<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-39800
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 5, 2000)
33,000,000 SHARES
[WILLIAMS LOGO]
COMMON STOCK
----------------------
The Williams Companies, Inc. is selling all of the shares.
The shares trade on the New York Stock Exchange under the symbol "WMB." On
January 16, 2001, the last sale price of the shares as reported on the New York
Stock Exchange was $36 1/8 per share.
----------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $36.125 $1,192,125,000
Underwriting discount....................................... $.99 $32,670,000
Proceeds, before expenses, to Williams...................... $35.135 $1,159,455,000
</TABLE>
The underwriters may purchase up to an additional 4,950,000 shares from
Williams at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus supplement to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about January 22, 2001.
----------------------
Joint Lead and Book-Running Managers
LEHMAN BROTHERS MERRILL LYNCH & CO.
----------------------
Joint Lead Manager
CREDIT SUISSE FIRST BOSTON
----------------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
GOLDMAN, SACHS & CO.
UBS WARBURG LLC
----------------------
The date of this prospectus supplement is January 16, 2001.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT
The Williams Companies, Inc. ............................... S-3
Recent Developments......................................... S-5
The Offering................................................ S-7
Use of Proceeds............................................. S-7
Price Range of Common Stock................................. S-7
Capitalization.............................................. S-8
Selected Financial Data..................................... S-9
Financial Condition and Liquidity........................... S-10
Management's Discussion and Analysis of Results of
Operations................................................ S-12
Underwriting................................................ S-25
Forward-Looking Statements.................................. S-27
Legal Matters............................................... S-28
PROSPECTUS
Where You Can Find More Information......................... 1
Incorporation of Certain Documents by Reference............. 1
The Williams Companies, Inc. ............................... 2
Use of Proceeds............................................. 4
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividend Requirements... 4
Description of Debt Securities.............................. 4
Limitations on Issuance of Bearer Debt Securities........... 15
Description of Preferred Stock.............................. 15
Description of Common Stock................................. 19
Plan of Distribution........................................ 20
Experts..................................................... 21
Legal Matters............................................... 21
</TABLE>
----------------------
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference is accurate only as of
the date of such information. Our business, financial condition, results of
operations and prospects may have changed since those dates.
S-2
<PAGE> 3
THE WILLIAMS COMPANIES, INC.
Williams is a holding company headquartered in Tulsa, Oklahoma. Williams
was originally incorporated under the laws of the State of Nevada in 1949 and
was reincorporated under the laws of the State of Delaware in 1987. We maintain
our principal executive offices at One Williams Center, Tulsa, Oklahoma 74172,
telephone (918) 573-2000.
ENERGY
Through Williams Gas Pipeline Company and Williams Energy Services and
their subsidiaries, we engage in the following types of energy-related
activities:
- energy commodity marketing and trading;
- 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;
- natural gas gathering, processing and treating activities in the U.S.
through ownership and operation of approximately 11,200 miles of
gathering lines, 11 natural gas treating plants and 15 natural gas
processing plants (one of which is partially owned), as well as
approximately 6 billion cubic feet per day of gas processing capacity,
approximately 225,000 barrels per day of NGL production capacity, an NGL
pipeline system and more than 5 million barrels of NGL storage capacity
in western Canada;
- natural gas liquids transportation through ownership and operation of
approximately 13,508 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 80 petroleum products terminals;
- exploration and production of oil and natural gas through ownership of
1.05 trillion cubic feet of proved natural gas reserves primarily located
in New Mexico, Wyoming and Colorado;
- refining of petroleum products through operation and ownership of two
refineries;
- production and marketing of ethanol and bio-products through operation
and ownership of two ethanol plants (one of which is partially owned);
- 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; and
- retail marketing through 46 travel centers.
We also directly invest in energy projects primarily in Canada, South
America and Lithuania and continue to explore and develop additional projects
for international investments. In addition, we invest in energy and
infrastructure development funds in Asia and Latin America.
WILLIAMS COMMUNICATIONS GROUP, INC.
Williams Communications owns or leases, operates and has substantially
completed a nationwide intercity fiber-optic network, which it is extending
locally and globally. Prior to the initial public offering of its common stock
in October 1999, Williams Communications was a wholly-owned subsidiary of
Williams. Williams currently owns approximately 85 percent of the outstanding
shares of Williams Communications' common stock.
Williams Communications operates through four business units. The network
unit provides Internet, data, voice and video services exclusively to
communications service providers. Through its broadband
S-3
<PAGE> 4
media unit, Williams Communications transmits live and non-live media content
worldwide, including broadcast news, sports, advertising and special events. The
solutions unit provides professional communications services, and sells and
installs communication equipment, to address the comprehensive voice and data
needs of organizations of all sizes. Through its strategic investments unit,
Williams Communications makes investments in companies that it believes will,
directly or indirectly, increase revenue opportunities for its other business
units. Williams Communications has formed strategic alliances with
communications companies to secure long-term, high-capacity commitments for
traffic on its network and to enhance its service offerings.
ORGANIZATION CHART
The following chart shows Williams' principal subsidiaries.
[CHART]
S-4
<PAGE> 5
RECENT DEVELOPMENTS
SEPARATION OF WILLIAMS COMMUNICATIONS
On July 24, 2000, we announced that our board of directors had authorized
our management to pursue a course of action that, if successful and approved by
the board, would lead to a separation of Williams Communications' business from
our energy business. On August 8, 2000, we announced that the Internal Revenue
Service had issued a favorable ruling on a proposed tax-free spin-off of
Williams Communications through the distribution of Williams Communications
Class B common stock to our stockholders. In order for us to receive the benefit
of the ruling, we must consummate the spin-off by August 2001 and all the
factual representations made by us to the IRS must be true in all material
respects.
On November 16, 2000, we announced that our board of directors had
authorized management to continue to pursue the spin-off of Williams
Communications. Assuming market conditions and other factors continue to support
the spin-off, our board may vote later this year to approve the spin-off, set
the record date and determine the number of shares of Williams Communications
stock that would be distributed for each share of our stock. Certain of our and
Williams Communications' debt agreements include covenants or other restrictions
that would require amendment or waivers from lenders before the spin-off could
be completed.
While no decision has been made whether to separate the businesses, we are
considering, in either case, contributing Williams Communications' outstanding
promissory note of approximately $975 million, adjusted for resolution of
certain outstanding items, in exchange for additional common equity in Williams
Communications. We may also contribute certain physical assets, including a
building under construction, in exchange for additional Williams Communications'
common equity. We are also evaluating several credit support mechanisms to
enable Williams Communications to obtain the capital needed to allow it to
continue to execute its growth plan and business strategy.
CALIFORNIA POWER MARKET
Through a long-term contractual relationship with affiliates of AES Corp.,
Williams Energy Marketing & Trading Company ("WEMT"), a subsidiary of Williams,
has dispatch and marketing rights to nearly 4,000 megawatts of generation
capacity in the Los Angeles basin. WEMT sells much of this capacity on a forward
basis through contracts with various counterparties. The remainder of its
available capacity is sold in the spot and short term market primarily through
the California Power Exchange and the California Independent System Operator. In
the past year, tight supply and increased demand has resulted in higher
wholesale power prices to the California utilities. At the same time, two of the
three major utilities have operated under a retail rate freeze. As a result,
there has been significant underrecovery of costs by the utilities, and the
prospect of their insolvency has arisen, as well as a potential end to the rate
freeze and significant retail rate increases. On January 16, 2001, Southern
California Edison and Edison International, its parent company, announced that
they would suspend payments due to the California Power Exchange and certain
other creditors. At this time, we do not believe that our credit exposure to the
California utilities would result in a material adverse effect on our results of
operations or financial condition.
A number of federal and state initiatives addressing the issues of the
California electric power industry are also ongoing and may result in
restructuring of various markets in California and elsewhere. The California
State Legislature is considering legislation to create a power purchasing agency
to allow state purchases of power. Allegations have also been made that the
wholesale price increase resulted from the exercise of market power and
collusion of the power generators and sellers, such as WEMT. These allegations
have resulted in multiple state and federal investigations as well as the filing
of class-action lawsuits in which WEMT is a named defendant. These initiatives,
investigations and proceedings are all in their preliminary stages and we are
unable to estimate their likely outcome.
S-5
<PAGE> 6
WILLIAMS EXPRESS, INC.
On December 28, 2000, we announced that Williams Express, Inc., a
subsidiary of Williams, had signed an agreement to sell its convenience store
operations to Durham, North Carolina-based Convenience USA, Inc. The sale is
expected to be concluded in the first quarter of 2001. Pursuant to the
agreement, Convenience USA will purchase the 198 MAPCO Express convenience
stores, primarily in the Tennessee metropolitan areas of Memphis and Nashville.
Williams will continue to own and operate its 46 interstate travel centers
across the United States.
ATL AND WILLIAMS COMMUNICATIONS SOLUTIONS
We continue to evaluate strategic alternatives to maximize the total return
from our investments in certain businesses, including ATL-Algar Telecom Leste
S.A. and Williams Communications Solutions. These alternatives may include the
restructuring of one or more of the businesses. We have also received
indications of interest from potential purchasers as to certain of our
investments in these businesses. We have retained financial advisors to assist
in our evaluation of the alternatives, but at this time we have not reached a
final conclusion as to which alternative to pursue or determined what the
financial consequences will be. However, the alternatives that are being
considered with respect to Williams Communications Solutions will likely result
in a material charge to Williams Communications' earnings, and, as a result, to
our consolidated earnings.
FINANCING ACTIVITIES
In September 2000, Williams entered into a $630 million short-term bank
credit agreement expiring December 2000 and at September 30, 2000 had borrowed
$300 million under this facility. The proceeds plus additional borrowings under
the facility were used to purchase various energy-related assets in Canada.
Included in the purchase were interests in several natural gas liquids (NGL)
extraction and fractionation plants, NGL transportation pipeline and storage
facilities and a natural gas processing plant. In December 2000, Williams
entered into a $630 million long-term financing transaction to replace the
short-term bank facility.
On January 11, 2001, we agreed to issue $1.1 billion of senior unsecured
debt securities in an offering exempt from the registration requirements of the
Securities Act, of which $500 million is to be issued to an affiliate of UBS
Warburg LLC in exchange for temporary financing provided by such affiliate in
September 2000. The proceeds from the temporary financing were used for general
corporate purposes, including the repayment of commercial paper. We expect to
use the proceeds that we receive from this debt offering to fund our
energy-related capital program, repay debt, including a portion of our floating
rate notes due December 15, 2001 described below, and for other general
corporate purposes.
In December 2000, we issued $600 million of floating rate debt securities
due December 15, 2001 to an affiliate of Lehman Brothers in a transaction exempt
from the registration requirements of the Securities Act. These floating rate
notes bear interest at an initial rate of 7.27% until March 15, 2001. If we do
not repay the notes on March 15, 2001, Lehman Brothers may reset the interest
rate to LIBOR plus a spread to be determined in accordance with the terms of the
note.
S-6
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Williams............................ 33,000,000 shares
Common stock outstanding after the offering................. 477,014,536 shares(1)(2)
NYSE symbol................................................. WMB
</TABLE>
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(1) This number consists of the number of shares outstanding as of October 31,
2000 plus the number of shares to be issued in this offering. The number of
shares outstanding after the offering excludes shares reserved for issuance
under our stock option plans. As of December 31, 1999, 49.4 million shares
were reserved for issuance, of which options to purchase 22.8 million shares
at an average option price of $25.03 had been issued as of such date.
(2) This number assumes that the underwriters' over-allotment options are not
exercised. If the over-allotment options are exercised in full, we will
issue and sell an additional 4,950,000 shares.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $1,159.2 million after
deducting the underwriting discount and expenses payable by us (or approximately
$1,333.2 million, if the underwriters exercise their over-allotment option in
full) in connection with this offering.
The net proceeds from this offering will be used to expand our capacity to
fund our energy-related capital program, to repay commercial paper (which has
interest rates ranging from 6.89% to 7.75%) and other short-term indebtedness
and for other general corporate purposes.
PRICE RANGE OF COMMON STOCK
Our common stock, $1.00 par value, is listed and traded on the New York
Stock Exchange under the ticker symbol "WMB." The following table sets forth the
high and low closing prices for transactions involving our common stock for each
calendar quarter, as reported on the New York Stock Exchange Composite Tape, and
related dividends paid per common share during such periods.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
---- --- --------
<S> <C> <C> <C>
2001:
First Quarter (through January 16, 2001)................. $37 15/16 $34 9/16 (1)
2000:
Fourth Quarter........................................... $44 1/16 $31 13/16 $.15
Third Quarter............................................ 47 5/8 39 251/256 .15
Second Quarter........................................... 44 1/2 35 1/2 .15
First Quarter............................................ 48 11/16 30 5/16 .15
1999:
Fourth Quarter........................................... $39 11/16 $28 1/16 $.15
Third Quarter............................................ 45 1/4 35 13/16 .15
Second Quarter........................................... 53 1/8 39 .15
First Quarter............................................ 40 1/2 29 1/2 .15
1998:
Fourth Quarter........................................... $31 7/8 $25 7/8 $.15
Third Quarter............................................ 36 13/16 23 .15
Second Quarter........................................... 35 3/4 28 7/8 .15
First Quarter............................................ 34 1/4 26 5/8 .15
</TABLE>
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(1) We expect that our board of directors will declare a quarterly dividend of
$.15 per share on January 21, 2001, which will be payable on or around March
26, 2001 to holders of record of our common stock on or around March 9,
2001.
