Document
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-4174

THE WILLIAMS COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
73-0569878
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
One Williams Center
 
 
Tulsa
Oklahoma
 
74172-0172
    (Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (918573-2000
NO CHANGE
 
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.00 par value
WMB
New York Stock Exchange
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. YesNo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
Smaller reporting company
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Shares Outstanding at July 29, 2019
Common Stock, $1.00 par value
 
1,212,022,398
 




The Williams Companies, Inc.
Index


 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The reports, filings, and other public announcements of The Williams Companies, Inc. (Williams) may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical facts, included in this report that address activities, events, or developments that we expect, believe, or anticipate will exist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified by various forms of words such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “assumes,” “guidance,” “outlook,” “in-service date,” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:

Levels of dividends to Williams stockholders;

Future credit ratings of Williams and its affiliates;

Amounts and nature of future capital expenditures;

Expansion and growth of our business and operations;


1



Expected in-service dates for capital projects;

Financial condition and liquidity;

Business strategy;

Cash flow from operations or results of operations;

Seasonality of certain business components;

Natural gas and natural gas liquids prices, supply, and demand;

Demand for our services.

Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:

Whether we are able to pay current and expected levels of dividends;

Whether we will be able to effectively execute our financing plan;

Availability of supplies, market demand, and volatility of prices;

Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers);

The strength and financial resources of our competitors and the effects of competition;

Whether we are able to successfully identify, evaluate, and timely execute our capital projects and investment opportunities;

Our ability to acquire new businesses and assets and successfully integrate those operations and assets into existing businesses as well as successfully expand our facilities, and to consummate asset sales on acceptable terms;

Development and rate of adoption of alternative energy sources;

The impact of operational and developmental hazards and unforeseen interruptions;

The impact of existing and future laws and regulations, the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes;

Our costs and funding obligations for defined benefit pension plans and other postretirement benefit plans;

Changes in maintenance and construction costs, as well as our ability to obtain sufficient construction related inputs including skilled labor;


2



Changes in the current geopolitical situation;

Our exposure to the credit risk of our customers and counterparties;

Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally recognized credit rating agencies, and the availability and cost of capital;

The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate;

Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities;

Acts of terrorism, cybersecurity incidents, and related disruptions;

Additional risks described in our filings with the Securities and Exchange Commission (SEC).

Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 21, 2019.


3



DEFINITIONS

The following is a listing of certain abbreviations, acronyms, and other industry terminology that may be used throughout this Form 10-Q.

Measurements:
Barrel: One barrel of petroleum products that equals 42 U.S. gallons
Bcf: One billion cubic feet of natural gas
Bcf/d: One billion cubic feet of natural gas per day
British Thermal Unit (Btu): A unit of energy needed to raise the temperature of one pound of water by one degree Fahrenheit
Dekatherms (Dth): A unit of energy equal to one million British thermal units
Mbbls/d: One thousand barrels per day
Mdth/d: One thousand dekatherms per day
MMcf/d: One million cubic feet per day
MMdth: One million dekatherms or approximately one trillion British thermal units
MMdth/d: One million dekatherms per day
Tbtu: One trillion British thermal units
Consolidated Entities:
Cardinal: Cardinal Gas Services, L.L.C.
Constitution: Constitution Pipeline Company, LLC
Gulfstar One: Gulfstar One LLC
Northwest Pipeline: Northwest Pipeline LLC
Transco: Transcontinental Gas Pipe Line Company, LLC
UEOM: Utica East Ohio Midstream LLC, previously a Partially Owned Entity until acquiring remaining interest in March 2019
Northeast JV: Ohio Valley Midstream LLC, a new partially owned venture that includes our Ohio Valley assets and UEOM
WPZ: Williams Partners L.P. Effective August 10, 2018, we completed our merger with WPZ, pursuant to which we acquired all outstanding common units of WPZ held by others and Williams continued as the surviving entity.
Partially Owned Entities: Entities in which we do not own a 100 percent ownership interest and which, as of June 30, 2019, we account for as an equity-method investment, including principally the following:
Aux Sable: Aux Sable Liquid Products LP
Brazos Permian II: Brazos Permian II, LLC
Caiman II: Caiman Energy II, LLC
Discovery: Discovery Producer Services LLC
Gulfstream: Gulfstream Natural Gas System, L.L.C.
Jackalope: Jackalope Gas Gathering Services, L.L.C., which was sold in April 2019
Laurel Mountain: Laurel Mountain Midstream, LLC
OPPL: Overland Pass Pipeline Company LLC
RMM: Rocky Mountain Midstream Holdings LLC

