FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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 000-20555
WILLIAMS HOLDINGS OF DELAWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1455707
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE WILLIAMS CENTER 74172
TULSA, OKLAHOMA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (918) 573-2000
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
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. [X]
The number of shares of the registrant's Common Stock outstanding at March 30, 1999, was 1,000 Shares, all of which are owned by The Williams Companies, Inc.
The registrant meets the conditions set forth in General Instruction (J)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.
WILLIAMS HOLDINGS OF DELAWARE, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Williams Holdings of Delaware, Inc. was incorporated under the laws of the State of Delaware in 1994. The principal executive offices of Williams Holdings are located at One Williams Center, Tulsa, Oklahoma 74172 (telephone (918) 573-2000). Unless the context otherwise requires, references to Williams Holdings herein include its subsidiaries. Williams Holdings is a wholly owned subsidiary of The Williams Companies, Inc. (Williams).
On March 24, 1999, Williams disclosed that its Board of Directors had authorized the merger of Williams Holdings with and into Williams and the assumption by Williams of liabilities and obligations of Williams Holdings. Management expects the merger to be completed in the second or third quarter of 1999.
On November 19, 1998, Williams announced that its board of directors had authorized an initial public offering of a minority interest in its communications subsidiary, Williams Communications Group, Inc. Williams expects to file a registration statement for this offering with the Securities and Exchange Commission in the second quarter of 1999. In addition, on February 8, 1999, Williams announced it had entered into an agreement with SBC Communications under which SBC would acquire the lesser of the number of shares of common stock valued at $500 million or ten percent of the common stock of Williams Communications in a private placement expected to occur simultaneously with the initial public offering.
On March 28, 1998, Williams acquired MAPCO Inc. in a stock-for-stock transaction based upon a fixed exchange ratio of 1.665 shares of Williams common stock and .555 associated preferred stock purchase rights for each share of MAPCO common stock and associated preferred stock purchase rights. See Note 2 to Notes to Consolidated Financial Statements. Management believes the acquisition furthers its strategy of seeking growth through strategic acquisitions and alliances and that MAPCO's assets and operations complement Williams' existing lines of business. Williams operates the MAPCO businesses through Williams Energy Services.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
See Part II, Item 8 -- Financial Statements and Supplementary Data.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Williams Holdings, through Williams Energy Services and its subsidiaries, engages in the following types of energy-related activities:
- exploration and production of oil and gas through ownership of 708 Bcf of proved natural gas reserves primarily located in the San Juan Basin of Colorado and New Mexico;
- natural gas gathering, processing, and treating activities through ownership and operation of approximately 7,500 miles of gathering lines and ownership or operation of ten gas treating plants and 11 gas processing plants (one of which is partially owned);
* 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 "Btu" means British Thermal Unit, "MMBtu" means one million British Thermal Units and "TBtu" means one trillion British Thermal Units. The term "Dth" means dekatherm. The term "Mbbl" means one thousand barrels. The term "GWh" means gigawatt hour.
- natural gas liquids transportation through ownership and operation of approximately 10,300 miles of natural gas liquids pipeline;
- transportation of petroleum products and related terminal services through ownership or operation of approximately 9,100 miles of petroleum products pipeline and 68 petroleum products terminals;
- production and marketing of ethanol through operation and ownership of two ethanol plants (one of which is partially owned);
- petroleum products and propane distribution services through operation and ownership of a petroleum trucking company;
- refining of petroleum products through operation and ownership of two refineries;
- retail marketing through 256 convenience stores; and
- energy commodity marketing and trading.
Williams Holdings, through Williams Communications Group, Inc. and its subsidiaries, engages in the following types of communications-related activities:
- owner and operator of a 19,000-route mile telecommunications fiber optic network;
- data-, voice-, and video-related products and services;
- advertising distribution services;
- video services and other multimedia services for the broadcast industry;
- enhanced audio- and video-conferencing services for businesses;
- customer-premise voice and data equipment, sales, and services including installation, maintenance, and integration; and
- network integration and management services nationwide.
Williams Holdings, through subsidiaries of Williams International Company, directly invests in energy and telecommunications projects primarily in South America and Australia and continues to explore and develop additional projects for international investments. It also invests in energy, telecommunications, and infrastructure development funds in Asia and Latin America.
Substantially all operations of Williams Holdings are conducted through subsidiaries. Williams performs management, legal, financial, tax, consultative, administrative, and other services for its subsidiaries. Williams Holdings' principal sources of cash are from external financings, dividends and advances from its subsidiaries, investments, payments by subsidiaries for services rendered, and interest payments from subsidiaries on cash advances. The amount of dividends available to Williams Holdings from subsidiaries largely depends upon each subsidiary's earnings and operating capital requirements. The terms of certain subsidiaries' borrowing arrangements limit the transfer of funds to Williams Holdings.
The energy operations of Williams Holdings are grouped into a wholly owned subsidiary, Williams Energy Services; its communications operations are grouped into a wholly owned subsidiary, Williams Communications Group, Inc.; and its international operations are grouped into a wholly owned subsidiary, Williams International Company. Item 1 of this report is formatted to reflect this structure.
WILLIAMS ENERGY SERVICES
Williams Energy is comprised of four major business units: Exploration & Production, Midstream Gas & Liquids, Petroleum Services, and Energy Marketing & Trading. Through its business units, Williams Energy engages in energy production and exploration activities; natural gas gathering, processing, and treating; natural gas liquids transportation, fractionation, and storage; petroleum products transportation and terminal services;
ethanol production; refining; convenience retailing; mobile information management systems; fleet fuel management services; and energy commodity marketing and trading.
Williams Energy, through its subsidiaries, owns 708 Bcf of proved natural gas reserves located primarily in the San Juan Basin of Colorado and New Mexico and owns and operates approximately 7,500 miles of gathering pipelines, approximately 10,300 miles of natural gas liquids pipelines, owns or operates ten gas treating plants and 11 gas processing plants (one of which is partially owned), 68 petroleum products terminals, two ethanol production facilities (one of which is partially owned), two refineries, 256 convenience stores/travel centers, and approximately 9,100 miles of petroleum products pipeline. Physical and notional volumes marketed and traded by subsidiaries of Williams Energy approximated 15,873 TBtu equivalents in 1998. Williams Energy, through its subsidiaries, employs approximately 9,150 employees.
Segment revenues and segment profit for Williams Energy are reported in Note 19 of Notes to Consolidated Financial Statements herein.
A business description of each of Williams Energy's business units follows.
EXPLORATION & PRODUCTION
Williams Energy, through its wholly owned subsidiary Williams Production Company in its Exploration & Production unit (E&P), owns and operates producing natural gas leasehold properties in the United States. In addition, E&P is actively exploring for oil and gas.
Oil and gas properties. E&P's properties are located primarily in the Rocky Mountains and Gulf Coast areas. Rocky Mountain properties are located in the San Juan Basin in New Mexico and Colorado, in Wyoming, and in Utah. Gulf Coast properties are located in Louisiana, east and south Texas, and offshore Gulf of Mexico.
Gas Reserves. At December 31, 1998, 1997, and 1996, E&P had proved developed natural gas reserves of 476 Bcf, 362 Bcf, and 323 Bcf, respectively, and proved undeveloped reserves of 232 Bcf, 238 Bcf, and 208 Bcf, respectively. Of E&P's total proved reserves, 90 percent are located in the San Juan Basin of Colorado and New Mexico. No major discovery or other favorable or adverse event has caused a significant change in estimated gas reserves since year end.
Customers and Operations. At December 31, 1998, the gross and net developed leasehold acres owned by E&P totaled 312,939 and 131,303, respectively, and the gross and net undeveloped acres owned were 444,916 and 111,926, respectively. At December 31, 1998, E&P owned interests in 3,393 gross producing wells (632 net) on its leasehold lands.
Operating Statistics. The following tables summarize drilling activity for the periods indicated:
1998 WELLS GROSS NET
---------- ----- -----
Development
Drilled................................................... 173 46.7
Completed................................................. 173 46.7
Exploration
Drilled................................................... 5 3.1
Completed................................................. 4 2.5
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GROSS NET
COMPLETED DURING WELLS WELLS
---------------- ----- -----
1998........................................................ 177 49
1997........................................................ 207 35
1996........................................................ 65 11
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The majority of E&P's gas production is currently being sold in the spot
market at market prices. Total net production sold during 1998, 1997, and 1996
was 43.2 Bcf, 37.1 Bcf, and 31.0 Bcf, respectively. The average production
costs, including production taxes, per Mcf of gas produced were $.37, $.42, and
$.23, in
1998, 1997, and 1996, respectively. The average wellhead sales price per Mcf was $1.31, $1.62, and $.98, respectively, for the same periods.
In 1993 E&P conveyed a net profits interest in certain of its properties to the Williams Coal Seam Gas Royalty Trust. Williams subsequently sold Trust Units to the public in an underwritten public offering. Williams Holdings owns 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. Production information reported herein includes E&P's interest in these Units.
MIDSTREAM GAS & LIQUIDS
Williams Energy, through Williams Field Services Group, Inc. and its subsidiaries (Midstream Gas & Liquids), owns and operates natural gas gathering, processing, treating, transportation, fractionation, and storage facilities located in northwestern New Mexico, southwestern Colorado, southwestern Wyoming, eastern Utah, northwestern Oklahoma, Kansas, northern Missouri, eastern Nebraska, Iowa, southern Minnesota, Tennessee, and also in areas offshore and onshore in Texas, Alabama, Mississippi, and Louisiana. Midstream Gas & Liquids also operates gathering facilities, owned by Transcontinental Gas Pipe Line Corporation, an affiliated interstate natural gas pipeline company, that are currently regulated by the FERC.
As a result of the MAPCO merger in 1998, Williams Energy acquired an approximately 4.8 percent investment interest in Alliance Pipeline. Effective January 1, 1999, this interest was transferred to subsidiaries of the Williams Companies, Inc. Alliance consists of two proposed segments, a Canadian segment and a United States segment. Alliance has filed applications for approval with the FERC in the United States and the National Energy Board (NEB) in Canada, to construct and operate an approximately 1,800 mile natural gas pipeline system extending from northeast British Columbia to the Chicago, Illinois, area market center, where it will interconnect with the North American pipeline grid. On September 17, 1998, the FERC granted a Certificate of Public Convenience and Necessity (CPCN) for the United States portion of the Alliance pipeline, and on December 3, 1998, the NEB granted a CPCN for the Canadian portion. Construction is expected to begin in the spring of 1999 with an anticipated in-service date of October 2000. Total estimated cost of the Alliance project is approximately $3 billion. At December 31, 1998, Williams Energy had invested approximately $19 million in Alliance.
Expansion Projects. During 1998 Midstream Gas & Liquids continued to expand its operations in the Gulf Coast region through the Mobile Bay and Discovery projects. Discovery, a 50 percent owned joint venture, began operations during 1997 with the completion of its 150-mile gas gathering system, Larose cryogenic plant with 600 MMcf per day of capacity, and Paradis fractionation facility with 42,000 bbl per day of capacity. Construction on the Mobile Bay gathering and processing facilities has remained on schedule, with the processing plant's commissioning and performance testing expected to begin in the second quarter of 1999. Contracts are currently in place to supply approximately 70 percent of the processing plant's 600 MMcf per day of capacity. Liquids from this plant will be handled by three separate joint ventures including the Tri-States Pipeline, a 16.7 percent owned system with a capacity of 80,000 bbl per day, Wilprise Pipeline, a 33 percent owned system with capacity of 75,000 bbl per day, and a 26.7 percent owned fractionation facility with a capacity of 60,000 bbl per day. In addition, Midstream Gas & Liquids began construction on an expansion of its Rocky Mountain natural gas liquids pipeline which will increase capacity from 75,000 bbl per day to 125,000 bbl per day through construction of a 412-mile pipeline parallel to the existing Mid-America System. Completion is expected in July 1999.
Customers and Operations. Facilities owned and operated by Midstream Gas & Liquids consist of approximately 7,500 miles of gathering pipelines and owns or operates ten gas treating plants and 11 gas processing plants (one of which is partially owned), and approximately 10,300 miles of natural gas liquids pipeline, of which approximately 1,600 miles are partially owned. The aggregate daily inlet capacity is approximately 7.9 Bcf for the gathering systems and 6.7 Bcf for the gas processing, treating, and dehydration facilities. Midstream Gas & Liquids' pipeline operations provide customers with one of the nation's largest NGL transportation systems, while gathering and processing customers have direct access to interstate pipelines, including affiliated pipelines, which provide access to multiple markets.
During 1998 Midstream Gas & Liquids gathered gas for 288 customers, processed gas for 140 customers, and provided transportation to 87 customers. The two largest customers accounted for approximately 24 percent and 11 percent, respectively, of total gathered volumes, and the largest customer accounted for approximately 23 percent of processed volumes. The two largest transportation customers accounted for 23 percent and 12 percent, respectively, of transportation volumes. No other customer accounted for more than ten percent of gathered, processed, or transported volumes. Midstream Gas & Liquids' 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 Midstream Gas & Liquids. The natural gas liquids transportation contracts are tariff-based and generally short-term in nature with some long-term contracts for system-connected processing plants.
Operating Statistics. The following table summarizes gathering, processing, natural gas liquid sales, and transportation volumes for the periods indicated.
1998 1997 1996
----- ----- -----
Gas volumes:
Gathering (TBtu).......................................... 1,204 1,170 1,119
Processing (TBtu)......................................... 536 520 484
Natural gas liquid sales (millions of gallons)............ 576 551 403
Natural gas liquids transportation (MMBbbl)............... 401 414 397
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PETROLEUM SERVICES
Williams Energy, through wholly owned subsidiaries in its Petroleum Services unit, owns and operates a petroleum products pipeline system, two ethanol production plants (one of which is partially owned), and petroleum products terminals and provides services and markets products related thereto. Included in this business unit are two refineries, 256 convenience stores/travel centers, trucking and rail operations for propane and refined products, mobile information management systems, and fleet fuel management services.
Transportation. A subsidiary in the Petroleum Services unit, Williams Pipe Line Company, owns and operates a petroleum products pipeline system which covers an 11-state area extending from Oklahoma to North Dakota and Minnesota and Illinois. The system is operated as a common carrier offering transportation and terminalling services on a nondiscriminatory basis under published tariffs. The system transports refined products and liquefied petroleum gases.
At December 31, 1998, the system traverses approximately 7,100 miles of right-of-way and includes approximately 9,100 miles of pipeline in various sizes up to 16 inches in diameter. The system includes 77 pumping stations, 22.4 million barrels of storage capacity, and 39 delivery terminals. The terminals are equipped to deliver refined products into tank trucks and tank rail cars. The maximum number of barrels that the system can transport per day depends upon the operating balance achieved at a given time between various segments of the system. Because 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. In 1998 total system shipments averaged 614 thousand barrels per day.
An affiliate of Williams Pipe Line, Longhorn Enterprises of Texas, Inc. (LETI), owns a 31.5 percent interest in Longhorn Partners Pipeline, LP, a joint venture formed to construct and operate a refined products pipeline from Houston to El Paso, Texas. Pipeline construction is nearly complete, but operations are not expected to commence until the third quarter of 1999, pending review and approval of an environmental assessment. Williams Pipe Line has designed and constructed and will operate the pipeline, and LETI has contributed a total of $92.4 million to the joint venture.
On February 25, 1999, Williams Energy announced it had reached an agreement to purchase Union Texas Petrochemicals Corporation, a wholly owned subsidiary of ARCO, with a closing expected on March 31, 1999. UTP's assets include a 215-mile light hydrocarbon transportation and 85-mile olefin pipeline and storage network, which connects, either directly or indirectly, most major natural gas liquids producers and olefin consumers in Louisiana. UTP also is the leading merchant marketer of ethylene in Louisiana and
owns and operates a 5/12th interest in a 1.25 billion pounds per year ethylene plant near Geismar, Louisiana. In connection with the acquisition, the Energy Marketing & Trading unit anticipates entering into a financial agreement, backed by an A credit-rated third party, intended to manage the risks related to the earnings volatility typically associated with ethylene production. The expected cost of this transaction is $166.5 million.
The operating statistics set forth below relate to the system's operations for the periods indicated:
1998 1997 1996
------- ------- -------
Shipments (thousands of barrels):
Refined products:
Gasolines............................................. 131,600 132,428 134,296
Distillates........................................... 72,471 71,694 68,628
Aviation fuels........................................ 10,038 10,557 11,189
LP-Gases.............................................. 8,644 13,322 15,618
Lube extracted fuel oil............................... 1,246 7,471 8,555
Crude oil............................................. 0 31 891
------- ------- -------
Total Shipments............................... 223,999 235,503 239,177
======= ======= =======
Daily average (thousands of barrels).................... 614 645 655
Barrel miles (millions)................................. 61,043 61,086 61,969
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Terminal Services and Development. Williams Energy, through its wholly owned subsidiary Williams Energy Ventures, provides independent terminal services to the refining and marketing industries via distribution of petroleum products through wholly owned and joint interest terminals. WEV owns and/or operates 29 strategically located independent terminals covering a thirteen-state area in the South, Southeast, Southwest, and Midwest.
The terminals are supplied with refined products and ethanol by barge, tanker, truck, rail, and various common carrier pipelines. WEV provides scheduling and inventory management, access to an expanded transportation and information services network, additive injection services, and custom terminalling services such as octane and oxygenate blending. On a selective basis, WEV provides temporary leased storage.
In 1996 WEV acquired a 45.5 percent interest in eight Southeastern terminals and in 1998 increased that ownership percentage to 68.94 percent. In late 1997 WEV acquired a terminal in Dallas, Texas, and in 1998 acquired a terminal in Atlanta, Georgia. In early 1999 WEV purchased 12 terminals in the Southeast from Amoco and two Memphis, Tennessee, area terminals from Truman Arnold Companies. These acquisitions have allowed WEV to increase its core business and to offer multi-market terminal services to its customers.
Terminal barrels delivered for the periods indicated are noted below.
1998 1997 1996
------- ------- -------
Terminal Barrels Delivered (mbbls)...................... 28,787 17,336 5,426
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Ethanol. WEV is engaged in the production and marketing of ethanol. WEV owns and operates two ethanol plants of which corn is the principal feedstock. The Pekin, Illinois, plant has an annual production capacity of 100 million gallons of fuel-grade and industrial ethanol and also produces various coproducts. The Aurora, Nebraska, plant (in which WEV owns a 74.9 percent interest) has an annual production capacity of 30 million gallons. WEV also markets ethanol produced by third parties. Coproducts, mainly flavor enhancers, produced at the Pekin plant are marketed primarily to food processing companies.
The sales volumes set forth below include ethanol produced by third parties as well as by WEV for the periods indicated:
1998 1997 1996
------- ------- -------
Ethanol sold (thousands of gallons)..................... 172,056 145,612 119,800
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Distribution Services. Petroleum Services, through its distribution services group, provides petroleum trucking, propane trucking, and rail car operations for Williams Energy and third parties. The petroleum
trucking operation, operated out of Memphis, Tennessee, under the name "GENI Transport," works with local jobbers to supply their retail outlets and with several of Williams Energy's Energy Marketing & Trading unit's wholesale customers to develop transportation arrangements. GENI Transport is also the primary transportation provider to Petroleum Services' retail petroleum group. The propane trucking and rail car operations are the primary transportation providers for the Energy Marketing & Trading unit's retail propane group.
Refining. Petroleum Services, through its subsidiaries, owns and operates two refineries: the North Pole, Alaska, refinery and the Memphis, Tennessee, refinery.
North Pole Refinery. The North Pole Refinery includes the refinery located at North Pole, Alaska, and a terminal facility at Anchorage, Alaska. The refinery, the largest in the state, is located approximately two miles from its supply point for crude oil, the Trans-Alaska Pipeline System (TAPS). The refinery's processing capability is approximately 215,000 barrels per day. At maximum crude throughput, the refinery can produce 67,000 barrels per day of refined products. These products are jet fuel, gasoline, diesel fuel, heating oil, fuel oil, naphtha, and asphalt. Williams Energy's Energy Marketing & Trading unit markets these refined products in Alaska, Western Canada, and the Pacific Rim principally to wholesale, commercial, industrial, and governmental customers and Petroleum Services' retail petroleum group. The retail petroleum group accounted for about eight percent of the North Pole Refinery's 1998 product sales volume and 64 percent of the North Pole Refinery's gasoline production. Petroleum Services completed construction of a third crude unit at the refinery that can produce an additional 17,000 barrels per day of refined products, including 14,000 barrels per day of jet fuel. The new crude unit construction was completed in October 1998 at a cost of $74.5 million.
Average daily throughput and barrels processed and transferred by the North Pole Refinery are noted below:
1998 1997 1996
------- ------- -------
Throughput (bbl)................................ 142,471 132,238 132,912
Barrels Processed and Transferred (bbl)......... 44,561 42,201 43,392
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The North Pole Refinery's crude oil is purchased through Williams Energy's Energy Marketing & Trading unit from the state of Alaska or is purchased or received on exchanges from crude oil producers. The refinery has a long-term agreement with the state of Alaska for the purchase of royalty oil, which is scheduled to expire on December 31, 2003. The agreement provides for the purchase of up to 35,000 barrels per day (approximately 17 percent of the refinery's supply) of the state's royalty share of crude oil produced from Prudhoe Bay, Alaska. These volumes, along with crude oil either purchased from crude oil producers or received under exchange agreements or other short-term supply agreements with the state of Alaska, are utilized as throughput in the production of products at the refinery. Approximately 34 percent of the throughput is refined and sold as finished product and the remainder of the throughput is returned to the TAPS and either delivered to repay exchange obligations or sold.
Memphis Refinery. The Memphis Refinery is the only refinery in the state of Tennessee and has a throughput capacity of approximately 140,000 barrels per day. In January 1998 Petroleum Services completed construction of a splitter, increasing the refinery's capacity for propylene production from 2,000 barrels per day to 6,000 barrels per day. In November 1998 Petroleum Services commissioned an expansion of its East Crude Unit, increasing crude production capacity by approximately 20,000 barrels per day to 140,000 barrels per day. Williams Energy is currently in the process of making significant plant modifications for further increasing the refinery's crude oil flexibility. In late 1998 a $123 million project to increase crude processing capacity of the refinery to 160,000 barrels per day and construct a 36,000 barrels per day continuous catalyst regeneration reformer was approved. Both projects are slated for completion in the year 2000 and will enable the refinery to produce 100 percent of customer demand for premium gasoline in the mid-South region of the United States while significantly enhancing crude flexibility.
The Memphis Refinery produces gasoline, low sulfur diesel fuel, jet fuel, K-1 kerosene, propylene, No. 6 fuel oil, propane, and elemental sulfur. These products are exchanged or marketed primarily in the Mid-South region of the United States by Williams Energy's Energy Marketing & Trading unit to wholesale customers, such as industrial, governmental, and commercial consumers, jobbers, independent dealers, other refiner/marketers, and to Petroleum Services' retail petroleum group.
The Memphis Refinery has access to crude oil from the Gulf Coast via common carrier pipeline and by river barges. In addition to domestic crude oil, the Memphis Refinery has the capability of receiving and processing certain foreign crudes. During 1998, following the MAPCO merger, Williams Energy's Energy Marketing & Trading unit purchased all of the crude oil processed at the Memphis Refinery. Although this method of purchase reduces the financial effect of volatile crude oil market prices, the financial results of the Memphis Refinery may be significantly impacted by changes in the market prices for crude oil and refined products. Petroleum Services cannot with any assurance predict the future of crude oil and product prices or their impact on its financial results.
Average daily barrels processed and transferred by the Memphis Refinery are noted below:
1998 1997 1996
------- ------- -------
Barrels Processed and Transferred (bbl)......... 120,985 113,040 104,129
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Retail Petroleum. Petroleum Services, primarily under the brand names "Williams TravelCenters" and "MAPCO Express," is engaged in the retail marketing of gasoline, diesel fuel, other petroleum products, convenience merchandise, and restaurant and fast food items. The retail petroleum group operates 29 interstate TravelCenter locations and 227 convenience stores. The TravelCenter sites consist of 11 modern facilities providing gasoline and diesel fuel, merchandise, and restaurant offerings for both traveling consumers and professional drivers, and 18 locations providing fuel and merchandise. The convenience store sites are primarily concentrated in the vicinities of Nashville and Memphis, Tennessee, and the state of Alaska. MAPCO Express stores represent 38 percent of the convenience store market in Alaska. All of the motor fuel sold by Williams TravelCenters and MAPCO Express stores is supplied either by exchanges, directly from either the Memphis or North Pole Refineries or through Williams Energy's Energy Marketing & Trading unit.
Convenience merchandise and fast food accounted for approximately 57 percent of the retail petroleum group's gross margins in 1998 and 55 percent in 1997. Gasoline and diesel sales volumes for the periods indicated are noted below:
1998 1997 1996
------- ------- -------
Gasoline (mgals)...................................... 329,821 292,644 279,708
Diesel (mgals)........................................ 188,401 137,219 147,548
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ENERGY MARKETING & TRADING
Williams Energy, through subsidiaries, primarily Williams Energy Marketing & Trading Company and its subsidiaries (EM&T), is a national energy services provider that buys, sells, and transports a full suite of energy commodities, including natural gas, electricity, refined products, natural gas liquids, crude oil, propane, liquefied natural gas, and liquefied petroleum gas on a wholesale and retail level, serving over 300,000 customers. In addition, EM&T provides price-risk management services through a variety of financial instruments including exchange-traded futures, as well as over-the-counter forwards, options, and swap agreements related to various energy commodities and provides capital services to the diverse energy industry. See Note 16 of Notes to Consolidated Financial Statements.
EM&T markets natural gas throughout North America and grew its total volumes (physical and notional) to an average of 27.7 Bcf per day in 1998. EM&T's core business has traditionally been natural gas marketing in the Gulf Coast and Eastern regions of the United States, using the pipeline systems owned by Williams, but also includes marketing on approximately 50 non-Williams' pipelines. EM&T's natural gas customers include producers, industrials, local distribution companies, utilities, and other gas marketers.
In February 1999 EM&T and AES Ironwood, L.L.C. executed an amended and restated 20-year power purchase agreement under which EM&T is to provide fuel to and market up to approximately 655 megawatts of electricity output from a generating facility to be built and owned by AES in Southern Pennsylvania. In December 1998 EM&T reached agreement with Hoosier Energy Rural Electric Cooperative, Inc. to supply a part of its wholesale energy needs and manage its energy portfolio.
In May 1998 EM&T and The AES Corporation signed a 15-year agreement under which EM&T provides fuel to and markets up to approximately 4,000 megawatts of electricity output from three southern California generating sites with 14 units owned and operated by AES. During 1998 EM&T marketed 16.9 GW per hour (physical and notional) of electricity.
In 1998 EM&T provided supply, distribution, and related risk management services to petroleum producers, refiners, and end-users in the United States and various international regions. During 1998 EM&T's total crude and petroleum products (physical and notional) marketed averaged 2,153 Mbbl per day. During 1998 EM&T also marketed natural gas liquids with total volumes (physical and notional) averaging 480.3 Mbbl per day.
EM&T markets and distributes propane and appliances to approximately 300,000 customers at the retail level. Propane is used principally as a fuel in various domestic, commercial, industrial, agricultural, and vehicle motor fuel applications. Residential customers, who account for the majority of sales, use propane for home heating, cooking, and other domestic purposes. The primary agricultural use is crop drying. Commercial and industrial sales include fuel for shopping centers and industrial plants. During 1998 EM&T marketed 262.6 million gallons of propane.
EM&T is currently refocusing its retail natural gas and electric business to concentrate on large end-use customers and away from sales to commercial and residential customers. See Note 5 of Notes to Consolidated Financial Statements.
Operating Statistics. The following table summarizes marketing and trading volumes for the periods indicated, including propane totals during 1996, 1997, and a portion of 1998 during which Williams did not own MAPCO:
1998 1997 1996
------- ------- -----
Average marketing and trading volumes (physical and
notional):
Natural gas (Bcf per day).............................. 27.7 22.3 15.9
Refined products, natural gas liquids, crude (mbbl per
day)................................................ 2,633.3 1,549.0 616.0
Electricity (GW per hour).............................. 16.9 8.3 0.5
Propane gallons (millions)............................. 262.6 297.2 331.4
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REGULATORY MATTERS
Midstream Gas & Liquids. In May 1994 after reviewing its legal authority in a Public Comment Proceeding, the FERC determined that while it retains some regulatory jurisdiction over gathering and processing performed by interstate pipelines, pipeline-affiliated gathering and processing companies are outside its authority under the Natural Gas Act. An appellate court has affirmed the FERC's determination and the United States Supreme Court has denied requests for certiorari. As a result of these FERC decisions, some of the individual states in which Midstream Gas & Liquids conducts its operations have considered whether to impose regulatory requirements on gathering companies. Kansas, Oklahoma, and Texas currently regulate gathering activities using complaint mechanisms under which the state commission may resolve disputes involving an individual gathering arrangement. Other states may also consider whether to impose regulatory requirements on gathering companies.
In February 1996 Midstream Gas & Liquids and Transco filed applications with the FERC to spindown all of Transco's gathering facilities to Midstream Gas & Liquids. The FERC subsequently denied the request in September 1996. Midstream Gas & Liquids and Transco sought rehearing in October 1996. In August 1997 Midstream Gas & Liquids and Transco filed a second request for expedited treatment of the rehearing request.
The FERC has yet to rule on this request for rehearing. In February 1998 Midstream Gas & Liquids and Transco filed a separate application to spindown an onshore gathering system located in Texas, the Tilden/ McMillen gathering system, which was also one of the subjects of the pending rehearing request. The FERC has not ruled on this request. In June 1998 the FERC issued a Notice of Inquiry into its policy related to pipeline facilities located on the Outer Continental Shelf. No policy or rule has been issued from that proceeding.
Midstream Gas & Liquids' natural gas liquids group is subject to various federal, state, and local environmental and safety laws and regulations. Midstream Gas & Liquids' pipeline operations are subject to the provisions of the Hazardous Liquid Pipeline Safety Act. In addition, the tariff rates, shipping regulations, and other practices of the Mid-America, Rio Grande, and Seminole pipelines are regulated by the FERC pursuant to the provisions of the Interstate Commerce Act applicable to interstate common carrier petroleum and petroleum products pipelines. The tariff rates and practices of the ammonia system are regulated by the Surface Transportation Board under the provisions of the Interstate Commerce Commission Termination Act of 1995 applicable to pipeline carriers. Both of these statutes require the filing of reasonable and nondiscriminatory tariff rates and subject Midstream Gas & Liquids to certain other regulations concerning its terms and conditions of service. The Mid-America, Rio Grande, and Seminole pipelines also file tariff rates covering intrastate movements with various state commissions. The United States Department of Transportation has prescribed safety regulations for common carrier pipelines. The pipeline systems are subject to various state laws and regulations concerning safety standards, exercise of eminent domain, and similar matters.
Petroleum Services. 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 the FERC, to keep its records and accounts pursuant to the Uniform System of Accounts for Oil Pipeline Companies, to make annual reports to the FERC, and to submit to examination of its records by the audit staff of the FERC. Authority to regulate rates, shipping rules, and other practices and to prescribe depreciation rates for common carrier pipelines is exercised by the FERC. The Department of Transportation, as authorized by the 1995 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 applicable to intrastate pipelines.
On December 31, 1989, a rate cap, which resulted from a settlement with several shippers and had effectively frozen Williams Pipe Line's rates for the previous five years, expired. Williams Pipe Line filed a revised tariff on January 16, 1990, with the 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 the FERC alleging that the revised rates were not just and reasonable and were unlawfully discriminatory. Williams Pipe Line elected to bifurcate this proceeding in accordance with the then-current FERC policy. Phase I of the FERC's bifurcated proceeding provided Williams Pipe Line the opportunity to justify its rates and rate structure by demonstrating that its markets were workably competitive. Rates to markets that were not deemed workably competitive in Phase I required cost justification in Phase II. Subsequent rate increases filed by Williams Pipe Line were stayed pending ultimate resolution of Phase II.
In the Phase I proceeding, the FERC found all but 12 of Williams Pipe Line's markets to be workably competitive and, thus, eligible for market-based rates. On July 15, 1998, the FERC issued its decision in Phase II finding that Williams Pipe Line failed to demonstrate that the rates at issue for the 12 less competitive markets were just and reasonable and that Williams Pipe Line must roll back those rates to pre-1990 levels and pay refunds with interest to its shippers. Williams Pipe Line sought rehearing of the July 15, 1998, order and has been granted leave to stay the order's refund requirement until the FERC acts on rehearing. A shipper has appealed the Phase I order in the United States Court of Appeals for the District of Columbia Circuit and the appeal has been stayed pending the completion of Phase II. Williams Pipe Line took appropriate reserves in 1998 for the July 15, 1998, order, but continues to believe that subsequently revised tariffs will be found lawful. See Note 17 of Notes to Consolidated Financial Statements.
Environmental regulations and changing crude supply patterns continue to affect the refining industry. The industry's response to environmental regulations and changing supply patterns will directly affect volumes and products shipped on the Williams Pipe Line system. Environmental Protection Agency 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 attempt to position itself to respond to changing regulations and supply patterns but cannot predict how future changes in the marketplace will affect its market areas.
Energy Marketing & Trading. Management believes that EM&T's activities are conducted in substantial compliance with the marketing affiliate rules of FERC Order 497. Order 497 imposes certain nondiscrimination, disclosure, and separation requirements upon interstate natural gas pipelines with respect to their natural gas trading affiliates. EM&T has taken steps to ensure it does not share employees or officers with affiliated interstate natural gas pipelines and does not receive information from affiliated interstate natural gas pipelines that is not also available to unaffiliated natural gas trading companies.
COMPETITION
Exploration & Production. Williams Energy unit competes with a wide variety of independent producers as well as integrated oil and gas companies for markets for its production. E&P has three general phases of operations: acquiring non-producing properties, developing non-producing properties, and operating producing properties. In the process of acquiring minerals, the primary methods of competition are on acquisition price and terms such as duration of the mineral lease, the amount of the royalty payment, and special conditions related to rights to use the surface of the land under which the mineral interest lies. In the process of developing non-producing properties, E&P does not face significant competition. In the operating phase, the primary method of competition involves operating efficiencies related to the cost to produce the hydrocarbons from the reservior.
Midstream Gas & Liquids. Williams Energy competes for gathering and processing business with interstate and intrastate 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. Competition for the natural gas liquids pipelines include other pipelines, tank cars, trucks, barges, local sources of supply (refineries, gasoline plants, and ammonia plants), and other sources of energy such as natural gas, coal, oil, and electricity. Factors that influence customer transportation decisions include rate, location, and timeliness of delivery.
Petroleum Services. Williams Energy's operations are subject to competition because 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. Because 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 that have access to the system and by trades among brokers, traders, and others who control products. These trades can result in the diversion from the Williams Pipe Line system of volume that might otherwise be transported on the system. Shorter, lower revenue hauls may also result from these 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.
Williams Energy's ethanol operations compete in local, regional, and national fuel additive markets with one large ethanol producer, numerous smaller ethanol producers, and other fuel additive producers, such as refineries.
The principal competitive forces affecting Williams Energy's refining businesses are feedstock costs, refinery efficiency, refinery product mix, and product distribution. Some of Memphis Refinery's competitors can more easily process sour crudes, and accordingly, are more flexible in the crudes which they can process. Williams Energy has no crude oil reserves and does not engage in crude oil exploration, and it must therefore obtain its crude oil requirements from unaffiliated sources. Williams Energy believes that it will be able to obtain adequate crude oil and other feedstocks at generally competitive prices for the foreseeable future.
The principal competitive factors affecting Williams Energy's retail petroleum business are location, product price and quality, appearance and cleanliness of stores, and brand-name identification. Competition in the convenience store industry is intense. Within the travel center industry, Williams TravelCenters are recognized as leaders in customer service by the local consumer, traveling consumer, and professional driver. Averaging 10,000 square feet, the facilities seamlessly blend these customer groups, resulting in greater revenue and income diversification than traditional convenience stores. Williams Energy intends to construct ten new travel centers in 1999, in addition to six sites currently scheduled to open during the first and second quarters in 1999.
Energy Marketing & Trading. Williams Energy's operations directly compete with large independent energy marketers, marketing affiliates of regulated pipelines and utilities, propane wholesalers and retailers, and natural gas producers. The financial trading business competes with other energy-based companies offering similar services as well as certain brokerage houses. This level of competition contributes to a business environment of constant pricing and margin pressure.
OWNERSHIP OF PROPERTY
The majority of Williams Energy's ownership interests in exploration and production properties are held as working interests in oil and gas leaseholds.
Williams Energy's gathering and processing facilities and natural gas liquids pipelines are owned in fee. Midstream Gas & Liquids constructs and maintains gathering and natural gas liquids pipeline systems 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 subsidiaries of Williams Energy or on sites held under leases or permits issued or approved by public authorities.
Williams Energy owns its petroleum pipeline system 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. The North Pole Refinery is located on land leased from the state of Alaska under a long-term lease scheduled to expire in 2025 and renewable at that time by Williams Energy. The Anchorage, Alaska, terminal is located on land leased from the Alaska Railroad Corporation under two long-term leases. The Memphis Refinery is located on land owned by Williams Energy. Williams Energy owns approximately one-half of the properties upon which its Retail Petroleum stores are located and leases the remainder from third parties. Williams Energy management believes its assets are in such a condition and maintained in such a manner that they are adequate and sufficient for the conduct of business.
The primary assets of Williams Energy's energy marketing and trading unit are its term contracts, employees, related systems and technological support, and 180 retail propane outlets located in 18 states including Alabama, Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Mississippi, North Carolina, Ohio, Oklahoma, South Dakota, Tennessee, and Wisconsin.
ENVIRONMENTAL MATTERS
Williams Energy is subject to various federal, state, and local laws and regulations relating to environmental quality control. Management believes that Williams Energy's operations are in substantial compliance with existing environmental legal requirements. Management expects that compliance with existing environmental legal requirements will not have a material adverse effect on the capital expenditures, earnings, and competitive position of Williams Energy. See Note 17 of Notes to Consolidated Financial Statements.
The EPA has named Williams Pipe Line 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. The EPA placed this site 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 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 Pipe Line completed monitoring in the second quarter of 1997 and submitted a report of results to the EPA, which published a Notice of Intent to delete the Sioux Falls site in the January 4, 1999, Federal Register. The public comment period has ended with no significant comments needing to be addressed. Williams Pipe Line expects a closure letter from the EPA in the near future, which will effectively complete the EPA's interest in the site.
Groundwater monitoring and remediation are ongoing at both refineries and air and water pollution control equipment is operating at both refineries to comply with applicable regulations. The Clean Air Act Amendments of 1990 continue to impact Williams Energy's refining businesses through a number of programs and provisions. The provisions include Maximum Achievable Control Technology rules which are being developed for the refining industry, controls on individual chemical substances, new operating permit rules and new fuel specifications to reduce vehicle emissions. The provisions impact other companies in the industry in similar ways and are not expected to adversely impact Williams Energy's competitive position.
WILLIAMS COMMUNICATIONS GROUP, INC.
Williams Communications is comprised of three business units: Network, which owns and operates Williams Communications' fiber optic network; Solutions, which provides customer-premise voice and data equipment, sales, and services including installation, integration, and maintenance; and Applications, which provides video services and other multimedia services for the broadcast industry, advertising distribution, business television applications, audio-, and video-conferencing services for businesses. In Canada, Solutions operates through its subsidiary, WilTel Communications (Canada), Inc. In 1998 Williams Communications sold the product business segment of Williams Learning Network, Inc. and withdrew from the Business Channel partnership. See Note 5 of Notes to Consolidated Financial Statements. Williams Communications also enters into strategic alliances and makes strategic investments in order to secure long-term, high volume customer contracts and gain additional capabilities to better serve its customers.
Williams Communications and its subsidiaries own approximately 19,000-route miles of fiber optic communications network (with an additional 13,000-route miles planned or under construction), maintain 120 offices primarily across North America, but also in London, Singapore, and Australia, and service approximately 100,000 customer sites. In addition, Williams Communications owns four teleports in the United States and has rights to capacity on domestic and international satellite transponders. Williams Communications employed approximately 8,300 employees as of December 31, 1998.
Consolidated segment revenues by business unit and segment profit/loss for Williams Communications were as follows for 1998 (dollars in millions):
Segment revenues:
Solutions................................................. $1,366.8
Network................................................... 194.9
Applications.............................................. 206.5
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Total............................................. $1,768.2
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Segment loss................................................ $ (175.0)
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A business description of each of Williams Communications' business units follows.
NETWORK
The Network unit of Williams Communications, through Williams Communications, Inc., owns and operates approximately 19,000-route miles of fiber optic communications network, 10,000-route miles of which are restricted until July 1, 2001, to multi-media applications including Internet services, and 4,300-route miles of which are not restricted and were acquired from IXC Communications. Network has constructed an unrestricted network along a 1,600 mile route from Houston to Washington, D.C., in proximity to pipeline right-of-way owned by an affiliated company. In addition, Williams Communications, Inc. also owns an interest in a joint venture constructing a 1,600 mile fiber optic network on a route connecting Portland, Salt Lake City, and Las Vegas with a dark fiber agreement extending the network to Los Angeles. "Dark fibers" are optical fibers contained within fiber-optic cables installed along Williams' rights-of-way, which do not have transmission equipment attached. Purchasers of the right to use dark fibers connect their own transmission equipment and transmit their own communications signals over the fibers. Williams Communications, Inc. has also acquired a 350-mile fiber network in Florida and plans to construct additional fiber to connect the Florida network to its existing network in the Southeast and to construct a new fiber route in the midwest region of the United States from Chicago westward. Network has ultimate plans for a 32,000-route mile network.
In January 1998 upon the expiration of the non-compete agreement related to Williams' 1995 sale of its network services operations, Williams Communications announced that it was re-entering the long-distance communications market as a wholesale provider of telecommunications services. Network serves companies that are communications carriers, including long distance telephone companies, local telephone service providers, Internet service providers, and utilities entering the telecommunications market. Network provides these customers with a full range of carrier services, including nationwide transmission of telecommunications signals, Internet transmission services, the origination and termination of a long distance call, local access services, consulting, and operational assistance services.
Customers. Network's customers are primarily other carriers. Network is a carrier to other telecommunications companies, providing dedicated line and switched services to other carriers over its owned or leased fiber optic network facilities. Network's customers currently include regional bell operating companies, Internet service providers, other local service providers, utilities, and competitive local access providers and other providers who desire high speed connectivity to the Internet; asynchronous transfer mode (ATM), which is a switching and transmission technology based on sending various types of information, including voice, data, and video, in packets; or frame relay; private lines; or long distance voice services on a wholesale basis. Sales to Intermedia Communications Inc. accounted for approximately 82.5 percent of Network's revenues in 1998. Sales to the next three largest customers accounted for approximately 13.5 percent of Network's revenues in 1998.
Strategic Alliances. Effective January 1998 Network entered into an agreement with US West, which provides that the two companies will work together to provide data networking services and vertical applications to a variety of customers. US West has agreed to use Network on a preferred provider basis
through 2002 and is required to purchase at least $36.6 million of services and equipment from Network over the five-year term.
Network also entered into an agreement with Concentric Network Corporation to provide wholesale communications services. Williams Communications owns approximately 16 percent of Concentric. Under the agreement with Concentric, Concentric has agreed to purchase either services or equipment from Network or Solutions, respectively, valued at a minimum of $21 million over the five-year contract term. Concentric has also agreed that Network or Solutions, respectively, will be its preferred provider for these services and equipment.
In April 1998 Intermedia Communications Inc. purchased a 20-year indefeasible right of use for Network's nationwide transmission capacity with a value of approximately $450 million. An indefeasible right of use is an exclusive, indefeasible right to use the specified property for a term essentially representing the economic life of the property. The $450 million represents the present value of the minimum amount Intermedia will pay over the life of the agreement. Network will provide Intermedia with transmission capacity at rates up to 9.952 billion bits per second.
In October 1998 Network purchased shares of preferred stock of UniDial Communications, Inc. for a purchase price of $27 million. Dividends begin to accrue at the rate of ten percent per annum beginning October 1, 1999. The shares are convertible into shares of common stock under certain circumstances, with Network's resulting percentage of UniDial being subject to various formulas and timing elements. UniDial markets a variety of long distance and other communications products including frame relay, Internet, and conferencing services. UniDial has agreed to use Network as a preferred provider and has also agreed to allow Solutions to sell UniDial's products and services at competitive prices and for UniDial to handle the billing and collection relating to Solution's sales of their services.
On December 17, 1998, Network entered into two agreements with WinStar Wireless, Inc., a provider of communications services that uses wireless technology to provide high capacity local exchange and Internet access services to companies located in buildings not served by fiber optic cable. The agreements give Network a 25-year right to use approximately two percent of WinStar's wireless capacity in exchange for installment payments totaling $400 million over approximately two years, and give WinStar a 25-year right to use four strands of Network's fiber over 15,000-route miles in exchange for a seven year $476 million obligation.
In February 1999 Network entered into a strategic alliance with SBC Communications under which Network will be SBC's preferred provider for domestic voice and data long distance services for 20 years, SBC will be Network's preferred provider for selected international wholesale services, toll-free operator, calling card, and directory assistance services for 20 years, Solutions will sell SBC's products to its customers, and SBC may sell Network's services to its customers. Additionally, SBC agreed to make an equity investment by purchasing the lesser of $500 million or ten percent of the common stock of Williams Communications at the time of the initial public offering.
SOLUTIONS
The Solutions unit of Williams Communications, operated primarily through Williams Communications Solutions, LLC (WCS), provides services and sells and installs equipment for the voice, video, and data networks of its customers. WCS was formed in April 1997 following the merger of subsidiaries of Williams Communications and Northern Telecom, Inc. Williams Communications now holds a 70 percent interest in WCS, and Northern Telecom owns the remaining 30 percent. Williams Communications continues to address challenges following the combination related to integration of software systems, related processes, and business issues.
Williams Communications, through subsidiaries including WCS, serves customers at approximately 100,000 business locations throughout the United States consisting of small, medium, and large businesses and governmental, educational, and non-profit institutions. Solutions' customer base ranges from large, publicly-held corporations and the federal government to small, privately-owned entities. Solutions' top 25 customers
combined accounted for approximately 12 percent of its revenue in 1998. Solutions' employs approximately 6,400 employees, including sales employees, billable engineers, design specialists, and service technicians.
Solutions also helps its customers reduce the complexity and cost of their communications decisions by combining components from a variety of manufacturers into the communications solutions required by its customers. Solutions' broad range of voice, video, and data solutions allow Solutions to serve as a single-source provider for its customers' communications needs. Solutions distributes the products and services of a number of leading communications suppliers including Nortel, SBC Communications, Cisco Systems, Lucent Technologies, NEC, US West, and Bell Atlantic. Solutions also provides service and maintenance support for these products.
Operating Statistics. The following table summarizes the results of operations for the Solutions unit of Williams Communications for the periods indicated (dollars in millions):
1998 1997 1996
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Segment revenues....................................... $1,366.8 $1,206.5 $568.1
Percentage of revenues by type of service:
New system sales..................................... 43% 52% 40%
System modifications................................. 34 28 34
Maintenance.......................................... 22 19 24
Other................................................ 1 1 2
Backlog................................................ $ 227.0 $ 202.5 $112.2
Segment profit (loss).................................. $ (54.1) $ 47.3 $ 14.3
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In 1998 Solutions derived approximately 56 percent of its revenues from its existing customer base through system modifications and maintenance and approximately 43 percent from the sale of new telecommunications systems to its existing customer base and new customers. Solutions' three largest suppliers accounted for approximately 91 percent of equipment sold in 1998. A single manufacturer, Northern Telecom, supplied approximately 83 percent of all equipment sold. In this case, WCS is the largest independent distributor in the United States of certain of this company's products. The distribution agreement with this supplier is scheduled to expire at the end of 2000. Management believes there is minimal risk as to the availability of products from suppliers.
APPLICATIONS
Vyvx
Vyvx, an unincorporated business unit of Williams Communications, Inc., offers broadcast-quality television and multimedia transmission services nationwide by means of Network's 19,000-mile multimedia network, four satellite teleport facilities located near Atlanta, Denver, Los Angeles, and New York, and satellite transponders capacity. Vyvx primarily provides backhaul or point-to-point transmission of sports, news, and other programming between two or more customer locations. With satellite facilities, Vyvx provides point-to-multipoint transmission service. Vyvx's customers include all of the major broadcast and cable networks. Vyvx is also engaged in the business of advertising distribution and is exploring other multimedia communication opportunities.
Conferencing
Global Access, offers multi-point videoconferencing and audio-conferencing, as well as single point to multi-point business television services. Global Access enables Williams Communications to provide customers with integrated media conferences, bringing together voice and video by utilizing Williams Communications' existing fiber-optic and satellite services.
In 1998 Williams Communications withdrew from The Business Channel, a joint venture with the Public Broadcast Services (PBS). See Note 5 of Notes to Consolidated Financial Statements.
