Attached files
file | filename |
---|---|
8-K - FORM 8-K - Williams Partners L.P. | c55965e8vk.htm |
EX-99.3 - EX-99.3 - Williams Partners L.P. | c55965exv99w3.htm |
EX-99.4 - EX-99.4 - Williams Partners L.P. | c55965exv99w4.htm |
EX-99.1 - EX-99.1 - Williams Partners L.P. | c55965exv99w1.htm |
EX-99.5 - EX-99.5 - Williams Partners L.P. | c55965exv99w5.htm |
INDEX TO
FINANCIAL STATEMENTS
CONTRIBUTED ENTITIES FINANCIAL STATEMENTS:
|
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F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
F-1
Table of Contents
Report of
Independent Auditors
The Board of Directors of
The Williams Companies, Inc.
We have audited the accompanying combined balance sheets of the
Contributed Entities, as defined in Note 1, as of
December 31, 2008 and 2007, and the related combined
statements of income, changes in equity, and cash flows for each
of the years then ended. These financial statements are the
responsibility of The Williams Companies, Inc.s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. We were not engaged to perform an audit
of the Contributed Entities internal control over
financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Contributed Entities internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the combined financial
position of the Contributed Entities at December 31, 2008
and 2007, and the combined results of their operations and their
cash flows for each of the years then ended in conformity with
U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Tulsa, Oklahoma
January 17, 2010
F-2
Table of Contents
CONTRIBUTED
ENTITIES
COMBINED BALANCE SHEETS
COMBINED BALANCE SHEETS
December 31, |
September 30, |
|||||||||||
2007 | 2008 | 2009 | ||||||||||
(Unaudited) | ||||||||||||
(In millions) | ||||||||||||
ASSETS
|
||||||||||||
Current assets:
|
||||||||||||
Cash and cash equivalents
|
$ | 9 | $ | 16 | $ | 8 | ||||||
Accounts receivable:
|
||||||||||||
Trade
|
384 | 249 | 325 | |||||||||
Affiliate
|
17 | 9 | 14 | |||||||||
Notes receivable from parent
|
253 | 252 | 336 | |||||||||
Inventories
|
105 | 146 | 132 | |||||||||
Regulatory assets
|
24 | 89 | 79 | |||||||||
Other current assets
|
104 | 80 | 65 | |||||||||
Total current assets
|
896 | 841 | 959 | |||||||||
Investments
|
303 | 339 | 406 | |||||||||
Property, plant and equipment net
|
8,621 | 9,176 | 9,443 | |||||||||
Other assets and deferred charges
|
272 | 322 | 318 | |||||||||
Total assets
|
$ | 10,092 | $ | 10,678 | $ | 11,126 | ||||||
LIABILITIES AND EQUITY | ||||||||||||
Current liabilities:
|
||||||||||||
Accounts payable:
|
||||||||||||
Trade
|
$ | 318 | $ | 285 | $ | 295 | ||||||
Affiliate
|
87 | 70 | 72 | |||||||||
Accrued liabilities
|
326 | 225 | 182 | |||||||||
Long-term debt due within one year
|
75 | | 17 | |||||||||
Total current liabilities
|
806 | 580 | 566 | |||||||||
Long-term debt
|
1,821 | 1,971 | 1,980 | |||||||||
Deferred income taxes
|
1,037 | | | |||||||||
Asset retirement obligations
|
247 | 434 | 461 | |||||||||
Other liabilities and deferred income
|
190 | 223 | 249 | |||||||||
Contingent liabilities and commitments (Note 16)
|
||||||||||||
Equity:
|
||||||||||||
Owners equity
|
5,709 | 6,846 | 7,246 | |||||||||
Accumulated other comprehensive income (loss)
|
(3 | ) | 4 | 4 | ||||||||
Noncontrolling interests in consolidated subsidiaries
|
285 | 620 | 620 | |||||||||
Total equity
|
5,991 | 7,470 | 7,870 | |||||||||
Total liabilities and equity
|
$ | 10,092 | $ | 10,678 | $ | 11,126 | ||||||
See accompanying notes to combined financial statements
F-3
Table of Contents
CONTRIBUTED
ENTITIES
COMBINED STATEMENTS OF INCOME
COMBINED STATEMENTS OF INCOME
Year Ended |
Nine Months Ended |
|||||||||||||||
December 31, | September 30, | |||||||||||||||
2007 | 2008 | 2008 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In millions) | ||||||||||||||||
Revenues:
|
||||||||||||||||
Gas Pipeline
|
$ | 1,623 | $ | 1,637 | $ | 1,229 | $ | 1,202 | ||||||||
Midstream Gas & Liquids
|
3,707 | 3,828 | 3,282 | 1,806 | ||||||||||||
Intercompany eliminations
|
(4 | ) | (10 | ) | (7 | ) | (5 | ) | ||||||||
Total revenues
|
5,326 | 5,455 | 4,504 | 3,003 | ||||||||||||
Segment costs and expenses:
|
||||||||||||||||
Costs and operating expenses
|
3,776 | 4,027 | 3,336 | 2,063 | ||||||||||||
Selling, general and administrative expense
|
227 | 234 | 175 | 185 | ||||||||||||
Other (income) expense net
|
(32 | ) | 15 | 17 | 7 | |||||||||||
Segment costs and expenses
|
3,971 | 4,276 | 3,528 | 2,255 | ||||||||||||
General corporate expenses
|
88 | 80 | 61 | 68 | ||||||||||||
Operating income:
|
||||||||||||||||
Gas Pipeline
|
622 | 630 | 486 | 449 | ||||||||||||
Midstream Gas & Liquids
|
733 | 549 | 490 | 299 | ||||||||||||
General corporate expenses
|
(88 | ) | (80 | ) | (61 | ) | (68 | ) | ||||||||
Total operating income
|
1,267 | 1,099 | 915 | 680 | ||||||||||||
Equity earnings
|
51 | 55 | 48 | 39 | ||||||||||||
Interest accrued third-party
|
(147 | ) | (144 | ) | (108 | ) | (108 | ) | ||||||||
Interest accrued affiliate
|
(19 | ) | (35 | ) | (23 | ) | (38 | ) | ||||||||
Interest capitalized
|
23 | 36 | 23 | 41 | ||||||||||||
Interest income third-party
|
4 | 1 | 1 | 1 | ||||||||||||
Interest income affiliate
|
18 | 23 | 18 | 15 | ||||||||||||
Other income net
|
19 | 10 | 9 | 9 | ||||||||||||
Income before income taxes
|
1,216 | 1,045 | 883 | 639 | ||||||||||||
Provision (benefit) for income taxes
|
(144 | ) | (952 | ) | 107 | 4 | ||||||||||
Net income
|
1,360 | 1,997 | 776 | 635 | ||||||||||||
Less: Net income attributable to noncontrolling interests
|
7 | 113 | 97 | 78 | ||||||||||||
Net income attributable to Contributed Entities
|
$ | 1,353 | $ | 1,884 | $ | 679 | $ | 557 | ||||||||
See accompanying notes to combined financial statements
F-4
Table of Contents
CONTRIBUTED
ENTITIES
COMBINED STATEMENT OF CHANGES IN EQUITY
COMBINED STATEMENT OF CHANGES IN EQUITY
Contributed Entities | ||||||||||||||||
Accumulated |
||||||||||||||||
Other |
||||||||||||||||
Owners |
Comprehensive |
Noncontrolling |
||||||||||||||
Equity | Income | Interests | Total | |||||||||||||
(In millions) | ||||||||||||||||
Balance, December 31, 2006
|
$ | 5,257 | $ | 5 | $ | | $ | 5,262 | ||||||||
Comprehensive income:
|
||||||||||||||||
Net income 2007
|
1,353 | | 7 | 1,360 | ||||||||||||
Net unrealized losses on cash flow hedges, net of
reclassification adjustments
|
| (8 | ) | | (8 | ) | ||||||||||
Total comprehensive income
|
1,353 | (8 | ) | 7 | 1,352 | |||||||||||
Distribution of noncontrolling interest in Wamsutter
|
(278 | ) | | 278 | | |||||||||||
Distributions to The Williams Companies, Inc. net
|
(623 | ) | | | (623 | ) | ||||||||||
Balance, December 31, 2007
|
5,709 | (3 | ) | 285 | 5,991 | |||||||||||
Comprehensive income:
|
||||||||||||||||
Net income 2008
|
1,884 | | 113 | 1,997 | ||||||||||||
Net unrealized gains on cash flow hedges, net of
reclassification adjustments
|
| 7 | | 7 | ||||||||||||
Total comprehensive income
|
1,884 | 7 | 113 | 2,004 | ||||||||||||
Sale of Williams Pipeline Partners L.P. limited partner units
|
| | 333 | 333 | ||||||||||||
Dividends paid to noncontrolling interests
|
| | (111 | ) | (111 | ) | ||||||||||
Distributions to The Williams Companies, Inc. net
|
(747 | ) | | | (747 | ) | ||||||||||
Balance, December 31, 2008
|
6,846 | 4 | 620 | 7,470 | ||||||||||||
Comprehensive income:
|
||||||||||||||||
Net income nine months ended September 30, 2009
(unaudited)
|
557 | | 78 | 635 | ||||||||||||
Net unrealized losses on cash flow hedges, net of
reclassification adjustments (unaudited)
|
| | | | ||||||||||||
Total comprehensive income (unaudited)
|
557 | | 78 | 635 | ||||||||||||
Dividends paid to noncontrolling interests (unaudited)
|
| | (78 | ) | (78 | ) | ||||||||||
Distributions to The Williams Companies, Inc. net
(unaudited)
|
(157 | ) | | | (157 | ) | ||||||||||
Balance, September 30, 2009 (unaudited)
|
$ | 7,246 | $ | 4 | $ | 620 | $ | 7,870 | ||||||||
See accompanying notes to combined financial statements
F-5
Table of Contents
CONTRIBUTED
ENTITIES
COMBINED STATEMENT OF CASH FLOWS
COMBINED STATEMENT OF CASH FLOWS
Nine Months Ended |
||||||||||||||||
Year Ended December 31, | September 30, | |||||||||||||||
2007 | 2008 | 2008 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In millions) | ||||||||||||||||
OPERATING ACTIVITIES:
|
||||||||||||||||
Net income
|
$ | 1,360 | $ | 1,997 | $ | 776 | $ | 635 | ||||||||
Adjustments to reconcile to net cash provided by operations:
|
||||||||||||||||
Depreciation and amortization
|
432 | 458 | 332 | 362 | ||||||||||||
Provision (benefit) for deferred income taxes
|
(306 | ) | (997 | ) | 84 | | ||||||||||
Cash provided (used) by changes in current assets and
liabilities:
|
||||||||||||||||
Accounts and notes receivable
|
(115 | ) | 136 | (6 | ) | (55 | ) | |||||||||
Inventories
|
38 | (42 | ) | (61 | ) | 14 | ||||||||||
Other current assets
|
9 | (77 | ) | (52 | ) | | ||||||||||
Accounts payable
|
56 | (172 | ) | (200 | ) | 13 | ||||||||||
Accrued liabilities
|
156 | 25 | 54 | (38 | ) | |||||||||||
Affiliates net
|
(37 | ) | (9 | ) | 11 | (3 | ) | |||||||||
Other, including changes in noncurrent assets and liabilities
|
75 | (2 | ) | (1 | ) | 35 | ||||||||||
Net cash provided by operating activities
|
1,668 | 1,317 | 937 | 963 | ||||||||||||
FINANCING ACTIVITIES:
|
||||||||||||||||
Proceeds from long-term debt
|
434 | 674 | 674 | | ||||||||||||
Payments of long-term debt
|
(428 | ) | (600 | ) | (600 | ) | | |||||||||
Proceeds from sale of Williams Pipeline Partners L.P. limited
partner units
|
| 333 | 333 | | ||||||||||||
Dividends paid to noncontrolling interests
|
| (111 | ) | (86 | ) | (78 | ) | |||||||||
Distributions to The Williams Companies, Inc. net
|
(623 | ) | (747 | ) | (640 | ) | (157 | ) | ||||||||
Other net
|
(13 | ) | (10 | ) | 18 | 8 | ||||||||||
Net cash used by financing activities
|
(630 | ) | (461 | ) | (301 | ) | (227 | ) | ||||||||
INVESTING ACTIVITIES:
|
||||||||||||||||
Property, plant and equipment:
|
||||||||||||||||
Capital expenditures
|
(979 | ) | (821 | ) | (594 | ) | (609 | ) | ||||||||
Net proceeds from dispositions
|
(9 | ) | 30 | 20 | (9 | ) | ||||||||||
Changes in notes receivable from parent
|
(24 | ) | 1 | (1 | ) | (84 | ) | |||||||||
Distribution from Gulfstream Natural Gas System, L.L.C.
