made by such Bank or the Agent, as the
case may be, in its sole discretion), such Bank or the Agent, as the case may
be, thereupon shall repay to such Borrower an amount with respect to such
refund, credit or deduction equal to any net reduction in taxes actually
obtained by such Bank or the Agent, as the case may be, and determined by such
Bank or the Agent, as the case may be, to be attributable to such refund,
credit or deduction.
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<PAGE> 28
(e) Without prejudice to the survival of any other agreement
of the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 2.14 shall survive the payment in full of principal
and interest hereunder and under the Notes.
Section 2.15. Sharing of Payments, Etc. If any Bank shall
obtain any payment (whether voluntary or involuntary, or through the exercise
of any right of set-off or otherwise) on account of the A Advances made by it
(other than pursuant to Section 2.07, 2.11, 2.14 or 8.04(b)) in excess of its
ratable share of payments on account of the A Advances obtained by all the
Banks, such Bank shall forthwith purchase from the other Banks such
participations in the A Advances owed to them as shall be necessary to cause
such purchasing Bank to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Bank, such purchase from each Bank
shall be rescinded and such Bank shall repay to the purchasing Bank the
purchase price to the extent of such Bank's ratable share (according to the
proportion of (i) the amount of the participation purchased from such Bank as a
result of such excess payment to (ii) the total amount of such excess payment)
of such recovery together with an amount equal to such Bank's ratable share
(according to the proportion of (i) the amount of such Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of
any interest or other amount paid or payable by the purchasing Bank in respect
of the total amount so recovered. Each Borrower agrees that any Bank so
purchasing a participation from another Bank pursuant to this Section 2.15 may,
to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Bank were the direct creditor of such Borrower in the amount of such
participation.
Section 2.16. The B Advances.
(a) Each Bank severally agrees that each Borrower may make B
Borrowings under this Section 2.16 from time to time on any Business Day during
the period from the date hereof until the earlier of (I) the Termination Date
or (II) the date occurring 30 days prior to the Stated Termination Date in the
manner set forth below; provided that, following the making of each B
Borrowing, the aggregate amount of the Advances then outstanding to such
Borrower shall not exceed the aggregate amount of the Commitments of the Banks
to such Borrower (computed without regard to any B Reduction) and the aggregate
amount of all Advances then outstanding shall not exceed the aggregate amount
of the Commitments of the Banks to TWC (computed without regard to any B
Reduction).
(i) A Borrower may request a B Borrowing under this Section
2.16 by delivering to the Agent, by telecopier, telex or cable, confirmed
immediately in writing, a notice of a B Borrowing (a "Notice of B
Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying
the date and aggregate amount of the proposed B Borrowing, the maturity
date for repayment of each B Advance to be made as part of such B
Borrowing (which maturity date may not be earlier than the date occurring
14 days after the date of such B Borrowing or later than the earlier of
(x) 6 months after the date of such B Borrowing or (y) the Stated
Termination Date), the interest payment date or dates relating thereto,
and any other terms to be applicable to such B Borrowing (including,
without limitation, the basis to be used by the Banks in determining the
rate or rates of interest to be offered by them as provided in paragraph
(ii) below and prepayment terms, if any, but excluding any waiver or other
modification to any of the
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conditions set forth in Article III), not later than 10:00 A.M. (New York
City time) (A) at least one Business Day prior to the date of the proposed
B Borrowing, if such Borrower shall specify in the Notice of B Borrowing
that the rates of interest to be offered by the Banks shall be fixed rates
per annum and (B) at least five Business Days prior to the date of the
proposed B Borrowing, if such Borrower shall instead specify in the Notice
of B Borrowing the basis to be used by the Banks in determining the rates
of interest to be offered by them. The Agent shall in turn promptly
notify each Bank of each request for a B Borrowing received by it from a
Borrower by sending such Bank a copy of the related Notice of B Borrowing.
Each time that a Borrower gives a Notice of B Borrowing, such Borrower
shall pay to the Agent an auction fee equal to $2000.
(ii) Each Bank may, if in its sole discretion it elects to do
so, irrevocably offer to make one or more B Advances to a Borrower as part
of such proposed B Borrowing at a rate or rates of interest specified by
such Bank in its sole discretion, by notifying the Agent (which shall give
prompt notice thereof to such Borrower), before 10:00 A.M. (New York City
time) (x) on the date of such proposed B Borrowing, in the case of a
Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i)
above, and (y) three Business Days before the date of such proposed B
Borrowing in the case of a Notice of B Borrowing delivered pursuant to
clause (B) of paragraph (i) above, of the minimum amount and maximum
amount of each B Advance which such Bank would be willing to make as part
of such proposed B Borrowing (which amounts may, subject to the proviso to
the first sentence of this Section 2.16(a), exceed such Bank's Commitment
to such Borrower), the rate or rates of interest therefor and such Bank's
Applicable Lending Office with respect to such B Advance; provided that if
the Agent in its capacity as a Bank shall, in its sole discretion, elect
to make any such offer, it shall notify such Borrower of such offer before
9:45 A.M. (New York City time) on the date on which notice of such
election is to be given to the Agent by the other Banks. If any Bank
shall elect not to make such an offer, such Bank shall so notify the
Agent, before 10:00 A.M. (New York City time) on the date on which notice
of such election is to be given to the Agent by the other Banks, and such
Bank shall not be obligated to, and shall not, make any B Advance as part
of such B Borrowing; provided that the failure by any Bank to give such
notice shall not cause such Bank to be obligated to make any B Advance as
part of such proposed B Borrowing.
(iii) The Borrower requesting such proposed B Borrowing shall,
in turn, before 11:00 A.M. (New York City time) (x) on the date of such
proposed B Borrowing in the case of a Notice of B Borrowing delivered
pursuant to clause (A) of paragraph (i) above and (y) three Business Days
before the date of such proposed B Borrowing in the case of a Notice of B
Borrowing delivered pursuant to clause (B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent
notice to that effect, or
(B) accept one or more of the offers made by any
Bank or Banks pursuant to paragraph (ii) above, in order of the
lowest to highest rates of interest or margins (or, if two or
more Banks bid at the same rates of interest, and the amount of
accepted offers is less than the aggregate amount of such offers,
the amount to be borrowed from such Banks as part of such B
Borrowing shall be
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<PAGE> 30
allocated among such Banks pro rata on the basis of the maximum
amount offered by such Banks at such rates or margin in
connection with such B Borrowing), in any aggregate amount up to
the aggregate amount initially requested by such Borrower in the
relevant Notice of B Borrowing, by giving notice to the Agent of
the amount of each B Advance (which amount shall be equal to or
greater than the minimum amount, and equal to or less than the
maximum amount, notified to such Borrower by the Agent on behalf
of such Bank for such B Advance pursuant to paragraph (ii) above)
to be made by each Bank as part of such B Borrowing, and reject
any remaining offers made by Banks pursuant to paragraph (ii)
above by giving the Agent notice to that effect.
(iv) If the Borrower requesting such B Borrowing notifies the
Agent that such B Borrowing is cancelled pursuant to paragraph (iii)(A)
above, the Agent shall give prompt notice thereof to the Banks and such B
Borrowing shall not be made.
(v) If the Borrower requesting such B Borrowing accepts one
or more of the offers made by any Bank or Banks pursuant to paragraph
(iii)(B) above, the Agent shall in turn promptly notify (A) each Bank that
has made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such B Borrowing and whether or not any offer or
offers made by such Bank pursuant to paragraph (ii) above have been
accepted by such Borrower, (B) each Bank that is to make a B Advance as
part of such B Borrowing, of the amount of each B Advance to be made by
such Bank as part of such B Borrowing, and (C) each Bank that is to make a
B Advance as part of such B Borrowing, upon receipt, that the Agent has
received forms of documents appearing to fulfill the applicable conditions
set forth in Article III. Each Bank that is to make a B Advance as part
of such B Borrowing shall, before 12:00 noon (New York City time) on the
date of such B Borrowing specified in the notice received from the Agent
pursuant to clause (A) of the preceding sentence or any later time when
such Bank shall have received notice from the Agent pursuant to clause (C)
of the preceding sentence, make available for the account of its
Applicable Lending Office to the Agent at its New York address referred to
in Section 8.02 such Bank's portion of such B Borrowing, in same day
funds. Upon fulfillment of the applicable conditions set forth in Article
III and after receipt by the Agent of such funds, the Agent will make such
funds available to such Borrower at the Agent's aforesaid address.
Promptly after each B Borrowing the Agent will notify each Bank of the
amount of the B Borrowing, the Borrower to which such B Borrowing was
made, the consequent B Reduction and the dates upon which such B Reduction
commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of not
less than $5,000,000 or an integral multiple of $1,000,000 in excess
thereof. Each Borrower agrees that it will not request a B Borrowing
unless, upon the making of such B Borrowing, the limitations set forth in
the proviso to the first sentence of Section 2.16(a) are complied with.
(c) Within the limits and on the conditions set forth in this
Section 2.16, each Borrower may from time to time borrow under this
Section 2.16, repay or prepay pursuant to subsection (d) below, and
reborrow under this Section 2.16, provided that a
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<PAGE> 31
B Borrowing shall not be made by any Borrower within three Business Days
of the date of another B Borrowing to such Borrower.
(d) Each Borrower shall repay to the Agent for the account of
each Bank which has made a B Advance to such Borrower, or each other
holder of a B Note of such Borrower, on the maturity date of each B
Advance made to such Borrower (such maturity date being that specified by
such Borrower for repayment of such B Advance in the related Notice of B
Borrowing delivered pursuant to subsection (a)(i) above and provided in
the B Note evidencing such B Advance) the then unpaid principal amount of
such B Advance. No Borrower shall have any right to prepay any principal
amount of any B Advance unless, and then only on the terms, specified by
such Borrower for such B Advance in the related Notice of B Borrowing
delivered pursuant to subsection (a)(i) above and set forth in the B Note
evidencing such B Advance.
(e) Each Borrower shall pay interest on the unpaid principal
amount of each B Advance made to such Borrower from the date of such B
Advance to the date the principal amount of such B Advance is repaid in
full, at the rate of interest for such B Advance specified by the Bank
making such B Advance in its notice with respect thereto delivered
pursuant to subsection (a)(ii) above, payable on the interest payment date
or dates specified by such Borrower for such B Advance in the related
Notice of B Borrowing delivered pursuant to subsection (a)(i) above, as
provided in the B Note evidencing such B Advance.
(f) The indebtedness of each Borrower resulting from each B
Advance made to such Borrower as part of a B Borrowing shall be evidenced
by a separate B Note of such Borrower payable to the order of the Bank
making such B Advance.
(g) The failure of any Bank to make the B Advance to be made
by it as part of any B Borrowing shall not relieve any other Bank of its
obligation, if any, hereunder to make its B Advance on the date of such B
Borrowing, but no Bank shall be responsible for the failure of any other
Bank to make the B Advance to be made by such other Bank on the date of
any B Borrowing.
Section 2.17. Optional Termination. Notwithstanding anything to
the contrary in this Agreement, if (v) any Person (other than a trustee or
other fiduciary holding securities under an employee benefit plan of TWC or of
any Subsidiary of TWC) or two or more Persons acting in concert (other than any
group of employees of TWC or of any of its Subsidiaries) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934), directly or
indirectly, of securities of TWC (or other securities convertible into such
securities) representing 20% or more of the combined voting power of all
securities of TWC entitled to vote in the election of directors, other than
securities having such power only by reason of the happening of a contingency,
or (vi) during any period of up to 24 consecutive months, commencing before or
after the date of this Agreement, individuals who at the beginning of such
24-month period were directors of TWC or who were elected by individuals who at
the beginning of such period were such directors or by individuals elected in
accordance with this clause (ii) shall cease for any reason to constitute a
majority of the board of directors of TWC, or (vii) any Person (other than TWC
or a Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert
shall have acquired by
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<PAGE> 32
contract or otherwise, or shall have entered into a contract or arrangement
which upon consummation will result in its or their acquisition of, the power
to exercise, directly or indirectly, a controlling influence over the
management or policies of any Borrower; then the Agent shall at the request, or
may with the consent, of the holders of at least 66-2/3% in principal amount of
the A Notes then outstanding or, if no A Notes are then outstanding, Banks
having at least 66-2/3% of the Commitments, by notice to the Borrowers, declare
all of the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and no Borrower shall have any further right to borrow
hereunder.
Section 2.18. Extension of Termination Date. By notice given to
the Agent and the Banks, at least thirty days but not more than forty-five days
before July 1 of any year after 2000, the Borrowers may request the Banks to
extend the Stated Termination Date for an additional year to a date which is an
anniversary date of the Stated Termination Date. Within thirty days after
receipt of such request, each Bank that agrees, in its sole and absolute
discretion, to so extend the Stated Termination Date shall notify the Borrowers
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section 2.19. Voluntary Conversion of Advances. Any Borrower
may on any Business Day, if no Event of Default then exists as to such
Borrower, upon notice (which shall be irrevocable) given to the Agent not later
than 11:00 A.M. (x) in the case of a proposed Conversion into Eurodollar Rate
Advances, on the third Business Day prior to the date of the proposed
conversion, and (y) in the case of a proposed Conversion into Base Rate
Advances, on the date of the proposed Conversion, and subject to the provisions
of Sections 2.02 and 2.12, Convert all Advances of one Type comprising the same
A Borrowing into Advances of the other Type; provided that (i) no Conversion of
any Eurodollar Rate Advances shall occur on a day other than the last day of an
Interest Period for such Eurodollar Rate Advances, except as contemplated by
Section 2.12, and (ii) Advances may not be Converted into Eurodollar Rate
Advances if the aggregate unpaid principal amount of the Advances is less than
$20,000,000. Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the A Advances
to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances,
the duration of the Interest Period for each such Advance.
