<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X )
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-20555
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WILLIAMS HOLDINGS OF DELAWARE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 73-1455707
- --------------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
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(Address of principal executive office) (Zip Code)
Registrant's telephone number: (918) 588-2000
------------------------------------
NO CHANGE
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock outstanding at
November 14, 1996, was 1,000, all of which are owned by The Williams Companies,
Inc.
<PAGE> 2
WILLIAMS HOLDINGS OF DELAWARE, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Income--Three Months and Nine Months Ended
September 30, 1996 and 1995 2
Consolidated Balance Sheet--September 30, 1996 and December 31, 1995 3
Consolidated Statement of Cash Flows--Nine Months Ended
September 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 12--Computation of Ratio of Earnings to Fixed Charges
</TABLE>
Portions of this document may constitute "forward-looking statements" as
defined by federal law. Although Williams Holdings of Delaware, Inc. believes
any such statements are based on reasonable assumptions, there is no assurance
that actual outcomes will not be materially different. Additional information
about issues that could lead to material changes in performance is contained in
the Williams Holdings of Delaware, Inc.'s annual report on Form 10-K.
1
<PAGE> 3
Williams Holdings of Delaware, Inc.
Consolidated Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
---------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------------
1996 1995 1996 1995
---------------------------------------------------
<S> <C> <C> <C> <C>
Revenues (Note 9):
Williams Field Services Group $129.7 $ 99.5 $ 419.4 $ 299.1
Williams Energy Services 24.7 18.7 74.9 65.6
Williams Pipe Line 119.9 86.9 382.7 220.4
Williams Communications Group 189.0 131.9* 491.1* 394.0*
Other 12.1 3.7 37.3 13.7
Intercompany eliminations (32.6) (2.3) (108.1) (48.8)
------------------------------------------------------
Total revenues 442.8 338.4 1,297.3 944.0
------------------------------------------------------
Profit-center costs and expenses (Note 9):
Costs and operating expenses 299.0 223.2 861.6 601.0
Selling, general and administrative expenses 76.6 54.9 211.4 159.9
Other income--net (1.9) (11.8) (2.7) (14.3)
------------------------------------------------------
Total profit-center costs and expenses 373.7 266.3 1,070.3 746.6
------------------------------------------------------
Operating profit (loss):
Williams Field Services Group 38.0 41.0 115.4 101.4
Williams Energy Services 13.5 4.4 43.1 29.7
Williams Pipe Line 14.8 20.0 58.9 50.5
Williams Communications Group 2.1 6.6* 6.0* 17.0*
Other .7 .1 3.6 (1.2)
------------------------------------------------------
Total operating profit 69.1 72.1 227.0 197.4
Allocated parent company expenses (4.4) (2.6) (13.6) (10.4)
Interest accrued (Note 9) (9.1) (3.4) (23.3) (36.3)
Interest capitalized .9 3.3 2.1 7.4
Investing income (Note 9) 10.1 15.8 29.7 62.7
Gain on sale/exchange of investments--net (Note 3) - - - 12.8
Other income (expense)--net 2.3 (1.6) (1.8) (9.6)
------------------------------------------------------
Income from continuing operations before income taxes 68.9 83.6 220.1 224.0
Provision for income taxes (Note 4) 17.9 24.9 65.7 49.7
------------------------------------------------------
Income from continuing operations 51.0 58.7 154.4 174.3
Income from discontinued operations (Note 5) - - - 1,005.7
------------------------------------------------------
Net income $ 51.0 $ 58.7 $ 154.4 $1,180.0
=======================================================
</TABLE>
*Reclassified as described in Note 2.
See accompanying notes.
2
<PAGE> 4
Williams Holdings of Delaware, Inc.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
------------------------------------------
September 30, December 31,
1996 1995
------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25.7 $ 29.5
Receivables:
Trade 548.6 424.1
Affiliates 35.4 77.5
Inventories 92.8 97.6
Deferred income taxes - affiliates 119.6 128.0
Other 138.0 84.7
-------------------------------------
Total current assets 960.1 841.4
Due from parent 121.7 246.8
Investments 677.7 599.1
Property, plant and equipment, at cost 3,169.6 2,838.2
Less accumulated depreciation and depletion (728.0) (613.0)
-------------------------------------
2,441.6 2,225.2
Other assets and deferred charges 312.7 253.9
-------------------------------------
Total assets $4,513.8 $4,166.4
=====================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Note payable $ 10.0 $ -
Accounts payable:
Trade 305.9 253.0
Affiliates 72.3 128.6
Accrued liabilities (Note 6) 391.6 619.9
Long-term debt due within one year (Note 8) 14.2 14.2
------------------------------------
Total current liabilities 794.0 1,015.7
Long-term debt (Note 8) 669.7 273.9
Deferred income taxes:
Affiliates 336.8 290.2
Other 46.4 38.5
Other liabilities 319.1 396.5
Contingent liabilities and commitments (Note 10)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized and outstanding - -
Capital in excess of par value 1,661.9 1,634.1
Retained earnings 608.3 464.1
Net unrealized gain on non-current marketable securities 77.6 53.4
------------------------------------
Total stockholder's equity 2,347.8 2,151.6
------------------------------------
Total liabilities and stockholder's equity $4,513.8 $4,166.4
====================================
</TABLE>
See accompanying notes.