|
| | | 73 | ||||||||||||
Purchases of investments
|
(19 | ) | (44 | ) | (40 | ) | (111 | ) | ||||||||
Purchase of ARO trust investments
|
| (31 | ) | (24 | ) | (37 | ) | |||||||||
Proceeds from sale of ARO trust investments
|
| 14 | 12 | 33 | ||||||||||||
Other net
|
| 2 | (2 | ) | | |||||||||||
Net cash used by investing activities
|
(1,031 | ) | (849 | ) | (629 | ) | (744 | ) | ||||||||
Increase (decrease) in cash and cash equivalents
|
7 | 7 | 7 | (8 | ) | |||||||||||
Cash and cash equivalents at beginning of year
|
2 | 9 | 9 | 16 | ||||||||||||
Cash and cash equivalents at end of year
|
$ | 9 | $ | 16 | $ | 16 | $ | 8 | ||||||||
See accompanying notes to combined financial statements
F-6
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2007 and 2008
(September 30, 2008 and 2009 information is unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 2007 and 2008
(September 30, 2008 and 2009 information is unaudited)
Note 1. | Organization and Description of Business |
The accompanying combined financial statements and related notes
present the combined financial position, results of operations,
cash flows and changes in equity of the following entities that
make up the Gas Pipeline and Midstream Gas & Liquids
business segments of The Williams Companies, Inc. (Williams) to
the extent not already owned by Williams Partners L.P. (Williams
Partners), including Williams limited and general partner
interests in Williams Pipeline Partners L.P. (Pipeline
Partners), but excluding its Canadian, Venezuelan and olefins
operations, and 25.5% of Gulfstream Natural Gas System, L.L.C.
See Note 3 for a discussion of transactions with related
parties.
Wholly-owned subsidiaries:
Marsh Resources, LLC
Transcontinental Gas Pipe Line Company, LLC and its consolidated subsidiaries (Transco)
WGP Development, LLC
WGPC Holdings LLC and its consolidated subsidiary
Williams Energy Solutions, Inc.
Williams Field Services Group, LLC and its consolidated subsidiaries (WFSG)
Williams Mobile Bay Producers Services, LLC
Williams NGL Marketing, LLC
Williams Pacific Connector Gas Operator, LLC
Williams Pipeline GP LLC and its consolidated subsidiaries
Williams Pipeline Services Company
Transcontinental Gas Pipe Line Company, LLC and its consolidated subsidiaries (Transco)
WGP Development, LLC
WGPC Holdings LLC and its consolidated subsidiary
Williams Energy Solutions, Inc.
Williams Field Services Group, LLC and its consolidated subsidiaries (WFSG)
Williams Mobile Bay Producers Services, LLC
Williams NGL Marketing, LLC
Williams Pacific Connector Gas Operator, LLC
Williams Pipeline GP LLC and its consolidated subsidiaries
Williams Pipeline Services Company
Equity investees:
24.5% membership interest in Gulfstream Natural Gas System,
L.L.C.
31.45% membership interest in Baton Rouge Fractionators, LLC
29.98% membership interest in Pacific Connector Gas Pipeline, LP
29.98% membership interest in Pacific Connector Gas Pipeline, LLC
31.45% membership interest in Baton Rouge Fractionators, LLC
29.98% membership interest in Pacific Connector Gas Pipeline, LP
29.98% membership interest in Pacific Connector Gas Pipeline, LLC
These combined financial statements are prepared in connection
with the proposed acquisition of these entities and investments
(Contributed Entities) by Williams Partners as contemplated in
the Contribution Agreement by and among Williams Gas Pipeline
Company, LLC, Williams Energy Services, LLC, WGP Gulfstream
Pipeline Company, L.L.C., Williams Partners GP LLC (the
Contributing Parties), Williams Partners and Williams Partners
Operating LLC dated January 15, 2010 (the Contribution
Agreement).
The accompanying unaudited interim combined financial statements
include all normal recurring adjustments that, in the opinion of
our management, are necessary to present fairly our financial
position at September 30, 2009, and the results of
operations and cash flows for the nine months ended
September 30, 2008 and 2009.
We have evaluated our disclosure of subsequent events through
January 17, 2010.
Unless the context clearly indicates otherwise, references in
this report to we, our, us
or similar language refer to the Contributed Entities. Our
operations are located in the United States and are organized
into the following reporting segments: Gas Pipeline and
Midstream Gas & Liquids (Midstream).
Gas Pipeline includes the following interstate natural gas
pipeline assets:
| Transco, an interstate natural gas pipeline extending from the Gulf of Mexico region to the northeastern United States; |
F-7
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
| Northwest Pipeline GP (Northwest Pipeline), an interstate natural gas pipeline extending from the San Juan basin in northwestern New Mexico and southwestern Colorado to Oregon and Washington; and | |
| A 24.5% equity investment in and Gulfstream Natural Gas System L.L.C. (Gulfstream), an interstate natural gas pipeline extending from the Mobile Bay area in Alabama to markets in Florida. |
Midstream is currently comprised of the following natural gas
gathering, processing and treating facilities located primarily
in the Rocky Mountain and Gulf Coast regions of the United
States and oil gathering and transportation facilities in the
Gulf Coast region of the United States:
| A gathering system and two processing plants (Echo Springs and Opal) serving the Wamsutter and southwest areas of Wyoming; | |
| The natural gas lateral, natural gas liquids (NGL) pipeline and Willow Creek processing plant in Colorado; | |
| A gathering system serving the Appalachian Basin in southwest Pennsylvania; | |
| Onshore and offshore natural gas gathering pipelines in the Gulf Coast region; | |
| The Mobile Bay, Markham and Cameron Meadows processing plants in the Gulf Coast region; | |
| The Canyon Station and Devils Tower offshore production platforms in the Gulf of Mexico; and | |
| Three deepwater crude oil pipelines. |
The Cameron Meadows processing plant was subsequently sold in
November 2009. See Note 18.
Note 2. | Summary of Significant Accounting Policies |
Principles
of consolidation
The combined financial statements include both the accounts of
the wholly-owned subsidiaries and the equity investments of
Williams noted above. We eliminated all intercompany accounts
and transactions. We apply the equity method of accounting for
investments in unconsolidated companies in which we and our
subsidiaries own 20% to 50% of the voting interest or otherwise
exercise significant influence over operating and financial
policies of the company. The 51% investment in Laurel Mountain
Midstream, LLC held by WFSG is accounted for under the equity
method due to the significant participatory rights of our
partner such that we do not control the investment.
On December 11, 2007, we distributed ownership interests in
Wamsutter valued at $750 million (with an historical net
book value of $278 million) to Williams, who, in turn, sold
those ownership interests to Williams Partners. Certain of
Williams Partners interests in Wamsutter have preference
in the first $70 million of annual distributions. At
December 31, 2008, we and Williams Partners own 35% and
65%, respectively, of the Wamsutter nonpreferential interest,
subject to change based on the level of capital projects funded
by us and Williams Partners (changed annually as projects are
put into service). We consolidate our ownership interest in
Wamsutter because we are the operator and the voting provisions
of Wamsutters limited liability company agreement provides
our interests with control. See Note 13 for further
discussion of the Wamsutter ownership interests.
In January 2008, Pipeline Partners completed an initial public
offering of 16.25 million common units at a price of $20
per unit. In February 2008, the underwriters exercised their
right to purchase an additional 1.65 million common units
at the same price. The initial asset of the partnership is a 35%
interest in Northwest Pipeline. As a result of these
transactions, we now own approximately 47.7% of the interests in
Pipeline Partners, including the interests of the general
partner (Williams Pipeline GP LLC), which is wholly owned by us,
and incentive distribution rights. We consolidate Pipeline
Partners within our Gas Pipeline segment due to our control
through the general partner.
F-8
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Use of
estimates
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 combined financial statements
and accompanying notes. Actual results could differ from those
estimates.
Estimates and assumptions which, in the opinion of management,
are significant to the underlying amounts included in the
combined financial statements and for which it would be
reasonably possible that future events or information could
change those estimates include:
| impairment assessments of long-lived assets; | |
| revenues subject to refund; | |
| loss contingencies; | |
| environmental remediation obligations; and | |
| asset retirement obligations. |
These estimates are discussed further throughout these notes.
Regulatory
accounting
Transco and Northwest Pipeline are regulated by the Federal
Energy Regulatory Commission (FERC). Their rates established by
the FERC are designed to recover the costs of providing the
regulated services, and their competitive environment makes it
probable that such rates can be charged and collected.
Therefore, our management has determined that it is appropriate
for Transco and Northwest Pipeline to account for and report
regulatory assets and liabilities consistent with the economic
effect of the way in which their rates are established.
Accounting for these businesses that are regulated can differ
from the accounting requirements for non-regulated businesses.
These differences are discussed further throughout these notes.
Cash and
cash equivalents
Our cash and cash equivalents balance includes amounts
primarily invested in funds with high-quality, short-term
securities and instruments that are issued or guaranteed by the
U.S. government. These have maturity dates of three months
or less when acquired.
Accounts
receivable
Accounts receivable are carried on a gross basis, with no
discounting, less the allowance for doubtful accounts. We do not
recognize an allowance for doubtful accounts at the time the
revenue which generates the accounts receivable is recognized.
We estimate the allowance for doubtful accounts based on
existing economic conditions, the financial conditions of the
customers and the amount and age of past due accounts.
Receivables are considered past due if full payment is not
received by the contractual due date. Past due accounts are
generally written off against the allowance for doubtful
accounts only after all collection attempts have been exhausted.
Inventory
valuation
All inventories are stated at the lower of cost or
market. We determine the cost of certain natural gas inventories
held by Transco using the
last-in,
first-out (LIFO) cost method. We determine the cost of the
remaining inventories primarily using the average-cost method.
LIFO inventory at December 31, 2007 and 2008 was $55,000
and $11 million, respectively.
F-9
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Property,
plant and equipment
Property, plant and equipment is recorded at
cost. We base the carrying value of these assets on
estimates, assumptions and judgments relative to capitalized
costs, useful lives and salvage values. Ordinary maintenance and
repair costs are generally expensed as incurred. Costs of major
renewals and replacements are capitalized.
As regulated entities, Transco and Northwest Pipeline provide
for depreciation using the straight-line method at
FERC-prescribed rates. Depreciation for nonregulated entities is
provided primarily on the straight-line method over estimated
useful lives, except for certain offshore facilities that apply
a declining balance method.
Northwest Pipelines levelized rate design for a 2003
pipeline expansion project created a revenue stream that remains
constant over the related
25-year and
15-year
customer contract terms. The related levelized depreciation is
lower than book depreciation in the early years and higher than
book depreciation in the later years of the contract terms. The
depreciation component of the levelized incremental rates will
equal the accumulated book depreciation by the end of the
primary contract terms. FERC has approved the accounting for the
differences between book depreciation and the levelized
depreciation as a regulatory asset with the offsetting credit
recorded to a regulatory credit. Regulatory credits totaling
$4 million in 2007 and $3 million in 2008 are recorded
in the accompanying Combined Statements of Income. The
accompanying Combined Balance Sheets reflect the related
regulatory assets of $26 million, $28 million and
$30 million at December 31, 2007 and 2008 and
September 30, 2009, respectively. Such amounts will be
amortized over the primary terms of the shipper agreements as
such costs are collected through rates.