REGULATORY MATTERS
Network. Williams Communications, Inc. is subject to Federal Communications Commission regulations as a common carrier with regard to certain of its transmission services and is subject to the laws of certain states governing public utilities. An FCC rulemaking to eliminate domestic, common carrier tariffs has been stayed pending judicial review. In the interim, the FCC is requiring such carriers to operate under traditional tariff rules. Operations of intrastate microwave communications, satellite earth stations, and certain other related transmission facilities are also subject to FCC licensing and other regulations. These regulations do not significantly impact Williams Communications, Inc.'s operations. In 1997 the FCC began implementation of the Universal Service Fund contemplated in the Telecommunications Act of 1996. Williams Communications, Inc. is required to contribute to this fund based upon certain revenues. Although Williams Communications, Inc. intends to pass on such charges to its customers, FCC rulings raise questions about the right of companies like Williams Communications, Inc. to do so.
Solutions. The equipment WCS sells must meet the requirements of Part 68 of the FCC rules governing the equipment registration, labeling and connection of equipment to telephone networks. WCS relies on the equipment manufacturers' compliance with these requirements for its own compliance regarding the equipment it distributes. These regulations have a minimal impact on WCS' operations.
COMPETITION
Network. In the market for network transmission services, Williams Communications faces competition from three major facilities-based long distance fiber optic network companies. In addition, several other companies have just completed or are in the process of constructing regional and nationwide fiber optic networks that will compete with Williams Communications in the wholesale network market. Because Williams Communications has focused its efforts on the market for wholesale network services, it does not compete with these networks in the retail sector of the market. Network intends to compete by being the lowest cost provider in the market for technologically advanced network services and by pursuing only wholesale opportunities. By avoiding the retail market, it seeks to avoid the situation of competing with its customers who purchase wholesale services for resale in the retail market.
Federal telecommunications reform legislation enacted in February 1996 is designed to increase competition both in the long distance market and local exchange market by significantly liberalizing current restrictions on market entry. In particular, the legislation establishes procedures permitting Regional Bell Operating Companies to provide long distance services including, but not limited to, video transmission services, subject to certain restrictions and conditions precedent. Moreover, electric and gas utilities may provide telecommunications services, including long distance services, through separate subsidiaries. The legislation also calls for elimination of federal tariff filing requirements and relaxation of regulation over common carriers. At this time, management cannot predict the impact such legislation may have on Networks' operations.
The Regional Bell Operating companies continue to seek regulatory approval to provide national long distance services. As courts or regulators remove restrictions on the Regional Bell Operating Companies, they will be both important potential customers and important potential competitors of Network. If Regional Bell Operating Companies are permitted to compete in the market for long-distance services, they will require nationwide fiber networks to provide services. If any such Regional Bell Operating Company chooses to contract with Williams Communications for use of its network, it could create opportunities for Williams Communications to sell fiber or to lease long distance, high volume capacity. If any such Regional Bell Operating Company chooses either to construct its own network or to contract with one of Williams Communications' competitors, it would be in a position to provide nationwide long distance services in direct competition with Williams Communications.
Solutions. For the Solutions business, Williams Communications is the largest independent provider of integrated communications solutions to businesses throughout North America. Though 30 percent owned by Northern Telecom, Solutions maintains strong relationships with other manufacturers of products that it sells to its customers. Solutions' competitors include communications equipment distributors, network integrators,
and manufacturers of equipment (including in some instances those manufacturers whose products Solutions also sells). WCS has many competitors ranging from Lucent Technologies, Siemens, and Cisco Systems to small individually-owned companies that sell and service customer-premise equipment. Because WCS sells and installs equipment manufactured by third parties and provides maintenance services on the equipment it sells, it seeks to compete by giving customers their choice of high quality, technologically advanced equipment along with high quality service.
Applications. Vyvx's video and multimedia transmission operations compete primarily with companies offering video or multimedia transmission services by means of satellite facilities and to a lesser degree with companies offering transmission services via microwave facilities or fiber-optic cable. Vyvx competes by providing high quality services in its niche market.
OWNERSHIP OF PROPERTY
Network. Williams Communications owns part of the fiber-optic transmission facilities and leases the remainder. Approximately 10,000-route miles of its owned facilities are comprised of a single fiber, which is on a portion of the fiber optic network of MCI WorldCom, Inc. and is restricted until July 1, 2001, to multimedia content usage. Williams Communications retained this fiber when a predecessor of MCI WorldCom purchased Williams Communications' network services operations in 1995. Williams Communications carries signals by means of its own fiber-optics facilities, as well as carrying signals over fiber-optic facilities leased from third-party interexchange carriers and the various local exchange carriers. Williams Communications holds its satellite transponder capacity under various agreements. Williams Communications owns part of its teleport facilities and holds the remainder under either a management agreement or long-term facilities leases.
Network intends to obtain capacity primarily by means of the fiber optic networks Williams Communications is constructing or plans to construct or acquire, as well as acquiring dark fiber rights on fiber optic facilities of other carriers. Network obtains dark fiber rights in the form of the purchase or lease of "indefeasible rights of use" or "IRUs" in specific fiber strands. Purchased IRUs have many of the characteristics of ownership, including many of the associated risks, but the owner of the fiber optic cable retains legal title to the fibers. Specifically, an IRU is an exclusive, indefeasible right to use the specified property for a term essentially representing the economic life of the property. The grant of an IRU transfers the risks and rewards of ownership but does not convey title, ownership, or rights of possession in the network, the individual fibers comprising the network, the related right-of-way agreements, or any other real or personal property. The transferee of an IRU typically has a right to retake possession at the end of the contract term, which generally exceeds 20 years.
ENVIRONMENTAL MATTERS
Williams Communications is subject to federal, state, and local laws and regulations relating to the environmental aspects of its business. Management believes that Williams Communications' operations are in substantial compliance with existing environmental legal requirements. Management expects that compliance with such existing environmental legal requirements will not have a material adverse effect on the capital expenditures, earnings, and competitive position of Williams Communications.
WILLIAMS INTERNATIONAL COMPANY
Williams International Company, through subsidiaries, has made direct investments in energy and telecommunications projects primarily in South America and Australia and continues to explore and develop additional projects for international investment. Williams International also has investments in energy, telecommunications, and infrastructure development funds in Asia and Latin America.
El Furrial. Williams International owns a 67 percent interest in a venture near the El Furrial field in eastern Venezuela that constructs, owns, and operates medium and high pressure gas compression facilities for Petroleos de Venezuela (PDVSA), the state owned petroleum corporation of Venezuela.
The medium pressure facility compresses 130 MMcf per day of raw natural gas from 100 to 1,200 p.s.i.g. for delivery into a natural gas processing plant owned by PDVSA. The high pressure facility compresses 450 MMcf per day of processed natural gas from 1,100 to 7,500 p.s.i.g. for injection into PDVSA's El Furrial producing field.
The medium pressure facility began operations in November 1997. The high pressure facility began operations in September 1998. An expansion of the high pressure facility to 650 MMcf per day is underway, and Williams International anticipates that the expansion will be complete in the second half of 1999.
Jose Terminal. In November 1998 a consortium in which Williams International owns 45 percent, entered into an agreement with PDVSA to purchase the Jose Terminal, an 800,000 Bbp per day petroleum storage and shiploading facility in northeastern Venezuela, for a 20-year renewable term. As part of the transaction, PDVSA, directly and indirectly through its partners, has committed to store and shipload an average of 873,000 Bbp per day of crude oil during the first 20 years of the transaction. The interim operations began in the first quarter of 1999, and formal closing is expected in the second quarter of 1999.
Apco Argentina. Williams International also owns an interest in Apco Argentina Inc., an oil and gas exploration and production company with operations in Argentina. Apco Argentina's principal business is its 47.6 percent interest in the Entre Lomas concession in southwest Argentina. It also owns a 45 percent interest in the Canadon Ramirez concession and a 1.5 percent interest in the Acambuco concession.
At December 31, 1998, 1997, and 1996, estimated developed, proved reserves net to Apco Argentina were 15.5, 23.7, and 24.2 million barrels, respectively, of oil, condensate, and plant products, and 26.8, 35.8, and 44.3 Bcf, respectively, of natural gas. Estimated undeveloped, proved reserves net to Apco Argentina were 5.1, 9.5, and 10.5 million barrels, respectively, of oil, condensate, and plant products, and 700 MMcf, 800 MMcf, and 2.5 Bcf, respectively, of natural gas.
At December 31, 1998, the gross and net developed concession acres owned by Apco Argentina totaled 37,140 acres and 17,093 acres, respectively, and the gross and net undeveloped concession acres owned were 504,860 acres and 115,493 acres, respectively. At December 31, 1998, Apco Argentina owned interests in 452 gross producing wells and 212 net producing wells on its concession acreage.
Total net production sold during 1998, 1997, and 1996 was 1.7, 1.8, and 1.6 million barrels, respectively, of oil, condensate, and plant products, and 7.7, 7.7, and 8.4 Bcf, respectively, of natural gas. The average production costs, including all costs of operations such as remedial well workovers and depreciation of property and equipment, per barrel of oil produced were $9.09, $8.27, and $8.15, respectively, and per Mcf of natural gas produced were $.23, $.21, and $.22, respectively. The average wellhead sales price per barrel of oil sold were $12.71, $19.52, and $20.87, respectively, and per Mcf of natural gas sold were $1.33, $1.34, and $1.33, respectively, for the same periods.
Lightel and Brazilian Cellular Project. Williams International owns a 20 percent equity interest in Lightel, S.A., a company that owns interests in a local exchange carrier, a cable television company, and cellular telephone companies in Brazil. In April 1998 Williams International participated in Lightel's acquisition of licenses to provide cellular telephone service in the States of Sao Paulo, Rio de Janeiro, and Espirito Santo by issuing convertible debt to Lightel to help fund the investment and by directly investing in ATL -- Algar Telecom Leste, S.A. which holds the Rio de Janeiro and Espirito Santo concession in exchange for a 30 percent equity ownership interest in ATL. Construction on the cellular network began in 1998 and is expected to be complete in the first quarter of 1999. In February 1999 Williams International exercised its right of first refusal to acquire an additional 35 percent equity interest in ATL. It anticipates completing the transaction before the end of the first quarter of 1999.
PowerTel. In August 1998 Williams International closed a transaction under which it will eventually own an approximate 45 percent direct and 2.4 percent indirect interest in PowerTel Limited (a publicly traded corporation in which three Australian electric utilities will own a 30 percent interest) to build, own, and operate a fiber optic telecommunications network in Australia serving the cities of Brisbane, Sydney, and Melbourne, as well as other cities. Engineering and construction work on the network began in the fourth quarter of 1998, and commercial operations are expected to commence midyear 1999.
MetroCom. In March 1999 Williams International plans to acquire a 19.9 percent equity interest in Metrocom, S.A., a Chilean company formed by Metrogas, S.A., to build, own, and operate a telecommunications network providing high-quality, low-cost local, Internet, data, and voice services to businesses and residences in the Santiago metropolitan area, focusing on the commercial and high-end residential markets. Metrogas, S.A., whose shareholders consist of several large international and Chilean electric utilities and energy companies, is installing a natural gas distribution network in Santiago along with telecommunications ducts for the installation of the fiber optic network. The estimated cost of the investment is approximately U.S. $24.5 million.
OTHER INFORMATION
Williams Holdings believes that it has adequate sources and availability of raw materials to assure the continued supply of its services and products for existing and anticipated business needs. At December 31, 1998, Williams Holdings had approximately 17,450 full-time employees, of whom approximately 1,312 were represented by unions and covered by collective bargaining agreements. In September 1998 Williams created three new companies in order to streamline payroll processing and reduce costs. In connection with this, Williams transferred its employees to one of these companies, and the employees are now jointly employed by Williams and one of these new companies. This change had no impact on Williams' management structure or on its employees' seniority and benefits. Williams considers its relations with its employees to be generally good.
FORWARD-LOOKING INFORMATION
Certain matters discussed in this report, excluding historical information, include forward-looking statements. Although Williams Holdings believes these forward-looking statements are based on reasonable assumptions, it cannot give any assurance that it will reach every objective. Williams Holdings is making these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.
As required by the Act, Williams Holdings identifies the following important factors that could cause actual results to differ materially from any results projected, forecasted, estimated, or budgeted:
- changes in general economic conditions in the United States
- changes in laws and regulations to which Williams Holdings is subject, including tax, environmental, and employment laws and regulations
- the cost and effects of legal and administrative claims and proceedings against Williams Holdings or its subsidiaries
- conditions of the capital markets Williams Holdings utilizes to access capital to finance operations
- the ability to raise capital in a cost effective way
- Year 2000 readiness of Williams Holdings, its customers, and its vendors
- the effect of changes in accounting policies
- the ability to manage rapid growth
- the ability to control costs
- changes in foreign economies, laws, and regulations, especially in Brazil, Argentina, Venezuela, and Australia where Williams Holdings has made direct investments
- political developments in foreign countries, especially in Brazil, Argentina, Venezuela, and Australia where Williams Holdings has made direct investments
- the impact of future federal and state regulations of business activities, including allowed rates of return, the pace of deregulation in retail natural gas and electricity markets, and the resolution of other regulatory matters discussed herein
- fluctuating energy commodity prices
- fluctuating corn prices, which affect Williams Holdings' ethanol business
- the ability of Williams Holdings' energy businesses to develop expanded markets and product offerings as well as their ability to maintain existing markets
- future utilization of pipeline capacity will depend on energy prices, competition from other pipelines and alternate fuels, the general level of natural gas and petroleum product demand, decisions by customers not to renew expiring natural gas transportation contracts, and weather conditions
- the accuracy of estimated hydrocarbon reserves and seismic data
- successful completion of the communications network build
- the ability to successfully market capacity on the communications network
- technological developments, high levels of competition, lack of customer diversification, and general uncertainties of governmental regulation in the communications industry
- significant competition on pricing and product offerings for the Solutions business unit
- the ability of the Solutions business unit to introduce and market competitive products and services
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Williams Holdings has no significant amounts of revenue or segment profit or loss attributable to export sales. See Item 1(c) for a description of Williams Energy's and Williams International's export sales activities.
ITEM 2. PROPERTIES
See Item 1(c) for description of properties.
ITEM 3. LEGAL PROCEEDINGS
For information regarding certain proceedings pending before federal regulatory agencies, see Note 17 of Notes to Consolidated Financial Statements. Williams Holdings is also subject to other ordinary routine litigation incidental to its businesses.
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 the PRP status of these subsidiaries will have a material adverse effect on its financial position, results of operations or net cash flows.
The Midstream Gas & Liquids unit of Williams Energy had recorded an aggregate liability of approximately $10 million, representing the current estimate of future environmental and remediation costs. Williams Energy also accrues environmental remediation costs for its petroleum products pipelines, retail petroleum, refining, and propane marketing operations primarily related to soil and groundwater contamination. At December 31, 1998, Williams Energy and its subsidiaries had reserves, in addition to the reserves listed above, totaling approximately $31 million. Williams Energy recognizes receivables related to environmental remediation costs from state funds as a result of laws permitting states to reimburse certain expenses associated with underground storage tank problems and repairs. At December 31, 1998, Williams Energy and its subsidiaries had receivables totaling $14 million. 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.
Other legal matters
On April 7, 1992, a liquefied petroleum gas explosion occurred near an underground salt dome storage facility located near Brenham, Texas, and owned by an affiliate of MAPCO Inc., Seminole Pipeline Company. MAPCO Inc., as well as Seminole, Mid-America Pipeline Company, MAPCO Natural Gas Liquids Inc., and other non-MAPCO entities were named as defendants in civil action lawsuits filed in state district courts located in four Texas counties. Seminole and the above-mentioned subsidiaries of MAPCO Inc. have settled in excess of 1,600 claims in these lawsuits. The only lawsuit remaining is the Dallmeyer case which was tried before a jury in Harris County, Texas. In Dallmeyer, the judgment rendered in March 1996 against defendants Seminole and MAPCO Inc. and its subsidiaries totaled approximately $72 million, which included nearly $65 million of punitive damages awarded to the 21 plaintiffs. Both plaintiffs and defendants have appealed the Dallmeyer judgment to the Court of Appeals for the Fourteenth District of Texas in Harris County. The defendants seek to have the judgment modified in many respects, including the elimination of punitive damages as well as a portion of the actual damages awarded. If the defendants prevail on appeal, it will result in an award significantly less than the judgment. The plaintiffs have cross-appealed and seek to modify the judgment to increase the total award plus interest to exceed $155 million. In February and March 1998, the defendants entered into settlement agreements involving 17 of the 21 plaintiffs to finally resolve their claims against all defendants for an aggregate payment of approximately $10 million. These settlements have satisfied and reduced the judgment on appeal by approximately $42 million. As to the remaining four plaintiffs, the Court of Appeals issued its decision on October 15, 1998, which, while denying all of the plaintiffs' cross-appeal issues, affirmed in part and reversed in part the trial court's judgment. The defendants had entered into settlement agreements with the remaining plaintiffs which, in light of the decision, Williams believes will provide for aggregate payments of approximately $13.6 million, the full amount of which has been previously accrued.
In 1991 the Southern Ute Indian 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 the extraction of coal-seam gas from the coal strata was wrongful. The Tribe sought compensation for the value of the coal-seam gas. The Tribe also sought 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 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 against any losses that may arise in respect of certain properties subject to the lawsuit. On July 16, 1997, the Court of Appeals reversed the decision of the District Court, held that the Tribe owns the coal-seam gas produced from certain coal strata on fee lands within the exterior boundaries of the Tribe's reservation, and remanded the case to the District Court for further proceedings. On September 16, 1997, Amoco Production Company, the class representative for the defendant class (of which Williams Production is a part), filed its motion for rehearing en banc before the Court of Appeals. On July 20, 1998, the Court of Appeals sitting en banc affirmed the panel's decision. The U.S. Supreme Court has granted a writ of certiorari in respect of this decision.
In late March 1999 Williams Production, BP Amoco, and the Tribe announced that they are in settlement negotiations to finalize the terms of an agreement in connection with the claims asserted against Williams. Under the proposed settlement, Williams Production will convert its net profits interest in the production from the oil and gas leases in dispute into a working interest. A portion of Williams Production's working interest will then be transferred to the Tribe effective January 1, 1999. The Tribe will release Williams Production from all other claims asserted in the lawsuit. This pending settlement agreement does not address key issues still being pursued on appeal to the Supreme Court, including the ownership of the natural gas in the coal formation, tribal severance tax payments, and other matters. The Supreme Court is expected to render its decision by mid-1999. The details of this settlement are still being negotiated, and it must be
approved by the District Court after an opportunity for review and comment. Williams believes the parties will be successful in reaching a final agreement on the partial settlement in principal and that it will be approved by the District Court.
In 1998 the United States Department of Justice informed Williams that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams and certain of its wholly owned subsidiaries including Williams Field Services Company and Williams Production Company. Mr. Grynberg has also filed claims against approximately 300 other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, civil penalty, attorneys' fees, and costs.
In addition to the foregoing, various other proceedings are pending against Williams 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, recovery from customers, or other indemnification arrangements, will have a materially adverse effect upon Williams Holdings' future financial position, results of operations, or cash flow requirements.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1998, all of the outstanding shares of Williams Holdings' Common Stock were owned by Williams. Williams Holdings' Common Stock is not publicly traded, and there is no market for such shares.
ITEM 6. SELECTED FINANCIAL DATA
The following financial data as of December 31, 1998 and 1997 and for the three years ended December 31, 1998 are an integral part of, and should be read in conjunction with, the consolidated financial statements and notes thereto. All other amounts have been prepared from the company's financial records. Amounts below reflect the combined operations and financial position of Williams Holdings and MAPCO and the adoption of the Statement of Financial Accounting Standards No. 131 (see Note 19). 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-15 of this report.
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(MILLIONS)
Revenues(1)........................ $5,942.6 $6,520.3 $5,157.2 $4,161.7 $3,878.5
Income (loss) from continuing
operations(2).................... (10.3) 301.0 358.9 276.0 175.7
Income (loss) from discontinued
operations(3).................... (14.3) (6.3) (32.7) 1,029.3 122.9
Total assets....................... 11,850.6 9,134.5 7,334.6 6,515.5 5,555.7
Long-term debt..................... 2,917.0 1,525.5 1,421.5 1,021.7 1,169.2
Stockholder's equity............... 3,923.6 3,525.5 3,152.7 2,849.0 2,422.5
|
(1) See Note 1 for discussion of the 1998 change in the reporting of certain marketing activities from a "gross" basis to a "net" basis consistent with fair value accounting. See Note 2 for discussion of Williams Holdings' 1997 acquisition of Nortel's customer-premise equipment sales and service operations.
(2) See Notes 2 and 5 for discussion of the gain on sale of interest in subsidiary, significant asset sales, write-offs and other accruals in 1998, 1997 and 1996. Income from continuing operations in 1995 includes a $41.4 million pre-tax charge related to the cancellation of a commercial coal gasification venture and a $16 million after-tax gain related to the sale of Williams Holdings' 15 percent interest in Texasgulf Inc. Income from continuing operations in 1994 includes a $22.7 million pre-tax gain from the sale of a portion of Williams Holdings' interest in Northern Border Partners, L.P. and a $68.7 million pre-tax charge related to the settlement of a dispute with the State of Alaska related to royalty oil purchase agreements. In addition, the 1994 amounts include a pre-tax gain of $25.4 million related to the exchange of 36.6 million shares of Williams common stock for Williams convertible debentures and warrants and a pre-tax gain on the sale of Williams common stock of $10.8 million.
(3) See Note 3 for discussion of the losses from discontinued operations for 1998, 1997 and 1996. The income from discontinued operations for 1995 primarily relates to the gain from the 1995 sale of Williams Holdings' network services operations, while the 1994 amount reflects the operating results of the network services operations and the MAPCO Coal operations.
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1998 vs. 1997
CONSOLIDATED OVERVIEW. Williams Holdings' revenues decreased $578 million, or 9 percent, due primarily to the $384 million impact in 1998 of reporting certain revenues net of costs within Energy Services (see Note 1 of Notes to Consolidated Financial Statements) and lower petroleum products and natural gas liquids sales prices. Favorably effecting revenues were higher revenues from Communications' equipment sales and services activities and excess fiber sales, higher power services revenues and increased petroleum products sales volumes.
Segment costs and expenses decreased $258 million, or 4 percent, due primarily to the $384 million impact in 1998 of reporting certain costs net in revenues within Energy Services (see Note 1) and lower purchase prices for petroleum products. Partially offsetting these decreases were higher costs and expenses within Communications, costs associated with increased petroleum products sales volumes, higher power services costs and $77 million of higher charges in 1998 as compared to 1997. The 1998 charges include $37 million of asset impairments, $51 million of MAPCO merger-related expenses, a $16 million accrual for potential transportation rate refunds and a $23 million accrual for modification of an employee benefit program associated with vesting of paid time off. Included in 1997 are charges totaling $50 million for asset impairments.
Operating income decreased $308 million, or 70 percent, reflecting the change in revenues and segment costs and expenses discussed above and comprised primarily of a $176 million decrease at Energy Services and a $117 million decrease at Communications. Income from continuing operations before extraordinary loss and income taxes decreased $451 million, or 99 percent, due primarily to the lower operating income, $43 million higher interest expense resulting from continued expansion and new projects, the effect of a $45 million gain in 1997 on the sale of interest in subsidiary and the effect of a $66 million gain in 1997 on the sale of assets.
ENERGY MARKETING & TRADING'S revenues decreased $337.7 million, or 15 percent, due primarily to the $384 million impact in 1998 of reporting revenues on a net basis for certain natural gas liquids trading operations previously reported on a "gross" basis (see Note 1) and $95 million lower crude and refined products marketing and trading revenues. In addition, revenues associated with natural gas origination, price-risk management and physical trading decreased $50 million reflecting lower margins, the unfavorable market movement against the natural gas portfolio and the adverse market and supply conditions which resulted from Hurricane Georges in September 1998, partially offset by the $24 million favorable effect of certain contract settlements and terminations. Retail propane revenues decreased $59 million due to the $35 million effect of lower volumes following unseasonably warm weather in 1998 as compared to 1997 and the $24 million effect of lower average propane sales prices. Partially offsetting these decreases were $243 million higher power services revenues including $220 million from new power activity in southern California and additional business growth.
Costs and operating expenses decreased $407 million, or 19 percent, due primarily to the $384 million impact in 1998 of reporting revenues on a net basis for certain natural gas liquids trading operations previously reported on a "gross" basis (see Note 1) and $104 million lower product purchases associated with the marketing and trading of crude and refined products. In addition, retail propane cost of sales decreased $55 million due to the $21 million effect of lower volumes and the $34 million effect of lower average propane purchase costs. These decreases were partially offset by $156 million of costs related to new power activity in southern California.
Segment profit decreased $14.4 million, or 27 percent, due primarily to the $50 million decline in revenues from natural gas trading activities discussed above, $43 million of additional losses from retail natural gas and electric activities and the effect of a $6 million recovery in 1997 of an account previously written off as a bad debt. The $43 million of losses from retail natural gas and electric activities includes $17 million of credit losses and $14 million of asset impairments (included in other (income) expense -- net). The $14 million asset impairment is associated with the company's decision to change focus from selling to small
commercial and residential customers to large end users (see Note 5). The retail natural gas and electric losses also reflect costs incurred to penetrate new markets. Offsetting these decreases were $60 million of higher electric power marketing and trading profits, $17 million lower retail propane operating expenses and $7 million higher natural gas liquids trading profits.
EXPLORATION & PRODUCTION'S revenues increased $9.2 million, or 7 percent, due primarily to the recognition of $22 million of additional deferred income resulting from a 1997 transaction that transferred certain nonoperating economic benefits to a third party and $8 million from a 14 percent increase in company- owned production, partially offset by the $25 million effect of lower average natural gas sales prices for company-owned production and for sales of volumes from the Williams Coal Seam Gas Royalty Trust (Royalty Trust) and royalty interest owners.
Segment profit decreased $3.1 million, or 10 percent, due primarily to $13 million higher depreciation, depletion and amortization, $6 million higher nonproducing leasehold amortization, $2 million higher dry hole costs and $2 million of leasehold impairment costs, partially offset by the $22 million increased recognition of deferred income.
MIDSTREAM GAS & LIQUIDS' revenues decreased $143.8 million, or 15 percent, due primarily to $60 million lower natural gas liquids sales from processing activities reflecting a decline in average liquids sales prices, and the $44 million effect of the shutdown of the Canadian liquids marketing operations in late 1997. Revenues also declined due to $18 million lower natural gas liquids pipeline transportation revenues reflecting 3 percent lower shipments, the passthrough of $9 million lower operating costs to customers and the effect of an $8 million receipt in 1997 of business interruption insurance proceeds, slightly offset by $9 million higher gathering revenues and $8 million associated with a 4 percent increase in natural gas liquids sales volumes.
Costs and operating expenses decreased $88 million, or 15 percent, due primarily to the $50 million effect of the shutdown of the Canadian liquids marketing operations, $9 million lower costs passed through to customers, $15 million lower fuel and replacement gas purchases, and lower natural gas liquids pipeline transportation costs.
Other (income) expense -- net in 1998 includes a loss of approximately $9 million related to the retirement of certain assets and $6 million of unfavorable litigation loss provisions, partially offset by a $6 million gain from the settlement of product imbalances.
Segment profit decreased $60.2 million, or 22 percent, due primarily to $45 million of lower per-unit liquids margins, decreased pipeline transportation shipments, the $9 million loss related to the retirement of certain assets and the effect of an $8 million business interruption insurance receipt in 1997, slightly offset by $9 million higher gathering revenues.
PETROLEUM SERVICES' revenues decreased $20.5 million, or 1 percent, due primarily to a $213 million decrease in revenues from refining operations and $17 million lower product sales from transportation activities, significantly offset by $107 million higher pipeline construction revenue, $54 million higher convenience store sales, and $37 million higher revenues from fleet management and mobile computer technology operations initiated in mid-1997. The $213 million decline in refining revenues reflects $386 million from lower average sales prices, partially offset by $173 million from a 13 percent increase in refined product volumes sold. The $54 million increase in convenience store sales is due primarily to the May 1997 EZ-Serve acquisition, additional travel centers and increased per-store merchandise sales. Increases of $101 million in gasoline and diesel sales volumes and $47 million higher merchandise sales were partially offset by a $94 million impact of lower average retail gasoline and diesel sales prices.
Costs and expenses increased $27 million, or 1 percent, due primarily to $102 million of pipeline construction costs, $46 million higher convenience store merchandise purchases and operating costs resulting from the EZ-Serve acquisition, additional travel centers and increased per-store sales, $41 million higher costs from fleet management and mobile computer technology operations, $24 million higher general and administrative expenses and a $15.5 million accrual for potential transportation rate refunds to customers (included in other (income) expense -- net) (see Note 17). Substantially offsetting these increases were a $194 million decrease from refining operations and $15 million lower cost of product sales from transportation
activities. The $24 million increase in general and administrative expenses is due, in part, to increased activities in human resources development, investor/media/customer relations and business development. The $194 million decrease from refining operations reflects a $343 million decrease due to lower average crude oil purchase prices, partially offset by a $143 million increase related to an increase in processed barrels sold and $7 million higher operating costs at the Memphis refinery. Convenience store gasoline and diesel cost of sales remained flat as a $90 million increase from higher sales volumes was offset by lower average purchase prices.
Segment profit decreased $47.5 million, or 24 percent, due primarily to the $15.5 million accrual for potential refunds to transportation customers, $13 million lower refinery gross margins, $7 million higher operating costs due to increased production levels at the Memphis refinery, approximately $24 million higher general and administrative expenses and a $4.4 million accrual for modification of an employee benefit program associated with vesting of paid time off, partially offset by $6 million higher product transportation revenues, $7 million increased profits from convenience store operations and $5 million from pipeline construction activities.
COMMUNICATIONS SOLUTIONS' revenues increased $160.3 million, or 13 percent, due primarily to the April 30, 1997, combination of the Nortel customer premise equipment sales and services operations, which contributed an additional $196 million of revenue during the first four months of 1998. A $30 million increase in maintenance contract revenues was more than offset by $46 million lower new system sales and $31 million lower customer service orders due, in part, to competitive pressures.
Costs and operating expenses increased $116 million, or 13 percent, and selling, general and administrative expenses increased $138 million, or 53 percent, due primarily to the combination with Nortel. Included in the overall increase in selling, general and administrative expenses are $23 million of increased information systems costs associated with expansion and enhancement of the infrastructure and continued costs of maintaining multiple systems while common systems are being developed, $36 million higher selling costs including the effects of large increases in sales and support staff and higher sales commissions in anticipation of a higher revenue base than actually achieved, $12 million increased provision for bad debts, and a $6 million accrual for modification of an employee benefit program associated with vesting of paid time off.
Segment profit decreased $101.4 million from a $47.3 million segment profit in 1997 to a $54.1 million segment loss in 1998, due primarily to the increase in selling, general and administrative costs as described above, $6 million related to information systems cancellations and $7 million of obsolete equipment write-downs, severance and contract loss accruals.
NETWORK APPLICATIONS' revenues decreased $9.1 million, or 4 percent, due primarily to the $14 million effect of the decision to exit the learning content business in November 1997. Partially offsetting this decline was a $9 million increase in audio and video conferencing and business television revenues.
Costs and operating expenses increased $9 million, or 5 percent, due primarily to $8 million higher costs of providing network services following the transfer of fiber assets to Network Services in October 1997 and the $7 million effect of increased audio and video conferencing and business television activities, partially offset by $8 million lower costs as a result of the decision to exit the learning content business in November 1997. A $10 million, or 11 percent, decrease in selling, general and administrative expenses was also due to the decision to exit the learning content business.
Other (income) expense -- net in 1998 includes a $23.2 million write-down
related to the abandonment of a venture involved in the technology and
transmission of business information for news and educational purposes (see Note
5). Other (income) expense -- net in 1997 includes charges totaling $49.8
million related to the decision and formulation of a plan to sell the learning
content business ($28 million), and the write-down of assets and development
costs associated with certain advanced applications (see Note 5). During 1998, a
substantial portion of the learning content business was sold at its approximate
carrying value.
Segment loss decreased $14.1 million from a $108.7 million segment loss in
1997 to a $94.6 million segment loss in 1998, due primarily to the effect of
$49.8 million of charges in 1997, partially offset by the $23.2 million
write-down in 1998, $7 million higher network access costs and a $3 million
accrual for modification of an employee benefit program associated with vesting
of paid time off.
NETWORK SERVICES' revenues increased $151.9 million from $43 million in 1997, due primarily to $64 million of revenue in 1998 from the sale of excess fiber capacity on the newly constructed digital fiber-optic network, $49 million of revenues from providing fiber services to new long-term customers and $27 million higher revenue following the transfer of fiber assets from Network Applications in October 1997.
Costs and operating expenses increased $136 million from $32 million in 1997, due primarily to $38 million of cost of sales of excess fiber capacity, $55 million of leased capacity costs associated with providing customer services prior to completion of the new network, and $17 million higher operating expenses. Selling, general and administrative expenses increased $45 million due primarily to the expansion of the infrastructure to support the new national digital fiber-optic network, including $8 million of increased information systems costs and $8 million for a new national advertising campaign.
Segment profit decreased $29.6 million from a $3.3 million segment profit in 1997 to a $26.3 million segment loss in 1998, due primarily to the cost of expanding the infrastructure in support of the network expansion and losses experienced from providing customer services prior to completion of the new network, partially offset by $26 million of profit from selling excess fiber capacity.
As each phase of the ongoing construction of the planned 32,000 mile full-service wholesale communications network goes into service, revenues and costs are expected to increase. During 1998, 9,000 miles of new network were added increasing the network to 19,000 cable miles at December 31, 1998. The remaining 13,000 miles are planned to come online during 1999 and 2000. This business is expected to contribute an increasing percentage of consolidated revenues but is not expected to contribute significantly to segment profit until 2001. The February 8, 1999, announcement by Williams of a 20-year agreement with SBC Communications, under which Network Services will become the preferred provider of nationwide long-distance voice and data services for SBC Communications, will contribute to the expected network revenue increase in 2000. Additional sales of excess dark fiber capacity along the new network are expected to generate increasing revenues and segment profit during 1999 and 2000.
OTHER segment loss of $14.5 million in 1998 compares to $12.7 million of segment profit in 1997. The 1998 segment loss includes equity losses of $14.8 million from investing activities in a Brazilian communication business in which Williams has a 30 percent interest. This business is constructing a cellular phone network scheduled to be in operation during 1999. In addition, 1998 includes $8 million higher general and administrative expenses as compared to 1997 and $5.6 million of write-downs of international cost investments to market.
GENERAL CORPORATE EXPENSES decreased $11.6 million, or 16 percent, due primarily to expense savings realized following the MAPCO merger, largely offset by MAPCO merger-related costs of $21 million in 1998 compared to $10 million in 1997. An additional $51 million of merger-related costs are included as a component of Energy Services' segment profit (see Note 19). Interest accrued increased $49.8 million, or 38 percent, due primarily to higher borrowing levels including Williams Holdings' commercial paper program and advances from affiliates, partially offset by the $9 million effect of a lower average interest rate. Interest capitalized increased $7.3 million, or 38 percent, due primarily to increased capital expenditures for the fiber-optic network, the Venezuelan gas injection plant and international investment activities. Investing income decreased $3.6 million, or 8 percent, due primarily to $14 million lower interest earned on advances to Williams largely offset by higher interest income on advances to affiliates and long-term notes receivable. For information concerning the $44.5 million gain on sale of interest in subsidiary in 1997, see Note 2. The $66 million gain on sales of assets in 1997 results from the sale of Williams Holdings' interest in the liquids and condensate reserves in the West Panhandle field of Texas (see Note 5). Minority interest in (income) loss of consolidated subsidiaries in 1998 is $30.2 million favorable as compared to 1997 due primarily to losses experienced by Williams Communications Solutions, LLC which has a 30 percent interest held by minority shareholders. Other income (expense) -- net is $15.7 million unfavorable as compared to 1997 due primarily to 1998 litigation accruals and loss provisions totaling $11 million related to assets previously sold, and the effect of a 1997 gain of $4 million on the termination of interest-rate swap agreements.
The $139.2 million, or 90 percent, decrease in the provision for income taxes on continuing operations is primarily a result of lower pre-tax income, partially offset by a higher effective income tax rate in 1998. The
effective income tax rate in 1998 exceeds the federal statutory rate due primarily to the effects of state income taxes and the effects of non-deductible costs, including goodwill. The effective tax rate in 1997 is less than the federal statutory rate due primarily to the effect of the non-taxable gain recognized in 1997 (see Note 2) and income tax credits from coal-seam gas production, partially offset by the effects of state income taxes.
The 1998 and 1997 losses on discontinued operations are attributable to loss provisions for contractual obligations related to the sale of the net assets of the MAPCO coal business in 1996 (see Note 3).
The 1998 and 1997 extraordinary losses result from the early extinguishment of debt (see Note 7).
1997 vs. 1996
CONSOLIDATED OVERVIEW. Williams Holdings' revenues increased $1.4 billion, or 26 percent, due primarily to increased marketing of crude oil and refined products and higher revenues at Communications reflecting increased business activity and revenue contributed by acquisitions, including the 1997 combination of the Nortel customer premise equipment sales and services operations. Partially offsetting these increases was the $141 million impact in 1997 of reporting certain revenues net of costs within Energy Services (see Note 1).
Segment costs and expenses increased $1.4 billion, or 31 percent, due primarily to costs associated with the increased marketing of crude oil and refined products, higher costs and expenses at Communications and $50 million for asset impairments, partially offset by the $141 million impact in 1997 of reporting certain costs net in revenues within Energy Services (see Note 1).
Operating income decreased $95 million, or 18 percent, reflecting the change in revenues and segment costs and expenses discussed above and comprised primarily of a $63 million decrease at Communications and a $20 million decrease at Energy Services. Income from continuing operations before extraordinary loss and income taxes decreased $75 million, or 14 percent, reflecting the lower operating income, increased interest accrued resulting from higher capital expenditures and the effect of the $37 million gain in 1996 on sales of assets, partially offset by a $45 million gain in 1997 on the sale of interest in subsidiary and a $66 million gain in 1997 on the sale of assets.
ENERGY MARKETING & TRADING'S revenues increased $276.4 million, or 14 percent, due primarily to a $488 million increase in marketing of crude oil and refined products from the Memphis refinery. This increase reflects increased demand for petroleum products, aggressive marketing in the Memphis and Ohio River Valley areas and $183 million from the inclusion of Lexas Oil operations, which prior to July 1997 were unconsolidated. Partially offsetting this increase was a $125 million decrease in revenues from energy trading and price-risk management activities, $77 million lower marketing of natural gas liquids associated with Midstream's natural gas liquids transportation activities and a $16 million decrease in revenues from the propane marketing business. The $125 million decrease in revenues from energy trading and price-risk management activities resulted from the 1997 reporting on a net margin basis of certain natural gas and gas liquids marketing operations previously not considered to be included in trading operations. Excluding this decrease, energy trading and price-risk management revenues increased $16 million due primarily to the initial income recognition from long-term electric power contracts, increased physical and notional natural gas volumes of 22 percent and 44 percent, respectively, higher petroleum trading volumes, revenues from new project financing services for energy producers and the sale of excess transportation capacity, partially offset by lower natural gas trading margins as a result of decreased price volatility. The $77 million decrease in marketing of natural gas liquids results mainly from significantly lower natural gas liquids sales prices. The $16 million decrease in revenues from the propane marketing business resulted from the $24 million effect of the sale of certain propane and liquid fertilizer assets in 1996, partially offset by increased propane sales volumes primarily from acquisitions.
Costs and operating expenses increased $335 million, or 19 percent, due primarily to $526 million of additional costs associated with the marketing of crude oil and refined products from the Memphis refinery, $23 million of increased operating expenses associated with propane marketing acquisitions and growth initiatives and a $16 million increase in propane purchase costs relating to increased volumes, partially offset by the $141 million effect of the 1997 reporting on a net margin basis of certain natural gas and gas liquids
marketing operations previously not considered to be included in trading operations, $73 million lower costs of marketing natural gas liquids associated with Midstream's natural gas liquids transportation activities and $21 million associated with the sale of certain propane and liquid fertilizer assets. Selling, general and administrative expenses increased $32 million, or 52 percent, due primarily to propane business acquisitions and the expenses associated with expansion of certain business growth platforms.
Segment profit decreased $85.1 million, or 61 percent, due primarily to $38 million lower gross margins on the marketing of crude oil and refined products from the Memphis refinery, $32 million higher selling, general and administrative expenses, $23 million of increased operating expenses associated with propane marketing acquisitions and growth initiatives, and $10 million lower gross margins on propane marketing operations, partially offset by the $16 million increase in net energy trading and price-risk management revenues and a $6 million recovery of an account previously written off as a bad debt.
EXPLORATION & PRODUCTION'S revenues increased $47.7 million, or 58 percent, due primarily to the $20 million effect of higher average natural gas sales prices for company-owned production, the $14 million effect of higher average natural gas sales prices from the sale of volumes from the Royalty Trust and royalty interest owners, and the $9 million effect of a 21 percent increase in company-owned production volumes.
Costs and operating expenses increased $23 million, or 32 percent, due primarily to higher Royalty Trust natural gas purchase prices, increased production activities and higher dry hole costs.
Segment profit increased $27.5 million, from $2.8 million in 1996, due primarily to the increase in average natural gas sales prices and company-owned production volumes, partially offset by higher expenses associated with increased activity levels.
MIDSTREAM GAS & LIQUIDS' revenues increased $155.2 million, or 20 percent, due primarily to $53 million related to a full year of Canadian marketing operations in 1997 as compared to four months in 1996, $44 million of higher natural gas liquids sales from processing activities, the receipt of $8 million of business interruption insurance proceeds related to a 1996 claim, and higher gathering, processing and condensate revenues of $40 million, $5 million and $11 million, respectively. These increases were slightly offset by the impact of the January 1997 sale of the West Panhandle operations. The $44 million increase in natural gas liquids sales from processing activities is due to a 37 percent increase in volumes, slightly offset by lower average sales prices. Gathering revenues increased as a result of a 16 percent increase in volumes following the transfer of Williams Gas Pipelines Central (a wholly-owned subsidiary of Williams Holdings' parent) gathering assets to Midstream Gas & Liquids in the last half of 1996.
Costs and operating expenses increased $154.4 million, or 35 percent, due primarily to higher fuel and replacement gas purchases associated with gathering and processing activities, the $52 million impact of a full year of Canadian marketing operations, costs associated with the gathering assets transferred to Midstream Gas & Liquids from Williams Gas Pipelines Central and higher operating and maintenance and depreciation expenses, slightly offset by the $13 million effect of the sale of the West Panhandle operations.
Other (income) expense -- net for 1996 includes a $20 million gain from the property insurance coverage associated with construction of replacement gathering facilities and $6 million of gains from the sale of two small gathering systems, partially offset by $5 million of environmental remediation accruals.
Segment profit decreased $23.2 million, or 8 percent, due primarily to the $30 million effect of lower per-unit liquids margins, an $18 million impact of the sale of the West Panhandle operations, and $12 million lower insurance recoveries in 1997 as compared to 1996, partially offset by the $24 million effect of increased liquids volumes sold and the transfer of gathering assets from Williams Gas Pipelines Central.
PETROLEUM SERVICES' revenues increased $100.8 million, or 4 percent, due primarily to a $27 million increase in ethanol sales, $25 million from new fleet management and mobile computer technology operations, a $24 million increase in product sales from transportation activities and $18 million higher retail sales revenues. Ethanol sales increased as a result of 22 percent higher sales volumes, partially offset by lower average ethanol sales prices. Ethanol production was reduced during the second half of 1996 due to unfavorable market conditions. The retail sales increase reflects higher gasoline and merchandise sales
following the EZ-Serve convenience stores acquisition, partially offset by lower diesel sales. A 5 percent increase in processed volumes sold was offset by slightly lower average refined product sales prices. Products pipeline shipments and average rates were comparable to 1996.
Costs and operating expenses increased $33.6 million, or 1 percent, due primarily to a $35 million increase in retail costs following the EZ-Serve convenience stores acquisition, $33 million associated with the new fleet management and mobile computer technology operations, $23 million higher product purchases associated with transportation activities, $15 million higher operating expenses associated with increased refinery throughput and maintenance activity, and $9 million higher costs from increased ethanol production, largely offset by $84 million lower crude oil costs at the refineries.
Segment profit increased $60.8 million, or 43 percent, due primarily to a $71 million increase from petroleum refining operations and a $15 million increase related to increased ethanol sales volumes and per-unit margins, partially offset by an $18 million decrease from retail operations and $9 million of losses associated with the new fleet management and mobile computer technology operations. The $71 million petroleum refining increase reflects higher per-unit margins and 5 percent higher volumes processed, partially offset by $10 million of higher costs associated with increased maintenance activity. The retail operations decrease reflects the additional costs associated with the implementation of strategic growth initiatives and lower per-unit margins on gasoline sales.
COMMUNICATIONS SOLUTIONS' revenues increased $638.4 million, or 112 percent, due primarily to acquisitions which contributed revenues of approximately $556 million, including $536 million from the April 30, 1997, combination of the Nortel customer premise equipment sales and services operations. Additionally, increased business activity resulted in a $119 million revenue increase in new system sales, partially offset by a $46 million decrease in system modification revenues.
Costs and operating expenses increased $460 million, or 105 percent, due primarily to the $393 million impact of the combination with Nortel. In addition, costs and operating expenses increased due to $50 million of higher costs associated with increased new systems sales activity and $16 million of higher costs related to system modification activity. Selling, general and administrative expenses increased $148 million, or 129 percent, due primarily to the combination with Nortel in addition to costs associated with expanding the infrastructure for future growth.
Segment profit increased $33 million from $14.3 million in 1996, due primarily to the combination with Nortel, partially offset by increased expenses associated with expanding the infrastructure.
NETWORK APPLICATIONS' revenues increased $84.7 million, or 65 percent, due primarily to 1997 acquisitions which contributed revenues of approximately $81 million.
Costs and operating expenses increased $83 million, or 86 percent, due primarily to the $68 million impact of acquisitions and higher expenses for developing and expanding video transmission services. Selling, general and administrative expenses increased $46 million, or 94 percent, due primarily to acquisitions and higher expenses for expanding the infrastructure for future growth.
Other (income) expense -- net in 1997 includes charges totaling $49.8 million related to the decision and formulation of a plan to sell the learning content business ($28 million), and the write-down of assets and development expenses associated with certain advanced applications (see Note 5).
Segment loss increased $93.6 million to $108.7 million, due primarily to the $49.8 million in charges described above and the expense of developing infrastructure while integrating the most recent acquisitions.
NETWORK SERVICES' revenues increased $31.9 million to $43 million in 1997, reflecting $14 million contributed by a March 1997 acquisition, $11 million from fiber assets transferred from Network Applications in late 1997 and internal growth.
Costs and operating expenses increased $27 million from $5 million in 1996, reflecting a $15 million effect of the transfer of fiber assets from Network Applications late in 1997 and $8 million from the March 1997 acquisition.
Segment profit decreased $2.5 million, or 43 percent, due primarily to an increase in selling, general and administrative expenses.
GENERAL CORPORATE EXPENSES increased $20.5 million, or 41 percent, due primarily to higher employee compensation expense, $10 million of costs related to the MAPCO acquisition, and a higher cost allocation percentage from Williams resulting from the combination of customer-premise equipment sales and service operations with Nortel and an increased level of other operations. Interest accrued increased $38.6 million, or 41 percent, due primarily to higher borrowing levels including increased borrowing under the $1 billion bank-credit facility and commercial paper program, partially offset by a lower average interest rate. The lower average interest rate reflects lower rates on new 1997 borrowings as compared to previously outstanding borrowings. Interest capitalized increased $14.5 million, from $4.8 million in 1996, due primarily to capital expenditures for the Discovery pipeline project and Communications' fiber-optic network. Investing income increased $5.2 million, or 13 percent, due primarily to interest earned on increased advances to Williams. For information concerning the $44.5 million 1997 gain on sale of interest in subsidiary, see Note 2. The $66 million 1997 gain on sales of assets results from the sale of Williams Holdings' interest in the liquids and condensate in the West Panhandle field of Texas (see Note 5). The $36.5 million 1996 gain on sales of assets results from the sale of the fertilizer and Iowa propane assets and the sale of certain communication rights (see Note 5). The $18.2 million minority interest in income of consolidated subsidiaries in 1997 is related primarily to the 30 percent interest held by Williams Communications Solutions, LLC's minority shareholder (see Note 2). The $17.4 million unfavorable change in other income (expense) -- net in 1997 is due primarily to $9 million of costs associated with Williams Holdings' sales of receivables program started in 1997, and the effects of gains realized on the sale of corporate aircraft in 1996 and $5 million of favorable accrual adjustments in 1996.
The provision for income taxes on continuing operations decreased $16.6 million, or 10 percent. The effective income tax rate in 1997 is less than the federal statutory rate due primarily to the effect of the non-taxable gain recognized in 1997 (see Note 2) and income tax credits from coal-seam gas production, partially offset by the effects of state income taxes. The effective tax rate in 1996 is less than the federal statutory rate due primarily to income tax credits from research activities and coal-seam gas production, partially offset by the effects of state income taxes. In addition, the 1996 tax provision includes recognition of favorable state income tax adjustments of $6 million.