3
<PAGE> 5
Williams Holdings of Delaware, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(Millions)
--------------------------------------------
Nine months ended September 30,
--------------------------------------------
1996 1995
--------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 154.4 $ 1,180.0
Adjustments to reconcile to cash provided from operations:
Discontinued operations - (1,005.7)
Depreciation and depletion 93.7 67.9
Provision for deferred income taxes 39.7 34.0
Gain on sale/exchange of investments - (12.8)
Changes in receivables (43.2) 22.8
Changes in inventories (2.4) (25.7)
Changes in other current assets (56.1) (7.7)
Changes in accounts payable 38.9 (29.7)
Changes in accrued liabilities (37.0) (1.2)
Changes in receivables/payables with affiliates (14.7) (143.9)
Net change in non-current unrealized trading assets and liabilities (45.6) (48.5)
Other, including changes in non-current assets and liabilities 1.7 (22.7)
---------------------------------
Net cash provided by operating activities 129.4 6.8
---------------------------------
FINANCING ACTIVITIES:
Proceeds from note payable 10.0 -
Payments of notes payable - (398.2)
Proceeds from long-term debt 407.0 26.9
Payments of long-term debt (12.8) (398.9)
Dividends paid to parent (10.2) (1,010.8)
Capital contribution from parent - 797.4
Changes in parent company advances - (474.6)
Subsidiary preferred stock redemptions - (144.0)
Other--net (1.4) 8.0
---------------------------------
Net cash provided (used) by financing activities 392.6 (1,594.2)
---------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures (264.8) (266.6)
Proceeds from sales 15.8 15.2
Acquisition of businesses, net of cash acquired (94.1) (321.5)
Proceeds from sales of businesses - 2,572.8
Income tax and other payments related to discontinued operations (261.2) (263.5)
Purchase of investments (55.1) (3.0)
Proceeds from sale of investment - 125.1
Changes in advances to parent company 125.1 (243.1)
Other--net 8.5 (5.1)
---------------------------------
Net cash provided (used) by investing activities (525.8) 1,610.3
---------------------------------
Increase (decrease) in cash and cash equivalents (3.8) 22.9
Cash and cash equivalents at beginning of period 29.5 17.9
---------------------------------
Cash and cash equivalents at end of period $ 25.7 $ 40.8
=================================
</TABLE>
See accompanying notes.
4
<PAGE> 6
Williams Holdings of Delaware, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. General
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Williams Holdings of Delaware, Inc. (Williams Holdings) is a wholly-owned
subsidiary of The Williams Companies, Inc. (Williams). The accompanying interim
consolidated financial statements of Williams Holdings do not include all notes
in annual financial statements and therefore should be read in conjunction with
the annual financial statements and notes thereto for Williams Holdings' 1995
Annual Report on Form 10-K. The accompanying unaudited financial statements
have not been audited by independent auditors but include all adjustments both
normal recurring and others which, in the opinion of Williams Holdings'
management, are necessary to present fairly its financial position at September
30, 1996, results of operations for the three months and nine months ended
September 30, 1996 and 1995, and cash flows for the nine months ended September
30, 1996 and 1995.
2. Basis of presentation
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Williams Communications Group is a new business entity formed by combining
WilTel and WilTech Group, previously reported separately. As a result of this
combination, revenues and operating profit amounts for the three months and
nine months ended September 30, 1995, have been reclassified to conform to
current classification.
Revenues and operating profit amounts for the three months and nine months
ended September 30, 1995, include the operating results of the Transco Energy
entities contributed to Williams Holdings since the January 18, 1995,
acquisition by Williams.
3. Gain on sale/exchange of investments
- --------------------------------------------------------------------------------
In the second quarter of 1995, Williams Holdings sold its 15 percent
interest in Texasgulf Inc. for approximately $124 million in cash, which
resulted in an after-tax gain of approximately $16 million because of
previously unrecognized tax benefits included in the provision for income
taxes.
In the second quarter of 1995, Williams Holdings exchanged 12.2 million
shares of Williams common stock with a market value at exchange date of $385
million and a cost basis of $360 million for Williams convertible debentures
and warrants having a total fair value of $385 million at the time of the
exchange. The exchange resulted in the recognition of a pre-tax gain of $25.4
million.
