1
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4174
THE WILLIAMS COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-0569878
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number:
(918) 588-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $1.00 par value New York Stock Exchange and the
Preferred Stock Purchase Rights Pacific Stock Exchange
$2.21 Cumulative Preferred Stock, New York Stock Exchange
$1.00 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the registrant's voting stock held by
nonaffiliates as of the close of business on February 28, 1995, was
approximately $2.6 billion.
The number of shares of the registrant's Common Stock outstanding at
February 28, 1995, was 90,986,242, excluding 964,988 shares held by the Company
and 13,383,977 shares owned by a subsidiary of the Company.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement prepared for the solicitation
of proxies in connection with the Annual Meeting of Stockholders of the Company
for 1995 are incorporated by reference in Part III.
================================================================================
2
THE WILLIAMS COMPANIES, INC.
FORM 10-K
PART I
ITEM I. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The Williams Companies, Inc. (the "Company" or "Williams") was incorporated
under the laws of the State of Nevada in 1949 and was reincorporated under the
laws of the State of Delaware in 1987. The principal executive offices of the
Company are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone
(918) 588-2000). Unless the context otherwise requires, references to the
"Company" and "Williams" herein include The Williams Companies, Inc. and its
subsidiaries.
On January 5, 1995, the Company sold the network services operations of
Williams Telecommunications Group, Inc., its telecommunications subsidiary, to
LDDS Communications, Inc. for $2.5 billion in cash, (the "WNS Sale"). The
Company retained Williams Telecommunications Systems, Inc., a telecommunications
equipment supplier and service company, and Vyvx, Inc., which operates a video
network specializing in broadcast television applications. The Company has
reported the network services operations as discontinued operations for
financial reporting purposes beginning with the third quarter of 1994 with prior
period operating results restated. See Note 2 of Notes to Consolidated Financial
Statements. The description of the Company's telecommunications business
contained elsewhere herein describes only those assets retained by the Company.
The Company used the proceeds from the WNS Sale to pay off short-term
credit facilities, fund the acquisition of Transco Energy Company ("Transco")
discussed below, finance its ongoing capital program and other uses.
On December 12, 1994, the Company announced that it had entered into a
merger agreement with Transco. Under the agreement, the Company acquired 24.6
million shares (approximately 60 percent) of Transco's common stock through a
cash tender offer completed in January 1995. The agreement also provides for a
merger (the "Transco Merger") in which Transco will become a wholly owned
subsidiary of the Company and each share of Transco's common stock not acquired
through the tender offer will be exchanged for 0.625 shares of the Company's
Common Stock. It is anticipated that a meeting of Transco's common stockholders
will be held in April 1995 to vote on the merger. Given that the Company owns
sufficient shares to approve the Transco Merger without the affirmative vote of
any other stockholders, the Transco Merger will be approved and is expected to
be completed immediately thereafter. The acquisition will be accounted for as a
purchase. The purchase price is approximately $775 million, including fees
related to the transaction but excluding assumed debt and preferred stock.
Transco owns Transcontinental Gas Pipe Line Corporation, Texas Gas
Transmission Corporation and Transco Gas Marketing Company and has investments
in other energy assets. Transcontinental Gas Pipe Line, headquartered in
Houston, Texas, owns and operates 10,500 miles of pipeline extending from the
Gulf of Mexico through the South and along the Eastern Seaboard to New York
City. Its primary customers are natural gas and electric utility companies in
the East and Northeast. Texas Gas Transmission, headquartered in Owensboro,
Kentucky, owns and operates 6,050 miles of pipeline extending from the Louisiana
Gulf Coast up the Mississippi River Valley to Indiana and Ohio. In addition to
serving markets in this area, Texas Gas Transmission also serves the Northeast
through connections with other pipelines. Transco Gas Marketing buys, sells and
arranges transportation for natural gas primarily in the eastern and midwestern
United States and Gulf Coast region, processes natural gas and sells natural gas
liquids.
It is the Company's intention to cause Transco, as promptly as practicable
after the Transco Merger and subject to receipt of any necessary consents, to
declare and pay as dividends to the Company all of Transco's interest in
Transcontinental Gas Pipe Line, Texas Gas Transmission and Transco Gas
Marketing. In addition, the Company intends to continue Transco's program of
disposing of noncore assets. The Company has also initiated a plan to
recapitalize Transco to, among other things, reduce consolidated interest and
preferred stock dividend requirements. See Note 16 of Notes to Consolidated
Financial Statements.
3
Other than as set forth above, the description of the Company's business
contained in this Item 1 does not include a description of Transco's business.
For a description of such business, reference is made to filings by Transco with
the Securities and Exchange Commission.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company, through subsidiaries, is engaged in the transportation and
sale of natural gas and related activities, natural gas gathering and processing
operations, the transportation of petroleum products, the telecommunications
business and provides a variety of other products and services to the energy
industry and financial institutions. In 1994, the Company's subsidiaries owned
and operated: (i) two interstate natural gas pipeline systems and had a 50
percent interest in a third; (ii) a common carrier petroleum products pipeline
system; and (iii) natural gas gathering and processing facilities and production
properties. The Company also markets natural gas and natural gas liquids. In
1994, the Company's telecommunications subsidiaries offered data, voice and
video-related products and services and customer premises equipment nationwide.
The Company also has investments in the equity of certain other companies. See
Note 3 of Notes to Consolidated Financial Statements.
Substantially all operations of Williams are conducted through
subsidiaries. Williams performs management, legal, financial, tax, consultative,
administrative and other services for its subsidiaries. Williams' principal
sources of cash are from dividends and advances from its subsidiaries,
investments, payments by subsidiaries for services rendered by its staff 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. Certain subsidiaries' debt
instruments with outside lenders limit the amount of dividend payments and
advances to Williams. See Note 11 of Notes to Consolidated Financial Statements.
ENERGY
INTERSTATE NATURAL GAS PIPELINE GROUP
In 1994, the Company's interstate natural gas pipeline group consisted of
Northwest Pipeline Corporation and Williams Natural Gas Company, owners and
operators of interstate natural gas pipeline systems and the Company's 50
percent interest in Kern River Gas Transmission Company.
NORTHWEST PIPELINE CORPORATION (Northwest Pipeline)
Northwest Pipeline owns and operates an interstate natural gas pipeline
system, including facilities for mainline transmission and gas storage.
Northwest Pipeline's transmission and storage activities are subject to
regulation by the Federal Energy Regulatory Commission ("FERC") under the
Natural Gas Act of 1938 ("Natural Gas Act") and under the Natural Gas Policy Act
of 1978 ("NGPA"), and, as such, its rates and charges for the transportation of
natural gas in interstate commerce, the extension, enlargement or abandonment of
its jurisdictional facilities, and its accounting, among other things, are
subject to regulation.
Pipeline System and Customers
Northwest Pipeline owns and operates a pipeline system for the mainline
transmission of natural gas. The system extends from the San Juan Basin in
northwestern New Mexico and southwestern Colorado through Colorado, Utah,
Wyoming, Idaho, Oregon and Washington to a point on the Canadian border near
Sumas, Washington. At December 31, 1994, Northwest Pipeline's system, having an
aggregate mainline deliverability
2
4
of almost 2.5 Bcf* of gas per day, was composed of approximately 3,900 miles of
mainline and branch transmission pipelines, and 43 mainline compressor stations
with a combined capacity of approximately 291,000 horsepower.
Northwest Pipeline operates under an open-access transportation certificate
wherein gas is transported for third party shippers. In 1994, Northwest Pipeline
transported natural gas for a total of 101 customers. Northwest Pipeline
provides services for markets in California, New Mexico, Colorado, Utah, Nevada,
Wyoming, Idaho, Oregon and Washington, directly or indirectly through
interconnections with other pipelines. Transportation customers include
distribution companies, municipalities, interstate and intrastate pipelines, gas
marketers and direct industrial users. The three largest customers of Northwest
Pipeline in 1994 accounted for approximately 20.2 percent, 12.4 percent and 10.7
percent, respectively, of total operating revenues. No other customer accounted
for more than 10 percent of total operating revenues. Northwest Pipeline's firm
transportation agreements are generally long-term agreements with various
expiration dates and account for the major portion of Northwest Pipeline's
business. Additionally, Northwest Pipeline offers interruptible transportation
service under agreements that are generally short term. Northwest Pipeline's
transportation services represented 100 percent of its total throughput in 1994.
Northwest Pipeline has filed applications for FERC approval to build
additional mainline expansions totaling 164 MMcf of gas per day of increased
system capacity at an estimated cost of approximately $100 million to be in
service by the end of 1995.
As a part of its transportation services, Northwest Pipeline utilizes
underground storage facilities in Utah and Washington enabling it to balance
daily receipts and deliveries. Northwest Pipeline also owns and operates a
liquefied natural gas storage plant in Washington which provides a
needle-peaking service for the system. These storage facilities have an
aggregate delivery capacity of approximately 873 MMcf of gas per day.
Operating Statistics
The following table summarizes gas sales and transportation data for the
periods indicated:
YEAR ENDED DECEMBER 31,
--------------------
1994 1993 1992
---- ---- ----
Gas Volumes (TBtu):
Gas sales.................................................... -- 18 19
Transportation............................................... 679 606 591
---- ---- ----
Total throughput..................................... 679 624 610
=== === =====
Average Daily Transportation Volumes (TBtu).................... 1.9 1.7 1.6
Average Daily Firm Reserved Capacity (TBtu).................... 2.4 -- --
In 1992, FERC issued Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional sales services and to
implement various changes in forms of service. On November 1, 1993, Northwest
Pipeline implemented its restructured tariff under Order 636. Under the
restructured tariff, Northwest Pipeline's sales service terminated effective
November 1, 1993.
Regulatory Matters
Northwest Pipeline's transportation of natural gas in interstate commerce
is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Northwest Pipeline holds certificates of public convenience
- ---------------
* The term "Mcf" means thousand cubic feet, "MMcf" means million cubic feet
and "Bcf" means billion cubic feet. All volumes of natural gas are stated at a
pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit.
The term "MMBtu" means one million British Thermal Units and "TBtu" means one
trillion British Thermal Units.
3
5
and necessity issued by FERC authorizing it to own and operate all pipelines,
facilities and properties considered jurisdictional for which certificates are
required under the Natural Gas Act.
Northwest Pipeline is subject to the Natural Gas Pipeline Safety Act of
1968, as amended by Title I of the Pipeline Safety Act of 1979, which regulates
safety requirements in the design, construction, operation and maintenance of
interstate gas transmission facilities.
Current FERC policy associated with FERC Orders 436 and 500 requires
interstate natural gas pipelines to absorb some of the cost of reforming gas
supply contracts before allowing any recovery through direct bill or surcharges
to transportation as well as sales commodity rates. Under such policy, Northwest
Pipeline has filed to recover a portion of previously incurred take-or-pay and
contract reformation costs through direct bill and surcharge mechanisms. The
FERC initially approved a method for Northwest Pipeline to collect its direct
billed costs, but when challenged on appeal, sought a remand to reassess such
method. Subsequently, Northwest Pipeline received an order from FERC requiring a
different allocation of such costs. Although reallocation will require refunds
of certain amounts, Northwest Pipeline expects to be permitted to recover
substantially all of these costs from other customers.
On July 28, 1994, Northwest Pipeline received an initial decision from an
Administrative Law Judge on a rate case filed October 1, 1992. This decision
will be reviewed further by FERC prior to issuance of a final order. Northwest
Pipeline has raised certain exceptions to the decision and believes the outcome
of the final order is not likely to have a significant effect on Northwest
Pipeline's financial position.
On November 1, 1994, Northwest Pipeline began collecting new rates, subject
to refund, under the provisions of a rate case filed April 29, 1994. This new
filing seeks a revenue increase for a projected deficiency caused by increased
costs and loss of cost recovery assigned to a transportation contract terminated
subsequent to the rate case filed on October 1, 1992.
Competition
No other interstate natural gas pipeline company presently provides
significant service to Northwest Pipeline's primary gas consumer market area.
However, competition with other interstate carriers exists for expansion
markets. Competition also exists with alternate fuels. Electricity and
distillate fuel oil are the primary alternate energy sources in the residential
and commercial markets. In the industrial markets, high sulfur residual fuel oil
is the main alternate fuel source.
Ownership of Property
Northwest Pipeline's system is owned in fee. However, a substantial portion
of Northwest Pipeline's system is constructed and maintained pursuant to
rights-of-way, easements, permits, licenses or consents on and across properties
owned by others. The compressor stations of Northwest Pipeline, with appurtenant
facilities, are located in whole or in part upon lands owned by Northwest
Pipeline and upon sites held under leases or permits issued or approved by
public authorities. The LNG plant is located on lands owned in fee by Northwest
Pipeline. Northwest Pipeline's debt indentures restrict the sale or disposal of
a major portion of its pipeline system.
Environmental Matters
Northwest Pipeline is subject to the National Environmental Policy Act and
other Federal and state legislation regulating the environmental aspects of its
business. Management believes that Northwest Pipeline is in substantial
compliance with existing environmental requirements. Northwest Pipeline believes
that, with respect to any capital expenditures required to meet applicable
environmental standards and regulations, FERC would grant the requisite rate
relief so that, for the most part, such expenditures and a return thereon would
be permitted to be recovered. Northwest Pipeline believes that compliance with
applicable environmental requirements is not likely to have a material effect
upon its earnings or competitive position.
4
6
WILLIAMS NATURAL GAS COMPANY (Williams Natural Gas)
Williams Natural Gas is an interstate natural gas transmission company
which owns and operates a natural gas pipeline system located in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. The system serves
customers in seven states, including major metropolitan areas of Kansas and
Missouri, its chief market areas.
Williams Natural Gas is subject to regulation by FERC under the Natural Gas
Act and under the NGPA, and, as such, its rates and charges for transportation
of natural gas in interstate commerce, the extension, enlargement or abandonment
of facilities, and its accounting, among other things, are subject to
regulation.
Pipeline System and Customers
At December 31, 1994, Williams Natural Gas' system, having a mainline
delivery capacity of approximately 2.2 Bcf of gas per day, was composed of
approximately 6,300 miles of mainline and branch transmission and storage
pipelines and 48 compressor stations having a sea level rated capacity totaling
approximately 259,000 horsepower.
Williams Natural Gas operates nine underground storage fields with an
aggregate working gas storage capacity of approximately 43 Bcf and an aggregate
delivery capacity of approximately 1.2 Bcf of gas per day. Williams Natural Gas'
customers inject gas in these fields when demand is low and withdraw it to
supply their peak requirements. During periods of peak demand, approximately
two-thirds of the firm gas delivered to customers is supplied from these storage
fields. Storage capacity enables the system to operate more uniformly and
efficiently during the year.
In 1994, Williams Natural Gas transported gas to customers in Colorado,
Kansas, Missouri, Nebraska, Oklahoma, Texas and Wyoming. Gas was transported for
76 distribution companies and municipalities for resale to residential,
commercial and industrial users in approximately 530 cities and towns.
Transportation services were provided to approximately 350 industrial customers,
federal and state institutions and agricultural processing plants located
principally in Kansas, Missouri and Oklahoma. At December 31, 1994, Williams
Natural Gas had transportation contracts with approximately 206 shippers.
Transportation shippers included distribution companies, municipalities,
intrastate pipelines, direct industrial users, electrical generators, marketers
and producers.
In 1994, approximately 44 percent and 36 percent, respectively, of total
operating revenues were generated from gas transportation services to Williams
Natural Gas' two largest customers, Western Resources, Inc. and Missouri Gas
Energy Company. Western Resources sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Kansas. Missouri Gas Energy sells or resells gas to residential,
commercial and industrial customers principally in certain major metropolitan
areas of Missouri. No other customer accounted for more than 10 percent of
operating revenues during 1994.
Western Resources has entered into a twenty-year transportation service
agreement with Williams Natural Gas for a portion of its capacity needs. After
the initial two-year period, the contract contains a competitive out option.
Transportation services are provided to Missouri Gas Energy under contracts
primarily varying in terms from two to five years.
5
7
The following table summarizes gas sales and transportation data for the
periods indicated:
1994 1993 1992
----- ---- ----
Volumes (TBtu):
Resale sales................................................. -- 50 65
Direct and gas processing plant sales........................ -- 1 1
Transportation............................................... 346 344 320
----- ---- ----
Total throughout..................................... 346 395 386
===== ==== ====
Average Daily Transportation Volumes (TBtu).................... .9 .9 .9
Average Daily Firm Reserved Capacity (TBtu).................... 2.0 -- --
In 1992, FERC promulgated Order 636 which required interstate pipelines to
restructure their tariffs to eliminate traditional on system sales services
(except to certain small customers) before the 1993-1994 heating season and to
implement various changes in forms of service, including unbundling of
gathering, transmission and storage services; terms and conditions of service;
rate design; gas supply realignment cost recovery and other major rate and
tariff revisions. Williams Natural Gas' restructuring tariff became effective on
October 1, 1993.
Williams Natural Gas' restructured firm services are offered on a
"contract-demand" basis with the fixed costs, including return and tax
allowance, recovered through levelized monthly demand charges in accordance with
FERC specified straight fixed-variable rate design methodology. This results in
a more consistent level of operating results throughout the year, rather than
the historical operating results which were most favorable during the winter
heating season. In addition, effective October 1, 1993, Williams Natural Gas was
granted blanket authority to sell gas at negotiated prices and terms. Such sales
must take place prior to the entry of that gas into Williams Natural Gas'
transmission system. Pursuant to Order 636, Williams Natural Gas filed for
recovery of $36 million of transition costs in June 1994. This amount was direct
billed to certain former sales customers in September 1994, subject to FERC's
final approval. Williams Natural Gas expects to recover these costs which were
associated with its previous gas sales functions.
As part of Williams Natural Gas' restructuring, certain gathering and
processing assets have been or will be transferred to third parties including
subsidiaries of Williams Field Services Group, Inc., as discussed elsewhere
herein. Applications for orders permitting and approving abandonment of certain
natural gas facilities have been filed with FERC and final approval has been
granted by FERC on two of these filings. Preliminary approval on all other
systems, with the exception of the Kansas-Hugoton area, was granted by FERC in
December 1994, with final approval conditioned on negotiated or default
contracts for each gathering customer and a tariff filing by Williams Natural
Gas requesting termination of the gathering service. As discussed below, the
abandonment of the Kansas-Hugoton area was filed in October 1994, as part of the
producer settlement agreement.
Williams Natural Gas' total estimated proved developed gas reserves under
contract as of December 31, 1994, were 195 Bcf. Except for new wells drilled on
previously dedicated acreage under existing gas purchase contracts, virtually no
new dedicated gas supplies have been connected since 1982.
Williams Natural Gas' total estimated contracted gas reserves, in Bcf, were
195, 1,805 and 2,088 at December 31, 1994, 1993 and 1992, respectively. In 1994,
approximately 1,375 Bcf of contracted gas reserves were terminated under the
terms of the producer settlement agreement discussed below.
At December 31, 1994, Williams Natural Gas' remaining contracted reserves
were primarily attributable to approximately 97 gas purchase contracts with
independent producers. The independent producers' supplies are located in
Colorado, Kansas, Oklahoma, the Texas Panhandle and Wyoming.
Regulatory Matters
The transportation of natural gas by Williams Natural Gas in interstate
commerce is subject to regulation by FERC under the Natural Gas Act or the NGPA.
Williams Natural Gas holds certificates of public
6
8
convenience and necessity issued by FERC authorizing it to own and operate all
pipelines, facilities and properties now in operation for which certificates are
required under the Natural Gas Act.
Williams Natural Gas is also subject to the Natural Gas Pipeline Safety Act
of 1968, as amended, which regulates safety requirements in the design,
construction, operation and maintenance of interstate gas transmission and
storage facilities.
Williams Natural Gas has been involved in the reformation of its gas
purchase contracts in order to obtain releases from future gas purchase
obligations and to provide market-responsive terms in its remaining gas supply
contracts. Through December 31, 1994, Williams Natural Gas has paid
approximately $96.2 million to producers for contract reformations and
take-or-pay settlements and has accrued on its balance sheet an additional $47.2
million for future settlement costs. Although Williams Natural Gas believes the
accrual to be adequate, the amounts ultimately paid will depend on the outcome
of various court proceedings, the provisions and enforceability of each gas
purchase contract, the success of settlement negotiations and other factors. As
of December 31, 1994, Williams Natural Gas had an asset recorded on its balance
sheet for $40 million in recoverable contract reformation and take-or-pay costs.
This amount has not yet been paid nor has a filing for recovery of such costs
been made. See Note 15 of Notes to Consolidated Financial Statements.
On January 1, 1993, all federal price controls on wellhead sales of natural
gas were removed by the Natural Gas Wellhead Price Decontrol Act of 1989.
However, some contracts require Williams Natural Gas to continue to pay prices
based upon prior regulation. Other contracts revert to contractually specified
pricing mechanisms or to market-based pricing.
All remaining nonmarket responsive contracts will be reformed where
possible and the associated costs included in a transmission cost recovery
mechanism filing. Williams Natural Gas has filed an uncontested stipulation and
agreement which has been approved by FERC. This settlement resolved two rate
cases and established the cost sharing responsibility up to $50 million between
Williams Natural Gas and its customers for contract reformation costs filed by
Williams Natural Gas and its former pipeline suppliers under Orders 500 and 528
as well as Order 636 gas supply realignment costs.
Under the terms of the settlement, Williams Natural Gas absorbed 25 percent
of costs incurred prior to July 31, 1992, and filed for under Orders 500 and
528. After such date, any additional gas supply realignment costs that may be
incurred by Williams Natural Gas will be absorbed on a sliding scale from 9.5
percent of total costs up to $20 million to 22 percent if total costs do not
exceed $50 million. Williams Natural Gas will not absorb any costs incurred by
its former pipeline suppliers. Williams Natural Gas cannot predict the outcome
of its contract realignment efforts. It is likely that the $50 million amount
will be exceeded. While the settlement does not preclude Williams Natural Gas
from recovery of costs in excess of $50 million, the agreed sliding scale
sharing arrangement would not apply. Williams Natural Gas' restructured tariff
also allows recovery of above-market gas costs incurred under contracts not
reformed, subject to the same allocations and some additional restrictions.
Pursuant to the foregoing, Williams Natural Gas has made two filings to
direct bill take-or-pay and gas supply realignment costs recoverable under
Orders 436, 500 and 528. The first provided for the offset of certain amounts
collected subject to refund against previous take-or-pay direct billed amounts
and, in addition, covered $24 million in new costs. This filing was approved,
and the final direct billed amount, taking into consideration the offset, was
$15 million. The second filing covered $18 million in additional costs and
provided for an offset of $3 million. One party has challenged the prudency of
Williams Natural Gas' settlements and has requested FERC to schedule a prudency
hearing. Williams Natural Gas will make additional filings in the future under
the stipulation and agreement to recover such further contract reformation costs
as may be incurred.
In October 1994, Williams Natural Gas and a producer executed a number of
definitive agreements to resolve outstanding issues between the two companies
and restructure their relationship. The agreements terminate Williams Natural
Gas' largest gas purchase contract and resolve a number of disputes, including
claims by the producer for take-or-pay deficiencies and a gas pricing dispute.
