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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 March 31, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-20555
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WILLIAMS HOLDINGS OF DELAWARE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 73-1455707
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(State of Incorporation) (IRS Employer Identification Number)
ONE WILLIAMS CENTER
TULSA, OKLAHOMA 74172
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(Address of principal executive office) (Zip Code)
Registrant's telephone number: (918) 588-2000
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NO CHANGE
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares of the registrant's Common Stock outstanding at May
12, 1997, was 1,000, all of which are owned by The Williams Companies, Inc.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
and (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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WILLIAMS HOLDINGS OF DELAWARE, INC.
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Consolidated Statement of Income--Three Months Ended
March 31, 1997 and 1996 2
Consolidated Balance Sheet--March 31, 1997 and December 31, 1996 3
Consolidated Statement of Cash Flows--Three Months Ended
March 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Narrative Analysis of the Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Exhibit 12--Computation of Ratio of Earnings to Fixed Charges
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Williams Holdings of Delaware
believes such forward-looking statements are based on reasonable assumptions,
no assurance can be given that every objective will be achieved. Such
statements are made in reliance on the "safe harbor" protections provided under
the Private Securities Reform Act of 1995. 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
March 31,
--------------------
1997 1996
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Revenues (Note 6):
Williams Energy Group:
Field Services $ 156.5 $ 119.6
Merchant Services 39.8 69.5
Petroleum Services 128.0 118.4
Exploration & Production 37.8 19.9
Williams Communications Group 216.6 140.6
Other 9.9 12.6
Intercompany eliminations (59.4) (47.1)
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Total revenues 529.2 433.5
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Profit-center costs and expenses (Note 6):
Costs and operating expenses 353.7 282.5
Selling, general and administrative expenses 93.2 64.9
Other (income) expense--net (.4) 2.9
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Total profit-center costs and expenses 446.5 350.3
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Operating profit:
Williams Energy Group:
Field Services 43.5 38.6
Merchant Services 16.5 21.8
Petroleum Services 14.4 17.8
Exploration & Production 10.6 .6
Williams Communications Group (2.0) 2.8
Other (.3) 1.6
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Total operating profit 82.7 83.2
Allocated parent company expenses (4.9) (4.5)
Interest accrued (Note 6) (14.1) (6.6)
Interest capitalized 1.2 1.5
Investing income (Note 6) 11.8 9.9
Other expense--net (2.5) (2.4)
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Income before income taxes 74.2 81.1
Provision for income taxes (Note 3) 21.9 28.0
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Net income $ 52.3 $ 53.1
======== ========
See accompanying notes.
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Williams Holdings of Delaware, Inc.
Consolidated Balance Sheet
(Unaudited)
(Millions)
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March 31, December 31,
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1997 1996
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ASSETS
Current assets:
Cash and cash equivalents $ 60.0 $ 44.4
Receivables:
Trade (Note 4) 526.8 852.9
Affiliates 35.4 71.9
Inventories 100.8 101.0
Commodity trading assets 118.8 147.2
Deferred income taxes - affiliates 70.3 66.7
Other 44.6 69.4
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Total current assets 956.7 1,353.5
Due from parent 254.0 151.4
Investments 894.7 743.3
Property, plant and equipment, at cost 3,323.4 3,251.0
Less accumulated depreciation and depletion (751.3) (710.6)
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2,572.1 2,540.4
Non-current commodity trading assets 84.4 93.0
Other assets and deferred charges 335.4 282.3
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Total assets $5,097.3 $5,163.9
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable:
Trade $ 384.4 $ 550.6
Affiliates 76.0 53.4
Accrued liabilities 323.6 331.7
Commodity trading liabilities 98.7 137.9
Long-term debt due within one year (Note 5) 15.3 19.7
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Total current liabilities 898.0 1,093.3
Long-term debt (Note 5) 839.8 860.4
Deferred income taxes - affiliates 438.9 395.9
Non-current commodity trading liabilities 193.0 201.2
Other liabilities 132.7 130.3
Contingent liabilities and commitments (Note 7)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized and outstanding -- --
Capital in excess of par value 1,720.2 1,705.0
Retained earnings 718.6 673.2
Net unrealized gain on non-current marketable securities 156.1 104.6
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Total stockholder's equity 2,594.9 2,482.8
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Total liabilities and stockholder's equity $5,097.3 $5,163.9
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See accompanying notes.