4. Provision for income taxes
- --------------------------------------------------------------------------------
The provision (credit) for income taxes from continuing operations
includes:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
(Millions) September 30, September 30,
- --------------------------------------------------------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $ 4.6 $ 17.9 $ 31.9 $ 6.1
State (10.3) 2.3 (5.9) 9.6
- --------------------------------------------------------------------------------
(5.7) 20.2 26.0 15.7
Deferred:
Federal 19.0 2.9 31.3 34.7
State 4.6 1.8 8.4 (.7)
- --------------------------------------------------------------------------------
23.6 4.7 39.7 34.0
- --------------------------------------------------------------------------------
Total provision $ 17.9 $ 24.9 $ 65.7 $ 49.7
================================================================================
</TABLE>
The effective income tax rate in 1996 is less than the federal statutory
rate due primarily to income tax credits from coal-seam gas production,
partially offset by the effects of state income taxes. Both 1996 periods
include approximately $6 million, net of federal income tax effect, from the
effects of state income tax adjustments related to 1995. In addition, the nine
months ended September 30, 1996, include the second quarter recognition of
favorable adjustments of $3 million related to research credits.
The effective income tax rate in 1995 was less than the federal statutory
rate due primarily to income tax credits from coal-seam gas production,
partially offset by the effects of state income taxes. In addition, the nine
months ended September 30, 1995, include the previously unrecognized tax
benefits related to the sale of Texasgulf Inc. (see Note 3).
Cash payments to Williams and certain taxing authorities for continuing
and discontinued operations for income taxes for the nine months ended
September 30, 1996 and 1995, are $279 million and $254 million, respectively.
5. Discontinued operations
- --------------------------------------------------------------------------------
On January 5, 1995, Williams Holdings sold its network services operations
to LDDS Communications, Inc. (LDDS) for $2.5 billion in cash. The sale yielded
a gain of $1 billion (net of income taxes of approximately $732 million) which
is reported as income from discontinued operations. Under the terms of the
agreement, Williams Holdings retained Williams Telecommunications Systems, Inc.
(WilTel), a national telecommunications equipment supplier and service company,
and Vyvx, Inc. (included in WilTech Group), which operates a national video
network specializing in broadcast television applications and satellite
transmission. Both companies are included in Williams Communications Group (see
Note 2).
5
<PAGE> 7
Williams Holdings of Delaware, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
6. Accrued liabilities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
(Millions) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
State income taxes payable $ 37.3 $ 78.3
Federal income taxes payable-
affiliate 18.0 236.7
Employee costs 52.5 47.4
Deferred revenue 32.2 34.4
Taxes other than income taxes 26.0 23.0
Transportation and exchange
gas payable 21.3 28.7
Other 204.3 171.4
- --------------------------------------------------------------------------------
$ 391.6 $ 619.9
================================================================================
</TABLE>
7. Adoption of new accounting standard
- --------------------------------------------------------------------------------
Effective January 1, 1996, Williams Holdings adopted Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." Adoption of the
standard had no effect on Williams Holdings' financial position or results of
operations.
8. Long-term debt
- --------------------------------------------------------------------------------
Long-term debt consists of the following amounts:
<TABLE>
<CAPTION>
Weighted
average
interest September 30, December 31,
(Millions) rate* 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Williams Holdings of
Delaware, Inc.
Revolving credit
loans 5.9 $303.0 $150.0
Debentures, 6.25%,
due 2006 6.3 248.8 --
Williams Pipe Line
Notes, 8.95% and
9.78%, payable
through 2001 9.4 100.0 110.0
Williams Energy Ventures
Adjustable rate
notes, payable
through 2002 8.1 25.6 21.0
Other, payable through 1999 7.7 6.5 7.1
- --------------------------------------------------------------------------------
683.9 288.1
Current portion of long-
term debt (14.2) (14.2)
- --------------------------------------------------------------------------------
$669.7 $273.9
================================================================================
</TABLE>
* At September 30, 1996.
Williams Holdings and Williams Pipe Line participate in Williams' $800
million credit agreement. Williams Holdings' and Williams Pipe Line's maximum
borrowing availability, subject to borrowings by other affiliated companies, is
$600 million and $100 million, respectively. Interest rates vary with current
market conditions. The available amount under the credit agreement at September
30, 1996, was $397 million, of which $351 million may be used for refinancing
of current debt obligations by Williams or other affiliated companies until
such time as additional long-term obligations are issued.
In April 1996, Williams Holdings entered into an interest-rate swap
agreement which effectively converted its 6.25 percent fixed-rate debentures to
floating-rate debt (4.66 percent at September 30, 1996).
Cash payments for interest (net of amounts capitalized) for the nine
months ended September 30, 1996 and 1995, are $28 million and $52 million,
respectively, including payments to Williams and affiliates of $5 million and
$25 million for 1996 and 1995, respectively.
9. Related party transactions
- --------------------------------------------------------------------------------
Williams Holdings and its subsidiaries maintain promissory notes with
Williams for both advances from and advances to Williams depending on the cash
position of the subsidiary. Investing income includes $7 million and $12.7
million for the three months ended September 30, 1996 and 1995, respectively,
and $23.8 million and $32.8 million for the nine months ended September 30,
1996 and 1995, respectively, from advances to affiliates, while interest
accrued includes $3.4 million for the nine months ended September 30, 1995.