With respect to the gas pricing dispute, Williams Natural Gas paid the producer
$35 million in cash and is committed to pay an additional $40 million under
certain circumstances, all but a small portion of which Williams Natural Gas
believes it will
7
9
be permitted to recover from certain of its former sales customers. As part of
the settlement agreements, Williams Natural Gas filed for the abandonment of the
Kansas-Hugoton gathering assets. Upon abandonment approval, the gathering assets
will be owned by an affiliate of Williams Natural Gas and will be operated by
the producer. The only portions of the settlement subject to regulatory
approvals are the settlement payment for the gas pricing dispute and the
regulatory abandonment of the Kansas-Hugoton gathering facilities on terms
acceptable to Williams Natural Gas. See Note 15 of Notes to Consolidated
Financial Statements.
Competition
Williams Natural Gas competes with both interstate and intrastate pipelines
and, to a more limited extent, marketers of natural gas, customers who reassign
firm transportation capacity and alternate energy forms in all significant
markets. Electricity and distillate fuel oil are the primary competitive forms
of energy for residential and commercial markets. Coal and residual fuel oil
compete for industrial and electric-generating markets. Some nuclear power and
power purchased from "grid" arrangements among electric utilities also compete
with gas-fired power generation in the markets served by Williams Natural Gas.
Effective October 1, 1993, when Williams Natural Gas' restructured tariff became
effective under Order 636, all suppliers of natural gas were able to compete for
any gas markets capable of being served by Williams Natural Gas' system, using
nondiscriminatory transportation services provided by Williams Natural Gas.
Effective October 1, 1993, Williams Natural Gas also received blanket sales
authority, enabling it to sell gas prior to the entry of that gas into its
transmission system at individually negotiated prices and terms in the same
manner as other natural gas merchants.
Many areas served by Williams Natural Gas are served or can be served by
other pipelines providing transportation services. In this regard, the City of
Springfield, Missouri, notified Williams Natural Gas in 1993 of its intention to
construct and operate its own pipeline to connect a portion of its existing load
to a competitor. Negotiations continued during 1994 to retain their entire load
on Williams Natural Gas' system.
Ownership of Property
Williams Natural Gas' pipeline system is owned in fee. However, a
substantial portion of Williams Natural Gas' system is constructed and
maintained pursuant to rights-of-way, easements, permits, licenses or consents
on and across properties owned by others. The compressor stations of Williams
Natural Gas, with appurtenant facilities, are located in whole or in part either
on lands owned by Williams Natural Gas or on sites held under leases or permits
issued or approved by public authorities. The storage facilities are either
owned or contracted for under long-term leases.
Environmental Matters
Williams Natural Gas is subject to various federal, state and local laws
and regulations relating to environmental quality control. Management believes
that Williams Natural Gas' operations are in substantial compliance with
existing environmental legal requirements.
Williams Natural Gas believes that, with respect to any capital
expenditures required to meet applicable environmental standards and
regulations, FERC would grant the requisite rate relief so that, for the most
part, such expenditures would be recoverable in rates. Williams Natural Gas
believes that compliance with applicable environmental requirements is not
likely to have a material effect upon its earnings or competitive position.
Williams Natural Gas has identified polychlorinated biphenyl ("PCB")
contamination in air compressor systems, disposal pits and various other areas
at certain compressor station sites. Williams Natural Gas has been involved in
negotiations with the Environmental Protection Agency ("EPA") to develop
additional screening, detailed sampling and cleanup programs. In addition,
negotiations concerning investigative and remedial actions relative to potential
mercury contamination at certain gas metering sites have commenced with certain
environmental authorities. As of December 31, 1994, Williams Natural Gas has a
liability recorded of approximately $28 million representing the current
estimate of future environmental cleanup costs to be incurred over the next six
to ten years. Although the accrual is believed to be adequate, the actual costs
8
10
incurred will depend on the actual number of contaminated sites identified, the
actual amount and extent of contamination discovered, the final cleanup
standards mandated by EPA and other governmental authorities and other factors.
Williams Natural Gas will seek recovery of these costs through future rates and
other means. See Note 15 of Notes to Consolidated Financial Statements.
KERN RIVER GAS TRANSMISSION COMPANY (Kern River)
Kern River is an interstate natural gas transmission company which owns and
operates a natural gas pipeline system extending from Wyoming through Utah and
Nevada to California. Kern River is jointly owned and operated by Williams
Western Pipeline Company, a subsidiary of Williams, and a subsidiary of an
unaffiliated company. See Note 3 of Notes to Consolidated Financial Statements.
The transmission system, which commenced operations in February 1992 following
completion of construction, delivers natural gas primarily to the enhanced
oil-recovery fields in southern California. The system also transports natural
gas for utilities, municipalities and industries in California, Nevada and Utah.
Kern River is subject to regulation by FERC under the Natural Gas Act and
under NGPA, and, as such, its rates and charges for the transportation of
natural gas in interstate commerce, the extension, enlargement or abandonment of
facilities and its accounting, among other things, are subject to regulation.
Pipeline System and Customers
As of December 31, 1994, Kern River's pipeline system was composed of 667
miles of pipeline and three mainline compressor stations having an aggregate
mainline delivery capacity of 700 MMcf of gas per day. The pipeline system
interconnects with the pipeline facilities of another pipeline company at
Daggett, California. From the point of interconnection, Kern River and the other
pipeline company have a single 337-mile pipeline which is owned 63.6 percent by
Kern River and 36.4 percent by the other pipeline company, as tenants in common,
and is designed to accommodate the combined throughput of both systems. This
common facility has a capacity of 1.1 Bcf of gas per day.
Kern River operates under an open-access transportation certificate wherein
gas is transported for others under firm long-term transportation contracts
totaling 675 MMcf of gas per day. During 1994, one shipper exercised adjustment
rights under its contract which had the affect of reducing firm transportation
commitments by 25 MMcf of gas per day. Another shipper exercised its adjustment
rights and increased its firm transportation commitment by 5 MMcf of gas per
day.
In 1994, Kern River transported 262 Bcf of natural gas for customers in
California, Nevada and Utah. Gas was transported for five customers in Kern
County, California, for reinjection as a part of enhanced oil recovery
operations and for 19 local distribution customers, electric utilities,
cogeneration projects and commercial and other industrial customers. The five
largest customers of Kern River in 1994 accounted for approximately 14 percent,
14 percent, 12 percent, 12 percent and 12 percent, respectively, of operating
revenues. Three of these customers serve the enhanced oil recovery fields. No
other customer accounted for more than 10 percent of operating revenues in 1994.
Regulatory Matters
The transportation of natural gas by Kern River in interstate commerce is
subject to regulation by FERC under the Natural Gas Act or the NGPA. Kern River
owns certificates of public convenience and necessity issued by FERC authorizing
it to own and operate all pipelines, facilities and properties now in operation
for which certificates are required under the Natural Gas Act. Kern River is
also subject to regulation under the Natural Gas Pipeline Safety Act of 1968, as
amended, which regulates safety requirements in the design, construction,
operation and maintenance of interstate gas transmission facilities.
On March 1, 1993, Kern River began collecting new rates, subject to refund,
under the provisions of a rate case filed August 31, 1992. Kern River is seeking
an increase in rates to cover increased operating costs, recovery of capital for
construction of the initial system and a fair rate of return. A settlement has
been entered into by and between Kern River, FERC staff and Kern River
customers. The settlement was submitted to
9
11
FERC for approval on October 18, 1994 and a FERC Order approving the settlement
without modification was received on January 25, 1995. Subsequently, Kern River
filed for a clarification of certain elements of the FERC Order.
Kern River has filed an application with FERC for authorization to expand
capacity to bring an additional 452 MMcf of gas per day of Canadian natural gas
into California and Nevada. On August 18, 1994, Kern River submitted a letter to
FERC requesting postponement in the issuance of a certificate, pending a re-
evaluation of market conditions.
Competition
One other natural gas pipeline presently provides significant service to
the enhanced oil recovery fields in Kern County. Pipeline competition also
exists for Kern River's other customers as well as for expansion markets.
Competition for the customer base is also provided from alternate fuels.
Electricity and distillate fuel oil are the primary alternate energy sources
competing with gas in the commercial market. In the industrial and cogeneration
markets, high sulfur residual fuel oil is the main alternate fuel source
providing competition.
Ownership of Property
The Kern River pipeline system is owned in fee. However, a substantial
portion of the system is constructed and maintained on rights-of-way, easements,
permits, licenses or consents on and across properties owned by others. The
compressor stations, with appurtenant facilities, are located in whole or in
part on lands owned by Kern River or on sites held under leases or permits
issued or approved by public authorities.
Environmental Matters
Kern River is subject to the National Environmental Policy Act and other
federal, state and local laws and regulations relating to the environmental
aspects of the pipeline operations. Management believes that Kern River is in
substantial compliance with existing environmental legal requirements for its
business.
Kern River believes that, with respect to any capital expenditures required
to meet applicable environmental standards and regulations, FERC would grant
requisite rate relief so that, for the most part, such expenditures and a return
thereon would be permitted to be recovered. Kern River believes that compliance
with applicable environmental requirements pertaining to its business is not
likely to have a material effect upon earnings or its competitive position.
WILLIAMS FIELD SERVICES GROUP, INC. (WILLIAMS FIELD SERVICES)
Williams Field Services, through subsidiaries, owns and/or operates both
regulated and nonregulated natural gas gathering and processing facilities,
markets natural gas and owns and operates natural gas leasehold properties.
Williams Field Services was established as a separate business unit in 1993 and
all of the Company's natural gas gathering and processing, marketing and
production activities have been, or will be, consolidated under Williams Field
Services' control and management. As part of Williams Natural Gas' restructuring
as previously discussed, certain gathering and processing assets will be
transferred to Williams Field Services upon FERC approval.
In 1994 and 1993, gathering and processing activities represented 87
percent and 89 percent, respectively, of Williams Field Services' operating
profit. Production and natural gas marketing represented the balance.
In 1994, Williams Field Services increased the capacity of the Manzanares
coal seam gas gathering systems in northwestern New Mexico to 750 MMcf of gas
per day. Further expansions will be completed in early 1995 which will increase
the capacity of the Manzanares system to over 1 Bcf of gas per day. A 120 MMcf
of gas per day processing plant in the Wamsutter field of south-central Wyoming
began operations in early 1994 and plans are underway to double the capacity in
1995. Williams Field Services completed the construction and acquisition of a 74
MMcf of gas per day processing complex in the Texas Panhandle which was the
first grassroots construction project outside Williams Field Services'
traditional western market area.
10
12
In February 1994, Williams Field Services reached agreement with Public
Service Company of New Mexico to acquire its natural gas gathering and
processing assets in the San Juan and Permian basins of New Mexico for $155
million. Subsequently, Williams Field Services entered into an agreement to sell
the southeastern New Mexico portion of the acquired assets for $14.2 million.
The assets retained consist of approximately 1,500 miles of gathering pipelines
and three gas processing plants which have an aggregate daily inlet capacity of
300 MMcf of gas. The acquisition is subject to approval from federal and state
regulatory agencies and is not expected to close until mid-year 1995.
Gathering and Processing
Williams Field Services, through subsidiaries, owns and operates natural
gas gathering and processing facilities located in the San Juan Basin, southwest
Wyoming, and the Rocky Mountains of Utah and Colorado. Williams Field Services,
through subsidiaries, also operates natural gas gathering and processing
facilities located in the Texas Panhandle and the Hugoton Basin in northwest
Oklahoma and southwest Kansas which are owned by Williams Natural Gas but which
are the subject of applications for orders permitting abandonment, discussed
elsewhere herein. Gathering services provided include the gathering of gas and
the treating of coal seam gas. The operating information below includes
operations attributed to the facilities when they were owned and operated by
affiliated entities and operations for facilities currently owned by Williams
Natural Gas but operated by Williams Field Services.
Customers and Operations. Williams Field Services' facilities, including
those currently owned by Williams Natural Gas, consist of approximately 6,900
miles of gathering pipelines, three gas treating plants and ten gas processing
plants (one of which is 20 percent owned and one of which is 66 percent owned)
which have an aggregate daily inlet capacity of 2.3 Bcf of gas. Gathering and
processing customers have direct access to interstate pipelines, including
Northwest Pipeline, Williams Natural Gas and Kern River, which provide access to
multiple markets.
During 1994, Williams Field Services gathered natural gas for 157
customers. The two largest gathering customers accounted for approximately 33
percent and 10 percent, respectively, of total gathered volumes. During 1994,
natural gas was processed for a total of 108 customers. The three largest
customers accounted for approximately 22 percent, 14 percent and 12 percent,
respectively, of total processed volumes. No other customer accounted for more
than 10 percent of gathered or processed volumes. Williams Field Services'
gathering and processing agreements with large customers are generally long-term
agreements with various expiration dates. These long-term agreements account for
the majority of the gas gathered and processed by Williams Field Services.
Liquids extracted at the processing plants are ethane, propane, butane and
natural gasoline. Liquid products retained by Williams Field Services' are
marketed by an affiliate for a fee. During 1994, liquid products were sold to a
total of 20 customers under short-term contracts. The three largest customers
accounted for approximately 33 percent, 13 percent and 10 percent, respectively,
of total liquid products volumes sold. No other customer accounted for more than
10 percent of volumes sold.
Operating Statistics. The following table summarizes gathering, processing
and natural gas liquid volumes for the periods indicated:
1994 1993 1992
---- ---- ----
Gas volumes (TBtu, except where noted):
Gathering..................................................... 895 789 672
Processing.................................................... 392 323 * 283 *
Natural gas liquid sales (millions of gallons)................ 281 295 278
- ---------------
* Restated to exclude treating volumes.
11
13
Natural Gas Marketing and Supply
Williams Gas Marketing, a subsidiary of Williams Field Services, markets
natural gas primarily west of the Mississippi River and in certain eastern and
southeastern states. Williams Gas Marketing also markets gas in the Midcontinent
and Western regions of the U.S. off both interstate and intrastate pipelines,
including Williams Natural Gas, Northwest Pipeline and Kern River.
During 1994, no single customer accounted for 10 percent or more of volumes
sold. Typically, natural gas sales are made under short-term contracts. Renewal
of these contracts is dependent upon, among other things, the ability to provide
competitively priced gas.
Williams Gas Marketing supplies its sales commitments through short-term
and spot gas purchases as well as purchases under long-term contracts. The
suppliers' ability to meet their delivery commitments and Williams Gas
Marketing's ability to service its customers may be adversely affected by
factors beyond their respective control, such as occasions of force majeure.
Certain of these gas purchase contracts obligate Williams Gas Marketing to
purchase minimum percentages of the total deliverability of the wells covered by
the contracts. During 1994, Williams Gas Marketing incurred no purchase
deficiencies under these contracts.
Production
Williams Field Services, through a subsidiary, owns and operates producing
gas leasehold properties in the San Juan Basin.
Gas Reserves. As of December 31, 1994, 1993 and 1992, Williams Field
Services had proved developed natural gas reserves of 269 Bcf, 229 Bcf and 352
Bcf, respectively, and proved undeveloped reserves of 220 Bcf, 319 Bcf and 287
Bcf, respectively. As discussed below, Williams Field Services conveyed gas
reserves to the Williams Coal Seam Gas Royalty Trust in 1993. No major discovery
or other favorable or adverse event has caused a significant change in estimated
gas reserves since year end.
Customers and Operations. As of December 31, 1994, the gross and net
developed leasehold acres owned by Williams Field Services totaled 228,863 and
98,716, respectively, and the gross and net undeveloped acres owned were 29,369
and 13,669, respectively. As of such date, Williams Field Services owned
interests in 2,682 gross producing wells (369 net) on its leasehold lands. The
following table summarizes drilling activity for the periods indicated:
DEVELOPMENT
---------------
COMPLETED GROSS NET
DURING WELLS WELLS
- --------- ----- -----
1994.................................................................. 66 19
1993.................................................................. 39 5
1992.................................................................. 95 11
The majority of Williams Field Services' gas production is currently being
sold in the spot market at market prices. Total net production sold during 1994,
1993 and 1992 was 22.6 TBtu, 16.3 TBtu and 23.4 TBtu, respectively. The average
production costs per MMBtu of gas produced were $.14, $.17 and $.17 in 1994,
1993 and 1992, respectively. The average sales price per MMBtu was $1.21, $1.44
and $1.14, respectively, for the same periods.
In 1993, Williams Field Services conveyed a net profits interest in certain
of its properties to the Williams Coal Seam Gas Royalty Trust. Trust Units were
subsequently sold to the public by Williams in an underwritten public offering.
Williams continues to hold 3,568,791 Trust Units representing 36.8 percent of
outstanding Units. Substantially all of the production attributable to the
properties conveyed to the Trust was from the Fruitland coal formation and
constituted coal seam gas. Proved developed coal seam gas reserves at December
31, 1994, attributed to the properties conveyed were 162 Bcf. Production
information reported herein includes Williams Field Services' interest in such
Units. See Note 4 to Notes to Consolidated Financial Statements.
12
14
Regulatory Matters
Historically, an issue has existed as to whether FERC has authority under
the Natural Gas Act to regulate gathering and processing prices and services.
During 1994, after reviewing its legal authority in a Public Comment Proceeding,
FERC determined that while it retains some regulatory jurisdiction over
gathering and processing performed by pipelines, pipeline affiliated gathering
and processing companies are outside its authority under the Natural Gas Act.
Orders issued in 1994 which implement FERC's conclusion that it lacks
jurisdiction have been appealed to the Court of Appeals for the District of
Columbia Circuit. Williams Field Services believes that these FERC decisions
will be upheld on appeal.
As a result of FERC action, several of the states in which Williams Field
Services operates may consider whether to impose regulatory requirements on
gathering companies. No state in which Williams Field Services operates
currently regulates gathering or processing rates or services.
Competition
Williams Field Services competes for gathering and processing business with
interstate pipelines, producers and independent gatherers and processors.
Numerous factors impact any given customer's choice of a gathering or processing
services provider, including rate, term, timeliness of well connections,
pressure obligations and the willingness of the provider to process for either a
fee or for liquids taken in-kind.
Ownership of Property
Williams Field Services' gathering and processing facilities are owned in
fee. Gathering systems are constructed and maintained pursuant to rights-of-way,
easements, permits, licenses and consents on and across properties owned by
others. The compressor stations and gas processing and treating facilities are
located in whole or in part on lands owned by Williams Field Services or on
sites held under leases or permits issued or approved by public authorities.
Environmental Matters
Williams Field Services is subject to various federal, state and local laws
and regulations relating to environmental quality control. Management believes
that Williams Field Services' operations are in substantial compliance with
existing environmental legal requirements.
WILLIAMS PIPE LINE COMPANY (WILLIAMS PIPE LINE)
Williams Pipe Line, a wholly owned subsidiary of Williams, operates a
petroleum products pipeline system which covers an eleven-state area extending
from Oklahoma in the south to North Dakota and Minnesota in the north and
Illinois in the east. The system is operated as a common carrier offering
transportation and terminalling services on a nondiscriminatory basis under
published tariffs. The system transports crude oil and products, including
gasolines, distillates, aviation fuels and LP-gases.
On September 30, 1994, Williams Pipe Line acquired 114 miles of pipeline in
Kansas, Missouri and Illinois from ARCO Pipe Line Company. In a related
transaction, Williams Pipe Line added a new offline delivery connection to serve
markets in northern Missouri and southern Iowa.
Shippers and Pipeline System
At December 31, 1994, the system traversed approximately 7,000 miles of
right-of-way and included over 9,200 miles of pipeline in various sizes up to 16
inches. The system includes 81 pumping stations, 23 million barrels of storage
capacity and 47 delivery terminals. The terminals are equipped to deliver
products into tank trucks and tank cars. The maximum number of barrels which the
system can transport per day depends upon the operating balance achieved at a
given time between various segments of the system. Since the balance is
dependent upon the mix of products to be shipped and the demand levels at the
various delivery points, the exact capacity of the system cannot be stated.
13
15
The operating statistics set forth below relate to the system's operations
for the periods indicated:
1994 1993 1992
-------- -------- --------
Shipments (thousands of barrels):
Refined products:
Gasolines.......................................... 120,682 109,841 92,643
Distillates........................................ 61,129 51,508 45,920
Aviation fuels..................................... 9,523 11,123 11,180
LP-Gases.............................................. 10,849 9,778 11,362
Crude oil............................................. 1,062 3,388 4,481
-------- -------- --------
Total shipments............................... 203,245 185,638 165,586
======= ======= =======
Daily average (thousands of barrels).................. 557 509 454
Average haul (miles).................................. 284 279 295
Barrel miles (millions)............................... 57,631 51,821 48,825
Revenues (millions):
Transportation........................................ $168.0 $153.0 $137.7
Nontransportation..................................... 41.7 26.3 10.8
-------- -------- --------
Total revenues................................ $209.7 $179.3 $148.5
======= ======= =======
Average transportation revenue per barrel............. $.83 $.82 $.83
On December 1, 1993, Williams Pipe Line acquired a 300-mile pipeline, two
loading terminals and related storage from Sun Pipe Line Company. The pipeline
connects to Williams Pipe Line's systems in Oklahoma and adds Arkansas to its
market. Volumes originating on this system accounted for approximately 10
percent of the shipments and transportation revenues in 1994.
In 1994, 75 shippers transported volumes through the system. The seven
largest shippers accounted for 55 percent of transportation revenues. These same
shippers have accounted for approximately the same percentage of transportation
revenues over the past three years. Due to Williams Pipe Line's geographic
location within existing supply and demand patterns, including connections to
pipelines and refineries within the region, Williams Pipe Line expects to remain
the competitive choice in these relationships. The highest revenue-producing
shipper accounted for approximately 11 percent of transportation revenues in
1994.
Nontransportation activities accounted for 20 percent of total revenues in
1994. The increase in nontransportation revenues is primarily due to expanded
gas liquids and fractionator operations.
At December 31, 1994, the system was directly connected to, and received
products from 11 operating refineries reported to have an aggregate crude oil
refining capacity of approximately 888,000 barrels per day. Eight of these
refineries are located in Kansas and Oklahoma, two in Minnesota and one in
Wisconsin. The system also received products through connecting pipelines from
other refineries located in Illinois, Indiana, Kansas, Louisiana, Montana, North
Dakota, Oklahoma and Texas. Crude oil is received through connections in Kansas
and Oklahoma. The refineries, which are connected directly or indirectly to the
system, have access to a broad range of crude oil producing areas, including
foreign sources. LP-gases are transported from gas producing and storage areas
in central Kansas through connecting pipelines in Iowa, Kansas, Missouri and
Illinois. In addition to making deliveries to company-owned terminals, the
system delivers products to third-party terminals and connecting pipelines.
