1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission file number 000-20555
--------------------------------------------------------
WILLIAMS HOLDINGS OF DELAWARE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 73-145507
- --------------------------------------- ------------------------------------
(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
- --------------------------------------- ------------------------------------
(Address of principal executive office)
Registrant's telephone number: (918) 588-2000
------------------------------------
NO CHANGE
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the registrant's Common Stock outstanding at
August 12, 1996, was 1,000, all of which are owned by The Williams Companies,
Inc.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income -- Three Months
and Six Months Ended June 30, 1996 and 1995 2
Consolidated Balance Sheet -- June 30, 1996 and
December 31, 1995 3
Consolidated Statement of Cash Flows -- Six Months
Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Exhibit 12 -- Computation of Ratio to Earnings to
Fixed Charges
Portions of this document may constitute "forward-looking statements" as
defined by federal law. Although Williams Holdings of Delaware, Inc. believes
any such statements are based on reasonable assumptions, there is no assurance
that actual outcomes will not be materially different. Additional information
about issues that could lead to material changes in performance is contained in
the Williams Holdings of Delaware, Inc.'s annual report on Form 10-K.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(MILLIONS)
----------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1996 1995 1996 1995
------- ------ ------ -------
Revenues (Note 9):
Williams Field Services Group $130.1 $105.0 $289.7 $ 199.6
Williams Energy Services 23.5 11.7 50.2 46.9
Williams Pipe Line 136.3 69.1 262.8 133.5
WilTel 132.9 116.8 254.9 243.5
WilTech Group 28.6 10.7 47.2 18.6
Other 12.6 2.7 25.2 10.0
Intercompany eliminations (43.0) (13.7) (75.5) (46.5)
------ ------ ------ --------
Total revenues 421.0 302.3 854.5 605.6
------ ------ ------ --------
Profit-center costs and expenses (Note 9):
Costs and operating expenses 280.1 199.6 562.6 377.8
Selling, general and administrative expenses 69.9 53.7 134.8 105.0
Other income - net (3.7) (1.2) (.8) (2.5)
------ ------ ------ --------
Total profit-center costs and expenses 346.3 252.1 696.6 480.3
------ ------ ------ --------
Operating profit (loss):
Williams Field Services Group 33.3 30.0 77.4 60.4
Williams Energy Services 13.2 .3 29.6 25.3
Williams Pipe Line 25.8 15.7 44.1 30.5
WilTel 5.0 6.1 8.0 14.0
WilTech Group (3.9) (1.5) (4.1) (3.6)
Other 1.3 (.4) 2.9 (1.3)
------ ------ ------ --------
Total operating profit 74.7 50.2 157.9 125.3
Allocated parent company expenses (4.7) (3.5) (9.2) (7.8)
Interest accrued (Note 9) (7.6) (9.8) (14.2) (32.9)
Interest capitalized (.3) 3.5 1.2 4.1
Investing income (Note 9) 9.7 19.3 19.6 46.9
Gain on sale/exchange of investments -- net (Note 3) - 12.8 - 12.8
Other expense -- net (1.7) (1.9) (4.1) (8.0)
------ ------ ------ --------
Income from continuing operations before income taxes 70.1 70.6 151.2 140.4
Provision for income taxes (Note 4) 19.8 5.2 47.8 24.8
------ ------ ------ --------
Income from continuing operations 50.3 65.4 103.4 115.6
Income from discontinued operations (Note 5) - - - 1,005.7
------ ------ ------ --------
Net income $ 50.3 $ 65.4 $103.4 $1,121.3
====== ====== ====== ========
See accompanying notes.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
Millions
---------------------------------
June 30, December 31,
1996 1995
------------ ------------
ASSETS
------
Current assets:
Cash and cash equivalents $ 10.6 $ 29.5
Receivables:
Trade 530.3 424.1
Affiliates 47.8 77.5
Inventories 98.0 97.6
Deferred income taxes - affiliates 127.5 128.0
Other 107.0 84.7
-------- --------
Total current assets 921.2 841.4
Due from parent 185.1 246.8
Investments 647.0 599.1
Property, plant and equipment, at cost 3,004.4 2,838.2
Less accumulated depreciation and depletion (692.9) (613.0)
-------- --------
2,311.5 2,225.2
Other assets and deferred charges 256.6 253.9
-------- --------
Total assets $4,321.4 $4,166.4
======== ========
See accompanying notes.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET (concluded)
(Unaudited)
Millions
-------------------------------
June 30, December 31,
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Accounts payable:
Trade $ 321.7 $ 253.0
Affiliates 50.7 128.6
Accrued liabilities (Note 6) 415.4 619.9
Long-term debt due within one year (Note 8) 13.9 14.2
-------- --------
Total current liabilities 801.7 1,015.7
Long-term debt (Note 8) 546.7 273.9
Deferred income taxes:
Affiliates 316.4 290.2
Other 43.0 38.5
Other liabilities 325.8 396.5
Contingent liabilities and commitments (Note 10)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares
authorized and outstanding - -
Capital in excess of par value 1,649.0 1,634.1
Retained earnings 567.5 464.1
Net unrealized gain on non-current
marketable securities 71.3 53.4
-------- --------
Total stockholder's equity 2,287.8 2,151.6
-------- --------
Total liabilities and stockholder's equity $4,321.4 $4,166.4
======== ========
See accompanying notes.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions)
------------------
Six months ended
June 30,
------------------
1996 1995
------ ---------
OPERATING ACTIVITIES:
Net income $103.4 $ 1,121.3
Adjustments to reconcile to cash provided from
operations:
Discontinued operations - (1,005.7)
Depreciation and depletion 61.4 43.4
Provision for deferred income taxes 16.1 29.3
Gain on sale/exchange of investments - (12.8)
Changes in receivables (44.8) 36.0
Changes in inventories 2.9 1.6
Changes in other current assets (22.6) (2.1)
Changes in accounts payable 61.2 (40.9)
Changes in accrued liabilities (44.4) (23.0)
Changes in receivables/payables with affiliates (48.4) (90.7)
Net change in non-current unrealized trading
assets and liabilities (27.7) (26.1)
Other, including changes in non-current assets
and liabilities (2.6) (12.7)
------ ---------
Net cash provided by operating activities 54.5 17.6
------ ---------
FINANCING ACTIVITIES:
Payments of notes payable - (398.2)
Proceeds from long-term debt 328.7 15.5
Payments of long-term debt (56.5) (388.0)
Dividends paid to parent - (1,010.7)
Capital contribution from parent - 791.9
Changes in parent company advances - (474.5)
Subsidiary preferred stock redemptions - (144.0)
Other--net (1.3) 7.7
------ ---------
Net cash provided (used) by financing activities 270.9 (1,600.3)
------ ---------
See accompanying notes.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (concluded)
(Unaudited)
(Millions)
------------------
Six months ended
June 30,
------------------
1996 1995
------- --------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures $(132.1) $ (175.4)
Proceeds from sales 5.4 14.5
Acquisition of businesses, net of cash acquired (35.3) (154.1)
Proceeds from sales of businesses - 2,570.4
Income tax and other payments related to
discontinued operations (226.9) (214.6)
Purchase of investments (25.8) -
Proceeds from sale of investment - 123.7
Changes in advances to parent company 61.7 (573.6)
Other--net 8.7 (.7)
------- --------
Net cash provided (used) by investing activities (344.3) 1,590.2
------- --------
Increase (decrease) in cash and cash equivalents (18.9) 7.5
Cash and cash equivalents at beginning of period 29.5 17.9
------- --------
Cash and cash equivalents at end of period $ 10.6 $ 25.4
======= ========
See accompanying notes.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
Williams Holdings of Delaware, Inc. (Williams Holdings) is a wholly-owned
subsidiary of The Williams Companies, Inc. (Williams). The accompanying interim
consolidated financial statements of Williams Holdings do not include all notes
in annual financial statements and therefore should be read in conjunction with
the annual financial statements and notes thereto for Williams Holdings' 1995
Annual Report on Form 10-K. The accompanying unaudited financial statements
have not been audited by independent auditors but include all adjustments both
normal recurring and others which, in the opinion of Williams Holdings'
management, are necessary to present fairly its financial position at June 30,
1996, results of operations for the three months and six months ended June 30,
1996 and 1995, and cash flows for the six months ended June 30, 1996 and 1995.
Note 2. Basis of presentation
Revenues and operating profit amounts for the three months and six months ended
June 30, 1995, include the operating results of the Transco Energy entities
contributed to Williams Holdings since the January 18, 1995, acquisition by
Williams.
Note 3. Gain on sale/exchange of investments
In the second quarter of 1995, Williams Holdings sold its 15 percent interest
in Texasgulf Inc. for approximately $124 million in cash, which resulted in a
second quarter after-tax gain of approximately $16 million because of
previously unrecognized tax benefits included in the provision for income taxes.
In the second quarter of 1995, Williams Holdings exchanged 12.2 million shares
of Williams common stock with a market value at exchange date of $385 million
and a cost basis of $360 million for Williams convertible debentures and
warrants having a total fair value of $385 million at the time of the exchange.
The exchange resulted in the recognition of a pre-tax gain of $25.4 million.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Provision for income taxes
The provision (credit) for income taxes from continuing operations includes:
(Millions)
--------------------------------------
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
----- ----- ----- ------
Current:
Federal $10.6 $(9.1) $27.3 $(11.8)
State 1.9 1.2 4.4 7.3
----- ----- ----- ------
12.5 (7.9) 31.7 (4.5)
----- ----- ----- ------
Deferred:
Federal 6.0 15.1 12.3 31.8
State 1.3 (2.0) 3.8 (2.5)
----- ----- ----- ------
7.3 13.1 16.1 29.3
----- ----- ----- ------
Total provision $19.8 $ 5.2 $47.8 $ 24.8
===== ===== ===== ======
The effective income tax rate in 1996 is less than the federal statutory rate
due primarily to income tax credits from coal-seam gas production, partially
offset by the effects of state income taxes. In addition, both 1996 periods
include recognition of favorable adjustments of $3 million related to research
credits.
The effective income tax rate in 1995 is less than the federal statutory rate
due primarily to income tax credits from coal-seam gas production, partially
offset by the effects of state income taxes. In addition, both 1995 periods
include the previously unrecognized tax benefits related to the sale of
Texasgulf Inc. (see Note 3).
Cash payments to Williams and certain taxing authorities for continuing and
discontinued operations for income taxes for the six months ended June 30, 1996
and 1995 are $245 million and $200 million, respectively.
Note 5. Discontinued operations
On January 5, 1995, Williams Holdings sold its network services operations to
LDDS Communications, Inc. (LDDS) for $2.5 billion in cash. The sale yielded a
gain of $1 billion (net of income taxes of approximately $732 million) which is
reported as income from discontinued operations. Under the terms of the
agreement, Williams Holdings retained Williams Telecommunications Systems, Inc.
(WilTel), a national telecommunications equipment supplier and service company,
and Vyvx, Inc. (included in WilTech Group), which operates a national video
network specializing in broadcast television applications and satellite
transmission.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Accrued liabilities
(Millions)
---------------------------
June 30, December 31,
1996 1995
-------- ------------
State income taxes payable $ 82.1 $ 78.3
Federal income taxes payable-affiliate 16.5 236.7
Employee costs 48.0 47.4
Deferred revenue 32.3 34.4
Taxes other than income taxes 21.2 23.0
Transportation and exchange gas payable 19.4 28.7
Other 195.9 171.4
------ ------
$415.4 $619.9
====== ======
Note 7. Adoption of new accounting standard
Effective January 1, 1996, Williams Holdings adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." Adoption of the standard had no
effect on Williams Holdings' financial position or results of operations.
Note 8. Long-term debt
Long-term debt consists of the following amounts:
(Millions)
-------------------------
Weighted average June 30, December 31,
interest rate* 1996 1995
---------------- -------- ------------
Williams Holdings of Delaware, Inc.
Revolving credit loans 6.0 $175.5 $150.0
Debentures, 6.25%, due 2006 6.3 248.7 --
Williams Pipe Line
Notes, 8.95% and 9.78%,
payable through 2001 9.3 110.0 110.0
Williams Energy Ventures
Adjustable rate notes,
payable through 2002 8.1 20.6 21.0
Other, payable through 1999 7.9 5.8 7.1
------ ------
560.6 288.1
Current portion of long-term debt (13.9) (14.2)
------ ------
$546.7 $273.9
====== ======
*At June 30, 1996.
Williams Holdings and Williams Pipe Line participate in Williams' $800 million
credit agreement. Williams Holdings' and Williams Pipe Line's maximum borrowing
availability, subject to borrowings by other affiliated companies, is $600
million and $100 million, respectively. Interest rates vary with current market
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
conditions. The available amount under the facility at June 30, 1996, was
$325 million.
In April 1996, Williams Holdings entered into an interest-rate swap agreement
which effectively converted its 6.25 percent fixed-rate debentures to
floating-rate debt (4.46 percent at June 30, 1996).
Cash payments for interest (net of amounts capitalized) for the six months
ended June 30, 1996 and 1995 are $12 million and $50 million, respectively,
including payments to Williams and affiliates of $3 million and $25 million for
1996 and 1995, respectively.
Note 9. Related party transactions
Williams Holdings and its subsidiaries maintain promissory notes with Williams
for both advances from and advances to Williams depending on the cash position
of the subsidiary. Investing income includes $7.9 million and $15.1 million for
the three months ended June 30, 1996 and 1995, respectively, and $16.8 million
and $20.1 million for the six months ended June 30, 1996 and 1995,
respectively, from advances to affiliates, while interest accrued includes $.9
million for the three months and $3.4 million for the six months ended
June 30, 1995.
Williams Holdings' subsidiaries have transactions primarily with the following
affiliates: Williams Natural Gas, Northwest Pipeline, Transcontinental Gas Pipe
Line and Texas Gas. Revenues include transactions with affiliates of $125.9
million and $18.7 million for the three months ended June 30, 1996 and 1995,
respectively, and $269.7 million and $42.1 million for the six months ended
June 30, 1996 and 1995, respectively. Williams Holdings also incurred costs and
operating expenses, primarily transportation costs, of $43.5 million and $47.3
million for the three months ended June 30, 1996 and 1995, respectively, and
$107.3 million and $92.9 million for the six months ended June 30, 1996 and
1995, respectively, in transactions with affiliates. In connection with
Williams Energy Services' commodity price risk management activities, $43.2
million and $47.1 million of these costs for the three months ended June 30,
1996 and 1995, respectively, and $106.1 million and $92.3 million of these
costs for the six months ended June 30, 1996 and 1995, respectively, are
included in revenues consistent with a "net" basis of reporting these
activities. Transactions with affiliates are at prices that generally apply to
unaffiliated parties.
Note 10. Contingent liabilities and commitments
Rate and regulatory matters
Williams Pipe Line has various regulatory proceedings pending. As a result of
rulings in these proceedings, a portion of its revenues has been collected
subject to refund. Such revenues were $213 million at June 30, 1996. As a result
of various Federal Energy Regulatory Commission (FERC) rulings in these and
other proceedings, Williams Pipe Line does not expect that the amount of any
refunds ordered would be significant. Accordingly, no portion of these revenues
has been reserved for refund.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Environmental matters
Certain Williams Holdings' subsidiaries have been named as potentially
responsible parties (PRP) at various Superfund waste disposal sites. In
addition, these subsidiaries have incurred or are alleged to have incurred
various other hazardous materials removal or remediation obligations under
environmental laws. Although no assurance can be given, Williams Holdings does
not believe that these obligations or the PRP status of these subsidiaries will
have a material adverse effect on its financial position, results of operations
or net cash flows.
Other legal matters
In December 1991, the Southern Ute Indian Tribe (the Tribe) filed a lawsuit
against Williams Production Company (Williams Production), a wholly owned
subsidiary of Williams Holdings, and other gas producers in the San Juan Basin
area, alleging that certain coal strata were reserved by the United States for
the benefit of the Tribe and that the extraction of coal-seam gas from the coal
strata was wrongful. The Tribe seeks compensation for the value of the coal-seam
gas. The Tribe also seeks an order transferring to the Tribe ownership of all of
the defendants' equipment and facilities utilized in the extraction of the
coal-seam gas. In September 1994, the court granted summary judgment in favor of
the defendants and the Tribe has lodged an interlocutory appeal with the U.S.
Court of Appeals for the Tenth Circuit. Williams Production agreed to indemnify
the Williams Coal Seam Gas Royalty Trust (Trust) against any losses that may
arise in respect of certain properties subject to the lawsuit. In addition, if
the Tribe is successful in showing that Williams Production has no rights in the
coal-seam gas, Williams Production has agreed to pay to the Trust for
distribution to then current unitholders, an amount representing a return of a
portion of the original purchase price paid for the units. While Williams
Holdings believes that such a payment is not probable, it has reserved a portion
of the proceeds from the sale of the units in the Trust.
In October 1990, Dakota Gasification Company (Dakota), the owner of the Great
Plains Coal Gasification Plant (Plant), filed suit in the U.S. District Court in
North Dakota against Transcontinental Gas Pipe Line, a wholly-owned subsidiary
of Williams, and three other pipeline companies alleging that the pipeline
companies had not complied with their respective obligations under certain gas
purchase and gas transportation contracts. In September 1992, Dakota and the
Department of Justice on behalf of the Department of Energy filed an amended
complaint adding as defendants in the suit, Transco Energy Company, Transco Coal
Gas Company (Transco Energy Company and Transco Coal Gas Company being
wholly-owned subsidiaries of Williams Holdings) and all of the other partners in
the partnership that originally constructed the Plant and each of the parent
companies of these entities. Dakota and the Department of Justice sought
declaratory and injunctive relief and the recovery of damages, alleging that the
four pipeline defendants underpaid for gas, collectively, as of June 30, 1992,
by more than $232 million plus interest and for additional damages for
transportation services and costs and expenses including attorneys fees. In
March 1994, the parties executed definitive agreements which would settle the
litigation subject to final non-appealable regulatory approvals. The settlement
is also subject to a FERC ruling that Transcontinental Gas Pipe Line's existing
authority to recover in rates certain costs related to the purchase and
transportation of gas produced by Dakota will
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
pertain to gas purchase and transportation costs Transcontinental Gas Pipe Line
will pay Dakota under the terms of the settlement. In October 1994, the FERC
issued an order consolidating Transcontinental Gas Pipe Line's petition for
approval of the settlement with similar petitions pending relative to two of
the other three pipeline companies (the third pipeline having entered into a
settlement) and setting the matter for hearing before an administrative law
judge. In December 1995, the administrative law judge issued an initial
decision in which he rejected the settlement agreements, finding that they were
not prudent, and he ordered the pipeline companies to refund to their customers
amounts collected since May 1993, in excess of the amounts he determined were
appropriate. At the time of the ruling, Transcontinental Gas Pipe Line
estimated that its share of the refunds the administrative law judge would
require was approximately $75 million. The pipelines would be entitled to
collect the amount of any such customer refunds from Dakota. The administrative
law judge's decision is subject to review by the FERC. In February 1996,
certain parties filed with the FERC a motion requesting that the FERC establish
an additional proceeding to consider claims for additional refunds.
Transcontinental Gas Pipe Line's share of these claimed additional refunds is
$90 million and pertain to amounts paid to Dakota from November 1, 1988, to May
1, 1993. The pipelines have opposed this motion. By order dated July 17, 1996,
the FERC set this case for oral argument to take place before the FERC on
September 25, 1996.
In connection with agreements to resolve take-or-pay and other contract claims
and to amend gas purchase contracts, Transcontinental Gas Pipe Line and Texas
Gas each entered into certain settlements with producers which may require the
indemnification of certain claims for additional royalties which the producers
may be required to pay as a result of such settlements. As a result of such
settlements, Transcontinental Gas Pipe Line and Texas Gas were named as
defendants in, respectively, six and two lawsuits. Transco Energy Company and
Transco Gas Supply Company (wholly-owned subsidiaries of Williams Holdings) have
also been named as defendants in certain of these lawsuits. Five of the eight
lawsuits have been settled for cash payments aggregating approximately $8.5
million, all of which has been previously accrued, and of which approximately $3
million is recoverable as transition costs under Order 636. Damages in excess of
$31 million have been asserted in the remaining cases. In addition, in July
1995, a judge in a Texas state court granted a motion by Transcontinental Gas
Pipe Line for partial summary judgment, rejecting a major portion of the
plaintiff's claims in one of the remaining lawsuits. Producers have received and
may receive other demands which could result in additional claims.
Indemnification for royalties will depend on, among other things, the specific
lease provisions between the producer and the lessor and the terms of the
settlement between the producer and either Transcontinental Gas Pipe Line or
Texas Gas. Texas Gas may file to recover 75 percent of any such additional
amounts it may be required to pay pursuant to indemnities for royalties under
the provisions of FERC Order 528.
In November 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazleton, Pennsylvania (the
Facility). Hazleton Fuel Management Company (HFMC), a subsidiary of Transco
Energy, formerly supplied natural gas and fuel oil to the Facility. As of June
30, 1996, HFMC had current outstanding receivables from the Partnership of
approximately $20 million, all of which has been reserved. The construction of
the Facility was funded by several banks that have a security interest in all
of the Partnership's assets.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
HFMC has asserted to the Bankruptcy Court that payment of its receivables is
superior to the lien of the banks and intends to vigorously pursue the
collection of such amounts. HFMC has also filed suit against the lead bank with
respect to this and other matters, including the alleged tortious interference
with HFMC's contractual relations with the Partnership and other parties. In
March 1995, the Bankruptcy Court approved the rejection of the gas supply
contract between the Partnership and HFMC. HFMC has in turn asserted force
majeure under a contract with a producer under which HFMC purchased natural gas
for the Facility. The Partnership recently negotiated favorable buyouts of its
power purchase agreements with two electric utilities. The buyouts are subject
to Bankruptcy Court and Pennsylvania Public Utility Commission approvals.
In addition to the foregoing, various other proceedings are pending against
Williams Holdings or its subsidiaries which are incidental to their operations.
Summary
While no assurances may be given, Williams Holdings does not believe that the
ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage or other indemnification
arrangements, will have a materially adverse effect upon Williams Holdings'
future financial position, results of operations or cash flow requirements.
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15
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Second Quarter 1996 vs. Second Quarter 1995
WILLIAMS FIELD SERVICES GROUP'S revenues increased $25.1 million, or 24
percent, due primarily to higher gathering and natural gas liquids sales
revenues of $10 million and $14 million, respectively. Gathering and natural
gas liquids volumes increased 28 percent and 59 percent, respectively. Costs
and expenses increased $22 million, or 30 percent, due primarily to expanded
facilities. Operating profit increased $3.3 million, or 11 percent, due
primarily to higher gathering revenues and increased gas liquids margins,
largely offset by higher costs and expenses associated with expanded
facilities.
WILLIAMS ENERGY SERVICES' revenues increased $11.8 million, or 100 percent, due
primarily to higher price-risk management and new contract origination revenues
of $9 million and $5 million, respectively, slightly offset by lower natural
gas physical trading revenues. The natural gas physical trading volumes
increase of 41 percent from growth in west and mid-continent trading activity
was more than offset by lower margins of $5 million. Operating profit
increased $12.9 million from $300,000 in 1995 due primarily to the increase in
revenues.
WILLIAMS PIPE LINE'S revenues (including Williams Energy Ventures) increased
$67.2 million, or 97 percent, due primarily to an increase in
non-transportation revenues combined with a 14 percent increase in shipments.
Shipments increased due primarily to new business and the impact during 1995 of
unfavorable weather conditions and a November 1994 fire at a truck-loading
rack. The increase in non-transportation revenue is due primarily to Williams
Energy Venture's ethanol sales following the 1995 acquisition of Pekin Energy
and construction of the Nebraska Energy plant combined with higher product
marketing and services revenues. Costs and expenses increased $57 million, or
120 percent, due primarily to ethanol production activities. Operating profit
(including Williams Energy Ventures) increased $10.1 million, or 64 percent,
due primarily to increased transportation revenues and favorable insurance
settlements of $2 million. Williams Energy Ventures' operating profit improved
$2.3 million to a $1.6 million operating profit in 1996 due primarily to higher
ethanol sales margins.
WILTEL'S revenues increased $16.1 million, or 14 percent, due primarily to
increased business activity resulting in an $8 million revenue increase in new
systems and new system enhancements combined with increased revenues of $6
million resulting from the January 1996 acquisition of ComLink, Inc. The
number of ports in service at June 30, 1996, increased 12 percent compared to
June 30, 1995. Costs and operating expenses increased $12 million, or 14
percent, due primarily to increased business activity and the ComLink
acquisition. Selling,
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general and administrative expenses increased $5 million, or 23 percent, due
primarily to the impact of the ComLink acquisition and costs related to
management information systems, system integration and Internet capabilities
combined with increased business activity. Operating profit decreased $1.1
million, or 18 percent, due primarily to higher selling, general and
administrative expenses largely offset by increased business activity.
WILTECH'S revenues increased $17.9 million, or 167 percent, due primarily to
$13 million from the acquisitions of Global Access Telecommunications Services,
a reseller of worldwide satellite video transmission services, NUS Training and
the teleports of ICG Wireless Services, in addition to greater demand for
Vyvx's core digital television services. A $20 million increase in costs and
expenses reflects the overall increase in sales activity and higher expense for
developing additional products and services, including the cost of integrating
its most recent acquisitions. The operating loss increased $2.4 million, or
152 percent, due primarily to the expense of developing additional products and
services along with integrating the most recent acquisitions.
INTEREST ACCRUED increased $2.2 million, or 22 percent, due primarily to
Williams' May 1, 1995, assumption of approximately $770 million of Transco
Energy's outstanding debt previously assumed by Williams Holdings as a result
of the Transco Energy acquisition, largely offset by higher Williams Holdings'
borrowing levels. Interest capitalized decreased $3.8 million, or 111 percent,
due primarily to lower capital expenditures for gathering and processing
facilities, in addition to adjustments of amounts previously capitalized.
Investing income decreased $9.6 million, or 50 percent, due primarily to lower
interest earned on advances to Williams and lower equity earnings. The 1995
gain on sale/exchange of investments--net includes a $12.6 million pretax loss
on the sale of the 15 percent interest in Texasgulf Inc. and a $25.4 million
pretax gain recognized as a result of the exchange of Williams common stock for
Williams convertible debentures and warrants to purchase Williams common stock.
The effective income tax rate in 1996 is less than the federal statutory rate
due primarily to income tax credits from coal-seam gas production, partially
offset by the effects of state income taxes. In addition, 1996 includes
recognition of favorable adjustments of $3 million related to research credits.
The effective income tax rate in 1995 is significantly less than the statutory
rate due primarily to income tax credits from coal-seam gas production,
partially offset by the effects of state income taxes. In addition, 1995
includes the previously unrecognized tax benefits related to the sale of
Texasgulf Inc. (see Note 3).
Six Months Ended June 30, 1996 vs. Six months Ended June 30, 1995
WILLIAMS FIELD SERVICES GROUP'S revenues increased $90.1 million, or 45
percent, due primarily to higher gathering, processing and natural gas liquids
sales revenues of $24 million, $8 million and $24 million, respectively,
combined with
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a 209 percent increase in natural gas sales volumes. Gathering, processing and
natural gas liquids volumes increased 27 percent, 30 percent and 36 percent,
respectively. Costs and expenses increased $70 million, or 50 percent, due
primarily to higher natural gas purchase volumes and expanded facilities.