William Holdings' subsidiaries have transactions primarily with the
following affiliates: Williams Natural Gas, Northwest Pipeline,
Transcontinental Gas Pipe Line and Texas Gas. Revenues include transactions
with affiliates of $87.3 million and $23 million for the three months ended
September 30, 1996 and 1995, respectively, and $357 million and $65.1 million
for the nine months ended September 30, 1996 and 1995, respectively. Williams
Holdings also incurred costs and operating expenses, primarily transportation
costs, of $24.5 million and $40.1 million for the three months ended September
30, 1996 and 1995, respectively, and $131.8 million and $133 million for the
nine months ended September 30, 1996 and 1995, respectively, in transactions
with affiliates. In connection with Williams Energy Services, commodity price
risk management activities, $24.1 million and $39.7 million of these costs for
the three months ended September 30, 1996 and 1995, respectively, and $130.2
million and $132 million of these costs for the nine months ended September 30,
1996 and 1995, respectively, are included in revenues consistent with a "net"
basis of reporting these activities. Transactions with affiliates are at prices
that generally apply to unaffiliated parties.
10. Contingent liabilities and commitments
- --------------------------------------------------------------------------------
Rate and regulatory matters
Williams Pipe Line has various regulatory proceedings pending. As a result
of rulings in these proceedings, a portion of its revenues has been collected
subject to refund. Such
6
<PAGE> 8
Williams Holdings of Delaware, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
revenues were $231 million at September 30, 1996. As a result of various
Federal Energy Regulatory Commission (FERC) rulings in these and other
proceedings, Williams Pipe Line does not expect that the amount of any refunds
ordered would be significant. Accordingly, no portion of these revenues has
been reserved for refund.
Environmental matters
Certain Williams Holdings' subsidiaries have been named as potentially
responsible parties (PRP) at various Superfund waste disposal sites. In
addition, these subsidiaries have incurred or are alleged to have incurred
various other hazardous materials removal or remediation obligations under
environmental laws. Although no assurance can be given, Williams Holdings does
not believe that these obligations or the PRP status of these subsidiaries will
have a material adverse effect on its financial position, results of operations
or net cash flows.
Other legal matters
In December 1991, the Southern Ute Indian Tribe (the Tribe) filed a
lawsuit against Williams Production Company (Williams Production), a wholly
owned subsidiary of Williams Holdings, and other gas producers in the San Juan
Basin area, alleging that certain coal strata were reserved by the United
States for the benefit of the Tribe and that the extraction of coal-seam gas
from the coal strata was wrongful. The Tribe seeks compensation for the value
of the coal-seam gas. The Tribe also seeks an order transferring to the Tribe
ownership of all of the defendants' equipment and facilities utilized in the
extraction of the coal-seam gas. In September 1994, the court granted summary
judgment in favor of the defendants and the Tribe has lodged an interlocutory
appeal with the U.S. Court of Appeals for the Tenth Circuit. Williams
Production agreed to indemnify the Williams Coal Seam Gas Royalty Trust (Trust)
against any losses that may arise in respect of certain properties subject to
the lawsuit. In addition, if the Tribe is successful in showing that Williams
Production has no rights in the coal-seam gas, Williams Production has agreed
to pay to the Trust for distribution to then-current unitholders, an amount
representing a return of a portion of the original purchase price paid for the
units. While Williams Holdings believes that such a payment is not probable, it
has reserved a portion of the proceeds from the sale of the units in the Trust.
In October 1990, Dakota Gasification Company (Dakota), the owner of the
Great Plains Coal Gasification Plant (Plant), filed suit in the U.S. District
Court in North Dakota against Transcontinental Gas Pipe Line, a wholly-owned
subsidiary of Williams, and three other pipeline companies alleging that the
pipeline companies had not complied with their respective obligations under
certain gas purchase and gas transportation contracts. In September 1992,
Dakota and the Department of Justice on behalf of the Department of Energy
filed an amended complaint adding as defendants in the suit, Transco Energy
Company, Transco Coal Gas Company (Transco Energy Company and Transco Coal Gas
Company being wholly-owned subsidiaries of Williams Holdings) and all of the
other partners in the partnership that originally constructed the Plant and
each of the parent companies of these entities. Dakota and the Department of
Justice sought declaratory and injunctive relief and the recovery of damages,
alleging that the four pipeline defendants underpaid for gas, collectively, as
of June 30, 1992, by more than $232 million plus interest and for additional
damages for transportation services and costs and expenses including attorneys
fees. In March 1994, the parties executed definitive agreements which would
settle the litigation subject to final non-appealable regulatory approvals. The
settlement is also subject to a FERC ruling that Transcontinental Gas Pipe
Line's existing authority to recover in rates certain costs related to the
purchase and transportation of gas produced by Dakota will pertain to gas
purchase and transportation costs Transcontinental Gas Pipe Line will pay
Dakota under the terms of the settlement. In October 1994, the FERC issued an
order consolidating Transcontinental Gas Pipe Line's petition for approval of
the settlement with similar petitions pending relative to two of the other
three pipeline companies (the third pipeline having entered into a settlement)
and setting the matter for hearing before an administrative law judge. In
December 1995, the administrative law judge issued an initial decision in which
he rejected the settlement agreements, finding that they were not prudent, and
he ordered the pipeline companies to refund to their customers amounts
collected since May 1993, in excess of the amounts he determined were
appropriate. At the time of the ruling, Transcontinental Gas Pipe Line
estimated that its share of the refunds the administrative law judge would
require was approximately $75 million. The pipelines would be entitled to
collect the amount of any such customer refunds from Dakota. The administrative
law judge's decision is subject to review by the FERC. In February 1996,
certain parties filed with the FERC a motion requesting that the FERC establish
an additional proceeding to consider claims for additional refunds.