The refining industry continues to be affected by environmental regulations
and changing crude supply patterns. The industry's response to environmental
regulations and changing supply patterns will directly affect volumes and
products shipped on the Williams Pipe Line system. EPA regulations, driven by
the Clean Air Act, require refiners to change the composition of fuel
manufactured. A pipeline's ability to respond to the effects of regulation and
changing supply patterns will determine its ability to maintain and capture new
market shares. Williams Pipe Line has successfully responded to changes in
diesel fuel composition and product supply and has adapted to new gasoline
additive requirements. Reformulated gasoline regulations have not yet
significantly affected Williams Pipe Line. Williams Pipe Line will continue to
position itself to
14
16
respond to changing regulations and supply patterns, but it is not possible to
predict how future changes in the marketplace will affect Williams Pipe Line's
market areas.
Regulatory Matters
General. Williams Pipe Line, as an interstate common carrier pipeline, is
subject to the provisions and regulations of the Interstate Commerce Act. Under
this Act, Williams Pipe Line is required, among other things, to establish just,
reasonable and nondiscriminatory rates, to file its tariffs with FERC, to keep
its records and accounts pursuant to the Uniform System of Accounts for Oil
Pipeline Companies, to make annual reports to FERC and to submit to examination
of its records by the audit staff of FERC. Authority to regulate rates, shipping
rules and other practices and to prescribe depreciation rates for common carrier
pipelines is exercised by FERC. The Department of Transportation, as authorized
by the 1992 Pipeline Safety Reauthorization Act, is the oversight authority for
interstate liquids pipelines. Williams Pipe Line is also subject to the
provisions of various state laws which are applicable to intrastate pipelines.
Rate Proceeding. On December 31, 1989, a rate cap, which resulted from a
settlement with several shippers, effectively freezing Williams Pipe Line's
rates for the previous five years, expired. Williams Pipe Line filed a revised
tariff on January 16, 1990, with FERC and the state commissions. The tariff set
an average increase in rates of 11 percent and established volume incentives and
proportional rate discounts. Certain shippers on the Williams Pipe Line system
and a competing pipeline carrier filed protests with FERC alleging that the
revised rates are not just and reasonable and are unlawfully discriminatory. As
a result of these protests, FERC suspended the effective date of the tariff for
seven months (until September 16, 1990), at which time it became effective,
subject to refund. The revised intrastate tariffs filed with state commissions
were voluntarily withdrawn and refiled to be effective at the same time as the
interstate tariff.
Williams Pipe Line elected to bifurcate this proceeding in accordance with
the then-current FERC policy. Phase I of the FERC's bifurcated proceeding
provides a carrier the opportunity to justify its rates and rate structure by
demonstrating that its markets are workably competitive. Any issues unresolved
in Phase I will require cost justification in Phase II. FERC hearings in Phase I
were held before an administrative law judge in the summer of 1991. The Judge's
decision, issued January 24, 1992, ruled solely on market power issues and
certain discrimination claims. This Initial Decision concluded that Williams
Pipe Line had sustained its burden of proof in demonstrating that it "lacks
significant market power" and is "workably competitive" in 22 of 32 of its
markets and that the alleged discrimination was justified by competitive
conditions. On July 27, 1994, FERC issued a Phase I decision, Order 391. The
Commission, while citing considerable agreement with the theoretical concepts
employed by the administrative law judge, reversed his initial decision
regarding the competitive nature of nine specific markets, thus finding that
Williams Pipe Line had sustained its burden of proof in showing that it is
workably competitive in 13 of 32 markets under investigation. In response to
this order, Williams Pipe Line filed a motion to stay Phase II along with a
request for reconsideration of nine markets on August 29, 1994. On September 28,
1994, FERC issued a tolling order granting Williams Pipe Line's request for
rehearing but denying its motion to stay the Phase II proceedings. Williams Pipe
Line filed its direct evidence in Phase II on January 23, 1995, with hearings to
begin around September 1995. The current procedural schedule forecasts an
initial decision in Phase II in the beginning of 1996. While Williams Pipe Line
cannot predict the final outcome of these proceedings, it believes its revised
tariffs will ultimately be found lawful.
In June 1993, FERC ruled that Williams Pipe Line must file tariffs and cost
justification for transaction charges that are collected for certain bookkeeping
services, Product Transfer Orders and Product Authorizations. Williams Pipe Line
had previously considered these charges as nonjurisdictional. In order to comply
with the ruling, Williams Pipe Line immediately filed tariffs establishing these
charges in its tariff. The FERC order to provide cost justification is currently
stayed pending rehearing of the case.
On October 22, 1993, FERC issued a new rule making and two companion
Notices of Inquiry intended to establish "simplified and generally applicable
rate making" as well as procedural streamlining as mandated by the Energy Policy
Act of 1992. On July 27, 1994, FERC issued a final rule establishing a
"simplified and generally applicable rate making" methodology as mandated by the
Energy Policy Act of 1992. FERC has
15
17
attempted to streamline the rate making process via generic rules and a rate cap
mechanism, or index, based on the annual Producer Price Index for Finished Goods
less one percentage point ("PPI-1"). The final rule, which became effective
January 1, 1995, requires pipelines to use indexing as their primary rate making
methodology in markets not determined to be workably competitive. The
Association of Oil Pipelines has filed an appeal of this order in the Court of
Appeals for the District of Columbia Circuit citing, among other things, the
inadequacy of the PPI-1 index. Williams Pipe Line has intervened in this
proceeding.
On October 28, 1994, FERC released two additional rule makings. The first
established procedures for seeking "market-based" rates. The second sets forth
procedures for cost justifying rate increases which exceed the PPI-1 index and
establishes several changes in existing accounting and reporting requirements.
Competition
Williams Pipe Line operates without the protection of a federal certificate
of public convenience and necessity that might preclude other entrants from
providing like service in its area of operations. Further, Williams Pipe Line
must plan, operate and compete without the operating stability inherent in a
broad base of contractually obligated or owner-controlled usage. Since Williams
Pipe Line is a common carrier, its shippers need only meet the requirements set
forth in its published tariffs in order to avail themselves of the
transportation services offered by Williams Pipe Line.
Competition exists from other pipelines, refineries, barge traffic,
railroads and tank trucks. Competition is affected by trades of products or
crude oil between refineries which have access to the system and by trades among
brokers, traders and others who control products. Such trades can result in the
diversion from the Williams Pipe Line system of volume which might otherwise be
transported on the system. Shorter, lower revenue hauls may also result from
such trades. Williams Pipe Line also is exposed to interfuel competition whereby
an energy form shipped by a liquids pipeline, such as heating fuel, is replaced
by a form not transported by a liquids pipeline, such as electricity or natural
gas. While Williams Pipe Line faces competition from a variety of sources
throughout its marketing areas, the principal competition is other pipelines. A
number of pipeline systems, competing on a broad range of price and service
levels, provide transportation service to various areas served by the system.
The possible construction of additional competing products or crude oil
pipelines, conversions of crude oil or natural gas pipelines to products
transportation, changes in refining capacity, refinery closings, changes in the
availability of crude oil to refineries located in its marketing area, or
conservation and conversion efforts by fuel consumers may adversely affect the
volumes available for transportation by Williams Pipe Line.
Ownership of Property
Williams Pipe Line's system is owned in fee. However, a substantial portion
of the system is operated, constructed and maintained pursuant to rights-of-way,
easements, permits, licenses or consents on and across properties owned by
others. The terminals, pump stations and all other facilities of the system are
located on lands owned in fee or on lands held under long-term leases, permits
or contracts. Management believes that the system is in such a condition and
maintained in such a manner that it is adequate and sufficient for the conduct
of business.
Environmental Matters
Williams Pipe Line's operations are subject to various federal, state and
local laws and regulations relating to environmental quality control. Management
believes that Williams Pipe Line's operations are in substantial compliance with
existing environmental legal requirements. Williams Pipe Line has initiated a
broad scope of projects related to environmental controls. Under Williams Pipe
Line's philosophy of proactive environmental management, $5.7 million was
expended in 1994 for environmental-related capital projects.
Williams Pipe Line has been named by the EPA as a potentially responsible
party as defined in Section 107(a) of the Comprehensive Environmental Response,
Compensation, and Liability Act, for a site in Sioux Falls, South Dakota. This
site was placed on the National Priorities List in July 1990. In April 1991,
Williams Pipe Line and the EPA executed an administrative consent order under
which Williams Pipe Line
16
18
agreed to conduct a remedial investigation and feasibility study for this site.
The EPA issued its "No Action" Record of Decision in 1994 concluding that there
were no significant hazards associated with the site subject to two additional
years of monitoring for arsenic in certain existing monitoring wells.
WILLIAMS ENERGY VENTURES, INC. (WILLIAMS ENERGY VENTURES)
Williams Energy Ventures, a wholly owned subsidiary of Williams, provides
price risk management products and services, natural gas liquid marketing
services, electronic information services and business development capabilities
through three major business groups: Commodities, Information Services and New
Ventures.
Commodities Group
In addition to providing commodity price risk management products and
services for other Williams subsidiaries, Williams Energy Ventures, through a
subsidiary, offers financial instruments and derivatives to producers and
consumers of energy as well as to financial entities participating in energy
price-risk management. Williams Energy Ventures enters into energy-related
financial instruments to hedge against market price fluctuations of certain
refined products inventories and natural gas sales and purchase commitments.
Williams Energy Ventures expanded these services during the year as transactions
increased over 100 percent from 1993 levels, while also being selected to supply
a cogeneration facility with a ten-year supply of natural gas beginning in 1997.
See Note 13 of Notes to Consolidated Financial Statements.
Williams Energy Ventures also markets the gas liquids produced by Williams
Field Services and by unaffiliated companies. Natural gas liquids are sold in
the Gulf Coast petrochemical markets under short-term contracts. Propane is
marketed primarily in the Rocky Mountain area via truck and railcar loading
terminals owned by Williams Field Services.
Information Services Group
Through its information services group, Williams Energy Ventures offers
various trading and brokering services in the energy field. Chalkboard, an
electronic trading and brokering system for purchases and sales of liquid fuels
and crude oil, continues to establish market acceptance following its
introduction in 1993. During 1994, Williams Energy Ventures implemented
Streamline (a computer-based gas trading and clearing system) at five locations
in the United States and at two gas trading hubs in Canada through a joint
development partner. Also introduced during the year was Capacity Central, a
computer-based gas pipeline capacity sales system.
Williams Energy Ventures also provides computer-based operator training
primarily to the energy industry. Williams Energy Ventures has licensing
agreements with over 150 customers in the oil and gas pipeline, terminal and
trucking industries.
New Ventures Group
Williams Energy Ventures' new ventures group consists primarily of
nonjurisdictional businesses based in petroleum-related and technology-based
processes. During 1994, this group initiated the construction of an underground
coal gasification facility in Wyoming, with initial operations to determine the
commercial feasibility of the process scheduled for early 1995. In support of
this and future similar projects, Williams Energy Ventures completed the
acquisition of Energy International, a company with technological rights and
expertise in conversion of coal into market quality gas. In addition, Williams
Energy Ventures entered into a 71 percent majority interest in a joint venture
to construct a 25 million gallon per year ethanol plant in Nebraska, with
completion scheduled for the fourth quarter of 1995. Development
responsibilities also extend to those energy-based projects which employ newly
developed technologies and information systems.
17
19
TELECOMMUNICATIONS
WILLIAMS TELECOMMUNICATIONS SYSTEMS, INC. (WILTEL)
WilTel provides data, voice and video communications products and services
to a wide variety of customers nationally. WilTel is strategically positioned in
the marketplace with more than 100 sales and service locations throughout the
United States, over 2,500 employees and over 1,300 stocked service vehicles.
WilTel believes it is one of only two national providers of customer premise
telecommunications equipment.
WilTel employs more than 1,200 technicians and more than 400 sales
representatives and sales support personnel to serve an estimated 30,000
commercial, governmental and institutional customers. WilTel's customer base
ranges from Fortune 500 corporations and the Federal Government to small
privately-owned entities.
WilTel offers its customers a full array of network interconnect products
including digital key systems (generally designed for voice applications with
fewer than 100 lines), private branch exchange (PBX) systems (generally designed
for voice applications with greater than 100 lines), voice processing systems,
interactive voice response systems, automatic call distribution applications,
call accounting systems, network monitoring and management systems, desktop
video, routers, channel banks, intelligent hubs and cabling for all voice and
data applications. WilTel's services also include the design, configuration and
installation of voice and data networks and the management of customers'
telecommunications operations and facilities. In addition, WilTel possesses
multicustomer service capabilities, including three specialized functions that
provide customers with on-line order entry and trouble reporting services,
advanced technical assistance and training. Other service capabilities include
Local Area Network and PBX remote monitoring and toll fraud detection.
In 1994, WilTel derived approximately 67 percent of its revenues from its
existing customer base and approximately 33 percent from the sale of new
telecommunications systems. The distribution of revenues for the periods
indicated are shown in the following table:
REVENUES 1994 1993 1992
--------------------------------------------------------------- ---- ---- ----
New System Sales............................................... 33% 39% 41%
System Modifications........................................... 36% 30% 28%
Maintenance.................................................... 24% 23% 25%
Other.......................................................... 7% 8% 6%
The 1994 decrease in the percentage of revenue derived from the sale of new
telecommunications systems was attributed to the March 1994, acquisition of
BellSouth's customer premise equipment sales and service operations in the 29
states outside of BellSouth's local operating region and the October 1994,
acquisition of Jackson Voice Data, a New York City-based customer premise
equipment company. The acquired companies generated the vast majority of their
revenue from their existing customer bases. The acquisition of these businesses
has allowed WilTel to capitalize on its existing infrastructure, strengthen its
national market presence and geographic customer density and has provided more
diversity in product offerings.
Although the percentage of revenue attributable to new system sales
continues to decline relative to total revenue, year end revenue backlog
continues to increase. Estimated year end revenue backlog balances, comprised of
new system sales and major system upgrades, were as follows: $92 million in
1994, $52 million in 1993 and $39 million in 1992.
The total number of ports maintained and served by WilTel at the end of
1994 increased to 4.1 million. The bulk of the increase from prior years is
attributable to the acquisitions of the BellSouth and Jackson Voice Data
customer bases. The two acquisitions contributed in excess of 1.0 million ports
to the total WilTel count. A port is defined as an electronic address physically
resident in a customer's PBX or key system that supports the operation of a
peripheral device such as a station, trunk or data port. The year end port
counts were as follows: 4.1 million in 1994, 2.7 million in 1993 and 2.6 million
in 1992.
18
20
WilTel Data Network Services, an affiliated company, was merged into WilTel
December 31, 1994. WilTel Data Network Services provides customer premise data
equipment and services for wide and local area networks. The merger allows
WilTel to expand its activities into the faster growing data communications
marketplace. Expansion into the data market has allowed WilTel to differentiate
itself from its traditional competitors, most of whom remain principally
involved only in the distribution of PBX and key systems.
WilTel's three largest suppliers accounted for 91 percent of equipment sold
in 1994. A single manufacturer supplied 80 percent of all equipment sold. In
this case, WilTel is the largest distributor of certain of this company's
products. About 70 percent of WilTel's active customer base consists of this
manufacturer's products. The distribution agreement with this supplier is
scheduled to expire in 1997. This agreement is expected to be renewed upon
expiration. There is minimal risk as to the availability of product from
suppliers.
WilTel has many competitors ranging from AT&T and the Regional Bell
Operating Companies to small individually owned companies which sell and service
customer premise equipment. Competitors include companies that sell equipment
that is comparable or identical to that sold by WilTel.
WilTel is subject to Federal Communications Commission rules governing the
connection of equipment to telephone networks. A subsidiary of WilTel is subject
to FCC regulations as a common carrier and as a microwave licensee.
VYVX, INC. (VYVX)
Vyvx offers switched fiber-optic television transmission services
nationwide. It provides switched, broadcast-quality, fiber-optic television
transmission services as an alternative to satellite and microwave television
transmissions. Vyvx primarily provides backhaul transmission of news and other
programming between two or more customer locations. For example, the Vyvx
network is used for the broadcast coverage of major professional sporting
events. Vyvx's customers include all of the major broadcast and cable networks.
Vyvx also provides videoconferencing/business television services.
OTHER INFORMATION
Williams believes that it has adequate sources and availability of raw
materials to assure the continued supply of its services and completed products
for existing and anticipated business needs. Williams' pipeline systems are all
regulated in various ways resulting in the financial return on the investments
made in the systems being limited to standards permitted by the regulatory
bodies. Each of the pipeline systems have ongoing capital requirements for
efficiency and mandatory improvements, with expansion opportunities also
necessitating periodic capital outlays.
A fertilizer plant site at Pensacola, Florida, that was operated for three
years by a former subsidiary of Williams has been placed on the National
Priorities List. Williams has been notified by the EPA that it is a potentially
responsible party for the site, an assertion which Williams is contesting. This
former subsidiary has also been identified as a potentially responsible party
along with numerous other parties with respect to the Forest Waste Disposal Site
located in Michigan. This site is now a National Priorities List cleanup site. A
third active site, located in Lakeland, Florida, which was formerly owned and
operated by this subsidiary, is under investigation by the Florida Department of
Environmental Protection and cleanup is anticipated. Williams does not believe
that the ultimate resolution of the foregoing matters, taken as a whole and
after consideration of insurance coverage, contribution or other indemnification
arrangements, will have a material adverse financial effect on the Company. See
Note 15 of Notes to Consolidated Financial Statements.
On January 25, 1995, Texasgulf Inc. filed a registration statement with the
Securities and Exchange Commission providing for the sale of the Company's 15
percent interest in Texasgulf as a registered public offering. The Company
anticipates that a sale of its interest in Texasgulf, either through this public
offering or in a privately negotiated transaction, will occur in 1995. See Note
3 of Notes to Consolidated Financial Statements.
19
21
At December 31, 1994, the Company had approximately 8,200 full-time
employees, of whom approximately 636 were represented by unions and covered by
collective bargaining agreements. In connection with the WNS Sale in January
1995, as previously discussed, the work force was reduced by approximately 2,070
employees, none of whom were covered by a collective bargaining agreement. In
connection with the acquisition of Transco Energy Company in 1995, as previously
discussed, the Company expects to add approximately 4,500 employees. The Company
considers its relations with its employees to be generally good.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams has no significant foreign operations.
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
Other than as described under Item 1 -- Business and in Note 15 of Notes to
Consolidated Financial Statements, there are no material pending legal
proceedings. Williams is subject to ordinary routine litigation incidental to
its businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF WILLIAMS
The names, ages, positions and election dates of the executive officers of
Williams are:
HELD
OFFICE
NAME AGE POSITIONS AND OFFICES HELD SINCE
- ------------------------------ --- ----------------------------------------------- --------
Keith E. Bailey............... 52 Chairman of the Board, President, Chief 05-19-94
Executive Officer and Director
John C. Bumgarner, Jr......... 52 Senior Vice President -- Corporate Development 01-01-79
and Planning
James R. Herbster............. 53 Senior Vice President -- Administration 01-01-92
J. Furman Lewis............... 60 Senior Vice President and General Counsel 07-15-86
Jack D. McCarthy.............. 52 Senior Vice President -- Finance (Principal 01-01-92
Financial Officer)
Gary R. Belitz................ 45 Controller (Chief Accounting Officer) 01-01-92
Stephen L. Cropper............ 45 President -- Williams Pipe Line and Williams 01-22-86
Energy Ventures
Lloyd A. Hightower............ 60 President -- Williams Field Services 05-11-93
Henry C. Hirsch............... 52 President -- Williams Telecommunications 08-21-92
Systems
Howard E. Janzen.............. 40 Chairman of the Board -- Vyvx 12-01-94
Brian E. O'Neill.............. 59 President -- Northwest Pipeline and Williams 01-01-88
Natural Gas
All of the above officers have been employed by Williams or its
subsidiaries as officers or otherwise for more than the past five years and have
had no other employment during such period.
20
22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Williams' Common Stock is listed on the New York and Pacific Stock
Exchanges under the symbol "WMB." At the close of business on December 31, 1994,
Williams had 7,400 holders of record of its Common Stock. The daily closing
price ranges (composite transactions) and dividends declared by quarter for each
of the past two years are as follows:
1994 1993
-------------------------- -------------------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
--------------------------- ---- ---- -------- ------- -------- --------
1st........................ $27 1/4 $22 3/4 $.21 $24 1/8 $18 1/8 $.19
2nd........................ $30 1/8 $22 1/8 $.21 $27 3/8 $23 11/16 $.19
3rd........................ $32 7/8 $28 3/8 $.21 $31 9/16 $26 5/16 $.19
4th........................ $30 1/4 $24 1/8 $.21 $31 9/16 $24 3/8 $.21
In January 1995, the Board of Directors of the Company approved a 28.5
percent increase in the Common Stock dividend. The dividend approved for the
first quarter of 1995 was $.27 per share.
Terms of certain subsidiaries' borrowing arrangements limit transfer of
funds to Williams. Terms of other borrowing arrangements limit the payment of
dividends on Williams' Common Stock. These restrictions have not impeded, nor
are they expected to in the future, Williams' ability to meet its cash
obligations. See Note 11 of Notes to Consolidated Financial Statements.
21
23
ITEM 6. SELECTED FINANCIAL DATA
The following financial data are an integral part of, and should be read in
conjunction with, the consolidated financial statements and notes thereto.
Information concerning significant trends in the financial condition and results
of operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages F-1 through F-8 of this report.
1994 1993* 1992* 1991* 1990*
------- ------- ------- ------- -------
(MILLIONS, EXCEPT PER-SHARE AMOUNTS)
Revenues**................................. $1,751.1 $1,793.4 $1,983.5 $1,704.5 $1,445.9
Income from continuing operations**........ 164.9 185.4 103.1 69.7 36.0
Income from discontinued operations........ 94.0 46.4 25.2 40.3 41.0
Fully diluted earnings per share:
Income from continuing operations........ 1.52 1.71 .97 .69 .29
Income from discontinued operations...... .92 .45 .28 .48 .50
Cash dividends per common share............ .84 .78 .76 .70 .70
Total assets at December 31................ 5,226.1 5,020.4 4,982.3 4,247.4 4,034.4
Long-term obligations at December 31....... 1,307.8 1,604.8 1,683.2 1,541.9 1,374.5
Stockholders' equity at December 31........ 1,505.5 1,724.0 1,518.3 1,220.0 1,166.5
- ---------------
* Certain amounts have been restated as described in Note 2 of Notes to
Consolidated Financial Statements.
** See Note 4 of Notes to Consolidated Financial Statements for discussion of
significant asset dispositions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULT OF OPERATIONS
1994 vs. 1993
Northwest Pipeline's revenues decreased 14 percent as expanded firm
transportation service was more than offset by the absence of natural gas sales
following the fourth-quarter 1993 implementation of Federal Energy Regulatory
Commission (FERC) Order 636, and the completion of contract-reformation
surcharges. Total mainline throughput increased 9 percent. Firm transportation
service increased due to a mainline expansion, supported by 15-year firm
transportation contracts, being placed into service on April 1, 1993. Northwest
Pipeline placed new increased transportation rates into effect on November 1,
1994, and April 1, 1993, subject to refund. The April 1, 1993, rates reflected
the new mainline expansion and straight-fixed-variable rate design that
moderates seasonal swings in operating revenues. Costs and operating expenses
decreased 32 percent, due primarily to the absence of natural gas purchase
volumes and the completion of contract-reformation amortization, slightly offset
by increased operating expenses primarily related to the full-year effect on
1994 of the mainline expansion. Operating profit increased 5 percent due
primarily to expanded firm transportation service related to the company's
mainline system expansion.