On January 16, 2001 the last reported sale price of our common stock on the
New York Stock Exchange was $36 1/8 per share.
S-7
<PAGE> 8
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents,
short-term debt and capitalization of Williams as of September 30, 2000, on an
actual basis and as adjusted to give effect to the issuance and sale of the
common stock offered hereby and the application of the estimated net proceeds
therefrom, as discussed in "Use of Proceeds". We have assumed no exercise of the
underwriters' overallotment option. This information should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in the accompanying prospectus. Please read "Where You
Can Find More Information".
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
--------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,027.5 $ 1,027.5
========= =========
Notes payable and current portion of long-term debt......... $ 3,468.6 $ 2,309.4
========= =========
Long-term debt.............................................. $10,013.7 $10,013.7
Preferred ownership interests of subsidiaries:
Preferred interests of subsidiaries....................... 575.6 575.6
Williams obligated mandatorily redeemable preferred
securities of Trust holding only Williams indentures... 186.2 186.2
Stockholders' equity:
Common stock, $1 par value, 960 million shares authorized,
447.5 million issued at September 30, 2000, 480.5
million as adjusted.................................... 447.5 480.5
Capital in excess of par value............................ 2,460.5 3,586.7
Retained earnings......................................... 3,180.7 3,180.7
Accumulated other comprehensive income.................... 238.6 238.6
Other..................................................... (89.0) (89.0)
--------- ---------
6,238.3 7,397.5
Less treasury stock (at cost), 3.6 million shares of
common stock at September 30, 2000..................... (42.9) (42.9)
--------- ---------
Total stockholders' equity........................ 6,195.4 7,354.6
--------- ---------
Total capitalization(2)........................... $16,970.9 $18,130.1
========= =========
</TABLE>
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(1) Does not reflect adjustments for financing activities subsequent to
September 30, 2000, including those discussed in "Financing Activities"
under "Recent Developments".
(2) Consists of long-term debt, preferred interests of subsidiaries, Williams
obligated mandatorily redeemable preferred securities of Trust holding only
Williams indentures, and stockholders' equity.
S-8
<PAGE> 9
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Williams as of
and for each of the periods indicated. This information should be read in
conjunction with the consolidated financial statements and related notes
incorporated by reference in the accompanying prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues......................... $5,695.6 $6,849.0 $8,249.5 $7,658.3 $8,593.1 $6,144.3 $8,145.6
Income from continuing
operations..................... 366.5 505.3 436.8 141.4 161.8 104.7 594.2
Income (loss) from discontinued
operations..................... 1,029.3 (32.7) (6.3) (14.3) -- -- --
Extraordinary gain (loss)........ -- -- (79.1) (4.8) 65.2 -- --
Cumulative effect of change in
accounting principle........... -- -- -- -- (5.6) (5.6) (21.6)
Diluted earnings per share:
Income from continuing
operations.................. 0.86 1.17 1.01 0.31 0.36 0.23 1.33
Income (loss) from discontinued
operations.................. 2.49 (0.08) (0.01) (0.03) -- -- --
Extraordinary gain (loss)...... -- -- (0.19) (0.01) 0.15 -- --
Cumulative effect of change in
accounting principle........ -- -- -- -- (0.01) (0.01) (0.05)
Cash dividends per common
share.......................... 0.36 0.47 0.54 0.60 0.60 0.45 0.45
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- -------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $12,853.2 $14,611.6 $16,282.8 $18,647.3 $25,288.5 $32,228.3
Long-term debt................... 3,675.0 4,985.3 5,351.5 6,366.4 9,235.3 10,013.7
Williams obligated mandatorily
redeemable preferred securities
of Trust....................... -- -- -- -- 175.5 186.2
Stockholders' equity............. 3,828.9 4,036.9 4,237.8 4,257.4 5,585.2 6,195.4
</TABLE>
S-9
<PAGE> 10
FINANCIAL CONDITION AND LIQUIDITY
The following discussion has been taken from Williams' Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and updated, where possible,
to include amounts as of December 31, 2000 and information on activities that
occurred subsequent to the filing of that quarterly report. Any amounts which we
have provided below as of any date after September 30, 2000 only represent
management's best estimates because complete financial information is not yet
available as of and for the year ended December 31, 2000. You should read the
following discussion in conjunction with the consolidated financial statements
and related notes incorporated by reference in the accompanying prospectus as
well as the other documents that we have filed with the SEC since the date of
those periodic reports and the "Recent Developments" section of this prospectus
supplement.
Williams considers its liquidity to come from both internal and external
sources. Certain of those sources are available to Williams (parent) and certain
of its subsidiaries while others can only be utilized by Williams
Communications. Williams' unrestricted sources of liquidity, which can be
utilized subject to certain limitations under existing loan covenants, consist
primarily of the following:
- Available cash-equivalent investments of $150 million at September 30,
2000, as compared to $494 million at December 31, 1999. Williams
estimates available cash-equivalents to be approximately $900 million at
December 31, 2000.
- $350 million available under Williams' $700 million bank-credit facility
at September 30, 2000, as compared to $475 million at December 31, 1999
under the $1 billion bank credit facility that was terminated and
replaced in July with the $700 million bank-credit facility. Williams
estimates $350 million to be available under its $700 million bank-credit
facility at December 31, 2000.
- $205 million available under Williams' $1.7 billion commercial paper
program at September 30, 2000, as compared to $154 million at December
31, 1999 under a $1.4 billion commercial paper program. Williams
estimates $4 million to be available under its $1.7 billion commercial
paper program at December 31, 2000.
- Cash generated from operations.
- Short-term uncommitted bank lines of credit can also be used in managing
liquidity.
Williams' sources of liquidity restricted to use by Williams Communications
consist primarily of the following:
- Available cash-equivalent investments and short-term investments totaling
$1 billion at September 30, 2000, as compared to $1.9 billion at December
31, 1999. Williams estimates available cash-equivalents and short-term
investments to be approximately $255 million at December 31, 2000.
- Williams Communications' $1.05 billion bank-credit facility under which
$525 million was outstanding at September 30, 2000, and no amounts were
outstanding at December 31, 1999. At December 31, 2000, Williams
estimates $525 million was outstanding under this facility.
Williams has an effective $1.775 billion shelf registration statement on
file with the Securities and Exchange Commission to issue a variety of debt or
equity securities. In November 2000, an amendment to this registration statement
was filed and is the registration statement under which the common stock offered
by this prospectus supplement will be issued. In addition, there are other
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) with
approximately $755 million of shelf availability remaining which 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 additional financing arrangements, if required, can be
obtained on reasonable terms.
S-10
<PAGE> 11
Williams Communications' ability to borrow under its bank credit facility
is dependent upon compliance with specified covenants and conditions. Although
the facility provides for a total commitment of $1.05 billion, based on Williams
Communications' ratio of debt to contributed capital at September 30, 2000, only
an additional $152 million could have been borrowed and utilized under the
bank-credit facility without issuing additional equity or amending the facility
at such date.
As of September 30, 2000, capital expenditures and investments for 2000,
including acquisitions of businesses, were estimated to total approximately $6.6
billion, including approximately $3.8 billion at Williams Communications.
Williams expects to have funded 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' $700 million
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, Williams Communications' capital and investment expenditures, debt
payments and working-capital requirements are also expected to be funded with
(1) the remaining proceeds from its 1999 initial equity and high-yield debt
offerings, 2000 high-yield debt offerings and 2000 convertible preferred stock
offering, (2) its $1.05 billion bank-credit facility, (3) private borrowings
and/or (4) debt or equity public offerings. See also "Recent
Developments -- Separation of Williams Communications."
S-11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
We have extracted the following discussions of Williams' results of
operations for the nine months ended September 30, 2000 and for the year ended
December 31, 1999 from Williams' Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 and from Williams' Annual Report on Form 10-K/A for the
year ended December 31, 1999, respectively, solely for your convenience. We have
not attempted to update this discussion in any way. You should read the
following discussions in conjunction with the related consolidated financial
statements and related notes incorporated by reference in the prospectus. You
should also read the other documents that we have filed with the SEC since the
date of those periodic reports and the "Recent Developments" section of this
prospectus supplement to obtain more information about subsequent developments
involving Williams.
NINE MONTHS ENDED SEPTEMBER 30, 2000 VS. NINE MONTHS ENDED SEPTEMBER 30, 1999
Consolidated Overview
Williams' revenues increased $2 billion, or 33 percent, due primarily to
higher Energy Services' revenues from increased petroleum products and natural
gas liquids average sales prices and volumes and higher gas and electric power
services revenues. Revenues also increased due to additional rate refund
liability reductions at Gas Pipeline and growth in Communications' voice and
data services. Partially offsetting these increases were lower fleet management,
retail natural gas, electric and propane revenues at Energy Services following
the 1999 sales of these businesses, lower Communications' dark fiber lease
revenues and lower Communications' revenues from new systems sales and upgrades.
Segment costs and expenses increased $1.6 billion, or 29 percent, due
primarily to higher costs related to increased petroleum products and natural
gas liquids average purchase prices and volumes purchased and higher costs and
expenses from growth of Communications' Network operations and infrastructure,
higher variable compensation levels associated with improved performance at
Energy Services and a $25.9 million guarantee loss accrual at Energy Services.
Partially offsetting these increases were lower fleet management, natural gas,
electric, and propane costs following the sale of all or part of these
businesses in 1999 and lower costs associated with the decrease in revenues from
new systems sales and upgrades.
Operating income increased $424.7 million, or 67 percent, due primarily to
a $542 million increase at Energy Services and a $61 million increase at Gas
Pipeline, partially offset by $190 million higher losses at Communications.
Energy Services' increase reflects improved gas and electric power services
margins and higher per-unit natural gas liquids margins, partially offset by
higher variable compensation levels and the $25.9 million guarantee loss
accrual. Gas Pipeline's increase reflects increased reductions to rate refund
liabilities in 2000. The increased losses at Communications reflect losses
associated with providing customer services prior to completion of the new
network, higher depreciation and network lease expense as the network is brought
into service and higher selling, general and administrative expenses including
costs associated with infrastructure growth and improvement. Partially
offsetting Communications' losses was the effect in 1999 of $26.7 million of
asset impairment and exit costs.
Income before income taxes and cumulative effect of change in accounting
principle increased $732.5 million, from $236.1 million in 1999 to $968.6
million in 2000, due primarily to $424.7 million higher operating income and
$413.1 million higher investing income. Partially offsetting these increases was
$143.9 million higher net interest expense reflecting increased debt in support
of continued expansion and new projects. The increase in investing income
reflects a $214.7 million gain from the conversion of Williams' common stock
investment in Concentric Network Corporation for common stock of XO
Communications, Inc. (formerly Nextlink Communications, Inc.) pursuant to a
merger of those two companies in June 2000, gains totaling $108.3 million from
the sale of certain marketable equity securities, a $16.5 million gain on the
sale of a portion of the investment in ATL-Algar Telecom Leste S.A. (ATL) and
higher interest income, partially offset by $20 million of losses related to the
write-downs of certain cost basis and equity investments (see Note 3).
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Gas Pipeline
Gas Pipeline's revenues increased $109.8 million, or 8 percent, due
primarily to $74 million of rate refund liability reductions associated mainly
with the evaluation of a favorable Federal Energy Regulatory Commission (FERC)
order received in March 2000 by Transcontinental Gas Pipe Line (Transco) related
to the rate-of-return and capital structure issues in a regulatory proceeding.
Revenues also increased due to $47 million higher gas exchange imbalance
settlements (offset in costs and operating expenses), $18 million higher
transportation demand revenues at Transco and $18 million higher equity
investment earnings from pipeline joint venture projects. Partially offsetting
was a total of $46 million of reductions to rate refund liabilities in 1999 by
four of the gas pipelines resulting primarily from second-quarter 1999
regulatory proceedings involving rate-of-return methodology.
Segment profit increased $61 million, or 12 percent, due to the $28 million
net effect of rate refund liability reductions discussed above, $18 million
higher transportation demand revenues at Transco, $18 million higher equity
investment earnings and $14 million lower general and administrative expenses.
The lower general and administrative costs include lower professional services
costs associated with year 2000 compliance work, efficiencies realized from the
headquarters consolidation of two of the pipelines and other cost reduction
initiatives, partially offset by costs associated with the office headquarters
consolidation. Partially offsetting were $6 million of accruals for gas exchange
imbalances and $7 million higher depreciation expense primarily due to increased
property plant and equipment.