Gains or losses from the ordinary sale or retirement of
property, plant and equipment for regulated pipelines are
credited or charged to accumulated depreciation; other gains or
losses are recorded in other (income) expense
net included in operating income.
We record an asset and a liability upon incurrence equal to the
present value of each expected future asset retirement
obligation (ARO). The ARO asset is depreciated in a manner
consistent with the depreciation of the underlying physical
asset. The regulated pipelines record the ARO asset depreciation
offset to a regulatory asset. We measure changes in the
liability due to passage of time by applying an interest method
of allocation. This amount is recognized as an increase in the
carrying amount of the liability and as a corresponding
accretion expense included in costs and operating
expenses, except for regulated entities, for which the
liability is offset by a regulatory asset. The regulatory asset
is amortized commensurate with our collection of those costs in
rates.
Derivative
instruments and hedging activities
We utilize derivatives to manage a portion of our commodity
price risk. These instruments consist primarily of swap
agreements, option contracts and forward contracts involving
short- and long-term purchases and sales of physical energy
commodities. The counterparty to certain of these instruments is
a Williams affiliate.
We report the fair value of derivatives, except for those for
which the normal purchases and normal sales exception has been
elected, on the Combined Balance Sheets in other
current assets, other assets and deferred charges, accrued
liabilities and other liabilities and deferred income
as either current or noncurrent. We determine the current
and noncurrent classification based on the timing of expected
future cash flows of individual contracts. We report these
amounts on a gross basis.
F-10
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
The accounting for changes in the fair value of a commodity
derivative depends on whether the derivative has been designated
in a hedging relationship and whether we have elected the normal
purchases and normal sales exception. The accounting for the
change in fair value can be summarized as follows:
Derivative Treatment
|
Accounting Method
|
|
Normal purchases and normal sales exception
|
Accrual accounting | |
Designated in a qualifying hedging relationship
|
Hedge accounting | |
All other derivatives
|
Mark-to-market accounting |
We have elected the normal purchases and normal sales exception
for certain short- and long-term purchases and sales of physical
energy commodities. Under accrual accounting, any change in the
fair value of these derivatives is not reflected on the balance
sheet after the initial election of the exception.
We have designated a hedging relationship for certain commodity
derivatives. For a derivative to qualify for designation in a
hedging relationship, it must meet specific criteria and we must
maintain appropriate documentation. We establish hedging
relationships pursuant to our risk management policies. We
evaluate the hedging relationships at the inception of the hedge
and on an ongoing basis to determine whether the hedging
relationship is, and is expected to remain, highly effective in
achieving offsetting changes in fair value or cash flows
attributable to the underlying risk being hedged. We also
regularly assess whether the hedged forecasted transaction is
probable of occurring. If a derivative ceases to be or is no
longer expected to be highly effective, or if we believe the
likelihood of occurrence of the hedged forecasted transaction is
no longer probable, hedge accounting is discontinued
prospectively, and future changes in the fair value of the
derivative are recognized currently in revenues.
For commodity derivatives designated as a cash flow hedge, the
effective portion of the change in fair value of the derivative
is reported in other comprehensive income (loss) and
reclassified into earnings in the period in which the hedged
item affects earnings. Any ineffective portion of the
derivatives change in fair value is recognized currently
in revenues. Gains or losses deferred in accumulated
other comprehensive income (loss) associated with terminated
derivatives, derivatives that cease to be highly effective
hedges, derivatives for which the forecasted transaction is
reasonably possible but no longer probable of occurring, and
cash flow hedges that have been otherwise discontinued remain in
accumulated other comprehensive income (loss) until the
hedged item affects earnings. If it becomes probable that the
forecasted transaction designated as the hedged item in a cash
flow hedge will not occur, any gain or loss deferred in
accumulated other comprehensive income (loss) is
recognized in revenues at that time. The change in
likelihood is a judgmental decision that includes qualitative
assessments made by management.
For commodity derivatives that are not designated in a hedging
relationship, and for which we have not elected the normal
purchases and normal sales exception, we report changes in fair
value currently in revenues.
Certain gains and losses on derivative instruments included in
the Combined Statements of Income are netted together to
a single net gain or loss, while other gains and losses are
reported on a gross basis. Gains and losses recorded on a net
basis include:
| Unrealized gains and losses on all derivatives that are not designated as hedges and for which we have not elected the normal purchases and normal sales exception; | |
| The ineffective portion of unrealized gains and losses on derivatives that are designated as cash flow hedges; and | |
| Realized gains and losses on all derivatives that settle financially. |
Gains and losses realized through the settlement of derivatives
that require physical delivery are recorded on a gross basis. In
reaching our conclusions on this presentation, we evaluated
whether we act as principal in
F-11
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
the transaction; whether we have the risks and rewards of
ownership, including credit risk; and whether we have latitude
in establishing prices.
Gas
Pipeline revenues
Gas Pipeline revenues are primarily from services pursuant to
long-term firm transportation and storage agreements. These
agreements provide for a demand charge based on the volume of
contracted capacity and a commodity charge based on the volume
of gas delivered, both at rates specified in our FERC tariffs.
We recognize revenues for demand charges ratably over the
contract period regardless of the volume of natural gas that is
transported or stored. Revenues for commodity charges, from both
firm and interruptible transportation services, and storage
injection and withdrawal services are recognized when natural
gas is delivered at the agreed upon delivery point or when
natural gas is injected or withdrawn from the storage facility.
As a result of the ratemaking process, certain revenues
collected by us may be subject to refunds upon the issuance of
final orders by the FERC in pending rate proceedings. We record
estimates of rate refund liabilities considering our and other
third-party regulatory proceedings, advice of counsel and other
risks.
Midstream
revenues
Natural gas gathering and processing services are performed
under volumetric-based fee contracts, keep-whole agreements and
percent-of-liquids arrangements. Revenues under volumetric-based
fee contracts are recorded when services have been performed.
Under keep-whole and percent-of-liquids processing contracts, we
retain the rights to all or a portion of the NGLs extracted from
the producers natural gas stream and recognize revenues
when the extracted NGLs are sold and delivered.
We also market NGLs that we purchase from our producer
customers. Revenues from marketing NGLs are recognized when the
products have been sold and delivered.
Impairment
of long-lived assets and investments
We evaluate the long-lived assets of identifiable business
activities for impairment when events or changes in
circumstances indicate, in our managements judgment, that
the carrying value of such assets may not be recoverable. When
an indicator of impairment has occurred, we compare our
managements estimate of undiscounted future cash flows
attributable to the assets to the carrying value of the assets
to determine whether the carrying value of the assets is
recoverable. We apply a probability-weighted approach to
consider the likelihood of different cash flow assumptions and
possible outcomes including selling in the near term or holding
for the remaining estimated useful life. If the carrying value
is not recoverable, we determine the amount of the impairment
recognized in the financial statements by estimating the fair
value of the assets and recording a loss for the amount that the
carrying value exceeds the estimated fair value.
For assets identified to be disposed of in the future and
considered held for sale, we compare the carrying value to the
estimated fair value less the cost to sell to determine if
recognition of an impairment is required. Until the assets are
disposed of, the estimated fair value, which includes estimated
cash flows from operations until the assumed date of sale, is
recalculated when related events or circumstances change.
We evaluate our investments for impairment when events or
changes in circumstances indicate, in our managements
judgment, that the carrying value of such investments may have
experienced an other-than-temporary decline in value. When
evidence of loss in value has occurred, we compare our estimate
of fair value of the investment to the carrying value of the
investment to determine whether an impairment has occurred. If
the estimated fair value is less than the carrying value and we
consider the decline in value to be other-than-temporary, the
excess of the carrying value over the fair value is recognized
in the combined financial statements as an impairment.
F-12
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Judgments and assumptions are inherent in our managements
estimate of undiscounted future cash flows and an assets
fair value. Additionally, judgment is used to determine the
probability of sale with respect to assets considered for
disposal. The use of alternate judgments
and/or
assumptions could result in the recognition of different levels
of impairment charges in the combined financial statements.
Capitalization
of interest
We generally capitalize interest during construction on major
projects with construction periods of at least three months and
a total project cost in excess of $1 million. Our regulated
operations capitalize interest on all projects. Interest is
capitalized on borrowed funds and, where regulation by the FERC
exists, on internally generated funds. Interest capitalized on
internally generated funds reported as a component of other
income net was $12 million and
$5 million in 2007 and 2008, respectively, and
$4 million and $7 million during the nine months ended
September 30, 2008 and 2009, respectively. The rates used
by regulated companies are calculated in accordance with FERC
rules. Historically, Williams provided the financing for capital
expenditures of the nonregulated companies; hence, the rates
used by nonregulated companies were based on Williams
average interest rate on debt during the applicable period of
time.
Income
taxes
Our operations are currently included in the Williams
consolidated federal income tax return. Following the
acquisition by Williams Partners, our operations will be treated
as a partnership. Therefore, other than Transco and Northwest
Pipeline, our historical operations exclude income taxes for all
periods presented. Transco and Northwest Pipeline converted from
corporations to limited liability companies on December 31,
2008 and October 1, 2007, respectively, and are not subject
to income taxes after those respective dates. The effect of
Transco and Northwest Pipelines change in tax status is
included in the provision (benefit) for income taxes in
the respective period of the change.
During 2006, the state of Texas passed a law that imposed a
partnership-level
tax on us beginning in 2007 based on the net revenues of our
assets apportioned to the state of Texas. This tax is included
in the provision (benefit) for income taxes.
Earnings
per share
During the periods presented, the controlling interest in the
Contributed Entities was held by Williams. Accordingly, we have
not calculated earnings per share.
Issuance
of equity of consolidated subsidiary
Sales of residual equity interests in a consolidated subsidiary
are accounted for as capital transactions. No adjustments to
equity are made for sales of preferential interests in a
subsidiary. No gain or loss is recognized on these transactions.
Accounting
standards issued but not yet effective
In August 2009, the FASB issued Accounting Standards Update
No. 2009-5,
Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value. This
Update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is
not available, a reporting entity is required to measure fair
value using one or more prescribed techniques. The amendments in
this Update also clarify that when estimating the fair value of
a liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the
existence of a restriction that prevents the transfer of the
liability. Additionally, this Update clarifies that both a
quoted price in an active market for the identical liability at
the measurement date and the quoted price for the identical
liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are
Level 1 fair
F-13
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
value measurements. The guidance provided in this Update is
effective for us beginning with the fourth quarter of 2009. This
Update will not materially impact our Combined Financial
Statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(SFAS No. 167). This Statement amends Interpretation
46(R) to require an entity to perform a qualitative analysis to
determine whether the entitys variable interest or
interests give it a controlling financial interest in a variable
interest entity (VIE). This analysis identifies the primary
beneficiary of a VIE as the entity that has both the power to
direct the activities that most significantly impact the
VIEs economic performance and the obligation to absorb
losses or the right to receive benefits of the VIE.
SFAS No. 167 amends Interpretation 46(R) to replace
the quantitative-based risks and rewards approach previously
required for determining the primary beneficiary of a VIE.
SFAS No. 167 is effective as of the beginning of an
entitys first annual reporting period that begins after
November 15, 2009 and for interim periods within that first
annual reporting period. Earlier application is prohibited. We
are assessing the application of this Statement on our Combined
Financial Statements, but we do not expect it to have a material
impact.