Williams Natural Gas' revenues decreased 21 percent, primarily as a result
of the absence of natural gas sales resulting from implementation of FERC Order
636 on October 1, 1993. The decrease in revenues was partially offset by the
implementation of new rates required by the Order, direct billing of net
purchased gas cost adjustment amounts of approximately $40 million and higher
direct billing of recoverable contract-reformation costs of approximately $17
million. Costs and operating expenses decreased 30 percent, primarily as a
result of lower gas purchase costs resulting from the implementation of FERC
Order 636, partially offset by the costs that were direct billed as discussed
above. Operating profit increased 19 percent, primarily as a result of the
full-year effect of new rates, implementation of Order 636 and the reversal of
excess contract-reformation accruals recorded in other income -- net ($7.4
million in 1994 and $2.5 million in 1993), partially offset by the absence of
the regulatory accounting effect of an income tax rate increase in 1993 (which
was offset in income tax expense). FERC Order 636 utilizes a
straight-fixed-variable rate design that is applied to each customer's annual
firm contract demand for transportation.
F-1
24
Williams Field Services Group's revenues decreased 17 percent, due
primarily to 22 percent lower natural gas sales volumes as a result of the March
1993 sale of Williams' intrastate natural gas pipeline system and related
marketing operations in Louisiana. Liquids volumes and prices, average natural
gas sales prices and average gathering and processing prices also decreased, but
were somewhat offset by increased gathering and processing volumes of 13 percent
and 21 percent, respectively. Costs and operating expenses decreased, due
primarily to lower natural gas purchase volumes and per-unit costs and the
effects of a favorable adjustment of an accrual related to operating taxes,
partially offset by higher operations, maintenance and depreciation expenses at
expanded gathering facilities. Operating profit increased 5 percent, due
primarily to higher gathering and processing volumes, a favorable operating
taxes adjustment and other revenues, partially offset by lower per-unit liquids
margins, lower average gathering and processing prices and higher operations and
maintenance expenses associated with expanded facilities. Operating profit in
1993 included a favorable settlement involving processing revenues from prior
periods.
Williams Pipe Line's shipments increased 9 percent, due primarily to new
volumes resulting from the December 1993 acquisition of a pipeline system in
southern Oklahoma. Revenues increased 17 percent, due primarily to higher
shipments and increased gas liquids and fractionator operations. The slightly
higher average transportation rate resulted primarily from longer hauls into the
northern region and overall increases in tariff rates, effective December 1,
1994, and June 1, 1993, partially offset by lower rates on shorter haul
movements from new business. Costs and operating expenses increased, due
primarily to gas liquids and fractionator operations, and additional operating
expenses. Operating profit increased 25 percent, due primarily to increased
shipments and a favorable insurance settlement, partially offset by higher
operating and maintenance expenses.
Williams Energy Ventures' revenues increased 72 percent, due primarily to
newly established petroleum services activities, partially offset by lower
refined product trading margins and the effect of reporting these trading
activities on a "net margin" basis effective July 1, 1993. Costs and operating
expenses increased as a result of the newly established petroleum services
activities and the cost of developing long-term energy industry businesses,
partially offset by the effect of reporting refined product trading activities
on a "net margin" basis. General and administrative expenses increased,
reflecting the costs of establishing appropriate administrative and project
support groups to serve growing business activities. An operating loss of $10.8
million in 1994 compares to operating profit of $7.8 million in 1993, reflecting
costs of developing long-term energy industry investment opportunities and lower
results from price-risk management services, partially offset by improved
petroleum services activities. Included in 1994's other income -- net is
approximately $5 million of costs for evaluating and determining whether to
build an oil refinery near Phoenix. Price-risk management services' results
continued to be profitable but were lower in 1994 than 1993 because of reduced
gasoline and distillate margins and the effect of location pricing differentials
in refined products trading activities, partially offset by an improvement in
natural gas trading margins reflecting increased volumes.
Williams Telecommunications Systems' revenues increased 31 percent, due in
large part to the March 31, 1994, acquisition of BellSouth's customer equipment
sales and service operations in 29 states, as evidenced by a 52 percent increase
in the number of ports. Costs and operating expenses and selling, general and
administrative expenses increased 31 percent and 20 percent, respectively, due
to the increase in volume of equipment sales and services. Operating profit
nearly doubled from higher sales volumes, partially offset by an increase in
selling, general and administrative expenses. Margins were level between 1994
and 1993, while selling, general and administrative expenses as a percent of
revenue decreased in 1994 compared to 1993.
General corporate expenses decreased, reflecting lower supplemental
retirement benefits (see Note 7) and incentive compensation accruals. Interest
accrued decreased primarily because of lower effective interest rates, partially
offset by higher average borrowing levels. Interest capitalized decreased,
reflecting the completion of Northwest Pipeline's mainline expansion, which was
placed in service April 1, 1993. Investing income decreased, due primarily to
lower investment levels and lower equity earnings for Apco Argentina Inc., in
addition to the sale of a portion of Williams' interest in Northern Border
Partners, L.P. The 1994 gain on sales of assets results from the sale of
3,461,500 limited partner common units in Northern Border Partners, L.P. The
gain on sales of assets in 1993 results from the sale of 6.1 million units in
the Williams Coal Seam
F-2
25
Gas Royalty Trust and the sale of the intrastate natural gas pipeline system and
other related assets in Louisiana (see Note 4). Other income (expense) -- net in
1994 includes a credit for $4.8 million from the reversal of previously accrued
liabilities associated with certain Royalty Trust contingencies that expired.
Also included is approximately $4 million of expense related to Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits," which relates to postemployment benefits being paid to
employees of companies previously sold. Other income (expense) -- net in 1993
includes $6 million of expense accruals for certain costs associated with
businesses previously sold, offset with $6 million of equity allowance for funds
used during construction (AFUDC) related to the Northwest Pipeline mainline
expansion.
The decrease in the provision for income taxes on continuing operations is
primarily a result of lower pre-tax income and the $15.8 million cumulative
effect in 1993 of the 1 percent increase in the federal income tax rate. The
effective income tax rate in 1994 is lower than the statutory rate, primarily
because of income tax credits from coal-seam gas production, partially offset by
state income taxes. The effective income tax rate in 1993 is higher than the
statutory rate, primarily because of the effect of the federal income tax rate
increase and state income taxes, partially offset by income tax credits from
coal-seam gas production (see Note 5).
The network services operations of WilTel have been presented in the
Consolidated Financial Statements as discontinued operations, with prior period
operating results restated (see Note 2). Income from discontinued operations
more than doubled to $94 million. The increase reflects a 93 percent increase in
switched services minutes and a 24 percent increase in private line billable
circuits. These increases more than offset a major carrier's long-expected
removal of traffic from WilTel's system to the carrier's expanded network.
Income was also impacted by a decrease in interest accrued, due to the early
extinguishment of network services' long-term debt. The effective income tax
rate for both 1994 and 1993 is greater than the federal statutory rate, due to
the effect of state income taxes.
The extraordinary credit (loss) results from early extinguishment of debt
(see Note 6). Preferred stock dividends decreased, reflecting the redemption of
3,000,000 shares of outstanding $3.875 convertible exchangeable preferred stock
during the second quarter of 1993 (see Note 12).
1993 vs. 1992
Northwest Pipeline's revenues increased 10 percent, reflecting increased
firm transportation service and higher average transportation rates, partially
offset by lower average gas sales prices. Total mainline throughput increased 2
percent. Firm transportation service increased due to a mainline expansion,
supported by 15-year firm transportation contracts, being placed into service on
April 1, 1993. Northwest Pipeline also placed new, increased transportation
rates (subject to refund) into effect on April 1, 1993, that reflected the new
mainline expansion and straight-fixed-variable rate design that moderates
seasonal swings in operating revenues. Costs and operating expenses decreased 10
percent, due primarily to lower gas purchase volumes and per-unit costs and
decreased operation and maintenance expenses, partially offset by increased
depreciation. General and administrative expenses increased, due primarily to
higher supplemental retirement expenses and increased outside technical and
professional fees. Operating profit increased 49 percent, due primarily to
increased firm transportation service, higher average transportation rates and
lower operation and maintenance expenses, partially offset by higher
depreciation and general and administrative expenses and lower gas sales
margins.
Williams Natural Gas' revenues decreased 7 percent, primarily as a result
of lower natural gas sales volumes reflecting implementation of FERC Order 636
on October 1, 1993, partially offset by higher average transportation rates and
volumes and revenues generated from the sale of working gas in storage. Total
throughput increased 2 percent, due primarily to cooler weather in the first
quarter of 1993 and increased on-system industrial demand, partially offset by
lower off-system activity. Costs and operating expenses decreased 9 percent,
primarily as a result of decreased gas supply volumes, partially offset by
increased operating and maintenance expenses, increased amortization of
recoverable contract-reformation costs and higher per-unit gas supply costs.
Operating profit increased 4 percent, primarily due to higher average
transportation rates and volumes, reversal of excess contract-reformation costs
that had been previously accrued and the regulatory
F-3
26
accounting for an income tax rate increase. Largely offsetting operating profit
increases were lower natural gas sales volumes and higher operating and
maintenance expenses. The impact of the regulatory accounting adjustment was
offset by additional deferred income tax expense.
Williams Field Services Group's revenues decreased 24 percent, due
primarily to lower natural gas sales volumes, partially offset by increased
gathering, liquids products and processing volumes, and higher average
gathering, processing and natural gas sales prices. Gathering volumes increased
18 percent, natural gas liquids volumes increased 11 percent and processing
volumes increased 14 percent when compared with volumes from the prior year. The
lower natural gas sales volumes were due to the March 1993 sale of Williams'
intrastate natural gas pipeline system and related marketing operations in
Louisiana. Costs and operating expenses decreased, due primarily to lower
natural gas purchase volumes, partially offset by higher gas costs associated
with the liquids extraction process and increased operating and maintenance
expenses at expanded gathering and processing facilities. Operating profit
increased 9 percent, due primarily to increased volumes at expanded facilities
and a favorable settlement involving processing revenues from prior periods,
partially offset by decreased gas sales volumes, lower liquids margins and
increased operating costs from expanded facilities. Other income -- net and
operating profit in 1992 also included a gain on the sale of a gathering
facility and the reversal of a loss accrual made in prior years.
Williams Pipe Line's revenues increased 21 percent, due primarily to 12
percent higher shipments, increased other revenues primarily related to gas
liquids and fractionator operations, partially offset by a slightly lower
transportation rate per barrel. The lower average transportation rate per barrel
reflects a 5 percent decrease in the length of the average haul, partially
offset by increased tariff rates for portions of both 1992 and 1993. Costs and
operating expenses increased, due primarily to gas liquids and fractionator
operations. Operating profit increased primarily as a result of higher shipments
and lower general and administrative expenses. During the fourth quarter,
Williams Pipe Line completed the acquisition of a 300-mile pipeline that
connects with the southern portion of its system in Oklahoma. The additional
pipeline will provide more direct access to key refining areas and open new
markets.
Williams Energy Ventures' revenues and operating costs decreased
approximately 27 percent, due primarily to reporting refined product trading
activities on a "net margin" basis effective July 1, 1993. Selling, general and
administrative expenses increased significantly from costs associated with
establishing this company's operations, pursuing new business development and
equipping the company to pursue a growing range of financial and
information-based opportunities in the energy industry. Operating profit
decreased as improved results from price-risk management activities were more
than offset by the expense associated with the development and marketing of new
information-based products and exploring other growth opportunities in the
energy industry. Improved results in price-risk management activities relate to
increases in marketing of commodities and derivatives products, in addition to
increased refined product trading volumes.
Williams Telecommunications Systems' revenues increased 12 percent, due
primarily to higher equipment sales and services. Costs and operating expenses
increased 9 percent, due primarily to the increased volume of equipment sales
and services. Selling, general and administrative expenses decreased 9 percent
as 1992 was negatively impacted by the costs associated with restructuring this
business. Operating profit increased to $9.5 million in 1993, compared with an
operating loss of $9.8 million in 1992 due to increased margins and volumes and
a decrease in selling, general and administrative expenses.
General corporate expenses increased, reflecting higher supplemental
retirement benefits (see Note 7) and incentive compensation accruals, in
addition to a contribution to The Williams Companies Foundation. Interest
accrued increased, primarily because of higher average borrowing levels,
partially offset by a lower effective interest rate including the effects of
interest-rate swap agreements (see Note 11). Investing income increased,
reflecting higher equity earnings from the Kern River Gas Transmission Company
pipeline, which became operational February 1992, and higher levels of
short-term investments. The gain on sales of assets in 1993 results from the
sale of 6.1 million units in the Williams Coal Seam Gas Royalty Trust and the
sale of the intrastate natural gas pipeline system and other related assets in
Louisiana. The 1992 gain on sales of assets results from the sale of a tract of
land in Florida that had been retained from the assets of Agrico Chemical
Company, which was sold in 1987. Other income (expense) -- net is unfavorable to
1992, primarily
F-4
27
because of decreased equity AFUDC related to Northwest Pipeline's mainline
expansion and expense accruals for certain costs associated with businesses
previously sold.
The increase in the provision for income taxes is primarily a result of
higher pre-tax income and the $15.8 million cumulative effect of the 1 percent
increase in the federal income tax rate. The effective income tax rate in 1993
is higher than the statutory rate, primarily because of the effect of the
federal income tax rate increase and state income taxes, partially offset by
income tax credits from coal-seam gas production. The effective income tax rate
in 1992 is lower than the statutory rate, primarily because of income tax
credits from coal-seam gas production, partially offset by state income taxes
(see Note 5).
Income from discontinued operations related to WilTel's network services
operations increased 84 percent to $46.4 million in 1993 (see Note 2). The
increase is due primarily to a 122 percent increase in switched services
minutes, a 32 percent increase in private line billable circuits and lower
provisions for bad debt expense, partially offset by a decrease in the weighted
average price per circuit. The effective income tax rate for both 1993 and 1992
is greater than the federal statutory rate due to the effect of state income
taxes.
Preferred stock dividends decreased, reflecting the redemption of 3,000,000
shares of outstanding $3.875 convertible exchangeable preferred stock during the
second quarter of 1993 (see Note 12).
FINANCIAL CONDITION AND LIQUIDITY
Liquidity
Williams considers its liquidity to come from two sources: internal
liquidity, consisting of available cash investments, and external liquidity,
consisting of borrowing capacity from available bank-credit facilities, which
can be utilized without limitation under existing loan covenants. At December
31, 1994, Williams had access to $495 million of liquidity, representing the
available portion of its $600 million bank-credit facility (see Note 11). This
compares with liquidity of $639 million at December 31, 1993, and $780 million
at December 31, 1992, including $178 million from Northwest Pipeline. During
1993, Williams filed a $300 million shelf registration statement with the
Securities and Exchange Commission, increasing the total amount available to
$400 million. The registration statement may be used to issue Williams common or
preferred stock, preferred stock purchase rights, debt securities, warrants to
purchase Williams common stock or warrants to purchase debt securities. In
addition, Northwest Pipeline has $50 million remaining on a registration
statement filed with the Securities and Exchange Commission in 1992. Williams
does not anticipate the need for additional financing arrangements; however,
Williams believes it could be obtained on reasonable terms if required.
Williams had a net working-capital deficit of $17 million at December 31,
1994, including net assets of discontinued operations of $744 million, compared
with $106 million at December 31, 1993. Subsequent to December 31, 1994, $398
million of notes payable and $350 million of revolving credit loans (see Note
11) were repaid from proceeds of the sale of WilTel's network services
operations. Williams manages its borrowings to keep cash and cash equivalents at
a minimum and has relied on bank-credit facilities to provide flexibility for
its cash needs. As a result, it historically has reported negative working
capital.
Terms of certain borrowing agreements limit transfer of funds to Williams
from its subsidiaries. The restrictions have not impeded, nor are they expected
to impede, Williams' ability to meet its cash requirements in the future.
Subsequent to December 31, 1994, Williams completed the sale of WilTel's
network services operations, and also acquired 60 percent of Transco Energy
Company (Transco). See Notes 2 and 16 and the subsequent events section of
Management's Discussion and Analysis for additional information regarding the
impact these transactions will have on Williams' financial condition and
liquidity. During 1995, Williams expects to finance capital expenditures, the
Transco acquisition, investments and working-capital requirements through the
use of its $600 million bank-credit facility or public debt/equity offerings and
the proceeds from the sale of WilTel's network services operations.
F-5
28
Operating Activities
Cash provided by continuing operating activities was: 1994 -- $189 million;
1993 -- $187 million; and 1992 -- $141 million. Accounts receivable increased
because of expanded activities of Williams Energy Ventures and acquisitions made
by Williams Telecommunications Systems, partially offset by the reclassification
of WilTel's network services receivables to net assets of discontinued
operations (see Note 2). Accounts payable and accrued liabilities also declined
as a result of the network services reclassification.
Cash provided by discontinued operations was: 1994 -- $179 million;
1993 -- $162 million; 1992 -- $113 million. The increases during the periods
primarily reflect improved operating results.
Financing Activities
Net cash provided (used) by financing activities was: 1994 -- $31 million;
1993 -- ($220) million; 1992 -- $421 million. Long-term debt proceeds, net of
principal payments and early extinguishments of debt, were $24 million during
1994. Long-term debt principal payments totaled $192 million during 1993. Long-
term debt proceeds, net of principal payments, during 1992 were $264 million.
The increase in net new borrowings during 1992 was primarily to fund capital
expenditures and investments and advances to affiliates.
During 1994, Williams and one of its subsidiaries purchased 13.8 million
shares of Williams common stock on the open market for $407 million.
Substantially all of the purchases were financed with a $400 million bank-credit
agreement. Subsequent to December 31, 1994, the outstanding amounts under the
credit agreement were repaid from the proceeds of the sale of WilTel's network
services operations, and the credit agreement was terminated. Williams also
repurchased 258,800 shares of its $2.21 cumulative preferred stock on the open
market for $6 million.
The majority of the proceeds from issuance of common stock in 1994 and 1993
resulted from certain Williams benefit plan stock purchases and exercise of
stock options under Williams' stock plan (see Note 12). During 1992, Williams
received net proceeds of $96 million from the sale of 4,000,000 shares of $2.21
cumulative preferred stock and $119 million from the sale of 7,100,000 shares of
common stock.
During 1993, Williams called for redemption of its 3,000,000 shares of
outstanding $3.875 convertible exchangeable preferred stock. Substantially all
of the preferred shares were converted into 7,600,000 shares of Williams common
stock.
Long-term debt at December 31, 1994, was $1.3 billion, compared with $1.6
billion at December 31, 1993, and $1.7 billion at December 31, 1992. The
long-term debt to debt-plus-equity ratio was 46.5 percent at year-end, compared
with 48.2 percent and 52.6 percent at December 31, 1993 and 1992, respectively.
If short-term notes payable and long-term debt due within one year are included
in the calculations, these ratios would be 59.3 percent, 49 percent and 54.9
percent, respectively. Included in long-term debt due within one year is $350
million outstanding under Williams' revolving credit loan (see Note 11).
See Note 6 for information regarding early extinguishment of debt by
Williams and its subsidiaries during 1994 and 1992.
Investing Activities
Net cash used by investing activities was: 1994 -- $427 million;
1993 -- $277 million; 1992 -- $511 million. Capital expenditures for
discontinued operations were $143 million in 1994; $101 million in 1993; and $59
million in 1992, primarily to expand and enhance WilTel's network. Capital
expenditures of pipeline subsidiaries, primarily to expand and modernize
systems, were $272 million in 1994; $405 million in 1993; and $500 million in
1992. Expenditures in 1994 include Northwest Pipeline's additional mainline
expansion and the expansion of various gathering and processing facilities.
Expenditures in 1993 include the completion of Northwest Pipeline's first
mainline expansion and the expansion of various gathering and processing
facilities. Approximately two-thirds of the 1992 expenditures relate to
Northwest Pipeline's mainline expansion. Budgeted capital expenditures for 1995
are approximately $1.3 billion, primarily to expand pipeline systems
F-6
29
and gathering and processing facilities, develop an underground coal
gasification project and acquire certain gathering and processing assets in New
Mexico.
During 1994, Williams received net proceeds of $80 million from the sale of
limited partner units in Northern Border Partners, L.P. During 1993, Williams
received net proceeds of $113 million from the sale of 6.1 million units in the
Williams Coal Seam Gas Royalty Trust. In addition, Williams sold its intrastate
natural gas pipeline system and other related assets in Louisiana for $170
million (see Note 4).
Subsequent to December 31, 1994, Williams announced that Texasgulf Inc. (in
which Williams owns 15 percent) had filed registration statements with the
Securities and Exchange Commission covering the initial public offering for all
of Texasgulf's common stock and certain senior subordinated notes (see Note 3).
EFFECTS OF INFLATION
Williams has experienced increased costs in recent years due to the effects
of inflation. However, approximately 90 percent of Williams' property, plant and
equipment has been purchased since 1982, a period of relatively low inflation. A
substantial portion of Williams' property, plant and equipment is subject to
regulation, which limits recovery to historical cost. While Williams believes it
will be allowed the opportunity to earn a return based on the actual cost
incurred to replace existing assets, competition or other market factors may
limit the ability to recover such increased costs.
OTHER
In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These
orders, which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1, 1993,
and Northwest Pipeline implemented its restructuring on November 1, 1993.
Certain aspects of each pipeline company's restructuring are under appeal (see
Note 15).
Williams is a participant in certain environmental activities in various
stages involving assessment studies, cleanup operations and/or remedial
processes. The sites, some of which are not currently owned by Williams (see
Note 15), are being monitored by Williams, other potentially responsible
parties, U.S. Environmental Protection Agency (EPA), or other governmental
authorities in a coordinated effort. In addition, Williams maintains an active
monitoring program for its continued remediation and cleanup of certain sites
connected with its refined products pipeline activities. Williams has both joint
and several liability in some of these activities and sole responsibility in
others. Current estimates of the most likely costs of such cleanup activities,
after payments by other parties, are approximately $40 million, all of which is
accrued at December 31, 1994. Williams expects to seek recovery of approximately
$28 million of these costs through future rates. Williams will fund these costs
from operations and/or available bank-credit facilities. The actual costs
incurred will depend on the final amount, type and extent of contamination
discovered at these sites, the final cleanup standards mandated by the EPA or
other governmental authorities, and other factors.
See Note 7 for the effects of a new accounting standard on postemployment
benefits; Note 13 for fair value and off-balance-sheet risk of financial
instruments; and Note 15 for contingencies.
SUBSEQUENT EVENTS
In January 1995, the Williams Board of Directors increased the quarterly
cash dividend on Williams common stock to $.27 per share, a 28.5 percent
increase over the previous amount.