Section 2.20. Automatic Provisions.
(a) If any Borrower shall fail to select the duration of any
Interest Period for Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent
will forthwith so notify such Borrower and the Banks, and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal
amount of the Eurodollar Rate Advances of any Borrower shall be reduced to less
than $20,000,000, all of such Eurodollar Rate Advances shall automatically
Convert into Base Rate Advances.
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ARTICLE III
CONDITIONS
Section 3.01. Conditions Precedent to Initial Advances. The
obligation of each Bank to make its initial Advance on or after the date hereof
is subject to the condition precedent that the Agent shall have received on or
before the date hereof, each dated on or before such date, in form and
substance satisfactory to the Agent and (except for the Notes) in sufficient
copies for each Bank:
(a) The A Notes executed severally by each of the respective
Borrowers to the order of each of the respective Banks and this Agreement
executed by the Borrowers.
(b) Certified copies of the resolutions of the Board of
Directors, or the Executive Committee thereof, of each Borrower
authorizing the execution of this Agreement and the Notes to be executed
by such Borrower.
(c) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying (i) all changes, if any, that have been made
to the Certificate of Incorporation or Bylaws of such Borrower on or after
June 15, 1995, and (ii) the names and true signatures of the officers of
such Borrower authorized to sign this Agreement, Notices of A Borrowing,
Notices of B Borrowing and the Notes to be executed by such Borrower and
any other documents to be delivered hereunder by such Borrower.
(d) An opinion of William G. von Glahn, General Counsel of
TWC, substantially in the form of Exhibit C hereto and as to such other
matters as any Bank through the Agent may reasonably request.
(e) An opinion of Bracewell & Patterson, L.L.P., special
counsel to the Agent, substantially in the form of Exhibit D hereto.
(f) A certificate of an officer of each Borrower (other than
WPL and WilTel) stating the respective ratings by each of S&P and Moody's
of the senior unsecured long-term debt of such Borrower as in effect on
the date of this Agreement; a certificate of an officer of WPL stating
(and showing the calculation of) the WPL Debt to TNW Ratio as of March 31,
1997; and a certificate of an officer of WilTel stating (and showing the
calculation of) the WilTel Debt to EBITDA Ratio as of March 31, 1997.
Section 3.02. Additional Conditions Precedent to Each A
Borrowing. The obligation of each Bank to make an A Advance to a Borrower on
the occasion of any A Borrowing (including the initial A Borrowing) shall be
subject to the further conditions precedent that on the date of such A
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of A Borrowing and the acceptance by such Borrower of the
proceeds of such A Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in Section
4.01 pertaining to such Borrower and its Subsidiaries are correct in all
material respects on and as of the
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date of such A Borrowing, before and after giving effect to such A
Borrowing and to the application of the proceeds therefrom, as though made
on and as of such date,
(ii) No event has occurred and is continuing, or would result
from such A Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both, and
(iii) After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but which
have not been made prior to such date, the aggregate principal amount of
all Advances will not exceed the aggregate of the Commitments of the Banks
to TWC (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
Section 3.03. Conditions Precedent to Each B Borrowing. The
obligation of each Bank which is to make a B Advance to a Borrower on the
occasion of a B Borrowing (including the initial B Borrowing) to make such B
Advance as part of such B Borrowing is subject to the further conditions
precedent that (i) at or before the time required by paragraph (iii) of Section
2.16(a), the Agent shall have received the written confirmatory notice of such
B Borrowing contemplated by such paragraph, (ii) on or before the date of such
B Borrowing, but prior to such B Borrowing, the Agent shall have received a B
Note executed by such Borrower payable to the order of such Bank for each of
the one or more B Advances to be made by such Bank as part of such B Borrowing,
in a principal amount equal to the principal amount of the B Advance to be
evidenced thereby and otherwise on such terms as were agreed to for such B
Advance in accordance with Section 2.16, and (iii) on the date of such B
Borrowing (a) the following statements shall be true (and each of the giving of
the applicable Notice of B Borrowing and the acceptance by such Borrower of the
proceeds of such B Borrowing shall constitute a representation and warranty by
such Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in Section
4.01 pertaining to such Borrower and its Subsidiaries are correct on and
as of the date of such B Borrowing, before and after giving effect to such
B Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date,
(2) No event has occurred and is continuing, or would result
from such B Borrowing or from the application of the proceeds therefrom,
which constitutes an Event of Default or which would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both,
(3) Following the making of such B Borrowing and all other
Borrowings to be made on the same day to such Borrower under this
Agreement, the aggregate principal amount of all Advances to such Borrower
then outstanding will not exceed the aggregate amount of the Commitments
to such Borrower (computed without regard to any B Reduction), and
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(4) After giving effect to such B Borrowing and all other
Borrowings which have been requested on or prior to such date but which
have not been made prior to such date, the aggregate principal amount of
all Advances will not exceed the aggregate of the Commitments of the Banks
to TWC (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or
documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as to itself and its Subsidiaries as
follows:
(a) Each Borrower is duly organized or validly formed,
validly existing and (if applicable) in good standing under the laws of
the State of Delaware and has all corporate or limited liability company
powers and all governmental licenses, authorizations, certificates,
consents and approvals required to carry on its business as now conducted
in all material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operation of such Borrower and its Subsidiaries taken
as a whole. Each Subsidiary of each Borrower is duly organized or validly
formed, validly existing and (if applicable) in good standing under the
laws of its jurisdiction of incorporation or formation, except where the
failure to be so organized, existing and in good standing could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operations of such Borrower and its Subsidiaries
taken as a whole. Each Subsidiary of a Borrower has all corporate powers
and all governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all
material respects, except for those licenses, authorizations,
certificates, consents and approvals the failure to have which could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operation of such Borrower and its Subsidiaries taken
as a whole.
(b) The execution, delivery and performance by each Borrower
of this Agreement and the Notes and the consummation of the transactions
contemplated by this Agreement are within such Borrower's corporate or
limited liability company powers, have been duly authorized by all
necessary corporate or limited liability company action, do not contravene
(i) such Borrower's charter, by-laws, or formation agreement, or (ii) law
or any contractual restriction binding on or affecting such Borrower and
will not result in or require the creation or imposition of any Lien
prohibited by this Agreement. At the time of each borrowing of any
Advance by a Borrower, such borrowing and the use of the proceeds of such
Advance will be within such Borrower's corporate or limited liability
company powers, will have been duly authorized by all necessary corporate
or limited liability company action, will not contravene (i) such
Borrower's charter, by-laws, or formation agreement, or (ii) law or any
contractual restriction binding on or affecting such Borrower and will not
result in or require the creation or imposition of any Lien prohibited by
this Agreement.
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(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by any Borrower
of this Agreement or the Notes or the consummation of the transactions
contemplated by this Agreement. At the time of each borrowing of any
Advance by a Borrower, no authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory
body will be required for such borrowing or the use of the proceeds of
such Advance.
(d) This Agreement has been duly executed and delivered by
each Borrower. This Agreement is the legal, valid and binding obligation
of each Borrower enforceable against each Borrower in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors' rights generally and by general principles of equity.
The A Notes of each Borrower are, and when executed the B Notes of such
Borrower will be, the legal, valid and binding obligations of such
Borrower enforceable against such Borrower in accordance with their
respective terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally and by general principles of
equity.
(e) (i) The Consolidated and consolidating balance sheets of
TWC and its Subsidiaries as at December 31, 1996, and the related
Consolidated and consolidating statements of income and cash flows of TWC
and its Subsidiaries for the fiscal year then ended, copies of which have
been furnished to each Bank, and the Consolidated and consolidating
balance sheets of TWC and its Subsidiaries as at March 31, 1997, and the
related Consolidated and consolidating statements of income and cash flows
of TWC and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TWC, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheets as at March 31, 1997, and such statements of income and
cash flows for the three months then ended, to year-end audit adjustments,
the Consolidated and consolidating financial condition of TWC and its
Subsidiaries as at such dates and the Consolidated and consolidating
results of operations of TWC and its Subsidiaries for the year and three
month period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
March 31, 1997, there has been no material adverse change in the condition
or operations of TWC or its Subsidiaries.
(ii) The consolidating balance sheets of TWC and its
Subsidiaries as at December 31, 1996, and March 31, 1997, referred to in
Section 4.01(e)(i), and the related consolidating statements of income and
cash flows of TWC and its Subsidiaries for the fiscal year and three
months, respectively, then ended referred to in Section 4.01(e)(i), to the
extent such balance sheets and statements pertain to NWP, fairly present
(subject, in the case of such balance sheet as at March 31, 1997 and such
statements of income and cash flows for the three months then ended, to
year-end audit adjustments) the Consolidated financial condition of NWP
and its Subsidiaries as at such dates and the Consolidated results of
operations of NWP and its Subsidiaries for the year and three month
period, respectively, ended on such dates, all in accordance with
generally accepted accounting principles consistently applied. Since
March 31, 1997, there has been no material adverse change in the condition
or operations of NWP or its Subsidiaries.
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(iii) The Consolidated balance sheet of WPL and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of WPL and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of WPL and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of WPL and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of WPL, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of WPL and its Subsidiaries as at such
dates and the Consolidated results of operations of WPL and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of WPL or its
Subsidiaries.
(iv) The Consolidated balance sheet of TGPL and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of TGPL and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of TGPL and its Subsidiaries as at
March 31, 1997, and the related Consolidated statement of income and cash
flows of TGPL and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TGPL, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGPL and its Subsidiaries as at such
dates and the Consolidated results of operations of TGPL and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of TGPL or its
Subsidiaries.
(v) The Consolidated balance sheet of TGT and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of TGT and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of TGT and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of TGT and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of TGT, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of TGT and its Subsidiaries as at such
dates and the Consolidated results of operations of TGT and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of TGT or its
Subsidiaries.
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(vi) The Consolidated balance sheet of WHD and its
Subsidiaries as at December 31, 1996, and the related Consolidated
statement of income and cash flows of WHD and its Subsidiaries for the
fiscal year then ended, copies of which have been furnished to each Bank,
and the Consolidated balance sheet of WHD and its Subsidiaries as at March
31, 1997, and the related Consolidated statement of income and cash flows
of WHD and its Subsidiaries for the three months then ended, duly
certified by an authorized financial officer of WHD, copies of which have
been furnished to each Bank, fairly present, subject, in the case of such
balance sheet as at March 31, 1997, and such statement of income and cash
flows for the three months then ended, to year-end audit adjustments, the
Consolidated financial condition of WHD and its Subsidiaries as at such
dates and the Consolidated results of operations of WHD and its
Subsidiaries for the year and three month period, respectively, ended on
such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 31, 1997, there has been no
material adverse change in the condition or operations of WHD or its
Subsidiaries.
(vii) The Consolidated balance sheet of Williams
Telecommunications Systems, Inc. ("WTS"), a predecessor of WilTel, as at
December 31, 1996, and the related Consolidated statement of income and
cash flows of WTS for the fiscal year then ended, copies of which have
been furnished to each Bank, and the Consolidated balance sheet of WTS as
at March 31, 1997, and the related Consolidated statement of income and
cash flows of WTS for the three months then ended, duly certified by an
authorized financial officer of WTS, copies of which have been furnished
to each Bank, fairly present, subject, in the case of such balance sheet
as at March 31, 1997, and such statement of income and cash flows for the
three months then ended, to year-end audit adjustments, the Consolidated
financial condition of WTS as at such dates and the Consolidated results
of operations of WTS for the year and three month period, respectively,
ended on such dates, all in accordance with generally accepted accounting
principles consistently applied. From March 31, 1997, to April 30, 1997,
there was no material adverse change in the condition or operations of
WTS, which was merged into WilTel on April 30, 1997. Since May 1, 1997,
there has been no material adverse change in the condition or operations
of WilTel.
(f) Except as set forth in the Public Filings or as otherwise
disclosed in writing by a Borrower to the Banks and the Agent after the
date hereof and approved by the Majority Banks, there is, as to each
Borrower, no pending or, to the knowledge of such Borrower, threatened
action or proceeding affecting such Borrower or any Subsidiary of such
Borrower before any court, governmental agency or arbitrator, which could
reasonably be expected to materially and adversely affect the financial
condition or operations of such Borrower and its Subsidiaries taken as a
whole or which purports to affect the legality, validity, binding effect
or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance will be used for any purpose
or in any manner not permitted by Section 5.02(k).
(h) No Borrower is engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U issued by the Board of Governors of the Federal
Reserve System), and no proceeds of any
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Advance will be used to purchase or carry any such margin stock (other
than purchases of common stock expressly permitted by Section 5.02(k)) or
to extend credit to others for the purpose of purchasing or carrying any
such margin stock. Following the application of the proceeds of each
Advance, not more than 25% of the value of the assets of any Borrower will
be represented by such margin stock and not more than 25% of the value of
the assets of any Borrower and its Subsidiaries will be represented by
such margin stock.