Transcontinental Gas Pipe Line's share of these claimed additional refunds is
$90 million and pertain to amounts paid to Dakota from November 1, 1988, to May
1, 1993. The pipelines have opposed this motion. The FERC held oral argument on
September 25, 1996.
In connection with agreements to resolve take-or-pay and other contract
claims and to amend gas purchase contracts, Transcontinental Gas Pipe Line and
Texas Gas each entered into certain settlements with producers which may
require the indemnification of certain claims for additional royalties which
the producers may be required to pay as a result of such settlements. As a
result of such settlements, Transcontinental Gas Pipe Line and Texas Gas were
named as defendants in, respectively, six and two lawsuits. Transco Energy
Company and Transco Gas Supply Company (wholly-owned subsidiaries of Williams
Holdings) have also been named as defendants in certain of these lawsuits. Six
of the eight lawsuits have been settled for cash payments aggregating
approximately $8.9 million, all of which has been previously accrued, and of
which approximately $3 million is recoverable as transition costs under Order
636. Damages, including interest, of approximately $29 million have been
asserted in the remaining cases. Producers have received and may receive other
demands which could result in additional claims. Indemnification for royalties
will depend on, among other things, the specific lease provisions between the
producer and the lessor and the terms of the
7
<PAGE> 9
Williams Holdings of Delaware, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
settlement between the producer and either Transcontinental Gas Pipe Line or
Texas Gas. Texas Gas may file to recover 75 percent of any such additional
amounts it may be required to pay pursuant to indemnities for royalties under
the provisions of FERC Order 528.
In November 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazelton, Pennsylvania (the
Facility). Hazelton Fuel Management Company (HFMC), a subsidiary of Transco
Energy, formerly supplied natural gas and fuel oil to the Facility. As of
September 30, 1996, HFMC had current outstanding receivables from the
Partnership of approximately $20 million, all of which has been reserved. The
construction of the Facility was funded by several banks that have a security
interest in all of the Partnership's assets. HFMC has asserted to the
Bankruptcy Court that payment of its receivables is superior to the lien of the
banks and intends to vigorously pursue the collection of such amounts. HFMC has
also filed suit against the lead bank with respect to this and other matters,
including the alleged tortious interference with HFMC's contractual relations
with the Partnership and other parties. In March 1995, the Bankruptcy Court
approved the rejection of the gas supply contract between the Partnership and
HFMC. HFMC has in turn asserted force majeure under a contract with a producer
under which HFMC purchased natural gas for the Facility. The Partnership
recently negotiated favorable buyouts of its power purchase agreements with two
electric utilities. The buyouts are subject to Bankruptcy Court and
Pennsylvania Public Utility Commission approvals.
In addition to the foregoing, various other proceedings are pending against
Williams Holdings or its subsidiaries which are incidental to their operations.
Summary
While no assurances may be given, Williams Holdings does not believe that
the ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage or other indemnification
arrangements, will have a materially adverse effect upon Williams Holdings'
future financial position, results of operations or cash flow requirements.
8
<PAGE> 10
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Third Quarter 1996 vs. Third Quarter 1995
WILLIAMS FIELD SERVICES GROUP'S revenues increased $30.2 million, or 30
percent, due primarily to higher gathering, processing and natural gas liquids
sales revenues of $10 million, $3 million and $14 million, respectively.
Gathering, processing and natural gas liquids volumes increased 20 percent, 15
percent and 48 percent, respectively, and average natural gas liquids prices
also increased. Costs and operating expenses increased $21 million, or 38
percent, due primarily to expanded facilities and increased operations. Other
income--net for 1996 includes a $3 million gain from the sale of a small
gathering system in the Texas panhandle. Other income--net for 1995 includes $12
million in operating profit from the net effect of two unrelated items. One was
$20 million of income from the favorable resolution of contingency issues
involving previously regulated gathering and processing assets. This was
partially offset by an $8 million loss accrual for a future minimum price
natural gas purchase commitment. Operating profit decreased $3 million, or 7
percent, due primarily to the 1995 $12 million net effect of two unrelated items
in other income--net, combined with higher costs and operating expenses
associated with expanded facilities and increased operations, largely offset by
higher gathering and processing revenues and increased natural gas liquids
margins.