Subsequent to December 31, 1994, Williams completed its previously
announced sale of WilTel's network services operations for $2.5 billion in cash.
The estimated after-tax gain of approximately $1 billion will be recorded in the
first quarter of 1995 (see Note 2). Net proceeds from the sale have been or will
be used to reduce Williams bank debt, finance the cash tender offer for shares
of Transco's common stock, retire certain Transco borrowings and preferred
stock, and finance Williams' 1995 capital expenditures program.
F-7
30
Subsequent to December 31, 1994, Williams acquired 60 percent of Transco in
a cash tender offer for $430.5 million. Williams will acquire the remaining 40
percent of Transco's outstanding common stock through a merger, which will
result in the issuance of approximately 10.2 million shares of Williams common
stock (see Note 16). In connection with the acquisition, Williams plans to
redeem for cash $150 million in Transco's $4.75 preferred stock, issue $125
million in Williams preferred stock in exchange for Transco's $3.50 preferred
stock and retire approximately $550 million of Transco's borrowings and
subsidiary preferred stock, interest-rate swaps and sale of receivables
facilities. Williams may also provide funds for Transco working capital and
other needs.
F-8
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Auditors...................................................... F-10
Consolidated Statement of Income.................................................... F-11
Consolidated Balance Sheet.......................................................... F-13
Consolidated Statement of Stockholders' Equity...................................... F-14
Consolidated Statement of Cash Flows................................................ F-15
Notes to Consolidated Financial Statements.......................................... F-16
Quarterly Financial Data (Unaudited)................................................ F-39
F-9
32
REPORT OF INDEPENDENT AUDITORS
To The Stockholders of
The Williams Companies, Inc.
We have audited the accompanying consolidated balance sheet of The Williams
Companies, Inc. as of December 31, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1994. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Williams Companies, Inc. at December 31, 1994 and 1993, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 10, 1995
F-10
33
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993* 1992*
------- ------- -------
(MILLIONS)
Revenues:
Interstate Natural Gas Pipelines:
Northwest Pipeline...................................... $ 238.5 $ 276.5 $ 251.4
Williams Natural Gas.................................... 231.3 294.1 314.7
Williams Field Services Group.............................. 589.0 707.0 925.3
Liquids Pipeline/Energy Ventures:
Williams Pipe Line...................................... 209.7 179.3 148.5
Williams Energy Ventures................................ 137.6 80.0 109.8
Williams Telecommunications Systems........................ 396.6 302.8 271.1
Other...................................................... 18.2 10.4 8.6
Intercompany eliminations (Note 14)........................ (69.8) (56.7) (45.9)
------- ------- -------
Total revenues..................................... 1,751.1 1,793.4 1,983.5
------- ------- -------
Profit-center costs and expenses:
Costs and operating expenses............................... 1,187.7 1,283.9 1,560.3
Selling, general and administrative expenses............... 229.2 203.2 194.5
Other income -- net........................................ (8.1) (7.8) (7.6)
------- ------- -------
Total profit-center costs and expenses............. 1,408.8 1,479.3 1,747.2
------- ------- -------
Operating profit (loss):
Interstate Natural Gas Pipelines:
Northwest Pipeline...................................... 104.1 98.8 66.4
Williams Natural Gas.................................... 48.8 41.0 39.4
Williams Field Services Group.............................. 131.4 125.5 114.9
Liquids Pipeline/Energy Ventures:
Williams Pipe Line...................................... 60.1 48.2 33.0
Williams Energy Ventures................................ (10.8) 7.8 10.1
Williams Telecommunications Systems........................ 18.9 9.5 (9.8)
Other...................................................... (10.2) (16.7) (17.7)
------- ------- -------
Total operating profit............................. 342.3 314.1 236.3
General corporate expenses................................... (28.0) (38.4) (27.2)
Interest accrued............................................. (145.8) (151.2) (145.4)
Interest capitalized......................................... 6.0 10.4 8.9
Investing income (Note 3).................................... 49.6 65.2 50.5
Gain on sales of assets (Note 4)............................. 22.7 97.5 14.6
Other income (expense) -- net................................ (.2) .4 7.8
------- ------- -------
Income from continuing operations before income taxes........ 246.6 298.0 145.5
Provision for income taxes (Note 5).......................... 81.7 112.6 42.4
------- ------- -------
Income from continuing operations............................ 164.9 185.4 103.1
Income from discontinued operations (Note 2)................. 94.0 46.4 25.2
------- ------- -------
Income before extraordinary credit (loss).................... 258.9 231.8 128.3
Extraordinary credit (loss) (Note 6)......................... (12.2) -- 9.9
------- ------- -------
Net income................................................... 246.7 231.8 138.2
Preferred stock dividends.................................... 8.8 11.8 14.5
------- ------- -------
Income applicable to common stock............................ $ 237.9 $ 220.0 $ 123.7
======= ======= =======
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-11
34
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF INCOME -- (CONCLUDED)
YEARS ENDED DECEMBER 31,
-------------------------
1994 1993* 1992*
----- ----- -----
Primary earnings per common and common-equivalent share
(Notes 1, 2 and 6):
Income from continuing operations................................. $1.52 $1.74 $ .97
Income from discontinued operations............................... .92 .46 .28
----- ----- -----
Income before extraordinary credit (loss)......................... 2.44 2.20 1.25
Extraordinary credit (loss)....................................... (.12) -- .11
----- ----- -----
Net income........................................................ $2.32 $2.20 $1.36
===== ===== =====
Fully diluted earnings per common and common-equivalent share
(Notes 1, 2 and 6):
Income from continuing operations................................. $1.52 $1.71 $ .97
Income from discontinued operations............................... .92 .45 .28
----- ----- -----
Income before extraordinary credit (loss)......................... 2.44 2.16 1.25
Extraordinary credit (loss)....................................... (.12) -- .11
----- ----- -----
Net income........................................................ $2.32 $2.16 $1.36
===== ===== =====
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-12
35
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
-----------------------
1994 1993
------- -------
(MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 36.1 $ 64.3
Receivables less allowance of $7.9 million ($10.2 million in
1993).......................................................... 452.3 360.1
Inventories (Note 8).............................................. 112.3 108.2
Net assets of discontinued operations (Note 2).................... 743.6 --
Deferred income taxes (Note 5).................................... 57.1 40.3
Other............................................................. 55.4 53.6
-------- --------
Total current assets...................................... 1,456.8 626.5
Investments (Note 3)................................................ 379.1 437.1
Property, plant and equipment -- net (Note 9)....................... 3,124.0 3,678.6
Other assets and deferred charges................................... 266.2 278.2
-------- --------
Total assets.............................................. $5,226.1 $5,020.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 11)........................................... $ 507.0 $ --
Accounts payable (Note 10)........................................ 222.5 298.4
Accrued liabilities (Note 10)..................................... 361.4 380.3
Long-term debt due within one year (Note 11)...................... 383.0 54.0
-------- --------
Total current liabilities................................. 1,473.9 732.7
Long-term debt (Note 11)............................................ 1,307.8 1,604.8
Deferred income taxes (Note 5)...................................... 662.9 625.2
Deferred income and other liabilities............................... 276.0 333.7
Contingent liabilities and commitments (Note 15)
Stockholders' equity (Note 12):
Preferred stock, $1 par value, 30,000,000 shares authorized,
4,000,000 shares issued........................................ 100.0 100.0
Common stock, $1 par value, 240,000,000 shares authorized,
104,401,819 shares issued in 1994 and 103,078,505 shares issued
and outstanding in 1993........................................ 104.4 103.1
Capital in excess of par value.................................... 991.0 959.1
Retained earnings (Note 11)....................................... 716.5 563.7
Unamortized deferred compensation................................. (1.3) (1.9)
-------- --------
1,910.6 1,724.0
Less treasury stock, 13,516,994 shares of common stock and 258,800
shares of preferred stock, at cost............................. (405.1) --
-------- --------
Total stockholders' equity................................ 1,505.5 1,724.0
-------- --------
Total liabilities and stockholders' equity................ $5,226.1 $5,020.4
======== ========
See accompanying notes.
F-13
36
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
CAPITAL IN UNAMORTIZED
PREFERRED COMMON EXCESS OF RETAINED DEFERRED TREASURY
STOCK STOCK PAR VALUE EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- --------- ------------ -------- -------
(MILLIONS)
Balance, December 31, 1991............ $150.0 $83.5 $621.1 $365.8 $(.4) $-- $1,220.0
Net income -- 1992.................... -- -- -- 138.2 -- -- 138.2
Cash dividends --
Common stock ($.76 per share)....... -- -- -- (68.2) -- -- (68.2)
Preferred stock (Note 12)........... -- -- -- (14.5) -- -- (14.5)
Issuance of shares --
8,780,080 common.................... -- 8.8 138.0 -- (.7) -- 146.1
4,000,000 preferred................. 100.0 -- (3.8) -- -- -- 96.2
Amortization of deferred
compensation........................ -- -- -- -- .4 -- .4
Other................................. -- -- .1 -- -- -- .1
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1992............ 250.0 92.3 755.4 421.3 (.7) -- 1,518.3
Net income -- 1993.................... -- -- -- 231.8 -- -- 231.8
Cash dividends --
Common stock ($.78 per share)....... -- -- -- (77.6) -- -- (77.6)
Preferred stock (Note 12)........... -- -- -- (11.8) -- -- (11.8)
Issuance of shares -- 3,174,439
common.............................. -- 3.2 55.2 -- (1.7) -- 56.7
Conversion of preferred stock (Note
12)................................. (150.0) 7.6 141.8 -- -- -- (.6)
Tax benefit of non-qualified stock
option exercises.................... -- -- 6.7 -- -- -- 6.7
Amortization of deferred
compensation........................ -- -- -- -- .5 -- .5
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1993............ 100.0 103.1 959.1 563.7 (1.9) -- 1,724.0
Net income -- 1994.................... -- -- -- 246.7 -- -- 246.7
Cash dividends --
Common stock ($.84 per share)....... -- -- -- (85.1) -- -- (85.1)
Preferred stock (Note 12)........... -- -- -- (8.8) -- -- (8.8)
Issuance of shares -- 1,596,409
common.............................. -- 1.3 30.1 -- (1.3) 8.1 38.2
Purchase of treasury stock --
Common 13,790,089................... -- -- -- -- -- (406.8) (406.8)
Preferred 258,800................... -- -- -- -- -- (6.4) (6.4)
Tax benefit of non-qualified stock
option exercises.................... -- -- 1.8 -- -- -- 1.8
Amortization of deferred
compensation........................ -- -- -- -- 1.9 -- 1.9
-------- ------ ------- ------- ------ -------- --------
Balance, December 31, 1994............ $100.0 $104.4 $991.0 $716.5 $(1.3) $(405.1) $1,505.5
======== ====== ======= ======= ====== ======== ========
See accompanying notes.
F-14
37
THE WILLIAMS COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------
1994 1993* 1992*
------- ------- -------
(MILLIONS)
Operating Activities:
Net income.................................................... $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations.................................... (94.0) (46.4) (25.2)
Extraordinary (credit) loss................................ 12.2 -- (9.9)
Depreciation and depletion................................. 150.3 137.8 122.2
Provision (credit) for deferred income taxes............... 25.8 8.1 (8.6)
(Gain) loss on sales of property, plant and equipment...... .9 (102.0) (18.9)
Gain on sale of investment................................. (22.7) -- --
Changes in receivables sold................................ -- (94.7) (32.4)
Changes in receivables..................................... (175.0) 99.9 (105.7)
Changes in inventories..................................... 10.2 (.8) 9.9
Changes in other current assets............................ (2.8) (16.9) 25.3
Changes in accounts payable................................ 20.7 (37.6) 29.9
Changes in accrued liabilities............................. 8.1 (43.2) 42.7
Other, including changes in non-current assets and
liabilities.............................................. 8.0 50.9 (26.2)
------- ------- -------
Net cash provided by continuing operations............ 188.4 186.9 141.3
Net cash provided by discontinued operations.......... 179.2 162.6 112.7
------- ------- -------
Net cash provided by operating activities............. 367.6 349.5 254.0
------- ------- -------
Financing Activities:
Changes in notes payable...................................... 507.0 -- --
Proceeds from long-term debt.................................. 480.0 -- 476.3
Payments of long-term debt:
Continuing operations...................................... (328.5) (169.6) (167.4)
Discontinued operations.................................... (128.0) (22.6) (45.1)
Premium on early extinguishment of debt....................... (18.6) -- --
Proceeds from issuance of preferred stock..................... -- -- 96.2
Proceeds from issuance of common stock........................ 26.4 63.4 146.1
Purchases of treasury stock................................... (413.2) -- --
Dividends paid................................................ (93.9) (89.4) (82.7)
Other--net.................................................... -- (2.1) (2.0)
------- ------- -------
Net cash provided (used) by financing activities...... 31.2 (220.3) 421.4
------- ------- -------
Investing Activities:
Property, plant and equipment:
Capital expenditures:
Continuing operations.................................... (325.5) (428.3) (526.7)
Discontinued operations.................................. (142.8) (100.8) (59.6)
Proceeds from sales........................................ 1.6 295.4 29.5
Changes in accounts payable and accrued liabilities........ 19.1 (48.4) 65.2
Acquisition of businesses..................................... (56.5) -- --
Proceeds from sale of investments............................. 80.6 8.8 --
Other -- net.................................................. (3.5) (3.9) (19.7)
------- ------- -------
Net cash used by investing activities................. (427.0) (277.2) (511.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents...... (28.2) (148.0) 164.1
Cash and cash equivalents at beginning of year.................. 64.3 212.3 48.2
------- ------- -------
Cash and cash equivalents at end of year........................ $ 36.1 $ 64.3 $ 212.3
======= ======= =======
- ---------------
* Restated as described in Note 2.
See accompanying notes.
F-15
38
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of The Williams
Companies, Inc. and majority-owned subsidiaries (Williams). Companies in which
Williams and its subsidiaries own 20 percent to 50 percent of the voting common
stock, or otherwise exercise sufficient influence over operating and financial
policies of the company, are accounted for under the equity method.
Cash and cash equivalents
Cash and cash equivalents include demand and time deposits, certificates of
deposit and other marketable securities with maturities of three months or less
when acquired.
Inventory valuation
Inventories are stated at cost, which is not in excess of market, except
for those held by Williams Energy Ventures (see Commodity price-risk management
activities accounting policy). Inventories of natural gas are determined using
the average-cost method. Williams Pipe Line's inventories of petroleum products
are also principally determined using average cost. The cost of materials and
supplies inventories is determined principally using the first-in, first-out
method by Williams Telecommunications Systems and the average-cost method by
other subsidiaries.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is provided
primarily on the straight-line method over estimated useful lives. Gains or
losses from the ordinary sale or retirement of property, plant and equipment for
regulated pipeline subsidiaries are credited or charged to accumulated
depreciation; other gains or losses are recorded in net income.
Treasury stock
Treasury stock purchases are accounted for under the cost method whereby
the entire cost of the acquired stock is recorded as treasury stock. Gains and
losses on the subsequent reissuance of shares are credited or charged to capital
in excess of par value using the average-cost method.
Revenue recognition
Revenues generally are recorded when services have been performed or
products have been delivered. Natural gas transportation revenues are recognized
based upon contractual terms and the related transported volume through
month-end. Williams Pipe Line bills customers when products are shipped and
defers the estimated revenues for shipments in transit.
Commodity price-risk management activities
Williams Energy Ventures enters into energy-related financial instruments
(primarily futures contracts, options contracts and swap agreements) to hedge
against market price fluctuations of certain refined products inventories and
natural gas sales and purchase commitments. Gains and losses on these hedge
contracts are recognized in income when the related hedged item is recognized.
Williams Energy Ventures also uses energy-related financial instruments
(forward contracts, futures contracts, options contracts and swap agreements)
and physical inventory to provide price-risk management services to its
customers. These investments are valued at market and are primarily recorded in
other current assets and other accrued liabilities in the Consolidated Balance
Sheet. The resulting change in unrealized
F-16
39
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market gains and losses is recognized in income currently and is recorded as
revenues in the Consolidated Statement of Income. Such market values reflect
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of the
contract, credit considerations, time value and volatility factors underlying
the positions.
Capitalization of interest
Williams capitalizes interest on major projects during construction.
Interest is capitalized on borrowed funds and, where regulation by the Federal
Energy Regulatory Commission (FERC) exists, on internally generated funds. The
rates used by regulated companies are calculated in accordance with FERC rules.
Rates used by unregulated companies approximate the average interest rate on
related debt. Interest capitalized on internally generated funds is included in
other income (expense) -- net.
Income taxes
Williams includes the operations of its subsidiaries in its consolidated
federal income tax return. Deferred income taxes are computed using the
liability method and are provided on all temporary differences between the
financial basis and the tax basis of Williams' assets and liabilities.
Earnings per share
Primary earnings per share are based on the sum of the average number of
common shares outstanding and common-share equivalents resulting from stock
options and deferred shares. Fully diluted earnings per share for 1993 assumes
conversion of the convertible exchangeable preferred stock (CEPS) into common
stock effective January 1, 1993. The CEPS were not dilutive in 1992. Shares used
in determination of primary earnings per share are as follows (in thousands):
1994 -- 102,470; 1993 -- 99,911; and 1992 -- 90,816. Shares used in
determination of fully diluted earnings per share are as follows (in thousands):
1994 -- 102,502; 1993 -- 103,171; and 1992 -- 90,816.
NOTE 2 -- DISCONTINUED OPERATIONS
In August 1994, Williams signed a definitive agreement to sell WilTel's
network services operations to LDDS Communications, Inc. (LDDS) for $2.5 billion
in cash. The sale closed January 5, 1995, yielding an after-tax gain of
approximately $1 billion, which will be recorded in the first quarter of 1995.
Under the terms of the agreement, Williams retained WilTel Communications
Systems, Inc. (which has been renamed Williams Telecommunications Systems,
Inc.), a national telecommunications equipment supplier and service company, and
Vyvx, Inc., which operates a national video network specializing in broadcast
television applications. The Consolidated Financial Statements have been
prepared to present operating results of network services as discontinued
operations, with prior period operating results restated.
Summarized operating results of discontinued operations are as follows:
1994 1993 1992
------ ------ ------
(MILLIONS)
Revenues..................................................... $921.8 $663.8 $494.2
Operating profit............................................. 163.1 97.0 58.6
Provision for income taxes................................... 60.9 32.2 16.2
Income from discontinued operations.......................... 94.0 46.4 25.2
The assets and liabilities that were transferred to LDDS in the sale of the
network services operations are presented in the Consolidated Balance Sheet on a
net basis at December 31, 1994. Net assets consist of current assets ($86.5
million), net property, plant and equipment ($797.8 million), other assets and
deferred
F-17
40
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
charges ($144.3 million), less current liabilities ($218.3 million) and deferred
income and other liabilities ($66.7 million).
NOTE 3 -- INVESTING ACTIVITIES
1994 1993
------ ------
(MILLIONS)
Investments:
Kern River Gas Transmission Company (50%)*......................... $179.4 $179.3
Northern Border Pipeline partnerships (3.2% in 1994 and 12.25% in
1993)* (Note 4)................................................. 20.0 78.6
Texasgulf Inc. (15%)............................................... 150.0 150.0
Other*............................................................. 29.7 29.2
------ ------
$379.1 $437.1
====== ======
- ---------------
* Accounted for on the equity method.
Williams' investment in Texasgulf Inc. is subject to certain rights under a
shareholder agreement. Williams has the right to sell the shares to the majority
owner under various specified terms and to require Texasgulf to register the
shares for public offering. Most of the rights under the shareholder agreement,
including the right to sell to the majority owner, are not transferable in the
event Williams sells the shares or there is a change in control of Williams.
Subsequent to December 31, 1994, Williams and the majority owner of
Texasgulf filed registration statements with the Securities and Exchange
Commission covering an initial public offering of all Texasgulf's common stock
and certain senior subordinated notes. If the common stock offering is completed
as filed, Williams will sell all of its interests in Texasgulf except for
certain nonproducing phosphate reserves. After giving consideration to the
expected effect of these transactions, the estimated net realizable value of
certain properties which are expected to be retained, dividends already received
from Texasgulf in 1995 and previously unrecognized income tax benefits, Williams
does not expect to incur an after-tax loss on the disposition. If the above
public offerings do not occur or are significantly altered, Williams believes it
will ultimately realize its after-tax investment in Texasgulf through other
rights or alternatives.
At December 31, 1994, other investments carried at $30 million have a
market value of $73 million.
Investing income from continuing operations:
1994 1993 1992
----- ----- -----
(MILLIONS)
Interest.................................................... $ 5.5 $10.0 $ 4.7
Dividends................................................... 4.5 5.6 5.2
Equity earnings............................................. 39.6 49.6 40.6
----- ----- -----
$49.6 $65.2 $50.5
===== ===== =====
Dividends and distributions received from companies carried on an equity
basis were $43 million in 1994; $39 million in 1993; and $10 million in 1992.
F-18
41
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial position and results of operations for Kern River Gas
Transmission Company are presented below. Kern River operations began in
February 1992.
1994 1993 1992
------- ------- -------
(MILLIONS)
Current assets....................................... $ 114.1 $ 78.7 $ 46.6
Non-current assets, principally natural gas
transmission plant................................. 1,026.3 1,026.8 1,003.5
Current liabilities.................................. (86.4) (60.2) (34.2)
Long-term debt....................................... (643.2) (662.9) (675.9)
Other non-current liabilities........................ (109.5) (65.5) (16.3)
------- ------- -------
Partners' equity..................................... $ 301.3 $ 316.9 $ 323.7
======= ======= =======
Revenues............................................. $ 179.0 $ 178.7 $ 127.5
Costs and expenses................................... 54.9 50.6 31.7
Net income........................................... 38.1 42.1 34.1
NOTE 4 -- SALES OF ASSETS
In 1994, Williams sold 3,461,500 limited partner common units in Northern
Border Partners, L.P. Net proceeds from the sale were approximately $80 million
and the sale resulted in a pre-tax gain of $22.7 million. As a result of the
sale, Williams' original 12.25 percent interest in Northern Border partnerships
has been reduced to 3.2 percent.
In a 1993 public offering, Williams sold 6.1 million units in the Williams
Coal Seam Gas Royalty Trust (Trust), which resulted in net proceeds of $113
million and a pre-tax gain of $51.6 million. The Trust owns defined net profits
interests in the developed coal-seam properties in the San Juan Basin of New
Mexico and Colorado, which were conveyed to the Trust by Williams Production
Company. Ownership of an additional 3.6 million units remains with Williams.
In March 1993, Williams sold its intrastate natural gas pipeline system and
other related assets in Louisiana for $170 million in cash, resulting in a
pre-tax gain of $45.9 million.
The 1992 gain of $14.6 million resulted from the sale of a tract of land in
Florida that had been retained from the assets of Agrico Chemical Company, which
was sold several years ago.