Note 3. | Related Party Transactions |
Many of the Combined Entities have entered into Personnel
Services Agreements with Williams for the employees of our
operated assets. Under these agreements, Williams is the
employer primarily for payroll, benefits and administrative
operations and the Contributed Entities are the employers
primarily with respect to business operations. Williams directly
charges us for the payroll and benefit costs associated with the
operations employees and carries the obligations for many
employee-related benefits in its financial statements, including
the liabilities related to the employee retirement and medical
plans. Our share of those costs is charged to us through
affiliate billings and reflected in costs and operating
expenses in the accompanying Combined Statements of
Income. The Contribution Agreement contemplates that our
employees will be transferred to services companies, and we will
no longer have employees; therefore, we have presented these
costs as affiliate expenses in the table below consistent with
how they will be presented subsequent to the proposed
transaction.
In addition, all of our general and administrative employees are
employees of Williams, and we are charged for certain
administrative expenses incurred by Williams. These charges are
either directly identifiable or allocated to our operations.
Direct charges are for goods and services provided by Williams
at our request. Allocated charges are based on a three-factor
formula, which considers revenues; property, plant and
equipment; and payroll. Our share of direct administrative
expenses is reflected in selling, general and administrative
expense, and our share of allocated administrative expenses
is reflected in general corporate expenses in the
accompanying Combined Statements of Income. In
managements estimation, the allocation methodologies used
are reasonable and result in a reasonable allocation to us of
our costs of doing business incurred by Williams.
Gas Pipeline revenues include revenues from
transportation and exchange services and rental of communication
facilities with subsidiaries of Williams. The rates charged to
provide sales and services to affiliates are comparable to those
that are charged to similarly-situated nonaffiliated customers.
Midstream revenues include revenues from the following
types of transactions with affiliates:
| Sales of feedstock commodities to Williams Olefins, LLC (Williams Olefins), a wholly owned subsidiary of Williams, for use in their facilities. These sales are generally made at market prices at the time of sale. | |
| Gathering, treating and processing services for Williams Production Company (WPC), a wholly owned subsidiary of Williams, under several contracts. The rates charged to provide these services are considered reasonable as compared to those that are charged to similarly-situated nonaffiliated customers. |
F-14
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
| Sale of NGLs to Mid-Continent Fractionation and Storage, LLC, a wholly owned subsidiary of Williams Partners, for their inventory balancing needs. These sales are generally made at market prices at the time of sale. | |
| The sale of waste heat from our co-generation plant to Williams Four Corners, LLC, a wholly owned subsidiary of Williams Partners, for the natural gas treating process at their Milagro treating plant. The rate we charge for the waste heat is based on the natural gas needed to generate the waste heat. |
Costs and operating expenses also include charges for the
following types of transactions with affiliates:
| Our Midstream segment purchases NGLs for resale from Williams Partners and WPC at market prices at the time of purchase. | |
| Our Midstream segment purchases natural gas for shrink replacement and fuel for processing plants and the co-generation plant from Williams Gas Marketing, Inc. (WGM) at market prices at the time of purchase. | |
| Our Midstream segment purchases NGLs for resale from Williams Olefins at market prices at the time of purchase. | |
| Our Gas Pipeline segment purchases natural gas from WGM at contract or market prices. |
Below is a summary of the related party transactions discussed
above.
Years Ended |
Nine Months Ended |
|||||||||||||||
December 31, | September 30, | |||||||||||||||
2007 | 2008 | 2008 | 2009 | |||||||||||||
(In millions) | ||||||||||||||||
Gas Pipeline revenues
|
$ | 45 | $ | 38 | $ | 29 | $ | 23 | ||||||||
Midstream revenues
|
||||||||||||||||
Product sales
|
145 | 176 | 128 | 59 | ||||||||||||
Gathering and processing
|
7 | 6 | 4 | 12 | ||||||||||||
Costs and operating expenses
|
||||||||||||||||
Product purchases
|
564 | 715 | 615 | 275 | ||||||||||||
Employee costs
|
127 | 130 | 95 | 110 | ||||||||||||
Selling, general and administrative expense
|
||||||||||||||||
Employee costs
|
167 | 161 | 119 | 133 |
The accounts receivable affiliate and
accounts payable affiliate on the Combined
Balance Sheets represent the receivable and payable
positions that result from the transactions with affiliates
other than Williams discussed above.
We periodically enter into financial swap contracts with WGM to
hedge forecasted NGL sales. These contracts are priced based on
market rates at the time of execution and are reflected in
other current assets, other assets and deferred charges
and accrued liabilities on the Combined Balance
Sheets (see Note 15).
We historically participated in Williams cash management
program under unsecured promissory note agreements with Williams
for both advances to and from Williams. As of December 31,
2007 and 2008 and September 30, 2009, the net advances to
Williams are classified in the Combined Balance Sheets as
follows:
| Midstreams net advances to Williams are classified as a component of owners equity because, although the advances are due on demand, Williams has not historically required repayment or repaid amounts owed to us. |
F-15
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
| Transcos and Northwest Pipelines notes receivable from parent are classified as current assets because they are due on demand and have historically been repaid during the following year. The interest rate on Transcos demand notes is based upon the weighted average cost of Williams debt outstanding at the end of each quarter. The interest rate on Northwest Pipelines demand notes was based upon the weighted average cost of Williams debt outstanding at the end of each quarter until its acquisition by Pipeline Partners in 2008. At that point the interest rate changed to the overnight investment rate paid on Williams excess cash. | |
| Wamsutter LLCs net advances to Williams are included in accounts receivable affiliate. These balances are generally settled in cash quarterly. Interest is paid to Wamsutter on amounts receivable from Williams based on the rate received by Williams on the overnight investment of its excess cash. |
Under the Contribution Agreement, the outstanding advances will
be distributed to Williams. Changes in the advances to Williams
are presented as distributions to Williams in the Combined
Statement of Changes in Equity and Combined Statements of
Cash Flows.
In June 2009, we issued a $26 million note payable to
Laurel Mountain Midstream, LLC, an equity method investee, in
connection with its formation.
Note 4. | Asset Sales, Impairments and Other Accruals |
The following table presents significant gains or losses from
asset sales, impairments and other accruals or adjustments
reflected in other (income) expense net
within segment costs and expenses.
Years Ended |
Nine Months Ended |
|||||||||||||||
December 31, | September 30, | |||||||||||||||
2007 | 2008 | 2008 | 2009 | |||||||||||||
(In millions) | ||||||||||||||||
Gas Pipeline
|
||||||||||||||||
Income from payments received for a terminated firm
transportation agreement on Grays Harbor lateral
|
$ | (18 | ) | $ | | $ | | $ | | |||||||
Income from change in estimate related to a regulatory liability
|
(17 | ) | | | | |||||||||||
Gain on sale of certain south Texas assets
|
| (11 | ) | (11 | ) | | ||||||||||
Midstream
|
||||||||||||||||
Income from favorable litigation outcome
|
(12 | ) | | | | |||||||||||
Impairments of offshore assets and other asset writedowns
|
8 | 11 | 8 | | ||||||||||||
Involuntary conversion gain
|
(1 | ) | (5 | ) | | |
Note 5. | Benefit Plans |
Many of the Contributed Entities currently participate in
employee benefit plans sponsored by Williams that provide
benefits to their employees. The Contribution Agreement
contemplates that our employees will be transferred to services
companies as discussed in Note 3, and we will no longer be
participants in Williams employee benefit plans. Williams
will charge us for the benefits costs associated with providing
these benefits to employees.
Pension
plans
We currently participate in noncontributory defined benefit
pension plans sponsored by Williams that provide pension
benefits for eligible participants. Pension expense for 2007 and
2008 totaled $12 million and $10 million,
respectively. At the total Williams plan level, the pension
plans had a projected benefit obligation of $896 million
and $1,035 million at December 31, 2007 and 2008,
respectively. The plans were overfunded by $178 million at
December 31, 2007 and underfunded by $330 million at
December 31, 2008.
F-16
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Postretirement
benefits other than pensions
We currently participate in a plan sponsored by Williams that
provides certain retiree health care and life insurance benefits
for eligible participants that generally were employed by
Williams on or before December 31, 1991, or
December 31, 1995, if they were employees or retirees of
Transco Energy Company and its subsidiaries. The accounting for
the plan anticipates future cost-sharing changes to the plan
that are consistent with Williams expressed intent to
increase the retiree contribution level, generally in line with
health care cost increases. Net periodic postretirement benefit
expense for 2007 and 2008 totaled $5 million and
$5 million, respectively. At the total Williams plan level,
the postretirement benefit plans had a projected benefit
obligation of $284 million and $273 million at
December 31, 2007 and 2008, respectively. The plans were
underfunded by $92 million and $147 million at
December 31, 2007 and 2008, respectively.
Any differences between the annual expense and amounts currently
being recovered in rates are recorded as an adjustment to
revenues and collected or refunded through future rate
adjustments. A regulatory asset can be recorded only to the
extent it is currently funded.
Defined
contribution plan
Our employees participate in a Williams defined contribution
plan. We recognized compensation expense of $10 million and $11
million in 2007 and 2008, respectively, for Williams
matching contributions to this plan.
Employee
Stock-Based Compensation Plan Information
The Williams Companies, Inc. 2007 Incentive Plan (Plan) was
approved by stockholders on May 17, 2007. The Plan provides
for Williams common-stock-based awards to both employees and
nonmanagement directors. The Plan permits the granting of
various types of awards including, but not limited to, stock
options 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.
Williams currently bills us directly for compensation expense
related to stock-based compensation awards granted directly to
our employees based on the fair value of the options. We are
also billed for our proportionate share of Williams
stock-based compensation expense though various allocation
processes.
Total stock-based compensation expense, included in
administrative and general expenses, for the years ended
December 31, 2007 and 2008 was $9 million and $7 million,
respectively, excluding amounts allocated from Williams.
Note 6. | Provision (Benefit) for Income Taxes |
Transco and Northwest Pipeline converted to single member
limited liability companies on December 31, 2008 and
October 1, 2007, respectively. Each made an election to be
treated as a disregarded entity; therefore, they were no longer
subject to income tax as of their respective conversion date.
The provision (benefit) for income taxes shown herein for
2007 includes Northwest Pipelines (benefit) provision
through September 30, 2007, and the 2008 provision
(benefit) for income taxes includes Transcos (benefit)
provision through December 31, 2008. Subsequent to the
conversion, all deferred taxes were eliminated through income
and Transco and Northwest Pipeline no longer provide for income
taxes.
F-17
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
The provision (benefit) for income taxes includes:
Years Ended December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Current:
|
||||||||
Federal
|
$ | 138 | $ | 37 | ||||
State
|
24 | 8 | ||||||
162 | 45 | |||||||
Deferred:
|
||||||||
Federal
|
(273 | ) | (867 | ) | ||||
State
|
(33 | ) | (130 | ) | ||||
(306 | ) | (997 | ) | |||||
Total benefit for income tax
|
$ | (144 | ) | $ | (952 | ) | ||
Reconciliations from the provision for income taxes at the
federal statutory rate to the realized provision (benefit)
for income taxes are as follows:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Provision at statutory rate
|
$ | 426 | $ | 366 | ||||
Increases (decreases) in taxes resulting from:
|
||||||||
Income from operations not taxed as a LLC
|
(275 | ) | (259 | ) | ||||
State income taxes (net of federal benefit)
|
17 | 14 | ||||||
Conversion from corporation to LLC
|
(312 | ) | (1,073 | ) | ||||
Benefit for income taxes
|
$ | (144 | ) | $ | (952 | ) | ||
During the next twelve months, we do not expect to have a
material impact on our financial position for settlement of any
unrecognized tax benefit associated with matters under audit.
F-18
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Significant components of deferred tax liabilities and deferred
tax assets as of December 31, 2007 and 2008, are as follows:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Deferred tax liabilities:
|
||||||||
Property, plant and equipment
|
$ | 1,050 | $ | | ||||
Regulatory assets and liabilities
|
62 | | ||||||
Deferred charges
|
29 | | ||||||
Investments
|
11 | | ||||||
Total deferred tax liabilities
|
1,152 | | ||||||
Deferred tax assets:
|
||||||||
Accrued liabilities
|
103 | | ||||||
Estimated rate refund liability
|
38 | | ||||||
Other
|
13 | | ||||||
Total deferred tax assets
|
154 | | ||||||
Less valuation allowance
|
| | ||||||
Net deferred tax assets
|
154 | | ||||||
Overall net deferred tax liabilities
|
$ | 998 | $ | | ||||
We recognized related interest and penalties as a component of
income tax expense. The amounts accrued for interest and
penalties were immaterial.
