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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4174
THE WILLIAMS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 73-0569878
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE WILLIAMS CENTER, TULSA, OKLAHOMA 74172
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (918) 573-2000
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
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 15, 2000, was approximately
$20 billion.
The number of shares of the registrant's Common Stock outstanding at March
15, 2000, was 441,540,962, excluding 6,311,910 shares held by Williams.
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 Williams for
2000 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. 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 Williams are located at One Williams
Center, Tulsa, Oklahoma 74172 (telephone (918) 573-2000).
On December 17, 1999, Williams Energy Services, a wholly owned subsidiary
of Williams, completed the sale of Thermogas L.L.C. to Ferrellgas Partners L.P.
for $443.7 million after Ferrellgas made an unsolicited offer to purchase
Thermogas, the wholly owned subsidiary through which Williams had engaged in the
retail distribution of propane. See Note 7 of Notes to Consolidated Financial
Statements.
On October 6, 1999, a subsidiary of Williams, Williams Communications
Group, Inc., closed an initial public offering (IPO) by selling shares of its
Class A Common Stock to the public. In separate private placements, SBC
Communications, Intel Corporation, and Telefonos de Mexico S.A. de C.V. each
purchased a portion of the Class A Common Stock. As of March 15, 2000, there
were 68,195,470 shares of the Class A Common Stock outstanding, and Williams
owned 395,434,965 shares of the Class B Common Stock of Williams Communications,
representing an approximate 85.3 percent ownership interest. Holders of the
Class A Common Stock are entitled to one vote per share, and Williams, as holder
of the Class B Common Stock of Williams Communications, is entitled to ten votes
per share.
On March 28, 1998, Williams acquired MAPCO Inc. in a stock-for-stock
transaction based upon a fixed exchange ratio of 1.665 shares of Williams common
stock and 0.555 associated preferred stock purchase rights for each share of
MAPCO common stock and associated preferred stock purchase rights. See Note 2 of
Notes to Consolidated Financial Statements.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Williams, through Williams Gas Pipeline Company and Williams Energy
Services and their subsidiaries, engages in the following types of
energy-related activities:
- transportation and storage of natural gas and related activities through
operation and ownership of five wholly owned interstate natural gas
pipelines and several pipeline joint ventures;
- exploration and production of oil and gas through ownership of 1.05
Tcfe* of proved natural gas reserves primarily located in New Mexico,
Wyoming, and Colorado;
- natural gas gathering, processing, and treating activities through
ownership and operation of approximately 11,200 miles of gathering lines,
ten natural gas treating plants, and 12 natural gas processing plants
(one of which is partially owned);
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* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet and
"Bcf" means billion cubic feet. The term "Tcf" means trillion cubic feet. The
term "Tcfe" means trillion cubic feet equivalent. 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 "MDth" means thousand
dekatherms. The term "Mbbl" means one thousand barrels. The term "GWh" means
gigawatt hour. The term "MW" means megawatt.
1
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- natural gas liquids transportation through ownership and operation of
approximately 13,360 miles of natural gas liquids pipeline;
- transportation of petroleum products and related terminal services
through ownership or operation of approximately 9,170 miles of petroleum
products pipeline and 75 petroleum products terminals;
- production and marketing of ethanol and bio-products through operation
and ownership of two ethanol plants (one of which is partially owned);
- refining of petroleum products through operation and ownership of two
refineries;
- light hydrocarbon/olefin transportation through 300 miles of pipeline in
Southern Louisiana;
- ethylene production through a 5/12 interest in a 1.2 billion pound/year
facility in Geismar, Louisiana;
- distributed power services;
- retail marketing through 227 convenience stores and 42 travel centers;
and
- energy commodity marketing and trading.
Williams, through Williams Communications Group, Inc. and its subsidiaries,
engages in the following types of communications-related activities:
- owner and operator of approximately 26,000 route miles of
telecommunications fiber optic network;
- data-, voice-, and video-transmission related products and services;
- video services and other multimedia services for the broadcast industry;
- customer-premise voice and data equipment, sales, and services including
installation, maintenance, and integration; and
- network integration and management services nationwide.
Williams, through subsidiaries, also directly invests in energy and
telecommunications projects primarily in Canada, South America, Australia, and
Lithuania and continues to explore and develop additional projects for
international investments. It also invests in energy, telecommunications, and
infrastructure development funds in Asia and Latin America.
Substantially all operations of Williams are conducted through
subsidiaries. Williams performs certain management, legal, financial, tax,
consultative, administrative, and other services for its subsidiaries and
employs approximately 1,150 employees. 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 Williams.
On July 31, 1999, Williams completed the merger of Williams Holdings of
Delaware, Inc., its wholly owned subsidiary, with and into itself and assumed
all liabilities and obligations of Williams Holdings of Delaware, Inc.
To achieve organizational and operating efficiencies, Williams' interstate
natural gas pipelines and pipeline joint venture investments are grouped
together under its wholly owned subsidiary, Williams Gas Pipeline Company. The
other energy operations are grouped into a wholly owned subsidiary, Williams
Energy Services. The communications operations, including investments in
international communications projects, are grouped into a majority owned
subsidiary, Williams Communications Group, Inc. The international energy
operations are grouped into a wholly owned subsidiary, Williams International
Company. Item 1 of this report is formatted to reflect this structure.
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WILLIAMS GAS PIPELINE COMPANY
Williams' interstate natural gas pipeline group, comprised of Williams Gas
Pipeline Company and its subsidiaries, owns and operates a combined total of
approximately 27,300 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 gas. The 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 gas pipeline group also holds minority interests in
joint venture interstate and intrastate natural gas pipeline systems.
Williams' gas pipeline group has combined 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 efficiency.
Although a single management team manages both Northwest Pipeline and Kern River
and a single management team manages both Texas Gas and Central, each of these
operating companies operates as a separate legal entity. Williams' gas pipeline
group employs approximately 3,370 employees.
The 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 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 gas pipeline company holds certificates of public convenience
and necessity issued by the FERC authorizing ownership and operation of all
pipelines, facilities, and properties considered jurisdictional for which
certificates are required under the Natural Gas Act. Each gas pipeline company
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 natural
gas pipelines.
As a result of the MAPCO merger in 1998, Williams acquired an approximately
4.8 percent investment interest in Alliance Pipeline. On December 31, 1999,
Williams acquired an additional 9.8 percent interest in Alliance Pipeline.
Alliance consists of two proposed segments, a Canadian segment and a United
States segment. Alliance has filed applications for approval with the FERC in
the United States and the National Energy Board (NEB) in Canada, to construct
and operate an approximately 1,800 mile natural gas pipeline system extending
from northeast British Columbia to the Chicago, Illinois, area market center,
where it will interconnect with the North American pipeline grid. On September
17, 1998, the FERC granted a Certificate of Public Convenience and Necessity
(CPCN) for the United States portion of the Alliance pipeline, and on December
3, 1998, the NEB granted a CPCN for the Canadian portion. Construction began in
the spring of 1999 with an anticipated in-service date of October 2000. Total
estimated cost of the Alliance pipeline is approximately $3 billion. At December
31, 1999, Williams had invested approximately $131 million in Alliance.
Buccaneer Gas Pipeline Company, L.L.C., a wholly owned subsidiary of WGP,
announced in March 1999, that it would accept requests for firm transportation
service to be made available on a proposed new natural gas pipeline system
extending from the Mobile Bay area in Alabama to markets in Florida. Buccaneer
anticipates that its pipeline system will extend from a point near
Transcontinental Gas Pipe Line Corporation's Station 82 in Coden, Alabama,
across the Gulf of Mexico to the west coast of Florida just north of Tampa. The
pipeline will continue onshore in an easterly direction to serve power
generation plants and other markets across the central part of the state, and
will terminate in Volusia County, Florida. Lateral pipelines will be constructed
in accordance with market demand. Buccaneer filed for FERC approval of the
project in October 1999. In February 2000, a subsidiary of Duke Energy acquired
a 50 percent ownership interest in Buccaneer. The estimated capital cost of the
project is approximately $1.5 billion, and the target in-service date is April
2002.
A business description of the principal companies in the interstate natural
gas pipeline group follows.
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TRANSCONTINENTAL GAS PIPE LINE CORPORATION
Transco is an interstate natural gas transportation company that owns a
10,500-mile natural gas pipeline system extending from Texas, Louisiana,
Mississippi, and the offshore Gulf of Mexico through 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, 1999, Transco's system had a mainline delivery capacity of
approximately 3.8 Bcf of gas per day from its 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 7,200 miles of mainline and branch transmission
pipelines, 41 compressor stations, and seven storage locations. Compression
facilities at a sea level-rated capacity total approximately 1.3 million
horsepower.
Transco's major natural gas transportation customers are public utilities
and municipalities that provide service to residential, commercial, industrial,
and electric generation end users. Shippers on Transco's system include public
utilities, municipalities, intrastate pipelines, direct industrial users,
electrical generators, gas marketers, and producers. No customer accounted for
more than ten percent of Transco's total operating revenues in 1999. 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 service under shorter
term agreements.
Transco has gas storage capacity in five underground storage fields located
on or near its system and/or market areas and operates three of these storage
fields and two liquefied natural gas (LNG) storage facilities. The total gas
storage capacity available to Transco and its customers is approximately 220 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 1999, Pine Needle LNG Company, LLC and Cardinal Pipeline Company, LLC,
both of which are owned by wholly owned subsidiaries of Transco and several of
its customers, completed construction of, and placed into service, two major
projects, a LNG storage facility and the Cardinal Pipeline Project (Cardinal),
respectively. Transco contributed $19 million to the total cost of the LNG
storage facility which is located in Guilford County, North Carolina. The
facility was placed into service in May 1999 and has 4 Bcf of storage capacity
and 400 MMcf per day of withdrawal capacity. Wholly owned subsidiaries of
Transco operate the facility and have a 35 percent ownership interest. On
November 1, 1999, Cardinal Pipeline Company, LLC, a North Carolina limited
liability company formed between wholly owned subsidiaries of Transco and three
of Transco's North Carolina customers, placed Cardinal into service. Transco
contributed $24 million to the total cost of this project which involved the
acquisition of an existing 37-mile pipeline in North Carolina and construction
of an approximately 67-mile extension of the pipeline to new interconnections
near Clayton County, North Carolina. This pipeline provides transportation
service of up to 270 MMcf per day of natural gas. Transco's wholly-owned
subsidiary has a 45 percent ownership interest in Cardinal and a separate
wholly-owned subsidiary of Transco is the operator of Cardinal.
In 1999, Cumberland Gas Pipeline Company, a partnership between
wholly-owned subsidiaries of Transco and AGL Resources Inc., decided not to
pursue its pipeline project at this time. In lieu of the project, Transco
intends to expand the capacity of its North Georgia extension as part of the
SouthCoast Expansion Project (see below) to meet the firm transportation service
requirements of its shippers.
On May 13, 1998, Transco filed an application with the FERC for approval to
construct and operate mainline and Leidy Line facilities (MarketLink) to create
an additional 676 MMcf of firm transportation capacity per day to serve
increased demand in the mid-Atlantic and south Atlantic regions of the United
4
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States by a targeted in-service date of November 1, 2000. The estimated cost of
the proposed facilities is $529 million. On December 17, 1999, the FERC issued
an interim order giving Transco conditional approval for MarketLink, along with
the Independence Pipeline Project, which is described below, and ANR Pipeline
Company's Supply Link Project but withholding final certificate authorization
until Independence Pipeline Company (Independence) and ANR Pipeline Company
(ANR) file long-term, executed contracts with nonaffiliated shippers for at
least 35 percent of the capacity of their respective projects. While the FERC
has treated the three projects as interrelated, should Independence and ANR fail
to meet the executed contract conditions, the interim order states that Transco
may amend its MarketLink project to go forward on a stand-alone basis. Once
construction begins, the order also imposed a number of additional environmental
conditions, beyond those recommended in the Final Environmental Impact
Statement. Transco has filed for rehearing of the interim order.
In March 1997, as amended in December 1997, Independence filed an
application with FERC for approval to construct and operate a new pipeline
consisting of approximately 400 miles of 36-inch pipe from ANR Pipeline
Company's existing compressor station at Defiance, Ohio to Transco's facilities
at Leidy, Pennsylvania. The Independence Pipeline Project is proposed to provide
approximately 916 MMcf per day of firm transportation capacity by a requested
in-service date of November 2000. Independence is owned equally by wholly-owned
subsidiaries of Transco, ANR, and National Fuel Gas Company. The estimated cost
of the project is $678 million, and Transco's equity contributions are estimated
to be approximately $68 million based on its expected one-third ownership
interest in the project. As mentioned above in connection with the MarketLink
Project, on December 17, 1999 the FERC gave conditional approval for the
Independence Pipeline project, subject to Independence filing long-term,
executed contracts with nonaffiliated shippers for at least 35 percent of the
capacity of the project. Also, the FERC imposed a number of additional
environmental conditions once construction begins on the project. Independence
has filed for rehearing of the interim order.
In April 1999, Transco filed an application with the FERC for its approval
of the SouthCoast Expansion Project, which is designed to create approximately
200 MMcf per day of additional firm transportation capacity on Transco's system
from the terminus of Transco's existing Mobile Bay Lateral in Choctaw County,
Alabama, to delivery points in Transco's Rate Zone 4 (Alabama and Georgia). The
project has a target in-service date of November 1, 2000 and an estimated cost
of approximately $108 million.
In April 1999, Transco announced its Sundance Expansion Project, which
would create approximately 228 MMcf per day of additional firm transportation
capacity from Transco's Station 65 in Louisiana to delivery points in Georgia,
South Carolina and North Carolina. Transco plans to file for FERC approval of
the project in the first quarter of 2000. The project has a target in-service
date of May 2002 and an estimated cost of approximately $129 million.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtu):
<TABLE>
<CAPTION>
1999 1998 1997
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<S> <C> <C> <C>
Market-area deliveries:
Long-haul transportation.................................. 820 858 940
Market-area transportation................................ 623 522 439
----- ----- -----
Total market-area deliveries...................... 1,443 1,380 1,379
Production-area transportation.............................. 222 214 242
----- ----- -----
Total system deliveries........................... 1,665 1,594 1,621
===== ===== =====
Average Daily Transportation Volumes........................ 4.6 4.4 4.4
Average Daily Firm Reserved Capacity........................ 6.3 5.8 5.5
</TABLE>
Transco's facilities are divided into seven rate zones. Four are located in
the production area, and three are located in the market area. Long-haul
transportation involves gas that Transco receives in one of the production-area
zones and delivers in a market-area zone. Market-area transportation involves
gas that Transco both receives and delivers within the market-area zones.
Production-area transportation involves gas that Transco both receives and
delivers within the production-area zones.
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NORTHWEST PIPELINE CORPORATION
Northwest Pipeline is an interstate natural gas transportation company that
owns and operates a natural gas pipeline system 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, 1999, Northwest Pipeline's system, having a mainline
delivery capacity of approximately 2.9 Bcf of gas per day, was composed of
approximately 3,900 miles of mainline and branch transmission pipelines and 41
compressor stations having sea level-rated capacity of approximately 318,000
horsepower.
In 1999, Northwest Pipeline transported natural gas for a total of 156
customers. Transportation customers include distribution companies,
municipalities, interstate and intrastate pipelines, gas marketers, and direct
industrial users. The two largest customers of Northwest Pipeline in 1999
accounted for approximately 15.2 percent and 13.6 percent, respectively, of its
total operating revenues. No other customer accounted for more than ten percent
of total operating revenues in 1999. 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 shorter
term agreements.
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 LNG
storage facility in Washington that provides a needle-peaking service for its
system. These storage facilities have an aggregate delivery capacity of
approximately 1,325 MMcf of gas per day.
Expansion Projects
The Columbia Gorge project provides firm transportation between a
Stanfield, Washington, receipt point and a delivery point near Sumas,
Washington, to serve the markets of BC Gas Utility Ltd. (a major gas distributor
in lower British Columbia). Northwest Pipeline completed and placed into service
on November 1, 1999, the first phase of 50,000 Dth per day. Total cost to
complete the first phase was approximately $16 million.
Northwest Pipeline owns a one-third interest in the Jackson Prairie storage
facility located in the state of Washington. In March 1998, Northwest Pipeline
filed for certificate authority to realign authorized storage capacity for
system balancing by replacing 3.04 Bcf of existing firm storage capacity at the
Clay Basin storage facility located in eastern Utah (and 25.3 MMcf per day of
associated firm deliverability) with 1.067 Bcf of Jackson Prairie expansion
capacity (and 100 MMcf per day of associated firm deliverability). The FERC
order authorizing expansion of the Jackson Prairie storage facility was received
and accepted the last week of September 1998. The project was placed in service
on November 1, 1999. The total cost of Northwest Pipeline's share of the
expansion project was approximately $10 million.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtu):
<TABLE>
<CAPTION>
1999 1998 1997
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<S> <C> <C> <C>
Transportation Volumes...................................... 708 732 714
Average Daily Transportation Volumes........................ 1.9 2.0 2.0
Average Daily Firm Reserved Capacity........................ 2.5 2.6 2.5
</TABLE>
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KERN RIVER GAS TRANSMISSION COMPANY
Kern River is an interstate natural gas transportation company that owns
and operates a natural gas pipeline system extending from Wyoming through Utah
and Nevada to California. Gas transported on the Kern River pipeline is used in
enhanced oil recovery operations in the heavy oil fields and other markets in
California. Gas is also transported to other natural gas consumers in Utah,
southern Nevada and southern California for use in the production of
electricity, cogeneration of electricity and steam and other applications. The
system commenced operations in February 1992.
Pipeline System and Customers
At December 31, 1999, Kern River's system was composed of approximately 707
miles of mainline and branch transmission pipelines and five compressor stations
having a mainline designed delivery capacity of approximately 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 designed
delivery capacity of 1.1 Bcf of gas per day.
In 1999, Kern River transported natural gas for customers in California,
Nevada, and Utah. Kern River transported gas for use in enhanced oil recovery
operations in the heavy oil fields in California and transported to other
natural gas consumers in Utah, southern Nevada, and southern California for use
in the production of electricity, cogeneration of electricity and steam and
other applications. The three largest customers of Kern River in 1999 accounted
for approximately 18 percent, 14 percent and 13 percent, respectively, of its
total operating revenues. No other customer accounted for more than ten percent
of total operating revenues in 1999. Kern River transports natural gas for
customers under firm long-term transportation agreements totaling 696 MMcf of
gas per day.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtu):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 303 299 285
Average Daily Transportation Volumes........................ .83 .82 .78
Average Daily Firm Reserved Capacity........................ .72 .72 .73
</TABLE>
TEXAS GAS TRANSMISSION CORPORATION
Texas Gas is an interstate natural gas transportation company that owns and
operates a natural gas pipeline system extending from the Louisiana Gulf Coast
area and eastern Texas and running generally north and east through Louisiana,
Arkansas, Mississippi, Tennessee, Kentucky, and Indiana to Ohio, with smaller
diameter lines extending into Illinois. Texas Gas'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. Texas Gas also has indirect market access to the
Northeast through interconnections with unaffiliated pipelines.
Pipeline System and Customers
At December 31, 1999, Texas Gas' system, having a mainline delivery
capacity of approximately 2.8 Bcf of gas per day, was composed of approximately
5,900 miles of mainline and branch transmission pipelines and 32 compressor
stations having a sea level-rated capacity totaling approximately 555,000
horsepower.
In 1999 Texas Gas transported natural gas to customers in Louisiana,
Arkansas, Mississippi, Tennessee, Kentucky, Indiana, Illinois, and Ohio, and
indirectly to customers in the Northeast. Texas Gas transported gas for 98
distribution companies and municipalities for resale to residential, commercial,
and industrial end users.
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Texas Gas provided transportation services to approximately 18 industrial
customers located along its system. At December 31, 1999, Texas Gas had
transportation contracts with approximately 570 shippers. Transportation
shippers include distribution companies, municipalities, intrastate pipelines,
direct industrial users, electrical generators, gas marketers, and producers.
The largest customer of Texas Gas in 1999 accounted for approximately 13.4
percent of its total operating revenues. No other customer accounted for more
than ten percent of total operating revenues in 1999. Texas Gas' firm
transportation agreements are generally long-term agreements with various
expiration dates and account for the major portion of Texas Gas's business.
Additionally, Texas Gas offers interruptible transportation and storage services
under agreements that are generally short-term.
Texas Gas owns and operates gas storage reservoirs in ten underground
storage fields located on or near its system or market areas. The storage
capacity of Texas Gas' certificated storage fields is approximately 177 Bcf of
gas. Texas Gas' storage gas is used in part to meet operational balancing needs
on its system, to meet the requirements of Texas Gas' firm and interruptible
storage customers, and to meet the requirements of Texas Gas' no-notice
transportation service, which allows Texas Gas' customers to temporarily draw
from Texas Gas' storage gas to be repaid in-kind during the following summer
season. A large portion of the gas delivered by Texas Gas to its market area is
used for space heating, resulting in substantially higher daily requirements
during winter months.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtu):
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Transportation Volumes...................................... 749.6 752.4 773.6
Average Daily Transportation Volumes........................ 2.1 2.1 2.1
Average Daily Firm Reserved Capacity........................ 2.2 2.2 2.2
</TABLE>
WILLIAMS GAS PIPELINES CENTRAL, INC.
Central, is an interstate natural gas transportation 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 in Kansas and Missouri, its chief
market areas.
Pipeline System and Customers
At December 31, 1999, Central's system, having a mainline delivery capacity
of approximately 2 Bcf of gas per day, was composed of approximately 6,000 miles
of mainline and branch transmission and storage pipelines and 44 compressor
stations having a sea level-rated capacity totaling approximately 234,000
horsepower.
In 1999, Central transported natural gas to customers in Colorado, Kansas,
Missouri, Nebraska, Oklahoma, Texas, and Wyoming. Central transported gas for 73
distribution companies and municipalities for resale to residential, commercial,
and industrial end users in approximately 530 cities and towns. Central provided
transportation services to approximately 283 industrial customers, federal and
state institutions, and agricultural processing plants located principally in
Kansas, Missouri, and Oklahoma. At December 31, 1999, Central had transportation
contracts with approximately 166 shippers. Transportation shippers include
distribution companies, municipalities, intrastate pipelines, direct industrial
users, electrical generators, gas marketers, and producers.
In 1999, approximately 61 percent of Central's total operating revenues
were generated from gas transportation services to Central's two largest
customers, Kansas Gas Service Company, a division of Oneok, Inc. (approximately
31 percent), and Missouri Gas Energy Company (approximately 30 percent). 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 ten percent of operating
revenues in 1999.
8
<PAGE> 10
Central's firm transportation agreements have various expiration dates
ranging from one to 20 years, with the majority expiring in three to eight
years. Additionally, Central offers interruptible transportation services under
shorter term agreements.
Central operates eight underground storage fields with an aggregate 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 into 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 Central's system to operate more uniformly and efficiently during the
year.
Operating Statistics. The following table summarizes transportation data
for the periods indicated (in TBtu):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Transportation Volumes...................................... 324 329 337
Average Daily Transportation Volumes........................ .9 .9 .9
Average Daily Firm Reserved Capacity........................ 2.2 2.1 2.1
</TABLE>
REGULATORY MATTERS
Each interstate natural gas pipeline company has various regulatory
proceedings pending. Each company establishes its rates primarily through the
FERC's ratemaking process. Key determinants in the ratemaking process are (1)
costs of providing service, including depreciation expense, (2) allowed rate of
return, including the equity component of the capital structure and related
income taxes, and (3) volume throughput assumptions. The 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 these proceedings, the pipeline companies have collected a portion of
their revenues subject to refund. See Note 12 of Notes to Consolidated Financial
Statements for the amount accrued for potential refund at December 31, 1999.
Each of the interstate natural gas pipeline companies that were formerly
gas supply merchants have undertaken the reformation of its respective gas
supply contracts. None of the pipeline companies have any significant pending
supplier take-or-pay, ratable-take, or minimum-take claims. In 1999, Central
paid various parties amounts that had been accrued in 1998 to resolve its three
remaining gas supply contracts. For information on outstanding issues with
respect to contract reformation, gas purchase deficiencies, and related
regulatory issues, see Note 19 of Notes to Consolidated Financial Statements.
COMPETITION
The FERC continues to regulate each of Williams' 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. 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 the
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 electric transmission
grid arrangements among electric utilities also compete with gas-fired electric
generation in certain markets.
Suppliers of natural gas are able to compete for any gas markets capable of
being served by pipelines using nondiscriminatory transportation services
provided by the pipeline companies. As the regulated environment has matured,
many pipeline companies 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
pipeline companies 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
9
<PAGE> 11
structure for remaining customers since all interstate natural gas pipeline
companies continue to be authorized to charge maximum rates approved by the FERC
on a cost of service basis.
Williams is aware that several state jurisdictions have been involved in
implementing changes similar to the changes that have occurred at the federal
level. States, including New York, New Jersey, Pennsylvania, Maryland, Georgia,
and Delaware, are currently in the process of finalizing regulations for their
respective local distribution companies. Management expects these regulations to
encourage greater competition in the natural gas marketplace.
OWNERSHIP OF PROPERTY
Each of Williams' interstate natural gas pipeline companies generally owns
its facilities in fee, with certain portions, such as certain offshore
facilities, being held jointly with third parties. However, a substantial
portion of each pipeline company'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, the FERC
would grant the requisite rate relief so that, for the most part, the pipeline
companies could recover these expenditures in their rates. For this reason,
management believes that compliance with applicable environmental requirements
by the interstate pipeline companies is not likely to have a material effect
upon Williams' 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 19 of Notes to Consolidated Financial Statements.
WILLIAMS ENERGY SERVICES
Williams Energy is comprised of four major business units: Exploration &
Production, Midstream Gas & Liquids, Petroleum Services, and Energy Marketing &
Trading. Through its business units, Williams Energy engages in energy
production and exploration activities; natural gas gathering, processing, and
treating; natural gas liquids transportation, fractionation, and storage;
petroleum products transportation and terminal services; ethanol production;
refining; ethylene production; light hydrocarbon/olefin transportation;
convenience store retailing; and energy commodity marketing and trading.
Williams Energy, through its subsidiaries, owns 1.05 Tcfe of proved natural
gas reserves located primarily in New Mexico, Wyoming and Colorado, and owns or
operates approximately 11,200 miles of gathering pipelines (including certain
gathering lines owned by Transcontinental Gas Pipe Line Corporation but operated
by Midstream Gas & Liquids), approximately 13,360 miles of natural gas liquids
pipelines, ten natural gas treating plants, 12 natural gas processing plants
(one of which is partially owned), 75 petroleum products terminals, two ethanol
production facilities (one of which is partially owned), two refineries, 269
convenience stores/travel centers, and approximately 9,170 miles of petroleum
products pipeline. Physical and notional volumes marketed and traded by
subsidiaries of Williams Energy approximated 18,889 TBtu equivalents in 1999.
Williams Energy, through its subsidiaries, employs approximately 7,760
employees.
Segment revenues and segment profit for Williams Energy are reported in
Note 22 of Notes to Consolidated Financial Statements herein.
10
<PAGE> 12
A business description of each of Williams Energy's business units follows.
EXPLORATION & PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production
Company in its Exploration & Production unit (E&P), owns and operates producing
natural gas leasehold properties in the United States. In addition, E&P is
exploring for oil and natural gas.
Oil and gas properties. E&P's properties are located primarily in the Rocky
Mountains and Gulf Coast areas. Rocky Mountain properties are located in New
Mexico, Wyoming, Colorado, and Utah. Gulf Coast properties are located in
Louisiana, and east and south Texas.
Gas Reserves. At December 31, 1999, 1998, and 1997, E&P had proved
developed natural gas reserves of 548 Bcf, 476 Bcf, and 362 Bcf, respectively,
and proved undeveloped reserves of 504 Bcf, 232 Bcf, and 238 Bcf, respectively.
Of E&P's total proved reserves, 78 percent are located in the San Juan Basin of
Colorado and New Mexico, and 17 percent are located in Wyoming. No major
discovery or other favorable or adverse event has caused a significant change in
estimated gas reserves since year end.
Customers and Operations. At December 31, 1999, the gross and net developed
leasehold acres owned by E&P totaled 277,544 and 118,892, respectively, and the
gross and net undeveloped acres owned were 322,713 and 106,613 respectively. At
December 31, 1999, E&P owned interests in 3,676 gross producing wells (731 net)
on its leasehold lands.
Operating Statistics. The following tables summarize drilling activity for
the periods indicated:
<TABLE>
<CAPTION>
1999 WELLS GROSS NET
- ---------- ----- ---
<S> <C> <C>
Development
Drilled................................................... 248 47
Completed................................................. 248 47
Exploration
Drilled................................................... 4 2
Completed................................................. 1 .5
</TABLE>
<TABLE>
<CAPTION>
GROSS NET
COMPLETED DURING WELLS WELLS
- ---------------- ----- -----
<S> <C> <C>
1999........................................................ 249 48
1998........................................................ 177 49
1997........................................................ 207 35
</TABLE>
The majority of E&P's gas production is currently being sold in the spot
market at market prices. Total net production sold during 1999, 1998, and 1997
was 57.9 Bcf, 43.2 Bcf, and 37.1 Bcf, respectively. The average production
costs, including production taxes, per Mcf of gas produced were $.46, $.37, and
$.42, in 1999, 1998, and 1997, respectively. The average wellhead sales price
per Mcf was $1.48, $1.31, and $1.62, respectively, for the same periods.
In 1993 E&P 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 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 coal formation and constituted coal seam gas. Production information
reported herein includes E&P's interest in these Units.
MIDSTREAM GAS & LIQUIDS
Williams Energy, through Williams Field Services Group, Inc. and its
subsidiaries, Williams Natural Gas Liquids, Inc. and its subsidiaries, and
Williams Midstream Natural Gas Liquids, Inc. (collectively Midstream Gas &
Liquids), owns and operates natural gas gathering, processing and treating, and
natural gas liquids transportation, fractionation, and storage facilities in
northwestern New Mexico, southwestern Colorado,
11
<PAGE> 13
southwestern Wyoming, eastern Utah, northwestern Oklahoma, Kansas, northern
Missouri, eastern Nebraska, Iowa, southern Minnesota, Tennessee, and also in
areas offshore and onshore in Texas, Alabama, Mississippi, and Louisiana.
Midstream Gas & Liquids also operates gathering facilities, owned by
Transcontinental Gas Pipe Line Corporation, an affiliated interstate natural gas
pipeline company, that are currently regulated by the FERC.
Expansion Projects. During 1999 Midstream Gas & Liquids continued to expand
its operations in the Gulf Coast region through the Mobile Bay projects. The
Mobile Bay processing plant was completed in the second quarter of 1999.
Contracts are currently in place to supply approximately 70 percent of the
processing plant's 600 MMcf per day of capacity. Liquids from this plant are
handled by three separate joint ventures including: Tri-States Pipeline, a 16.7
percent owned system with a capacity of 95,000 bbl per day; Wilprise Pipeline, a
37.3 percent owned system with capacity of 60,000 bbl per day; and a 31.6
percent owned fractionation facility with a capacity of 60,000 bbl per day.
In the fourth quarter of 1999, Midstream Gas & Liquids completed
construction on an expansion of its Rocky Mountain natural gas liquids pipeline
which increased capacity from 75,000 bbl per day to 125,000 bbl per day through
construction of a 412-mile pipeline parallel to the existing Mid-America
Pipeline System.
Customers and Operations. Facilities owned and/or operated by Midstream Gas
& Liquids consist of approximately 11,200 miles of gathering pipelines
(including certain gathering lines owned by Transco but operated by Midstream
Gas & Liquids), ten natural gas treating plants, 12 natural gas processing
plants (one of which is partially owned), and approximately 13,360 miles of
natural gas liquids pipeline, of which approximately 4,418 miles are partially
owned. The aggregate daily inlet capacity is approximately 8 Bcf for the
gathering systems and 7.3 Bcf for the gas processing, treating, and dehydration
facilities. Midstream Gas & Liquids' pipeline operations provide customers with
one of the nation's largest natural gas liquids transportation systems, while
gathering and processing customers have direct access to interstate pipelines,
including affiliated pipelines, which provide access to multiple markets.
During 1999 Midstream Gas & Liquids gathered gas for 308 customers,
processed gas for 126 customers, and provided transportation to 82 customers.
The largest customer accounted for approximately 15 percent of total gathered
volumes, and the two largest processing customers accounted for 17 percent and
11 percent, respectively, of processed volumes. The two largest transportation
customers accounted for 18 percent and 10 percent, respectively, of
transportation volumes. No other customer accounted for more than ten percent of
gathered, processed, or transported volumes. Midstream Gas & Liquids' 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 Midstream Gas & Liquids. The
natural gas liquids transportation contracts are tariff-based and generally
short-term in nature with some long-term contracts for system-connected
processing plants.
Acquisitions. On March 31, 1999, Williams acquired Union Texas
Petrochemical, Inc. from Atlantic Richfield Company for $163 million. In
addition to a 5/12 interest in an olefin plant located near Geismar, La.,
operated by the Petroleum Services segment, the acquisition included several NGL
transportation and storage assets in Louisiana, including a 215-mile ethane
transportation system and partial ownership in an 85-mile olefin pipeline and
storage network, which connects, either directly or indirectly, most major
natural gas liquids producers and olefin consumers in Louisiana.
On April 1, 1999, Midstream purchased a 10 million barrel underground
storage facility from Koch Industries. The facility is located west of
McPherson, Kansas, and consists of 85 underground NGL storage wells. In
addition, the purchase included loading/unloading facilities to accommodate 20
tank railcars and three tanker trucks.
On May 1, 1999, Midstream acquired a 20 percent ownership interest in the
West Texas LPG Pipeline Limited Partnership, which owns and operates the West
Texas LPG Pipeline. Under terms of the agreement, Williams contributed a portion
of its NGL gathering system located in southeastern New Mexico and western
Texas, near Hobbs, Texas, to the partnership.
12
<PAGE> 14
Operating Statistics. The following table summarizes gathering, processing,
natural gas liquid sales, and transportation volumes for the periods indicated.
The information includes operations attributed to facilities owned by Transco
but operated by Midstream Gas & Liquids.
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Gas volumes:
Gathering (TBtu).......................................... 2,085 2,117 2,153
Processing (TBtu)......................................... 539 536 520
Natural gas liquids sales (millions of gallons)........... 838 576 551
Natural gas liquids transportation (MMbbl)................ 282 285 289
</TABLE>
PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum
Services unit, owns and operates a petroleum products pipeline system, two
ethanol production plants (one of which is majority owned), and petroleum
products terminals and provides services and markets products related thereto.
Included in this business unit are two refineries, 269 convenience stores/travel
centers, trucking and rail operations for propane and refined products, and
mobile information management systems.
Transportation. A subsidiary in the Petroleum Services unit, Williams Pipe
Line Company, owns and operates a petroleum products pipeline system that covers
an 11-state area extending from Oklahoma to North Dakota, Minnesota and
Illinois. The system is operated as a common carrier offering transportation and
terminalling services on a nondiscriminatory basis under published tariffs. The
system transports refined products and liquified petroleum gases.
At December 31, 1999, the system traverses approximately 7,100 miles of
right-of-way and includes approximately 9,170 miles of pipeline in various sizes
up to 16 inches in diameter. The system includes 77 pumping stations, 22.4
million barrels of storage capacity, and 40 delivery terminals. The terminals
are equipped to deliver refined products into tank trucks and tank rail cars.
The maximum number of barrels that 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. In 1999 total system shipments averaged 610 thousand
barrels per day.
The operating statistics set forth below relate to the system's operations
for the periods indicated:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shipments (thousands of barrels):
Refined products:
Gasolines.......................................... 132,444 131,600 132,428
Distillates........................................ 70,466 72,471 71,694
Aviation fuels..................................... 12,060 10,038 10,557
LP-Gases........................................... 7,521 8,644 13,322
Lube extracted fuel oil............................ -- 1,246 7,471
Crude oil.......................................... -- -- 31
------- ------- -------
Total Shipments............................... 222,491 223,999 235,503
======= ======= =======
Daily average (thousands of barrels).................... 610 614 645
Barrel miles (millions)................................. 67,768 61,043 61,086
</TABLE>
Williams Pipe Line and a subsidiary of Williams Pipe Line, Longhorn
Enterprises of Texas, Inc. (LETI), own a total 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. Pipeline construction is
complete, and operations are expected to commence in 2000, pending review and
approval of an environmental assessment. Williams Pipe Line has designed and
constructed and will operate the pipeline, and Williams Pipe Line and LETI have
contributed a total of $95.8 million to the joint venture.
13
<PAGE> 15
Olefins. In the first quarter of 1999, Williams Energy purchased Union
Texas Petrochemicals Corporation, a wholly owned subsidiary of ARCO, for $163
million. UTP's assets include a 215-mile light hydrocarbon transportation and
partial ownership in an 85-mile olefin pipeline and storage network, which
connects, either directly or indirectly, most major natural gas liquids
producers and olefin consumers in Louisiana. UTP also is the leading merchant
marketer of ethylene in Louisiana and owns and operates a 5/12 interest in a 1.2
billion pounds per year ethylene plant near Geismar, Louisiana. In connection
with the acquisition, the Energy Marketing & Trading unit entered into a
financial agreement, backed by an A credit-rated third party to manage the risks
related to the earnings volatility typically associated with ethylene
production.
Terminal Services and Development. Williams Energy, through its wholly
owned subsidiary Williams Energy Ventures (WEV), provides independent terminal
services to the refining and marketing industries via distribution of petroleum
products through wholly owned and joint interest terminals. WEV owns and/or
operates 32 strategically located independent terminals covering a 14-state area
in the South, Southeast, Southwest, and Midwest.
The terminals are supplied with refined products and ethanol by barge,
tanker, truck, rail, and various common carrier pipelines. WEV provides
scheduling and inventory management, access to an expanded transportation and
information services network, additive injection services, and custom
terminalling services such as octane and oxygenate blending. On a selective
basis, WEV provides temporary leased storage.
In early 1999 WEV purchased 12 terminals in the Southeast from Amoco and
three Gulf Coast area terminals from Amerada Hess.
Terminal barrels delivered for the periods indicated are noted below.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Terminal Barrels Delivered (mbbls)......................... 91,005 28,787 17,336
</TABLE>
Bio-Energy. WEV, doing business as Williams Bio-Energy, is engaged in the
production and marketing of ethanol. Williams Bio-Energy owns and operates two
ethanol plants for which corn is the principal feedstock. The Pekin, Illinois,
plant has an annual production capacity of 100 million gallons of fuel-grade and
industrial ethanol and also produces various coproducts and Bio-Products. The
Aurora, Nebraska, plant (in which WEV owns a 74.9 percent interest) has an
annual production capacity of 30 million gallons. Williams Bio-Products also
markets ethanol produced by third parties. Bio-Products, mainly flavor
enhancers, produced at the Pekin plant are marketed primarily to food processing
companies.
The sales volumes set forth below include ethanol produced by third parties
as well as by WEV for the periods indicated:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Ethanol sold (thousands of gallons)..................... 200,077 172,056 145,612
</TABLE>
Distribution Services. Petroleum Services, through its distribution
services group, provides petroleum trucking, and rail car operations for
Williams Energy and third parties. The petroleum trucking operation, operated
out of Memphis, Tennessee, under the name "GENI Transport," works with local
jobbers to supply their retail outlets and with several of Williams Energy's
Energy Marketing & Trading unit's wholesale customers to develop transportation
arrangements. GENI Transport is also the primary transportation provider to
Petroleum Services' retail petroleum group.
Refining. Petroleum Services, through its subsidiaries, owns and operates
two refineries: the North Pole, Alaska, refinery and the Memphis, Tennessee,
refinery. The financial results of the North Pole refinery and the Memphis
refinery may be significantly impacted by changes in market prices for crude oil
and refined products. Petroleum Services cannot predict the future of crude oil
and product prices or their impact on its financial results.
North Pole Refinery. The North Pole Refinery includes the refinery located
at North Pole, Alaska, and a terminal facility at Anchorage, Alaska. The
refinery, the largest in the state, is located approximately two
14
<PAGE> 16
miles from its supply point for crude oil, the Trans-Alaska Pipeline System
(TAPS). The refinery's processing capability is approximately 215,000 barrels
per day. At maximum crude throughput, the refinery can produce 67,000 barrels
per day of refined products. These products are jet fuel, gasoline, diesel fuel,
heating oil, fuel oil, naphtha, and asphalt. Williams Energy's Energy Marketing
& Trading unit markets these refined products in Alaska, Western Canada, and the
Pacific Rim principally to wholesale, commercial, industrial, and governmental
customers and Petroleum Services' retail petroleum group. Petroleum Services
completed construction of a third crude unit at the refinery in October 1998
that can produce an additional 17,000 barrels per day of refined products,
including 14,000 barrels per day of jet fuel. The new crude unit was completed
at a cost of $75 million.
Average daily throughput and barrels processed and transferred by the North
Pole Refinery per day are noted below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Throughput (bbl)........................................ 185,921 142,471 132,238
Barrels Processed and Transferred (bbl)................. 53,385 44,561 42,201
</TABLE>
The North Pole Refinery's crude oil is purchased through Williams Energy's
Energy Marketing & Trading unit from the state of Alaska or is purchased or
received on exchanges from crude oil producers. The refinery has two long-term
agreements with the state of Alaska for the purchase of royalty oil, both of
which are scheduled to expire on December 31, 2003. The agreements provide for
the purchase of up to 63,000 barrels per day (approximately 29 percent of the
refinery's supply) of the state's royalty share of crude oil produced from
Prudhoe Bay, Alaska. These volumes, along with crude oil either purchased from
crude oil producers or received under exchange agreements or other short-term
supply agreements with the state of Alaska, are utilized as throughput in the
production of products at the refinery. Approximately 34 percent of the
throughput is refined and sold as finished product and the remainder of the
throughput is returned to the TAPS and either delivered to repay exchange
obligations or sold.
Memphis Refinery. The Memphis Refinery, which includes three petroleum
products terminals, two of which were acquired in 1999 from Truman Arnold
Companies, is the only refinery in the state of Tennessee and has a throughput
capacity of approximately 160,000 barrels per day. During June 1999, the
refinery's alkylation unit was expanded approximately 4,000 barrels per day to
12,000 barrels per day. In November 1999, the refinery commissioned an expansion
of its East Crude Unit increasing crude production capacity by approximately
20,000 barrels per day to 160,000 barrels per day. During the same time period,
the refinery's fluid catalytic cracking unit was expanded by approximately 5,000
barrels per day to 70,000 barrels per day. Williams Energy is also constructing
a 36,000 barrels per day continuous catalyst regeneration reformer, slated for
completion in May 2000. The reformer will enable the refinery to produce 100
percent of customer demand for premium gasoline in the mid-South region of the
United States.
The Memphis Refinery produces gasoline, low sulfur diesel fuel, jet fuel,
K-1 kerosene, refinery-grade propylene, No. 6 fuel oil, propane, and elemental
sulfur. These products are exchanged or marketed primarily in the Mid-South
region of the United States by Williams Energy's Energy Marketing & Trading unit
to wholesale customers, such as industrial and commercial consumers, jobbers,
independent dealers, other refiner/marketers, and to Petroleum Services' retail
petroleum group.
The Memphis Refinery has access to crude oil from the Gulf Coast via common
carrier pipeline and by river barges. In addition to domestic crude oil, the
Memphis Refinery has the capability of receiving and processing certain foreign
crudes.
Average daily barrels processed and transferred by the Memphis Refinery are
noted below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Barrels Processed and Transferred (bbl)................. 133,494 120,985 113,040
</TABLE>
Retail Petroleum. Petroleum Services, primarily under the brand names
"Williams TravelCenters" and "MAPCO Express," is engaged in the retail marketing
of gasoline, diesel fuel, other petroleum products,
15
<PAGE> 17
convenience merchandise, and restaurant and fast food items. The retail
petroleum group operates 42 interstate TravelCenter locations and 227
convenience stores. The TravelCenter sites consist of 27 modern facilities
providing gasoline and diesel fuel, merchandise, and restaurant offerings for
both traveling consumers and professional drivers, and 15 locations providing
fuel and merchandise. The convenience store sites are primarily concentrated in
the vicinities of Nashville and Memphis, Tennessee, and the state of Alaska. All
of the motor fuel sold by Williams TravelCenters and MAPCO Express stores is
supplied either by exchanges, directly from either the Memphis or North Pole
Refineries or through Williams Energy's Energy Marketing & Trading unit.
Convenience merchandise, restaurants, and fast food accounted for
approximately 57 percent of the retail petroleum group's gross margins in 1999
and in 1998. Gasoline and diesel sales volumes for the periods indicated are
noted below:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Gasoline (mgals)........................................ 339,470 329,821 292,644
Diesel (mgals).......................................... 264,248 188,401 137,219
</TABLE>
Williams Energy intends to construct up to 25 new travel centers in 2000,
the majority of which are expected to open in the third and fourth quarters of
2000.
ENERGY MARKETING & TRADING
Williams Energy, through subsidiaries, primarily Williams Energy Marketing
& Trading Company and its subsidiaries (EM&T), 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, propane, liquefied natural gas, and liquified petroleum gas, primarily on a
wholesale level, serving over 4,000 customers. The number of customers has
declined from approximately 300,000 in 1998 due to the sale of EM&T's retail
propane marketing business in December 1999. In addition, EM&T provides
price-risk management services through a variety of financial instruments
including exchange-traded futures, as well as over-the-counter forwards,
options, and swap agreements related to various energy commodities. See Note 18
of Notes to Consolidated Financial Statements for information on financial
instruments.
EM&T markets natural gas throughout North America and increased its total
volumes (physical and notional) to an average of 34.1 Bcf per day in 1999.
EM&T's core business has traditionally been natural gas marketing in the Gulf
Coast and Eastern regions of the United States, using the pipeline systems owned
by Williams, but also includes marketing on approximately 70 non-Williams'
pipelines. EM&T's natural gas customers include producers, industrials, local
distribution companies, utilities, and other gas marketers.
During 1999, EM&T marketed 285,413 GWh (physical and notional) of
electricity. As part of its electricity supply portfolio, EM&T has entered into
a number of long-term agreements (15-20 years) to market capacity of electricity
generating facilities, either existing or to be constructed at various locations
throughout the country totaling approximately 8,800 MW (including
Alabama -- approximately 850 MW, California -- approximately 4,000 MW,
Louisiana -- approximately 750 MW, New Jersey -- approximately 750 MW, and
Pennsylvania -- approximately 650 MW). Under these arrangements, EM&T supplies
fuel for conversion to electricity and markets capacity, energy, and ancillary
services, related to the generating facilities owned and operated by various
counterparties. Approximately 4,000 MW of generation capacity, located in
Southern California, is already operational. Commercial operational dates for
the remaining capacity range from June 2000 through May 2002. EM&T also has
marketing rights for energy and capacity for two natural gas-fired electric
generating plants of approximately 60 MW each that are owned by affiliated
companies and located near Bloomfield, New Mexico, and in Hazleton,
Pennsylvania.
In 1999, EM&T provided supply, distribution, and related risk management
services to petroleum producers, refiners, and end-users in the United States
and various international regions. During 1999 EM&T's total crude oil and
petroleum products (physical and notional) marketed averaged 2,420.8 Mbbl per
16
<PAGE> 18
day. During 1999 EM&T also marketed natural gas liquids with total volumes
(physical) averaging 244.9 Mbbl per day.
In early 1999, EM&T announced its intent to focus the natural gas and
electric business on large end-use customers and away from sales to commercial
and retail customers. In keeping with that direction, the subsidiaries,
principally Volunteer Energy L.L.C., which were engaged in retail natural gas
and electric sales, were sold during 1999. In addition, EM&T's retail propane
business conducted by Thermogas L.L.C. was sold to Ferrellgas Partners L.P. on
December 17, 1999, pursuant to an unsolicited offer (see Note 7 of Notes to
Consolidated Financial Statements).
Operating Statistics. The following table summarizes marketing and trading
volumes for the periods indicated (natural gas volumes include sales by the
retail gas and electric business, which has now been divested; propane gallons
in 1999 represent sales by Thermogas through December 17, 1999, the date
Thermogas was sold; includes propane gallons during 1997 and a portion of 1998
during which Williams did not own MAPCO Inc.):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Average marketing and trading volumes (physical and
notional):
Natural gas (Bcf per day).............................. 34.1 27.7 22.3
Refined products, natural gas liquids, crude oil
(mbbl per day)...................................... 2,665.7 2,115.4 1,521.3
Electricity (GWh)...................................... 285,413 148,400 72,390
Propane gallons (millions)............................. 267.6 262.6 297.2
</TABLE>
REGULATORY MATTERS
Midstream Gas & Liquids. In May 1994, after reviewing its legal authority
in a Public Comment Proceeding, the 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 the
FERC's determination, and the United States Supreme Court has denied requests
for certiorari. As a result of these FERC decisions, some of the individual
states in which Midstream Gas & Liquids 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.
In February 1996, Midstream Gas & Liquids and Transco filed applications
with the FERC to spindown all of Transco's gathering facilities to Midstream Gas
& Liquids. The FERC subsequently denied the request in September 1996. Midstream
Gas & Liquids and Transco sought rehearing in October 1996. In August 1997,
Midstream Gas & Liquids and Transco filed a second request for expedited
treatment of the rehearing request. The FERC has yet to rule on this request for
rehearing. In February 1998 Midstream Gas & Liquids and Transco filed separate
applications to spindown an onshore gathering system located in Texas, the
Tilden/ McMullen gathering system, which was also one of the subjects of the
pending rehearing request. In May of 1999, FERC approved the spindown
application only for the facilities upstream of the Tilden treating plant. The
transfer of ownership of these facilities is planned for April 2000. As a result
of a court appeal reversing and remanding the Commission's decision that the
offshore system of Sea Robin pipeline were transmission facilities regulated by
FERC under the Natural Gas Act, in June 1998. FERC issued a Notice of Inquiry
into its policy related to jurisdiction over pipeline facilities located on the
Outer Continental Shelf. Instead of issuing a policy or rule, in June 1999, FERC
issued an order in the Sea Robin remand proceeding finding that the upstream
portions of the Sea Robin system are nonjurisdictional gathering but the
downstream portion is regulated transmission. Rehearing requests are pending. In
June 1999, FERC issued a Notice of Proposed Rulemaking under the Outer
Continental Shelf Lands Act, proposing certain reporting requirements (including
prices, terms and conditions), for facilities located on the Outer Continental
Shelf. FERC has not issued a final rule in that proceeding.
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<PAGE> 19
Midstream Gas & Liquids' natural gas liquids group is subject to various
federal, state, and local environmental and safety laws and regulations.
Midstream Gas & Liquids' pipeline operations are subject to the provisions of
the Hazardous Liquid Pipeline Safety Act. In addition, the tariff rates,
shipping regulations, and other practices of the Mid-America, Rio Grande,
Seminole, Wilprise, and Tri-States pipelines are regulated by the FERC pursuant
to the provisions of the Interstate Commerce Act applicable to interstate common
carrier petroleum and petroleum products pipelines. The tariff rates and
practices of the ammonia system are regulated by the Surface Transportation
Board under the provisions of the Interstate Commerce Commission Termination Act
of 1995 applicable to pipeline carriers. Both of these statutes require the
filing of reasonable and nondiscriminatory tariff rates and subject Midstream
Gas & Liquids to certain other regulations concerning its terms and conditions
of service. The Mid-America, Rio Grande, Seminole, Wilprise and Tri-States
pipelines also file tariff rates covering intrastate movements with various
state commissions. The United States Department of Transportation has prescribed
safety regulations for common carrier pipelines. The pipeline systems are
subject to various state laws and regulations concerning safety standards,
exercise of eminent domain, and similar matters.
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 the FERC, to keep its records and accounts pursuant to the Uniform
System of Accounts for Oil Pipeline Companies, to make annual reports to the
FERC, and to submit to examination of its records by the audit staff of the
FERC. Authority to regulate rates, shipping rules, and other practices and to
prescribe depreciation rates for common carrier pipelines is exercised by the
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 and had effectively frozen Williams Pipe Line's rates for the
previous five years, expired. Williams Pipe Line filed a revised tariff on
January 16, 1990, with the 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 the FERC alleging that the
revised rates were not just and reasonable and were unlawfully discriminatory.
Williams Pipe Line elected to bifurcate this proceeding in accordance with the
then-current FERC policy. Phase I of the FERC's bifurcated proceeding provided
Williams Pipe Line the opportunity to justify its rates and rate structure by
demonstrating that its markets were workably competitive. Rates to markets that
were not deemed workably competitive in Phase I required cost justification in
Phase II. Subsequent rate increases filed by Williams Pipe Line were stayed
pending ultimate resolution of Phase II.
In the Phase I proceeding, the FERC found all but 12 of Williams Pipe
Line's markets to be workably competitive and, thus, eligible for market-based
rates. On July 15, 1998, the FERC issued its decision in Phase II finding 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. Williams Pipe Line sought rehearing of the July 15, 1998, order and
was granted leave to stay the order's refund requirement until the FERC acted on
rehearing. Williams Pipe Line accrued an appropriate liability in 1998 for the
July 15, 1998, order. Subsequent to the July 15, 1998, order, Williams Pipe Line
entered into settlement discussions with the parties to the case and with the
Commission Staff. These discussions resulted in a settlement that the Commission
approved on October 13, 1999. The settlement resolved all issues related to the
1990 rate filing, including all appeals and requests for rehearing for both
Phase I and Phase II. Moreover, the settlement also addressed all the subsequent
rate filings that had been held in abeyance. Pursuant to the settlement, the
rate refunds that Williams Pipe Line was required to make are less than the
amounts it had accrued for such refunds, and its rates were given status
equivalent to "just and reasonable" rates grandfathered under the Commission's
regulations.
Environmental regulations and changing crude oil supply patterns continue
to affect the refining industry. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes
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<PAGE> 20
and products shipped on the Williams Pipe Line system. Environmental Protection
Agency 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.
Energy Marketing & Trading. EM&T's business is subject to a variety of laws
and regulations at the local, state, and federal levels. At the federal level,
important regulatory agencies include the Federal Energy Regulatory Commission
(regarding energy commodity transportation and wholesale trading) and the
Commodity Futures Trading Commission (regarding various over-the-counter
derivative transactions and exemptions and exclusions from the Commodity
Exchange Act). Management believes that EM&T'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. EM&T has taken steps to ensure it does not share
employees or officers with affiliated interstate natural gas pipelines and does
not receive information from affiliated interstate natural gas pipelines that is
not also available to unaffiliated natural gas trading companies.
COMPETITION
Exploration & Production. Williams Energy's E&P unit competes with a wide
variety of independent producers as well as integrated oil and gas companies for
markets for its production. E&P has three general phases of operations:
acquiring oil and gas properties, developing non-producing properties, and
operating producing properties. In the process of acquiring minerals, the
primary methods of competition are on acquisition price and terms such as
duration of the mineral lease, the amount of the royalty payment, and special
conditions related to rights to use the surface of the land under which the
mineral interest lies. In the process of developing non-producing properties,
E&P does not face significant competition. In the operating phase, the primary
method of competition involves operating efficiencies related to the cost to
produce the hydrocarbons from the reservoir.
Midstream Gas & Liquids. 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. Competition for the natural gas liquids pipelines include other
pipelines, tank cars, trucks, barges, local sources of supply (refineries,
gasoline plants, and ammonia plants), and other sources of energy such as
natural gas, coal, oil, and electricity. Factors that influence customer
transportation decisions include rate, location, and timeliness of delivery.
Petroleum Services. 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. These 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
these 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
19
<PAGE> 21
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 Bio-Energy's fuel ethanol operations compete in local, regional,
and national fuel additive markets with other ethanol products and other fuel
additive producers, such as refineries and MTBE producers. Williams Bio-Energy's
other products compete in global markets against a variety of competitors and
substitute products.
The principal competitive forces affecting Williams Energy's refining
businesses are feedstock costs, refinery efficiency, refinery product mix, and
product distribution. Some of Memphis Refinery's competitors can process sour
crude, and accordingly, are more flexible in the crudes that they can process.
Williams Energy has limited crude oil reserves and does not engage in crude oil
exploration, and it must therefore obtain its crude oil requirements from
unaffiliated sources. Williams Energy believes that it will be able to obtain
adequate crude oil and other feedstocks at generally competitive prices for the
foreseeable future.