NOTE 5 -- PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations
includes:
1994 1993 1992
----- ------ -----
(MILLIONS)
Current:
Federal.................................................. $45.8 $ 84.1 $40.5
State.................................................... 10.1 20.4 10.5
----- ------ -----
55.9 104.5 51.0
----- ------ -----
Deferred:
Federal.................................................. 23.7 15.8 (6.3)
State.................................................... 2.1 (7.7) (2.3)
----- ------ -----
25.8 8.1 (8.6)
----- ------ -----
Total provision............................................ $81.7 $112.6 $42.4
===== ====== =====
F-19
42
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1993 provision for income taxes includes the effect of a 1 percent
increase in the federal income tax rate, which was made retroactive to January
1, 1993. Effective January 1, 1993, Williams adopted Statement of Financial
Accounting Standards (FAS) No. 109, "Accounting for Income Taxes." Adoption of
the standard had a cumulative favorable effect of approximately $2 million on
net income. The effect is recorded in income tax expense because of
immateriality. Prior to 1993, Williams accounted for deferred income taxes under
FAS No. 96. As permitted under the new rules, prior years' financial statements
have not been restated.
Reconciliations from the provision for income taxes attributable to
continuing operations at the statutory rate to the provision for income taxes
are as follows:
1994 1993 1992
------ ------ -----
(MILLIONS)
Provision at statutory rate............................... $ 86.3 $104.3 $49.5
Increases (reductions) in taxes resulting from:
Increase in statutory tax rate on beginning of year
deferred tax balances................................ -- 15.8 --
State income taxes...................................... 8.0 8.2 5.3
Income tax credits...................................... (14.9) (12.8) (9.5)
Other -- net............................................ 2.3 (2.9) (2.9)
------ ------ -----
Provision for income taxes................................ $ 81.7 $112.6 $42.4
====== ====== =====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes.
Significant components of deferred tax liabilities and assets as of
December 31 are as follows:
1994 1993
------ ------
(MILLIONS)
Deferred tax liabilities:
Property, plant and equipment.................................... $732.1 $703.4
Investments...................................................... 85.1 114.8
Other............................................................ 82.5 101.7
------ ------
Total deferred tax liabilities........................... 899.7 919.9
Deferred tax assets:
Deferred revenues................................................ 42.1 49.3
Investments...................................................... 59.0 88.9
Rate refunds..................................................... 33.7 17.5
Regulatory liabilities........................................... 14.4 16.1
Accrued liabilities.............................................. 67.7 54.9
State deferred taxes............................................. 24.9 22.7
Minimum tax credits.............................................. -- 8.5
Other............................................................ 84.1 110.8
------ ------
Total deferred tax assets................................ 325.9 368.7
Valuation allowance for deferred tax assets.............. 32.0 33.7
------ ------
Net deferred tax assets.................................. 293.9 335.0
------ ------
Net deferred tax liabilities....................................... $605.8 $584.9
====== ======
The valuation allowance for deferred tax assets decreased $1.7 million and
$3.4 million during 1994 and 1993, respectively.
F-20
43
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash payments for income taxes are as follows: 1994 -- $113 million, before
refunds of $6 million; 1993 -- $129 million; and 1992 -- $50 million.
NOTE 6 -- EXTRAORDINARY CREDIT (LOSS)
The extraordinary items in 1994 and 1992 result from early extinguishment
of debt. During 1994, Williams and one of its subsidiaries paid $316.7 million
to redeem higher interest rate debt for a $12.2 million net loss (net of a $7.7
million benefit for income taxes). In 1992, two of Williams' subsidiaries paid a
total of $55.7 million to redeem debt resulting in a $9.9 million net gain
(including a $.7 million benefit for income taxes).
NOTE 7 -- EMPLOYEE BENEFIT PLANS
Pensions
Williams maintains non-contributory defined-benefit pension plans covering
the majority of employees. Benefits are based on years of service and average
final compensation. Pension costs are funded to satisfy minimum requirements
prescribed by the Employee Retirement Income Security Act of 1974.
Net pension expense consists of the following:
1994 1993 1992
------ ------ ------
(MILLIONS)
Service cost for benefits earned during the year........... $ 13.9 $ 10.9 $ 10.5
Interest cost on projected benefit obligation.............. 21.8 21.1 18.9
Actual return on plan assets............................... 3.1 (28.3) (17.9)
Amortization and deferrals................................. (24.2) 8.2 (.7)
Settlement loss............................................ -- 5.7 --
------ ------ ------
Net pension expense........................................ $ 14.6 $ 17.6 $ 10.8
====== ====== ======
Net pension expense:
Continuing operations.................................... $ 10.0 $ 14.9 $ 8.5
Discontinued operations.................................. 4.6 2.7 2.3
------ ------ ------
$ 14.6 $ 17.6 $ 10.8
====== ====== ======
During 1993, certain supplemental retirement plan participants elected to
receive lump-sum benefits, which resulted in a settlement loss of $5.7 million.
F-21
44
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the funded status of the plans:
1994 1993
---- ----
(MILLIONS)
Actuarial present value of benefit obligations:
Vested benefits..................................................... $191 $229
Non-vested benefits................................................. 10 14
---- ----
Accumulated benefit obligations..................................... 201 243
Effect of projected salary increases................................ 58 75
---- ----
Projected benefit obligations....................................... 259 318
Assets at market value................................................ 251 275
---- ----
Assets less than projected benefit obligations........................ 8 43
Unrecognized net loss................................................. (12) (38)
Unrecognized prior-service cost....................................... (10) (9)
Unrecognized transition asset......................................... 5 6
---- ----
Pension (asset) liability............................................. $ (9) $ 2
==== ====
Williams has retained all liabilities and obligations of WilTel's network
services operations' plan participants up to the date of sale (see Note 2).
At December 31, 1994, assets of two of Williams' pension plans exceeded the
projected benefit obligations by $5 million. However, the preceding table
includes pension plans that had projected benefit obligations of $26 million and
assets of $13 million at December 31, 1994.
The discount rate used to measure the present value of benefit obligations
is 8 1/2 percent (7 1/4 percent in 1993); the assumed rate of increase in future
compensation levels is 5 percent; and the expected long-term rate of return on
assets is 10 percent. Plan assets consist primarily of commingled funds and
assets held in a master trust. The master trust is comprised primarily of
domestic and foreign common and preferred stocks, corporate bonds, United States
government securities and commercial paper.
Postretirement benefits other than pensions
Williams sponsors a health care plan that provides postretirement medical
benefits to retired employees who were employed full time, hired prior to
January 1, 1992, have worked five years, attained age 55 while in service with
Williams and are a participant in the Williams pension plans. The plan provides
for retiree contributions and contains other cost-sharing features such as
deductibles and coinsurance. The accounting for the plan anticipates future
cost-sharing changes to the written plan that are consistent with Williams'
expressed intent to increase the retiree contribution rate annually for the
expected general inflation rate for that year. A portion of the cost has been
funded in trusts by Williams' FERC-regulated natural gas pipeline subsidiaries
to the extent recovery from customers can be achieved. Plan assets consist of
assets held in a master trust (previously described) and money market funds.
Effective January 1, 1993, Williams prospectively adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Application of the standard reduced 1993 net income by approximately $2 million.
F-22
45
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net postretirement benefit expense consists of the following:
1994 1993
----- -----
(MILLIONS)
Service cost for benefits earned during the year..................... $ 3.9 $ 3.7
Interest cost on accumulated postretirement benefit obligation....... 7.8 8.2
Actual return on plan assets......................................... (.6) (.7)
Amortization of unrecognized transition obligation................... 5.1 5.2
Amortization and deferrals........................................... .1 (3.5)
----- -----
Net postretirement benefit expense................................... $16.3 $12.9
===== =====
Net postretirement benefit expense:
Continuing operations.............................................. $14.7 $11.4
Discontinued operations............................................ 1.6 1.5
----- -----
$16.3 $12.9
===== =====
The estimated expense of providing these benefits to retirees was $8
million in 1992 ($1 million for discontinued operations) and included accruals
of $4 million for future benefits payable to eligible active employees.
The following table presents the funded status of the plan:
1994 1993
---- ----
(MILLIONS)
Actuarial present value of postretirement benefit obligation:
Retirees............................................................ $ 55 $ 65
Fully eligible active plan participants............................. 11 11
Other active plan participants...................................... 34 41
---- ----
Accumulated postretirement benefit obligation....................... 100 117
Assets at market value................................................ 16 10
---- ----
Assets less than accumulated postretirement benefit obligation........ 84 107
Unrecognized net gain (loss).......................................... 19 (4)
Unrecognized transition obligation.................................... (78) (83)
---- ----
Postretirement benefit liability...................................... $ 25 $ 20
==== ====
The postretirement benefit liability at December 31, 1994, includes
approximately $5 million for WilTel's network services operations' plan
participants. Williams has no obligation to pay postretirement medical benefits
for these participants after the date of sale (see Note 2).
The discount rate used to measure the present value of benefit obligations
is 8 1/2 percent (7 1/4 percent in 1993). The expected long-term rate of return
on plan assets is 10 percent. The annual assumed rate of increase in the health
care cost trend rate for 1995 is 10 to 14 percent, systematically decreasing to
6 percent by 2003. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost trend
rate by 1 percent in each year would increase the aggregate of the service and
interest cost components of postretirement benefit expense for the year ended
December 31, 1994, by $2 million and the accumulated postretirement benefit
obligation as of December 31, 1994, by $14 million.
F-23
46
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other
Williams maintains various defined-contribution plans covering
substantially all employees. Company contributions are based on employees'
compensation and, in part, match employee contributions. Company contributions
are invested primarily in Williams common stock. Williams' contributions to
these plans were $14 million in 1994, $13 million in 1993 and $11 million in
1992. Contributions to these plans made by discontinued operations were $3
million in 1994 and 1993, and $2 million in 1992.
Effective January 1, 1994, Williams adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which requires the accrual of benefits provided to former or inactive
employees after employment but before retirement. Adoption of the standard
reduced 1994 net income by approximately $2 million and is not reported as a
change in accounting principle due to immateriality.
NOTE 8 -- INVENTORIES
1994 1993
------ ------
(MILLIONS)
Natural gas in underground storage................................. $ 9.9 $ 12.1
Petroleum products:
Williams Pipe Line............................................... 12.1 11.6
Williams Energy Ventures......................................... 25.6 22.8
Other............................................................ 3.7 3.8
Materials and supplies:
Williams Telecommunications Systems.............................. 28.6 22.6
Other............................................................ 32.4 35.3
------ ------
$112.3 $108.2
====== ======
NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
1994 1993
-------- --------
(MILLIONS)
Cost:
Northwest Pipeline.......................................... $1,275.4 $1,221.6
Williams Natural Gas........................................ 745.0 721.6
Williams Field Services Group............................... 1,274.4 1,117.6
Williams Pipe Line.......................................... 781.9 750.0
Williams Energy Ventures.................................... 31.4 6.3
Williams Telecommunications Systems......................... 32.1 25.3
Discontinued operations (Note 2)............................ -- 1,052.8
Other....................................................... 170.9 137.9
-------- --------
4,311.1 5,033.1
Accumulated depreciation...................................... (1,187.1) (1,354.5)
-------- --------
$3,124.0 $3,678.6
======== ========
Commitments for construction and acquisition of property, plant and
equipment are approximately $70 million at December 31, 1994.
F-24
47
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Under Williams' cash-management system, certain subsidiaries' cash accounts
reflect credit balances to the extent checks written have not been presented for
payment. The amounts of these credit balances included in accounts payable are
$41 million at December 31, 1994, and $53 million at December 31, 1993.
1994 1993
------ ------
(MILLIONS)
Accrued liabilities:
Rate refunds...................................................... $ 83.8 $ 42.7
Employee costs.................................................... 51.7 62.3
Interest.......................................................... 39.9 42.9
Deferred revenue.................................................. 24.5 54.8
Income taxes payable.............................................. 38.0 22.2
Taxes other than income taxes..................................... 41.8 38.5
Other............................................................. 81.7 116.9
------ ------
$361.4 $380.3
====== ======
NOTE 11 -- LONG-TERM DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1994, a subsidiary of Williams entered into a $400 million
short-term credit agreement to finance the acquisition of Williams common stock.
Notes payable totaling $398 million were outstanding under this agreement at
December 31, 1994. These notes were repaid in January 1995.
The weighted average interest rate on the $507 million outstanding
short-term borrowings at December 31, 1994, was 6.75 percent. There were no
short-term borrowings outstanding at December 31, 1993.
F-25
48
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt
WEIGHTED
AVERAGE (MILLIONS)
INTEREST ------------------
RATE* 1994 1993
-------- ------- -------
The Williams Companies, Inc.
Revolving credit loans............................... 6.6% $ 350.0 $ --
Debentures, 8.875% -- 10.25%, payable 2012, 2020
and 2021.......................................... 9.5 379.7 400.0
Notes, 7.5% -- 13%, payable through 2001............. 8.3 363.8 524.8
Capital lease obligations, 11.1%, payable through
2014.............................................. 11.1 31.0 31.4
Northwest Pipeline
Debentures, 9% -- 10.65%, payable through 2022....... 9.6 293.0 304.3
Adjustable rate notes, payable through 2002.......... 9.0 13.3 15.0
Williams Natural Gas
Variable rate notes, payable 1999.................... 6.2 130.0 --
Debentures at 10.25%................................. -- -- 120.0
Williams Field Services Group
Other, payable through 1999.......................... 8.0 5.7 --
Williams Pipe Line
Notes, 8.95% and 9.78%, payable through 2001......... 9.3 120.0 130.0
Williams Telecommunications Systems
Other................................................ 7.9 4.3 5.8
Discontinued operations (Note 2)
Notes at 9.61% and 9.81%............................. -- -- 127.5
-------- --------
1,690.8 1,658.8
Current portion of long-term debt...................... (383.0) (54.0)
-------- --------
$1,307.8 $1,604.8
======== ========
- ---------------
* At December 31, 1994.
Under Williams' $600 million credit agreement, Northwest Pipeline, Williams
Natural Gas and Williams Pipe Line have access to various amounts of the
facility while Williams (parent) has access to all unborrowed amounts. Interest
rates vary with current market conditions. Certain amounts outstanding at
December 31, 1994, under this facility do not reduce amounts available to
Williams in the future. The available amount at December 31, 1994, is $495
million. The agreement terminates in December 1995 and Williams expects to
replace it with a similar agreement.
In conjunction with the issuance of $130 million of variable rate debt by
Williams Natural Gas in November 1994, Williams entered into an interest-rate
swap agreement under which Williams pays a 7.78 percent fixed rate in exchange
for a variable rate (5.81 percent at December 31, 1994). The difference between
the fixed and variable rate is included in interest expense.
During 1993, Williams sold to financial institutions options to enter into
future interest-rate swap agreements on $220 million of fixed-rate debt. Net
proceeds of $22 million from the sale of these options were deferred and
amortized as a reduction of interest expense over the remaining term of the
original debt agreements. In 1994, the original debt was prepaid, the options
were terminated and the remaining deferred proceeds from the sale of the options
have been included in the extraordinary loss on the debt extinguishments (see
Note 6).
F-26
49
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1992, Williams entered into interest-rate swap agreements to
effectively convert $450 million of fixed-rate debt to variable-rate debt.
Subsequently, Williams entered into a forward termination of the agreements,
effective March 1993, which resulted in Williams receiving $29 million in net
proceeds. This amount has been deferred and is being amortized as a reduction of
interest expense over the remaining term of the original agreements.
Terms of borrowings require maintenance of certain financial ratios, limit
the sale or encumbrance of assets and limit the amount of additional borrowings.
In addition, certain debt agreements include a restriction on the payment of
dividends on common stock and the amount that can be expended to acquire
Williams common stock. At December 31, 1994, Williams had $565 million available
under this covenant. Terms of certain subsidiaries' borrowing arrangements with
institutional lenders limit the transfer of funds to Williams. Net assets of
consolidated subsidiaries at December 31, 1994, are $2.7 billion, of which
approximately $432 million is restricted. Undistributed earnings of companies
and partnerships accounted for under the equity method of $64 million are
included in Williams' consolidated retained earnings at December 31, 1994.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows:
(MILLIONS)
----------
1995.............................................................. $381
1996.............................................................. 44
1997.............................................................. 21
1998.............................................................. 131
1999.............................................................. 302
Cash payments for interest (net of amounts capitalized) related to
continuing operations are as follows: 1994 -- $143 million; 1993 -- $144
million; and 1992 -- $119 million. Cash payments for interest (net of amounts
capitalized) related to discontinued operations are as follows: 1994 -- $6
million; 1993 -- $16 million; and 1992--$18 million.
Leases
Future minimum annual rentals under non-cancelable leases related to
continuing operations are as follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(MILLIONS)
1995.............................................................. $ 5 $21
1996.............................................................. 5 19
1997.............................................................. 4 17
1998.............................................................. 4 14
1999.............................................................. 4 12
Thereafter........................................................ 57 83
----- -------
Total minimum annual rentals...................................... 79 $166
=======
Imputed interest at 11%........................................... 46
-----
Present value of net minimum annual rentals....................... $33
=====
Total rent expense from continuing operations was $26 million in 1994, $22
million in 1993, and $23 million in 1992. Total rent expense from discontinued
operations was $70 million in 1994, $59 million in 1993, and $48 million in
1992.
F-27
50
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- STOCKHOLDERS' EQUITY
The outstanding $2.21 cumulative preferred shares are redeemable by
Williams at a price of $25, beginning in September 1997. Dividends per share of
$2.21, $2.21 and $.72 were recorded during 1994, 1993 and 1992, respectively.
During 1993, Williams called for redemption of its 3,000,000 shares of
outstanding $3.875 convertible exchangeable preferred stock. Substantially all
of the preferred shares were converted into 7.6 million shares of Williams
common stock. Dividends per share of $.97 and $3.875 were recorded during 1993
and 1992, respectively.
Each outstanding share of common stock has one-half of a preferred stock
purchase right attached. Under certain conditions, each right may be exercised
to purchase, at an exercise price of $75 (subject to adjustment), one
two-hundredth of a share of a new series of junior participating preferred
stock. The rights may be exercised only if an Acquiring Person acquires (or
obtains the right to acquire) 20 percent or more of Williams common stock; or
commences an offer for 30 percent or more of Williams common stock; or the board
of directors determines an Adverse Person has become the owner of 10 percent or
more of Williams common stock. The rights, which do not have voting rights,
expire in 1996 and may be redeemed at a price of $.05 per right prior to their
expiration, or within a specified period of time after the occurrence of certain
events. In the event a person becomes the owner of more than 20 percent of
Williams common stock or the board of directors determines that a person is an
Adverse Person, each holder of a right (except an Acquiring Person or an Adverse
Person) shall have the right to receive, upon exercise, common stock having a
value equal to two times the exercise price of the right. In the event Williams
is acquired in a merger or other business combination, each holder of a right
(except an Acquiring Person or an Adverse Person) shall have the right to
receive, upon exercise, common stock of the acquiring company having a value
equal to two times the exercise price of the right.
The 1990 Stock Plan (the Plan) permits granting of various types of awards
including, but not limited to, stock options, stock-appreciation rights,
restricted stock and deferred stock. The Plan provides for granting of awards to
key employees, including officers and directors who are employees. Such awards
may be granted for no consideration other than prior and future services. The
purchase price per share for stock options and stock-appreciation rights may not
be less than the fair-market value of the stock on the date of grant. Another
stock option plan provides for the granting of non-qualified options to
non-employee directors. Options generally become exercisable in three annual
installments beginning within one year after grant, and they expire 10 years
after grant.
The following summary reflects option transactions during 1994.
OPTION PRICE
-----------------------
SHARES PER SHARE TOTAL
-------- --------- ----------
(MILLIONS)
Shares under option:
December 31, 1993................................... 2,455,785 $11-27 $48
Granted............................................. 824,679 25-30 24
Canceled or surrendered............................. (27,310) 14-30 (1)
Exercised........................................... (369,146) 11-27 (6)
---------- ----
December 31, 1994................................... 2,884,008 $11-30 $65
=========== ====
Shares exercisable December 31, 1994.................. 1,305,971
===========
Under the Plan, Williams granted 127,706, 97,504 and 108,920 deferred
shares in 1994, 1993 and 1992, respectively, to key employees. Deferred shares
are valued at the date of award and generally charged to expense in the year of
award. Williams issued 45,298, 191,007 and 70,958 of previously deferred shares
in
F-28
51
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, 1993 and 1992, respectively. Williams also issued 44,800, 62,000 and
40,000 shares of restricted stock in 1994, 1993 and 1992, respectively.
Restricted stock is valued on the issuance date, and the related expense is
amortized over varying periods of three to ten years.
During November 1994, Williams entered into a deferred share agreement (the
Agreement) in connection with the sale of WilTel's network services operations.
Under the terms of the Agreement, Williams will distribute up to approximately
2.6 million shares of Williams common stock to key employees over various
periods through 1998. During 1994, the initial stock distribution of 273,095
shares was made.
At December 31, 1994, 7,131,209 shares of common stock were reserved for
stock awards, of which 1,835,014 were available for future grants (3,200,354 at
December 31, 1993).
NOTE 13 -- FINANCIAL INSTRUMENTS
Fair value methods
The following methods and assumptions were used by Williams in estimating
its fair-value disclosures for financial instruments:
Cash and cash equivalents and notes payable: The carrying amounts
reported in the balance sheet approximate fair value due to the short-term
maturity of these instruments.
Notes and other non-current receivables: For those notes with interest
rates approximating market or maturities of less than three years, fair
value is estimated to approximate historically recorded amounts. For those
notes with maturities beyond three years and fixed interest rates, fair
value is calculated using discounted cash flow analysis based on current
market rates.
Long-term debt: The fair value of Williams' long-term debt is valued
using indicative year-end traded bond market prices for publicly traded
issues, while private debt is valued based on the prices of similar
securities with similar terms and credit ratings. At December 31, 1994 and
1993, 59 percent and 76 percent, respectively, of Williams' long-term debt
was publicly traded. Williams used the expertise of an outside investment
banking firm to estimate the fair value of long-term debt.
Call options sold on interest-rate swaps: Fair value is determined by
discounting estimated future cash flows using forward interest rates
implied by the year-end yield curve and standard option pricing techniques.
Fair value was calculated by the two financial institutions holding the
options.
Interest-rate swap: Fair value is determined by discounting estimated
future cash flows using forward interest rates implied by the year-end
yield curve. Fair value was calculated by the financial institution who is
the counterparty to the swap.
Energy-related futures, swaps and options: Fair value reflects
management's best estimate of market prices considering various factors
including closing exchange and over-the-counter quotations, the terms of
the contract, credit considerations, time value and volatility factors
underlying the positions.