Based on current rate structures and/or historical maintenance schedules of
certain of its pipelines, Gas Pipeline experiences lower segment profits in the
second and third quarters as compared to the first and fourth quarters.
Energy Services
Energy Marketing & Trading's revenues increased $1.25 billion, or 106
percent, due to a $545 million increase in trading revenues and a $705 million
increase in non-trading revenues. The $545 million increase in trading revenues
is due primarily to $576 million in higher gas and electric power services
margins, partially offset by $18 million lower natural gas liquids trading
margins and $13 million lower crude and refined trading margins. The higher gas
and electric power services margins reflect the benefit of higher volatility,
expanded price risk management services, $49 million from increased demand and
market prices for certain ancillary services in the western region and increased
trading volumes, partially offset by $62 million of favorable contract
settlements during 1999.
The $705 million increase in non-trading revenues is due primarily to $829
million higher refined products marketing revenues from higher sales prices and
volumes, $49 million higher natural gas liquids revenues resulting from higher
average sales prices and volumes and $23 million higher revenues from a portable
electric generation business that was transferred from Petroleum Services during
2000. Recent expansions of the Memphis refinery were a significant contributor
to the increased refined products marketing volumes. Partially offsetting these
increases were $190 million lower revenues following the sale of the retail
natural gas, electric and propane businesses in 1999.
Costs and operating expenses increased $727 million, or 72 percent, due
primarily to $837 million higher refined product cost of sales associated with
non-trading activities and $41 million higher natural gas liquids cost of sales.
Partially offsetting these increases were lower natural gas, electric and
propane cost of sales and operating expenses of $99 million and $67 million,
respectively. These variances are associated with the corresponding changes in
non-trading revenues discussed above.
Other expense-net in 2000 includes a $25.9 million guarantee loss accrual
(see Note 4) partially offset by a $12.4 million gain on the sale of certain
natural gas liquids contracts.
Segment profit increased $421 million, from $65.5 million in 1999 to $486.5
million in 2000, due primarily to $576 million higher gas and electric power
services margins and the $12.4 million gain on the sale of certain natural gas
liquids contracts. Partially offsetting these increases were $74 million higher
selling, general and administrative costs reflecting higher variable
compensation levels associated with the
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<PAGE> 14
improved operating performance, the $25.9 million guarantee loss accrual, $22
million lower crude and refined products margins and a $25 million lower
contribution from retail natural gas, electric and propane following the sale of
those businesses in 1999.
Exploration & Production's revenues increased $66.8 million, or 52 percent,
due primarily to $36 million from increased realized average natural gas sales
prices (including the effect of hedged positions), $28 million associated with
increases in both company-owned production volumes and marketing volumes from
the Royalty Trust and royalty interest owners and an $8 million contribution in
first-quarter 2000 of oil and gas properties acquired in April 1999. Partially
offsetting was a $7 million decrease in the recognition of income previously
deferred from a 1997 transaction which transferred certain non-operating
economic benefits to a third party.
Segment profit increased $19.6 million, or 99 percent, due primarily to the
higher revenues discussed previously partially offset by $33 million higher gas
purchase costs related to the marketing of natural gas from the Williams Coal
Seam Royalty Trust and royalty interest owners, $7 million higher production-
related taxes and $4 million lower gains on sales of assets.
Midstream Gas & Liquids' revenues increased $264.6 million, or 36 percent,
due primarily to $224 million higher natural gas liquids sales from processing
activities. The liquids sales increase reflects $147 million from a 61 percent
increase in average natural gas liquids sales prices and $77 million from a 48
percent increase in volumes sold. Natural gas liquids sales volumes increased as
a result of improved liquids market conditions and a new plant, which became
operational in June 1999. In addition, revenues increased due to $24 million
higher natural gas liquids pipeline transportation revenues associated with
increased shipments following improved market conditions and the completion of
the Rocky Mountain liquids pipeline expansion in November 1999, $9 million
higher processing revenues and $10 million lower equity investment losses,
mainly from the Discovery pipeline project.
Costs and operating expenses increased $182 million, or 38 percent, due
primarily to $111 million higher liquids fuel and replacement gas purchases, $19
million higher transportation, fractionation, and marketing expense related to
higher natural gas liquid sales, $12 million higher depreciation expense, $12
million of losses associated with certain propane storage transactions, $10
million higher power costs and increased gathering fuel costs.
General and administrative expenses increased $14 million, or 19 percent,
due primarily to $12 million of reorganization costs. Midstream has completed
the reorganization of its operations including the consolidation in Tulsa of
certain support functions previously 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 first-quarter 2000, and
incurred severance, relocation and other exit costs. Midstream expects one-year
cost savings to exceed these charges.
Segment profit increased $72.3 million, or 43 percent, due primarily to $78
million from higher per-unit natural gas liquids margins, $17 million from
increased natural gas liquids volumes sold and $10 million lower equity
investment losses. Partially offsetting were $12 million of propane storage
losses and $14 million higher general and administrative expenses.
Petroleum Services' revenues increased $1,212 million, or 57 percent, due
primarily to $1,047 million higher refinery revenues (including $228 million
higher intra-segment sales to the travel centers/ convenience stores which are
eliminated) and $366 million higher travel center/convenience store sales. The
$1,047 million increase in refinery revenues reflects $911 million from 72
percent higher average refined product sales prices and $136 million from a 12
percent increase in refined product volumes sold. The increase in refined
product volumes sold follows refinery expansions and improvements in mid-to-late
1999 and May 2000 which increased capacity. The $366 million increase in travel
center/convenience store sales reflects $212 million from 36 percent higher
average gasoline and diesel sales prices, $136 million primarily from a 75
percent increase in diesel sales volumes and $18 million higher merchandise
sales. The increase in diesel sales volumes and the higher merchandise sales
reflect the opening of 11 new travel centers since third-quarter 1999. An
additional 12 travel centers are planned to open in fourth-quarter
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<PAGE> 15
2000. In addition, Williams is currently negotiating the sale of the convenience
stores to a third party. Revenues related to convenience stores for the nine
months ended September 30, 2000 and 1999 were $365 million and $337 million,
respectively. It is expected that a sale of the convenience stores would be
completed by March 31, 2001. Revenues also increased due to $55 million higher
bio-energy sales reflecting both an increase in ethanol volumes sold and average
ethanol sales prices, $24 million higher revenues from terminalling operations
following the acquisition of additional terminals in August 1999, $20 million
higher product sales from transportation activities, $13 million higher revenues
from a petrochemical plant acquired in March 1999 and $8 million higher revenues
from Williams' interest in TAPS acquired in late June 2000. Slightly offsetting
these increases were $70 million lower fleet management revenues following the
sale of a portion of such operations in late 1999, $15 million lower
distribution revenues due to a reduction of propane trucking operations and $14
million lower pipeline construction revenues following substantial completion of
the Longhorn project.
Costs and operating expenses increased $1,169 million, or 61 percent, due
primarily to $1,038 million higher refining costs and $380 million higher travel
center/convenience store costs (including $228 million higher intra-segment
purchases from the refineries which are eliminated). The $1,038 million increase
in refining costs reflects $898 million from higher crude supply costs and other
related per-unit cost of sales, $112 million associated with increased volumes
sold and $28 million higher operating costs at the refineries. The $380 million
increase in travel center/convenience store costs includes $222 million from
higher average gasoline and diesel purchase prices, $126 million primarily from
increased diesel sales volumes and $32 million higher store operating costs. In
addition, costs and operating expenses increased due to $42 million higher
bio-energy operating costs, $17 million higher cost of product sales from
transportation activities and $16 million higher terminalling costs following
the August 1999 acquisition of additional terminals. Slightly offsetting these
increases were $76 million lower fleet management operating costs following the
sale of a portion of such operations in late 1999, $13 million lower pipeline
construction costs following substantial completion of the pipeline project and
$13 million lower cost of distribution activities following a reduction of
propane trucking operations.
Segment profit increased $24.7 million, or 17 percent, due primarily to $24
million from increased refined product volumes sold, $13 million from higher
per-unit refinery margins and $20 million higher gross profit from travel
center/convenience store merchandise sales. In addition, segment profit
increased $13 million from improved bio-energy operations, $8 million from
activities at the petrochemical plant acquired in March 1999, $8 million from
increased terminalling activities following the 1999 acquisition and $6 million
from product transportation operations. Partially offsetting these increases
were $28 million higher operating costs at the refineries, $32 million higher
operating costs at the travel centers/convenience stores and the $6.5 million
favorable effect in 1999 of settlement of transportation pipeline rate case
issues.
Communications
Network's revenues increased $143.6 million, or 45.7 percent, due primarily
to $182 million from growth in voice and data services provided to customers and
$16 million higher network design, operational support and other revenues,
partially offset by $43 million lower revenues from dark fiber leases accounted
for as sales-type leases on the new fiber-optic network and $14 million lower
revenue from an Australian telecommunications operation.
Costs and operating expenses increased $263.4 million, or 81 percent, due
primarily to $149 million higher off-net capacity and local access connection
costs associated with providing increased customer services, $57 million higher
depreciation expense as portions of the new network are placed into service, $53
million higher operating and maintenance expenses to support increased revenues
and future revenue streams, $39 million higher network lease expense for the
leased portion of the network, and $12 million higher ad valorem taxes,
partially offset by $34 million lower construction costs associated with dark
fiber leases accounted for as sales-type leases and $13 million decreased
operating expenses from an Australian telecommunications operation.
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<PAGE> 16
Selling, general and administrative expenses increased $61 million, or 67
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.
Segment profit increased $125.3 million, from a $103.7 million segment loss
in 1999 to a $21.6 million segment profit in 2000, due primarily to a $214.7
million gain from the conversion of Williams' shares of Concentric Network
Corporation's common stock into shares of XO Communications, Inc.'s (formerly
NEXTLINK Communications, Inc.) common stock pursuant to a merger of those
companies in June 2000 and gains totaling $108.3 million from the sale of
certain marketable equity securities (see Note 3), partially offset by losses
associated with providing customer services off-net prior to completion of the
new network, $96 million higher depreciation and network lease expense, $61
million higher selling, general and administrative expenses, and $20 million in
write-downs of certain cost-basis and equity investments.
Broadband Media's revenues decreased $1.9 million and segment loss
increased $4.3 million due primarily to $4.6 million of equity losses.
Solutions' revenues decreased $23.5 million, or 2 percent, due primarily to
$55 million lower revenues from new systems sales and upgrades due to lower
sales activity consistent with voice equipment industry trends. Partially
offsetting were $13 million higher revenues from maintenance and customer
service orders and a $19 million increase from all other revenues. Solutions'
revenue recognition policy for new system sales and upgrades was changed from
the percentage-of-completion method to the completed-contract method effective
January 1, 2000 (see Note 6). If the nine months ended September 30, 1999 were
determined using the completed-contract method, revenues would have increased $9
million, or one percent.
Costs and operating expenses increased $19 million, due primarily to $49
million increased installation and service costs, partially offset by $30
million lower costs associated with the decrease in revenues from new systems
sales and upgrades. If the nine months ended September 30, 1999 were determined
using the completed-contract method, the increase in costs and operating
expenses would have been $42 million, or 5.5 percent.
Selling, general and administrative expenses increased $10 million, due
primarily to $9 million higher provision for uncollectible trade receivables
reflecting increased aging of accounts due to significant historical billing and
collection issues and $8 million increased depreciation and amortization
expenses. Partially offsetting these increases were lower incentive compensation
levels.
Segment loss increased $51.5 million, to a $80.4 million loss in 2000 from
$28.9 million loss in 1999, due primarily to lower margins and increased
selling, general and administrative expenses. If the nine months ended September
30, 1999 were determined using the completed-contract method, the increase in
segment loss would have been $42 million.
Strategic Investments' revenues decreased $26.3 million due primarily to
the $33 million effect of businesses that have been sold or otherwise exited,
primarily audio and video conferencing and closed-circuit video broadcasting
businesses, partially offset by $9 million lower equity investment losses
following the first-quarter 2000 sale of a portion of the investment in ATL.
Revenues for 2000 represent equity losses from ATL.
Costs and operating expenses decreased $26 million and selling, general and
administrative expenses decreased $17.5 million due primarily to the sale of the
audio and video conferencing and closed-circuit video broadcasting businesses.
Segment profit increased $63.9 million from a $56.3 million loss in 1999,
due primarily to $26.7 million of asset impairment charges and exit costs in
1999 (included in other expense-net within segment costs and expenses) relating
to management's decision and commitment to sell the audio and video conferencing
and closed-circuit video broadcasting businesses (see Note 4), a $16.5 million
gain on the sale of a portion of the investment in ATL in the first quarter of
2000 (see Note 3), $9 million lower
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<PAGE> 17
equity investment losses, a $13.5 million income effect of businesses that were
generating losses that have been sold or otherwise exited, and $3.7 million of
dividends from a telecommunications investment.