As of December 31, 2008, the Internal Revenue Service (IRS)
examinations of consolidated Williams U.S. income tax
returns for 2006 and 2007 were in process. IRS examinations for
1997 through 2005 have been completed at the field level but the
years remain open for certain unresolved issues. The statute of
limitations for most states expires one year after expiration of
the IRS statute. During the next twelve months, we do not expect
ultimate resolution of any unrecognized tax benefit to have a
material impact on our financial position.
Net cash payments made to Williams for income taxes were
$93 million and $77 million in 2007 and 2008,
respectively.
Note 7. | Inventories |
Inventories at December 31, 2007 and 2008 and at
September 30, 2009 are as follows:
December 31, |
September 30, |
|||||||||||
2007 | 2008 | 2009 | ||||||||||
(In millions) | ||||||||||||
Natural gas liquids
|
$ | 18 | $ | 34 | $ | 30 | ||||||
Crude oil
|
7 | 1 | 2 | |||||||||
Natural gas in underground storage
|
27 | 58 | 36 | |||||||||
Materials, supplies and other
|
53 | 53 | 64 | |||||||||
$ | 105 | $ | 146 | $ | 132 | |||||||
F-19
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Note 8. | Investments |
Investments being accounted for using the equity method
at December 31, 2007 and 2008 are as follows:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Gulfstream Natural Gas System, L.L.C. 24.5%
|
$ | 215 | $ | 257 | ||||
Aux Sable Liquid Products L.P. 14.6%
|
19 | 14 | ||||||
Other
|
69 | 68 | ||||||
$ | 303 | $ | 339 | |||||
Differences between the carrying value of our equity investments
and the underlying equity in the net assets of the investees are
primarily related to $30 million of impairments previously
recognized.
Dividends and distributions, including those presented below,
received from companies accounted for by the equity method were
$48 million in 2007 and $64 million in 2008. These
transactions reduced the carrying value of our investments.
These dividends and distributions primarily included:
2007 | 2008 | |||||||
(In millions) | ||||||||
Gulfstream Natural Gas System, L.L.C.
|
$ | 17 | $ | 29 | ||||
Aux Sable Liquid Products L.P.
|
22 | 28 |
In addition, we contributed $19 million and
$44 million to Gulfstream Natural Gas System, L.L.C. in
2007 and 2008, respectively. In June 2009, we acquired a 51%
ownership interest in Laurel Mountain Midstream, LLC
(LMM) for $131 million.
Guarantees
on behalf of investees
We have provided guarantees on behalf of certain entities in
which we have an equity ownership interest. These generally
guarantee operating performance measures and the maximum
potential future exposure cannot be determined. There are no
expiration dates associated with these guarantees. No amounts
have been accrued at December 31, 2008 and 2007 related to
these guarantees.
F-20
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Note 9. | Property, Plant and Equipment |
Property, plant and equipment net at
December 31, 2007 and 2008 is as follows:
Estimated Useful |
Depreciation |
|||||||||||||||
Life(a) |
Rates(a) |
December 31, | ||||||||||||||
(Years) | (%) | 2007 | 2008 | |||||||||||||
(In millions) | ||||||||||||||||
Nonregulated:
|
||||||||||||||||
Natural gas gathering and processing facilities
|
3 - 40 | $ | 2,240 | $ | 2,621 | |||||||||||
Construction in progress
|
477 | 683 | ||||||||||||||
Other
|
0 - 45 | 160 | 172 | |||||||||||||
Regulated:
|
||||||||||||||||
Natural gas transmission facilities
|
.01 - 7.25 | 8,207 | 8,441 | |||||||||||||
Construction in progress
|
73 | 121 | ||||||||||||||
Storage and other
|
0 - 50 | 1,272 | 1,292 | |||||||||||||
Total property, plant and equipment, at cost
|
12,429 | 13,330 | ||||||||||||||
Accumulated depreciation and amortization
|
(3,808 | ) | (4,154 | ) | ||||||||||||
Property, plant and equipment net
|
$ | 8,621 | $ | 9,176 | ||||||||||||
(a) | Estimated useful life and depreciation rates are presented as of December 31, 2008. |
Depreciation and amortization expense for property, plant and
equipment net was $432 million and
$458 million in 2007 and 2008, respectively.
Regulated property, plant and equipment includes
approximately $1.1 billion at December 31, 2007 and
2008 related to amounts in excess of the original cost of the
regulated facilities within Gas Pipeline as a result of our
prior acquisitions. This amount is being amortized over
40 years using the straight-line amortization method.
Current FERC policy does not permit recovery through rates for
amounts in excess of original cost of construction.
Asset
retirement obligations
During 2007 and 2008, our overall asset retirement obligation
changed as follows:
2007 | 2008 | |||||||
(In millions) | ||||||||
Beginning balance
|
$ | 218 | $ | 254 | ||||
Accretion
|
17 | 51 | ||||||
New obligations
|
5 | 13 | ||||||
Changes in estimates of existing obligations
|
19 | 135 | ||||||
Property dispositions/obligations settled
|
(5 | ) | (10 | ) | ||||
Ending balance
|
$ | 254 | $ | 443 | ||||
The 2008 increase in the obligations associated with changes in
estimates reflects additional information available regarding
the estimated timing and settlement costs in both our Gas
Pipeline and Midstream segments. The accrued obligations relate
to gas transmission facilities, underground storage caverns,
offshore platforms, fractionation facilities and gas gathering
well connections and pipelines. At the end of the useful life of
each respective asset, we are legally obligated to remove
certain components of gas transmission facilities from the
ground, plug storage caverns and remove any related surface
equipment, remove surface
F-21
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
equipment and restore land at fractionation facilities,
dismantle offshore platforms, cap certain gathering pipelines at
the wellhead connection and remove any related surface equipment.
Beginning in 2009, measurements of asset retirement obligations
include, as a component of future expected costs, an estimate of
the price that a third party would demand, and could expect to
receive, for bearing the uncertainties inherent in the
obligations, sometimes referred to as a market-risk premium.
Note 10. | Regulatory Assets and Liabilities |
The regulatory assets and regulatory liabilities included in
Combined Balance Sheets at December 31, 2007 and
2008 are as follows:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Regulatory assets:
|
||||||||
Gross-up
deferred taxes on equity funds used during construction
|
$ | 112 | $ | 111 | ||||
Asset retirement obligations
|
47 | 87 | ||||||
Fuel cost
|
12 | 74 | ||||||
Postretirement benefits other than pension
|
16 | 12 | ||||||
Levelized incremental depreciation
|
26 | 29 | ||||||
Other
|
25 | 30 | ||||||
$ | 238 | $ | 343 | |||||
Regulatory liabilities:
|
||||||||
Negative salvage
|
$ | 17 | $ | 47 | ||||
Postretirement benefits other than pension
|
14 | 17 | ||||||
Other
|
10 | 10 | ||||||
$ | 41 | $ | 74 | |||||
Regulatory assets are included in regulatory assets and
other assets and deferred charges. Regulatory liabilities
are included in other noncurrent liabilities and deferred
income and accrued liabilities.
Note 11. | Accounts Payable and Accrued Liabilities |
Under our cash-management system with Williams, certain cash
accounts reflected negative balances to the extent checks
written have not been presented for payment. These negative
balances represent obligations and have been reclassified to
accounts payable. Accounts payable includes approximately
$29 million and $22 million of these negative balances
at December 31, 2007 and 2008, respectively.
Accrued liabilities at December 31, 2007 and 2008
are as follows:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Estimated rate refund liability
|
$ | 98 | $ | 14 | ||||
Taxes other than income
|
86 | 46 | ||||||
Interest
|
34 | 30 | ||||||
Deposits
|
| 34 | ||||||
Other, including other loss contingencies
|
108 | 101 | ||||||
$ | 326 | $ | 225 | |||||
F-22
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Note 12. | Debt, Leases and Banking Arrangements |
Long-Term
Debt
Long-term debt at December 31, 2007 and 2008 and
September 30, 2009 is:
Weighted-Average |
||||||||||||||||
Interest |
December 31, |
September 30, |
||||||||||||||
Rate(1) | 2007 | 2008 | 2009 | |||||||||||||
(In millions) | ||||||||||||||||
Transco:
|
||||||||||||||||
6.05% to 8.875%, payable through 2026
|
7.24 | % | $ | 1,207 | $ | 1,283 | $ | 1,283 | ||||||||
Northwest:
|
||||||||||||||||
5.95% to 7.125%, payable through 2025
|
6.39 | % | 695 | 695 | 695 | |||||||||||
Williams Laurel Mountain, LLC:
|
||||||||||||||||
8.00% to 10.00%, payable through 2012
|
8.00 | % | | | 26 | |||||||||||
Unamortized debt discount
|
(6 | ) | (7 | ) | (7 | ) | ||||||||||
Total long-term debt, including current portion
|
1,896 | 1,971 | 1,997 | |||||||||||||
Long-term debt due within one year
|
75 | | 17 | |||||||||||||
Long-term debt
|
$ | 1,821 | $ | 1,971 | $ | 1,980 | ||||||||||
(1) | At September 30, 2009. |
Revolving
credit and letter of credit facilities (credit
facilities)
Williams has an unsecured, $1.5 billion credit facility
with a maturity date of May 1, 2012. Currently, Transco and
Northwest Pipeline each have access to $400 million under
the credit facility to the extent not otherwise utilized by
Williams. Lehman Commercial Paper Inc., which is committed to
fund up to $70 million of the $1.5 billion credit
facility, filed for bankruptcy in 2008. Williams expects that
its ability to borrow under the credit facility is reduced by
this committed amount. Consequently, we expect both
Transcos and Northwest Pipelines ability to borrow
under the credit facility is reduced by approximately
$18 million. The committed amounts of other participating
banks under this agreement remain in effect and are not impacted
by the above. As of September 30, 2009, letters of credit
totaling $222 million, none of which are associated with
Transco or Northwest Pipeline, have been issued by the
participating institutions. There were no revolving credit loans
outstanding as of September 30, 2009. Concurrently with the
proposed acquisition of the Contributed Entities by Williams
Partners, Transcos and Northwest Pipelines ability
to borrow under this facility is expected to be replaced with
similar borrowing capacity under a new credit facility.
Interest is calculated based on a choice of two methods: a
fluctuating rate equal to the lenders base rate plus an
applicable margin, or a periodic fixed rate equal to LIBOR plus
an applicable margin. Williams is required to pay a commitment
fee (currently 0.125%) based on the unused portion of the credit
facility. The margins and commitment fee are generally based on
the specific borrowers senior unsecured long-term
debt ratings.
The credit facility contains certain affirmative covenants and a
number of restrictions on the business of the borrowers,
including Transco and Northwest. These restrictions include
restrictions on the borrowers ability to grant liens
securing indebtedness, merge or sell all or substantially all of
its assets and incurrence of indebtedness. Significant financial
covenants under the credit agreement include the following:
| Williams ratio of debt to capitalization must be no greater than 65%. At December 31, 2008, Williams was in compliance with this covenant as Williams ratio of debt to capitalization as calculated under this covenant, is approximately 40%. |
F-23
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
| Ratio of debt to capitalization must be no greater than 55% for Transco and Northwest Pipeline. At December 31, 2008, they are in compliance with this covenant as their ratio of debt to capitalization, as calculated under this covenant, is approximately 26% for Transco and 36% for Northwest Pipeline. |
The credit facility also contains events of default tied to all
borrowers which in certain circumstances would cause all lending
under the credit facility to terminate and all indebtedness
outstanding under the credit facility to be accelerated.