On September 10, 1996, Williams Holdings sold the net assets of the MAPCO coal business to Alliance Coal Corporation for $236 million in cash. The sale resulted in losses in 1997 and 1996 which are reported as discontinued operations along with the operating results for 1996 (see Note 3).
The 1997 extraordinary loss results from the early extinguishment of debt (see Note 7).
FINANCIAL CONDITION AND LIQUIDITY
MAPCO Acquisition
On March 28, 1998, Williams (Williams Holdings' parent) completed the acquisition of MAPCO Inc. by exchanging 1.665 shares of Williams common stock for each outstanding share of MAPCO common stock. In addition, outstanding MAPCO employee stock options were converted into 5.7 million shares of Williams common stock. Upon completion, 98.8 million shares of Williams common stock were issued. MAPCO was engaged in the NGL pipeline, petroleum refining and marketing, and propane marketing businesses. Upon completion of the merger, Williams transferred its interest in MAPCO to Williams Holdings, and MAPCO became part of the Energy Services business unit.
The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests. Accordingly, all prior period financial information presented includes the combined results of operations, financial condition and liquidity of MAPCO and Williams Holdings.
Liquidity
Williams Holdings 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 and its commercial paper program, which can be utilized without
limitation under existing loan covenants, as amended in January 1999. Williams
Holdings is a participant in Williams' $1 billion bank-credit facility and has
access to the entire $1 billion facility, subject to borrowing by other
affiliated companies. At December 31, 1998, Williams Holdings had access to $361
million of liquidity including $306 million available under the $1 billion
bank-credit facility. This compares with liquidity of $165 million at December
31, 1997, and $290 million at December 31, 1996.
During 1998, Williams Holdings increased its commercial paper program to $1 billion from $650 million. The commercial paper program is backed by short-term bank-credit facilities totaling $1 billion. At December 31, 1998, $903 million of commercial paper was outstanding under the program. In January 1999, Williams Holdings' commercial paper program was increased to $1.4 billion with the short-term bank-credit facilities increased to the same amount.
In addition, Williams Holdings and its subsidiaries had net amounts receivable from Williams totaling $1 billion at December 31, 1998, excluding parent company debentures with a face value of $360 million (see Note 4), compared to $231 million at December 31, 1997, and $124 million at December 31, 1996. The increase in amounts receivable from Williams at December 31, 1998 from December 31, 1997, reflects additional advances to the parent under Williams' cash-management system, primarily due to proceeds from Williams Holdings' commercial paper program, long-term debt issuances and proceeds from the sale of limited partnership member interest.
Williams Holdings believes its parent can meet its cash needs. Williams has access to $738 million of liquidity at December 31, 1998 including $306 million available under its $1 billion bank-credit facility previously discussed, as compared to liquidity of $166 million and $630 million at December 31, 1997 and 1996, respectively. The lower liquidity level at December 31, 1997, reflected the use of the $1 billion bank-credit facility to provide interim financing related to a debt restructuring program. This restructuring program was completed during the first quarter of 1998 and a significant portion of the $1 billion bank-credit facility was repaid with the proceeds from long-term financings.
At December 31, 1998, Williams Holdings has $595 million of shelf availability remaining under registration statements filed with the Securities and Exchange Commission. These registration statements may be used to issue a variety of debt or equity securities. Interest rates and market conditions will affect amounts borrowed, if any, under these arrangements. In addition, Williams Holdings uses short-term uncommitted bank lines to manage liquidity. Williams Holdings believes any additional financing arrangements can be obtained on reasonable terms if required.
On November 19, 1998, Williams Holdings announced that it intends to sell a minority interest in its communications business. The initial equity offering is expected to be filed in the second quarter of 1999 and yield proceeds of $500 million to $750 million. In addition, Williams Holdings expects Communications to issue high-yield public debt of approximately $1.3 billion to $1.5 billion in 1999. On February 8, 1999, Williams Holdings announced that, simultaneously with the public equity offering, SBC Communications plans to acquire up to a 10 percent interest in Williams Holdings' communications business for an investment of up to $500 million. Proceeds from these transactions will be reinvested in the continued construction of Williams Holdings' national fiber-optic network and other expansion opportunities.
During 1998, Williams Holdings entered into an agreement described as a securitized asset lease program designed to fund up to $750 million of capital expenditures for the fiber-optic network. A total of $463 million remains available under this agreement. See Note 12 for additional information.
Williams Holdings had a net working-capital deficit of $640 million at
December 31, 1998, compared with $352 million at December 31, 1997. The increase
in the working-capital deficit at December 31, 1998, as compared to prior
year-end is primarily a result of short-term borrowings under the commercial
paper program. Williams Holdings 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.
During 1999, Williams Holdings expects to finance capital expenditures, investments and working-capital requirements through cash generated from operations, Communications' initial equity and high-yield debt offerings, and the use of the available portion of its $1 billion bank-credit facility and asset lease program, commercial paper, short-term uncommitted bank lines, private borrowings, advances from its parent or debt offerings.
Operating Activities
Cash provided by continuing operating activities was: 1998 -- $86 million; 1997 -- $560 million; and 1996 -- $390 million. Cash provided by operating activities in 1997 includes $200 million of proceeds from the sale of receivables program begun in 1997. Energy trading assets and liabilities increased in 1998 due primarily to increased physical power trading activity.
Financing Activities
Net cash provided by financing activities was: 1998 -- $2.3 billion; 1997 -- $575 million; and 1996 -- $265 million. Long-term debt proceeds, net of principal payments, were $567 million, $122 million and $573 million during 1998, 1997 and 1996, respectively. Notes payable proceeds, net of notes payable payments, were $210 million and $542 million during 1998 and 1997, respectively. Notes payable payments, net of notes payable proceeds, were $161 million during 1996. The increase in net new borrowings during 1998, 1997 and 1996 reflects borrowings to fund capital expenditures, investments and acquisition of businesses.
Long-term debt, at December 31, 1998, was $2.9 billion, including $948 million in advances from affiliates, compared with $1.5 billion at December 31, 1997, and $1.4 billion at December 31, 1996. At December 31, 1997 and 1996, $162 million and $129 million, respectively, in current debt obligations were classified as non-current obligations based on Williams Holdings' intent and ability to refinance on a long-term basis. The 1998 increase in long-term debt is due primarily to $425 million of public debt issued and $948 million of advances from affiliates. The long-term debt to debt-plus-equity ratio was 42.6 percent at December 31, 1998 compared to 30.2 percent and 31.1 percent at December 31, 1997 and 1996, respectively. If short-term notes payable and long-term debt due within one year are included in the calculations, these ratios would be 51.1 percent, 39.5 percent and 31.8 percent, respectively.
Williams Holdings paid cash dividends to Williams of $14 million, $114 million and $148 million in 1998, 1997 and 1996, respectively, and received cash capital contributions from Williams of $213 million, $10 million and $2 million in 1998, 1997 and 1996, respectively.
During 1998, Williams Holdings received proceeds of $200 million from the sale of a limited partnership minority interest to an outside investor (see Note 13).
Investing Activities
Net cash used by investing activities was: 1998 -- $2.4 billion; 1997 -- $1.2 billion; and 1996 -- $590 million. Capital expenditures of Energy Services, primarily to expand and modernize gathering and processing facilities and refineries, were $701 million in 1998, $451 million in 1997, and $398 million in 1996. Capital expenditures of Communications were $304 million in 1998, $276 million in 1997, and $67 million in 1996. The 1998 and 1997 expenditures include the expansion of the fiber-optic network. Budgeted capital expenditures and investments for all business units for 1999 are estimated to be approximately $4.4 billion, including $2.2 billion for the fiber-optic network expansion and expenditures to expand and modernize gathering and processing facilities, refineries and other international investment activities. Capital expenditures for 1999 and 2000 for the fiber-optic network are expected to total $3.4 billion.
During 1998, Williams Holdings made a $100 million advance and a $150 million investment in a telecommunications business in Brazil. In addition, during 1998 Williams Holdings made an $85 million investment in a Texas refined petroleum products pipeline joint venture.
Subsequent to December 31, 1998, Williams Holdings exercised an option to increase its investment in the Brazilian cellular phone venture. Negotiations are currently underway, and the company could invest up to $265 million, which is included in budgeted capital expenditures above, during the first quarter of 1999.
On April 30, 1997, Williams Holdings and Northern Telecom (Nortel) combined their customer-premise equipment sales and services operations into a limited liability company, Williams Communications Solutions, LLC. In addition, Williams Holdings paid $68 million to Nortel. See Note 2 for additional information. During 1997, Williams Holdings also purchased a 20 percent interest in a foreign telecommunications business for $65 million in cash and made a $59 million cash investment in the 50 percent owned Discovery pipeline project. During 1996 Williams Holdings acquired various communications technology businesses totaling $165 million in cash.
During 1997, Williams Holdings received proceeds of $66 million from the sale of interests in the West Panhandle field. During 1996, Williams Holdings received proceeds of $236 million from the sale of its MAPCO coal operations (see Note 3).
Other Commitments
During 1998, Energy Marketing & Trading entered into a 15-year contract giving Williams Holdings the right to receive fuel conversion services for purposes of generating electricity. This contract also gives Williams Holdings the right to receive installed capacity as well as certain ancillary services. Annual committed payments under the contract range from $140 million to $165 million, resulting in total committed payments of approximately $2.3 billion. Williams Holdings' intent is to resell power generated as a result of this service into markets in the western region of the United States. Williams Holdings also intends to resell capacity and ancillary services into such markets as the opportunities arise.
Subsequent event
On March 18, 1999, Williams' board of directors approved the merger of Williams Holdings with Williams. Upon completion of the merger, which is expected to be in the second or third quarter of 1999, Williams will assume all liabilities and obligations of Williams Holdings.
NEW ACCOUNTING STANDARDS
See Note 1 for the effects of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" and Emerging Issues Task Force Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities."
EFFECTS OF INFLATION
Williams Holdings' cost increases in recent years have benefited from relatively low inflation rates during that time. Approximately 62 percent of Williams Holdings' property, plant and equipment was acquired or constructed during the last seven years, a period of relatively low inflation. Within Energy Services, operating costs are influenced to a greater extent by specific price changes in oil and gas and related commodities than by changes in general inflation. Crude, refined product and natural gas liquids prices are particularly sensitive to OPEC production levels and/or the market perceptions concerning the supply and demand balance in the near future. See Market Risk Disclosures in Item 7a for additional information concerning the impact of commodity price risk. The activities of Communications have historically not been significantly affected by the effects of inflation.
ENVIRONMENTAL
Williams Holdings is a participant in certain environmental activities in various stages involving assessment studies, cleanup operations and/or remedial processes. The sites are being monitored by Williams Holdings, other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other
governmental authorities in a coordinated effort. In addition, Williams Holdings maintains an active monitoring program for its continued remediation and cleanup of certain sites connected with its refined products pipeline activities. Williams Holdings 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 $47 million, all of which is accrued at December 31, 1998. Williams Holdings expects to seek recovery of approximately $14 million of accrued costs from states in accordance with laws permitting reimbursement of certain expenses associated with underground storage tank containment problems and repairs. Williams Holdings 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.
YEAR 2000 COMPLIANCE
Williams and its wholly-owned subsidiaries, which includes Williams Holdings, initiated an enterprise-wide project in 1997 to address the year 2000 compliance issue for both traditional information technology areas and non-traditional areas, including embedded technology which is prevalent throughout the company. This project focuses on all technology hardware and software, external interfaces with customers and suppliers, operations process control, automation and instrumentation systems, and facility items. The phases of the project are awareness, inventory and assessment, renovation and replacement, testing and validation. The awareness and inventory/assessment phases of this project as they relate to both traditional and non-traditional information technology areas have been substantially completed. During the inventory and assessment phase, all systems with possible year 2000 implications were inventoried and classified into five categories: 1) highest, business critical, 2) high, compliance necessary within a short period of time following January 1, 2000, 3) medium, compliance necessary within 30 days from January 1, 2000, 4) low, compliance desirable but not required, and 5) unnecessary. Categories 1 through 3 were designated as critical and are the major focus of this project. Renovation/replacement and testing/validation of critical systems is expected to be completed by June 30, 1999, except for replacement of certain critical systems scheduled for completion by September 1, 1999. Some non-critical systems may not be compliant by January 1, 2000.
Testing and validation activities have begun and will continue throughout the process. Year 2000 test labs are in place and operational. As expected, few problems have been detected during testing for items believed to be compliant. The following table indicates the project status for traditional information technology and non-traditional areas by business unit. The tested category indicates the percentage that has been fully tested or otherwise validated as compliant. The untested category includes items that are believed to be compliant but which have not yet been validated. The not compliant category includes items which have been identified as not year 2000 compliant. The unknown category includes items identified during the assessment phase which require additional follow-up to determine whether they are compliant.
BUSINESS UNIT TESTED UNTESTED NOT COMPLIANT UNKNOWN
------------- ------ -------- ------------- -------
Traditional Information Technology:
Energy Services.................................... 32% 49% 13% 6%
Communications..................................... 32 47 21 0
Corporate/Other.................................... 71 21 7 1
Non-Traditional Information Technology:
Energy Services.................................... 32 63 2 3
Communications..................................... 21 57 17 5
Corporate/Other.................................... 84 12 2 2
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Williams Holdings initiated a formal communications process with other companies in 1998 to determine the extent to which those companies are addressing year 2000 compliance. In connection with this process, Williams Holdings has sent approximately 10,000 letters and questionnaires to third parties including customers, vendors and service providers. Additional communications are being mailed during 1999. Williams Holdings is evaluating responses as they are received or otherwise investigating the status of these companies'
year 2000 compliance efforts. As of December 31, 1998, approximately 38 percent of the companies contacted have responded and virtually all of these have indicated that they are already compliant or will be compliant on a timely basis. Where necessary, Williams Holdings will be working with key business partners to reduce the risk of a break in service or supply and with non-compliant companies to mitigate any material adverse effect on Williams Holdings.
Williams Holdings expects to utilize both internal resources and external contractors to complete the year 2000 compliance project. Williams Holdings has a core group of 106 people involved in this enterprise-wide project. This includes 13 individuals responsible for coordinating, organizing, managing, communicating, and monitoring the project and another 93 staff members responsible for completing the project. Depending on which phase the project is in and what area is being focused on at any given point in time, there can be up to an additional 1,000 employees who are also contributing a portion of their time to the completion of this project. The Communications business unit has contracted with an external contractor at a cost of approximately $3 million to assist in all phases and various areas of the project. Within Energy Services, two external contractors are being utilized at a total cost of approximately $1 million.
Several previously planned system implementations are scheduled for completion on or before September 1, 1999, which will lessen possible year 2000 impacts. For example, a new year 2000 compliant payroll/human resources system, was implemented January 1, 1999. It replaced multiple human resources administration and payroll processing systems previously in place. The Communications business unit has a major service information management system implementation and other system implementations currently in process necessary to integrate the operations of its many components acquired in past acquisitions. These systems will address the year 2000 compliance issues in certain areas. Within the Energy Services business unit, major applications had been replaced or were being replaced by MAPCO prior to its acquisition by Williams Holdings. Those applications have been incorporated into the enterprise-wide project and remaining system replacements are proceeding on schedule. In situations where planned system implementations will not be in service timely, alternative steps are being taken to make existing systems compliant.
Although all critical systems over which Williams Holdings has control are planned to be compliant and tested before the year 2000, Williams Holdings has identified two areas that would equate to a most reasonably likely worst case scenario. First is the possibility of service interruptions due to non-compliance by third parties. For example, power failures along the communications network or transportation systems would cause service interruptions. This risk should be minimized by the enterprise-wide communications effort and evaluation of third-party compliance plans. Another area of risk for non-compliance is the delay of system replacements scheduled for completion during 1999. The status of these systems is being closely monitored to reduce the chance of delays in completion dates. It is not possible to quantify the possible financial impact if this most reasonably likely worst case scenario were to come to fruition.
Initial contingency planning began during 1998; however, significant focus on that phase of the project will take place in 1999. Guidelines for that process were issued in January 1999 in the form of a formal business continuity plan. Contingency plans are being developed for critical business processes, critical business partners, suppliers and system replacements that experience significant delays. These plans are expected to be defined by August 31, 1999 and implemented where appropriate.
Costs incurred for new software and hardware purchases are being capitalized and other costs are being expensed as incurred. Williams Holdings currently estimates the total cost of the enterprise-wide project, including any accelerated system replacements, to be approximately $42 million. Prior to 1998 and during the first quarter of 1998, Williams Holdings was conducting the project awareness and inventory/assessment phases of the project and incurred costs totaling $2 million. During the second quarter of 1998, $2 million was spent on the renovation/replacement and testing/validation phases and completion of the inventory/assessment phase. The third and fourth quarters of 1998 focused on the renovation/replacement and testing/validation phases, and $7 million was incurred. During the first-quarter 1999, renovation/replacement and testing/validation will continue, contingency planning will begin and $11 million is expected to be spent. During the second quarter of 1999, the primary focus is expected to shift to testing/validation and contingency planning, and $10 million is expected to be spent. The third and fourth quarters of 1999 will focus mainly on
contingency planning and final testing with $10 million expected to be spent. Of the $11 million incurred to date, approximately $9 million has been expensed, and approximately $2 million has been capitalized. Of the $31 million of future costs necessary to complete the project within the schedule described, approximately $28 million will be expensed and the remainder capitalized. This estimate does not include Williams Holdings' potential share of year 2000 costs that may be incurred by partnerships and joint ventures in which the company participates but is not the operator. The costs of previously planned system replacements are not considered to be year 2000 costs and are, therefore, excluded from the amounts discussed above.
The preceding discussion contains forward-looking statements including, without limitation, statements relating to the company's plans, strategies, objectives, expectations, intentions, and adequate resources, that are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements contained in the year 2000 update are based on certain assumptions which may vary from actual results. Specifically, the dates on which the company believes the year 2000 project will be completed and computer systems will be implemented are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, or that there will not be a delay in, or increased costs associated with, the implementation of the year 2000 project. Other specific factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in these areas, the ability to locate and correct all relevant computer code, timely responses to and corrections by third parties and suppliers, the ability to implement interfaces between the new systems and the systems not being replaced, and similar uncertainties. Due to the general uncertainty inherent in the year 2000 problem, resulting in large part from the uncertainty of the year 2000 readiness of third parties, the company cannot ensure its ability to timely and cost effectively resolve problems associated with the year 2000 issue that may affect its operations and business, or expose it to third-party liability.
ITEM 7A. MARKET RISK DISCLOSURES
INTEREST RATE RISK
Affiliate Debentures
Williams Holdings holds an investment in Williams convertible debentures with a face value of $360 million, bearing interest at a fixed rate of 6 percent and maturing in 2005 (see Note 4). The fair value of Williams Holdings' investment is based on the prices of similar securities with similar terms and credit ratings (see Note 15).
Due From Parent
Williams Holdings has interest rate risk exposure related to the advances from and to Williams depending on the cash position of each subsidiary and/or for other specified business requirements (see Notes 15 and 16). Amounts are payable on demand, however, the net amount due from Williams at December 31, 1998, is classified as long-term as there is no expectation that Williams Holdings and its subsidiaries will demand payment in the next year. Interest rates for these advances vary with current market conditions. Accordingly fair value is estimated to approximate historically recorded amounts.
Debt
Williams Holdings' interest rate risk exposure primarily results from its debt portfolio which is influenced by short-term rates, primarily LIBOR-based borrowings from commercial banks and the issuance of commercial paper, and long-term U.S. Treasury rates. To mitigate the impact of fluctuations in interest rates, Williams Holdings targets to maintain a significant portion of its debt portfolio, including debt with Williams, in fixed rate debt. Williams Holdings also utilizes interest-rate swaps to change the ratio of its fixed and variable rate debt portfolio based on management's assessment of future interest rates, volatility of the yield curve and Williams Holdings' ability to access the capital markets in a timely manner. Williams Holdings periodically enters into interest rate forward contracts to establish an effective borrowing rate for anticipated
long-term debt issuances. The maturity of Williams Holdings' long-term debt portfolio is influenced by the life of its operating assets.
At December 31, 1998, the amount of Williams Holdings' fixed and variable rate debt was at targeted levels. Williams Holdings has traditionally maintained an investment grade credit rating as one aspect of managing its interest rate risk. In order to fund its 1999 capital expenditure plan, Williams Holdings will need to access various sources of liquidity, which will likely include traditional borrowing and leasing markets, while its Telecommunications business also anticipates accessing high yield debt markets and equity markets.
The following table provides information as of December 31, 1998, about Williams Holdings' external notes payable, long-term debt and interest-rate swaps that are subject to interest rate risk. For notes payable and long-term debt, the table presents principal cash flows and weighted-average interest rates by expected maturity dates. For interest-rate swaps, the table presents notional amounts and weighted-average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual cash flows to be exchanged under the interest-rate swaps.
FAIR VALUE
DECEMBER 31,
1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------ ---- ---- ---- ---- ---------- ------ ------------
(DOLLARS IN MILLIONS)
Notes payable............. $1,053 $ -- $ -- $ -- $ -- $ -- $1,053 $1,053
Interest rate............. 5.9%
Long-term debt, including
current portion:
Fixed rate.............. $ 67 $ 97 $ 50 $129 $220 $ 923 $1,486 $1,526
Interest rate........... 7.0% 7.0% 7.0% 7.0% 7.0% 7.5%
Variable rate........... $ -- $ -- $ -- $550 $ -- $ -- $ 550 $ 550
Interest rate(1)........
Interest rate swaps:
Pay variable/ receive
fixed................ $ -- $ -- $ -- $ -- $ -- $ 250 $ 250 $ 4
Pay rate(2).............
Receive rate............ 6.3% 6.3% 6.3% 6.3% 6.3% 6.3%
|
(1) LIBOR plus .33 percent.
(2) LIBOR less 1.04 percent.
Debt With Affiliates
Williams Holdings has approximately $1 billion of long-term debt, including the current portion, with other Williams subsidiaries at December 31, 1998, bearing interest at a fixed rate of 5.57 percent and maturing in 2002. The fair value of the debt approximates the carrying value (see Notes 15 and 16).
COMMODITY PRICE RISK
Energy Marketing & Trading has trading operations that incur commodity price risk as a consequence of providing price risk management services to third-party customers. The trading operations have commodity price risk exposure associated with the crude oil, natural gas, refined products, natural gas liquids and electricity energy markets in the United States and the natural gas markets in Canada. The trading operations enter into energy contracts which include forward contracts, futures contracts, option contracts, swap agreements, commodity inventories and short- and long-term purchase and sale commitments which involve the physical delivery of an energy commodity. These energy contracts are valued at fair value and unrealized gains and losses from changes in fair value are recognized in income. The trading operations are subject to risk from changes in energy commodity market prices, the portfolio position of its financial instruments and physical commitments, the liquidity of the market in which the contract is transacted, changes in interest rates and credit risk. Energy Marketing & Trading manages market risk on a portfolio basis subject to the parameters established in its trading policy. A Risk Control Group, independent of the trading operations,
monitors compliance with the established trading policy and measures the risk associated with the trading portfolio.
Energy Marketing & Trading measures the market risk in its trading portfolio on a daily basis utilizing a value at risk methodology to estimate the potential one day loss from adverse changes in the fair value of its trading operations. At December 31, 1998, the value at risk for the trading operations was $8 million. Value at risk requires a number of key assumptions and is not necessarily representative of actual losses in fair value that could be incurred from the trading portfolio. Energy Marketing & Trading's value-at-risk model includes all financial instruments and physical positions and commitments in its trading portfolio and assumes that as a result of changes in commodity prices, there is a 97.5 percent probability that the one day loss in the fair value of the trading portfolio will not exceed the value at risk. The value-at-risk model uses historical simulation to estimate hypothetical movements in future market prices assuming normal market conditions based upon historical market prices. Value-at-risk does not consider that changing our trading portfolio in response to market conditions could affect market prices and could take longer to execute than the one-day holding period assumed in the value-at-risk model.
FOREIGN CURRENCY RISK
Williams Holdings has investments in companies whose operations are located in foreign countries, of which $95 million are accounted for using the cost method. Fair value for the cost-method investments is deemed to approximate their carrying amount, because estimating cash flows by year is not practicable given that the time frame for selling these investments is uncertain. Williams Holdings' financial results could be affected if the investments incur a permanent decline in value as a result of changes in foreign currency exchange rates and the economic conditions in foreign countries. Williams Holdings attempts to mitigate these risks by investing in different countries and business segments. Approximately 69 percent of the cost-method investments are in Asian countries and 27 percent in South American countries. Approximately 50 percent of the Asian investments and approximately 25 percent of the South American investments are in countries whose currencies have recently suffered significant devaluations and volatility. The ultimate duration and severity of the conditions in Asia and South America remain uncertain as does the long-term impact on Williams Holdings' investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Report of Independent Auditors.............................. F-19
Consolidated Statement of Operations........................ F-20
Consolidated Balance Sheet.................................. F-21
Consolidated Statement of Stockholder's Equity.............. F-22
Consolidated Statement of Cash Flows........................ F-23
Notes to Consolidated Financial Statements.................. F-24
Quarterly Financial Data (Unaudited)........................ F-50
|
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Williams Holdings of Delaware, Inc.
We have audited the accompanying consolidated balance sheet of Williams Holdings of Delaware, Inc. as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We did not audit the financial statements and schedules of MAPCO Inc., a wholly owned subsidiary (see Note 2), which statements reflect total assets constituting 26% of the related consolidated financial statement total for 1997, and which reflect net income constituting approximately 33% and 30% of the related consolidated financial statement totals for the years ended December 31, 1997 and 1996, respectively. Those statements and schedules were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for MAPCO Inc. for those periods, is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Williams Holdings of Delaware, Inc. at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, based on our audits and the report of other auditors, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Tulsa, Oklahoma
February 26, 1999,
except for Note 20, as to which the date is
March 18, 1999
WILLIAMS HOLDINGS OF DELAWARE, INC
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997* 1996*
--------- --------- ---------
(MILLIONS)
Revenues (Notes 16 and 19):
Energy Services**......................................... $ 5,520.0 $ 6,012.8 $ 5,432.7
Communications (Note 2)................................... 1,768.2 1,465.1 710.1
Other..................................................... 64.8 53.4 58.3
Intercompany eliminations................................. (1,410.4) (1,011.0) (1,043.9)
--------- --------- ---------
Total revenues..................................... 5,942.6 6,520.3 5,157.2
--------- --------- ---------
Segment costs and expenses (Note 16):
Costs and operating expenses**............................ 4,754.6 5,381.2 4,240.6
Selling, general and administrative expenses.............. 865.0 587.6 351.1
Other (income) expense -- net (Notes 2 and 5)............. 133.1 41.6 (19.3)
--------- --------- ---------
Total segment costs and expenses................... 5,752.7 6,010.4 4,572.4
--------- --------- ---------
General corporate expenses (Notes 2 and 16)................. 58.8 70.4 49.9
--------- --------- ---------
Operating income (loss) (Notes 5 and 19):
Energy Services (Note 2).................................. 379.4 555.3 575.3
Communications (Note 2)................................... (175.0) (58.1) 5.0
Other..................................................... (14.5) 12.7 4.5
General corporate expenses................................ (58.8) (70.4) (49.9)
--------- --------- ---------
Total operating income............................. 131.1 439.5 534.9
Interest accrued (Note 16).................................. (181.9) (132.1) (93.5)
Interest capitalized........................................ 26.6 19.3 4.8
Investing income (Notes 4 and 16)........................... 40.9 44.5 39.3
Gain on sale of interest in subsidiary (Note 2)............. -- 44.5 --
Gain on sales of assets (Note 5)............................ -- 66.0 36.5
Minority interest in (income) loss of consolidated
subsidiaries (Note 2)..................................... 12.0 (18.2) (1.4)
Other income (expense) -- net............................... (24.1) (8.4) 9.0
--------- --------- ---------
Income from continuing operations before extraordinary loss
and income taxes.......................................... 4.6 455.1 529.6
Provision for income taxes (Note 6)......................... 14.9 154.1 170.7
--------- --------- ---------
Income (loss) from continuing operations before
extraordinary loss........................................ (10.3) 301.0 358.9
Loss from discontinued operations (Note 3).................. (14.3) (6.3) (32.7)
--------- --------- ---------
Income (loss) before extraordinary loss..................... (24.6) 294.7 326.2
Extraordinary loss (Note 7)................................. (4.8) (3.6) --
--------- --------- ---------
Net income (loss)........................................... $ (29.4) $ 291.1 $ 326.2
========= ========= =========
|
* Reclassified as described in Note 1.
** Includes consumer excise taxes of $192.9 million, $157.8 million and $155.9 million in 1998, 1997 and 1996, respectively.
See accompanying notes.
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
DECEMBER 31,
---------------------
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 1998 1997
----------------------------------------------- --------- --------
Current assets:
Cash and cash equivalents................................. $ 109.7 $ 96.0
Receivables:
Trade less allowance of $29.8 ($20.7 in 1997) (Note
1)..................................................... 1,490.8 1,450.6
Affiliates.............................................. 14.0 43.8
Due from parent (Note 16)................................. - 93.0
Inventories (Note 9)...................................... 384.2 315.6
Energy trading assets..................................... 354.5 180.3
Deferred income taxes -- affiliates (Note 6).............. 91.8 86.1
Other..................................................... 150.2 113.9
--------- --------
Total current assets............................... 2,595.2 2,379.3
Due from parent (Note 16)................................... 1,066.2 181.3
Investments, partially in affiliates (Note 4)............... 1,738.0 1,175.9
Property, plant and equipment -- net (Note 10).............. 5,464.0 4,533.6
Goodwill and other intangible assets -- net (Note 1)........ 583.6 600.6
Non-current energy trading assets........................... 185.8 141.4
Other assets and deferred charges........................... 217.8 122.4
--------- --------
Total assets....................................... $11,850.6 $9,134.5
========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Notes payable (Note 12)................................... $ 1,052.7 $ 701.0
Accounts payable:
Trade (Note 11)......................................... 1,059.3 1,143.7
Affiliates.............................................. 51.0 69.2
Accrued liabilities (Notes 1 and 11)...................... 649.7 560.0
Energy trading liabilities................................ 290.1 182.0
Long-term debt due within one year (Notes 12 and 16):
Affiliates.............................................. 65.4 --
Other................................................... 67.0 75.7
--------- --------
Total current liabilities.......................... 3,235.2 2,731.6
Long-term debt (Notes 12 and 16):
Affiliates................................................ 948.4 --
Other..................................................... 1,968.6 1,525.5
Deferred income taxes -- affiliates (Note 6)................ 880.5 807.8
Non-current energy trading liabilities...................... 201.5 201.7
Other liabilities........................................... 319.6 197.6
Minority interest in consolidated subsidiaries (Notes 2 and
13)....................................................... 373.2 144.8
Contingent liabilities and commitments (Notes 10 and 17)
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized and
outstanding............................................. -- --
Capital in excess of par value............................ 2,038.1 1,664.8
Retained earnings......................................... 1,568.8 1,616.6
Accumulated other comprehensive income (Note 18).......... 316.7 244.1
--------- --------
Total stockholder's equity......................... 3,923.6 3,525.5
--------- --------
Total liabilities and stockholder's equity......... $11,850.6 $9,134.5
========= ========
|
See accompanying notes.
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
ACCUMULATED
CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
STOCK PAR VALUE EARNINGS INCOME TOTAL
------ ---------- -------- ------------- --------
(MILLIONS)
Balance, December 31, 1995........................ $ -- $1,533.1 $1,262.5 $ 53.4 $2,849.0
Comprehensive income:
Net income -- 1996.............................. -- -- 326.2 -- 326.2
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 51.2 51.2
--------
Total comprehensive income........................ 377.4
Dividends --
Cash............................................ -- -- (147.6) -- (147.6)
Other........................................... -- -- (.4) -- (.4)
Contributions --
Cash............................................ -- 2.4 -- -- 2.4
Noncash......................................... -- 71.5 -- -- 71.5
Other............................................. -- .1 .3 -- .4
-- -------- -------- ------ --------
Balance, December 31, 1996........................ -- 1,607.1 1,441.0 104.6 3,152.7
Comprehensive income:
Net income -- 1997.............................. -- -- 291.1 -- 291.1
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 139.5 139.5
--------
Total comprehensive income........................ 430.6
Dividends --
Cash............................................ -- -- (114.0) -- (114.0)
Other........................................... -- -- (2.2) -- (2.2)
Contributions --
Cash............................................ -- 10.1 -- -- 10.1
Noncash......................................... -- 47.4 -- -- 47.4
Other............................................. -- .2 .7 -- .9
-- -------- -------- ------ --------
Balance, December 31, 1997........................ -- 1,664.8 1,616.6 244.1 3,525.5
Comprehensive income:
Net loss -- 1998................................ -- -- (29.4) -- (29.4)
Other comprehensive income (Note 18):
Unrealized appreciation on marketable
securities................................. -- -- -- 77.6 77.6
Foreign currency translation adjustments..... -- -- -- (5.0) (5.0)
--------
Total other comprehensive income........ 72.6
--------
Total comprehensive income........................ 43.2
Dividends --
Cash............................................ -- -- (14.0) -- (14.0)
Other........................................... -- -- (4.4) -- (4.4)
Contributions --
Cash............................................ -- 212.7 -- -- 212.7
Noncash......................................... -- 160.6 -- -- 160.6
-- -------- -------- ------ --------
Balance, December 31, 1998........................ $ -- $2,038.1 $1,568.8 $316.7 $3,923.6
==== ======== ======== ====== ========
|
See accompanying notes.
WILLIAMS HOLDINGS OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- -------
(MILLIONS)
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (29.4) $ 291.1 $ 326.2
Adjustments to reconcile to cash provided from operations:
Discontinued operations................................. 14.3 6.3 32.7
Extraordinary loss...................................... 4.8 3.6 --
Depreciation, depletion and amortization................ 340.7 276.1 217.5
Provision for deferred income taxes..................... 30.2 50.9 104.2
Provision for loss on property and other assets......... 68.4 49.8 --
(Gain) loss on dispositions of property and interest in
subsidiary............................................ 9.5 (107.0) (65.7)
Provision for uncollectible accounts.................... 39.8 13.3 5.3
Minority interest in income (loss) of consolidated
subsidiaries.......................................... (12.0) 18.2 1.4
Cash provided (used) by changes in assets and
liabilities:
Receivables sold...................................... (14.9) 200.0 --
Receivables........................................... (92.8) (293.0) (444.4)
Inventories........................................... (66.4) (74.8) (1.1)
Other current assets.................................. (58.4) (14.0) (21.9)
Accounts payable...................................... (155.0) 165.9 425.3
Accrued liabilities................................... 66.5 7.5 (58.3)
Receivables/payables with affiliates.................. 23.5 44.7 (70.1)
Changes in current energy trading assets and
liabilities........................................... (66.2) 11.0 (29.7)
Changes in non-current energy trading assets and
liabilities........................................... (44.6) (47.7) (37.7)
Other, including changes in non-current assets and
liabilities........................................... 28.6 (41.5) 5.8
--------- --------- -------
Net cash provided by continuing operations......... 86.6 560.4 389.5
Net cash provided by discontinued operations....... -- -- 21.8
--------- --------- -------
Net cash provided by operating activities.......... 86.6 560.4 411.3
--------- --------- -------
FINANCING ACTIVITIES:
Proceeds from notes payable............................... 501.9 858.7 60.0
Payments of notes payable................................. (292.0) (316.3) (221.3)
Proceeds from long-term debt.............................. 1,121.0 669.2 607.6
Payments of long-term debt................................ (554.2) (546.8) (34.2)
Dividends................................................. (14.0) (114.0) (147.6)
Capital contributions..................................... 212.7 10.1 2.4
Proceeds from sale of limited partnership interest........ 200.0 -- --
Changes in advances from affiliates....................... 1,140.1 -- --
Other -- net.............................................. (10.1) 13.9 (1.9)
--------- --------- -------
Net cash provided by financing activities.......... 2,305.4 574.8 265.0
--------- --------- -------
INVESTING ACTIVITIES:
Property, plant and equipment:
Capital expenditures.................................... (1,226.1) (874.9) (521.5)
Proceeds from dispositions.............................. 23.2 78.0 61.2
Changes in accounts payable and accrued liabilities..... 88.4 (.6) 2.2
Acquisition of businesses, net of cash acquired........... (9.6) (146.2) (170.5)
Proceeds from sales of businesses......................... -- -- 236.4
Income tax and other payments related to discontinued
operations.............................................. (12.0) (12.6) (270.5)
Proceeds from sales of assets............................. 10.7 71.2 66.0
Purchase of investments/advances to affiliates............ (466.6) (200.7) (97.4)
Changes in advances to parent company..................... (791.9) (123.0) 95.4
Other -- net.............................................. 5.6 20.4 8.8
--------- --------- -------
Net cash used by investing activities.............. (2,378.3) (1,188.4) (589.9)
--------- --------- -------
Increase (decrease) in cash and cash equivalents... 13.7 (53.2) 86.4
Cash and cash equivalents at beginning of year.............. 96.0 149.2 62.8
--------- --------- -------
Cash and cash equivalents at end of year.................... $ 109.7 $ 96.0 $ 149.2
========= ========= =======
|
See accompanying notes.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
Williams Holdings of Delaware, Inc. (Williams Holdings) is a wholly owned subsidiary of The Williams Companies, Inc. (Williams). Operations of Williams Holdings are located principally in the United States and are organized into two industry groups: Energy Services and Communications.
Energy Services includes four operating segments: Energy Marketing & Trading, Exploration & Production, Midstream Gas & Liquids, and Petroleum Services. Energy Marketing & Trading offers price-risk management services and buys, sells and arranges for transportation/transmission of energy commodities -- including natural gas and gas liquids, crude oil and refined products, and electricity -- to local distribution companies and large industrial and commercial customers in North America and retail propane marketing in the upper midwest and southwest regions. Exploration & Production includes hydrocarbon exploration and production activities in the Rocky Mountain and Gulf Coast regions. Midstream Gas & Liquids is comprised of natural gas gathering and processing facilities in the Rocky Mountain, midwest and Gulf Coast regions, natural gas liquids pipelines in the Rocky Mountain, southwest, midwest and Gulf Coast regions and an anhydrous ammonia pipeline in the midwest. Petroleum Services includes petroleum refining and marketing in Alaska and the southeast, a petroleum products pipeline and ethanol production and marketing operations in the midwest region.
Communications consists of three operating segments: Communications Solutions, Network Applications, and Network Services. Communications Solutions includes consulting, installation and maintenance of customer-premise voice, data and video equipment and services for customers throughout North America. Network Applications' operations are located principally in the United States and include video, advertising distribution, and other multimedia transmission services (via terrestrial and satellite links) for the broadcast industry as well as business audio and video conferencing services. Network Services provides fiber-optic construction, transmission and management services throughout the United States.
Basis of presentation
Williams Holdings adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," during the fourth quarter of 1998. SFAS No. 131 establishes standards for reporting information about operating segments and related disclosures about products and services, geographic areas, and major customers. Prior year financial statements and notes were reclassified to conform to the requirements of SFAS No. 131. (See Note 19 for segment disclosures.)
Certain balance sheet and cash flow amounts for 1997 have been reclassified to conform to current classifications.
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. (see Note 2). Upon completion of the merger, Williams transferred its interest in MAPCO to Williams Holdings, and MAPCO became part of the Energy Services business unit. The transaction has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements and notes reflect the results of operations, financial position and cash flows as if the companies had been combined throughout the periods presented. The restated 1997 annual financial statements were filed with the Securities and Exchange Commission in a Form 8-K dated May 18, 1998. MAPCO was engaged in the natural gas liquids pipeline, petroleum refining and marketing and propane marketing businesses. Effective April 1, 1998, certain marketing activities of natural gas liquids (previously reported in Midstream Gas & Liquids) and petroleum refining (previously reported in Petroleum Services) were transferred to Energy Marketing & Trading and combined with its energy risk trading operations. As a result, revenues and segment profit amounts for 1997 and 1996 have been reclassified and reported within Energy Marketing & Trading. These marketing activities are reported through first-quarter 1998 on a "gross" basis in the Consolidated Statement of Operations as revenues and segment costs within
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy Marketing & Trading. Concurrent with completing the combination of such activities with the energy risk trading operations of Energy Marketing & Trading, the related contract rights and obligations of certain of these operations were recorded in the Consolidated Balance Sheet on a market-value basis consistent with Energy Marketing & Trading's accounting policy, and the statement of operations presentation relating to these operations was changed effective April 1, 1998, on a prospective basis, to reflect these revenues net of the related costs to purchase such items.
On April 30, 1997, Williams Holdings and Northern Telecom (Nortel) combined their customer-premise equipment sales and service operations into a limited liability company, Williams Communications Solutions, LLC (LLC) (see Note 2). Communications Solutions' revenues and segment profit amounts for 1997 include the operating results of the LLC beginning May 1, 1997.
Principles of consolidation
The consolidated financial statements include the accounts of Williams Holdings and its majority-owned subsidiaries. Companies in which Williams Holdings 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.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
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 certain assets held for energy trading activities by Energy Marketing & Trading, which are primarily stated at fair value. The cost of inventories is primarily determined using the average-cost method, except for certain crude oil, refined products, and general merchandise inventories which are determined using the last-in, first-out (LIFO) method.
Investments
Williams Holdings' investment in subordinated debentures of Williams is classified as "available for sale" and is recorded at current market value with unrealized gains and losses reported net of income taxes as a component of other accumulated comprehensive income in stockholder's equity. Average cost is used to determine realized gains and losses. Williams Holdings' investment in Williams warrants is recorded at cost since the warrants are not traded on a securities exchange. As such, the fair value of the warrants is not readily determinable under generally accepted accounting principles, and Williams Holdings has no current intention of exercising the warrants in the future.
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
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment for the regulated pipelines are credited or charged to accumulated depreciation; other gains or losses are recorded in net income (loss).
Goodwill and other intangible assets
Goodwill, which represents the excess of cost over fair value of assets of businesses acquired, is amortized on a straight-line basis over periods from 10 to 30 years. Other intangible assets are amortized on a straight-line basis over periods from three to 11 years. Accumulated amortization at December 31, 1998 and 1997 was $128.9 million and $72.2 million, respectively. Amortization of intangible assets was $49.7 million, $29.2 million and $15.2 million in 1998, 1997 and 1996, respectively.
Revenue recognition
Revenues generally are recorded when services have been performed or products have been delivered. Communications Solutions primarily uses the percentage-of-completion method of recognizing revenues for services provided. At December 31, 1998 and 1997, costs in excess of billings, included in trade receivables, were $185.9 million and $144.6 million, respectively, and billings in excess of costs, included in accrued liabilities, were $49.4 million and $48.1 million, respectively. Network Services records revenues related to the sale of portions of its fiber-optic network upon completion of the construction of the respective network segments and upon acceptance of the fiber by the purchaser. Certain of Energy Marketing & Trading's activities are accounted for at fair value as described in Energy Trading Activities.
Energy trading activities
Energy Marketing & Trading has trading operations that enter into energy contracts to provide price-risk management services to its third-party customers. Energy contracts include forward contracts, futures contracts, option contracts, swap agreements, commodity inventories and short- and long-term purchase and sale commitments which involve physical delivery of an energy commodity. These energy contracts are valued at fair value and, with the exception of commodity inventories, are recorded in energy trading assets and energy trading liabilities in the Consolidated Balance Sheet. The net change in the fair value representing unrealized gains and losses is recognized in income currently and is recorded as revenues in the Consolidated Statement of Operations. Fair value, which is subject to change in the near term, reflects management's estimates using valuation techniques that reflect the best information available in the circumstances. This information includes various factors such as quoted market prices, estimates of market prices in the absence of quoted market prices, contractual volumes, estimated volumes under option and other arrangements that result in varying volumes, other contract terms, liquidity of the market in which the contract is transacted, credit considerations, time value and volatility factors underlying the positions. Energy Marketing & Trading reports its trading operations' physical sales transactions net of the related purchase costs, consistent with fair value accounting for such trading activities.
Williams Holdings also enters into energy derivative financial instruments and derivative commodity instruments (primarily futures contracts, option contracts and swap agreements) to hedge against market price fluctuations of certain commodity inventories and sales and purchase commitments. Unrealized and realized gains and losses on these hedge contracts are deferred and recognized in income in the same manner as the hedged item. These contracts are initially and regularly evaluated to determine that there is a high correlation between changes in the fair value of the hedge contract and fair value of the hedged item.
Impairment of long-lived assets
Williams Holdings evaluates the long-lived assets, including related
intangibles, of identifiable business activities for impairment when events or
changes in circumstances indicate, in management's judgment, that the carrying
value of such assets may not be recoverable. The determination of whether an
impairment has
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
occurred is based on management's estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value for the assets and recording a provision for loss if the carrying value is greater than fair value.
For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value less the cost to sell to determine if an impairment is required. Until the assets are disposed of, an estimate of the fair value is redetermined when related events or circumstances change.
Interest-rate derivatives
Williams Holdings enters into interest-rate swap agreements to modify the interest characteristics of its long-term debt. These agreements are designated with all or a portion of the principal balance and term of specific debt obligations. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates without an exchange of the notional amount upon which the payments are based. The difference to be paid or received is accrued and recognized as an adjustment of interest expense. Gains and losses from terminations of interest-rate swap agreements are deferred and amortized as an adjustment of the interest expense on the outstanding debt over the remaining original term of the terminated swap agreement. In the event the designated debt is extinguished, gains and losses from terminations of interest-rate swap agreements are recognized in income.
Williams Holdings enters into interest-rate forward contracts to lock in underlying treasury rates on anticipated long-term debt issuances. The settlement amounts upon termination of the contracts are deferred and amortized as an adjustment to interest expense of the issued long-term debt over the term of the referenced security underlying the settled forward contract.
Capitalization of interest
Williams Holdings capitalizes interest on major projects during construction. Interest is capitalized on borrowed funds at rates that approximate the average interest rate on related debt.
Income taxes
The operations of Williams Holdings and its subsidiaries, except for MAPCO Inc., are included in Williams' consolidated federal income tax return. MAPCO filed a separate consolidated federal income tax return during the period prior to the merger. Subsequent to the date of the merger, MAPCO's operations will be included in Williams' consolidated federal income tax return.
The provision for income taxes is computed on a separate-company basis for Williams Holdings. Prior to the merger, income taxes were computed separately for the Williams Holdings and MAPCO consolidated groups and then combined. Williams Holdings makes payments to Williams under the same timing and minimum amount requirements as if the payments are being made directly to the taxing authorities. 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 Holdings' assets and liabilities.
Related party transactions
Williams charges its subsidiaries, including Williams Holdings and its
subsidiaries, for certain corporate general and administrative expenses which
are directly identifiable or allocable to the subsidiaries and other general
corporate expenses utilizing a combination of revenues, property at cost and
payroll for the allocation base. Williams Holdings, as a separate corporate
entity, does not receive such an allocation because it has no revenues, property
or employees. Management believes that the method used for these allocations is
reasonable.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New accounting standards
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. This standard requires that all derivatives be recognized as assets or liabilities in the balance sheet and that those instruments be measured at fair value. The effect of this standard on Williams Holdings' results of operations and financial position will be evaluated in 1999.
The American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," effective for fiscal years beginning after December 15, 1998. The SOP requires that all start-up costs be expensed and that the effect of adopting the SOP be reported as the cumulative effect of a change in accounting principle. Williams Holdings will adopt this SOP effective January 1, 1999. The effect of adopting the SOP on Williams Holdings' results of operations and financial position is not expected to be material.
The Emerging Issues Task Force (EITF) reached a consensus on Issue No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," which is effective for fiscal years beginning after December 15, 1998. The effect of initially applying the Consensus must be reported as a cumulative effect of a change in accounting principle, and financial statements for periods prior to initial application of the Consensus may not be restated. The EITF concluded that energy trading contracts should be recorded at fair value in the balance sheet, with changes in fair value included in earnings. Energy Marketing & Trading records its energy contracts at estimated fair value, except for certain types of contracts that are not currently considered to be trading in nature. The effect of the Consensus on Williams Holdings' results of operations and financial position has yet to be determined.
NOTE 2. ACQUISITIONS
MAPCO
On March 28, 1998, Williams completed the acquisition of MAPCO Inc. by exchanging 1.665 shares of Williams common stock for each outstanding share of MAPCO common stock. In addition, outstanding MAPCO employee stock options were converted into 5.7 million shares of Williams common stock. Upon completion, 98.8 million shares of Williams common stock valued at $3.1 billion, based on the closing price of Williams common stock on March 27, 1998, were issued. Upon completion of the merger, Williams transferred its interest in MAPCO to Williams Holdings, and MAPCO became part of the Energy Services business unit.
The merger constituted a tax-free reorganization and has been accounted for as a pooling of interests. Accordingly, all prior period consolidated financial statements presented include the combined results of operations, financial position and cash flows of MAPCO and Williams Holdings. Intercompany transactions between Williams Holdings and MAPCO prior to the merger have been eliminated, and no material adjustments were necessary to conform MAPCO's accounting policies.