Other
Other revenues increased $31.8 million, or 45 percent, due primarily to $17
million of improved international equity investment earnings and $13 million
higher Venezuelan gas compression revenues reflecting higher volumes in 2000
following operational problems experienced in first-quarter 1999.
Segment profit improved $21.7 million, from a $2.9 million segment loss in
1999 to an $18.8 million segment profit in 2000. The improvement was due
primarily to a $17 million favorable change in international equity investment
earnings and improved operating profit from Venezuelan gas compression related
to higher revenues. The $17 million improved international equity investment
earnings reflect the change in accounting for an equity investment to a cost
basis investment following a reduction of management influence. In addition, the
improved international equity investment earnings reflect the consolidation of a
partially-owned subsidiary previously accounted for as an equity investment
following additional investments in the subsidiary. Partially offsetting were
losses from a Lithuanian energy investment acquired in fourth-quarter 1999.
Consolidated
Interest Accrued increased $261.6 million, or 58.6 percent due primarily to
the $135 million effect of higher borrowing levels combined with the $117.6
million effect of higher average interest rates. These increases primarily
reflect the issuance of $2 billion of high-yield public debt in October 1999 by
Williams Communications. Interest capitalized increased $117.7 million, from
$37.5 million in 1999 to $155.2 million in 2000, due primarily to increased
capital expenditures for the fiber-optic network. Investing income increased
$413.1 million, from $19.5 million in 1999 to $432.6 million in 2000, due
primarily to $343.2 million of gains from sales/conversion of investments and
dividends previously discussed within Williams Communications' segment profit
and $74 million higher interest income associated primarily with the investment
of proceeds from Williams Communications' equity and debt offerings, partially
offset by $20 million related to writedowns of certain cost basis and equity
investments.
Minority interest in (income) loss and preferred returns of consolidated
subsidiaries changed $37.8 million compared to 1999 due primarily to the effect
of the 14.7 percent minority ownership interest in losses at Williams
Communications following the October 1999 initial public offering and higher
losses experienced by Solutions, LLC which has a 30 percent interest held by a
minority shareholder. During third quarter 2000, the cumulative losses
attributable to Solutions LLC exceeded Williams' minority interest in the
consolidated subsidiary. As a result Williams suspended recording minority
interest related to this subsidiary.
The provision for income taxes increased $243 million, from $131.4 million
in 1999 to $374.4 million in 2000, due to higher pre-tax income, partially
offset by a lower effective income tax rate. The effective income tax rate in
2000 exceeds the federal statutory rate due primarily to the effects of state
income taxes. The effective income tax rate in 1999 is significantly higher than
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 impaired during
the second quarter of 1999 (see Note 4).
The $21.6 million cumulative effect of change in accounting principle in
2000 relates to Solutions' change in revenue recognition policy from the
percentage-of-completion method to the completed-contract method (see Note 6).
The $5.6 million cumulative effect of change in accounting principle in 1999
relates to the adoption of Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities" (see Note 6).
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<PAGE> 18
YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 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 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 Williams 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.
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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 $156.8 million, or 10
percent, due to a $101.5 million increase in trading revenues and a $55.3
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 $55.3 million non-trading revenue increase is due primarily to $150
million higher refined product revenues resulting from higher average sales
prices and increased sales volumes primarily reflecting the 1999 and 1998
expansions/improvements at the Memphis refinery. 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
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<PAGE> 20
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
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 $92.9
million, or 8 percent, due primarily to higher costs for refined products and
retail natural gas and electric operations of $144 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 $78.0 million, to $105 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, $10 million higher refined product net revenues
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
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<PAGE> 21
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
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 $495.1 million, or 20 percent, due
primarily to $380 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 $380
million increase in refinery revenues includes a $302 million increase from 23
percent higher average sales prices and a $73 million increase from 6 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 $484 million, or 21 percent, due
primarily to $385 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
S-21
<PAGE> 22
acquired in 1999. Partially offsetting these increases were $87 million lower
pipeline construction costs related to the project previously discussed. The
$385 million increase in refining costs reflects $303 million from higher crude
supply costs and other related per-unit cost of sales, $59 million associated
with increased volumes sold and $23 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.
Selling, general and administrative expenses increased $27.2 million, or 31
percent, due, in part, to increased media/customer relations activities,
business development and the additional terminals and travel centers in 1999.
Segment profit increased $9.2 million, or 6 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 $14 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 $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, $5 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 $23 million of increased operating costs at the travel
centers/convenience stores and the refineries, respectively, and $27 million
higher selling, general and administrative expenses.
Communications
Network's revenues increased $233.5 million, or 113 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, $23 million higher
revenue from an Australian telecommunications operation acquired in August 1998
and $16 million higher consulting and outsourcing revenues.
Costs and operating expenses increased $275.4 million, or 154 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
operating and maintenance expenses on the newly completed portions of the
network, $29 million higher 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, $20 million higher costs from the
Australian telecommunications operation acquired in August 1998, $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 $81.5 million, or
145 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, and $23 million higher costs from the
Australian telecommunications operation acquired in August 1998.
Segment loss increased $125 million, from a $29.6 million loss in 1998 to a
$154.6 million loss in 1999, due primarily to the $81.5 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.
S-22
<PAGE> 23
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 Williams
Communications announced agreements with several parties that will provide an
aggregate $930 million of revenue over the next 25 years.
Broadband Media's revenues increased $1.6 million, or 1 percent, while
segment loss decreased $15 million, or 38 percent, due primarily to improved
margins and $9 million lower selling, general and administrative expenses. The
lower selling, general and administrative expenses reflect the effects of
facility consolidations.
Solutions' revenues increased $64.8 million, or 5 percent, due primarily to
$26 million of revenues from a Mexican telecommunications company acquired in
October 1998, $25 million higher sales from new systems and upgrades and $9
million of professional services revenues following another October 1998
acquisition.
Costs and operating expenses increased $48.1 million, or 5 percent, due
primarily to an increase in cost of sales commensurate with the increase in
revenues. Selling, general and administrative expenses increased $33.4 million,
or 8 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 $12 million higher depreciation and amortization, an $11
million increase in the provision for uncollectible trade receivables reflecting
unresolved billing and collection issues, $4 million of costs from the Mexican
telecommunications company acquired in October 1998 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 $11.3 million, or 21 percent, due primarily to $33.4
million of higher selling, general and administrative expenses, partially offset
by a $13 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 decreased $25.4 million, or 75 percent, due
primarily to 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 Telecom Leste S.A.
(ATL), a Brazilian telecommunications business which became operational in
January 1999.
Costs and operating expenses decreased $15.5 million, or 37 percent, and
selling, general and administrative expenses decreased $14.7 million, or 40
percent, due primarily to the effect of the July 1999 sale of the audio- and
video-conferencing and closed-circuit video broadcasting businesses.
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
S-23
<PAGE> 24
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 decreased $5.5 million, from a $69.9 million loss in 1998 to a
$64.4 million loss in 1999, due primarily to the effect of the $23.2 million
asset write-down in 1998, a $16 million effect of businesses that were
generating losses that have been sold or otherwise exited and $9.4 million of
dividends in 1999 from international investment funds, largely offset by the
$33.9 million of losses and asset impairment charges in 1999 and $12 million
higher equity losses from ATL.
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.
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 (including $9.4 million previously discussed within Communications'
segment profit). 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).
S-24
<PAGE> 25
UNDERWRITING
We intend to offer the shares through the underwriters. Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse First
Boston Corporation are acting as representatives of the underwriters named
below. Subject to the terms and conditions described in an underwriting
agreement between us and the underwriters, we have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us,
the number of shares listed opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc. ....................................... 8,800,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 8,800,000
Credit Suisse First Boston Corporation...................... 8,800,000
Banc of America Securities LLC.............................. 1,650,000
CIBC World Markets Corp. ................................... 1,650,000
Goldman, Sachs & Co. ....................................... 1,650,000
UBS Warburg LLC............................................. 1,650,000
----------
Total......................................... 33,000,000
==========
</TABLE>
The underwriters have agreed to purchase all of the shares sold under the
underwriting agreement if any of these shares are purchased. If an underwriter
defaults, the agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the underwriting agreement, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that the underwriters propose initially
to offer the shares to the public at the initial public offering price on the
cover page of this prospectus supplement and to dealers at that price less a
concession not in excess of $.59 per share. The underwriters may allow, and the
dealers may reallow, a discount not in excess of $.10 per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Williams. The information assumes either no
exercise or full exercise by the underwriters of their over-allotment options.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price....................... $36.125 $1,192,125,000 $1,370,943,750
Underwriting discount....................... $.99 $32,670,000 $37,570,500
Proceeds, before expenses, to Williams...... $35.135 $1,159,455,000 $1,333,373,250
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $220,000 and are payable by Williams.
S-25
<PAGE> 26
OVER-ALLOTMENT OPTION
We have granted options to the underwriters to purchase up to 4,950,000
additional shares at the public offering price less the underwriting discount.
The underwriters may exercise these options for 30 days from the date of this
prospectus supplement solely to cover any over-allotments. If the underwriters
exercise these options, each will be obligated, subject to conditions contained
in the underwriting agreement, to purchase a number of additional shares
proportionate to that underwriter's initial amount reflected in the above table.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Lehman Brothers and
Merrill Lynch. Specifically, we and these other individuals have agreed not to
directly or indirectly
- offer, pledge, sell or contract to sell any common stock,
- sell any option or contract to purchase any common stock,
- purchase any option or contract to sell any common stock,
- grant any option, right or warrant for the sale of any common stock,
- lend or otherwise dispose of or transfer any common stock,
- request or demand that we file a registration statement related to the
common stock, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition. This lockup provision does not apply to any securities of
Williams Communications Group, Inc.
NEW YORK STOCK EXCHANGE LISTING
The shares are listed on the New York Stock Exchange under the symbol
"WMB."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, SEC rules limit
underwriters from bidding for and purchasing our common stock. However, the
representatives may engage in transactions that stabilize the price of the
common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common stock to stabilize its price or to
reduce a short position may cause the price of the common stock to be higher
than it might be in the absence of such purchases.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
or
S-26
<PAGE> 27
the lead managers will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us, including acting as lenders under various
loan facilities. In particular, affiliates of Lehman Brothers Inc. and UBS
Warburg LLC hold some of our outstanding debt obligations and affiliates of
Credit Suisse First Boston Corporation, Banc of America Securities LLC, CIBC
World Markets Corp. and UBS Warburg LLC are lenders under some of our
bank-credit facilities. See "Recent Developments", "Financial Condition and
Liquidity" and "Use of Proceeds" in this prospectus supplement. They have
received customary fees and commissions for these transactions.
Because more than ten percent of the net proceeds of this offering may be
paid to members or affiliates of members of the National Association of
Securities Dealers, Inc. participating in this offering, this offering will be
conducted in accordance with NASD Conduct Rule 2710(c)(8).
FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus and accompanying prospectus
supplement, excluding historical information, include forward-looking
statements -- statements that discuss our expected future results based on
current and pending business operations. We make these forward-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 we believe 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 prospectus
supplement and accompanying prospectus.
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 we are 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 we utilize 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 we have made direct investments;
S-27
<PAGE> 28
- 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;
- Fluctuating energy commodity prices;
- The ability of our 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;
- The ability of SBC Communications Inc. 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;
- Successful completion of the spin-off within schedule;
- 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 Williams
Communications' Solutions business unit; and
- The ability of Williams Communications' Solutions business to introduce
and market competitive products and services.
LEGAL MATTERS
William G. von Glahn, Senior Vice President and General Counsel of Williams
will pass upon certain legal matters for Williams in connection with the
securities offered by this prospectus supplement and accompanying prospectus.
Davis Polk & Wardwell, New York, New York, will pass upon certain legal matters
for the underwriters in connection with the securities offered by this
prospectus supplement and accompanying prospectus. Davis Polk & Wardwell has
from time to time represented, and may continue to represent, us and our
affiliates in certain legal matters. As of the date of this prospectus
supplement, Mr. von Glahn beneficially owns, directly or indirectly,
approximately 192,418 shares of Williams' common stock and also has exercisable
options to purchase an additional 135,504 shares of Williams' common stock.
S-28
<PAGE> 29
PROSPECTUS
THE WILLIAMS COMPANIES, INC.
$1,775,000,000
DEBT SECURITIES,
PREFERRED STOCK AND
COMMON STOCK
----------------------
We will provide the specific terms of each series or issue of securities in
supplements to this prospectus. You should read this prospectus and the
supplements carefully before you invest.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------------
The date of this prospectus is December 5, 2000
<PAGE> 30
WHERE YOU CAN FIND MORE INFORMATION
Williams has filed with the Securities and Exchange Commission in
Washington, D.C., a registration statement on Form S-3 under the Securities Act
of 1933 for the securities offered in this prospectus. Williams has not included
certain portions of the registration statement in this prospectus, as permitted
by the Commission's rules and regulations. For further information, you should
refer to the registration statement and its exhibits. Williams is subject to the
informational requirements of the Securities Exchange Act of 1934, and therefore
files reports and other information with the Commission.