The principal competitive factors affecting Williams Energy's retail
petroleum business are location, product price and quality, appearance and
cleanliness of stores, and brand-name identification. Competition in the
convenience store industry is intense. Within the travel center industry,
Williams TravelCenters strives to be a market leader in customer service to the
local consumer, traveling consumer, and professional driver. Averaging 12,000
square feet, the facilities seamlessly blend these customer groups, resulting in
greater revenue and income diversification than traditional convenience stores.
Energy Marketing & Trading. Williams Energy's operations directly compete
with large independent energy marketers, marketing affiliates of regulated
pipelines and utilities, 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.
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 and natural gas
liquids pipelines are owned in fee. Midstream Gas & Liquids constructs and
maintains gathering and natural gas liquids pipeline systems 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 owns its petroleum pipeline system 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. The North Pole Refinery is
located on land leased from the state of Alaska under a long-term lease
scheduled to expire in 2025 and renewable at that time by Williams Energy. The
Anchorage, Alaska, terminal is located on land leased from the Alaska Railroad
Corporation under two long-term leases. The Memphis Refinery is located on land
owned by Williams Energy. Williams Energy owns approximately one-half of the
properties upon which its Retail Petroleum stores are located and leases the
remainder from third parties. Williams Energy
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management believes its assets are in such a condition and maintained in such a
manner that they are 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, 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
existing environmental legal requirements will not have a material adverse
effect on the capital expenditures, earnings, and competitive position of
Williams Energy. See Note 19 of Notes to Consolidated Financial Statements.
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 submitted a report of results to the EPA, which
published a Notice of Intent to delete the Sioux Falls site in the January 4,
1999, Federal Register. The public comment period has ended with no significant
comments needing to be addressed. Williams Pipe Line was issued a closure letter
from the EPA on April 2, 1999. All monitoring is completed, and no further work
is anticipated in association with the site.
Groundwater monitoring and remediation are ongoing at both refineries and
air and water pollution control equipment is operating at both refineries to
comply with applicable regulations. The Clean Air Act Amendments of 1990
continue to impact Williams Energy's refining businesses through a number of
programs and provisions. The provisions include Maximum Achievable Control
Technology rules which are being developed for the refining industry, controls
on individual chemical substances, new operating permit rules and new fuel
specifications to reduce vehicle emissions. The provisions impact other
companies in the industry in similar ways and are not expected to adversely
impact Williams Energy's competitive position.
WILLIAMS COMMUNICATIONS GROUP, INC.
On October 6, 1999, Williams Communications Group, Inc., closed an initial
public offering (IPO) by selling shares of its Class A Common Stock to the
public. In separate private placements, SBC Communications Inc., Intel
Corporation, and Telefonos de Mexico, S.A. de C.V. each purchased a portion of
the Class A Common Stock. As of March 15, 2000, there were 68,195,470 shares of
the Class A Common Stock outstanding, and Williams owned 395,434,965 shares of
the Class B Common Stock of Communications, representing an approximate 85.3
percent ownership interest. Holders of the Class A Common Stock are entitled to
one vote per share, and Williams, as holder of the Class B Common Stock of
Communications, is entitled to ten votes per share.
Williams Communications is comprised of three business segments: Network,
which owns and operates Communications' fiber optic network; Solutions, which
provides equipment sales and service, professional services, and sale of carrier
services; and Strategic Investments, which makes investments in, or owns and
operates, domestic and foreign businesses that create demand for capacity on the
Communications network, increase Williams Communications service capabilities,
strengthen its customer relationships, develop its expertise in advanced
transmission electronics, or extend its reach. In 1999, Communications sold
Global Access, its audio- and video-conferencing business. See Note 5 of Notes
to Consolidated Financial
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<PAGE> 23
Statements. In 1999, Communications also decided to abandon its Telemetry
business. Communications has approximately 9,200 employees.
NETWORK
Products and Services. Network's products and services fall into seven
categories: packet-based data services, private line services, voice services,
local services, dark fiber rights, optical wave services, and network design and
operational support.
Revenues. In 1999, 1998, and 1997, Network contributed approximately 19.9,
11.1, and 3.0 percent, respectively, to Communications' total revenues.
Network. At December 31, 1999, Communications had approximately 26,000
route miles of fiber optic cable primarily installed in the ground, with
approximately 20,000 of those miles in operation. As of December 31, 1999,
Williams Communications had 38 points of presence.
The Communications network is being constructed along pipeline rights of
way of affiliates of Williams and the rights-of-way of other pipeline companies.
As of December 31, 1999, Communications had agreements in place for
approximately 90 percent of the rights of way needed to complete the network.
In addition to providing services on its own network, Communications leases
capacity and obtains options rights in dark fiber and wavelengths from both long
distance and local telecommunications carriers, including competitors, in order
to meet the needs of customers.
Customers. Network's customers currently include regional Bell operating
companies, Internet service providers, long distance carriers, international
carriers, utilities, and other service providers who desire high-speed
connectivity on a wholesale basis.
Network's largest customers for 1999 were Intermedia, which accounted for
25 percent of Network's revenues, and WinStar, which accounted for 22 percent of
Network's revenues. Network's next four largest customers accounted for a total
of 28 percent of Network's total revenues.
SOLUTIONS
In April 1997, Communications purchased the equipment distribution business
of Nortel Communications Systems, Inc., which it then combined with its
equipment distribution business to create Williams Communications Solutions,
LLC. Nortel's equipment distribution business included the combined net assets
of Nortel's direct sales subsidiary, Nortel Communications Systems, Inc., which
includes Bell Atlantic Meridian Systems and TTS Meridian Systems, Inc.
Communications owns a 70 percent interest and Nortel owns a 30 percent interest
in Solutions, LLC. Communications and Nortel have representation in proportion
to their respective ownership interest on the management committee of Solutions,
LLC. As long as Nortel's interest in Solutions LLC is at least 20 percent,
Nortel must approve, among other things, any changes to the scope of Solutions
LLC's business; any non-budgeted capital expenditure over $5 million; any
non-budgeted acquisition, divestiture or any other obligation over $20 million;
and the incurrence of long-term debt in excess of equity.
Products and Services. Solutions operates approximately 110 sales and
service offices in the U.S., Canada, and Mexico staffed with approximately 1,200
sales personnel. Solutions provides a comprehensive array of communications
products and services. These products and services fall into three categories:
equipment sales and service, professional services, and marketing of carrier
services.
Revenues. In 1999, 1998, and 1997, Solutions contributed approximately
68.9, 77.5, and 82.4 percent, respectively, to Communications' total revenues.
Vendor relationships. Solutions has agreements with the suppliers of the
products and providers of the services it sells to its customers. These
agreements provide for Solutions to distribute, resale, or integrate products or
act as agent for the provider of services. Solutions' primary vendor
relationships are with Nortel, Cisco, Lucent, and NEC. By having relationships
with multiple vendors, Solutions believes it can provide the
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<PAGE> 24
best solution for each customer's specific needs. Solutions realizes that an
interruption, or substantial modification, of its distribution relationships
could have a material adverse effect on its business.
Customers. Solutions provides products and services to approximately
100,000 customer sites across a broad range of industries including businesses
as well as educational, governmental, and non-profit institutions. These
customers consist of small businesses (ten or more employees), small sites of
larger companies, and large enterprise campus sites. Solutions is not dependent
on any one customer or group of customers to achieve its desired results.
Solutions' top 25 customers combined accounted for less than 25 percent of
revenue during 1999, with no one customer accounting for more than 1 percent.
STRATEGIC INVESTMENTS
Through Strategic Investments, Communications makes investments in, or owns
and operates, domestic and foreign businesses that create demand for capacity on
the Communications network, increase Communications' service capabilities,
strengthen Communications' customer relationships, develop Communications'
expertise in advanced transmission electronics, or extend Communications' reach.
Individual domestic and international strategic investments are discussed below.
Vyvx Services. Vyvx provides integrated fiber optic, satellite, and
teleport video transmission services. Through Vyvx, Communications has gained
experience in multimedia networks and has established high-speed connectivity to
the major news and sports venues throughout the United States. Vyvx's broadcast
customers include all major broadcast and cable television networks, news
services, and professional and collegiate sports organizations. Considering its
addressable markets for backhauling video content, Vyvx currently has 85 percent
of the professional sports market, 65 percent of the live event market, and a 35
percent share in the transmission of television advertising. Vyvx has begun
developing a MediaXtranet application infrastructure that will allow Vyvx to
develop greater capabilities to function in the eBusiness and Internet
environment and allow customers direct access to advertising spot storage and
distribution. Communications owns 100 percent of Vyvx.
While Vyvx has approximately 2,000 active customers, approximately 40
percent of its total revenue is derived from its top ten customers. Vyvx's
contracts with its largest customers are for terms that extend up to ten years.
Most of its contracts with its smaller customers are for one-year terms. Vyvx's
largest customer, Fox Entertainment Group, Inc., accounted for approximately
nine percent of Communications' total revenues in 1999.
Concentric. Concentric Network Corporation is a provider of Internet-based
virtual and private networking services to business customers. As of March 14,
2000, Communications owns 4,633,716 shares, or 11 percent, of Concentric's
common stock.
Sycamore Networks. Sycamore Networks is manufacturer of cutting edge
high-end fiber optic transmission equipment, especially DWDM equipment. As of
March 14, 2000, Communications owns 252,000 shares, or less than one percent of
Sycamore's common stock.
Cisco Systems. Cisco Systems is a manufacturer of routers and other
equipment to support Internet transmissions. As of March 14, 2000,
Communications owns 422,938 shares, or less than one percent of Cisco's common
stock.
TMNG. TMNG is a provider of strategy, management, operational and
e-business consulting services to the global telecommunications industry. As of
March 14, 2000, Communications owns 500,000 warrants to purchase TMNG's common
stock at an exercise price of $2.50 per share.
Ziplink, Inc. Ziplink is a provider of wholesale Internet access services
to developers and vendors of Internet appliances and local, regional and
national Internet service appliances. As of March 14, 2000, Communications owns
216,964 shares, or approximately two percent of Ziplink's common stock.
UniDial. UniDial Communications, Inc. is a reseller of long distance and
other communications products, including frame relay, Internet, and conferencing
services. As of March 14, 2000, Communications estimates that its preferred
stock would convert into approximately 12.3 percent of UniDial's common stock.
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UtiliCom. UtiliCom Networks, Inc. partners with utilities to create joint
ventures offering local exchange and other communications services. As of March
14, 2000, Communications owns 469,154 shares, or four percent of UtiliCom's
common stock. Communications also owns warrants to purchase an additional
200,000 shares at an exercise price of $3.00 per share.
CSI, Inc. CSI, Inc. deploys touch-screen display units installed on stadium
seats that provide access to statistics, different views of the field, player-
and venue-related information and access to current information from other
sports events. Communications owns 100 percent of the common stock and 28
percent of the preferred stock of CSI.
Others. Communications has also made investments in other domestic
privately held companies, including NET-tel Communications, Prism Communication
Services, SporTVision, Sonus Networks, Corvis Corporation, Optical Networks,
Axient, Battery Convergence Fund, ClearData.net, Compass Telecommunications,
Internet Telemetry Corp., Avid Sports, Accelerated Networks, Zaffire, and
Centennial Strategic Partners Fund.
ATL. ATL-Algar Telecom Leste S.A. provides digital cellular services in the
Brazilian states of Rio de Janeiro and Espirito Santo, covering a population of
approximately 16.1 million inhabitants. As of March 14, 2000, Communications
owns 19 percent of ATL's common stock and 66 percent of ATL's preferred stock.
PowerTel. PowerTel plans to build, own, and operate communications networks
serving the three cities of Brisbane, Melbourne and Sydney, Australia, and plans
to provide local services in the central business districts of these cities. As
of December 31, 1999, Communications owned 159,574,468 shares, or 35 percent, of
the common stock of PowerTel and 31,914,894 shares, or 100 percent, of the
convertible cumulative preferred stock of PowerTel. Communications' total
investment represents a 41 percent economic interest in PowerTel.
Communications' currently holds a majority of PowerTel's board seats, is
entitled to appoint the executive officers of PowerTel and to exercise control
over the company's operations.
Telefonica Manquehue, S.A. Metrocom S.A. was a Chilean company formed to
build, own, and operate a communications network providing local, Internet,
data, and voice services to businesses and residences in the Santiago
metropolitan area. Communications owned a 19.9 percent equity interest in
Metrocom S.A. until January 31, 2000, when Metrocom merged with Telefonica
Manquehue, S.A. As a result of that merger, Communications owns, as of March 14,
2000, 19.6 percent of Telefonica Manquehue, S.A.
Revenues. For 1999, 1998, and 1997, Strategic Investments contributed
approximately 11.3, 11.5, and 14.8 percent, respectively, to Communications'
total revenues.
STRATEGIC ALLIANCES AND RELATIONSHIPS
Communications has, and will continue to, enter into strategic alliances
with communications companies to secure long-term, high-capacity commitments for
traffic on its network and to enhance its service offerings. The most
significant of these alliances are described briefly below.
SBC Communications Inc. SBC is a major communications provider in the U.S.
that currently provides local services in the south central region of the U.S.
and in California, Nevada, and Connecticut. In the fourth quarter of 1999, SBC
acquired Ameritech, a major communications provider in the Midwest region of the
United States.
On February 8, 1999, Communications entered into agreements with SBC under
which:
- SBC must first seek to obtain domestic voice and data long distance
services from Communications for 20 years.
- Communications must first seek to obtain select international wholesale
services and various other services, including toll-free, operator,
calling card and directory assistance services, from SBC for 20 years.
- Communications and SBC will sell each other's products to their
respective customers and provide installation and maintenance of
communications equipment and other services.
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Intel Corporation. Intel is a manufacturer of chips and other computer,
networking, and communications products. Intel recently announced the formation
of its new business, Intel Online Services, to provide Internet Web-hosting
services by building and managing data centers around the world that will
support the Web sites of third parties.
On May 24, 1999, Communications and Intel, on behalf of Intel Online
Services, entered into a ten-year master alliance agreement. The alliance
agreement provides that Communications and Intel Online Services will purchase
services from one another pursuant to a service agreement and create a
co-marketing arrangement, each of which will be for a three-year term renewable
for one-year terms thereafter. The services Communications will provide include
domestic transport services. Intel will provide Web hosting services pursuant to
the co-marketing arrangement. Subject to Communications' meeting pricing,
quality of service and other specifications, Intel Online Services will purchase
a significant portion of its yearly domestic transport requirements from
Communications.
Telefonos de Mexico S.A. de C.V. Telefonos de Mexico, S.A. de C.V.
(TelMex), the largest communications provider in Mexico, currently provides long
distance and local services primarily in Mexico.
On May 25, 1999, Communications entered alliance agreements with TelMex
under which, subject to any necessary U.S. and Mexican regulatory requirements:
- TelMex must first seek to obtain select international wholesale services
and various other services from Communications for 20 years.
- Communications must first seek to obtain select international wholesale
services and various other services from TelMex for 20 years.
In addition, Williams Communications and TelMex have entered into an
interconnection agreement and are negotiating additional agreements for the
purchase and sale of telecommunications services.
WinStar. WinStar Communications, Inc. uses wireless technology to provide
high-capacity local exchange and Internet access services to companies located
generally in buildings not served by fiber optic cable.
On December 17, 1998, Communications entered into two agreements with
WinStar under which:
- Communications has a 25-year right to use approximately 2% of WinStar's
wireless local capacity, which is planned to cover the top 50 U.S.
markets.
- WinStar has a 25-year right to use four strands of fiber optic cable over
15,000 route miles on the Communications network, a transmission capacity
agreement with an obligation to lease specified circuits from
Communications for at least 20-year terms and an agreement for
collocation and maintenance services.
U S WEST. U S WEST, Inc. is a communications provider with operations in
the western region of the U.S. Communications entered into an agreement with U S
WEST, effective January 1998, which provides that the two companies will work
together to provide data networking services to a variety of customers.
Communications also provides various services to U S WEST.
Intermedia. Intermedia Communications, Inc. provides a wide range of local,
long distance and Internet services. In April 1998, Intermedia executed an
agreement providing for a 20-year right to use Communications' nationwide
transmission capacity.
REGULATORY MATTERS
Network. Williams Communications, Inc., a wholly owned subsidiary of
Communications, is subject to Federal Communications Commission (FCC)
regulations as a common carrier with regard to certain of its transmission
services. 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
25
<PAGE> 27
rules. Operations of 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.
In addition, Williams Communications, Inc. is authorized to provide
intrastate transmission services in each state and is subject to various rules
and regulations in those states in which it provides intrastate transmission
services.
Solutions. The equipment sold by Solutions must meet the requirements of
Part 68 of the FCC rules governing the equipment registration, labeling, and
connection of equipment to telephone networks. Solutions 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 Solutions' operations.
In addition, Communications is subject to various rules and regulations in
those foreign jurisdictions in which it has international operations or
investments.
COMPETITION
Network. The communications industry is highly competitive. Some
competitors in the carrier services and fiber optic network business segments
may have personnel, financial, or other competitive advantages. New competitors
may enter the market because of increased consolidation and strategic alliances
resulting from the Telecommunications Act of 1996, as well as technological
advances and further deregulation. In the market for carrier services, Network
competes primarily with the three traditional nationwide carriers, AT&T, MCI
WorldCom, and Sprint, and other coast-to-coast and regional fiber optic network
providers, such as Qwest, Level 3, and Broadwing. Network competes primarily on
the basis of pricing, transmission quality, network reliability, and customer
service and support. Network has only recently begun to offer some of its
services and products and as a result may have fewer and less well established
customer relationships than some of its competitors.
Network believes that it has advantages over its competitors. AT&T, MCI
WorldCom, and Sprint utilize systems that were constructed for the most part
prior to 1990. Network believes that the older systems operated by these
carriers generally face disadvantages when compared to the Communications
network, such as lower transmission speeds; lower overall capacity; more costly
maintenance requirements; inefficiency due to design and competing traffic
requirements; and greater susceptibility to systems interruption from physical
damage to the network infrastructure.
The prices that Network can charge its customers for transmission capacity
on its network could decline due to installation by Network and its competitors,
some of which are expanding capacity on their existing networks or developing
new networks, of fiber and related equipment that would provide substantially
more transmission capacity than currently needed. If prices for network services
significantly decline, Network may experience a decline in revenues, which would
have a material adverse effect on its operations.
Network believes that its strategy of selling products and services to
other communications carriers gives it an advantage over other fiber optic
network providers who compete with their customers. Network believes that
communications carriers prefer not to buy products and services from a
competitor. Network also does not need a large sales, marketing, and customer
service staff in order to support the retail markets that its competitors serve.
Network can effectively reach and serve a relatively small group of large
customers with a small, more efficient, and more focused team, resulting in
reduced costs.
Solutions. Solutions' competition comes from communications equipment
distributors, network integrators, and manufacturers of equipment (including in
some instances those manufacturers whose products Solutions also sells).
Solutions competitors include Norstan, Inc., Lucent, Siemens, Cisco Systems and
the equipment divisions of GTE, Sprint, and the regional Bell operating
companies. Most equipment distributors tend to be regionally focused and do not
have Solutions' capability to service a nationwide customer base. Solutions
believes its expertise in voice technologies and its ability to provide
comprehensive solutions give it
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<PAGE> 28
an advantage over network integrators. Solutions operates in a highly
competitive industry and faces competition from companies that may have
significantly greater financial, technical, and marketing resources. Some of
Solutions' competitors have strong existing relationships with Solutions'
customers and potential customers resulting in a competitive disadvantage for
Solutions. Solutions is also at a disadvantage in that its costs exceed those of
manufacturers, limiting its ability to engage in price competition with such
manufacturers. However, most manufacturers of equipment are focused on selling
their own equipment and do not provide converged solutions.
Vyvx. Vyvx's Competition is based primarily on service quality and
reliability and network reach and, to a lesser extent, on price. Vyvx's
competitors include some of the largest domestic and international
communications companies, which have greater financial resources and name
recognition. Vyvx is at a disadvantage in international broadcasting because its
competitors have greater international presence.
ENVIRONMENTAL MATTERS
Communications is subject to federal, state, and local laws and regulations
relating to the environmental aspects of its business. Management believes that
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
Communications.
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<PAGE> 29
WILLIAMS INTERNATIONAL COMPANY
Williams International Company, through subsidiaries, has made direct
investments in energy projects primarily in South America and Lithuania and
continues to explore and develop additional projects for international
investment. Williams International also has investments in energy,
telecommunications, and infrastructure development funds in Asia and South
America.
El Furrial. Williams International owns a 67 percent interest in a venture
near the El Furrial field in eastern Venezuela that constructed, owns, and
operates medium and high pressure gas compression facilities for Petroleos de
Venezuela S.A. (PDVSA), the state owned petroleum corporation of Venezuela.
The medium pressure facility has compression capacity of 130 MMcf per day
of raw natural gas from 100 to 1,200 p.s.i.g. for delivery into a natural gas
processing plant owned by PDVSA. The high pressure facility has compression
capacity of 650 MMcf per day of processed natural gas from 1,100 to 7,500
p.s.i.g. for injection into PDVSA's El Furrial producing field.
Jose Terminal. In November 1998, a consortium in which Williams
International owns 45 percent, entered into an agreement with PDVSA to purchase
the Jose Terminal, an 800,000 Bbp per day crude oil storage and shiploading
facility in northeastern Venezuela, for a 20-year renewable term. As part of the
transaction, PDVSA, directly and indirectly through its partners, has committed
to store and shipload approximately 750,000 to 850,000 Bbp per day of crude oil
during the first 20 years of the transaction. Williams International began
interim operations in the second quarter of 1999 and continues to operate the
facility. Formal closing has not yet occurred.
Pigap II. In April 1999, a consortium in which Williams International owns
70 percent entered into an agreement with PDVSA Petroleo y Gas, S.A., to
develop, design, construct, operate, maintain, and own a high pressure natural
gas injection facility and related infrastructure to take gas, process it, and
deliver it for injection for secondary recovery of oil from the Santa
Barbara/Pirital oil fields located in North Monogas, Venezuela for an initial
term of 20 years. Williams International commenced construction in February
2000.
AB Mazeikiu Nafta. In October 1999, Williams entered into an agreement with
the Government of Lithuania to acquire a 33 percent ownership interest and the
right to operate AB Mazeikiu Nafta (MN). MN consists of a 320,000 barrel per day
refinery, the crude oil and refined product pipeline systems within Lithuania,
and a 160,000 barrel per day crude export facility on the Baltic Sea. Williams
commenced operating these assets in October 1999.
Apco Argentina. Williams International also owns an interest in Apco
Argentina Inc., an oil and gas exploration and production company with
operations in Argentina whose securities are traded in the Nasdaq Stock Market.
Apco Argentina's principal business is its 47.6 percent interest in the Entre
Lomas concession in southwest Argentina. It also owns a 45 percent interest in
the Canadon Ramirez concession and a 1.5 percent interest in the Acambuco
concession.
At December 31, 1999, 1998, and 1997, estimated developed, proved reserves
net to Apco Argentina were 20.0, 15.5, and 23.7 million barrels, respectively,
of oil, condensate, and plant products, and 51.1, 26.8, and 35.8 Bcf,
respectively, of natural gas. Estimated undeveloped, proved reserves net to Apco
Argentina were 9.0, 5.1, and 9.5 million barrels, respectively, of oil,
condensate, and plant products, and 20.6 Bcf, 700 MMcf, and 800 MMcf,
respectively, of natural gas.
At December 31, 1999, the gross and net developed concession acres owned by
Apco Argentina totaled 39,108 acres and 17,674 acres, respectively, and the
gross and net undeveloped concession acres owned were 502,892 acres and 114,912
acres, respectively. At December 31, 1999, Apco Argentina owned interests in 306
gross producing wells and 142 net producing wells on its concession acreage.
Total net production sold during 1999, 1998, and 1997 was 1.7, 1.7, and 1.8
million barrels, respectively, of oil, condensate, and plant products, and 7.1,
7.7, and 7.7 Bcf, respectively, of natural gas. The average production costs,
including all costs of operations such as remedial well workovers and
depreciation of property and equipment, per barrel of oil produced were $8.26,
$9.09, and $8.27, respectively, and per Mcf of natural gas produced were $.21,
$.23, and $.21, respectively. The average wellhead sales price per barrel of oil
sold were $17.75, $12.71, and $19.52, respectively, and per Mcf of natural gas
sold were $1.35, $1.33, and $1.34, respectively, for the same periods.
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<PAGE> 30
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.
At December 31, 1999, Williams had approximately 21,000 full-time
employees, of whom approximately 1,900 were represented by unions and covered by
collective bargaining agreements. In September 1998, Williams created three new
companies in order to streamline payroll processing and reduce costs. In
connection with this, Williams transferred its employees to one of these
companies, and the employees are now jointly employed by Williams and one of
these new companies. This change had no impact on Williams' management structure
or on its employees' seniority and benefits. Williams considers its relations
with its employees to be generally good.
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, excluding historical information,
include forward-looking statements -- statements that discuss Williams' expected
future results based on current and pending business operations. Williams makes
these forwarding-looking statements in reliance on the safe harbor protections
provided under the Private Securities Litigation Reform Act of 1995.
Forward-looking statements can be identified by words such as
"anticipates," "believes," "expects," "planned," "scheduled" or similar
expressions. Although Williams believes these forward-looking statements are
based on reasonable assumptions, statements made regarding future results are
subject to numerous assumptions, uncertainties and risks that may cause future
results to be materially different from the results stated or implied in this
document.
The following are important factors that could cause actual results to
differ materially from any results projected, forecasted, estimated or budgeted:
- Changes in general economic conditions in the United States.
- Changes in laws and regulations to which Williams is subject, including
tax, environmental and employment laws and regulations.
- The cost and effects of legal and administrative claims and proceedings
against Williams or its subsidiaries.
- Conditions of the capital markets Williams utilizes to access capital to
finance operations.
- The ability to raise capital in a cost-effective way.
- The effect of changes in accounting policies.
- The ability to manage rapid growth.
- The ability to control costs.
- The ability of each business unit to successfully implement key systems,
such as order entry systems and service delivery systems.
- Changes in foreign economies, currencies, laws and regulations, and
political climates, especially in Argentina, Brazil, Chile, Venezuela,
Lithuania and Australia, where Williams has made direct investments.
- The impact of future federal and state regulations of business
activities, including allowed rates of return, the pace of deregulation
in retail natural gas and electricity markets, and the resolution of
other regulatory matters discussed herein.
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<PAGE> 31
- Fluctuating energy commodity prices.
- The ability of Williams' energy businesses to develop expanded markets
and product offerings as well as their ability to maintain existing
markets.
- The ability of both the Gas Pipeline unit and the Energy Services unit to
obtain governmental and regulatory approval of various expansion
projects.
- The ability of customers of the energy marketing and trading business to
obtain governmental and regulatory approval of various projects,
including power generation projects.
- Future utilization of pipeline capacity, which can depend on energy
prices, competition from other pipelines and alternative fuels, the
general level of natural gas and petroleum product demand, decisions by
customers not to renew expiring natural gas transportation contracts, and
weather conditions.
- The accuracy of estimated hydrocarbon reserves and seismic data.
- Successful completion of the communications network build within budget
and schedule.
- The ability to successfully market capacity on the communications
network.
- SBC Communications' ability to obtain regulatory approval to provide
long-distance communications services within markets in which it
currently provides local services.
- Successful implementation by Williams Communications of its strategy to
build a local access infrastructure.
- Technological developments, high levels of competition, lack of customer
diversification, and general uncertainties of government regulation in
the communications industry.
- Significant competition on pricing and product offerings for
Communications' Solutions business unit.
- The ability of Communications' Solutions business to introduce and market
competitive products and services.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams has no significant amounts of revenue or segment profit or loss
attributable to export sales. See Item 1(c) for a description of Williams
Energy's and Williams International's export sales activities.
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 19 of Notes to Consolidated Financial Statements.
Williams is also subject to other ordinary routine litigation incidental to its
businesses.
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, 1999, these subsidiaries had accrued liabilities totaling
approximately $27 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
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<PAGE> 32
removal or remediation obligations under environmental laws. Although no
assurances can be given, Williams does not believe that these obligations or 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, 1999, Central had accrued a liability for
approximately $11 million, representing the current estimate of future
environmental cleanup costs to be incurred over the next six to 10 years. Texas
Gas and Transcontinental Gas Pipe Line likewise had accrued liabilities for
these costs which are included in the $27 million liability 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 as incurred pending recovery through future rates and other
means.
Transcontinental Gas Pipe Line received a letter stating that the U.S.
Department of Justice (DOJ), at the request of the EPA, intends to file a civil
action against Transcontinental Gas Pipe Line arising from its waste management
practices at Transcontinental Gas Pipe Line's compressor stations and metering
stations in 11 states from Texas to New Jersey. DOJ stated in the letter that
its complaint will seek civil penalties and injunctive relief under federal
environmental laws. DOJ and Transcontinental Gas Pipe Line are discussing a
settlement. While no specific amount was proposed, DOJ stated that any
settlement must include an appropriate civil penalty for the alleged violations.
Transcontinental Gas Pipe Line cannot reasonably estimate the amount of its
potential liability, if any, at this time. However, Transcontinental Gas Pipe
Line believes it has substantially addressed environmental concerns on its
system through ongoing voluntary remediation and management programs.
Energy Services (WES) also accrues environmental remediation costs for its
natural gas gathering and processing facilities, petroleum products pipelines,
retail petroleum, refining and propane marketing operations primarily related to
soil and groundwater contamination. At December 31, 1999, WES and its
subsidiaries had accrued liabilities totaling approximately $42 million. WES
recognizes receivables related to environmental remediation costs based upon an
estimate of amounts that will be reimbursed from state funds for certain
expenses associated with underground storage tank problems and repairs. At
December 31, 1999, WES and its subsidiaries had accrued receivables totaling $19
million.
Williams Field Services (WFS), a WES subsidiary, received a Notice of
Violation (NOV) from the EPA in February 2000. WFS received a contemporaneous
letter from the DOJ indicating that DOJ will also be involved in the matter. The
NOV alleged violations of the Clean Air Act at a gas processing plant. WFS
intends to defend this matter, but cannot reasonably estimate the amount of
potential liability, if any, at this time. EPA, DOJ, and WFS have scheduled
settlement negotiation meetings beginning in March 2000.
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. At December 31, 1999, Williams had
approximately $13 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.
Other legal matters. In connection with agreements to resolve take-or-pay
and other contract claims and to amend gas purchase contracts, Transcontinental
Gas Pipe Line and Texas Gas each entered into certain settlements with producers
which may require the indemnification of certain claims for additional royalties
which the producers may be required to pay as a result of such settlements. As a
result of such settlements, Transcontinental Gas Pipe Line is currently
defending two lawsuits brought by producers. In one of the cases,
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<PAGE> 33
a jury verdict found that Transcontinental Gas Pipe Line was required to pay a
producer damages of $23.3 million including $3.8 million in attorneys' fees.
Transcontinental Gas Pipe Line is pursuing an appeal. In the other case, a
producer has asserted damages, including interest calculated through December
31, 1997, 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 connection with the sale of certain coal assets in 1996, MAPCO entered
into a Letter Agreement with the buyer providing for indemnification by MAPCO
for reductions in the price or tonnage of coal delivered under a certain
pre-existing Coal Sales Agreement dated December 1, 1986. The Letter Agreement
is effective for reductions during the period July 1, 1996, through December 31,
2002, and provides for indemnification for such reductions as incurred on a
quarterly basis. On October 7, 1999, MAPCO settled buyer's claims for
indemnification under the Letter Agreement and certain other unrelated claims in
exchange for payment by MAPCO in the amount of $35 million that had been accrued
in prior years.
In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly owned subsidiaries including Williams Gas Pipelines
Central, Kern River Gas Transmission, Northwest Pipeline, Williams Gas Pipeline
Company, Transcontinental Gas Pipe Line Corporation, Texas Gas, Williams Field
Services Company and Williams Production Company. Mr. Grynberg has also filed
claims against approximately 300 other energy companies and alleges that the
defendants violated the False Claims Act in connection with the measurement and
purchase of hydrocarbons. The relief sought is an unspecified amount of
royalties allegedly not paid to the federal government, treble damages, a civil
penalty, attorneys' fees, and costs. On April 9, 1999, the United States
Department of Justice announced that it was declining to intervene in any of the
Grynberg qui tam cases, including the action filed against the Williams entities
in the United States District Court for the District of Colorado. On October 21,
1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui
tam cases, including the ones filed against Williams, to the United States
District Court for the District of Wyoming for pre-trial purposes.
Shrier v. Williams was filed on August 4, 1999, in the U.S. District Court
for the Northern District of Oklahoma. Oxford v. Williams was filed on September
3, 1999, in state court in Jefferson County, Texas. The Oxford complaint was
amended to add an additional plaintiff on September 24, 1999. On October 1,
1999, the case was removed to the U.S. District Court for the Eastern District
of Texas, Beaumont Division. Plaintiffs have filed a motion seeking to remand
the case back to state court. In each lawsuit, the plaintiff seeks to bring a
nationwide class action on behalf of all landowners on whose property the
plaintiffs have alleged Williams Communications Group, Inc. (WCG) installed
fiber-optic cable without the permission of the landowner. The plaintiffs are
seeking a declaratory ruling that WCG is trespassing, damages resulting from the
alleged trespass, damages based on WCG's profits from use of the property and
damages from alleged fraud. Relief requested by the plaintiff includes
injunction against further trespass, actual and punitive damages, and attorneys'
fees.
Williams believes that installation of the cable containing the
single-fiber network that crosses over or near the named plaintiffs' land does
not infringe on the plaintiffs' property rights. Williams also does not believe
that the plaintiffs in these lawsuits have sufficient basis for certification of
a class action. The proposed composition of the class in the Oxford lawsuit
appears to include only landowners who would also be included in the class
proposed in the Shrier suit. Other communications carriers have been
successfully challenged with respect to their rights to use railroad rights of
way, which are also challenged by the plaintiffs in Schrier and Oxford.
Approximately 15 percent of the WCG network is installed on railroad rights of
way. In many areas, the railroad granting WCG the license holds full ownership
of the land, in which case its license should be sufficient to give WCG valid
rights to cross the property. In some states where the railroad is not the
property owner but has an easement over the property, the law is unsettled as to
whether a landowner's approval is required. WCG generally did not obtain
landowner approval where the rights of way are located on railroad
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easements. In most states, WCG has eminent domain rights which WCG believes
would limit the liability for any trespass damages. It is likely that WCG will
be subject to other purported class action suits challenging the use of railroad
or pipeline rights of way. WCG cannot quantify the impact of all such claims at
this time.
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.
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........................ 57 Chairman of the Board, President, 05-19-94
Chief Executive Officer and
Director (Principal Executive
Officer)
John C. Bumgarner, Jr. ................ 57 Senior Vice President -- Corporate 01-01-79
Development and Planning;
President -- Williams
International Company; Senior
Vice President -- Strategic
Investments, Williams
Communications
James R. Herbster...................... 58 Senior Vice President -- 01-01-92
Administration
Michael P. Johnson, Sr................. 52 Senior Vice President -- Human 05-01-99
Resources
Jack D. McCarthy....................... 57 Senior Vice President -- Finance 01-01-92
(Principal Financial Officer)
William G. von Glahn................... 56 Senior Vice President and General 08-01-96
Counsel
Gary R. Belitz......................... 50 Controller (Principal Accounting 01-01-92
Officer)
Steven J. Malcolm...................... 51 President and Chief Executive 12-01-98
Officer -- Williams Energy
Services
Howard E. Janzen....................... 46 President and Chief Executive 02-11-97
Officer -- Williams
Communications, Inc.
Cuba Wadlington, Jr.*.................. 56 President and Chief Executive 01-01-00
Officer -- Williams Gas Pipeline
Company
</TABLE>
Except for Mr. Johnson, 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 the period. Prior to joining Williams,
Mr. Johnson held various officer positions with Amoco Corporation for more than
five years.
- ---------------
* Mr. Wadlington was named Chief Operating Officer of Williams Gas Pipeline
Company on July 1, 1999, upon the announcement of the retirement of Mr. Brian
E. O'Neill. Upon Mr. O'Neill's retirement on January 1, 2000, Mr. Wadlington
was elected President and Chief Executive Officer of Williams Gas Pipeline
Company.
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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, 1999,
Williams had approximately 14,815 holders of record of its Common Stock. The
high and low sales price ranges (composite transactions) and dividends declared
by quarter for each of the past two years are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1st.............................. $41.00 $28.75 $.15 $34.88 $26.25 $.15
2nd.............................. $53.75 $38.81 $.15 $35.75 $28.81 $.15
3rd.............................. $46.38 $34.19 $.15 $36.94 $20.00 $.15
4th.............................. $39.88 $28.00 $.15 $31.88 $24.88 $.15
</TABLE>
Terms of certain subsidiaries' borrowing arrangements limit the transfer of
funds to Williams. These terms have not impeded, nor are they expected to
impede, Williams' ability to meet its cash flow needs.
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ITEM 6. SELECTED FINANCIAL DATA
The following financial data as of December 31, 1999 and 1998 and for the
three years ended December 31, 1999 are an integral part of, and should be read
in conjunction with, the consolidated financial statements and notes thereto.
All other amounts have been prepared from the Company's financial records.
Certain amounts below have been restated or reclassified (see Note 1).
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-2 through F-19 of this report.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues(1)........................... $ 8,593.1 $ 7,658.3 $ 8,249.5 $ 6,849.0 $ 5,695.6
Income from continuing
operations(2)....................... 161.8 141.4 436.8 505.3 366.5
Income (loss) from discontinued
operations(3)....................... -- (14.3) (6.3) (32.7) 1,029.3
Extraordinary gain (loss)(4).......... 65.2 (4.8) (79.1) -- --
Cumulative effect of change in
accounting principal(5)............. (5.6) -- -- -- --
Diluted earnings per share:
Income from continuing operations... .36 .31 1.01 1.17 .86
Income (loss) from discontinued
operations....................... -- (.03) (.01) (.08) 2.49
Extraordinary gain (loss)........... .15 (.01) (.19) -- --
Cumulative effect of change in
accounting principle............. (.01) -- -- -- --
Total assets at December 31........... 25,288.5 18,647.3 16,282.8 14,611.6 12,853.2
Long-term obligations at December
31.................................. 9,235.3 6,366.4 5,351.5 4,985.3 3,675.0
Williams obligated mandatorily
redeemable preferred securities of
Trust at December 31................ 175.5 -- -- -- --
Stockholders' equity at December
31(6)............................... 5,585.2 4,257.4 4,237.8 4,036.9 3,828.9
Cash dividends per common share....... .60 .60 .54 .47 .36
</TABLE>
- ---------------
(1) See Note 1 for discussion of the 1998 change in the reporting of certain
marketing activities from a "gross" basis to a "net" basis consistent with
fair value accounting. See Note 2 for discussion of Williams' 1997
acquisition of Nortel's customer premise equipment sales and service
operations.
(2) See Notes 2 and 5 for discussion of the gain on sale of interest in
subsidiary and asset sales, impairments and other accruals in 1999, 1998 and
1997. Income from continuing operations in 1996 includes a $15.7 million
pre-tax gain from the sale of certain communications rights and a $20.8
million pre-tax gain from the sale of certain propane and liquid fertilizer
assets. Income from continuing operations in 1995 includes a $41.4 million
pre-tax charge related to the cancellation of a commercial coal gasification
venture and a $16 million after-tax gain related to the sale of Williams' 15
percent interest in Texasgulf, Inc.
(3) See Note 3 for the discussion of the 1998 and 1997 losses from discontinued
operations. The loss from discontinued operations for 1996 includes a $47.2
million after-tax loss related to the sale of the MAPCO coal business offset
by $14.5 million in 1996 income from these operations. The income from
discontinued operations for 1995 primarily relates to the $1 billion
after-tax gain from the 1995 sale of Williams' network services operations.
(4) See Note 7 for discussion of the 1999 extraordinary gain and 1998 and 1997
extraordinary losses.
(5) See Note 1 for discussion of the adoption in 1999 of Statement of Position
98-5, "Reporting on the Cost of Startup Activities."
(6) See Note 15 for discussion of the 1999 issuance of subsidiary's common
stock.
F-1
<PAGE> 37
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
1999 vs. 1998
CONSOLIDATED OVERVIEW. Williams' revenues increased $935 million, or 12
percent, due primarily to higher revenues from increased petroleum products and
natural gas liquids sales volumes and average sales prices, increased revenues
from retail natural gas and electric activities following a late 1998
acquisition, higher natural gas services revenues and increases in
Communications' dark fiber lease revenues and new business growth. In addition,
revenues increased due to the acquisition of a petrochemical plant in 1999,
higher revenues from fleet management and mobile computer technology operations
and reductions of rate refund liabilities at Gas Pipeline. Partially off-setting
these increases were the effects in 1999 of reporting certain revenues net of
costs within Energy Services (see Note 1 of Notes to Consolidated Financial
Statements), lower pipeline construction revenues and lower electric power
services revenues reflecting, in part, the designation of an electric power
contract as trading following the adoption in 1999 of EITF 98-10, "Accounting
for Contracts Involved in Energy Trading and Risk Management Activities."
Segment costs and expenses increased $824 million, or 12 percent, due
primarily to higher costs related to increased petroleum products and natural
gas liquids volumes purchased and average purchase prices, higher retail natural
gas and electric costs following a late 1998 acquisition, higher costs and
expenses from growth of Communications' Network operations and infrastructure,
$33.9 million of 1999 losses and asset impairments at Communications, increased
fleet management and mobile computer technology operations and higher selling,
general and administrative expenses. In addition, 1999 includes $10.5 million of
expense associated with a Williams-wide incentive program. Partially offsetting
these increases were the effects in 1999 of reporting certain costs net in
revenues within Energy Services (see Note 1), lower electric power services
costs, lower pipeline construction costs and $45 million of gains from asset
sales by Energy Services in 1999. In addition, 1998 included $80 million of
MAPCO merger-related costs (including $29 million within general corporate
expenses) (see Note 2), a $58.4 million charge at Gas Pipeline related to
certain long-term gas supply contracts (see Note 19), $29 million of asset
write-downs at Communications and $31 million of retail natural gas and electric
credit loss accruals and asset impairments at Energy Services.
Operating income increased $132 million, or 18 percent, due primarily to
increases at Energy Services and Gas Pipeline of $105 million and $87 million,
respectively, and the effect in 1998 of MAPCO merger-related costs totaling $80
million, partially offset by $125 million higher segment losses at
Communications. Energy Services' increase reflects improved natural gas trading
activities, increased natural gas liquids volumes and margins, $45 million in
gains from the sales of assets and the effect in 1998 of $31 million of retail
natural gas and electric credit loss accruals and asset impairments, partially
offset by higher selling, general and administrative expenses and lower results
from electric power trading activities and retail petroleum operations. Gas
Pipeline's increase reflects the net favorable revenue effect of 1999 and 1998
adjustments associated with regulatory and rate issues and the effect of the
$58.4 million charge in 1998 related to certain long-term gas supply contracts.
The additional losses at Communications reflect higher selling, general and
administrative expenses, including costs associated with infrastructure growth
and improvement, losses experienced from providing customer services prior to
completion of the new network and $31 million higher losses from start-up
activities of Australian and Brazilian communications operations.
Income from continuing operations before income taxes, extraordinary gain
(loss) and cumulative effect of change in accounting principle increased $74
million, or 30 percent, due primarily to $132 million higher operating income,
$43 million of higher investing income and the effect of 1998 litigation loss
accruals and other settlement adjustments totaling $11 million, partially offset
by $114 million higher net interest expense reflecting increased debt in support
of continued expansion and new projects.
At December 31, 1999, Williams changed the discount rate assumption for use
in calculating pension expense for 2000 from the rate used in 1999 as a result
of changes in market rates. This change is expected to decrease pension expense
approximately $14 million in 2000.
F-2
<PAGE> 38
GAS PIPELINE
GAS PIPELINE'S revenues increased $146.8 million, or 9 percent, due
primarily to a total of $66 million of reductions to rate refund liabilities,
resulting primarily from second-quarter 1999 regulatory proceedings involving
rate-of-return methodology for three of the gas pipelines and fourth-quarter
1999 revisions following other regulatory proceedings. Revenues also increased
due to $65 million higher gas exchange imbalance settlements, $36 million higher
reimbursable costs passed through to customers (both offset in costs and
operating expenses) and $14 million from expansion projects and new services.
These increases were partially offset by $21 million of favorable 1998
adjustments from the settlement of rate case issues and lower transportation
revenues associated with rate design and discounting on certain segments of the
pipeline.
Segment costs and expenses increased $59.9 million, or 6 percent, due
primarily to the higher gas exchange imbalance settlements and reimbursable
costs which are passed through to customers, $13 million higher general and
administrative expenses and $9 million higher depreciation and amortization
related mainly to pipeline expansions. These increases were partially offset by
the effect of a $58.4 million charge in 1998 (included in other expense -- net)
related to certain long-term gas supply contracts entered into in 1982. The
charge represented natural gas costs incurred in prior years that will not be
recoverable from customers (see Note 19). General and administrative expenses
increased primarily from information systems initiatives, higher labor and
benefits costs, a $2.3 million accrual for damages associated with two pipeline
ruptures in the northwest and the $2 million write-off of previously capitalized
software development costs.
Segment profit increased $86.9 million, or 14 percent, due primarily to the
$45 million net revenue effect of the regulatory and rate case issues discussed
above, the $58.4 million effect of the accrual for costs in 1998 related to
certain long-term gas supply contracts discussed above and $14 million of
revenues from expansion projects and new services. These segment profit
increases were partially offset by $9 million higher depreciation and
amortization and $13 million higher general and administrative expenses.
On March 17, 2000, Gas Pipeline received a favorable order from the Federal
Energy Regulatory Commission related to the rate of return and capital structure
issues in a regulatory proceeding. Gas Pipeline is evaluating the effect of the
order. Preliminary indications are that rate refund liabilities may be
considerably reduced in 2000.
ENERGY SERVICES
ENERGY MARKETING & TRADING'S revenues increased $340.3 million, or 18
percent, due to a $101.5 million increase in trading revenues and a $238.8
million increase in non-trading revenues. The $101.5 million increase in trading
revenues is due primarily to $61 million higher natural gas trading margins,
which reflect $61 million of favorable contract settlements in 1999 and
increased trading volumes and per-unit margins, partially offset by the effect
in 1998 of certain favorable contract settlements and terminations totaling $24
million. In addition, natural gas liquids margins increased $23 million
associated mainly with increased physical trading activities and electric power
trading margins increased $14 million. The electric power trading margin
increase reflects the designation of a southern California electric power
services contract as trading in accordance with EITF 98-10, "Accounting for
Contracts Involved in Energy Trading and Risk Management Activities," which was
adopted first-quarter 1999, the recognition of $7 million of revenue associated
with a 1998 contractual dispute which was settled in 1999 and increased trading
activity. Largely offsetting these electric power trading revenue increases were
lower demand for electricity in southern California in 1999 compared to 1998 due
to cooler summer temperatures in 1999.
The $238.8 million non-trading revenue increase is due primarily to $334
million higher refined product revenues resulting from higher average sales
prices and increased sales volumes primarily reflecting the 1999 and 1998
expansions of the Alaska and Memphis refineries. In addition, retail natural gas
and electric revenues increased $131 million resulting primarily from the late
1998 acquisition of Volunteer Energy. Partially offsetting these increases were
$211 million lower electric power services revenues primarily related to the
designation of a southern California electric power services contract as trading
in 1999 (discussed above). Additionally, natural gas liquids revenues decreased
slightly as the effect in first-quarter 1999 of
F-3
<PAGE> 39
reporting trading revenues on a net basis for certain operations previously
reported on a "gross" basis was substantially offset by $111 million contributed
by activity from a petrochemical plant acquired early in 1999.
Cost of sales associated with non-trading activities increased $288.5
million, or 18 percent, due primarily to higher costs for refined products and
retail natural gas and electric operations of $339 million and $120 million,
respectively, partially offset by $156 million lower electric power services
costs which reflects the designation of such costs as trading in 1999 (discussed
above). These variances are associated with the corresponding changes in
non-trading revenues discussed above.
Segment profit increased $67.1 million, to $106.1 million in 1999, due
primarily to the $61 million higher natural gas trading margins, $34 million
higher natural gas liquids net revenues, a $22.3 million gain on the sale of
Volunteer Energy assets in 1999 and the effect in 1998 of $14 million of asset
impairments related to the decision to focus the retail natural gas and electric
business from sales to small commercial and residential customers to large end
users. These increases were partially offset by $40 million lower electric power
services net revenues, $16 million higher selling, general and administrative
expenses and $8 million higher retail propane operating expenses. The higher
selling, general and administrative expenses reflect higher compensation levels
associated with improved operating performance, growth in electric power trading
operations, the Volunteer Energy acquisition in late 1998 and increased
activities in the areas of human resources development, investor/media/customer
relations and business development, partially offset by the effect in 1998 of a
$17 million credit loss accrual.
Energy, Marketing & Trading's revenues and costs and expenses for 1999
included $140.5 million and $145.3 million, respectively, from the Volunteer
Energy operations sold in 1999. In addition, Energy, Marketing & Trading sold
its retail propane business, Thermogas Company, previously a subsidiary of MAPCO
Inc., to Ferrellgas Partners L.P. on December 17, 1999 (see Note 7). The sale
yielded an after-tax gain of $65.2 million, which is reported as an
extraordinary gain. Retail propane revenues and costs and expenses were $244.1
million and $257.2 million, respectively, for 1999.
EXPLORATION & PRODUCTION'S revenues increased $50.8 million, or 37 percent,
due primarily to $22 million from increased average natural gas sales prices,
$20 million associated with increases in both company-owned production volumes
and marketing volumes from the Williams Coal Seam Gas Royalty Trust (Royalty
Trust) and royalty interest owners and $17 million from oil and gas properties
acquired in April 1999. Partially offsetting was an $11 million decrease in the
recognition of income previously deferred from a 1997 transaction which
transferred certain nonoperating economic benefits to a third party.
Company-owned production has increased due mainly to a drilling program
initiated in the San Juan basin in 1998 and 1999 and the April 1999 acquisition.
Other expense -- net in 1999 includes a $14.7 million gain from the sale of
certain gas producing properties which contributed $2 million to segment profit
in 1999. Also included in other expense -- net in 1999 is a $7.7 million gain
from the sale of certain other properties.
Segment profit increased $12.6 million, or 46 percent, due primarily to $22
million of gains from the sales of assets, an $8 million contribution from the
April 1999 acquisition, $4 million higher profits from company-owned production
and $4 million lower dry hole costs. Partially offsetting was $11 million
decreased recognition of deferred income, a $9 million decrease in margins from
the marketing of natural gas and $6 million higher nonproducing leasehold
amortization.
MIDSTREAM GAS & LIQUIDS' revenues increased $158.1 million, or 18 percent,
due primarily to $119 million higher natural gas liquids sales from processing
activities reflecting $62 million from a 46 percent increase in volumes sold and
$57 million from a 29 percent increase in average natural gas liquids sales
prices. The increase in natural gas liquids sales volumes is a result of the
improved liquids market conditions in 1999 and a new plant which became
operational in 1999. In addition, revenues increased due to $17 million from
higher average gathering rates, $16 million higher transportation revenues
associated with increased shipments, the effect of unfavorable adjustments in
1998 of $14 million related to rates placed into effect in 1997 for Midstream's
regulated gathering activities (offset in costs and operating expenses) and $11
million higher natural gas liquids storage revenues following the mid-1999
acquisition of two storage facilities. Partially
F-4
<PAGE> 40
offsetting these increases were $20 million lower equity earnings including 1998
and 1999 reclassifications totaling $10 million for the Discovery pipeline
project (offset in capitalized interest).
Cost and operating expenses increased $122.2 million, or 22 percent, due
primarily to $58 million higher liquids fuel and replacement gas purchases,
higher operating and maintenance expenses and the 1998 rate adjustments related
to Midstream's regulated gathering activities.
Segment profit increased $5.1 million, or 2 percent, due primarily to $40
million from higher per-unit natural gas liquids margins and $7 million from the
increase in natural gas liquids volumes sold reflecting more favorable market
conditions. The rapidly rising crude oil prices during 1999 and
flat-to-declining natural gas prices caused natural gas liquids margins to
increase significantly. For each penny improvement in natural gas liquids
margins in 1999, segment profit increased approximately $8 million to $9
million. In addition, transportation, gathering and storage revenues increased
$16 million, $12 million and $11 million, respectively. Largely offsetting were
higher operating and maintenance expenses, $17 million higher general and
administrative expenses, $20 million lower equity earnings, $8 million of costs
associated with cancelled pipeline construction projects and the effect of a
1998 gain of $6 million on settlement of product imbalances.
Midstream is in the process of reorganizing its operations including the
consolidation in Tulsa of certain support functions currently located in Salt
Lake City and Houston. In connection with this, Williams offered certain
employees enhanced retirement benefits under an early retirement incentive
program in the first quarter of 2000. In addition, severance, relocation and
other exit costs will be incurred. Preliminary estimates indicate that this
reorganization may result in total pre-tax charges to first-quarter 2000
operating results of approximately $15 million to $17 million. Midstream expects
one-year cost savings to exceed these charges.
PETROLEUM SERVICES' revenues increased $462 million, or 19 percent, due
primarily to $347 million higher refinery revenues (including $99 million higher
intra-segment sales to the travel centers/convenience stores which are
eliminated), $166 million higher travel center/convenience store sales, $74
million higher revenues from growth in fleet management and mobile computer
technology operations, $26 million in revenues from a petrochemical plant
acquired in March 1999 and $23 million in revenues from terminalling operations
acquired in January and August 1999. Partially offsetting these increases was a
$90 million decrease in pipeline construction revenues following substantial
completion of the project. This refined products pipeline, in which Williams has
a 31.5 percent ownership interest, is awaiting final approval of an
environmental assessment and is expected to come on line in 2000. The $347
million increase in refinery revenues reflects a $262 million increase from 21
percent higher average sales prices and an $81 million increase from 7 percent
higher refined product volumes sold. The increase in refined product volumes
sold follows refinery expansions and improvements in mid-1999 and late-1998
which increased capacity. The $166 million increase in travel center/convenience
store sales reflects $79 million from a 16 percent increase in gasoline and
diesel sales volumes, $52 million from an 8 cent per gallon increase in average
gasoline and diesel sales prices and $35 million higher merchandise sales. Both
the number of travel centers/convenience stores and average per-store sales in
1999 increased as compared to 1998.
Costs and operating expenses increased $438.8 million, or 20 percent, due
primarily to $340 million higher refining costs, $156 million higher travel
center/convenience store cost of sales (including $99 million higher
intra-segment purchases from the refineries which are eliminated), $71 million
higher costs from growth in the fleet management and mobile computer technology
operations, $27 million higher travel center/convenience store operating costs,
$14 million of costs from the petrochemical plant acquired in March 1999 and $13
million higher terminalling costs related primarily to the terminalling
operations acquired in 1999. Partially offsetting these increases were $87
million lower pipeline construction costs related to the project previously
discussed. The $340 million increase in refining costs reflects $252 million
from higher crude supply costs and other related per-unit cost of sales, $66
million associated with increased volumes sold and $22 million higher operating
costs at the refineries. The higher refinery operating costs are a result of
increased maintenance activity and refinery expansions completed in 1999 and
1998. The $156 million increase in travel center/convenience store cost of sales
reflects $71 million from increased gasoline and diesel sales volumes, $56
million from increased average gasoline and diesel purchase prices and $29
million higher merchandise cost of sales reflecting increased volumes.
F-5
<PAGE> 41
Selling, general and administrative expenses increased $28 million due, in
part, to increased media/ customer relations activities, business development
and the additional terminals and travel centers in 1999.