4



Government and Regulatory:
EPA: Environmental Protection Agency
FERC: Federal Energy Regulatory Commission
SEC: Securities and Exchange Commission
Other:
Fractionation: The process by which a mixed stream of natural gas liquids is separated into constituent products, such as ethane, propane, and butane
GAAP: U.S. generally accepted accounting principles
LNG: Liquefied natural gas; natural gas which has been liquefied at cryogenic temperatures
MVC: Minimum volume commitment
NGLs: Natural gas liquids; natural gas liquids result from natural gas processing and crude oil refining and are used as petrochemical feedstocks, heating fuels, and gasoline additives, among other applications
NGL margins: NGL revenues less any applicable Btu replacement cost, plant fuel, transportation, and fractionation
WPZ Merger: The August 10, 2018 merger transactions pursuant to which we acquired all outstanding common units of WPZ held by others, merged WPZ into Williams, and Williams continued as the surviving entity


5



PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

The Williams Companies, Inc.
Consolidated Statement of Income
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
(Millions, except per-share amounts)
Revenues:
 
 
 
 
 
 
 
Service revenues
$
1,489

 
$
1,340

 
$
2,929


$
2,691

Service revenues – commodity consideration
56

 
94

 
120

 
195

Product sales
496

 
657

 
1,046


1,293

Total revenues
2,041

 
2,091

 
4,095


4,179

Costs and expenses:
 
 

 



Product costs
483

 
636

 
1,008


1,249

Processing commodity expenses
24

 
26

 
64

 
61

Operating and maintenance expenses
387

 
388

 
727


745

Depreciation and amortization expenses
424

 
434

 
840


865

Selling, general, and administrative expenses
152

 
130

 
280


262

Impairment of certain assets (Note 13)
64

 
66

 
76

 
66

Other (income) expense – net
9

 
1

 
41


30

Total costs and expenses
1,543

 
1,681

 
3,036


3,278

Operating income (loss)
498

 
410

 
1,059


901

Equity earnings (losses)
87

 
92

 
167


174

Other investing income (loss) – net (Note 5)
126

 
68

 
53

 
72

Interest incurred
(306
)

(288
)

(612
)

(570
)
Interest capitalized
10


13


20


22

Other income (expense) – net
7

 
26

 
18


47

Income (loss) before income taxes
422

 
321

 
705


646

Provision (benefit) for income taxes
98

 
52

 
167


107

Net income (loss)
324

 
269

 
538


539

Less: Net income (loss) attributable to noncontrolling interests
14

 
134

 
33


252

Net income (loss) attributable to The Williams Companies, Inc.
310

 
135

 
505


287

Preferred stock dividends

 

 
1

 

Net income (loss) available to common stockholders
$
310

 
$
135

 
$
504

 
$
287

Basic earnings (loss) per common share:
 
 
 
 
 
 
 
Net income (loss)
$
.26

 
$
.16

 
$
.42

 
$
.35

Weighted-average shares (thousands)
1,212,045

 
827,868

 
1,211,769

 
827,689

Diluted earnings (loss) per common share:
 
 
 
 
 
 
 
Net income (loss)
$
.26

 
$
.16

 
$
.41

 
$
.35

Weighted-average shares (thousands)
1,214,065

 
830,107

 
1,213,830

 
830,151


See accompanying notes.