F-29
52
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams' financial instruments
Asset (liability)
1994 1993
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(MILLIONS)
Cash and cash equivalents................... $ 36.1 $ 36.1 $ 64.3 $ 64.3
Notes and other non-current receivables..... 63.1 62.3 31.7 31.3
Investment in Texasgulf Inc. (see Note 3)... 150.0 150.0 150.0 150.0
Notes payable............................... (507.0) (507.0) -- --
Long-term debt, including current portion... (1,657.6) (1,679.9) (1,624.1) (1,807.0)
Call options sold on interest-rate swaps.... -- -- (18.4) (25.4)
Interest-rate swap.......................... (.3) 1.4 -- --
Energy-related trading:
Futures................................... (2.0) (2.0) 2.0 2.0
Swaps and options:
Assets................................. 22.7 22.7 7.0 7.0
Liabilities............................ (13.8) (13.8) (6.3) (6.3)
Energy-related hedging:
Futures................................... (3.3) (3.3) (.9) (.9)
Swaps and options:
Assets................................. .3 .3 -- --
Liabilities............................ (5.2) (5.2) -- --
The above asset and liability amounts for energy-related hedging represent
unrealized gains or losses and do not include the related deferred amounts.
The 1994 average fair value of the energy-related trading futures contracts
is a liability of $1.5 million. The 1994 average fair value of the trading swaps
and options assets and liabilities are $9.2 million and $7 million,
respectively.
Williams has recorded liabilities of $27 million and $37 million at
December 31, 1994 and 1993, respectively, for certain guarantees that qualify as
financial instruments. It is not practicable to estimate the fair value of these
guarantees because of their unusual nature and unique characteristics.
Off-balance-sheet credit and market risk
Williams is a participant in numerous transactions and arrangements that
involve financial instruments that have off-balance-sheet risk of accounting
loss. It is not practicable to estimate the fair value of these off-
balance-sheet financial instruments because of their unusual nature and unique
characteristics.
Williams sold, with limited recourse, certain receivables. The aggregate
limit under these receivables facilities was $80 million at December 31, 1994
(all related to discontinued operations) and $180 million at December 31, 1993.
Williams received $45 million of additional net proceeds in 1994, none in 1993
and $171 million in 1992. At December 31, 1994 and 1993, $80 million and $35
million (all related to discontinued operations) of such receivables had been
sold, respectively. Under a different arrangement, one of Williams' subsidiaries
sold $18 million of receivables with limited recourse in 1992. Williams has no
risk of credit loss because amounts outstanding relate to discontinued
operations (see Note 2).
In connection with certain assets disposed in 1987, Williams has been
providing, for the benefit of the mortgage lender, a guarantee of the
sufficiency of certain lease rentals to meet a portion of the debt service
associated with the assets. At December 31, 1994 and 1993, the maximum possible
loss under this
F-30
53
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
arrangement was approximately $16 million and $15 million, respectively, before
consideration of future contractual and estimated sublease income, which is
expected to be substantial. In January 1995, Williams acquired from the lender
the underlying debt and mortgage and believes that under the arrangement the
guarantee terminated by its terms. The debtor and owner of the assets has
disputed Williams' interpretation of the guarantee.
In connection with the sale of units in the Williams Coal Seam Gas Royalty
Trust (Trust), Williams indemnified the Trust against losses from certain
litigation (see Note 15), guaranteed certain minimum ownership interests based
on natural gas reserve volumes through 1993 only and guaranteed minimum gas
prices through 1997. At December 31, 1994 and 1993, Williams has a recorded
liability of $10 million and $15 million, respectively, for these items,
representing the maximum amounts for the first two guarantees and an estimate of
the gas price exposure based on historical operating trends and an assessment of
market conditions. While Williams' maximum exposure from this guarantee exceeds
amounts accrued, it is not practicable to determine such amount because of the
unique aspects of the guarantee.
In connection with the sale of WilTel's network services operations,
Williams has been indemnified by LDDS against any losses related to retained
guarantees of $200 million for lease rental obligations. LDDS is negotiating
with the guaranteed parties to remove Williams as guarantor.
Williams has issued other guarantees and letters of credit with
off-balance-sheet risk that total approximately $9 million and $20 million at
December 31, 1994 and 1993, respectively. Williams believes it will not have to
perform under these agreements because the likelihood of default by the primary
party is remote and/or because of certain indemnifications received from other
third parties.
In accordance with historical industry practice, Williams' natural gas
subsidiaries have gas purchase contracts with commitments to buy minimum
quantities of natural gas, primarily at market prices, for varying periods
estimated to extend through at least 2014. The subsidiaries currently have or
will enter into gas sales contracts for these volumes, or the subsidiaries will
negotiate the termination of contracts that are not required to meet gas sales
demand (see Note 15).
Commodity price-risk management services
Williams Energy Ventures provides price-risk management services associated
with the energy industry to its customers. These services are provided through a
variety of financial instruments, including forward contracts, futures
contracts, options contracts and swap agreements. See Note 1 for a description
of the accounting for these trading activities. The net gain for 1994 from all
trading activities was $14.2 million and is reported as revenues in the
Consolidated Statement of Income.
Williams Energy Ventures manages risk from financial instruments by making
various logistical commitments which manage profit margins through offsetting
financial instruments. As a result, price movements can result in losses on
certain contracts offset by gains on others.
Williams Energy Ventures takes an active role in managing and controlling
market and counterparty risks and has established formal control procedures
which are reviewed on an ongoing basis. Williams Energy Ventures attempts to
minimize credit-risk exposure to trading counterparties and brokers through
formal credit policies and monitoring procedures. In the normal course of
business, collateral is not required for financial instruments with credit risk.
F-31
54
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The notional quantities and average prices for natural gas related swap
agreements, options contracts and futures contracts at December 31, 1994, are as
follows:
PAYOR RECEIVER
----- --------
Trading:
Fixed-price swaps:
Quantities (TBtu).............................................. 86.0 100.9
Average price (per MMBtu)...................................... $2.01 $1.86
Location differential swaps:
Quantities (TBtu).............................................. 85.0 136.3
Average price (per MMBtu)...................................... $1.42 $1.43
Options:
Quantities (TBtu).............................................. 15.1 17.9
Average strike price (per MMBtu)............................... $1.91 $2.19
Futures:
Quantities (TBtu).............................................. 80.3 60.7
Average price (per MMBtu)...................................... $1.91 $1.92
Hedging:
Fixed-price swaps:
Quantities (TBtu).............................................. 28.4 4.1
Average price (per MMBtu)...................................... $2.21 $2.16
Options:
Quantities (TBtu).............................................. 5.5 3.7
Average strike price (per MMBtu)............................... $2.07 $2.05
Futures:
Quantities (TBtu).............................................. 21.3 3.1
Average price (per MMBtu)...................................... $1.90 $1.91
At December 31, 1993, Williams Energy Ventures was the payor and receiver
under natural gas fixed-price swap agreements having notional quantities of 44.1
TBtu and 43.9 TBtu, respectively. Average prices are $2.24 and $2.18,
respectively. In addition, Williams Energy Ventures was the payor and receiver
under location differential variable-priced swap agreements having notional
quantities of 26.3 TBtu and 38.8 TBtu, respectively, at December 31, 1993. The
average price under these agreements was $1.77.
The swap agreements call for Williams Energy Ventures to make payments to
(or receive payments from) counterparties based upon the differential between a
fixed and variable price or variable prices for different locations. The
variable prices are generally based on either industry pricing publications or
exchange quotations. Williams Energy Ventures buys and sells options contracts
which give the buyer the right to exercise the options and receive the
difference between a predetermined strike price and a market price at the date
of exercise. The market prices used for natural-gas-related contracts are
generally exchange quotations. Williams Energy Ventures also enters into futures
contracts which are commitments to either purchase or sell a commodity at a
future date for a specified price and are generally settled in cash, but may be
settled through delivery of the underlying commodity. The market prices for
futures contracts are based on exchange quotations. The swap agreements extend
for various periods through 2000; options contracts and futures contracts extend
for various periods through 1996. Average prices are based on weighted averages
for contracts outstanding at December 31, 1994 and 1993. Average prices for
location differential swaps incorporate forward prices based on the appropriate
index.
Williams Energy Ventures enters into energy-related financial instruments
to hedge against market price fluctuations of certain refined products
inventories and natural gas sales and purchase commitments. Net
F-32
55
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred losses at December 31, 1994, on anticipated sales and purchase
commitments were $9 million. It is expected that substantially all of these
deferred amounts will be recognized in income during 1995. See Note 1 for a
description of the accounting for these hedging activities.
Concentration of credit risk
Williams' cash equivalents consist of high quality securities placed with
various major financial institutions with high credit ratings. Williams'
investment policy limits the company's credit exposure to any one financial
institution.
At December 31, 1994 and 1993, approximately 40 percent and 48 percent,
respectively, of receivables are for the sale or transportation of natural gas
and related products or services. Approximately 30 percent and 43 percent of
receivables at December 31, 1994 and 1993, respectively, are for
telecommunications and related services. Natural gas customers include
pipelines, distribution companies, producers, gas marketers and industrial users
primarily located in the northwestern and central United States.
Telecommunications customers include numerous corporations. As a general policy,
collateral is not required for receivables, but customers' financial conditions
and credit worthiness are evaluated regularly.
NOTE 14 -- OTHER FINANCIAL INFORMATION
Intercompany revenues (at prices that generally apply to sales to
unaffiliated parties) are as follows:
1994 1993 1992
----- ----- -----
(MILLIONS)
Northwest Pipeline............................................ $ 3.4 $ 3.6 $ 8.6
Williams Natural Gas.......................................... 14.2 5.4 5.4
Williams Field Services Group................................. 7.8 37.8 20.6
Williams Pipe Line............................................ 28.6 6.8 --
Williams Energy Ventures...................................... 15.5 3.1 11.3
Williams Telecommunications Systems........................... .3 -- --
----- ----- -----
$69.8 $56.7 $45.9
===== ===== =====
Williams Natural Gas had sales to a natural gas distributor that accounted
for 15 percent in 1993 and 11 percent in 1992 of Williams' revenues.
F-33
56
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for business segments is as follows:
1994 1993* 1992*
------- ------- -------
(MILLIONS)
Identifiable assets at December 31:
Northwest Pipeline................................. $1,028.0 $1,032.6 $1,064.2
Williams Natural Gas............................... 719.8 697.0 704.8
Williams Field Services Group...................... 1,097.5 996.5 1,081.2
Williams Pipe Line................................. 599.5 587.8 535.8
Williams Energy Ventures........................... 172.7 57.8 13.3
Williams Telecommunications Systems................ 255.5 169.1 157.0
Investments........................................ 379.1 437.1 434.9
General corporate and other........................ 230.4 147.3 141.3
Discontinued operations............................ 743.6 895.2 849.8
------- ------- -------
Consolidated............................... $5,226.1 $5,020.4 $4,982.3
======= ======= =======
Additions to property, plant and equipment:
Northwest Pipeline................................. $ 62.6 $ 175.7 $ 297.6
Williams Natural Gas............................... 32.9 54.9 47.8
Williams Field Services Group...................... 153.8 117.3 142.7
Williams Pipe Line................................. 35.5 61.4 26.9
Williams Energy Ventures........................... 24.6 3.0 --
Williams Telecommunications Systems................ 4.9 1.9 5.0
General corporate and other........................ 11.2 14.1 6.7
------- ------- -------
Consolidated............................... $ 325.5 $ 428.3 $ 526.7
======= ======= =======
Depreciation and depletion:
Northwest Pipeline................................. $ 33.9 $ 30.7 $ 24.2
Williams Natural Gas............................... 27.2 27.3 26.0
Williams Field Services Group...................... 47.2 44.0 38.9
Williams Pipe Line................................. 22.3 21.4 21.2
Williams Energy Ventures........................... .3 .1 --
Williams Telecommunications Systems................ 5.3 4.7 3.7
General corporate and other........................ 14.1 9.6 8.2
------- ------- -------
Consolidated............................... $ 150.3 $ 137.8 $ 122.2
======= ======= =======
- ---------------
* Restated as described in Note 2.
NOTE 15 -- CONTINGENT LIABILITIES AND COMMITMENTS
Rate and regulatory matters and related litigation
In June 1990, a producer brought suit against Williams Natural Gas alleging
antitrust and interference with contract claims regarding the transportation of
gas and seeking actual, treble and punitive damages and injunctive relief.
Williams Natural Gas has denied any liability. In April 1991, Williams Natural
Gas was granted summary judgment on the antitrust claim and at the close of the
plaintiff's case, a directed verdict was granted in favor of Williams Natural
Gas on the remaining claims. The plaintiff filed an appeal on November 18, 1992,
and on January 12, 1995, the lower court's judgment was affirmed.
Williams' interstate pipeline subsidiaries, including Williams Pipe Line,
have various regulatory proceedings pending. As a result of rulings in certain
of these proceedings, a portion of the revenues of these subsidiaries has been
collected subject to refund. As to Williams Pipe Line, revenues collected
subject to
F-34
57
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
refund were $111 million at December 31, 1994; it is not expected that the
amount of any refunds ordered would be significant. Accordingly, no portion of
these revenues has been reserved for refund. As to the other pipelines, see Note
10 for the amount of revenues reserved for potential refund as of December 31,
1994.
In 1992, the FERC issued Order 636, Order 636-A and Order 636-B. These
orders, which have been challenged in various respects by various parties in
proceedings pending in the U.S. Court of Appeals for the D.C. Circuit, require
interstate gas pipeline companies to change the manner in which they provide
services. Williams Natural Gas implemented its restructuring on October 1, 1993,
and Northwest Pipeline implemented its restructuring on November 1, 1993.
Certain aspects of each pipeline company's restructuring are under appeal.
Contract reformations and gas purchase deficiencies
Williams Natural Gas has undertaken the reformation of its respective gas
supply contracts to settle gas purchase deficiencies, avoid future gas purchase
deficiencies, reduce prices to market levels or make other appropriate
modifications. As of December 31, 1994, Williams Natural Gas' total supplier
take-or-pay, ratable take and minimum take claims were not significant.
Williams Natural Gas and a producer have executed a number of definitive
agreements to resolve outstanding issues between the two companies and
restructure their relationship. Among other things, the agreements terminate
Williams Natural Gas' largest gas purchase contract and resolve a number of
disputes and litigation, including a $203 million claim by the producer for
take-or-pay deficiencies and a gas pricing dispute. With respect to the latter
dispute, Williams Natural Gas paid the producer $35 million in cash and is
committed to pay an additional $40 million under certain circumstances, all but
a small portion of which payments Williams Natural Gas believes it will be
permitted to recover from certain of its former sales customers. Portions of the
settlement are subject to regulatory approvals, including the regulatory
abandonment of a certain Williams Natural Gas gathering system on terms
acceptable to Williams Natural Gas.
Williams Natural Gas also has commitments under gas supply contracts
reflecting prices in excess of market-based prices. The estimated commitment
amounts at December 31, 1994, attributable to these contracts were:
POST
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
(MILLIONS)
Commitments........................... $10 $10 $12 $12 $13 $133
Williams has an accounting policy of determining accruals taking into
consideration both historical and future gas quantities and appropriate prices
to determine an estimated total exposure. This exposure is discounted and
risk-weighted to determine the appropriate accrual. The estimated portion
recoverable from sales and transportation customers is deferred based on
Williams' estimate of its expected recovery of the amounts allowed by FERC
policy. As of December 31, 1994, Williams Natural Gas had a remaining accrual of
$47 million for take-or-pay settlements and reformation of the non-market
responsive contracts. Although Williams believes these accruals are adequate,
the actual amount paid for take-or-pay settlements and contract reformation will
depend on the outcome of various court proceedings; the provisions and
enforceability of each gas purchase contract; the success of settlement
negotiations; and other factors.
Current FERC policy associated with Orders 436 and 500 requires interstate
gas pipelines to absorb some of the cost of reforming gas supply contracts
before allowing any recovery through direct bill or surcharges to transportation
as well as sales commodity rates. Pursuant to FERC Order 500, Williams Natural
Gas has filed to recover a portion of previously incurred take-or-pay and
contract-reformation costs. As of December 31, 1994, this subsidiary had $40
million included in recoverable contract-reformation and take-or-pay settlement
costs which had not yet been paid and filed for recovery with the FERC. Under
Orders 636, 636-A and 636-B,
F-35
58
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs incurred to comply with these rules are permitted to be recovered in full,
although 10 percent of such costs must be allocated to interruptible
transportation service.
The FERC initially approved a method for Northwest Pipeline to direct bill
its contract-reformation costs, but when challenged on appeal, sought a remand
to reassess such method. Northwest Pipeline has received an order from the FERC
that requires a different allocation of such costs which is now being challenged
by certain customers. Northwest Pipeline does not expect any reallocation to
result in a significant financial impact upon the company.
Pursuant to a stipulation and agreement approved by the FERC, Williams
Natural Gas has made two filings to direct bill take-or-pay and gas supply
realignment costs recoverable under Orders 436, 500 and 528. The first provided
for the offset of certain amounts collected subject to refund against previous
take-or-pay direct-billed amounts and, in addition, covered $24 million in new
costs. This filing was approved, and the final direct-billed amount, taking into
consideration the offset, was $15 million. The second filing covered $18 million
in additional costs, and provided for an offset of $3 million. An intervenor has
filed a protest seeking to have the Commission review the prudence of certain of
the costs covered by the second filing. Williams Natural Gas believes that the
filing will most likely be approved and will make additional filings in the
future under the stipulation and agreement to recover such further
contract-reformation costs as may be incurred.
Other legal matters
Williams Natural Gas has identified polychlorinated biphenyl (PCB)
contamination in air compressor systems, disposal pits and related properties at
certain compressor station sites and has been involved in negotiations with the
U.S. Environmental Protection Agency (EPA) to develop additional screening,
detailed sampling and cleanup programs. In addition, negotiations concerning
investigative and remedial actions relative to potential mercury contamination
at certain gas metering sites have commenced with certain environmental
authorities. As of December 31, 1994, Williams Natural Gas had recorded a
liability for approximately $28 million, representing the current estimate of
future environmental cleanup costs to be incurred over the next six to ten
years. Actual costs incurred will depend on the actual number of contaminated
sites identified, the actual amount and extent of contamination discovered, the
final cleanup standards mandated by the EPA and other governmental authorities
and other factors. Williams Natural Gas deferred these costs pending recovery as
incurred through future rates and other means.
In connection with the 1987 sale of the assets of Agrico Chemical Company,
Williams agreed to indemnify the purchaser for environmental cleanup costs
resulting from certain conditions at specified locations, to the extent such
costs exceed a specified amount. It appears probable that such costs will exceed
this amount. At December 31, 1994, Williams had approximately $6 million accrued
for such excess costs. The actual costs incurred will depend on the actual
amount and extent of contamination discovered, the final cleanup standards
mandated by the EPA or other governmental authorities, and other factors.
A lawsuit was filed on May 14, 1993, in a state court in Colorado in which
certain claims have been made against various defendants, including Northwest
Pipeline, contending that gas exploration and development activities in portions
of the San Juan Basin have caused air, water and other contamination. The
plaintiffs in the case sought certification of a plaintiff class. On June 28,
1994, the lawsuit was dismissed for failure to join an indispensable party over
which the state court had no jurisdiction. This decision is being appealed by
the plaintiffs. Since June 28, 1994, four individual lawsuits have been filed
against Northwest Pipeline in U.S. district court in Colorado, making
essentially the same claims. Northwest Pipeline is vigorously defending these
lawsuits.
On December 31, 1991, the Southern Ute Indian Tribe (the Tribe) filed a
lawsuit against Williams Production Company, a wholly owned subsidiary of
Williams, and other gas producers in the San Juan Basin area, alleging that
certain coal strata were reserved by the United States for the benefit of the
Tribe and that
F-36
59
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. On September 13,
1994, the Court granted summary judgment in favor of the defendants. The Tribe
sought a certification of an interlocutory appeal from the Court which was
denied. Nevertheless, 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
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.
Relative to a proposal for the acquisition of WilTel submitted to Williams
by LDDS Communications, Inc. (LDDS), contained in a letter dated May 3, 1994,
and attached as an exhibit to a report on Form 8-K filed by LDDS on that day,
two class action lawsuits were filed on May 9, 1994, in the Chancery Court of
Delaware alleging that Williams' directors breached their fiduciary duty to the
plaintiff and the members of the putative class by summarily rejecting the LDDS
proposal and by issuing false and misleading statements. On September 26, 1994,
both suits were dismissed without prejudice. See Note 2 for information
regarding the sale of WilTel's network services operations on January 5, 1995.
On October 6, 1994, the Antitrust Division of the Department of Justice
issued a civil investigation demand to Williams Natural Gas concerning its
provision of transportation services in Kansas and Missouri. Williams Natural
Gas has filed a response, and believes that it has not violated the antitrust
laws in the conduct of its business.
On December 21, 1994, Williams Natural Gas received a second civil
investigative demand from the Antitrust Division of the Department of Justice
concerning certain gathering activities of Williams Natural Gas and Williams'
other operating subsidiaries. Williams is preparing a response but believes that
none of its subsidiaries has violated the antitrust laws in the conduct of its
business.
Relative to a certain Agreement and Plan of Merger, dated December 12,
1994, among Williams, a Williams subsidiary and Transco Energy Company
(Transco), seven class action lawsuits were filed on December 12, 1994, and
later, in the Chancery Court of Delaware, challenging the transaction and
alleging a breach of fiduciary duties by Transco's directors. In six of the
lawsuits, Williams was named as a party defendant, the plaintiffs alleging that
Williams aided and abetted the alleged breach of duty. On January 6, 1995, the
parties to all of the lawsuits entered into an agreement in principle and on
January 9, 1995, a stipulation and agreement of compromise, settlement and
release was executed subject to approval of the Court. See Note 16 for
information regarding the acquisition of Transco.
In addition to the foregoing, various other proceedings are pending against
Williams or its subsidiaries incidental to their operations.
Summary
Williams 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
financial effect upon Williams in the future.
NOTE 16 -- TRANSCO ACQUISITION
Subsequent to December 31, 1994, Williams acquired 60 percent of Transco's
outstanding common stock in a cash tender offer for $430.5 million. Williams
also plans to acquire the remaining 40 percent of Transco's
F-37
60
THE WILLIAMS COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding common stock through a merger which will exchange the remaining
Transco common stock for approximately 10.2 million shares of Williams common
stock. The cash portion of the acquisition was financed from the proceeds of the
WilTel network services sale.
Transco is engaged primarily in the natural gas pipeline and natural gas
marketing businesses. Williams plans to sell certain other Transco operations,
such as coal mining and coalbed methane extraction in 1995. The estimated
purchase price, including transaction fees and other related costs, is
approximately $775 million, excluding $2.3 billion in preferred stock and debt
obligations of Transco. The acquisition will be accounted for as a purchase in
1995 and it is expected that the excess purchase price will be allocated to
Transco's property, plant and equipment.
F-38
61
THE WILLIAMS COMPANIES, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows (millions, except
per-share amounts). Certain amounts have been restated as described in Note 2 of
Notes to Consolidated Financial Statements.