Issuances
and retirements
On January 15, 2008, Transco retired $100 million of
6.25% senior unsecured notes due January 15, 2008,
with proceeds borrowed under Williams $1.5 billion
unsecured credit facility.
On April 15, 2008, Transco retired a $75 million
adjustable rate unsecured note due April 15, 2008, with
proceeds borrowed under Williams $1.5 billion
unsecured credit facility.
On May 22, 2008, Transco issued $250 million aggregate
principal amount of 6.05% senior unsecured notes due 2018
to certain institutional investors in a Rule 144A private
debt placement. A portion of these proceeds was used to repay
Transcos $100 million and $75 million loans from
January 2008 and April 2008, respectively, under Williams
$1.5 billion unsecured credit facility. In September 2008,
Transco completed an exchange of these notes for substantially
identical new notes that are registered under the Securities Act
of 1933, as amended.
On May 22, 2008, Northwest issued $250 million
aggregate principal amount of 6.05% senior unsecured notes
due 2018 to certain institutional investors in a Rule 144A
private debt placement. These proceeds were used to repay
Northwests $250 million loan from December 2007 under
Williams $1.5 billion unsecured credit facility. In
September 2008, Northwest completed an exchange of these notes
for substantially identical new notes that are registered under
the Securities Act of 1933, as amended.
On June 1, 2009, we issued a $26 million note payable
to LMM in connection with LMMs formation. The note is due
through 2012 with interest rates of 8.00% to 10.00%.
As of December 31, 2008, aggregate minimum maturities of
long-term debt (excluding unamortized discount and
premium) for each of the next five years are as follows:
(In millions) | ||||
2009
|
$ | | ||
2010
|
| |||
2011
|
300 | |||
2012
|
325 | |||
2013
|
|
Cash payments for interest (net of amounts capitalized) were as
follows: 2007 $136 million; 2008
$142 million.
Leases-Lessee
On October 23, 2003, Transco entered into a lease agreement
for space in the Williams Tower in Houston, Texas (Williams
Tower). The lease term runs through March 31, 2014.
Northwest entered into a leveraged lease agreement for its
headquarters building, which became effective during 1982. The
agreement had an initial term of approximately 27 years,
with options for consecutive renewal terms of approximately
9 years and 10 years. As required by the terms of the
lease, Northwest exercised its option to renew the term of the
lease for approximately 9 years, beginning October 1,
2009. The major component of the lease payment is set through
the initial and first renewal terms of the lease. Various
F-24
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
purchase options exist under the building lease, including
options involving adverse regulatory developments. Northwest
subleases portions of its headquarters building to third parties
under agreements with varying terms.
Future minimum annual rentals under noncancelable operating
leases as of December 31, 2008, are payable as follows:
(In millions) | ||||
2009
|
$ | 16 | ||
2010
|
14 | |||
2011
|
13 | |||
2012
|
12 | |||
2013
|
13 | |||
Thereafter
|
2 | |||
70 | ||||
Less sublease income
|
(5 | ) | ||
Total
|
$ | 65 | ||
Effective October 1, 2009, Northwest Pipeline assigned its
headquarters building lease to another party and, concurrently,
entered into a new sublease agreement with that party. This
arrangement decreased the future minimum rentals by
$1 million annually.
Total rent expense, net of sublease revenues, was
$15 million in 2007 and $19 million in 2008.
Note 13. | Noncontrolling interests in consolidated subsidiares |
Wamsutter
The noncontrolling interests in Wamsutter at December 31,
2008 represent its Class A membership interests and 65% of
its Class C membership interests, both of which are held by
Williams Partners. We hold Wamsutters Class B
membership interests and 35% of its Class C membership
interests, operate the assets and fund the significant expansion
capital expenditures. Class C units are issued to
Class A and Class B members based on their funding of
expansion capital expenditures placed in service.
The Class A membership interests are entitled to
$70 million of distributions and net income allocation
annually before the Class C membership interests. Of the
remaining cash available for distribution, 5% is distributed to
the holder of the Class A membership interest and 95% is
distributed to holders of the Class C units on a pro
rata basis. Net income is allocated between the Class A
and Class C membership interests in a similar manner as the
cash distributions. Our Class B membership interests does
not receive distributions or net income allocations.
Pipeline
Partners
The noncontrolling interests in Pipeline Partners represent its
common units held by the public. We hold 47.7% of the interests
in Pipeline Partners, including common units, subordinated
units, the general partner interest and incentive distribution
rights. The common units are entitled to a minimum quarterly
distribution of $0.2875 per unit.
Note 14. | Fair Value Measurements |
Fair value is the amount received to sell an asset or the amount
paid to transfer a liability in an orderly transaction between
market participants (an exit price) at the measurement date.
Fair value is a market-based measurement considered from the
perspective of a market participant. We use market data or
assumptions that
F-25
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
we believe market participants would use in pricing the asset or
liability, including assumptions about risk and the risks
inherent in the inputs to the valuation. These inputs can be
readily observable, market corroborated, or unobservable. We
apply both market and income approaches for recurring fair value
measurements using the best available information while
utilizing valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs.
Effective January 1, 2008, we implemented new accounting
guidance for our assets and liabilities that are measured at
fair value on a recurring basis. As a result, we changed our
valuation methodology to consider our nonperformance risk in
estimating the fair value of our liabilities. Effective
January 1, 2009, we applied these new fair value
requirements to nonfinancial assets and nonfinancial liabilities
that are not recognized or disclosed at fair value on a
recurring basis. We applied a prospective transition as we did
not have financial instrument transactions that required a
cumulative-effect adjustment to beginning retained earnings.
These initial adoptions had no material impact on our Combined
Financial Statements.
The fair value hierarchy prioritizes the inputs used to measure
fair value, giving the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs
(Level 3 measurement). We classify fair value balances
based on the observability of those inputs. The three levels of
the fair value hierarchy are as follows:
| Level 1 Quoted prices for identical assets or liabilities in active markets that we have the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Our Level 1 primarily consists of financial instruments that are exchange traded. | |
| Level 2 Inputs are other than quoted prices in active markets included in Level 1, that are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured. Our Level 2 has primarily consisted of natural gas purchase contracts. | |
| Level 3 Inputs that are not observable for which there is little, if any, market activity for the asset or liability being measured. These inputs reflect managements best estimate of the assumptions market participants would use in determining fair value. Our Level 3 consists of instruments valued using industry standard pricing models and other valuation methods that utilize unobservable pricing inputs that are significant to the overall fair value. |
In valuing certain contracts, the inputs used to measure fair
value may fall into different levels of the fair value
hierarchy. For disclosure purposes, assets and liabilities are
classified in their entirety in the fair value hierarchy level
based on the lowest level of input that is significant to the
overall fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement
requires judgment and may affect the placement within the fair
value hierarchy levels.
F-26
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
The following table presents, by level within the fair value
hierarchy, our assets and liabilities that are measured at fair
value on a recurring basis.
December 31, |
September 30, |
|||||||||||||||||||||||||||||||
2008 | 2009 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||||||
Marketable securities
|
$ | 13 | $ | | $ | | $ | 13 | $ | 21 | $ | | $ | | $ | 21 | ||||||||||||||||
Energy derivatives
|
| | 1 | 1 | | | 4 | 4 | ||||||||||||||||||||||||
Total assets
|
$ | 13 | $ | | $ | 1 | $ | 14 | $ | 21 | $ | | $ | 4 | 25 | |||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||||||||||
Energy derivatives
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | 1 | $ | 1 | ||||||||||||||||
Total liabilities
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | 1 | $ | 1 | ||||||||||||||||
Marketable securities consist primarily of money market funds,
U.S. equity funds, international equity funds and municipal
bonds. Energy derivatives consist primarily of commodity-based
contracts with WGM, a wholly-owned subsidiary of Williams, that
resemble similar exchange-traded contracts and over-the-counter
(OTC) contracts. Exchange-traded contracts include futures,
swaps, and options. OTC contracts include forwards, swaps and
options.
Many contracts have bid and ask prices that can be observed in
the market. Our policy is to use a mid-market pricing (the
mid-point price between bid and ask prices) convention to value
individual positions and then adjust on a portfolio level to a
point within the bid and ask range that represents our best
estimate of fair value. For offsetting positions by location,
the mid-market price is used to measure both the long and short
positions.
The determination of fair value for our assets and liabilities
also incorporates the time value of money and various credit
risk factors which can include the credit standing of the
counterparties involved, master netting arrangements, the impact
of credit enhancements (such as cash collateral posted and
letters of credit), and our nonperformance risk on our
liabilities. The determination of the fair value of our
liabilities does not consider noncash collateral credit
enhancements.
Exchange-traded contracts include New York Mercantile Exchange
and Intercontinental Exchange contracts and are valued based on
quoted prices in these active markets and are classified within
Level 1.
Contracts for which fair value can be estimated from executed
transactions or broker quotes corroborated by other market data
are generally classified within Level 2. These broker
quotes are based on observable market prices at which
transactions could currently be executed. In certain instances
where these inputs are not observable for all periods,
relationships of observable market data and historical
observations are used as a means to estimate fair value. Where
observable inputs are available for substantially the full term
of the asset or liability, the instrument is categorized in
Level 2. The instruments included in Level 2 consist
primarily of natural gas swaps, options and physical commitments.
Certain instruments trade in less active markets with lower
availability of pricing information requiring valuation models
using inputs that may not be readily observable or corroborated
by other market data. These instruments are classified within
Level 3 when these inputs have a significant impact on the
measurement of fair value. The fair value of options is
estimated using an industry standard Black-Scholes option
pricing model. Certain inputs into the model are generally
observable, such as commodity prices and interest rates, whereas
other model inputs, such as implied volatility by location, is
unobservable and requires judgment in estimating. The
instruments included in Level 3 consist primarily of
location based natural gas liquids swaps, options and physical
commitments.
F-27
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
The following tables present a reconciliation of changes in the
fair value of net derivatives classified as Level 3 in the
fair value hierarchy.
Level 3
Fair Value Measurements Using Significant Unobservable
Inputs
Net Derivatives | ||||||||
Year Ended |
Nine Months Ended |
|||||||
December 31, |
September 30, |
|||||||
2008 | 2009 | |||||||
(In millions) | ||||||||
Beginning balance
|
$ | (7 | ) | $ | 1 | |||
Realized and unrealized gains (losses):
|
||||||||
Included in net income
|
(9 | ) | 4 | |||||
Included in other comprehensive income (loss)
|
8 | (1 | ) | |||||
Purchases, issuances, and settlements
|
9 | (1 | ) | |||||
Transfers into Level 3
|
| | ||||||
Transfers out of Level 3
|
| | ||||||
Ending balance
|
$ | 1 | $ | 3 | ||||
Net unrealized gains included in net income relating to
instruments still held at end of period
|
$ | | $ | 3 | ||||
Realized and unrealized gains (losses) included in net income
for the above periods are reported in revenues in our
Combined Statements of Income.
During the nine months ended September 30, 2009 there were
no assets measured at fair value on a nonrecurring basis.
Note 15. | Financial Instruments, Derivatives, Guarantees and Concentration of Credit Risk |
Financial
Instruments
Fair-value
methods
We use the following methods and assumptions in estimating our
fair-value disclosures for financial instruments:
Cash and cash equivalents: The carrying
amounts reported in the Combined Balance Sheets
approximate fair value due to the short-term maturity of these
instruments.
ARO Trust Investments: Pursuant to
its 2008 rate case settlement, Transco deposits a portion of its
collected rates into an external trust (ARO Trust) that is
specifically designated to fund future asset retirement
obligations. The ARO Trust invests in a portfolio of mutual
funds that are classified as available-for-sale and are reported
in other assets and deferred charges in the Combined
Balance Sheets. The fair value of these investments is based
on indicative period-end traded market prices.
Notes receivable from parent: The
carrying amounts reported in the Combined Balance Sheets
approximate fair value as these instruments are due on demand
and have interest rates approximating market.