6



The Williams Companies, Inc.
Consolidated Statement of Comprehensive Income
(Unaudited)

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
(Millions)
Net income (loss)
$
324

 
$
269

 
$
538

 
$
539

Other comprehensive income (loss):
 
 
 
 
 
 
 
Cash flow hedging activities:
 
 
 
 
 
 
 
Net unrealized gain (loss) from derivative instruments, net of taxes of $3 and $3 in 2018

 
(15
)
 

 
(14
)
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of ($1) and ($1) in 2018

 
3

 

 
3

Pension and other postretirement benefits:
 
 
 
 
 
 
 
Net actuarial gain (loss) arising during the year, net of taxes of ($1) and ($1) in 2018

 
4




4

Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($2) and ($3) in 2019 and ($1) and ($2) in 2018
2

 
5

 
5

 
10

Other comprehensive income (loss)
2

 
(3
)
 
5

 
3

Comprehensive income (loss)
326

 
266

 
543

 
542

Less: Comprehensive income (loss) attributable to noncontrolling interests
14

 
130

 
33

 
249

Comprehensive income (loss) attributable to The Williams Companies, Inc.
$
312

 
$
136

 
$
510

 
$
293

See accompanying notes.


7



The Williams Companies, Inc.
Consolidated Balance Sheet
(Unaudited)
 
 
June 30,
2019
 
December 31,
2018
 
 
(Millions, except per-share amounts)
ASSETS
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
806

 
$
168

Trade accounts and other receivables (net of allowance of $6 at June 30, 2019 and $9 at December 31, 2018)
 
879

 
992

Inventories
 
134

 
130

Other current assets and deferred charges
 
209

 
174

Total current assets
 
2,028

 
1,464

Investments
 
6,261

 
7,821

Property, plant, and equipment
 
40,868

 
38,661

Accumulated depreciation and amortization
 
(11,737
)
 
(11,157
)
Property, plant, and equipment – net
 
29,131

 
27,504

Intangible assets – net of accumulated amortization
 
8,123

 
7,767

Regulatory assets, deferred charges, and other
 
966

 
746

Total assets
 
$
46,509

 
$
45,302

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
627

 
$
662

Accrued liabilities
 
1,199

 
1,102

Long-term debt due within one year
 
1,563

 
47

Total current liabilities
 
3,389

 
1,811

Long-term debt
 
20,711

 
22,367

Deferred income tax liabilities
 
1,567

 
1,524

Regulatory liabilities, deferred income, and other
 
3,761

 
3,603

Contingent liabilities (Note 14)
 

 

Equity:
 
 
 
 
Stockholders’ equity:
 
 
 
 
Preferred stock
 
35

 
35

Common stock ($1 par value; 1,470 million shares authorized at June 30, 2019 and December 31, 2018; 1,246 million shares issued at June 30, 2019 and 1,245 million shares issued at December 31, 2018)
 
1,246

 
1,245

Capital in excess of par value
 
24,296

 
24,693

Retained deficit
 
(10,423
)
 
(10,002
)
Accumulated other comprehensive income (loss)
 
(265
)
 
(270
)
Treasury stock, at cost (35 million shares of common stock)
 
(1,041
)
 
(1,041
)
Total stockholders’ equity
 
13,848

 
14,660

Noncontrolling interests in consolidated subsidiaries
 
3,233

 
1,337

Total equity
 
17,081

 
15,997

Total liabilities and equity
 
$
46,509

 
$
45,302


See accompanying notes.

8



The Williams Companies, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
 
The Williams Companies, Inc. Stockholders
 
 
 
 
 
Preferred Stock
 
Common Stock
 
Capital in Excess of Par Value
 
Retained Deficit
 
AOCI*
 
Treasury Stock
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
(Millions)
Balance March 31, 2019
$
35

 
$
1,246

 
$
24,703

 
$
(10,270
)
 
$
(267
)
 
$
(1,041
)
 
$
14,406

 
$
1,319

 
$
15,725

Net income (loss)

 

 

 
310

 

 

 
310

 
14

 
324

Other comprehensive income (loss)

 

 

 

 
2

 

 
2

 

 
2

Cash dividends common stock ($0.38 per share)

 

 

 
(461
)
 

 

 
(461
)
 