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
----------------------------------------------- ------ ------ ------ ------
Revenues....................................... $386.6 $419.9 $467.3 $477.3
Costs and operating expenses................... 248.5 274.0 335.4 329.8
Income before extraordinary loss............... 52.8 74.0 55.6 76.5
Net income..................................... 52.8 62.9 55.6 75.4
Primary earnings per common and
common-equivalent share:
Income before extraordinary loss.......... .48 .69 .51 .77
Net income................................ .48 .58 .51 .76
Fully diluted earnings per common and common-
equivalent share:
Income before extraordinary loss.......... .48 .69 .51 .77
Net income................................ .48 .58 .51 .76
1993
Revenues....................................... $613.2 $388.8 $371.0 $420.4
Costs and operating expenses................... 448.2 279.8 267.1 288.8
Net income..................................... 125.6 36.1 18.0 52.1
Primary earnings per common and
common-equivalent share...................... 1.28 .33 .15 .48
Fully diluted earnings per common and common-
equivalent share............................. 1.21 .32 .15 .48
The sum of earnings per share for the four quarters may not equal the total
earnings per share for the year due to changes in the average number of common
shares outstanding.
Second-quarter 1994 includes a $23 million gain from the sale of assets
(see Note 4 of Notes to Consolidated Financial Statements).
First-quarter 1993 includes gains totaling $95 million from the sales of
assets (see Note 4 of Notes to Consolidated Financial Statements). Third-quarter
1993 net income was reduced $15 million related to the cumulative effect of the
1 percent increase in the federal income tax rate.
F-39
62
Selected comparative fourth-quarter data are as follows (millions, except
per-share amounts). Certain 1993 amounts have been restated as described in Note
2 of Notes to Consolidated Financial Statements.
1994 1993
------ ------
Operating profit (loss):
Interstate Natural Gas Pipelines:
Northwest Pipeline........................................... $ 22.7 $ 20.1
Williams Natural Gas......................................... 15.1 13.6
Williams Field Services Group................................... 39.3 31.8
Liquids Pipeline/Energy Ventures:
Williams Pipe Line........................................... 19.8 10.7
Williams Energy Ventures..................................... (11.0) .1
Williams Telecommunications Systems............................. 6.7 3.8
Other........................................................... (4.2) (4.8)
------ ------
Total operating profit.................................. 88.4 75.3
General corporate expenses........................................ (7.0) (15.9)
Interest expense -- net........................................... (39.1) (34.4)
Investing income.................................................. 10.8 13.5
Other income (expense) -- net..................................... (2.5) .2
------ ------
Income from continuing operations before income taxes............. 50.6 38.7
Provision for income taxes........................................ 16.4 3.5
------ ------
Income from continuing operations................................. 34.2 35.2
Income from discontinued operations............................... 42.3 16.9
------ ------
Income before extraordinary loss.................................. 76.5 52.1
Extraordinary loss................................................ (1.1) --
------ ------
Net income........................................................ $ 75.4 $ 52.1
====== ======
Primary and fully diluted earnings per common and
common-equivalent share......................................... $ .76 $ .48
====== ======
In fourth-quarter 1994, Williams Natural Gas recorded a $7 million reversal
of excess contract-reformation accruals. Williams Energy Ventures'
fourth-quarter operating loss includes $5 million in costs for evaluating and
determining whether to build an oil refinery. Fourth-quarter 1994 discontinued
operations includes favorable adjustments of approximately $15 million relating
to bad debt recoveries and accrual reversals.
In fourth-quarter 1993, Williams Field Services Group recorded an $11
million favorable settlement involving processing revenues from prior periods.
General corporate expenses in the fourth quarter of 1993 include $5 million of
additional accruals for supplemental retirement benefits. Fourth-quarter 1993
discontinued operations includes favorable adjustments of approximately $6
million relating to bad debt recoveries and accrual reversals.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
F-40
63
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Directors and nominees for Director of
Williams required by Item 401 of Regulation S-K is presented under the heading
"Election of Directors" in Williams' Proxy Statement prepared for the
solicitation of proxies in connection with the Annual Meeting of Stockholders of
the Company for 1995 (the "Proxy Statement"), which information is incorporated
by reference herein. A copy of the Proxy Statement will be filed as an exhibit
to the Form 10-K. Information regarding the executive officers of Williams is
presented following Item 4 herein, as permitted by General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. Information
required by Item 405 of Regulation S-K is included under the heading "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy
Statement, which information is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K regarding executive
compensation is presented under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement, which
information is incorporated by reference herein. Notwithstanding the foregoing,
the information provided under the headings "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation" in the
Proxy Statement are not incorporated by reference herein. A copy of the Proxy
Statement will be filed as an exhibit to the Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding the security ownership of certain beneficial
owners and management required by Item 403 of Regulation S-K is presented under
the headings "Security Ownership of Certain Beneficial Owners and Management" in
the Proxy Statement, which information is incorporated by reference herein. A
copy of the Proxy Statement will be filed as an exhibit to the Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is no information regarding certain relationships and related
transactions required by Item 404 of Regulation S-K to be reported in response
to this Item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedules listed in the
accompanying index to consolidated financial statements are filed as part of
this annual report.
(a) 3 and (c). The exhibits listed below are filed as part of this annual
report.
Exhibit 2 --
*(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as Exhibit
(c)(1) to Schedule 14D-1, dated December 16, 1994).
*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to Schedule
13D, dated February 23, 1995).
*(c) Stock Option Agreement, dated as of December 12, 1994, by and
between Williams and Transco (filed as Exhibit (c)(2) to Schedule 14D-1,
dated December 16, 1994).
F-41
64
Exhibit 3 --
*(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20, 1987).
*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the Registration
Statement on Form S-3, filed August 19, 1992).
*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit 3(c) to
Form 10-K for the year ended December 31, 1988).
(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.
*(e) Amended and Restated Rights Agreement, dated as of July 12,
1988, between Williams and First Chicago Trust Company of New York
(filed as Exhibit 4(c) to Williams Form 8, dated July 28, 1988).
*(f) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between the Company and Chemical
Bank, Trustee, relating to the 10 1/4% Debentures, due 2020; the 9 3/8%
Debentures, due 2021; the 8 1/4% Notes, due 1998; Medium-Term Notes
(8.50%-9.31%), due 1996 through 2001; the 7 1/2% Notes, due 1999, and
the 8 7/8% Debentures, due 2012 (filed as Exhibit 4.1 to Form S-3
Registration Statement No. 33-33294, filed February 2, 1990).
(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the banks named
therein and Citibank, N.A., as agent.
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to Form
10-K for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii) (d) to
Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit 10(iii)
(e) to Form 10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 13, 1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy Statement,
dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as Exhibit
A to Williams' Proxy Statement, dated March 12, 1990).
*(g) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and certain
officers of Williams (filed as Exhibit 10(iii) (e) to Form 10-K for the
year ended December 31, 1986).
Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent
Share.
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividend Requirements.
F-42
65
Exhibit 20 -- Definitive Proxy Statement of Williams for 1995 (to be
filed by amendment).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by Williams with the Securities and
Exchange Commission during the fourth quarter of 1994.
(d) The financial statements of partially owned companies are not presented
herein since none of them individually, or in the aggregate, constitute a
significant subsidiary.
- ---------------
* Each such exhibit has heretofore been filed with the Securities and Exchange
Commission as part of the filing indicated and is incorporated herein by
reference.
F-43
66
THE WILLIAMS COMPANIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2
PAGE
----
Covered by report of independent auditors:
Consolidated statement of income for the three years ended December 31, 1994........ F-11
Consolidated balance sheet at December 31, 1994 and 1993............................ F-13
Consolidated statement of stockholders' equity for the three years ended December
31, 1994......................................................................... F-14
Consolidated statement of cash flows for the three years ended December 31, 1994.... F-15
Notes to consolidated financial statements.......................................... F-16
Schedules for the three years ended December 31, 1994:
I -- Condensed financial information of registrant.............................. F-45
II -- Valuation and qualifying accounts.......................................... F-49
Not covered by report of independent auditors:
Quarterly financial data (unaudited)................................................ F-39
All other schedules have been omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-44
67
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME (PARENT)
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1993* 1992*
------ ------ ------
(MILLIONS, EXCEPT PER-SHARE
AMOUNTS)
Investing income............................................. $ 29.4 $ 27.3 $ 16.3
Interest accrued............................................. (91.8) (95.8) (90.9)
Gain on sales of assets (Note 2)............................. -- 51.6 --
Other income (expense) -- net................................ 2.9 (16.9) .6
------ ------ ------
Loss from continuing operations before income taxes and
equity in subsidiaries' income............................. (59.5) (33.8) (74.0)
Equity in consolidated subsidiaries' income.................. 195.0 189.8 131.5
------ ------ ------
Income from continuing operations before income taxes........ 135.5 156.0 57.5
Credit for income taxes...................................... (29.4) (29.4) (45.6)
------ ------ ------
Income from continuing operations............................ 164.9 185.4 103.1
Income from discontinued operations (Note 1)................. 94.0 46.4 25.2
------ ------ ------
Income before extraordinary credit (loss).................... 258.9 231.8 128.3
Extraordinary credit (loss) from early extinguishment of
debt....................................................... (12.2) -- 9.9
------ ------ ------
Net income................................................... 246.7 231.8 138.2
Preferred stock dividends.................................... 8.8 11.8 14.5
------ ------ ------
Income applicable to common stock............................ $237.9 $220.0 $123.7
====== ====== ======
Primary earnings per common and common-equivalent share:
Income from continuing operations.......................... $ 1.52 $ 1.74 $ .97
Income from discontinued operations........................ .92 .46 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.20 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.20 $ 1.36
====== ====== ======
Fully diluted earnings per common and common-equivalent
share:
Income from continuing operations.......................... $ 1.52 $ 1.71 $ .97
Income from discontinued operations........................ .92 .45 .28
------ ------ ------
Income before extraordinary credit (loss).................. 2.44 2.16 1.25
Extraordinary credit (loss)................................ (.12) -- .11
------ ------ ------
Net income................................................. $ 2.32 $ 2.16 $ 1.36
====== ====== ======
- ---------------
*Certain amounts have been restated as described in Note 1.
See accompanying notes.
F-45
68
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
BALANCE SHEET (PARENT)
DECEMBER 31,
--------------------
1994 1993
------- -------
(MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 16.5 $ 26.1
Due from consolidated subsidiaries.................................. 138.4 31.5
Receivables......................................................... 65.3 1.8
Investment in discontinued operations (Note 1)...................... 743.6 --
Other............................................................... 4.9 .5
-------- --------
Total current assets........................................ 968.7 59.9
Investments:
Equity in consolidated subsidiaries................................. 1,634.8 2,658.4
Receivables from consolidated subsidiaries.......................... 387.8 260.2
-------- --------
2,022.6 2,918.6
Other............................................................... 44.0 43.7
-------- --------
2,066.6 2,962.3
Property, plant and equipment -- net.................................. 36.3 47.4
Other assets and deferred charges..................................... 14.8 46.9
-------- --------
Total assets................................................ $3,086.4 $3,116.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................... $ 73.8 $ --
Due to consolidated subsidiaries.................................... 137.6 256.6
Accounts payable and accrued liabilities............................ 84.1 71.2
Long-term debt due within one year (Note 3)......................... 361.5 11.4
-------- --------
Total current liabilities................................... 657.0 339.2
Long-term debt (Note 3)............................................... 763.0 944.8
Other liabilities..................................................... 160.9 108.5
Stockholders' equity:
Preferred stock..................................................... 100.0 100.0
Common stock........................................................ 104.4 103.1
Capital in excess of par value...................................... 991.0 959.1
Retained earnings................................................... 716.5 563.7
Unamortized deferred compensation................................... (1.3) (1.9)
-------- --------
1,910.6 1,724.0
Less treasury stock (Note 4)........................................ (405.1) --
-------- --------
Total stockholders' equity.................................. 1,505.5 1,724.0
-------- --------
Total liabilities and stockholders' equity.................. $3,086.4 $3,116.5
======== ========
See accompanying notes.
F-46
69
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
STATEMENT OF CASH FLOWS (PARENT)
YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993* 1992*
------- ------- -------
(MILLIONS)
Operating activities:
Net income.................................................. $ 246.7 $ 231.8 $ 138.2
Adjustments to reconcile to cash provided from operations:
Equity in subsidiaries' income, net of cash dividends.... 153.1 (60.0) (101.5)
Discontinued operations.................................. (94.0) (46.4) (25.2)
Extraordinary (credit) loss.............................. 12.2 -- (9.9)
Depreciation............................................. 4.3 4.2 4.3
Provision (credit) for deferred income taxes............. 20.8 (1.7) (4.5)
Gain on sales of property, plant and equipment........... -- (52.1) --
Changes in receivables................................... (59.5) 5.0 (7.0)
Changes in other current assets.......................... (7.1) 1.4 (1.5)
Changes in accounts payable.............................. 3.0 (.7) (.2)
Changes in accrued liabilities........................... (12.1) (18.7) 13.1
Other, including changes in non-current assets and
liabilities............................................ 6.4 58.5 (4.2)
------- ------- -------
Net cash provided by operating activities........... 273.8 121.3 1.6
------- ------- -------
Financing activities:
Changes in notes payable.................................... 73.8 -- --
Proceeds from long-term debt................................ 350.0 -- 300.0
Payments of long-term debt.................................. (181.7) (128.8) (44.0)
Premium on early extinguishment of debt..................... (8.9) -- --
Proceeds from issuance of preferred stock................... -- -- 96.2
Proceeds from issuance of common stock...................... 26.4 63.4 146.1
Purchase of treasury stock.................................. (18.4) -- --
Dividends paid.............................................. (93.9) (89.4) (82.7)
Other -- net................................................ -- (.6) --
------- ------- -------
Net cash provided (used) by financing activities.... 147.3 (155.4) 415.6
------- ------- -------
Investing activities:
Property, plant and equipment:
Capital expenditures..................................... (1.1) (1.6) (1.3)
Proceeds from sales of property, plant and equipment..... -- 115.1 --
Investments in consolidated subsidiaries.................... (71.2) (75.3) (184.9)
Changes in advances to subsidiaries......................... (354.4) 1.0 (251.1)
Other -- net................................................ (4.0) (.6) (1.0)
------- ------- -------
Net cash provided (used) by investing activities.... (430.7) 38.6 (438.3)
------- ------- -------
Increase (decrease) in cash and cash equivalents.... (9.6) 4.5 (21.1)
Cash and cash equivalents at beginning of year.............. 26.1 21.6 42.7
------- ------- -------
Cash and cash equivalents at end of year.................... $ 16.5 $ 26.1 $ 21.6
======= ======= =======
- ---------------
* Certain amounts have been restated as described in Note 1.
See accompanying notes.
F-47
70
THE WILLIAMS COMPANIES, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONCLUDED)
NOTES TO FINANCIAL INFORMATION (PARENT)
NOTE 1. DISCONTINUED OPERATIONS
In August 1994, Williams signed a definitive agreement to sell WilTel's
network services operations to LDDS Communications, Inc. (LDDS) for $2.5 billion
in cash. The sale closed January 5, 1995, yielding an after-tax gain of
approximately $1 billion, which will be recorded in the first quarter of 1995.
The Condensed Financial Information of Registrant have been prepared to present
operating results of network services as discontinued operations, with prior
period operating results restated.
NOTE 2. SALES OF ASSETS
In a 1993 public offering, Williams sold 6.1 million units in the Williams
Coal Seam Gas Royalty Trust (Trust), which resulted in net proceeds of $113
million and a pre-tax gain of $51.6 million. The Trust owns defined net profits
interests in the developed coal-seam properties in the San Juan Basin of New
Mexico and Colorado, which were conveyed to the Trust by Williams Production
Company. Ownership of an additional 3.6 million units remains with Williams.
NOTE 3. LONG-TERM DEBT AND LEASES
Long-term debt due within one year includes $350 million of borrowings
under Williams' $600 million credit agreement. This agreement terminates in
December 1995 and Williams expects to replace it with a similar agreement.
Aggregate minimum maturities and sinking-fund requirements, excluding lease
payments, for each of the next five years are as follows: 1995 -- $361 million;
1996 -- $23 million; 1997 -- none; 1998 -- $110 million; and 1999 -- $150
million.
Future minimum annual rentals under non-cancelable capital leases for each
of the next five years are $4 million. See Note 11 of Notes to Consolidated
Financial Statements for additional information on long-term debt.
NOTE 4. TREASURY STOCK
For financial reporting purposes, treasury stock of $394.8 million held by
a wholly-owned subsidiary of Williams has been presented as a reduction of
stockholders' equity.
NOTE 5. DIVIDENDS RECEIVED
Cash dividends from subsidiaries and companies accounted for on an equity
basis are as follows: 1994 -- $354.2 million; 1993 -- $142.6 million; and
1992 -- $36 million.
NOTE 6. INCOME TAX AND INTEREST PAYMENTS
Cash payments for income taxes are as follows: 1994 -- $112 million;
1993 -- $118 million; and 1992 -- $49.6 million.
Cash payments for interest are as follows: 1994 -- $90 million;
1993 -- $96.6 million; and 1992 -- $79.2 million.
NOTE 7. FINANCIAL INSTRUMENTS
Disclosure of financial instruments for the parent company are included in
the consolidated disclosures. See Note 13 of Notes to Consolidated Financial
Statements.
F-48
71
THE WILLIAMS COMPANIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)
ADDITIONS
------------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ----- ------------- -------
(MILLIONS)
Allowance for doubtful accounts:
1994................................... $10.2 $ 4.2(c) $ -- $ 6.5(d) $ 7.9
1993................................... 17.3 .5(e) -- 7.6 10.2
1992................................... 22.4 16.2 -- 21.3 17.3
- ---------------
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Excludes $5.7 million related to discontinued operations.
(d) Includes the discontinued operations beginning balance reclassification of
$3.6 million.
(e) Includes $4.1 million reversal of amounts previously accrued.
F-49
72
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE WILLIAMS COMPANIES, INC.
(Registrant)
By: /s/ DAVID M. HIGBEE
David M. Higbee
Attorney-in-Fact
Dated: March 2, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
/s/ KEITH E. BAILEY* Chairman of the Board, President, Chief
Keith E. Bailey Executive Officer (Principal Executive
Officer) and Director
/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
Jack D. McCarthy Financial Officer)
/s/ GARY R. BELITZ* Controller (Chief Accounting Officer)
Gary R. Belitz
/s/ HAROLD W. ANDERSEN* Director
Harold W. Andersen
Director
Ralph E. Bailey
/s/ GLENN A. COX* Director
Glenn A. Cox
/s/ THOMAS H. CRUIKSHANK* Director
Thomas H. Cruikshank
/s/ ERVIN S. DUGGAN* Director
Ervin S. Duggan
/s/ ROBERT J. LAFORTUNE* Director
Robert J. LaFortune
/s/ JAMES C. LEWIS* Director
James C. Lewis
II-1
73
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
/s/ JACK A. MACALLISTER* Director
Jack A. MacAllister
/s/ JAMES A. MCCLURE* Director
James A. McClure
/s/ PETER C. MEINIG* Director
Peter C. Meinig
/s/ KAY A. ORR* Director
Kay A. Orr
/s/ GORDON R. PARKER* Director
Gordon R. Parker
/s/ JOSEPH H. WILLIAMS* Director
Joseph H. Williams
*By /s/ DAVID M. HIGBEE Director
David M. Higbee
Attorney-in-Fact
Dated: March 2, 1995
II-2
74
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
Exhibit 2 -- *(a) Agreement and Plan of Merger, dated as of December 12, 1994,
among Williams, WC Acquisition Corp. and Transco (filed as
Exhibit (c)(1) to Schedule 14D-1, dated December 16, 1994).
*(b) Amendment to Agreement and Plan of Merger, dated as of
February 17, 1995 (filed as Exhibit 6 to Amendment No. 8 to
Schedule 13D, dated February 23, 1995).
*(c) Stock Option Agreement, dated as of December 12, 1994, by
and between Williams and Transco (filed as Exhibit (c)(2) to
Schedule 14D-1, dated December 16, 1994).
Exhibit 3 -- *(a) Restated Certificate of Incorporation of Williams (filed as
Exhibit 4(a) to Form 8-B Registration Statement, filed August 20,
1987).
*(b) Certificate of Designation with respect to the $2.21
Cumulative Preferred Stock (filed as Exhibit 4.3 to the
Registration Statement on Form S-3, filed August 19, 1992).
*(c) Certificate of Increase of Authorized Number of Shares of
Series A Junior Participating Preferred Stock (filed as Exhibit
3(c) to Form 10-K for the year ended December 31, 1988).
(d) Certificate of Amendment of Restated Certificate of
Incorporation, dated May 20, 1994.
*(e) Amended and Restated Rights Agreement, dated as of July 12,
1988, between Williams and First Chicago Trust Company of New
York (filed as Exhibit 4(c) to Williams Form 8, dated July
28, 1988).
*(f) By-laws of Williams (filed as Exhibit 3 to Form 10-Q for the
quarter ended September 30, 1993).
Exhibit 4 -- *(a) Form of Senior Debt Indenture between the Company and
Chemical Bank, Trustee, relating to the 10 1/4% Debentures, due
2020; the 9 3/8% Debentures, due 2021; the 8 1/4% Notes, due
1998; Medium-Term Notes (8.50%-9.31%), due 1996 through 2001; the
7 1/2% Notes, due 1999, and the 8 7/8% Debentures, due 2012
(filed as Exhibit 4.1 to Form S-3 Registration Statement No.
33-33294, filed February 2, 1990).
(b) U.S. $800,000,000 Credit Agreement, dated as of February 23,
1995, among Williams and certain of its subsidiaries and the
banks named therein and Citibank, N.A., as agent.
Exhibit 10(iii) -- Compensatory Plans and Management Contracts
*(a) The Williams Companies, Inc. Supplemental Retirement Plan,
effective as of January 1, 1988 (filed as Exhibit 10(iii)(c) to
Form 10-K for the year ended December 31, 1987).
*(b) Form of Employment Agreement, dated January 1, 1990, between
Williams and certain executive officers (filed as Exhibit 10(iii)
(d) to Form 10-K for the year ended December 31, 1989).
*(c) Form of The Williams Companies, Inc. Change in Control
Protection Plan between Williams and employees (filed as Exhibit
10(iii) (e) to Form 10-K for the year ended December 31, 1989).
*(d) The Williams Companies, Inc. 1985 Stock Option Plan (filed
as Exhibit A to Williams' Proxy Statement, dated March 13,
1985).
*(e) The Williams Companies, Inc. 1988 Stock Option Plan for
Non-Employee Directors (filed as Exhibit A to Williams' Proxy
Statement, dated March 14, 1988).
*(f) The Williams Companies, Inc. 1990 Stock Plan (filed as
Exhibit A to Williams' Proxy Statement, dated March 12, 1990).
*(g) Indemnification Agreement, effective as of August 1, 1986,
between Williams and members of the Board of Directors and
certain officers of Williams (filed as Exhibit 10(iii) (e) to
Form 10-K for the year ended December 31, 1986).
Exhibit 11 -- Computation of Earnings Per Common and Common-equivalent Share.
Exhibit 12 -- Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividend Requirements.
Exhibit 20 -- Definitive Proxy Statement of Williams for 1995 (to be filed by
amendment).
Exhibit 21 -- Subsidiaries of the registrant.
Exhibit 23 -- Consent of Independent Auditors.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule