Williams Companies, Inc 10-Q for FY2020 Q1
Williams Companies, Inc. (WMB)
10-Q
2020-05-04
For: 2020-03-31
View Original
Added on
April 08, 2026
About this 10-Q
Williams Companies, Inc filed this 10-Q on May 4, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.91B
- down 6.9% from $2.05B a year earlier
- Net loss
- $517M
- compared with net income of $195M a year earlier
- Diluted EPS
- -$0.43
- compared with $0.16 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____________ to _____________
Commission file number 1-4174
THE WILLIAMS COMPANIES, INC.
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
(Address of principal executive offices) | (Zip Code) | ||
Registrant’s telephone number, including area code: (918 ) 573-2000
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Shares Outstanding at April 30, 2020 | |
Common Stock, $1.00 par value | ||
The Williams Companies, Inc.
Index
Page | ||
The reports, filings, and other public announcements of The Williams Companies, Inc. (Williams) may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, included in this report that address activities, events, or developments that we expect, believe, or anticipate will exist or may occur in the future, are forward-looking statements. Forward-looking statements can be identified by various forms of words such as “anticipates,” “believes,” “seeks,” “could,” “may,” “should,” “continues,” “estimates,” “expects,” “forecasts,” “intends,” “might,” “goals,” “objectives,” “targets,” “planned,” “potential,” “projects,” “scheduled,” “will,” “assumes,” “guidance,” “outlook,” “in-service date,” or other similar expressions. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to management and include, among others, statements regarding:
• | Levels of dividends to Williams stockholders; |
• | Future credit ratings of Williams and its affiliates; |
• | Amounts and nature of future capital expenditures; |
• | Expansion and growth of our business and operations; |
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• | Expected in-service dates for capital projects; |
• | Financial condition and liquidity; |
• | Business strategy; |
• | Cash flow from operations or results of operations; |
• | Seasonality of certain business components; |
• | Natural gas, natural gas liquids and crude oil prices, supply, and demand; |
• | Demand for our services; |
• | The impact of the novel coronavirus (COVID-19) pandemic. |
Forward-looking statements are based on numerous assumptions, uncertainties, and risks that could cause future events or results to be materially different from those stated or implied in this report. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following:
• | Availability of supplies, market demand, and volatility of prices; |
• | Development and rate of adoption of alternative energy sources; |
• | The impact of existing and future laws and regulations, the regulatory environment, environmental liabilities, and litigation, as well as our ability to obtain necessary permits and approvals, and achieve favorable rate proceeding outcomes; |
• | Our exposure to the credit risk of our customers and counterparties; |
• | Our ability to acquire new businesses and assets and successfully integrate those operations and assets into existing businesses as well as successfully expand our facilities, and to consummate asset sales on acceptable terms; |
• | Whether we are able to successfully identify, evaluate, and timely execute our capital projects and investment opportunities; |
• | The strength and financial resources of our competitors and the effects of competition; |
• | The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate; |
• | Whether we will be able to effectively execute our financing plan; |
• | Increasing scrutiny and changing expectations from stakeholders with respect to our environmental, social, and governance practices; |
• | The physical and financial risks associated with climate change; |
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• | The impact of operational and developmental hazards and unforeseen interruptions; |
• | The risks resulting from outbreaks or other public health crises, including the novel coronavirus (COVID-19); |
• | Risks associated with weather and natural phenomena, including climate conditions and physical damage to our facilities; |
• | Acts of terrorism, cybersecurity incidents, and related disruptions; |
• | Our costs and funding obligations for defined benefit pension plans and other postretirement benefit plans; |
• | Changes in maintenance and construction costs, as well as our ability to obtain sufficient construction-related inputs, including skilled labor; |
• | Inflation, interest rates, and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on customers and suppliers); |
• | Risks related to financing, including restrictions stemming from debt agreements, future changes in credit ratings as determined by nationally recognized credit rating agencies, and the availability and cost of capital; |
• | The ability of the members of the Organization of Petroleum Exporting Countries and other oil exporting nations to agree to and maintain oil price and production controls and the impact on domestic production; |
• | Changes in the current geopolitical situation; |
• | Whether we are able to pay current and expected levels of dividends; |
• | Additional risks described in our filings with the Securities and Exchange Commission (SEC). |
Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.
In addition to causing our actual results to differ, the factors listed above and referred to below may cause our intentions to change from those statements of intention set forth in this report. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 24, 2020, as supplemented by the disclosure in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.
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DEFINITIONS
The following is a listing of certain abbreviations, acronyms, and other industry terminology that may be used throughout this Form 10-Q.
Measurements:
Barrel: One barrel of petroleum products that equals 42 U.S. gallons
Bcf: One billion cubic feet of natural gas
Bcf/d: One billion cubic feet of natural gas per day
British Thermal Unit (Btu): A unit of energy needed to raise the temperature of one pound of water by one degree Fahrenheit
Dekatherms (Dth): A unit of energy equal to one million British thermal units
Mbbls/d: One thousand barrels per day
Mdth/d: One thousand dekatherms per day
MMcf/d: One million cubic feet per day
MMdth: One million dekatherms or approximately one trillion British thermal units
MMdth/d: One million dekatherms per day
Tbtu: One trillion British thermal units
Consolidated Entities:
Cardinal: Cardinal Gas Services, L.L.C.
Gulfstar One: Gulfstar One LLC
Northwest Pipeline: Northwest Pipeline LLC
Transco: Transcontinental Gas Pipe Line Company, LLC
UEOM: Utica East Ohio Midstream LLC, previously a Partially Owned Entity until acquiring remaining interest in March 2019
Northeast JV: Ohio Valley Midstream LLC, a partially owned venture that includes our Ohio Valley assets and UEOM
Partially Owned Entities: Entities in which we do not own a 100 percent ownership interest and which, as of March 31, 2020, we account for as an equity-method investment, including principally the following:
Aux Sable: Aux Sable Liquid Products LP
Brazos Permian II: Brazos Permian II, LLC
Caiman II: Caiman Energy II, LLC
Discovery: Discovery Producer Services LLC
Gulfstream: Gulfstream Natural Gas System, L.L.C.
Jackalope: Jackalope Gas Gathering Services, L.L.C., which was sold in April 2019
Laurel Mountain: Laurel Mountain Midstream, LLC
OPPL: Overland Pass Pipeline Company LLC
RMM: Rocky Mountain Midstream Holdings LLC
Government and Regulatory:
EPA: Environmental Protection Agency
Exchange Act, the: Securities and Exchange Act of 1934, as amended
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FERC: Federal Energy Regulatory Commission
IRS: Internal Revenue Service
SEC: Securities and Exchange Commission
Other:
Fractionation: The process by which a mixed stream of natural gas liquids is separated into constituent products, such as ethane, propane, and butane
GAAP: U.S. generally accepted accounting principles
LNG: Liquefied natural gas; natural gas which has been liquefied at cryogenic temperatures
MVC: Minimum volume commitment
NGLs: Natural gas liquids; natural gas liquids result from natural gas processing and crude oil refining and are used as petrochemical feedstocks, heating fuels, and gasoline additives, among other applications
NGL margins: NGL revenues less any applicable Btu replacement cost, plant fuel, transportation, and fractionation
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
The Williams Companies, Inc.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions, except per-share amounts) | |||||||
Revenues: | |||||||
Service revenues | $ | $ | |||||
Service revenues – commodity consideration | |||||||
Product sales | |||||||
Total revenues | |||||||
Costs and expenses: | |||||||
Product costs | |||||||
Processing commodity expenses | |||||||
Operating and maintenance expenses | |||||||
Depreciation and amortization expenses | |||||||
Selling, general, and administrative expenses | |||||||
Impairment of goodwill (Note 11) | |||||||
Other (income) expense – net | |||||||
Total costs and expenses | |||||||
Operating income (loss) | |||||||
Equity earnings (losses) (Note 5) | |||||||
Impairment of equity-method investments (Note 11) | ( | ) | ( | ) | |||
Other investing income (loss) – net | |||||||
Interest incurred | ( | ) | ( | ) | |||
Interest capitalized | |||||||
Other income (expense) – net | |||||||
Income (loss) before income taxes | ( | ) | |||||
Provision (benefit) for income taxes | ( | ) | |||||
Net income (loss) | ( | ) | |||||
Less: Net income (loss) attributable to noncontrolling interests | ( | ) | |||||
Net income (loss) attributable to The Williams Companies, Inc. | ( | ) | |||||
Preferred stock dividends | |||||||
Net income (loss) available to common stockholders | $ | ( | ) | $ | |||
Basic earnings (loss) per common share: | |||||||
Net income (loss) | $ | ( | ) | $ | |||
Weighted-average shares (thousands) | |||||||
Diluted earnings (loss) per common share: | |||||||
Net income (loss) | $ | ( | ) | $ | |||
Weighted-average shares (thousands) | |||||||
See accompanying notes.
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The Williams Companies, Inc.
Consolidated Statement of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Net income (loss) | $ | ( | ) | $ | |||
Other comprehensive income (loss): | |||||||
Pension and other postretirement benefits: | |||||||
Net actuarial gain (loss) arising during the year, net of taxes of $4 in 2020 | ( | ) | |||||
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($2) in 2020 and ($1) in 2019 | |||||||
Other comprehensive income (loss) | ( | ) | |||||
Comprehensive income (loss) | ( | ) | |||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | ( | ) | |||||
Comprehensive income (loss) attributable to The Williams Companies, Inc. | $ | ( | ) | $ | |||
See accompanying notes.
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The Williams Companies, Inc.
Consolidated Balance Sheet
(Unaudited)
March 31, 2020 | December 31, 2019 | |||||||
(Millions, except per-share amounts) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Trade accounts and other receivables | ||||||||
Allowance for doubtful accounts | ( | ) | ( | ) | ||||
Trade accounts and other receivables – net | ||||||||
Inventories | ||||||||
Other current assets and deferred charges | ||||||||
Total current assets | ||||||||
Investments | ||||||||
Property, plant, and equipment | ||||||||
Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
Property, plant, and equipment – net | ||||||||
Intangible assets – net of accumulated amortization | ||||||||
Regulatory assets, deferred charges, and other | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued liabilities | ||||||||
Long-term debt due within one year | ||||||||
Total current liabilities | ||||||||
Long-term debt | ||||||||
Deferred income tax liabilities | ||||||||
Regulatory liabilities, deferred income, and other | ||||||||
Contingent liabilities (Note 12) | ||||||||
Equity: | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock | ||||||||
Common stock ($1 par value; 1,470 million shares authorized at March 31, 2020 and December 31, 2019; 1,248 million shares issued at March 31, 2020 and 1,247 million shares issued at December 31, 2019) | ||||||||
Capital in excess of par value | ||||||||
Retained deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
Treasury stock, at cost (35 million shares of common stock) | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Noncontrolling interests in consolidated subsidiaries | ||||||||
Total equity | ||||||||
Total liabilities and equity | $ | $ | ||||||
See accompanying notes.
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The Williams Companies, Inc.
Consolidated Statement of Changes in Equity
(Unaudited)
The Williams Companies, Inc. Stockholders | |||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Capital in Excess of Par Value | Retained Deficit | AOCI* | Treasury Stock | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
(Millions) | |||||||||||||||||||||||||||||||||||
Balance – December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
Net income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Other comprehensive income (loss) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Cash dividends – common stock ($0.40 per share) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Dividends and distributions to noncontrolling interests | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Stock-based compensation and related common stock issuances, net of tax | |||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests | |||||||||||||||||||||||||||||||||||
Other | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Net increase (decrease) in equity | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
Balance – March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
Balance – December 31, 2018 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
Net income (loss) | |||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||
Cash dividends – common stock ($0.38 per share) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Dividends and distributions to noncontrolling interests | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
Stock-based compensation and related common stock issuances, net of tax | |||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interests | |||||||||||||||||||||||||||||||||||
Other | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
Net increase (decrease) in equity | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance – March 31, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||
* | Accumulated Other Comprehensive Income (Loss) |
See accompanying notes.