 
(461
)
Dividends and distributions to noncontrolling interests

 

 

 

 

 

 

 
(27
)
 
(27
)
Stock-based compensation and related common stock issuances, net of tax

 

 
17

 

 

 

 
17

 

 
17

Sale of partial interest in consolidated subsidiary (Note 2)

 

 

 

 

 

 

 
1,333

 
1,333

Changes in ownership of consolidated subsidiaries, net (Note 2)

 

 
(425
)
 

 

 

 
(425
)
 
566

 
141

Contributions from noncontrolling interests

 

 

 

 

 

 

 
28

 
28

Other

 

 
1

 
(2
)
 

 

 
(1
)
 

 
(1
)
   Net increase (decrease) in equity

 

 
(407
)
 
(153
)
 
2

 

 
(558
)
 
1,914

 
1,356

Balance – June 30, 2019
$
35

 
$
1,246

 
$
24,296

 
$
(10,423
)
 
$
(265
)
 
$
(1,041
)
 
$
13,848

 
$
3,233

 
$
17,081

Balance March 31, 2018
$

 
$
862

 
$
18,533

 
$
(8,587
)
 
$
(294
)
 
$
(1,041
)
 
$
9,473

 
$
6,430

 
$
15,903

Net income (loss)

 

 

 
135

 

 

 
135

 
134

 
269

Other comprehensive income (loss)

 

 

 

 
1

 

 
1

 
(4
)
 
(3
)
Cash dividends common stock ($0.34 per share)

 

 

 
(282
)
 

 

 
(282
)
 

 
(282
)
Dividends and distributions to noncontrolling interests

 

 

 

 

 

 

 
(215
)
 
(215
)
Stock-based compensation and related common stock issuances, net of tax

 

 
14

 

 

 

 
14

 

 
14

Sale of limited partner units of Williams Partners L.P.

 

 

 

 

 

 

 
24

 
24

Changes in ownership of consolidated subsidiaries, net

 

 
6

 

 

 

 
6

 
(8
)
 
(2
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
8

 
8

Deconsolidation of subsidiary (Note 5)

 

 

 

 

 

 

 
(267
)
 
(267
)
Other

 

 
(1
)
 
(1
)
 

 

 
(2
)
 

 
(2
)
   Net increase (decrease) in equity

 

 
19

 
(148
)
 
1

 

 
(128
)
 
(328
)
 
(456
)
Balance June 30, 2018
$

 
$
862

 
$
18,552

 
$
(8,735
)
 
$
(293
)
 
$
(1,041
)
 
$
9,345

 
$
6,102

 
$
15,447



See accompanying notes.













9



The Williams Companies, Inc.
Consolidated Statement of Changes in Equity (Continued)
(Unaudited)
 
The Williams Companies, Inc. Stockholders
 
 
 
 
 
Preferred
Stock
 
Common
Stock
 
Capital in
Excess of
Par Value
 
Retained
Deficit
 
AOCI*
 
Treasury
Stock
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total Equity
 
(Millions)
Balance – December 31, 2018
$
35

 
$
1,245

 
$
24,693

 
$
(10,002
)
 
$
(270
)
 
$
(1,041
)
 
$
14,660

 
$
1,337

 
$
15,997

Net income (loss)

 

 

 
505

 

 

 
505

 
33

 
538

Other comprehensive income (loss)

 

 

 

 
5

 

 
5

 

 
5

Cash dividends – common stock ($0.76 per share)

 

 

 
(921
)
 

 

 
(921
)
 

 
(921
)
Dividends and distributions to noncontrolling interests

 

 

 

 

 

 

 
(68
)
 
(68
)
Stock-based compensation and related common stock issuances, net of tax

 
1

 
27

 

 

 

 
28

 

 
28

Sale of partial interest in consolidated subsidiary (Note 2)

 

 

 

 

 

 

 
1,333

 
1,333

Changes in ownership of consolidated subsidiaries, net (Note 2)

 

 
(425
)
 

 

 

 
(425
)
 
566

 
141

Contributions from noncontrolling interests

 