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Williams Holdings of Delaware, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
(Millions)
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Three months ended March 31,
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1997 1996
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OPERATING ACTIVITIES:
Net income $ 52.3 $ 53.1
Adjustments to reconcile to cash provided from operations:
Depreciation and depletion 40.9 29.9
Provision for deferred income taxes 6.5 8.8
Changes in receivables sold 200.0 --
Changes in receivables 119.5 (83.6)
Changes in inventories .4 (2.6)
Changes in other current assets 20.7 11.2
Changes in accounts payable (168.6) 101.6
Changes in accrued liabilities (28.1) (50.3)
Changes in receivables/payables with affiliates 59.8 153.9
Changes in current commodity trading assets and liabilities (10.8) (18.1)
Changes in non-current commodity trading assets and liabilities .5 2.2
Other, including changes in non-current assets and liabilities 9.7 3.7
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Net cash provided by operating activities 302.8 209.8
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FINANCING ACTIVITIES:
Proceeds from long-term debt 78.0 328.7
Payments of long-term debt (103.1) (81.0)
Dividends paid to parent (6.9) --
Other--net -- (1.2)
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Net cash provided (used) by financing activities (32.0) 246.5
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INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures (90.8) (60.7)
Proceeds from dispositions 6.4 --
Acquisition of businesses, net of cash acquired (6.9) (13.4)
Income tax and other payments related to discontinued operations (1.3) (220.9)
Purchase of investments (78.2) (3.7)
Changes in advances to parent company (102.7) (176.4)
Other--net 18.3 .6
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Net cash used by investing activities (255.2) (474.5)
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Increase (decrease) in cash and cash equivalents 15.6 (18.2)
Cash and cash equivalents at beginning of period 44.4 29.5
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Cash and cash equivalents at end of period $ 60.0 $ 11.3
========== ==========
See accompanying notes.
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Williams Holdings of Delaware, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
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' 1996 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 March 31, 1997, and results of operations and cash flows for the
three months ended March 31, 1997 and 1996.
2. Basis of presentation
Williams Energy Group is comprised of four units. Field Services includes
Williams Holdings' natural gas gathering and processing activities previously
reported in Williams Field Services Group. Merchant Services includes Williams
Holdings' energy commodity trading and price-risk management activities
previously reported in Williams Energy Services. Certain natural gas and
natural gas liquids marketing operations formerly reported in Williams Field
Services Group are also included in Merchant Services. Petroleum Services
includes Williams Holdings' interstate petroleum products pipeline,
ethanol-producing facilities and petroleum terminals previously reported in
Williams Pipe Line. Exploration & Production includes exploration for and
production of hydrocarbons previously reported as a component of Williams Field
Services Group. Williams Communications Group is a combination of WilTel and
WilTech Group, previously reported separately. Certain revenues, operating
profit, and cash flow amounts for the three months ended March 31, 1996, have
been reclassified to conform to current-year classifications for these
reorganizations and certain other matters.
3. Provision for income taxes
The provision for income taxes includes:
Three months
ended
(Millions) March 31,
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1997 1996
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Current:
Federal $12.6 $16.7
State 2.8 2.5
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15.4 19.2
Deferred:
Federal 4.7 6.3
State 1.8 2.5
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6.5 8.8
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Total provision $21.9 $28.0
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The effective income tax rate in 1997 and 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.
Cash payments, net of refunds, to Williams and certain taxing authorities for
income taxes for the three months ended March 31, 1997 and 1996, are $1
million and $215 million, respectively.
4. Sale of receivables
In January 1997, Williams Holdings sold certain receivables under a new
revolving receivables facility with a limit of $200 million. The Financial
Accounting Standards Board has issued FAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," effective for
transactions occurring after December 31, 1996. The adoption of this standard
has not had a material impact on Williams Holdings' consolidated results of
operations, financial position or cash flows.
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Notes (continued)
5. Long-term debt
Long-term debt consists of the following amounts:
Weighted
average
interest March 31, December 31,
(Millions) rate* 1997 1996
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Williams Holdings of
Delaware, Inc.
Revolving credit
loans 5.9% $475.0 $500.0
Debentures, 6.25%,
payable 2006 4.6 248.8 248.8
Williams Pipe Line
Notes, 8.95% and
9.78%, payable
through 2001 9.4 100.0 100.0
Williams Energy Ventures
Adjustable rate
notes, payable
through 2002 8.1 25.6 25.6
Other, payable through 1999 8.0 5.7 5.7
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855.1 880.1
Current portion of long-
term debt (15.3) (19.7)
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$839.8 $860.4
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*At March 31, 1997, including the effects of interest-rate swap.
Williams Holdings and Williams Pipe Line participate in Williams' $1 billion
credit agreement. Williams Holdings' and Williams Pipe Line's maximum
borrowing availability, subject to borrowings by other affiliated companies, is
$600 million and $100 million, respectively. Interest rates vary with current
market conditions. The available amount under the credit agreement at March
31, 1997, was $225 million.
Cash payments for interest (net of amounts capitalized) for the three months
ended March 31, 1997 and 1996, are $16 million and $6 million, respectively,
including payments to Williams and affiliates of $2 million in both 1997 and
1996.