Other (income) expense--net includes a $3 million environmental remediation
accrual. Operating profit increased $17 million, or 28 percent, due primarily
to higher gathering and processing revenues and increased natural gas and gas
liquids margins, partially offset by higher costs and operating expenses
associated with expanded facilities and the first quarter 1996 environmental
remediation accrual.
WILLIAMS ENERGY SERVICES' revenues increased $3.3 million, or 7 percent, due
primarily to higher price-risk management and physical trading revenues of $15
million and $2 million, respectively, largely offset by lower new contract
origination revenues of $14 million. Natural gas physical trading volumes
increased 33 percent, due primarily to a full first quarter of Transco Energy's
gas trading activities and increased trading activity in the west and
mid-continent regions. This volume increase was partially offset by lower
physical trading margins. Operating profit increased $4.3 million, or 17
percent, due primarily to the increase in revenues combined with the absence of
costs of supporting information products activities, partially offset by higher
new business development expenses.
WILLIAMS PIPE LINE'S revenues (including Williams Energy Ventures) increased
$129.3 million, or 97 percent, due primarily to an increase in
non-transportation revenues combined with a 14 percent increase in shipments.
Shipments increased due primarily to new business and the impact during 1995 of
unfavorable weather conditions and a November 1994 fire at a truck-loading
rack. Average length of haul and transportation rate per barrel decreased 4
percent and 2 percent, respectively, due primarily to shorter haul movements.
The increase in non-transportation revenue is due primarily to Williams Energy
Ventures' ethanol sales following the 1995 acquisition of Pekin Energy and
construction of the Nebraska Energy plant combined with higher product
marketing and services revenues. Costs and operating expenses increased $113
million, or 124 percent, due primarily to ethanol production activities.
Operating profit (including Williams Energy Ventures) increased $13.6 million,
or 44 percent, due primarily to increased transportation revenues. Williams
Energy Ventures' results improved $1.4 million to a $500,000 operating loss in
1996 due primarily to higher refined-product sales margins and lower business
development costs.
WILTEL'S revenues increased $11.4 million, or 5 percent, due primarily to the
January 1996 acquisition of ComLink, Inc. Nonacquisition related revenues
remained unchanged as increased business activity during the second quarter of
1996 was offset by the effects of inclement weather in the northeastern and
central parts of the country in the first quarter of 1996. The number of ports
in service at June 30, 1996, increased 12 percent compared to June 30, 1995.
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Costs and operating expenses increased $8 million, or 4 percent, due primarily
to the acquisition of ComLink. Selling, general and administrative expenses
increased $10 million, or 22 percent, due primarily to the impact of the
ComLink acquisition and costs related to management information systems, system
integration and Internet capabilities. Operating profit decreased $6 million,
or 43 percent, due primarily to costs related to management information
systems, system integration and Internet capabilities.
WILTECH'S revenues increased $28.6 million, or 154 percent, due primarily to a
$17 million increase from the acquisitions of Global Access Telecommunications
Services, a reseller of worldwide satellite video transmission services, NUS
Training and the teleports of ICG Wireless Services. In addition, revenues
increased $7 million due to greater demand for Vyvx's core digital television
services. Billable minutes from occasional service increased 2 percent and
dedicated service voice grade equivalent miles increased 17 percent. A $29
million increase in costs and expenses reflects the overall increase in sales
activity and higher expense for developing additional products and services,
including the cost of integrating its most recent acquisitions. The operating
loss increased $.5 million, or 13 percent, due primarily to the expense of
developing additional products and services along with integrating the most
recent acquisitions.
INTEREST ACCRUED decreased $18.7 million, or 57 percent, due primarily to
Williams' May 1, 1995, assumption of approximately $770 million of Transco
Energy's outstanding debt previously assumed by Williams Holdings as a result
of the Transco Energy acquisition, partially offset by higher Williams
Holdings' borrowing levels. Interest capitalized decreased $2.9 million, or 72
percent, due primarily to lower capital expenditures for gathering and
processing facilities, in addition to adjustments of amounts previously
capitalized. Investing income decreased $27.3 million, or 58 percent, due
primarily to the absence of a 1995 $15 million dividend from Texasgulf Inc. and
$4 million of dividends in 1995 on Williams common stock held by Williams
Holdings combined with lower equity earnings and interest earned on advances to
Williams in 1996. The 1995 gain on sale/exchange of investments-net includes a
$12.6 million pretax loss on the sale of the 15 percent interest in Texasgulf
Inc. and a $25.4 million pretax gain recognized as a result of the exchange of
Williams common stock for Williams convertible debentures and warrants to
purchase Williams common stock. Other expense--net decreased $3.9 million, or
51 percent, due primarily to the effect of approximately $5 million of
dividends for Transco Energy preferred stock and minority interest common
stockholders in 1995. The effective income tax rate in 1996 is less than the
federal statutory rate due primarily to income tax credits from coal-seam gas
production, partially offset by the effects of state income taxes. In
addition, 1996 includes recognition of favorable adjustments of $3 million
related to research credits. The effective income tax rate in 1995 is less
than the federal statutory rate due primarily to income tax
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credits from coal-seam gas production, partially offset by the effects of state
income taxes. In addition, 1995 includes the previously unrecognized tax
benefits related to the sale of Texasgulf Inc. (see Note 3).