(i) No Borrower is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan for which an Insufficiency
exists. No Borrower nor any ERISA Affiliate of any Borrower has received
any notification that any Multiemployer Plan is in reorganization or has
been terminated, within the meaning of Title IV of ERISA, and no Borrower
is aware of any reason to expect that any Multiemployer Plan is to be in
reorganization or to be terminated within the meaning of Title IV of
ERISA.
(k) As of the date of this Agreement, the United States
federal income tax returns of each Borrower (other than WHD and WilTel)
and the material Subsidiaries of each Borrower (other than Subsidiaries
not in existence on December 31, 1989) have been examined through the
fiscal year ended December 31, 1989. Each Borrower and the Subsidiaries
of each Borrower have filed all United States Federal income tax returns
and all other material domestic tax returns which are required to be filed
by them and have paid, or provided for the payment before the same become
delinquent of, all taxes due pursuant to such returns or pursuant to any
assessment received by any Borrower or any such Subsidiary, other than
those taxes contested in good faith by appropriate proceedings. The
charges, accruals and reserves on the books of each Borrower and the
material Subsidiaries of each Borrower in respect of taxes are adequate.
(l) No Borrower is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company," or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(m) Except as set forth in the Public Filings or as otherwise
disclosed in writing by a Borrower to the Banks and the Agent after the
date hereof and approved by the Majority Banks, the Borrowers and their
respective material Subsidiaries are in compliance in all material
respects with all Environmental Protection Statutes to the extent material
to their respective operations or financial condition. Except as set
forth in the Public Filings or as otherwise disclosed in writing by a
Borrower to the Banks and the Agent after the date hereof and approved by
the Majority Banks, the aggregate contingent and non-contingent
liabilities of each Borrower and its Subsidiaries (other than those
reserved for in accordance with generally accepted accounting principles
and set forth in the financial statements regarding such Borrower referred
to in Section 4.01(e) and delivered to each Bank) which are reasonably
expected to arise in connection with (i) the requirements of Environmental
Protection Statutes or (ii) any obligation or liability to any
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Person in connection with any Environmental matters (including, without
limitation, any release or threatened release (as such terms are defined
in the Comprehensive Environmental Response, Compensation and Liability
Act of 1980) of any Hazardous Waste, Hazardous Substance, other waste,
petroleum or petroleum products into the Environment) does not exceed 10%
of the Consolidated Tangible Net Worth of such Borrower (excluding
liabilities to the extent covered by insurance if the insurer has
confirmed that such insurance covers such liabilities or which such
Borrower reasonably expects to recover from ratepayers).
ARTICLE V
COVENANTS OF THE BORROWERS
Section 5.01. Affirmative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
each Borrower will, unless the Majority Banks shall otherwise consent in
writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (except where failure to comply could not
reasonably be expected to have a material adverse effect on the business,
assets, condition or operations of such Borrower and its Subsidiaries taken as
a whole), such compliance to include, without limitation, the payment and
discharge before the same become delinquent of all taxes, assessments and
governmental charges or levies imposed upon it or any of its Subsidiaries or
upon any of its property or any property of any of its Subsidiaries, and all
lawful claims which, if unpaid, might become a Lien upon any property of it or
any of its Subsidiaries, provided that no Borrower nor any Subsidiary of a
Borrower shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings and with
respect to which reserves in conformity with generally accepted accounting
principles, if required by such principles, have been provided on the books of
such Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the Banks:
(i) as soon as possible and in any event within five
days after the occurrence of each Event of Default or each event
which, with the giving of notice or lapse of time or both, would
constitute an Event of Default, continuing on the date of such
statement, a statement of an authorized financial officer of such
Borrower setting forth the details of such Event of Default or
event and the actions, if any, which such Borrower has taken and
proposes to take with respect thereto;
(ii) as soon as available and in any event not later
than 60 days after the end of each of the first three quarters of
each fiscal year of such Borrower, the Consolidated balance
sheets of such Borrower and its Subsidiaries as of the end of
such quarter and the Consolidated statements of income and cash
flows of such Borrower and its Subsidiaries for the period
commencing at the end of the previous year and ending with the
end of such quarter, all in reasonable detail and
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<PAGE> 41
duly certified (subject to year-end audit adjustments) by an
authorized financial officer of such Borrower as having been
prepared in accordance with generally accepted accounting
principles, together with a certificate of said officer (a)
stating that he has no knowledge that an Event of Default, or an
event which, with notice or lapse of time or both, would
constitute an Event of Default has occurred and is continuing or,
if an Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof and the action,
if any, which such Borrower proposes to take with respect
thereto, and (b) showing in detail the calculation supporting
such statement in respect of Section 5.02(b);
(iii) as soon as available and in any event not later
than 105 days after the end of each fiscal year of such Borrower,
a copy of the annual audit report for such year for such Borrower
and its Subsidiaries, including therein Consolidated balance
sheets of such Borrower and its Subsidiaries as of the end of
such fiscal year and Consolidated statements of income and cash
flows of such Borrower and its Subsidiaries for such fiscal year,
in each case prepared in accordance with generally accepted
accounting principles and certified by Ernst & Young, LLP or
other independent certified public accountants of recognized
standing acceptable to the Majority Banks, together with a
certificate of such accounting firm to the Banks (a) stating
that, in the course of the regular audit of the business of such
Borrower and its Subsidiaries, which audit was conducted by such
accounting firm in accordance with generally accepted auditing
standards, such accounting firm has obtained no knowledge that an
Event of Default or an event which, with notice or lapse of time
or both, would constitute an Event of Default, has occurred and
is continuing, or if, in the opinion of such accounting firm, an
Event of Default or such an event has occurred and is continuing,
a statement as to the nature thereof, and (b) showing in detail
the calculations supporting such statement in respect of Section
5.02(b); provided, however, that in the case of NWP the primary
audited financial statements required by this Section
5.01(b)(iii) may be presented on a historical cost basis, but
such audited financial statements shall include, as additional
information, on a push-down basis reflecting the purchase price
of NWP paid by TWC, a Consolidated balance sheet, a Consolidated
statement of income and a Consolidated cash flow statement of NWP
and its Subsidiaries as of the end of and for the relevant fiscal
year, all prepared in accordance with generally accepted
accounting principles but excluding footnotes for the push-down
financial statements;
(iv) such other information respecting the business
or properties, or the condition or operations, financial or
otherwise, of such Borrower or any of its material Subsidiaries
as any Bank through the Agent may from time to time reasonably
request;
(v) promptly after the sending or filing thereof, copies
of all proxy material, reports and other information which such
Borrower sends to any of its security holders, and copies of all
final reports and final registration statements which such
Borrower or any material Subsidiary of such Borrower files with
the Securities and Exchange Commission or any national securities
exchange;
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<PAGE> 42
(vi) as soon as possible and in any event (A) within 30
Business Days after such Borrower or any ERISA Affiliate of such
Borrower knows or has reason to know that any Termination Event
described in clause (i) of the definition of Termination Event
with respect to any Plan has occurred and (B) within 30 Business
Days after such Borrower or any ERISA Affiliate of such Borrower
knows or has reason to know that any other Termination Event with
respect to any Plan has occurred or is reasonably expected to
occur, a statement of the chief financial officer or chief
accounting officer of such Borrower describing such Termination
Event and the action, if any, which such Borrower or such ERISA
Affiliate of such Borrower proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business Days
after receipt thereof by such Borrower or any ERISA Affiliate of
such Borrower, copies of each notice received by such Borrower or
any ERISA Affiliate of such Borrower from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(viii) within 30 days following request therefor by any
Bank, copies of each Schedule B (Actuarial Information) to each
annual report (Form 5500 Series) of such Borrower or any ERISA
Affiliate of such Borrower with respect to each Plan;
(ix) promptly and in any event within 25 Business Days
after receipt thereof by such Borrower or any ERISA Affiliate of
such Borrower from the sponsor of a Multiemployer Plan, a copy of
each notice received by such Borrower or any ERISA Affiliate of
such Borrower concerning (A) the imposition of a Withdrawal
Liability by a Multiemployer Plan, (B) the determination that a
Multiemployer Plan is, or is expected to be, in reorganization
within the meaning of Title IV of ERISA, (C) the termination of a
Multiemployer Plan within the meaning of Title IV of ERISA, or
(D) the amount of liability incurred, or expected to be incurred,
by such Borrower or any ERISA Affiliate of such Borrower in
connection with any event described in clause (A), (B) or (C)
above;
(x) not more than 60 days (or 105 days in the case of
the last fiscal quarter of a fiscal year of such Borrower) after
the end of each fiscal quarter of such Borrower, a certificate of
an authorized financial officer of such Borrower (a) stating the
respective ratings, if any, by each of S&P and Moody's of the
senior unsecured long-term debt of such Borrower as of the last
day of such quarter, (b) if such Borrower is WPL and WPL is
Unrated, stating (and showing the calculation of) the WPL Debt to
TNW Ratio on the last day of such quarter, and (c) if such
Borrower is WilTel and WilTel is Unrated, stating (and showing
the calculation of) the WilTel Debt to EBITDA Ratio on the last
day of such quarter; and
(xi) promptly after any withdrawal or termination of the
letter referred to in the second to last sentence of Section 1.05
or any change in the indicated rating set forth therein or any
change in, or issuance, withdrawal or termination
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of, the rating of any senior unsecured long-term debt of such
Borrower by S&P or Moody's, notice thereof.
(c) Maintenance of Insurance. Maintain, and cause each of
its material Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in
which such Borrower or its Subsidiaries operate, provided that such
Borrower or any of its Subsidiaries may self-insure to the extent and in
the manner normal for companies of like size, type and financial
condition.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified, and cause each
Subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which qualification is necessary or desirable in view
of its business and operations or the ownership of its properties, except
(1) in the case of any Non-Borrowing Subsidiary of such Borrower, where
the failure of such Subsidiary to so preserve, maintain, qualify and
remain qualified could not reasonably be expected to have a material
adverse effect on the business, assets, condition or operations of such
Borrower and its Subsidiaries taken as a whole and (2) in the case of such
Borrower, where the failure of such Borrower to preserve and maintain such
rights, franchises and privileges and to so qualify and remain qualified
could not reasonably be expected to have a material adverse effect on the
business, assets, condition or operations of such Borrower and its
Subsidiaries taken as a whole.
Section 5.02. Negative Covenants. So long as any Note shall
remain unpaid or any Bank shall have any Commitment to any Borrower hereunder,
no Borrower will, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to exist, or
permit any of its Subsidiaries to create, assume, incur or suffer to
exist, any Lien on or in respect of any of its property, whether now owned
or hereafter acquired, or assign or otherwise convey, or permit any such
Subsidiary to assign or otherwise convey, any right to receive income, in
each case to secure or provide for the payment of any Debt of any Person,
except that:
(i) TWC and its Non-Borrowing Subsidiaries which are
not Subsidiaries of any other Borrower may create, incur, assume
or suffer to exist Permitted TWC Liens;
(ii) WHD and its Non-Borrowing Subsidiaries which are
not Subsidiaries of any other Borrower (other than TWC) may
create, incur, assume or suffer to exist Permitted WHD Liens;
(iii) NWP and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted NWP Liens;
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(iv) TGPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGPL Liens;
(v) TGT and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted TGT Liens; and
(vi) WPL and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted WPL Liens.
(vii) WilTel and its Non-Borrowing Subsidiaries may
create, incur, assume or suffer to exist Permitted WilTel Liens.
(b) Debt. (i) In the case of TWC, permit the ratio of (A)
the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to (B) the sum of the Consolidated Net Worth of TWC
plus the aggregate amount of all Debt of TWC and its Subsidiaries on a
Consolidated basis to exceed 0.65 to 1.0 at any time;
(ii) In the case of WHD, permit the ratio of (A) the aggregate
amount of all Debt of WHD and its Subsidiaries on a Consolidated basis to
(B) the sum of the Consolidated Net Worth of WHD plus the aggregate amount
of all Debt of WHD and its Subsidiaries on a Consolidated basis to exceed
0.55 to 1.0 at any time; and
(iii) In the case of any Borrower (other than TWC and WHD),
permit the ratio of (A) the aggregate amount of all Debt of such Borrower
and its Subsidiaries on a Consolidated basis to (B) the sum of the
Consolidated Net Worth of such Borrower plus the aggregate amount of all
Debt of such Borrower and its Subsidiaries on a Consolidated basis to
exceed 0.60 to 1.0 at any time.
(c) Merger and Sale of Assets. Merge or consolidate with or
into any other Person, or sell, lease or otherwise transfer all or
substantially all of its assets, or permit any of its material
Subsidiaries to merge or consolidate with or into any other Person, or
sell, lease or otherwise transfer all or substantially all of its assets,
except that this Section 5.02(c) shall not prohibit:
(i) any Borrower and its Subsidiaries from selling,
leasing or otherwise transferring their respective assets in the
ordinary course of business;
(ii) any merger, consolidation or sale, lease or other
transfer of assets involving only TWC and its Subsidiaries;
provided, however, that transactions under this paragraph (ii)
shall be permitted if, and only if, (x) there shall not exist or
result an Event of Default or an event which with notice or lapse
of time or both would constitute an Event of Default and (y) in
the case of each transaction referred to in this paragraph (ii)
involving any Borrower or any of its Subsidiaries, such
transaction could not reasonably be expected to impair materially
the ability of such Borrower to perform its obligations hereunder
and under the Notes and such Borrower shall continue to exist;
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(iii) any Borrower and its Subsidiaries from selling,
leasing or otherwise transferring their respective gathering
assets and other production area facilities, or the stock of any
Person substantially all of the assets of which are gathering
assets and other production area facilities, to TWC or to any
Subsidiary of TWC for consideration that is not materially less
than the net book value of such assets and facilities; provided,
however, that transactions under this paragraph (iii) shall be
permitted if, and only if, there shall not exist or result an
Event of Default or an event which with notice or lapse of time
or both would constitute an Event of Default;
(iv) any sale and lease-back of cushion gas by any
Borrower or any of its Subsidiaries or any sale and lease-back of
inventory by WPL or any of its Subsidiaries (other than another
Borrower);
(v) sales of receivables of any kind; or
(vi) any sale, lease or other transfer of any stock
or assets of Transco Energy Company and its Subsidiaries;
provided, however, that transactions under this paragraph (vi)
shall be permitted if, and only if, prior to the time of such
transaction Transco Energy Company and its Subsidiaries shall
have transferred to TWC all of their respective interests in TGPL
and TGT and shall not have reacquired any such interest and there
shall not exist or result an Event of Default or an event which
with notice or lapse of time or both would constitute an Event of
Default.
(d) Agreements to Restrict Dividends and Certain Transfers.
Enter into or suffer to exist, or permit any of its Subsidiaries to enter
into or suffer to exist, any consensual encumbrance or restriction on the
ability of any Subsidiary of TWC (i) to pay, directly or indirectly,
dividends or make any other distributions in respect of its capital stock
or pay any Debt or other obligation owed to TWC or to any Subsidiary of
TWC; or (ii) to make loans or advances to TWC or any Subsidiary of TWC,
except (1) encumbrances and restrictions on any immaterial Non- Borrowing
Subsidiary of TWC (other than WNG and WFS), (2) those encumbrances and
restrictions existing on the date hereof and described in Exhibit E, (3)
other encumbrances and restrictions now or hereafter existing of any
Borrower or any of its Non-Borrowing Subsidiaries that are not more
restrictive in any material respect than the encumbrances and restrictions
with respect to such Borrower or its Non-Borrowing Subsidiaries described
in Exhibit E, and (4) any encumbrances and restrictions created in
connection with any sale and lease-back of cushion gas by any Borrower or
any Subsidiary of any Borrower or any sale and lease-back of inventory by
WPL or any of its Subsidiaries (other than another Borrower).
(e) Loans and Advances. Borrow or otherwise receive any loan
or advance from TWC, and TWC will not make or permit to remain outstanding
any loan or advance to, or own, purchase or acquire any obligations or
debt securities of, any Subsidiary of TWC, except that TWC may make and
permit to remain outstanding loans and advances to its Subsidiaries (and
such Subsidiaries may borrow or otherwise receive such loans and advances)
if each such loan or advance (excluding loans and advances to a Subsidiary
of
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TWC if the aggregate principal amount of all such excluded loans and
advances to such Subsidiary does not exceed $100,000) is evidenced by a
written instrument duly executed by the Subsidiary of TWC to which such
loan or advance is made, bears interest at TWC's or such Subsidiary's
market rate of interest and matures on or before the Termination Date.
(f) Maintenance of Ownership of Certain Subsidiaries. Sell,
issue or otherwise dispose of, or create, assume, incur or suffer to exist
any Lien on or in respect of, or permit any of its Subsidiaries to sell,
issue or otherwise dispose of or create, assume, incur or suffer to exist
any Lien on or in respect of, any shares of or any interest in any shares
of the capital stock of (1) WHD, WNG, WFS, WPL, TGPL, TGT or NWP or any of
their respective material Subsidiaries or (2) any Subsidiary of TWC at the
time it owns any shares of or any interest in any shares of the capital
stock of WHD, WNG, WFS, WPL, TGPL, TGT or NWP or any of their respective
material Subsidiaries; provided, however, that, this Section 5.02(f) shall
not prohibit the sale or other disposition of the stock of any Subsidiary
of TWC to TWC or any Wholly-Owned Subsidiary of TWC if, but only if, (x)
there shall not exist or result an Event of Default or an event which with
notice or lapse of time or both would constitute an Event of Default and
(y) in the case of each sale or other disposition referred to in this
proviso involving any Borrower or any of its Subsidiaries, such sale or
other disposition could not reasonably be expected to impair materially
the ability of such Borrower to perform its obligations hereunder and
under the Notes and such Borrower shall continue to exist.
(g) Compliance with ERISA. (i) Terminate, or permit any
ERISA Affiliate of such Borrower to terminate, any Plan so as to result in
any liability of such Borrower or any such ERISA Affiliate to the PBGC in
excess of $5,000,000, or (ii) permit to exist any occurrence of any
Termination Event with respect to a Plan for which there is an
Insufficiency in excess of $5,000,000.
(h) Transactions with Related Parties. Make any sale to,
make any purchase from, extend credit to, make payment for services
rendered by, or enter into any other transaction with, or permit any
material Subsidiary of such Borrower to make any sale to, make any
purchase from, extend credit to, make payment for services rendered by, or
enter into any other transaction with, any Related Party of such Borrower
or of such Subsidiary unless as a whole such sales, purchases, extensions
of credit, rendition of services and other transactions are (at the time
such sale, purchase, extension of credit, rendition of services or other
transaction is entered into) on terms and conditions reasonably fair in
all material respects to such Borrower or such Subsidiary in the good
faith judgment of such Borrower.
(i) Guarantees. Guarantee or otherwise become contingently
liable for, or permit any of its Subsidiaries to guarantee or otherwise
become contingently liable for, Debt of any Subsidiary of TWC (other than
Williams Energy Company and its Subsidiaries which are not Borrowers)
while an Event of Default is continuing.
(j) Sale and Lease-Back Transactions. Enter into, or permit
any of its Subsidiaries to enter into, any Sale and Lease-Back
Transaction, if after giving effect
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thereto such Borrower would not be permitted to incur at least $1.00 of
additional Debt secured by a Lien permitted by (i) paragraph (z) of
Schedule III in the case of NWP and its Subsidiaries, (ii) paragraph (z)
of Schedule VI in the case of TWC and its Non-Borrowing Subsidiaries which
are not Subsidiaries of any other Borrower, (iii) paragraph (z) of
Schedule IV in the case of TGPL and its Subsidiaries, (iv) paragraph (z)
of Schedule V in the case of TGT and its Subsidiaries, (v) paragraph (i)
of Schedule VII in the case of WPL and its Subsidiaries, (vi) paragraph
(z) of Schedule VIII in the case of WHD and its Subsidiaries, and (vii)
paragraph ( ) of Schedule IX in the case of WilTel and its Subsidiaries.
(k) Use of Proceeds. Use any proceeds of any Advance for any
purpose other than general corporate purposes (including, without
limitation, repurchases by TWC of its capital stock, working capital and
capital expenditures) or use any such proceeds in any manner which
violates or results in a violation of law; provided, however that no
proceeds of any Advance will be used to acquire any equity security of a
class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, (other than any purchase of common stock
of any corporation, if such purchase is not subject to Sections 13 and 14
of the Securities Exchange Act of 1934 and is not opposed, resisted or
recommended against by such corporation or its management or directors,
provided that the aggregate amount of common stock of any corporation
(other than Apco Argentina Inc., a Cayman Islands corporation) purchased
during any calendar year shall not exceed 1% of the common stock of such
corporation issued and outstanding at the time of such purchase) or in any
manner which contravenes law, and no proceeds of any Advance will be used
to purchase or carry any margin stock (within the meaning of Regulation G
or Regulation U issued by the Board of Governors of the Federal Reserve
System), except purchases by TWC of its capital stock if, after giving
effect thereto, none of the Advances would constitute purpose credit
within the meaning of such Regulation U or purpose credit within the
meaning of such Regulation G.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) Any Borrower shall fail to pay any principal of any Note
executed by it when the same becomes due and payable, or shall fail to pay
any interest on any such Note or any fee or other amount to be paid by it
hereunder within ten days after the same becomes due and payable; or
(b) Any certification, representation or warranty made by any
Borrower herein or by any Borrower (or any officer of any Borrower) in
writing under or in connection with any Note or this Agreement (including,
without limitation, representations and warranties deemed made pursuant to
Section 3.02 or 3.03) shall prove to have been incorrect in any material
respect when made or deemed made; or
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(c) Any Borrower shall fail to perform or observe (i) any
term, covenant or agreement contained in Section 5.01(b) on its part to be
performed or observed and such failure shall continue for five Business
Days after the earlier of the date notice thereof shall have been given to
such Borrower by the Agent or any Bank or the date such Borrower shall
have knowledge of such failure, or (ii) any term, covenant or agreement
contained in this Agreement (other than a term, covenant or agreement
contained in Section 5.01(b)) or any Note on its part to be performed or
observed; or
(d) Any Borrower or any Subsidiary of any Borrower shall fail
to pay any principal of or premium or interest on any Debt which is
outstanding in a principal amount of at least $60,000,000 in the aggregate
(excluding Debt evidenced by the Notes) of such Borrower or such
Subsidiary (as the case may be), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand
or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
Debt; or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Debt and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled required prepayment or as required pursuant
to an illegality event of the type set forth in Section 2.12), prior to
the stated maturity thereof; provided, however, that the provisions of
this Section 6.01(d) shall not apply to any Non-Recourse Debt of any
Subsidiary of a Borrower; or
(e) Any Borrower or any material Subsidiary of any Borrower
shall generally not pay its debts as such debts become due, or shall admit
in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall
be instituted by or against any Borrower or any material Subsidiary of any
Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial
part of its property and, in the case of any such proceeding instituted
against it (but not instituted by it), shall remain undismissed or
unstayed for a period of 30 days; or any Borrower or any material
Subsidiary of any Borrower shall take any action to authorize any of the
actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess
of $60,000,000 shall be rendered against any Borrower or any material
Subsidiary of any Borrower and remain unsatisfied and either (i)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
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(g) Any Termination Event with respect to a Plan shall have
occurred and, 30 days after notice thereof shall have been given to any
Borrower by the Agent, (i) such Termination Event shall still exist and
(ii) the sum (determined as of the date of occurrence of such Termination
Event) of the Insufficiency of such Plan and the Insufficiency of any and
all other Plans with respect to which a Termination Event shall have
occurred and then exist (or in the case of a Plan with respect to which a
Termination Event described in clause (ii) of the definition of
Termination Event shall have occurred and then exist, the liability
related thereto) is equal to or greater than $5,000,000; or
(h) Any Borrower or any ERISA Affiliate of any Borrower shall
have been notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan in an amount
which, when aggregated with all other amounts required to be paid to
Multiemployer Plans in connection with Withdrawal Liabilities (determined
as of the date of such notification), exceeds $15,000,000 in the aggregate
or requires payments exceeding $10,000,000 per annum; or
(i) Any Borrower or any ERISA Affiliate of any Borrower shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrowers and their
respective ERISA Affiliates to all Multiemployer Plans which are then in
reorganization or being terminated have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan
years which include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with
the consent, of the holders of at least 66-2/3% in principal amount of the A
Notes then outstanding or, if no A Notes are then outstanding, Banks having at
least 66-2/3% of the Commitments, by notice to the Borrowers, declare all of
the Commitments and the obligation of each Bank to make Advances to be
terminated, whereupon all of the Commitments and each such obligation shall
forthwith terminate, and (ii) shall at the request, or may with the consent, of
the holders of at least 66-2/3% in principal amount of the A Notes then
outstanding or if no A Notes are then outstanding, Banks having at least
66-2/3% of the Commitments, or, if no A Notes are then outstanding and all
Commitments have terminated, the holders of at least 66-2/3% in principal
amount of the B Notes then outstanding, by notice to the Borrower as to which
an Event of Default exists (determined as contemplated by the definition herein
of Events of Default), declare the Notes of such Borrower, all interest thereon
and all other amounts payable by such Borrower under this Agreement to be
forthwith due and payable, whereupon such Notes, such interest and all such
amounts shall become and be forthwith due and payable, without requirement of
any presentment, demand, protest, notice of intent to accelerate, further
notice of acceleration or other further notice of any kind (other than the
notice expressly provided for above), all of which are hereby expressly waived
by each Borrower; provided, however, that in the event of any Event of Default
described in Section 6.01(e), (A) the obligation of each Bank to make Advances
shall automatically be terminated and (B) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or any other notice of any kind, all of which are hereby expressly
waived by each Borrower.
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ARTICLE VII
THE AGENT
Section 7.01. Authorization and Action. Each Bank hereby
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement as are delegated to the Agent
by the terms hereof, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of
holders of at least 66-2/3% in principal amount of the A Notes then outstanding
or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the
Commitments (or, if no A Notes are then outstanding and all Commitments have
terminated, upon the instructions of holders of at least 66-2/3% in principal
amount of the B Notes then outstanding), and such instructions shall be binding
upon all Banks and all holders of Notes; provided, however, that the Agent
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to any Note, this Agreement or applicable law.
The Agent agrees to give to each Bank prompt notice of each notice given to it
by any Borrower pursuant to the terms of this Agreement.
Section 7.02. Agent's Reliance, Etc. Neither the Agent nor any
of its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with any Note
or this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent:
(i) may treat the payee of any Note as the holder thereof until the Agent
receives and accepts a Transfer Agreement executed by a Borrower, the Bank
which is the payee of such Note, as assignor, and the assignee in accordance
with the last sentence of Section 8.06(a); (ii) may consult with legal counsel
(including counsel for any Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Note or this Agreement; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or
conditions of any Note or this Agreement on the part of any Borrower or to
inspect the property (including the books and records) of any Borrower; (v)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Note or this Agreement
or any other instrument or document furnished pursuant hereto; and (vi) shall
incur no liability under or in respect of any Note or this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
Section 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Notes issued to it, Citibank shall
have the same rights and powers under any Note and this Agreement as any other
Bank and may exercise the same as though it
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was not the Agent; and the term "Bank" or "Banks" shall, unless otherwise
expressly indicated, include Citibank in its individual capacity. Citibank and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Borrower,
any Subsidiary of any Borrower, any Person who may do business with or own,
directly or indirectly, securities of any Borrower or any such Subsidiary and
any other Person, all as if Citibank were not the Agent and without any duty to
account therefor to the Banks.
Section 7.04. Bank Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent or any other Bank and
based on the financial statements referred to in Section 4.01(e) and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under any Note or this Agreement.
Section 7.05. Indemnification. The Banks agree to indemnify the
Agent (to the extent not reimbursed by the Borrowers), ratably according to the
respective principal amounts of the A Notes then held by each of them (or if no
A Notes are at the time outstanding or if any A Notes are held by Persons which
are not Banks, ratably according to either (i) the respective amounts of their
Commitments to TWC, or (ii) if all Commitments to TWC have terminated, the
respective amounts of the Commitments to TWC immediately prior to the time the
Commitments to TWC terminated), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or
arising out of any Note or this Agreement or any action taken or omitted by the
Agent under any Note or this Agreement, provided that no Bank shall be liable
to the Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, any Note or this
Agreement to the extent that the Agent is not reimbursed for such expenses by
the Borrowers.
Section 7.06. Successor Agent. The Agent may resign at any time
as Agent under this Agreement by giving written notice thereof to the Banks and
the Borrowers and may be removed at any time with or without cause by the
Majority Banks. Upon any such resignation or removal, the Majority Banks shall
have the right to appoint, with the consent of TWC (which consent shall not be
unreasonably withheld), a successor Agent from among the Banks. If no
successor Agent shall have been so appointed by the Majority Banks with such
consent, and shall have accepted such appointment, within 30 days after the
retiring Agent's giving of notice of resignation or the Majority Banks' removal
of the retiring Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a Bank which is a commercial bank
organized under the laws of the United States of America or of any State
thereof and having
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a combined capital and surplus of at least $500,000,000. Upon the acceptance
of any appointment as Agent under this Agreement by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent and shall function
as the Agent under this Agreement, and the retiring Agent shall be discharged
from its duties and obligations as Agent under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
Section 7.07. Liability of Co-Agents. No Co-Agent, in its
capacity as Co-Agent hereunder, shall have any duty or liability hereunder.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Note or this Agreement, nor consent to any departure by any
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Banks, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all the Banks, do any of the following: (a)
waive any of the conditions specified in Article III, (b) increase the
Commitments of the Banks or subject the Banks to any additional obligations,
(c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (e) take any action which requires the signing of all the Banks
pursuant to the terms of this Agreement, (f) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the A Notes or B
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Agreement, or (g) amend this Section 8.01;
and provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required above to take
such action, affect the rights or duties of the Agent under any Note or this
Agreement.
Section 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopy,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered, if to any Bank, as specified opposite its name on
Schedule I hereto or specified pursuant to Section 8.06(a); if to any Borrower,
as specified opposite its name on Schedule II hereto; and if to Citibank, as
Agent, to its address at 399 Park Avenue, New York, New York 10043,
(telecopier number: (212) 527-1084), Attention: John Sahr, with a copy to
Citicorp North America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas
77002 (telecopier number: (713) 654-2849; telex number 127001 (Attn: Route Code
HOUAA)), Attention: The Williams Companies, Inc. Account Officer; or, as to
any Borrower or the Agent, at such other address as shall be designated by such
party in a written notice to the other parties and, as to each other party, at
such other address as shall be designated by such party in a written notice to
the Borrowers and the Agent. All such notices and communications shall, when
mailed, telecopied, telegraphed, telexed or cabled, be effective when received
in the mail,
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<PAGE> 53
sent by telecopier to any party to the telecopier number as set forth herein or
on Schedule I or Schedule II or specified pursuant to Section 8.06(a) (or other
telecopy number specified by such party in a written notice to the other
parties hereto), delivered to the telegraph company, telexed to any party to
the telex number set forth herein or on Schedule I or Schedule II or specified
pursuant to Section 8.06(a) (or other telex number designated by such party in
a written notice to the other parties hereto), confirmed by telex answerback,
or delivered to the cable company, respectively, except that notices and
communications to the Agent shall not be effective until received by the Agent.
Section 8.03. No Waiver; Remedies. No failure on the part of
any Bank or the Agent to exercise, and no delay in exercising, any right under
any Note or this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies provided in
any Note and this Agreement are cumulative and not exclusive of any remedies
provided by law.
Section 8.04. Costs, Expenses and Taxes. (a)(i) TWC agrees to
pay on demand all reasonable out-of-pocket costs and expenses of the Arranger
and the Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement, the Notes and the
other documents to be delivered under this Agreement, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent as to its
rights and responsibilities under any Note and this Agreement, and (ii) each
Borrower agrees to pay on demand all costs and expenses, if any (including,
without limitation, reasonable counsel fees and expenses, which may include
allocated costs of in-house counsel), of the Agent and each Bank in connection
with the enforcement (whether through negotiations, legal proceedings or
otherwise) against such Borrower of any Note of such Borrower or this Agreement
and the other documents to be delivered by such Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section 2.11(c)
or Section 8.06(b)) of principal of, or Conversion of, any Eurodollar Rate
Advance or B Advance made to any Borrower is made other than on the last day of
an Interest Period relating to such Advance (or in the case of a B Advance,
other than on the original scheduled maturity date thereof), as a result of a
payment pursuant to Section 2.10 or 2.12 or acceleration of the maturity of the
Notes pursuant to Section 6.01 or for any other reason or as a result of any
such purchase or any Conversion, such Borrower shall, upon demand by any Bank
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Bank any amounts required to compensate such Bank for any additional
losses, costs or expenses which it may reasonably incur as a result of any such
payment, purchase or Conversion, including, without limitation, any loss, cost
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain such Advance.
(c) Each Borrower agrees, to the fullest extent permitted by
law, to indemnify and hold harmless the Agent, the Arranger and each Bank and
each of their respective directors, officers, employees and agents from and
against any and all claims, damages, liabilities and out-of-pocket expenses
(including, without limitation, reasonable fees and disbursements of counsel)
for which any of them may become liable or which may be incurred by or asserted
against the Agent, the Arranger or such Bank or any such director, officer,
employee or agent (other than by
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<PAGE> 54
another Bank or any successor or assign of another Bank), in each case in
connection with or arising out of or by reason of any investigation,
litigation, or proceeding, whether or not the Agent, the Arranger or such Bank
or any such director, officer, employee or agent is a party thereto, arising
out of, related to or in connection with this Agreement or the Notes or any
transaction in which any proceeds of all or any part of the Advances are
applied (other than any such claim, damage, liability or expense to the extent
attributable to the gross negligence or willful misconduct of, or violation of
any law or regulation by, either the party seeking indemnity under this Section
8.04(c) or any of its directors, officers, employees or agents).
Section 8.05. Right of Set-off. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Agent to declare the Notes of a Borrower due and payable pursuant to the
provisions of Section 6.01, each Bank is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of such Borrower against any and all of the
obligations of such Borrower now or hereafter existing under this Agreement and
the Notes held by such Bank, irrespective of whether or not such Bank shall
have made any demand under this Agreement or such Notes and although such
obligations may be unmatured. Each Bank agrees promptly to notify such
Borrower after such set-off and application made by such Bank, provided that
the failure to give such notice shall not affect the validity of such set-off
and application. The rights of each Bank under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) which such Bank may have.
Section 8.06. Binding Effect; Transfers. (a) This Agreement
shall become effective when it shall have been executed by the Borrowers and
the Agent and when each Bank listed on the signature pages hereof has delivered
an executed counterpart hereof to the Agent, has sent to the Agent a facsimile
copy of its signature hereon or has notified the Agent that such Bank has
executed this Agreement and thereafter shall be binding upon and inure to the
benefit of the Borrowers, the Agent and each Bank and their respective
successors and assigns, except that the Borrowers shall not have the right to
assign any of their respective rights hereunder or any interest herein without
the prior written consent of the Banks. Each Bank may assign to one or more
banks, financial institutions or government entities all or any part of, or may
grant participations to one or more banks, financial institutions or government
entities in or to all or any part of, any Advance or Advances owing to such
Bank, any Note or Notes held by such Bank and all or any portion of such Bank's
Commitments, and to the extent of any such assignment or participation (unless
otherwise stated therein) the assignee or purchaser of such assignment or
participation shall, to the fullest extent permitted by law, have the same
rights and benefits hereunder and under such Note or Notes as it would have if
it were such Bank hereunder, provided that, except in the case of an assignment
meeting the requirements of the next sentence hereof, (1) such Bank's
obligations under this Agreement, including, without limitation, its
Commitments to the Borrowers hereunder, shall remain unchanged, such Bank shall
remain responsible for the performance thereof, such Bank shall remain the
holder of any such Note or Notes for all purposes under this Agreement, and the
Borrowers, the other Banks and the Agent shall continue to deal solely with and
directly with such Bank in connection with such Bank's rights and obligations
under this Agreement; and (2) no Bank shall assign or grant a participation
that conveys to the assignee or
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<PAGE> 55
participant the right to vote or consent under this Agreement, other than the
right to vote upon or consent to (i) any increase in the amount of any
Commitment of such Bank; (ii) any reduction of the principal amount of, or
interest to be paid on, such Bank's Advance or Advances or Note or Notes; (iii)
any reduction of any fee or other amount payable hereunder to such Bank; or
(iv) any postponement of any date fixed for any payment of principal of, or
interest on, such Bank's Advance or Advances or Note or Notes or any fee or
other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or (2) is
approved in writing by the Agent and the Borrowers or (3) is approved in
writing by the Agent and either an Event of Default exists or the Borrowers
have relinquished the right to approve the assignment pursuant to Section
8.06(b), and (II) such assignee assumes all or any portion (which portion shall
be a constant, and not a varying, percentage, and the amount of the Commitment
to TWC assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000 or such lesser amount as may be approved in writing by the Agent and
TWC for such assignment) of each of the Commitments of such assigning Bank to
the respective Borrowers (either all of each such Commitment shall be assigned
or the percentage portion of each such Commitment assigned shall be the same as
to each Borrower) by executing a document in the form of Exhibit F (or with
such changes thereto as have been approved in writing by the Agent in its sole
discretion as evidenced by its execution thereof) duly executed by the Agent,
the Borrowers (unless an Event of Default exists or the Borrowers have
relinquished the right to approve the assignment pursuant to Section 8.06(b)),
such assigning Bank and such assignee and delivered to the Agent ("Transfer
Agreement"), then upon such delivery, (i) such assigning Bank shall be released
from its obligations under this Agreement with respect to all or such portion,
as the case may be, of its Commitments, (ii) such assignee shall become
obligated for all or such portion, as the case may be, of such Commitments and
all other obligations of such assigning Bank hereunder with respect to or
arising as a result of all or such portion, as the case may be, of such
Commitments, (iii) such assignee shall be assigned the right to vote or consent
under this Agreement, to the extent of all or such portion, as the case may be,
of such Commitments, (iv) each Borrower shall deliver, in replacement of the A
Note of such Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of such Borrower in the amount of the Commitment of such
assigning Bank to such Borrower which is being so assumed by such assignee
plus, in the case of any assignee which is already a Bank hereunder, the amount
of such assignee's Commitment to such Borrower immediately prior to such
assignment (any such assignee which is already a Bank hereunder agrees to
cancel and return to such Borrower, with reasonable promptness following the
delivery of such new A Note, the A Note being replaced thereby), (b) to such
assigning Bank, a new A Note in the amount of the balance, if any, of the
Commitment of such assigning Bank to such Borrower (without giving effect to
any B Reduction) retained by such assigning Bank (and such assigning Bank
agrees to cancel and return to such Borrower, with reasonable promptness
following delivery of such new A Notes, the A Note being replaced thereby), and
(c) to the Agent, photocopies of such new A Notes, (v) if such assignment is of
all of such assigning Bank's Commitments to the Borrowers, all of the
outstanding A Advances made by such assigning Bank shall be transferred to such
assignee, (vi) if such assignment is not of all of such Commitments, a part of
each A Advance to each Borrower equal to the amount of such Advance multiplied
by a fraction, the numerator of which is the amount of such portion of such
assigning Bank's Commitment to such Borrower so assumed and the denominator of
which is the amount of the Commitment of such assigning Bank to such Borrower
(without giving effect to any B Reduction)
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<PAGE> 56
immediately prior to such assumption, shall be transferred to such assignee and
evidenced by such assignee's A Note from such Borrower, and the balance of such
A Advance shall be evidenced by such assigning Bank's new A Note from such
Borrower delivered pursuant to clause (iv)(b) of this sentence, (vii) if such
assignee is not a "Bank" hereunder prior to such assignment, such assignee
shall become a party to this Agreement as a Bank and shall be deemed to be a
"Bank" hereunder, and the amount of all or such portion, as the case may be, of
the Commitment to each of the respective Borrowers so assumed shall be deemed
to be the amount for such Borrower set opposite such assigning Bank's name on
Schedule IX for purposes of this Agreement, and (viii) if such assignee is not
a Bank hereunder prior to such assignment, such assignee shall be deemed to
have specified the offices of such assignee named in the respective Transfer
Agreement as its "Domestic Lending Office" and "Eurodollar Lending Office" for
all purposes of this Agreement and to have specified for purposes of Section
8.02 the notice information set forth in such Transfer Agreement; and the Agent
shall promptly after execution of any Transfer Agreement by the Agent and the
other parties thereto notify the Banks of the parties to such Transfer
Agreement and the amounts of the assigning Bank's Commitments assumed thereby.