In connection with the merger, Williams Holdings has recognized approximately $72 million in merger-related costs in 1998, comprised primarily of outside professional fees and early retirement and severance costs. Approximately $51 million of these merger-related costs is included in other (income) expense-net as a component of segment profit within Energy Services for 1998 (see Note 19), and approximately $21 million, unrelated to segments, is included in general corporate expenses. During 1997, payments of $32.6 million were made for non-compete agreements. These costs are being amortized over one to three years from the merger completion date.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The results of operations for the separate companies prior to the merger date and the combined amounts included in the Consolidated Statement of Operations follow:
YEARS ENDED
DECEMBER 31,
THREE MONTHS ENDED ----------------------
MARCH 31, 1998 1997 1996
------------------ ---------- --------
(MILLIONS)
Revenues:
Williams Holdings.................................. $ 681.0 $2,688.3 $1,845.5
MAPCO.............................................. 823.8 3,847.5 3,353.1
Intercompany eliminations.......................... (1.3) (15.5) (41.4)
-------- -------- --------
Combined................................... $1,503.5 $6,520.3 $5,157.2
======== ======== ========
Net income (loss):
Williams Holdings.................................. $ (2.7) $ 194.2 $ 228.7
MAPCO.............................................. 8.4 96.9 97.5
-------- -------- --------
Combined................................... $ 5.7 $ 291.1 $ 326.2
======== ======== ========
|
Nortel
On April 30, 1997, Williams Holdings and Nortel combined their customer-premise equipment sales and service operations into a limited liability company, Williams Communications Solutions, LLC. In addition, Williams Holdings paid $68 million to Nortel. Williams Holdings has accounted for its 70 percent interest in the operations that Nortel contributed to the LLC as a purchase business combination and, beginning May 1, 1997, has included the results of operations of the acquired company in Williams Holdings' Consolidated Statement of Operations. Accordingly, the acquired assets and liabilities, including $168 million in accounts receivable, $68 million in accounts payable and accrued liabilities and $150 million in debt obligations, were recorded based on an allocation of the purchase price, with substantially all of the cost in excess of historical carrying values allocated to goodwill.
Williams Holdings recorded the 30 percent reduction in its operations contributed to the LLC as a sale to the minority shareholder of the LLC. Williams Holdings recognized a gain of $44.5 million based on the excess of the fair value over the net book value (approximately $71 million) of its operations conveyed to the LLC minority interest. Income taxes were not provided on the gain, because the transaction did not affect the difference between the financial and tax bases of identifiable assets and liabilities.
If the transaction occurred on January 1, 1996, Williams Holdings' unaudited pro forma revenues for the years ended 1997 and 1996 would have been $6,768 million and $5,894 million, respectively. The pro forma effect of the transaction on Williams Holdings' net income (loss) is not significant. Pro forma financial information is not necessarily indicative of results of operations that would have occurred if the transaction had occurred on January 1, 1996, or of future results of operations of the combined companies.
NOTE 3. DISCONTINUED OPERATIONS
On September 10, 1996, substantially all of the net assets of the MAPCO coal business were sold to Alliance Coal Corporation, a corporation formed by The Beacon Group Energy Investment Fund, L.P. ("Beacon"), for $236 million in cash. The sale resulted in losses of $14.3 million, $6.3 million and $47.2 million in 1998, 1997 and 1996, respectively (net of income tax benefits of $7.4 million, $.7 million and $30 million, respectively). The losses in 1998 and 1997 include cost accruals for contractual obligations related to financial performance of the assets sold to Beacon and a 1997 income tax adjustment to the 1996 loss amount.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INVESTING ACTIVITIES
Investments at December 31, 1998 and 1997, are as follows:
1998 1997
-------- --------
(MILLIONS)
Williams convertible debentures............................. $ 855.8 $ 770.7
Williams warrants........................................... 25.4 25.4
Equity:
Brazilian Telecommunications:
Algar Telecom Leste, S.A. -- 30%....................... 142.7 --
Lightel -- S.A. Tecnologia da Informacao -- 20%........ 68.7 68.5
Longhorn Partners Pipeline, L.P. -- 48%................... 90.0 5.0
Discovery Pipeline -- 50%................................. 78.0 59.3
Other....................................................... 138.7 115.9
-------- --------
518.1 248.7
Cost........................................................ 156.7 112.3
Advances to affiliates and other............................ 182.0 18.8
-------- --------
$1,738.0 $1,175.9
======== ========
|
Williams convertible debentures, with a face value of $360 million, bear interest at 6 percent, mature in 2005 and are convertible at any time into approximately 28 million shares of Williams common stock at $12.86 per share. The warrants give Williams Holdings the right to purchase approximately 22.6 million shares of Williams common stock at $15.56 per share. The warrants are exercisable immediately and mature in 2000.
Earnings related to equity investments are included in revenues (see Note 19).
Summarized unaudited financial position and results of operations of Williams Holdings' equity-basis affiliates are as follows:
1998
----------
(MILLIONS)
Current assets.............................................. $ 202.0
Non-current assets.......................................... 4,938.6
Current liabilities......................................... 1,030.8
Non-current liabilities..................................... 2,546.7
Revenues.................................................... 347.0
Costs and operating expenses................................ 164.6
Net income.................................................. 70.1
|
The non-current assets consist primarily of communication and interstate natural gas pipeline assets.
Dividends and distributions received from investments carried on an equity basis were $12 million in 1998 and $7 million in both 1997 and 1996.
At December 31, 1998, certain equity investments, with a carrying value of $45 million, have a market value of $100 million.
Investing income for all of the years presented is comprised primarily of interest income.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. ASSET SALES, WRITE-OFFS AND OTHER ACCRUALS
Included in the 1998 segment profit for all of the respective business units and general corporate expenses are accruals totaling approximately $23 million related to the modification of Williams' employee benefit program associated with vesting of paid time off.
Included in the 1998 other (income) expense-net and segment profit for Energy Marketing & Trading are asset impairments totaling approximately $14 million related to the decision to focus its retail natural gas and electric business from sales to small commercial and residential customers to large end users. The impairment primarily reflects the reduction in value of a software system and certain intangible assets associated specifically with retail energy applications that will no longer be utilized by Energy Marketing & Trading and for which management estimates the fair value to be insignificant.
Included in the 1998 other (income) expense-net and segment profit for Petroleum Services is a $15.5 million loss provision, including interest, for potential refunds to customers from a recent order from the Federal Energy Regulatory Commission (see Note 17 for additional information).
Included in the 1998 other (income) expense-net in segment costs and expenses and Network Applications' segment loss is a $23.2 million loss related to a venture involved in the technology and transmission of business information for news and educational purposes. The loss occurred as a result of Williams Holdings' re-evaluation and decision to exit the venture as Williams Holdings decided against making further investments in the venture. The loss was recorded in the third quarter, and Williams Holdings abandoned the venture during the fourth quarter. The loss primarily consists of $17 million from impairing the total carrying amount of the investment and $5 million from recognition of contractual obligations that will continue after the abandonment. During the fourth quarter of 1998, $2 million of contractual obligations was paid. Williams Holdings' share of losses from the venture was $3.7 million in 1998 and $2.3 million in 1997.
Included in the 1997 other (income) expense-net in segment costs and expenses and Network Applications' segment loss are impairments and other charges totaling $49.8 million. In the fourth quarter of 1997, Communications made the decision and committed to a plan to sell the learning content business, which resulted in a loss of $28 million. The loss consisted of a $21 million impairment of the assets to fair value less cost to sell and recognition of $7 million in exit costs primarily consisting of employee-related costs and contractual obligations. Fair value was based on management's estimate of the expected net proceeds to be received. During 1998, the learning content business was sold with a resulting $2 million reduction in 1998 expenses. During 1998, $5 million of exit costs was paid. The results of operations and the effect of suspending amortization for the learning content business included in consolidated net income (loss) are not significant for any of the periods presented.
Additionally in the fourth quarter of 1997, Communications' management evaluated certain Network Applications' business activities because of indications that their carrying values may not be recoverable. This resulted in impairments of $17 million, based upon management's estimate as to the ultimate recovery of these evaluated activities.
In 1997, Williams Holdings sold its interest in the natural gas liquids and condensate reserves in the West Panhandle field of Texas for $66 million in cash. The sale resulted in a $66 million pre-tax gain on the transaction because the related reserves had no book value.
In 1996, Williams Holdings recognized a pre-tax gain of $15.7 million from the sale of certain communication rights for approximately $38 million.
Also in 1996, Williams Holdings sold its Iowa propane and liquid fertilizer assets as well as its remaining liquid fertilizer assets in Arkansas, Illinois, Indiana, Minnesota, Ohio and Wisconsin for $43 million in cash, resulting in a pre-tax gain of $20.8 million.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. PROVISION FOR INCOME TAXES
The provision (credit) for income taxes from continuing operations includes:
1998 1997 1996
------ ------ ------
(MILLIONS)
Current:
Federal.................................................. $(13.4) $ 88.3 $ 66.3
State.................................................... (6.5) 12.6 .2
Foreign.................................................. 4.6 2.3 --
------ ------ ------
(15.3) 103.2 66.5
------ ------ ------
Deferred:
Federal.................................................. 20.5 41.7 100.4
State.................................................... 9.7 9.2 3.8
------ ------ ------
30.2 50.9 104.2
------ ------ ------
Total provision............................................ $ 14.9 $154.1 $170.7
====== ====== ======
|
Reconciliations from the provision for income taxes from continuing operations at the federal statutory rate to the provision for income taxes are as follows:
1998 1997 1996
----- ------ ------
(MILLIONS)
Provision at federal statutory rate......................... $ 1.6 $159.2 $185.3
Increases (reductions) in taxes resulting from:
State income taxes (net of federal benefit)............... 2.1 15.2 4.5
Income tax credits........................................ (4.0) (16.5) (19.0)
Non-taxable gain from sale of interest in subsidiary (Note
2)..................................................... -- (15.6) --
Non-deductible costs, including goodwill amortization..... 9.8 6.9 2.6
Other -- net.............................................. 5.4 4.9 (2.7)
----- ------ ------
Provision for income taxes.................................. $14.9 $154.1 $170.7
===== ====== ======
|
Significant components of deferred tax liabilities and assets as of December 31 are as follows:
1998 1997*
-------- --------
(MILLIONS)
Deferred tax liabilities:
Property, plant and equipment............................. $ 902.3 $ 849.7
Other..................................................... 252.6 197.1
-------- --------
Total deferred tax liabilities.................... 1,154.9 1,046.8
-------- --------
Deferred tax assets:
Accrued liabilities....................................... 95.4 54.4
Minimum tax credits....................................... 192.7 134.2
Other..................................................... 78.1 136.5
-------- --------
Total deferred tax assets......................... 366.2 325.1
-------- --------
Net deferred tax liabilities................................ $ 788.7 $ 721.7
======== ========
|
* Reclassified to conform to current classification.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash refunds for income taxes (net of payments) from Williams and certain federal and state taxing authorities were $3 million in 1998. Cash payments for income taxes (net of refunds) to Williams and certain federal and state taxing authorities were $108 million and $371 million in 1997 and 1996, respectively.
NOTE 7. EXTRAORDINARY LOSS
During 1998, Williams Holdings paid $54.4 million to redeem higher interest rate debt for a $4.8 million net loss (net of a $2.6 million benefit for income taxes).
During 1997, Williams Pipe Line, a subsidiary of Williams Holdings, paid approximately $55 million to redeem $50 million of debt with a stated interest rate of 9.78 percent, resulting in a loss of $3.6 million (net of a $2.4 million benefit for income taxes).
NOTE 8. EMPLOYEE BENEFIT PLANS
Substantially all of Williams Holdings' employees are covered by non-contributory defined-benefit pension plans. Williams Pipe Line and Pekin Energy, subsidiaries of Williams Holdings, have separate plans for their union employees. At December 31, 1997 and 1996, MAPCO had separate plans covering substantially all of its employees including certain employees of the coal business sold in 1996 (see Note 3). During 1998, one of the MAPCO plans merged into a Williams plan, and the other plan transferred to Williams. Effective August 1, 1997, separate plans were established for the Williams Communications Solutions, LLC union employees and the Williams Communications Solutions, LLC salaried employees (LLC plans). Substantially all of the remaining Williams Holdings' employees are covered by Williams' non-contributory defined-benefit pension plans in which Williams Holdings is included. Williams Holdings is also included in Williams' health care plan that provides postretirement medical benefits to certain retired employees. Contributions for pension and postretirement medical benefits related to Williams Holdings' participation in the Williams plans were $10 million in 1998, $3 million in 1997, and $29 million in 1996. The change in contributions from year to year is due to a change in the rate of pension contributions during the periods. Contributions in excess of the minimum funding requirements were made in 1996, and the resulting credit balances were used to reduce the required pension contributions in 1997.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the changes in benefit obligations and plan assets for pension benefits for the MAPCO, Williams Pipe Line, Pekin Energy, and LLC plans for the years indicated. It also presents a reconciliation of the funded status of these benefits to the amount recognized in the Consolidated Balance Sheet at December 31 of each year indicated.
PENSION BENEFITS
-----------------
1998 1997
------- ------
(MILLIONS)
Change in benefit obligation:
Benefit obligation at beginning of year................... $ 277.0 $203.3
Service cost.............................................. 6.8 6.5
Interest cost............................................. 8.1 16.4
Amendments................................................ -- .2
Acquisition............................................... -- 38.7
Actuarial loss............................................ .1 21.9
Benefits paid............................................. (7.8) (10.0)
Transfer.................................................. (208.1) --
------- ------
Benefit obligation at end of year........................... 76.1 277.0
------- ------
Change in plan assets:
Fair value of plan assets at beginning of year............ 305.9 230.0
Actual return on plan assets.............................. 33.9 42.0
Acquisition............................................... .1 43.9
Employer contributions.................................... 23.8 --
Benefits paid............................................. (7.8) (10.0)
Transfer.................................................. (282.6) --
------- ------
Fair value of plan assets at end of year.................... 73.3 305.9
------- ------
Funded status............................................... (2.8) 28.9
Unrecognized net actuarial loss............................. 7.1 .3
Unrecognized prior service cost (credit).................... (.5) .4
Unrecognized transition asset............................... (.4) (.5)
------- ------
Prepaid benefit cost........................................ $ 3.4 $ 29.1
======= ======
Prepaid benefit cost........................................ $ 5.6 $ 30.6
Accrued benefit cost........................................ (2.2) (1.5)
------- ------
$ 3.4 $ 29.1
======= ======
|
Net pension expense for the MAPCO, Williams Pipe Line, Pekin Energy, and LLC plans consists of the following:
PENSION BENEFITS
------------------------
1998 1997 1996
------ ------ ------
(MILLIONS)
Components of net periodic pension expense:
Service cost............................................. $ 6.8 $ 6.5 $ 7.0
Interest cost............................................ 8.1 16.4 14.1
Expected return on plan assets........................... (11.6) (21.8) (18.6)
Amortization of transition asset......................... (.1) (.1) (3.7)
Amortization of prior service cost (credit).............. (.2) .3 .5
Recognized net actuarial loss............................ -- .3 .7
------ ------ ------
Net periodic pension expense............................... $ 3.0 $ 1.6 $ --
====== ====== ======
|
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the weighted-average assumptions utilized as of December 31 of the year indicated.
PENSION BENEFITS
----------------
1998 1997
----- -----
Discount rate............................................... 7.0% 7.1%
Expected return on plan assets.............................. 10 10
Rate of compensation increase............................... 5 5
|
Williams maintains various defined-contribution plans in which Williams Holdings is included. Williams Holdings' costs related to these plans were $29 million in 1998, $21 million in 1997 and $15 million in 1996.
NOTE 9. INVENTORIES
1998 1997
------ ------
(MILLIONS)
Raw materials:
Crude oil................................................. $ 43.2 $ 30.5
Other..................................................... 2.0 5.2
------ ------
45.2 35.7
------ ------
Finished goods:
Refined products.......................................... 104.1 122.3
Natural gas liquids....................................... 58.6 43.8
General merchandise and communications equipment.......... 99.1 90.0
------ ------
261.8 256.1
------ ------
Materials and supplies...................................... 29.8 19.0
Natural gas in underground storage.......................... 46.1 3.0
Other....................................................... 1.3 1.8
------ ------
$384.2 $315.6
====== ======
|
As of December 31, 1998 and 1997, approximately 37 percent and 23 percent of inventories, respectively, were stated at market. As of December 31, 1998 and 1997, approximately 16 percent and 26 percent of inventories, respectively, were determined using the last-in, first-out (LIFO) method. The remaining inventories were primarily determined using the average-cost method.
If inventories valued on the LIFO method at December 31, 1998 and 1997, were valued at current average cost, the amounts would increase by approximately $14 million and $7 million, respectively.
During 1998, lower of cost or market reductions of approximately $10 million were recognized with respect to certain crude oil and refined products inventories.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. PROPERTY, PLANT AND EQUIPMENT
1998 1997
--------- ---------
(MILLIONS)
Cost:
Energy Services:
Energy Marketing & Trading............................. $ 434.0 $ 345.2
Exploration & Production............................... 368.3 318.5
Midstream Gas & Liquids................................ 3,165.2 2,899.0
Petroleum Services..................................... 2,114.7 1,826.7
Communications:
Communications Solutions............................... 161.2 121.1
Network Applications................................... 203.6 178.2
Network Services....................................... 541.2 235.7
Other..................................................... 417.1 299.5
--------- ---------
7,405.3 6,223.9
Accumulated depreciation and depletion...................... (1,941.3) (1,690.3)
--------- ---------
$ 5,464.0 $ 4,533.6
========= =========
|
Commitments for construction and acquisition of property, plant and equipment are approximately $1.3 billion at December 31, 1998. Included in this amount is $316 million for the purchase of wireless network capacity.
NOTE 11. 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 $100 million at December 31, 1998, and $69 million at December 31, 1997.
1998 1997
------ ------
(MILLIONS)
Accrued liabilities:
Employee costs............................................ $121.9 $ 84.6
Deferred revenue.......................................... 85.7 61.7
Taxes other than income taxes............................. 81.4 66.4
Income taxes payable...................................... 28.8 46.1
Other..................................................... 331.9 301.2
------ ------
$649.7 $560.0
====== ======
|
Income taxes payable include $24.8 million and $44.7 million payable to Williams at December 31, 1998 and 1997, respectively.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. DEBT, LEASES AND BANKING ARRANGEMENTS
Notes payable
During 1998, Williams Holdings' commercial paper program was increased to $1 billion. At December 31, 1998 and 1997, $903 million and $645 million, respectively, of commercial paper was outstanding under the program. In January 1999, the commercial paper program was increased to $1.4 billion. In addition, Williams Holdings has entered into various other short-term credit agreements with amounts outstanding totaling $150 million and $56 million at December 31, 1998 and 1997, respectively. The weighted-average interest rate on the outstanding short-term borrowings at December 31, 1998 and 1997, was 5.92 percent and 6.51 percent, respectively.
Debt
DECEMBER 31,
INTEREST -------------------
RATE* 1998 1997
-------- -------- --------
(MILLIONS)
Williams Holdings of Delaware, Inc.
Revolving credit loans.................................... 5.7% $ 550.0 $ 200.0
Debentures, 6.25% and 7.7%, payable 2006 and 2027......... 5.6 351.9 351.8
Notes, 6.013% -- 8.87%, payable through 2022.............. 7.1 960.1 572.3
MAPCO Inc.
Commercial paper and bank money market lines.............. -- -- 135.8
MAPCO Natural Gas Liquids, Inc.
Notes, 6.67% -- 8.95%, payable through 2022............... 7.8 165.0 165.0
Williams Communications Solutions, LLC
Revolving credit loans.................................... -- -- 125.0
Other, payable through 2005................................. 8.3 8.6 51.3
-------- --------
2,035.6 1,601.2
Current portion of long-term debt........................... (67.0) (75.7)
-------- --------
$1,968.6 $1,525.5
======== ========
|
* Weighted-average at December 31, 1998, including the effects of interest-rate swaps.
Williams Holdings and Williams Communications Solutions, LLC participate in Williams' $1 billion credit agreement under which the LLC has access to $300 million and Williams Holdings has access to all unborrowed amounts, subject to borrowings by other affiliated companies, including Williams (parent). At December 31, 1998, the amount available under the agreement was $306 million. Interest rates vary with current market conditions. In January 1999, the $1 billion bank credit agreement was amended, adding Williams Communications Group, Inc. to the subsidiaries with access to the facility.
An interest-rate swap with a notional value of $250 million is currently being utilized to convert certain fixed-rate debt obligations to variable rate obligations resulting in an effective weighted-average floating rate of 4.7 percent at December 31, 1998.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate minimum maturities and sinking-fund requirements, excluding lease payments and payments on long-term debt with affiliates, for each of the next five years are as follows:
(MILLIONS)
----------
1999........................................................ $ 67
2000........................................................ 97
2001........................................................ 50
2002........................................................ 679
2003........................................................ 220
|
Cash payments for interest (net of amounts capitalized) are as follows:
1998 -- $155 million; 1997 -- $117 million and 1996 -- $93 million, including
payments to Williams and affiliates of $36 million in 1998 and $7 million in
1997 and 1996.
Leases
Future minimum annual rental payments under non-cancelable operating leases (including a total of $15 million to affiliates) are $174 million in 1999, $192 million in 2000, $145 million in 2001, $123 million in 2002, $77 million in 2003 and $71 million thereafter. Future minimum annual rentals to be received from affiliates under sublease agreements are $26 million in 1999 through 2002, and $6 million in 2003.
Total rent expense was $174 million in 1998, $111 million in 1997 and $70 million in 1996, including $2 million in each year paid to Williams and affiliates.
During 1998, Williams Holdings entered into an operating lease agreement covering a portion of its fiber-optic network. The total estimated cost of the network assets to be covered by the lease agreement is $750 million. The lease term will include an interim term, during which the covered network assets will be constructed, that is anticipated to end no later than December 31, 1999 and a base term. The interim and base terms are expected to total five years and, if renewed, could total seven years.
Williams Holdings has an option to purchase the covered network assets during the lease term at an amount approximating the lessor's cost. Williams Holdings provides a residual value guarantee, the present value of which is equal to a maximum of 89.9 percent of the cost of the assets under lease. The residual value guarantee is reduced by the present value of actual lease payments. In the event that Williams Holdings does not exercise its purchase option, Williams Holdings expects the fair market value of the covered network assets to substantially reduce Williams Holdings' obligation under the residual value guarantee. Williams Holdings' disclosures for future minimum annual rentals under non-cancelable operating leases do not include amounts for the residual value guarantee. As of December 31, 1998, $287 million of costs have been incurred by the lessor.
NOTE 13. MINORITY INTEREST
During 1998, Williams Holdings formed separate legal entities and contributed various assets to a newly-formed limited partnership, Castle Associates L.P. ("Castle"), as a part of a transaction that generated funds for Williams' and Williams Holdings' general corporate use. An outside investor purchased from Williams Holdings a non-controlling preferred interest in the newly formed entity for $200 million. The assets and liabilities of Castle are consolidated for financial reporting purposes. The outside investor's interest of $200 million is reflected in "Minority interest in consolidated subsidiaries" in the Consolidated Balance Sheet. The transaction did not result in any gain or loss for Williams Holdings.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The preferred interest holders in Castle are entitled to a priority return based on a variable rate structure, currently approximately seven percent, in addition to their participation in the operating results of the partnership.
The Castle limited partnership agreement and associated operating documents included certain restrictive covenants and guarantees of Williams Holdings and certain of its subsidiaries. These restrictions are similar to those in the Williams Holdings' credit agreement and other debt instruments.
NOTE 14. STOCK-BASED COMPENSATION
Williams has several plans providing for common-stock-based awards to its employees and employees of its subsidiaries. The plans permit the granting of various types of awards including, but not limited to, stock options, stock-appreciation rights, restricted stock and deferred stock. Awards may be granted for no consideration other than prior and future services or based on certain financial performance targets being achieved. The purchase price per share for stock options and the grant price for stock-appreciation rights may not be less than the market price of the underlying stock on the date of grant. Depending upon terms of the respective plans, stock options become exercisable after three or five years, subject to accelerated vesting if certain future stock prices or specific financial performance targets are achieved. Stock options expire ten years after grant.
Williams' employee stock-based awards are accounted for under provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Williams' fixed plan common stock options do not result in compensation expense, because the exercise price of the stock options equals the market price of the underlying stock on the date of grant.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
companies who continue to apply APB Opinion No. 25 disclose pro forma net income
(loss) assuming that the fair-value method in SFAS No. 123 had been applied in
measuring compensation cost. Pro forma net income (loss) for Williams Holdings
was $(74.4) million, $261.4 million and $320.5 million for 1998, 1997 and 1996,
respectively. Reported net income (loss) was $(29.4) million, $291.1 million and
$326.2 million for 1998, 1997 and 1996, respectively. Pro forma amounts for 1998
include the previously unrecognized compensation expense related to the MAPCO
options converted at the time of the merger (see Note 2) and the remaining total
compensation expense from the awards made in 1997, as these awards fully vested
in 1998 as a result of the accelerated vesting provision. Pro forma amounts for
1997 include compensation expense from approximately 65 percent of the awards
made in 1996, as these awards fully vested in 1997 as a result of the
accelerated vesting provision. Since compensation expense from stock options is
recognized over the future years' vesting period for pro forma disclosure
purposes, and additional awards generally are made each year, pro forma amounts
may not be representative of future years' amounts.
The following summary reflects stock options related to 1998, 1997 and 1996:
1998 1997 1996
----- ----- -----
(OPTIONS IN MILLIONS)
Options granted............................................. 3.7 10.3 6.5
Weighted-average grant date fair value...................... $8.19 $7.15 $4.80
Options outstanding -- December 31.......................... 12.0 24.4 19.0
Options exercisable -- December 31.......................... 8.5 10.6 9.4
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WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. FINANCIAL INSTRUMENTS
Fair-value methods
The following methods and assumptions were used by Williams Holdings 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.
Due from parent and long-term debt with affiliates: The amounts bear interest at rates approximating market; therefore, fair value is estimated to approximate historically recorded amounts.
Investment in Williams debentures: The fair value of Williams Holdings' investment is based on the prices of similar securities with similar terms and credit ratings. Williams Holdings used the expertise of an outside investment banking firm to estimate fair value.
Investments-cost, advances to affiliates and other: Fair value is estimated to approximate historically recorded amounts as the operations underlying these investments are in their developmental phases.
Long-term debt: The fair value of Williams Holdings' 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, 1998 and 1997, 64 percent and 54 percent, respectively, of Williams Holdings' long-term debt was publicly traded. Williams Holdings used the expertise of an outside investment banking firm to estimate the fair value of long-term debt.
Interest-rate swap: Fair value is determined by discounting estimated future cash flows using forward interest rates derived from the year-end yield curve. Fair value was calculated by the financial institution that is the counterparty to the swap.
Interest-rate locks: Fair value is determined using year-end traded market prices for the referenced U.S. Treasury securities underlying the contracts. Fair value was calculated by the financial institutions that are parties to the locks.
Energy-related trading and hedging: Energy-related trading includes forwards, options, swaps and purchase and sales commitments. Energy-related hedging includes options and swaps. Fair value reflects management's best estimates using valuation techniques that reflect the best information available in the circumstances. This information includes various factors such as quoted market prices, estimates of market prices in absence of quoted market prices, contractual volumes, estimated volumes under option and other arrangements that result in varying volumes, other contract terms, liquidity of the market in which the contract is transacted, credit considerations, time value and volatility factors underlying the positions.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Carrying amounts and fair values of Williams Holdings' financial instruments
1998 1997
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
ASSET (LIABILITY) AMOUNT VALUE AMOUNT VALUE
----------------- --------- --------- --------- ---------
(MILLIONS)
Cash and cash equivalents.................... $ 109.7 $ 109.7 $ 96.0 $ 96.0
Notes and other non-current receivables...... 7.4 7.4 20.9 20.9
Due from parent.............................. 1,066.2 1,066.2 274.3 274.3
Investment in Williams debentures............ 855.8 855.8 770.7 770.7
Investments-cost, advances to affiliate and
other...................................... 325.2 325.2 101.2 101.2
Notes payable................................ (1,052.7) (1,052.7) (701.0) (701.0)
Long-term debt, including current portion.... (2,035.4) (2,075.9) (1,600.1) (1,640.8)
Long-term debt with affiliates, including
current portion............................ (1,013.8) (1,013.8) -- --
Interest-rate swap........................... 1.6 3.6 1.5 6.5
Interest-rate locks.......................... -- -- -- (.5)
Energy-related trading:
Assets..................................... 548.1 548.1 324.9 324.9
Liabilities................................ (491.6) (491.6) (383.7) (383.7)
Energy-related hedging:
Assets..................................... -- 7.0 .9 13.3
Liabilities................................ (.7) (10.2) (.3) (8.8)
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The preceding asset and liability amounts for energy-related hedging represent unrealized gains or losses and do not include the related deferred amounts.
The 1998 average fair value of the energy-related trading assets and liabilities is $485 million and $518 million, respectively. The 1997 average fair value of the energy-related trading assets and liabilities is $258 million and $345 million, respectively.
Off-balance-sheet credit and market risk
Williams Holdings is a participant in the following 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.
In 1997, Williams Holdings entered into agreements to sell, on an ongoing basis, certain of their accounts receivables. At December 31, 1998 and 1997, $185 million and $200 million, respectively, have been sold under these agreements.
In connection with the 1995 sale of its network services operations, Williams has been indemnified by LDDS against any losses related to retained guarantees of $113 million and $135 million at December 31, 1998 and 1997, respectively, for lease rental obligations.
Williams Holdings has issued other guarantees and letters of credit with off-balance-sheet risk that total approximately $81 million and $54 million at December 31, 1998 and 1997, respectively. Williams Holdings 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.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy trading activities
Williams Holdings, through Energy Marketing & Trading, provides price-risk management services associated with the energy industry to its customers. These services are provided through a variety of energy contracts including forward contracts, futures contracts, option contracts, swap agreements and purchase and sale commitments. See Note 1 for a description of the accounting for these trading activities. The net gain from trading activities was $112.6 million, $125.8 million and $99.2 million in 1998, 1997 and 1996, respectively.
Energy Marketing & Trading enters into contracts which involve physical delivery of an energy commodity. Prices under these contracts are both fixed and variable. These contracts involve both firm commitments requiring fixed volumes and option and other arrangements that result in varying volumes. Swap arrangements call for Energy Marketing & Trading 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. Energy Marketing & Trading buys and sells financial option 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 prices used for forwards, swap, option and physical contracts consider exchange quoted prices or management's estimates based on the best information available. Energy Marketing & Trading 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.
Energy Marketing & Trading is subject to market risk from changes in energy commodity market prices, the portfolio position of its financial instruments and physical commitments, the liquidity of the market in which the contract is transacted, and changes in interest rates and credit risk.
Energy Marketing & Trading manages market risk on a portfolio basis through established trading policy guidelines, which are monitored on an ongoing basis. Energy Marketing & Trading 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.
The notional quantities for trading activities at December 31 are as follows:
1998 1997*
------------------ ------------------
PAYOR RECEIVER PAYOR RECEIVER
------- -------- ------- --------
Fixed price:
Natural gas (TBtu)............................. 1,310.1 1,413.9 1,262.5 1,400.4
Refined products, NGL's and crude (MMBbls)..... 185.2 167.5 68.7 59.6
Power (Terawatt Hrs)........................... 28.6 23.6 15.0 14.0
Variable price:
Natural gas (TBtu)............................. 1,749.4 1,537.4 1,898.3 1,322.4
Refined products, NGL's and crude (MMBbls)..... 48.5 44.8 1.9 1.9
Power (Terawatt Hrs)........................... -- .8 .1 1.6
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*Restated
The net cash inflow related to these contracts at December 31, 1998 was $96 million, and the net cash requirement at December 31, 1997, was $92 million. At December 31, 1998, the cash inflows extend primarily through 2007.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of credit risk
Williams Holdings' cash equivalents consist of high quality securities placed with various major financial institutions with high credit ratings. Williams Holdings' investment policy limits its credit exposure to any one insurer/obligor.
At December 31, 1998 and 1997, approximately 46 percent and 30 percent, respectively, of receivables are for communications and related services. Approximately 25 percent and 40 percent of receivables at December 31, 1998 and 1997, respectively, are for the sale of natural gas and related products or services. Approximately 21 percent and 24 percent of receivables at December 31, 1998 and 1997, respectively, are for petroleum products and related services. Communications' customers include numerous corporations. Natural gas customers include pipelines, distribution companies, producers, gas marketers and industrial users primarily located in the eastern, northwestern and midwestern United States. Petroleum products customers include wholesale, commercial, governmental, industrial and individual consumers and independent dealers located primarily in Alaska and the mid-south and southeastern United States. As a general policy, collateral is not required for receivables, but customers' financial condition and credit worthiness are evaluated regularly.
NOTE 16. RELATED PARTY TRANSACTIONS
Williams charges its subsidiaries, including Williams Holdings and its subsidiaries, for certain corporate general and administrative expenses, which are directly identifiable or allocable to the subsidiaries and for other general corporate expenses utilizing a combination of revenues, property at cost and payroll for the allocation base. Details of such charges are as follows:
1998 1997 1996
----- ---------- -----
(MILLIONS)
Direct costs............................................... $61.0 $27.1 $21.2
Allocated parent company expenses.......................... 37.4 21.4 18.8
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The direct costs charged to Williams Holdings' subsidiaries are reflected in selling, general and administrative expenses, and the direct costs charged to Williams Holdings (parent) related to the MAPCO merger (see Note 2) are reflected in general corporate expenses. Allocated parent company expenses are included in general corporate expenses in the Consolidated Statement of Operations.
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. Amounts outstanding are payable on demand; however, the net amount outstanding at December 31, 1998, has been classified as long-term as there are no expectations for Williams and Williams Holdings and its subsidiaries to demand payment in the next year. The agreements do not require commitment fees. Interest is payable monthly, and rates vary with market conditions. The interest rates were 5.83 percent and 6.29 percent at December 31, 1998 and 1997, respectively.
Interest accrued includes $22 million in 1998 resulting from advances from Williams. Investing income includes $22 million, $36 million and $31 million for 1998, 1997 and 1996, respectively, resulting from advances to Williams.
During 1998, Williams Holdings utilized advances from other Williams' subsidiaries to repay external debt obligations and to fund additional capital expenditures. The advances are due in 2002, and the interest rate was 5.57 percent at December 31, 1998. The balance at December 31, 1998 was approximately $1 billion including $65.4 million classified as current. Interest accrued in 1998 includes $14.4 million related to these advances.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, two of Williams Holdings' subsidiaries issued two separate notes totaling $198 million to Williams. The notes are payable on demand, however, amounts outstanding have been classified as long-term as these subsidiaries are not expected to demand payment from Williams within the next year. Interest rates vary with market conditions. The interest rate for these notes at December 31, 1998, was 6.5 percent.
Williams Holdings' subsidiaries have transactions primarily with the following affiliates: Northwest Pipeline, Williams Gas Pipelines Central, Transcontinental Gas Pipe Line and Texas Gas. Energy Marketing & Trading's revenues include natural gas sales to affiliates of $332 million, $429 million and $499 million for 1998, 1997 and 1996, respectively. Energy Marketing & Trading also incurred costs and operating expenses, including transportation and certain other costs, from affiliates of $93 million, $96 million and $157 million for 1998, 1997 and 1996, respectively. These sales and costs are included in Energy Marketing & Trading revenues consistent with a "net" basis of reporting these activities. Transactions with affiliates are at prices that generally apply to unaffiliated parties.
NOTE 17. CONTINGENT LIABILITIES AND COMMITMENTS
Rate and regulatory matters
Williams Pipe Line (WPL) has various regulatory proceedings pending. On July 15, 1998, WPL received an Order from the Federal Energy Regulatory Commission (FERC) which affirmed an administrative law judge's 1996 initial decision regarding rate-making proceedings for the period September 15, 1990 through May 1, 1992. The FERC has ruled that WPL did not meet its burden of establishing that its transportation rates in its 12 noncompetitive markets were just and reasonable for the period and has ordered refunds. WPL continues to believe it should prevail upon appeal regarding collected rates for that period. However, due to this FERC decision, WPL accrued $15.5 million, including interest, in the second quarter of 1998, for potential refunds to customers for the issues described above. Since May 1, 1992, WPL has collected and recognized as revenues $151 million in noncompetitive markets that are in excess of tariff rates previously approved by the FERC and that are subject to refund with interest. WPL believes that the tariff rates collected in these markets during this period will be justified in accordance with the FERC's cost-basis guidelines and will be making the appropriate filings with the FERC to support this position.
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 the PRP status of these subsidiaries will have a material adverse effect on its financial position, results of operations or net cash flows.
The Midstream Gas & Liquids unit of Energy Services (WES) had recorded an aggregate liability of approximately $10 million, representing the current estimate of future environmental and remediation costs. WES also accrues environmental remediation costs for its petroleum products pipeline, retail petroleum, refining and propane marketing operations primarily related to soil and groundwater contamination. At December 31, 1998, WES and its subsidiaries had reserves, in addition to other reserves listed above, totaling approximately $31 million. WES recognizes receivables related to environmental remediation costs from state funds as a result of laws permitting states to reimburse certain expenses associated with underground storage tank problems and repairs. At December 31, 1998, WES and its subsidiaries had receivables totaling $14 million. 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 HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other legal matters
In 1998, certain royalty owners in a producing field in Cameron Parish, Louisiana, brought suit against a Williams Holdings subsidiary and other working interest owners seeking additional royalties or lease cancellation. An amended petition later added a second Williams Holdings subsidiary, Williams and additional working interest owners. All other defendants have been dismissed or have settled with plaintiffs. In their recently amended damage claim, the plaintiffs asserted royalty underpayments plus interest of approximately $12 million. The claimed damages are attributable to all working interests for a period of about 15 years. One of the two Williams Holdings subsidiaries sued owned a one-half interest in the field and served as operator for approximately eight years. The other subsidiary purchased produced gas from the field. Plaintiffs also request punitive damages equal to double the alleged damages and attorneys' fees. Williams Holdings believes all royalties due from its subsidiaries were properly paid, that the field was properly operated, and that it is not responsible for any amounts due from any other working interests or for the period after its subsidiary had sold its interest and terminated its status as operator of the field. The litigation pending in Cameron Parish, Louisiana, has recently been settled for payments aggregating approximately $9 million, for which reserves have been fully accrued.
On April 7, 1992, a liquefied petroleum gas explosion occurred near an underground salt dome storage facility located near Brenham, Texas and owned by an affiliate of MAPCO Inc., Seminole Pipeline Company ("Seminole"). MAPCO Inc., as well as Seminole, Mid-America Pipeline Company, MAPCO Natural Gas Liquids Inc., and other non-MAPCO entities were named as defendants in civil action lawsuits filed in state district courts located in four Texas counties. Seminole and the above-mentioned subsidiaries of MAPCO Inc. have settled in excess of 1,600 claims in these lawsuits. The only lawsuit remaining is the Dallmeyer case which was tried before a jury in Harris County. In Dallmeyer, the judgment rendered in March 1996 against defendants Seminole and MAPCO Inc. and its subsidiaries totaled approximately $72 million which included nearly $65 million of punitive damages awarded to the 21 plaintiffs. Both plaintiffs and defendants have appealed the Dallmeyer judgment to the Court of Appeals for the Fourteenth District of Texas in Harris County. The defendants seek to have the judgment modified in many respects, including the elimination of punitive damages as well as a portion of the actual damages awarded. If the defendants prevail on appeal, it will result in an award significantly less than the judgment. The plaintiffs have cross-appealed and seek to modify the judgment to increase the total award plus interest to exceed $155 million. In February and March 1998, the defendants entered into settlement agreements involving 17 of the 21 plaintiffs to finally resolve their claims against all defendants for an aggregate payment of approximately $10 million. These settlements have satisfied and reduced the judgment on appeal by approximately $42 million. As to the remaining four plaintiffs, the Court of Appeals issued its decision on October 15, 1998, which, while denying all of the plaintiffs' cross-appeal issues, affirmed in part and reversed in part the trial court's judgment. The defendants had entered into settlement agreements with the remaining plaintiffs which, in light of the decision, Williams Holdings believes will provide for aggregate payments of approximately $13.6 million, the full amount of which has been previously accrued.
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 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. On July 16, 1997, the
U.S. Court of Appeals for the Tenth Circuit reversed the decision of the
district court, held that the Tribe owns the coal-seam gas produced from certain
coal strata on fee lands within
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the exterior boundaries of the Tribe's reservation, and remanded the case to the district court for further proceedings. On September 16, 1997, Amoco Production Company, the class representative for the defendant class (of which Williams Production is a part), filed its motion for rehearing en banc before the Court of Appeals. On July 20, 1998, the Court of Appeals sitting en banc affirmed the panel's decision. The Supreme Court has granted a writ of certiorari in respect of this decision.
Williams Communications, Inc. filed suit on March 20, 1998, against WorldCom Network Services, Inc. (WorldCom) in district court in Tulsa County in order to prevent WorldCom from disconnecting any Williams' equipment on the WorldCom network. This suit sought a declaratory judgment that the single fiber retained by Williams Holdings on the WorldCom network could be used for specified multimedia uses, and that WorldCom was required to permit Williams Holdings to purchase additional fiber either acquired or constructed by WorldCom. WorldCom had denied Williams Holdings' claim and had asserted various counterclaims for monetary damages, rescission and injunctive relief. This lawsuit was settled on July 9, 1998. The settlement resolves all claims for monetary damages, permitted uses of Williams Holdings' fiber on the WorldCom network and Williams Holdings' right to purchase additional fiber on WorldCom fiber builds. There was no significant financial impact to Williams Holdings as a result of the settlement.
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. 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. As a result of such settlements, Transcontinental Gas Pipe Line is currently defending two lawsuits brought by producers. In one of the cases, a jury verdict found that Transcontinental Gas Pipe Line was required to pay a producer damages of $23.3 million including $3.8 million in attorneys' fees. Transcontinental Gas Pipe Line is pursuing an appeal. In the other case, a producer has asserted damages, including interest calculated through December 31, 1997, of approximately $6 million. 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 connection with the sale of certain coal assets in 1996, MAPCO entered into a Letter Agreement with the buyer providing for indemnification by MAPCO for reductions in the price or tonnage of coal delivered under a certain pre-existing Coal Sales Agreement dated December 1, 1986. The Letter Agreement is effective for reductions during the period July 1, 1996, through December 31, 2002, and provides for indemnification for such reductions as incurred on a quarterly basis. The buyer has stated it is entitled to indemnification from MAPCO for amounts of $7.8 million through June 30, 1998, and may claim indemnification for additional amounts in the future. MAPCO has filed for declaratory relief as to certain aspects of the buyer's claims. MAPCO also believes it would be entitled to substantial set-offs and credits against any amounts determined to be due and has accrued a liability representing an estimate of amounts it expects to incur in satisfaction of this indemnity. The parties are currently pursuing settlement negotiations as part of a mediation.
In 1998, the United States Department of Justice informed Williams Holdings that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams Holdings and certain of its wholly owned subsidiaries including Williams Field Services Company and Williams Production Company. Mr. Grynberg has also filed claims against approximately 300 other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought is an unspecified amount
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys' fees, and costs.
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.
Other matters
During the second quarter of 1998, Energy Marketing & Trading entered into a 15-year contract giving Williams Holdings the right to receive fuel conversion services for purposes of generating electricity. This contract also gives Williams Holdings the right to receive installed capacity and certain ancillary services. Annual committed payments under the contract range from $140 million to $165 million, resulting in total committed payments of approximately $2.3 billion.
NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME
The table below presents changes in the components of accumulated other comprehensive income.
INCOME(LOSS)
------------------------------------
UNREALIZED FOREIGN
APPRECIATION CURRENCY
ON SECURITIES TRANSLATION TOTAL
------------- ----------- ------
(MILLIONS)
Balance at December 31, 1995................................ $ 53.4 $ -- $ 53.4
1996 change:
Pre-income tax amount..................................... 85.4 -- 85.4
Income tax expense........................................ (34.2) -- (34.2)
------ ----- ------
51.2 -- 51.2
------ ----- ------
Balance at December 31, 1996................................ 104.6 -- 104.6
1997 change:
Pre-income tax amount..................................... 232.4 -- 232.4
Income tax expense........................................ (92.9) -- (92.9)
------ ----- ------
139.5 -- 139.5
------ ----- ------
Balance at December 31, 1997................................ 244.1 -- 244.1
1998 change:
Pre-income tax amount..................................... 124.4 (5.0) 119.4
Income tax expense........................................ (46.8) -- (46.8)
------ ----- ------
77.6 (5.0) 72.6
------ ----- ------
Balance at December 31, 1998................................ $321.7 $(5.0) $316.7
====== ===== ======
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NOTE 19. SEGMENT DISCLOSURES
Williams Holdings evaluates performance based upon segment profit or loss from operations which includes revenues from external and internal customers, equity earnings, operating costs and expenses, and
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation, depletion and amortization. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies. Intersegment sales are generally accounted for as if the sales were to unaffiliated third parties, that is, at current market prices.
Williams Holdings' reportable segments are strategic business units that offer different products and services. The segments are managed separately because each segment requires different technology, marketing strategies and industry knowledge. Other includes investments in international energy and communications-related ventures, as well as corporate operations.
The following table reflects the reconciliation of segment profit, per the table on the following page, to operating income as reported on the Consolidated Statement of Operations.
1998 1997 1996
-------- -------- --------
(MILLIONS)
Segment profit......................................... $ 189.9 $ 509.9 $ 584.8
General corporate expenses............................. (58.8) (70.4) (49.9)
-------- -------- --------
Operating income............................. $ 131.1 $ 439.5 $ 534.9
======== ======== ========
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The following geographic area data includes revenues from external customers based on product shipment origin and long-lived assets based upon physical location.
1998 1997 1996
-------- -------- --------
(MILLIONS)
Revenues from external customers:
United States........................................ $5,772.7 $6,372.4 $5,147.9
Other................................................ 181.0 140.5 5.1
-------- -------- --------
Total........................................ $5,953.7 $6,512.9 $5,153.0
======== ======== ========
Long-lived assets:
United States........................................ $5,796.8 $5,007.3 $4,205.5
Other................................................ 250.8 126.9 2.0
-------- -------- --------
Total........................................ $6,047.6 $5,134.2 $4,207.5
======== ======== ========
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Long-lived assets are comprised of property, plant and equipment, goodwill and other intangible assets.
WILLIAMS HOLDINGS OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES
--------------------------------------------
EQUITY EQUITY
EXTERNAL INTER- EARNINGS SEGMENT TOTAL METHOD
CUSTOMERS SEGMENT (LOSSES) TOTAL PROFIT (LOSS) ASSETS INVESTMENTS
--------- --------- -------- --------- ------------- --------- -----------
(MILLIONS)
1998
Energy Services
Energy, Marketing & Trading...... $2,007.5 $ (93.7)* $ (6.7) $ 1,907.1 $ 39.0 $ 2,596.8 $ .8
Exploration & Production......... 33.5 105.8 -- 139.3 27.2 359.1 --
Midstream Gas & Liquids.......... 726.2 63.7 8.2 798.1 210.6 2,688.4 129.1
Petroleum Services............... 1,417.2 1,257.9 .4 2,675.5 153.3 2,525.2 96.0
Merger-related costs............. -- -- -- -- (50.7) -- --
-------- --------- ------ --------- ------- --------- ------
4,184.4 1,333.7 1.9 5,520.0 379.4 8,169.5 225.9
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 1,366.8 -- -- 1,366.8 (54.1) 946.4 --
Network Applications............. 209.6 .6 (3.7) 206.5 (94.6) 295.6 .5
Network Services................. 145.2 49.7 -- 194.9 (26.3) 822.9 --
-------- --------- ------ --------- ------- --------- ------
1,721.6 50.3 (3.7) 1,768.2 (175.0) 2,064.9 .5
Other.............................. 47.7 26.4 (9.3) 64.8 (14.5) 6,648.6 291.7
Eliminations....................... -- (1,410.4) -- (1,410.4) -- (5,032.4) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $5,953.7 $ -- $(11.1) $ 5,942.6 $ 189.9 $11,850.6 $518.1
======== ========= ====== ========= ======= ========= ======
1997
Energy Services
Energy, Marketing & Trading...... $1,995.8 $ 254.6 $ (5.6) $ 2,244.8 $ 53.4 $ 1,688.8 $ 1.8
Exploration & Production......... 3.6 126.5 -- 130.1 30.3 367.2 --
Midstream Gas & Liquids.......... 841.4 100.5 -- 941.9 270.8 2,650.1 87.5
Petroleum Services............... 2,192.9 502.7 .4 2,696.0 200.8 1,836.8 9.6
-------- --------- ------ --------- ------- --------- ------
5,033.7 984.3 (5.2) 6,012.8 555.3 6,542.9 98.9
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 1,206.5 -- -- 1,206.5 47.3 869.0 --
Network Applications............. 216.9 1.1 (2.4) 215.6 (108.7) 329.6 3.8
Network Services................. 22.0 21.0 -- 43.0 3.3 240.1 2.3
-------- --------- ------ --------- ------- --------- ------
1,445.4 22.1 (2.4) 1,465.1 (58.1) 1,438.7 6.1
Other.............................. 33.8 4.6 15.0 53.4 12.7 3,497.0 143.7
Eliminations....................... -- (1,011.0) -- (1,011.0) -- (2,344.1) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $6,512.9 $ -- $ 7.4 $ 6,520.3 $ 509.9 $ 9,134.5 $248.7
======== ========= ====== ========= ======= ========= ======
1996
Energy Services
Energy, Marketing & Trading...... $1,584.1 $ 389.1 $ (4.8) $ 1,968.4 $ 138.5 $ 1,544.7 $ .9
Exploration & Production......... 25.3 57.1 -- 82.4 2.8 256.8 --
Midstream Gas & Liquids.......... 696.3 90.3 .1 786.7 294.0 2,401.8 47.4
Petroleum Services............... 2,091.6 503.4 .2 2,595.2 140.0 1,705.8 4.3
-------- --------- ------ --------- ------- --------- ------
4,397.3 1,039.9 (4.5) 5,432.7 575.3 5,909.1 52.6
-------- --------- ------ --------- ------- --------- ------
Communications
Communications Solutions......... 568.1 -- -- 568.1 14.3 344.6 -
Network Applications............. 132.1 .4 (1.6) 130.9 (15.1) 148.6 6.6
Network Services................. 11.1 -- -- 11.1 5.8 212.7 --
-------- --------- ------ --------- ------- --------- ------
711.3 .4 (1.6) 710.1 5.0 705.9 6.6
Other.............................. 44.4 3.6 10.3 58.3 4.5 2,353.8 59.8
Eliminations....................... -- (1,043.9) -- (1,043.9) -- (1,634.2) --
-------- --------- ------ --------- ------- --------- ------
Total...................... $5,153.0 $ -- $ 4.2 $ 5,157.2 $ 584.8 $ 7,334.6 $119.0
======== ========= ====== ========= ======= ========= ======
ADDITIONS
TO LONG- DEPRECIATION,
LIVED DEPLETION &
ASSETS AMORTIZATION
--------- -------------
(MILLIONS)
1998
Energy Services
Energy, Marketing & Trading...... $ 27.3 $ 30.1
Exploration & Production......... 58.1 26.0
Midstream Gas & Liquids.......... 336.8 105.1
Petroleum Services............... 264.2 70.8
Merger-related costs............. -- --
-------- ------
686.4 232.0
-------- ------
Communications
Communications Solutions......... 68.5 36.9
Network Applications............. 55.3 33.7
Network Services................. 283.8 13.2
-------- ------
407.6 83.8
Other.............................. 189.6 24.9
Eliminations....................... -- --
-------- ------
Total...................... $1,283.6 $340.7
======== ======
1997
Energy Services
Energy, Marketing & Trading...... $ 102.4 $ 20.8
Exploration & Production......... 63.3 12.6
Midstream Gas & Liquids.......... 194.6 97.1
Petroleum Services............... 150.5 67.8
-------- ------
510.8 198.3
-------- ------
Communications
Communications Solutions......... 247.5 29.7
Network Applications............. 98.9 33.1
Network Services................. 178.2 4.0
-------- ------
524.6 66.8
Other.............................. 179.9 11.0
Eliminations....................... -- --
-------- ------
Total...................... $1,215.3 $276.1
======== ======
1996
Energy Services
Energy, Marketing & Trading...... $ 26.3 $ 16.9
Exploration & Production......... 30.3 10.5
Midstream Gas & Liquids.......... 236.7 85.8
Petroleum Services............... 111.0 64.1
-------- ------
404.3 177.3
-------- ------
Communications
Communications Solutions......... 36.9 16.0
Network Applications............. 193.0 14.9
Network Services................. -- --
-------- ------
229.9 30.9
Other.............................. 35.0 9.3
Eliminations....................... -- --
-------- ------
Total...................... $ 669.2 $217.5
======== ======
|
* Energy Marketing & Trading intercompany cost of sales, which are netted in revenues consistent with fair-value accounting, exceed intercompany revenues in 1998.
NOTE 20. SUBSEQUENT EVENT
On March 18, 1999, Williams' board of directors approved the merger of Williams Holdings with Williams. Upon completion of the merger, which is expected to be in the second or third quarter of 1999, Williams will assume all liabilities and obligations of Williams Holdings.
WILLIAMS HOLDINGS OF DELAWARE, INC.
QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data are as follows. Certain amounts have been reclassified as described in Note 1 of Notes to Consolidated Financial Statements.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(MILLIONS)
1998
Revenues................................... $1,503.5 $1,377.4 $1,476.4 $1,585.3
Costs and operating expenses............... 1,225.2 1,078.7 1,178.0 1,272.7
Income (loss) before extraordinary loss.... 10.5 22.9 .2 (58.2)
Net income (loss).......................... 5.7 22.9 .2 (58.2)
1997
Revenues................................... $1,459.0 $1,487.4 $1,691.7 $1,882.2
Costs and operating expenses............... 1,198.0 1,227.5 1,408.6 1,547.1
Income before extraordinary loss........... 125.0 96.2 53.4 20.1
Net income................................. 125.0 96.2 53.4 16.5
|
First-quarter, second-quarter, third-quarter, and fourth-quarter 1998 net
income (loss) includes approximately $52 million, $9 million, $6 million and $5
million, respectively, of pre-tax merger-related costs (see Note 2).
Second-quarter 1998 net income (loss) also includes a pre-tax $15.5 million loss
provision for potential refunds to customers (see Note 5). Third-quarter 1998
net income (loss) includes $17 million in pre-tax credit loss accruals for
certain retail energy activities. In addition, third-quarter 1998 includes a
$23.2 million pre-tax loss related to a venture involved in the technology and
transmission of business information for news and educational purposes (see Note
5). Fourth-quarter 1998 net income (loss) includes pre-tax accruals totaling
approximately $23 million related to the modification of Williams Holdings'
employee benefit program (see Note 5). Fourth-quarter 1998 net income (loss)
also includes pre-tax charges of $14 million for asset impairments related to
the decision to change the focus of its retail natural gas and electric business
(see Note 5). Fourth-quarter 1998 net income (loss) also reflects the impact of
the decline in the energy market for Energy Services results and higher than
expected commissions expense, an increase in reserves required and higher
selling, general and administrative expenses at Communications Solutions.
First-quarter 1997 net income includes a pre-tax $66 million gain related to the sale of the interest in the West Panhandle field (see Note 5). Second-quarter 1997 net income includes a $44.5 million gain related to the combination of Williams Holdings' and Nortel's customer-premise equipment sales and service business (see Note 2). Fourth-quarter 1997 net income includes pre-tax charges totaling approximately $49.8 million, related to the decision and commitment to a plan to sell the learning content business, and the impairment of several advanced applications projects (see Note 5). Fourth-quarter 1997 net income also includes approximately $10 million in pre-tax costs related to the MAPCO acquisition (see Note 2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
WILLIAMS HOLDINGS OF DELAWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14(A) 1 AND 2
PAGE
----
Covered by report of independent auditors:
Consolidated statement of operations for the three years
ended December 31, 1998................................ F-20
Consolidated balance sheet at December 31, 1998 and
1997................................................... F-21
Consolidated statement of stockholder's equity for the
three years ended December 31, 1998.................... F-22
Consolidated statement of cash flows for the three years
ended December 31, 1998................................ F-23
Notes to consolidated financial statements................ F-24
Schedule for the three years ended December 31, 1998:
II -- Valuation and qualifying accounts................ F-52
Not covered by report of independent auditors:
Quarterly financial data (unaudited)...................... F-50
|
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.
WILLIAMS HOLDINGS OF DELAWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS(A)
ADDITIONS
-----------------
CHARGED
TO COSTS
BEGINNING AND ENDING
BALANCE EXPENSES OTHER DEDUCTIONS(B) BALANCE
--------- -------- ------ ------------- -------
(MILLIONS)
Year ended December 31, 1998:
Allowance for doubtful accounts --
Receivables............................ $20.7 $39.8 $ -- $30.7 $29.8
Other assets........................... 4.6 -- -- 4.6 --
Price-risk management credit reserves..... 7.7 5.3 -- -- 13.0
Year ended December 31, 1997:
Allowance for doubtful accounts --
Receivables............................ 10.5 13.3 7.0(c) 10.1 20.7
Other assets........................... 4.6 -- -- -- 4.6
Price-risk management credit reserves..... 7.6 .1 -- -- 7.7
Year ended December 31, 1996:
Allowance for doubtful accounts --
Receivables............................ 11.8 5.3 1.4(c) 8.0 10.5
Other assets........................... 1.6 3.0 -- -- 4.6
Price-risk management credit reserves..... 8.3 (.7) -- -- 7.6
|
(a) Deducted from related assets.
(b) Represents balances written off, net of recoveries and reclassifications.
(c) Primarily relates to acquisitions of businesses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2. The financial statements and schedule 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 NO. DESCRIPTION
Exhibit 2 --
*(a) Agreement and Plan of Merger, dated as of November 23, 1997, and as amended on January 25, 1998, among The Williams Companies, Inc., MAPCO Inc., and TML Acquisition Corp. (filed as Exhibit 2.1 to Williams' Registration Statement on Form S-4 filed January 27, 1998).
Exhibit 3 --
*(a) Certificate of Incorporation of Williams Holdings (filed as Exhibit 3.2 to Williams Holdings' Form 10-Q dated October 18, 1995).
*(b) By-laws of the Company (filed as Exhibit 3.2 to Williams Holdings' Form 10-Q dated October 18, 1995).
Exhibit 4 --
*(a) Form of Senior Debt Indenture between Williams Holdings and Citibank, N.A., relating to the 6 1/4% Senior Debentures, due 2006, and Medium-Term Notes (6.40%-6.91%), due 1999-2002 (filed as Exhibit 4.1 to Williams Holdings' Form 10-Q dated October 18, 1995).
*(b) Second Amended and Restated Credit Agreement dated July 23, 1997, among The Williams Companies, Inc., Williams Holdings, and certain of its subsidiaries, the lenders named therein, and Citibank, N.A., as agent (filed as Exhibit 4(c) to The Williams Companies, Inc.'s Form 10-K for the fiscal year ended December 31, 1997).
*(c) Amendment dated January 26, 1999, to Second Amended and Restated Credit Agreement dated July 23, 1997, among The Williams Companies, Inc., Williams Holdings, and certain of its subsidiaries, the lenders named therein, and Citibank, N.A., as agent (filed as Exhibit 4(c) to The Williams Companies, Inc.'s Form 10-K for the fiscal year ended December 31, 1998).
(d) Amended and Restated Credit Agreement dated January 26, 1999, among Williams Holdings, the lenders named therein, and Citibank, N.A., as agent.
*(e) Indenture dated March 31, 1990, between MAPCO Inc. and Bankers Trust Company, Trustee (filed as Exhibit 4.0 to MAPCO Inc.'s Current Report on Form 8-K dated February 19, 1991).
(f) First Supplemental Indenture dated March 31, 1998, among MAPCO, Inc., Williams Holdings, and Bankers Trust Company, Trustee, relating to the Medium-Term Notes (7.60%-8.87%), due 1999-2022.
*(g) Senior Indenture dated February 25, 1997, between MAPCO Inc. and The First National Bank of Chicago, Trustee (filed as Exhibit 4.5.1 to MAPCO Inc.'s Amendment No. 1 to Form S-3 Registration Statement dated February 25, 1997).
*(h) Supplemental Indenture No. 1 dated March 5, 1997, between MAPCO Inc. and The First National Bank of Chicago (filed as Exhibit 4.(o) to MAPCO Inc.'s Form 10-K for the fiscal year ended December 31, 1997).
*(i) Supplemental Indenture No. 2 dated March 5, 1997, between MAPCO Inc. and The First National Bank of Chicago (filed as Exhibit 4.(p) to MAPCO Inc.'s Form 10-K for the fiscal year ended December 31, 1997).
(j) Supplemental Indenture No. 3 dated March 31, 1998, among MAPCO Inc., Williams Holdings, and The First National Bank of Chicago, relating to the 7 1/4% Notes, due 2009, the 7.70% Debentures, due 2027, the 6 1/8% Notes, due 2003, and the 6 1/2% Notes, due 2008.
Exhibit 12 -- Computation of Ratio of Earnings to Fixed Charges.
Exhibit 23 --
(a) Consent of Independent Auditors, Ernst & Young LLP.
(b) Consent of Independent Auditors, Deloitte & Touche LLP.
Exhibit 24 -- Power of Attorney together with certified resolution.
Exhibit 27 -- Financial Data Schedule.
Exhibit 27.1 -- Restated Financial Data Schedule for the quarters ended March 30, June 30, and September 30, 1997.
Exhibit 27.2 -- Restated Financial Data Schedule for the quarters ended March 30, June 30, and September 30, 1996.
Exhibit 99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
(b) Reports on Form 8-K.
On November 23, 1998, Williams Holdings filed a report on Form 8-K to report that the Board of Directors of The Williams Companies, Inc. has authorized Williams Communications Group, Inc., a wholly owned subsidiary of Williams Holdings, to sell a minority interest in its business to the public.
* 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.
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.
WILLIAMS HOLDINGS OF DELAWARE, INC.
(Registrant)
By: /s/ SHAWNA L. GEHRES
----------------------------------
Shawna L. Gehres
Attorney-in-fact
Dated: March 30, 1999
|
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
----------------------------------------------------- Executive Officer (Principal Executive
Keith E. Bailey Officer) and Director
/s/ JACK D. MCCARTHY* Senior Vice President -- Finance (Principal
----------------------------------------------------- Financial Officer) and Director
Jack D. McCarthy
/s/ GARY R. BELITZ* Controller (Principal Accounting Officer)
-----------------------------------------------------
Gary R. Belitz
/s/ JOHN C. BUMGARNER, JR.* Director
-----------------------------------------------------
John C. Bumgarner, Jr.
/s/ STEVEN J. MALCOLM* Director
-----------------------------------------------------
Steven J. Malcolm
/s/ HOWARD E. JANZEN* Director
-----------------------------------------------------
Howard E. Janzen
By: /s/ SHAWNA L. GEHRES
-----------------------------------------------------
Shawna L. Gehres
Attorney-in-fact
|
Dated: March 30, 1999
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4(d) -- Amended and Restated Credit Agreement dated January 26,
1999, among Williams Holdings, the lenders named therein,
and Citibank, N.A., as agent.
4(f) -- First Supplemental Indenture dated March 31, 1998, among
MAPCO, Inc., Williams Holdings, and Bankers Trust
Company, Trustee, relating to the Medium-Term Notes
(7.60%-8.87%), due 1999-2022.
4(j) -- Supplemental Indenture No. 3 dated March 31, 1998, among
MAPCO Inc., Williams Holdings, and The First National
Bank of Chicago, relating to the 7 1/4% Notes, due 2009,
the 7.70% Debentures, due 2027, the 6 1/8% Notes, due
2003, and the 6 1/2% Notes, due 2008.
12 -- Computation of Ratio of Earnings to Fixed Charges.
23(a) -- Consent of Independent Auditors, Ernst & Young LLP.
23(b) -- Consent of Independent Auditors, Deloitte & Touche LLP
24 -- Power of Attorney together with certified resolution.
27 -- Financial Data Schedule.
27.1 -- Restated Financial Data Schedule for the quarters ended
March 31, June 30, and September 30, 1997.
27.2 -- Restated Financial Data Schedule for the quarters ended
March 30, June 30, and September 30, 1996.
99 -- Opinion of Independent Auditors, Deloitte & Touche LLP.
|
EXHIBIT 4(d)
U.S. $1,400,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of JANUARY 26, 1999
Among
WILLIAMS HOLDINGS OF DELAWARE, INC.
as Borrower
THE BANKS NAMED HEREIN
as Banks
and
CITIBANK, N.A.
as Agent
TABLE OF CONTENTS
PAGE
----
PRELIMINARY STATEMENTS...........................................................................1
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS...............................................2
Section 1.1 Certain Defined Terms...................................................2
Section 1.2 Computation of Time Periods............................................12
Section 1.3 Accounting Terms.......................................................12
Section 1.4 Miscellaneous..........................................................12
Section 1.5 Ratings................................................................12
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES.............................................13
Section 2.1 The A Advances.........................................................13
Section 2.2 Making the A Advances..................................................13
Section 2.3 Fees...................................................................15
Section 2.4 Reduction of the Commitments...........................................16
Section 2.5 Repayment of A Advances................................................16
Section 2.6 Interest on A Advances.................................................16
Section 2.7 Additional Interest on Eurodollar Rate Advances........................17
Section 2.8 Interest Rate Determination............................................17
Section 2.9 Evidence of Debt.......................................................17
Section 2.10 Prepayments............................................................17
Section 2.11 Increased Costs........................................................18
Section 2.12 Illegality.............................................................19
Section 2.13 Payments and Computations..............................................19
Section 2.14 Taxes..................................................................20
Section 2.15 Sharing of Payments, Etc...............................................21
Section 2.16 The B Advances.........................................................22
Section 2.17 Optional Termination...................................................25
Section 2.18 Extension of Termination Date..........................................26
Section 2.19 Voluntary Conversion of Advances.......................................26
Section 2.20 Automatic Provisions...................................................26
ARTICLE III CONDITIONS....................................................................26
Section 3.1 Conditions Precedent to Initial Advances...............................26
Section 3.2 Additional Conditions Precedent to Each A Borrowing....................27
Section 3.3 Conditions Precedent to Each B Borrowing...............................28
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................................29
Section 4.1 Representations and Warranties of the Borrower.........................29
ARTICLE V COVENANTS OF THE BORROWER.....................................................32
Section 5.1 Affirmative Covenants..................................................32
Section 5.2 Negative Covenants.....................................................35
|
ARTICLE VI EVENTS OF DEFAULT.............................................................38
Section 6.1 Events of Default......................................................38
ARTICLE VII THE AGENT.....................................................................41
Section 7.1 Authorization and Action...............................................41
Section 7.2 Agent's Reliance, Etc..................................................41
Section 7.3 Citibank and Affiliates................................................41
Section 7.4 Bank Credit Decision...................................................42
Section 7.5 Indemnification........................................................42
Section 7.6 Successor Agent........................................................42
ARTICLE VIII MISCELLANEOUS.................................................................43
Section 8.1 Amendments, Etc........................................................43
Section 8.2 Notices, Etc...........................................................43
Section 8.3 No Waiver; Remedies....................................................44
Section 8.4 Costs, Expenses and Taxes..............................................44
Section 8.5 Right of Set-off.......................................................45
Section 8.6 Binding Effect; Transfers..............................................45
Section 8.7 Governing Law..........................................................48
Section 8.8 Interest...............................................................48
Section 8.9 Execution in Counterparts..............................................48
Section 8.10 Survival of Agreements, Representations and Warranties, Etc............48
Section 8.11 Borrower's Right to Apply Deposits.....................................49
Section 8.12 Confidentiality........................................................49
Section 8.13 WAIVER OF JURY TRIAL...................................................50
|
Schedules and Exhibits
Schedule I - Bank Information
Schedule II - Borrower Information
Schedule III - Permitted Liens
Schedule IV - Commitments
Schedule V - Rating Categories
Exhibit A-1 - Form of A Note
Exhibit A-2 - Form of B Note
Exhibit B-1 - Notice of A Borrowing
Exhibit B-2 - Notice of Borrowing
Exhibit C - Opinion of William G. von Glahn
Exhibit D - Opinion of Special Counsel to Agent
Exhibit E - Existing Transfer Restrictions
Exhibit F - Form of Transfer Agreement
|
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of January 26, 1999
This Amended and Restated Credit Agreement, dated as of January 26, 1999 (as may be amended, modified, supplemented, renewed, extended or restated from time to time, this "Agreement"), is by and among WILLIAMS HOLDINGS OF DELAWARE, INC., a Delaware corporation (the "Borrower"), the various banks as are or may become parties hereto (collectively, the "Banks"), and CITIBANK, N.A., as Agent (in such capacity, together with any successors thereto in such capacity, the "Agent"). In consideration of the mutual covenants and agreements contained herein, the Borrower, the Agent and the Banks hereby agree as set forth herein.
PRELIMINARY STATEMENTS
1. The Borrower, the Agent, and certain of the Banks are parties to a credit agreement dated as of March 30, 1998 (the "3/98 Credit Agreement") and the Borrower, the Agent and certain of the Banks are parties to a credit agreement dated as of July 23, 1997, as amended on July 21, 1998, (the "7/97 Credit Agreement"). The Banks party to the 3/98 Credit Agreement and the Banks party to the 7/97 Credit Agreement (each Bank party to either of such agreements an "Original Bank" and collectively, the "Original Banks") have made certain advances pursuant to each such agreement (the "Original Advances") and the Banks, the Borrower and the Agent intend that all Original Advances comprising A Advances, which have not heretofore been repaid, shall, on the date of this Agreement, be continued, amended, renewed, restated and converted into A Advances of the same Type under this Agreement (but shall not be deemed to be repaid).
2. The Borrower has requested that the 3/98 Credit Agreement and the 7/97 Credit Agreement each be amended, and, as so amended, be restated in their entirety as a single agreement.
3. The Borrower, the Banks and the Agent have agreed that, as part of the restructuring of the outstanding Original Advances (if any) and a restructuring of the Commitments of the Original Banks under the 3/98 Credit Agreement and the 7/97 Credit Agreement, the Original Banks shall assign, and the Original Banks do hereby assign, portions of their Commitments and Original Advances (if any) to the Banks shown on Schedule IV such that each Bank party hereto shall have, as of the date of this Agreement, Commitments as shown on Schedule IV hereto.
4. The parties hereto have agreed to restate the 3/98 Credit Agreement and the 7/97 Credit Agreement in their entireties as a single agreement, and this Amended and Restated Credit Agreement constitutes for all purposes an amendment to the 3/98 Credit Agreement and the 7/97 Credit Agreement, and each reference to an Advance or Borrowing herein shall include each
Original Advance or borrowing made heretofore under the 3/98 Credit Agreement and the 7/97 Credit Agreement as well as each Advance or Borrowing made hereafter under this Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
"3/98 Credit Agreement" is defined in the first recital.
"7/97 Credit Agreement" is defined in the first recital.
"A Advance" means an advance by a Bank to the Borrower as part of an A Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be a "Type" of A Advance.
"A Borrowing" means a borrowing consisting of simultaneous A Advances of the same Type to the Borrower made by each of the Banks pursuant to Section 2.1.
"A Note" means a promissory note of the Borrower payable to the order of any Bank, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Bank resulting from the A Advances to the Borrower owed to such Bank.
"Advance" means an A Advance or a B Advance.
"Agent" means Citibank, N.A. in its capacity as agent
pursuant to Article VII hereof and any successor Agent pursuant to
Section 7.6.
"Agreement" has the meaning specified in the Preamble.
"Applicable Commitment Fee Rate" means the rate per annum set forth on Schedule V under the heading "Applicable Commitment Fee Rate" for the relevant Rating Category applicable to the Borrower from time to time. The Applicable Commitment Fee Rate shall change when and as the relevant Rating Category applicable to the Borrower changes.
"Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of a Base Rate Advance and such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a B Advance, the office of such Bank notified by such Bank to the Agent as its Applicable Lending Office with respect to such B Advance.
"Applicable Margin" means the rate per annum set forth in Schedule V under the heading "Applicable Margin" for the relevant Rating Category applicable to the Borrower from time to time. The Applicable Margin for any Eurodollar Rate Advance shall change when and as the relevant applicable Rating Category changes.
"Arranger" means Citicorp Securities, Inc.
"Attributable Obligation" of any Person means, with respect to any Sale and Lease-Back Transaction of such Person as of any particular time, the present value at such time discounted at the rate of interest implicit in the terms of the lease of the obligations of the lessee under such lease for net rental payments during the remaining term of the lease (including any period for which such lease has been extended or may, at the option of such Person, be extended).
"B Advance" means an advance by a Bank to the Borrower as part of a B Borrowing resulting from the auction bidding procedure described in Section 2.16.
"B Borrowing" means a borrowing consisting of simultaneous B Advances to the Borrower from each of the Banks whose offer to make one or more B Advances as part of such borrowing has been accepted by the Borrower under the auction bidding procedure described in Section 2.16.
"B Note" means a promissory note of the Borrower payable to the order of any Bank, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Bank resulting from a B Advance made to the Borrower by such Bank.
"B Reduction" has the meaning specified in Section 2.1.
"Banks" means the lenders listed on the signature pages hereof and each other Person that becomes a Bank pursuant to the last sentence of Section 8.6(a).
"Base Rate" means a fluctuating interest rate per annum as shall be in effect from time to time which rate per annum shall at all times be equal to the highest of:
(a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; or
(b) 1/2 of one percent per annum above the latest three-week moving average of secondary market morning offering rates in the United States for three-month certificates of deposit of major United States money market banks, such three-week moving average being determined weekly on each Monday (or, if any such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, in either case adjusted to the nearest 1/4 of one percent or, if there is no nearest 1/4 of one percent, to the next higher 1/4 of one percent; or
(c) 1/2 of one percent per annum above the Federal Funds Rate in effect from time to time.
"Base Rate Advance" means an A Advance which bears interest as provided in Section 2.6(a).
"Borrower" means Williams Holdings of Delaware, Inc., a Delaware corporation.
"Borrowing" means an A Borrowing or a B Borrowing.
"Business Day" means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or relates to any B Advance as to which the related Notice of B Borrowing is delivered pursuant to clause (B) of Section 2.16(a)(i), on which dealings are carried on in the London interbank market.
"Citibank" means Citibank, N.A.
"Code" means, as appropriate, the Internal Revenue Code of 1986, as amended, or any successor federal tax code, and any reference to any statutory provision shall be deemed to be a reference to any successor provision or provisions.
"Commitment" of any Bank means at any time the amount set
opposite or deemed (pursuant to clause (vii) of the last sentence of
Section 8.6(a) and as reflected in the relevant Transfer Agreement
referred to in such sentence) to be set opposite such Bank's name on
Schedule IV as such amount may be terminated, reduced or increased
after the date hereof, pursuant to Section 2.4, Section 2.17, Section
6.1 or Section 8.6(a).
"Consolidated" refers to the consolidation of the accounts of any Person and its subsidiaries in accordance with generally accepted accounting principles.
"Consolidated Net Worth" of any Person means the Net Worth of such Person and its Subsidiaries on a Consolidated basis.
"Consolidated Tangible Net Worth" of any Person means the Tangible Net Worth of such Person and its Subsidiaries on a Consolidated basis.
"Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.2, Section 2.19 or Section 2.20.
"Debt" means, in the case of any Person, (i) indebtedness of
such Person for borrowed money, (ii) obligations of such Person
evidenced by bonds, debentures or notes, (iii) obligations of such
Person to pay the deferred purchase price of property or services,
(iv) monetary obligations of such Person as lessee under leases that
are, in accordance with generally accepted accounting principles,
recorded as capital leases, (v) obligations of such Person under
guaranties in respect of, and obligations (contingent or otherwise) to
purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of
the kinds referred to in clauses (i) through (iv) or clause (vii) of
this definition, (vi) indebtedness or obligations of others of the
kinds referred to in clauses (i) through (v) or clause (vii) of this
definition secured by any Lien on or in respect of any property of
such Person, and (vii) all liabilities of such Person in respect of
unfunded vested benefits under any Plan; provided, however, that Debt
shall not include any obligation under or resulting from any agreement
referred to in paragraph (y) of Schedule III or under or resulting
from any sale and Lease-Back referred to in paragraph (aa) of Schedule
III.
"Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or pursuant to Section 8.6(a), or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent.
"Environment" shall have the meaning set forth in 42 U.S.C. 9601(8) as defined on the date of this Agreement and "Environmental" shall mean pertaining or relating to the Environment.
"Environmental Protection Statute" shall mean any United States local, state or federal, or any foreign, law, statute, regulation, order, consent decree or other agreement or Governmental Requirement arising from or in connection with or relating to the protection or regulation of the Environment, including, without limitation, those laws, statutes, regulations, orders, decrees, agreements and other Governmental Requirements relating to the disposal, cleanup, production, storing, refining, handling, transferring, processing or transporting of Hazardous Waste, Hazardous Substances or any pollutant or contaminant, wherever located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated) which is a member of a group of which the Borrower is a member and which is under common control within the meaning of the regulations under Section 414 of the Code.
"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or pursuant to Section 8.6(a) (or, if no such office is specified, its Domestic Lending Office) or such other office of such Bank as such Bank may from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same A Borrowing, an interest rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such rate is not such a multiple) equal to the rate per annum at which deposits in U.S. dollars are offered by the principal office of Citibank in London, England, to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to the amount of the Eurodollar Rate Advance of Citibank comprising part of such A Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period.
"Eurodollar Rate Advance" means an A Advance that bears interest as provided in Section 2.6(b).
"Eurodollar Rate Reserve Percentage" of any Bank for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three federal funds brokers of recognized standing selected by it.
"Governmental Requirements" means all judgments, orders, writs, injunctions, decrees, awards, laws, ordinances, statutes, regulations, rules, franchises, permits, certificates, licenses, authorizations and the like and any other requirements of any government or any commission, board, court, agency, instrumentality or political subdivision thereof.
"Hazardous Substance" shall have the meaning set forth in 42 U.S.C. 9601(14) and shall also include each other substance considered to be a hazardous substance under any Environmental Protection Statute.
"Hazardous Waste" shall have the meaning set forth in 42 U.S.C. 6903(5) and shall also include each other substance considered to be a hazardous waste under any Environmental Protection Statute (including, without limitation 40 C.F.R. 261.3).
"Insufficiency" means, with respect to any Plan, the amount, if any, by which the present value of the vested benefits under such Plan exceeds the fair market value of the assets of such Plan allocable to such benefits.
"Interest Period" means, for each Eurodollar Rate Advance comprising part of the same A Borrowing, the period commencing on the date of such A Advance or the date of the Conversion of any Base Rate Advance into a Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each Interest Period shall be one, two, three or six months, in each case as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select (it being agreed that selection of a subsequent Interest Period for an outstanding Eurodollar Rate Advance does not require that a Notice of A Borrowing be given, inasmuch as no Advance is being requested or made as a result of such selection); provided, however, that:
(i) Interest Periods commencing on the same date for A Advances comprising part of the same A Borrowing shall be of the same duration;
(ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day;
(iii) any Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month in which it would have ended if there were a numerically corresponding day in such calendar month; and
(iv) the Borrower may not select any Interest Period that ends after the Termination Date, and the Borrower may not select any Interest Period if any Event of Default exists.
"Lien" means any mortgage, lien, pledge, charge, deed of trust, security interest, encumbrance or other type of preferential arrangement to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement).
"Majority Banks" means at any time Banks holding at least 66-2/3% of the then aggregate unpaid principal amount of the A Notes held by Banks, or, if no such principal amount is then outstanding, Banks having at least 66-2/3% of the Commitments or, if no such principal amount is then outstanding and all Commitments have terminated, Banks holding at least 66-2/3% of the then aggregate unpaid principal amount of the B Notes held by Banks (provided that for purposes of this definition and Sections 2.17, 6.1 and 7.1 neither the Borrower nor any Subsidiary or Related Party of the Borrower, if a Bank, shall be included in (i) the Banks holding the A Notes or B Notes or (ii) determining the aggregate unpaid principal amount of the A Notes or the B Notes or the amount of the Commitments).
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions.
"Multiple Employer Plan" means an employee benefit plan, other than a Multiemployer Plan, subject to Title IV of ERISA to which the Borrower or any ERISA Affiliate, and one or more employers other than the Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan.
"Net Worth" of any Person means, as of any date of determination the excess of total assets of such Person over total liabilities of such Person, total assets and total liabilities each to be determined in accordance with generally accepted accounting principles.
"Non-Recourse Debt" means Debt incurred by any non-material Subsidiary to finance the acquisition (other than any acquisition from TWC or any Subsidiary) or construction of a project, which Debt does not permit or provide for recourse against the Borrower or any Subsidiary of the Borrower (other than the Subsidiary that is to acquire or construct such project) or any property or asset of the Borrower of any Subsidiary of the Borrower (other than the property or assets of the Subsidiary that is to acquire or construct such project).
"Note" means an A Note or a B Note.
"Notice of A Borrowing" has the meaning specified in Section 2.2(a).
"Notice of B Borrowing" has the meaning specified in Section 2.16(a).
"NWP" means Northwest Pipeline Corporation, a Delaware corporation.
"Original Advance" is defined in the first recital.
"Original Bank" is defined in the first recital.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means Liens specifically described on Schedule III.
"Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.
"Plan" means an employee pension benefit plan (other than a Multiemployer Plan) as defined in Section 3(2) of ERISA currently maintained by, or to which contributions have been made at any time after December 31, 1984, by, the Borrower or any ERISA Affiliate for employees of the Borrower or any ERISA Affiliate and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.
"Public Filings" means TWC's annual report on Form 10-K for the year ended December 31, 1997.
"Rating Category" means, as to the Borrower, the relevant category applicable to the Borrower from time to time as set forth on Schedule V, which is based on the ratings (or lack thereof) of the Borrower's senior unsecured long-term debt by S&P or Moody's. In the event there is a split between the ratings of the Borrower's senior unsecured long-term debt by S&P and Moody, "Rating Category" shall mean, as to the Borrower, the relevant category applicable to the Borrower from time to time as set forth on Schedule V, which is based on
the higher of the ratings of the Borrower's senior unsecured long-term debt by S&P and Moody.
"Related Party" of any Person means any corporation, partnership, joint venture or other entity of which more than 10% of the outstanding capital stock or other equity interests having ordinary voting power to elect a majority of the board of directors of such corporation, partnership, joint venture or other entity or others performing similar functions (irrespective of whether or not at the time capital stock or other equity interests of any other class or classes of such corporation, partnership, joint venture or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person or which owns at the time directly or indirectly more than 10% of the outstanding capital stock or other equity interests having ordinary voting power to elect a majority of the board of directors of such Person or others performing similar functions (irrespective of whether or not at the time capital stock or other equity interests of any other class or classes of such corporation, partnership, joint venture or other entity shall or might have voting power upon the occurrence of any contingency); provided, however, that neither TWC nor any Subsidiary of TWC shall be considered to be a Related Party of TWC or any Subsidiary of TWC.
"S&P" means Standard & Poor's Ratings Services, a division of the McGraw Hill Companies on the date hereof.
"Sale and Lease-Back Transaction" of any Person means any arrangement entered into by such Person or any Subsidiary of such Person, directly or indirectly, whereby such Person or any Subsidiary of such Person shall sell or transfer any property, whether now owned or hereafter acquired, and whereby such Person or any Subsidiary of such Person shall then or thereafter rent or lease as lessee such property or any part thereof or other property which such Person or any Subsidiary of such Person intends to use for substantially the same purpose or purposes as the property sold or transferred; provided, however, that any sale and Lease-Back of cushion gas, whether now or hereafter existing, shall not be considered to be a Sale and Lease-Back Transaction and any sale and lease-back of inventory, whether now or hereafter existing, by WPL or any of its Subsidiaries (other than the Borrower) shall not be considered to be a Sale and Lease-Back Transaction.
"Stated Termination Date" means January 25, 2000, or such later date, if any as may be agreed to by the Borrower and the Banks pursuant to Section 2.18.
"Subordinated Debt" means any Debt of the Borrower which is effectively subordinated to the obligations of the Borrower hereunder and under the Notes.
"Subsidiary" of any Person means any corporation, partnership, joint venture or other entity of which more than 50% of the outstanding capital stock or other equity interests having ordinary voting power to elect a majority of the board of directors of such corporation, partnership, joint venture or other entity or others performing similar functions
(irrespective of whether or not at the time capital stock or other equity interests of any other class or classes of such corporation, partnership, joint venture or other entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person.
"Tangible Net Worth" of any Person means, as of any date of
determination, the excess of total assets of such Person over total
liabilities of such Person, total assets and total liabilities each to
be determined in accordance with generally accepted accounting
principles, excluding, however, from the determination of total assets
(i) patents, patent applications, trademarks, copyrights and trade
names, (ii) goodwill, organizational, experimental, research and
development expense and other like intangibles, (iii) treasury stock,
(iv) monies set apart and held in a sinking or other analogous fund
established for the purchase, redemption or other retirement of
capital stock or Subordinated Debt, and (v) unamortized debt discount
and expense.
"Termination Date" means the earlier of (i) the Stated Termination Date or (ii) the date of termination in whole of the Commitments pursuant to Section 2.4, 2.17 or 6.1.
"Termination Event" means (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a "reportable
event" not subject to the provision for 30-day notice to the PBGC or
an event described in Section 4062(f) of ERISA, or (ii) the withdrawal
of the Borrower or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a "substantial employer," as such
term is defined in Section 4001(a)(2) of ERISA, or the incurrence of
liability by the Borrower or any ERISA Affiliate under Section 4064 of
ERISA upon the termination of a Plan or Multiple Employer Plan, or
(iii) the distribution of a notice of intent to terminate a Plan
pursuant to Section 4041(a)(2) of ERISA or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC under
Section 4042 of ERISA, or (v) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Plan.
"TGPL" means Transcontinental Gas Pipe Line Corporation, a Delaware corporation.
"TGT" means Texas Gas Transmission Corporation, a Delaware corporation.
"Transfer Agreement" has the meaning specified in Section 8.6.
"TWC" means The Williams Companies, Inc., a Delaware corporation.
"Type" has the meaning set forth in the definition herein of A Advance.
"Unrated" means that no senior unsecured long-term debt of the Borrower is rated by S&P and no senior unsecured long-term debt of the Borrower is rated by Moody's.
"WFS" means Williams Field Services Group, Inc., a Delaware corporation.
"Wholly-Owned Subsidiary" of any Person means any Subsidiary of such Person all of the capital stock and other equity interests of which is owned by such Person or any Wholly-Owned Subsidiary of such Person.
"WilTel" means Williams Communications Solutions, LLC, a Delaware limited liability company.
"Withdrawal Liability" shall have the meaning given such term under Part I of Subtitle E of Title IV of ERISA.
"WPL" means Williams Pipe Line Company, a Delaware corporation.
Section 1.2 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding."
Section 1.3 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles, and each reference herein to "generally accepted accounting principles" shall mean generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.1(e).
Section 1.4 Miscellaneous. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article, Section, Schedule and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Agreement, unless otherwise specified.
Section 1.5 Ratings. A rating, whether public or private, by S&P or Moody's shall be deemed to be in effect on the date of announcement or publication by S&P or Moody's, as the case may be, of such rating or, in the absence of such announcement or publication, on the effective date of such rating and will remain in effect until the announcement or publication of, or in the absence of such announcement or publication, the effective date of, any change in, or withdrawal or termination of, such rating. In the event the standards for any rating by Moody's or S&P are revised, or any such rating is designated differently (such as by changing letter designations to different letter designations or to numerical designations), the references herein to such rating shall be deemed to refer to the revised or redesignated rating for which the standards are closest to, but not lower than, the standards at the date hereof for the rating which has been revised or redesignated, all as determined by the Majority Banks in good faith. Long-term debt supported by a letter of credit, guaranty, insurance or other similar credit enhancement mechanism shall not be considered as senior unsecured long-term debt. If either Moody's or S&P has at any time more than one rating applicable to senior unsecured long-term debt of the Borrower, the lowest such rating shall be applicable for purposes hereof. For example, if Moody's rates some senior unsecured long-term debt of the
Borrower Ba1 and other such debt of the Borrower Ba2, the senior unsecured long-term debt of the Borrower shall be deemed to be rated Ba2 by Moody's.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
Section 2.1 The A Advances. Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make A Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an aggregate amount outstanding not to exceed at any time such Bank's Commitment; provided that the aggregate amount of the Commitments of the Banks shall, except for purposes of Section 2.3(a), be deemed used from time to time to the extent of the aggregate amount of the B Advances then outstanding to the Borrower and such deemed use of the aggregate amount of such Commitments shall be applied to the Banks ratably according to their respective Commitments (such deemed use of the aggregate amount of the Commitments being a "B Reduction"). Each A Borrowing shall be in an aggregate amount not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and shall consist of A Advances of the same Type made to the Borrower on the same day by the Banks ratably according to their respective Commitments. Within the limits of each Bank's Commitment, the Borrower may borrow, prepay pursuant to Section 2.10 and reborrow under this Section 2.1.
Section 2.2 Making the A Advances. (a) Each A Borrowing shall be made
on notice, given not later than (1) in the case of a proposed Borrowing
comprised of Eurodollar Rate Advances, 11:00 A.M. (New York City time) at least
three Business Days prior to the date of the proposed Borrowing, and (2) in the
case of a proposed Borrowing comprised of Base Rate Advances, 10:00 A.M. (New
York City time) on the date of the proposed Borrowing, by the Borrower to the
Agent, which shall give to each Bank prompt notice thereof by telecopy, telex
or cable. Each such notice of an A Borrowing (a "Notice of A Borrowing") shall
be by telecopy, telex or cable, confirmed immediately in writing, in
substantially the form of Exhibit B-1 hereto, executed by the Borrower and
specifying therein the requested (i) date of such A Borrowing (which shall be a
Business Day), (ii) initial Type of A Advances comprising such A Borrowing,
(iii) aggregate amount of such A Borrowing, and (iv) in the case of an A
Borrowing comprised of Eurodollar Rate Advances, initial Interest Period for
each such A Advance. Each Bank shall, before 11:00 A.M. (New York City time) on
the date of such A Borrowing, make available for the account of its Applicable
Lending Office to the Agent at its New York address referred to in Section 8.2,
in same day funds, such Bank's ratable portion of such A Borrowing. After the
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Agent will make such funds available to the
Borrower at the Agent's aforesaid address.
(b) Anything herein to the contrary notwithstanding:
(i) at no time shall there be outstanding to the Borrower more than six A Borrowings comprised of Eurodollar Rate Advances;
(ii) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $20,000,000;
(iii) if the Majority Banks shall notify the Agent that either (A) the Eurodollar Rate for any Interest Period for any Eurodollar Rate Advances will not adequately reflect the cost to such Banks of making or funding their respective Eurodollar Rate Advances for such Interest Period, or (B) that U.S. dollar deposits for the relevant amounts and Interest Period for their respective Advances are not available to them in the London interbank market, or it is otherwise impossible to have Eurodollar Rate Advances, the Agent shall forthwith so notify the Borrower and the Banks, whereupon (I) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and (II) the obligations of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent, at the request of the Majority Banks, shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist, and, except as provided in Section 2.2(b)(v), each Advance comprising any requested A Borrowing shall be a Base Rate Advance;
(iv) if the Agent is unable to determine the Eurodollar Rate for Eurodollar Rate Advances, the obligation of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist, and, except as provided in Section 2.2(b)(v), each Advance comprising any requested A Borrowing shall be a Base Rate Advance; and
(v) if the Borrower has requested a proposed A Borrowing consisting of Eurodollar Rate Advances and as a result of circumstances referred to in Section 2.2(b)(iii) or (iv) such A Borrowing would not consist of Eurodollar Rate Advances, the Borrower may, by notice given not later than 3:00 P.M. (New York City time) at least one Business Day prior to the date such proposed A Borrowing would otherwise be made, cancel such A Borrowing, in which case such A Borrowing shall be canceled and no Advances shall be made as a result of such requested A Borrowing, but the Borrower shall indemnify the Banks in connection with such cancellation as contemplated by Section 2.2(c).
(c) Each Notice of A Borrowing shall be irrevocable and binding on the Borrower, except as set forth in Section 2.2(b)(v). In the case of any A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Bank against any loss, cost or expense incurred by such Bank as a result of any failure to fulfill on or before the date specified in such Notice of A Borrowing for such A Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of reasonably anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund the A Advance to be made by such Bank as part of such A Borrowing when such A Advance, as a result of such failure, is not made on such date. A certificate in reasonable detail as to the basis for and the amount of such loss, cost or expense submitted to the Borrower and the Agent by such Bank shall be prima facie evidence
of the amount of such loss, cost or expense. If an A Borrowing which the related Notice of A Borrowing specifies is to be comprised of Eurodollar Rate Advances is not made as an A Borrowing comprised of Eurodollar Rate Advances as a result of Section 2.2(b), the Borrower shall indemnify each Bank against any loss (excluding loss of profits), cost or expense incurred by such Bank by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank prior to the time such Bank is actually aware that such A Borrowing will not be so made to fund the A Advance to be made by such Bank as part of such A Borrowing. A certificate in reasonable detail as to the basis for and the amount of such loss, cost or expense submitted to the Borrower and the Agent by such Bank shall be prima facie evidence of the amount of such loss, cost or expense.
(d) Unless the Agent shall have received notice from a Bank prior to the date of any A Borrowing that such Bank will not make available to the Agent such Bank's ratable portion of such A Borrowing, the Agent may assume that such Bank has made such portion available to the Agent on the date of such A Borrowing in accordance with subsection (a) of this Section 2.2 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such ratable portion available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to A Advances comprising such A Borrowing and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank's A Advance as part of such A Borrowing for purposes of this Agreement.
(e) The failure of any Bank to make the A Advance to be made by it as part of any A Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its A Advance on the date of such A Borrowing, but no Bank shall be responsible for the failure of any other Bank to make the A Advance to be made by such other Bank on the date of any A Borrowing.
Section 2.3 Fees.
(a) Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Bank a commitment fee on the average daily unused (for the
purposes of this Section 2.3(a), B Advances shall not, for purposes of this
Section 2.3(a), be considered to be usage of any Commitment) portion of such
Bank's Commitment to the Borrower from the date hereof until the Termination
Date at a rate per annum from time to time equal to the Applicable Commitment
Fee Rate from time to time, payable in arrears on the last day of each March,
June, September and December during the term such Bank has any Commitment and
on the Termination Date; and Borrower agrees that it shall also pay to the
Agent on March 31, 1999 for the account of the Original Banks all commitment
fees which are accrued and unpaid as of the date hereof pursuant to Section
2.03(a) of the 7/97 Credit Agreement or Section 2.3(a) of the 3/98 Credit
Agreement.
(b) Agent's Fees. The Borrower agrees to pay to the Agent, for its sole account, such fees as may be separately agreed to in writing by the Borrower and the Agent.
(c) Participation and Amendment Fees. The Borrower agrees to pay on the date of this Agreement to the Agent for the account of each Bank the participation or amendment fee due such Bank pursuant to that certain Memorandum to Prospective Lenders dated November 11, 1998 from Citicorp Securities, Inc.
Section 2.4 Reduction of the Commitments. The Borrower shall have the right, upon at least five Business Days notice to the Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Banks; provided that each partial reduction shall be in the aggregate amount of at least $20,000,000; and provided further, that the aggregate amount of the Commitments of the Banks shall not be reduced to an amount which is less than the aggregate principal amount of the Advances then outstanding to the Borrower.
Section 2.5 Repayment of A Advances. The Borrower shall repay, on the Stated Termination Date or such earlier date as the Notes may be declared due pursuant to Article VI, the unpaid principal amount of each A Advance made by each Bank to the Borrower.
Section 2.6 Interest on A Advances. The Borrower shall pay interest on the unpaid principal amount of each A Advance made by each Bank to the Borrower from the date of such A Advance until such principal amount shall be paid in full, at the following rates per annum:
(a) Base Rate Advances. At such times as such A Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable quarterly in arrears on the last day of each March, June, September and December and on the date such Advance shall be Converted or paid in full; provided that any amount of principal of any Base Rate Advance, interest, fees and other amounts payable hereunder (other than principal of any Eurodollar Rate Advance) which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the sum of the Base Rate in effect from time to time plus 2% per annum.
(b) Eurodollar Rate Advances. At such times as such A Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such A Advance to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin in effect from time to time for such A Advance, payable on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period; provided that any amount of principal of any Eurodollar Rate Advance which is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable on demand, at a rate per annum equal at all times to the greater of (x) the sum of the Base Rate in effect from time to time plus 2% per annum and (y) the sum of the rate per annum required to be paid on such A Advance immediately prior to the date on which such amount became due plus 2% per annum.
Section 2.7 Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Bank, so long as such Bank shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Bank, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Bank for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Bank and notified to the Borrower through the Agent. A certificate as to the amount of such additional interest submitted to the Borrower and the Agent by such Bank shall be conclusive and binding for all purposes, absent manifest error. No Bank shall have the right to recover any additional interest pursuant to this Section 2.7 for any period more than 90 days prior to the date such Bank notifies the Borrower that additional interest may be charged pursuant to this Section 2.7.
Section 2.8 Interest Rate Determination. The Agent shall give prompt notice to the Borrower and the Banks of the applicable interest rate for each Eurodollar Rate Advance determined by the Agent for purposes of Section 2.6(b).
Section 2.9 Evidence of Debt. The indebtedness of the Borrower resulting from the A Advances owed to each Bank by the Borrower shall be evidenced by an A Note of the Borrower payable to the order of such Bank.
Section 2.10 Prepayments.
(a) The Borrower shall not have any right to prepay any principal amount of any A Advance, except as provided in this Section 2.10.
(b) The Borrower shall (i) in respect of Base Rate Advances, upon notice to the Agent before 10:00 A.M. (New York City time) on the date of prepayment and (ii) in respect of Eurodollar Rate Advances, upon at least three Business Days' notice to the Agent, in each case stating the proposed date (which shall be a Business Day) and aggregate principal amount of the prepayment, prepay the outstanding principal amounts of the A Advances comprising part of the same A Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 8.4(b) as a result of such prepayment; provided, however, that each partial prepayment pursuant to this Section 2.10(b) shall be in an aggregate principal amount not less than $5,000,000 and in an aggregate principal amount such that after giving effect thereto (1) no A Borrowing comprised of Base Rate Advances shall have a principal amount outstanding of less than $5,000,000 and (2) no A Borrowing comprised of Eurodollar Rate Advances shall have a principal amount outstanding of less than $20,000,000.
(c) The Borrower will give notice to the Agent, at or before the time of each prepayment by the Borrower of Advances, pursuant to this Section 2.10 specifying the Advances which are to be prepaid and the amount of such prepayment to be applied to such Advances. Each payment of any Advance pursuant to this Section 2.10 or any other provision of this Agreement shall be made in a manner such that all Advances comprising part of the same Borrowing are paid in whole or ratably in part.
Section 2.11 Increased Costs.
(a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation, application or applicability of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to make or making, funding or maintaining Eurodollar Rate Advances to the Borrower, then the Borrower shall from time to time, upon demand by such Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Bank, shall be prima facie evidence of the amount of such increased cost. No Bank shall have the right to recover any such increased costs for any period more than 90 days prior to the date such Bank notifies the Borrower of any such introduction, change, compliance or proposed compliance.
(b) If any Bank determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Bank or any corporation controlling such Bank and that the amount of such capital is increased by or based upon the existence of such Bank's commitment to lend to the Borrower hereunder and other commitments of this type, then, upon demand by such Bank (with a copy of such demand to the Agent), the Borrower shall immediately pay to the Agent for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank or such corporation in the light of such circumstances, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank's commitment to lend hereunder. A certificate as to the amount of such additional amounts, submitted to the Borrower and the Agent by such Bank, shall be prima facie evidence of the amount of such additional amounts. No Bank shall have any right to recover any additional amounts under this Section 2.11(b) for any period more than 90 days prior to the date such Bank notifies the Borrower of any such compliance.
(c) In the event that any Bank makes a demand for payment under
Section 2.7 or this Section 2.11, the Borrower may within ninety (90) days of
such demand, if no Event of Default or event which, with the giving of notice
or lapse of time or both, would constitute an Event of Default then exists,
replace such Bank with another commercial bank in accordance with all of the
provisions of the last sentence of Section 8.6(a) (including execution of an
appropriate Transfer Agreement); provided that (i) all obligations of such Bank
to lend hereunder shall be terminated and
the Notes payable to such Bank and all other obligations owed to such Bank
hereunder shall be purchased in full without recourse at par plus accrued
interest at or prior to such replacement, (ii) such replacement bank shall be
reasonably satisfactory to the Agent and the Majority Banks, (iii) such
replacement bank shall, from and after such replacement, be deemed for all
purposes to be a "Bank" hereunder with a Commitment in the amount of the
Commitment of such Bank immediately prior to such replacement (plus, if such
replacement bank is already a Bank prior to such replacement the respective
Commitment of such Bank to the Borrower prior to such replacement), as such
amount may be changed from time to time pursuant hereto, and shall have all of
the rights, duties and obligations hereunder of the Bank being replaced, and
(iv) such other actions shall be taken by the Borrower, such Bank and such
replacement bank as may be appropriate to effect the replacement of such Bank
with such replacement bank on terms such that such replacement bank has all of
the rights, duties and obligations hereunder as such Bank (including, without
limitation, execution and delivery of new Notes to such replacement bank,
redelivery to the Borrower in due course of the Notes of the Borrower payable
to such Bank and specification of the information contemplated by Schedule I as
to such replacement bank).
Section 2.12 Illegality. Notwithstanding any other provision of this Agreement, if any Bank shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or that any central bank or other governmental authority shall assert that it is unlawful, for any Bank or its Eurodollar Lending Office to perform its obligations hereunder to make, or Convert a Base Rate Advance into, a Eurodollar Rate Advance or to continue to fund or maintain any Eurodollar Rate Advance, then, on notice thereof to the Borrower by the Agent, (i) the obligation of each of the Banks to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent, at the request of the Majority Banks, shall notify the Borrower and the Banks that the circumstances causing such suspension no longer exist, and (ii) the Borrower shall forthwith prepay in full all Eurodollar Rate Advances of all Banks then outstanding together with all accrued interest thereon and all amounts payable pursuant to Section 8.4(b), unless each Bank shall determine in good faith in its sole opinion that it is lawful to maintain the Eurodollar Rate Advances made by such Bank to the end of the respective Interest Periods then applicable thereto or unless the Borrower, within five Business Days of notice from the Agent, Convert all Eurodollar Rate Advances of all Banks then outstanding into Base Rate Advances in accordance with Section 2.19.
Section 2.13 Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Notes to be made by it not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Agent at its New York address referred to in Section 8.2 in same day funds, without deduction, counterclaim or offset of any kind. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest or commitment fees ratably (other than amounts payable pursuant to Section 2.7, 2.11, 2.14, 2.16 or 8.4(b)) to the Banks for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. In no event shall any Bank be entitled
to share any fee paid to the Agent pursuant to Section 2.3(b), any auction fee paid to the Agent pursuant to Section 2.16(a)(i) or any other fee paid to the Agent, as such.
(b) The Borrower hereby authorizes each Bank, if and to the extent payment owed to such Bank by the Borrower is not made when due hereunder or under any Note held by such Bank, to charge from time to time against any or all of the Borrower's accounts with such Bank any amount so due.
(c) (i) All computations of interest based on clause (a) or clause (b)
of the definition herein of Base Rate and of commitment fees shall be made by
the Agent on the basis of a year of 365 or 366 days, as the case may be, and
(ii) all computations of interest based on the Eurodollar Rate, the Federal
Funds Rate or clause (c) of the definition herein of Base Rate shall be made by
the Agent, and all computations of interest pursuant to Section 2.7 shall be
made by a Bank, on the basis of a year of 360 days, in each case for the actual
number of days (including the first day but excluding the last day) occurring
in the period for which such interest or commitment fees are payable. Each
determination by the Agent (or, in the case of Section 2.7, by a Bank) of an
interest rate hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.
(e) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due by the Borrower to any Bank hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank hereunder. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate.
Section 2.14 Taxes.
(a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings with respect thereto, and all liabilities with respect thereto, excluding in the case of each Bank and the Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Bank, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction
of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Bank or the Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made by the Borrower hereunder or under the Notes executed by it or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or such Notes (hereinafter referred to as "Other Taxes").
(c) The Borrower will indemnify each Bank and the Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) owed and paid by such Bank or the Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Bank or the Agent, as the case may be, makes written demand therefore.
(d) Within 30 days after the date of the payment of Taxes by or at the direction of the Borrower, the Borrower will furnish to the Agent, at its address referred to in Section 8.2, the original or a certified copy of a receipt evidencing payment thereof. Should any Bank or the Agent ever receive any refund, credit or deduction from any taxing authority to which such Bank or the Agent would not be entitled but for the payment by the Borrower of Taxes as required by this Section 2.14 (it being understood that the decision as to whether or not to claim, and if claimed, as to the amount of any such refund, credit or deduction shall be made by such Bank or the Agent, as the case may be, in its sole discretion), such Bank or the Agent, as the case may be, thereupon shall repay to the Borrower an amount with respect to such refund, credit or deduction equal to any net reduction in taxes actually obtained by such Bank or the Agent, as the case may be, and determined by such Bank or the Agent, as the case may be, to be attributable to such refund, credit or deduction.
(e) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.14 shall survive the payment in full of principal and interest hereunder and under the Notes.
Section 2.15 Sharing of Payments, Etc. If any Bank shall obtain any payment (whether voluntary or involuntary, or through the exercise of any right of set-off or otherwise) on account of the A Advances made by it (other than pursuant to Section 2.7, 2.11, 2.14 or 8.4(b)) in excess of its ratable share of payments on account of the A Advances obtained by all the Banks, such Bank shall
forthwith purchase from the other Banks such participations in the A Advances owed to them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such Bank's ratable share (according to the proportion of (i) the amount of the participation purchased from such Bank as a result of such excess payment to (ii) the total amount of such excess payment) of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Borrower agrees that any Bank so purchasing a participation from another Bank pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of the Borrower in the amount of such participation.
Section 2.16 The B Advances.
(a) Each Bank severally agrees that the Borrower may make B Borrowings under this Section 2.16 from time to time on any Business Day during the period from the date hereof until the earlier of (1) the Termination Date or (2) the date occurring thirty (30) days prior to the Stated Termination Date in the manner set forth below; provided that, following the making of each B Borrowing, the aggregate amount of the Advances then outstanding to the Borrower shall not exceed the aggregate amount of the Commitments of the Banks (computed without regard to any B Reduction).
(i) The Borrower may request a B Borrowing under this Section
2.16 by delivering to the Agent, by telecopier, telex or cable,
confirmed immediately in writing, a notice of a B Borrowing (a "Notice
of B Borrowing"), in substantially the form of Exhibit B-2 hereto,
specifying the date and aggregate amount of the proposed B Borrowing,
the maturity date for repayment of each B Advance to be made as part
of such B Borrowing (which maturity date may not be earlier than the
date occurring 14 days after the date of such B Borrowing or later
than the earlier of (x) 6 months after the date of such B Borrowing or
(y) the Stated Termination Date), the interest payment date or dates
relating thereto, and any other terms to be applicable to such B
Borrowing (including, without limitation, the basis to be used by the
Banks in determining the rate or rates of interest to be offered by
them as provided in paragraph (ii) below and prepayment terms, if any,
but excluding any waiver or other modification to any of the
conditions set forth in Article III), not later than 10:00 A.M. (New
York City time) (A) at least one (1) Business Day prior to the date of
the proposed B Borrowing, if the Borrower shall specify in the Notice
of B Borrowing that the rates of interest to be offered by the Banks
shall be fixed rates per annum and (B) at least five (5) Business Days
prior to the date of the proposed B Borrowing, if the Borrower shall
instead specify in the Notice of B Borrowing the basis to be used by
the Banks in determining the rates of interest to be offered by them.
The Agent shall in turn promptly notify each Bank of each request for
a B Borrowing received by it from the Borrower by sending such Bank
a copy of the related Notice of B Borrowing. Each time that the Borrower gives a Notice of B Borrowing, the Borrower shall pay to the Agent an auction fee equal to $2000.
(ii) Each Bank may, if in its sole discretion it elects to do
so, irrevocably offer to make one or more B Advances to the Borrower
as part of such proposed B Borrowing at a rate or rates of interest
specified by such Bank in its sole discretion, by notifying the Agent
(which shall give prompt notice thereof to the Borrower), before 10:00
A.M. (New York City time) (x) on the date of such proposed B
Borrowing, in the case of a Notice of B Borrowing delivered pursuant
to clause (A) of paragraph (i) above, and (y) three Business Days
before the date of such proposed B Borrowing in the case of a Notice
of B Borrowing delivered pursuant to clause (B) of paragraph (i)
above, of the minimum amount and maximum amount of each B Advance
which such Bank would be willing to make as part of such proposed B
Borrowing (which amounts may, subject to the proviso to the first
sentence of this Section 2.16(a), exceed such Bank's Commitment to the
Borrower), the rate or rates of interest therefor and such Bank's
Applicable Lending Office with respect to such B Advance; provided
that if the Agent in its capacity as a Bank shall, in its sole
discretion, elect to make any such offer, it shall notify the Borrower
of such offer before 9:45 A.M. (New York City time) on the date on
which notice of such election is to be given to the Agent by the other
Banks. If any Bank shall elect not to make such an offer, such Bank
shall so notify the Agent, before 10:00 A.M. (New York City time) on
the date on which notice of such election is to be given to the Agent
by the other Banks, and such Bank shall not be obligated to, and shall
not, make any B Advance as part of such B Borrowing; provided that the
failure by any Bank to give such notice shall not cause such Bank to
be obligated to make any B Advance as part of such proposed B
Borrowing.
(iii) The Borrower shall, in turn, before 11:00 A.M. (New York City time) (x) on the date of such proposed B Borrowing in the case of a Notice of B Borrowing delivered pursuant to clause (A) of paragraph (i) above and (y) three Business Days before the date of such proposed B Borrowing in the case of a Notice of B Borrowing delivered pursuant to clause (B) of paragraph (i) above, either
(A) cancel such B Borrowing by giving the Agent notice to that effect, or
(B) accept one or more of the offers made by any Bank or Banks pursuant to paragraph (ii) above, in order of the lowest to highest rates of interest or margins (or, if two or more Banks bid at the same rates of interest, and the amount of accepted offers is less than the aggregate amount of such offers, the amount to be borrowed from such Banks as part of such B Borrowing shall be allocated among such Banks pro rata on the basis of the maximum amount offered by such Banks at such rates or margin in connection with such B Borrowing), in any aggregate amount up to the aggregate amount initially requested by the Borrower in the relevant Notice of B Borrowing, by giving notice to the Agent of the amount of each B Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Agent on behalf of such Bank for such B Advance pursuant to paragraph ii above) to be made by each
Bank as part of such B Borrowing, and reject any remaining offers made by Banks pursuant to paragraph (ii) above by giving the Agent notice to that effect.
(iv) If the Borrower notifies the Agent that such B Borrowing is canceled pursuant to paragraph (iii)(A) above, the Agent shall give prompt notice thereof to the Banks and such B Borrowing shall not be made.
(v) If the Borrower accepts one or more of the offers made by any Bank or Banks pursuant to paragraph (iii)(B) above, the Agent shall in turn promptly notify (A) each Bank that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such B Borrowing and whether or not any offer or offers made by such Bank pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Bank that is to make a B Advance as part of such B Borrowing, of the amount of each B Advance to be made by such Bank as part of such B Borrowing, and (C) each Bank that is to make a B Advance as part of such B Borrowing, upon receipt, that the Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Bank that is to make a B Advance as part of such B Borrowing shall, before 12:00 noon (New York City time) on the date of such B Borrowing specified in the notice received from the Agent pursuant to clause (A) of the preceding sentence or any later time when such Bank shall have received notice from the Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Agent at its New York address referred to in Section 8.2 such Bank's portion of such B Borrowing, in same day funds. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Agent of such funds, the Agent will make such funds available to the Borrower at the Agents aforesaid address. Promptly after each B Borrowing the Agent will notify each Bank of the amount of the B Borrowing, the consequent B Reduction and the dates upon which such B Reduction commenced and will terminate.
(b) Each B Borrowing shall be in an aggregate amount of not less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. The Borrower agrees that it will not request a B Borrowing unless, upon the making of such B Borrowing, the limitations set forth in the proviso to the first sentence of Section 2.16(a) are complied with.
(c) Within the limits and on the conditions set forth in this Section 2.16, the Borrower may from time to time borrow under this Section 2.16, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.16; provided that a B Borrowing shall not be made by the Borrower within three Business Days of the date of another B Borrowing.
(d) The Borrower shall repay to the Agent for the account of each Bank
which has made a B Advance to the Borrower, or each other holder of a B Note of
the Borrower, on the maturity date of each B Advance made to the Borrower (such
maturity date being that specified by the Borrower for repayment of such B
Advance in the related Notice of B Borrowing delivered pursuant to subsection
(a)(i) above and provided in the B Note evidencing such B Advance) the then
unpaid principal amount of such B Advance. The Borrower shall not have any
right to prepay any principal
amount of any B Advance unless, and then only on the terms specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above and set forth in the B Note evidencing such B Advance.
(e) The Borrower shall pay interest on the unpaid principal amount of each B Advance made to the Borrower from the date of such B Advance to the date the principal amount of such B Advance is repaid in full, at the rate of interest for such B Advance specified by the Bank making such B Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such B Advance in the related Notice of B Borrowing delivered pursuant to subsection (a)(i) above, as provided in the B Note evidencing such B Advance.
(f) The indebtedness of the Borrower resulting from each B Advance made to the Borrower as part of a B Borrowing shall be evidenced by a separate B Note of the Borrower payable to the order of the Bank making such B Advance.
(g) The failure of any Bank to make the B Advance to be made by it as part of any B Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its B Advance on the date of such B Borrowing, but no Bank shall be responsible for the failure of any other Bank to make the B Advance to be made by such other Bank on the date of any B Borrowing.
Section 2.17 Optional Termination. Notwithstanding anything to the contrary in this Agreement, if (i) any Person (other than a trustee or other fiduciary holding securities under an employee benefit plan of TWC or of any Subsidiary of TWC) or two or more Persons acting in concert (other than any group of employees of TWC or of any of its Subsidiaries) shall have acquired beneficial ownership (within the meaning of Rule l3d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of securities of TWC (or other securities convertible into such securities) representing 20% or more of the combined voting power of all securities of TWC entitled to vote in the election of directors, other than securities having such power only by reason of the happening of a contingency, or (ii) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of TWC or who were elected by individuals who at the beginning of such period were such directors or by individuals elected in accordance with this clause (ii) shall cease for any reason to constitute a majority of the board of directors of TWC, or (iii) any Person (other than TWC or a Wholly-Owned Subsidiary of TWC) or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement which upon consummation will result in its or their acquisition of, the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Borrower; then the Agent shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the A Notes then outstanding or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the Commitments, by notice to the Borrower, declare all of the Commitments and the obligation of each Bank to make Advances to be terminated, whereupon all of the Commitments and each such obligation shall forthwith terminate, and the Borrower shall not have any further right to borrow hereunder.
Section 2.18 Extension of Termination Date. By notice given to the Agent and the Banks, at least thirty days but not more than forty-five days before January 1 of any year after 1999, the Borrower may request the Banks to extend the Stated Termination Date for an additional period to a date which is 364 days after the then current Stated Termination Date. Within thirty days after receipt of such request, each Bank that agrees, in its sole and absolute discretion, to so extend the Stated Termination Date shall notify the Borrower and the Agent that it so agrees, and if all Banks so agree the Stated Termination Date shall be so extended.
Section 2.19 Voluntary Conversion of Advances. The Borrower may on any Business Day, if no Event of Default then exists, upon notice (which shall be irrevocable) given to the Agent not later than 11:00 A.M. (x) in the case of a proposed Conversion into Eurodollar Rate Advances, on the third Business Day prior to the date of the proposed conversion, and (y) in the case of a proposed Conversion into Base Rate Advances, on the date of the proposed Conversion, and subject to the provisions of Sections 2.2 and 2.12, Convert all Advances of one Type comprising the same A Borrowing into Advances of the other Type; provided that (i) no Conversion of any Eurodollar Rate Advances shall occur on a day other than the last day of an Interest Period for such Eurodollar Rate Advances, except as contemplated by Section 2.12, and (ii) Advances may not be Converted into Eurodollar Rate Advances if the aggregate unpaid principal amount of the Advances is less than $20,000,000. Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the A Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the Interest Period for each such Advance.
Section 2.20 Automatic Provisions.
(a) If the Borrower shall fail to select the duration of any Interest Period for Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.1, the Agent will forthwith so notify the Borrower and the Banks, and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.
(b) On the date on which the aggregate unpaid principal amount of the Eurodollar Rate Advances of the Borrower shall be reduced to less than $20,000,000, all of such Eurodollar Rate Advances shall automatically Convert into Base Rate Advances.
ARTICLE III
CONDITIONS
Section 3.1 Conditions Precedent to Initial Advances. The obligation of each Bank to make its initial Advance on or after the date hereof is subject to the condition precedent that the Agent shall have received on or before the date hereof, each dated on or before such date, in form and substance satisfactory to the Agent and (except for the Notes) in sufficient copies for each Bank:
(a) The A Notes executed by the Borrower to the order of each of the respective Banks and this Agreement executed by the Borrower.
(b) Certified copies of the resolutions of the Board of Directors, or the Executive Committee thereof, of the Borrower authorizing the execution of this Agreement and the Notes.
(c) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying (i) that attached thereto are true and correct copies of the Certificate of Incorporation and Bylaws of the Borrower and (ii) the names and true signatures of the officers of the Borrower authorized to sign this Agreement, Notices of A Borrowing, Notices of B Borrowing and the Notes to be executed by the Borrower and any other documents to be delivered hereunder by the Borrower.
(d) An opinion of William G. von Glahn, General Counsel of TWC, substantially in the form of Exhibit C hereto and as to such other matters as any Bank through the Agent may reasonably request.
(e) An opinion of Mayer, Brown & Platt, special counsel to the Agent, substantially in the form of Exhibit D hereto.
(f) A certificate of an officer of the Borrower stating the respective ratings by each of S&P and Moody's of the senior unsecured long-term debt of the Borrower as in effect on the date of this Agreement.
(g) Payment for the account of the Banks of those participation fees and amendment fees as set forth in Section 2.3(c) hereof.
Section 3.2 Additional Conditions Precedent to Each A Borrowing. The obligation of each Bank to make an A Advance on the occasion of any A Borrowing (including the initial A Borrowing) shall be subject to the further conditions precedent that on the date of such A Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of A Borrowing and the acceptance by the Borrower of the proceeds of such A Borrowing shall constitute a representation and warranty by the Borrower that on the date of such A Borrowing such statements are true):
(i) The representations and warranties contained in Section 4.1 pertaining to the Borrower and its Subsidiaries are correct on and as of the date of such A Borrowing, before and after giving effect to such A Borrowing and to the application of the proceeds therefrom, as though made on and as of such date,
(ii) No event has occurred and is, continuing, or would result from such A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both, and
(iii) After giving effect to such A Borrowing and all other Borrowings which have been requested on or prior to such date but which have not been made prior to such date, the aggregate principal amount of all Advances will not exceed the aggregate of the Commitments (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or documents as any Bank through the Agent may reasonably request.
Section 3.3 Conditions Precedent to Each B Borrowing. The obligation of each Bank which is to make a B Advance to the Borrower on the occasion of a B Borrowing (including the initial B Borrowing) to make such B Advance as part of such B Borrowing is subject to the further conditions precedent that (i) at or before the time required by paragraph (iii) of Section 2.16(a), the Agent shall have received the written confirmatory notice of such B Borrowing contemplated by such paragraph, (ii) on or before the date of such B Borrowing, but prior to such B Borrowing, the Agent shall have received a B Note executed by the Borrower payable to the order of such Bank for each of the one or more B Advances to be made by such Bank as part of such B Borrowing, in a principal amount equal to the principal amount of the B Advance to be evidenced thereby and otherwise on such terms as were agreed to for such B Advance in accordance with Section 2.16, and (iii) on the date of such B Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of B Borrowing and the acceptance by the Borrower of the proceeds of such B Borrowing shall constitute a representation and warranty by the Borrower that on the date of such B Borrowing such statements are true):
(1) The representations and warranties contained in Section 4.1 are correct on and as of the date of such B Borrowing, before and after giving effect to such B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date,
(2) No event has occurred and is continuing, or would result from such B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both,
(3) Following the making of such B Borrowing and all other Borrowings to be made on the same day to the Borrower under this Agreement, the aggregate principal amount of all Advances to the Borrower then outstanding will not exceed the aggregate amount of the Commitments (computed without regard to any B Reduction), and
(4) After giving effect to such B Borrowing and all other Borrowings which have been requested on or prior to such date but which have not been made prior to such date, the aggregate principal amount of all Advances will not exceed the aggregate of the Commitments of the Banks (computed without regard to any B Reduction);
and (b) the Agent shall have received such other approvals, opinions or documents as any Bank through the Agent may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of the Borrower. The Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers and all governmental licenses, authorizations, certificates, consents and approvals required to carry on its business as now conducted in all material respects, except for those licenses, authorizations, certificates, consents and approvals the failure to have which could not reasonably be expected to have a material adverse effect on the business, assets, condition or operation of the Borrower and its Subsidiaries taken as a whole. Each Subsidiary of the Borrower is duly organized or validly formed, validly existing and (if applicable) in good standing under the laws of its jurisdiction of incorporation or formation, except where the failure to be so organized, existing and in good standing could not reasonably be expected to have a material adverse effect on the business, assets, condition or operations of the Borrower and its Subsidiaries taken as a whole. Each Subsidiary of the Borrower has all corporate powers and all governmental licenses, authorizations, certificates, consents and approvals required to carry on its business as now conducted in all material respects, except for those licenses, authorizations, certificates, consents and approvals the failure to have which could not reasonably be expected to have a material adverse effect on the business, assets, condition or operation of the Borrower and its Subsidiaries taken as a whole.
(b) The execution, delivery and performance by the Borrower of this Agreement and the Notes and the consummation of the transactions contemplated by this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, do not contravene (i) the Borrower's charter or by-laws or (ii) law or any contractual restriction binding on or affecting the Borrower and will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each borrowing of any Advance by the Borrower, such borrowing and the use of the proceeds of such Advance will be within the Borrower's corporate powers, will have been duly authorized by all necessary corporate action, will not contravene (i) the Borrower's charter or by-laws or (ii) law or any contractual restriction binding on or affecting the Borrower and will not result in or require the creation or imposition of any Lien prohibited by this Agreement.
(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of this Agreement or the Notes or the consummation of the transactions contemplated by this Agreement. At the time of each borrowing of any Advance by the Borrower, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body will be required for such borrowing or the use of the proceeds of such Advance.
(d) This Agreement has been duly executed and delivered by the Borrower. This Agreement is the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and by general principles of equity. The A Notes are, and when executed the B Notes will be, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally and by general principles of equity.
(e) The Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 1996, and the related Consolidated statement of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, copies of which have been furnished to each Bank, and the Consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 1997, and the related Consolidated statement of income and cash flows of the Borrower and its Subsidiaries for the three months then ended, duly certified by an authorized financial officer of the Borrower, copies of which have been furnished to each Bank, fairly present, subject, in the case of such balance sheet as at September 30, 1997, and such statement of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of operation s of the Borrower and its Subsidiaries for the year and three month period, respectively, ended on such dates, all in accordance with generally accepted accounting principles consistently applied. Since September 30, 1997, there has been no material adverse change in the condition or operations of the Borrower or its Subsidiaries.
(f) Except as set forth in the Public Filings or as otherwise disclosed in writing by the Borrower to the Banks and the Agent after the date hereof and approved by the Majority Banks, there is no pending or, to the knowledge of the Borrower, threatened action or proceeding affecting the Borrower or any material Subsidiary of the Borrower before any court, governmental agency or arbitrator, which could reasonably be expected to materially and adversely affect the financial condition or operations of the Borrower and its Subsidiaries taken as a whole or which purports to affect the legality, validity, binding effect or enforceability of this Agreement or any Note.
(g) No proceeds of any Advance has been or will be used for any purpose or in any manner not permitted by Section 5.2(k).
(h) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance will be used to purchase or carry any such
margin stock (other than purchases of common stock expressly permitted by
Section 5.2(k)) or to extend credit to others for the purpose of purchasing or
carrying any such margin stock. Following the application of the proceeds of
each Advance, not more than 25% of the value of the assets of the Borrower will
be represented by such margin stock and not more than 25% of the value of the
assets of the Borrower and its Subsidiaries will be represented by such margin
stock.
(i) The Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended.
(j) No Termination Event has occurred or is reasonably expected to occur with respect to any Plan for which an Insufficiency exists. Neither the Borrower nor any ERISA Affiliate has received any notification that any Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and the Borrower is not aware of any reason to expect that any Multiemployer Plan is to be in reorganization or to be terminated within the meaning of Title IV of ERISA.
(k) The Borrower and the Subsidiaries of the Borrower have filed all United States Federal income tax returns and all other material domestic tax returns which are required to be filed by them and have paid, or provided for the payment before the same become delinquent of, all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any such Subsidiary, other than those taxes contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Borrower and the material Subsidiaries of the Borrower in respect of taxes are adequate.
(l) The Borrower is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended.
(m) Except as set forth in the Public Filings or as otherwise
disclosed in writing by the Borrower to the Banks and the Agent after the date
hereof and approved by the Majority Banks, the Borrower and its material
Subsidiaries are in compliance in all material respects with all Environmental
Protection Statutes to the extent material to their respective operations or
financial condition. Except as set forth in the Public Filings or as otherwise
disclosed in writing by the Borrower to the Banks and the Agent after the date
hereof and approved by the Majority Banks, the aggregate contingent and
non-contingent liabilities of the Borrower and its Subsidiaries (other than
those reserved for in accordance with generally accepted accounting principles
and set forth in the financial statements regarding the Borrower referred to in
Section 4.1(e) and delivered to each Bank) which are reasonably expected to
arise in connection with (i) the requirements of Environmental Protection
Statutes or (ii) any obligation or liability to any Person in connection with
any Environmental matters (including, without limitation, any release or
threatened release (as such terms are defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980) of any
Hazardous Waste, Hazardous Substance, other waste, petroleum or petroleum
products into the Environment) does not exceed 10% of the Consolidated Tangible
Net Worth of the Borrower (excluding liabilities to the extent covered by
insurance if the insurer has confirmed that such insurance covers such
liabilities or which the Borrower reasonably expects to recover from
ratepayers).
(n) The Borrower has (i) reviewed the areas within its business and operations and those of its Subsidiaries which could be adversely affected by failure to become "Year 2000 Compliant" (that is, that computer applications, imbedded microchips and other systems used by any of the Borrower or its Subsidiaries or their material vendors, will be able properly to recognize and perform date-sensitive functions involving certain dates prior to and any date after December 31, 1999); (ii) developed a detailed plan and timetable to become Year 2000 Compliant in a timely manner; and (iii) committed adequate resources to support its plan to become Year 2000 Compliant in a timely manner. Based on such review and plan the Borrower reasonably believes that it and its Subsidiaries will become Year 2000 Compliant on a timely basis except to the extent that a failure to do so would not reasonably be expected to have a material adverse effect on the business, assets or financial condition of the Borrower and its Subsidiaries, taken as a whole, or on the ability of the Borrower to perform its obligations hereunder.
ARTICLE V
COVENANTS OF THE BORROWER
Section 5.1 Affirmative Covenants. So long as any Note shall remain unpaid or any Bank shall have any Commitment hereunder, the Borrower will, unless the Majority Banks shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders (except where failure to comply could not reasonably be expected to have a material adverse effect on the business, assets, condition or operations of the Borrower and its Subsidiaries taken as a whole), such compliance to include, without limitation, the payment and discharge before the same become delinquent of all taxes, assessments and governmental charges or levies imposed upon it or any of its Subsidiaries or upon any of its property or any property of any of its Subsidiaries, and all lawful claims which, if unpaid, might become a Lien upon any property of it or any of its Subsidiaries; provided that neither the Borrower nor any Subsidiary of the Borrower shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings and with respect to which reserves in conformity with generally accepted accounting principles, if required by such principles, have been provided on the books of the Borrower or such Subsidiary, as the case may be.
(b) Reporting Requirements. Furnish to each of the Banks:
(i) as soon as possible and in any event within five days after the occurrence of each Event of Default or each event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, continuing on the date of such statement, a statement of an authorized financial officer of the Borrower setting forth the details of such Event of Default or event and the actions, if any, which the Borrower has taken and proposes to take with respect thereto;
(ii) as soon as available and in any event not later than 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, the Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such quarter and the Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous year and ending with the end of such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by an authorized financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles, together with a certificate of said officer (a) stating that he has no knowledge that an Event of Default, or an event which, with notice or lapse of time or both, would constitute an Event of Default has occurred and is continuing or, if an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof and the action, if any, which the Borrower proposes to take with respect thereto, and (b) showing in detail the calculation supporting such statement in respect of Section 5.2(b);
(iii) as soon as available and in any event not later than 105 days after the end of each fiscal year of the Borrower, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case prepared in accordance with generally accepted accounting principles and certified by Ernst & Young, LLP or other independent certified public accountants of recognized standing acceptable to the Majority Banks, together with a certificate of such accounting firm to the Banks (a) stating that, in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that an Event of Default or an event which, with notice or lapse of time or both, would constitute an Event of Default, has occurred and is continuing, or if, in the opinion of such accounting firm, an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof, and (b) showing in detail the calculations supporting such statement in respect of Section 5.2(b);
(iv) such other information respecting the business or properties, or the condition or operations, financial or otherwise, of the Borrower or any of its material Subsidiaries as any Bank through the Agent may from time to time reasonably request;
(v) promptly after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower sends to any of its security holders, and copies of all final reports and final registration statements which the Borrower or any material Subsidiary of the Borrower files with the Securities and Exchange Commission or any national securities exchange;
(vi) as soon as possible and in any event (A) within 30 Business Days after the Borrower or any ERISA Affiliate knows or has reason to know that any Termination Event
described in clause (i) of the definition of Termination Event with respect to any Plan has occurred and (B) within 30 Business Days after the Borrower or any ERISA Affiliate knows or has reason to know that any other Termination Event with respect to any Plan has occurred or is reasonably expected to occur, a statement of the chief financial officer or chief accounting officer of the Borrower describing such Termination Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto;
(vii) promptly and in any event within 25 Business Days after receipt thereof by the Borrower or any ERISA Affiliate, copies of each notice received by the Borrower or any ERISA Affiliate from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan;
(viii) within 30 days following request therefor by any Bank, copies of each Schedule B (Actuarial Information) to each annual report (Form 5500 Series) of the Borrower or any ERISA Affiliate with respect to each Plan;
(ix) promptly and in any event within 25 Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (A) the imposition of a Withdrawal Liability by a Multiemployer Plan, (B) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (C) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount of liability incurred, or expected to be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (A), (B) or (C) above;
(x) not more than 60 days (or 105 days in the case of the last fiscal quarter of a fiscal year of the Borrower) after the end of each fiscal quarter of the Borrower, a certificate of an authorized financial officer of the Borrower stating the respective ratings, if any, by each of S&P and Moody's of the senior unsecured long-term debt of the Borrower as of the last day of such quarter; and
(xi) promptly after any withdrawal or termination of any letter of credit, guaranty, insurance or other credit enhancement referred to in the second to last sentence of Section 1.5 or any change in the indicated rating set forth therein or any change in, or issuance, withdrawal or termination of, the rating of any senior unsecured long-term debt of the Borrower by S&P or Moody's, notice thereof.
(c) Maintenance of Insurance. Maintain, and cause each of its material Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or its Subsidiaries operate, provided that the Borrower or any of its Subsidiaries may self-insure to the extent and in the manner normal for companies of like size, type and financial condition.
(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified, and cause each Subsidiary to qualify and remain qualified, as a foreign corporation in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its properties, except (1) in the case of any Subsidiary of the Borrower, where the failure of such Subsidiary to so preserve, maintain, qualify and remain qualified could not reasonably be expected to have a material adverse effect on the business, assets, condition or operations of the Borrower and its Subsidiaries taken as a whole and (2) in the case of the Borrower, where the failure of the Borrower to preserve and maintain such rights, franchises and privileges and to so qualify and remain qualified could not reasonably be expected to have a material adverse effect on the business, assets, condition or operations of the Borrower and its Subsidiaries taken as a whole.
Section 5.2 Negative Covenants. So long as any Note shall remain unpaid or any Bank shall have any Commitment hereunder, the Borrower will not, without the written consent of the Majority Banks:
(a) Liens, Etc. Create, assume, incur or suffer to exist, or permit any of its Subsidiaries to create, assume, incur or suffer to exist, any Lien on or in respect of any of its property, whether now owned or hereafter acquired, or assign or otherwise convey, or permit any such Subsidiary to assign or otherwise convey, any right to receive income, in each case to secure or provide for the payment of any Debt of any Person, except, that the Borrower may create, incur, assume or suffer to exist Permitted Liens.
(b) Debt. Permit the ratio of (A) the aggregate amount of all Debt of the Borrower and its Subsidiaries on a Consolidated basis to (B) the sum of the Consolidated Net Worth of the Borrower plus the aggregate amount of all Debt of the Borrower and its Subsidiaries on a Consolidated basis to exceed (1) 0.6 to 1.0 at any time during the period beginning on January 1, 1999 through December 31, 2000, (2) 0.575 to 1.0 at any time during the period beginning January 1, 2001 through December 31, 2001 or (3) 0.55 to 1.0 at any time on or after January 1, 2002.
(c) Merger and Sale of Assets. Merge or consolidate with or into any other Person, or sell, lease or otherwise transfer all or substantially all of its assets, or permit any of its material Subsidiaries to merge or consolidate with or into any other Person, or sell, lease or otherwise transfer all or substantially all of its assets, except that this Section 5.2(c) shall not prohibit:
(i) the Borrower and its Subsidiaries from selling, leasing or otherwise transferring their respective assets in the ordinary course of business;
(ii) any merger, consolidation or sale, lease or other transfer of assets involving only the Borrower and its Subsidiaries; provided, however, that transactions under this paragraph (ii) shall be permitted if, and only if, (x) there shall not exist or result an Event of Default or an event which with notice or lapse of time or both would constitute an Event of
Default and (y) in the case of each transaction referred to in this paragraph (ii) involving the Borrower or any of its Subsidiaries, such transaction could not reasonably be expected to impair materially the ability of the Borrower to perform its obligations hereunder and under the Notes and the Borrower shall continue to exist;
(iii) the Borrower and its Subsidiaries from selling, leasing
or otherwise transferring their respective gathering assets and other
production area facilities, or the stock of any Person substantially
all of the assets of which are gathering assets and other production
area facilities, to TWC or to any Subsidiary of TWC for consideration
that is not materially less than the net book value of such assets and
facilities; provided, however, that transactions under this paragraph
(iii) shall be permitted if, and only if, there shall not exist or
such transaction shall not result in an Event of Default or an event
which with notice or lapse of time or both would constitute an Event
of Default;
(iv) any sale and lease-back of cushion gas by the Borrower or any of its Subsidiaries or any sale and lease-back of inventory by WPL or any of its Subsidiaries (other than the Borrower);
(v) sales of receivables of any kind; or
(vi) any sale, lease or other transfer of any stock or assets of Transco Energy Company and its Subsidiaries; provided, however, that transactions under this paragraph(vi) shall be permitted if, and only if, prior to the time of such transaction Transco Energy Company and its Subsidiaries shall have transferred to TWC all of their respective interests in TGPL and TGT and shall not have reacquired any such interest and there shall not exist or result an Event of Default or an event which with notice or lapse of time or both would constitute an Event of Default.
(d) Agreements to Restrict Dividends and Certain Transfers. Enter into
or suffer to exist, or permit any of its Subsidiaries to enter into or suffer
to exist, any consensual encumbrance or restriction on the ability of any
Subsidiary of the Borrower (i) to pay, directly or indirectly, dividends or
make any other distributions in respect of its capital stock or pay any Debt or
other obligation owed to the Borrower or to any Subsidiary of the Borrower; or
(ii) to make loans or advances to the Borrower or any Subsidiary of the
Borrower, except (1) encumbrances and restrictions on any immaterial Subsidiary
of the Borrower (other than WFS), (2) those encumbrances and restrictions
existing on the date hereof and described in Exhibit E, (3) other encumbrances
and restrictions now or hereafter existing of the Borrower or any of its
Subsidiaries that are not more restrictive in any material respect than the
encumbrances and restrictions with respect to the Borrower or its Subsidiaries
described in Exhibit E, and (4) any encumbrances and restrictions created in
connection with any sale and lease-back of cushion gas by the Borrower or any
Subsidiary of the Borrower or any sale and lease-back of inventory by WPL or
any of its Subsidiaries (other than the Borrower).
(e) Loans and Advances. Borrow or otherwise receive or permit to remain outstanding any loan or advance from TWC, or own, purchase or acquire any obligations or debt securities of, any Subsidiary of TWC, except that the Borrower and its Subsidiaries may borrow or otherwise receive loans and advances from TWC, if each such loan or advance (excluding loans and advances to a Subsidiary of TWC if the aggregate principal amount of all such excluded loans and advances to such Subsidiary does not exceed $100,000) is evidenced by a written instrument duly executed by the Subsidiary of TWC to which such loan or advance is made, bears interest at TWC's or such Subsidiary's market rate of interest and matures on or before the Termination Date.
(f ) Maintenance of Ownership of Certain Subsidiaries. Sell, issue or otherwise dispose of, or create, assume, incur or suffer to exist any Lien on or in respect of, or permit any of its Subsidiaries to sell, issue or otherwise dispose of or create, assume, incur or suffer to exist any Lien on or in respect of, any shares of or any interest in any shares of the capital stock of or interest in (1) the Borrower, WFS, WPL, WCG, TGPL, TGT, NWP, or WilTel or any of their respective material Subsidiaries or (2) any Subsidiary of TWC at the time it owns any shares of or any interest in any shares of the capital stock of the Borrower, WFS, WPL, WCG, TGPL, TGT or NWP or any of their respective material Subsidiaries; provided, however, that this Section 5.2(f) shall not prohibit the sale or other disposition of the stock of any Subsidiary of TWC to TWC or any Wholly-Owned Subsidiary of TWC if, but only if, (x) there shall not exist or result an Event of Default or an event which with notice or lapse of time or both would constitute an Event of Default and (y) in the case of each sale or other disposition referred to in this proviso involving the Borrower or any of its Subsidiaries, such sale or other disposition could not reasonably be expected to impair materially the ability of the Borrower to perform its obligations hereunder and under the Notes and the Borrower shall continue to exist.
(g) Compliance with ERISA. (i) Terminate, or permit any ERISA Affiliate to terminate, any Plan so as to result in any liability of the Borrower or any ERISA Affiliate to the PBGC in excess of $5,000,000, or (ii) permit to exist any occurrence of any Termination Event with respect to a Plan for which there is an Insufficiency in excess of $5,000.00.
(h) Transactions with Related Parties. Make any sale to, make any purchase from, extend credit to, make payment for services rendered by, or enter into any other transaction with, or permit any material Subsidiary of the Borrower to make any sale to, make any purchase from, extend credit to, make payment for services rendered by, or enter into any other transaction with, any Related Party of the Borrower or of such Subsidiary unless as a whole such sales, purchases, extensions of credit, rendition of services and other transactions are (at the time such sale, purchase, extension of credit, rendition of services or other transaction is entered into) on terms and conditions reasonably fair in all material respects to the Borrower or such Subsidiary in the good faith judgment of the Borrower.
(i) Guarantees. Guarantee or otherwise become contingently liable for, or permit any of its Subsidiaries to guarantee or otherwise become contingently liable for, Debt of any Subsidiary of TWC (other than a guaranty of the obligations of Williams Communications Group, Inc. pursuant to that certain Second Amended and Restated Credit Agreement dated July 23, 1997 among the
Borrowers as named therein, certain financial institutions party thereto (the "Banks"), certain Co-Agents identified therein, and Citibank, N.A., as Agent for the Banks, as amended by an Amendment dated as of the date hereof, and as the same may be otherwise amended, supplemented, restated or modified and guaranties of obligations of Williams Energy Company and any Subsidiary of Williams Energy Company that is not the Borrower) while an Event of Default is continuing.
(j) Sale and Lease-Back Transactions. Enter into, or permit any of its Subsidiaries to enter into, any Sale and Lease-Back Transaction, if after giving effect thereto the Borrower would not be permitted to incur at least $1.00 of additional Debt secured by a Lien permitted by paragraph (z) of Schedule III.
(k) Use of Proceeds. Use any proceeds of any Advance for any purpose other than general corporate purposes (including, without limitation, working capital and capital expenditures) or use any such proceeds in any manner which violates or results in a violation of law; provided, however, that no proceeds of any Advance will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, (other than any purchase of common stock of any corporation, if such purchase is not subject to Sections 13 and 14 of the Securities Exchange Act of 1934 and is not opposed, resisted or recommended against by such corporation or its management or directors, provided that the aggregate amount of common stock of any corporation (other than Apco Argentina Inc., a Cayman Islands corporation) purchased during any calendar year shall not exceed 1% of the common stock of such corporation issued and outstanding at the time of such purchase) or in any manner which contravenes law, and no proceeds of any Advance will be used to purchase or carry any margin stock (within the meaning of Regulation G or Regulation U issued by the Board of Governors of the Federal Reserve System).
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Note executed by it when the same becomes due and payable, or shall fail to pay any interest on any such Note or any fee or other amount to be paid by it hereunder within ten days after the same becomes due and payable; or
(b) Any certification, representation or warranty made by the Borrower herein or by the Borrower (or any officer of the Borrower) in writing under or in connection with any Note or this Agreement (including, without limitation, representations and warranties deemed made pursuant to Section 3.2 or 3.3) shall prove to have been incorrect in any material respect when made or deemed made; or
(c) The Borrower shall fail to perform or observe (i) any term, covenant or agreement contained in Section 5. 1 (b) on its part to be performed or observed and such failure shall continue for five Business Days after the earlier of the date notice thereof shall have been given to the Borrower by the Agent or any Bank or the date the Borrower shall have knowledge of such failure, or (ii) any term, covenant or agreement contained in this Agreement (other than a term, covenant or agreement contained in Section 5. 1 (b)) or any Note on its part to be performed or observed; or
(d) The Borrower or any Subsidiary of the Borrower shall fail to pay
any principal of or premium or interest on any Debt which is outstanding in a
principal amount of at least $60,000,000 in the aggregate (excluding Debt
evidenced by the Notes) of the Borrower or such Subsidiary (as the case may
be), when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to any such
Debt and shall continue after the applicable grace period, if any, specified in
such agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment or as required
pursuant to an illegality event of the type set forth in Section 2.12), prior
to the stated maturity thereof; provided, however, that the provisions of this
Section 6.1(d) shall not apply to any Non-Recourse Debt of any Subsidiary of
the Borrower; or
(e) The Borrower or any material Subsidiary of the Borrower shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any material Subsidiary of the Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), shall remain undismissed or unstaved for a period of 30 days; or the Borrower or any material Subsidiary of the Borrower shall take any action to authorize any of the actions set forth above in this subsection (e); or
(f) Any judgment or order for the payment of money in excess of $60,000,000 shall be rendered against the Borrower or any material Subsidiary of the Borrower and remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
(g) Any Termination Event with respect to a Plan shall have occurred and, 30 days after notice thereof shall have been given to the Borrower by the Agent, (i) such Termination Event shall
still exist and (ii) the sum (determined as of the date of occurrence of such Termination Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which a Termination Event shall have occurred and then exist (or in the case of a Plan with respect to which a Termination Event described in clause (ii) of the definition of Termination Event shall have occurred and then exist, the liability related thereto) is equal to or greater than $5,000,000; or
(h) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount which, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date of such notification), exceeds $15,000,000 in the aggregate or requires payments exceeding $10,000,000 per annum; or
(i) The Borrower or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if as a result of such reorganization or termination the aggregate annual contributions of the Borrower and the ERISA Affiliates to all Multiemployer Plans which are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the respective plan years which include the date hereof by an amount exceeding $5,000,000;
then, and in any such event, the Agent (i) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the A Notes then outstanding or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the Commitments, by notice to the Borrower, declare all of the Commitments and the obligation of each Bank to make Advances to be terminated, whereupon all of the Commitments and each such obligation shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the holders of at least 66-2/3% in principal amount of the A Notes then outstanding or if no A Notes are then outstanding, Banks having at least 66-2/3% of the Commitments, or, if no A Notes are then outstanding and all Commitments have terminated, the holders of at least 66-2/3% in principal amount of the B Notes then outstanding, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable by the Borrower under this Agreement to be forthwith due and payable, whereupon such Notes, such interest and all such amounts shall become and be forthwith due and payable, without requirement of any presentment, demand, protest, notice of intent to accelerate, further notice of acceleration or other further notice of any kind (other than the notice expressly provided for above), all of which are hereby expressly waived by the Borrower; provided, however, that in the event of any Event of Default described in Section 6.1(e), (A) the obligation of each Bank to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or any other notice of any kind, all of which are hereby expressly waived by the Borrower.
ARTICLE VII
THE AGENT
Section 7.1 Authorization and Action. Each Bank hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of holders of at least 66-2/3% in principal amount of the A Notes then outstanding or, if no A Notes are then outstanding, Banks having at least 66-2/3% of the Commitments (or, if no A Notes are then outstanding and all Commitments have terminated, upon the instructions of holders of at least 66-2/3% in principal amount of the B Notes then outstanding), and such instructions shall be binding upon all Banks and all holders of Notes; provided, however, that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to any Note, this Agreement or applicable law. The Agent agrees to give to each Bank prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.
Section 7.2 Agent's Reliance, Etc. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken
or omitted to be taken by it or them under or in connection with any Note or
this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent:
(i) may treat the payee of any Note as the holder thereof until the Agent
receives and accepts a Transfer Agreement executed by the Borrower, the Bank
which is the payee of such Note, as assignor, and the assignee in accordance
with the last sentence of Section 8.6(a); (ii) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Bank
and shall not be responsible to any Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any
Note or this Agreement; (iv) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or
conditions of any Note or this Agreement on the part of the Borrower or to
inspect the property (including the books and records) of the Borrower; (v)
shall not be responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Note or this Agreement
or any other instrument or document furnished pursuant hereto; and (vi) shall
incur no liability under or in respect of any, Note or this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telecopier, telegram, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
Section 7.3 Citibank and Affiliates. With respect to its Commitments, the Advances made by it and the Notes issued to it, Citibank shall have the same rights and powers under any Note and
this Agreement as any other Bank and may exercise the same as though it was not the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any Subsidiary of the Borrower, any Person who may do business with or own, directly or indirectly, securities of the Borrower or any such Subsidiary and any other Person, all as if Citibank were not the Agent and without any duty to account therefor to the Banks.
Section 7.4 Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on the financial statements referred to in Section 4.1(e) and such other documents and information as it has deemed appropriate. made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Note or this Agreement.
Section 7.5 Indemnification. The Banks agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the A Notes then held by each of them (or if no A Notes are at the time outstanding or if any A Notes are held by Persons which are not Banks, ratably according to either (i) the respective amounts of their Commitments, or (ii) if all Commitments have terminated, the respective amounts of the Commitments immediately prior to the time the Commitments terminated), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of any Note or this Agreement or any action taken or omitted by the Agent under any Note or this Agreement, provided that no Bank shall be liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agents gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, any Note or this Agreement to the extent that the Agent is not reimbursed for such expenses by the Borrower.
Section 7.6 Successor Agent. The Agent may resign at any time as Agent under this Agreement by giving written notice thereof to the Banks and the Borrower and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint, with the consent the Borrower (which consent shall not be unreasonably withheld), a successor Agent from among the Banks. If no successor Agent shall have been so appointed by the Majority Banks with such consent, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint
a successor Agent, which shall be a Bank which is a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent under this Agreement by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and shall function as the Agent under this Agreement, and the retiring Agent shall be discharged from its duties and obligations as Agent under this Agreement. After any retiring Agents resignation or removal hereunder as Agent, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Amendments, Etc. No amendment or waiver of any provision of any Note or this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Banks, do any of the following: (a) waive any of the conditions specified in Article III, (b) increase the Commitments of the Banks or subject the Banks to any additional obligations, (c) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (d) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (e) take any action which requires the signing of all the Banks pursuant to the terms of this Agreement, (f) change the percentage of the Commitments or of the aggregate unpaid principal amount of the A Notes or B Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Agreement, or (g) amend this Section 8.1; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Banks required above to take such action, affect the rights or duties of the Agent under any Note or this Agreement.
Section 8.2 Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopy, telegraphic, telex or cable communication) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to any Bank, as specified opposite its name on Schedule I hereto or specified pursuant to Section 8.6(a); if to the Borrower, as specified opposite its name on Schedule II hereto; and if to Citibank, as Agent, to its address at 399 Park Avenue, New York, New York 10043, (telecopier number: (212) 527-1084), Attention: John Sahr, with a copy to Citicorp North America, Inc., 1200 Smith Street, Suite 2000, Houston, Texas 77002 (telecopier number: (713) 654-2849; telex number 127001 (Attn: Route Code HOUAA)), Attention: The Williams Companies, Inc. Account Officer, or, as to the Borrower or the Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Agent. All such notices and communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, be effective when received in the mail, sent by telecopier to any party to the telecopier number as set forth herein or on Schedule I or Schedule 11 or specified pursuant to Section 8.6(a) (or other telecopy number specified by such party in a written notice to the other parties hereto), delivered to the telegraph company, telexed to any party to the telex number set forth herein or on Schedule I or Schedule II or specified pursuant to Section 8.6(a) (or other telex number designated by such party in a written notice to the other parties hereto), confirmed by telex answerback, or delivered to the cable company, respectively, except that notices and communications to the Agent shall not be effective until received by the Agent.
Section 8.3 No Waiver; Remedies. No failure on the part of any Bank or the Agent to exercise, and no delay in exercising, any right under any Note or this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in any Note and this Agreement are cumulative and not exclusive of any remedies provided by law.
Section 8.4 Costs, Expenses and Taxes. (a)(i) The Borrower agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Arranger and the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes and the other documents to be delivered under this Agreement, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under any Note and this Agreement, and (ii) the Borrower agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses, which may include allocated costs of in-house counsel), of the Agent and each Bank in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) against the Borrower of any Note of the Borrower or this Agreement and the other documents to be delivered by the Borrower under this Agreement.
(b) If any payment (or purchase pursuant to Section 2.11(c) or Section 8.6(b)) of principal of, or Conversion of, any Eurodollar Rate Advance or B Advance made to the Borrower is made other than on the last day of an Interest Period relating to such Advance (or in the case of a B Advance, other than on the original scheduled maturity date thereof), as a result of a payment pursuant to Section 2.10 or 2.12 or acceleration of the maturity of the Notes pursuant to Section 6.1 or for any other reason or as a result of any such purchase or any Conversion, the Borrower shall, upon demand by any Bank (with a copy of such demand to the Agent), pay to the Agent for the account of such Bank any amounts required to compensate such Bank for any additional losses, costs or expenses which it may reasonably incur as a result of any such payment, purchase or Conversion, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund or maintain such Advance.
(c) The Borrower agrees, to the fullest extent permitted by law, to indemnify and hold harmless the Agent, the Arranger and each Bank and each of their respective directors, officers, employees and agents from and against any and all claims, damages, liabilities and out-of-pocket
expenses (including, without limitation, reasonable fees and disbursements of counsel) for which any of them may become liable or which may be incurred by or asserted against the Agent, the Arranger or such Bank or any such director, officer, employee or agent (other than by another Bank or any successor or assign of another Bank), in each case in connection with or arising out of or by reason of any investigation, litigation, or proceeding, whether or not the Agent, the Arranger such Bank or any such director, officer, employee or agent is a party thereto, arising out of, related to or in connection with this Agreement or the Notes or any transaction in which any proceeds of all or any part of the Advances are applied (other than any such claim, damage, liability or expense to the extent attributable to the gross negligence or willful misconduct of, or violation of any law or regulation by, either the party seeking indemnity under this Section 8.4(c) or any of its directors, officers, employees or agents).
Section 8.5 Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the making of the request or the granting of the consent specified by Section 6.1 to authorize the Agent to declare the Notes due and payable pursuant to the provisions of Section 6.1, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement and the Notes held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or such Notes and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have.
Section 8.6 Binding Effect; Transfers. (a) This Agreement shall become effective when it shall have been executed by the Borrower and the Agent and when each Bank, listed on the signature pages hereof has delivered an executed counterpart hereof to the Agent, has sent to the Agent a facsimile copy of its signature hereon or has notified the Agent that such Bank has executed this Agreement and thereafter shall be binding upon and inure to the benefit of the Borrower, the Agent and each Bank and their respective successors and assigns; provided that the Borrower shall not have the right to assign any of its rights hereunder or any interest herein without the prior written consent of all of the Banks. Each Bank may assign to one or more banks, financial institutions or government entities all or any part of, or may grant participations to one or more banks, financial institutions or government entities in or to all or any part of, any Advance or Advances owing to such Bank, any Note or Notes held by such Bank and all or any portion of such Bank's Commitments, and to the extent of any such assignment or participation (unless otherwise stated therein), the assignee or purchaser of such assignment or participation shall, to the fullest extent permitted by law, have the same rights and benefits hereunder and under such Note or Notes as it would have if it were such Bank hereunder; provided that, except in the case of an assignment meeting the requirements of the next sentence hereof, (1) (i) such Bank's obligations under this Agreement, including, without limitation, its Commitment hereunder, shall remain unchanged, (ii)
such Bank shall remain responsible for the performance thereof, (iii) such Bank shall remain the holder of any such Note or Notes for all purposes under this Agreement, and (iv) the Borrower, the other Banks and the Agent shall continue to deal solely with and directly with such Bank in connection with such Bank's rights and obligations under this Agreement; and (2) no Bank shall assign or grant a participation that conveys to the assignee or participant the right to vote or consent under this Agreement, other than the right to vote upon or consent to (i) any increase in the amount of any Commitment of such Bank; (ii) any reduction of the principal amount of, or interest to be paid on, such Bank's Advance or Advances or Note or Notes; (iii) any reduction of any fee or other amount payable hereunder to such Bank; or (iv) any postponement of any date fixed for any payment of principal of, or interest on, such Bank's Advance or Advances or Note or Notes or any fee or other amount payable hereunder to such Bank.
If (I) the assignee of any Bank either (1) is another Bank or is an affiliate of a Bank or (2) is approved in writing by the Agent and the Borrower or (3) is approved in writing by the Agent and either an Event of Default exists or the Borrower has relinquished the right to approve the assignment pursuant to Section 8.6(b) and (II) such assignee assumes all or any portion (which portion shall be a constant, and not a varying, percentage, and the amount of the Commitment assigned, whether all or a portion, shall be in a minimum amount of $5,000,000 or such lesser amount as may be approved in writing by the Agent and the Borrower for such assignment) of the Commitment of such assigning Bank by executing a document in the form of Exhibit F (or with such changes thereto as have been approved in writing by the Agent in its sole discretion as evidenced by its execution thereof) duly executed by the Agent, the Borrower (unless an Event of Default exists or the Borrower has relinquished the right to approve the assignment pursuant to Section 8.6(b)), such assigning Bank and such assignee and delivered to the Agent ("Transfer Agreement"), then upon such delivery, (i) such assigning Bank shall be released from its obligations under this Agreement with respect to all or such portion, as the case may be, of its Commitments; (ii) such assignee shall become obligated for all or such portion, as the case may be, of such Commitments and all other obligations of such assigning Bank hereunder with respect to or arising as a result of all or such portion, as the case may be, of such Commitments; (iii) such assignee shall be assigned the right to vote or consent under this Agreement, to the extent of all or such portion, as the case may be, of such Commitments; (iv) the Borrower shall deliver, in replacement of the A Note of the Borrower to such assigning Bank then outstanding (a) to such assignee, a new A Note of the Borrower in the amount of the Commitment of such assigning Bank which is being so assumed by such assignee plus, in the case of any assignee which is already a Bank hereunder, the amount of such assignee's Commitment immediately prior to such assignment (any such assignee which is already a Bank hereunder agrees to cancel and return to the Borrower, with reasonable promptness following the delivery of such new A Note, the A Note being replaced thereby), (b) to such assigning Bank, a new A Note in the amount of the balance, if any, of the Commitment of such assigning Bank to the Borrower (without giving effect to any B Reduction) retained by such assigning Bank (and such assigning Bank agrees to cancel and return to the Borrower, with reasonable promptness following delivery of such new A Notes, the A Note being replaced thereby), and (c) to the Agent, photocopies of such new A Notes; (v) if such assignment is of all of such assigning Bank's Commitment, all of the outstanding A Advances made by such assigning Bank shall be transferred to such assignee; (vi) if such assignment is not of all of such Commitments, a
part of each A Advance to the Borrower equal to the amount of such Advance
multiplied by a fraction, the numerator of which is the amount of such portion
of such assigning Bank's Commitment so assumed and the denominator of which is
the amount of the Commitment of such assigning Bank (without giving effect to
any B Reduction) immediately prior to such assumption, shall be transferred to
such assignee and evidenced by such assignee's A Note from the Borrower, and
the balance of such A Advance shall be evidenced by such assigning Bank's new A
Note from the Borrower delivered pursuant to clause (iv)(b) of this sentence;
(vii) if such assignee is not a "Bank" hereunder prior to such assignment, such
assignee shall become a party to this Agreement as a Bank and shall be deemed
to be a "Bank" hereunder and the amount of all or such portion, as the case may
be, of the Commitment so assumed shall be deemed to be the amount set opposite
such assigning Bank's name on Schedule IV for purposes of this Agreement and
(viii) if such assignee is not a Bank hereunder prior to such assignment, such
assignee shall be deemed to have specified the offices of such assignee named
in the respective Transfer Agreement as its "Domestic Lending Office" and
"Eurodollar Lending Office" for all purposes of this Agreement and to have
specified for purposes of Section 8.2 the notice information set forth in such
Transfer Agreement; and the Agent shall promptly after execution of any
Transfer Agreement by the Agent and the other parties thereto notify the Banks
of the parties to such Transfer Agreement and the amounts of the assigning
Bank's Commitment assumed thereby.
(b) If the Borrower does not consent to a proposed assignment by a Bank pursuant to the last sentence of Section 8.6(a), the Borrower may, within 15 days of its receipt of a request that it consent to such assignment, nominate by notice to the Agent and such Bank a bank which, if it is not a Bank, is acceptable to the Agent, and which unconditionally offers in writing (with a copy to the Agent) to purchase and assume, to the extent of the amount of such proposed assignment, in accordance with all of the provisions of the last sentence of Section 8.6(a) (including execution of an appropriate Transfer Agreement), all of such Bank's rights and obligations (including, without limitation, its Commitment) hereunder and interest in the Advances owing to such Bank and the Notes held by such Bank without recourse at par plus interest accrued thereon to the date of such purchase on a date therein specified (not less than three nor greater than five Business Days after such nomination). Such Bank at its option may elect to accept or not accept such purchase offer. If a Bank accepts such an offer and the bank first nominated by the Borrower pursuant to this Section 8.6(b) fails to purchase such rights and interest on such specified date in accordance with the terms of such offer, the Borrower may, within 15 days of such failure, repeat the process contemplated by the first sentence of this Section 8.6(b) by nominating another bank for purposes of this Section 8.6(b) by notice to the Agent and such Bank. If (i) the Borrower does not so nominate such a bank, within 15 days of its receipt of such request that it consent to such assignment, or (ii) the Borrower fails to nominate another bank following such a failure to purchase or (iii) such second nominated bank fails to purchase in accordance with the terms of an offer complying with the first sentence of this Section 8.6(b), the Borrower shall be deemed to have relinquished its right to consent to such assignment. If such Bank elects to not accept such a purchase offer under this Section 8.6(b) as to a particular proposed assignment, the Borrower shall not be deemed to have relinquished its right to consent to such assignment.
(c) The Borrower agrees to promptly execute the Transfer Agreement pertaining to any assignment as to which approval by the Borrower of the assignee is not required by clause (I) of the last paragraph of Section 8.6(a).
(d) Any Bank may assign, as collateral or otherwise, any of its rights (including, without limitation, rights to payments of principal of and/or interest on the Notes) under this Agreement or any of the Notes to any Federal Reserve Bank without notice to or consent of the Borrower or the Agent.
Section 8.7 Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.
Section 8.8 Interest. It is the intention of the parties hereto that the Agent and each Bank shall conform strictly to usury laws applicable to it, if any. Accordingly, if the transactions with the Agent or any Bank contemplated hereby would be usurious under applicable law, then, in that event, notwithstanding anything to the contrary in the Notes, this Agreement or any other agreement entered into in connection with or as security for this Agreement or the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged or received by the Agent or such Bank, as the case may be, under the Notes, this Agreement or under any other agreement entered into in connection with or as security for this Agreement or the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law and any excess shall be canceled automatically and, if theretofore paid, shall at the option of the Agent or such Bank, as the case may be, be credited by the Agent or such Bank, as the case may be, on the principal amount of the obligations owed to the Agent or such Bank, as the case may be, by the Borrower or refunded by the Agent or such Bank, as the case may be, to the Borrower, and (ii) in the event that the maturity of any Note or other obligation payable to the Agent or such Bank, as the case may be, is accelerated or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to the Agent or such Bank, as the case may be, may never include more than the maximum amount allowed by such applicable law and excess interest, if any, to the Agent or such Bank, as the case may be, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall, at the option of the Agent or such Bank, as the case may be, be credited by the Agent or such Bank, as the case may be, on the principal amount of the obligations owed to the Agent or such Bank, as the case may be, by the Borrower or refunded by the Agent or such Bank, as the case may be, to the Borrower.
Section 8.9 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
Section 8.10 Survival of Agreements, Representations and Warranties, Etc. All warranties, representations and covenants made by the Borrower or any officer of the Borrower herein or in any
certificate or other document delivered in connection with this Agreement shall be considered to have been relied upon by the Banks and shall survive the issuance and delivery of the Notes and the making of the Advances regardless of any investigation. The indemnities and other payment obligations of the Borrower contained in this Agreement, and the indemnities by the Banks in favor of the Agent and its officers, directors, employees and agents, will survive the repayment of the Advances and the termination of this Agreement.
Section 8.11 Borrower's Right to Apply Deposits. In the event that any Bank is placed in receivership or enters a similar proceeding, the Borrower may, to the full extent permitted by law, make any payment due to such Bank hereunder, to the extent of finally collected unrestricted deposits of the Borrower in U.S. dollars held by such Bank, by giving notice to the Agent and such Bank directing such Bank to apply such deposits to such indebtedness. If the amount of such deposits is insufficient to pay such indebtedness then due and owing in full, the Borrower shall pay the balance of such insufficiency in accordance with this Agreement.
Section 8.12 Confidentiality. Each Bank agrees that it will use best
efforts, to the extent not inconsistent with practical business requirements,
not to disclose without the prior consent of the Borrower (other than to
employees, auditors, accountants, counsel or other professional advisors of the
Agent or any Bank) any information with respect to the Borrower or its
Subsidiaries which is furnished pursuant to this Agreement and which (i) the
Borrower in good faith considers to be confidential and (ii) is either clearly
marked confidential or is designated by the Borrower to the Agent or the Banks
in writing as confidential, provided that any Bank may disclose any such
information (a) as has become generally available to the public, (b) as may be
required or appropriate in any report, statement or testimony submitted to or
required by any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Bank or submitted to or required by the Board of
Governors of the Federal Reserve System or the Federal Deposit Insurance
Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in
response to any summons or subpoena in connection with any litigation, (d) in
order to comply with any law, order, regulation or ruling applicable to such
Bank, (e) to the prospective transferee in connection with any contemplated
transfer of any of the Notes or any interest therein by such Bank, provided
that such prospective transferee executes an agreement with or for the benefit
of the Borrower containing provisions substantially identical to those
contained in this Section 8.12, and provided further that if the contemplated
transfer is a grant of a participation in a Note (and not an assignment), no
such information shall be authorized to be delivered to such participant
pursuant to this clause (e) except (i) such information delivered pursuant to
Section 4.1(e) or Section 5.1(b) (other than paragraph (iv) thereof), and (ii)
if prior notice of the delivery thereof is given to the Borrower, such
information as may be required by law or regulation to be delivered, (f) in
connection with the exercise of any remedy by such Bank pertaining to this
Agreement, any of the Notes or any other document delivered in connection
herewith, (g) in connection with any litigation involving such Bank pertaining
to this Agreement, any of the Notes or any other document delivered in
connection herewith, (h) to any Bank or the Agent, or (i) to any affiliate of
any Bank, provided that such affiliate executes an agreement with or for the
benefit of the Borrower containing provisions substantially identical to those
contained in this Section 8.12.
Section 8.13 WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT, AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
BORROWER:
WILLIAMS HOLDINGS OF DELAWARE, INC.
By: /s/ JAMES IVEY ----------------------------------- Name: James Ivey Title: Treasurer |
AGENT:
CITIBANK, N.A., as Agent
BANKS:
CITIBANK, N.A.
THE CHASE MANHATTAN BANK
By: /s/ PETER M. LING
-----------------------------------
Title: Vice President
--------------------------------
|
CIBC INC.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title:
--------------------------------
|
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ CLAIRE M. LIU
-----------------------------------
Title: Managing Director
--------------------------------
|
BANK OF MONTREAL
By: /s/ MARY LEE LATTA
-----------------------------------
Title: Director
--------------------------------
|
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PHILIPPE SOUSTRA
-----------------------------------
Title: Senior Vice President
--------------------------------
|
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: First Vice President
--------------------------------
|
ABN AMRO BANK N.V.
BANKBOSTON, N.A.
By: /s/ R. STEVE SCHAUER
-----------------------------------
Title: Director
--------------------------------
|
THE BANK OF NEW YORK
By: /s/ RAYMOND J. PALMER
-----------------------------------
Title: Vice President
--------------------------------
|
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. ASHBY
-----------------------------------
Title: Senior Manager, Loan Operations
--------------------------------
|
THE BANK OF TOKYO-MITSUBISHI, LTD.,
HOUSTON AGENCY
By: /s/ ICHIRO OTANI
-----------------------------------
Title: Deputy General Manager
--------------------------------
|
BARCLAYS BANK PLC
By: /s/ RICHARD B. WILLIAMS
-----------------------------------
Title: Director
--------------------------------
|
INDUSTRIAL BANK OF JAPAN TRUST COMPANY
By: /s/ MIKE OAKS
-----------------------------------
Title: Senior Vice President
--------------------------------
THE INDUSTRIAL BANK OF JAPAN, LIMITED
HOUSTON OFFICE
(Authorized Representative)
|
MELLON BANK, N.A.
By: /s/ MARK W. ROGERS
-----------------------------------
Title: Vice President
--------------------------------
|
ROYAL BANK OF CANADA
By: /s/ J. D. FROST
-----------------------------------
Title: Senior Manager
--------------------------------
|
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ RICHARD M. LEWIS
-----------------------------------
Title: Director
--------------------------------
|
THE SUMITOMO BANK, LIMITED
COMMERZBANK AKTIENGESELLSCHAFT,
ATLANTA AGENCY
FIRST AMERICAN NATIONAL BANK
BANQUE NATIONALE DE PARIS, HOUSTON
AGENCY
ARAB BANKING CORPORATION (B.S.C.)
By: /s/ STEPHEN A. PLAUCHE
-----------------------------------
Title: Vice President
--------------------------------
|
BW CAPITAL MARKETS, INC.
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK BRANCH
SUNTRUST BANK
By: /s/ TODD C. DAVIS
-----------------------------------
Title: Assistant Vice President
--------------------------------
By: /s/ STEVEN J. NEWBY
-----------------------------------
Title: Corporate Banking Officer
--------------------------------
|
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
AG, CAYMAN ISLAND BRANCH
NATIONAL WESTMINSTER BANK PLC
NEW YORK BRANCH
BANK OF OKLAHOMA, N.A.
By: /s/ ROBERT D. MATTAX
-----------------------------------
Title: Senior Vice President
--------------------------------
|
COMMERCE BANK, N.A.
By: /s/ [ILLEGIBLE]
-----------------------------------
Title: Senior Vice President
--------------------------------
|
CREDIT AGRICOLE INDOSUEZ
By: /s/ DAVID BODHL
-----------------------------------
Title: F.V.P. Head of Corporate
--------------------------------
Banking Chicago
|
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By: /s/ RAYMOND VENTURA
-----------------------------------
Title: Vice President & Manager
--------------------------------
|
SCHEDULE I
APPLICABLE LENDING OFFICES
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
Citibank N.A. Citibank N.A. Citibank N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Notices: Notices:
Citibank, N.A. Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Telecopier: (212) 527-1084 Telecopier: (212) 527-1084
Telex: None Telex: None
Attn: Christine Grundel Attn: Christine Grundel
Dept: Medium Term Finance Dept: Medium Term Finance
with copies to: with copies to:
Citicorp North America, Inc. Citicorp North America, Inc.
1200 Smith Street, Suite 2000 1200 Smith Street, Suite 2000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 654-2849 Telecopier: (713) 654-2849
Telex: 127001 Telex: 127001
(Attn. Route Code HOUAA) (Attn. Route Code HOUAA)
Attn: The Williams Companies, Inc. Attn: The Williams Companies, Inc.
Account Officer Account Officer
The Chase The Chase Manhattan Bank The Chase Manhattan Bank
Manhattan 270 Park Avenue, 21st Floor 270 Park Avenue, 21st Floor
Bank New York, New York 10017 New York, New York 10017
Telecopier: (212) 270-3897 Telecopier: (212) 270-3897
Telephone: (212) 270-4676 Telephone: (212) 270-4676
Attn: Peter Ling Attn: Peter Ling
The Fuji Bank, The Fuji Bank, Limited The Fuji Bank, Limited
Limited (New York Branch) (New York Branch)
(New York Branch) 2 World Trade Center 2 World Trade Center
79th Floor 79th Floor
New York, New York 10048 New York, New York 10048
Telecopier: (212) 321-9407 Telecopier: (212) 321-9407
Telephone: (212) 898-2597 Telephone: (212) 898-2597
Attn: Felix Amerasinghe Attn: Felix Amerasinghe
|
Schedule I-1
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- ---------------
Bank of Montreal Bank of Montreal Bank of Montreal
115 S. LaSalle St., 11W 115 S. LaSalle St., 11W
Chicago, Illinois 60603 Chicago, Illinois 60603
Telecopier: (312) 750-6061 Telecopier: (312) 750-6061
Telephone: (312) 750-6047 Telephone: (312) 750-6047
Attn: Craig Reynolds - Client Services Attn: Craig Reynolds - Client Services
Commerzbank AG, Commerzbank AG, Atlanta Agency Commerzbank AG, Atlanta Agency
Atlanta Agency 1230 Peachtree St., NE 1230 Peachtree St., NE
Suite 3500 Suite 3500
Atlanta, Georgia 30309 Atlanta, Georgia 30309
Telephone: (404) 888-6518 Telephone: (404) 888-6518
Telecopier: (404) 888-6539 Telecopier: (404) 888-6539
Attn: Brian Campbell Attn: Brian Campbell
Credit Lyonnais Credit Lyonnais New York Branch Credit Lyonnais New York Branch
New York Branch 1301 Avenue of the Americas 1301 Avenue of the Americas
New York, New York 10019 New York, New York 10019
Telecopier: (713) 759-9766 Telecopier: (713) 759-9766
Telephone: (713) 751-0500 Telephone: (713) 751-0500
Attn: Bernadette Archie Attn: Bernadette Archie
The First National The First National Bank of Chicago The First National Bank of Chicago
Bank of Chicago One First National Plaza One First National Plaza
0634, 1FNP, 10 0634, 1FNP, 10
Chicago, Illinois 60670 Chicago, Illinois 60670
Telecopier: (312) 732-5219 Telecopier: (312) 732-5219
Telephone: (312) 732-4840 Telephone: (312) 732-4840
Attn: Mattie Reed Attn: Mattie Reed
ABN AMRO Bank ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
N.V. 208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5110 Telephone: (312) 992-5110
Facsimile: (312) 992-5111 Facsimile: (312) 992-5111
Attn: Credit Administration Attn: Credit Administration
with copies to: with copies to:
ABN AMRO Bank, N.V. ABN AMRO Bank, N.V.
208 South LaSalle, Suite 1500 208 South LaSalle, Suite 1500
Chicago, Illinois 60604-1003 Chicago, Illinois 60604-1003
Telephone: (312) 992-5152 Telephone: (312) 992-5152
Facsimile: (312) 992-5157 Facsimile: (312) 992-5157
Attn: Loan Administration Attn: Loan Administration
|
Schedule I-2
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
ABN AMRO North America, Inc. ABN AMRO North America, Inc.
Three Riverway, Suite 1700 Three Riverway, Suite 1700
Houston, Texas 77056 Houston, Texas 77056
Telephone: (713) 964-3316 Telephone: (713) 964-3316
Facsimile: (713) 621-5810 Facsimile: (713) 621-5810
Attn: Michael Nepreux Attn: Michael Nepreux
BankBoston, N.A. BankBoston, N.A. BankBoston, N.A.
100 Federal Street, M/S 01-08-02 100 Federal Street, M/S 01-08-02
Boston, MA 02110 Boston, MA 02110
Telephone: (617) 434-4655 Telephone: (617) 434-4655
Telecopier: (617) 434-9820 Telecopier: (617) 434-9820
Attn: Leah Hardy Attn: Leah Hardy
The Bank of The Bank of Toyko-Mitsubishi, The Bank of Toyko-Mitsubishi,
Toyko-Mitsubishi, Ltd., Houston Agency Ltd., Houston Agency
Ltd., Houston 1100 Louisiana St., Suite 2800 1100 Louisiana St., Suite 2800
Agency Houston, Texas 77002-5216 Houston, Texas 77002-5216
Telephone: (713) 655-3845 Telephone: (713) 655-3845
Telecopier: (713) 655-3855 Telecopier: (713) 655-3855
Attn: J.M. McIntyre Attn: J.M. McIntyre
Barclays Bank PLC Barclays Bank PLC-New York Branch Barclays Bank PLC-New York Branch
222 Broadway, 11th Floor 222 Broadway, 11th Floor
New York, New York 10038 New York, New York 10038
Telephone: (212) 412-3717 Telephone: (212) 412-3717
Telecopier: (212) 412-5307 Telecopier: (212) 412-5307
Attn: Judy Kwong Attn: Judy Kwong
First American First American National Bank First American National Bank
National Bank First American Center First American Center
Fourth & Union St. NA-0310 Fourth & Union St. NA-0310
Nashville, Tennessee 37237-0310 Nashville, Tennessee 37237-0310
Telephone: (615) 736-6223 Telephone: (615) 736-6223
Telecopier: (615) 748-2485 Telecopier: (615) 748-2485
Attn: Stephen Arnold Attn: Stephen Arnold
Banque Nationale Banque Nationale de Paris, Houston Banque Nationale de Paris, Houston
de Paris, Houston Agency Agency
Agency 333 Clay Street, Suite 3400 333 Clay Street, Suite 3400
Houston, Texas 77002 Houston, Texas 77002
Telephone: (713) 951-1240 Telephone: (713) 951-1240
Telecopier: (713) 659-1414 Telecopier: (713) 659-1414
Attn: Donna Rose Attn: Donna Rose
|
Schedule I-3
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
Arab Banking Arab Banking Corp. Arab Banking Corp. (Grand Cayman)
Corporation 277 Park Avenue, 32nd Floor 277 Park Avenue, 32nd Floor
(B.S.C.) New York, New York 10172 New York, New York 10172
Telephone: (212) 583-4771 Telephone: (212) 583-4770
Telecopier: (212) 583-0932 Telecopier: (212) 583-0932
Attn: Loan Administration Attn: Loan Administration
BW Capital BW Capital Markets, Inc. BW Capital Markets, Inc.
Markets, Inc. 630 Fifth Avenue 630 Fifth Avenue
Rockefeller Center Rockefeller Center
Suite 1919 Suite 1919
New York, New York 10111 New York, New York 10111
Telecopier: (212) 218-1810 Telecopier: (212) 218-1810
Attn: Thomas A. Lowe Attn: Thomas A. Lowe
Westdeutsche Westdeutsche Landesbank Girozentrale, Westdeutsche Landesbank Girozentrale,
Landesbank New York Branch New York Branch
Girozentrale, 1211 Avenue of the Americas 1211 Avenue of the Americas
New York New York, New York 10038 New York, New York 10038
Branch Telecopier: (212) 302-7946 Telecopier: (212) 302-7946
Telephone: (212) 852-6113 Telephone: (212) 852-6113
Attn: Phil Green Attn: Phil Green
SunTrust Bank SunTrust Bank, Atlanta SunTrust Bank, Atlanta
25 Park Place, 24th Floor MC120 25 Park Place, 24th Floor MC120
Atlanta, Georgia 30303 Atlanta, Georgia 30303
Telephone: (404) 658-4917 Telephone: (404) 658-4917
Telecopier: (404) 827-6270 Telecopier: (404) 827-6270
Attn: Todd C. Davis Attn: Todd C. Davis
DG Bank DG Bank DG Bank
609 Fifth Avenue 609 Fifth Avenue
New York, New York 10017 New York, New York 10017
Telephone: (212) 745-1560 Telephone: (212) 745-1560
Telecopier: (212) 745-1556 Telecopier: (212) 745-1556
Attn: Mark K. Connelly Attn: Mark K. Connelly
Societe Generale, Societe Generale, Southwest Agency Societe Generale, Southwest Agency
Southwest Agency 2001 Ross Avenue, Suite 4800 2001 Ross Avenue, Suite 4800
Dallas, Texas 75201 Dallas, Texas 75201
Telecopier: (214) 754-0171 Telecopier: (214) 754-0171
Telephone: (214) 979-2767 Telex: (214) 979-2767
Attn: Tequlla English Attn: Tequlla English
Loan Specialist Loan Specialist
|
Schedule I-4
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
The Sumitomo The Sumitomo Bank, Limited The Sumitomo Bank, Limited
Bank, Limited 277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Telex: SUMBK 420515/SUMBK Telex: SUMBK 420515/SUMBK
Telecopier: (212) 224-5188 Telecopier: (212) 224-5188
with copies to: with copies to:
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
700 Louisiana, Suite 1750 700 Louisiana, Suite 1750
Houston, Texas 77002 Houston, Texas 77002
Attn: William McKown, III Attn: William McKown, III
The Sumitomo Bank, Limited The Sumitomo Bank, Limited
277 Park Avenue 277 Park Avenue
New York, NY 10172 New York, NY 10172
Attn: Ms. Andrea Wei, V.P. Attn: Ms. Andrea Wei, V.P.
PANA - Legal Department PANA - Legal Department
National National Westminster Bank PLC National Westminster Bank PLC
Westminster 600 Travis St., Suite 6070 600 Travis St., Suite 6070
Bank PLC Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 221-2430 Telecopier: (713) 221-2430
Telephone: (713) 221-2404 Telephone: (713) 221-2404
Attn: Kevin Howard Attn: Kevin Howard
The Bank of Nova The Bank of Nova Scotia The Bank of Nova Scotia
Scotia 600 Peachtree St., N.E. 600 Peachtree St., N.E.
Suite 2700 Suite 2700
Atlanta, Georgia 30308 Atlanta, Georgia 30308
Telecopier: (404) 888-8998 Telecopier: (404) 888-8998
Telex: 00542319 Telex: 00542319
Attn: Robert L. Ahern Attn: Robert L. Ahern
with copy to: with copy to:
1100 Louisiana, Suite 3000 1100 Louisiana, Suite 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 752-2425 Telecopier: (713) 752-2425
Telephone: (713) 759-3440 Telephone: (713) 759-3440
Attn: Greg Smith Attn: Greg Smith
|
Schedule I-5
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
Bank of America Bank of America National Trust Bank of America National Trust
National Trust and Savings Association and Savings Association
and Savings Account Administration Account Administration
Association 231 South LaSalle Street 231 South LaSalle Street
Chicago, Illinois 60697 Chicago, Illinois 60697
Telecopier: (312) 974-9626 Telecopier: (312) 974-9626
Telephone: (312) 828-3793 Telephone: (312) 828-3793
Attn: Debbie Aguilar Attn: Debbie Aguilar
with copy to: with copy to:
Bank of America Bank of America
Three Allen Center, Suite 4550 Three Allen Center, Suite 4550
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 651-4807 Telecopier: (713) 651-4807
Telephone: (713) 651-4855 Telephone: (713) 651-4855
Bank of New York Bank of New York Bank of New York
One Wall St., 19th Floor One Wall St., 19th Floor
New York, New York 10286 New York, New York 10286
Telecopier: (212) 635-7923 Telecopier: (212) 635-7923
Telephone: (212) 635-7834 Telephone: (212) 635-7834
Attn: Raymond Palmer (Ray) Attn: Raymond Palmer (Ray)
Bank of Oklahoma, Bank of Oklahoma, N.A. Bank of Oklahoma, N.A.
N.A. One Williams Center, 8th Floor One Williams Center, 8th Floor
Tulsa, Oklahoma 74192 Tulsa, Oklahoma 74192
Telecopier: (918) 588-6880 Telecopier: (918) 588-6880
Telephone: (918) 588-6217 Telephone: (918) 588-6217
Attn: Robert Mattax (Bob) Attn: Robert Mattax (Bob)
Canadian Imperial Canadian Imperial Bank of Commerce Canadian Imperial Bank of Commerce
Bank of Commerce Two Paces West Two Paces West
2727 Paces Ferry Road, Suite 1200 2727 Paces Ferry Road, Suite 1200
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Telecopier: (770) 319-4950 Telecopier (770) 319-4950
Telephone: (770) 319-4821 Telephone: (770) 319-4821
Attn: Katherine McGovern Attn: Katherine McGovern
with a copy to: with a copy to:
1600 Smith, Ste. 3000 1600 Smith, Ste. 3000
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 650-3727 Telecopier: (713) 650-3727
Telephone: (713) 650-2588 Telephone: (713) 650-2588
Attn: Mark Wolf Attn: Mark Wolf
|
Schedule I-6
Domestic Eurodollar
Name of Bank Lending Office Lending Office
------------ -------------- --------------
Commerce Bank, Commerce Bank, N.A. Commerce Bank, N.A.
N.A. 1000 Walnut Street, 17th Floor 1000 Walnut Street, 17th Floor
Kansas City, Missouri 64106 Kansas City, Missouri 64106
Telecopier: (816) 234-7290 Telecopier: (816) 234-7290
Telephone: (816) 234-2477 Telephone: (816) 234-2477
Attn: Dennis Block Attn: Dennis Block
Industrial Bank Industrial Bank of Japan Trust Industrial Bank of Japan Trust
of Japan Trust 1251 Avenue of the Americas 1251 Avenue of the Americas
New York, New York 10020 New York, New York 10020
Telecopier: (212) 282-4480 Telecopier: (212) 282-4480
Telephone: (212) 282-4067 Telephone: (212) 282-4067
Attn: Bob Cummings Attn: Bob Cummings
Credit Agricole Credit Agricole Indosuez Credit Agricole Indosuez
Indosuez Texas Commerce Tower Texas Commerce Tower
600 Travis, Suite 2340 600 Travis, Suite 2340
Houston, Texas 77002 Houston, Texas 77002
Telecopier: (713) 223-7029 Telecopier: (713) 223-7029
Telephone: (713) 223-7001 Telephone: (713) 223-7001
Attn: Brian Knezeak Attn: Brian Knezeak
Mellon Bank, N.A. Mellon Bank, N.A. Mellon Bank, N.A.
One Mellon Center, 44th Floor One Mellon Center, 44th Floor
Pittsburgh, Pennsylvania 15258 Pittsburgh, Pennsylvania 15258
Telecopier: (412) 236-1840 Telecopier: (412) 236-1840
Telephone: (412) 236-2786 Telephone: (412) 236-2786
Attn: A. Gary Chase Attn: A. Gary Chase
NationsBank NationsBank NationsBank
515 S. Boulder 515 S. Boulder
Tulsa, Oklahoma 74103 Tulsa, Oklahoma 74103
Telecopier: (918) 591-8221 Telecopier: (918) 591-8221
Telephone: (918) 591-8518 Telephone: (918) 591-8518
Attn: Linda Parish Attn: Linda Parish
Royal Bank of Royal Bank of Canada, New York Royal Bank of Canada, New York
Canada One Liberty Plaza, 4th Floor One Liberty Plaza, 4th Floor
New York, New York 10006 New York, New York 10006
Telecopier: (212) 428-2372 Telecopier: (212) 428-2372
Telephone: (212) 428-6321 Telephone: (212) 428-6321
Attn: Assistant Manager, Loan Attn: Assistant Manager, Loan
Processing Processing
|
Schedule I-7
SCHEDULE II
BORROWER INFORMATION
Name of Borrower Information for Notices
---------------- -----------------------
The Williams Companies, Inc. The Williams Companies, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Williams Holdings of Delaware, Inc. Williams Holdings of Delaware, Inc.
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Patti J. Kastl
Telecopier: (918) 588-4755
Northwest Pipeline Corporation Northwest Pipeline Corporation
295 Chipeta Way
Salt Lake City, Utah 84158
Attention: Curtis C. Kennedy
Telecopier: (801) 584-6726
Transcontinental Gas Pipe Line Corporation Transcontinental Gas Pipe Line Corporation
2800 Post Oak Boulevard, 21st Floor
Houston, Texas 77056
Attention: Nick Bacile
Telecopier: (713) 439-2440
Texas Gas Transmission Corporation Texas Gas Transmission Corporation
3800 Frederica St.
Owensboro, Kentucky 42302
Attention: Susanne W. Harris
Telecopier: (502) 683-5657
Williams Pipe Line Company Williams Pipe Line Company
One Williams Center, Suite 4800
Tulsa, Oklahoma 74172
Attention: Paul W. Nelson
Telecopier: (918) 588-3371
WilTel Communications, LLC WilTel Communications, LLC
2800 Post Oak Boulevard
Houston, Texas 77056
Attention: G.L. Best
Telecopier: (713) 307-4880
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SCHEDULE III
PERMITTED WHD LIENS
a) Any purchase money Lien created by WHD or any of its Subsidiaries to secure all or part of the purchase price of any property (or to secure a loan made to enable WHD or any of its Subsidiaries to acquire the property secured by such Lien); provided that the principal amount of the Debt secured by any such Lien, together with all other Debt secured by a Lien on such property, shall not exceed the purchase price of the property acquired.
b) Any Lien existing on any property at the time of the acquisition thereof by WHD or any of its Subsidiaries, whether or not assumed by WHD or any of its Subsidiaries, and any Lien on any property acquired or constructed by WHD or any of its Subsidiaries and created not later than 12 months after (i) such acquisition or completion of such construction or (ii) commencement of full operation of such property, whichever is later; provided, however, that if assumed or created by WHD or any of its Subsidiaries, the principal amount of the Debt secured by such Lien, together with all other Debt secured by a Lien on such property, shall not exceed the purchase price of the property acquired and/or the cost of the property constructed.
c) Any Lien created or assumed by WHD or any of its Subsidiaries on any contract for the sale of any product or service or any rights thereunder or any proceeds therefrom, including accounts and other receivables, related to the operation or use of any property acquired or constructed by WHD or any of its Subsidiaries and created not later than 12 months after (i) such acquisition or completion of such construction or (ii) commencement of full operation of such property, whichever is later; provided, however, that the principal amount of the Debt secured by such mortgage together with all other Debt secured by any such contract, rights or property, shall not exceed the purchase price of the property acquired and/or the cost of the property constructed.
d) Any Lien existing on any property of a Subsidiary of WHD at the time it becomes a Subsidiary of WHD.
e) Any refunding or extension of maturity, in whole or in part, of any
Lien created or assumed in accordance with the provisions of paragraph
(a), (b), (c) or (d) above or (j) below; provided that the principal
amount of the Debt secured by such refunding Lien or extended Lien
shall not exceed the principal amount of the Debt secured by the Lien
to be refunded or extended outstanding at the time of such refunding or
extension and that such refunding Lien or extended Lien shall be
limited to the same property that secured the Lien so refunded or
extended.
f) Mechanics' or materialmen's liens arising in the ordinary course of business which are not more than 90 days past due or are being contested in good faith by appropriate proceedings or any Lien arising by reason of pledges or deposits to secure payment of workmen's
compensation or other insurance, good faith deposits in connection with tenders or leases of real estate, bids or contracts (other than contracts for the payment of money), in each case to secure obligations of TWC or any of its Subsidiaries.
g) Deposits to secure public or statutory obligations, deposits to secure or in lieu of surety, stay or appeal bonds and deposits as security for the payment of taxes or assessments or other similar charges, in each case to secure obligations of TWC or any of its Subsidiaries; provided, however, that the aggregate amount of obligations secured by Liens permitted by this paragraph (g) shall not exceed 10% of Consolidated Tangible Net Worth of TWC.
h) Any Lien arising by reason of deposits with or the giving of any form
of security to any governmental agency or any body created or approved
by law or governmental regulation for any purpose at any time as
required by law or governmental regulation (i) as a condition to the
transaction by TWC or any of its Subsidiaries of any business or the
exercise by TWC or any of its Subsidiaries of any privilege or license,
(ii) to enable TWC or any of its Subsidiaries to maintain
self-insurance or to participate in any fund for liability on any
insurance risks or (iii) in connection with workmen's compensation,
unemployment insurance, old age pensions or other social security with
respect to TWC or any of its Subsidiaries to share in the privileges or
benefits required for companies participating in such arrangements.
i) Any Lien which is payable, both with respect to principal and interest, solely out of the proceeds of oil, gas, coal or other minerals or timber to be produced from the property subject thereto and to be sold or delivered by WHD or any of its Subsidiaries, including any interest of the character commonly referred to as a "production payment".
j) Any Lien created or assumed by a Subsidiary of WHD on oil, gas, coal or other mineral or timber property, owned or leased by such Subsidiary to secure loans to such Subsidiary for the purposes of developing such properties, including any interest of the character commonly referred to as a "production payment"; provided, however, that neither WHD nor any other Subsidiary of WHD shall assume or guarantee such loans or otherwise be liable in respect thereto.
k) Liens incurred in the ordinary course of business upon rights-of-way.
l) Undetermined mortgages and charges incidental to construction or maintenance arising in the ordinary course of business which are not more than 90 days past due or are being contested in good faith by appropriate proceedings.
m) The right reserved to, or vested in, any municipality or governmental or other public authority or railroad by the terms of any right, power, franchise, grant, license, permit or by any provision of law, to terminate or to require annual or other periodic payments as a condition to the continuance of such right, power, franchise, grant, license or permit.
Page III-2
n) The Lien of taxes and assessments which are not at the time delinquent.
o) The Lien of specified taxes and assessments which are delinquent but the validity of which is being contested in good faith by WHD or any of its Subsidiaries by appropriate proceedings and with respect to which reserves in conformity with generally accepted accounting principles, if required by such principles, have been provided on the books of WHD or the relevant Subsidiary of WHD, as the case may be.
p) The Lien reserved in leases entered into in the ordinary course of business for rent and for compliance with the terms of the lease in the case of real property leasehold estates.
q) Defects and irregularities in the titles to any property (including rights-of-way and easements) which are not material to the business, assets, operations or financial condition of WHD and its Subsidiaries considered as a whole.
r) Any Liens securing Debt neither assumed nor guaranteed by WHD or any of its Subsidiaries nor on which any of them customarily pays interest, existing upon real estate or rights in or relating to real estate (including rights-of-way and easements) acquired by WHD or any of its Subsidiaries for pipeline, metering station or right-of-way purposes, which Liens were not created in anticipation of such acquisition and do not materially impair the use of such property for the purposes for which it is held by WHD or such Subsidiary.
s) Easements, exceptions or reservations in any property of WHD or any of its Subsidiaries granted or reserved in the ordinary course of business for the purpose of pipelines, roads, telecommunication equipment and cable, streets, alleys, highways, railroads, the removal of oil, gas, coal or other minerals or timber, and other like purposes, or for the joint or common use of real property, facilities and equipment, which do not materially impair the use of such property for the purposes for which it is held by WHD or such Subsidiary.
t) Rights reserved to or vested in any municipality or public authority to control or regulate any property of WHD or any of its Subsidiaries, or to use such property in any manner which does not materially impair the use of such property for the purposes for which it is held by WHD or such Subsidiary.
u) Any obligations or duties, affecting the property of WHD or any of its Subsidiaries, to any municipality or public authority with respect to any franchise, grant, license or permit.
v) The Liens of any judgments in an aggregate amount for WHD and all of its Subsidiaries (i) not in excess of $5,000,000, the execution of which has not been stayed and (ii) not in excess of $25,000,000, the execution of which has been stayed and which have been appealed and secured, if necessary and permitted hereby, by the filing of an appeal bond.
w) Zoning laws and ordinances.
Page III-3
x) Any Lien on any office equipment, data processing equipment (including computer and computer peripheral equipment), motor vehicles, aircraft, marine vessels or similar transportation equipment.
y) Any Lien consisting of interests in receivables in connection with agreements for sales of receivables of any kind by WHD or any of its Subsidiaries for cash.
z) Any Lien not permitted by paragraphs (a) through (y) above or (aa) below securing Debt of WHD and its Subsidiaries or securing any Debt of WHD and its Subsidiaries which constitutes a refunding or extension of any such Debt if at the time of, and after giving effect to, the creation or assumption of any such Lien, the sum of aggregate of all Debt of WHD and its Subsidiaries secured by all such Liens not so permitted by paragraphs (a) through (y) above or (aa) below plus the amount of Attributable Obligations of WHD and its Subsidiaries in respect of Sale and Lease-Back Transactions permitted by Section 5.2(j) does not exceed 5% of the sum of (i) Consolidated Tangible Net Worth of WHD plus (ii) Debt of WHD and its Subsidiaries on a Consolidated basis.
aa) Any Lien resulting from any sale and lease-back of cushion gas by WHD or any of its Subsidiaries.
bb) Any Lien created by WHD or any of its Subsidiaries on any contract (or any rights thereunder or proceeds therefrom) providing for advances by WHD or any of its Subsidiaries to finance gas exploration and development, which Lien is created to secure only indebtedness incurred to finance such advances.