6. 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 each subsidiary. Investing income includes $7.7 million and $8.9
million for the three months ended March 31, 1997 and 1996, respectively, and
from advances to affiliates.
William Holdings' subsidiaries have transactions primarily with the
following affiliates: Northwest Pipeline, Williams Natural Gas,
Transcontinental Gas Pipe Line and Texas Gas Transmission. Merchant Services'
revenues include natural gas sales to affiliates of $105.5 million and $143.8
million for the three months ended March 31, 1997 and 1996, respectively.
Merchant Services also incurred costs and operating expenses, including
transportation and certain other costs, from affiliates of $29.4 million and
$62.9 million for the three months ended March 31, 1997 and 1996,
respectively. These sales and costs are included in Merchant Services' revenues
consistent with a "net" basis of reporting these activities. Transactions with
affiliates are at prices that generally apply to unaffiliated parties.
7. 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 $267 million at March 31, 1997. As a
result of various Federal Energy Regulatory Commission (FERC) rulings in these
and other proceedings, Williams Pipe Line does not expect that the amount of
any refunds ordered would be significant. Accordingly, no portion of these
revenues has been reserved for refund.
Environmental matters
Certain Williams Holdings' subsidiaries have been identified as potentially
responsible parties (PRP) at various Superfund and state waste disposal sites.
In addition, these subsidiaries have incurred or are alleged to have incurred
various other hazardous materials removal or remediation obligations under
environmental laws. Although no assurances can be given, Williams 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.
The Field Services unit of Williams Energy Group has recorded an aggregate
liability of approximately $15 million, representing the current estimate of
their future environmental and remediation costs, including approximately $5
million relating to former Williams Natural Gas facilities.
Other legal matters
In 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
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Tribe 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 connection with agreements to resolve take-or-pay and other contract
claims and to amend gas purchase contracts, Transcontinental Gas Pipe Line and
Texas Gas each entered into certain settlements with producers, which may
require the indemnification of certain claims for additional royalties which
the producers may be required to pay as a result of such settlements. As a
result of such settlements, Transcontinental Gas Pipe Line and Texas Gas were
named as defendants in, respectively, six and two lawsuits. Transco Energy
Company and Transco Gas Supply Company (wholly-owned subsidiaries of Williams
Holdings) have also been named as defendants in certain of these lawsuits. Six
of the eight lawsuits have been settled for cash payments aggregating
approximately $9 million, all of which have previously been accrued, and of
which approximately $3 million is recoverable as transition costs under FERC
Order 636. Damages, including interest calculated through December 31, 1996,
of approximately $29 million have been asserted in the remaining cases.
Producers have received and may receive other demands, which could result in
additional claims. Indemnification for royalties will depend on, among other
things, the specific lease provisions between the producer and the lessor and
the terms of the settlement between the producer and either Transcontinental
Gas Pipe Line or Texas Gas. Texas Gas may file to recover 75 percent of any
such additional amounts it may be required to pay pursuant to indemnities for
royalties under the provisions of FERC Order 528.
In November 1994, Continental Energy Associates Limited Partnership (the
Partnership) filed a voluntary petition under Chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court, Middle District of Pennsylvania. The
Partnership owns a cogeneration facility in Hazelton, Pennsylvania (the
Facility). Hazelton Fuel Management Company (HFMC), a subsidiary of Transco
Energy Company, formerly supplied natural gas and fuel oil to the Facility. As
of March 31, 1997, HFMC had current outstanding receivables from the
Partnership of approximately $20 million, all of which have been reserved. A
Plan of Reorganization (the Plan) acceptable to most creditors and the debtor
has been filed with the court. Under the Plan, all litigation involving HFMC
will be fully settled, and a net payment in some amount to HFMC is possible.
It is not possible to predict with certainty whether the plan as filed will be
approved or the amount of any such payment to HFMC.
In addition to the foregoing, various other proceedings are pending against
Williams Holdings or its subsidiaries incidental to their operations.
Summary
While no assurances may be given, Williams Holdings does not believe that
the ultimate resolution of the foregoing matters, taken as a whole and after
consideration of amounts accrued, insurance coverage or other indemnification
arrangements, will have a materially adverse effect upon Williams Holdings'
future financial position, results of operations or cash flow requirements.
8. Subsequent event
On April 10, 1997, Williams Communications Group, a wholly-owned subsidiary
of Williams Holdings, and Northern Telecom (Nortel) agreed to combine their
customer premise equipment sales and services operations under a new company to
be called WilTel Communications, LLC. The transaction closed in the second
quarter of 1997 and will be accounted for as a purchase by Williams. Williams
Communications Group owns 70 percent of the new company, with Nortel owning the
remaining interest. The new company will have net assets of approximately $800
million.
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Notes (continued)
ITEM 2.