 

 

 

 

 

 
32

 
32

Other

 

 
1

 
(5
)
 

 

 
(4
)
 

 
(4
)
   Net increase (decrease) in equity

 
1

 
(397
)
 
(421
)
 
5

 

 
(812
)
 
1,896

 
1,084

Balance – June 30, 2019
$
35

 
$
1,246

 
$
24,296

 
$
(10,423
)
 
$
(265
)
 
$
(1,041
)
 
$
13,848

 
$
3,233

 
$
17,081

Balance – December 31, 2017
$

 
$
861

 
$
18,508

 
$
(8,434
)
 
$
(238
)
 
$
(1,041
)
 
$
9,656

 
$
6,519

 
$
16,175

Adoption of new accounting standards

 

 

 
(23
)
 
(61
)
 

 
(84
)
 
(37
)
 
(121
)
Net income (loss)

 

 

 
287

 

 

 
287

 
252

 
539

Other comprehensive income (loss)

 

 

 

 
6

 

 
6

 
(3
)
 
3

Cash dividends – common stock ($0.68 per share)

 

 

 
(563
)
 

 

 
(563
)
 

 
(563
)
Dividends and distributions to noncontrolling interests

 

 

 

 

 

 

 
(402
)
 
(402
)
Stock-based compensation and related common stock issuances, net of tax

 
1

 
32

 

 

 

 
33

 

 
33

Sales of limited partner units of Williams Partners L.P.

 

 

 

 

 

 

 
46

 
46

Changes in ownership of consolidated subsidiaries, net

 

 
13

 

 

 

 
13

 
(17
)
 
(4
)
Contributions from noncontrolling interests

 

 

 

 

 

 

 
11

 
11

Deconsolidation of subsidiary (Note 5)

 

 

 

 

 

 

 
(267
)
 
(267
)
Other

 

 
(1
)
 
(2
)
 

 

 
(3
)
 

 
(3
)
   Net increase (decrease) in equity

 
1

 
44

 
(301
)
 
(55
)
 

 
(311
)
 
(417
)
 
(728
)
Balance – June 30, 2018
$

 
$
862

 
$
18,552

 
$
(8,735
)
 
$
(293
)
 
$
(1,041
)
 
$
9,345

 
$
6,102

 
$
15,447

 
*
Accumulated Other Comprehensive Income (Loss)
See accompanying notes.


10



The Williams Companies, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
(Millions)
OPERATING ACTIVITIES:
 
Net income (loss)
$
538

 
$
539

Adjustments to reconcile to net cash provided (used) by operating activities:
 
 
 
Depreciation and amortization
840

 
865

Provision (benefit) for deferred income taxes
182

 
142

Equity (earnings) losses
(167
)
 
(174
)
Distributions from unconsolidated affiliates
327

 
316

Net (gain) loss on disposition of equity-method investments (Note 5)
(122
)
 

Impairment of equity-method investments (Note 5)
72

 

(Gain) loss on deconsolidation of businesses (Note 5)
2

 
(62
)
Impairment of certain assets (Note 13)
76

 
66

Amortization of stock-based awards
30

 
30

Cash provided (used) by changes in current assets and liabilities:
 
 
 
Accounts and notes receivable
149

 
121

Inventories
4

 
(33
)
Other current assets and deferred charges
(16
)
 
(63
)
Accounts payable
(98
)
 
(70
)
Accrued liabilities
70

 
(7
)
Other, including changes in noncurrent assets and liabilities
(43
)
 
(85
)
Net cash provided (used) by operating activities
1,844

 
1,585

FINANCING ACTIVITIES:
 
 
 
Proceeds from (payments of) commercial paper – net
(4
)
 

Proceeds from long-term debt
720

 
2,179

Payments of long-term debt
(868
)
 
(1,761
)
Proceeds from issuance of common stock
6

 
11

Proceeds from sale of partial interest in consolidated subsidiary (Note 2)
1,330

 

Common dividends paid
(921
)
 
(563
)
Dividends and distributions paid to noncontrolling interests
(68
)
 