(b) If the Borrowers do not consent to a proposed assignment by a
Bank pursuant to the last sentence of Section 8.06(a), TWC may, within 15 days
of its receipt of a request that it consent to such assignment nominate by
notice to the Agent and such Bank a bank which, if it is not a Bank, is
acceptable to the Agent, and which unconditionally offers in writing (with a
copy to the Agent) to purchase and assume, to the extent of the amount of such
proposed assignment, in accordance with all of the provisions of the last
sentence of Section 8.06(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitments) hereunder and interest in the Advances owing to
such Bank and the Notes held by such Bank without recourse at par plus interest
accrued thereon to the date of such purchase on a date therein specified (not
less than three nor greater than five Business Days after such nomination).
Such Bank at its option may elect to accept or not accept such purchase offer.
If a Bank accepts such an offer and the bank first nominated by TWC pursuant to
this Section 8.06(b) fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, TWC may, within 15
days of such failure, repeat the process contemplated by the first sentence of
this Section 8.06(b) by nominating another bank for purposes of this Section
8.06(b) by notice to the Agent and such Bank. If TWC does not so nominate such
a bank within 15 days of its receipt of such request that it consent to such
assignment or if TWC fails to nominate another bank following such a failure to
purchase or if such second nominated bank fails to purchase in accordance with
the terms of an offer complying with the first sentence of this Section
8.06(b), the Borrowers shall be deemed to have relinquished their right to
consent to such assignment. If such Bank elects to not accept such a purchase
offer under this Section 8.06(b) as to a particular proposed assignment, the
Borrowers shall not be deemed to have relinquished their right to consent to
such assignment.
(c) The Borrowers agree to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrowers of the
assignee is not required by clause (I) of the last sentence of Section 8.06(a).
(d) Any Bank may assign, as collateral or otherwise, any of its
rights (including, without limitation, rights to payments of principal of
and/or interest on the Notes) under this
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<PAGE> 57
Agreement or any of the Notes to any Federal Reserve Bank without notice to or
consent of any Borrower or the Agent.
Section 8.07. Governing Law. This Agreement and the Notes shall
be governed by, and construed in accordance with, the laws of the State of New
York.
Section 8.08. Interest. It is the intention of the parties
hereto that the Agent and each Bank shall conform strictly to usury laws
applicable to it, if any. Accordingly, if the transactions with the Agent or
any Bank contemplated hereby would be usurious under applicable law, then, in
that event, notwithstanding anything to the contrary in the Notes, this
Agreement or any other agreement entered into in connection with or as security
for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of
all consideration which constitutes interest under applicable law that is
contracted for, taken, reserved, charged or received by the Agent or such Bank,
as the case may be, under the Notes, this Agreement or under any other
agreement entered into in connection with or as security for this Agreement or
the Notes shall under no circumstances exceed the maximum amount allowed by
such applicable law and any excess shall be cancelled automatically and, if
theretofore paid, shall at the option of the Agent or such Bank, as the case
may be, be credited by the Agent or such Bank, as the case may be, on the
principal amount of the obligations owed to the Agent or such Bank, as the case
may be, by the appropriate Borrower or refunded by the Agent or such Bank, as
the case may be, to the appropriate Borrower, and (ii) in the event that the
maturity of any Note or other obligation payable to the Agent or such Bank, as
the case may be, is accelerated or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or such Bank, as the case may be, may never include
more than the maximum amount allowed by such applicable law and excess
interest, if any, to the Agent or such Bank, as the case may be, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date
of such acceleration or prepayment and, if theretofore paid, shall, at the
option of the Agent or such Bank, as the case may be, be credited by the Agent
or such Bank, as the case may be, on the principal amount of the obligations
owed to the Agent or such Bank, as the case may be, by the appropriate Borrower
or refunded by the Agent or such Bank, as the case may be, to the appropriate
Borrower.
Section 8.09. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 8.10. Survival of Agreements, Representations and
Warranties, Etc. All warranties, representations and covenants made by any
Borrower or any officer of any Borrower herein or in any certificate or other
document delivered in connection with this Agreement shall be considered to
have been relied upon by the Banks and shall survive the issuance and delivery
of the Notes and the making of the Advances regardless of any investigation.
The indemnities and other payment obligations of each Borrower contained in
this Agreement, and the indemnities by the Banks in favor of the Agent and its
officers, directors, employees and agents, will survive the repayment of the
Advances and the termination of this Agreement.
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<PAGE> 58
Section 8.11. Borrowers' Right to Apply Deposits. In the event
that any Bank is placed in receivership or enters a similar proceeding, each
Borrower may, to the full extent permitted by law, make any payment due to such
Bank hereunder, to the extent of finally collected unrestricted deposits of
such Borrower in U.S. dollars held by such Bank, by giving notice to the Agent
and such Bank directing such Bank to apply such deposits to such indebtedness.
If the amount of such deposits is insufficient to pay such indebtedness then
due and owing in full, such Borrower shall pay the balance of such
insufficiency in accordance with this Agreement.
Section 8.12. Confidentiality. Each Bank agrees that it will
use best efforts, to the extent not inconsistent with practical business
requirements, not to disclose without the prior consent of TWC (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrowers or their
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrowers in good faith consider to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrowers to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to such
Bank, (e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes or any interest therein by such Bank, provided
that such prospective transferee executes an agreement with or for the benefit
of the Borrowers containing provisions substantially identical to those
contained in this Section 8.12, and provided further that if the contemplated
transfer is a grant of a participation in a Note (and not an assignment), no
such information shall be authorized to be delivered to such participant
pursuant to this clause (e) except (i) such information delivered pursuant to
Section 4.01(e) or Section 5.01(b) (other than paragraph (iv) thereof), and
(ii) if prior notice of the delivery thereof is given to TWC, such information
as may be required by law or regulation to be delivered, (f) in connection with
the exercise of any remedy by such Bank pertaining to this Agreement, any of
the Notes or any other document delivered in connection herewith, (g) in
connection with any litigation involving such Bank pertaining to this
Agreement, any of the Notes or any other document delivered in connection
herewith, (h) to any Bank or the Agent, or (i) to any affiliate of any Bank,
provided that such affiliate executes an agreement with or for the benefit of
the Borrowers containing provisions substantially identical to those contained
in this Section 8.12.
Section 8.13. WAIVER OF JURY TRIAL. THE BORROWERS, THE AGENT,
AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.14. Miscellaneous. This Agreement shall become
effective in accordance with the first sentence of Section 8.06(a). Subject to
compliance with such sentence,
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<PAGE> 59
the amendments to the 1996 Credit Agreement effected by this Agreement
(including, without limitation, the amendments to the definition of "Applicable
Margin") shall for all purposes be effective as of July 23, 1997. On July 23,
1997, each Borrower will pay in full all principal, interest and fees owed by
it outstanding under the 1996 Credit Agreement.
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<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
BORROWERS:
THE WILLIAMS COMPANIES, INC. TEXAS GAS TRANSMISSION
CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
-------------------------- -----------------------
Title: Title:
------------------------- ----------------------
TRANSCONTINENTAL GAS PIPE LINE WILLIAMS PIPE LINE COMPANY
CORPORATION
By: By:
---------------------------- -------------------------
Name: Name:
-------------------------- -----------------------
Title: Title:
------------------------- ----------------------
WILLIAMS HOLDINGS OF DELAWARE, INC. WILTEL COMMUNICATIONS, LLC
By:
---------------------------- By:
Name: -------------------------
-------------------------- Name:
Title: -----------------------
------------------------- Title:
----------------------
NORTHWEST PIPELINE CORPORATION
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
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<PAGE> 61
AGENT:
CITIBANK, N.A., as Agent
By:
--------------------------
J Christopher Lyons
Vice President
BANKS:
CITIBANK, N.A.
By:
--------------------------
J. Christopher Lyons
Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
--------------------------
Authorized Officer
THE CHASE MANHATTAN BANK
By:
--------------------------
Authorized Officer
CIBC INC.
By:
--------------------------
Authorized Officer
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<PAGE> 62
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF
CHICAGO
By:
--------------------------
Authorized Officer
BANK OF MONTREAL
By:
--------------------------
Authorized Officer
THE BANK OF NEW YORK
By:
--------------------------
Authorized Officer
THE BANK OF NOVA SCOTIA
By:
--------------------------
Authorized Officer
BARCLAYS BANK PLC
By:
--------------------------
Authorized Officer
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<PAGE> 63
BOATMEN'S NATIONAL BANK
OF OKLAHOMA
By:
--------------------------
Authorized Officer
THE FIRST NATIONAL BANK OF
BOSTON
By:
--------------------------
Authorized Officer
THE FUJI BANK, LIMITED,
HOUSTON AGENCY
By:
--------------------------
Authorized Officer
MELLON BANK, N.A.
By:
--------------------------
Authorized Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By:
--------------------------
Authorized Officer
ROYAL BANK OF CANADA
By:
--------------------------
Authorized Officer
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<PAGE> 64
SOCIETE GENERALE,
SOUTHWEST AGENCY
By:
--------------------------
Authorized Officer
WELLS FARGO BANK, N.A.
By:
--------------------------
Authorized Officer
BANK OF OKLAHOMA, N.A.
By:
--------------------------
Authorized Officer
COMMERCE BANK, N.A.
By:
--------------------------
Authorized Officer
-60-
<PAGE> 1
Exhibit 11
THE WILLIAMS COMPANIES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1997 1996 1995
---------- ---------- ----------
(Thousands, except
per-share amounts)
<S> <C> <C> <C>
Basic earnings:
Income from continuing operations $ 350,500 $ 362,300 $ 299,400
Preferred stock dividends:
$2.21 cumulative preferred stock 1,100 1,600 6,000
$3.50 cumulative convertible preferred stock 8,700 8,800 5,800
Effect of preferred stock exchange -- -- 3,500
---------- ---------- ----------
Income from continuing operations, net of
preferred stock dividends 340,700 351,900 284,100
Income from discontinued operations -- -- 1,018,800
---------- ---------- ----------
Income before extraordinary loss,
net of preferred stock dividends 340,700 351,900 1,302,900
Extraordinary loss (79,100) -- --
---------- ---------- ----------
Income applicable to common stock $ 261,600 $ 351,900 $1,302,900
========== ========== ==========
Basic shares:
Average number of common shares outstanding
during the period 317,683 314,158 296,139
Common shares attributable to deferred stock 3,501 4,890 6,668
---------- ---------- ----------
Total common shares 321,184 319,048 302,807
========== ========== ==========
Basic earnings per common share:
Income from continuing operations $ 1.06 $ 1.10 $ .94
Income from discontinued operations -- -- 3.36
---------- ---------- ----------
Income before extraordinary loss 1.06 1.10 4.30
Extraordinary loss (.25) -- --
---------- ---------- ----------
Net income $ .81 $ 1.10 $ 4.30
========== ========== ==========
Diluted earnings:
Income from continuing operations $ 350,500 $ 362,300 $ 299,400
Preferred stock dividends:
$2.21 cumulative preferred stock 1,100 1,600 6,000
Effect of preferred stock exchange -- -- 3,500
---------- ---------- ----------
Income from continuing operations,
net of preferred stock dividends 349,400 360,700 289,900
Income from discontinued operations -- -- 1,018,800
---------- ---------- ----------
Income before extraordinary loss,
net of preferred stock dividends 349,400 360,700 1,308,700
Extraordinary loss (79,100) -- --
---------- ---------- ----------
Income applicable to common stock $ 270,300 $ 360,700 $1,308,700
========== ========== ==========
Diluted shares:
Average number of common shares outstanding
during the period 317,683 314,158 296,139
Common shares attributable to options
and deferred stock 8,139 10,122 10,038
Dilutive preferred shares 11,717 11,718 7,866
---------- ---------- ----------
Total common shares 337,539 335,998 314,043
========== ========== ==========
Diluted earnings per common share:
Income from continuing operations $ 1.04 $ 1.07 $ .92
Income from discontinued operations -- -- 3.25
---------- ---------- ----------
Income before extraordinary loss 1.04 1.07 4.17
Extraordinary loss (.24) -- --
---------- ---------- ----------
Net income $ .80 $ 1.07 $ 4.17
========== ========== ==========
</TABLE>
Note: Share and per-share amounts have been restated to reflect the effect of
the December 29, 1997, two-for-one common stock split and distribution.