Segment profit increased $20.1 million, or 14 percent, due primarily to the
effects of a $15.5 million accrual in 1998 for potential refunds to
transportation customers following a court ruling requiring such refunds and the
settlement in 1999 of this litigation for $6.5 million less than accrued. In
addition, segment profit increased due to $15 million from increased refined
product volumes sold, $12 million from activities at the petrochemical plant
acquired in March 1999 and $10 million from increased terminalling activities
following the 1999 acquisitions. Also contributing to increased segment profit
were $10 million from higher average per-unit refinery margins, $7 million from
higher gasoline and diesel sales volumes, $7 million higher gross profit from
increased travel center/convenience store merchandise activity, $5 million of
margins on product sales from transportation, $4 million of refinery-related
storage fee revenue and the recovery of $4 million of environmental expenses
previously incurred. Largely offsetting these increases were $27 million and $22
million of increased operating costs at the travel centers/convenience stores
and the refineries, respectively, and $28 million higher selling, general and
administrative expenses.
COMMUNICATIONS
NETWORK'S revenues increased $210.3 million, or 108 percent, due primarily
to $147 million of business growth from data and switched voice services, $45
million increased revenue from dark fiber leases accounted for as sales-type
leases on the newly constructed digital fiber-optic network and $16 million
higher consulting and outsourcing revenues.
Costs and operating expenses increased $255.3 million, or 152 percent, due
primarily to $99 million higher off-net capacity costs associated with providing
customer services prior to completion of the new network, $49 million higher
operations and maintenance expenses on the newly completed portions of the
network, $29 million of construction costs associated with the dark fiber leases
accounted for as sales-type leases, $28 million higher depreciation expense as
portions of the new network were placed into service, $24 million higher local
access connection costs, $17 million higher costs of consulting and outsourcing
services and $5 million of higher leasing costs for equipment location space in
data centers.
Selling, general and administrative expenses increased $58.7 million, or
111 percent, due primarily to costs associated with adding resources and
infrastructure required to increase and serve a growing customer base as more of
the network is installed and lit, including $20 million of costs associated with
the development of voice services in 1999.
Segment loss increased $103.3 million, from a $26.3 million loss in 1998 to
a $129.6 million loss in 1999, due primarily to the $58.7 million increase in
selling, general and administrative expenses, losses experienced from providing
customer services off-net prior to completion of the new network and $28 million
higher depreciation expense, slightly offset by $16 million of profit from dark
fiber leases accounted for as sales-type leases.
As each phase of the ongoing construction of the planned 33,000 mile
full-service wholesale communications network goes into service, revenues and
costs are expected to increase. During 1999, 7,000 miles of new network were
added increasing the network to about 26,000 miles at December 31, 1999. The
remaining 7,000 miles are planned to come on line during 2000. As the network is
completed, most of the current off-net traffic will move onto the network
resulting in improved profitability. This business is expected to contribute an
increasing percentage of consolidated revenues but is not expected to contribute
significantly to segment profit until 2001. The February 8, 1999, announcement
by Williams of a 20-year agreement with SBC Communications, under which Network
will become the preferred provider of nationwide long-distance voice and data
services for SBC Communications, will contribute to the expected network revenue
increase in 2000. In addition, during late 1999 and early 2000 Communications
announced agreements with several parties that will provide an aggregate $930
million of revenue over the next 25 years.
SOLUTIONS' revenues increased $39.2 million, or 3 percent, due primarily to
$25 million higher sales from new systems and upgrades and $9 million of
professional services revenues following an October 1998 acquisition.
F-6
<PAGE> 42
Costs and operating expenses increased $26 million, or 3 percent, due
primarily to an increase in cost of sales commensurate with the increase in
revenues. Selling, general and administrative expenses increased $29 million, or
7 percent, due primarily to $26 million higher technological and infrastructure
support costs largely associated with business integration issues, the
implementation of new systems and processes and consulting services in support
of sales efforts. Selling, general and administrative expenses also increased
due to an $11 million higher depreciation and amortization, an $11 million
increase in the provision for uncollectible trade receivables reflecting
unresolved billing and collection issues and $3 million of expense associated
with a Williams-wide incentive program. Partially offsetting these increases
were the effect of a $6 million accrual in 1998 for modification of an employee
benefit program associated with vesting of paid time off and $12 million of cost
reductions in commissions, telephone and video conferencing, and office employee
travel and entertainment expenses.
Segment loss increased $10.5 million, or 19 percent, due primarily to $29
million of higher selling, general and administrative expenses, partially offset
by a $10 million increase in margins on ongoing operations, the effect in 1998
of $6 million of charges related to information systems cancellations and $4
million realized on the sale of rights to future cash flows from equipment lease
renewals. Although Solutions' results are expected to improve next year, it is
still expected to experience a segment loss in 2000.
STRATEGIC INVESTMENTS' revenues increased $26.6 million, or 13 percent, due
primarily to $26 million higher revenue from an Australian telecommunications
operation acquired in August 1998 and $26 million of revenues from a Mexican
telecommunications company acquired in October 1998, partially offset by the $15
million effect of the July 1999 sale of the audio and video conferencing and
closed-circuit video broadcasting businesses and $12 million higher equity
losses from an investment in ATL-Algar Telecomm Leste S.A. (ATL), a Brazilian
telecommunications business which became operational in January 1999.
Costs and operating expenses increased $25.9 million, or 13 percent, due
primarily to $42 million higher costs from the Australian and Mexican operations
acquired in 1998, partially offset by the $16 million effect of the July 1999
sale of the audio and video conferencing and closed-circuit video broadcasting
businesses. Increases in selling, general and administrative expenses of $27
million from the Australian and Mexican acquisitions were offset by the $14
million effect of the July 1999 sale of the audio and video conferencing and
closed-circuit video broadcasting businesses and lower costs related to the
video transmission business.
Other expense -- net in 1999 includes a $28.4 million loss relating to the
sales of certain audio and video conferencing and closed-circuit video
broadcasting businesses (see Note 5) and $5.5 million of asset impairment
charges relating to management's decision to abandon the wireless remote
monitoring, meter reading equipment and related services business. Other
expense -- net in 1998 includes a $23.2 million write-down related to the
abandonment of a venture involved in the technology and transmission of business
information for news and educational purposes (see Note 5).
Segment loss increased $11.4 million, from a $112.6 million loss in 1998 to
a $124 million loss in 1999, due primarily to the $33.9 million of losses and
asset impairment charges in 1999 and $31 million higher losses from the start-up
activities of the Australian and Brazilian communications operations, partially
offset by the $23.2 million asset write-down in 1998 and a $16 million effect of
businesses that were generating losses that have been sold or otherwise exited.
OTHER
OTHER revenues increased $46.2 million, or 68 percent, due primarily to $21
million higher Venezuelan gas compression revenues, $26 million of rental income
from Gas Pipeline for office space (eliminated in consolidation) and $6 million
of revenues for operating a Venezuelan crude oil terminal, partially offset by
$10 million higher equity investment losses. The $21 million higher gas
compression revenues reflect the effect of a high pressure unit which became
operational in September 1998, partially offset by the effect of operational
problems experienced in early 1999. The $10 million higher equity investment
losses resulted from increased interest expense experienced by another Brazilian
communications company.
F-7
<PAGE> 43
Segment profit increased $5.9 million, from $2.5 million in 1998 to $8.4
million in 1999, due primarily to a $9 million improvement in Venezuelan gas
compression operations and the effect of $5.6 million of international
investment fund write-downs in 1998, partially offset by $10 million higher
equity investment losses.
CONSOLIDATED
GENERAL CORPORATE EXPENSES decreased $21.3 million, or 24 percent, due
primarily to MAPCO merger-related costs of $29 million included in 1998 general
corporate expenses. Interest accrued increased $152.9 million, or 30 percent,
due primarily to the $142 million effect of higher borrowing levels including
Communications' debt issuances and the July 1999 issuance of additional public
debt by Williams. In addition, average interest rates were slightly higher than
in 1998. These increases were slightly offset by a $26.2 million decrease in
interest on rate refund liabilities including a $10.6 million favorable
adjustment related to the reduction of certain rate refund liabilities in
second-quarter 1999 (see Note 19). Interest capitalized increased $39.2 million,
or 128 percent, due primarily to increased capital expenditures for the
fiber-optic network and pipeline construction projects and reclassifications
totaling $10 million related to Williams' equity investment in the Discovery
pipeline project (offset in Midstream Gas & Liquids' segment profit), partially
offset by lower capital expenditures for international investments. Investing
income increased $42.9 million due primarily to higher interest income
associated with the investment of proceeds from Communications' equity and debt
offerings and $12 million of dividends in 1999 from international investment
funds. Other income (expense) -- net is $15.8 million favorable as compared to
1998 due primarily to 1998 litigation loss accruals and other settlement
adjustments totaling $11 million related to assets previously sold.
The $54 million, or 50 percent, increase in the provision for income taxes
on continuing operations is the result of higher pre-tax income and a higher
effective income tax rate in 1999. The effective income tax rate in 1999 exceeds
the federal statutory rate due primarily to the effects of state income taxes,
losses of foreign entities not deductible for U.S. tax purposes and the impact
of goodwill not deductible for tax purposes related to assets sold during 1999
(see Note 5). The effective income tax rate in 1998 exceeds the federal
statutory rate due primarily to the effects of state income taxes and the
effects of non-deductible costs, including goodwill amortization.
The $65.2 million 1999 extraordinary gain results from the sale of
Williams' retail propane business (see Note 7). The $4.8 million 1998
extraordinary loss results from the early extinguishment of debt (see Note 7).
The $5.6 million 1999 change in accounting principle relates to the
adoption of Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (see Note 1).
1998 vs. 1997
CONSOLIDATED OVERVIEW. Williams' revenues decreased $591 million, or 7
percent, due primarily to the $384 million impact in 1998 of reporting certain
revenues net of costs within Energy Services (see Note 1) and lower petroleum
products and natural gas liquids sales prices. Favorably affecting revenues were
higher revenues from Communications' equipment sales and services activities and
dark fiber lease revenues, higher power services revenues and increased
petroleum products sales volumes.
Segment costs and expenses decreased $290 million, or 4 percent, due
primarily to the $384 million impact in 1998 of reporting certain costs net in
revenues within Energy Services (see Note 1) and lower purchase prices for
petroleum products. Partially offsetting these decreases were higher costs and
expenses within Communications, costs associated with increased petroleum
products sales volumes, higher power services costs and $143 million of higher
charges in 1998 as compared to 1997. The 1998 charges include $74 million
related to contractual and regulatory issues, $37 million of asset impairments,
$51 million of MAPCO merger-related expenses, and a $31 million accrual for
modification of an employee benefit program associated with vesting of paid time
off. Included in 1997 are charges totaling $50 million for asset impairments.
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Operating income decreased $296 million, or 29 percent, due primarily to a
$103 million decrease at Energy Services, a $135 million decrease at
Communications and the $51 million of MAPCO merger-related expenses. Energy
Services' decrease reflects a decline in natural gas trading revenues, losses
from retail natural gas and electric activities, lower per-unit liquids margins
and a $15.5 million accrual for potential refunds, partially offset by increased
electric power services activities. Communications' decrease reflects higher
selling, general and administrative expenses, including costs associated with
infrastructure growth and improvement, and losses experienced from providing
customer services off-net prior to completion of the new network. Income from
continuing operations before income taxes, extraordinary gain (loss) and change
in accounting principle decreased $429 million, or 63 percent, due primarily to
the lower operating income, $44 million higher net interest expense resulting
from continued expansion and new projects, the effect of a $45 million gain in
1997 on the sale of an interest in a subsidiary and the effect of a $66 million
gain in 1997 on the sale of assets.
GAS PIPELINE
GAS PIPELINE'S revenues increased $4.7 million due primarily to the $26
million impact of expansion projects placed into service in 1998 and late 1997,
$10 million higher revenues related to new services and increased cost recovery,
a 1998 adjustment of $11 million related to new rates placed into effect May 1,
1997, the 1998 reversal of a $7 million accrual for other regulatory issues
initially recorded in 1997, the $10 million effect of unfavorable adjustments in
1997 to rate refund liabilities and demand charge reserves and $5 million of
favorable adjustments to rate refund liabilities and demand charge reserves in
1998. These increases were substantially offset by $43 million lower
reimbursable costs passed through to customers (offset in costs and operating
expenses), the reversal in 1997 of a $12 million potential refund associated
with the sale of working gas in a prior year, the $4 million effect of the
favorable resolution of certain contractual issues in 1997 and a $3.5 million
1997 gain on the sale of system balancing gas.
Costs and operating expenses decreased $46 million, or 6 percent, due
primarily to $37 million lower reimbursable costs passed through to customers
and $15 million lower operation and maintenance expenses, partially offset by
the effect of a $5.4 million settlement received in 1997 related to a prior rate
proceeding and a $4 million accrual related to the modification of an employee
benefit program associated with the vesting of paid time off.
Other expense -- net in 1998 includes a $58.4 million charge related to
certain long-term gas supply contracts entered into in 1982. The charge
represents an estimate, based on developments in 1998, of natural gas costs
incurred in prior years that will not be recoverable from customers (see Note
19).
Segment profit decreased $4.3 million, or 1 percent, due primarily to the
$58.4 million accrual for costs related to certain long-term gas supply
contracts, $6 million higher depreciation related to expansions placed in
service and the effects of certain 1997 transactions including the reversal of a
$12 million potential refund associated with the sale of working gas in a prior
year, a $4 million favorable resolution of certain contractual issues, the
receipt of a $5.4 million settlement and a $3.5 million gain from the sale of
system balancing gas. These decreases were substantially offset by the $26
million revenue effect of expansion projects placed into service in 1998 and
late 1997, $10 million higher revenues related to new services and increased
cost recovery, $15 million lower operation and maintenance expenses, the $14
million combined favorable effect of 1998 and 1997 rate refund liability
adjustments, an adjustment of $11 million related to the 1998 settlement of new
rates placed into effect May 1, 1997 and the effect of a $5 million accrual for
gas purchase contract settlement costs in 1997.
ENERGY SERVICES
ENERGY MARKETING & TRADING'S revenues decreased $337.7 million, or 15
percent, due to a $13.2 million decrease in trading revenues and a $324.5
million decrease in non-trading revenues. The $13.2 million decrease in trading
revenues is due primarily to $50 million lower revenues from natural gas
origination, price-risk management and physical trading, largely offset by $32
million higher electric power trading margins associated with business growth in
this area. The $50 million decrease in natural gas trading reflects lower
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margins, the unfavorable market movement against the natural gas portfolio and
the adverse market and supply conditions which resulted from Hurricane George in
September 1998, partially offset by the $24 million favorable effect of certain
contract settlements and terminations.
The $324.5 million decrease in non-trading revenues is due primarily to the
$384 million effect in 1998 of reporting revenues on a net basis for certain
natural gas liquids operations previously reported on a "gross" basis (see Note
1) and $95 million lower crude and refined products marketing revenues. In
addition, retail propane revenues decreased $59 million due to the $35 million
effect of lower volumes following unseasonably warm weather in 1998 as compared
to 1997 and the $24 million effect of lower average propane sales prices.
Partially offsetting these decreases were $211 million higher electric power
services revenues associated with new power activity in southern California.
Costs and operating expenses associated with non-trading activities
decreased $407 million, or 19 percent, due primarily to the $384 million impact
in 1998 of reporting revenues on a net basis for certain natural gas liquids
trading operations previously reported on a "gross" basis (see Note 1) and $104
million lower crude and refined product purchases. In addition, retail propane
cost of sales decreased $55 million due to the $21 million effect of lower
volumes and the $34 million effect of lower average propane purchase costs.
These decreases were partially offset by $156 million of costs related to new
electric power activity in southern California.
Segment profit decreased $14.4 million, or 27 percent, due primarily to the
$50 million decline in revenues from natural gas trading activities discussed
above, $43 million of additional losses from retail natural gas and electric
activities and the effect of a $6 million recovery in 1997 of an account
previously written off as a bad debt. The $43 million of losses from retail
natural gas and electric activities includes $17 million of credit losses and
$14 million of asset impairments (included in other expense -- net). The $14
million asset impairment is associated with the company's decision to change
focus from selling to small commercial and residential customers to large end
users (see Note 5). The retail natural gas and electric losses also reflect
costs incurred to penetrate new markets. Offsetting these decreases were $60
million of higher electric power services profits, $17 million lower retail
propane operating expenses and $7 million higher natural gas liquids trading
profits.
EXPLORATION & PRODUCTION'S revenues increased $9.2 million, or 7 percent,
due primarily to the recognition of $22 million of additional deferred income
resulting from a 1997 transaction that transferred certain nonoperating economic
benefits to a third party and $8 million from a 14 percent increase in company-
owned production, partially offset by the $25 million effect of lower average
natural gas sales prices for company-owned production and for sale of volumes
from the Royalty Trust and royalty interest owners.
Segment profit decreased $3.1 million, or 10 percent, due primarily to $13
million higher depreciation, depletion and amortization, $6 million higher
nonproducing leasehold amortization, $2 million higher dry hole costs and $2
million of leasehold impairment costs, partially offset by the $22 million
increased recognition of deferred income.
MIDSTREAM GAS & LIQUIDS' revenues decreased $158.7 million, or 15 percent,
due primarily to $60 million lower natural gas liquids sales from processing
activities reflecting a decline in average liquids sales prices, and the $44
million effect of the shutdown of the Canadian liquids marketing operations in
late 1997. Revenues also declined due to $18 million lower natural gas liquids
pipeline transportation revenues reflecting 3 percent lower shipments, the
passthrough of $9 million lower operating costs to customers, adjustments of $14
million related to new rates placed into effect in 1997 for Midstream's
regulated gathering activities (offset in costs and operating expenses) and the
effect of an $8 million receipt in 1997 of business interruption insurance
proceeds, slightly offset by $7 million higher gathering revenues and $8 million
associated with a 4 percent increase in natural gas liquids sales volumes.
Costs and operating expenses decreased $107 million, or 16 percent, due
primarily to the $50 million effect of the shutdown of the Canadian liquids
marketing operations, $14 million of rate adjustments related to Midstream's
regulated gathering activities, $9 million lower costs passed through to
customers, $15 million lower fuel and replacement gas purchases, and lower
natural gas liquids pipeline transportation costs.
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Other expense -- net in 1998 includes a loss of approximately $9 million
related to the retirement of certain assets and $6 million of unfavorable
litigation loss provisions, partially offset by a $6 million gain from the
settlement of product imbalances.
Segment profit decreased $56.6 million, or 20 percent, due primarily to $45
million of lower per-unit liquids margins, decreased pipeline transportation
shipments, the $9 million loss related to retirement of certain assets and the
effect of an $8 million business interruption insurance receipt in 1997,
slightly offset by $7 million higher gathering revenues.
PETROLEUM SERVICES' revenues increased $7.1 million due primarily to $213
million lower refinery revenues (including $28 million lower intra-segment sales
to the travel centers/convenience stores which are eliminated) and $17 million
lower product sales from transportation activities, significantly offset by $107
million higher pipeline construction revenue, $54 million higher travel
center/convenience store sales, and $37 million higher revenues from fleet
management and mobile computer technology operations initiated in mid-1997. The
$213 million decline in refining revenues reflects $386 million from lower
average sales prices, partially offset by $173 million from a 13 percent
increase in refined product volumes sold. The $54 million increase in travel
center/convenience store sales is due primarily to the May 1997 EZ-Serve
acquisition, additional travel centers and increased per-store merchandise
sales. Increases of $101 million in gasoline and diesel sales volumes and $47
million higher merchandise sales were partially offset by a $94 million impact
of lower average retail gasoline and diesel sales prices.
Costs and expenses increased $36 million, or 2 percent, due primarily to
$102 million of pipeline construction costs, $46 million higher travel
center/convenience store merchandise purchases and operating costs resulting
from the EZ-Serve acquisition, additional travel centers and increased per-store
sales, $41 million higher costs from fleet management and mobile computer
technology operations, $24 million higher general and administrative expenses
and a $15.5 million accrual for potential transportation rate refunds to
customers (included in other expense -- net) (see Note 19). Substantially
offsetting these increases were a $213 million decrease from refining operations
and $15 million lower cost of product sales from transportation activities. The
$24 million increase in general and administrative expenses is due, in part, to
increased activities in human resources development, investor/media/customer
relations and business development. The $213 million decrease from refining
operations reflects a $366 million decrease due to lower average crude oil
purchase prices, partially offset by a $146 million increase related to an
increase in processed barrels sold and $7 million higher operating costs at the
Memphis refinery. Travel center/convenience store gasoline and diesel cost of
sales remained flat (including $28 million lower intra-segment purchases from
the refineries which are eliminated) as a $91 million increase from higher sales
volumes was offset by lower average purchase prices.
Segment profit decreased $28.5 million, or 16 percent, due primarily to the
$15.5 million accrual for potential refunds to transportation customers, $7
million higher operating costs due to increased production levels at the Memphis
refinery, $24 million higher general and administrative expenses and a $4.4
million accrual for modification of an employee benefit program associated with
vesting of paid time off, partially offset by $6 million higher refinery gross
margins, $6 million higher product transportation revenues, $7 million increased
profits from travel center/convenience store operations and $5 million from
pipeline construction activities.
COMMUNICATIONS
NETWORK'S revenues increased $151.9 million, from $43 million in 1997 to
$194.9 million in 1998, due primarily to $64 million of revenue in 1998 from
dark fiber leases accounted for as sales-type leases on the newly constructed
digital fiber-optic network, $49 million of revenues from providing fiber
services to new long-term customers and $27 million higher revenue following the
transfer of fiber assets from Strategic Investments in October 1997.
Costs and operating expenses increased $136 million from $32 million in
1997, due primarily to $38 million of construction costs associated with the
dark fiber leases accounted for as sales-type leases, $55 million of leased
capacity costs associated with providing customer services prior to completion
of the new
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network, and $17 million higher operating expenses. Selling, general and
administrative expenses increased $45 million due primarily to the expansion of
the infrastructure to support the new national digital fiber-optic network,
including $8 million of increased information systems costs and $8 million for a
new national advertising campaign.
Segment profit decreased $29.6 million, from a $3.3 million segment profit
in 1997 to a $26.3 million segment loss in 1998, due primarily to the cost of
expanding the infrastructure in support of the network construction and losses
experienced from providing customer services prior to completion of the new
network, partially offset by $26 million of profit from dark fiber leases
accounted for as sales-type leases.
SOLUTIONS' revenues increased $160.3 million, or 13 percent, due primarily
to the April 30, 1997, combination of the Nortel customer premise equipment
sales and services operations, which contributed an additional $196 million of
revenue during the first four months of 1998. A $30 million increase in
maintenance contract revenues was more than offset by $46 million lower new
system sales and $31 million lower customer service orders due, in part, to
competitive pressures.
Costs and operating expenses increased $116 million, or 13 percent, and
selling, general and administrative expenses increased $138 million, or 53
percent, due primarily to the combination with Nortel. Included in the overall
increase in selling, general and administrative expenses are $23 million of
increased information systems costs associated with expansion and enhancement of
the infrastructure and continued costs of maintaining multiple systems while
common systems are being developed, $36 million higher selling costs including
the effects of large increases in sales and support staff and higher sales
commissions in anticipation of a higher revenue base than actually achieved, $12
million increased provision for uncollectible trade receivables, and a $6
million accrual for modification of an employee benefit program associated with
vesting of paid time off.
Segment profit decreased $101.4 million, from a $47.3 million segment
profit in 1997 to a $54.1 million segment loss in 1998, due primarily to the
increase in selling, general and administrative costs as described above, $6
million related to information systems cancellations and $7 million of obsolete
equipment write-downs, severance and contract loss accruals.
STRATEGIC INVESTMENTS' revenues decreased $12.7 million, or 6 percent, due
primarily to the $14 million effect of the decision to exit the learning content
business in November 1997 and equity losses of $15 million from investing
activities in ATL, a Brazilian telecommunications business. This business is
constructing a cellular phone network scheduled to be in operation during 1999.
Partially offsetting these decreases were $11 million of revenues contributed by
an Australian telecommunications company acquired in August 1998 and a $9
million increase in audio and video conferencing and business television
revenues.
Costs and operating expenses increased $19 million, or 11 percent, due
primarily to $11 million of costs and operating expenses related to the
Australian acquisition, $8 million higher costs of providing network services
following the transfer of fiber assets to Network in October 1997 and the $7
million effect of increased audio and video conferencing and business television
activities, partially offset by $8 million lower costs as a result of the
decision to exit the learning content business in November 1997. A $6 million,
or 7 percent, decrease in selling, general and administrative expenses was also
due to the decision to exit the learning content business.
Other expense -- net in 1998 includes a $23.2 million write-down related to
the abandonment of a venture involved in the technology and transmission of
business information for news and educational purposes (see Note 5). Other
expense -- net in 1997 includes charges totaling $29 million related primarily
to the decision and formulation of a plan to sell the learning content business
(see Note 5). During 1998, a substantial portion of the learning content
business was sold at its approximate carrying value.
Segment loss increased $3.9 million, from a $108.7 million segment loss in
1997 to a $112.6 million segment loss in 1998, due primarily to the $23.2
million write-down in 1998 and $15 million of equity losses in 1998 from the
Brazilian communications business, substantially offset by the effect of $29
million of charges in 1997.
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OTHER
OTHER segment profit decreased $8.9 million, or 78 percent, due primarily
to $5 million higher general and administrative expenses as compared to 1997 and
$5.6 million of write-downs of international cost investments to market.
CONSOLIDATED
GENERAL CORPORATE EXPENSES decreased $5.9 million, or 6 percent, due
primarily to expense savings realized following the MAPCO merger, largely offset
by MAPCO merger-related costs of $29 million in 1998 compared to $10 million in
1997. Interest accrued increased $51.6 million, or 11 percent, due primarily to
higher borrowing levels including the commercial paper program and the issuance
of additional public debt, partially offset by the $52 million effect of lower
average interest rates. The lower average interest rate reflects the
fourth-quarter 1997 debt restructuring and lower rates on new 1998 borrowings as
compared to previously outstanding borrowings. Interest capitalized increased
$7.3 million, or 31 percent, due primarily to increased capital expenditures for
the fiber-optic network, the Venezuelan gas injection plant and international
investment activities. Investing income increased $13.2 million to $25.8 million
due primarily to higher interest income from advances to affiliates and
long-term notes receivable. For information concerning the $44.5 million gain on
sale of interest in subsidiary in 1997, see Note 2. The $66 million gain on
sales of assets in 1997 results from the sale of Williams' interest in the
liquids and condensate reserves in the West Panhandle field of Texas (see Note
5). Minority interest in (income) loss of consolidated subsidiaries in 1998 is
$27.8 million favorable as compared to 1997 due primarily to losses experienced
by Williams Communications Solutions, LLC which has a 30 percent interest held
by minority shareholders. Other income (expense) -- net is $19.6 million
unfavorable as compared to 1997 due primarily to 1998 litigation accruals and
other settlement adjustments totaling $11 million related to assets previously
sold, and the impact of a 1997 gain of $4 million on the termination of
interest-rate swap agreements.
The $133.5 million, or 55 percent, decrease in the provision for income
taxes on continuing operations is primarily a result of lower pre-tax income,
partially offset by a higher effective income tax rate in 1998. The effective
income tax rate in 1998 exceeds the federal statutory rate due primarily to the
effects of state income taxes and the effects of non-deductible costs, including
goodwill amortization. The effective tax rate in 1997 exceeds the federal
statutory rate due primarily to the effects of state income taxes, substantially
offset by the effect of the non-taxable gain recognized in 1997 (see Note 2) and
income tax credits from coal-seam gas production.
The 1998 and 1997 losses on discontinued operations are attributable to
loss provisions for contractual obligations related to the sale of the net
assets of the MAPCO coal business in 1996 (see Note 3).
The 1998 and 1997 extraordinary losses result from the early extinguishment
of debt (see Note 7).
FINANCIAL CONDITION AND LIQUIDITY
Liquidity
Williams considers its liquidity to come from both internal and external
sources. Certain of those sources are available for all areas within Williams
while others can only be utilized by Communications. Williams' unrestricted
sources of liquidity, which can be utilized without limitation under existing
loan covenants, consist primarily of the following:
- Available cash-equivalent investments of $494 million at December 31,
1999 as compared to $377 million at December 31, 1998.
- $475 million available under Williams' $1 billion bank-credit facility at
December 31, 1999 as compared to $306 million at December 31, 1998.
- $154 million available under Williams' $1.4 billion commercial paper
program at December 31, 1999 as compared to $55 million at December 31,
1998. The commercial paper program was increased from
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$1 billion to $1.4 billion in January 1999 and is backed by a short-term
bank-credit facility, which was also increased to $1.4 billion in January
1999.
- Cash generated from operations.
- Short-term uncommitted bank lines can also be used in managing liquidity.
Williams' sources of liquidity restricted to use by Communications consist
primarily of the following:
- Available cash-equivalent investments and short-term investments totaling
$1.9 billion.
- Communications' $1.05 billion bank-credit facility under which no
borrowings are outstanding at December 31, 1999.
In addition, there are outstanding registration statements filed with the
Securities and Exchange Commission for Williams and Northwest Pipeline, Texas
Gas Transmission and Transcontinental Gas Pipe Line (each a wholly owned
subsidiary of Williams). At March 1, 2000, approximately $755 million of shelf
availability remains under these outstanding registration statements and may be
used to issue a variety of debt or equity securities. Interest rates and market
conditions will affect amounts borrowed, if any, under these arrangements.
Williams believes any additional financing arrangements, if required, can be
obtained on reasonable terms.
Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries, including Communications as described above. The
restrictions have not impeded, nor are they expected to impede, Williams'
ability to meet its cash requirements in the future.
During 2000, Williams expects to fund capital and investment expenditures,
debt payments and working-capital requirements through (1) cash generated from
operations, (2) the use of the available portion of Williams' $1 billion
bank-credit facility, (3) commercial paper, (4) short-term uncommitted bank
lines, (5) private borrowings and/or (6) debt or equity public offerings. In
addition, Communications' capital and investment expenditures, debt payments and
working-capital requirements are also expected to be funded with the remaining
proceeds from its 1999 initial equity and high-yield debt offerings and its
$1.05 billion bank-credit facility.
Operating Activities
Cash provided by continuing operating activities was: 1999 -- $1.5 billion;
1998 -- $678 million; 1997 -- $988 million. The increases in receivables and
accounts payable of $784 million and $892 million, respectively, reflect
increased electric power trading and other activity at Energy Marketing &
Trading. The $134 million increase in inventories includes increases in the
refined product and crude oil inventories at Energy Marketing & Trading
including the effect of the petrochemical plant acquisition. The $288 million
increase in accrued liabilities is due primarily to higher network construction
cost accruals of $264 million and higher accrued payroll, accrued interest,
income taxes payable and Communications' deferred revenue, substantially offset
by the payment in first-quarter 1999 of $100 million in connection with the
assignment of Williams' obligations under a gas purchase contract to an
unaffiliated third party (see Note 19), the payments in 1999 of $156 million for
rate refunds to natural gas customers and the second-quarter 1999 reductions to
rate refund liabilities (see Note 19). In addition, during 1999 Williams
received net federal income tax refunds totaling $387 million (see Note 6).
Financing Activities
Net cash provided by financing activities was: 1999 -- $4.4 billion;
1998 -- $1.8 billion; and 1997 -- $424 million. Long-term debt proceeds, net of
principal payments, were $2.7 billion, $1.8 billion and $18 million during 1999,
1998 and 1997, respectively. Notes payable proceeds, net of notes payable
payments, were $210 million and $622 million during 1999 and 1997, respectively.
Notes payable payments, net of notes payable proceeds, were $139 million during
1998. The increase in net new borrowings during 1999, 1998 and 1997 reflects
borrowings to fund capital expenditures, investments and acquisition of
businesses.
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<PAGE> 50
In October 1999, Williams Communications Group, Inc. (WCG) completed an
initial public equity offering, private equity offerings and public debt
offerings which yielded total net proceeds of approximately $3.5 billion. The
initial public equity offering yielded net proceeds of approximately $738
million (see Note 15). Additional shares of common stock were privately sold in
concurrent investments by SBC Communications Inc., Intel Corporation, and
Telefonos de Mexico for proceeds of $738.5 million. These transactions resulted
in a reduction of Williams' ownership interest in WCG from 100 percent to 85.3
percent. Concurrent with these equity transactions, WCG issued high-yield public
debt of approximately $2 billion. Proceeds from these equity and debt
transactions were used to repay Communications' 1999 borrowings under an interim
short-term bank-credit facility and the $1.05 billion bank-credit agreement, and
will also be used to fund future Communications' operating losses, continued
construction of Communications' national fiber-optic network (scheduled for
completion by the end of 2000) and other expansion opportunities.
The proceeds from issuance of Williams common stock in 1999, 1998 and 1997
are primarily from exercise of stock options under the stock plans.
During 1999, Williams received proceeds of $175 million from the sale of
Williams obligated mandatorily redeemable preferred securities. During 1998,
Williams received proceeds totaling $335 million from the sale of limited
partnership and limited-liability company member minority interests to outside
investors (see Note 14).
During the first quarter of 1998, Williams completed the restructuring of a
portion of its debt portfolio that was initiated in September 1997. As of
December 31, 1997, Williams had 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. During
first-quarter 1998, Williams paid an additional $54.4 million to redeem higher
interest rate debt for a $4.8 million extraordinary loss. The restructuring was
completed with the fourth-quarter 1997 and first-quarter 1998 issuance of
approximately $1.5 billion of debentures and notes with interest rates ranging
from 5.91 percent to 6.625 percent and maturities from 2000 to 2008.
Long-term debt at December 31, 1999 was $9.2 billion, compared with $6.4
billion at December 31, 1998 and $5.4 billion at December 31, 1997. At December
31, 1999 and 1997, $404 million and $696 million, respectively, of current debt
obligations were classified as non-current obligations based on Williams' intent
and ability to refinance on a long-term basis. The 1999 increase in long-term
debt is due primarily to $2 billion in public debt issued by Communications in
October 1999 and the issuance of $700 million of public debt by Williams in July
1999. The long-term debt to debt-plus-equity ratio was 62.3 percent at December
31, 1999, compared to 59.9 percent and 55.8 percent at December 31, 1998 and
1997, respectively. If short-term notes payable and long-term debt due within
one year are included in the calculations, these ratios would be 65.9 percent,
64.7 percent and 59.1, respectively.
Investing Activities
Net cash used by investing activities was: 1999 -- $5.3 billion;
1998 -- $2.1 billion; and 1997 -- $1.5 billion. Capital expenditures of
Communications, primarily for the construction of the fiber-optic network, were
$1.7 billion in 1999, $304 million in 1998 and $276 million in 1997. Capital
expenditures of Energy Services, primarily to expand and modernize gathering and
processing facilities and refineries, were $1.2 billion in 1999, $707 million in
1998 and $469 million in 1997. Capital expenditures of Gas Pipeline, primarily
to expand and modernize systems, were $360 million in 1999, $472 million in 1998
and $419 million in 1997. Budgeted capital expenditures and investments for all
business units for 2000 are estimated to be approximately $4 billion, including
the fiber-optic network construction ($2 billion), expansion and modernization
of pipeline systems, gathering and processing facilities, and refineries,
international investment activities and building construction.
During first-quarter 1999, Williams purchased a company with a
petrochemical plant and natural gas liquids transportation, storage and other
facilities for $163 million in cash. Also during 1999, Williams made various
cash investments and advances totaling $696 million including $265 million to
increase its investment in ATL (a Brazilian telecommunications business), a $75
million equity investment in and a $75 million loan to AB Mazeikiu Nafta,
Lithuania's national oil company, $78 million in various natural gas and
petroleum
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products pipeline joint ventures, and other joint ventures and investments. In
addition, Williams made $139 million of investments in the Alliance natural gas
pipeline and processing plant during 1999 of which $93.5 million was financed
with a note payable. In December 1999, Williams sold its retail propane business
to Ferrellgas Partners L.P. (Ferrellgas) for $268.7 million in cash and $175
million in senior common units of Ferrellgas. Subsequent to December 31, 1999,
Williams sold a portion of its investment in ATL for aggregate proceeds of $148
million.
During 1998, Williams made a $100 million advance to and a $150 million
investment in another telecommunications business in Brazil. In addition, during
1998 Williams made an $85 million investment in a Texas refined petroleum
products pipeline joint venture.
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. In addition, Williams
paid $68 million to Nortel. See Note 2 for additional information. During 1997,
Williams also purchased a 20 percent interest in a foreign telecommunications
business for $65 million in cash, made a $59 million cash investment in the 50
percent owned Discovery pipeline project and received proceeds of $66 million
from the sale of interests in the West Panhandle field.
Other Commitments
Energy Marketing & Trading has entered into certain contracts giving
Williams the right to receive fuel conversion and certain other services for
purposes of generating electricity. At December 31, 1999, annual estimated
committed payments under these contracts range from $20 million to $383 million,
resulting in total committed payments over the next 23 years of approximately $7
billion.
Williams has also entered into an agreement giving Williams a 25 year right
to use a portion of a third party's wireless local capacity. Williams will pay a
total of $400 million over four years for this right. As of December 31, 1999,
Williams has paid approximately $172 million.
New Accounting Standards
See Note 1 for a discussion of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved
in Energy Trading and Risk Management Activities," Financial Accounting
Standards Board (FASB) Interpretation No. 43, "Real Estate Sales, an
Interpretation of FASB Statement No. 66," and Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements."
Effects of Inflation
Williams' cost increases in recent years have benefited from relatively low
inflation rates during that time. Approximately 44 percent of Williams'
property, plant and equipment is at Gas Pipeline, approximately 40 percent is at
Energy Services and approximately 13 percent is at Communications. Approximately
84 percent of Gas Pipeline's property, plant and equipment has been acquired or
constructed since 1995, a period of relatively low inflation. Gas Pipeline is
subject to regulation, which limits recovery to historical cost. While amounts
in excess of historical cost are not recoverable under current FERC practices,
Williams believes it will be allowed to recover and earn a return based on
increased actual cost incurred to replace existing assets. Cost-based regulation
along with competition and other market factors may limit the ability to recover
such increased costs. Within Energy Services, operating costs are influenced to
a greater extent by specific price changes in oil and gas and related
commodities than by changes in general inflation. Crude, refined product,
natural gas and natural gas liquids prices are particularly sensitive to OPEC
production levels and/or the market perceptions concerning the supply and demand
balance in the near future. See Market Risk Disclosures on page 36 for
additional information concerning the impact of specific price changes.
Substantially all of the Communications' property, plant and equipment is for
the recent fiber-optic network construction. The activities of Communications
have historically not been significantly affected by the effects of inflation.
F-16
<PAGE> 52
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 19), 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 $93 million, all of which is
accrued at December 31, 1999. Williams expects to seek recovery of approximately
$37 million of the accrued costs through future natural gas transmission rates
and approximately $19 million of accrued costs from states in accordance with
laws permitting reimbursement of certain expenses associated with underground
storage tank containment problems and repairs. 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.
Williams is subject to the federal Clean Air Act and to the federal Clean
Air Act Amendments of 1990 which require the EPA to issue new regulations. In
September 1998, the EPA promulgated new rules designed to mitigate the migration
of ground-level ozone in certain states. Williams estimates that capital
expenditures necessary to install emission control devices over the next five
years to comply with these new rules will be between $248 million and $293
million. The actual costs incurred will depend on the final implementation plans
developed by each state to comply with these regulations. In December 1999, new
standards promulgated by the EPA for tailpipe emissions and the content of
sulfur in gasoline were announced. Williams estimates that capital expenditures
necessary to bring its two refineries into compliance over the next six years
will be approximately $122 million. The actual costs incurred will depend on the
final implementation plans.
Transcontinental Gas Pipe Line (Transco) received a letter stating that the
U.S. Department of Justice (DOJ), at the request of the U.S. Environmental
Protection Agency, intends to file a civil action against Transco arising from
its waste management practices at Transco's compressor stations and metering
stations in eleven states from Texas to New Jersey. DOJ stated in the letter
that its complaint will seek civil penalties and injunctive relief under federal
environmental laws. DOJ and Transco are discussing a settlement. While no
specific amount was proposed, DOJ stated that any settlement must include an
appropriate civil penalty for the alleged violations. Transco cannot reasonably
estimate the amount of its potential liability, if any, at this time. However,
Transco believes it has substantially addressed environmental concerns on its
system through ongoing voluntary remediation and management programs.
Williams Field Services (WFS), an Energy Services subsidiary, received a
Notice of Violation (NOV) from EPA in February 2000. WFS received a
contemporaneous letter from DOJ indicating that DOJ will also be involved in the
matter. The NOV alleged violations of the Clean Air Act at a gas processing
plant. WFS intends to defend this matter, but cannot reasonably estimate the
amount of potential liability, if any, at this time. EPA, DOJ, and WFS have
scheduled settlement negotiation meetings beginning in March 2000.
Year 2000 Compliance
Williams encountered only minor problems associated with the date change
from 1999 to 2000, and experienced no business disruptions. The total cost of
its enterprise-wide project to prepare for the year 2000 date change was $47
million. Williams believes that limited and insignificant continued exposure to
year 2000 complications remains.
Williams initiated its enterprise-wide project in 1997 to address the year
2000 compliance issue for both traditional information technology areas and
non-traditional areas, including embedded technology that is prevalent
throughout the company. This project focused on all technology hardware and
software, external interfaces with customers and suppliers, operations process
control, automation and instrumentation systems,
F-17
<PAGE> 53
and facility items. The phases of the project were awareness, inventory and
assessment, renovation and replacement, testing and validation and contingency
planning. During the inventory and assessment phase, all systems with possible
year 2000 implications were inventoried and classified into five categories: 1)
highest, business critical, 2) high, compliance necessary within a short period
of time following January 1, 2000, 3) medium, compliance necessary within 30
days from January 1, 2000, 4) low, compliance desirable but not required, and 5)
unnecessary. Categories 1 through 3 were designated as critical and were the
major focus of this project. In 1998, Williams initiated a formal communications
process with other companies with which it conducts business to determine the
extent to which those companies were addressing year 2000 compliance. Williams
has also worked directly with key business partners to reduce the risk of a
break in service or supply and with non-compliant companies to mitigate any
material adverse effect on Williams. Significant focus on the contingency plan
phase of the project took place in 1999. Contingency plans were developed for
critical business processes, critical business partners, suppliers and system
replacements that experience significant delays.
Renovation/replacement and testing/validation of critical systems was
completed by December 31, 1999. Over the December 31, 1999 to January 4, 2000
weekend, an extensive system monitoring plan was in place with regular reporting
of results.
Williams utilized both internal resources (consisting of a core group of
238 people) and external contractors (at a cost of approximately $11.5 million)
to complete the year 2000 compliance project. Costs incurred for new software
and hardware purchases were capitalized and other costs were expensed as
incurred. The $47 million total cost of the enterprise-wide project, including
any accelerated system replacements, was or is expected to be spent as follows:
- Prior to 1998 and during the first quarter of 1998, Williams was
conducting the project awareness and inventory/assessment phases of the
project and incurred costs totaling $3 million.
- During the second quarter of 1998, $2 million was spent on the
renovation/replacement and testing/ validation phases and completion of
the inventory/assessment phase.
- The third and fourth quarters of 1998 focused on the
renovation/replacement and testing/validation phases, and $10 million was
incurred.
- During the first quarter of 1999, renovation/replacement and
testing/validation continued, contingency planning began, and $9 million
was incurred.
- During the second quarter of 1999, the primary focus shifted to
testing/validation and contingency planning, and $10 million was spent.
- The primary focus during third-quarter 1999 was contingency planning and
final testing, and $8 million was incurred.
- The fourth quarter of 1999 focused mainly on contingency planning and
final testing, and $4 million was spent.
- Approximately $1 million is estimated to be spent during the first two
quarters of 2000 for monitoring and minor problem resolution.
Of the $46 million incurred to date, approximately $41 million has been
expensed and approximately $5 million has been capitalized. The $1 million of
future costs for monitoring and problem resolution will be expensed. This
estimate does not include Williams' potential share of year 2000 costs that were
incurred by partnerships and joint ventures in which the company participates
but is not the operator. The costs of previously planned system replacements are
not considered to be year 2000 costs and are, therefore, excluded from the
amounts discussed above.
The preceding discussion contains forward-looking statements including,
without limitation, statements relating to the company's expectations,
intentions, and adequate resources, that are made pursuant to the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned that such
F-18
<PAGE> 54
forward-looking statements contained in the year 2000 update are based on
certain assumptions which may vary from actual results. Specifically,
management's assumptions about the final impact on the company and the total
costs to the company of the year 2000 compliance issue are based upon the
assumption that there will not be a significant future impact resulting from,
for example, problems caused by customers or suppliers that have not yet been
fully recognized, or problems with billing, payroll, or financial closing at the
quarters or year end. However, there can be no guarantee that these assumptions
are correct.
ITEM 7A. MARKET RISK DISCLOSURES
INTEREST RATE RISK
Williams' interest rate risk exposure is related primarily to its
short-term investments, investment in Ferrellgas Partners L.P. senior common
units, debt portfolio and Williams obligated mandatorily redeemable preferred
securities of Trust.
Short-term investments consist primarily of money market instruments,
short-term debt securities, such as commercial paper, asset-backed and corporate
bonds, and a mutual fund investing in short-term debt securities, which are
managed by financial institutions. Williams' investing income is subject to
interest rate risk resulting from potential future fluctuations in interest
rates on comparable investment securities. To mitigate the impact of
fluctuations in interest rates, Williams instructs the managing financial
institutions to invest only in highly liquid instruments with short-term
maturity dates. These investments were purchased with a portion of the proceeds
from Communications' initial equity and high-yield debt offerings in October
1999.
Williams' interest rate risk exposure resulting from its debt portfolio is
influenced by 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.
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 periodically enters into interest-rate
forward contracts to establish an effective borrowing rate for anticipated
long-term debt issuances. The maturity of Williams' long-term debt portfolio is
partially influenced by the life of its operating assets.
At December 31, 1999 and 1998, the amount of Williams' fixed and variable
rate debt was at targeted levels. Williams has traditionally maintained an
investment grade credit rating as one aspect of managing its interest rate risk.
In order to fund its 2000 capital expenditure plan, Williams will need to access
various sources of liquidity, which will likely include traditional borrowing
and leasing markets. In addition, Communications will utilize the remaining
proceeds from its initial equity and high-yield debt offerings and traditional
bank borrowings to fund its 2000 capital expenditure plan.
F-19
<PAGE> 55
The following tables provide information as of December 31, 1999 and 1998,
about Williams' interest rate risk sensitive instruments. For short-term
investments, investment in Ferrellgas Partners L.P. senior common units, notes
payable, long-term debt and Williams obligated mandatorily redeemable preferred
securities of Trust, 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,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------ ------ ------ ---- ---- ---------- ------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Short-term investments........ $1,435 $ -- $ -- $ -- $ -- $ -- $1,435 $1,435
Fixed rate.................... 5.8%
Investment-Ferrellgas Partners
L.P. senior common units.... $ -- $ -- $ 176 $ -- $ -- $ -- $ 176 $ 176
Fixed rate.................... 10.0% 10.0% 10.0%
Liabilities:
Notes payable................. $1,379 $ -- $ -- $ -- $ -- $ -- $1,379 $1,379
Interest rate................. 6.4%
Long-term debt, including
current portion:
Fixed rate.................. $ 194 $1,401 $1,003 $280 $350 $5,223 $8,451 $8,369
Interest rate............... 7.9% 8.1% 8.3% 8.5% 8.6% 8.3%
Variable rate............... $ 2 $ 101 $ 677 $ -- $200 $ -- $ 980 $ 980
Interest rate(1)
Williams obligated mandatorily
redeemable preferred
securities of
Trust......................... $ -- $ -- $ 176 $ -- $ -- $ -- $ 176 $ 176
Fixed rate.................... 7.9% 7.9% 7.9%
Interest-rate swaps:
Pay variable/receive fixed.... $ 47 $ 461 $ 240 $ -- $200 $ 750 $1,698 $ (27)
Pay rate(2)
Receive rate.................. 6.7% 6.7% 7.2% 7.2% 7.2% 7.5%
Pay fixed/receive
variable(3)................. $ 47 $ 53 $ 59 $ 65 $ 72 $ 212 $ 508 $ (21)
Pay rate...................... 7.8% 7.8% 8.0% 8.0% 8.0% 8.0%
Receive rate(4)
</TABLE>
F-20
<PAGE> 56
<TABLE>
<CAPTION>
FAIR VALUE
DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------ ---- ------ ---- ---- ---------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities:
Notes payable................... $1,053 $ -- $ -- $ -- $ -- $ -- $1,053 $1,053
Interest rate................... 5.9%
Long-term debt, including
current portion:
Fixed rate.................... $ 258 $461 $1,080 $994 $268 $2,615 $5,676 $5,815
Interest rate................. 6.9% 6.9% 6.9% 7.0% 7.1% 7.5%
Variable rate................. $ 132 $102 $ 2 $845 $ -- $ -- $1,081 $1,081
Interest rate(1)
Interest-rate swaps:
Pay variable/receive fixed...... $ 42 $ 47 $ 461 $240 $ -- $ 450 $1,240 $ 21
Pay rate(2)
Receive rate.................... 6.3% 6.3% 6.3% 6.8% 6.8% 6.4%
Pay fixed/receive variable(3)... $ 172 $ 47 $ 53 $ 59 $ 65 $ 284 $ 680 $ (67)
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(5)..... $ 50 $ -- $ -- $ -- $ -- $ -- $ 50 $ --
</TABLE>
- ---------------
(1) LIBOR plus .60 percent through 2002, LIBOR plus .35 percent thereafter for
1999 and LIBOR plus .30 percent for 1998.
(2) LIBOR, except $250 million notional amount maturing after 2003 is at LIBOR
less 1.04 percent and $240 million notional amount maturing in 2002 is at
LIBOR plus .26 percent.
(3) Counterparties have an option to cancel all outstanding swaps in 2001.
(4) LIBOR.
(5) Average lock in rate of 4.8 percent referenced to underlying Treasury
securities having a weighted-average maturity of 10 years.
COMMODITY PRICE RISK
Energy Marketing & Trading has trading operations that incur commodity
price risk as a consequence of providing 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 contracts which
include forward contracts, futures contracts, option contracts, swap agreements,
commodity inventories and short- and long-term purchase and sale commitments
which involve the physical delivery of an energy commodity. These energy
contracts are valued at fair value and unrealized gains and losses from changes
in fair 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 continues to manage market risk on a portfolio basis
subject to the parameters established in its trading policy. A risk control
group, independent of the trading operations, monitors compliance with the
established trading policy and measures the risk associated with the trading
portfolio.
Energy Marketing & Trading measures the market risk in its trading
portfolio on a daily basis utilizing a value at risk methodology to estimate the
potential one day loss from adverse changes in the fair value of its trading
operations. At December 31, 1999 and 1998, the value at risk for the trading
operations was $9 million and $8 million, respectively. The change in the value
at risk between 1999 and 1998 reflects that the market
F-21
<PAGE> 57
risk of the trading portfolio has changed because of changes in the commodity
product composition of the portfolio, increases in the size of the portfolio and
changes in market prices. As supplemental quantitative information to further
understand the general risk levels of the trading portfolio, the average of the
actual monthly changes in the fair value of the trading portfolio for 1999 was
an increase of $4 million. Value at risk requires a number of key assumptions
and is not necessarily representative of actual losses in fair value that could
be incurred from the trading portfolio. Energy Marketing & Trading's value at
risk model includes all financial instruments and physical positions and
commitments in its trading portfolio and assumes that as a result of changes in
commodity prices, there is a 97.5 percent probability that the one day loss in
the fair value of the trading portfolio will not exceed the value at risk. The
value at risk model uses historical simulation to estimate hypothetical
movements in future market prices assuming normal market conditions based upon
historical market prices. Value at risk does not 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 the
value at risk model.
FOREIGN CURRENCY RISK
Williams has international investments that could affect the financial
results 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.
International investments accounted for under the cost method totaled $501
million and $247 million at December 31, 1999 and 1998, respectively. The fair
value of these investments is deemed to approximate their carrying amount as the
investments are primarily in non-publicly traded companies for which it is not
practicable to estimate the fair value of these investments. Williams continues
to believe that it can realize the carrying value of these investments
considering the status of the operations of the companies underlying these
investments. International cost investments include preferred stock interests in
certain Brazilian ventures totaling $370 million and $152 million at December
31, 1999 and 1998, respectively. During 1999, the Brazilian economy experienced
significant volatility resulting in a 33 percent reduction in the value of the
Brazilian real against the U.S. dollar during the period December 31, 1998 to
December 31, 1999. An additional 20 percent change in the value of the Brazilian
real against the U.S. dollar could result in an approximate $74 million change
in the fair value of these investments. This analysis assumes a direct
correlation between the fluctuation of the Brazilian real and the value of the
investments at December 31, 1999. The ultimate duration and severity of the
conditions in Brazil remain uncertain, as does the long-term impact on interests
in the ventures. Of the remaining international investments accounted for under
the cost method at December 31, 1999 and 1998, approximately 56 percent and 73
percent, respectively, of these international investments were in Asian
countries and approximately 44 percent and 27 percent, respectively, were in
South American countries. If a 20 percent change occurred in the value of the
underlying currencies of these investments against the U.S. dollar, the fair
value of these investments at December 31, 1999 could change by approximately
$26 million assuming a direct correlation between the currency fluctuation and
the value of the investments.
The net assets of foreign operations which are consolidated are located
primarily in Australia and Canada and approximate 2 percent and 1 percent of
Williams total net assets at December 31, 1999 and 1998, respectively. These
foreign operations, whose functional currency is the local currency, do not have
significant transactions or financial instruments denominated in other
currencies. However, these investments do have the potential to impact Williams'
financial position, due to fluctuations in these local currencies arising from
the process of re-measuring the local functional currency into the U.S. dollar.
As an example, a 20 percent change in the respective functional currencies
against the U.S. dollar could have changed stockholders' equity by approximately
$23 million at December 31, 1999.
Williams historically has not utilized derivatives or other financial
instruments to hedge the risk associated with the movement in foreign
currencies. However, Williams evaluates currency fluctuations and will consider
the use of derivative financial instruments or employment of other investment
alternatives if cash flows or investment returns so warrant.
F-22
<PAGE> 58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-24
Consolidated Statement of Income............................ F-25
Consolidated Balance Sheet.................................. F-26
Consolidated Statement of Stockholders' Equity.............. F-27
Consolidated Statement of Cash Flows........................ F-28
Notes to Consolidated Financial Statements.................. F-29
Quarterly Financial Data (Unaudited)........................ F-63
</TABLE>
F-23
<PAGE> 59
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, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. We did not audit the financial statements and
schedules of MAPCO Inc., a wholly owned subsidiary (see Note 2), which
statements reflect net income constituting approximately 26% of the related
consolidated financial statement total for the year ended December 31, 1997.