Notes and other noncurrent
receivables: The carrying amounts reported in
the Combined Balance Sheets approximate fair value as
these instruments have interest rates approximating market.
Long-term debt: The fair value of our
publicly traded long-term debt is valued using indicative
year-end traded bond market prices. Private debt is valued based
on market rates and the prices of similar securities
F-28
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
with similar terms and credit ratings. At December 31, 2007
and 2008 and September 30, 2009, approximately 87%, 100%
and 99%, respectively, of our long-term debt was publicly traded.
Energy derivatives: Energy derivatives
include futures, forwards, swaps, and options. See Note 14
for discussion of valuation of our energy derivatives.
Carrying amounts and fair values of our financial instruments
December 31, |
December 31, |
September 30, |
||||||||||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||||||||||
Carrying |
Carrying |
Carrying |
||||||||||||||||||||||
Amount | Fair Value | Amount | Fair Value | Amount | Fair Value | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Asset (Liability):
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$ | 9 | $ | 9 | $ | 16 | $ | 16 | $ | 8 | $ | 8 | ||||||||||||
ARO Trust Investments
|
| | 13 | 13 | 21 | 21 | ||||||||||||||||||
Notes receivable from parent
|
253 | 253 | 252 | 252 | 336 | 336 | ||||||||||||||||||
Notes and other noncurrent receivables
|
2 | 2 | 1 | 1 | 1 | 1 | ||||||||||||||||||
Long-term debt, including current portion
|
(1,896 | ) | (2,007 | ) | (1,971 | ) | (1,727 | ) | (1,997 | ) | (2,178 | ) | ||||||||||||
Net energy derivatives:
|
||||||||||||||||||||||||
Energy commodity cash flow hedges affiliate
|
(8 | ) | (8 | ) | | | | | ||||||||||||||||
Other energy derivatives
|
1 | 1 | 1 | 1 | 3 | 3 |
Energy
Commodity Derivatives
Risk
Management Activities
We are exposed to market risk from changes in energy commodity
prices within our operations. We may utilize derivatives to
manage our exposure to the variability in expected future cash
flows from forecasted purchases of natural gas and forecasted
sales of NGLs attributable to commodity price risk. Certain of
these derivatives utilized for risk management purposes have
been designated as cash flow hedges while others have not been
designated as cash flow hedges or do not qualify for hedge
accounting despite hedging our future cash flows on an economic
basis.
Midstream produces, buys and sells NGLs at different locations
throughout the United States. Midstream also buys natural gas to
satisfy the required fuel and shrink needed to generate NGLs. To
reduce exposure to a decrease in revenues from fluctuations in
NGL market prices or increases in costs and operating expenses
from fluctuations in natural gas market prices, we may enter
into NGL or natural gas swap agreements, financial forward
contracts, and financial option contracts to mitigate the price
risk on forecasted sales of NGLs and purchases of natural gas.
Midstreams cash flow hedges are expected to be highly
effective in offsetting cash flows attributable to the hedged
risk during the term of the hedge. However, ineffectiveness may
be recognized primarily as a result of locational differences
between the hedging derivative and the hedged item.
Volumes
Our energy commodity derivatives are comprised of both contracts
to purchase commodities (long positions) and contracts to sell
commodities (short positions). Derivative transactions are
categorized into three types:
| Fixed price: Includes physical and financial derivative transactions that settle at a fixed location price; |
F-29
Table of Contents
CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
| Basis: Includes financial derivative transactions priced off the difference in value between a commodity at two specific delivery points; and | |
| Index: Includes physical derivative transactions at an unknown future price. |
The following table depicts the notional amounts of the net long
(short) positions in our commodity derivatives portfolio as of
September 30, 2009. Natural gas is presented in millions of
British Thermal Units (MMBtu) and NGLs are presented in gallons.
Derivative Notional Volumes | Measurement | Fixed Price | Basis | Index | ||||||||||||||
Designated as Hedging Instruments
|
||||||||||||||||||
Midstream Risk
Management
|
MMBtu | 460,000 | 460,000 | |||||||||||||||
Midstream Risk
Management
|
Gallons | (18,522,000 | ) | |||||||||||||||
Not Designated as Hedging Instruments
|
||||||||||||||||||
Midstream Risk
Management
|
Gallons | (6,930,000 | ) | (5,997,600 | ) |
Fair
values and gains (losses)
The following table presents the fair value of energy commodity
derivatives. Our derivatives are included in other current
assets, other assets and deferred charges, and accrued
liabilities in our Combined Balance Sheets.
Derivatives are classified as current or noncurrent based on the
contractual timing of expected future net cash flows of
individual contracts. The expected future net cash flows for
derivatives classified as current are expected to occur within
the next twelve months. The fair value amounts are presented on
a gross basis and do not reflect the netting of asset and
liability positions permitted under the terms of our master
netting arrangements.
September 30, |
||||||||
2009 | ||||||||
Assets | Liabilities | |||||||
(In millions) | ||||||||
Designated as hedging instruments
|
$ | 1 | $ | 1 | ||||
Not designated as hedging instruments
|
3 | | ||||||
Total derivatives
|
$ | 4 | $ | 1 | ||||
The following table presents pre-tax gains and losses for our
energy commodity derivatives designated as cash flow hedges, as
recognized in accumulated other comprehensive income (AOCI) or
revenues.
Nine Months Ended |
||||||
September 30, |
||||||
2009 | Classification | |||||
Net gain (loss) recognized in other comprehensive income
(effective portion)
|
$ | (1 | ) | AOCI | ||
Net gain reclassified from accumulated other comprehensive
income into income (effective portion)
|
$ | | Revenues | |||
Gain (loss) recognized in income (ineffective portion)
|
$ | | Revenues |
There were no gains or losses recognized in income as a result
of excluding amounts from the assessment of hedge effectiveness
or as a result of reclassifications to earnings following the
discontinuance of any cash flow hedges. As of September 30,
2009, we have hedged portions of future cash flows associated
with anticipated NGL sales for up to three months. Based on
recorded values at September 30, 2009, net losses to be
reclassified into earnings within the next twelve months are
immaterial. These recorded values are based on market prices of
the commodities as of September 30, 2009. Due to the
volatile nature of commodity prices and changes in the
creditworthiness of counterparties, actual gains or losses
realized in the next twelve months
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CONTRIBUTED
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
will likely differ from these values. These gains or losses will
offset net losses or gains that will be realized in earnings
from previous unfavorable or favorable market movements
associated with underlying hedged transactions.
Gains on our energy commodity derivatives not designated as
hedging instruments of $4 million were recognized in
Midstream revenues during the nine months ended
September 30, 2009.
The cash flow impact of our derivative activities is presented
in the Combined Statements of Cash Flows as changes in
other current assets, changes in accrued liabilities and
changes in noncurrent assets.
Credit-risk-related
features
Our financial swap contracts are with WGM, and the derivative
contracts not designated as hedging instruments are physical
commodity sale contracts. These agreements do not contain any
provisions that require us to post collateral related to net
liability positions.
Guarantees
In addition to the guarantees and payment obligations discussed
elsewhere in these footnotes (see Note 8), we have issued
guarantees and other similar arrangements as discussed below.
In connection with agreements executed to resolve take-or-pay
and other contract claims and to amend gas purchase contracts,
Transco entered into certain settlements with producers that may
require the indemnification of certain claims for additional
royalties that the producers may be required to pay as a result
of such settlements. Transco, through its agent, WGM, continues
to purchase gas under contracts which extend, in some cases,
through the life of the associated gas reserves. Certain of
these contracts contain royalty indemnification provisions that
have no carrying value. Producers have received certain demands
and may receive other demands, which could result in claims
pursuant to royalty indemnification provisions. Indemnification
for royalties will depend on, among other things, the specific
lease provisions between the producer and the lessor and the
terms of the agreement between the producer and Transco.
Consequently, the potential maximum future payments under such
indemnification provisions cannot be determined. However,
management believes that the probability of material payments is
remote.
Concentration
of Credit Risk
Cash
equivalents
Our cash equivalents are primarily invested in funds with
high-quality, short-term securities and instruments that are
issued or guaranteed by the U.S. government.
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Accounts
and notes receivable
The following table summarizes concentration of receivables, net
of allowances, by product or service at December 31, 2007
and 2008:
December 31, | ||||||||
2007 | 2008 | |||||||
(In millions) | ||||||||
Receivables by product or service:
|
||||||||
Sale of NGLs and related products and services
|
$ | 240 | $ | 123 | ||||
Transportation of natural gas and related products
|
161 | 135 | ||||||
Total accounts receivable
|
401 | 258 | ||||||
Notes receivable from parent
|
253 | 252 | ||||||
Total
|
$ | 654 | $ | 510 | ||||
Natural gas and NGL customers include pipelines, distribution
companies, producers, gas marketers and industrial users
primarily located in the eastern and northwestern United States,
Rocky Mountains and the Gulf Coast. As a general policy,
collateral is not required for receivables, but customers
financial condition and credit worthiness are evaluated
regularly.
Derivative
assets and liabilities
We have a risk of loss from counterparties not performing
pursuant to the terms of their contractual obligations. Risk of
loss is impacted by several factors, including credit
considerations. We attempt to minimize credit-risk exposure to
derivative counterparties through formal credit policies,
consideration of credit ratings from public ratings agencies,
monitoring procedures and collateral support under certain
circumstances. Our NGL and natural gas financial contracts are
with WGM and do not contain any provisions that require either
party to post collateral related to net liability positions.
Historically, WGM has not passed any counterparty risk back to
us when they enter offsetting NGL and natural gas financial
contracts with third parties. Our remaining derivatives are
physical commodity sale contracts with non-investment grade
companies.
Revenues
During the year ended December 31, 2007, there were two
customers in our Midstream Gas & Liquids segment for
which our sales exceeded 10% of our consolidated revenues. The
largest customer represented 16% of our 2007 revenues and the
other represented 12%. There were no customers for which our
sales exceeded 10% of our consolidated revenues in 2008.
Note 16. | Contingent Liabilities and Commitments |
Environmental
Matters
Since 1989, Transco has had studies underway to test certain of
its facilities for the presence of toxic and hazardous
substances to determine to what extent, if any, remediation may
be necessary. Transco has responded to data requests from the
U.S. Environmental Protection Agency (EPA) and state
agencies regarding such potential contamination of certain of
its sites. Transco has identified polychlorinated biphenyl (PCB)
contamination in compressor systems, soils and related
properties at certain compressor station sites. Transco has also
been involved in negotiations with the EPA and state agencies to
develop screening, sampling and cleanup programs. In addition,
Transco commenced negotiations with certain environmental
authorities and other parties concerning investigative and
remedial actions relative to potential mercury contamination at
certain gas metering sites. The costs of any such remediation
will depend upon the scope of the remediation.
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
At December 31, 2008 and September 30, 2009, we had
accrued liabilities of $5 million and $4 million,
respectively, related to PCB contamination, potential mercury
contamination, and other toxic and hazardous substances. Transco
has been identified as a potentially responsible party at
various Superfund and state waste disposal sites. Based on
present volumetric estimates and other factors, we have
estimated our aggregate exposure for remediation of these sites
to be less than $1 million, which is included in the
environmental accrual discussed above. We expect that these
costs will be recoverable through Transcos rates.
Beginning in the mid-1980s, Northwest Pipeline evaluated many of
its facilities for the presence of toxic and hazardous
substances to determine to what extent, if any, remediation
might be necessary. Consistent with other natural gas
transmission companies, Northwest Pipeline identified PCB
contamination in air compressor systems, soils and related
properties at certain compressor station sites. Similarly,
Northwest Pipeline identified hydrocarbon impacts at these
facilities due to the former use of earthen pits and mercury
contamination at certain gas metering sites. The PCBs were
remediated pursuant to a Consent Decree with the EPA in the late
1980s and Northwest Pipeline conducted a voluntary
clean-up of
the hydrocarbon and mercury impacts in the early 1990s. In 2005,
the Washington Department of Ecology required Northwest Pipeline
to reevaluate its previous mercury
clean-ups in
Washington. Consequently, Northwest Pipeline is conducting
additional remediation activities at certain sites to comply
with Washingtons current environmental standards. At
December 31, 2008 and September 30, 2009, we have
accrued liabilities of $9 million and $8 million,
respectively, for these costs. We expect that these costs will
be recoverable through Northwest Pipelines rates.