<PAGE> 1
EXHIBIT 12
THE WILLIAMS COMPANIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
(Dollars in millions)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations
before income taxes $ 528.5 $ 545.4 $ 401.4 $ 246.6 $ 298.0
Add:
Interest expense--net 388.6 353.0 263.4 139.8 140.8
Rental expense representative
of interest factor 34.2 27.7 26.9 9.2 8.1
Preferred dividends of
subsidiaries -- -- 3.7 -- --
Interest accrued--50% owned
company -- 1.3 30.7 31.7 31.3
Minority interest in income
of consolidated subsidiaries 14.0 -- 10.0 -- --
Other .8 4.2 5.5 2.0 4.1
-------- -------- -------- -------- --------
Total earnings as adjusted
plus fixed charges $ 966.1 $ 931.6 $ 741.6 $ 429.3 $ 482.3
======== ======== ======== ======== ========
Combined fixed charges and preferred
stock dividend requirements:
Interest expense--net $ 388.6 $ 353.0 $ 263.4 $ 139.8 $ 140.8
Capitalized interest 15.9 6.9 14.5 6.0 10.4
Rental expense representative
of interest factor 34.2 27.7 26.9 9.2 8.1
Pretax effect of dividends on
preferred stock of the Company 16.1 16.2 18.0 13.1 19.1
Pretax effect of dividends on
preferred stock of subsidiaries -- -- 5.8 -- --
Interest accrued--50% owned
company -- 1.3 30.7 31.7 31.3
-------- -------- -------- -------- --------
Combined fixed charges and
preferred stock dividend
requirements $ 454.8 $ 405.1 $ 359.3 $ 199.8 $ 209.7
======== ======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements 2.12 2.30 2.06 2.15 2.30
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
THE WILLIAMS COMPANIES, INC. & AFFILIATES
March 19, 1998
<TABLE>
<CAPTION>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- -----------
<S> <C> <C>
THE WILLIAMS COMPANIES, INC. . . . . . . . . . . . . . . . . . . . . Delaware
WILLIAMS HOLDINGS OF DELAWARE, INC. . . . . . . . . . . . . . . . Delaware 100%
Beech Grove Processing Company . . . . . . . . . . . . . . . Tennessee 100%
Tennessee Processing Company . . . . . . . . . . . . . Delaware 100%
Inland Ports, Inc. . . . . . . . . . . . . . . . . . . . . . Tennessee 100%
Langside Limited . . . . . . . . . . . . . . . . . . . . . . Bermuda 100%
Realco Realty Corp. . . . . . . . . . . . . . . . . . . . . Delaware 100%
Realco of Crown Center, Inc. . . . . . . . . . . . . . Delaware 100%
Realco of San Antonio, Inc. . . . . . . . . . . . . . Delaware 100%
The Tennessee Coal Company . . . . . . . . . . . . . . . . . Delaware 100%
Williams Communications Group, Inc. . . . . . . . . . . . . Delaware 100%
Critical Connections, Inc. . . . . . . . . . . . . . . Delaware 100%
The Business Channel LLC . . . . . . . . . . . . . . . 50%
Williams Communications, Inc. . . . . . . . . . . . . . Delaware 100%
ChoiceSeat, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Vyvx of Virginia, Inc. . . . . . . . . . . . . . . Virginia 100%
WCS Communications Systems, Inc. . . . . . . . . . . . Delaware 100%
WCS Microwave Services, Inc. . . . . . . . . . . . . . Nevada 100%
Williams Learning Network, Inc. . . . . . . . . . . . Delaware 100%
Williams Wireless, Inc. . . . . . . . . . . . . . . . . Delaware 100%
Williams Communications Solutions, LLC . . . . . . . . Delaware 70%
WCS, Inc. . . . . . . . . . . . . . . . . . . . . Delaware 100%
WilTel Communications (Canada), Inc. . . . . . . Canada 100%
WilTel Holdings, Inc. . . . . . . . . . . . . . . Canada 100%
Transco Energy Company . . . . . . . . . . . . . . . . . . Delaware 100%
Energy Tech, Inc. . . . . . . . . . . . . . . . . . . . Delaware 100%
Transco Coal Gas Company . . . . . . . . . . . . . . . Delaware 100%
Transco Energy Investment Company . . . . . . . . . . . Delaware 100%
Transco Exploration Company . . . . . . . . . . . . . . Delaware 100%
Transco Gas Company . . . . . . . . . . . . . . . . . . Delaware 100%
Border Gas, Inc. . . . . . . . . . . . . . . . . . Delaware 10%
Liberty Operating Company . . . . . . . . . . . . Delaware 100%
NESP Supply Corp. . . . . . . . . . . . . . . . . Delaware 33.33%
Transco Liberty Pipeline Company . . . . . . . . . Delaware 100%
Transeastern Gas Pipeline Company, Inc. . . . . . Delaware 100%
Transco P-S Company . . . . . . . . . . . . . . . . . . Delaware 100%
Transco Resources, Inc. . . . . . . . . . . . . . . . . Delaware 100%
Magnolia Methane Corp. . . . . . . . . . . . . . . Delaware 100%
Transco Terminal Company . . . . . . . . . . . . . . . Delaware 100%
Transco Tower Realty, Inc. . . . . . . . . . . . . . . Delaware 100%
Tulsa Williams Company . . . . . . . . . . . . . . . . . . . Delaware 100%
Valley View Coal, Inc. . . . . . . . . . . . . . . . . . . . Tennessee 100%
WHD Enterprises, Inc. . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Acquisition Holding Company, Inc. . . . . . . . . . Delaware 100%
Williams Acquisition Holding Company, Inc. . . . . . . . . New Jersey 100%
Agrico Foreign Sales Corporation . . . . . . . . . . . Guam 100%
Fishhawk Ranch, Inc. . . . . . . . . . . . . . . . . . Florida 100%
Reserveco Inc. . . . . . . . . . . . . . . . . . . . . Delaware 15%
Williams Aircraft, Inc. . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Energy Company . . . . . . . . . . . . . . . . . . Delaware 100%
</TABLE>
<PAGE> 2
<TABLE>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- -----------
<S> <C> <C>
Williams Energy Group . . . . . . . . . . . . . . . . . . . Delaware 100%
Longhorn Enterprises of Texas, Inc. . . . . . . . . . . Delaware 100%
Williams Energy Group Services, Inc. . . . . . . . . . Delaware 100%
Williams Energy Ventures, Inc. . . . . . . . . . . . . Delaware 100%
Nebraska Energy, L.L.C. . . . . . . . . . . . . . Kansas 71%
Wiljet, LLC . . . . . . . . . . . . . . . . . . . Arizona 50%
Williams Ethanol Production Company . . . . . . . Delaware 100%
Pekin Energy Company . . . . . . . . . . . . Illinois (General Partnership) 99%
Williams Ethanol Services, Inc. . . . . . . . . . Delaware 100%
Pekin Energy Company . . . . . . . . . . . . Illinois (General Partnership) 1%
Williams Field Services Group, Inc. . . . . . . . . . Delaware 100%
Carbon County UCG, Inc. . . . . . . . . . . . . . Delaware 100%
Trans-Jeff Chemical Corporation . . . . . . . . . Delaware 100%
WFS Enterprises, Inc. . . . . . . . . . . . . . Delaware 100%
Williams Field Services - Gulf Coast
Company, L.P. . . . . . . . . . . . . . . . Delaware 99%
WFS Fractionation Company . . . . . . . . . . . . Delaware 100%
WFS - Gas Gathering Company . . . . . . . . . . . Delaware 100%
WFS - Offshore Gathering Company . . . . . . Delaware 100%
WFS - Pipeline Company . . . . . . . . . . . Delaware 100%
WFS - Liquids Company . . . . . . . . . . . . . . Delaware 100%
HI-BOL Pipeline Company . . . . . . . . . . . Delaware 100%
WFS Management Co. . . . . . . . . . . . . . . . . Delaware 100%
WFS - NGL Pipeline Company, Inc. . . . . . . . . . Delaware 100%
WILPRISE Pipeline Company, L.L.C. . . . . . Delaware 50%
WFS - OCS Gathering Co. . . . . . . . . . . . . . Delaware 100%
Energy International Corporation . . . . . . . . . Pennsylvania 100%
WFS - Production Services Company . . . . . . . . Delaware 100%
Williams CNG Company . . . . . . . . . . . . . . . Delaware 100%
Williams Field Services Company . . . . . . . . . Utah 100%
Williams Field Services - Gulf Coast
Company, L.P. . . . . . . . . . . . . . . . Delaware 1%
Williams Gas Processing - Gulf Coast
Company, L.P. . . . . . . . . . . . . . . . Delaware 1%
Williams Gas Processing - Blanco, Inc. . . . . . . Delaware 100%
Williams Gas Processing Company . . . . . . . . . Delaware 100%
Williams Gas Processing - Kansas Hugoton Company . Delaware 100%
Williams Gas Processing - Mid-Continent Region
Company . . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Gas Processing - Wamsutter Company . . . Delaware 100%
Williams Power Company . . . . . . . . . . . . . Delaware 100%
</TABLE>
<PAGE> 3
<TABLE>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- -----------
<S> <C> <C>
Williams Merchant Services Company, Inc. . . . . . . . Delaware 100%
Williams Energy Services Company . . . . . . . . . Delaware 100%
Energy Vision, LLC . . . . . . . . . . . . . Delaware 50%
F T & T, Inc. . . . . . . . . . . . . . . . Delaware 100%
Hazleton Fuel Management Company . . . . . . Delaware 100%
Hazleton Pipeline Company . . . . . . . Delaware 100%
TM Cogeneration Company . . . . . . . . Delaware 100%
Millennium Energy Fund, L.L.C. . . . . . . . Delaware 2%
Rio Vista Energy Marketing Company L.L.C. . . Delaware 50%
Transco Energy Marketing Company . . . . . . Delaware 100%
TXG Gas Marketing Company . . . . . . . Delaware 100%
Williams Gas Company . . . . . . . . . . Delaware 100%
TransNetwork Holding Company . . . . . . . . Delaware 100%
Williams Energy Network, Inc. . . . . . Delaware 100%
Utility Management Corporation . . . . . . . Delaware 100%
Volunteer Energy Corporation . . . . . . . . Delaware 50%
Williams Independence Marketing Company . . . Delaware 100%
Williams Pipe Line Company . . . . . . . . . . . . . . Delaware 100%
WillBros Terminal Company . . . . . . . . . . . . Delaware 100%
Williams Pipe Line Company of Wisconsin . . . . . Wisconsin 100%
Williams Terminals Company . . . . . . . . . . . . Delaware 100%
Williams Production Company . . . . . . . . . . . . . . Delaware 100%
WFS Gas Resources Company . . . . . . . . . . . . Delaware 100%
Williams Generation Company - Hazleton . . . . . . Delaware 100%
Williams Production Gulf Coast Company, L.P. . . . Delaware 1%
WPX Enterprises, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Williams Production Gulf Coast Company, L.P. . . . Delaware 99%
Williams Environmental Services Company . . . . . . . . . . Delaware 100%
Williams Exploration Company . . . . . . . . . . . . . . . . Delaware 100%
Rainbow Resources, Inc. . . . . . . . . . . . . . . . Colorado 100%
Williams Headquarters Acquisition Company . . . . . . . . . Delaware 100%
Williams Headquarters Building Company . . . . . . . . . . . Delaware 100%
Parkco, L.L.C. . . . . . . . . . . . . . . . . . . . . Oklahoma 50%
Williams Headquarters Management Company . . . . . . . . . . Delaware 100%
Williams Hugoton Compression Services, Inc. . . . . . . . . Delaware 100%
Williams Information Services Corporation . . . . . . . . . Delaware 100%
</TABLE>
<PAGE> 4
<TABLE>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- -----------
<S> <C> <C>
Williams International Company . . . . . . . . . . . . . . . Delaware 100%
Apco Argentina Inc. . . . . . . . . . . . . . . . . . Cayman Islands 68.95%
Apco Properties Ltd. . . . . . . . . . . . . . . . Cayman Islands 100%
Williams International Australian Telecom Limited . . . Cayman Islands 100%
Williams International (Bermuda) Limited . . . . . . . Bermuda 100%
Williams International Boyaca-Santander Services
Limited . . . . . . . . . . . . . . . . . . . . . Cayman Islands 100%
Williams International Cusiana-Cupiagua Limited . . . . Cayman Islands 100%
Williams International Ecuadorian Ventures
(Bermuda) Limited . . . . . . . . . . . . . . . . . . Bermuda 100%
Williams International El Furrial Limited . . . . . . . Cayman Islands 100%
WilPro Energy Services (El Furrial) Limited . . . Cayman Islands 66.67%
Williams International Guara Limited . . . . . . . . . Cayman Islands 100%
WilPro Energy Services (Guara) Limited . . . . . . Cayman Islands 100%
Williams International Investment Ventures (Cayman)
Limited . . . . . . . . . . . . . . . . . . . . . Cayman Islands 100%
Williams International Investments (Cayman) Limited . . Cayman Islands 100%
Williams International Oil & Gas (Venezuela) Limited . Cayman Islands 100%
Williams International Operations (Venezuela) Limited . Cayman Islands 100%
Williams International Services Company . . . . . . . . Nevada 100%
Worldwide Services Limited . . . . . . . . . . . . Cayman Islands 100%
Williams International Telecom Limited . . . . . . . . Cayman Islands 100%
Williams International Ventures (Bermuda) Ltd. . . . . Bermuda 100%
Free Port Terminal Company Limited . . . . . . . . Bermuda (Ltd. Partnership) 65%
FPT Marketing Company Limited . . . . . . . . Bermuda 100%
Transportadora de Gas Zapata . . . . . . . . . . . Mexico 37%
Williams International Pipeline Company . . . . . . . Delaware 100%