WILLIAMS ENERGY SERVICES' revenues increased $6 million, or 32 percent, due
primarily to higher price-risk management revenues of $14 million, partially
offset by lower natural gas physical trading and contract origination revenues
of $5 million and $2 million, respectively. The natural gas physical trading
volumes increase of 12 percent from growth in west and mid-continent trading
activity was more than offset by lower physical trading margins of $7 million.
Operating profit increased $9.1 million from $4.4 million in 1995 due primarily
to the increase in revenues combined with a reduction of development costs
associated with its information products business, partially offset by higher
selling, general and administrative expenses.
WILLIAMS PIPE LINE'S (INCLUDING WILLIAMS ENERGY VENTURES) revenues
increased $33 million, or 38 percent, due primarily to an increase in
non-transportation revenue combined with a 3 percent increase in shipments. The
increase in non-transportation revenue is due primarily to Williams Energy
Ventures' ethanol sales following the August 1995 acquisition of Pekin Energy
and the fourth-quarter 1995 completion of the Nebraska Energy plant, combined
with higher product marketing and services revenues. Costs and operating
expenses increased $37 million, or 64 percent, due primarily to ethanol
production activities. Operating profit (including Williams Energy Ventures)
decreased $5.2 million, or 26 percent, due primarily to the decision to suspend
ethanol production to perform efficiency maintenance on ethanol production
plants during the third-quarter 1996, a period of record high corn prices. This
was slightly offset by the increase in transportation revenue. Williams Energy
Ventures results declined $6.3 million to a $5.2 million operating loss in 1996.
During the fourth-quarter 1996, corn prices returned to more traditionally
normal levels. In September 1996, Williams Energy Ventures announced it had
acquired a 45.5 percent interest in eight petroleum products terminals in the
southeast, giving it a platform to market services in the Southeastern region of
the country.
WILLIAMS COMMUNICATIONS GROUP'S revenues increased $57.1 million, or 43
percent, due primarily to $31 million form the acquisitions of Global Access
Telecommunications Services, ComLink, Inc., NUS Training, the teleports of ICG
Wireless Services, ITC mediaConferencing and SoftIRON Systems. Additionally,
increased business activity resulted in an $18 million revenue increase in new
systems. Billable minutes from occasional service and the number of ports in
service at September 30, 1996, increased 30 percent and 11 percent,
respectively, compared to September 30, 1995. Costs and operating expenses
increased $47 million, or 47 percent and selling, general and administrative
expenses increased $15 million, or 60 percent, due primarily to the overall
increase in business activity and higher expenses for developing additional
products and services, including expenses of the acquired operations. Operating
profit decreased $4.5 million, or 68 percent, due primarily to the expense of
developing additional products and services along with integrating the most
recent acquisitions.
INTEREST ACCRUED increased $5.7 million, or 164 percent, due primarily
to higher borrowing levels. Interest capitalized decreased $2.4 million, or 71
percent, due primarily to lower capital expenditures for gathering and
processing facilities. Investing income decreased $5.7 million, or 35 percent,
due primarily to lower interest earned on advances to Williams. Other income
(expense)--net in 1996 includes a $3.5 million pretax gain on the sale of an
airplane. The effective income tax rate in 1996 is less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. In addition,
1996 includes approximately $6 million, net of federal income tax effect, from
the effects of state income tax adjustments related to 1995. The effective
income tax rate in 1995 was less than the statutory rate due primarily to
income tax credits from coal-seam gas production, partially offset by the
effects of state income taxes.
9
<PAGE> 11
Nine Months Ended September 30, 1996 vs. Nine months Ended September 30, 1995
WILLIAMS FIELD SERVICES GROUP'S revenues increased $120.3 million, or
40 percent, due primarily to higher gathering, processing and natural gas
liquids sales revenues of $34 million, $11 million and $37 million,
respectively, combined with increased natural gas sales volumes. Gathering,
processing and natural gas liquids volumes increased 24 percent, 25 percent and
40 percent, respectively, and average natural gas liquids prices also
increased. Costs and expenses (excluding other income--net) increased $93
million, or 44 percent, due primarily to expanded facilities and increased
operations combined with higher natural gas purchase volumes. Other income--net
for 1996 includes a $3 million environmental remediation accrual offset by a $3
million gain from the sale of a small gathering system in the Texas panhandle.
Other income--net for 1995 includes $12 million in operating profit from the
net effect of two unrelated items. One was $20 million of income from the
favorable resolution of contingency issues involving previously regulated
gathering and processing assets. This was partially offset by an $8 million
loss accrual for a future minimum price natural gas purchase commitment.
Operating profit increased $14 million, or 14 percent, due primarily to higher
gathering and processing revenues and increased natural gas liquids margins,
largely offset by higher costs and operating expenses associated with expanded
facilities and increased operations and the 1995 $12 million net effect of two
unrelated items in other income--net.