In March 2008, the EPA issued a new air quality standard for
ground level ozone. In September 2009, the EPA announced that it
would reconsider those standards. The new standard would likely
impact the operations of our interstate gas pipelines and cause
us to incur additional capital expenditures to comply. At this
time we are unable to estimate the cost of these additions that
may be required to meet these regulations. We expect that costs
associated with these compliance efforts will be recoverable
through rates.
In September 2007, the EPA requested, and Transco later
provided, information regarding natural gas compressor stations
in the states of Mississippi and Alabama as part of the
EPAs investigation of our compliance with the Clean Air
Act. On March 28, 2008, the EPA issued NOVs alleging
violations of Clean Air Act requirements at these compressor
stations. Transco met with the EPA in May 2008 and submitted its
response denying the allegations in June 2008. In July 2009, the
EPA requested additional information pertaining to these
compressor stations and in August 2009, Transco submitted the
requested information.
Summary
of environmental matters
Actual costs incurred for these matters could be substantially
greater than amounts accrued depending 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,
but the amount cannot be reasonably estimated at this time.
Other
Legal Matters
Will
Price (formerly Quinque)
In 2001, we were named, along with other subsidiaries of
Williams, as defendants in a nationwide class action lawsuit in
Kansas state court that had been pending against other
defendants, generally pipeline and gathering companies, since
2000. The plaintiffs alleged that the defendants have engaged in
mismeasurement techniques that distort the heating content of
natural gas, resulting in an alleged underpayment of royalties
to the class of producer plaintiffs and sought an unspecified
amount of damages. The fourth amended petition, which was filed
in 2003, deleted all of our defendant entities except two
Midstream subsidiaries. All remaining defendants have opposed
class certification, and on September 18, 2009, the court
denied plaintiffs most recent motion to certify the class.
On October 2, 2009, the plaintiffs filed a motion for
reconsideration of the
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CONTRIBUTED
ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
denial. We are awaiting a decision from the court. The amount of
any possible liability cannot be reasonably estimated at this
time.
Rate
Matters
On March 1, 2001, Transco submitted to the FERC a general
rate filing (Docket
No. RP01-245)
to recover increased costs. All cost of service, throughput and
throughput mix, cost allocation and rate design issues in this
rate proceeding have been resolved by settlement or litigation.
The resulting rates were effective from September 1, 2001
to March 1, 2007. A tariff matter related to storage
service in this proceeding has not yet been resolved.
On August 31, 2006, Transco submitted to the FERC a general
rate filing (Docket
No. RP06-569)
principally designed to recover costs associated with
(a) an increase in operation and maintenance expenses and
administrative and general expenses; (b) an increase in
depreciation expense; (c) the inclusion of costs for asset
retirement obligations; (d) an increase in rate base
resulting from additional plant; and (e) an increase in
rate of return and related taxes. The rates became effective
March 1, 2007, subject to refund and the outcome of a
hearing. On November 28, 2007, Transco filed with the FERC
a Stipulation and Agreement (Agreement) resolving all but one
issue in the rate case. On March 7, 2008, the FERC issued
an order approving the Agreement without modifications. Pursuant
to its terms, the Agreement became effective on June 1,
2008, and refunds of approximately $144 million were issued
on July 17, 2008. Transco had previously provided a reserve
for the refunds.
The one issue reserved for litigation or further settlement
relates to Transcos proposal to change the design of the
rates for service under one of its storage rate schedules, which
was implemented subject to refund on March 1, 2007. A
hearing on that issue was held before a FERC Administrative Law
Judge (ALJ) in July 2008. In November 2008, the ALJ issued an
initial decision in which he determined that Transcos
proposed incremental rate design is unjust and unreasonable. The
ALJs decision is subject to review by the FERC. If Transco
is unsuccessful in its rehearing request, it would be required
to refund approximately $6 million to customers.
Summary
Litigation, arbitration, regulatory matters, and environmental
matters are subject to inherent uncertainties. Were an
unfavorable ruling to occur, there exists the possibility of a
material adverse impact on the results of operations in the
period in which the ruling occurs. Management, including
internal counsel, currently believes 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 not
have a material adverse effect upon our future liquidity or
financial position.
Commitments
Commitments for construction and acquisition of property, plant
and equipment are approximately $466 million at
December 31, 2008. In addition, Transco has commitments for
gas purchases of approximately $87 million at
December 31, 2008, which are expected to be spent over the
next ten years.
Note 17. | Segment Disclosures |
Our 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. Pipeline Partners
is consolidated within the Gas Pipeline segment. (See
Note 1.)
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CONTRIBUTED
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Performance
Measurement
We currently evaluate performance based on segment profit
from operations, which includes segment revenues from
external and internal customers, segment costs and expenses,
and equity earnings. The accounting policies of the segments
are the same as those described in Note 1. Intersegment
sales are generally accounted for at current market prices as if
the sales were to unaffiliated third parties.
The primary types of costs and operating expenses by segment can
be generally summarized as follows:
| Gas Pipeline depreciation and operation and maintenance expenses; and | |
| Midstream Gas & Liquids commodity purchases (primarily for NGL and crude marketing, shrink, feedstock and fuel), depreciation, and operation and maintenance expenses. |
The following table reflects the reconciliation of segment
revenues to revenues and segment profit to
operating income as reported in the Combined
Statements of Income. It also presents other financial
information related to long-lived assets.
Midstream |
||||||||||||||||
Gas |
Gas & |
|||||||||||||||
Pipeline | Liquids | Eliminations | Total | |||||||||||||
(In millions) | ||||||||||||||||
Year Ended December 31, 2007
|
||||||||||||||||
Segment revenues:
|
||||||||||||||||
External
|
$ | 1,619 | $ | 3,707 | $ | | $ | 5,326 | ||||||||
Internal
|
4 | | (4 | ) | | |||||||||||
Total revenues
|
$ | 1,623 | $ | 3,707 | $ | (4 | ) | $ | 5,326 | |||||||
Segment profit
|
$ | 649 | $ | 757 | $ | | $ | 1,406 | ||||||||
Less:
|
||||||||||||||||
Equity earnings
|
27 | 24 | | 51 | ||||||||||||
Segment operating income
|
$ | 622 | $ | 733 | $ | | $ | 1,355 | ||||||||
General corporate expense
|
(88 | ) | ||||||||||||||
Total operating income
|
$ | 1,267 | ||||||||||||||
Other financial information:
|
||||||||||||||||
Additions to long-lived assets
|
$ | 546 | $ | 561 | $ | | $ | 1,107 | ||||||||
Depreciation and amortization
|
$ | 313 | $ | 119 | $ | | $ | 432 |
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Midstream |
||||||||||||||||
Gas |
Gas & |
|||||||||||||||
Pipeline | Liquids | Eliminations | Total | |||||||||||||
(In millions) | ||||||||||||||||
Year Ended December 31, 2008
|
||||||||||||||||
Segment revenues:
|
||||||||||||||||
External
|
$ | 1,637 | $ | 3,818 | $ | | $ | 5,455 | ||||||||
Internal
|
| 10 | (10 | ) | | |||||||||||
Total revenues
|
$ | 1,637 | $ | 3,828 | $ | (10 | ) | $ | 5,455 | |||||||
Segment profit
|
$ | 661 | $ | 573 | $ | | $ | 1,234 | ||||||||
Less:
|
||||||||||||||||
Equity earnings
|
31 | 24 | | 55 | ||||||||||||
Segment operating income
|
$ | 630 | $ | 549 | $ | | $ | 1,179 | ||||||||
General corporate expense
|
(80 | ) | ||||||||||||||
Total operating income
|
$ | 1,099 | ||||||||||||||
Other financial information:
|
||||||||||||||||
Additions to long-lived assets
|
$ | 413 | $ | 608 | $ | | $ | 1,021 | ||||||||
Depreciation and amortization
|
$ | 319 | $ | 139 | $ | | $ | 458 |
Midstream |
||||||||||||||||
Gas |
Gas & |
|||||||||||||||
Pipeline | Liquids | Eliminations | Total | |||||||||||||
(In millions) | ||||||||||||||||
Nine Months Ended September 30, 2008
|
||||||||||||||||
Segment revenues:
|
||||||||||||||||
External
|
$ | 1,229 | $ | 3,275 | $ | | $ | 4,504 | ||||||||
Internal
|
| 7 | (7 | ) | | |||||||||||
Total revenues
|
$ | 1,229 | $ | 3,282 | $ | (7 | ) | $ | 4,504 | |||||||
Segment profit
|
$ | 510 | $ | 514 | $ | | $ | 1,024 | ||||||||
Less:
|
||||||||||||||||
Equity earnings
|
24 | 24 | | 48 | ||||||||||||
Segment operating income
|
$ | 486 | $ | 490 | $ | | $ | 976 | ||||||||
General corporate expense
|
(61 | ) | ||||||||||||||
Total operating income
|
$ | 915 | ||||||||||||||
Other financial information:
|
||||||||||||||||
Additions to long-lived assets
|
$ | 261 | $ | 465 | $ | | $ | 726 | ||||||||
Depreciation and amortization
|
$ | 237 | $ | 95 | $ | | $ | 332 |
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NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
Midstream |
||||||||||||||||
Gas |
Gas & |
|||||||||||||||
Pipeline | Liquids | Eliminations | Total | |||||||||||||
(In millions) | ||||||||||||||||
Nine Months Ended September 30, 2009
|
||||||||||||||||
Segment revenues:
|
||||||||||||||||
External
|
$ | 1,202 | $ | 1,801 | $ | | $ | 3,003 | ||||||||
Internal
|
| 5 | (5 | ) | | |||||||||||
Total revenues
|
$ | 1,202 | $ | 1,806 | $ | (5 | ) | $ | 3,003 | |||||||
Segment profit
|
$ | 474 | $ | 313 | $ | | $ | 787 | ||||||||
Less:
|
||||||||||||||||
Equity earnings
|
25 | 14 | | 39 | ||||||||||||
Segment operating income
|
$ | 449 | $ | 299 | $ | | $ | 748 | ||||||||
General corporate expense
|
(68 | ) | ||||||||||||||
Total operating income
|
$ | 680 | ||||||||||||||
Other financial information:
|
||||||||||||||||
Additions to long-lived assets
|
$ | 322 | $ | 345 | $ | | $ | 667 | ||||||||
Depreciation and amortization
|
$ | 249 | $ | 113 | $ | | $ | 362 |
The following table reflects total assets and
investments by reporting segment.
Total Assets | Investments | |||||||||||||||||||||||
December 31, |
December 31, |
September 30, |
December 31, |
December 31, |
September 30, |
|||||||||||||||||||
2007 | 2008 | 2009 | 2007 | 2008 | 2009 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Gas Pipeline
|
$ | 7,676 | $ | 7,891 | $ | 7,931 | $ | 259 | $ | 302 | $ | 235 | ||||||||||||
Midstream Gas & Liquids
|
2,422 | 2,789 | 3,197 | 44 | 37 | 171 | ||||||||||||||||||
Eliminations
|
(6 | ) | (2 | ) | (2 | ) | | | | |||||||||||||||
Total
|
$ | 10,092 | $ | 10,678 | $ | 11,126 | $ | 303 | $ | 339 | $ | 406 | ||||||||||||
Note 18. | Subsequent Events |
In November 2009, we sold Midstreams Cameron Meadows
gas processing plant for $57 million. We expect to
recognize a gain on the sale of approximately $40 million
in the fourth-quarter 2009.
F-37