Williams International Telecommunications
Investments (Cayman) Limited . . . . . . . . . . . Cayman Islands 100%
Williams International Ventures Company . . . . . . . . Delaware 100%
Williams International Indonesia Ventures Company Delaware 100%
Wiltel Communications Pty Limited . . . . . . . . Australia 100%
Williams Learning Network (UK) Limited . . . . . . . . England 100%
Williams Learning Center, Inc. . . . . . . . . . . . . . . . Delaware 100%
Williams One-Call Services, Inc. . . . . . . . . . . . . . . Delaware 100%
Williams Pipeline Services Company . . . . . . . . . . . . . Delaware 100%
Williams Relocation Management, Inc. . . . . . . . . . . . Delaware 100%
Williams Sodium Products Company . . . . . . . . . . . . . . Delaware 100%
American Soda, L.L.P. . . . . . . . . . . . . . . . . . Colorado 60%
Williams Underground Gas Storage Company . . . . . . . . . . Delaware 100%
Kiowa Gas Storage, L.L.C. . . . . . . . . . . . . . . . Delaware 50%
Williams Western Holding Company, Inc. . . . . . . . . . . Delaware 100%
Northwest Alaskan Pipeline Company . . . . . . . . . . Delaware 100%
Northwest Argentina Corporation . . . . . . . . . . . . Utah 100%
Northwest Border Pipeline Company . . . . . . . . . . . Delaware 100%
Northern Border Partners, L.P. . . . . . . . . . . . Delaware (Limited Partnership) 4.375%
Northern Border Intermediate Limited Partnership . . Delaware (Limited Partnership) 0.175%
Northwest Land Company . . . . . . . . . . . . . . . . Delaware 100%
WilMart, Inc. . . . . . . . . . . . . . . . . . . . . . . . Delaware 100%
</TABLE>
<PAGE> 5
<TABLE>
Jurisdiction Owned by
of Immediate
Incorporation Parent
------------- -----------
<S> <C> <C>
WILLIAMS INTERSTATE NATURAL GAS SYSTEMS, INC. . . . . . . . . . . Delaware 100%
Kern River Acquisition Corporation . . . . . . . . . . . . . Delaware 100%
Kern River Gas Transmission Company . . . . . . . . . . Texas (Partnership) 50%
Kern River Funding Corporation . . . . . . . . . . Delaware 100%
Northwest Pipeline Corporation . . . . . . . . . . . . . . . Delaware 100%
Apco Liquidating Trust . . . . . . . . . . . . . . . . Delaware 35.33%
NWP Enterprises, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Texas Gas Transmission Corporation . . . . . . . . . . . . . Delaware 100%
TGT Enterprises, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Transcontinental Gas Pipe Line Corporation . . . . . . . . . Delaware 100%
Cardinal Operating Company . . . . . . . . . . . . . . Delaware 100%
Cumberland Operating Company . . . . . . . . . . . . . Delaware 100%
Independence Operating Company . . . . . . . . . . . . Delaware 100%
Marsh Resources, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Pine Needle Operating Company . . . . . . . . . . . . . Delaware 100%
TGPL Enterprises, Inc. . . . . . . . . . . . . . . . Delaware 100%
TransCardinal Company . . . . . . . . . . . . . . . . Delaware 100%
TransCarolina LNG Company. . . . . . . . . . . . . . . Delaware 100%
TransCumberland Pipeline Company . . . . . . . . . . . Delaware 100%
Transco Independence Pipeline Company . . . . . . . . . Delaware 100%
WGP Enterprises, Inc. . . . . . . . . . . . . . . . . . Delaware 100%
Williams Gas Processing - Gulf Coast
Company, L.P. . . . . . . . . . . . . . . . . . . Delaware 99%
Williams Gas Pipelines Central, Inc. . . . . . . . . . . . . Delaware 100%
Williams Storage Company . . . . . . . . . . . . . . . . . . Delaware 100%
Williams Western Pipeline Company . . . . . . . . . . . . . Delaware 100%
Kern River Gas Transmission Company . . . . . . . . . . Texas (Partnership) 50%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements on Form S-3 and related prospectuses and in the following
registration statements on Form S-4 and on Form S-8 of The Williams Companies,
Inc. of our report dated February 13, 1998, with respect to the consolidated
financial statements and schedule of The Williams Companies, Inc. included in
this Annual Report (Form 10-K) for the year ended December 31, 1997.
Form S-3: Registration No. 333-20929
Registration No. 333-29185
Form S-4: Registration No. 333-44963
Form S-8: Registration No. 33-2442; Registration No. 33-24322;
Registration No. 33-36770; Registration No. 33-44381;
Registration No. 33-40979; Registration No. 33-45550;
Registration No. 33-43999; Registration No. 33-51539;
Registration No. 33-51543; Registration No. 33-51551;
Registration No. 33-51549; Registration No. 33-51547;
Registration No. 33-51545; Registration No. 33-56521
Registration No. 333-03957;Registration No. 333-11151
Registration No. 333-40721;Registration No. 333-33735
Registration No. 333-30095
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 26, 1998
<PAGE> 1
EXHBIIT 24
THE WILLIAMS COMPANIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned
individuals, in their capacity as a director or officer, or both, as
hereinafter set forth below their signature, of THE WILLIAMS COMPANIES, INC., a
Delaware corporation ("Williams"), does hereby constitute and appoint WILLIAM
G. VON GLAHN, DAVID M. HIGBEE and SHAWNA L. BARNARD their true and lawful
attorneys and each of them (with full power to act without the others) their
true and lawful attorneys for them and in their name and in their capacity as a
director or officer, or both, of Williams, as hereinafter set forth below their
signature, to sign Williams' Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended December 31, 1997, and any
and all amendments thereto or all instruments necessary or incidental in
connection therewith; and
THAT the undersigned Williams does hereby constitute and
appoint WILLIAM G. VON GLAHN, DAVID M. HIGBEE and SHAWNA L. BARNARD its true
and lawful attorneys and each of them (with full power to act without the
others) its true and lawful attorney for it and in its name and on its behalf
to sign said Form 10-K and any and all amendments thereto and any and all
instruments necessary or incidental in connection therewith.
Each of said attorneys shall have full power of substitution
and resubstitution, and said attorneys or any of them or any substitute
appointed by any of them hereunder shall have full power and authority to do
and perform in the name and on behalf of each of the undersigned, in any and
all capacities, every act whatsoever requisite or necessary to be done in the
premises, as fully to all intents and purposes as each of the undersigned might
or could do in person, the undersigned hereby ratifying and approving the acts
of said attorneys or any of them or of any such substitute pursuant hereto.
IN WITNESS WHEREOF, the undersigned have executed this
instrument, all as of the 25th day of January, 1998.
/s/ KEITH E. BAILEY /s/ JACK D. MCCARTHY
- - ----------------------------- ------------------------------
Keith E. Bailey Jack D. McCarthy
Chairman of the Board, Senior Vice President
President and (Principal Financial Officer)
Chief Executive Officer
(Principal Executive Officer)
/s/ GARY R. BELITZ
------------------------------
Gary R. Belitz
Controller
(Principal Accounting Officer)
<PAGE> 2
Page 2
/s/ GLENN A. COX /s/ THOMAS H. CRUIKSHANK
- - ----------------------------- ------------------------------
Glenn A. Cox Thomas H. Cruikshank
Director Director
/s/ WILLIAM E. GREEN /s/ PATRICIA L. HIGGINS
- - ----------------------------- ------------------------------
William E. Green Patricia L. Higgins
Director Director
/s/ W.R. HOWELL /s/ ROBERT J. LAFORTUNE
- - ----------------------------- ------------------------------
W.R. Howell Robert J. LaFortune
Director Director
/s/ JAMES C. LEWIS /s/ JACK A. MACALLISTER
- - ----------------------------- ------------------------------
James C. Lewis Jack A. MacAllister
Director Director
/s/ PETER C. MEINIG /s/ KAY A. ORR
- - ----------------------------- ------------------------------
Peter C. Meinig Kay A. Orr
Director Director
/s/ GORDON R. PARKER /s/ JOSEPH H. WILLIAMS
- - ----------------------------- ------------------------------
Gordon R. Parker Joseph H. Williams
Director Director
THE WILLIAMS COMPANIES, INC.
By /s/ WILLIAM G. VON GLAHN
---------------------------
William G. von Glahn
ATTEST: Senior Vice President
/s/ DAVID M. HIGBEE
- - -----------------------------
David M. Higbee
Secretary
<PAGE> 3
I, the undersigned, SHAWNA L. GEHRES, Assistant Secretary of THE
WILLIAMS COMPANIES, INC., a Delaware company (hereinafter called the
"Company"), do hereby certify that at a meeting of the Board of Directors of
the Company, duly convened and held on January 25, 1998, at which a quorum of
said Board was present and acting throughout, the following resolution was duly
adopted:
RESOLVED that the Chairman of the Board, the President or any Vice
President of the Company be, and each of them hereby is, authorized and
empowered to execute a Power of Attorney for use in connection with the
execution and filing, for and on behalf of the Company, under the
Securities Exchange Act of 1934, of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
I further certify that the foregoing resolution has not been modified,
revoked or rescinded and is in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the
corporate seal of THE WILLIAMS COMPANIES, INC., this 27th day of March, 1998.
/s/ SHAWNA L. GEHRES
------------------------------
Shawna L. Gehres
Assistant Secretary
(CORPORATE SEAL)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997<F1>
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 81,254
<SECURITIES> 0
<RECEIVABLES> 1,350,891
<ALLOWANCES> (19,983)
<INVENTORY> 300,547
<CURRENT-ASSETS> 2,255,856
<PP&E> 12,284,394
<DEPRECIATION> (2,228,820)
<TOTAL-ASSETS> 13,878,974
<CURRENT-LIABILITIES> 3,027,395
<BONDS> 4,565,320
0
142,212
<COMMON> 325,066
<OTHER-SE> 3,104,396
<TOTAL-LIABILITY-AND-EQUITY> 13,878,974
<SALES> 0
<TOTAL-REVENUES> 4,409,572
<CGS> 0
<TOTAL-COSTS> 3,482,998
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (8,799)
<INTEREST-EXPENSE> 404,519
<INCOME-PRETAX> 528,485
<INCOME-TAX> 177,973
<INCOME-CONTINUING> 350,512
<DISCONTINUED> 0
<EXTRAORDINARY> (79,134)
<CHANGES> 0
<NET-INCOME> 271,378
<EPS-PRIMARY> .81
<EPS-DILUTED> .80
<FN>
<F1>A 2-for-1 common stock split and distribution occurred effective
December 29, 1997. Prior financial data schedules have been restated
for this recapitalization.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 115,344
<SECURITIES> 0
<RECEIVABLES> 1,080,392
<ALLOWANCES> (9,743)
<INVENTORY> 204,591
<CURRENT-ASSETS> 1,890,102
<PP&E> 11,212,254
<DEPRECIATION> (1,825,966)
<TOTAL-ASSETS> 12,418,772
<CURRENT-LIABILITIES> 2,199,298
<BONDS> 4,376,914
0
161,039
<COMMON> 320,426
<OTHER-SE> 2,939,509
<TOTAL-LIABILITY-AND-EQUITY> 12,418,772
<SALES> 0
<TOTAL-REVENUES> 3,531,212
<CGS> 0
<TOTAL-COSTS> 2,629,762
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (4,066)
<INTEREST-EXPENSE> 359,947
<INCOME-PRETAX> 545,406
<INCOME-TAX> 183,067
<INCOME-CONTINUING> 362,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362,339
<EPS-PRIMARY> 1.10<F1>
<EPS-DILUTED> 1.07<F1>
<FN>
<F1>THESE AMOUNTS HAVE BEEN RESTATED FOR THE ADOPTION OF FAS 128,
"EARNINGS PER SHARE," AND A TWO-FOR-ONE COMMON STOCK SPLIT AND
DISTRIBUTION EFFECTIVE DECEMBER 29, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 90,383
<SECURITIES> 0
<RECEIVABLES> 688,595
<ALLOWANCES> (11,338)
<INVENTORY> 189,038
<CURRENT-ASSETS> 1,377,655
<PP&E> 9,478,732
<DEPRECIATION> (1,463,987)
<TOTAL-ASSETS> 10,561,201
<CURRENT-LIABILITIES> 2,093,080
<BONDS> 2,874,042
0
173,486
<COMMON> 158,006
<OTHER-SE> 2,855,606
<TOTAL-LIABILITY-AND-EQUITY> 10,561,201
<SALES> 0
<TOTAL-REVENUES> 2,855,674
<CGS> 0
<TOTAL-COSTS> 2,184,962
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,767
<INTEREST-EXPENSE> 277,924
<INCOME-PRETAX> 401,360
<INCOME-TAX> 101,988
<INCOME-CONTINUING> 299,372
<DISCONTINUED> 1,018,805
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,318,177
<EPS-PRIMARY> 4.30<F1>
<EPS-DILUTED> 4.17
<FN>
<F1>THESE AMOUNTS HAVE BEEN RESTATED FOR THE ADOPTION OF FAS 128,
"EARNINGS PER SHARE," AND ALL COMMON STOCK SPLITS SUBSEQUENT TO DECEMBER 31,
1995. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED FOR THIS
RECAPITALIZATION.
</FN>
</TABLE>