WILLIAMS ENERGY SERVICES' revenues increased $9.3 million, or 14
percent, due primarily to higher price-risk management revenues of $29 million,
partially offset by lower contract origination and natural gas physical trading
revenues of $16 million and $3 million, respectively. Natural gas physical
trading volumes increased 26 percent from 525 TBtu to 661 TBtu (an average of
2.4 Bcf/day), due primarily to increased trading activity in the west and
mid-continent regions. This volume increase was more than offset by lower
physical trading margins of $12 million. Operating profit increased $13.4
million, or 45 percent, due primarily to the increase in revenues combined with
a reduction of development costs associated with its information products
business, partially offset by higher selling, general and administrative
expenses.
WILLIAMS PIPE LINE'S (INCLUDING WILLIAMS ENERGY VENTURES) revenues
increased $162.3 million, or 74 percent, due primarily to an increase in
non-transportation revenue combined with a 10 percent increase in shipments.
Shipments increased due primarily to new business and the impact during 1995 of
unfavorable weather conditions and a November 1994 fire at a truck-loading
rack. Average length of haul and transportation rate per barrel decreased 3
percent and 1 percent, respectively, due primarily to shorter haul movements.
The increase in non-transportation revenue is due primarily to Williams Energy
Ventures' ethanol sales following the August 1995 acquisition of Pekin Energy
and the fourth-quarter 1995 completion of the Nebraska Energy plant, combined
with higher product marketing and services revenues. Costs and expenses
increased $154 million, or 91 percent, due primarily to ethanol production
activities. Operating profit (including Williams Energy Ventures) increased
$8.4 million, or 17 percent, due primarily to increased transportation revenue,
partially offset by the decision to suspend ethanol production to perform
efficiency maintenance on ethanol production plants during the third-quarter
1996, a period of record high corn prices. Williams Energy Ventures' operating
loss increased $4.8 million to $5.6 million. During the fourth-quarter 1996,
corn prices returned to more traditionally normal levels. In September 1996,
Williams Energy Ventures announced it had acquired a 45.5 percent interest in
eight petroleum products terminals in the southeast, giving it a platform to
market services in the Southeastern region of the country.
WILLIAMS COMMUNICATIONS GROUP'S revenues increased $97.1 million, or 25
percent, due primarily to $60 million from the acquisitions of Global Access
Telecommunications Services, ComLink, Inc., NUS Training, the teleports of ICG
Wireless Services, ITC mediaConferencing and SoftIRON Systems. Additionally,
increased business activity resulted in a $20 million revenue increase in new
systems and an $11 million revenue increase in digital fiber television
services. Billable minutes from occasional service and the number of ports in
service at September 30, 1996, each increased 11 percent compared to September
30, 1995. Cost and operating expenses increased $72 million, or 24 percent, and
selling, general and administrative expenses increased $36 million, or 49
percent, due primarily to the overall increase in business activity and higher
expenses for developing additional products and services, including the cost of
integrating the most recent acquisitions. Operating profit decreased $11
million, or 65 percent, due primarily to the expense of developing additional
products and services along with integrating the most recent acquisitions.
INTEREST ACCRUED decreased $13 million, or 36 percent, due primarily to
Williams' May 1, 1995, assumption of approximately $770 million of Transco
Energy's outstanding debt previously assumed by Williams Holdings as a result
of the Transco Energy acquisition, partially offset by higher Williams
Holdings' borrowing levels. Interest capitalized decreased $5.3 million, or 71
percent, due primarily to lower capital expenditures for gathering and
processing facilities. Investing income decreased $33 million, or 53 percent,
due primarily to the effect of a 1995 $15 million dividend from Texasgulf Inc.
and $5 million of dividends in 1995 on Williams common stock held by Williams
Holdings combined with lower equity earnings and interest earned on advances to
Williams in 1996. The 1995 gain on sale/exchange of investments--net includes a
$12.6 million pretax loss on the sale of the 15 percent interest in Texasgulf
Inc. and a $25.4 million pretax gain recognized as a result of the exchange of
Williams common stock for Williams convertible debentures and warrants to
purchase Williams common stock. Other income (expense)--net in 1996 includes a
$3.5 million gain on the sale of an airplane.
10
<PAGE> 12
Other income (expense)--net in 1995 included approximately $5 million of
dividends for Transco Energy preferred stock and minority interest common
stockholders. The effective income tax rate in 1996 is less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. In
addition, 1996 includes recognition of favorable adjustments totaling $9
million related to research credits and state income tax adjustments related to
1995. The effective income tax rate in 1995 was less than the federal
statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. In
addition, 1995 included the previously unrecognized tax benefits related to the
sale of Texasgulf Inc. (see Note 3).
On January 5, 1995, Williams Holdings sold its network services operations
to LDDS Communications, Inc. for $2.5 billion in cash. The sale yielded an
after-tax gain of approximately $1 billion, which is reported as income from
discontinued operations (see Note 5).