Management's Narrative Analysis of
the Results of Operations
First Quarter 1997 vs. First Quarter 1996
FIELD SERVICES' revenues increased $36.9 million, or 31 percent, due
primarily to higher natural gas liquids sales, gathering and cogeneration
revenues of $21 million, $7 million and $4 million, respectively. Natural gas
liquids sales revenues increased due to higher average natural gas liquids
prices combined with a 26 percent increase in natural gas liquids volumes.
Gathering volumes increased 14 percent due primarily to the transfer of
Williams Natural Gas gathering assets to Field Services during the last half of
1996. Costs and operating expenses increased $35 million, or 53 percent, due
primarily to higher fuel and replacement gas purchases, the cost of
cogeneration operations which began during the second quarter of 1996, and
expenses associated with the gathering assets transferred from Williams Natural
Gas. Other (income) expense - net in 1996 includes a $3 million environmental
remediation accrual. Operating profit increased $4.9 million, or 13 percent,
due primarily to higher natural gas liquids volumes and margins and the effect
of the 1996 environmental remediation accrual, partially offset by higher fuel
and replacement gas purchases.
MERCHANT SERVICES' revenues decreased $29.7 million, or 43 percent, and
costs and operating expenses decreased $27 million, or 73 percent, due primarily
to the reporting on a net margin basis of certain natural gas and gas liquids
marketing operations previously reported in Field Services (see Note 2). Higher
price-risk management revenues and higher volumes and margins from liquid
petroleum trading activities were more than offset by lower margins on natural
gas trading activities and lower natural gas physical trading volumes.
Operating profit decreased $5.3 million, or 24 percent, due primarily to the
decrease in net revenues and the expense of adding support and infrastructure to
compete for a broader share of the emerging energy markets.
PETROLEUM SERVICES' revenues increased $9.6 million, or 8 percent, due
primarily to an $11 million increase in product sales associated with
transportation activities, partially offset by a 4 percent decrease in
shipments and lower average transportation rates. Costs and operating expenses
increased $11 million, or 12 percent, due primarily to an increase in product
sales. Operating profit decreased $3.4 million, or 19 percent, due primarily
to lower transportation shipments and average transportation rates and higher
operating expenses within the products pipeline business, partially offset by a
$1.5 million improvement in ethanol operations from an operating loss of $2
million to an operating loss of $500,000.
EXPLORATION & PRODUCTION'S revenues increased $17.9 million, or 90
percent, due primarily to higher natural gas sales prices received from the
marketing of company-owned production and Williams Coal Seam Gas Royalty Trust
(Royalty Trust) natural gas. Costs and operating expenses increased $9
million, or 55 percent, due primarily to higher Royalty Trust natural gas
purchase prices. Operating profit increased $10 million, from $600,000 in
1996, due primarily to the increase in average natural gas sales prices.
WILLIAMS COMMUNICATIONS GROUP'S revenues increased $76 million, or 54
percent, to $216.6 million, due primarily to acquisitions which contributed
revenues of $40 million. Additionally, increased business activity resulted in
a $21 million revenue increase in new systems sales and an $8 million increase
in system enhancement revenues. The number of ports in service at March 31,
1997, increased 5 percent and fiber billable minutes from occasional service
increased 81 percent. Dedicated service voice-grade equivalent miles at March
31, 1997, decreased 17 percent as compared with March 31, 1996, which in part
reflects a shift to occasional service. Costs and operating expenses increased
$56 million, or 53 percent, and selling, general and administrative expenses
increased $25 million, or 77 percent, due primarily to the overall increase in
business activity. The increase in selling, general and administrative
expenses also reflects the commitment by management to expand the
infrastructure of this business for future growth. Operating profit decreased
$4.8 million to a $2 million operating loss, due primarily to the costs of
expanding the infrastructure.
INTEREST ACCRUED increased $7.5 million, or 115 percent, due primarily
to higher borrowings under the bank-credit facility, slightly offset by lower
average interest rates. The effective income tax rate in 1997 and 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.
Subsequent Event
On April 10, 1997, Williams Communications Group, a wholly-owned
subsidiary of Williams Holdings, and Northern Telecom (Nortel) agreed to
combine their customer premise equipment sales and services operations into a
new company called WilTel Communications, LLC. The transaction closed in the
second quarter of 1997 and will be accounted for as a purchase by Williams
Holdings. Williams Communications Group will own 70 percent of the new
company, with Nortel owning the remaining interest. The new company will have
net assets of approximately $800 million.
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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
Exhibit 27 -- Financial Data Schedule
(b) During the first quarter of 1997, 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.
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(Registrant)
Gary R. Belitz
----------------------------------------
Controller
(Duly Authorized Officer and
Principal Accounting Officer)
May 15, 1997
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 -- Financial Data Schedule