SCHEDULE IV
COMMITMENTS
AS OF ___________________
BANKS WHD COMMITMENT
Citibank, N.A $ 89,000,000
Arab Banking Corporation $ 35,000,000
BW Capital Markets, Inc. $ 50,000,000
The Chase Manhattan Bank $ 89,000,000
CIBC Inc. $ 89,000,000
The Fuji Bank, Limited - Houston Agency $ 62,000,000
Bank of America $ 49,000,000
Banque Nationale de Paris $ 25,000,000
Commerce Bank, N.A $ 5,000,000
Commerzbank $ 25,000,000
Credit Agricole Indosuez $ 30,000,000
SunTrust $ 16,000,000
Westdeutsche Landesbank $ 40,000,000
DG Bank $ 25,000,000
Greenwich NatWest $ 35,000,000
First American National $ 20,000,000
Bank of Oklahoma $ 6,000,000
Bank of Montreal $ 50,000,000
Credit Lyonnais New York Branch $ 89,000,000
The First National Bank of Chicago $ 89,000,000
ABN Amro Bank NV $ 70,000,000
BankBoston, N.A $ 20,000,000
The Bank of New York $ 65,000,000
The Bank of Nova Scotia $ 89,000,000
The Bank of Tokyo-Mitsubishi, Ltd. - Houston Agency $ 20,000,000
Barclays Bank PLC $ 65,000,000
Industrial Bank of Japan Trust Company $ 25,000,000
Mellon Bank, N.A $ 33,000,000
Royal Bank of Canada $ 45,000,000
Societe Generale - Southwest Agency $ 40,000,000
The Sumitomo Bank, Limited $ 10,000,000
================
COMMITMENTS $ 1,400,000,000
================
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Page IV-1
SCHEDULE V
RATING CATEGORIES
Rating Category S&P or Moody's ratings of the senior unsecured Applicable Applicable
of the Borrower long-term debt of the Borrower* Margin Commitment
Fee Rate
One A or better by S&P or A2 or better by Moody's .50% .075%
Two A- by S&P or A3 by Moody's .625% .085%
Three BBB+ by S&P or Baa1 by Moody's .75% .095%
Four BBB by S&P or Baa2 by Moody's .875% .10%
Five BBB- by S&P and Baa3 by Moody's 1.125% .15%
Six BBB- by S&P or Baa3 by Moody's 1.5% .20%
Seven Borrower is Unrated or none of the above applies to 2.0% .25%
Borrower
|
*If split-rated, the higher rating will apply.
EXHIBIT A-1
A PROMISSORY NOTE
U.S. $__________________ January 26, 1999
FOR VALUE RECEIVED, the undersigned, Williams Holdings of Delaware, Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of ____________________ (the "Bank"), for the account of its Applicable Lending Office (as defined in the Credit Agreement referred to below), on the Stated Termination Date (as defined in the Credit Agreement referred to below), the principal amount of $______________, or, if less, the aggregate principal amount of the A Advances (as defined in the Credit Agreement referred to below) owed to the Bank by the Borrower on such Stated Termination Date.
The Borrower promises to pay interest on the unpaid principal amount hereof until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement referred to below. Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York, New York 10043, in same day funds. Each A Advance owed to the Bank by the Borrower, and all payments made on account of principal thereof, shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this A Promissory Note.
This A Promissory Note is one of the A Notes referred to in, and is subject to and entitled to the benefits of the Amended and Restated Credit Agreement, dated as of January 26, 1999 (as amended or otherwise modified from time to time, the "Credit Agreement"), by and among the Borrower, the Bank, certain other financial institutions parties thereto and Citibank, N.A., as Agent for the Bank and such other financial institutions. The Credit Agreement provides, among other things, for (i) the making of advances to the Borrower from time to time pursuant to Section 2.1 of the Credit Agreement in an aggregate outstanding amount not to exceed at any time the U.S. dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such advance owed to the Bank being evidenced by this A Promissory Note, (ii) acceleration of the maturity hereof upon the happening of certain stated events and (iii) prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. Capitalized terms used herein which are not defined herein and are defined in the Credit Agreement are used herein as therein defined.
[This A Promissory Note is [in part] in extension, continuation and renewal of, and not in satisfaction of, outstanding amounts under the Borrower's note(s) dated [July 23, 1997] [and] [March 30, 1998] in the original principal amount(s) of [$________________] [and $__________, respectively].]
The Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration and any other notice of any kind, except as provided in the Credit Agreement.
No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights.
This A Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York.
WILLIAMS HOLDINGS OF DELAWARE, INC.
Page A-1-2
ADVANCES AND PAYMENTS OF PRINCIPAL
Amount of
Amount Principal Unpaid
of Paid or Principal Notation
Date Advance Prepaid Balance Made By
---- ------- ---------- --------- --------
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Page A-1-3
EXHIBIT A-2
B PROMISSORY NOTE
U.S. $__________________ Dated: ____________, _____
FOR VALUE RECEIVED, the undersigned, Williams Holdings of Delaware, Inc., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of ____________________ (the "Bank"), for the account of its Applicable Lending Office (as defined in the Credit Agreement referred to below), on _________, the principal amount of _____________ U.S. Dollars ($______________).
The Borrower promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, at the interest rate and payable on the interest payment date or dates provided below:
Interest Rate: ______% per annum (calculated on the basis
of a year of _____ days for the actual number of
days elapsed).
Interest Payment
Date or Dates: ___________________
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Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, for the account of the Bank at the office of Citibank, N.A., at 399 Park Avenue, New York, New York 10043, in same day funds.
This B Promissory Note is one of the B Notes referred to in, and is entitled to the benefits of the Amended and Restated Credit Agreement, dated as of January 26, 1999 (as amended or otherwise modified from time to time, the "Credit Agreement"), by and among the Borrower, the Bank, certain other financial institutions parties thereto and Citibank, N.A., as Agent for the Bank and such other financial institutions. The Credit Agreement contains, among other things, provisions for acceleration of the maturity hereof upon the happening of certain stated events. Capitalized terms used herein which are not defined herein and are defined in the Credit Agreement are used herein as therein defined.
The Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration and any other notice of any kind, except as provided in the Credit Agreement. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights.
This B Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York.
WILLIAMS HOLDINGS OF DELAWARE, INC.
Page A-2-2
EXHIBIT B-1
NOTICE OF A BORROWING
[Date]
Citibank, N.A., as Agent
for the Banks parties to the Credit
Agreement referred to below
399 Park Avenue
New York, New York 10043
ATTENTION: John Sahr
Ladies and Gentlemen:
The undersigned, Williams Holdings of Delaware, Inc. (the "Borrower"),
(a) refers to the Amended and Restated Credit Agreement, dated as of January 26,
1999 (as amended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not defined herein being used herein
as therein defined), by and among the undersigned, certain Banks parties thereto
and Citibank, N.A., as Agent for such Banks; (b) hereby gives you notice,
irrevocably, pursuant to Section 2.2 of the Credit Agreement that the
undersigned hereby requests an A Borrowing under the Credit Agreement and (c) in
that connection sets forth below the information relating to such A Borrowing
(the "Proposed A Borrowing") as required by Section 2.2 (a) of the Credit
Agreement:
(i) The Business Day of the Proposed A Borrowing is
______________, 19____.
(ii) The Type of A Advances comprising the Proposed A Borrowing is
[Base Rate Advances] [Eurodollar Rate Advances].
(iii) The aggregate amount of the Proposed A Borrowing is
$__________________.
[(iv) The Interest Period for each A Advance made as part of the
Proposed A Borrowing is ______ months.]
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The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed A Borrowing:
(a) the representations and warranties contained in Section 4.1 of the Credit Agreement as to the Borrower and its Subsidiaries are correct on and as of the date of the Proposed A Borrowing, before and after giving effect to the Proposed A Borrowing and to the application of the proceeds therefrom, as though made on and as of such date;
Citibank, N.A., as Agent
---------------,-------
(b) no event has occurred and is continuing, or would result from the Proposed A Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and
(c) after giving effect to the Proposed A Borrowing and all other Borrowings which have been requested on or prior to the date of the Proposed A Borrowing but which have not been made prior to such date, the aggregate principal amount of all Advances will not exceed the aggregate of the Commitments of the Banks to the Borrower (computed without regard to any B Reduction).
Very truly yours,
WILLIAMS HOLDINGS OF DELAWARE, INC.
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
Page B-1-2
EXHIBIT B-2
NOTICE OF B BORROWING
[Date]
Citibank, N.A., as Agent
for the Banks parties to the
Amended and Restated Credit
Agreement referred to below
399 Park Avenue
New York, New York 10043
ATTENTION: John Sahr
Ladies and Gentlemen:
The undersigned, Williams Holdings of Delaware, Inc. (the "Borrower"),
(a) refers to the Amended and Restated Credit Agreement, dated as of January 26,
1999 (as amended or otherwise modified from time to time, the "Credit
Agreement"; the terms defined therein and not defined herein being used herein
as therein defined), by and among the undersigned, certain Banks parties thereto
and Citibank, N.A., as Agent for such Banks; (b) hereby gives you notice,
irrevocably, pursuant to Section 2.16 of the Credit Agreement that the
undersigned hereby requests a B Borrowing under the Credit Agreement and (c) in
that connection sets forth the terms on which such B Borrowing (the "Proposed B
Borrowing") is requested to be made:
(A) Date of B Borrowing _________________________ (B) Amount of B Borrowing _________________________ (C) Maturity Date _________________________ (D) Interest Rate Basis _________________________ (E) Interest Payment Date(s) _________________________ (F) Prepayment Permitted [Yes/No] [Conditions] (G) ____________________ _________________________ |
The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed B Borrowing:
(a) the representations and warranties contained in Section 4.1 of the Credit Agreement as to the Borrower and its Subsidiaries are correct on and as of the date of the Proposed B Borrowing, before and after giving effect to the Proposed B Borrowing and to the application of the proceeds therefrom, as though made on and as of such date;
Citibank, N.A., as Agent
-------------, -----
(b) no event has occurred and is continuing, or would result from the Proposed B Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both;
(c) following the making of the Proposed B Borrowing and all other Borrowings to be made on the same day under the Credit Agreement, the aggregate principal amount of all Advances of the Banks to the Borrower then outstanding will not exceed the aggregate amount of the Commitments of the Banks to the Borrower (computed without regard to any B Reduction); and
(d) after giving effect to the Proposed B Borrowing and all other Borrowings which have been requested on or prior to the date of the Proposed B Borrowing but which have not been made prior to such date, the aggregate principal amount of all Advances will not exceed the aggregate of the Commitments of the Banks.
The undersigned hereby confirms that the Proposed B Borrowing is to be made available to it in accordance with Section 2.16(a)(v) of the Credit Agreement.
Very truly yours,
WILLIAMS HOLDINGS OF DELAWARE, INC.
cc: Citicorp North America, Inc.
1200 Smith Street, Suite 2000
Houston, Texas 77002
Attn: The Williams Companies, Inc.
Account Officer
Page B-2-2
EXHIBIT C
January ___, 1999
To each of the Banks parties to the Amended
and Restated Credit Agreement, dated as of
January 26, 1999, by and among
Williams Holdings of Delaware, Inc.,
the Banks parties thereto and Citibank, N.A.,
as Agent for the Banks
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 3.1(d) of the Amended and Restated Credit Agreement, dated as of January 26, 1999 (the "Credit Agreement"), by and among Williams Holdings of Delaware, Inc., a Delaware corporation (the "Borrower"), the Banks parties thereto and Citibank, N.A., as Agent for the Banks. Terms defined in the Credit Agreement are used herein as therein defined.
I am General Counsel of TWC, and I have acted as counsel for the Borrower in connection with the preparation, execution and delivery of the Credit Agreement and the A Notes.
In that connection, either I or the attorneys acting under my supervision have examined:
(1) Original counterparts of the Credit Agreement executed by the Agent and the Borrower and the ___ original A Notes dated January 26, 1999 executed by the Borrower ("Executed Notes").
(2) The documents furnished by the Borrower pursuant to Section 3.1 of the Credit Agreement.
(3) The Certificate of Incorporation of the Borrower and all amendments thereto (the "Charter" of the Borrower).
(4) The by-laws of the Borrower and all amendments thereto (the "By-laws").
(5) Certificates of the Secretary of State of the State of Delaware, dated ____________, 1999, attesting to the continued corporate existence and good standing of the Borrower in that State.
I have also examined the originals, or copies certified to my satisfaction, of such corporate records of the Borrower, certificates of public officials and of officers of the Borrower, and agreements, instruments, and other documents, as I have deemed necessary as a basis for the
_______________________, 1999
opinions expressed below. As to questions of fact material to such opinions, I
have, when relevant facts were not independently established by me, relied upon
certificates of officers of the Borrower or of public officials. I have assumed
(i) the genuineness of all signatures of the Banks and the Agent, (ii) the
capacity of the signing officers of each of the Banks and the Agent, (iii) the
authenticity of all documents submitted to me as original and the conformity
with the authentic originals of all documents submitted to me as copies and (iv)
the due execution and delivery, pursuant to due authorization, of the Credit
Agreement by the Banks and the Agent and the enforceability (subject to
limitations on enforceability of the types referred to in paragraphs (a) through
(c) of this opinion) of the Credit Agreement against the Banks and the Agent.
Based upon the following and upon such investigation as I have deemed necessary, I am of the following opinion:
(1) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.
(2) The execution, delivery, and performance by the Borrower of
the Credit Agreement, the Executed Notes executed by the
Borrower, and the Notes to be executed by the Borrower and the
consummation of the transactions contemplated by the Credit
Agreement are within the Borrower's corporate powers, (a) have
been duly authorized by all necessary corporate action, (b) do
not contravene (i) the Charter or the By-laws of the Borrower,
(ii) any law, rule, or regulation applicable to the Borrower
(including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or (iii) any
contractual or legal restriction and (c) will not result in or
require the creation or imposition of any Lien prohibited by
the Credit Agreement. With respect to the Notes to be executed
after the date hereof by the Borrower, this opinion is limited
to the law, the Charter and By-laws of the Borrower and
restrictions in effect on the date hereof. The Credit
Agreement has been duly executed and delivered by the Borrower
and the Executed Notes have been duly executed and delivered
by the Borrower. The Borrower has duly executed and delivered
to the Agent an A Note payable to each Bank.
(3) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery, and performance by the Borrower of the Credit Agreement and the respective Notes or the consummation of the transactions contemplated by the Credit Agreement, except in the case of such performance for (A) such authorizations, approvals, actions, notices, and filings which have been made or obtained and (B) such authorizations, approvals, actions, notices, and filings that are required by the terms of the Credit Agreement (such as filings made under the Securities Exchange
_______________________, 1999
Act of 1934) which would not customarily be made or obtained prior to the time when they are required.
(4) Each of the Executed Notes executed by, and the other Notes when funded and when executed and delivered by, the Borrower and the Credit Agreement constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms.
(5) Except as set forth in the Public Filings, to my knowledge there are no pending or overtly threatened actions or proceedings against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that purport to affect the legality, validity, binding effect, or enforceability of the Credit Agreement or any of the Notes or that could reasonably be expected to have a materially adverse effect upon the financial condition or operations of the Borrower and its Subsidiaries, taken as a whole.
(6) The Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning off the Investment Company Act of 1940, as amended. The Borrower is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended.
(7) In any action or proceeding arising out of or relating to the
Credit Agreement or any of the Notes in any court of the State
of Oklahoma or in any Federal court sitting in the State of
Oklahoma, assuming (i) proper venue, jurisdiction, and a full
and proper presentation of the issue and the law to the court,
(ii) such action or proceeding is not dismissed on the basis
of an inconvenient forum and (iii) that the court properly
applies Oklahoma law, such court would (a) recognize and give
effect to the provisions of Section 8.7 of the Credit
Agreement and (b) construe the Credit Agreement and the Notes
in accordance with the internal laws of the State of New York.
Subject to the foregoing and without limiting the generality
thereof, a court of the State of Oklahoma or a Federal court
sitting in the State of Oklahoma would apply the usury law of
the State of New York, and would not apply the usury law of
the State of Oklahoma, to the Credit Agreement and the Notes.
However, if a court were to hold that the Credit Agreement or
any of the Notes are governed by, or to be construed in
accordance with, the laws of the State of Oklahoma, the Credit
Agreement, the Executed Notes, and the other Notes, when
executed, delivered and funded, would be, under the laws of
the State of Oklahoma, legal, valid and binding obligations of
the Borrower signatory thereto and enforceable against the
Borrower in accordance with their respective terms.
_______________________, 1999
The opinions set forth above are subject to the following qualifications:
(a) My opinions in paragraph 4 above and my opinion in the last sentence of paragraph 7 above are subject, insofar as enforceability is concerned, to the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar law affecting creditors' rights and remedies generally.
(b) My opinions in paragraph 4 above and my opinion in the last sentence of paragraph 7 above are subject, insofar as enforceability is concerned, to the effect of general principles of equity including principles of commercial reasonableness, good faith, and fair dealing (regardless of whether considered in a proceeding in equity or at law).
(c) I express no opinion with respect to the enforceability of any
of the following: (i) indemnification provisions to the extent
the same are violative of federal or state securities laws,
rules, or regulations or of public policy, (ii) clauses
waiving right to trial by jury, exculpation clauses, or
clauses granting offset rights to the Banks or against any
deposits or in respect of matured claims, (iii) clauses
relating to recovery of attorneys' fees in connection with the
enforcement of obligations, (iv) clauses relating to release
of unmatured claims, integration clauses to the effect that no
representation was made other than as appears in the Credit
Agreement, (v) clauses purporting to waive unmatured rights,
representations, warranties or affirmative or negative
covenants to the extent such representations, warranties, or
covenants can be construed to be independent clauses which
purport to be legal, valid, binding, and enforceable by
themselves, as distinguished from being clauses that trigger
an event of default, and severability and similar clauses, and
(vi) clauses that incorporate by reference a document or
instrument or agreement not in existence on the date hereof to
the extent that any such document, instrument, or agreement is
the basis of an effort to enforce the Notes or Credit
Agreement, insofar as any of the foregoing are contained in
the Credit Agreement or the Notes.
(d) I express no opinion as to the effect on the opinions herein stated of compliance or non-compliance by any Bank with any applicable state, federal, or other laws or regulations applying only to banks, or the legal or regulatory status of any Bank.
(e) My opinion in paragraph 4 above and my opinion in paragraph 7 above assumes (i) application of New York law would not be found to be contrary to a fundamental policy of a state with a materially greater interest in determining the question presented and the laws of which would govern in absence of an effective choice of law, (ii) Citibank, N.A. has a place of business located in the State of New York and (iii) the Borrower is required to perform a part of its obligations relating to the
_______________________, 1999
transaction contemplated by the Credit Agreement, such as delivery of payment, in the State of New York.
(f) [I am admitted to practice law in the State of Oklahoma and the State of New York, and, accordingly, the opinions expressed herein are based upon and limited exclusively to the laws of the State of Oklahoma, the laws of the State of New York, the General Corporation Law of the State of Delaware and the laws of the United States of America insofar as any of such laws are applicable. I render no opinion with respect to any other laws [except the laws of Utah, insofar as such laws are applicable to the matters opined upon herein. In giving the opinions expressed herein as to the laws of the State of Utah, I have, with your approval and without independent investigation, relied solely upon attorneys acting under my supervision admitted to practice law in that State].
(g) My opinion in paragraph 1 above as to the due qualification and good standing of the Borrower is based solely on certificates, dated as of _______________, 1999 from the Secretary of State of the State of Delaware certifying as to such matters.
This opinion is solely for the benefit of the Banks and the Agent, their respective successors, assigns, participants, and other transferees and counsel for the Persons referred to in this sentence, and may be relied upon only by such Persons and such counsel. This opinion speaks as of its date, and I undertake no, and hereby expressly disclaim any, duty to advise you as to any changes of fact or law coming to my attention after the date hereof.
Very truly yours,
William G. von Glahn
EXHIBIT D
January _____, 1999
To each of the Banks party to the
Credit Agreement described below and
Citibank, N.A., as Agent
Ladies and Gentlemen:
We have acted as special counsel to Citibank, N.A., acting for itself and as Agent, in connection with the preparation, execution and delivery of the Amended and Restated Credit Agreement, dated as of January ____, 1999 (the "Credit Agreement"), by and among Williams Holdings of Delaware, Inc., a Delaware corporation (the "Borrower"), and each of you. Terms defined in the Credit Agreement are used herein as therein defined.
In that connection, we have examined the following documents:
(1) Counterparts of the Credit Agreement, executed by the Agent and the Borrower, respectively.
(2) The documents furnished by the Borrower pursuant to
Section 3.1 of the Credit Agreement and listed on Annex A hereto,
including the opinion of William G. von Glahn ("Opinion").
In our examination of the documents referred to above, we have assumed
(i) the authenticity of all such documents submitted to us as originals, (ii)
the genuineness of all signatures and (iii) the conformity to the originals of
all such documents submitted to us as copies. We have also assumed the accuracy
of all matters set forth in the certificates referred to on Annex A hereto and
assumed that the Borrower, the Banks and the Agent have duly executed and
delivered, with all necessary power and authority (corporate and otherwise), the
Credit Agreement and that the Borrower has duly executed and delivered, with all
necessary power and authority (corporate and otherwise), the respective A Notes.
We have also assumed that no Bank has requested that the opinion required by
Section 3.1(d) of the Credit Agreement contain any matter not contained in the
form of opinion set forth as Exhibit C to the Credit Agreement.
Based upon the foregoing examination of documents and assumptions and upon such other investigation as we have deemed necessary, we are of the opinion that the Opinion and the other documents referred to in item (2) above are substantially responsive to the requirements of the Credit Agreement.
This opinion (i) is furnished solely for the benefit of the Banks, the Agent, their respective successors, assigns, participants and other transferees and solely in connection with the transactions described above and (ii) may not be relied upon by, or communicated to, any other Person or for any
other purpose, nor may it be quoted, circulated or published or made public, in whole or in part, or furnished, without our prior written consent, to any Person. This opinion is rendered as of the date hereof, and we express no opinion as to, and disclaim any undertaking or obligation to update this opinion in respect of changes in laws or interpretations thereof or in circumstances or events that occur subsequent to this date.
Very truly yours,
Mayer, Brown & Platt
ANNEX A
(1) The respective A Notes dated January _____, 1999 of the Borrower payable to the order of the respective Banks.
(2) Certified copies of resolutions of the Board of Directors of the Borrower pertaining to the Credit Agreement and the Notes.
(3) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying (a) the names and the signatures of officers of the Borrower authorized to sign the Credit Agreement and the respective Notes of the Borrower and (b) copies of the Certificate of Incorporation and Bylaws of the Borrower.
(4) The opinion of William G. von Glahn, Esq., substantially in the form of Exhibit C to the Credit Agreement.
(5) A certificate of an officer of the Borrower stating the respective ratings by each of S&P and Moody's of the senior unsecured long-term debt of the Borrower as in effect on January ____, 1999.
EXHIBIT E
RESTRICTIONS DESCRIBED IN
PARAGRAPH 5.2(d) OF THE CREDIT AGREEMENT
None.
EXHIBIT F
TRANSFER AGREEMENT
This Transfer Agreement, dated as of ___________________ (this
"Agreement"), is made by and among (a) Williams Holdings of Delaware, Inc., a
Delaware corporation ("Borrower"); (b) Citibank, N.A., as Agent for the banks
party to the Amended and Restated Credit Agreement, dated as of January 26, 1999
(as may be amended from time to time, the "Credit Agreement"), by and among the
Borrower, such Agent and such banks; (c) ___________________ ("Assignor") and
(d) _______________ ("Assignee"). In consideration of the mutual covenants
herein contained, the parties hereto agree as set forth herein.
1. Transfer. Pursuant to the last sentence of Section 8.6(a) of the Credit Agreement, Assignor hereby assigns to Assignee (without representation or warranty to Assignee and without Assignee having recourse against Assignor as a result of such assignment), and Assignee hereby assumes, a constant ____% of each of the Assignor's Commitments (such term used throughout this Agreement without giving effect to any B Reduction) to the Borrower under the Credit Agreement, such assignment from Assignor to Assignee being [all of Assignor's Commitments to the Borrower][$___________ of Assignor's $____________ Commitment to the Borrower] (the amount of such Commitment to the Borrower so assigned is called the "Assigned Portion" of such Commitment). [The Assignee is already a Bank under the Credit Agreement with a Commitment of $___________ to the Borrower prior to the assumption contemplated hereby.] [The Assignee is hereby approved by the Agent [and the Borrower] for purposes of the assignment and assumption contemplated hereby.] As contemplated by such Section 8.6, it is hereby agreed that:
(i) the Assignor is hereby released from all of its obligations under the Credit Agreement with respect to or arising as a result of the Assigned Portions of its Commitment assigned hereby;
(ii) the Assignee hereby becomes obligated for the Assigned Portions of such Commitment and all other obligations of the Assignor (including, without limitation, obligations to the Agent under Section 7.5 of the Credit Agreement or otherwise) under the Credit Agreement with respect to or arising as a result of the Assigned Portions of such Commitments;
(iii) the Assignee is hereby assigned the right to vote or consent under the Credit Agreement and the other rights and obligations of the Assignor under the Credit Agreement, in each case to the extent of the Assigned Portions of such Commitment;
(iv) The Borrower, contemporaneously with its execution and delivery hereof, will deliver, in replacement of the A Note of the Assignor currently outstanding [(and in replacement of Assignee's existing $___________ A Note)] (a) to the Assignee, a new A Note in the amount of $____________ [(and the Assignee agrees to cancel and return to the Borrower, with reasonable promptness following such delivery, the
A Note of the Assignee being replaced thereby)], (b) to the
Assignor, a new A Note in the amount of $____________ (and the
Assignor agrees to cancel and return to the Borrower, with
reasonable promptness following delivery of such new A Note,
the A Note of the Assignor being replaced thereby), and (c) to
the Agent, photocopies of all such new A Notes and of all such
canceled A Notes;
[(v) inasmuch as there are currently no outstanding A Advances, no
transfer of A Advances is hereby made];
[(vi) $__________ of the Assignor's outstanding A Advances to the
Borrower are hereby transferred to the Assignee, which amounts
represent [the aggregate amount of all of the Assignor's
outstanding A Advances to the Borrower respectively,] [the
amount of the assigned portions of the outstanding A Advances
of the Assignor to the Borrower being hereby assigned to
Assignee a portion of each such A Advance with the assigned
portion of each such A Advance being equal to the amount of
such A Advance multiplied by a fraction, the numerator of
which is the amount of the Assignor's Commitments assumed
hereby by the Assignee and the denominator of which is the
amount of the Assignor's Commitments (without giving effect to
any B Reduction) immediately prior to such assumption]; [and]
(vii) the Assignee hereby confirms that it is a party to the Credit
Agreement as a Bank and agrees that after giving effect to
this Agreement its Commitments will be $_______________ to the
Borrower; [and]
(viii) the Assignee hereby specifies the following offices as its
|
Applicable Lending Offices under the Credit Agreement:
Domestic Eurodollar
Lending Office Lending Office
-------------- --------------
Attention: Attention:
-------------- ----------------
Telephone: Telephone:
-------------- ----------------
Telecopy: Telecopy:
--------------- -----------------
Answerback: Answerback:
------------- ---------------
|
[(ix) the Assignee hereby specifies the following as its address for notices and communications under the Credit Agreement:
[Assignee]
Attention:
------------------------
Telephone:
------------------------
Telecopy:
-------------------------
Answerback: ]
-----------------------
|
2. Miscellaneous.
2.1 Amendments, Etc. This Agreement shall not be amended, waived or otherwise modified except in writing executed by the parties hereto.
2.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
2.3 Definitions. Capitalized terms used herein which are defined in the Credit Agreement and not defined herein are used herein as defined in the Credit Agreement.
2.4 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
2.5 Effective Date. This Agreement shall be effective as of the date first above written for purposes of computation of commitment fees under the Credit Agreement and for all other relevant purposes.
2.6 Assignee Credit Decision. The Assignee acknowledges that it has, independently and without reliance upon the Agent or any other Bank and based on such financial statements and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. The Assignee also acknowledges that it will, independently and without reliance upon the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Note, the Credit Agreement or this Agreement.
2.7 Indemnity. The Assignee agrees to indemnify and hold the Assignor harmless against any and all losses, costs and expenses (including without limitation reasonable attorneys' fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee's performance or non-performance of obligations assumed by Assignee under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
[NAME OF ASSIGNEE] WILLIAMS HOLDINGS OF DELAWARE, INC.
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
[NAME OF ASSIGNOR] CITIBANK, N.A., AS AGENT
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
|
EXHIBIT 4(f)
MAPCO, INC.
WILLIAMS HOLDINGS OF DELAWARE, INC.
AND
BANKERS TRUST COMPANY
TRUSTEE
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 31, 1998
SUPPLEMENTING THE INDENTURE DATED AS OF
MARCH 31, 1990
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental Indenture"), dated as of March 31, 1998, by and among MAPCO, Inc. ("MAPCO"), a Delaware corporation, Williams Holdings of Delaware, Inc. ("WHD"), a Delaware corporation, and Bankers Trust Company, a New York banking corporation, as Trustee (the "Trustee").
WITNESSETH:
WHEREAS, MAPCO and the Trustee have entered into an Indenture dated as of March 31, 1990 (the "Indenture"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of November 23, 1997 by and among MAPCO, The Williams Companies, Inc. ("Williams") and TML Acquisition Corp., a wholly-owned subsidiary of Williams ("Sub"), Sub has been merged into MAPCO; and
WHEREAS, effective as of the date hereof, the stock of MAPCO has been transferred to WHD, a wholly-owned subsidiary of Williams and all of the outstanding capital stock of MAPCO Petroleum, Inc. and MAPCO Natural Gas Liquids Inc. have been sold by MAPCO to WHD; and
WHEREAS, Section 9.01 of the Indenture permits MAPCO and the Trustee to amend or supplement the Indenture without notice to or the consent of any Holder of Securities (as defined) to comply with Article Five of the Indenture;
WHEREAS, Article Five of the Indenture requires, in the event of a transfer of MAPCO's properties and assets substantially as an entirety, that the successor to such assets expressly assume, by supplemental indenture, all of MAPCO's obligations in respect of the Indenture;
WHEREAS, MAPCO Petroleum, Inc and MAPCO Natural Gas Liquids, Inc. together constitute MAPCO's properties and assets substantially as an entirety.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein and in the Indenture and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MAPCO, WHD, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Indenture.
Section 2. Assumption of Certain Obligations.
(a) WHD hereby expressly assumes (i) the due and punctual payment of the principal of, premium, if any, on, interest on, and any additional amounts payable under the Indenture in respect of, the Indenture and (ii) the performance of all of the covenants provided for in the Indenture to be performed or observed by MAPCO.
(b) MAPCO and the Trustee hereby acknowledge that WHD shall succeed to, and be substituted for, and may exercise every right and power of, MAPCO under the Indenture with the same effect as if WHD had been named therein.
Section 3. Effect of First Supplemental Indenture. From and after the execution and delivery of this First Supplemental Indenture, the Indenture shall be deemed to be modified as herein provided, but except as modified hereby, the Indenture shall continue in full force and effect. The Indenture as modified hereby shall be read, taken and construed as one and the same instrument.
Section 4. Notice. Any notice or communication by the Trustee to WHD is duly given if in writing and delivered in person or by express mail service to the address set forth below:
Williams Holdings of Delaware, Inc. One Williams Center Tulsa, Oklahoma 74172 Attention: Treasurer
Section 5. Governing Law. This First Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York (regardless of the laws that might otherwise govern under applicable principles of conflicts of laws) as to all matters, including, without limitation, matters of validity, construction, effect, performance and remedies.
Section 6. Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, each of MAPCO, WHD and the Trustee has caused this first Supplemental Indenture to be executed on its behalf by its duly authorized officer and has caused its official seal to be impressed hereon and attested by one of its duly authorized officers, all as of the day and year first above written.
[SEAL] MAPCO, INC. Attest /s/ SHAWNA L. GEHRES By: /s/ PHILLIP D. WRIGHT -------------------------------- -------------------------------- Name: Shawna L. Gehres Name: Phillip D. Wright Title: Assistant Secretary Title: Senior Vice President [SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC. Attest /s/ SHAWNA L. GEHRES By: /s/ JAMES G. IVEY -------------------------------- -------------------------------- Name: Shawna L. Gehres Name: James G. Ivey Title: Assistant Treasurer Title: Treasurer [SEAL] BANKERS TRUST COMPANY, AS TRUSTEE Attest /s/ MARC PARILLA By: /s/ SUSAN JOHNSON -------------------------------- -------------------------------- Name: Marc Parilla Name: Susan Johnson Title: Assistant Treasurer Title: Assistant Vice President |
EXHIBIT 4(j)
MAPCO, INC.
WILLIAMS HOLDINGS OF DELAWARE, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
THIRD SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 31, 1998
SUPPLEMENTING THE INDENTURE DATED AS OF
FEBRUARY 25, 1997, AS AMENDED
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (the "Third Supplemental Indenture"), dated as of March 31, 1998, by and among MAPCO, Inc. ("MAPCO"), a Delaware corporation, Williams Holdings of Delaware, Inc. ("WHD"), a Delaware corporation, and The First National Bank of Chicago, a national banking association, as Trustee (the "Trustee")
WITNESSETH:
WHEREAS, MAPCO and the Trustee have entered into an Indenture dated as of February 25, 1997, as amended by a Supplemental Indenture No. 1 dated March 5, 1997, and a Supplemental Indenture No. 2 dated March 5, 1997 (the "Indenture"), pursuant to which Indenture MAPCO has issued certain 7.25% Notes due 2009 and 7.70% Debentures due 2027 (collectively, the "Notes"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of November 23, 1997 by and among MAPCO, The Williams Companies, Inc. ("Williams") and TML Acquisition Corp., a wholly-owned subsidiary of Williams ("Sub"), Sub has been merged into MAPCO; and
WHEREAS, effective as of the date hereof, the stock of MAPCO has been transferred to WHD, a wholly-owned subsidiary of Williams and all of the outstanding capital stock of MAPCO Petroleum, Inc. and MAPCO Natural Gas Liquids, Inc. have been sold by MAPCO to WHD;
WHEREAS, MAPCO Petroleum, Inc., MAPCO Natural Gas Liquids, Inc. together constitute MAPCO's properties and assets substantially as an entirety; and
WHEREAS, Section 8.1 of the Indenture permits the Trustee and MAPCO to enter into indentures supplemental to evidence succession of another person to MAPCO and the assumption by such successor of the covenants and obligations of MAPCO under the Indenture.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants contained herein and in the Indenture and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MAPCO,WHD, and the Trustee hereby agree as follows:
Section 1. Definitions. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Indenture.
Section 2. Assumption of Certain Obligations.
(a) WHD hereby expressly assumes (i) the due and punctual payment of the principal of, premium, if any, on, interest on, and any additional amounts payable under the Indenture in respect of, the Notes and (ii) the performance of all of the covenants provided for in the Indenture to be performed or observed by MAPCO.
(b) MAPCO and the Trustee hereby acknowledge that WHD shall succeed to, and be substituted for, and may exercise every right and power of, MAPCO under the Indenture with the same effect as if WHD had been named therein.
Section 3. Effect of Third Supplemental Indenture. From and after the execution and delivery of this Third Supplemental Indenture, the Indenture shall be deemed to be modified as herein provided, but except as modified hereby, the Indenture shall continue in full force and effect. The Indenture as modified hereby shall be read, taken and construed as one and the same instrument.
Section 4. Notice. Any notice or communication by the Trustee to WHD is duly given if in writing and delivered in person or by express mail service to the address set forth below:
Williams Holdings of Delaware, Inc. One Williams Center Tulsa, Oklahoma 74172 Attention: Treasurer
Section 5. Governing Law. This Third Supplemental Indenture shall be governed by and construed in accordance with the laws bf the State of New York (regardless of the laws that might otherwise govern underapplicable principles of conflicts of laws) as to all matters, including, without limitation, matters of validity, construction, effect, performance and remedies.
Section 6. Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts, each of which, when so executed.and delivered, shall be an original, but such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, each of MAPCO, WHD and the Trustee has caused this Third Supplemental Indenture to be executed on its behalf by its duly authorized officer and has caused its official seal to be impressed hereon and attested by one of its duly authorized officers, all as of the day and year first above written.
[SEAL] MAPCO, INC.
Attest
/s/ SHAWNA L. GEHRES By: /s/ PHILLIP D. WRIGHT
-------------------------------- --------------------------------
Name: Shawna L. Gehres Name: Phillip D. Wright
Title: Assistant Secretary Title: Senior Vice President
[SEAL] WILLIAMS HOLDINGS OF DELAWARE, INC.
Attest
/s/ DAVID M. HIGBEE By: /s/ JAMES G. IVEY
-------------------------------- --------------------------------
Name: David M. Higbee Name: James G. Ivey
Title: Secretary Title: Treasurer
[SEAL] THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
Attest
/s/ ANN LONGINO By: /s/ JOHN R. PRENDIVILLE
-------------------------------- --------------------------------
Name: Ann Longino Name: John R. Prendiville
Title: Trust Officer Title: Vice President
|
EXHIBIT 12
WILLIAMS HOLDINGS OF DELAWARE, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
Years Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Earnings:
Income from continuing
operations before extraordinary
loss and income taxes $ 4.6 $ 455.1 $ 529.6 $ 372.3 $ 258.4
Add:
Interest expense-net 155.3 113.2 89.3 89.5 74.6
Rental expense representative
of interest factor 26.0 20.2 11.9 18.7 11.0
Preferred dividends of
subsidiaries -- -- -- 5.4 --
Minority interest (income) loss of
consolidated subsidiaries (12.0) 18.2 1.4 2.3 1.6
Interest accrued--50% owned company 6.1 -- -- -- --
Other 16.5 (.4) 3.3 3.1 3.3
-------- -------- -------- -------- --------
Total earnings as adjusted plus
fixed charges $ 196.5 $ 606.3 $ 635.5 $ 491.3 $ 348.9
======== ======== ======== ======== ========
Combined fixed charges:
Interest expense-net $ 155.3 $ 113.2 $ 89.3 $ 89.5 $ 74.6
Capitalized interest 26.6 19.3 4.8 11.5 4.7
Rental expense representative
of interest factor 26.0 20.2 11.9 18.7 11.0
Pretax effect of dividends on
preferred stock of subsidiaries -- -- -- 7.7 --
Interest accrued--50% owned company 6.1 -- -- -- --
-------- -------- -------- -------- --------
Total fixed charges $ 214.0 $ 152.7 $ 106.0 $ 127.4 $ 90.3
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges -- (1) 3.97 6.00 3.86 3.86
======== ======== ======== ======== ========
|
(1) Earnings were insufficient to cover fixed charges by approximately $17.5
million for the year ended December 31, 1998.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration statements on Form S-3 of Williams Holdings of Delaware, Inc. and in the related prospectuses of our report dated February 26, 1999, except for Note 20, as to which the date is March 18, 1999, with respect to the consolidated financial statements and schedule of Williams Holdings of Delaware, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1998.
Form S-3: Registration No. 333-20927 Registration No. 333-24683 Registration No. 333-35097
ERNST & YOUNG LLP
Tulsa, Oklahoma
March 26, 1999
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statements of Williams Holdings of Delaware, Inc. shown below of our report dated January 27, 1998 (March 3, 1998, as to Notes 2 and 16 to the MAPCO Inc. consolidated financial statements) with respect to the consolidated financial statements of MAPCO Inc., which report includes explanatory paragraphs relating to certain litigation to which MAPCO Inc. is a defendant and the change in its method of accounting for business process reengineering activities to conform to the consensus reached by the Emerging Issues Task Force in Issue No. 97-13, appearing in this Annual Report of Williams Holdings of Delaware, Inc. on Form 10-K for the year ended December 31, 1998.
Form S-3: Registration No. 333-20927
Registration No. 333-24683
Registration No. 333-35097
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
Tulsa, Oklahoma
March 26, 1999
|
EXHIBIT 24
WILLIAMS HOLDING OF DELAWARE, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned individuals, in their capacity as a director or officer, or both, as hereinafter set forth below their signature, of WILLIAMS HOLDING OF DELAWARE, INC., a Delaware corporation ("WHD"), does hereby constitute and appoint WILLIAM G. VON GLAHN, SHAWNA L. GEHRES AND REBECCA H. HILBORNE their true and lawful attorneys and each of them (with full power to act without the other) their true and lawful attorneys for them and in their name and in their capacity as a director or officer, or both, of WHD, as hereinafter set forth below their signature, to sign WHD's Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 1998, and any and all amendments thereto or all instruments necessary or incidental in connection therewith; and
THAT the undersigned WHD does hereby constitute and appoint WILLIAM G.
VON GLAHN, SHAWNA L. GEHRES AND REBECCA H. HILBORNE its true and lawful
attorneys and each of them (with full power to act without the other) its true
and lawful attorney for it and in its name and on its behalf to sign said Form
10-K and any and all amendments thereto and any and all instruments necessary or
incidental in connection therewith.
Each of said attorneys shall have full power of substitution and resubstitution, and said attorneys or any of them or any substitute appointed by any of them hereunder shall have full power and authority to do and perform in the name and on behalf of each of the undersigned, in any and all capacities, every act whatsoever requisite or necessary to be done in the premises, as fully to all intents and purposes as each of the undersigned might or could do in person, the undersigned hereby ratifying and approving the acts of said attorneys or any of them or of any such substitute pursuant hereto.
IN WITNESS WHEREOF, the undersigned have executed this instrument, all as of the 11th day of March, 1999.
/s/ Keith E. Bailey /s/ Jack S. McCarthy
------------------- --------------------
Keith E. Bailey Jack D. McCarthy
Chairman of the Board Senior Vice President
President, Chief Executive and Director
Officer, and Director (Principal Financial Officer)
(Principal Executive Officer)
|
/s/ Gary R. Belitz
------------------
Gary R. Belitz
Controller
(Principal Accounting Officer)
/s/ John C. Bumgarner, Jr. /s/ Steven J. Malcolm
-------------------------- ---------------------
John C. Bumgarner, Jr. Steven J. Malcolm
Director Director
/s/ Howard E. Janzen
--------------------
Howard E. Janzen
Director
|
WILLIAMS HOLDING OF DELAWARE, INC.
By /s/ William G. von Glahn
------------------------
William G. von Glahn
Senior Vice President
ATTEST:
/s/ Shawna L. Gehres
--------------------
Shawna L. Gehres
Secretary
|
WILLIAMS HOLDINGS OF DELAWARE, INC.
I, the undersigned, Shawna L. Gehres, Secretary of WILLIAMS HOLDINGS OF DELAWARE, INC., a Delaware company (hereinafter called the "Company"), do hereby certify that pursuant to Section 141(f) of the General Corporation Law of Delaware, the Board of Directors of this Corporation unanimously consented, as of March 11, 1999, to the following:
RESOLVED that the Chairman of the Board, the President or any Vice President of the Company be, and each of them hereby is, authorized and empowered to execute a Power of Attorney for use in connection with the execution and filing, for and on behalf of the Company, under the Securities Exchange Act of 1934, of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
I further certify that the foregoing resolution has not been modified, revoked or rescinded and is in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of WILLIAMS HOLDINGS OF DELAWARE, INC. this 11th day of March 1999.
/s/ Shawna L. Gehres
--------------------
Shawna L. Gehres
Secretary
|
[CORPORATE SEAL]
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | DEC 31 1998 |
| CASH | 109,673 |
| SECURITIES | 0 |
| RECEIVABLES | 1,520,627 |
| ALLOWANCES | 29,839 |
| INVENTORY | 384,190 |
| CURRENT ASSETS | 2,595,157 |
| PP&E | 7,405,265 |
| DEPRECIATION | 1,941,245 |
| TOTAL ASSETS | 11,850,637 |
| CURRENT LIABILITIES | 3,235,173 |
| BONDS | 1,968,609 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 1 |
| OTHER SE | 3,923,640 |
| TOTAL LIABILITY AND EQUITY | 11,850,637 |
| SALES | 0 |
| TOTAL REVENUES | 5,942,608 |
| CGS | 0 |
| TOTAL COSTS | 5,752,741 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 39,827 |
| INTEREST EXPENSE | 181,884 |
| INCOME PRETAX | 4,562 |
| INCOME TAX | 14,909 |
| INCOME CONTINUING | (10,347) |
| DISCONTINUED | (14,300) |
| EXTRAORDINARY | (4,762) |
| CHANGES | 0 |
| NET INCOME | (29,409) |
| EPS PRIMARY | 0 |
| EPS DILUTED | 0 |
| ARTICLE 5 |
| THESE AMOUNTS HAVE BEEN RESTATED FOR THE ACQUISITION OF MAPCO INC., WHICH WAS ACCOUNTED FOR AS A POOLING OF INTERESTS. |
| RESTATED: |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 3 MOS | 6 MOS | 9 MOS |
| FISCAL YEAR END | DEC 31 1997 | DEC 31 1997 | DEC 31 1997 |
| PERIOD START | JAN 01 1997 | JAN 01 1997 | JAN 01 1997 |
| PERIOD END | MAR 31 1997 | JUN 30 1997 | SEP 30 1997 |
| CASH | 173 | 165 | 121 |
| SECURITIES | 0 | 0 | 0 |
| RECEIVABLES | 855 | 1,051 | 1,204 |
| ALLOWANCES | 10 | 11 | 11 |
| INVENTORY | 221 | 288 | 320 |
| CURRENT ASSETS | 1,499 | 1,785 | 1,969 |
| PP&E | 5,481 | 5,715 | 6,013 |
| DEPRECIATION | 1,544 | 1,595 | 1,647 |
| TOTAL ASSETS | 7,257 | 8,032 | 8,439 |
| CURRENT LIABILITIES | 1,350 | 1,431 | 2,157 |
| BONDS | 1,491 | 1,982 | 1,561 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 0 | 0 | 0 |
| OTHER SE | 3,301 | 3,368 | 3,443 |
| TOTAL LIABILITY AND EQUITY | 7,257 | 8,032 | 8,439 |
| SALES | 0 | 0 | 0 |
| TOTAL REVENUES | 1,459 | 2,946 | 4,638 |
| CGS | 0 | 0 | 0 |
| TOTAL COSTS | 1,302 | 2,666 | 4,226 |
| OTHER EXPENSES | 0 | 0 | 0 |
| LOSS PROVISION | 1 | 2 | 7 |
| INTEREST EXPENSE | 26 | 60 | 95 |
| INCOME PRETAX | 195 | 318 | 406 |
| INCOME TAX | 70 | 97 | 132 |
| INCOME CONTINUING | 125 | 221 | 275 |
| DISCONTINUED | 0 | 0 | 0 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | 125 | 221 | 275 |
| EPS PRIMARY | 0 | 0 | 0 |
| EPS DILUTED | 0 | 0 | 0 |
| ARTICLE 5 |
| THESE AMOUNTS HAVE BEEN RESTATED FOR THE ACQUISITION OF MAPCO INC., WHICH WAS ACCOUNTED FOR AS A POOLING OF INTERESTS. |
| RESTATED: |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 3 MOS | 6 MOS | 9 MOS |
| FISCAL YEAR END | DEC 31 1996 | DEC 31 1996 | DEC 31 1996 |
| PERIOD START | JAN 01 1996 | JAN 01 1996 | JAN 01 1996 |
| PERIOD END | MAR 31 1996 | JUN 30 1996 | SEP 30 1996 |
| CASH | 59 | 59 | 85 |
| SECURITIES | 0 | 0 | 0 |
| RECEIVABLES | 880 | 855 | 872 |
| ALLOWANCES | 15 | 16 | 17 |
| INVENTORY | 211 | 255 | 241 |
| CURRENT ASSETS | 1,706 | 1,670 | 1,489 |
| PP&E | 5,017 | 5,113 | 5,297 |
| DEPRECIATION | 1,424 | 1,471 | 1,514 |
| TOTAL ASSETS | 6,764 | 6,632 | 6,628 |
| CURRENT LIABILITIES | 1,474 | 1,258 | 1,272 |
| BONDS | 1,257 | 1,305 | 1,235 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 |
| COMMON | 0 | 0 | 0 |
| OTHER SE | 2,958 | 2,975 | 3,018 |
| TOTAL LIABILITY AND EQUITY | 6,764 | 6,632 | 6,628 |
| SALES | 0 | 0 | 0 |
| TOTAL REVENUES | 1,164 | 2,356 | 3,585 |
| CGS | 0 | 0 | 0 |
| TOTAL COSTS | 1,003 | 2,072 | 3,173 |
| OTHER EXPENSES | 0 | 0 | 0 |
| LOSS PROVISION | 1 | 1 | 1 |
| INTEREST EXPENSE | 22 | 44 | 69 |
| INCOME PRETAX | 157 | 255 | 363 |
| INCOME TAX | 57 | 87 | 121 |
| INCOME CONTINUING | 100 | 169 | 242 |
| DISCONTINUED | 8 | (31) | (33) |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | 108 | 138 | 210 |
| EPS PRIMARY | 0.00 | 0.00 | 0.00 |
| EPS DILUTED | 0.00 | 0.00 | 0.00 |
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of MAPCO Inc.:
We have audited the consolidated balance sheet of MAPCO Inc. and subsidiaries as of December 31, 1997, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1997 (none of which are presented herein). Our audits also included the financial statement schedules listed at Item 14(a)2 in the MAPCO Inc. 1997 Annual Report on Form 10-K (not presented herein). These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement 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 financial position of MAPCO Inc. and subsidiaries at December 31, 1997, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 16 to the MAPCO Inc. consolidated financial statements (Note 17 to the consolidated financial statements of Williams Holdings of Delaware, Inc.), MAPCO Inc. is a defendant in litigation relating to an LPG explosion in April 1992, that occurred near an underground salt dome storage facility located near Brenham, Texas.
Effective October 1, 1997, MAPCO Inc. changed its method of accounting for business process reengineering activities to conform to the consensus reached by the Emerging Issues Task Force in Issue No. 97-13.
Deloitte & Touche LLP
Tulsa, Oklahoma
January 27, 1998
(March 3, 1998, as to Notes 2 and 16 to the
MAPCO Inc. consolidated financial statements)