(356
)
Contributions from noncontrolling interests
32

 
11

Payments for debt issuance costs

 
(18
)
Other – net
(9
)
 
(43
)
Net cash provided (used) by financing activities
218

 
(540
)
INVESTING ACTIVITIES:
 
 
 
Property, plant, and equipment:
 
 
 
Capital expenditures (1)
(919
)
 
(1,890
)
Dispositions – net
(15
)
 
3

Contributions in aid of construction
18

 
339

Purchases of businesses, net of cash acquired (Note 2)
(727
)
 

Proceeds from dispositions of equity-method investments (Note 5)
485

 

Purchases of and contributions to equity-method investments
(242
)
 
(91
)
Other – net
(24
)
 
(30
)
Net cash provided (used) by investing activities
(1,424
)
 
(1,669
)
Increase (decrease) in cash and cash equivalents
638

 
(624
)
Cash and cash equivalents at beginning of year
168

 
899

Cash and cash equivalents at end of period
$
806

 
$
275

_____________
 
 
 
(1) Increases to property, plant, and equipment
$
(977
)
 
$
(1,864
)
Changes in related accounts payable and accrued liabilities
58

 
(26
)
Capital expenditures
$
(919
)
 
$
(1,890
)

See accompanying notes.

11



The Williams Companies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 – General, Description of Business, and Basis of Presentation
General
Our accompanying interim consolidated financial statements do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2018, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.
Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.
WPZ Merger
On August 10, 2018, we completed our merger with Williams Partners L.P. (WPZ), our previously consolidated master limited partnership, pursuant to which we acquired all of the approximately 256 million publicly held outstanding common units of WPZ in exchange for 382 million shares of our common stock (WPZ Merger). Williams continued as the surviving entity. The WPZ Merger was accounted for as a noncash equity transaction resulting in increases to Common stock of $382 million, Capital in excess of par value of $6.112 billion, and Regulatory assets, deferred charges, and other of $33 million and decreases to Accumulated other comprehensive income (loss) (AOCI) of $3 million, Noncontrolling interests in consolidated subsidiaries of $4.629 billion, and Deferred income tax liabilities of $1.829 billion in the Consolidated Balance Sheet. Pursuant to its distribution reinvestment program, WPZ had issued 1,230,657 common units to the public in 2018 associated with reinvested distributions of $46 million.
Description of Business
We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States and, following the WPZ Merger in the third-quarter 2018, are presented within the following reportable segments: Northeast G&P, Atlantic-Gulf, and West, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. Prior period segment disclosures have been recast for this segment presentation. All remaining business activities as well as corporate activities are included in Other.
Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania, New York, and West Virginia and the Utica Shale region of eastern Ohio, including a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated entity), as well as a 69 percent equity-method investment in Laurel Mountain Midstream, LLC, a 58 percent equity-method investment in Caiman Energy II, LLC, and Appalachia Midstream Services, LLC, which owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale. Northeast G&P includes a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated entity). The Northeast JV includes our Ohio Valley assets and Utica East Ohio Midstream LLC (UEOM), a former equity-method investment in which we acquired the remaining ownership interest in March 2019 (see Note 2 – Acquisitions).

12



Notes (Continued)