Financial Condition and Liquidity
Liquidity
Williams Holdings considers its liquidity to come from borrowing capacity
available under bank-credit facilities, notes receivable from its parent,
Williams, and available cash investments. During 1995, Williams Holdings
became a participant in an $800 million bank-credit facility entered into by
Williams. Under this agreement, Williams Holdings and Williams Pipe Line have
access to $600 million and $100 million, respectively, subject to borrowing by
other affiliated companies. At September 30, 1996, Williams Holdings had access
to $407 million of liquidity from the available portion of the bank-credit
facility plus cash investments, compared to $550 million at December 31, 1995,
and $700 million at September 30, 1995. The decrease in 1996 is due primarily
to an increase in borrowing levels under the bank-credit facility by Williams
Holdings. Certain amounts currently available under the bank-credit facility
may be used for refinancing of current obligations by Williams or other
affiliated companies until such time as additional long-term obligations are
issued. Prior to this facility, Williams Holdings' liquidity came primarily
from Williams, and cash requirements to finance working capital, investments
and capital expenditures were obtained from Williams through capital
contributions or intercompany note agreements.
Williams Holdings and its subsidiaries had net amounts receivable from
Williams totaling $455 million at September 30, 1996, including $360 million of
parent company debentures, compared to $511 million at December 31, 1995, and
$595 million at September 30, 1995.
Williams Holdings believes its parent can meet its cash needs including
the repayment of long-term debt due within one year, because Williams has
access to $499 million of liquidity at September 30, 1996, representing the
available portion of its $800 million bank-credit facility previously discussed
plus cash-equivalent investments. This compares with Williams liquidity of $656
million at December 31, 1995, and $765 million at September 30, 1995. The
decrease in 1996 is due to additional borrowings under the bank-credit facility.
In 1996, capital expenditures are estimated to be approximately $425
million. During 1996, Williams Holdings expects to finance capital
expenditures, investments and working-capital requirements through cash
generated from operations, the use of its bank-credit facility, advances from
its parent and/or debt offerings.
Financing Activities
In January 1996, Williams Holdings filed a $400 million shelf registration
statement with the Securities and Exchange Commission and subsequently issued
$250 million of debt securities. Williams Holdings does not anticipate the need
for additional financing arrangements; however, Williams Holdings believes such
arrangements could be obtained on reasonable terms if required.
The consolidated long-term debt to long-term debt-plus-equity ratio
increased to 22.2 percent at September 30, 1996, from 11.3 percent at December
31, 1995. The increase is due primarily to the issuance of $250 million of
debentures in 1996 and additional borrowings under the bank-credit facility.
In April 1996, Williams Holdings entered into an interest-rate swap
agreement which effectively converted its 6.25 percent fixed-rate debentures to
floating-rate debt (4.66 percent at September 30, 1996).
During the nine months ended September 30, 1996 and 1995, Williams
Holdings paid dividends to Williams of $10 million and $1 billion,
respectively. The 1995 dividends were paid primarily from the proceeds from
the sale of the network services operations.
The increase in receivables and other current assets from December 31,
1995, is due primarily to increased trading activities by Williams Energy
Services. The increase in other assets and deferred charges is due primarily
to the excess purchase price allocated to intangibles for businesses acquired
by Williams Communications Group. The decrease in accrued liabilities reflects
the payment to Williams of income taxes related to discontinued operations.
11
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 12--Computation of Ratio of Earnings to Fixed Charges
(b) During the third quarter of 1996, Williams Holdings did not file
a Form 8-K.
12
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS HOLDINGS OF DELAWARE, INC.
-----------------------------------
(Registrant)
Gary R. Belitz
-----------------------------------
Gary R. Belitz
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
November 14, 1996
<PAGE> 1
Exhibit 12
Williams Holdings of Delaware, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in millions)
<TABLE>
<CAPTION>
Nine months ended
September 30, 1996
------------------
<S> <C>
Earnings:
Income from continuing operations before income taxes $ 220.1
Add:
Interest expense - net 21.2
Rental expense representative of interest factor 10.6
Other .7
-------
Total earnings as adjusted plus fixed charges $ 252.6
=======
Fixed charges:
Interest expense - net $ 21.2
Capitalized interest 2.1
Rental expense representative of interest factor 10.6
-------
Total fixed charges $ 33.9
=======
Ratio of earnings to fixed charges 7.45
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 25,657
<SECURITIES> 0
<RECEIVABLES> 564,051
<ALLOWANCES> (15,496)
<INVENTORY> 92,809
<CURRENT-ASSETS> 960,112
<PP&E> 3,169,578
<DEPRECIATION> (728,008)
<TOTAL-ASSETS> 4,513,818
<CURRENT-LIABILITIES> 794,043
<BONDS> 669,637
0
0
<COMMON> 1
<OTHER-SE> 2,347,776
<TOTAL-LIABILITY-AND-EQUITY> 4,513,818
<SALES> 0
<TOTAL-REVENUES> 1,297,295
<CGS> 0
<TOTAL-COSTS> 1,070,299
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (1,495)
<INTEREST-EXPENSE> 23,261
<INCOME-PRETAX> 220,088
<INCOME-TAX> 65,639
<INCOME-CONTINUING> 154,449
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,449
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