Those statements and schedules were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to data included
for MAPCO Inc. for the year ended December 31, 1997, is based solely on the
report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, based on our audits and the
report of other auditors, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for its crude
oil and refined products inventories from the last-in, first-out cost method of
inventory valuation to the average cost method. In addition, as also discussed
in Note 1, effective January 1, 1999, the Company changed its method of
accounting for start-up costs and, effective July 1, 1999, changed its method of
accounting for lease transactions relating to its fiber optic network.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 17, 2000
F-24
<PAGE> 60
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1999 1998* 1997*
--------- --------- --------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Gas Pipeline.............................................. $ 1,831.6 $ 1,684.8 $1,680.1
Energy Services**......................................... 6,362.6 5,351.4 5,831.5
Communications............................................ 2,040.7 1,764.6 1,465.1
Other..................................................... 114.6 68.4 53.4
Intercompany eliminations................................. (1,756.4) (1,210.9) (780.6)
--------- --------- --------
Total revenues...................................... 8,593.1 7,658.3 8,249.5
--------- --------- --------
Segment costs and expenses:
Costs and operating expenses**............................ 6,358.0 5,540.8 6,254.6
Selling, general and administrative expenses.............. 1,304.7 1,115.7 848.9
Other expense -- net...................................... 13.9 195.8 38.6
--------- --------- --------
Total segment costs and expenses.................... 7,676.6 6,852.3 7,142.1
--------- --------- --------
General corporate expenses.................................. 67.9 89.2 95.1
--------- --------- --------
Operating income (loss):
Gas Pipeline.............................................. 697.3 610.4 614.7
Energy Services........................................... 529.0 386.1 539.4
Communications............................................ (318.2) (193.0) (58.1)
Other..................................................... 8.4 2.5 11.4
General corporate expenses................................ (67.9) (89.2) (95.1)
--------- --------- --------
Total operating income.............................. 848.6 716.8 1,012.3
--------- --------- --------
Interest accrued............................................ (668.0) (515.1) (463.5)
Interest capitalized........................................ 69.8 30.6 23.3
Investing income............................................ 68.7 25.8 12.6
Gain on sale of interest in subsidiary...................... -- -- 44.5
Gain on sales of assets..................................... -- -- 66.0
Minority interest in (income) loss and preferred returns of
consolidated subsidiaries................................. 7.2 9.6 (18.2)
Other income (expense) -- net............................... (3.3) (19.1) .5
--------- --------- --------
Income from continuing operations before income taxes,
extraordinary gain (loss) and cumulative effect of change
in accounting principle................................... 323.0 248.6 677.5
Provision for income taxes.................................. 161.2 107.2 240.7
--------- --------- --------
Income from continuing operations........................... 161.8 141.4 436.8
Loss from discontinued operations........................... -- (14.3) (6.3)
--------- --------- --------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle.................. 161.8 127.1 430.5
Extraordinary gain (loss)................................... 65.2 (4.8) (79.1)
Cumulative effect of change in accounting principle......... (5.6) -- --
--------- --------- --------
Net income.................................................. 221.4 122.3 351.4
Preferred stock dividends................................... 2.8 7.1 9.8
--------- --------- --------
Income applicable to common stock........................... $ 218.6 $ 115.2 $ 341.6
========= ========= ========
Basic earnings per common share:
Income from continuing operations......................... $ .36 $ .31 $ 1.04
Loss from discontinued operations......................... -- (.03) (.02)
--------- --------- --------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle................ .36 .28 1.02
Extraordinary gain (loss)................................. .15 (.01) (.19)
Cumulative effect of change in accounting principle....... (.01) -- --
--------- --------- --------
Net income................................................ $ .50 $ .27 $ .83
========= ========= ========
Diluted earnings per common share:
Income from continuing operations......................... $ .36 $ .31 $ 1.01
Loss from discontinued operations......................... -- (.03) (.01)
--------- --------- --------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle................ .36 .28 1.00
Extraordinary gain (loss)................................. .15 (.01) (.19)
Cumulative effect of change in accounting principle....... (.01) -- --
--------- --------- --------
Net income................................................ $ .50 $ .27 $ .81
========= ========= ========
</TABLE>
- ---------------
* Certain amounts have been restated or reclassified as described in Note 1.
** Includes consumer excise taxes of $229.0 million, $192.9 million and $157.8
million in 1999, 1998 and 1997, respectively.
See accompanying notes.
F-25
<PAGE> 61
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1999 1998*
----------------------------------------------- --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 1,092.0 $ 503.3
Short-term investments.................................... 1,434.8 --
Receivables less allowance of $48.0 ($30.5 in 1998)....... 2,508.2 1,724.6
Inventories............................................... 631.5 497.5
Energy trading assets..................................... 376.0 354.5
Deferred income taxes..................................... 203.7 239.9
Other..................................................... 270.4 166.1
--------- ---------
Total current assets............................... 6,516.6 3,485.9
Investments................................................. 1,965.4 866.1
Property, plant and equipment -- net........................ 15,155.5 12,585.3
Goodwill and other intangible assets -- net................. 435.6 583.6
Other assets and deferred charges........................... 1,215.4 1,126.4
--------- ---------
Total assets....................................... $25,288.5 $18,647.3
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 1,378.8 $ 1,052.7
Accounts payable.......................................... 2,049.9 1,158.2
Accrued liabilities....................................... 1,835.2 1,547.6
Energy trading liabilities................................ 312.3 290.1
Long-term debt due within one year........................ 196.0 390.6
--------- ---------
Total current liabilities.......................... 5,772.2 4,439.2
Long-term debt.............................................. 9,235.3 6,366.4
Deferred income taxes....................................... 2,581.9 2,060.8
Other liabilities and deferred income....................... 1,041.8 1,015.2
Minority interest in consolidated subsidiaries.............. 561.5 173.2
Contingent liabilities and commitments
Preferred ownership interests of subsidiaries:
Preferred interests of subsidiaries....................... 335.1 335.1
Williams obligated mandatorily redeemable preferred
securities of Trust holding only Williams indentures.... 175.5 --
Stockholders' equity:
Preferred stock, $1 per share par value, 30 million shares
authorized, 1.8 million issued in 1998.................. -- 102.2
Common stock, $1 per share par value, 960 million shares
authorized, 444.5 million issued in 1999, 432.3 million
issued in 1998.......................................... 444.5 432.3
Capital in excess of par value............................ 2,356.7 982.4
Retained earnings......................................... 2,807.2 2,849.5
Accumulated other comprehensive income.................... 99.5 16.7
Other..................................................... (77.6) (78.5)
--------- ---------
5,630.3 4,304.6
Less treasury stock (at cost), 3.8 million shares of
common stock in 1999 and 4.0 million in 1998............ (45.1) (47.2)
--------- ---------
Total stockholders' equity......................... 5,585.2 4,257.4
--------- ---------
Total liabilities and stockholders' equity......... $25,288.5 $18,647.3
========= =========
</TABLE>
- ---------------
* Certain amounts have been reclassified as described in Note 1.
See accompanying notes.
F-26
<PAGE> 62
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
EXCESS OF COMPREHENSIVE
PREFERRED COMMON PAR RETAINED INCOME TREASURY
STOCK STOCK VALUE EARNINGS* (LOSS) OTHER STOCK TOTAL*
--------- ------ ---------- --------- ------------- ------ -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996, as
previously reported................. $ 161.0 $425.3 $ 942.2 $2,828.7 $ -- $(55.8) $(286.6) $4,014.8
Cumulative effect on prior years for
change in inventory valuation
method.............................. -- -- -- 22.1 -- -- -- 22.1
------- ------ -------- -------- ------ ------ ------- --------
BALANCE, DECEMBER 31, 1996, AS
RESTATED............................ 161.0 425.3 942.2 2,850.8 -- (55.8) (286.6) 4,036.9
Comprehensive income:
Net income -- 1997.................. -- -- -- 351.4 -- -- -- 351.4
Other comprehensive income:
Unrealized depreciation on
marketable equity securities.... -- -- -- -- (2.4) -- -- (2.4)
Foreign currency translation
adjustments..................... -- -- -- -- (.1) -- -- (.1)
--------
Total other comprehensive income.... (2.5)
--------
Total comprehensive income........... 348.9
Cash dividends --
Common stock ($.54 per share)....... -- -- -- (171.7) -- -- -- (171.7)
Common stock of pooled company...... -- -- -- (32.9) -- -- -- (32.9)
$2.21 preferred stock ($1.47 per
share)............................ -- -- -- (1.1) -- -- -- (1.1)
$3.50 preferred stock ($3.50 per
share)............................ -- -- -- (8.7) -- -- -- (8.7)
Issuance of shares -- .4 million
common.............................. -- .4 14.8 -- -- -- -- 15.2
Purchase of treasury stock -- 2.7
million common...................... -- -- -- -- -- -- (50.2) (50.2)
Conversion of preferred
stock -- 2,528 shares............... (.3) -- .3 -- -- -- -- --
Redemption of preferred
stock -- 741,552 shares............. (18.5) -- -- -- -- -- -- (18.5)
Treasury shares utilized for
acquisition of business............. -- -- .9 -- -- -- 17.8 18.7
Expiration of equity put options..... -- -- 4.9 -- -- -- -- 4.9
Stock award transactions (including
6.3 million common shares).......... -- 5.8 51.6 -- -- (1.6) 7.1 62.9
Tax benefit of stock-based awards.... -- -- 26.7 -- -- -- -- 26.7
ESOP loan repayment.................. -- -- -- -- -- 5.8 -- 5.8
Other................................ -- -- .2 .7 -- -- -- .9
------- ------ -------- -------- ------ ------ ------- --------
BALANCE, DECEMBER 31, 1997........... 142.2 431.5 1,041.6 2,988.5 (2.5) (51.6) (311.9) 4,237.8
Comprehensive income:
Net income -- 1998.................. -- -- -- 122.3 -- -- -- 122.3
Other comprehensive income:
Unrealized appreciation on
marketable equity securities.... -- -- -- -- 24.1 -- -- 24.1
Foreign currency translation
adjustments..................... -- -- -- -- (4.9) -- -- (4.9)
--------
Total other comprehensive income.... 19.2
--------
Total comprehensive income........... 141.5
Cash dividends --
Common stock ($.60 per share)....... -- -- -- (240.3) -- -- -- (240.3)
Common stock of pooled company...... -- -- -- (14.0) -- -- -- (14.0)
$3.50 preferred stock ($3.50 per
share)............................ -- -- -- (7.1) -- -- -- (7.1)
Stockholders' notes issued........... -- -- -- -- -- (35.7) -- (35.7)
Conversion of preferred
stock -- 704,190 shares............. (40.0) 3.3 36.7 -- -- -- -- --
Retirement of treasury stock --
14.0 million common................. -- (14.0) (239.8) -- -- -- 253.8 --
Expiration of equity put options..... -- -- 12.3 -- -- -- -- 12.3
Stock award transactions (including
12.4 million common shares)......... -- 11.5 47.4 -- -- 2.5 10.7 72.1
Tax benefit of stock-based awards.... -- -- 83.9 -- -- -- -- 83.9
ESOP loan repayment.................. -- -- -- -- -- 6.3 -- 6.3
Other................................ -- -- .3 .1 -- -- .2 .6
------- ------ -------- -------- ------ ------ ------- --------
BALANCE, DECEMBER 31, 1998........... 102.2 432.3 982.4 2,849.5 16.7 (78.5) (47.2) 4,257.4
Comprehensive income:
Net income -- 1999.................. -- -- -- 221.4 -- -- -- 221.4
Other comprehensive income:
Unrealized appreciation on
marketable equity securities.... -- -- -- -- 104.2 -- -- 104.2
Foreign currency translation
adjustments..................... -- -- -- -- (18.0) -- -- (18.0)
--------
Total other comprehensive income.... 86.2
--------
Total comprehensive income........... 307.6
Cash dividends --
Common stock ($.60 per share)....... -- -- -- (260.9) -- -- -- (260.9)
$3.50 preferred stock ($2.04 per
share)............................ -- -- -- (2.8) -- -- -- (2.8)
Stockholders' notes issued........... -- -- -- -- -- (9.7) -- (9.7)
Stockholders' notes repaid........... -- -- -- -- -- 3.3 -- 3.3
Conversion of preferred stock --
1.8 million shares.................. (102.2) 8.4 93.8 -- -- -- -- --
Issuance of subsidiary's common
stock............................... -- -- 1,170.2 -- (3.4) -- -- 1,166.8
Stock award transactions (including
4.0 million common shares).......... -- 3.8 78.7 -- -- .4 2.1 85.0
Tax benefit of stock-based awards.... -- -- 31.6 -- -- -- -- 31.6
ESOP loan repayment.................. -- -- -- -- -- 6.9 -- 6.9
------- ------ -------- -------- ------ ------ ------- --------
BALANCE, DECEMBER 31, 1999........... $ -- $444.5 $2,356.7 $2,807.2 $ 99.5 $(77.6) $ (45.1) $5,585.2
======= ====== ======== ======== ====== ====== ======= ========
</TABLE>
- ---------------
* Certain amounts have been restated as described in Note 1.
See accompanying notes.
F-27
<PAGE> 63
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998* 1997*
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Operating Activities:
Net income................................................ $ 221.4 $ 122.3 $ 351.4
Adjustments to reconcile to cash provided from operations:
Discontinued operations................................. -- 14.3 6.3
Extraordinary (gain) loss............................... (65.2) 4.8 79.1
Cumulative effect of change in accounting principle..... 5.6 -- --
Premium on early extinguishment of debt................. -- (8.9) (171.2)
Depreciation, depletion and amortization................ 742.0 646.3 585.9
Provision for deferred income taxes..................... 455.1 39.7 93.8
Provision for loss on property and other assets......... 28.7 126.8 49.8
(Gain) loss on dispositions of assets and interest in
subsidiary............................................. (4.9) 5.9 (121.0)
Provision for uncollectible accounts.................... 28.3 39.8 13.3
Minority interest in income (loss) and preferred returns
of consolidated subsidiaries........................... (7.2) (9.6) 18.2
Cash provided (used) by changes in assets and
liabilities:
Receivables sold...................................... 22.1 (41.8) 188.6
Receivables........................................... (886.3) (1.1) (180.5)
Inventories........................................... (118.7) (53.1) (62.1)
Other current assets.................................. (117.7) (12.3) 16.7
Accounts payable...................................... 949.2 (199.7) 188.0
Accrued liabilities................................... 67.9 91.9 (37.6)
Changes in current energy trading assets and
liabilities............................................ .8 (66.2) 11.0
Changes in non-current energy trading assets and
liabilities............................................ (59.1) (44.6) (47.7)
Changes in non-current deferred income.................. 176.9 113.0 53.7
Other, including changes in non-current assets and
liabilities............................................ 48.8 (89.7) (47.5)
--------- --------- ---------
Net cash provided by operating activities........... 1,487.7 677.8 988.2
--------- --------- ---------
Financing Activities:
Proceeds from notes payable............................... 2,493.8 806.9 1,927.4
Payments of notes payable................................. (2,284.0) (946.0) (1,305.5)
Proceeds from long-term debt.............................. 4,507.2 3,597.0 2,217.4
Payments of long-term debt................................ (1,831.5) (1,776.5) (2,199.0)
Proceeds from issuance of common stock including tax
benefit................................................. 141.3 78.2 72.5
Proceeds from issuance of subsidiary's common stock....... 1,468.1 -- --
Purchases of treasury stock............................... -- -- (50.2)
Dividends paid............................................ (263.7) (261.4) (214.4)
Proceeds from issuance of preferred ownership interests of
subsidiaries............................................ 175.0 335.1 --
Other -- net.............................................. (29.2) (24.7) (24.3)
--------- --------- ---------
Net cash provided by financing activities........... 4,377.0 1,808.6 423.9
--------- --------- ---------
Investing Activities:
Property, plant and equipment:
Capital expenditures.................................... (3,513.1) (1,811.8) (1,340.5)
Proceeds from dispositions and excess fiber capacity
transactions........................................... 83.9 81.6 104.2
Changes in accounts payable and accrued liabilities..... 93.5 87.9 (7.5)
Acquisitions of businesses, net of cash acquired.......... (171.4) (9.6) (146.7)
Proceeds from sales of assets............................. 356.1 11.6 71.2
Purchases of short-term investments....................... (2,034.2) -- --
Proceeds from sales of short-term investments............. 599.4 -- --
Purchases of investments/advances to affiliates........... (696.0) (470.3) (205.6)
Other -- net.............................................. 5.8 5.4 14.8
--------- --------- ---------
Net cash used by investing activities............... (5,276.0) (2,105.2) (1,510.1)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.... 588.7 381.2 (98.0)
Cash and cash equivalents at beginning of year.............. 503.3 122.1 220.1
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 1,092.0 $ 503.3 $ 122.1
========= ========= =========
</TABLE>
- ---------------
* Certain amounts have been restated or reclassified as described in Note 1.
See accompanying notes.
F-28
<PAGE> 64
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
Operations of The Williams Companies, Inc. (Williams) are located
principally in the United States and are organized into three industry groups:
Gas Pipeline, Energy Services and Communications.
Gas Pipeline is comprised of five interstate natural gas pipelines located
throughout the majority of the United States as well as investments in domestic
natural gas pipeline-related companies. The five Gas Pipeline operating segments
have been aggregated for reporting purposes and include Williams Gas Pipelines
Central, Kern River Gas Transmission, Northwest Pipeline, Texas Gas Transmission
and Transcontinental Gas Pipe Line.
Energy Services includes four operating segments: Energy Marketing &
Trading, Exploration & Production, Midstream Gas & Liquids and Petroleum
Services. Energy Marketing & Trading offers price-risk management services and
buys, sells and arranges for transportation/transmission of energy
commodities -- including natural gas and gas liquids, crude oil and refined
products, and electricity -- to local distribution companies and large
industrial and commercial customers in North America. Exploration & Production
includes hydrocarbon exploration and production activities in the Rocky Mountain
and Gulf Coast regions. Midstream Gas & Liquids is comprised of natural gas
gathering and processing facilities in the Rocky Mountain, midwest and Gulf
Coast regions, natural gas liquids pipelines in the Rocky Mountain, southwest,
midwest and Gulf Coast regions and an anhydrous ammonia pipeline in the midwest.
Petroleum Services includes petroleum refining and marketing in Alaska and the
southeast, a petroleum products pipeline and ethanol production and marketing
operations in the midwest region.
Communications consists of three operating segments: Network, Solutions and
Strategic Investments. Network provides fiber-optic construction, transmission
and management services throughout the United States. Solutions includes
distribution and integration of communications equipment for voice and data
networks for customers throughout North America. Strategic Investments includes
operations principally located in the United States offering video, advertising
distribution and other multimedia transmission services via terrestrial and
satellite links for the broadcast industry as well as investments in domestic
communications companies and investments in foreign communications companies
located in Australia, Brazil and Chile.
Basis of presentation
Communications' 1998 and 1997 segment results have been restated to include
the results of investments in certain Brazilian and Australian
telecommunications projects, which had previously been reported in Other segment
revenues and profit. These investments, along with certain businesses previously
reported as Network Applications and certain investments previously reported in
Network Services, are now collectively managed and reported as Strategic
Investments. Segments previously reported as Network Services and Communications
Solutions are now reported as Network and Solutions, respectively.
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. The
transaction has been accounted for as a pooling of interests and, accordingly,
the consolidated financial statements and notes reflect the results of
operations, financial position and cash flows as if the companies had been
combined throughout the periods presented. MAPCO was engaged in the natural gas
liquids pipeline, petroleum refining and marketing and propane marketing
businesses, and became part of the Energy Services business unit. Effective
April 1, 1998, certain marketing activities were transferred from other Energy
Services segments to Energy Marketing & Trading and combined with its energy
risk trading operations. The income statement presentation relating to certain
of these operations was changed effective April 1, 1998, on a prospective basis,
to reflect these revenues net of the related costs to purchase such items.
Activity prior to this date is reflected on a "gross" basis in Energy Marketing
& Trading's segment results and in the Consolidated Statement of Income.
Concurrent with completing the combination of such activities with the energy
risk trading operations
F-29
<PAGE> 65
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Energy Marketing & Trading, the related contract rights and obligations of
certain of these operations were recorded in the Consolidated Balance Sheet at
fair value consistent with Energy Marketing & Trading's accounting policy.
Certain prior year amounts have been reclassified to conform to current
year classifications.
Principles of consolidation
The consolidated financial statements include the accounts of Williams, its
majority-owned subsidiaries, and a subsidiary that Williams controls but owns
less than 50 percent of the voting common stock. Companies in which Williams and
its subsidiaries own 20 percent to 50 percent of the voting common stock, or
otherwise exercise significant 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. Certain items which meet the definition of cash equivalents, but
are part of a larger pool of investments managed by financial institutions, are
included in short-term investments.
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. At December 31, 1999 and 1998,
transportation and exchange gas receivables were $47.5 million and $96.4
million, respectively, and transportation and exchange gas payables were $41.7
million and $47.1 million, respectively.
Inventory valuation
In the fourth quarter of 1999, Williams conformed its accounting for all of
its inventories of non-trading crude oil and refined products to the
average-cost method or market, if lower, the method used for the majority of
such inventories. Previously, certain of these inventories were carried on the
last-in, first-out (LIFO) cost method which was the inventory valuation method
used by MAPCO. At the time of the MAPCO acquisition, Williams began using its
business and risk management practices to manage such inventories, but continued
using the LIFO cost method. After taking into account its risk management
practices, Williams now believes the average-cost method for such inventories is
preferable because it provides a better measure of periodic income. In addition,
the change results in the consistent valuation of Williams' non-trading crude
oil and refined products inventories. All previously reported results have been
restated to reflect the retroactive application of this accounting change. The
accounting change increased net income for
F-30
<PAGE> 66
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 by $21.9 million, or $.05 per diluted share, and decreased net income
previously reported for 1998 by $5.2 million, or $.01 per diluted share, and for
1997 by $16.9 million, or $.04 per diluted share. Retained earnings as of
December 31, 1996, was increased by $22.1 million.
Other inventories are stated at cost, which is not in excess of market,
except for certain assets held for energy trading activities by Energy Marketing
& Trading, which are primarily stated at fair value. The cost of these other
inventories is primarily determined using the average-cost method, except for
certain natural gas inventories held by Transcontinental Gas Pipe Line and
general merchandise inventories held by Petroleum Services which are determined
using the LIFO cost 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 pipelines 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 from 10
to 25 years. Other intangible assets are amortized on a straight-line basis over
periods from three to 20 years. Accumulated amortization at December 31, 1999
and 1998 was $144.9 million and $128.9 million, respectively. Amortization was
$50.7 million, $49.7 million and $29.2 million in 1999, 1998 and 1997,
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.
Gas Pipeline revenues
Revenues for sales of products are recognized in the period of delivery and
revenues from the transportation of gas are recognized based on contractual
terms and the related transported volumes. Gas Pipeline is subject to Federal
Energy Regulatory Commission (FERC) regulations and, accordingly, certain
revenues collected may be subject to possible refunds upon final orders in
pending cases. Gas Pipeline records rate refund liabilities considering Gas
Pipeline and other third party regulatory proceedings, advice of counsel and
estimated total exposure, as discounted and risk weighted, as well as collection
and other risks.
Energy Services revenues
Revenues generally are recorded when services have been performed or
products have been delivered. A portion of Petroleum Services is subject to FERC
regulations and, accordingly, the method of recording these revenues is
consistent with Gas Pipeline's method discussed above. Certain of Energy
Marketing & Trading's activities are accounted for at fair value as described in
Energy Trading Activities.
Communications revenues
For Network and Strategic Investments, transmission and management service
revenues are recognized monthly as the services are provided. Amounts billed in
advance of the service month are recorded as deferred revenue.
F-31
<PAGE> 67
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Network uses lease accounting to record revenues related to cash received
for the right to use portions of its fiber-optic network. The lease transactions
are evaluated for sales-type lease accounting which results in certain lease
transactions being accounted for as sales upon completion of the construction of
the respective network segments and upon acceptance of the fiber by the
purchaser. Transactions that do not meet the criteria for a sales-type lease are
accounted for as an operating lease and revenue is recorded over the term of the
lease. In accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66," issued in June 1999, lease transactions entered into after June 30,
1999, are accounted for as operating leases unless title to the fibers under
lease transfers to the lessee. The effect of this interpretation on 1999 results
was not significant.
Solutions uses the percentage-of-completion method to record revenues
related to upgrades and new system sales. Revenues for these contracts are
initially recognized upon delivery of equipment with remaining revenues under
the contracts recognized over the installation period based on the relationship
of incurred labor to total estimated labor. Estimated losses on all contracts in
progress are accrued when the loss becomes known. The billings associated with
these contracts occur incrementally over the term of the agreement or upon
completion of the contract as provided. At December 31, 1999 and 1998, costs
incurred and estimated earnings in excess of billings were $166.7 million and
$185.9 million, respectively, and billings in excess of costs incurred and
estimated earnings were $50.7 million and $49.4 million, respectively.
Solutions uses the completed-contract method to record revenues related to
customer service orders. Revenues on contracts for the maintenance of installed
systems are deferred and amortized on a straight-line basis over the lives of
the related contracts.
Energy trading activities
Energy Marketing & Trading has trading operations that enter into energy
contracts to provide price-risk management services to its third-party
customers. Energy contracts include forward contracts, futures contracts, option
contracts, swap agreements, commodity inventories and short- and long-term
purchase and sale commitments which involve physical delivery of an energy
commodity. These energy contracts are valued at fair value and, with the
exception of commodity inventories, are recorded in energy trading assets, other
assets and deferred charges, energy trading liabilities and other liabilities
and deferred income in the Consolidated Balance Sheet. The net change in fair
value representing unrealized gains and losses is recognized in income currently
and is recorded as revenues in the Consolidated Statement of Income. Fair value,
which is subject to change in the near term, reflects management's estimates
using valuation techniques that reflect the best information available in the
circumstances. This information includes various factors such as quoted market
prices, estimates of market prices in the absence of quoted market prices,
contractual volumes, estimated volumes under option and other arrangements that
result in varying volumes, other contract terms, liquidity of the market in
which the contract is transacted, 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 fair value accounting for such trading activities.
Williams also enters into energy 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 in the same manner as the hedged item. These contracts are initially
and regularly evaluated to determine that there is a high correlation between
changes in the fair value of the hedge contract and fair value of the hedged
item. In instances where the anticipated correlation of price movements does not
occur, hedge accounting is terminated and future changes in the value of the
instruments are recognized as gains or losses. If the hedged item of the
underlying transactions is sold or settled, the instrument is recognized into
income.
F-32
<PAGE> 68
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of long-lived assets
Williams evaluates the long-lived assets, including related intangibles, of
identifiable business activities for impairment when events or changes in
circumstances indicate, in management's judgment, that the carrying value of
such assets may not be recoverable. The determination of whether an impairment
has occurred is based on management's estimate of undiscounted future cash flows
attributable to the assets as compared to the carrying value of the assets. If
an impairment has occurred, the amount of the impairment recognized is
determined by estimating the fair value for the assets and recording a provision
for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value
of these assets is compared to the estimated fair value less the cost to sell to
determine if an impairment is required. Until the assets are disposed of, an
estimate of the fair value is redetermined when related events or circumstances
change.
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 accrued. Gains and losses
from terminations of interest-rate swap agreements are deferred and amortized as
an adjustment of the interest expense on the outstanding debt over the remaining
original term of the terminated swap agreement. In the event the designated debt
is extinguished, gains and losses from terminations of interest-rate swap
agreements are recognized in income.
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.
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 the average interest rate on related debt. Interest capitalized on
internally generated funds, as permitted by FERC rules, is included in
non-operating other income (expense) -- net.
Employee stock-based awards
Employee stock-based awards are accounted for under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations. Fixed-plan common stock options generally 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
tax return. For certain of the periods presented, Williams and MAPCO separately
included the operations of their respective subsidiaries in consolidated federal
income tax returns. Williams and MAPCO began filing a single consolidated
federal income tax return as of the date of the merger. 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.
F-33
<PAGE> 69
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 include any dilutive effect of stock options and convertible
preferred stock.
Foreign currency translation
The functional currency of Williams is the U.S. dollar. The functional
currency of certain of Williams' foreign operations is the applicable local
currency for each foreign subsidiary and equity method investee, including the
Australian dollar, Brazilian real, Canadian dollar and Lithuanian lita. Assets
and liabilities of certain foreign subsidiaries and equity investees are
translated at the spot rate in effect at the applicable reporting date, and the
combined statements of operations and Williams' share of the results of
operations of its equity affiliates are translated at the average exchange rates
in effect during the applicable period. The resulting cumulative translation
adjustment is recorded as a separate component of other comprehensive income.
Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the Consolidated Statement of Income.
Recent accounting standards
Effective January 1, 1999, Williams adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires that all
start-up costs be expensed as incurred, and the expense related to the initial
application of this SOP of $5.6 million (net of a $3.6 million benefit for
income taxes) is reported as the cumulative effect of change in accounting
principle.
Additionally, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk
Management Activities," which was adopted in the first quarter of 1999. The
cumulative effect of initially applying the consensus at January 1, 1999, is
immaterial to Williams' results of operations and financial position.
The FASB issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This standard,
as amended, will be effective for Williams beginning January 1, 2001. This
standard requires that all derivatives be recognized as assets or liabilities in
the balance sheet and that those instruments be measured at fair value. The
effect of this standard on Williams' results of operations and financial
position is being evaluated.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
effect of this guidance on Williams' results of operations and financial
position is being evaluated.
NOTE 2. ACQUISITIONS
MAPCO
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. by
exchanging 1.665 shares of Williams common stock for each outstanding share of
MAPCO common stock. In addition, outstanding MAPCO employee stock options were
converted into 5.7 million shares of Williams common stock. Upon completion,
98.8 million shares of Williams common stock valued at $3.1 billion, based on
the closing price of Williams common stock on March 27, 1998, were issued. Also
in connection with the merger, 8.4 million shares of MAPCO $1 par value common
stock previously held in treasury were retired. These shares had a
F-34
<PAGE> 70
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying value of $253.8 million. The merger constituted a tax-free
reorganization and has been accounted for as a pooling of interests.
In connection with the merger, Williams recognized approximately $80
million in merger-related costs in 1998, comprised primarily of outside
professional fees and early retirement and severance costs. Approximately $51
million of these merger-related costs are included in other expense -- net as a
component of segment profit within Energy Services for 1998, and approximately
$29 million, unrelated to segments, is included in general corporate expenses.
During 1997, payments of $32.6 million were made for non-compete agreements.
These costs are being amortized over one to three years from the merger
completion date.
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, were 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 shareholder 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.
NOTE 3. DISCONTINUED OPERATIONS
Williams accrued losses of $14.3 million (net of a $7.4 million income tax
benefit) and $6.3 million (net of a $.7 million income tax benefit) in 1998 and
1997, respectively. The losses related to a business sold in 1996 and include
cost accruals for contractual obligations related to financial performance of
those assets and a 1997 income tax adjustment to the 1996 loss on the assets
sold.
NOTE 4. INVESTING ACTIVITIES
Short-term investments
Short-term investments at December 31, 1999, consist of the following:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
Commercial paper............................................ $ 516.9
Debt securities mutual fund................................. 354.9
Auction securities consisting primarily of asset-backed and
corporate debt securities................................. 334.3
Other debt securities and time deposits..................... 228.7
--------
$1,434.8
========
</TABLE>
Maturities of short-term investments are primarily one year or less with
the exception of the mutual funds which do not have a maturity. All short-term
investments are classified as available-for-sale under the scope of SFAS 115
"Accounting for Certain Investments in Debt and Equity Securities." The carrying
amounts of
F-35
<PAGE> 71
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these investments are reported at fair value, which approximate cost at December
31, 1999, with net unrealized appreciation or depreciation reported as a
component of other comprehensive income.
Long-term investments
Long-term investments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ------
(MILLIONS)
<S> <C> <C>
Equity method:
ATL-Algar Telecom Leste S.A. -- common stock.............. $ 42.6 $ 42.7
Alliance Pipeline -- 14.6%................................ 162.7 --
AB Mazeikiu Nafta -- 33%.................................. 73.7 --
Longhorn Partners Pipeline, L.P. -- 31.5%................. 98.4 90.0
Discovery Pipeline -- 50%................................. 92.6 78.0
Other..................................................... 245.1 163.9
-------- ------
715.1 374.6
Cost method:
ATL-Algar Telecom Leste S.A. -- preferred stock........... 317.0 100.0
Algar Telecom S.A. -- common and preferred stock.......... 52.8 52.4
Other..................................................... 226.3 157.0
-------- ------
596.1 309.4
Ferrellgas Partners L.P. senior common units................ 175.7 --
Marketable equity securities................................ 288.1 77.0
Advances to affiliates...................................... 190.4 105.1
-------- ------
$1,965.4 $866.1
======== ======
</TABLE>
At December 31, 1998, Williams owned 30 percent of the preferred shares in
ATL-Algar Telecom Leste S.A. (ATL) and through participation in a limited
liability company owned 30 percent of the common stock. In March 1999, Williams
purchased from Algar Telecom S.A. for $265 million an additional 43 percent of
the preferred shares and 19 percent of the common stock in ATL. In March 1999,
Williams pledged its 49 percent and 73 percent investment in ATL's common and
preferred stock, respectively, as collateral for a U.S. dollar denominated $521
million loan from Ericsson Project Finance AB to ATL. In addition, Algar Telecom
pledged 49 percent of its 51 percent investment in ATL common stock and 100
percent of its 27 percent investment in ATL preferred stock as collateral for
the loan.
Subsequent to December 31, 1999, Williams sold 30 percent and 7 percent of
the common and preferred stock, respectively, of ATL to SBC Communications, Inc.
and Telefonos de Mexico S.A. de C.V. for aggregate proceeds of $148 million.
The Ferrellgas Partners L.P. senior common units are non-voting and become
callable in two years and bear a fixed yield of 10 percent. The carrying amount
of this investment is reported at fair value which approximates cost at December
31, 1999.
Included in the preceding investments table are marketable equity
securities which are classified as available-for-sale under the scope of SFAS
No. 115. The carrying amount of these investments is reported at fair value with
net unrealized appreciation or depreciation reported as a component of other
comprehensive income. The aggregate cost of these investments at December 31,
1999 and 1998 was $57.7 million and $41.5 million, respectively. Fair value
exceeded cost for each marketable equity security investment at December 31,
1999 and 1998.
F-36
<PAGE> 72
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to December 31, 1999, Williams liquidated a portion of its
marketable equity securities portfolio, yielding proceeds of $35.9 million. At
December 31, 1999, these investments had a cost and carrying value of $4.4
million and $35.7 million, respectively.
Summarized unaudited financial position and results of operations of
Williams' equity method investments are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(MILLIONS)
<S> <C> <C>
Current assets.............................................. $ 646.3 $ 202.0
Non-current assets.......................................... 6,884.1 4,938.6
Current liabilities......................................... 1,125.2 1,030.8
Non-current liabilities..................................... 3,771.8 2,546.7
Revenues.................................................... 839.7 347.0
Costs and operating expenses................................ 581.9 164.6
Net income (loss)........................................... (96.1) 70.1
</TABLE>
The non-current assets consist primarily of communication and interstate
natural gas pipeline assets.
Dividends and distributions received from companies carried on an equity
basis were $14 million, $16 million and $7 million in 1999, 1998 and 1997,
respectively.
Certain investments accounted for under the equity method are publicly
traded. At December 31, 1999, these investments had a carrying value of $65
million and a quoted market value of $183.1 million.
Earnings and losses related to equity method investments are included in
revenues. Investing income for all of the years presented is comprised primarily
of interest income.
NOTE 5. ASSET SALES, IMPAIRMENTS AND OTHER ACCRUALS
Included in other expense -- net within segment costs and expenses and
Energy Marketing & Trading's segment profit for 1999 is a $22.3 million gain
related to the sale of certain of its retail gas and electric operations.
Included in other expense -- net within segment costs and expenses and
Exploration & Production's segment profit for 1999 is a $14.7 million gain
related to the sale of certain of its gas producing properties.
Included in other expense -- net within segment costs and expenses and
Strategic Investments' segment loss for 1999, is a pre-tax loss totaling $28.4
million relating to management's second-quarter 1999 decision and commitment to
sell certain network application businesses. The $28.4 million loss consists of
a $24.5 million impairment of the assets to fair value, based on the net sales
proceeds of $50 million, and $3.9 million in exit costs consisting of
contractual obligations related to the sales of these businesses. These
transactions resulted in an increase in the income tax provision of
approximately $7.9 million, which reflects the impact of goodwill not deductible
for tax purposes. Segment losses for the operations related to these assets for
1999, 1998 and 1997 were $10 million, $22 million and $15 million, respectively.
Included in other expense -- net within segment costs and expenses and
Energy Marketing & Trading's segment profit for 1998 is a $14 million asset
impairment related to the decision to focus its retail natural gas and electric
business from sales to small commercial and residential customers to large end
users. The impairment primarily reflects the reduction in value of a software
system and certain intangible assets associated specifically with retail energy
applications that will no longer be utilized by Energy Marketing & Trading and
for which management estimates the fair value to be insignificant.
F-37
<PAGE> 73
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Included in 1998 other expense -- net within segment costs and expenses and
Strategic Investments' segment loss is a $23.2 million loss related to a venture
involved in the technology and transmission of business information for news and
educational purposes. The loss occurred as a result of Williams' re-evaluation
and decision to exit the venture as Williams decided against making further
investments in the venture. Williams abandoned its entire ownership interest in
the venture during fourth-quarter 1998. The loss primarily consists of $17
million from the impairment of the total carrying amount of the investment and
$5 million from recognition of contractual obligations that continued after the
abandonment. Williams' share of losses from the venture is not significant to
consolidated net income for any periods presented.
In fourth-quarter 1997, Williams made the decision and committed to a plan
to sell the learning content business, which resulted in a loss of $22.7 million
included in 1997 other expense -- net within segment costs and expenses and
Strategic Investments' segment loss. The loss consisted of a $21 million
impairment of the assets to fair value less cost to sell and recognition of $1.7
million in costs associated with the decision to sell the business. Fair value
was based on management's estimate of the expected net proceeds to be received.
During 1998, a significant portion of the learning content business was sold
with a resulting $2 million reduction in 1998 expenses. The results of
operations and the effect of suspending amortization for the learning content
business included in consolidated net income are not significant for any of the
periods presented.
In 1997, Williams sold its interest in the natural gas liquids and
condensate reserves in the West Panhandle field of Texas for $66 million in
cash. The sale resulted in a $66 million pre-tax gain on the transaction,
because the related reserves had no book value.
NOTE 6. PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Current:
Federal................................................. $(318.0) $ 57.8 $121.5
State................................................... 18.7 5.1 23.1
Foreign................................................. 5.4 4.6 2.3
------- ------ ------
(293.9) 67.5 146.9
------- ------ ------
Deferred:
Federal................................................. 442.1 29.0 79.9
State................................................... 21.8 10.7 13.9
Foreign................................................. (8.8) -- --
------- ------ ------
455.1 39.7 93.8
------- ------ ------
Total provision................................. $ 161.2 $107.2 $240.7
======= ====== ======
</TABLE>
F-38
<PAGE> 74
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations from the provision for income taxes from continuing
operations at the federal statutory rate to the provision for income taxes are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Provision at statutory rate................................ $113.0 $ 87.0 $237.1
Increases (reductions) in taxes resulting from:
State income taxes (net of federal benefit).............. 26.3 10.0 23.9
Non-deductible costs, including goodwill amortization.... 5.6 10.5 7.0
Income tax credits....................................... (5.8) (4.0) (16.5)
Non-deductible costs related to asset sales.............. 16.8 -- --
Non-taxable gain from sale of interest in subsidiary..... -- -- (15.6)
Foreign operations....................................... 10.5 8.5 (.2)
Other -- net............................................. (5.2) (4.8) 5.0
------ ------ ------
Provision for income taxes................................. $161.2 $107.2 $240.7
====== ====== ======
</TABLE>
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(MILLIONS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $2,248.0 $2,149.2
Investments............................................... 569.5 133.5
Other..................................................... 79.0 95.3
-------- --------
Total deferred tax liabilities.................... 2,896.5 2,378.0
-------- --------
Deferred tax assets:
Rate refunds.............................................. 84.9 124.1
Accrued liabilities....................................... 151.0 181.5
Minimum tax credits....................................... 213.6 178.5
Other..................................................... 68.8 73.0
-------- --------
Total deferred tax assets......................... 518.3 557.1
-------- --------
Net deferred tax liabilities................................ $2,378.2 $1,820.9
======== ========
</TABLE>
In 1999, cash refunds exceeded cash payments resulting in a net refund of
$387 million. Federal tax refunds received in 1999 are reflected as current tax
benefits with offsetting deferred tax provisions attributable to temporary
differences between the book and tax basis of certain assets. Cash payments for
income taxes (net of refunds) were $29 million and $126 million in 1998 and
1997, respectively.
NOTE 7. EXTRAORDINARY GAIN (LOSS)
On December 17, 1999, Williams sold its retail propane business, Thermogas
L.L.C., previously a subsidiary of MAPCO, to Ferrellgas Partners L.P.
(Ferrellgas) for $443.7 million, including $175 million in senior common units
of Ferrellgas. The sale resulted from an unsolicited offer from Ferrellgas and
yielded an after-tax gain of $65.2 million (net of a $47.9 million provision for
income taxes), which is reported as an extraordinary gain. The results of
operations from this business are not significant to consolidated net income for
any periods presented. Thermogas operations are reported within the Energy
Marketing & Trading segment.
F-39
<PAGE> 75
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, Williams paid $54.4 million to redeem higher interest rate
debt for a $4.8 million net loss (net of a $2.6 million benefit for income
taxes).
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, for a net loss of $79.1 million (net of a $46.6 million benefit for
income taxes). In addition, approximately $30 million of costs to redeem the
debt have been deferred as a regulatory asset for rate recovery and are being
amortized over the original term of the related debt.
NOTE 8. EARNINGS PER SHARE
Basic and diluted earnings per common share are computed for the years
ended December 31, 1999, 1998 and 1997, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE
AMOUNTS; SHARES IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations.................... $ 161.8 $ 141.4 $ 436.8
Preferred stock dividends............................ (2.8) (7.1) (9.8)
-------- -------- --------
Income from continuing operations available to common
stockholders for basic earnings per share.......... 159.0 134.3 427.0
Effect of dilutive securities:
Convertible preferred stock dividends.............. -- -- 8.7
-------- -------- --------
Income from continuing operations available to common
stockholders for diluted earnings per share........ $ 159.0 $ 134.3 $ 435.7
======== ======== ========
Basic weighted-average shares........................ 436,117 425,681 412,380
Effect of dilutive securities:
Convertible preferred stock........................ -- -- 11,717
Stock options...................................... 5,395 6,135 6,097
-------- -------- --------
5,395 6,135 17,814
-------- -------- --------
Diluted weighted-average shares...................... 441,512 431,816 430,194
======== ======== ========
Earnings per share from continuing operations:
Basic.............................................. $ .36 $ .31 $ 1.04
======== ======== ========
Diluted............................................ $ .36 $ .31 $ 1.01
======== ======== ========
</TABLE>
Approximately 6.2 million, 5 million and 3.1 million options to purchase
shares of common stock with weighted-average exercise prices of $38.56, $32.20
and $27.93, respectively, were outstanding on December 31, 1999, 1998 and 1997,
respectively, but have been excluded from the computation of diluted earnings
per share. Inclusion of these shares would be antidilutive, as the exercise
prices of the options exceeded the average market prices of the common shares
for the respective years.
Additionally for 1999 and 1998, approximately 5.4 million and 9.6 million
shares, respectively, related to the assumed conversion of the $3.50 convertible
preferred stock have been excluded from the computation of diluted earnings per
share. Inclusion of these shares would be antidilutive.
F-40
<PAGE> 76
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. EMPLOYEE BENEFIT PLANS
The following table presents the changes in benefit obligations and plan
assets for pension benefits and other postretirement benefits for the years
indicated. It also presents a reconciliation of the funded status of these
benefits to the amount recognized in the Consolidated Balance Sheet at December
31 of each year indicated.
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year............. $1,045.7 $ 969.8 $ 449.0 $ 389.8
Service cost........................................ 44.8 41.9 8.7 8.9
Interest cost....................................... 70.0 70.0 30.3 29.1
Plan participants' contributions.................... -- -- 1.8 1.6
Amendments.......................................... 19.2 (65.2) -- 2.2
Acquisition (divestures)............................ 4.2 -- (.7) --
Settlement/curtailment gain......................... (7.6) (29.5) -- --
Special termination benefit cost.................... 2.2 35.1 -- 3.6
Actuarial (gain) loss............................... (220.1) 134.6 (19.8) 32.3
Benefits paid....................................... (103.1) (111.0) (20.0) (18.5)
-------- -------- ------- -------
Benefit obligation at end of year................... 855.3 1,045.7 449.3 449.0
-------- -------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year...... 1,039.1 975.7 209.7 184.5
Actual return on plan assets........................ 188.5 120.7 33.2 17.2
Acquisition......................................... 4.9 .1 -- --
Employer contributions.............................. 27.3 53.6 27.8 24.9
Plan participants' contributions.................... -- -- 1.8 1.6
Benefits paid....................................... (98.1) (83.0) (20.0) (18.5)
Settlement benefits paid............................ (5.0) (28.0) -- --
-------- -------- ------- -------
Fair value of plan assets at end of year............ 1,156.7 1,039.1 252.5 209.7
-------- -------- ------- -------
Funded status......................................... 301.4 (6.6) (196.8) (239.3)
Unrecognized net actuarial (gain) loss................ (233.1) 97.4 (32.4) 7.4
Unrecognized prior service credit..................... (20.3) (54.8) (.6) (.2)
Unrecognized transition (asset) obligation............ (1.0) (1.7) 53.0 57.0
-------- -------- ------- -------
Prepaid (accrued) benefit cost........................ $ 47.0 $ 34.3 $(176.8) $(175.1)
-------- -------- ------- -------
Prepaid benefit cost.................................. $ 78.4 $ 83.0 $ 3.8 $ --
Accrued benefit cost.................................. (31.4) (48.7) (180.6) (175.1)
-------- -------- ------- -------
$ 47.0 $ 34.3 $(176.8) $(175.1)
======== ======== ======= =======
</TABLE>
F-41
<PAGE> 77
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension and other postretirement benefit expense consists of the
following:
<TABLE>
<CAPTION>
PENSION BENEFITS
------------------------
1999 1998 1997
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Components of net periodic pension expense:
Service cost............................................. $ 44.8 $ 41.9 $ 34.9
Interest cost............................................ 70.0 70.0 63.6
Expected return on plan assets........................... (95.9) (89.5) (76.9)
Amortization of transition asset......................... (.7) (.7) (.7)
Amortization of prior service cost (credit).............. (2.5) (4.1) 1.0
Recognized net actuarial loss............................ 2.1 6.5 3.6
Regulatory asset amortization............................ 7.2 12.2 5.3
Settlement/curtailment gain.............................. (5.6) (22.2) --
Special termination benefit cost......................... 2.2 35.1 --
------ ------ ------
Net periodic pension expense............................... $ 21.6 $ 49.2 $ 30.8
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT BENEFITS
-----------------------------
1999 1998 1997
-------- -------- -------
(MILLIONS)
<S> <C> <C> <C>
Components of net periodic postretirement benefit expense:
Service cost.............................................. $ 8.7 $ 8.9 $ 7.1
Interest cost............................................. 30.3 29.1 24.4
Expected return on plan assets............................ (14.3) (12.1) (9.9)
Amortization of transition obligation..................... 4.0 4.1 4.1
Amortization of prior service cost........................ .4 .4 --
Recognized net actuarial loss (gain)...................... .3 .2 (1.0)
Regulatory asset amortization............................. 9.0 5.4 12.5
Special termination benefit cost.......................... -- 3.6 --
------ ------ -----
Net periodic postretirement benefit expense................. $ 38.4 $ 39.6 $37.2
====== ====== =====
</TABLE>
In connection with the MAPCO merger, Williams offered an early retirement
incentive program to a certain group of employees during 1998. Texas Gas
Transmission also offered an early retirement incentive program to certain
employees during 1998.
The following are the weighted-average assumptions utilized as of December
31 of the year indicated.
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
----------------- ---------------
1999 1998 1999 1998
------- ------- ------ ------
<S> <C> <C> <C> <C>
Discount rate........................................... 8% 7% 8% 7%
Expected return on plan assets.......................... 10 10 10 10
Expected return on plan assets (after-tax).............. N/A N/A 6 6
Rate of compensation increase........................... 5 5 N/A N/A
</TABLE>
The annual assumed rate of increase in the health care cost trend rate for
2000 is 9 percent increasing to 10 percent in 2001, and systematically
decreasing to 5 percent by 2008.
The various nonpension postretirement benefit plans which Williams sponsors
provide for retiree contributions and contain other cost-sharing features such
as deductibles and coinsurance. The accounting for
F-42
<PAGE> 78
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these 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.
The health care cost trend rate assumption has a significant effect on the
amounts reported. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(MILLIONS)
<S> <C> <C>
Effect on total of service and interest cost components... $ 6.1 $ (4.9)
Effect on postretirement benefit obligation............... 59.6 (48.7)
</TABLE>
The amount of postretirement benefit costs deferred as a regulatory asset
at December 31, 1999 and 1998, is $91 million and $101 million, respectively,
and is expected to be recovered through rates over approximately 14 years.
Williams maintains various defined-contribution plans. Williams recognized
costs of $46 million in 1999, $42 million in 1998 and $33 million in 1997 for
these plans.
NOTE 10. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
------ ------
(MILLIONS)
<S> <C> <C>
Raw materials:
Crude oil................................................. $ 66.6 $ 43.2
Other..................................................... 2.1 2.0
------ ------
68.7 45.2
------ ------
Finished goods:
Refined products.......................................... 172.5 104.0
Natural gas liquids....................................... 83.9 58.6
General merchandise and communications equipment.......... 116.0 92.8
------ ------
372.4 255.4
------ ------
Materials and supplies...................................... 110.2 93.4
Natural gas in underground storage.......................... 77.5 95.7
Other....................................................... 2.7 7.8
------ ------
$631.5 $497.5
====== ======
</TABLE>
As of December 31, 1999 and 1998, approximately 28 percent and 29 percent
of inventories, respectively, were stated at fair value. As of December 31, 1999
and 1998, approximately 10 percent and 11 percent of inventories, respectively,
were determined using the LIFO cost method. The remaining inventories were
primarily determined using the average-cost method.
If inventories valued on the LIFO cost method at December 31, 1999 and
1998, were valued at current replacement cost, the amounts would increase by
approximately $14 million and $13 million, respectively.
During 1999 and 1998, lower-of-cost or market reductions of approximately
$6 million and $1 million, respectively, were recognized with respect to certain
refined products inventories.
F-43
<PAGE> 79
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(MILLIONS)
<S> <C> <C>
Cost:
Gas Pipeline.............................................. $ 8,468.7 $ 8,151.5
Energy Services:
Energy Marketing & Trading............................. 235.1 434.0
Exploration & Production............................... 485.2 368.3
Midstream Gas & Liquids................................ 4,102.1 3,808.0
Petroleum Services..................................... 2,805.1 2,114.7
Communications:
Network................................................ 1,914.9 521.9
Solutions.............................................. 216.0 161.2
Strategic Investments.................................. 285.1 207.2
Other..................................................... 737.6 439.5
--------- ---------
19,249.8 16,206.3
Accumulated depreciation and depletion...................... (4,094.3) (3,621.0)
--------- ---------
$15,155.5 $12,585.3
========= =========
</TABLE>
Included in gross property, plant and equipment for 1999 is approximately
$2.3 billion of construction in progress, primarily the communications network,
which is not yet subject to depreciation.
Commitments for construction and acquisition of property, plant and
equipment are approximately $1 billion at December 31, 1999. Included in this
amount is $303 million for the purchase of optronics equipment from Nortel to be
used in building the communications network pursuant to agreements with Nortel
to purchase a total of $600 million in optronics equipment.
NOTE 12. 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
$220 million at December 31, 1999, and $124 million at December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(MILLIONS)
<S> <C> <C>
Accrued liabilities:
Employee costs............................................ $ 329.6 $ 259.6
Construction costs........................................ 271.3 7.0
Interest.................................................. 204.1 127.0
Rate refunds.............................................. 189.3 358.7
Deferred income........................................... 162.8 85.7
Taxes other than income taxes............................. 158.3 127.4
Other..................................................... 519.8 582.2
-------- --------
$1,835.2 $1,547.6
======== ========
</TABLE>
F-44
<PAGE> 80
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1999, Williams' commercial paper program, backed by a short-term
credit facility, was increased to $1.4 billion. At December 31, 1999 and 1998,
$1.2 billion and $903 million, respectively, of commercial paper was outstanding
under the program. In addition, Williams has entered into various other
short-term credit agreements with amounts outstanding totaling $143 million and
$150 million at December 31, 1999 and 1998, respectively. The weighted-average
interest rate on the outstanding short-term borrowings at December 31, 1999 and
1998, was 6.37 percent and 5.92 percent, respectively.
Debt
<TABLE>
<CAPTION>
DECEMBER 31,
WEIGHTED-AVERAGE ---------------------
INTEREST RATE* 1999 1998
---------------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revolving credit loans............................... 7.0% $ 525.0 $ 694.0
Debentures, 6.25% -- 10.25%, payable
2003 -- 2027(1).................................... 6.9 1,105.2 1,105.1
Notes, 5.1% -- 10.875%, payable through 2022(2)...... 7.9 7,339.1 4,562.6
Notes, adjustable rate, payable through 2004......... 6.3 455.0 386.7
Other, payable through 2009.......................... 7.1 7.0 8.6
-------- --------
9,431.3 6,757.0
Current portion of long-term debt.................... (196.0) (390.6)
-------- --------
$9,235.3 $6,366.4
======== ========
</TABLE>
- ---------------
* At December 31, 1999, including the effects of interest-rate swaps.
(1) $200 million, 7.08% debentures, payable 2026, are subject to redemption at
par at the option of the debtholder in 2001.
(2) $300 million, 5.95% notes, payable 2010, and $240 million, 6.125% notes,
payable 2012, are subject to redemption at par at the option of the
debtholder in 2000 and 2002, respectively.
For financial statement reporting purposes at December 31, 1999, $404
million in obligations which would have otherwise been classified as current
debt obligations have been classified as non-current based on Williams' intent
and ability to refinance on a long-term basis. Williams' issuance in January
2000 of $500 million of adjustable rate notes due 2001 is sufficient to complete
these refinancings.
In September 1999, Williams' communications business, Williams
Communications Group, Inc. (WCG), entered into a $1.05 billion long-term credit
agreement. Terms of the credit agreement contain restrictive covenants limiting
the transfer of funds to Williams (parent), including the payment of dividends
and repayment of intercompany borrowings by WCG to Williams (parent). At
December 31, 1999, no amounts were outstanding under this facility. Interest
rates vary with current market conditions.
Under the terms of Williams' $1 billion credit agreement, Northwest
Pipeline, Transcontinental Gas Pipe Line and Texas Gas Transmission have access
to various amounts of the facility, while Williams (parent) has access to all
unborrowed amounts. Interest rates vary with current market conditions.
During 1999, WCG issued $2 billion in debt obligations consisting of $500
million in 10.7 percent notes due 2007 and $1.5 billion of 10.875 percent notes
due 2009, and Williams issued $700 million in 7.625 percent notes due 2019.
F-45
<PAGE> 81
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest-rate swaps with a notional value of $1.2 billion are currently
being utilized to convert certain fixed-rate debt obligations, included in the
preceding table, to variable-rate obligations resulting in an effective
weighted-average floating rate of 5.78 percent at December 31, 1999.
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.
Terms of certain subsidiaries' borrowing arrangements with lenders limit
the transfer of funds to Williams (parent). At December 31, 1999, approximately
$3.3 billion of net assets of consolidated subsidiaries was restricted. In
addition, certain equity method investees' borrowing arrangements and foreign
government regulations limit the amount of dividends or distributions to
Williams. Restricted net assets of equity method investees was approximately
$176 million at December 31, 1999.
Aggregate minimum maturities and sinking-fund requirements, considering the
reclassification of current obligations as previously described, for each of the
next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
2000..................................................... $ 196
2001..................................................... 1,502
2002..................................................... 1,680
2003..................................................... 280
2004..................................................... 550
</TABLE>
Cash payments for interest (net of amounts capitalized) are as follows:
1999 -- $503 million; 1998 -- $414 million; and 1997 -- $450 million.
Leases
Future minimum annual rentals under non-cancelable operating leases as of
December 31, 1999, are payable as follows:
<TABLE>
<CAPTION>
OFF-NETWORK
CAPACITY AND
EQUIPMENT OTHER TOTAL
------------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
2000.................................................. $ 302.2 $122.2 $ 424.4
2001.................................................. 280.7 105.0 385.7
2002.................................................. 220.6 93.5 314.1
2003.................................................. 198.3 66.8 265.1
2004.................................................. 162.0 55.5 217.5
Thereafter............................................ 235.8 365.2 601.0
-------- ------ --------
$1,399.6 $808.2 $2,207.8
======== ====== ========
</TABLE>
Total rent expense was $358 million in 1999, $245 million in 1998 and $167
million in 1997. Included in this amount is total capacity expense incurred from
leasing from a third party's network (off-network capacity expense) of $201
million in 1999, $111 million in 1998, and $69 million in 1997.
During 1998, Williams entered into an operating lease agreement covering a
portion of its fiber-optic network. The total estimated cost of the network
assets to be covered by the lease agreement is $750 million.
F-46
<PAGE> 82
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The lease term includes an interim term, during which the covered network assets
will be constructed and will end April 30, 2000, and a base term. The interim
and base terms are expected to total five years and, if renewed, could total
seven years. Under the terms of the lease agreement, Williams cannot sublease
the assets without the prior written consent of the lessor. Through December 31,
1999, Williams has not requested nor has the lessor granted such consent.
Williams has an option to purchase the covered network assets during the
lease term at an amount approximating the lessor's cost. Williams provides a
residual value guarantee equal to a maximum of 89.9 percent of the transaction.
The residual value guarantee is reduced by the present value of actual lease
payments. In the event that Williams does not exercise its purchase option,
Williams expects the fair market value of the covered network assets to
substantially reduce Williams' obligation under the residual value guarantee.
Williams' disclosures for future minimum annual rentals under noncancelable
operating leases do not include amounts for the residual value guarantee.
NOTE 14. PREFERRED OWNERSHIP INTERESTS OF SUBSIDIARIES
In December 1999, Williams formed Williams Capital Trust I (Trust) which
issued $175 million in zero coupon Williams' obligated mandatorily redeemable
preferred securities. The preferred securities must be redeemed by the Trust no
later than March 2002. The redemption price of the securities accretes until
redeemed and entitles the investor to a fixed-rate annual yield of 7.92 percent.
Proceeds from the sale of the securities were used by the Trust to purchase
Williams' zero-coupon subordinated debentures whose yield and maturity terms
mirror those of the preferred securities issued by the Trust. The Trust's sole
assets are the Williams zero-coupon subordinated debentures. The proceeds of the
transaction generated funds for Williams' general corporate use. Williams
guarantees the obligations of the Trust related to its preferred securities.
During 1998, Williams formed separate legal entities and contributed
various assets to a newly-formed limited partnership, Castle Associates L.P.
(Castle), and to a limited liability company, Williams Risk Holdings Company,
LLC (Holdings), as a part of transactions that generated funds for Williams'
general corporate use. Outside investors obtained from Williams non-controlling
preferred interests in the newly formed entities for $335 million through
purchase and/or contribution. The assets and liabilities of Castle and Holdings
are consolidated for financial reporting purposes. The transactions did not
result in any gain or loss for Williams.
The preferred interest holders in both Castle and Holdings are entitled to
a priority return based on a variable-rate structure, currently ranging from
approximately seven to 10 percent, in addition to their participation in the
operating results of the partnership and LLC.
The Castle limited-partnership agreement and associated operating documents
included certain restrictive covenants and guarantees of Williams and certain of
its subsidiaries. These restrictions are similar to those in the Williams'
credit agreement and other debt instruments.
NOTE 15. ISSUANCE OF SUBSIDIARY'S COMMON STOCK
In October 1999, Williams' communications business, WCG, completed an
initial public offering of approximately 34 million shares of its common stock
at $23 per share for proceeds of approximately $738 million. In addition,
approximately 34 million shares of common stock were privately sold in
concurrent investments by SBC Communications Inc., Intel Corporation, and
Telefonos de Mexico S.A. de C.V. for proceeds of $738.5 million. These
transactions resulted in a reduction of Williams' ownership interest in WCG from
100 percent to 85.3 percent. In accordance with Williams' policy regarding the
issuance of subsidiary's common stock, Williams recognized a $1.17 billion
increase to Williams' capital in excess of par, a $3.4 million decrease to
accumulated other comprehensive income, and an initial increase of $307 million
to Williams' minority interest liability. The issuances of stock by WCG were not
subject to federal income taxes.
F-47
<PAGE> 83
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. STOCKHOLDERS' EQUITY
During 1999, each remaining share of the $3.50 preferred stock was
converted at the option of the holder into 4.6875 shares of Williams common
stock prior to the redemption date. In September 1997, the remaining shares of
$2.21 cumulative preferred stock were redeemed by Williams at par ($25) for a
total of $18.5 million.
In 1996, the Williams' board of directors adopted a Stockholder Rights Plan
(the Rights Plan). Under the Rights Plan, each outstanding share of Williams
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,
Williams 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.
NOTE 17. STOCK-BASED COMPENSATION
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 or based on
certain financial performance targets being achieved. 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.
Depending upon terms of the respective plans, stock options generally become
exercisable after three or five years, subject to accelerated vesting if certain
future stock prices or if specific financial performance targets are achieved.
Stock options expire 10 years after grant. At December 31, 1999, 49.4 million
shares of Williams common stock were reserved for issuance pursuant to existing
and future stock awards, of which 24.7 million shares were available for future
grants (18.7 million at December 31, 1998).
Certain of these plans have stock option loan programs for the
participants, whereby, at the time of the option exercise the participant may
elect to receive a loan from Williams in an amount limited to 80 percent (or 50
percent under one plan) of the market value of the shares associated with the
exercise. A portion of the stock acquired is held as collateral over the term of
the loan, which can be three or five years. Interest rates are based on the
minimum applicable federal rates, and interest is paid annually. The amount of
loans outstanding at December 31, 1999 and 1998, totaled $42.1 million and $35.7
million, respectively.
F-48
<PAGE> 84
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary reflects stock option activity for Williams common
stock and related information for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- ---------- ---------
(MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning
of year................. 21.7 $20.73 35.2 $17.29 29.2 $14.18
Granted................... 5.1 39.62 4.7 31.96 12.9 22.57
Exercised................. (3.7) 18.81 (4.9) 12.56 (6.1) 13.46
MAPCO option conversions.. -- -- (12.9) 18.38 -- --
Canceled.................. (.3) 36.50 (.4) 28.74 (.8) 18.32
---- ------ ----- ------ ---- ------
Outstanding -- end of
year.................... 22.8 $25.03 21.7 $20.73 35.2 $17.29
==== ====== ===== ====== ==== ======
Exercisable at end of
year.................... 21.9 $24.50 17.3 $17.85 18.8 $13.83
==== ====== ===== ====== ==== ======
</TABLE>
The following summary provides information about Williams stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
------------------------------------ ----------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OPTIONS PRICE LIFE OPTIONS PRICE
- ------------------------ ---------- --------- ----------- ---------- ---------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C>
$4.62 to $34.37.................... 17.9 $21.02 7.0 years 17.9 $21.00
$35.81 to $45.72................... 4.9 39.71 9.4 years 4.0 40.19
---- ----
Total..................... 22.8 $25.03 7.5 years 21.9 $24.50
==== ====
</TABLE>
In conjunction with the initial public offering of WCG stock, options for
Williams common stock granted in 1999 and 1998 under a WCG plan established in
1998 were converted from options for Williams common stock to options for WCG
common stock. The conversion occurred when market prices for Williams and WCG
common stock were $37.63 per share and $23.00 per share, respectively. In
accordance with APB Opinion No. 25, this conversion resulted in a new
measurement date and related pre-tax expense of approximately $.9 million was
recognized in 1999. The remaining value of the option conversion will be
amortized over the various vesting periods of the converted options. The
following summary provides information for the WCG plan stock option activity
and related information for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------- -----------------------
OPTIONS FOR WEIGHTED- OPTIONS WEIGHTED- OPTIONS FOR WEIGHTED-
WILLIAMS AVERAGE FOR WCG AVERAGE WILLIAMS AVERAGE
COMMON EXERCISE COMMON EXERCISE COMMON EXERCISE
STOCK PRICE STOCK PRICE STOCK PRICE
----------- --------- ----------- --------- ----------- ---------
(MILLIONS) (MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year....................... .5 $30.50 -- $ -- -- $ --
Granted...................... -- -- 7.6 23.05 .5 30.50
Exercised.................... -- -- -- -- -- --
Conversions of options....... (.4) 30.71 .7 18.87 -- --
Canceled..................... (.1) 31.81 (.3) 22.60 -- --
--- ------ --- ------ -- ------
Outstanding -- end of year... -- $ -- 8.0 $22.70 .5 $30.50
=== ====== === ====== == ======
Exercisable at end of year... -- $ -- .3 $20.86 -- $ --
=== ====== === ====== == ======
</TABLE>
F-49
<PAGE> 85
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summary provides information about WCG stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
------------------------------------ ----------------------
WEIGHTED-
WEIGHTED- AVERAGE WEIGHTED-
AVERAGE REMAINING AVERAGE
EXERCISE CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OPTIONS PRICE LIFE OPTIONS PRICE
- ------------------------ ---------- --------- ----------- ---------- ---------
(MILLIONS) (MILLIONS)
<S> <C> <C> <C> <C> <C>
$14.00 to $20.13................ .6 $18.68 8.5 years.. .2 $18.73
$22.56 to $28.94................ 7.4 23.05 9.8 years.. .1 23.02
--- --
Total................. 8.0 $22.70 9.7 years.. .3 $20.86
=== ==
</TABLE>
The estimated fair value at the date of grant of options for Williams
common stock granted in 1999, 1998 and 1997, using the Black-Scholes option
pricing model, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Weighted-average grant date fair value of options for
Williams common stock granted during the year............. $11.90 $8.19 $7.15
====== ===== =====
Assumptions:
Dividend yield............................................ 1.5% 2.0% 1.7%
Volatility................................................ 28% 25% 26%
Risk-free interest rate................................... 5.6% 5.3% 6.1%
Expected life (years)..................................... 5.0 5.0 5.0
</TABLE>
In addition, the fair value at the date of grant for WCG options granted
was estimated using a Black-Scholes option pricing model. For those options for
Williams common stock which were converted to options for WCG common stock, the
fair value was estimated at the date of conversion using the Black-Scholes
option pricing model. The option pricing model used the following
weighted-average assumptions: expected life of the stock options of
approximately 5 years; volatility of the expected market price of WCG common
stock of 60 percent; risk-free interest rate of 6 percent; and no expected
future dividend yield. The weighted-average grant date fair value and the
weighted-average conversion date fair value for WCG options were $13.10 and
$14.21, respectively.
Pro forma net income and earnings per share, assuming Williams had applied
the fair-value method of SFAS No. 123, "Accounting for Stock-Based Compensation"
in measuring compensation cost beginning with 1997 employee stock-based awards,
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ---------------- -----------------
PRO PRO PRO
FORMA REPORTED FORMA REPORTED FORMA REPORTED
------ -------- ----- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net income (Millions).................... $168.1 $221.4 $68.0 $122.3 $314.1 $351.4
Earnings per share:
Basic.................................. $ .38 $ .50 $ .14 $ .27 $ .74 $ .83
Diluted................................ $ .37 $ .50 $ .14 $ .27 $ .73 $ .81
</TABLE>
Pro forma amounts for 1999 include the remaining total compensation expense
from Williams awards made in 1998 and the total compensation expense from
certain Williams awards made in 1999, as these awards fully vested in 1999 as a
result of the accelerated vesting provisions. In addition, 1999 pro forma
amounts include compensation expense related to the WCG plan awards and
conversions in 1999. Pro forma amounts for 1999 include $47.1 million for
Williams awards and $6.2 million for WCG awards.
F-50
<PAGE> 86
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma amounts for 1998 include the previously unrecognized compensation
expense related to the MAPCO options converted at the time of the merger and the
remaining total compensation expense from the awards made in 1997, as these
awards fully vested in 1998 as a result of the accelerated vesting provisions.
Pro forma amounts for 1997 include compensation expense from 78 percent of the
awards made in 1996, as these awards fully vested in 1997 as a result of the
accelerated vesting provisions. Since compensation expense from stock options is
recognized over the future years' vesting period for pro forma disclosure
purposes, and additional awards generally are made each year, pro forma amounts
may not be representative of future years' amounts.
Williams granted approximately 260,000 and 800,000 deferred Williams shares
in 1999 and 1998, respectively. Deferred shares are valued at the date of award,
and the weighted-average grant date fair value of the shares granted was $34.84
in 1999 and $31.62 in 1998. Approximately $13 million and $5 million was
recognized as expense for deferred shares of Williams in 1999 and 1998,
respectively. Expense related to deferred shares is recognized in the
performance year or over the vesting period, depending on the terms of the
awards. In 1999 and 1998, Williams issued approximately 125,000 and 119,000,
respectively, of the deferred shares previously granted. Grants made in 1997
were not significant.
In conjunction with the WCG initial public offering, 255,000 deferred
shares granted under the Williams and WCG plans in 1998 were converted from
Williams to WCG stock when the market prices were $37.63 and $23.00,
respectively. At that time 25 percent of the shares became fully vested. In
accordance with APB opinion No. 25, this conversion resulted in a new
measurement date, and accordingly, the related expense of approximately $2.2
million is included in 1999. The remaining value of the deferred share
conversion will be amortized over the vesting periods of the converted stock.
NOTE 18. 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.
Short-term investments, marketable equity securities and Ferrellgas
Partners L.P. senior common units: In accordance with SFAS No. 115, these
securities are classified as available-for-sale and are reported at fair value,
with net unrealized appreciation or depreciation reported as a component of
other comprehensive income.
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 and advances to affiliates: Fair value is estimated to
approximate historically recorded amounts as the investments are primarily in
non-publicly traded foreign companies for which it is not practicable to
estimate fair value of these investments.
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, 1999 and 1998, 79 percent and 74
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.
Williams obligated mandatorily redeemable preferred securities of
Trust: Fair value at December 31, 1999, is estimated to approximate carrying
value as the securities were issued in December 1999.
F-51
<PAGE> 87
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Energy-related trading and hedging: Energy-related trading includes
forwards, options, swaps and purchase and sales commitments. Energy-related
hedging includes futures, options and swaps. Fair value reflects management's
estimates using valuation techniques that reflect the best information available
in the circumstances. This information includes various factors such as quoted
market prices, estimates of market prices in absence of quoted market prices,
contractual volumes, estimated volumes under option and other arrangements that
result in varying volumes, other contract terms, liquidity of the market in
which the contract is transacted, credit considerations, time value and
volatility factors underlying the positions.
Carrying amounts and fair values of Williams' financial instruments
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
ASSET (LIABILITY) AMOUNT VALUE AMOUNT VALUE
----------------- --------- --------- --------- ---------
(MILLIONS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................ $ 1,092.0 $ 1,092.0 $ 503.3 $ 503.3
Short-term investments........................... 1,434.8 1,434.8 -- --
Notes and other non-current receivables.......... 52.1 52.1 45.2 45.2
Investments-cost and advances to affiliates...... 773.0 773.0 401.0 401.0
Marketable equity securities..................... 288.1 288.1 77.0 77.0
Ferrellgas Partners L.P. senior common units..... 175.7 175.7 -- --
Notes payable.................................... (1,378.8) (1,378.8) (1,052.7) (1,052.7)
Long-term debt, including current portion........ (9,431.3) (9,349.1) (6,757.0) (6,896.2)
Williams obligated mandatorily redeemable
preferred securities of Trust.................. (175.5) (175.5) -- --
Interest-rate swaps.............................. (29.0) (47.5) (50.7) (45.6)
Energy-related trading:
Assets......................................... 555.9 555.9 548.1 548.1
Liabilities.................................... (449.1) (449.1) (491.6) (491.6)
Energy-related hedging:
Assets......................................... -- 23.6 -- 7.0
Liabilities.................................... (.7) (8.2) (.7) (10.2)
</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 1999 average fair value of the energy-related trading assets and
liabilities is $565 million and $507 million, respectively. The 1998 average
fair value of the energy-related trading assets and liabilities is $485 million
and $518 million, respectively.
Williams has recorded liabilities of $18 million at December 31, 1999 and
1998, 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.
F-52
<PAGE> 88
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, Williams entered into agreements to sell, on an ongoing basis,
certain of its accounts receivable. At December 31, 1999 and 1998, $324 million
and $302 million have been sold, respectively.
In connection with the 1995 sale of Williams' network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $91 million and $113 million at December 31, 1999 and 1998,
respectively, for lease rental obligations.
Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $175 million and $83 million at
December 31, 1999 and 1998, 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.
Energy trading activities
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 energy contracts including forward
contracts, futures contracts, option contracts, swap agreements and purchase and
sale commitments. See Note 1 for a description of the accounting for these
trading activities. The net gain from trading activities was $214.0 million,
$112.6 million and $125.8 million in 1999, 1998 and 1997, respectively.
Energy Marketing & Trading enters into contracts which involve physical
delivery of an energy commodity. Prices under these contracts are both fixed and
variable. These contracts involve both firm commitments requiring fixed volumes
and option and other arrangements that result in varying volumes. 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. Energy Marketing &
Trading buys and sells financial option contracts which give the buyer the right
to exercise the option and receive the difference between a predetermined strike
price and a market price at the date of exercise. The prices for forward, swap,
option and physical contracts consider exchange quoted prices or management's
estimates based on the best information available. 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, changes in interest rates and credit risk.
Energy Marketing & Trading manages market risk on a portfolio basis 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.
F-53
<PAGE> 89
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notional quantities for trading activities at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
<S> <C> <C> <C> <C>
Fixed price:
Natural gas (TBtu)............................. 1,933.0 2,019.0 1,310.1 1,413.9
Refined products, NGLs and crude (MMbbls)...... 474.5 436.9 185.2 167.5
Power (Terawatt Hrs)........................... 35.3 47.1 28.6 23.6
Variable price:
Natural gas (TBtu)............................. 2,523.2 2,243.3 1,749.4 1,537.4
Refined products, NGLs and crude (MMbbls)...... 2.4 3.9 48.5 44.8
</TABLE>
The net cash inflows related to these contracts at December 31, 1999 and
1998, were $76 million and $96 million, respectively. At December 31, 1999, the
cash inflows extend primarily through 2010.
Concentration of credit risk
Williams' cash equivalents and short-term investments 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 issuer/obligor.
At December 31, 1999 and 1998, approximately 21 percent and 33 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 31 percent and 19 percent of
receivables at December 31, 1999 and 1998, respectively, are for the sale or
transportation of petroleum products. Approximately 31 percent and 39 percent of
receivables at December 31, 1999 and 1998, respectively, are for communications
and related services. Approximately 12 percent and 5 percent of receivables at
December 31, 1999 and 1998, respectively, are from power 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. Petroleum products customers include wholesale,
commercial, governmental, industrial and individual consumers and independent
dealers located primarily in Alaska and the midsouth and southeastern United
States. Power customers include the California Power Exchange, other power
marketers and utilities located throughout the majority of the United States.
Communications serves a wide range of customers including numerous corporations,
none of which is individually significant to its business. As a general policy,
collateral is not required for receivables, but customers' financial condition
and credit worthiness are evaluated regularly.
NOTE 19. 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. The natural gas pipeline subsidiaries have accrued
approximately $189 million for potential refund as of December 31, 1999.
In 1997, the Federal Energy Regulatory Commission (FERC) issued orders
addressing, among other things, the authorized rates of return for three of the
Williams interstate natural gas pipeline subsidiaries. All of 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
F-54
<PAGE> 90
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. On January 30, 1998, the FERC convened a public
conference to consider, on an industry-wide basis, issues with respect to
pipeline rates of return. In July 1998, the FERC issued orders in two of the
three pipeline subsidiary rate cases, again modifying its rate-of-return
methodology by adopting a formula that gives less weight to the long-term growth
component. Certain parties appealed the FERC's action, because the most recent
formula modification results in somewhat higher rates of return compared to the
rates of return calculated under the FERC's prior formula. In June and July
1999, the FERC applied the new methodology in the third pipeline subsidiary rate
case, as well as in a fourth case involving the same pipeline subsidiary. As a
result of these orders and developments in certain other regulatory proceedings
in the second quarter, each of the three gas pipeline subsidiaries made
reductions to its accrued liability for rate refunds to reflect application of
the new rate-of-return methodology. In February 2000, the U.S. Court of Appeals
for the D.C. Circuit denied the appeal in one of these cases. Reductions for the
pipelines totaled approximately $51 million of which $38.2 million is included
in Gas Pipeline's segment revenues and segment profit for 1999. In addition,
$2.7 million is included in Midstream Gas & Liquids' segment revenues and
segment profit for 1999, as a result of its management of certain regulated
gathering facilities. The balance is included as a reduction of interest accrued
for 1999.
As a result of FERC Order 636 decisions in prior years, 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. During 1999,
Williams Gas Pipelines Central (Central) reached an agreement with its
customers, state commissions and FERC staff concerning recovery of certain gas
supply realignment costs which arose from supplier take-or-pay contracts.
During 1999, Central assigned its obligations under its largest remaining
gas supply contract to an unaffiliated third party and paid the third party $100
million. Central also agreed to pay the third party a total of $18 million in
installments over the next five years, all of which had been accrued in prior
years. Central received indemnities from the third party and a release of its
obligations under the contract. Central assigned two smaller contracts to an
affiliate effective February 1, 1999. As a result of these assignments, Central
has no remaining above-market price gas contracts.
In 1998, as a result of negotiations concerning the portion of the
resolution costs which could be recovered from customers, Central expensed $58
million of costs previously expected to be recovered and capitalized as a
regulatory asset. The charge represented an estimate of natural gas costs that
will not be recoverable from customers. In 1999, Central filed with the FERC to
recover all costs related to the three contracts. In 1999, Central reached an
agreement in principle with the FERC staff, the state commissions, and its
customers on all issues related to recovery of Central's remaining take-or-pay
and gas supply realignment costs. The settlement resolved all prudence,
eligibility and absorption issues at a level consistent with Central's
established accruals and provided that Central would be allowed to recover the
costs allocated to its customers by means of a direct bill to be paid, in some
instances, over time. The settlement was effective November 1, 1999. On December
30, 1999, Central rendered direct bills to its customers in accordance with the
terms of the settlement.
In September 1995, Texas Gas received FERC approval of a settlement
regarding Texas Gas' recovery of gas supply realignment costs. Through December
31, 1999, Texas Gas has paid approximately $76 million and expects to pay no
more than a total of $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.
On July 29, 1998, the FERC issued a Notice of Proposed Rulemaking (NOPR)
and a Notice of Inquiry (NOI), proposing revisions to regulatory policies for
interstate natural gas transportation service. In the
F-55
<PAGE> 91
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOPR, the FERC proposes to eliminate the rate cap on short-term transportation
services and implement regulatory policies that are intended to maximize
competition in the short-term transportation market, mitigate the ability of
firms to exercise residual monopoly power and provide opportunities for greater
flexibility in the provision of pipeline services and to revise certain other
rate and certificate policies. In the NOI, the FERC seeks comments on its
pricing policies in the existing long-term market and pricing policies for new
capacity. Williams filed comments on the NOPR and NOI in the second quarter of
1999. On February 9, 2000, the FERC issued a final rule, Order 637, in response
to the comments received on the NOPR and NOI. The FERC adopts in Order 637
certain policies that it finds are necessary to adjust its current regulatory
model to the needs of the evolving markets, but determines that any fundamental
changes to its regulatory policy, which changes were raised and commented on in
the NOPR and NOI, will be considered after further study and evaluation of the
evolving marketplace. Most significantly, in Order 637, the FERC (i) revises its
pricing policy to waive, for a two-year period, the maximum price ceilings for
short-term releases of capacity of less than one year, and (ii) permits
pipelines to file proposals to implement seasonal rates for short-term services
and term-differentiated rates, subject to certain requirements including the
requirement that a pipeline be limited to recovering its annual revenue
requirement under those rates.
In fourth-quarter 1999, based on developments in regulatory proceedings
involving Transcontinental Gas Pipe Line and on advice from counsel,
Transcontinental Gas Pipe Line reduced its accrued liability for rate refunds by
$21 million to reflect its conclusion that the risk associated with one of the
issues in this proceeding has been eliminated. The $21 million reduction is
included in Gas Pipeline's segment revenues and segment profit for 1999.
Transcontinental Gas Pipe Line is continuing to accrue amounts to account for
other issues that may ultimately affect Transcontinental Gas Pipe Line's rate of
return in this proceeding. Transcontinental Gas Pipe Line believes the remaining
liability is adequate for any refunds that may be required.
On July 15, 1998, Williams Pipe Line (WPL) received an Order from the FERC
which affirmed an administrative law judge's 1996 initial decision regarding
rate-making proceedings for the period September 15, 1990, through May 1, 1992.
The FERC has ruled that WPL did not meet its burden of establishing that its
transportation rates in its 12 noncompetitive markets were just and reasonable
for the period and has ordered refunds. WPL accrued $15.5 million, including
interest, in second-quarter 1998, for potential refunds to customers for the
issues described above. On May 20, 1999, WPL submitted an uncontested offer of
settlement to the presiding administrative law judge that would resolve all
outstanding rate issues on WPL from September 1, 1990, to the present. This
settlement was certified to the FERC as uncontested on June 23, 1999. On October
13, 1999, the FERC approved the settlement without conditions. Based on this
favorable settlement and FERC approval, $6.5 million of the original $15.5
million loss provision was reversed in 1999. The settlement became final and
non-appealable on December 13, 1999.
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,
1999, these subsidiaries had accrued liabilities totaling approximately $27
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 these
obligations or the PRP status of these subsidiaries will have a material adverse
effect on its financial position, results of operations or net cash flows.
F-56
<PAGE> 92
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, 1999, Central had accrued a liability for
approximately $11 million, representing the current estimate of future
environmental cleanup costs to be incurred over the next six to 10 years. Texas
Gas and Transcontinental Gas Pipe Line likewise had accrued liabilities for
these costs which are included in the $27 million liability 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 as incurred pending recovery through future rates and other
means.
Transcontinental Gas Pipe Line received a letter stating that the U.S.
Department of Justice (DOJ), at the request of the EPA, intends to file a civil
action against Transcontinental Gas Pipe Line arising from its waste management
practices at Transcontinental Gas Pipe Line's compressor stations and metering
stations in 11 states from Texas to New Jersey. DOJ stated in the letter that
its complaint will seek civil penalties and injunctive relief under federal
environmental laws. DOJ and Transcontinental Gas Pipe Line are discussing a
settlement. While no specific amount was proposed, DOJ stated that any
settlement must include an appropriate civil penalty for the alleged violations.
Transcontinental Gas Pipe Line cannot reasonably estimate the amount of its
potential liability, if any, at this time. However, Transcontinental Gas Pipe
Line believes it has substantially addressed environmental concerns on its
system through ongoing voluntary remediation and management programs.
Energy Services (WES) also accrues environmental remediation costs for its
natural gas gathering and processing facilities, petroleum products pipelines,
retail petroleum, refining and propane marketing operations primarily related to
soil and groundwater contamination. At December 31, 1999, WES and its
subsidiaries had accrued liabilities totaling approximately $42 million. WES
recognizes receivables related to environmental remediation costs based upon an
estimate of amounts that will be reimbursed from state funds for certain
expenses associated with underground storage tank problems and repairs. At
December 31, 1999, WES and its subsidiaries had accrued receivables totaling $19
million.
Williams Field Services (WFS), a WES subsidiary, received a Notice of
Violation (NOV) from the EPA in February 2000. WFS received a contemporaneous
letter from the DOJ indicating that DOJ will also be involved in the matter. The
NOV alleged violations of the Clean Air Act at a gas processing plant. WFS
intends to defend this matter, but cannot reasonably estimate the amount of
potential liability, if any, at this time. EPA, DOJ, and WFS have scheduled
settlement negotiation meetings beginning in March 2000.
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. At December 31, 1999, Williams had
approximately $13 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.
Other legal matters
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
F-57
<PAGE> 93
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
may be required to pay as a result of such settlements. As a result of such
settlements, Transcontinental Gas Pipe Line is currently defending two lawsuits
brought by producers. In one of the cases, a jury verdict found that
Transcontinental Gas Pipe Line was required to pay a producer damages of $23.3
million including $3.8 million in attorneys' fees. Transcontinental Gas Pipe
Line is pursuing an appeal. In the other case, a producer has asserted damages,
including interest calculated through December 31, 1997, 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 connection with the sale of certain coal assets in 1996, MAPCO entered
into a Letter Agreement with the buyer providing for indemnification by MAPCO
for reductions in the price or tonnage of coal delivered under a certain
pre-existing Coal Sales Agreement dated December 1, 1986. The Letter Agreement
is effective for reductions during the period July 1, 1996, through December 31,
2002, and provides for indemnification for such reductions as incurred on a
quarterly basis. On October 7, 1999, MAPCO settled buyer's claims for
indemnification under the Letter Agreement and certain other unrelated claims in
exchange for payment by MAPCO in the amount of $35 million which had been
accrued in prior years.
In 1998, the United States Department of Justice informed Williams that
Jack Grynberg, an individual, had filed claims in the United States District
Court for the District of Colorado under the False Claims Act against Williams
and certain of its wholly owned subsidiaries including Williams Gas Pipelines
Central, Kern River Gas Transmission, Northwest Pipeline, Williams Gas Pipeline
Company, Transcontinental Gas Pipe Line Corporation, Texas Gas, Williams Field
Services Company and Williams Production Company. Mr. Grynberg has also filed
claims against approximately 300 other energy companies and alleges that the
defendants violated the False Claims Act in connection with the measurement and
purchase of hydrocarbons. The relief sought is an unspecified amount of
royalties allegedly not paid to the federal government, treble damages, a civil
penalty, attorneys' fees, and costs. On April 9, 1999, the United States
Department of Justice announced that it was declining to intervene in any of the
Grynberg qui tam cases, including the action filed against the Williams entities
in the United States District Court for the District of Colorado. On October 21,
1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui
tam cases, including the ones filed against Williams, to the United States
District Court for the District of Wyoming for pre-trial purposes.
Shrier v. Williams was filed on August 4, 1999, in the U.S. District Court
for the Northern District of Oklahoma. Oxford v. Williams was filed on September
3, 1999, in state court in Jefferson County, Texas. The Oxford complaint was
amended to add an additional plaintiff on September 24, 1999. On October 1,
1999, the case was removed to the U.S. District Court for the Eastern District
of Texas, Beaumont Division. Plaintiffs have filed a motion seeking to remand
the case back to state court. In each lawsuit, the plaintiff seeks to bring a
nationwide class action on behalf of all landowners on whose property the
plaintiffs have alleged WCG installed fiber-optic cable without the permission
of the landowner. The plaintiffs are seeking a declaratory ruling that WCG is
trespassing, damages resulting from the alleged trespass, damages based on WCG's
profits from use of the property and damages from alleged fraud. Relief
requested by the plaintiff includes injunction against further trespass, actual
and punitive damages, and attorneys' fees.
Williams believes that installation of the cable containing the
single-fiber network that crosses over or near the named plaintiffs' land does
not infringe on the plaintiffs' property rights. Williams also does not believe
that the plaintiffs in these lawsuits have sufficient basis for certification of
a class action. The proposed composition of the class in the Oxford lawsuit
appears to include only landowners who would also be included in the class
proposed in the Shrier suit.
Other communications carriers have been successfully challenged with
respect to their rights to use railroad rights of way, which are also challenged
by the plaintiffs in Schrier and Oxford. Approximately
F-58
<PAGE> 94
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15 percent of the WCG network is installed on railroad rights of way. In many
areas, the railroad granting WCG the license holds full ownership of the land,
in which case its license should be sufficient to give WCG valid rights to cross
the property. In some states where the railroad is not the property owner but
has an easement over the property, the law is unsettled as to whether a
landowner's approval is required. WCG generally did not obtain landowner
approval where the rights of way are located on railroad easements. In most
states, WCG has eminent domain rights which WCG believes would limit the
liability for any trespass damages. It is likely that WCG will be subject to
other purported class action suits challenging the use of railroad or pipeline
rights of way. WCG cannot quantify the impact of all such claims at this time.
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, based on advice of counsel,
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.
Commitments
Energy Marketing & Trading has entered into certain contracts giving
Williams the right to receive fuel conversion and certain other services for
purposes of generating electricity. At December 31, 1999, annual estimated
committed payments under these contracts range from approximately $20 million to
$383 million, resulting in total committed payments over the next 23 years of
approximately $7 billion.
Williams has also entered into an agreement giving Williams a 25 year right
to use a portion of a third party's wireless local capacity. Williams will pay a
total of $400 million over four years for this right and will amortize the total
payments over the 25 year usage term. As of December 31, 1999, Williams has paid
approximately $172 million.
See Note 11 for commitments for construction and acquisition of property,
plant and equipment.
NOTE 20. RELATED PARTY TRANSACTIONS
Williams Consolidated Financial Statements include various transactions
with related parties. Significant transactions are as follows.
Nortel charges Solutions LLC for certain corporate administrative expenses
which are directly identifiable or allocable to Solutions LLC. Direct charges
from Nortel for the years ended December 31, 1999, 1998 and 1997 were
approximately $2 million, $11 million and $15 million, respectively. These costs
are included in selling, general and administrative expenses and Solutions'
segment loss.
Additionally, Solutions LLC purchased inventory from Nortel for use in
equipment installations for $480 million and $468 million in 1999 and 1998,
respectively, and $311 million for the period from April 30, 1997 (date on which
Nortel became a related party) to December 31, 1997. Solutions LLC has a
distribution agreement with Nortel that extends through December 2002. If for
two consecutive years the percentage of Nortel products purchased by Solutions
LLC falls below approximately 78 percent and the rate of growth of the purchase
of Nortel products by Solution LLC during the two-year period is below that of
other Nortel distributors, Nortel may require Williams to buy, or Williams may
require Nortel to sell, Nortel's entire interest in Solutions LLC at market
value.
In addition, Williams purchased from Nortel, optronics for use on the
communications network for $226 million and $84 million in 1999 and 1998,
respectively.
F-59
<PAGE> 95
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below presents changes in the components of accumulated other
comprehensive income (loss).
<TABLE>
<CAPTION>
INCOME (LOSS)
---------------------------------------
UNREALIZED
APPRECIATION FOREIGN
(DEPRECIATION) CURRENCY
ON SECURITIES TRANSLATION TOTAL
-------------- ----------- ------
(MILLIONS)
<S> <C> <C> <C>
Balance at December 31, 1996............................... $ -- $ -- $ --
1997 change:
Pre-income tax amount.................................... (3.9) (.1) (4.0)
Income tax benefit....................................... 1.5 -- 1.5
------ ------ ------
Balance at December 31, 1997............................... (2.4) (.1) (2.5)
------ ------ ------
1998 change:
Pre-income tax amount.................................... 39.4 (4.9) 34.5
Income tax expense....................................... (15.3) -- (15.3)
------ ------ ------
24.1 (4.9) 19.2
------ ------ ------
Balance at December 31, 1998............................... 21.7 (5.0) 16.7
------ ------ ------
1999 change:
Pre-income tax amount.................................... 194.9 (17.9) 177.0
Income tax expense....................................... (75.8) -- (75.8)
Minority interest in other comprehensive income.......... (14.9) (.1) (15.0)
------ ------ ------
104.2 (18.0) 86.2
Adjustment due to issuance of subsidiary's common stock.... (5.8) 2.4 (3.4)
------ ------ ------
Balance at December 31, 1999............................... $120.1 $(20.6) $ 99.5
====== ====== ======
</TABLE>
NOTE 22. SEGMENT DISCLOSURES
Williams evaluates performance based upon segment profit or loss from
operations which includes revenues from external and internal customers, equity
earnings, operating costs and expenses and depreciation, depletion and
amortization. The accounting policies of the segments are the same as those
described in Note 1, Summary of Significant Accounting Policies. Intersegment
sales are generally accounted for as if the sales were to unaffiliated third
parties, that is, at current market prices.
Williams' reportable segments are strategic business units that offer
different products and services. The segments are managed separately because
each segment requires different technology, marketing strategies and industry
knowledge. Other includes investments in international energy and
communications-related ventures, as well as corporate operations.
The following table reflects the reconciliation of segment profit, per the
table on page F-62, to operating income as reported on the Consolidated
Statement of Income.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ --------
(MILLIONS)
<S> <C> <C> <C>
Segment profit.......................................... $916.5 $806.0 $1,107.4
General corporate expenses.............................. (67.9) (89.2) (95.1)
------ ------ --------
Operating income........................................ $848.6 $716.8 $1,012.3
====== ====== ========
</TABLE>
F-60
<PAGE> 96
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following geographic area data includes revenues from external
customers based on product shipment origin and long-lived assets based upon
physical location.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(MILLIONS)
<S> <C> <C> <C>
Revenues from external customers:
United States..................................... $ 8,364.9 $ 7,488.2 $ 8,101.1
Other............................................. 261.2 181.0 140.5
--------- --------- ---------
$ 8,626.1 $ 7,669.2 $ 8,241.6
========= ========= =========
Long-lived assets:
United States..................................... $15,248.2 $13,002.5 $12,010.5
Other............................................. 509.9 250.8 126.9
--------- --------- ---------
$15,758.1 $13,253.3 $12,137.4
========= ========= =========
</TABLE>
Long-lived assets are comprised of property, plant and equipment, goodwill
and other intangible assets and certain other non-current assets.
F-61
<PAGE> 97
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
<TABLE>
<CAPTION>
REVENUES
-------------------------------------------- ADDITIONS
EQUITY SEGMENT EQUITY TO LONG-
EXTERNAL INTER- EARNINGS PROFIT TOTAL METHOD LIVED
CUSTOMERS SEGMENT (LOSSES) TOTAL (LOSS) ASSETS INVESTMENTS ASSETS
--------- --------- -------- --------- -------- --------- ----------- ---------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Gas Pipeline..................... $1,762.7 $ 59.9 $ 9.0 $ 1,831.6 $ 697.3 $ 8,628.5 $211.9 $ 361.3
Energy Services
Energy Marketing & Trading..... 2,423.4 (175.5)* (.5) 2,247.4 106.1 3,251.8 1.9 82.8
Exploration & Production....... 50.2 139.9 -- 190.1 39.8 618.6 -- 148.5
Midstream Gas & Liquids........ 661.0 380.1 (12.1) 1,029.0 230.8 3,514.4 216.0 341.9
Petroleum Services............. 1,631.5 1,264.1 .5 2,896.1 165.0 2,557.0 107.0 715.7
Merger-related costs........... -- -- -- -- (12.7) -- -- --
-------- --------- ------ --------- -------- --------- ------ --------
4,766.1 1,608.6 (12.1) 6,362.6 529.0 9,941.8 324.9 1,288.9
-------- --------- ------ --------- -------- --------- ------ --------
Communications
Network........................ 356.5 47.5 1.2 405.2 (129.6) 3,523.9 11.3 1,541.6
Solutions...................... 1,406.0 -- -- 1,406.0 (64.6) 1,518.6 -- 46.7
Strategic Investments.......... 256.4 .3 (27.2) 229.5 (124.0) 1,335.4 45.7 140.2
-------- --------- ------ --------- -------- --------- ------ --------
2,018.9 47.8 (26.0) 2,040.7 (318.2) 6,377.9 57.0 1,728.5
-------- --------- ------ --------- -------- --------- ------ --------
Other............................ 78.4 40.1 (3.9) 114.6 8.4 6,629.3 121.3 294.8
Eliminations..................... -- (1,756.4) -- (1,756.4) -- (6,289.0) -- --
-------- --------- ------ --------- -------- --------- ------ --------
Total.................... $8,626.1 $ -- $(33.0) $ 8,593.1 $ 916.5 $25,288.5 $715.1 $3,673.5
======== ========= ====== ========= ======== ========= ====== ========
1998
Gas Pipeline..................... $1,633.5 $ 51.1 $ .2 $ 1,684.8 $ 610.4 $ 8,386.2 $ 8.9 $ 485.0
Energy Services
Energy Marketing & Trading..... 2,025.3 (111.5)* (6.7) 1,907.1 39.0 2,596.8 .8 27.3
Exploration & Production....... 33.5 105.8 -- 139.3 27.2 484.1 -- 58.1
Midstream Gas & Liquids........ 799.0 63.7 8.2 870.9 225.7 3,201.8 129.1 342.6
Petroleum Services............. 1,417.2 1,016.5 .4 2,434.1 144.9 2,525.2 96.0 264.2
Merger-related costs........... -- -- -- -- (50.7) -- -- --
-------- --------- ------ --------- -------- --------- ------ --------
4,275.0 1,074.5 1.9 5,351.4 386.1 8,807.9 225.9 692.2
-------- --------- ------ --------- -------- --------- ------ --------
Communications
Network........................ 145.2 49.7 -- 194.9 (26.3) 712.9 -- 387.4
Solutions...................... 1,366.8 -- -- 1,366.8 (54.1) 946.4 -- 68.5
Strategic Investments.......... 216.5 4.8 (18.4) 202.9 (112.6) 638.4 43.2 58.5
-------- --------- ------ --------- -------- --------- ------ --------
1,728.5 54.5 (18.4) 1,764.6 (193.0) 2,297.7 43.2 514.4
-------- --------- ------ --------- -------- --------- ------ --------
Other............................ 32.2 30.8 5.4 68.4 2.5 4,782.4 96.6 157.3
Eliminations..................... -- (1,210.9) -- (1,210.9) -- (5,626.9) -- --
-------- --------- ------ --------- -------- --------- ------ --------
Total.................... $7,669.2 $ -- $(10.9) $ 7,658.3 $ 806.0 $18,647.3 $374.6 $1,848.9
======== ========= ====== ========= ======== ========= ====== ========
1997
Gas Pipeline..................... $1,626.9 $ 52.7 $ .5 $ 1,680.1 $ 614.7 $ 8,202.8 $ 6.7 $ 435.9
Energy Services
Energy Marketing & Trading..... 2,018.2 232.2 (5.6) 2,244.8 53.4 1,688.8 1.8 102.4
Exploration & Production....... 3.6 126.5 -- 130.1 30.3 367.2 -- 63.3
Midstream Gas & Liquids........ 929.1 100.5 -- 1,029.6 282.3 3,188.3 87.5 212.0
Petroleum Services............. 2,192.9 233.7 .4 2,427.0 173.4 1,842.0 9.6 150.5
-------- --------- ------ --------- -------- --------- ------ --------
5,143.8 692.9 (5.2) 5,831.5 539.4 7,086.3 98.9 528.2
-------- --------- ------ --------- -------- --------- ------ --------
Communications
Network........................ 22.0 21.0 -- 43.0 3.3 240.1 2.3 178.2
Solutions...................... 1,206.5 -- -- 1,206.5 47.3 869.0 -- 247.5
Strategic Investments.......... 213.1 4.9 (2.4) 215.6 (108.7) 329.6 3.8 98.9
-------- --------- ------ --------- -------- --------- ------ --------
1,441.6 25.9 (2.4) 1,465.1 (58.1) 1,438.7 6.1 524.6
-------- --------- ------ --------- -------- --------- ------ --------
Other............................ 29.3 9.1 15.0 53.4 11.4 2,476.7 143.8 208.7
Eliminations..................... -- (780.6) -- (780.6) -- (2,921.7) -- --
-------- --------- ------ --------- -------- --------- ------ --------
Total.................... $8,241.6 $ -- $ 7.9 $ 8,249.5 $1,107.4 $16,282.8 $255.5 $1,697.4
======== ========= ====== ========= ======== ========= ====== ========
<CAPTION>
DEPRECIATION,
DEPLETION &
AMORTIZATION
-------------
(MILLIONS)
<S> <C>
1999
Gas Pipeline..................... $285.1
Energy Services
Energy Marketing & Trading..... 35.3
Exploration & Production....... 23.5
Midstream Gas & Liquids........ 143.8
Petroleum Services............. 82.9
Merger-related costs........... --
------
285.5
------
Communications
Network........................ 43.5
Solutions...................... 48.3
Strategic Investments.......... 44.6
------
136.4
------
Other............................ 35.0
Eliminations..................... --
------
Total.................... $742.0
======
1998
Gas Pipeline..................... $287.0
Energy Services
Energy Marketing & Trading..... 30.1
Exploration & Production....... 26.0
Midstream Gas & Liquids........ 121.6
Petroleum Services............. 70.8
Merger-related costs........... --
------
248.5
------
Communications
Network........................ 13.2
Solutions...................... 36.9
Strategic Investments.......... 33.7
------
83.8
------
Other............................ 27.0
Eliminations..................... --
------
Total.................... $646.3
======
1997
Gas Pipeline..................... $273.0
Energy Services
Energy Marketing & Trading..... 20.8
Exploration & Production....... 12.6
Midstream Gas & Liquids........ 131.9
Petroleum Services............. 67.8
------
233.1
------
Communications
Network........................ 4.0
Solutions...................... 29.7
Strategic Investments.......... 33.1
------
66.8
------
Other............................ 13.0
Eliminations..................... --
------
Total.................... $585.9
======
</TABLE>
- ---------------
* Energy Marketing & Trading intercompany cost of sales, which are netted in
revenues consistent with fair-value accounting, exceed intercompany revenues
in 1999 and 1998.
F-62
<PAGE> 98
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions, except
per-share amounts). Certain amounts have been restated or reclassified as
described in Note 1 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................. $1,944.1 $1,993.0 $2,207.2 $2,448.8
Costs and operating expenses......................... 1,398.5 1,435.9 1,666.9 1,856.7
Income before extraordinary gain and cumulative
effect of change in accounting principle........... 58.5 18.1 28.1 57.1
Net income........................................... 52.9 18.1 28.1 122.3
Basic earnings per common share:
Income before extraordinary gain and cumulative
effect of change in accounting principle........ .13 .04 .06 .13
Net income......................................... .12 .04 .06 .28
Diluted earnings per common share:
Income before extraordinary gain and cumulative
effect of change in accounting principle........ .13 .04 .06 .12
Net income......................................... .12 .04 .06 .27
</TABLE>
<TABLE>
<CAPTION>
1998
- ----
<S> <C> <C> <C> <C>
Revenues............................................. $1,958.8 $1,774.3 $1,886.8 $2,038.4
Costs and operating expenses......................... 1,430.8 1,259.1 1,377.5 1,473.4
Income (loss) before extraordinary loss.............. 68.1 60.8 31.9 (33.7)
Net income (loss).................................... 63.3 60.8 31.9 (33.7)
Basic earnings per common share:
Income (loss) before extraordinary loss............ .16 .14 .07 (.08)
Net income (loss).................................. .15 .14 .07 (.08)
Diluted earnings per common share:
Income (loss) before extraordinary loss............ .15 .14 .07 (.08)
Net income (loss).................................. .14 .14 .07 (.08)
</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 and rounding.
First-quarter 1999 net income includes a $5.6 million after-tax charge
related to a cumulative effect of change in accounting principle (see Note 1).
Second-quarter 1999 net income includes a $51 million favorable pre-tax
adjustment related to the reduction of certain rate refund liabilities and
related interest accruals resulting from regulatory proceedings involving
rate-of-return methodology (see Note 19). Also included in second-quarter 1999
net income is a $26.7 million pre-tax charge related to the sale of certain of
Strategic Investments' network application businesses. An additional $1.7
million was recorded in the fourth quarter relating to this sale (see Note 5).
Fourth-quarter 1999 net income for Gas Pipeline includes a $21 million favorable
pre-tax reduction of certain rate refund liabilities resulting from recent
developments in regulatory proceedings which concluded that the risk involved
with one of the issues in the proceedings had been eliminated (see Note 19).
Also included in fourth-quarter 1999 net income are pre-tax gains of
approximately $31 million from sales of operating assets (see Note 5) and an
after-tax gain of $65.2 million related to the sale of Williams' retail propane
business, Thermogas L.L.C. (see Note 7).
First-quarter, second-quarter, third-quarter and fourth-quarter 1998 net
income includes approximately $59 million, $9 million, $6 million and $6
million, respectively, of pre-tax merger-related costs (see Note 2).
Second-quarter 1998 net income also includes a pre-tax $15.5 million loss
provision for potential refunds to customers (see Note 19). Third-quarter 1998
net income includes $17 million in pre-tax credit loss accruals
F-63
<PAGE> 99
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED) -- (CONCLUDED)
for certain retail energy activities. In addition, third-quarter 1998 includes a
$23.2 million pre-tax loss related to a venture involved in the technology and
transmission of business information for news and educational purposes (see Note
5). Fourth-quarter 1998 net income includes pre-tax accruals totaling
approximately $31 million related to the modification of Williams' employees
benefit program. Also included in fourth-quarter 1998 net income is a pre-tax
charge of $58 million related to certain long-term gas supply contracts (see
Note 19) and $14 million for asset impairments related to Energy Services'
decision to change the focus of its retail natural gas and electric business
(see Note 5).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-64
<PAGE> 100
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, 1999...................................... F-25
Consolidated balance sheet at December 31, 1999 and
1998................................................... F-26
Consolidated statement of stockholders' equity for the
three years ended December 31, 1999.................... F-27
Consolidated statement of cash flows for the three years
ended December 31, 1999................................ F-28
Notes to consolidated financial statements................ F-29
Schedules for the three years ended December 31, 1999:
I -- Condensed financial information of registrant....... F-66
II -- Valuation and qualifying accounts................... F-72
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-63
</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-65
<PAGE> 101
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME (PARENT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN MILLIONS,
EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Investing income:
Consolidated subsidiaries................................. $ 198.2 $ 33.9 $ 6.6
Other..................................................... 15.1 4.6 2.4
Interest accrued:
Consolidated subsidiaries................................. (148.0) (59.4) (64.5)
Other..................................................... (274.7) (154.2) (131.0)
Other expense -- net........................................ (24.2) (13.2) (2.4)
------- ------- -------
Loss from continuing operations before income taxes, equity
in subsidiaries' income, extraordinary gain (loss) and
cumulative effect of change in accounting principle....... (233.6) (188.3) (188.9)
Credit for income taxes..................................... (87.8) (72.3) (69.3)
------- ------- -------
Loss from continuing operations before equity in
subsidiaries' income, extraordinary gain (loss) and
cumulative effect of change in accounting principle....... (145.8) (116.0) (119.6)
Equity in consolidated subsidiaries' income................. 307.6 257.4 556.4
------- ------- -------
Income from continuing operations........................... 161.8 141.4 436.8
Loss from discontinued operations........................... -- (14.3) (6.3)
------- ------- -------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle.................. 161.8 127.1 430.5
Extraordinary gain (loss)................................... 65.2 (4.8) (79.1)
Cumulative effect of change in accounting principle......... (5.6) -- --
------- ------- -------
Net income.................................................. 221.4 122.3 351.4
Preferred stock dividends................................... 2.8 7.1 9.8
------- ------- -------
Income applicable to common stock........................... $ 218.6 $ 115.2 $ 341.6
======= ======= =======
Basic earnings per common share:
Income from continuing operations......................... $ .36 $ .31 $ 1.04
Loss from discontinued operations......................... -- (.03) (.02)
------- ------- -------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle............... .36 .28 1.02
Extraordinary gain (loss)................................. .14 (.01) (.19)
Cumulative effect of change in accounting principle....... (.01) -- --
------- ------- -------
Net income................................................ $ .49 $ .27 $ .83
======= ======= =======
Diluted earnings per common share:
Income from continuing operations......................... $ .35 $ .31 $ 1.01
Loss from discontinued operations......................... -- (.03) (.01)
------- ------- -------
Income before extraordinary gain (loss) and cumulative
effect of change in accounting principle............... .35 .28 1.00
Extraordinary gain (loss)................................. .14 (.01) (.19)
Cumulative effect of change in accounting principle....... (.01) -- --
------- ------- -------
Net income................................................ $ .48 $ .27 $ .81
======= ======= =======
</TABLE>
See accompanying notes.
F-66
<PAGE> 102
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BALANCE SHEET (PARENT)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
--------- --------
(MILLIONS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 495.9 $ 377.3
Due from consolidated subsidiaries........................ 497.9 108.2
Receivables............................................... 8.8 70.7
Other..................................................... 15.4 13.4
--------- --------
Total current assets.............................. 1,018.0 569.6
Investments:
Equity in consolidated subsidiaries....................... 11,459.6 7,445.4
Due from consolidated subsidiaries........................ 3,496.0 927.0
Other..................................................... 181.3 --
Property, plant and equipment -- net........................ 29.1 24.3
Other assets and deferred charges........................... 93.2 37.6
--------- --------
Total assets...................................... $16,277.2 $9,003.9
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ 1,285.3 $ --
Due to consolidated subsidiaries.......................... 1,466.2 564.2
Accounts payable and accrued liabilities.................. 163.6 118.8
Long-term debt due within one year........................ 132.8 150.0
--------- --------
Total current liabilities......................... 3,047.9 833.0
Long-term debt.............................................. 4,699.5 2,290.5
Due to consolidated subsidiaries............................ 1,816.9 1,538.7
Deferred income taxes....................................... 132.3 22.4
Other liabilities........................................... 80.4 61.9
Stockholders' equity:
Preferred stock........................................... -- 102.2
Common stock.............................................. 463.2 432.3
Capital in excess of par value............................ 3,253.0 982.4
Retained earnings......................................... 2,807.2 2,849.5
Accumulated other comprehensive income.................... 99.5 16.7
Other..................................................... (77.6) (78.5)
--------- --------
6,545.3 4,304.6
Less treasury stock....................................... (45.1) (47.2)
--------- --------
Total stockholders' equity........................ 6,500.2 4,257.4
--------- --------
Total liabilities and stockholders' equity........ $16,277.2 $9,003.9
========= ========
</TABLE>
See accompanying notes.
F-67
<PAGE> 103
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
STATEMENT OF CASH FLOWS (PARENT)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
--------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Cash provided by operating activities....................... $ 126.9 $ 88.8 $ 9.6
--------- -------- --------
Financing activities:
Proceeds from notes payable............................... 460.0 305.0 1,068.7
Payments of notes payable................................. (269.4) (654.0) (989.2)
Proceeds from long-term debt.............................. 1,369.5 2,177.7 682.2
Payments of long-term debt................................ (243.9) (989.8) (854.4)
Proceeds from issuance of common stock including tax
benefit................................................ 141.3 69.4 65.8
Purchases of treasury stock............................... -- -- (18.5)
Dividends paid............................................ (263.7) (247.4) (181.5)
Other -- net.............................................. (6.0) (10.3) (5.1)
--------- -------- --------
Net cash provided (used) by financing
activities...................................... 1,187.8 650.6 (232.0)
--------- -------- --------
Investing activities:
Property, plant and equipment:
Capital expenditures................................... (11.5) (4.3) (33.3)
Proceeds from dispositions............................. 3.9 .1 13.7
Investments in consolidated subsidiaries.................. (460.5) (264.6) (.4)
Changes in due to/due from consolidated subsidiaries...... (734.9) (104.9) 191.7
Other -- net.............................................. 6.9 6.4 (.1)
--------- -------- --------
Net cash provided (used) by investing
activities...................................... (1,196.1) (367.3) 171.6
--------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... 118.6 372.1 (50.8)
Cash and cash equivalents at beginning of year.............. 377.3 5.2 56.0
--------- -------- --------
Cash and cash equivalents at end of year.................... $ 495.9 $ 377.3 $ 5.2
========= ======== ========
</TABLE>
See accompanying notes.
F-68
<PAGE> 104
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO FINANCIAL INFORMATION (PARENT)
NOTE 1. BASIS OF PRESENTATION
During 1999, Williams Holdings of Delaware, Inc., a wholly owned
subsidiary, merged with and into The Williams Companies, Inc. (Parent) (Williams
(Parent)). Subsequent to the merger, this Condensed Financial Information of
Registrant includes the accounts previously reported by Williams Holdings of
Delaware, Inc. (Williams Holdings) on a parent company-only basis. The assets
and liabilities of Williams Holdings included $1.4 billion of equity in
consolidated subsidiaries, a net $1.0 billion due from consolidated
subsidiaries, $1.1 billion of notes payable, $114 million of deferred income tax
liabilities and $1.3 billion of long-term debt. This Condensed Financial
Information of Registrant should be read in conjunction with The Williams
Companies, Inc. (Williams) Consolidated Financial Statements and Notes thereto.
NOTE 2. DEBT AND BANKING ARRANGEMENTS
Notes payable
Williams (Parent) has entered into a commercial paper program backed by a
$1.4 billion short-term bank-credit facility. Prior to the 1999 Williams
Holdings merger, this commercial paper program was included in Williams
Holdings. At December 31, 1999, $1.2 billion of commercial paper was outstanding
under the program. In addition, Williams has entered into various other
short-term credit agreements with amounts outstanding totaling $50 million at
December 31, 1999. The weighted-average interest rate on the outstanding
short-term borrowings at December 31, 1999 was 6.1 percent.
Long-term debt
Williams has a $1 billion revolving credit agreement under which certain
subsidiaries have access to varying amounts while Williams (Parent) has access
to all unborrowed amounts. Interest rates vary with current market conditions.
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE DECEMBER 31,
INTEREST -------------------
RATE* 1999 1998
--------- -------- --------
(MILLIONS)
<S> <C> <C> <C>
Revolving credit loans...................................... 7.0% $ 525.0 $ 144.0
Debentures, 6.25% -- 10.25%, payable 2006, 2012, 2020, 2021
and 2027.................................................. 6.4 488.9 137.0
Notes, 5.1% -- 9.625%, payable through 2022(1).............. 6.5 3,518.4 2,059.5
Notes, adjustable rate, payable 2000 and 2004............... 6.3 300.0 100.0
-------- --------
4,832.3 2,440.5
Current portion of long-term debt........................... 132.8 150.0
-------- --------
$4,699.5 $2,290.5
======== ========
</TABLE>
- ---------------
* At December 31, 1999, including the effects of interest-rate swaps.
(1) $300 million, 5.95% notes, payable 2010, and $240 million, 6.125% notes,
payable 2012, are subject to redemption at par at the option of the
debtholder in 2000 and 2002, respectively.
For financial reporting purposes at December 31, 1999, $404 million in
obligations which would have otherwise been classified as current debt
obligations have been classified as non-current based on Williams' (Parent)
intent and ability to refinance on a long-term basis. Williams' (Parent)
issuance in January 2000 of $500 million of adjustable rate notes due 2001 is
sufficient to complete these refinancings.
F-69
<PAGE> 105
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)
NOTES TO FINANCIAL INFORMATION (PARENT)
Aggregate minimum maturities and sinking fund requirements, excluding lease
payments, for each of the next five years are as follows:
<TABLE>
<CAPTION>
(MILLIONS)
----------
<S> <C>
2000..................................................... $ 133
2001..................................................... 811
2002..................................................... 1,373
2003..................................................... 252
2004..................................................... 372
</TABLE>
NOTE 3. DUE FROM AND DUE TO CONSOLIDATED SUBSIDIARIES
Due from and due to consolidated subsidiaries consist of short-term
receivables and payables with subsidiaries and promissory notes to and from
subsidiaries. Williams (Parent) maintains various promissory notes with its
subsidiaries for both advances from and advances to Williams (Parent) depending
on the cash position of each subsidiary. Amounts outstanding are payable on
demand; however, the amounts outstanding at December 31, 1999 and 1998 have been
classified as long-term to the extent there are no expectations for Williams
(Parent) and its subsidiaries to demand payment in the next year. The agreements
do not require commitment fees. Interest is payable monthly, and rates vary with
market conditions.
In 1999, Williams (Parent) issued $175 million in zero coupon subordinated
debentures which yield a 7.92 percent return and mature no later than March 2002
to Williams Capital Trust I, a consolidated entity. These debentures are
included in non-current due to consolidated subsidiaries at December 31, 1999.
In 1995, Williams (Parent) issued $360 million in convertible debentures
and warrants to Williams Holdings in exchange for 12.2 million shares of
Williams (Parent) common stock purchased on the open market and held by that
subsidiary. The debentures were included in non-current due to consolidated
subsidiaries at December 31, 1998. Upon the 1999 merger of Williams Holdings
into Williams (Parent), the convertible debentures and warrants were retired.
NOTE 4. STOCKHOLDERS' EQUITY
During 1999, each remaining share of Williams (Parent) $3.50 cumulative
convertible preferred stock was converted at the option of the holder into
4.6875 shares of Williams common stock prior to the redemption date.
During 1999, Williams (Parent) contributed approximately 18.7 million
shares of its previously un-issued common stock to a wholly owned subsidiary in
exchange for investments in certain foreign operations which were subsequently
contributed by Williams (Parent) to another wholly owned subsidiary. The
issuance of the common stock was recorded at the May 27, 1999 market value of
$915 million. For the Condensed Financial Information of Registrant, the
issuance of the stock is reflected in stockholders' equity, however, the
issuance of the stock is eliminated for the Consolidated Financial Statements of
Williams.
See Note 15 of Notes to Consolidated Financial Statements for discussion of
the impact on Williams (Parent) of the 1999 issuance of common stock by a
subsidiary.
NOTE 5. DIVIDENDS RECEIVED
Cash dividend from subsidiaries and companies accounted for on an equity
basis are as follows: 1999 -- $162.0 million; 1998 -- $177.5 million; and
1997 -- $266.9 million.
NOTE 6. GUARANTEES
At December 31, 1999, Williams Communications Group, Inc., a subsidiary of
Williams (Parent), has a $1.05 billion long term credit agreement that is
guaranteed by Williams (Parent). Williams (Parent) is
F-70
<PAGE> 106
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)
NOTES TO FINANCIAL INFORMATION (PARENT)
expected to be released from the guarantees in the first quarter of 2000. At
December 31, 1999 no amounts were outstanding under this facility.
See Note 13 of Notes to Consolidated Financial Statements for discussion of
Williams (Parent) guarantee of the residual value of network assets under lease.
In addition, see Notes 14 and 18 of the Notes to Consolidated Financial
Statements for discussion of other guarantees by Williams (Parent).
NOTE 7. CONTINGENT LIABILITIES
See Note 19 of Notes to Consolidated Financial Statements for discussion of
environmental matters related to the assets of Agrico Chemical Company which
were sold in 1987.
F-71
<PAGE> 107
THE WILLIAMS COMPANIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
----------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS BALANCE
--------- -------- ----- ---------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts --
Receivables(a)........................... $30.5 $28.3 $ -- $10.8(c) $48.0
Price-risk management credit reserves(a).... 13.0 (2.4) -- -- 10.6
Refining and processing plant major
maintenance accrual(b)................... 5.3 7.8 3.9(e) 9.4(d) 7.6
Year ended December 31, 1998:
Allowance for doubtful accounts --
Receivables(a)........................... 21.5 39.8 -- 30.8(c) 30.5
Other assets(a).......................... 4.6 -- -- 4.6(c) --
Price-risk management credit reserves(a).... 7.7 5.3 -- -- 13.0
Refining and processing plant major
maintenance accrual(b)................... 6.2 5.1 -- 6.0(d) 5.3
Year ended December 31, 1997:
Allowance for doubtful accounts --
Receivables(a)........................... 11.4 13.3 7.0(e) 10.2(c) 21.5
Other assets(a).......................... 4.6 -- -- -- 4.6
Price-risk management credit reserves(a).... 7.6 .1 -- -- 7.7
Refining and processing plant major
maintenance accrual(b)................... 5.6 4.6 -- 4.0(d) 6.2
</TABLE>
- ---------------
(a) Deducted from related assets.
(b) Included in liabilities.
(c) Represents balances written off, net of recoveries and reclassifications.
(d) Represents payments made.
(e) Primarily relates to acquisitions of businesses.
F-72
<PAGE> 108
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 2000 (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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by Item 404 of Regulation S-K is presented under the heading "Certain
Relationships and Related Transactions" 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.
III-1
<PAGE> 109
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedules listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.
(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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 Williams' 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 (filed as Exhibit
3(d) to Form 10-K for the fiscal year ended December 31,
1997).
*(e) -- 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).
*(f) -- Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock, dated
December 31, 1997 (filed as Exhibit 3(g) to Form 10-K for
the fiscal year ended December 31, 1997).
*(g) -- 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).
*(h) -- By-laws of Williams, as amended (filed, as amended, as
Exhibit 99.1 to Form 8-K filed January 19, 2000)
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; 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) -- Second 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 (filed as Exhibit 4(c) to Form 10-K for
the fiscal year ended December 31, 1997).
*(c) -- Amendment dated January 26, 1999, to Second Amended and
Restated Credit Agreement dated July 23, 1997, among
Williams and certain of its subsidiaries and the banks
named therein and Citibank, N.A., as agent (filed as
Exhibit 4(c) to Form 10-K for fiscal year ended December
31, 1998).
</TABLE>
IV-1
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
(d) -- Second Amended and Restated Credit Agreement, dated as of
January 24, 2000, among Williams and the banks named
therein and Citibank, N.A., as agent.
(e) -- Second Amendment to Second Amended and Restated Credit
Agreement, dated as of January 24, 2000 among Williams
and certain of its subsidiaries and the banks named
therein and Citibank, N.A., as agent.
*(f) -- Form of Senior Debt Indenture between the Company and The
First National Bank of Chicago, Trustee, relating to
6 1/2% Notes due 2002; 6 5/8% Notes due 2004; floating
rate notes due 2000; 6 1/8% Notes due 2001; 6.20% Notes
due 2002; 6 1/2% Notes due 2006; 5.95% Structured
Putable/ Remarketable Securities due 2010; 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).
*(g) -- 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).
*(h) -- 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).
*(i) -- Indenture dated May 1, 1990, between Transco Energy
Company and The Bank of New York, as Trustee (filed as an
Exhibit to Transco Energy Company's Form 8-K dated June
25, 1990).
*(j) -- First Supplemental Indenture dated June 20, 1990, between
Transco Energy Company and The Bank of New York, as
Trustee (filed as an Exhibit to Transco Energy Company's
Form 8-K dated June 25, 1990).
*(k) -- Second Supplemental Indenture dated November 29, 1990,
between Transco Energy Company and The Bank of New York,
as Trustee (filed as an Exhibit to Transco Energy
Company's Form 8-K dated December 7, 1990).
*(l) -- Third Supplemental Indenture dated April 23, 1991,
between Transco Energy Company and The Bank of New York,
as Trustee (filed as an Exhibit to Transco Energy
Company's Form 8-K dated April 30, 1991).
*(m) -- Fourth Supplemental Indenture dated August 22, 1991,
between Transco Energy Company and The Bank of New York,
as Trustee (filed as an Exhibit to Transco Energy
Company's Form 8-K dated August 27, 1991).
*(n) -- Fifth Supplemental Indenture dated May 1, 1995, among
Transco Energy Company, Williams, and The Bank of New
York, Trustee (filed as Exhibit 4(l) to Form 10-K for
fiscal year ended December 31, 1998).
(o) -- First Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
Citibank, N.A., as Trustee.
(p) -- Second Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
Bankers Trust Company, as Trustee.
(q) -- Fourth Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
The First National Bank of Chicago, as Trustee.
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).
</TABLE>
IV-2
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
*(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).
*(k) -- The Williams Communications Stock Plan (filed as Exhibit
99 to the Registration Statement on Form S-8, filed on
August 14, 1998).
*(l) -- The Williams International Stock Plan (filed as Exhibit
10(iii)(l) to Form 10-K for fiscal year ended December
31, 1998).
*(m) -- Form of Stock Option Secured Promissory Note and Pledge
Agreement between Williams and certain employees,
officers, and non-employee directors (filed as Exhibit
10(iii)(m) to Form 10-K for fiscal year ended December
31, 1998).
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
Exhibit 18 -- Letter regarding change in accounting principles.
Exhibit 20 -- Definitive Proxy Statement of Williams for 2000 (as filed
with the Commission on March 27, 2000).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23(a) -- Consent of Independent Auditors, Ernst & Young LLP.
Exhibit 23(b) -- Consent of Independent Auditors, Deloitte & Touche LLP.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
Exhibit 27.1 -- Restated Financial Data Schedules for the years ended
December 31, 1998 and 1997.
Exhibit 27.2 -- Restated Financial Data Schedules for the three, six and
nine months ended March 31, 1999, June 30, 1999, and
September 30, 1999, respectively.
Exhibit 27.3 -- Restated Financial Data Schedules for the three, six and
nine month periods ended March 31, 1998, June 30, 1998,
and September 30, 1998, respectively.
Exhibit 99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
</TABLE>
- ---------------
* 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.
IV-3
<PAGE> 112
(b) Reports on Form 8-K.
On October 18, 1999, Williams filed a current report on Form 8-K to report
that its subsidiary, Williams Communications Group, Inc., had sold a minority
equity interest to the public in an initial public offering.
(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.
IV-4
<PAGE> 113
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 28, 2000
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/ HUGH M. CHAPMAN* Director
- -----------------------------------------------------
Hugh M. Chapman
/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/ JAMES C. LEWIS* Director
- -----------------------------------------------------
James C. Lewis
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
/s/ JACK A. MACALLISTER* Director
- -----------------------------------------------------
Jack A. MacAllister
<C> <S>
/s/ FRANK T. MACINNIS* Director
- -----------------------------------------------------
Frank T. MacInnis
/s/ PETER C. MEINIG* Director
- -----------------------------------------------------
Peter C. Meinig
/s/ GORDON R. PARKER* Director
- -----------------------------------------------------
Gordon R. Parker
/s/ JANICE D. STONEY* Director
- -----------------------------------------------------
Janice D. Stoney
/s/ JOSEPH H. WILLIAMS* Director
- -----------------------------------------------------
Joseph H. Williams
By: /s/ SHAWNA L. GEHRES
-------------------------------------------------
Shawna L. Gehres
Attorney-in-fact
</TABLE>
Dated: March 28, 2000
<PAGE> 115
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Exhibit 4
(d) -- Second Amended and Restated Credit Agreement, dated as of
January 24, 2000, among Williams and the banks named
therein and Citibank, N.A., as agent.
(e) -- Second Amendment to Second Amended and Restated Credit
Agreement, dated as of January 24, 2000 among Williams
and certain of its subsidiaries and the banks named
therein and Citibank, N.A., as agent.
(o) -- First Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
Citibank, N.A., as Trustee.
(p) -- Second Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
Bankers Trust Company, as Trustee.
(q) -- Fourth Supplemental Indenture dated as of July 31, 1999,
among Williams Holdings of Delaware, Inc., Williams, and
The First National Bank of Chicago, as Trustee.
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
Exhibit 18 -- Letter regarding change in accounting principles.
Exhibit 20 -- Definitive Proxy Statement of Williams for 2000 (as filed
with the Commission on March 27, 2000).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23(a) -- Consent of Independent Auditors, Ernst & Young LLP.
Exhibit 23(b) -- Consent of Independent Auditors, Deloitte & Touche LLP.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
Exhibit 27.1 -- Restated Financial Data Schedules for the years ended
December 31, 1998 and 1997.
Exhibit 27.2 -- Restated Financial Data Schedules for the three, six and
nine months ended March 31, 1999, June 30, 1999, and
September 30, 1999, respectively.
Exhibit 27.3 -- Restated Financial Data Schedules for the three, six and
nine month periods ended March 31, 1998, June 30, 1998,
and September 30, 1998, respectively.
Exhibit 99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
</TABLE>
<PAGE> 1
EXHIBIT 4(d)
U.S. $1,400,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of JANUARY 24, 2000
Among
THE WILLIAMS COMPANIES, INC.
as Borrower
THE BANKS NAMED HEREIN
as Banks
CANADIAN IMPERIAL BANK OF COMMERCE
and
COMMERZBANK AG
as Co-Syndication Agents
and
CREDIT LYONNAIS NEW YORK BRANCH
as Documentation Agent
and
SALOMON SMITH BARNEY
as Arranger
and
CITIBANK, N.A.
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRELIMINARY STATEMENTS..................................................................................... 1
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS....................................................... 2
Section I.1 Certain Defined Terms........................................................... 2
Section I.2 Computation of Time Periods..................................................... 14
Section I.3 Accounting Terms................................................................ 14
Section I.4 Miscellaneous................................................................... 15
Section I.5 Ratings......................................................................... 15
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES...................................................... 16
Section II.1 The A Advances.................................................................. 16
Section II.2 Making the A Advances........................................................... 16
Section II.3 Fees............................................................................ 18
Section II.4 Reduction of the Commitments.................................................... 19
Section II.5 Repayment of A Advances......................................................... 19
Section II.6 Interest on A Advances.......................................................... 19
Section II.7 Additional Interest on Eurodollar Rate Advances................................. 20
Section II.8 Interest Rate Determination..................................................... 20
Section II.9 Evidence of Debt................................................................ 20
Section II.10 Prepayments..................................................................... 20
Section II.11 Increased Costs................................................................. 21
Section II.12 Illegality...................................................................... 22
Section II.13 Payments and Computations....................................................... 22
Section II.14 Taxes........................................................................... 24
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section II.15 Sharing of Payments, Etc......................................................... 25
Section II.16 The B Advances................................................................... 25
Section II.17 Optional Termination............................................................. 28
Section II.18 Extension of Termination Date.................................................... 29
Section II.19 Voluntary Conversion of Advances................................................. 29
Section II.20 Automatic Provisions............................................................. 29
ARTICLE III CONDITIONS............................................................................... 30
Section III.1 Conditions Precedent to Initial Advances........................................ 30
Section III.2 Additional Conditions Precedent to Each A Borrowing............................. 31
Section III.3 Conditions Precedent to Each B Borrowing........................................ 31
ARTICLE IV REPRESENTATIONS AND WARRANTIES........................................................... 32
Section IV.1 Representations and Warranties of the Borrower................................... 32
ARTICLE V COVENANTS OF THE BORROWER................................................................ 35
Section V.1 Affirmative Covenants............................................................. 35
Section V.2 Negative Covenants................................................................ 38
ARTICLE VI EVENTS OF DEFAULT........................................................................ 41
Section VI.1 Events of Default................................................................ 41
ARTICLE VII THE AGENT, CO-SYNDICATION AGENTS AND DOCUMENTATION AGENT................................. 44
Section VII.1 Authorization and Action........................................................ 44
Section VII.2 Agent's Reliance, Etc........................................................... 44
Section VII.3 Citibank, CIBC, Commerzbank, Credit Lyonnais and Affiliates..................... 45
Section VII.4 Bank Credit Decision............................................................ 45
Section VII.5 Indemnification................................................................. 45
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section VII.6 Successor Agent................................................................. 46
Section VII.7 Co-Syndication Agents; Documentation Agent...................................... 46
ARTICLE VIII MISCELLANEOUS.......................................................................... 46
Section VIII.1 Amendments, Etc................................................................. 46
Section VIII.2 Notices, Etc.................................................................... 47
Section VIII.3 No Waiver; Remedies............................................................. 47
Section VIII.4 Costs, Expenses and Taxes....................................................... 47
Section VIII.5 Right of Set-off................................................................ 48
Section VIII.6 Binding Effect; Transfers....................................................... 49
Section VIII.7 Governing Law................................................................... 51
Section VIII.8 Interest........................................................................ 51
Section VIII.9 Execution in Counterparts....................................................... 52
Section VIII.10 Survival of Agreements, Representations and Warranties, Etc..................... 52
Section VIII.11 Borrower's Right to Apply Deposits.............................................. 52
Section VIII.12 Confidentiality................................................................. 53
Section VIII.13 WAIVER OF JURY TRIAL............................................................ 53
</TABLE>
<PAGE> 5
Schedules and Exhibits
<TABLE>
<S> <C> <C>
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted Liens
Schedule IV - Commitments
Schedule V - Rating Categories
</TABLE>
<TABLE>
<S> <C> <C>
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
</TABLE>
iv
<PAGE> 6
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amended and Restated Credit Agreement, dated as of January
24, 2000 (as may be amended, modified, supplemented, renewed, extended or
restated from time to time, this "Agreement"), is by and among THE WILLIAMS
COMPANIES, INC., a Delaware corporation (the "Borrower"); the various banks as
are or may become parties hereto (collectively, the "Banks"); CANADIAN IMPERIAL
BANK OF COMMERCE and COMMERZBANK AG ("Commerzbank"), as Co-Syndication Agents,
(in such capacity, together with any successors in such capacity, the
"Co-Syndication Agents"); CREDIT LYONNAIS NEW YORK BRANCH ("Credit Lyonnais"),
as Documentation Agent (in such capacity, together with any successors in such
capacity, the Documentation Agent); and CITIBANK, N.A., as Agent (in such
capacity, together with any successors in such capacity, the "Agent"). In
consideration of the mutual covenants and agreements contained herein, the
Borrower, the Agent and the Banks hereby agree as set forth herein.
PRELIMINARY STATEMENTS
1. The Borrower, the Agent, and certain of the Banks are parties to an
Amended and Restated Credit Agreement dated as of January 26, 1999 which has
been amended by letter agreements dated May 20, 1999 and September 27, 1999 (as
so amended, the "1999 Credit Agreement"). The Banks party to the 1999 Credit
Agreement (each Bank party to such agreement an "Original Bank" and
collectively, the "Original Banks") have made certain advances pursuant to such
agreement (the "Original Advances") and the Banks, the Borrower and the Agent
intend that all Original Advances comprising A Advances, which have not
heretofore been repaid, shall, on the date of this Agreement, be continued,
amended, renewed, restated and converted into A Advances of the same Type under
this Agreement (but shall not be deemed to be repaid).
2. The Borrower has requested that the 1999 Credit Agreement be
amended, and, as so amended, be restated in its entirety.
3. The Borrower, the Banks and the Agent have agreed that, as part of
the restructuring of the outstanding Original Advances (if any) and a
restructuring of the Commitments of the Original Banks under the 1999 Credit
Agreement, the Original Banks shall assign, and the Original Banks do hereby
assign, portions of their Commitments and Original Advances, as necessary, such
that each Bank party hereto shall have, as of the date of this Agreement,
Commitments as shown on Schedule IV hereto.
4. The parties hereto have agreed to restate the 1999 Credit Agreement
in its entirety and this Second Amended and Restated Credit Agreement
constitutes for all purposes an amendment to the 1999 Credit Agreement, and each
reference to an Advance or Borrowing herein shall include each Original Advance
or borrowing made heretofore under the 1999 Credit Agreement as well as each
Advance or Borrowing made hereafter under this Agreement.
<PAGE> 7
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section I.1 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):
"1999 Credit Agreement" is defined in the first recital.
"A Advance" means an advance by a Bank to the 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 Borrower made by each of the Banks
pursuant to Section 2.1.
"A Note" means a promissory note of the Borrower payable to the
order of any Bank, in substantially the form of Exhibit A-1 hereto,
(as such note may be amended, endorsed or otherwise modified from time
to time) evidencing the aggregate indebtedness of the Borrower to such
Bank resulting from the A Advances to the Borrower owed to such Bank
together with any other note accepted from time to time in
substitution or replacement therefor.
"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 7.6.
"Agreement" has the meaning specified in the Preamble.
"Applicable Commitment Fee Rate" means the rate per annum set
forth on Schedule V under the heading "Applicable Commitment Fee Rate"
for the relevant Rating Category applicable to the Borrower from time
to time. The Applicable Commitment Fee Rate shall change when and as
the relevant Rating Category applicable to the Borrower 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.
<PAGE> 8
"Applicable Margin" means the rate per annum set forth in
Schedule V under the heading "Applicable Margin" for the relevant
Rating Category applicable to the Borrower from time to time. The
Applicable Margin for any Eurodollar Rate Advance shall change
when and as the relevant applicable Rating Category changes.
"Arranger" means Salomon Smith Barney.
"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 the 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 Borrower from each of the Banks whose offer to
make one or more B Advances as part of such borrowing has been
accepted by the Borrower under the auction bidding procedure
described in Section 2.16.
"B Note" means a promissory note of the Borrower payable to
the order of any Bank, in substantially the form of Exhibit A-2
hereto, evidencing the indebtedness of the Borrower to such Bank
resulting from a B Advance made to the Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.1.
"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 8.6(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
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<PAGE> 9
certificate of deposit dealers to and published by the Federal
Reserve Bank of New York or, if such publication shall be
suspended or terminated, on the basis of quotations for such
rates received by Citibank from three New York certificate of
deposit dealers of recognized standing selected by Citibank, in
either case adjusted to the nearest 1/4 of one percent or, if
there is no nearest 1/4 of one percent. to the next higher 1/4 of
one percent; or
(c) 1/2 of one percent per annum above the Federal Funds Rate in
effect from time to time.
"Base Rate Advance" means an A Advance which bears interest as
provided in Section 2.6(a).
"Borrower" means The Williams Companies, Inc., a Delaware
corporation.
"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.
"Cash Holdings" of any Person means the total investment of such
Person at the time of determination in:
(a) demand deposits and time deposits maturing within one
year with a Bank (or other commercial banking institution of the
stature referred to in clause (d)(i));
(b) any note or other evidence of indebtedness, maturing not
more than one year after such time, issued or guaranteed by the
United States Government or by a government of another country
which carries a long-term rating of Aaa by Moody's or AAA by S&P;
(c) commercial paper, maturing not more than nine months
from the date of issue, which is issued by
(i) a corporation (other than the affiliate of the
Borrower) and rated (x) A-1 by S&P, P-1 by Moody's, F-1 by
Fitch or A by Duff and Phelps or (y) lower than set forth in
clause (x) above, provided that the value of all such
commercial paper shall not exceed 10% of the total value of
all commercial paper comprising "Cash Holdings," or
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<PAGE> 10
(ii) any Bank (or its holding company) with a rating on
its unsecured long term debt of at least AA by S&P or Aa by
Moody's;
(d) any certificate of deposit or bankers acceptance,
maturing not more than three years after such time, which is
issued by either
(i) a commercial banking institution that is a member
of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than
$1,000,000,000 or
(ii) any Bank with a rating on its unsecured long term
debt of at least AA by S&P or Aa by Moody's;
(e) notes or other evidences of indebtedness maturing not
more than three years after such time, issued by
(i) a corporation (other than an affiliate of a
Borrower) rated AA by S&P or Aa by Moody's; or
(ii) any Bank (or its holding company) with a rating on
its unsecured long term debt of at least AA by S&P or Aa by
Moody's; or
(f) any repurchase agreement entered into with any Bank (or
other commercial banking institution of the stature referred to
in clause (d)(i)) which
(i) is secured by a fully perfected security interest
in any obligation of the type described in any of clauses
(a) through (d); and
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the
repurchase obligation of such Bank (or other commercial
banking institution) thereunder;
(g) money market preferred instruments by participation in a
Dutch auction (or the equivalent) where the investment is rated
no lower than Aa by Moody's or AA by S&P.
"ChoiceSeat" means ChoiceSeat, L.L.C., a Delaware limited
liability company.
"CIBC" means Canadian Imperial Bank of Commerce.
"Citibank" means Citibank, N.A.
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<PAGE> 11
"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.
"Commerzbank" is defined in the preface.
"Commitment" of any Bank means at any time the amount set
opposite or deemed (pursuant to clause (vii) of the last sentence
of Section 8.6(a) and as reflected in the relevant Transfer
Agreement referred to in such sentence) to be set opposite such
Bank's name on Schedule IV as such amount may be terminated,
reduced or increased after the date hereof, pursuant to Section
2.4, Section 2.17, Section 6.1 or Section 8.6(a).
"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 plus,
in the case of the Borrower, the Designated Minority Interests to
the extent not otherwise included; provided that, in no event
shall the value ascribed to Designated Minority Interests exceed
$511,700,000 in the aggregate.
"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 2.2, Section 2.19 or Section 2.20.
"Co-Syndication Agent" means either of CIBC or Commerzbank
AG, together with the successor and assigns of each in such
capacity.
"Credit Lyonnais" is defined in the preface.
"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 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
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<PAGE> 12
or resulting from any agreement referred to in paragraph (y) of
Schedule III or under or resulting from any sale and Lease-Back
referred to in paragraph (aa) of Schedule III.
"Designated Minority Interests" of the Borrower means, as of
any date of determination, the total of the minority interests in
the following Subsidiaries: (i) El Furrial, (ii) PIGAP II, (iii)
Nebraska Energy, (iv) Seminole, (v) WCG, (vi) WCS, (vii)
ChoiceSeat, (viii) PowerTel, and (ix) other Consolidated
Subsidiaries, as presented in the Consolidated balance sheet of
the Borrower, in an amount not to exceed in the aggregate
$9,000,000 for such other Consolidated Subsidiaries not referred
to in items (i) through (viii); provided that minority interests
which provide for a stated preferred cumulative return shall not
be included in "Designated Minority Interests."
"Documentation Agent" means Credit Lyonnais, together with
its successors and assigns in such capacity.
"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 8.6(a), or such other office of such Bank as such Bank
may from time to time specify to the Borrower and the Agent.
"El Furrial" means WilPro Energy Services (El Furrial)
Limited, a Cayman Islands corporation.
"Environment" shall have the meaning set forth in 42 U.S.C.
9601(8) as defined on the date of this Agreement and
"Environmental" shall mean pertaining or relating to the
Environment.
"Environmental Protection Statute" shall mean any United
States local, state or federal, or any foreign, law, statute,
regulation, order, consent decree or other agreement or
Governmental Requirement arising from or in connection with or
relating to the protection or regulation of the Environment,
including, without limitation, those laws, statutes, regulations,
orders, decrees, agreements and other Governmental Requirements
relating to the disposal, cleanup, production, storing, refining,
handling, transferring, processing or transporting of Hazardous
Waste, Hazardous Substances or any pollutant or contaminant,
wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations
promulgated and rulings issued thereunder from time to time.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) which is a member of a group of which the
Borrower is a member and which is under common control within the
meaning of the regulations under Section 414 of the Code.
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<PAGE> 13
"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 8.6(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 Borrower 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 2.6(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any
Interest Period for any Eurodollar Rate Advance means the reserve
percentage applicable during such Interest Period (or if more
than one such percentage shall be so applicable, the daily
average of such percentages for those days in such Interest
Period during which any such percentage shall be so applicable)
under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for such Bank with respect to liabilities or assets
consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section
6.1.
"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.
8
<PAGE> 14
"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. 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. 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.
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 Eurodollar Rate Advance
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 the 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 the
Borrower pursuant to the provisions below. The duration of each
Interest Period shall be one, two, three or six months, in each
case as the Borrower may, upon notice received by the Agent not
later than 11:00 A.M. (New York City time) on the third Business
Day prior to the first day of such Interest Period, select (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;
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<PAGE> 15
(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) the Borrower may not select any Interest Period that ends after
the Termination Date, and the Borrower may not select any Interest
Period if any Event of Default exists.
"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,
6.1 and 7.1 neither the Borrower nor any Subsidiary or Related Party of the
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 the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means an employee benefit plan, other than a
Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or
any ERISA Affiliate, and one or more employers other than the Borrower or
an ERISA Affiliate, is making or accruing an obligation to make
contributions or, in the event that any such plan has been terminated, to
which the Borrower or any ERISA Affiliate made or accrued an obligation to
make contributions during any of the five plan years preceding the date of
termination of such plan.
"Multiyear Williams Credit Agreement" is defined in Section 5.2(i).
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<PAGE> 16
"Nebraska Energy" means Nebraska Energy, L.L.C., a Kansas limited
liability company.
"Net Debt" means for any Person, as of any date of determination, the
excess of (x) the aggregate amount of all Debt of such Person and its
Subsidiaries on a Consolidated basis over (y) the sum of the Cash Holdings
of such Person and its Subsidiaries on a Consolidated basis.
"Net Worth" of any Person means, as of any date of determination the
excess of total assets of such Person over total liabilities of such
Person, total assets and total liabilities each to be determined in
accordance with generally accepted accounting principles.
"Non-Recourse Debt" means Debt incurred by any non-material Subsidiary
to finance the acquisition (other than any acquisition from the Borrower or
any Subsidiary) or construction of a project, which Debt does not permit or
provide for recourse against the Borrower or any Subsidiary of the Borrower
(other than the Subsidiary that is to acquire or construct such project) or
any property or asset of the Borrower of any Subsidiary of the Borrower
(other than the 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 2.2(a).
"Notice of B Borrowing" has the meaning specified in Section 2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware corporation.
"Original Advance" is defined in the first recital.
"Original Bank" is defined in the first recital.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means Liens specifically described on Schedule III.
"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.
"PIGAP II" means WilPro Energy Services (PIGAP II) Limited, a Cayman
Islands corporation.
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<PAGE> 17
"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, the Borrower or any ERISA Affiliate for
employees of the Borrower or any ERISA Affiliate and covered by Title
IV of ERISA or subject to the minimum funding standards under Section
412 of the Code.
"PowerTel" means PowerTel Limited, an Australian corporation.
"Public Filings" means the Borrower's annual report on Form 10-K for
the year ended December 31, 1998.
"Rating Category" means, as to the Borrower, the relevant
category applicable to the Borrower from time to time as set forth on
Schedule V, which is based on the ratings (or lack thereof) of the
Borrower's senior unsecured long-term debt by S&P or Moody's. In the
event there is a split between the ratings of the Borrower's senior
unsecured long-term debt by S&P and Moody, "Rating Category" shall
mean, as to the Borrower, the relevant category applicable to the
Borrower from time to time as set forth on Schedule V, which is based
on the higher of the ratings of the Borrower's senior unsecured
long-term debt by S&P and Moody.
"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 the
Borrower nor any Subsidiary of the Borrower shall be considered to be
a Related Party of the Borrower or any Subsidiary of the Borrower.
"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw Hill Companies on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any
arrangement entered into by such Person or any Subsidiary of such
Person, directly or indirectly, whereby such Person or any Subsidiary
of such Person shall sell or transfer any property, whether now owned
or hereafter acquired, and whereby such Person or any Subsidiary of
such Person shall
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<PAGE> 18
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.
"Seminole" means Seminole Pipeline Company, a Delaware
corporation.
"Stated Termination Date" means January 22, 2001, or such later
date, if any as may be agreed to by the Borrower and the Banks
pursuant to Section 2.18.
"Subordinated Debt" means any Debt of the Borrower which is
effectively subordinated to the obligations of the 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 2.4, 2.17 or 6.1.
"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 the
Borrower or any ERISA Affiliate 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 the Borrower or any ERISA Affiliate under Section 4064 of ERISA
upon the termination of a Plan or Multiple Employer Plan, or (iii) the
distribution of a notice of intent to terminate a Plan pursuant to
Section 4041(a)(2) of ERISA or the treatment of a Plan amendment as a
termination under Section 4041 of
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<PAGE> 19
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 8.6.
"Type" has the meaning set forth in the definition herein of A
Advance.
"Unrated" means that no senior unsecured long-term debt of the
Borrower is rated by S&P and no senior unsecured long-term debt of the
Borrower is rated by Moody's.
"WCG" means Williams Communications Group, Inc., a Delaware
corporation.
"WCS" means Williams Communications Solutions, LLC, a Delaware
limited liability company.
"WES" means Williams Energy Services, a Delaware corporation.
"WFS" means Williams Field Services Group, Inc., a Delaware
corporation.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of
such Person all of the capital stock and other equity interests of
which is owned by such Person or any Wholly-Owned Subsidiary of such
Person.
"Withdrawal Liability" shall have the meaning given such term
under Part I of Subtitle E of Title IV of ERISA.
"WPC" means Williams Pipelines Central, Inc., a Delaware
corporation, formerly Williams Natural Gas Company.
"WPL" means Williams Pipe Line Company, a Delaware corporation.
Section I.2 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 I.3 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
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consistent with those applied in the preparation of the financial statements
referred to in Section 4.1(e).
Section I.4 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 I.5 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 the Borrower, the lowest such rating shall be applicable for purposes
hereof. For example, if Moody's rates some senior unsecured long-term debt of
the Borrower Ba1 and other such debt of the Borrower Ba2, the senior unsecured
long-term debt of the Borrower shall be deemed to be rated Ba2 by Moody's.
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ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section II.1 The A Advances. Each Bank severally agrees, on the terms
and conditions hereinafter set forth, to make A Advances to the 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; provided that the aggregate amount of the
Commitments of the Banks shall, except for purposes of Section 2.3(a), be deemed
used from time to time to the extent of the aggregate amount of the B Advances
then outstanding to the Borrower and such deemed use of the aggregate amount of
such Commitments shall be applied to the Banks ratably according to their
respective Commitments (such deemed use of the aggregate amount of the
Commitments being a "B Reduction"). 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 Borrower
on the same day by the Banks ratably according to their respective Commitments.
Within the limits of each Bank's Commitment, the Borrower may borrow, prepay
pursuant to Section 2.10 and reborrow under this Section 2.1.
Section II.2 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 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 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 8.2, 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 at the
Agent's aforesaid address.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to the Borrower more
than six A Borrowings comprised of Eurodollar Rate Advances;
(ii) the Borrower may not select Eurodollar Rate Advances for any
Borrowing if the aggregate amount of such Borrowing is less than
$20,000,000;
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(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 Borrower 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 Borrower and the Banks
that the circumstances causing such suspension no longer exist, and,
except as provided in Section 2.2(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 Borrower and the Banks that the
circumstances causing such suspension no longer exist, and, except as
provided in Section 2.2(b)(v), each Advance comprising any requested A
Borrowing shall be a Base Rate Advance; and
(v) if the Borrower has requested a proposed A Borrowing
consisting of Eurodollar Rate Advances and as a result of
circumstances referred to in Section 2.2(b)(iii) or (iv) such A
Borrowing would not consist of Eurodollar Rate Advances, the 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 canceled and no Advances shall be made as a result
of such requested A Borrowing, but the Borrower shall indemnify the
Banks in connection with such cancellation as contemplated by Section
2.2(c).
(c) Each Notice of A Borrowing shall be irrevocable and binding on the
Borrower, except as set forth in Section 2.2(b)(v). In the case of any A
Borrowing which the related Notice of A Borrowing specifies is to be comprised
of Eurodollar Rate Advances, the Borrower shall indemnify each Bank against any
loss, cost or expense incurred by such Bank as a result of any failure to
fulfill on or before the date specified in such Notice of A Borrowing for such A
Borrowing the applicable conditions set forth in Article III, including, without
limitation, any loss (including loss of reasonably anticipated profits), cost or
expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund the A Advance to be made by such Bank
as part of such A Borrowing when such A Advance, as a result of such failure, is
not made on such date. A certificate in reasonable detail as to the basis for
and the amount of such loss, cost or expense submitted to the 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 which the related Notice of A
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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
2.2(b), the 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 the 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 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 2.2 and the Agent
may, in reliance upon such assumption, make available to the Borrower 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 the 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 the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the 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 II.3 Fees.
(a) Commitment Fee. The Borrower 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 2.3(a), B Advances shall not, for purposes of this
Section 2.3(a), be considered to be usage of any Commitment) portion of such
Bank's Commitment to the Borrower 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, September and December during the term such Bank has any Commitment and on
the Termination Date; and Borrower agrees that it shall also pay to the Agent on
the effective date hereof for the account of the Original Banks all commitment
fees which are accrued and unpaid as of the date hereof pursuant to Section
2.3(a) of the 1999 Credit Agreement.
(b) Agent's Fees. The Borrower agrees to pay to the Agent, for its sole
account, such fees as may be separately agreed to in writing by the Borrower and
the Agent.
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(c) Participation and Amendment Fees. The Borrower agrees to pay on the
date of this Agreement to the Agent for the account of each Bank the
participation and amendment fee due such Bank pursuant to that certain updated
information memorandum delivered to the Banks in December, 1999.
Section II.4 Reduction of the Commitments. The Borrower shall have the
right, upon at least five 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; 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 shall not be reduced to an
amount which is less than the aggregate principal amount of the Advances then
outstanding to the Borrower.
Section II.5 Repayment of A Advances. The 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 the Borrower.
Section II.6 Interest on A Advances. The Borrower shall pay interest on
the unpaid principal amount of each A Advance made by each Bank to the 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. Notwithstanding the above, the Borrower shall pay on the
effective date hereof all accrued, unpaid interest on any Base Rate Advance made
pursuant to the 1999 Credit Agreement and outstanding as of the date hereof, if
any.
(b) Eurodollar Rate Advances. At such times as such A Advance is a
Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such A Advance to the sum of the Eurodollar Rate for such
Interest Period plus the Applicable Margin in effect from time to time for such
A Advance, payable on the last day of such Interest Period and, if such Interest
Period has a duration of more than three months, on each day which occurs during
such Interest Period every three months from the first day of such Interest
Period; provided that any amount of principal of any Eurodollar Rate Advance
which is not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount is due until
such amount is paid in full, payable on demand, at a rate per annum equal at all
times to the greater of (x) the sum of the Base Rate in effect from time to time
plus 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
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such amount became due plus 2% per annum. Notwithstanding the above, the
Borrower shall pay on the effective date hereof any unpaid accrued interest on
any Eurodollar Rate Advance made pursuant to the 1999 Credit Agreement and
outstanding as of the date hereof, if any.
Section II.7 Additional Interest on Eurodollar Rate Advances. The
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, 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 the Borrower through the Agent. A
certificate as to the amount of such additional interest submitted to the
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 2.7 for any period more than 90
days prior to the date such Bank notifies the Borrower that additional interest
may be charged pursuant to this Section 2.7.
Section II.8 Interest Rate Determination. The Agent shall give prompt
notice to the Borrower and the Banks of the applicable interest rate for each
Eurodollar Rate Advance determined by the Agent for purposes of Section 2.6(b).
Section II.9 Evidence of Debt. The indebtedness of the Borrower
resulting from the A Advances owed to each Bank by the Borrower shall be
evidenced by an A Note of the Borrower payable to the order of such Bank.
Section II.10 Prepayments.
(a) The Borrower shall not have any right to prepay any principal
amount of any A Advance, except as provided in this Section 2.10.
(b) The Borrower shall (i) 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 (ii) 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, prepay the outstanding principal amounts of the A Advances
comprising part of the same A Borrowing in whole or ratably in part, together
with accrued interest to the date of such prepayment on the principal amount
prepaid and amounts, if any, required to be paid pursuant to Section 8.4(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 (1) no A Borrowing comprised of
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Base Rate Advances shall have a principal amount outstanding of less than
$5,000,000 and (2) no A Borrowing comprised of Eurodollar Rate Advances shall
have a principal amount outstanding of less than $20,000,000.
(c) The Borrower will give notice to the Agent, at or before the time
of each prepayment by the 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. 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 II.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 the Borrower, then the 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 the 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 Borrower 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
the Borrower hereunder and other commitments of this type, then, upon demand by
such Bank (with a copy of such demand to the Agent), the 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 the 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 Borrower of any such compliance.
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(c) In the event that any Bank makes a demand for payment under Section
2.7 or this Section 2.11, the Borrower may within ninety (90) 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 8.6(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 in the amount
of the Commitment of such Bank 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 the 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 Borrower, 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 to such replacement bank,
redelivery to the Borrower in due course of the Notes of the Borrower payable to
such Bank and specification of the information contemplated by Schedule I as to
such replacement bank).
Section II.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 Borrower 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 Borrower and the Banks that the circumstances causing
such suspension no longer exist, and (ii) the Borrower 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 8.4(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 Borrower,
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 II.13 Payments and Computations.
(a) The 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
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Agent at its New York address referred to in Section 8.2 in same day funds,
without deduction, counterclaim or offset of any kind. 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 2.7, 2.11, 2.14, 2.16 or 8.4(b)) to the Banks for the
account of their respective Applicable Lending Offices, and like funds relating
to the payment of any other amount payable to any Bank to such Bank for the
account of its Applicable Lending Office, in each case to be applied in
accordance with the terms of this Agreement. In no event shall any Bank be
entitled to share any fee paid to the Agent pursuant to Section 2.3(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) The Borrower hereby authorizes each Bank, if and to the extent
payment owed to such Bank by the Borrower is not made when due hereunder or
under any Note held by such Bank, to charge from time to time against any or all
of the Borrower's accounts with such Bank any amount so due.
(c) (i) 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
(ii) 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 2.7 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 2.7, 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 the Borrower prior
to the date on which any payment is due by the Borrower to any Bank hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the 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 the 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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Section II.14 Taxes.
(a) Any and all payments by the 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 the 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) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the 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 the 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) The 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 therefore.
(d) Within 30 days after the date of the payment of Taxes by or at the
direction of the Borrower, the Borrower will furnish to the Agent, at its
address referred to in Section 8.2, 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 the 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 the 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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(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.14 shall survive the payment in full of principal and interest
hereunder and under the Notes.
Section II.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 2.7, 2.11, 2.14 or 8.4(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. The 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 the Borrower
in the amount of such participation.
Section II.16 The B Advances.
(a) Each Bank severally agrees that the 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 (1) the Termination Date or (2) the
date occurring thirty (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 the Borrower shall not
exceed the aggregate amount of the Commitments of the Banks (computed without
regard to any B Reduction).
(i) The 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
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provided in paragraph (ii) below and prepayment terms, if any, but
excluding any waiver or other modification to any of the conditions
set forth in Article III), not later than 10:00 A.M. (New York City
time) (A) at least one (1) Business Day prior to the date of the
proposed B Borrowing, if the 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 (5) Business Days prior
to the date of the proposed B Borrowing, if the Borrower shall instead
specify in the Notice of B Borrowing the basis to be used by the Banks
in determining the rates of interest to be offered by them. The Agent
shall in turn promptly notify each Bank of each request for a B
Borrowing received by it from the Borrower by sending such Bank a copy
of the related Notice of B Borrowing. Each time that the Borrower
gives a Notice of B Borrowing, the 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 the 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 the 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 the
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 the 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 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
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(B) accept one or more of the offers made by any Bank or Banks
pursuant to paragraph (ii) above, in order of the lowest to highest
rates of interest or margins (or, if two or more Banks bid at the same
rates of interest, and the amount of accepted offers is less than the
aggregate amount of such offers, the amount to be borrowed from such
Banks as part of such B Borrowing shall be allocated among such Banks
pro rata on the basis of the maximum amount offered by such Banks at
such rates or margin in connection with such B Borrowing), in any
aggregate amount up to the aggregate amount initially requested by the
Borrower in the relevant Notice of B Borrowing, by giving notice to
the Agent of the amount of each B Advance (which amount shall be equal
to or greater than the minimum amount, and equal to or less than the
maximum amount, notified to the 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 notifies the Agent that such B Borrowing is
canceled 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 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 the 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 8.2 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 the Borrower
at the Agents aforesaid address. Promptly after each B Borrowing the
Agent will notify each Bank of the amount of the B Borrowing, 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. The 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.
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(c) Within the limits and on the conditions set forth in this Section
2.16, the Borrower may from time to time borrow under this Section 2.16, repay
or prepay pursuant to subsection (d) below, and reborrow under this Section
2.16; provided that a B Borrowing shall not be made by the Borrower within three
Business Days of the date of another B Borrowing.
(d) The Borrower shall repay to the Agent for the account of each Bank
which has made a B Advance to the Borrower, or each other holder of a B Note of
the Borrower, on the maturity date of each B Advance made to the Borrower (such
maturity date being that specified by the 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. The Borrower shall not have any right
to prepay any principal amount of any B Advance unless, and then only on the
terms specified by the 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) The Borrower shall pay interest on the unpaid principal amount of
each B Advance made to the 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 the 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 the Borrower resulting from each B Advance made
to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note
of the 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 II.17 Optional Termination. Notwithstanding anything to the
contrary in this Agreement, if (i) any Person (other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Borrower or
of any Subsidiary of the Borrower) or two or more Persons acting in concert
(other than any group of employees of the Borrower or of any of its
Subsidiaries) shall have acquired beneficial ownership (within the meaning of
Rule l3d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934), directly or indirectly, of securities of the Borrower (or
other securities convertible into such securities) representing 20% or more of
the combined voting power of all securities of the Borrower entitled to vote in
the election of directors, other than securities having such power only by
reason of the happening of a contingency, or (ii) during any period of up to 24
consecutive months, commencing before or after
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the date of this Agreement, individuals who at the beginning of such 24-month
period were directors of the Borrower 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 the Borrower, or (iii) any Person (other
than the Borrower or a Wholly-Owned Subsidiary of the Borrower) or two or more
Persons acting in concert shall have acquired by contract or otherwise, or shall
have entered into a contract or arrangement which upon consummation will result
in its or their acquisition of, the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the 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 Borrower, 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 the Borrower shall not
have any further right to borrow hereunder.
Section II.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 January 1 of any year after 2000, the Borrower may request the Banks to
extend the Stated Termination Date for an additional period to a date which is
364 days after the then current 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 Borrower
and the Agent that it so agrees, and if all Banks so agree the Stated
Termination Date shall be so extended.
Section II.19 Voluntary Conversion of Advances. The Borrower may on any
Business Day, if no Event of Default then exists, 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 2.2 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 II.20 Automatic Provisions.
(a If the 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 1.1, the Agent will forthwith
so notify the 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.
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(b On the date on which the aggregate unpaid principal amount of the
Eurodollar Rate Advances of the Borrower shall be reduced to less than
$20,000,000, all of such Eurodollar Rate Advances shall automatically Convert
into Base Rate Advances.
ARTICLE III
CONDITIONS
Section III.1 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 by the Borrower to the order of each of the
respective Banks and this Agreement executed by the Borrower.
(b Certified copies of the resolutions of the Board of Directors, or
the Executive Committee thereof, of the Borrower authorizing the execution of
this Agreement and the Notes.
(c A certificate of the Secretary or an Assistant Secretary of the
Borrower certifying (i) that attached thereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Borrower and (ii) the names and
true signatures of the officers of the Borrower authorized to sign this
Agreement, Notices of A Borrowing, Notices of B Borrowing and the Notes to be
executed by the Borrower and any other documents to be delivered hereunder by
the Borrower.
(d An opinion of William G. von Glahn, General Counsel of the Borrower,
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 Mayer, Brown & Platt, special counsel to the Agent,
substantially in the form of Exhibit D hereto.
(f A certificate of an officer of the Borrower stating the respective
ratings by each of S&P and Moody's of the senior unsecured long-term debt of the
Borrower as in effect on the date of this Agreement.
(g Payment for the account of the Banks of those participation fees and
amendment fees as set forth in Section 2.3(c) hereof and for the account of the
Original Banks payment of accrued, unpaid interest through the date of this
Agreement on Advances, if any, made pursuant to the 1999 Credit Agreement and
outstanding as of the date hereof, to the extent payable pursuant to Section
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2.6 and all accrued and unpaid commitment fees due and payable to the Original
Banks on or prior to such date pursuant to Section 2.3(a).
Section III.2 Additional Conditions Precedent to Each A Borrowing. The
obligation of each Bank to make an A Advance 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 the Borrower of the proceeds of such A Borrowing shall constitute
a representation and warranty by the Borrower that on the date of such A
Borrowing such statements are true):
(i The representations and warranties contained in Section 4.1
pertaining to the Borrower and its Subsidiaries are correct on and as
of the date of such A Borrowing, before and after giving effect to
such A Borrowing and to the application of the proceeds therefrom, as
though made on and as of such date,
(ii No event has occurred and is, continuing, or would result
from such A Borrowing or from the application of the proceeds
therefrom, which constitutes an Event of Default or which would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both, and
(iii After giving effect to such A Borrowing and all other
Borrowings which have been requested on or prior to such date but
which have not been made prior to such date, the aggregate principal
amount of all Advances will not exceed the aggregate of the
Commitments (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 III.3 Conditions Precedent to Each B Borrowing. The obligation
of each Bank which is to make a B Advance to the 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 the
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 the Borrower of the proceeds of such B Borrowing
shall constitute a representation and warranty by the Borrower that on the date
of such B Borrowing such statements are true):
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(10 The representations and warranties contained in Section 4.1
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,
(20 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,
(30 Following the making of such B Borrowing and all other
Borrowings to be made on the same day to the Borrower under this
Agreement, the aggregate principal amount of all Advances to the
Borrower then outstanding will not exceed the aggregate amount of the
Commitments (computed without regard to any B Reduction), and
(40 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 (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 IV.1 Representations and Warranties of the Borrower. The
Borrower represents and warrants as follows:
(a The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all corporate
powers and all governmental licenses, authorizations, certificates, consents and
approvals required to carry on its business as now conducted in all material
respects, except for those licenses, authorizations, certificates, consents and
approvals the failure to have which could not reasonably be expected to have a
material adverse effect on the business, assets, condition or operation of the
Borrower and its Subsidiaries taken as a whole. Each Subsidiary of the 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 the Borrower and its Subsidiaries taken as a
whole. Each Subsidiary of the Borrower has all corporate powers and all
governmental licenses, authorizations, certificates, consents and approvals
required
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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 the Borrower and its
Subsidiaries taken as a whole.
(b The execution, delivery and performance by the Borrower of this
Agreement and the Notes and the consummation of the transactions contemplated by
this Agreement are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, do not contravene (i) the
Borrower's charter or by-laws or (ii) law or any contractual restriction binding
on or affecting the 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 the Borrower, such borrowing and the use of the
proceeds of such Advance will be within the Borrower's corporate powers, will
have been duly authorized by all necessary corporate action, will not contravene
(i) the Borrower's charter or by-laws or (ii) law or any contractual restriction
binding on or affecting the Borrower and will not result in or require the
creation or imposition of any Lien prohibited by this Agreement.
(c No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the 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 the 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 the Borrower.
This Agreement is the legal, valid and binding obligation of the Borrower
enforceable against the 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 are, and when executed the B
Notes will be, the legal, valid and binding obligations of the Borrower
enforceable against the 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 The Consolidated balance sheet of the Borrower and its Subsidiaries
as at December 31, 1998, and the related Consolidated statement of income and
cash flows of the Borrower and its Subsidiaries for the fiscal year then ended,
copies of which have been furnished to each Bank, and the Consolidated balance
sheet of the Borrower and its Subsidiaries as at September 30, 1999, and the
related Consolidated statement of income and cash flows of the Borrower and its
Subsidiaries for the three months then ended, duly certified by an authorized
financial officer of the Borrower, copies of which have been furnished to each
Bank, fairly present, subject, in the case of such balance sheet as at September
30, 1999, and such statement of income
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and cash flows for the three months then ended, to year-end audit adjustments,
the Consolidated financial condition of the Borrower and its Subsidiaries as at
such dates and the Consolidated results of operations of the Borrower 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 September 30, 1999, there has been no material
adverse change in the condition or operations of the Borrower or its
Subsidiaries.
(f Except as set forth in the Public Filings or as otherwise disclosed
in writing by the Borrower to the Banks and the Agent after the date hereof and
approved by the Majority Banks, there is no pending or, to the knowledge of the
Borrower, threatened action or proceeding affecting the Borrower or any material
Subsidiary of the Borrower before any court, governmental agency or arbitrator,
which could reasonably be expected to materially and adversely affect the
financial condition or operations of the 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 has been or will be used for any purpose
or in any manner not permitted by Section 5.2(k).
(h The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any such margin
stock (other than purchases of common stock expressly permitted by Section
5.2(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 the Borrower will be
represented by such margin stock and not more than 25% of the value of the
assets of the Borrower and its Subsidiaries will be represented by such margin
stock.
(i The Borrower is not 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. Neither the Borrower
nor any ERISA Affiliate has received any notification that any Multiemployer
Plan is in reorganization or has been terminated, within the meaning of Title IV
of ERISA, and the Borrower is not 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 The Borrower and the Subsidiaries of the 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 the Borrower or any such
Subsidiary, other than those taxes contested in good faith by appropriate
proceedings. The charges,
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accruals and reserves on the books of the Borrower and the material Subsidiaries
of the Borrower in respect of taxes are adequate.
(l The Borrower is not 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 the Borrower to the Banks and the Agent after the date hereof and
approved by the Majority Banks, the Borrower and its 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 the 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 the Borrower and its Subsidiaries (other than those reserved for
in accordance with generally accepted accounting principles and set forth in the
financial statements regarding the Borrower referred to in Section 4.1(e) and
delivered to each Bank) which are reasonably expected to arise in connection
with (i) the requirements of Environmental Protection Statutes or (ii) any
obligation or liability to any Person in connection with any Environmental
matters (including, without limitation, any release or threatened release (as
such terms are defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980) of any Hazardous Waste, Hazardous Substance, other
waste, petroleum or petroleum products into the Environment) does not exceed 10%
of the Consolidated Tangible Net Worth of the Borrower (excluding liabilities to
the extent covered by insurance if the insurer has confirmed that such insurance
covers such liabilities or which the Borrower reasonably expects to recover from
ratepayers).
ARTICLE V
COVENANTS OF THE BORROWER
Section V.1 Affirmative Covenants. So long as any Note shall remain
unpaid or any Bank shall have any Commitment hereunder, the 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 the 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
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unpaid, might become a Lien upon any property of it or any of its Subsidiaries;
provided that neither the Borrower nor any Subsidiary of the 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 the 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 the Borrower setting forth the
details of such Event of Default or event and the actions, if any,
which the 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 the Borrower, the Consolidated balance sheets of the Borrower and
its Subsidiaries as of the end of such quarter and the Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous year
and ending with the end of such quarter, all in reasonable detail and
duly certified (subject to year-end audit adjustments) by an
authorized financial officer of the 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 the Borrower proposes to take with
respect thereto, and (b) showing in detail the calculation supporting
such statement in respect of Section 5.2(b);
(iii as soon as available and in any event not later than 105
days after the end of each fiscal year of the Borrower, a copy of the
annual audit report for such year for the Borrower and its
Subsidiaries, including therein Consolidated balance sheets of the
Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated statements of income and cash flows of the 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
the 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
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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 5.2(b);
(iv such other information respecting the business or properties,
or the condition or operations, financial or otherwise, of the
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 the Borrower sends
to any of its security holders, and copies of all final reports and
final registration statements which the Borrower or any material
Subsidiary of the Borrower files with the Securities and Exchange
Commission or any national securities exchange;
(vi as soon as possible and in any event (A) within 30 Business
Days after the Borrower or any ERISA Affiliate 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 the Borrower or any ERISA
Affiliate 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 the Borrower describing such Termination Event and the
action, if any, which the Borrower or such ERISA Affiliate proposes to
take with respect thereto;
(vii promptly and in any event within 25 Business Days after
receipt thereof by the Borrower or any ERISA Affiliate, copies of each
notice received by the Borrower or any ERISA Affiliate 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 the Borrower or any ERISA Affiliate with
respect to each Plan;
(ix promptly and in any event within 25 Business Days after
receipt thereof by the Borrower or any ERISA Affiliate from the
sponsor of a Multiemployer Plan, a copy of each notice received by the
Borrower or any ERISA Affiliate 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 the
Borrower or any ERISA Affiliate in connection with any event described
in clause (A), (B) or (C) above;
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(x not more than 60 days (or 105 days in the case of the last
fiscal quarter of a fiscal year of the Borrower) after the end of each
fiscal quarter of the Borrower, a certificate of an authorized
financial officer of the Borrower stating the respective ratings, if
any, by each of S&P and Moody's of the senior unsecured long-term debt
of the Borrower as of the last day of such quarter; and
(xi promptly after any withdrawal or termination of any letter of
credit, guaranty, insurance or other credit enhancement referred to in
the second to last sentence of Section 1.5 or any change in the
indicated rating set forth therein or any change in, or issuance,
withdrawal or termination of, the rating of any senior unsecured
long-term debt of the 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 the Borrower or its Subsidiaries operate,
provided that the 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
Subsidiary of the 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
the Borrower and its Subsidiaries taken as a whole and (2) in the case of the
Borrower, where the failure of the 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 the Borrower and its Subsidiaries taken as a
whole.
Section V.2 Negative Covenants. So long as any Note shall remain unpaid
or any Bank shall have any Commitment hereunder, the Borrower will not, 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 the Borrower may create, incur,
assume or suffer to exist Permitted Liens.
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(b Debt. Permit the ratio of (A) the aggregate amount of all Net Debt
of the Borrower to (B) the sum of the Consolidated Net Worth of the Borrower
plus the Net Debt of the Borrower to exceed (1) 0.7 to 1.0 at any time during
the period beginning on the date hereof through December 31, 2000, (2) 0.675 to
1.0 at any time during the period beginning January 1, 2001 through December 31,
2001 or (3) 0.65 to 1.0 at any time on or after January 1, 2002 through the term
of this Agreement.
(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 5.2(c) shall not
prohibit:
(i the 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 the Borrower 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 the Borrower
or any of its Subsidiaries, such transaction could not reasonably be
expected to impair materially the ability of the Borrower to perform
its obligations hereunder and under the Notes and the Borrower shall
continue to exist;
(iii the 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 the Borrower or any Subsidiary of the Borrower 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 such transaction shall not result in an Event of Default
or an event which with notice or lapse of time or both would
constitute an Event of Default; or
(iv sales of receivables of any kind.
(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 the Borrower (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 the Borrower or to any Subsidiary of the Borrower; or (ii) to
make loans or advances to the Borrower or any Subsidiary of the Borrower, except
(1) encumbrances and restrictions on any immaterial Subsidiary of the Borrower
(other than WPC and WFS), (2) those encumbrances and restrictions existing on
the date hereof and described in Exhibit E, and (3) other encumbrances and
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restrictions now or hereafter existing of the Borrower or any of its
Subsidiaries that are not more restrictive in any material respect than the
encumbrances and restrictions with respect to the Borrower or its Subsidiaries
described in Exhibit E.
(e Loans and Advances. Make or permit to remain outstanding any loan or
advance from the Borrower, or own, purchase or acquire any obligations or debt
securities of any Subsidiary of the Borrower, except that the Borrower 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 the
Borrower 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 the Borrower to which such loan or
advance is made, bears interest at the Borrower'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 or
interest in (1) WPC, WFS, WPL, TGPL, TGT, NWP, or any of their respective
material Subsidiaries or (2) any Subsidiary of the Borrower at the time it owns
any shares of or any interest in any shares of the capital stock of WFS, WPL,
TGPL, TGT or NWP or any of their respective material Subsidiaries; provided,
however, that this Section 5.2(f) shall not prohibit the sale or other
disposition of the stock of any Subsidiary of the Borrower to the Borrower or
any Wholly-Owned Subsidiary of the Borrower 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 the Borrower or
any of its Subsidiaries, such sale or other disposition could not reasonably be
expected to impair materially the ability of the Borrower to perform its
obligations hereunder and under the Notes and the Borrower shall continue to
exist.
(g Compliance with ERISA. (i) Terminate, or permit any ERISA Affiliate
to terminate, any Plan so as to result in any liability of the Borrower or any
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 the
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 the 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 the Borrower or such
Subsidiary in the good faith judgment of the Borrower.
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(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 the Borrower (other than guaranties of
obligations of WES and any Subsidiary of WES that is not a Borrower as defined
in and pursuant to that certain Second Amended and Restated Credit Agreement
dated July 23, 1997 among the Borrowers as named therein, certain financial
institutions party thereto (the "Banks"), certain Co-Agents identified therein,
and Citibank, N.A., as Agent for the Banks, as amended by amendments dated
January 26, 1999 and as of the date hereof, (as the same may be further amended,
supplemented, restated or modified, the "Multiyear Williams Credit Agreement"))
while an Event of Default is continuing.
(j Sale and Lease-Back Transactions. Enter into, or permit any of its
Subsidiaries to enter into, any Sale and Lease-Back Transaction, if after giving
effect thereto the Borrower would not be permitted to incur at least $1.00 of
additional Debt secured by a Lien permitted by paragraph (z) of Schedule III.
(k Use of Proceeds. Use any proceeds of any Advance for any purpose
other than general corporate purposes (including, without limitation, working
capital and capital expenditures) or use any such proceeds in any manner which
violates or results in a violation of law; provided, however, that no proceeds
of any Advance will be used to acquire any equity security of a class which is
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, (other than any purchase of common stock of any corporation, if such
purchase is not subject to Sections 13 and 14 of the Securities Exchange Act of
1934 and is not opposed, resisted or recommended against by such corporation or
its management or directors, provided that the aggregate amount of common stock
of any corporation (other than Apco Argentina Inc., a Cayman Islands
corporation) purchased during any calendar year shall not exceed 1% of the
common stock of such corporation issued and outstanding at the time of such
purchase) or in any manner which contravenes law, and no proceeds of any Advance
will be used to purchase or carry any margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System).
ARTICLE VI
EVENTS OF DEFAULT
Section VI.1 Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a The 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
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<PAGE> 47
(b Any certification, representation or warranty made by the Borrower
herein or by the Borrower (or any officer of the Borrower) in writing under or
in connection with any Note or this Agreement (including, without limitation,
representations and warranties deemed made pursuant to Section 3.2 or 3.3) shall
prove to have been incorrect in any material respect when made or deemed made;
or
(c The Borrower shall fail to perform or observe (i) any term, covenant
or agreement contained in Section 5. 1 (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 the Borrower by the
Agent or any Bank or the date the 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. 1 (b)) or any Note on its
part to be performed or observed; or
(d The Borrower or any Subsidiary of the 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 the 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
6.1(d) shall not apply to any Non-Recourse Debt of any Subsidiary of the
Borrower which is not a Borrower as defined in and pursuant to the Multiyear
Williams Credit Agreement; or
(e The Borrower or any material Subsidiary of the 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
the Borrower or any material Subsidiary of the 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 the Borrower or any material Subsidiary of the 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 the Borrower or any material Subsidiary of
the Borrower and remain unsatisfied and
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either (i) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order or (ii) there shall be any period of 30 consecutive
days during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(g Any Termination Event with respect to a Plan shall have occurred
and, 30 days after notice thereof shall have been given to the 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 The Borrower or any ERISA Affiliate 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 The Borrower or any ERISA Affiliate 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 Borrower and the 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 Borrower, 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, declare the Notes, all interest
thereon and all other amounts payable by the 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 the
Borrower; provided, however, that in the event of any Event of Default described
in Section 6.1(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
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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 the Borrower.
ARTICLE VII
THE AGENT, CO-SYNDICATION AGENTS AND DOCUMENTATION AGENT
Section VII.1 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 the Borrower pursuant
to the terms of this Agreement.
Section VII.2 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 the Borrower, the Bank which is the payee of
such Note, as assignor, and the assignee in accordance with the last sentence of
Section 8.6(a); (ii) may consult with legal counsel (including counsel for the
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
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Agreement on the part of the Borrower or to inspect the property (including the
books and records) of the 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 VII.3 Citibank, CIBC, Commerzbank, Credit Lyonnais and
Affiliates. With respect to its Commitments, the Advances made by it and the
Notes issued to it, Citibank shall have the same rights and powers under any
Note and this Agreement as any other Bank and may exercise the same as though it
was not the Agent; with respect to its Commitments, the Advances made by it and
the Notes issued to it, each of CIBC, Commerzbank and Credit Lyonnais shall have
the rights and powers under any Note and this Agreement as any other Bank and
may exercise the same as though it was not a Co-Syndication Agent or
Documentation Agent, as the case may be. The term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include each of Citibank, CIBC,
Commerzbank and Credit Lyonnais in its individual capacity. Citibank, CIBC,
Commerzbank, Credit Lyonnais and the respective affiliates of each may accept
deposits from, lend money to, act as trustee under indentures of, and generally
engage in any kind of business with, the Borrower, any Subsidiary of the
Borrower, any Person who may do business with or own, directly or indirectly,
securities of the Borrower or any such Subsidiary and any other Person, all as
if Citibank were not the Agent and CIBC, Commerzbank and Credit Lyonnais were
not the Co-Syndication Agents and Credit Lyonnais were not the Documentation
Agent without any duty to account therefor to the Banks.
Section VII.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent, any Co-Syndication Agent, the
Documentation Agent, the Arranger or any other Bank and based on the financial
statements referred to in Section 4.1(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, any Co-Syndication Agent, the
Documentation Agent, the Arranger 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 VII.5 Indemnification. The Banks agree to indemnify the Agent
(to the extent not reimbursed by the Borrower), 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, or (ii) if all Commitments have terminated, the respective amounts
of the Commitments immediately prior to the time the Commitments 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 Agents gross
negligence or
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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 Borrower.
Section VII.6 Successor Agent. The Agent may resign at any time as
Agent under this Agreement by giving written notice thereof to the Banks and the
Borrower 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 the Borrower (which consent shall not be
unreasonably withheld), a successor Agent from among the Banks. If no successor
Agent shall have been so appointed by the Majority Banks with such consent, and
shall have accepted such appointment, within 30 days after the retiring Agent's
giving of notice of resignation or the Majority Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor
Agent, which shall be a Bank which is a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent under this Agreement by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent and shall function as the Agent
under this Agreement, and the retiring Agent shall be discharged from its duties
and obligations as Agent under this Agreement. After any retiring Agents
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 VII.7 Co-Syndication Agents; Documentation Agent. The
Co-Syndication Agents and the Documentation Agent have no duties or obligations
under this Agreement. None of the Co-Syndication Agents or the Documentation
Agent shall have, by reason of this Agreement or the Notes, a fiduciary
relationship in respect of any Bank or the holder of any Note, and nothing in
this Agreement or the Notes, express or implied, is intended or shall be so
construed to impose on any of the Co-Syndication Agents or the Documentation
Agent any obligation in respect of this Agreement or the Notes.
ARTICLE VIII
MISCELLANEOUS
Section VIII.1 Amendments, Etc. No amendment or waiver of any provision
of any Note or this Agreement, nor consent to any departure by the 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)
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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 8.1; 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 VIII.2 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 8.6(a); if to the 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:
(302) 894-6120), Attention: Bilal Aman, 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 the 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 Borrower and the Agent.
All such notices and communications shall, when mailed, telecopied, telegraphed,
telexed or cabled, be effective when received in the mail, sent by telecopier to
any party to the telecopier number as set forth herein or on Schedule I or
Schedule 11 or specified pursuant to Section 8.6(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
8.6(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 VIII.3 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 VIII.4 Costs, Expenses and Taxes. (a)(i) The Borrower 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
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thereto and with respect to advising the Agent as to its rights and
responsibilities under any Note and this Agreement, and (ii) the 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 the
Borrower of any Note of the Borrower or this Agreement and the other documents
to be delivered by the Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section 2.11(c) or Section
8.6(b)) of principal of, or Conversion of, any Eurodollar Rate Advance or B
Advance made to the 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 6.1 or for any other reason or as a result of any such purchase or any
Conversion, the 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) The Borrower agrees, to the fullest extent permitted by law, to
indemnify and hold harmless the Agent, the Co-Syndication Agents, the
Documentation 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
Co-Syndication Agents, the Documentation Agent, the Arranger or such Bank or any
such director, officer, employee or agent (other than by another Bank or any
successor or assign of another Bank), in each case in connection with or arising
out of or by reason of any investigation, litigation, or proceeding, whether or
not any of the Agent, the Co-Syndication Agents, the Documentation Agent, the
Arranger, 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 8.4(c) or any of its directors, officers, employees or agents).
Section VIII.5 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 6.1 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.1,
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 the Borrower against any and all of the obligations of the Borrower now or
hereafter
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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 the 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 VIII.6 Binding Effect; Transfers. (a) This Agreement shall
become effective when it shall have been executed by the Borrower, the
Co-Syndication Agents, the Documentation Agent 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 Borrower, the
Agent and each Bank and their respective successors and assigns; provided that
the Borrower shall not have the right to assign any of its rights hereunder or
any interest herein without the prior written consent of all 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) (i) such Bank's obligations under this Agreement,
including, without limitation, its Commitment hereunder, shall remain unchanged,
(ii) such Bank shall remain responsible for the performance thereof, (iii) such
Bank shall remain the holder of any such Note or Notes for all purposes under
this Agreement, and (iv) the Borrower, the other Banks and the Agent shall
continue to deal solely with and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement; and (2) no Bank shall assign
or grant a participation that conveys to the assignee or participant the right
to vote or consent under this Agreement, other than the right to vote upon or
consent to (i) any increase in the amount of any Commitment of such Bank; (ii)
any reduction of the principal amount of, or interest to be paid on, such Bank's
Advance or Advances or Note or Notes; (iii) any reduction of any fee or other
amount payable hereunder to such 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 is an
affiliate of a Bank or (2) is approved in writing by the Agent and the Borrower
or (3) is approved in writing by the Agent and either an Event of Default exists
or the Borrower has relinquished the right to approve the assignment pursuant to
Section 8.6(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 assigned, whether all or a portion, shall be in a minimum amount of
$5,000,000 or such lesser
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amount as may be approved in writing by the Agent and the Borrower for such
assignment) of the Commitment of such assigning Bank 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 Borrower (unless an Event of Default
exists or the Borrower has relinquished the right to approve the assignment
pursuant to Section 8.6(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) the Borrower shall deliver, in replacement of
the A Note of the Borrower to such assigning Bank then outstanding (a) to such
assignee, a new A Note of the Borrower in the amount of the Commitment of such
assigning Bank 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 immediately prior to such assignment (any such assignee which is
already a Bank hereunder agrees to cancel and return to the 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 the Borrower
(without giving effect to any B Reduction) retained by such assigning Bank (and
such assigning Bank agrees to cancel and return to the 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 Commitment, 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 the 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 so assumed and the denominator of which is the amount of the
Commitment of such assigning Bank (without giving effect to any B Reduction)
immediately prior to such assumption, shall be transferred to such assignee and
evidenced by such assignee's A Note from the Borrower, and the balance of such A
Advance shall be evidenced by such assigning Bank's new A Note from the 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 so
assumed shall be deemed to be the amount set opposite such assigning Bank's name
on Schedule IV 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 8.2
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
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the Banks of the parties to such Transfer Agreement and the amounts of the
assigning Bank's Commitment assumed thereby.
(b) If the Borrower does not consent to a proposed assignment by a Bank
pursuant to the last sentence of Section 8.6(a), the Borrower 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 8.6(a) (including execution of an appropriate Transfer
Agreement), all of such Bank's rights and obligations (including, without
limitation, its Commitment) 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 the Borrower pursuant
to this Section 8.6(b) fails to purchase such rights and interest on such
specified date in accordance with the terms of such offer, the Borrower may,
within 15 days of such failure, repeat the process contemplated by the first
sentence of this Section 8.6(b) by nominating another bank for purposes of this
Section 8.6(b) by notice to the Agent and such Bank. If (i) the Borrower does
not so nominate such a bank, within 15 days of its receipt of such request that
it consent to such assignment, or (ii) the Borrower fails to nominate another
bank following such a failure to purchase or (iii) such second nominated bank
fails to purchase in accordance with the terms of an offer complying with the
first sentence of this Section 8.6(b), the Borrower shall be deemed to have
relinquished its right to consent to such assignment. If such Bank elects to not
accept such a purchase offer under this Section 8.6(b) as to a particular
proposed assignment, the Borrower shall not be deemed to have relinquished its
right to consent to such assignment.
(c) The Borrower agrees to promptly execute the Transfer Agreement
pertaining to any assignment as to which approval by the Borrower of the
assignee is not required by clause (I) of the last paragraph of Section 8.6(a).
(d) Any Bank may assign, as collateral or otherwise, any of its rights
(including, without limitation, rights to payments of principal of and/or
interest on the Notes) under this Agreement or any of the Notes to any Federal
Reserve Bank without notice to or consent of the Borrower or the Agent.
Section VIII.7 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 VIII.8 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
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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 canceled
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 Borrower or refunded by the Agent or such Bank, as
the case may be, to the 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
canceled 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 Borrower or refunded by the Agent or such Bank, as the case may
be, to the Borrower.
Section VIII.9 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 VIII.10 Survival of Agreements, Representations and Warranties,
Etc. All warranties, representations and covenants made by the Borrower or any
officer of the 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 the Borrower contained in this Agreement, and the
indemnities by the Banks in favor of the Agent and its officers, directors,
employees and agents, will survive the repayment of the Advances and the
termination of this Agreement.
Section VIII.11 Borrower's Right to Apply Deposits. In the event that
any Bank is placed in receivership or enters a similar proceeding, the 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 the
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, the Borrower shall pay the balance of such insufficiency in
accordance with this Agreement.
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Section VIII.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 the Borrower (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrower or its
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrower in good faith considers to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrower 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 Borrower
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 4.1(e) or Section
5.1(b) (other than paragraph (iv) thereof), and (ii) if prior notice of the
delivery thereof is given to the Borrower, 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 Borrower containing provisions substantially
identical to those contained in this Section 8.12.
Section VIII.13 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT, THE
CO-SYNDICATION AGENTS, THE DOCUMENTATION 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.
53
<PAGE> 59
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.
BORROWER:
THE WILLIAMS COMPANIES, INC.
By:
--------------------------------
Name: James G. Ivey
Title: Treasurer
<PAGE> 60
[Signature page to Second Amended and Restated Credit Agreement]
AGENT:
CITIBANK, N.A., as Agent
By:
--------------------------------
Authorized Officer
CO-SYNDICATION AGENTS:
CANADIAN IMPERIAL BANK OF
COMMERCE, as Co-Syndication Agent
By:
--------------------------------
Authorized Officer
COMMERZBANK AG,
as Co-Syndication Agent
By:
--------------------------------
Authorized Officer
DOCUMENTATION AGENT:
CREDIT LYONNAIS NEW YORK BRANCH, as
Documentation Agent
By:
--------------------------------
Authorized Officer
<PAGE> 61
[Signature page to Second Amended and Restated Credit Agreement]
BANKS:
CITIBANK, N.A.
By:
--------------------------------
Authorized Officer
<PAGE> 62
[Signature page to Second Amended and Restated Credit Agreement]
THE CHASE MANHATTAN BANK
By:
--------------------------------
Authorized Officer
<PAGE> 63
[Signature page to Second Amended and Restated Credit Agreement]
CIBC INC.
By:
--------------------------------
Authorized Officer
<PAGE> 64
[Signature page to Second Amended and Restated Credit Agreement]
THE FUJI BANK, LIMITED
By:
--------------------------------
Authorized Officer
<PAGE> 65
[Signature page to Second Amended and Restated Credit Agreement]
BANK OF AMERICA, N.A., FORMERLY KNOWN AS
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
---------------------------------------
Authorized Officer
<PAGE> 66
[Signature page to Second Amended and Restated Credit Agreement]
BANK OF MONTREAL
By:
--------------------------------
Authorized Officer
<PAGE> 67
[Signature page to Second Amended and Restated Credit Agreement]
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------------
Authorized Officer
<PAGE> 68
[Signature page to Second Amended and Restated Credit Agreement]
BANK ONE, NA (f/k/a THE FIRST NATIONAL BANK OF
CHICAGO)
By:
-------------------------------------------
Authorized Officer
<PAGE> 69
[Signature page to Second Amended and Restated Credit Agreement]
ABN AMRO BANK N.V.
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 70
[Signature page to Second Amended and Restated Credit Agreement]
THE BANK OF NEW YORK
By:
--------------------------------
Authorized Officer
<PAGE> 71
[Signature page to Second Amended and Restated Credit Agreement]
THE BANK OF NOVA SCOTIA
By:
--------------------------------
Authorized Officer
<PAGE> 72
[Signature page to Second Amended and Restated Credit Agreement]
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By:
--------------------------------
Authorized Officer
<PAGE> 73
[Signature page to Second Amended and Restated Credit Agreement]
BARCLAYS BANK PLC
By:
--------------------------------
Authorized Officer
<PAGE> 74
[Signature page to Second Amended and Restated Credit Agreement]
THE INDUSTRIAL BANK OF JAPAN
TRUST COMPANY
By:
--------------------------------
Authorized Officer
<PAGE> 75
[Signature page to Second Amended and Restated Credit Agreement]
UBS AG, STAMFORD BRANCH
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 76
[Signature page to Second Amended and Restated Credit Agreement]
ROYAL BANK OF CANADA
By:
--------------------------------
Authorized Officer
<PAGE> 77
[Signature page to Second Amended and Restated Credit Agreement]
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
--------------------------------
Authorized Officer
<PAGE> 78
[Signature page to Second Amended and Restated Credit Agreement]
THE SUMITOMO BANK, LIMITED
By:
--------------------------------
Authorized Officer
<PAGE> 79
[Signature page to Second Amended and Restated Credit Agreement]
COMMERZBANK AG
NEW YORK AND GRAND CAYMAN
BRANCHES
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 80
[Signature page to Second Amended and Restated Credit Agreement]
AMSOUTH BANK OPERATING AS FIRST AMERICAN
BANK
By:
-------------------------------------
Authorized Officer
By:
------------------------------------
Authorized Officer
<PAGE> 81
[Signature page to Second Amended and Restated Credit Agreement]
BANQUE NATIONALE DE PARIS, HOUSTON
AGENCY
By:
--------------------------------
Authorized Officer
<PAGE> 82
[Signature page to Second Amended and Restated Credit Agreement]
ARAB BANKING CORPORATION (B.S.C.)
By:
--------------------------------
Stephen A. Plauche
Vice President
<PAGE> 83
[Signature page to Second Amended and Restated Credit Agreement]
BW CAPITAL MARKETS, INC.
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 84
[Signature page to Second Amended and Restated Credit Agreement]
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 85
[Signature page to Second Amended and Restated Credit Agreement]
CREDIT SUISSE FIRST BOSTON
By:
--------------------------------
Authorized Officer
<PAGE> 86
[Signature page to Second Amended and Restated Credit Agreement]
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK AG, CAYMAN
ISLAND BRANCH
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 87
[Signature page to Second Amended and Restated Credit Agreement]
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
By:
--------------------------------
Title:
-----------------------------
NATIONAL WESTMINSTER BANK PLC
NASSAU BRANCH
By:
--------------------------------
Title:
-----------------------------
<PAGE> 88
[Signature page to Second Amended and Restated Credit Agreement]
BANK OF OKLAHOMA, N.A.
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 89
[Signature page to Second Amended and Restated Credit Agreement]
COMMERCE BANK, N.A.
By:
--------------------------------
Authorized Officer
<PAGE> 90
[Signature page to Second Amended and Restated Credit Agreement]
CREDIT AGRICOLE INDOSUEZ
By:
--------------------------------
Authorized Officer
By:
--------------------------------
Authorized Officer
<PAGE> 91
[Signature page to Second Amended and Restated Credit Agreement]
WITHDRAWING ORIGINAL BANKS:
The following Original Banks sign only for purposes
of acknowledging the assignment, without recourse
and without representation or warranty, of 100% of
their Commitments pursuant to the Original Credit
Agreement:
BANKBOSTON, N.A.
By:
------------------------------------------------
Authorized Officer
MELLON BANK
By:
------------------------------------------------
Authorized Officer
<PAGE> 92
SCHEDULE I
APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
Citibank N.A. Citibank N.A. Citibank N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Notices: Notices:
Citibank, N.A. Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Telecopier: (212) 527-1084 Telecopier: (212) 527-1084
Telex: None Telex: None
Attn: Christine Grundel Attn: Christine Grundel
Dept: Medium Term Finance Dept: Medium Term Finance
with copies to: with copies to:
Citicorp North America, Inc. Citicorp North America, Inc.
1200 Smith Street, Suite 2000 1200 Smith Street, Suite 2000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 654-2849 Telecopier: (713) 654-2849
Telex: 127001 Telex: 127001
(Attn. Route Code HOUAA) (Attn. Route Code HOUAA)
Attn: The Williams Companies, Inc. Attn: The Williams Companies, Inc.
Account Officer Account Officer
The Chase The Chase Manhattan Bank The Chase Manhattan Bank
Manhattan 270 Park Avenue, 21st Floor 270 Park Avenue, 21st Floor
Bank New York, New York 10017 New York, New York 10017
Telecopier: (212) 270-3897 Telecopier: (212) 270-3897
Telephone: (212) 270-4676 Telephone: (212) 270-4676
Attn: Peter Ling Attn: Peter Ling
The Fuji Bank, The Fuji Bank, Limited The Fuji Bank, Limited
Limited (New York Branch) (New York Branch)
(New York Branch) 2 World Trade Center 2 World Trade Center
79th Floor 79th Floor
New York, New York 10048 New York, New York 10048
Telecopier: (212) 321-9407 Telecopier: (212) 321-9407
Telephone: (212) 898-2597 Telephone: (212) 898-2597
Attn: Felix Amerasinghe Attn: Felix Amerasinghe
</TABLE>
SCHEDULE I-1
<PAGE> 93
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
Bank of Montreal Bank of Montreal Bank of Montreal
115 S. LaSalle St., 11W 115 S. LaSalle St., 11W
Chicago, Illinois 60603 Chicago, Illinois 60603
Telecopier: (312) 750-6061 Telecopier: (312) 750-6061
Telephone: (312) 750-6047 Telephone: (312) 750-6047
Attn: Craig Reynolds - Client Services Attn: Craig Reynolds - Client Services
Commerzbank AG, Commerzbank AG, Atlanta Agency Commerzbank AG, Atlanta Agency
Atlanta Agency 1230 Peachtree St., NE 1230 Peachtree St., NE
Suite 3500 Suite 3500
Atlanta, Georgia 30309 Atlanta, Georgia 30309
Telephone: (404) 888-6518 Telephone: (404) 888-6518
Telecopier: (404) 888-6539 Telecopier: (404) 888-6539
Attn: Brian Campbell Attn: Brian Campbell
Credit Lyonnais Credit Lyonnais New York Branch Credit Lyonnais New York Branch
New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas
New York, New York 10019 New York, New York 10019
Telecopier: (713) 759-9766 Telecopier: (713) 759-9766
Telephone: (713) 751-0500 Telephone: (713) 751-0500
Attn: Bernadette Archie Attn: Bernadette Archie
Bank One, NA Bank One, NA Bank One, NA
Bank One Plaza Bank One Plaza
0634, IBOP, 10 0634, 1BOP, 10
Chicago, Illinois 60670 Chicago, Illinois 60670
Telephone: (312) 732-5219 Telephone: (312) 732-5219
Telecopier: (312) 732-4840 Telecopier: (312) 732-4840
Attn: Mattie Reed Attn: Mattie Reed
ABN AMRO Bank ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
N.V. 208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5110 Telephone: (312) 992-5110
Facsimile: (312) 992-5111 Facsimile: (312) 992-5111
Attn: Credit Administration Attn: Credit Administration
with copies to: with copies to:
ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5152 Telephone: (312) 992-5152
Facsimile: (312) 992-5157 Facsimile: (312) 992-5157
Attn: Loan Administration Attn: Loan Administration
</TABLE>
SCHEDULE I-2
<PAGE> 94
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
ABN AMRO North America, Inc. ABN AMRO North America, Inc.
Three Riverway, Suite 1700 Three Riverway, Suite 1700
Houston, Texas 77056 Houston, Texas 77056
Telephone: (713) 964-3316 Telephone: (713) 964-3316
Facsimile: (713) 621-5810 Facsimile: (713) 621-5810
Attn: Michael Nepreux Attn: Michael Nepreux
The Bank of The Bank of Toyko-Mitsubishi, The Bank of Toyko-Mitsubishi,
Toyko-Mitsubishi, Ltd., Houston Agency Ltd., Houston Agency
Ltd., Houston 1100 Louisiana St., Suite 2800 1100 Louisiana St., Suite 2800
Agency Houston, Texas 77002-5216 Houston, Texas 77002-5216
Telephone: (713) 655-3845 Telephone: (713) 655-3845
Telecopier: (713) 655-3855 Telecopier: (713) 655-3855
Attn: J.M. McIntyre Attn: J.M. McIntyre
Barclays Bank PLC Barclays Bank PLC-New York Branch Barclays Bank PLC-New York Branch
222 Broadway, 11th Floor 222 Broadway, 11th Floor
New York, New York 10038 New York, New York 10038
Telephone: (212) 412-3702 Telephone: (212) 412-3702
Telecopier: (212) 412-5308 Telecopier: (212) 412-5308
Attn: David Barton Attn: David Barton
AmSouth AmSouth Bank AmSouth Bank
First American Center First American Center
Fourth & Union St. NA-0310 Fourth & Union St. NA-0310
Nashville, Tennessee 37237-0310 Nashville, Tennessee 37237-0310
Telephone: (615) 770-4059 Telephone: (615) 770-4059
Telecopier: (615) 748-2485 Telecopier: (615) 748-2485
Attn: Seth Butler Attn: Seth Butler
Banque Nationale Banque Nationale de Paris, Houston Banque Nationale de Paris, Houston
de Paris, Houston Agency Agency
Agency 333 Clay Street, Suite 3400 333 Clay Street, Suite 3400
Houston, Texas 77002 Houston, Texas 77002
Telephone: (713) 951-1240 Telephone: (713) 951-1240
Telecopier: (713) 659-1414 Telecopier: (713) 659-1414
Attn: Donna Rose Attn: Donna Rose
</TABLE>
SCHEDULE I-3
<PAGE> 95
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
Arab Banking Arab Banking Corp. Arab Banking Corp. (Grand Cayman)
Corporation 277 Park Avenue, 32nd Floor 277 Park Avenue, 32nd Floor
(B.S.C.) New York, New York 10172 New York, New York 10172
Telephone: (212) 583-4771 Telephone: (212) 583-4770
Telecopier: (212) 583-0932 Telecopier: (212) 583-0932
Attn: Loan Administration Attn: Loan Administration
BW Capital BW Capital Markets, Inc. BW Capital Markets, Inc.
Markets, Inc. 630 Fifth Avenue 630 Fifth Avenue
Rockefeller Center Rockefeller Center
Suite 1919 Suite 1919
New York, New York 10111 New York, New York 10111
Telecopier: (212) 218-1810 Telecopier: (212) 218-1810
Attn: Thomas A. Lowe Attn: Thomas A. Lowe
Westdeutsche Westdeutsche Landesbank Girozentrale, Westdeutsche Landesbank Girozentrale,
Landesbank New York Branch New York Branch
Girozentrale, 1211 Avenue of the Americas 1211 Avenue of the Americas
New York New York, New York 10038 New York, New York 10038
Branch Telecopier: (212) 302-7946 Telecopier: (212) 302-7946
Telephone: (212) 852-6113 Telephone: (212) 852-6113
Attn: Phil Green Attn: Phil Green
Credit Suisse Credit Suisse First Boston Credit Suisse First Boston
First Boston 11 Madison Avenue 11 Madison Avenue
New York, New York 10010 New York, New York 10010
Telephone: (212) 325-9093 Telephone: (212) 325-9093
Telecopier: (212) 325-8314 Telecopier: (212) 325-8314
Attn: Todd Morgan Attn: Todd Morgan
DG Bank DG Bank DG Bank
609 Fifth Avenue 609 Fifth Avenue
New York, New York 10017 New York, New York 10017
Telephone: (212) 745-1560 Telephone: (212) 745-1560
Telecopier: (212) 745-1556 Telecopier: (212) 745-1556
Attn: Mark K. Connelly Attn: Mark K. Connelly
Societe Generale, Societe Generale, Southwest Agency Societe Generale, Southwest Agency
Southwest Agency 2001 Ross Avenue, Suite 4800 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 Dallas, Texas 75201
Telecopier: (214) 754-0171 Telecopier: (214) 754-0171
Telephone: (214) 979-2767 Telex: (214) 979-2767
Attn: Tequlla English Attn: Tequlla English
Loan Specialist Loan Specialist
</TABLE>
SCHEDULE I-4
<PAGE> 96
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
The Sumitomo The Sumitomo Bank, Limited The Sumitomo Bank, Limited
Bank, Limited 277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Telex: SUMBK 420515/SUMBK Telex: SUMBK 420515/SUMBK
Telecopier: (212) 224-5188 Telecopier: (212) 224-5188
with copies to: with copies to:
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Attn: Ms. Andrea Wei, V.P. Attn: Ms. Andrea Wei, V.P.
PANA - Legal Department PANA - Legal Department
National National Westminster Bank PLC National Westminster Bank PLC
Westminster New York Branch Nassau Branch
Bank 65 East 55th Street, 24th Floor 65 East 55th Street, 24th Floor
New York, New York 10022 New York, New York 10022
Telephone: (212) 401-1494 Telephone: (212) 401-1494
Telecopier: (212) 401-1406 Telecopier: (212) 401-1406
Attn: Sheila Shaw Attn: Sheila Shaw
with copies to: with copies to:
Greenwich NatWest Greenwich NatWest
600 Travis St., Suite 6070 600 Travis St., Suite 6070
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 221-2430 Telecopier: (713) 221-2430
Telephone: (713) 221-2429 Telephone: (713) 221-2429
Attn: Kristi DeMaiolo Attn: Kristi DeMaiolo
The Bank of Nova The Bank of Nova Scotia The Bank of Nova Scotia
Scotia 600 Peachtree St., N.E. 600 Peachtree St., N.E.
Suite 2700 Suite 2700
Atlanta, Georgia 30308 Atlanta, Georgia 30308
Telecopier: (404) 888-8998 Telecopier: (404) 888-8998
Telex: 00542319 Telex: 00542319
Attn: Robert L. Ahern Attn: Robert L. Ahern
with copy to: with copy to:
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 752-2425 Telecopier: (713) 752-2425
Telephone: (713) 759-3440 Telephone: (713) 759-3440
Attn: Greg Smith Attn: Greg Smith
</TABLE>
SCHEDULE I-5
<PAGE> 97
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
Bank of America, Bank of America, N.A. Bank of America, N.A.
N.A. 901 Main Street, 14th Floor 901 Main Street, 14th Floor
Dallas, Texas 75202 Dallas, Texas 75202
Telecopier: (214) 209-9415 Telecopier: (214) 209-9415
Telephone: (214) 209-1225 Telephone: (214) 209-1225
Attn: Mekedes B. Kassaye Attn: Mekedes B. Kassaye
with copy to: with copy to:
Bank of America Bank of America
Three Allen Center, Suite 4550 Three Allen Center, Suite 4550
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 651-4807 Telecopier: (713) 651-4807
Telephone: (713) 651-4855 Telephone: (713) 651-4855
Attn: Claire Liu Attn: Claire Liu
Bank of New York Bank of New York Bank of New York
One Wall St., 19th Floor One Wall St., 19th Floor
New York, New York 10286 New York, New York 10286
Telecopier: (212) 635-7923 Telecopier: (212) 635-7923
Telephone: (212) 635-7834 Telephone: (212) 635-7834
Attn: Raymond Palmer (Ray) Attn: Raymond Palmer (Ray)
Bank of Oklahoma, Bank of Oklahoma, N.A. Bank of Oklahoma, N.A.
N.A. One Williams Center, 8th Floor One Williams Center, 8th Floor
Tulsa, Oklahoma 74192 Tulsa, Oklahoma 74192
Telecopier: (918) 588-6880 Telecopier: (918) 588-6880
Telephone: (918) 588-6217 Telephone: (918) 588-6217
Attn: Robert Mattax (Bob) Attn: Robert Mattax (Bob)
Canadian Imperial Canadian Imperial Bank of Commerce Canadian Imperial Bank of Commerce
Bank of Commerce Two Paces West Two Paces West
2727 Paces Ferry Road, Suite 1200 2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Telecopier: (770) 319-4950 Telecopier (770) 319-4950
Telephone: (770) 319-4821 Telephone: (770) 319-4821
Attn: Katherine McGovern Attn: Katherine McGovern
with a copy to: with a copy to:
1600 Smith, Ste. 3000 1600 Smith, Ste. 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 650-3727 Telecopier: (713) 650-3727
Telephone: (713) 650-2588 Telephone: (713) 650-2588
Attn: Mark Wolf Attn: Mark Wolf
</TABLE>
SCHEDULE I-6
<PAGE> 98
<TABLE>
<CAPTION>
Domestic Eurodollar
Name of Bank Lending Office Lending Office
- -------------- ----------------- -----------------
<S> <C> <C>
Commerce Bank, Commerce Bank, N.A. Commerce Bank, N.A.
N.A. 1000 Walnut Street, 17th Floor 1000 Walnut Street, 17th Floor
Kansas City, Missouri 64106 Kansas City, Missouri 64106
Telecopier: (816) 234-7290 Telecopier: (816) 234-7290
Telephone: (816) 234-2477 Telephone: (816) 234-2477
Attn: Dennis Block Attn: Dennis Block
Industrial Bank Industrial Bank of Japan Trust Industrial Bank of Japan Trust
of Japan Trust 1251 Avenue of the Americas 1251 Avenue of the Americas
New York, New York 10020 New York, New York 10020
Telecopier: (212) 282-4480 Telecopier: (212) 282-4480
Telephone: (212) 282-4090 Telephone: (212) 282-4090
Attn: Richard Emmich Attn: Richard Emmich
Credit Agricole Credit Agricole Indosuez Credit Agricole Indosuez
Indosuez Texas Commerce Tower Texas Commerce Tower
600 Travis, Suite 2340 600 Travis, Suite 2340
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 223-7029 Telecopier: (713) 223-7029
Telephone: (713) 223-7001 Telephone: (713) 223-7001
Attn: Brian Knezeak Attn: Brian Knezeak
UBS UBS AG, Stamford Branch UBS AG, Stamford Branch
677 Washington Boulevard 677 Washington Boulevard
Stamford, Connecticut 06901 Stamford, Connecticut 06901
Telecopier: (203) 719-3898 Telecopier: (203) 719-3898
Telephone: (203) 719-4090 Telephone: (203) 719-4090
Attn: Paul Morrison Attn: Paul Morrison
Royal Bank of Royal Bank of Canada, New York Royal Bank of Canada, New York
Canada One Liberty Plaza, 4th Floor One Liberty Plaza, 4th Floor
New York, New York 10006 New York, New York 10006
Telecopier: (212) 428-2372 Telecopier: (212) 428-2372
Telephone: (212) 428-6321 Telephone: (212) 428-6321
Attn: Assistant Manager, Loan Attn: Assistant Manager, Loan
Processing Processing
</TABLE>
SCHEDULE I-7
<PAGE> 99
SCHEDULE II
BORROWER INFORMATION
Schedule II-1
<PAGE> 100
SCHEDULE III
PERMITTED BORROWER LIENS
Schedule III-1
<PAGE> 101
SCHEDULE IV
COMMITMENTS
AS OF JANUARY 24, 2000
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BANKS COMMITMENT
- --------------------------------------------------------------------------------
<S> <C>
Citibank, N.A. $ 89,000,000
- --------------------------------------------------------------------------------
Arab Banking Corporation (B.S.C.) $ 25,000,000
- --------------------------------------------------------------------------------
BW Capital Markets, Inc. $ 25,000,000
- --------------------------------------------------------------------------------
The Chase Manhattan Bank $ 89,000,000
- --------------------------------------------------------------------------------
CIBC Inc. $ 89,000,000
- --------------------------------------------------------------------------------
The Fuji Bank, Limited, New York Branch $ 62,000,000
- --------------------------------------------------------------------------------
Bank of America, N.A. $ 49,000,000
- --------------------------------------------------------------------------------
Banque Nationale de Paris $ 25,000,000
- --------------------------------------------------------------------------------
Commerce Bank, N.A. $ 5,000,000
- --------------------------------------------------------------------------------
Commerzbank AG, New York & Grand Cayman Branch $ 89,000,000
- --------------------------------------------------------------------------------
Credit Agricole Indosuez $ 30,000,000
- --------------------------------------------------------------------------------
Credit Suisse First Boston $ 16,000,000
- --------------------------------------------------------------------------------
Westdeutsche Landesbank Girozentrale, New York Bra $ 40,000,000
- --------------------------------------------------------------------------------
DG Bank Deutsche Genoesenschaftbank AG $ 25,000,000
- --------------------------------------------------------------------------------
National Westminster Bank PLC $ 35,000,000
- --------------------------------------------------------------------------------
AmSouth Bank $ 20,000,000
- --------------------------------------------------------------------------------
Bank of Oklahoma, N.A. $ 5,000,000
- --------------------------------------------------------------------------------
Bank of Montreal $ 50,000,000
- --------------------------------------------------------------------------------
Credit Lyonnais New York Branch $ 89,000,000
- --------------------------------------------------------------------------------
Bank One, NA $ 89,000,000
- --------------------------------------------------------------------------------
UBS AG, Stamford Branch $2 5,000,000
- --------------------------------------------------------------------------------
ABN AMRO Bank N.V. $ 70,000,000
================================================================================
</TABLE>
Schedule IV-1
<PAGE> 102
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BANKS COMMITMENT
- --------------------------------------------------------------------------------
<S> <C>
The Bank of New York $ 65,000,000
- --------------------------------------------------------------------------------
The Bank of Nova Scotia $ 89,000,000
- --------------------------------------------------------------------------------
The Bank of Tokyo-Mitsubishi, Ltd. - Houston Agency $ 20,000,000
- --------------------------------------------------------------------------------
Barclays Bank PLC $ 65,000,000
- --------------------------------------------------------------------------------
Industrial Bank of Japan Trust Company $ 25,000,000
- --------------------------------------------------------------------------------
Royal Bank of Canada, New York $ 45,000,000
- --------------------------------------------------------------------------------
Societe Generale, Southwest Agency $ 40,000,000
- --------------------------------------------------------------------------------
The Sumitomo Bank, Limited $ 10,000,000
================================================================================
COMMITMENTS $1,400,000,000
================================================================================
</TABLE>
Schedule IV-2
<PAGE> 103
SCHEDULE V
RATING CATEGORIES
<TABLE>
<CAPTION>
Applicable
Rating Category S&P or Moody's ratings of the senior unsecured Applicable Commitment
of the Borrower long-term debt of the Borrower* Margin Fee Rate
- --------------- ---------------------------------------------- ---------- -----------
<S> <C> <C> <C>
One A or better by S&P or A2 or better by Moody's .50% .075%
Two A- by S&P or A3 by Moody's .625% .085%
Three BBB+ by S&P or Baa1 by Moody's .75% .095%
Four BBB by S&P or Baa2 by Moody's .875% .10%
Five BBB- by S&P and Baa3 by Moody's 1.125% .15%
Six BBB- by S&P or Baa3 by Moody's 1.5% .20%
Seven Borrower is Unrated or none of the above applies 2.0% .25%
to Borrower
</TABLE>
*If split-rated, the higher rating will apply.
Schedule V-1
<PAGE> 104
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
GREENWOOD DIVISION
LILLIAN A. ROBINSON, NETTIE LOU JONES )
FRANCES R. AXTELL, MARSHAL LEE )
ROBINSON, DONALD STEVE ROBINSON,)
BILLY PETE ROBINSON, CHARLIE ) Civil Action No 8:00-0058-13
ROBINSON, AMEY R. HAMMOND, JANICE R. )
TROTTER, JACKIE CECIL ROBINSON, )
and JACKIE KAY ROBINSON )
)
Plaintiffs, )
) ANSWERS OF DEFENDANT
v. )WILLIAMS ENERGY VENTURES, INC.
) TO LOCAL RULE 26.06
) INTERROGATORIES AND
COLONIAL PIPELINE COMPANY, a Delaware ) REQUEST FOR DOCUMENTS
Corporation; BP AMOCO CORPORATION, an )
Indiana Corporation, f/k/a Amoco Oil Company;)
B.P. EXPLORATION & OIL, INC., )
an Ohio Corporation; WILLIAMS ENERGY )
VENTURES, INC., a Delaware Corporation; )
and PHILLIPS PIPELINE COMPANY, a Delaware )
Corporation. )
)
Defendants. )
)
Williams Energy Ventures, Inc., through counsel, hereby respectfully
responds to Local Rule 26.06 Interrogatories and Directives to Produce as
follows:
(1) If the defendant is improperly identified, give the proper
identification and state whether counsel will accept service of an amended
summons and pleading reflecting the correct identification.
ANSWER: Defendant Williams Energy Ventures, Inc. (hereinafter "Williams")
is properly identified.
<PAGE> 105
(2) Furnish a detailed factual basis for each defense you assert in your
responsive pleading. If a contract, writing or document forms the basis of any
claim against you and/or the basis for any defense asserted, quote or attach the
relevant portions, state your construction thereof and your position with regard
thereto.
ANSWER:
Williams did not acquire the facilities at issue in this matter until
nearly twenty years after Plaintiffs' settled and released their claims for
alleged contamination from the facilities in 1980. Williams purchased its share
of the former Conoco petroleum storage facility identified in Paragraph 7 of the
Complaint through a series of purchase agreements dated May 10, 1996, June 18,
1998 and February 19, 1999, and purchased the former Amoco petroleum storage
facility identified in Paragraph 7 of the Complaint through a purchase agreement
dated October 29, 1998. Prior to acquiring these properties, Williams had no
control over the facilities and asserts that it cannot be held responsible for
alleged negligence or contamination of prior owners. Furthermore, Williams
contends that any releases of petroleum products that may have occurred at its
facilities subsequent to its ownership were promptly contained and have not
reached or otherwise impacted Plaintiffs' properties.
(1) Upon information and belief, Plaintiffs' claims are barred by reason of
their failure to mitigate, minimize or avoid the damages alleged in the
Complaint. Furthermore, upon information and belief, some or all of Plaintiffs
have operated or allowed to be operated a junkyard on their property(ies), used
septic systems and engaged in other activities that may have contributed to
contamination of the Plaintiffs' property.
2
<PAGE> 106
(2) Any acts or omissions alleged in the Complaint may have occurred,
resulted from or have been proximately caused by the superseding intervention of
causes and parties outside the control of Williams. Plaintiffs previously filed
suit against Amoco Oil Company, Southern Facilities, Inc., Phillips Petroleum
Company, Gulf Oil Company and Petroleum Pipeline Company alleging damage to
their properties and other claims due to alleged environmental contamination.
Williams asserts that it cannot be held responsible for the alleged acts of the
parties to Plaintiffs' original action, current co-defendants, or other parties
allegedly responsible for the contamination and damage to Plaintiffs'
properties.
(3) All or some of Plaintiffs' claims are barred by the applicable statutes
of limitation. Plaintiffs' Complaint purports to assert causes of action arising
after the execution of the April 11, 1980 Release between Plaintiffs and the
parties to the original action. Under applicable law, Williams asserts that some
or all of Plaintiffs' claims are therefore barred the statutes of limitation and
the doctrine of laches.
(4) Upon information and belief, Plaintiffs have consented to the presence
of contaminants on their property. At the time Plaintiffs entered into the
Release on April 11, 1980, Plaintiffs recognized that contamination existed on
their property and would continue to remain there. Nonetheless, Plaintiffs
entered into a Release Agreement with Amoco Oil Company, Southern Facilities,
Inc., Phillips Petroleum Company, Gulf Oil Company and Petroleum Pipeline
Company with the express understanding that contamination would remain on their
properties. In addition, upon information and belief, some or all of Plaintiffs
assumed the risk by purchasing and/or moving to their property with knowledge of
the existence of contamination.
(5) Although it was not a party to the Release agreement entered into by
Plaintiffs and the defendants in the prior litigation, Williams asserts that all
or some of Plaintiffs' claims are barred by the terms of the Release and
application of the easements granted in connection with the settlement of the
3
<PAGE> 107
prior litigation. Furthermore, Plaintiffs entered into an Agreement of
Settlement, Unconditional Release of Claims, and Covenant not to Sue with Conoco
Inc. on January 27, 2000 which releases Williams from any claims based upon the
condition of the former Conoco facility now owned by Williams.
(6) The imposition of punitive damages in an action of this nature, or
under the facts such as those alleged, would be violative of the Constitution of
the State of South Carolina and the United States of America. Williams has not
acted willfully or maliciously toward Plaintiffs and there is no basis for
Plaintiffs' punitive damages claim.
(3) Describe by name and citation or other generally recognized
identification, decisions, statutes, ordinances, acts, codes, regulations and
legal principles, standards, and customs or usages, which you contend are
especially applicable to this action. State which jurisdiction's law applies to
each claim or defense and why.
ANSWER:
South Carolina law applies to Plaintiffs' common law claims and Williams'
defenses thereto. Williams contends that the following decisions and statutes
are especially applicable to this action:
Statute of Limitations:
S.C. Code Ann. Sections 15-3-530, 15-3-535
Dean v. Ruscon Corp., 321 S.C. 360, 468 S.E.2d 645 (1995)
Barr v. City of Rock Hill, 330 S.C. 640, 500 S.E.2d 157 (Ct. App. 1998)
Glenn v. School District No. Five of Anderson County, 294 S.C. 530, 366 S.E.2d
47 (Ct. App. 1988)
Assumption of Risk:
Davenport v. Cotton Hope Plantation Horizontal Property Regime, 333 S.C. 71, 508
S.E.2d 565 (1998)
Cutchin v. South Carolina Dept. of Highways and Public Transp., 301 S.C. 35, 389
S.E.2d 646 (1990)
4
<PAGE> 108
Griffin v. Griffin, 282 S.C. 288, 318 S.E.2d 24 (Ct. App. 1984)
Contributory Negligence:
Nelson v. Concrete Supply Co., 303 S.C. 243, 399 S.E.2d 783 (1991)
Gruber v. Santee Frozen Foods, Inc., 309 S.C. 13, 419 S.E.2d 795 (Ct. App. 1992)
Laches:
Treadaway v. Smith, 325 S.C. 367, 479 S.E.2d 849 (Ct. App. 1996)
Mitigation of Damages:
Chastain v. Owens Carolina, Inc., 310 S.C. 417, 426 S.E.2d 834 (1993)
Du Bose v. Bultman, 215 S.C. 468, 56 S.E.2d 95 (1949)
Sullivan v. City of Anderson, 81 S.C. 178, 62 S.E.862 (1908)
Williams reserves the right to assert additional defenses and supporting
authority once discovery is conducted.
(4) If you contend that some other person or legal entity is, in whole or
in part, liable to you or the party asserting a claim against you in this
matter, identify such person or entity and describe the basis of said liability.
ANSWER:
Williams has claims for indemnification against Amoco, BP Amoco, Murphy,
TOC, and Conoco arising from their prior use and operation of the facilities
currently owned by Williams. In addition, Williams may have claims against
Amoco, BP, BP Amoco and Colonial Pipeline Company with respect to the migration
of contaminants across or under Williams' property. Williams also has a claim
for indemnification against Infinger, the transportation company that caused an
approximately 20 gallon gasoline spill at the Williams facility in July 1999. By
agreement of the
5
<PAGE> 109
parties, Williams is not pursuing these claims for indemnification or
contribution at this time. Williams reserves the rights to assert these claims,
and any others, once discovery is conducted.
(5) State the full names, addresses, and telephone numbers of all lay
witnesses whose testimony you may use at the trial of this case and describe the
specific factual issues to which that testimony is expected to relate.
ANSWER:
Plaintiffs
The following individuals may testify regarding operations at the former
Amoco, Southern Facilities, Conoco and current Williams facilities:
Don Schilling
Williams Energy Ventures
______ Sweetwater Road
North Augusta, Georgia
_______________
Jackie Outzs
1885 Sweet Water Road
Edgefield, South Carolina 29284
803-278-3070
Tom Nelson
(Address unknown)
803-593-4614
George Griffith
728 Sage Court
North Augusta, South Carolina 29860
803-867-2038
Joyce Chillingworth
Williams Energy Services
P.O. Box 3448
One Williams Center
Tulsa, Oklahoma 74101
(918) 573-3377
6
<PAGE> 110
Lori Murtaugh
Department of Health and Environmental Control
Bureau of Water
Groundwater Assessment and Development
2600 Bull Street
Columbia, South Carolina 29201-1708
Fred George Harpley
Infinger
North Augusta, South Carolina
803-867-2038
Any witness listed by any other party. Williams reserves the right to name
and call additional fact witnesses once discovery is conducted.
(6) Identify by full name, address, and telephone number each person whom
you expect to call as an expert witness at the trial of this case, and, as to
each expert so identified, state the subject matter on which he is expected to
testify, the substance of the facts and opinions to which he is expected to
testify, and a summary of the grounds for each opinion.
ANSWER:
Since no discovery has been conducted, Williams has not yet determined
which expert witnesses it will call in this matter and will provide the names of
any expert witnesses as soon as such determination has been made.
7
<PAGE> 111
(7) Set forth the names of all insurance companies or other insuring
entities which may be liable to satisfy part or all of a judgment centered
against you in this action, or to indemnify or reimburse for payments made to
satisfy the judgment. Set forth the insurance coverage relating to each claim
against you, the number of each policy, the amount of applicable liability
coverage provided in each policy, and the named insured in each policy. Are you
aware of any question of coverage?
ANSWER:
AEGIS
Policy No. X0559A1A98
Named Insured: The Williams Companies, Inc.
Excess: over $2,000,000 retention
$35,000,000 claim first made; $35,000,000 aggregate
Williams is currently unaware of any question of coverage.
(8) State the time you estimate it will take you to complete discovery.
Explain if appropriate.
ANSWER:
Since this matter involves complex factual and legal issues and will
necessarily involve expert opinion testimony, the parties are preparing a
proposed scheduling order to submit for the Court's consideration.
8
<PAGE> 112
(9) As to each claim, state whether it should be tried jury or nonjury and
why. If the answer is different with respect to any claim from the answer given
by any party, explain why your answer is different and state the basis for your
answer.
ANSWER:
Williams asserts that all of Plaintiffs' claims and Williams' defenses
thereto, except those for declaratory judgment and injunctive relief, should be
tried by a jury.
(10) If the defendant is a publicly owned entity, or a partner, parent,
subsidiary or affiliate of a publicly-owned entity, identify the publicly-owned
entity and its relationship to the defendant. If there is a publicly-owned
entity not a party to the case that has a significant financial interest in the
outcome, identify such entity and the nature of the financial interest.
ANSWER: Not applicable.
(11) Is there any reason why this action should be transferred to another
division?
ANSWER:
No.
(12) Do you want a mediation conference to be scheduled in this case? If
so, when?
ANSWER:
Williams asserts that a mediation conference would be appropriate in this
matter after the completion of discovery.
9
<PAGE> 113
(13) Do you, at this time, request or oppose an expedited trial under Local
Civil Rule 16.12 through 16.14? If so, include the information requested by that
local civil rule in these responses.
ANSWER:
Due to the complex factual and legal issues and anticipated lengthy
discovery period needed, Williams does not request an expedited trial.
(14) If you are asserting a counterclaim or other secondary claim, provide
the information required by Local Civil Rule 26.03(e).
ANSWER:
Williams is not asserting a counterclaim or other secondary claim at this
time.
Respectfully submitted this the ___ day of March, 2000.
-----------------------------------
Larry D. Estridge
Fed. ID No. 4876
Sarah E. Day
Fed. ID No. 7267
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
104 South Main Street, Suite 700
P.O. Drawer 10208
Greenville, South Carolina 29603-0208
Telephone: (864) 255-5400
-----------------------------------
Brad A. De Vore
N.C. State Bar No. 13474
10
<PAGE> 114
W. Clark Goodman
N.C. State Bar No. 19927
Lawrence B. Somers
N.C. State Bar No. 22329
Attorneys for Defendant
Williams Energy Ventures, Inc.
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
3300 One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6025
Telephone: (704) 331-4900
11
<PAGE> 115
CERTIFICATE OF SERVICE
I certify that I have this day served the party in this action with a copy
of the foregoing ANSWERS OF DEFENDANT WILLIAMS ENERGY VENTURES, INC. TO LOCAL
RULE 26.06 INTERROGATORIES AND REQUEST FOR DOCUMENTS by placing said copy in the
United States mail, postage prepaid, addressed as follows to the attorneys of
record:
------------------------------
Lawrence B. Somers
12
<PAGE> 1
EXHIBIT 4(e)
SECOND AMENDMENT TO SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
(herein called this "Amendment"), dated as of January 24, 2000 is entered into
by and among the Borrowers party to the Credit Agreement (as hereinafter
defined), the Banks from time to time party to the Credit Agreement, the
Co-Agents as named therein and Citibank, N.A., as agent for the Banks (in such
capacity, the "Agent"). Except as otherwise defined or as the context requires,
terms defined in the Credit Agreement are used herein as therein defined.
W I T N E S S E T H:
WHEREAS, The Williams Companies, Inc. ("TWC") and certain of its
Subsidiaries (TWC and such Subsidiaries, the "Borrowers") have entered into a
certain Second Amended and Restated Credit Agreement dated as of July 23, 1997
(the "1997 Credit Agreement") with the Banks, the Co-Agents and the Agent, which
agreement has been amended by an Amendment to Second Amended and Restated Credit
Agreement dated January 26, 1999 and letter agreements dated as of March 15,
1999, May 20, 1999 and September 27, 1999 (the 1997 Credit Agreement as so
amended the "Credit Agreement"); and
WHEREAS, the Borrowers and the Banks now desire to amend the Credit
Agreement in certain respects, as hereinafter provided,
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Borrowers and the Banks hereby agree as follows:
SECTION 1. Amendment of Section 1.01 of the Credit Agreement. Section 1.01
of the Credit Agreement is hereby amended as follows:
(a) The definition of "Applicable Margin" in such Section 1.01 is
hereby amended and restated in its entirety to read as follows:
"Applicable Margin" means as to any Eurodollar Rate Advance to any
Borrower, 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. The Applicable Margin determined pursuant to
this definition for any Eurodollar Rate Advance to any Borrower shall
change when and as the relevant Rating Category applicable to such Borrower
changes.
(b) The definition of "Applicable WilTel Debt to EBITDA Ratio" in such
Section 1.01 is hereby deleted in its entirety.
<PAGE> 2
(c) The definition of "Applicable WPL Debt to TNW Ratio" in such
Section 1.01 is hereby deleted in its entirety.
(d) The definition of "Borrowers" in such Section 1.01 is amended and
restated to read in its entirety as follows:
"Borrowers" means TWC, NWP, TGPL, and TGT.
(e) The following definitions are added to such Section 1.01
immediately after the definition of "Business Day":
"Cash Holdings" of any Person means the total investment of such
Person at the time of determination in:
(a) demand deposits and time deposits maturing within one year
with a Bank (or other commercial banking institution of the stature
referred to in clause (d)(i));
(b) any note or other evidence of indebtedness, maturing not more
than one year after such time, issued or guaranteed by the United
States Government or by a government of another country which carries
a long-term rating of Aaa by Moody's or AAA by S&P;
(c) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than the affiliate of a Borrower)
rated (x) A-1 by S&P, P-1 by Moody's, F-1 by Fitch or A by Duff
and Phelps or (y) lower than set forth in clause (x) above,
provided that the value of all such commercial paper shall not
exceed 10% of the total value of all commercial paper comprising
"Cash Holdings," or
(ii) any Bank (or its holding company) with a rating on its
long-term unsecured debt of at least AA from S&P or Aa from
Moody's;
(d) any certificate of deposit or bankers acceptance, maturing
not more than three years after such time, which is issued by either
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $1,000,000,000, or
2
<PAGE> 3
(ii) any Bank with a rating on its long-term unsecured debt
of at least AA by S&P or Aaa by Moody's;
(e) notes or other evidences of indebtedness, maturing not more
than three years after such time, issued by
(i) a corporation (other than an affiliate of a Borrower)
rated AA by S&P or Aa by Moody's; or
(ii) any Bank (or its holding company) with a rating on its
long-term unsecured debt of at least AA by S&P or Aaa by Moody's;
or
(f) any repurchase agreement entered into with any Bank (or other
commercial banking institution of the stature referred to in clause
(d)(i)) which
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of clauses (a) through
(d);
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the repurchase
obligation of such Bank (or other commercial banking institution)
thereunder; and
(g) money market preferred instruments by participation in a
Dutch auction (or the equivalent) where the investment is rated no
lower than Aa by Moody's or AA by S&P.
"ChoiceSeat" means ChoiceSeat, L.L.C., a Cayman Islands limited
liability company.
(f) The definition of "Consolidated Net Worth" in such Section 1.01 is
amended and restated to read in its entirety as follows:
"Consolidated Net Worth" of any Person means the Net Worth of such
Person and its Subsidiaries on a Consolidated basis plus, in the case of
TWC, the Designated Minority Interests to the extent not otherwise
included; provided that, in no event shall the value ascribed to Designated
Minority Interests exceed $511,700,000 in the aggregate.
(g) The following definition is added to such Section 1.01 immediately
after the definition of "Debt":
"Designated Minority Interests" of TWC means, as of any date of
determination, the total of the minority interests in the following
Subsidiaries of TWC: (i) El Furrial, (ii) PIGAP II, (iii) Nebraska Energy,
(iv) Seminole, (v) WCG,
3
<PAGE> 4
(vi) WilTel, (vii) ChoiceSeat, (viii) PowerTel, and (ix) other Consolidated
Subsidiaries of TWC, as presented in its Consolidated balance sheet, in an
amount not to exceed in the aggregate $9,000,000 for such other
Consolidated Subsidiaries not referred to in clauses (i) through (viii);
provided that minority interests which provide for a stated preferred
cumulative return shall not be included in "Designated Minority Interests."
(h) The following definition is added to such Section 1.01 immediately
after the definition of "EBITDA":
"El Furrial" means WilPro Energy Services (El Furrial) Limited, a
Cayman Islands corporation.
(i) The following definitions are added to Section 1.01 immediately
after the definition of "Multiple Employer Plan":
"Nebraska Energy" means Nebraska Energy, L.L.C., a Kansas limited
liability company.
"Net Debt" means for any Person, as of any date of determination, the
excess of (x) the aggregate amount of all Debt of such Person and its
Subsidiaries on a Consolidated basis over (y) the sum of the Cash Holdings
of such Person and its Subsidiaries on a Consolidated basis.
(j) The definition of "Permitted WCG Liens" in such Section 1.01 is
hereby deleted in its entirety.
(k) The definition of "Permitted WHD Liens" in such Section 1.01 is
hereby deleted in its entirety.
(l) The definition of "Permitted WilTel Liens" in such Section 1.01 is
hereby deleted in its entirety.
(m) The definition of "Permitted WPL Liens" in such Section 1.01 is
hereby deleted in its entirety.
(n) The following definition is added to such Section 1.01 immediately
after the definition of "Person":
"PIGAP II" means WilPro Energy Services (PIGAP II) Limited, a Cayman
Islands corporation.
4
<PAGE> 5
(o) The following definition is added to such Section 1.01 immediately
after the definition of "Plan":
"PowerTel" means PowerTel Limited, an Australian corporation.
(p) The definition of "Sale and Lease-Back Transaction" in such
Section 1.01 is amended by deleting the proviso contained therein such that the
definition reads in its entirety as follows:
Sale and Lease-Back Transaction" of any Person means any arrangement
entered into by such Person or any Subsidiary of such Person, directly or
indirectly, whereby such Person or any Subsidiary of such Person shall sell
or transfer any property, whether now owned or hereafter acquired, and
whereby such Person or any Subsidiary of such Person shall then or
thereafter rent or lease as lessee such property or any part thereof or
other property which such Person or any Subsidiary of such Person intends
to use for substantially the same purpose or purposes as the property sold
or transferred.
(q) The following definition is added to such Section 1.01 immediately
after the definition of "Sale and Lease-Back Transaction":
"Seminole" means Seminole Pipeline Company, a Delaware corporation.
(r) The definition of "WilTel Debt to EBITDA Ratio" in such Section
1.01 is hereby deleted in its entirety.
(s) The definition of "WilTel Pro Forma Income Statements" in such
Section 1.01 is hereby deleted in its entirety.
(t) The definition of "WNG" in such Section 1.01 is deleted and
replaced in its entirety with the following:
"WPC" means Williams Gas Pipelines Central, Inc., a Delaware
corporation, formerly Williams Natural Gas Company.
(u) The definition of "WPL Debt to TNW Ratio" in such Section 1.01 is
hereby deleted in its entirety.
SECTION 2. Amendment of Section 3.02(a). Section 3.02(a) of the Credit
Agreement is hereby amended by deleting clause (iv) thereof.
SECTION 3. Amendment of Section 3.03(iii)(a). Section 3.03(iii)(a) is
hereby amended by deleting clause (5) thereof.
5
<PAGE> 6
SECTION 4. Deletion of Section 4.01(n). Section 4.01(n) of the Credit
Agreement is hereby deleted in its entirety.
SECTION 5. Amendment of Section 5.01(b)(x). Section 5.01(b)(x) is hereby
amended and restated in its entirety to read as follows:
(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 stating the respective ratings, if any, by each of S&P and
Moody's of the senior unsecured long-term debt of such Borrower as of the
last day of such quarter; and
SECTION 6. Amendment of Section 5.02(a). Section 5.02(a) of the Credit
Agreement is hereby amended by deleting clauses (ii), (vi), (vii) and (viii)
thereof and replacing them with the following: "(ii) [Intentionally Deleted]";
"(vi) [Intentionally Deleted]"; "(vii) [Intentionally Deleted]"; and "(viii)
[Intentionally Deleted]", respectively.
SECTION 7. Amendment of Section 5.02(b). Section 5.02(b) of the Credit
Agreement is hereby amended as follows:
(a) Clause (i) of such Section 5.02(b) is hereby amended and restated
to read in its entirety as follows:
(b) Debt. (i) In the case of TWC, permit the ratio of (A) the
aggregate amount of Net Debt of TWC to (B) the sum of the Consolidated Net
Worth of TWC plus Net Debt of TWC to exceed (1) 0.7 to 1.0 at any time
during the period beginning on the date hereof through December 31, 2000,
(2) 0.675 to 1.0 at any time during the period beginning on January 1, 2001
through December 31, 2001, or (3) 0.65 to 1.0 at any time during the period
beginning on January 1, 2002 through the term of this Agreement;
(b) Clause (ii) of such Section 5.02(b) is hereby deleted in its
entirety and replaced with the following: "(ii) [Intentionally Deleted]."
(c) Clause (iii) of such Section 5.02(b) is hereby amended by deleting
the words "and WHD" in the parenthetical occurring in the first line thereof.
SECTION 8. Amendment of Section 5.02(c). Section 5.02(c) of the Credit
Agreement is hereby amended by deleting clauses (iv) and (vi) thereof and
replacing them with "(iv) [Intentionally Deleted]" and "(vi) [Intentionally
Deleted]," respectively
SECTION 9. Amendment of Section 5.02(d). Section 5.02(d) of the Credit
Agreement is hereby amended as follows:
6
<PAGE> 7
(a) The reference to "WNG" in the parenthetical beginning in the
seventh line thereof is replaced with a reference to "WPC."
(b) The word "and" is inserted in the ninth line thereof after the
phrase "Exhibit E", the comma after the phrase "Exhibit E" in the twelfth
line thereof is replaced with a period, and the ending phrase reading "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)," together with the final
period, are hereby deleted.
SECTION 10. Amendment of Section 5.02(f). Section 5.02(f) of the Credit
Agreement is hereby amended as follows: the references to WilTel, WCG and WHD in
clause (1) in the fifth line of such Section 5.02(f) and in clause (2) in the
eighth line of such Section 5.02(f) are each deleted. References in such Section
to "WNG" are replaced by references to "WPC".
SECTION 11. Amendment of Section 5.02(j). Section 5.02(j) is amended by
inserting the word "and" after the phrase "TGT and its Subsidiaries," in clause
(iv) thereof, and replacing the comma ending clause (v) with a period and
deleting clauses (vi) and (vii) thereof.
SECTION 12. Amendments of Schedules III through VII. The following clauses
of Schedules III through VII are hereby deleted: clause (aa) of each of
Schedules III, IV and V; clause (bb) of Schedule VI and clause (j) of Schedule
VII.
SECTION 13. Deletion of Schedule VIII. Schedule VIII is hereby deleted in
its entirety.
SECTION 14. Withdrawal of WHD; Merger. Pursuant to a letter dated May 20,
1999 delivered to the Agent from Williams Holdings of Delaware, Inc. ("WHD"),
WHD has terminated, pursuant to Section 2.04(a) of the Credit Agreement, the
Commitments of the Banks to WHD in whole and has elected, pursuant to Section
2.04(b) of the Credit Agreement, to cease to be a Borrower under the Credit
Agreement, effective as of the date of such letter; provided that, pursuant to
Section 2.04(b) of the Credit Agreement, WHD remains a Borrower for purposes of
the definition of Majority Banks and for purposes of Sections 2.11, 2.14 and
8.04 thereof. WHD subsequently merged into TWC, such merger effective as of July
31, 1999 and, to the extent that WHD continues in its capacity as a Borrower
pursuant to Section 2.04(b) of the Credit Agreement, TWC assumed the obligations
of WHD.
SECTION 15. To induce the Agent and the Banks to enter into this Amendment,
the Borrowers hereby reaffirm, as of the date hereof, their representations and
warranties contained in Article IV of the Credit Agreement (except to the extent
such representations and warranties relate solely to an earlier date) and
additionally represents and warrants as follows:
7
<PAGE> 8
(a) Each Borrower is a duly organized or validly formed, validly
existing and 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 which
the failure to have 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 the
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 any
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 which the
failure to have 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
Amendment and the consummation of the transactions contemplated by this
Amendment 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) any 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.
(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
Amendment or the consummation of the transactions contemplated by this
Amendment.
(d) This Amendment has been duly executed and delivered by each
Borrower. This Amendment and the Credit Agreement as amended by this
Amendment are the legal, valid and binding obligations of each Borrower
enforceable against such 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.
(e) Except as set forth in the Public Filings, there is, as to each
Borrower, no pending or, to the knowledge of each Borrower, threatened
action or proceeding
8
<PAGE> 9
affecting such Borrower or any material 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 Amendment, the Credit Agreement or any Note. For the purposes of
this Section, "Public Filings" shall mean each Borrower's respective annual
reports on Form 10-K for the year ended December 31, 1998, and each
Borrower's respective quarterly reports on Form 10-Q for the quarter ended
September 30, 1999.
(f) Upon giving effect to this Amendment, no event has occurred and is
continuing 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.
SECTION 16. The effectiveness of this Amendment is conditioned upon receipt
by the Agent for the account of each Bank the participation and amendment fee
due such Bank pursuant to that certain updated information memorandum delivered
to the Banks in December, 1999 and receipt by the Agent of all the following
documents, each in form and substance satisfactory to the Agent:
(a) Counterparts of this Amendment executed by each of the Borrowers,
the Agent and the Majority Banks;
(b) A certificate of the Secretary or Assistant Secretary of each
Borrower as to (i) any changes (or the absence of changes) since January
26, 1999 to its certificate of incorporation or certificate of formation
and its by-laws or formation agreement as of the date hereof, (ii) the
resolutions of the Borrower authorizing the execution of this Amendment and
(iii) the names and true signatures of the officers authorized to execute
this Amendment;
(c) An opinion of William G. von Glahn, General Counsel of the
Borrower, substantially in the form of Exhibit A hereto; and
(d) Such other documents as the Agent shall have reasonably requested.
SECTION 17. This Amendment shall be deemed to be an amendment to the Credit
Agreement, and the Credit Agreement, as amended hereby, is hereby ratified,
approved and confirmed in each and every respect. All references to the Credit
Agreement in any other document, instrument, agreement or writing shall
hereafter be deemed to refer to the Credit Agreement as amended hereby.
SECTION 18. THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY
THE INTERNAL LAWS OF THE STATE OF NEW YORK. Whenever possible each provision of
this Amendment shall be interpreted in such manner as to be effective and
9
<PAGE> 10
valid under applicable law, but if any provision of this Amendment shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Amendment.
SECTION 19. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument, and
any party hereto may execute this Amendment by signing one or more counterparts.
SECTION 20. This Amendment shall be binding upon each of the Borrowers, the
Agent and the Banks and their respective successors and assigns, and shall inure
to the benefit of each of the Borrowers, the Agent and the Banks and the
successors and assigns of the Banks.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
BORROWERS:
THE WILLIAMS COMPANIES, INC.
By:
--------------------------------------
Name: James G. Ivey
Title: Treasurer
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
TEXAS GAS TRANSMISSION CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
NORTHWEST PIPELINE CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-1
<PAGE> 12
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
AGENT:
CITIBANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
BANKS:
CITIBANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-2
<PAGE> 13
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE CHASE MANHATTAN BANK
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-3
<PAGE> 14
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
SUNTRUST BANK, ATLANTA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-4
<PAGE> 15
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-5
<PAGE> 16
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BANK OF AMERICA, N.A., FORMERLY BANK OF
AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION AND NATIONSBANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-6
<PAGE> 17
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
CIBC INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-7
<PAGE> 18
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BANK ONE, NA, FORMERLY KNOWN AS THE FIRS
TNATIONAL BANK OF CHICAGO
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-8
<PAGE> 19
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BANK OF MONTREAL
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-9
<PAGE> 20
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE BANK OF NEW YORK
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-10
<PAGE> 21
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE BANK OF NOVA SCOTIA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-11
<PAGE> 22
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BARCLAYS BANK PLC
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-12
<PAGE> 23
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BANKBOSTON, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-13
<PAGE> 24
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE FUJI BANK, LIMITED,
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-14
<PAGE> 25
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
MELLON BANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-15
<PAGE> 26
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-16
<PAGE> 27
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
ROYAL BANK OF CANADA
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-17
<PAGE> 28
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-18
<PAGE> 29
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
WELLS FARGO BANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-19
<PAGE> 30
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
BANK OF OKLAHOMA, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-20
<PAGE> 31
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
COMMERCE BANK, N.A.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-21
<PAGE> 32
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
CREDIT AGRICOLE INDOSUEZ
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-22
<PAGE> 33
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE INDUSTRIAL BANK OF JAPAN, LIMITED,
NEW YORK BRANCH
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-23
<PAGE> 34
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
THE BANK OF TOKYO-MITSUBISHI, LTD.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-24
<PAGE> 35
[Signature page to Second Amendment to Second Amended
and Restated Credit Agreement]
UBS AG, STAMFORD BRANCH
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
S-25
<PAGE> 1
EXHIBIT 4(o)
WILLIAMS HOLDINGS OF DELAWARE, INC.
THE WILLIAMS COMPANIES, INC.
AND
CITIBANK, N.A.
TRUSTEE
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF JULY 31, 1999
SUPPLEMENTING THE INDENTURE DATED AS OF
FEBRUARY 1, 1996
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture"),
dated as of July 31, 1999, by and among Williams Holdings of Delaware, Inc.
("WHD"), a Delaware corporation, The Williams Companies, Inc. ("TWC"), a
Delaware corporation, and Citibank, N.A., as Trustee (the "Trustee").
WITNESSETH:
WHEREAS, WHD and the Trustee entered into an Indenture dated as of
February 1, 1996 (the "Indenture"), pursuant to which Indenture WHD has issued
certain 6 1/4% Senior Debentures due 2006 and Medium-Term Notes (6.40%-6.91%)
due 1999-2002 (collectively, the "Notes"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of July
31, 1999, by and between WHD and TWC, WHD has been merged into TWC; and
WHEREAS, Section 9.1 of the Indenture permits the Trustee and WHD to
enter into indentures supplemental to evidence succession of another person to
WHD and the assumption by such successor of the covenants and obligations of WHD
under the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
WHD, TWC, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms, which are used but not
defined herein, shall have the meanings ascribed to such terms in the Indenture.
Section 2. Assumption of Certain Obligations.
(a) TWC hereby expressly assumes (i) the due and punctual payment of
the principal of, premium, if any, on, interest on, and any additional amounts
payable under the Indenture in respect of, the Notes, and (ii) the performance
of all of the covenants provided for in the Indenture to be performed or
observed by WHD.
(b) WHD and the Trustee hereby acknowledge that TWC shall succeed to,
and be substituted for, and may exercise every right and power of, WHD under the
Indenture with the same effect as if TWC had been named therein.
Section 3. Effect of First Supplemental Indenture. From and after the
execution and delivery of this First Supplemental Indenture, the Indenture shall
be deemed to be modified as herein provided, but except as modified hereby, the
Indenture
<PAGE> 3
shall continue in full force and effect. The Indenture as modified hereby shall
be read, taken, and construed as one and the same instrument.
Section 4. Notice. Any notice or communication by the Trustee to TWC is
duly given if in writing and delivered in person or by express mail service to
the address set forth below:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Treasurer
Section 5. Governing Law. This First Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance, and remedies.
Section 6. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed and
delivered, shall be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, each of WHD, TWC, and the Trustee has caused this
First Supplemental Indenture to be executed on its behalf by its duly authorized
officer and has caused its official seal to be impressed hereon and attested by
one of its duly authorized officers, all as of the day and year first above
written.
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- ------------------------------ ----------------------------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
[SEAL] THE WILLIAMS COMPANIES, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- ------------------------------ ----------------------------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
<PAGE> 4
[SEAL] CITIBANK, N.A., AS TRUSTEE
Attest
/s/ NANCY FORTE By: /s/ WAFAA ORFY
- ------------------------------ ----------------------------------------
Name: Nancy Forte Name: Wafaa Orfy
Title: Trust Officer Title: Assistant Vice President
<PAGE> 1
EXHIBIT 4(p)
WILLIAMS HOLDINGS OF DELAWARE, INC.
THE WILLIAMS COMPANIES, INC.
AND
BANKERS TRUST COMPANY
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF JULY 31, 1999
SUPPLEMENTING THE INDENTURE DATED AS OF MARCH 31, 1990
AND THE FIRST SUPPLEMENTAL INDENTURE DATED AS OF MARCH 31, 1998
<PAGE> 2
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (the "Second Supplemental Indenture"),
dated as of July 31, 1999, by and among Williams Holdings of Delaware, Inc.
("WHD"), a Delaware corporation, The Williams Companies, Inc. ("TWC"), a
Delaware corporation, and Bankers Trust Company, a New York banking corporation,
as Trustee (the "Trustee").
WITNESSETH:
WHEREAS, MAPCO Inc. and the Trustee entered into an Indenture dated as
of March 31, 1990 (the "Indenture");
WHEREAS, MAPCO Inc., WHD, and the Trustee entered into the First
Supplemental Indenture dated as of March 31, 1998 (the "First Supplemental
Indenture");
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of July
31, 1999, by and among WHD and TWC, WHD has been merged into TWC;
WHEREAS, Section 9.01 of the Indenture permits WHD and the Trustee to
amend or supplement the Indenture without notice to or the consent of any Holder
of Securities (as defined) to comply with Article Five of the Indenture; and
WHEREAS, Article Five of the Indenture requires, in the event of a
merger, that the successor expressly assumes by supplemental indenture all of
WHD's obligations in respect of the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
WHD, TWC, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Indenture.
Section 2. Assumption of Certain Obligations.
(a) TWC hereby expressly assumes (i) the due and punctual
payment of the principal of, premium, if any, on, interest on, and any
additional amounts payable under the Indenture in respect of, the Indenture, and
(ii) the performance of all of the covenants provided for in the Indenture to be
performed or observed by WHD.
(b) WHD and the Trustee hereby acknowledge that TWC shall
succeed to, and be substituted for, and may exercise every right and power of,
WHD under the Indenture with the same effect as if TWC had been named therein.
1
<PAGE> 3
Section 3. Effect of Second Supplemental Indenture. From and after
the execution and delivery of this Second Supplemental Indenture, the Indenture
shall be deemed to be modified as herein provided, but except as modified
hereby, the Indenture shall continue in full force and effect. The Indenture as
modified hereby shall be read, taken, and construed as one and the same
instrument.
Section 4. Notice. Any notice or communication by the Trustee to TWC
is duly given if in writing and delivered in person or by express mail service
to the address set forth below:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Treasurer
Section 5. Governing Law. This Second Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance, and remedies.
Section 6. Counterparts. This Second Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed and
delivered, shall be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, each of WHD, TWC, and the Trustee has caused this
Second Supplemental Indenture to be executed on its behalf by its duly
authorized officer and has caused its official seal to be impressed hereon and
attested by one of its duly authorized officers, all as of the day and year
first above written.
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- ------------------------- ---------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
2
<PAGE> 4
[SEAL] THE WILLIAMS COMPANIES, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- ------------------------- ---------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
[SEAL] BANKERS TRUST COMPANY, AS TRUSTEE
Attest
/s/ MARC PARILLA By: /s/ SUSAN JOHNSON
- --------------------------------- -----------------------------
Name: Marc Parilla Name: Susan Johnson
Title: Assistant Vice President Title: Assistant Vice President
3
<PAGE> 1
EXHIBIT 4(q)
WILLIAMS HOLDINGS OF DELAWARE, INC.
THE WILLIAMS COMPANIES, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO
TRUSTEE
FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF JULY 31, 1999
SUPPLEMENTING THE INDENTURE DATED AS OF
FEBRUARY 25, 1997, AS AMENDED
<PAGE> 2
FOURTH SUPPLEMENTAL INDENTURE
FOURTH SUPPLEMENTAL INDENTURE (the "Fourth Supplemental Indenture"),
dated as of July 31, 1999, by and among Williams Holdings of Delaware, Inc.
("WHD"), a Delaware corporation, The Williams Companies, Inc. ("TWC"), a
Delaware corporation, and The First National Bank of Chicago, a national
banking association, as Trustee (the "Trustee").
WITNESSETH:
WHEREAS, MAPCO Inc. and the Trustee entered into an Indenture dated as
of February 25, 1997, as amended by a Supplemental Indenture No. 1 dated March
5, 1997, a Supplemental Indenture No. 2 dated March 5, 1997, and a Third
Supplemental Indenture dated March 31, 1998 (the "Indenture"), pursuant to
which Indenture WHD has issued certain 7.25% Notes due 2009 and 7.70%
Debentures due 2027 (collectively, the "Notes"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of July
31, 1999, by and between WHD and TWC, WHD has been merged into TWC; and
WHEREAS, Section 8.1 of the Indenture permits the Trustee and WHD to
enter into indentures supplemental to evidence succession of another person to
WHD and the assumption by such successor of the covenants and obligations of
WHD under the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants contained herein and in the Indenture and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, WHD, TWC, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms, which are used but not
defined herein, shall have the meanings ascribed to such terms in the Indenture.
Section 2. Assumption of Certain Obligations.
(a) TWC hereby expressly assumes (i) the due and punctual
payment of the principal of, premium, if any, on, interest on, and any
additional amounts payable under the Indenture in respect of, the Notes, and
(ii) the performance of all of the covenants provided for in the Indenture to be
performed or observed by WHD.
(b) WHD and the Trustee hereby acknowledge that TWC shall
succeed to, and be substituted for, and may exercise every right and power of,
WHD under the Indenture with the same effect as if TWC had been named therein.
<PAGE> 3
Section 3. Effect of Fourth Supplemental Indenture. From and after the
execution and delivery of this Fourth Supplemental Indenture, the Indenture
shall be deemed to be modified as herein provided, but except as modified
hereby, the Indenture shall continue in full force and effect. The Indenture as
modified hereby shall be read, taken, and construed as one and the same
instrument.
Section 4. Notice. Any notice or communication by the Trustee to TWC is
duly given if in writing and delivered in person or by express mail service to
the address set forth below:
The Williams Companies, Inc.
One Williams Center
Tulsa, Oklahoma 74172
Attention: Treasurer
Section 5. Governing Law. This Fourth Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws) as to all matters, including, without limitation, matters
of validity, construction, effect, performance, and remedies.
Section 6. Counterparts. This Fourth Supplemental Indenture may be
executed in any number of counterparts, each of which, when so executed and
delivered, shall be an original, but such counterparts shall together constitute
but one and the same instrument.
IN WITNESS WHEREOF, each of WHD, TWC, and the Trustee has caused this
Fourth Supplemental Indenture to be executed on its behalf by its duly
authorized officer and has caused its official seal to be impressed hereon and
attested by one of its duly authorized officers, all as of the day and year
first above written.
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- --------------------------- ---------------------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
[SEAL] THE WILLIAMS COMPANIES, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY
- --------------------------- ---------------------------------
Name: Shawna L. Gehres Name: James G. Ivey
Title: Secretary Title: Treasurer
<PAGE> 4
[SEAL] THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
Attest
/s/ SOMSRI HELMER By: /s/ R. J. BRUNER
- --------------------------- ---------------------------------
Name: Somsri Helmer Name: R. J. Bruner
Title: Trust Officer Title: Vice President
<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,
------------------------------------------------
1999 1998 1997 1996 1995
-------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Earnings:
Income from continuing operations before
income taxes, extraordinary gain (loss)
and cumulative effect of change in
accounting principle..................... $ 323.0 $248.6 $ 677.5 $ 779.2 $509.6
Add:
Interest expense -- net.................. 598.2 484.5 440.6 410.5 321.8
Rental expense representative of interest
factor................................. 123.0 49.1 39.5 32.8 32.5
Preferred dividends of subsidiaries...... -- -- -- -- 3.7
Interest accrued -- 50% owned
companies.............................. 7.5 6.2 -- 1.3 30.7
Minority interest in income (loss) and
preferred returns of consolidated
subsidiaries........................... (7.2) (9.6) 18.2 1.4 12.3
Equity losses in less than 50% owned
companies.............................. 40.2 14.8 -- -- --
Other.................................... (4.8) 7.6 3.2 6.3 8.0
-------- ------ -------- -------- ------
Total earnings as adjusted plus
fixed charges..................... $1,079.9 $801.2 $1,179.0 $1,231.5 $918.6
======== ====== ======== ======== ======
Combined fixed charges and preferred stock
dividend requirements:
Interest expense -- net..................... $ 598.2 $484.5 $ 440.6 $ 410.5 $321.8
Capitalized interest........................ 69.8 30.6 23.3 8.2 16.2
Rental expense representative of interest
factor................................... 123.0 49.1 39.5 32.8 32.5
Pretax effect of dividends on preferred
stock of the Company..................... 5.1 12.4 16.1 16.2 18.0
Pretax effect of dividends on preferred
stock and other preferred returns of
subsidiaries............................. 26.7 -- -- -- 5.8
Interest accrued -- 50% owned companies..... 7.5 6.2 -- 1.3 30.7
-------- ------ -------- -------- ------
Combined fixed charges and preferred
stock dividend requirements............ $ 830.3 $582.8 $ 519.5 $ 469.0 $425.0
======== ====== ======== ======== ======
Ratio of earnings to combined fixed charges
and preferred stock dividend requirements... 1.30 1.37 2.27 2.63 2.16
======== ====== ======== ======== ======
</TABLE>
<PAGE> 1
EXHIBIT 18
February 17, 2000
Board of Directors
The Williams Companies, Inc.
One Williams Center
Tulsa, OK 74101
Dear Sirs and Mesdames:
Note 1 of the Notes to consolidated financial statements of The Williams
Companies, Inc. included in its Form 10-K for the year ended December 31, 1999,
describes a change in the method of accounting for certain of its non-trading
crude oil and refined products inventories from the last-in, first-out cost
method to the average-cost method. There are no authoritative criteria for
determining a `preferable' inventory costing method based on the particular
circumstances; however, we conclude that such change in the method of accounting
is to an acceptable alternative method which, based on your business judgment to
make this change and for the stated reasons, is preferable in your
circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE> 1
Page 1 The Williams Companies, Inc. Affiliates EXHIBIT 21
<TABLE>
<S> <C> <C>
Beech Grove Processing Company * Tennessee 100%
Tennessee Processing Company Delaware 100%
Inland Ports, Inc. * Tennessee 100%
Kentucky Asset Management, Inc. Kentucky 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%
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%
WilMart, Inc. * Delaware 100%
Williams Acquisition Holding Company, Inc. * New Jersey 100%
Fishhawk Ranch, Inc. Florida 100%
Williams Acquisition Holding Company, Inc. Del * Delaware 100%
Williams Aircraft, Inc. * Delaware 100%
ChoiceSeat, L.L.C. * Delaware 100%
Williams Indonesia, L.L.C. * Delaware 100%
Williams International Investments Cayman Limited * Cayman Islands 100%
The Asian Infrastructure Fund Cayman Islands 79.56%
Williams Communications Group, Inc. * Delaware 85%
Williams Communications, Inc. Delaware 100%
Axient Communications, Inc. Arizona 8.3%
CSI Incorporated * Delaware 84.54%
Compass Telecommunications, Inc. Nevada 19.9%
Concentric Network Corporation Delaware 11.5%
Critical Connections, Inc. * Delaware 100%
Data Communications 2000, Inc. California 100%
Global Access Telecommunications Services Limited England 100%
Intersys Mexico, Sa de CV Mexico 100%
Vvytech, Ltd. England 100%
Vyvx International Ltd England 100%
WCS Communications Systems, Inc. * Delaware 100%
WCS Microwave Services, Inc. * Nevada 100%
Williams Communications Group PTE Ltd. Singapore 100%
Williams Communications Group, Ltd. England 100%
Williams Communications of Virginia, Inc. Virginia 100%
Williams Global Communications Holdings, Inc. Cayman Islands 100%
Williams International ATL Limited * Cayman Islands 100%
ATL - Algar Telecom Leste, S. A. * Brazil 20%
ATL Cayman International Cayman Islands 100%
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Johi Representacoes Ltda * Brazil 100%
ATL - Algar Telecom Leste, S. A. * Brazil 35%
ATL Cayman International Cayman Islands 100%
SKTI-US L.L.C. Delaware 50%
ATL - Algar Telecom Leste, S. A. * Brazil 30%
Williams International Australian Telecom Limited * Cayman Islands 100%
Seroja Klasik Sdn. Bhd. Malaysia 19.9%
PowerTel Limited * Australia 31.7%
Williams International Ventures Company * Delaware 100%
Powertel Pty Limited Australia 100%
WilTel Communications Pty Limited Australia 100%
PowerTel Limited * Australia 35%
Williams International Telecom Chile Limited * Cayman Islands 100%
MetroCom S.A. Chile 19.9%
Williams Learning Network, Inc. * Delaware 100%
Williams Local Network, Inc. Delaware 100%
Williams Wireless, Inc. * Delaware 100%
Ziplink Delaware 1.7%
Williams Energy Company * Delaware 100%
Williams Energy Services * Delaware 100%
Longhorn Enterprises of Texas, Inc. * Delaware 100%
MAPCO Inc. DE Delaware 100%
FleetOne Inc. * Delaware 100%
Gas Supply, L.L.C. Delaware 100%
MAPCO Alaska Inc. Alaska 100%
MAPCO Canada Energy Inc. Canada 100%
MAPCO Energy Services, L.L.C. Delaware 100%
MAPCO Impressions Inc. Oklahoma 100%
MAPCO Inc. NV Nevada 100%
MAPCO Indonesia Inc. Delaware 100%
MAPCO Minerals Corporation Delaware 100%
TouchStar Technologies, L.L.C. Delaware 100%
Servicios de TouchStar de Mexico S.A. de C.V. * Mexico 90%
TouchStar Pacific Pty Limited Australia 100%
TouchStar de Mexico S.A. de C.V. * Mexico 90%
TouchSystems Australia Pty. Ltd. Australia 100%
Williams Energy, L.L.C. Delaware 100%
Williams Gathering & Transportation, L.L.C. * Oklahoma 32.5%
Williams Equities, Inc. Delaware 100%
Williams Gas Pipeline - Alliance Canada, Inc. New Brunswick 100%
Williams International Energy, Inc. Delaware 100%
WPX Enterprises, Inc. Delaware 100%
Williams Customer Information Solution, Inc. Delaware 100%
Williams Distributed Power Services, Inc. * Delaware 100%
ESPAGAS USA, Inc. * Delaware 100%
ESPAGAS, S.A. de C.V. * Mexico 10%
Servicios de ESPAGAS. S.A. de C.V. * Mexico 10%
Servicios de TouchStar de Mexico S.A. de C.V. * Mexico 10%
TouchStar de Mexico S.A. de C.V. * Mexico 10%
ESPAGAS, S.A. de C.V. * Mexico 90%
Servicios de ESPAGAS. S.A. de C.V. * Mexico 90%
Touchstar Energy Technologies, Inc. * Texas 100%
Williams Energy Ventures, Inc. Delaware 100%
Williams Ethanol Services, Inc. Delaware 100%
Williams Memphis Terminal, Inc. Delaware 100%
Williams Field Services Group, Inc. Delaware 100%
Carbon County UCG, Inc. Delaware 100%
Energy International Corporation Pennsylvania 100%
WFS - Liquids Company Delaware 100%
HI-BOL Pipeline Company Delaware 100%
</TABLE>
Page 2
<PAGE> 3
<TABLE>
<S> <C> <C>
WFS - Offshore Gathering Company * Delaware 100%
WFS - Pipeline Company * Delaware 100%
WFS - NGL Pipeline Company, Inc. Delaware 100%
Tri-States NGL Pipeline, L.L.C. Delaware 16.67%
WFS - OCS Gathering Co. Delaware 100%
WFS Enterprises, Inc. Delaware 100%
Williams Field Services Company Delaware 100%
Williams Gas Processing - Gulf Coast Company, L.P. * Delaware 1%
Williams Gas Processing - Kansas Hugoton Company Delaware 100%
Williams Gas Processing - Mid-Continent Region Company Delaware 100%
Williams Gas Processing - Wamsutter Company Delaware 100%
Williams Gas Processing Company Delaware 100%
Williams Merchant Services Company, Inc. Delaware 100%
Williams Energy Marketing & Trading Company Delaware 100%
F T & T, Inc. * Delaware 100%
Hazleton Fuel Management Company * Delaware 100%
Hazleton Pipeline Company Delaware 100%
TM Cogeneration Company Delaware 100%
TransNetwork Holding Company * Delaware 100%
Williams Energy Network, Inc. Delaware 100%
Transco Energy Marketing Company Delaware 100%
TXG Gas Marketing Company * Delaware 100%
Williams Gas Company * Delaware 100%
Utility Management Corporation Delaware 100%
Williams Independence Marketing Company Delaware 100%
Williams Pipe Line Company Delaware 100%
WillBros Terminal Company Delaware 100%
Williams Kansas El Dorado-Americus Company Delaware 100%
Williams Pipe Line Company of Wisconsin Wisconsin 100%
Williams Terminals Company Delaware 100%
Williams Production Company Delaware 100%
WPX Gas Resources Company Delaware 100%
Williams Generation Company - Hazleton Delaware 100%
Williams Production Rocky Mountain Company Delaware 100%
Williams Environmental Services Company * Delaware 100%
Williams Exploration Company * Delaware 100%
Rainbow Resources, Inc. Colorado 100%
Williams Express, Inc. DE * Delaware 100%
Alaska Blimpie Co-Op, Inc. Delaware 50%
Alaska Blimpie Co-op, Inc. Delaware 50%
Valley Towing Service, Inc. Tennessee 100%
Williams Alaska Petroleum, Inc. Alaska 100%
Williams Express, Inc. AK Alaska 100%
Williams Gathering & Transportation, L.L.C. * Oklahoma 67.5%
Williams Petroleum Pipeline Systems, Inc. Delaware 100%
Williams TravelCenters, Inc. Delaware 100%
Williams Gas Pipeline Company Delaware 100%
Kern River Acquisition Corporation * Delaware 100%
Kern River Gas Transmission Company * Texas 50%
Kern River Funding Corporation Delaware 100%
Northwest Pipeline Corporation * Delaware 100%
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%
Cross Bay Operating Company Delaware 100%
Cumberland Operating Company Delaware 100%
Independence Operating Company Delaware 100%
Marsh Resources, Inc. Delaware 100%
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<S> <C> <C>
Pine Needle Operating Company Delaware 100%
TGPL Enterprises, Inc. Delaware 100%
TRANSCO CROSS BAY COMPANY 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 Buccaneer Operating Company * Delaware 100%
Williams Gas Pipeline - Alliance U.S., Inc. Delaware 100%
Williams Gas Pipelines Central, Inc. * Delaware 100%
Williams Storage Company * Delaware 100%
Williams Western Pipeline Company * Delaware 100%
Kern River Gas Transmission Company * Texas 50%
Kern River Funding Corporation Delaware 100%
Williams Headquarters Acquisition Company * Delaware 100%
Williams Headquarters Building Company * Delaware 100%
Williams Headquarters Management Company * Delaware 100%
Williams Hugoton Compression Services, Inc. * Delaware 100%
Williams Information Services Corporation * Delaware 100%
Williams International Company * Delaware 100%
Williams Gas Pipeline Mexico, S.A. de C.V. * Mexico 10%
Williams Global Holdings Company Delaware 100%
Williams Intercontinental Holdings Company Delaware 100%
Williams International Bermuda Limited * Bermuda 100%
Williams International Communications, Inc. Delaware 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 Holdings Limited Cayman Islands 100%
Williams International Investment Ventures Cayman Limited Cayman Islands 100%
Williams International Investments Cayman Limited * Cayman Islands 100%
The Asian Infrastructure Fund Cayman Islands 79.56%
Williams International Jose Limited Cayman Islands 100%
Williams International Oil & Gas Venezuela Limited Cayman Islands 100%
Williams International Operations Venezuela Limited Cayman Islands 100%
Williams International Pigap Limited Cayman Islands 100%
WilPro Energy Services Pigap II Limited Cayman Islands 70%
Williams International Pipeline Company Delaware 100%
Williams Gas Pipeline Mexico, S.A. de C.V. * Mexico 90%
Williams International Services Company Nevada 100%
Worldwide Services Limited Cayman Islands 100%
Williams International Telecom Limited * Delaware 100%
Lightel S. A. Tecnologia da Informacao * 20%
ATL - Algar Telecom Leste, S. A. * Brazil 35%
ATL Cayman International Cayman Islands 100%
Williams International Telecommunications Investments Cayman Limited Cayman Islands 100%
AIF Telecom Fund Cayman Islands 6.41%
Williams International Venezuela Limited Cayman Islands 100%
Williams International Ventures Bermuda Ltd. * Bermuda 100%
Williams Learning Network UK Limited England 100%
Williams WPC International Company Delaware 100%
Williams Learning Center, Inc. * Delaware 100%
Williams Midstream Natural Gas Liquids, Inc. * Delaware 100%
Williams Natural Gas Liquids, Inc. * Delaware 100%
Mid-America Pipeline Company Delaware 100%
</TABLE>
Page 4
<PAGE> 5
<TABLE>
<S> <C> <C>
Juarez Pipeline Company Delaware 100%
MAPL Investments, Inc. Delaware 100%
Seminole Pipeline Company Delaware 80%
Terrebonne Pipeline Company Delaware 100%
Williams Ammonia Pipeline Inc. Delaware 100%
Williams Fertilizer, Inc. Delaware 100%
Williams Gas Energy, Inc. Delaware 100%
Williams West Texas NGL Pipeline Company Delaware 100%
Williams One-Call Services, Inc. * Delaware 100%
Williams Pipeline Services Company * Delaware 100%
Williams Reit One, Inc. Delaware 100%
Williams Reit Two, Inc. Delaware 100%
Williams Relocation Management, Inc. * Delaware 100%
Williams Sodium Products Company * Delaware 100%
Williams Strategic Sourcing Company * Delaware 100%
Williams Underground Gas Storage Company * Delaware 100%
Kiowa Gas Storage, L.L.C. Delaware 50%
Williams WPC - I, Inc. Delaware 100%
Williams WPC - II, Inc. Delaware 100%
Williams Western Holding Company, Inc. * Delaware 100%
Northwest Alaskan Pipeline Company Delaware 100%
Northwest Argentina Corporation Utah 100%
Northwest Border Pipeline Company Delaware 100%
Northwest Land Company Delaware 100%
</TABLE>
- ------------------
*Multiple Parents
Page 5
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements on Form S-3 and related prospectuses and in the following
registration statements on Form S-8 of The Williams Companies, Inc. of our
report dated February 17, 2000, with respect to the consolidated financial
statements and schedules of The Williams Companies, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1999:
<TABLE>
<S> <C> <C>
Form S-3: Registration No. 333-20929; Registration No. 333-35097;
Registration No. 333-29185; Registration No. 333-24683;
Registration No. 333-66141; Registration No. 333-20927
Form S-8: 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. 33-58671; Registration No. 333-03957;
Registration No. 333-11151; Registration No. 333-40721;
Registration No. 333-33735; Registration No. 333-30095;
Registration No. 333-48945; Registration No. 333-61597;
Registration No. 333-90265; and Registration No. 333-76929.
</TABLE>
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 22, 2000
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statements of
The Williams Companies, Inc. shown below of our report dated January 27, 1998
(March 3, 1998, as to Notes 2 and 16 to the MAPCO Inc. consolidated financial
statements) with respect to the consolidated financial statements of MAPCO Inc.,
which report includes explanatory paragraphs relating to certain litigation to
which MAPCO Inc. is a defendant and the change in its method of accounting for
business process reengineering activities to conform to the consensus reached by
the Emerging Issues Task Force in Issue No. 97-13, appearing in this Annual
Report of The Williams Companies, Inc. on Form 10-K for the year ended December
31, 1999.
<TABLE>
<S> <C> <C>
Form S-3: Registration No. 333-20927 Registration No. 333-20929
Registration No. 333-24683 Registration No. 333-29185
Registration No. 333-35097 Registration No. 333-66141
</TABLE>
<TABLE>
<S> <C> <C>
Form S-8: Registration No. 33-36770 Registration No. 33-40979
Registration No. 33-43999 Registration No. 33-44381
Registration No. 33-45550 Registration No. 33-51539
Registration No. 33-51543 Registration No. 33-51545
Registration No. 33-51547 Registration No. 33-51549
Registration No. 33-51551 Registration No. 33-56521
Registration No. 33-58671
Registration No. 333-03957 Registration No. 333-11151
Registration No. 333-30095 Registration No. 333-33735
Registration No. 333-40721 Registration No. 333-48945
Registration No. 333-61597 Registration No. 333-76929
Registration No. 333-90265
</TABLE>
Deloitte & Touche LLP
Tulsa, Oklahoma
March 22, 2000
<PAGE> 1
EXHIBIT 24
THE WILLIAMS COMPANIES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in
their capacity as a director or officer, or both, as hereinafter set forth below
their signature, of THE WILLIAMS COMPANIES, INC., a Delaware corporation
("Williams"), does hereby constitute and appoint WILLIAM G. VON GLAHN, SHAWNA L.
GEHRES, and LORETTA K. ROBERTS 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, 1999, 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, SHAWNA L. GEHRES, and LORETTA K. ROBERTS 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 23rd day of January, 2000.
/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)
<PAGE> 2
/s/ Gary R. Belitz
--------------------------------------
Gary R. Belitz
Controller
(Principal Accounting Officer)
/s/ Hugh M. Chapman /s/ Glenn A. Cox
- -------------------------------------- --------------------------------------
Hugh M. Chapman Glenn A. Cox
Director Director
/s/ Thomas H. Cruikshank /s/ William E. Green
- -------------------------------------- --------------------------------------
Thomas H. Cruikshank William E. Green
Director Director
/s/ Patricia L. Higgins /s/ W.R. Howell
- -------------------------------------- --------------------------------------
Patricia L. Higgins W.R. Howell
Director Director
/s/ James C. Lewis /s/ Jack A. MacAllister
- -------------------------------------- --------------------------------------
James C. Lewis Jack A. MacAllister
Director Director
/s/ Frank T. MacInnis /s/ Peter C. Meinig
- -------------------------------------- --------------------------------------
Frank T. MacInnis Peter C. Meinig
Director Director
/s/ Gordon R. Parker /s/ Janice D. Stoney
- -------------------------------------- --------------------------------------
Gordon R. Parker Janice D. Stoney
Director Director
2
<PAGE> 3
/s/ Joseph H. Williams
------------------------------------------------
Joseph H. Williams
Director
THE WILLIAMS COMPANIES, INC.
By /s/ William G. von Glahn
------------------------------------
William G. von Glahn
ATTEST: Senior Vice President
/s/ Shawna L. Gehres
- --------------------------------
Shawna L. Gehres
Secretary
3
<PAGE> 4
THE WILLIAMS COMPANIES, INC.
I, the undersigned, Shawna L. Gehres, Secretary THE WILLIAMS
COMPANIES, INC. a Delaware company (hereinafter called the "Company"), do hereby
certify that pursuant to Section 141(f) of the General Corporation Law of
Delaware, the Board of Directors of this Corporation unanimously consented, as
of January 21, 2000, to the following:
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, 1999.
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 28th day of March, 2000.
/s/ SHAWNA L. GEHRES
---------------------------------------
Shawna L. Gehres
Secretary
[CORPORATE SEAL]
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,092
<SECURITIES> 1,435
<RECEIVABLES> 2,556
<ALLOWANCES> 48
<INVENTORY> 632
<CURRENT-ASSETS> 6,517
<PP&E> 19,250
<DEPRECIATION> 4,094
<TOTAL-ASSETS> 25,289
<CURRENT-LIABILITIES> 5,772
<BONDS> 9,235
176
0
<COMMON> 444
<OTHER-SE> 5,141
<TOTAL-LIABILITY-AND-EQUITY> 25,289
<SALES> 0
<TOTAL-REVENUES> 8,593
<CGS> 0
<TOTAL-COSTS> 6,358
<OTHER-EXPENSES> 14
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 668
<INCOME-PRETAX> 323
<INCOME-TAX> 161
<INCOME-CONTINUING> 162
<DISCONTINUED> 0
<EXTRAORDINARY> 65
<CHANGES> (6)
<NET-INCOME> 221
<EPS-BASIC> .50
<EPS-DILUTED> .50
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE AMOUNTS HAVE BEEN RESTATED OR RECLASSIFIED AS DISCUSSED IN NOTE 1 OF
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 JUN-30-1997
<CASH> 503 122
<SECURITIES> 0 0
<RECEIVABLES> 1,755 1,606
<ALLOWANCES> 31 22
<INVENTORY> 497 442
<CURRENT-ASSETS> 3,486 2,869
<PP&E> 16,206 14,605
<DEPRECIATION> 3,621 3,068
<TOTAL-ASSETS> 18,647 16,283
<CURRENT-LIABILITIES> 4,439 3,593
<BONDS> 6,366 5,352
0 0
102 142
<COMMON> 432 432
<OTHER-SE> 3,723 3,664
<TOTAL-LIABILITY-AND-EQUITY> 18,647 16,283
<SALES> 0 0
<TOTAL-REVENUES> 7,658 8,249
<CGS> 0 0
<TOTAL-COSTS> 5,541 6,255
<OTHER-EXPENSES> 196 39
<LOSS-PROVISION> 40 13
<INTEREST-EXPENSE> 515 464
<INCOME-PRETAX> 248 677
<INCOME-TAX> 107 241
<INCOME-CONTINUING> 141 436
<DISCONTINUED> (14) (6)
<EXTRAORDINARY> (5) (79)
<CHANGES> 0 0
<NET-INCOME> 122 351
<EPS-BASIC> .27 .83
<EPS-DILUTED> .27 .81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE AMOUNTS HAVE BEEN RESTATED OR RECLASSIFIED AS DISCUSSED IN NOTE 1 OF NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JAN-01-1999 JAN-01-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999 SEP-30-1999
<CASH> 330 200 288
<SECURITIES> 0 0 0
<RECEIVABLES> 1,694 1,951 2,442
<ALLOWANCES> 40 40 43
<INVENTORY> 538 575 682
<CURRENT-ASSETS> 3,267 3,567 4,273
<PP&E> 16,631 17,245 18,074
<DEPRECIATION> 3,704 3,806 3,972
<TOTAL-ASSETS> 19,175 20,016 21,384
<CURRENT-LIABILITIES> 4,933 5,387 5,302
<BONDS> 6,192 6,190 7,773
0 0 0
80 72 69
<COMMON> 436 438 438
<OTHER-SE> 3,818 3,827 3,739
<TOTAL-LIABILITY-AND-EQUITY> 19,175 20,016 21,384
<SALES> 0 0 0
<TOTAL-REVENUES> 1,944 3,937 6,144
<CGS> 0 0 0
<TOTAL-COSTS> 1,399 2,834 4,501
<OTHER-EXPENSES> (3) 31 25
<LOSS-PROVISION> 10 13 19
<INTEREST-EXPENSE> 143 278 447
<INCOME-PRETAX> 100 168 236
<INCOME-TAX> 41 91 131
<INCOME-CONTINUING> 59 77 105
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> (6) (6) (6)
<NET-INCOME> 53 71 99
<EPS-BASIC> .12 .16 .22
<EPS-DILUTED> .12 .16 .22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THESE AMOUNTS HAVE BEEN RESTATED OR RECLASSIFIED AS DISCUSSED IN NOTE 1 OF NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<CIK> 0000107263
<NAME> THE WILLIAMS COMPANIES, INC.
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 173 136 92
<SECURITIES> 0 0 0
<RECEIVABLES> 1,507 1,557 1,716
<ALLOWANCES> 21 23 40
<INVENTORY> 423 483 435
<CURRENT-ASSETS> 2,690 3,204 2,974
<PP&E> 14,931 15,378 15,859
<DEPRECIATION> 3,182 3,310 3,442
<TOTAL-ASSETS> 16,414 17,572 17,763
<CURRENT-LIABILITIES> 3,473 4,104 3,734
<BONDS> 5,416 5,843 6,323
0 0 0
120 117 102
<COMMON> 427 429 432
<OTHER-SE> 3,800 3,823 3,788
<TOTAL-LIABILITY-AND-EQUITY> 16,414 17,572 17,763
<SALES> 0 0 0
<TOTAL-REVENUES> 1,959 3,733 5,620
<CGS> 0 0 0
<TOTAL-COSTS> 1,431 2,690 4,067
<OTHER-EXPENSES> 32 58 97
<LOSS-PROVISION> 0 3 23
<INTEREST-EXPENSE> 118 245 376
<INCOME-PRETAX> 111 214 269
<INCOME-TAX> 43 85 108
<INCOME-CONTINUING> 68 129 161
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> (5) (5) (5)
<CHANGES> 0 0 0
<NET-INCOME> 63 124 156
<EPS-BASIC> .15 .29 .35
<EPS-DILUTED> .14 .28 .35
</TABLE>
<PAGE> 1
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
MAPCO Inc.:
We have audited the consolidated statements of income, changes in stockholders'
equity, and cash flows of MAPCO Inc. and subsidiaries for the year ended
December 31, 1997 (none of which are presented herein). Our audit also included
the financial statement schedules listed at Item 14(a)2 in the MAPCO Inc. 1997
Annual Report on Form 10-K (not presented herein). These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of MAPCO Inc. and
subsidiaries and their cash flows for the year ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 16 to the MAPCO Inc. consolidated financial statements,
MAPCO Inc. is a defendant in litigation relating to an LPG explosion in April
1992, that occurred near an underground salt dome storage facility located near
Brenham, Texas.
Effective October 1, 1997, MAPCO Inc. changed its method of accounting for
business process reengineering activities to conform to the consensus reached by
the Emerging Issues Task Force in Issue No. 97-13.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 27, 1998
(March 3, 1998, as to Notes 2 and 16
to the MAPCO Inc. consolidated financial statements)