Atlantic-Gulf is comprised of our interstate natural gas pipeline, Transcontinental Gas Pipe Line Company, LLC (Transco), and significant natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated entity), which is a proprietary floating production system, as well as a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C., a 60 percent equity-method investment in Discovery Producer Services LLC, and a 41 percent interest in Constitution Pipeline Company, LLC (Constitution) (a consolidated entity), which is developing a pipeline project (see Note 4 – Variable Interest Entities).
West is comprised of our interstate natural gas pipeline, Northwest Pipeline LLC (Northwest Pipeline), and our gathering, processing, and treating operations in Colorado, Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Permian Shale region of west Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko and Arkoma basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline LLC, a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC, and a 15 percent equity-method investment in Brazos Permian II, LLC (Brazos Permian II). West also included our former natural gas gathering and processing assets in the Four Corners area of New Mexico and Colorado, which were sold during the fourth quarter of 2018, and our former 50 percent interest in Jackalope Gas Gathering Services, L.L.C. (Jackalope) (an equity-method investment following deconsolidation as of June 30, 2018), which was sold in April 2019.
Basis of Presentation
Significant risks and uncertainties
We believe that the carrying value of certain of our property, plant, and equipment and other identifiable intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable based on our evaluation of undiscounted future cash flows. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment, or that the fair value of the reporting unit for our goodwill is less than its carrying amount, which would result in impairment.
Accounting standards issued and adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 establishes a comprehensive new lease accounting model. ASU 2016-02 modifies the definition of a lease, requires a dual approach to lease classification similar to prior lease accounting, and causes lessees to recognize operating leases on the balance sheet as a lease liability measured as the present value of the future lease payments with a corresponding right-of-use asset, with an exception for leases with a term of one year or less. Additional disclosures are required regarding the amount, timing, and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU 2018-01 “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” (ASU 2018-01). Per ASU 2018-01, land easements and rights-of-way are required to be assessed under ASU 2016-02 to determine whether the arrangements are or contain a lease. ASU 2018-01 permits an entity to elect a transition practical expedient to not apply ASU 2016-02 to land easements that exist or expired before the effective date of ASU 2016-02 and that were not previously assessed under the previous lease guidance in Accounting Standards Codification (ASC) Topic 840 “Leases.”
In July 2018, the FASB issued ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a

13



Notes (Continued)


practical expedient that permits lessors to not separate nonlease components from the associated lease component if certain conditions are present. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. We prospectively adopted ASU 2016-02 effective January 1, 2019, and did not adjust prior periods as permitted by ASU 2018-11 (see Note 10 – Leases).
We completed our review of contracts to identify leases based on the modified definition of a lease and implemented changes to our internal controls to support management in the accounting for and disclosure of leasing activities upon adoption of ASU 2016-02. We implemented a financial lease accounting system to assist management in the accounting for leases upon adoption. The most significant changes to our financial statements as a result of adopting ASU 2016-02 relate to the recognition of a $225 million lease liability and offsetting right-of-use asset in our Consolidated Balance Sheet for operating leases. We also evaluated ASU 2016-02’s available practical expedients on adoption and have generally elected to adopt the practical expedients, which includes the practical expedient to not separate lease and nonlease components by both lessees and lessors by class of underlying assets and the land easements practical expedient.
Accounting standards issued but not yet adopted
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. ASU 2016-13 is effective for interim and annual periods beginning after December 15, 2019. We plan to adopt as of January 1, 2020. We anticipate that ASU 2016-13 will primarily apply to our trade receivables. While we do not expect a significant financial impact, we are currently developing additional processes, procedures, and internal controls in order to make the necessary credit loss assessments and required disclosures.
Note 2 – Acquisitions
UEOM
As of December 31, 2018, we owned a 62 percent interest in UEOM which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the remaining 38 percent interest in UEOM for $740 million in cash funded through credit facility borrowings and cash on hand. As a result of acquiring this additional interest, we obtained control of and now consolidate UEOM.
UEOM is involved primarily in the processing and fractionation of natural gas and natural gas liquids in the Utica Shale play in eastern Ohio. The purpose of the acquisition is to enhance our position in the region. We expect synergies through common ownership of UEOM and our Ohio Valley midstream systems to create a more efficient platform for capital spending in the region, resulting in reduced operating and maintenance expenses and creating enhanced capabilities and benefits for producers in the area.
The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $74 million noncash impairment loss related to our existing 62 percent interest (see Note 13 – Fair Value Measurements and Guarantees). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest.
The valuation techniques used to measure the acquisition date fair value of the UEOM acquisition consisted of the market approach for our previous equity-method investment in UEOM and the income approach (excess earnings method) for valuation of intangible assets and depreciated replacement costs for property, plant, and equipment.
The following table presents the preliminary allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Northeast G&P segment, and liabilities assumed at March 18, 2019. The net assets acquired reflect the sum of the consideration transferred and the noncash elimination of the fair value of our existing equity-method investment upon our acquisition of the additional interest. The fair value of accounts receivable

14



Notes (Continued)


acquired, presented in current assets in the table, equals contractual amounts receivable. After the March 31, 2019 financial statements were issued, we received an updated valuation report from a third-party valuation firm. Significant changes since the allocation disclosed in the first quarter due to the ongoing review of the valuation results reflect an increase of $169 million in goodwill, and decreases of $106 million in property, plant, and equipment and $61 million in other intangible assets. The allocation is considered preliminary because the valuation work has not been completed due to the ongoing review of the valuation results and validation of significant inputs and assumptions.
 
(Millions)
Current assets, including $13 million cash acquired
$
55

Property, plant, and equipment
1,387

Other intangible assets
328

Total identifiable assets acquired
1,770

 
 
Current liabilities
8

Total liabilities assumed
8

 
 
Net identifiable assets acquired
1,762

 
 
Goodwill
188

Net assets acquired
$
1,950


The goodwill recognized in the acquisition relates primarily to enhancing and diversifying our basin positions and is reported within the Northeast G&P segment. Substantially all of the goodwill is expected to be deductible for tax purposes. Goodwill is included within Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet and represents the excess of the consideration, plus the fair value of any previously held equity interest, over the fair value of the net assets acquired. It is not subject to amortization but is evaluated annually as of October 1 for impairment or more frequently if impairment indicators are present that would indicate it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
Other intangible assets recognized in the acquisition are related to contractual customer relationships from gas gathering, processing, and fractionation agreements with our customers. The basis for determining the value of these intangible assets is estimated future net cash flows to be derived from acquired contractual customer relationships discounted using a risk-adjusted discount rate. These intangible assets are being amortized on a straight-line basis over an initial period of 20 years which represents the term over which the contractual customer relationships are expected to contribute to our cash flows. Approximately 49 percent of the expected future revenues from these contractual customer relationships are impacted by our ability and intent to renew or renegotiate existing customer contracts. We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Based on the estimated future revenues during the current contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the existing contractual customer relationships is approximately 10 years.
The following unaudited pro forma Revenues and Net income (loss) attributable to The Williams Companies, Inc. for the three and six months ended June 30, 2019 and 2018, are presented as if the UEOM acquisition had been completed on January 1, 2018. These pro forma amounts are not necessarily indicative of what the actual results would have been if the acquisition had in fact occurred on the date or for the periods indicated, nor do they purport to project Revenues or Net income (loss) attributable to The Williams Companies, Inc. for any future periods or as of any date. These amounts do not give effect to any potential cost savings, operating synergies, or revenue enhancements to result from the transaction or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements.

15



Notes (Continued)


 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2019
 
2018
 
2019
 
2018
 
(Millions)
Revenues
$
2,041

 
$
2,126

 
$
4,127

 
$
4,247

 
 
 
 
 
 
 
 
Net income (loss) attributable to The Williams Companies, Inc.
$
310

 
$
141

 
$
583

 
$
296

Adjustments to pro forma Net income (loss) attributable to The Williams Companies, Inc. include the removal of the previously described $74 million impairment loss recognized in March 2019 just prior to the acquisition.
During the period from the acquisition date of March 18, 2019 to June 30, 2019, UEOM contributed Revenues of $50 million and Net income (loss) attributable to The Williams Companies, Inc. of $13 million.
Costs related to this acquisition are $3 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in our Consolidated Statement of Income.
Northeast JV
Concurrent with the UEOM acquisition, we executed an agreement whereby we would contribute our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $1.33 billion (subject to post-closing adjustments) for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $566 million, and decreased Capital in excess of par value by $425 million and Deferred income tax liabilities by $141 million in the Consolidated Balance Sheet. Costs related to this transaction are $6 million and are reported within our Northeast G&P segment and included in Selling, general, and administrative expenses in our Consolidated Statement of Income.

Note 3 – Revenue Recognition
Revenue by Category
The following table presents our revenue disaggregated by major service line:
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