On January 5, 1995, Williams Holdings sold its network services operations to
LDDS Communications, Inc. for $2.5 billion in cash. The sale yielded an
after-tax gain of approximately $1 billion, which is reported as income from
discontinued operations (see Note 5).
Financial Condition and Liquidity
Liquidity
Williams Holdings considers its liquidity to come from borrowing capacity
available under bank-credit facilities and notes receivable from its parent,
Williams. During 1995, Williams Holdings became a participant in an $800
million bank-credit facility entered into by Williams. Under this agreement,
Williams Holdings and Williams Pipe Line have access to $600 million and $100
million, respectively, subject to borrowing by other affiliated companies. At
June 30, 1996, Williams Holdings had access to $325 million of liquidity from
the available portion of the bank-credit facility, compared to $550 million at
December 31, 1995, and $700 million at June 30, 1995. The decrease in 1996 is
due primarily to an increase in borrowing levels under the bank-credit facility
by affiliated companies. Prior to this facility, Williams Holdings' liquidity
came primarily from Williams, and cash requirements to finance working capital,
investments and capital expenditures were obtained from Williams through
capital contributions or intercompany note agreements.
Williams Holdings and its subsidiaries had net amounts receivable from Williams
totaling $535 million at June 30, 1996, including $360 million of parent
company debentures, compared to $511 million at December 31, 1995, and $866
million at June 30, 1995.
Williams Holdings believes its parent can meet its cash needs because Williams
has access to $334 million of liquidity at June 30, 1996, representing the
available portion of its $800 million bank-credit facility previously discussed
plus cash-equivalent investments. This compares with Williams liquidity of
$656 million at December 31, 1995, and $1.1 billion at June 30, 1995. The
decrease in 1996 is due to additional borrowings under the bank-credit
facility. Williams' liquidity at June 30, 1995, included a portion of the cash
proceeds from the sale of the network services operations.
In 1996, capital expenditures are estimated to be approximately $600 million.
During 1996, Williams Holdings expects to finance capital expenditures,
investments and working-capital requirements through cash generated from
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operations, the use of its bank-credit facility, advances from its parent
and/or debt offerings.
Financing Activities
In January 1996, Williams Holdings filed a $400 million shelf registration
statement with the Securities and Exchange Commission and subsequently issued
$250 million of debt securities. During 1996, the issuance of additional debt
securities under this registration statement is expected. Williams Holdings
does not anticipate the need for additional financing arrangements; however,
Williams Holdings believes such arrangements could be obtained on reasonable
terms if required.
The consolidated long-term debt to long-term debt-plus-equity ratio increased
to 19.3 percent at June 30, 1996, from 11.3 percent at December 31, 1995. The
increase is due primarily to the issuance of $250 million of debentures in
1996.
In April 1996, Williams Holdings entered into an interest-rate swap agreement
which effectively converted its 6.25 percent fixed-rate debentures to
floating-rate debt (4.46 percent at June 30, 1996).
Williams Holdings paid dividends to Williams of $1 billion in the first six
months of 1995. No dividend payments have been made in 1996. The 1995
dividends were paid primarily from the proceeds from the sale of the network
services operations.
The increase in receivables and accounts payable from December 31, 1995, is due
primarily to increased trading activities by Williams Energy Services. The
decrease in accrued liabilities reflects the payment to Williams of income
taxes related to discontinued operations.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this report:
Exhibit 12--Computation of Ratio of Earnings to Fixed Charges
(b) During the second quarter of 1996, Williams Holdings did not file a
Form 8-K.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS HOLDINGS OF DELAWARE, INC.
------------------------------------
(Registrant)
Gary R. Belitz
------------------------------------
Gary R. Belitz
Controller
(Duly Authorized Officer and
Chief Accounting Officer)
August 14, 1996
23
Exhibit Index
Exhibit 12--Computation of Ratio of Earnings to Fixed Charges
Exhibit 27--Financial Data Schedule