You may inspect and copy the registration statement and its exhibits, as
well as such reports and other information which Williams files with the
Commission, at the public reference facilities of the Commission at its
principal offices at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and its regional offices at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. You can obtain information on the
operation of the Commission's public reference facilities by calling
1-800-SEC-0330. Information filed by Williams is also available at the
Commission's worldwide web site at http://www.sec.gov. You can also obtain these
materials at set rates from the Public Reference Section of the Commission at
its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549.
----------------------
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS AND ITS SUPPLEMENT(S). WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS OR ANY SUPPLEMENT IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
----------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Williams is incorporating by reference its annual report on Form 10-K/A for
the fiscal year ended December 31, 1999, its quarterly reports on Form 10-Q for
the quarters ended March 31, 2000, June 30, 2000, and September 30, 2000, and
its current reports on Form 8-K filed January 19, 2000, March 1, 2000, July 24,
2000, August 2, 2000, October 26, 2000, and November 29, 2000.
All documents which Williams files pursuant to Sections 13, 14, or 15(d) of
the Exchange Act after the date of this prospectus and prior to the termination
of this offering shall be deemed to be incorporated by reference in this
prospectus and to be a part of this prospectus from the date of filing of such
documents. Any statement contained in a document incorporated by reference in
this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement in this prospectus or in any
subsequently filed document that also is or is deemed to be incorporated by
reference modifies or replaces such statement.
Williams will provide without charge to each person to whom a copy of this
prospectus has been delivered, upon the written or oral request of any such
person, a copy of any or all of the documents incorporated by reference herein,
other than exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this prospectus
incorporates. You should direct written or oral requests for such copies to: The
Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention:
Corporate Secretary, telephone (918) 573-2000.
1
<PAGE> 31
THE WILLIAMS COMPANIES, INC.
Williams is a holding company headquartered in Tulsa, Oklahoma. 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
trillion cubic feet 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,
11 natural gas treating plants, and 15 natural gas processing plants (one
of which is partially owned);
- natural gas liquids transportation through ownership and operation of
approximately 13,508 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 80 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 46 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 a nationwide intercity telecommunications fiber
optic network, which is being extended locally and globally;
- Internet-, data-, voice-, and video-transmission related products and
services for communications service providers;
- 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.
Williams was originally incorporated under the laws of the State of Nevada
in 1949 and was reincorporated under the laws of the State of Delaware in 1987.
Williams maintains its principal executive offices at One Williams Center,
Tulsa, Oklahoma 74172, telephone (918) 573-2000.
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ORGANIZATION CHART
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. The following chart shows Williams' principal subsidiaries.
[CHART]
WILLIAMS DEPENDS ON PAYMENTS FROM ITS SUBSIDIARIES
The debt securities, preferred stock or common stock offered by a
prospectus supplement will represent obligations of, or an investment in,
Williams exclusively. Williams is a holding company and conducts substantially
all of its operations through subsidiaries. Williams performs management, legal,
financial, tax, consulting, administrative, and other services for its
subsidiaries. Williams' principal sources of cash are from external financings,
dividends and advances from its subsidiaries, investments, payments by
subsidiaries for services rendered, and interest payments from subsidiaries on
cash advances. The amount of dividends available to Williams from subsidiaries
largely depends upon each subsidiary's earnings and operating capital
requirements. The terms of some of Williams' subsidiaries' borrowing
arrangements limit the transfer of funds to Williams. In addition, the ability
of Williams' subsidiaries to make any payments to Williams will depend on the
subsidiaries' earnings, business and tax considerations, and legal restrictions.
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CLAIMS OF HOLDERS OF DEBT SECURITIES AND PREFERRED STOCK RANK JUNIOR TO THOSE OF
CREDITORS OF WILLIAMS' SUBSIDIARIES
As a result of the holding company structure, the debt securities and
preferred stock will effectively rank junior to all existing and future debt,
trade payables, and other liabilities of Williams' subsidiaries. Any right of
Williams and its creditors to participate in the assets of any of Williams'
subsidiaries upon any liquidation or reorganization of any such subsidiary will
be subject to the prior claims of that subsidiary's creditors, including trade
creditors, except to the extent that Williams may itself be a creditor of such
subsidiary.
USE OF PROCEEDS
Unless otherwise indicated in the applicable prospectus supplement,
Williams will use the net proceeds from the sale of the securities for general
corporate purposes, including repayment of outstanding debt. Williams
anticipates that it will raise additional funds from time to time through debt
financings, including borrowings under its bank credit agreements.
RATIOS OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
The following table presents Williams' consolidated ratio of earnings to
fixed charges for the periods shown.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2000 1999 1998 1997 1996 1995
--------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.87 1.31 1.40 2.34 2.72 2.26
</TABLE>
The following table presents Williams' consolidated ratio of earnings to
combined fixed charges and preferred stock dividend requirements for the periods
shown.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------
2000 1999 1998 1997 1996 1995
--------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.87 1.30 1.37 2.27 2.63 2.16
</TABLE>
DESCRIPTION OF DEBT SECURITIES
The debt securities will constitute either senior or subordinated debt of
Williams. Williams will issue debt securities that will be senior debt under the
senior debt indenture between Williams and Bank One Trust Company, National
Association, as Trustee. Williams will issue debt securities that will be
subordinated debt under the subordinated debt indenture between Williams and
Bank One Trust Company, National Association, as trustee. This prospectus refers
to the senior debt indenture and the subordinated debt indenture individually as
the indenture and collectively as the indentures. This prospectus refers to Bank
One Trust Company, National Association, as the trustee. Williams has filed the
forms of the indentures as exhibits to the registration statement.
THE FOLLOWING SUMMARIES OF CERTAIN PROVISIONS OF THE INDENTURES AND THE
DEBT SECURITIES ARE NOT COMPLETE AND THESE SUMMARIES ARE SUBJECT TO THE DETAILED
PROVISIONS OF THE APPLICABLE INDENTURE. FOR A FULL DESCRIPTION OF THESE
PROVISIONS, INCLUDING THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS,
AND FOR OTHER INFORMATION REGARDING THE DEBT SECURITIES, SEE THE
INDENTURES. Wherever this prospectus refers to particular sections or defined
terms of the applicable indenture, these sections or defined terms are
incorporated by reference in this prospectus as part of the statement made, and
the statement is qualified
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in its entirety by such reference. The indentures are substantially identical,
except for the provisions relating to subordination and Williams' limitation on
liens. See "-- Subordinated Debt" and "-- Certain Covenants of Williams."
Neither indenture contains any covenant or provision which affords debt holders
protection in the event of a highly leveraged transaction.
CERTAIN DEFINITIONS
Certain terms in Article One of the senior debt indenture are summarized as
follows:
"Consolidated Funded Indebtedness" means the aggregate of all outstanding
Funded Indebtedness of Williams and its consolidated Subsidiaries determined on
a consolidated basis in accordance with generally accepted accounting
principles.
"Consolidated Net Tangible Assets" means the total assets appearing on a
consolidated balance sheet of Williams and its consolidated subsidiaries less,
in general:
- intangible assets;
- current and accrued liabilities (other than Consolidated Funded
Indebtedness and capitalized rentals or leases), deferred credits,
deferred gains, and deferred income;
- reserves;
- advances to finance oil or natural gas exploration and development to the
extent that the indebtedness related thereto is excluded from Funded
Indebtedness;
- an amount equal to the amount excluded from Funded Indebtedness
representing "production payment" financing of oil or natural gas
exploration and development; and
- minority stockholder interests.
"Funded Indebtedness" means any indebtedness which matures more than one
year after the date the amount of Funded Indebtedness is being determined, less
any such indebtedness as will be retired by any deposit or payment required to
be made within one year from such date under any prepayment provision, sinking
fund, purchase fund, or otherwise. Funded Indebtedness does not, however,
include indebtedness of Williams or any of its subsidiaries incurred to finance
outstanding advances to others to finance oil or natural gas exploration and
development, to the extent that the latter are not in default in their
obligations to Williams or such subsidiary. Funded Indebtedness also does not
include indebtedness of Williams or any of its subsidiaries incurred to finance
oil or natural gas exploration and development through what is commonly referred
to as a "production payment" to the extent that Williams or any of its
subsidiaries have not guaranteed the repayment of the production payment.
You should note that the term "subsidiary," as used in this section
describing the debt securities, refers only to a corporation in which Williams,
or another subsidiary or subsidiaries of Williams, owns at least a majority of
the outstanding securities which have voting power.
GENERAL TERMS OF THE DEBT SECURITIES
Neither of the indentures limits the amount of debt securities, debentures,
notes, or other evidences of indebtedness that Williams or any of its
subsidiaries may issue. The debt securities will be unsecured senior or
subordinated obligations of Williams. Williams' subsidiaries own all of the
operating assets of Williams and its subsidiaries. Therefore, Williams' rights
and the rights of Williams' creditors, including holders of debt securities, to
participate in the assets of any subsidiary upon the subsidiary's liquidation or
recapitalization will be subject to the prior claims of the subsidiary's
creditors, except to the extent that Williams may itself be a creditor with
recognized claims against the subsidiary. The ability of Williams to pay
principal of and interest on the debt securities is, to a large extent,
dependent upon dividends or other payments from its subsidiaries.
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The indentures provide that Williams may issue debt securities from time to
time in one or more series and that Williams may denominate the debt securities
and make them payable in foreign currencies. The relevant prospectus supplement
will describe special United States federal income tax considerations applicable
to any debt securities denominated and payable in a foreign currency.
TERMS YOU WILL FIND IN THE PROSPECTUS SUPPLEMENT
The prospectus supplement will provide information relating to the debt
securities and the following terms of the debt securities, to the extent such
terms are applicable to the debt securities described in a particular prospectus
supplement:
- classification as senior or subordinated debt securities;
- ranking of the specific series of debt securities relative to other
outstanding indebtedness, including subsidiaries' debt;
- if the debt securities are subordinated, the aggregate amount of
outstanding indebtedness, as of a recent date, that is senior to the
subordinated securities, and any limitation on the issuance of additional
senior indebtedness;
- the specific designation, aggregate principal amount, purchase price, and
denomination of such debt securities;
- currency or units based on or relating to currencies in which such debt
securities are denominated and/or in which principal, premium, if any,
and/or any interest will or may be payable;
- maturity date;
- interest rate or rates, if any, or the method by which the rate will be
determined;
- the dates on which any interest will be payable;
- the place or places where the principal of and interest, if any, on the
debt securities will be payable;
- any redemption or sinking fund provisions;
- whether the debt securities will be issuable in registered or bearer form
or both and, if debt securities in bearer form are issuable, restrictions
applicable to the exchange of one form for another and to the offer,
sale, and delivery of debt securities in bearer form;
- any applicable United States federal income tax consequences, including
whether and under what circumstances Williams will pay additional amounts
on debt securities held by a person who is not a U.S. person, as defined
in the prospectus supplement, in respect of any tax, assessment, or
governmental charge withheld or deducted, and if so, whether Williams
will have the option to redeem such debt securities rather than pay such
additional amounts; and
- any other specific terms of the debt securities, including any additional
events of default or covenants with respect to such debt securities.
Holders of debt securities may present debt securities for exchange in the
manner, at the places, and subject to the restrictions set forth in the debt
securities and the prospectus supplement. Holders of registered debt securities
may present debt securities for transfer in the manner, at the places, and
subject to the restrictions set forth in the debt securities and the prospectus
supplement. Williams will provide these services without charge, other than any
tax or other governmental charge payable in connection therewith, but subject to
the limitations provided in the applicable indenture. Debt securities in bearer
form and the coupons, if any, appertaining thereto will be transferable by
delivery.
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<PAGE> 36
INTEREST RATE
Debt securities that bear interest will do so at a fixed rate or a floating
rate. Williams will sell, at a discount below the stated principal amount, any
debt securities which bear no interest or which bear interest at a rate that at
the time of issuance is below the prevailing market rate.
The relevant prospectus supplement will describe the special United States
federal income tax considerations applicable to:
- any discounted debt securities; or
- certain debt securities issued at par which are treated as having been
issued at a discount for United States federal income tax purposes.
REGISTERED GLOBAL SECURITIES
Williams may issue registered debt securities of a series in the form of
one or more fully registered global securities. Williams will deposit the
registered global security with a depositary or with a nominee for a depositary
identified in the prospectus supplement relating to such series. Williams will
then issue one or more registered global securities in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding registered debt securities of the series to be represented by the
registered global security or securities. Unless and until it is exchanged in
whole or in part for debt securities in definitive registered form, a registered
global security may not be transferred, except as a whole in three cases:
- by the depositary for the registered global security to a nominee of the
depositary;
- by a nominee of the depositary to the depositary or another nominee of
the depositary; or
- by the depositary or any nominee to a successor of the depositary or a
nominee of the successor.
The prospectus supplement relating to a series of debt securities will
describe the specific terms of the depositary arrangement concerning any portion
of the debt securities to be represented by a registered global security.
Williams anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a registered global security, the depositary for the
registered global security will credit, on its book-entry registration and
transfer system, the principal amounts of the debt securities represented by the
registered global security to the accounts of persons that have accounts with
the depositary. These persons are referred to as "participants." Any
underwriters or agents participating in the distribution of debt securities
represented by the registered global security will designate the accounts to be
credited. Only participants or persons that hold interests through participants
will be able to beneficially own interests in a registered global security. The
depositary for a global security will maintain records of beneficial ownership
interests in a registered global security for participants. Participants or
persons that hold through participants will maintain records of beneficial
ownership interests in a global security for persons other than participants.
These records will be the only means to transfer beneficial ownership in a
registered global security.
So long as the depositary for a registered global security, or its nominee,
is the registered owner of a registered global security, the depositary or its
nominee will be considered the sole owner or holder of the debt securities
represented by the registered global security for all purposes under the
applicable indenture. Except as set forth below, owners of beneficial interests
in a registered global security:
- may not have the debt securities represented by a registered global
security registered in their names;
- will not receive or be entitled to receive physical delivery of debt
securities represented by a registered global security in definitive
form; and
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<PAGE> 37
- will not be considered the owners or holders of debt securities
represented by a registered global security under the applicable
indenture.
PAYMENT OF INTEREST ON AND PRINCIPAL OF REGISTERED GLOBAL SECURITIES
Williams will make principal, premium, if any, and interest payments on
debt securities represented by a registered global security registered in the
name of a depositary or its nominee to the depositary or its nominee as the
registered owner of the registered global security. None of Williams, the
trustee, or any paying agent for debt securities represented by a registered
global security will have any responsibility or liability for:
- any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in such registered global security; or
- maintaining, supervising, or reviewing any records relating to beneficial
ownership interests.
Williams expects that the depositary, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their beneficial interests in the
principal amount of a registered global security as shown on the depositary's
records. Williams also expects that payments by participants to owners of
beneficial interests in a registered global security held through participants
will be governed by standing instructions and customary practices. This is
currently the case with the securities held for the accounts of customers
registered in "street name." Williams also expects that this payout will be the
responsibility of participants.
EXCHANGE OF REGISTERED GLOBAL SECURITIES
Williams will issue debt securities in definitive form in exchange for the
registered global security if:
- the depositary for any debt securities represented by a registered global
security is at any time unwilling or unable to continue as depositary;
and
- Williams does not appoint a successor depositary within ninety days.
In addition, Williams may, at any time, determine not to have any of the
debt securities of a series represented by one or more registered global
securities. In this event, Williams will issue debt securities of a series in
definitive form in exchange for all of the registered global security or
securities representing these debt securities.
SENIOR DEBT
Williams will issue under the senior debt indenture the debt securities and
any coupons that will constitute part of the senior debt of Williams. These
senior debt securities will rank equally and ratably with all other unsecured
and unsubordinated debt of Williams.
SUBORDINATED DEBT
Williams will issue under the subordinated debt indenture the debt
securities and any coupons that will constitute part of the subordinated debt of
Williams. These subordinated debt securities will be subordinate and junior in
right of payment, to the extent and in the manner set forth in the subordinated
debt indenture, to all "senior indebtedness" of Williams. The subordinated debt
indenture defines "senior indebtedness" as obligations of, or guaranteed or
assumed by, Williams for borrowed money or evidenced by bonds, debentures,
notes, or other similar instruments, and amendments, renewals, extensions,
modifications, and refundings of any such indebtedness or obligation. "Senior
indebtedness" does not include nonrecourse obligations, the subordinated debt
securities, or any other obligations specifically designated as being
subordinate in right of payment to senior indebtedness. See subordinated debt
indenture, section 1.1.
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In general, the holders of all senior indebtedness are entitled to receive
payment of the full amount unpaid on senior indebtedness before the holders of
any of the subordinated debt securities or coupons are entitled to receive a
payment on account of the principal or interest on the indebtedness evidenced by
the subordinated debt securities in certain events. These events include:
- any insolvency or bankruptcy proceedings, or any receivership,
liquidation, reorganization, or other similar proceedings which concern
Williams or a substantial part of its property;
- a default having occurred for the payment of principal, premium, if any,
or interest on or other monetary amounts due and payable on any senior
indebtedness or any other default having occurred concerning any senior
indebtedness, which permits the holder or holders of any senior
indebtedness to accelerate the maturity of any senior indebtedness with
notice or lapse of time, or both. This type of an event of default must
have continued beyond the period of grace, if any, provided for this type
of an event of default under the senior indebtedness, and this type of an
event of default shall not have been cured or waived or shall not have
ceased to exist; or
- the principal of, and accrued interest on, any series of the subordinated
debt securities having been declared due and payable upon an event of
default contained in the subordinated debt indenture. This declaration
must not have been rescinded and annulled as provided in the subordinated
debt indenture.
If this prospectus is being delivered in connection with a series of
subordinated debt securities, the accompanying prospectus supplement or the
information incorporated in this prospectus by reference will set forth the
approximate amount of senior indebtedness outstanding as of the end of the most
recent fiscal quarter.
CERTAIN COVENANTS OF WILLIAMS
Liens. The senior debt indenture refers to any instrument securing
indebtedness, such as a mortgage, pledge, lien, security interest, or
encumbrance on any property of Williams, as a "mortgage." The senior debt
indenture further provides that, subject to certain exceptions, Williams will
not, nor will it permit any subsidiary to, issue, assume, or guarantee any
indebtedness secured by a mortgage unless Williams provides equal and
proportionate security for the senior debt securities Williams issues under the
senior debt indenture. Among these exceptions are:
- certain purchase money mortgages;
- certain preexisting mortgages on any property acquired or constructed by
Williams or a subsidiary;
- certain mortgages created within one year after completion of such
acquisition or construction;
- certain mortgages created on any contract for the sale of products or
services related to the operation or use of any property acquired or
constructed within one year after completion of such acquisition or
construction;
- mortgages on property of a subsidiary existing at the time it became a
subsidiary of Williams; and
- mortgages, other than as specifically excepted, in an aggregate amount
which, at the time of, and after giving effect to, the incurrence does
not exceed five percent of Consolidated Net Tangible Assets. See the
senior debt indenture, section 3.6.
Consolidation, Merger, Conveyance of Assets. Each indenture provides, in
general, that Williams will not consolidate with or merge into any other entity
or convey, transfer, or lease its properties and assets substantially as an
entirety to any person unless:
- the corporation, limited liability company, limited partnership, joint
stock company, or trust formed by such consolidation or into which
Williams is merged or the person which acquires such assets
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expressly assumes Williams' obligations under the applicable indenture
and the debt securities issued under this indenture; and
- immediately after giving effect to such transaction, no event of default,
and no event which, after notice or lapse of time or both, would become
an event of default, shall have happened and be continuing. See section
9.1 of the indentures.
Event Risk. Except for the limitations on liens described above, neither
indenture nor the debt securities contains any covenants or other provisions
designed to afford holders of the debt securities protection in the event of a
highly leveraged transaction involving Williams.
EVENT OF DEFAULT
In general, each indenture defines an event of default with respect to debt
securities of any series issued under the indenture as being:
(a) default in payment of any principal of the debt securities of such
series, either at maturity, upon any redemption, by declaration, or
otherwise;
(b) default for 30 days in payment of any interest on any debt
securities of such series unless otherwise provided;
(c) default for 90 days after written notice in the observance or
performance of any covenant or warranty in the debt securities of that
series or that Indenture other than:
- default in or breach of a covenant which is dealt with otherwise
below, or
- if certain conditions are met, if the events of default described
in this clause (c) are the result of changes in generally
accepted accounting principles; or
(d) certain events of bankruptcy, insolvency, or reorganization of
Williams. See section 5.1 of the indentures.
In general, each indenture provides that if an event of default described
in clauses (a), (b), or (c) above occurs and does not affect all series of debt
securities then outstanding, the trustee or the holders of debt securities of
the relevant series may then declare the following amounts to be due and payable
immediately:
- the entire principal of all debt securities of each series affected by
the event of default; and
- the interest accrued on such principal.
Such a declaration by the holders requires the approval of at least 25
percent in principal amount of the debt securities of each series issued under
the applicable indenture and then outstanding, treated as one class, which are
affected by the event of default.
Each indenture also generally provides that if a default described in
clause (c) above which is applicable to all series of debt securities then
outstanding or certain events of bankruptcy, insolvency, and reorganization of
Williams occur and are continuing, the trustee or the holders of debt securities
may declare the entire principal of all such debt securities and interest
accrued thereon to be due and payable immediately. This declaration by the
holders requires the approval of at least 25 percent in principal amount of all
debt securities issued under the applicable indenture and then outstanding,
treated as one class. Upon certain conditions, the holders of a majority in
aggregate principal amount of the debt securities of all such affected series
then outstanding may annul such declarations and waive the past defaults.
However, the majority holders may not annul or waive a continuing default in
payment of principal of, premium, if any, or interest on such debt securities.
See sections 5.1 and 5.10 of the indentures.
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Each indenture provides that the holders of debt securities issued under
that indenture, treated as one class, will indemnify the trustee before the
trustee exercises any of its rights or powers under the indenture. This
indemnification is subject to the trustee's duty to act with the required
standard of care during a default. See section 6.2 of the indentures. The
holders of a majority in aggregate principal amount of the outstanding debt
securities of each series affected, treated as one class, issued under the
applicable indenture may direct the time, method, and place of:
- conducting any proceeding for any remedy available to the trustee; or
- exercising any trust or power conferred on the trustee.
This right of the holders of debt securities is, however, subject to the
provisions in each indenture providing for the indemnification of the trustee
and other specified limitations. See section 5.9 of the indentures.
In general, each indenture provides that holders of debt securities issued
under that indenture may only institute an action against Williams under the
indenture if the following four conditions are fulfilled:
- the holder previously has given to the trustee written notice of default
and the default continues;
- the holders of at least 25 percent in principal amount of the debt
securities of each affected series (treated as one class) issued under
the applicable indenture and then outstanding have requested the trustee
to institute such action and have offered the trustee reasonable
indemnity;
- the trustee has not instituted such action within 60 days of receipt of
such request; and
- the trustee has not received direction inconsistent with such written
request by the holders of a majority in principal amount of the debt
securities of each affected series (treated as one class) issued under
the applicable indenture and then outstanding. See sections 5.6, 5.7, and
5.9 of the indentures.
The above four conditions do not apply to actions by holders of the debt
securities under the applicable indenture against Williams for payment of
principal or interest on or after the due date provided. Each indenture contains
a covenant that Williams will file annually with the trustee a certificate of no
default or a certificate specifying any default that exists. See section 3.5 of
the indentures.
DISCHARGE, DEFEASANCE, AND COVENANT DEFEASANCE
Williams can discharge or defease its obligations under each indenture as
set forth below. See section 10.1 of the indentures.
Under terms satisfactory to the trustee, Williams may discharge certain
obligations to holders of any series of debt securities issued under the
applicable indenture which have not already been delivered to the trustee for
cancellation. These debt securities must also:
- have become due and payable;
- be due and payable by their terms within one year; or
- be scheduled for redemption by their terms within one year.
Williams may redeem any series of debt securities by irrevocably depositing
an amount certified to be sufficient to pay, at maturity or upon redemption, the
principal of and interest on such debt securities. Williams may make such
deposit in cash or, in the case of debt securities payable only in U.S. dollars,
U.S. Government Obligations, as defined in the applicable indenture.
Williams may also, upon satisfaction of the conditions listed below,
discharge certain obligations to holders of any series of debt securities issued
under such indenture at any time ("Defeasance"). Under terms satisfactory to the
trustee, Williams may be released with respect to any outstanding series of debt
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securities issued under the relevant indenture from the obligations imposed by
sections 3.6 and 9.1, in the case of the senior debt indenture, and section 9.1,
in the case of the subordinated debt indenture. These sections contain the
covenants described above limiting liens and consolidations, mergers and
conveyances of assets. Also under terms satisfactory to the trustee, Williams
may omit to comply with these sections without creating an event of default
("Covenant Defeasance"). Defeasance or Covenant Defeasance may be effected only
if, among other things:
- Williams irrevocably deposits with the trustee cash or, in the case of
debt securities payable only in U.S. dollars, U.S. Government obligations
as trust funds in an amount certified to be sufficient to pay at maturity
or upon redemption the principal of and interest on all outstanding debt
securities of the series issued under the applicable indenture;
- Williams delivers to the trustee an opinion of counsel to the effect that
the holders of the series of debt securities will not recognize income,
gain, or loss for United States federal income tax purposes as a result
of such Defeasance or Covenant Defeasance. Such opinion must further
state that these holders will be subject to United States federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if Defeasance or Covenant Defeasance had not
occurred. In the case of a Defeasance, this opinion must be based on a
ruling of the Internal Revenue Service or a change in United States
federal income tax law occurring after the date of the applicable
indenture, since this result would not occur under current tax law;
- in the case of the subordinated debt indenture, no event or condition
shall exist that, pursuant to certain provisions described under
"-- Subordinated Debt" above, would prevent Williams from making payments
of principal of or interest on the subordinated debt securities at the
date of the irrevocable deposit referred to above or at any time during
the period ending on the 91st day after the deposit date; and
- in the case of the subordinated indenture, Williams delivers to the
trustee for the subordinated debt indenture an opinion of counsel to the
effect that:
(1) the trust funds will not be subject to any rights of holders of
senior indebtedness; and
(2) after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization, or similar laws affecting creditors' rights generally.
If a court were to rule under any such law in any case or proceeding that
the trust funds remained property of Williams, counsel must give its opinion
only with respect to:
(1) the trustee's valid and perfected security interest in these trust
funds;
(2) adequate protection of holders of the subordinated debt securities
interests in these funds; and
(3) no prior rights of holders of senior debt securities in property
or interests granted to the trustee or holders of the subordinated debt
securities in exchange for or with respect to these trust funds.
MODIFICATION OF THE INDENTURES
Each indenture provides that Williams and the trustee may enter into
supplemental indentures, which conform to the provisions of the Trust Indenture
Act of 1939, without the consent of the holders to, in general:
- secure any debt securities;
- evidence the assumption by a successor person of the obligations of
Williams;
- add further covenants for the protection of the holders;
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- cure any ambiguity or correct any inconsistency in that indenture, so
long as the action will not adversely affect the interests of the
holders;
- establish the form or terms of debt securities of any series; and
- evidence the acceptance of appointment by a successor trustee. See
section 8.1 of the indentures.
Each indenture also permits Williams and the trustee to:
- add any provisions to that indenture;
- change in any manner that indenture;
- eliminate any of the provisions of that indenture; and
- modify in any way the rights of the holders of debt securities of each
series affected.
All of the above actions require the consent of the holders of at least a
majority in principal amount of debt securities of each series issued under that
indenture then outstanding and affected. These holders will vote as one class to
approve such changes.
Such changes must, however, conform to the Trust Indenture Act of 1939 and
Williams and the trustee may not, without the consent of each holder of
outstanding debt securities affected thereby:
- extend the final maturity of the principal of any debt securities;
- reduce the principal amount of any debt securities;
- reduce the rate or extend the time of payment of interest on any debt
securities;
- reduce any amount payable on redemption of any debt securities;
- change the currency in which the principal, including any amount in
respect of original issue discount, or interest on any debt securities is
payable;
- reduce the amount of any original issue discount security payable upon
acceleration or provable in bankruptcy;
- alter certain provisions of the indenture relating to debt securities not
denominated in U.S. dollars or for which conversion to another currency
is required to satisfy the judgment of any court;
- impair the right to institute suit for the enforcement of any payment on
any debt securities when due; or
- reduce the percentage in principal amount of debt securities of any
series issued under the applicable indenture, the consent of the holders
of which is required for any such modification. See section 8.2 of the
indentures.
The subordinated debt indenture may not be amended to alter the
subordination of any outstanding subordinated debt securities without the
consent of each holder of senior indebtedness then outstanding that would be
adversely affected by such an amendment. See the subordinated debt indenture,
section 8.6.
CONVERSION RIGHTS
The prospectus supplement will provide if a series of securities is
convertible into our common stock and the initial conversion price per share at
which the securities may be converted.
If we have not redeemed a convertible security, the holder of the
convertible security may convert the security, or any portion of the principal
amount in integral multiples of $1,000, at the conversion price in effect at the
time of conversion, into shares of Williams' common stock. Conversion rights
expire at the close of business on the date specified in the prospectus
supplement for a series of convertible securities.
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Conversion rights expire at the close of business on the redemption date in the
case of any convertible securities that we call for redemption.
In order to exercise the conversion privilege, the holder of the
convertible security must surrender to us, at any office or agency maintained
for that purpose, the security with a written notice of the election to convert
the security, and, if the holder is converting less than the entire principal
amount of the security, the amount of security to be converted. In addition, if
the convertible security is converted during the period between a record date
for the payment of interest and the related interest payment date, the person
entitled to convert the security must pay us an amount equal to the interest
payable on the principal amount being converted.
We will not pay any interest on converted securities on any interest
payment date after the date of conversion expect for those securities
surrendered during the period between a record date for the payment of interest
and the related interest payment date.
Convertible securities shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of the security. We will
not issue any fractional shares of stock upon conversion, but we will make an
adjustment in cash based on the market price at the close of business on the
date of conversion.
The conversion price will be subject to adjustment in the event of:
- payment of stock dividends or other distributions on our common stock;
- issuance of rights or warrants to all our stockholders entitling them to
subscribe for or purchase our stock at a price less than the market price
of our common stock;
- the subdivision of our common stock into a greater or lesser number of
shares of stock;
- the distribution to all stockholders of evidences of our indebtedness or
assets, excluding stock dividends or other distributions and rights or
warrants; or
- the reclassification of our common stock into other securities.
We may also decrease the conversion price as we consider necessary so that any
event treated for Federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of our common stock.
We will pay any and all transfer taxes that may be payable in respect of
the issue or delivery of shares of common stock on conversion of the securities.
We are not required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares in a name other than that
of the holder of the security to be converted and no issue and delivery shall be
made unless and until the person requesting the issue has paid the amount of any
such tax or established to our satisfaction that such tax has been paid.
After the occurrence of:
- consolidation with or merger of Williams into any other corporation,
- any merger of another corporation into Williams, or
- any sale or transfer of substantially all of the assets of Williams,
which results in any reclassification, change or conversion of our common stock,
the holders of any convertible securities will be entitled to receive on
conversion the kind and amount of shares of common stock or other securities,
cash or other property receivable upon such event by a holder of our common
stock immediately prior to the occurrence of the event.
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CONCERNING THE TRUSTEE
The trustee is one of a number of banks with which Williams and its
subsidiaries maintain ordinary banking relationships and with which Williams and
its subsidiaries maintain credit facilities.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
Debt securities in bearer form are subject to special U.S. tax requirements
and may not be offered, sold, or delivered within the United States or its
possessions or to a U.S. person, except in certain transactions permitted by
U.S. tax regulations. Investors should consult the prospectus supplement in the
event that bearer debt securities are issued for special procedures and
restrictions that will apply to such an offering.
DESCRIPTION OF PREFERRED STOCK
Under the Williams' certificate of incorporation, as amended, Williams is
authorized to issue up to 30,000,000 shares of preferred stock, par value $1.00
per share, in one or more series. At September 30, 2000, no shares of preferred
stock were outstanding. The following description of preferred stock sets forth
certain general terms and provisions of the series of preferred stock to which
any prospectus supplement may relate. The prospectus supplement relating to a
particular series of preferred stock will describe certain other terms of such
series of preferred stock. If so indicated in the prospectus supplement relating
to a particular series of preferred stock, the terms of any such series of
preferred stock may differ from the terms set forth below. The description of
preferred stock set forth below and the description of the terms of a particular
series of preferred stock set forth in the related prospectus supplement are not
complete and are qualified in their entirety by reference to the certificate of
incorporation and to the certificate of designation relating to that series of
preferred stock.
The rights of the holders of each series of preferred stock will be
subordinate to those of Williams' general creditors.
GENERAL TERMS OF THE PREFERRED STOCK
The certificate of incorporation will set forth the designations,
preferences, and relative, participating, optional and other special rights, and
the qualifications, limitations, and restrictions of the preferred stock of each
series. To the extent the certificate of incorporation does not set forth the
rights and limitations, they shall be fixed by the certificate of designation
relating to the series. A prospectus supplement, relating to each series, shall
specify the terms of the preferred stock as follows:
- the distinctive designation of the series and the number of shares which
shall constitute the series;
- the rate of dividends, if any, payable on shares of the series, the date,
if any, from which the dividends shall accrue, the conditions upon which
and the date when the dividends shall be payable, and whether the
dividends shall be cumulative or noncumulative;
- the amounts which the holders of the preferred stock of the series shall
be entitled to be paid in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of Williams; and
- whether or not the preferred stock of the series shall be redeemable and
at what times and under what conditions and the amount or amounts payable
thereon in the event of redemption.
The prospectus supplement may, in a manner not inconsistent with the
provisions of the certificate of incorporation:
- limit the number of shares of the series that may be issued;
- provide for a sinking fund for the purchase or redemption or a purchase
fund for the purchase of shares of the series, set forth the terms and
provisions governing the operation of any fund, and
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establish the status as to reissue of shares of preferred stock purchased
or otherwise reacquired or redeemed or retired through the operation of
the sinking or purchase fund;
- grant voting rights to the holder of shares of the series, in addition to
and not inconsistent with those granted by the certificate of
incorporation to the holders of preferred stock;
- impose conditions or restrictions upon the creation of indebtedness of
Williams or upon the issue of additional preferred stock or other capital
stock ranking equally with or prior to the preferred stock or capital
stock as to dividends or distribution of assets on liquidation;
- impose conditions or restrictions upon the payment of dividends upon, the
making of other distributions to, or the acquisition of junior stock;
- grant to the holders of the preferred stock of the series the right to
convert the preferred stock into shares of another series or class of
capital stock; and
- grant other special rights to the holders of shares of the series as the
board of directors may determine and as shall not be inconsistent with
the provisions of the certificate of incorporation.
DIVIDENDS
Holders of the preferred stock of any series shall be entitled to receive,
when and as declared by the board of directors, preferential dividends in cash
at the rate per annum, if any, fixed for the series. Their entitlement will be
subject to any limitations specified in the certificate of designation providing
for the issuance of a particular series of preferred stock. The certificate of
designation providing for the issuance of preferred stock of the series may
specify the date on which the preferential dividends are payable. The
preferential dividends shall further be payable to stockholders of record on a
date which precedes each dividend payment date which the board of directors has
fixed in advance of each particular dividend.
Each share of preferred stock shall rank on a parity with each other share
of preferred stock, irrespective of series, with respect to preferential
dividends accrued on the shares of the series. Williams will not declare or pay
any dividend nor will it set apart a dividend for payment for the preferred
stock of any series unless at the same time Williams declares, pays, or sets
apart a dividend in like proportion to the dividends accrued upon the preferred
stock of each other series. This does not, however, prevent Williams from
authorizing or issuing one or more series of preferred stock bearing dividends
subject to contingencies as to the existence or amount of earnings of Williams
during one or more fiscal periods, or as to other events, to which dividends on
other series of preferred stock are not subject.
So long as any shares of preferred stock remain outstanding, Williams will
not, unless all dividends accrued on outstanding shares of preferred stock for
all past dividend periods shall have been paid, or declared and a sum sufficient
for the payment of the dividends set apart:
- pay or declare any dividends whatsoever, whether in cash, stock, or
otherwise;
- make any distribution on any class of junior stock;
- purchase, retire, or otherwise acquire for valuable consideration any
shares of preferred stock (subject to certain limitations) or junior
stock.
The ability of Williams, as a holding company, to pay dividends on the
preferred stock will depend upon the payment of dividends, interest, or other
charges by subsidiaries to it. Debt instruments of certain subsidiaries of
Williams limit the amount of payments to Williams, which could affect the amount
of funds available to Williams to pay dividends on the preferred stock.
Bank One Trust Company, National Association, is the registrar, transfer
agent, and dividend disbursing agent for the shares of the preferred stock.
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REDEMPTION
With the approval of its board of directors, Williams may redeem all or any
part of the preferred stock of any series that by its terms is redeemable.
Redemption will take place at the time or times and on the terms and conditions
fixed for the series. Williams must duly give notice in the manner provided in
the certificate of designation providing for this series. Williams must pay for
preferred stock in cash the sum fixed for this series, together, in each case,
with an amount equal to accrued and unpaid dividends on the series of preferred
stock. The certificate of designation providing for a series of preferred stock
which is subject to redemption may provide, upon the two conditions discussed
below, that the shares will no longer be deemed outstanding, and all rights with
respect to the shares will cease, including the accrual of further dividends,
other than the right to receive the redemption price of the shares without
interest, when:
- Williams has given notice of redemption of all or part of the shares of
the series; and
- Williams has set aside or deposited with a suitable depositary for the
proportionate benefit of the shares called for redemption the redemption
price of these shares, together with accrued dividends to the date fixed
as the redemption date.
Redemption will terminate the right of holders of the preferred stock to
accrual of further dividends. Redemption will not, however, terminate the right
of holders of the shares redeemed to receive the redemption price for these
shares without interest.
VOTING RIGHTS
The preferred stock will have no right or power to vote on any question or
in any proceeding or to be represented at or to receive notice of any meeting of
stockholders, except as:
- stated in this prospectus;
- expressly provided by law; or
- provided in the certificate of designation of the series of preferred
stock.
On any matters on which the holders of the preferred stock or any series
thereof shall be entitled to vote separately as a class or series, they shall be
entitled to one vote for each share held.
So long as any shares of preferred stock are outstanding, Williams must
not, during the continuance of any default in the payment of dividends on the
preferred stock, redeem or otherwise acquire for value any shares of the
preferred stock or of any other stock ranking on a parity with the preferred
stock concerning dividends or distribution of assets on liquidation. Holders of
a majority of the number of shares of preferred stock outstanding at the time
may, however, permit such a redemption by giving their consent in person or by
proxy, either in writing or by vote at any annual meeting or any special meeting
called for the purpose.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution, or winding up of the affairs
of Williams, voluntary or involuntary, the holders of the preferred stock of the
respective series are entitled to be paid in full the following amounts:
- the amount fixed in the certificate of designation providing for the
issue of shares of the series; plus
- a sum equal to all accrued and unpaid dividends on the shares of
preferred stock to the date of payment of the dividends.
Williams must have made this payment in full to the holders of the
preferred stock before it may make any distribution or payment to the holders of
any class of stock of Williams ranking junior to the preferred stock as to
dividends or distribution of assets on liquidation. After Williams has made this
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payment in full to the holders of the preferred stock, the remaining assets and
funds of Williams will be distributed among the holders of the stock of Williams
ranking junior to the preferred stock according to their rights. If the assets
of Williams available for distribution to holders of preferred stock are
sufficient to make the payment required to be made in full, these assets will be
distributed to the holders of shares of preferred stock proportionately to the
amounts payable upon each share of preferred stock.
PREFERRED STOCK PURCHASE RIGHTS
On February 6, 1996, Williams entered into a rights agreement with The
First Chicago Trust Company of New York, as rights agent, which currently
provides for a dividend of one-third preferred stock purchase right for each
outstanding share of Williams' common stock. The rights trade automatically with
shares of common stock and become exercisable only under the circumstances
described below. The rights are designed to protect the interests of Williams
and its stockholders against coercive takeover tactics. The purpose of the
rights is to encourage potential acquirers to negotiate with the board of
directors of Williams prior to attempting a takeover and to provide the board
with leverage in negotiating on behalf of all stockholders the terms of any
proposed takeover. The rights may have anti-takeover effects. The rights should
not, however, interfere with any merger or other business combination approved
by the board of directors of Williams.
Until a right is exercised, the right does not entitle the holder to
additional rights as a Williams' stockholder, including, without limitation, the
right to vote or to receive dividends. Upon becoming exercisable, each right
entitles its holder to purchase from Williams one two-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise or purchase price
of $140.00 per right, subject to adjustment. Each one two-hundredth of a share
of Series A Junior Participating Preferred Stock entitles the holder to receive
quarterly dividends payable in cash of an amount per share equal to:
- the greater of (a) $120, or (b) 1200 times the aggregate per share amount
of all cash dividends; plus
- 1200 times the aggregate per share amount payable in kind of all non-cash
dividends or other distributions other than dividends payable in common
stock, since the immediately preceding quarterly dividend payment date.
The dividends on the Junior Participating Preferred Stock are cumulative.
Holders of Junior Participating Preferred Stock have voting rights entitling
them to 1200 votes per share on all matters submitted to a vote of the
stockholders of Williams.
In general, the rights will not be exercisable until the distribution date,
which is the earlier of (a) the close of business on the 10th business day after
Williams learns that a person or group has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of our outstanding common stock,
(b) the close of business on the 10th business day after the commencement of a
tender or exchange offer for 15% or more of Williams' outstanding common stock,
or (c) the close of business on the 10th business day after the board of
directors of Williams determines that any adverse person or group has become the
beneficial owner of an amount of common stock which the board of directors
determines to be substantial. Below we refer to the person or group acquiring at
least 15% of our common stock as an acquiring person.
In the event that a person or group acquires beneficial ownership of 15% or
more of Williams' outstanding common stock or the board of directors of Williams
determines that any adverse person or group has become the beneficial owner of a
substantial amount of common stock, each holder of a right will have the right
to exercise and receive common stock having a value equal to two times the
exercise price of the right. The exercise price is the purchase price times the
number of shares of common stock associated with each right. Any rights that are
at any time beneficially owned by an acquiring person will be null and void and
any holder of such right will be unable to exercise or transfer the right.
In the event that someone becomes an acquiring person and either (a)
Williams is involved in a merger or other business combination in which Williams
is not the surviving corporation, (b) Williams is
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involved in a merger or other business combination in which Williams is the
surviving corporation but all or a part of its common stock is changed or
exchanged, or (c) 50% or more of Williams' assets, cash flow or earning power is
sold or transferred, each right becomes exercisable and each right will entitle
its holder to receive common stock of the acquiring person having a value equal
to two times the exercise price of the right.
The rights will expire at the close of business on February 6, 2006, unless
redeemed before that time. At any time prior to the earlier of (a) 10 days
following the stock acquisition date, as defined in the rights agreement, and
(b) the expiration date, the board of directors of Williams may redeem the
rights in whole, but not in part, at a price of $.01 per right. Prior to the
distribution date, Williams may amend the rights agreement in any respect
without the approval of the rights holders. However, after the distribution
date, the rights agreement may not be amended in any way that would adversely
affect the holders of rights (other than any acquiring person or group) or cause
the rights to again become redeemable. The Junior Participating Preferred Stock
ranks junior to all other series of Williams' preferred stock as to the payment
of dividends and the distribution of assets unless the terms of the series
specify otherwise.
You should refer to the applicable provisions of the rights agreement,
which is incorporated by reference as Exhibit 4 to Form 8-K filed January 24,
1996.
DESCRIPTION OF COMMON STOCK
As of the date of this prospectus, Williams is authorized to issue up to
960,000,000 shares of common stock. As of September 30, 2000, Williams had
issued 469,602,588 shares of common stock. In addition, at September 30, 2000,
options to purchase 23,410,833 shares of common stock were outstanding under
various stock and compensation incentive plans. The outstanding shares of
Williams' common stock are fully paid and nonassessable. The holders of
Williams' common stock are not entitled to preemptive or redemption rights.
Shares of Williams' common stock are not convertible into shares of any other
class of capital stock. First Chicago Trust Company of New York, a division of
EquiServe, is the transfer agent and registrar for our common stock.
Williams currently has the following provisions in its charter or bylaws
which could be considered to be "anti-takeover" provisions: (i) an article in
its charter providing for a classified board of directors divided into three
classes, one of which is elected for a three-year term at each annual meeting of
stockholders, (ii) an article in its charter providing that directors cannot be
removed except for cause and by the affirmative vote of three-fourths of the
outstanding shares of common stock, (iii) an article in its charter requiring
the affirmative vote of three-fourths of the outstanding shares of common stock
for certain merger and asset sale transactions with holders of more than five
percent of the voting power of Williams, and (iv) a bylaw requiring stockholders
to provide prior notice for nominations for election to the board of directors
or for proposing matters which can be acted upon at stockholders meetings.
Williams is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an interested
stockholder (defined generally as a person owning 15% or more of Williams'
outstanding voting stock) from engaging in a business combination with Williams
for three years following the date that person became an interested stockholder
unless: (i) before that person became an interested stockholder, the board of
directors of Williams approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of Williams outstanding at
the time the transaction commenced (excluding stock held by persons who are both
directors and officers of Williams or by certain employee stock plans); or (iii)
on or following the date on which that person became an interested stockholder,
the business combination is approved by Williams' board of directors and
authorized at a meeting of stockholders by the affirmative vote of the holders
of a least 66 2/3% of the outstanding voting stock of Williams (excluding shares
held by the interested stockholder). A business combination includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder.
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DIVIDENDS
The holders of Williams' common stock are entitled to receive dividends
when, as, and if declared by the board of directors of Williams, out of funds
legally available for their payment subject to the rights of holders of any
outstanding preferred stock.
VOTING RIGHTS
The holders of Williams' common stock are entitled to one vote per share on
all matters submitted to a vote of stockholders.
RIGHTS UPON LIQUIDATION
In the event of Williams' voluntary or involuntary liquidation,
dissolution, or winding up, the holders of Williams' common stock will be
entitled to share equally in any assets available for distribution after the
payment in full of all debts and distributions and after the holders of all
series of outstanding preferred stock have received their liquidation
preferences in full.
PLAN OF DISTRIBUTION
Williams may sell the securities through agents, through underwriters,
through dealers, and directly to purchasers.
Agents designated by Williams from time to time may solicit offers to
purchase the securities. The prospectus supplement will name any such agent who
may be deemed to be an underwriter, as that term is defined in the Securities
Act, involved in the offer or sale of the securities in respect of which this
prospectus is delivered. The prospectus supplement will also set forth any
commissions payable by Williams to such agent. Unless otherwise indicated in the
prospectus supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.
If Williams uses any underwriters in the sale, Williams will enter into an
underwriting agreement with the underwriters at the time of sale to them. The
prospectus supplement which the underwriter will use to make resales to the
public of the securities in respect of which this prospectus is delivered will
set forth the names of the underwriters and the terms of the transaction.
If a dealer is utilized in the sale of the securities in respect of which
this prospectus is delivered, Williams will sell the securities to the dealer,
as principal. The dealer may then resell the securities to the public at varying
prices to be determined by the dealer at the time of resale.
Agents, dealers, and underwriters may be entitled under agreements entered
into with Williams to indemnification by Williams against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments which such agents, dealers, or underwriters may be
required to make in respect of such civil liabilities. Agents, dealers, and
underwriters may be customers of, engage in transactions with, or perform
services for Williams in the ordinary course of business.
One or more firms, referred to as "remarketing firms," may also offer or
sell the securities, if the prospectus supplement so indicates, in connection
with a remarketing arrangement upon their purchase. Remarketing firms will act
as principals for their own accounts or as agents for Williams. These
remarketing firms will offer or sell the securities in accordance with a
redemption or repayment pursuant to the terms of the securities. The prospectus
supplement will identify any remarketing firm and the terms of its agreement, if
any, with Williams and will describe the remarketing firm's compensation.
Remarketing firms may be deemed to be underwriters in connection with the
securities they remarket. Remarketing firms may be entitled under agreements
that may be entered into with Williams to indemnification by Williams against
certain civil liabilities, including liabilities under the Securities Act, and
may be customers of, engage in transactions with or perform services for
Williams in the ordinary course of business.
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If the prospectus supplement so indicates, Williams will authorize agents
and underwriters or dealers to solicit offers by certain purchasers to purchase
the securities from Williams at the public offering price set forth in the
prospectus supplement. The solicitation will occur pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
These contracts will be subject to only those conditions set forth in the
prospectus supplement, and the prospectus supplement will set forth the
commission payable for solicitation of such offers.
Each series of debt securities offered will be a new issue of securities
and will have no established trading market. The debt securities offered may or
may not be listed on a national securities exchange. Williams cannot be sure as
to the liquidity of or the existence of trading markets for any debt securities
offered.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the securities.
Specifically, the underwriters, if any, may overallot in connection with the
offering, and may bid for, and purchase, the securities in the open market.
EXPERTS
As set forth in their report incorporated by reference in this prospectus,
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements and schedules of Williams for the three years ended December 31,
1999, which appear in Williams' Annual Report on Form 10-K/A for the year ended
December 31, 1999. The report of Ernst & Young LLP (which contains an
explanatory paragraph describing Williams' changes in accounting method for its
crude oil and refined products inventories, start-up costs, and lease
transactions relating to its fiber optic network) is based in part on the report
of Deloitte & Touche LLP, independent auditors, on the consolidated financial
statements of MAPCO Inc. for the year ended December 31, 1997. The report of
Deloitte & Touche LLP appears in Williams' Annual Report on Form 10-K/A and is
incorporated by reference in this prospectus. The report of Deloitte & Touche
LLP expresses an unqualified opinion and 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. Williams' consolidated financial statements and schedules for the three
years ended December 31, 1999, which appear in Williams' Annual Report on Form
10-K/A are incorporated in this prospectus by reference in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
The consolidated financial statements and schedules of Williams included in
or incorporated by reference in any documents filed pursuant to Sections 13, 14,
or 15(d) of the Exchange Act after the date of this prospectus and prior to the
termination of the offering will be so included or incorporated by reference in
reliance upon the reports of independent auditors pertaining to such financial
statements (to the extent covered by consents filed with the Commission) given
upon the authority of such independent auditors as experts in accounting and
auditing.
LEGAL MATTERS
William G. von Glahn, Senior Vice President and General Counsel of Williams
will pass upon certain legal matters for Williams in connection with the
securities offered by this prospectus. Davis Polk & Wardwell, New York, New York
will pass upon certain legal matters for the underwriters in connection with the
securities offered by this prospectus. As of the date of this prospectus, Mr.
von Glahn beneficially owns, directly or indirectly approximately 193,409 shares
of Williams' common stock and also has exercisable options to purchase an
additional 135,504 shares of Williams' common stock.
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33,000,000 SHARES
[WILLIAMS LOGO]
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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LEHMAN BROTHERS
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
GOLDMAN, SACHS & CO.
UBS WARBURG LLC
JANUARY 16, 2001
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