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The Williams Companies, Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
OPERATING ACTIVITIES: | |||||||
Net income (loss) | $ | ( | ) | $ | |||
Adjustments to reconcile to net cash provided (used) by operating activities: | |||||||
Depreciation and amortization | |||||||
Provision (benefit) for deferred income taxes | ( | ) | |||||
Equity (earnings) losses | ( | ) | ( | ) | |||
Distributions from unconsolidated affiliates | |||||||
Impairment of goodwill (Note 11) | |||||||
Impairment of equity-method investments (Note 11) | |||||||
Amortization of stock-based awards | |||||||
Cash provided (used) by changes in current assets and liabilities: | |||||||
Accounts receivable | |||||||
Inventories | |||||||
Other current assets and deferred charges | ( | ) | |||||
Accounts payable | ( | ) | ( | ) | |||
Accrued liabilities | ( | ) | ( | ) | |||
Other, including changes in noncurrent assets and liabilities | ( | ) | |||||
Net cash provided (used) by operating activities | |||||||
FINANCING ACTIVITIES: | |||||||
Proceeds from (payments of) commercial paper – net | |||||||
Proceeds from long-term debt | |||||||
Payments of long-term debt | ( | ) | ( | ) | |||
Proceeds from issuance of common stock | |||||||
Common dividends paid | ( | ) | ( | ) | |||
Dividends and distributions paid to noncontrolling interests | ( | ) | ( | ) | |||
Contributions from noncontrolling interests | |||||||
Other – net | ( | ) | ( | ) | |||
Net cash provided (used) by financing activities | ( | ) | |||||
INVESTING ACTIVITIES: | |||||||
Property, plant, and equipment: | |||||||
Capital expenditures (1) | ( | ) | ( | ) | |||
Dispositions – net | ( | ) | ( | ) | |||
Contributions in aid of construction | |||||||
Purchases of businesses, net of cash acquired (Note 2) | ( | ) | |||||
Purchases of and contributions to equity-method investments | ( | ) | ( | ) | |||
Other – net | ( | ) | ( | ) | |||
Net cash provided (used) by investing activities | ( | ) | ( | ) | |||
Increase (decrease) in cash and cash equivalents | ( | ) | |||||
Cash and cash equivalents at beginning of year | |||||||
Cash and cash equivalents at end of period | $ | $ | |||||
_____________ | |||||||
(1) Increases to property, plant, and equipment | $ | ( | ) | $ | ( | ) | |
Changes in related accounts payable and accrued liabilities | ( | ) | ( | ) | |||
Capital expenditures | $ | ( | ) | $ | ( | ) | |
See accompanying notes.
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The Williams Companies, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – General, Description of Business, and Basis of Presentation
General
Our accompanying interim consolidated financial statements do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.
Description of Business
We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States. Effective January 1, 2020, following an organizational realignment, our interstate natural gas pipeline Northwest Pipeline LLC (Northwest Pipeline), which was reported within the West reporting segment throughout 2019, is now managed within the Transmission & Gulf of Mexico reporting segment (previously identified as the Atlantic-Gulf reporting segment). As a result, beginning with the reporting of first quarter 2020, our operations are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities as well as corporate activities are included in Other. Prior period segment disclosures have been recast for the new segment presentation.
Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline, as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated variable interest entity, or VIE), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C., and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery).
Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 58 percent equity-method investment in Caiman Energy II, LLC (Caiman II), and Appalachia Midstream Services, LLC, which owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale (Appalachia Midstream Investments).
West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas,
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Notes (Continued)
the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC, a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), and a 15 percent equity-method investment in Brazos Permian II, LLC (Brazos Permian II). West also included our former 50 percent equity-method investment in Jackalope Gas Gathering Services, L.L.C., which was sold in April 2019.
Basis of Presentation
Significant risks and uncertainties
We believe that the carrying value of certain of our property, plant, and equipment and other identifiable intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable based on our evaluation of undiscounted future cash flows. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, including effects of financial distress caused by recent financial and commodity market declines, could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment.
Accounting standards issued and adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. We adopted ASU 2016-13 effective January 1, 2020, which primarily applied to our short-term trade receivables. There was no cumulative effect adjustment to retained earnings upon adoption.
The majority of our trade receivable balances are due within 30 days. We monitor the credit quality of our counterparties through review of collection trends, credit ratings, and other analyses, such as bankruptcy monitoring. Financial assets from our natural gas transmission business and gathering and transportation business are segregated into separate pools for evaluation due to different counterparty risks inherent in each business. Changes in counterparty risk factors could lead to reassessment of the composition of our financial assets as separate pools or the need for additional pools. We calculate our allowance for credit losses incorporating an aging method. In estimating our expected credit losses, we utilized historical loss rates over many years, which included periods of both high and low commodity prices. Commodity prices could have a significant impact on a portion of our gathering and processing counterparties’ financial health and ability to satisfy current liabilities. Our expected credit loss estimate considered both internal and external forward-looking commodity price expectations, as well as counterparty credit ratings, and factors impacting their near-term liquidity. In addition, our expected credit loss estimate considered potential contractual, physical, and commercial protections and outcomes in the case of a counterparty bankruptcy. The physical location and nature of our services help to mitigate collectability concerns of our gathering and processing producer customers. Our gathering lines are physically connected to the wellhead and may be located in areas with limited service provider options, making it very costly to replicate by another provider. As such, our gathering assets play a critical role in our customers’ ability to generate operating cash flows. Commodity price movements generally do not impact the majority of our natural gas transmission businesses customers’ financial condition.
Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. We do not have a material amount of significantly aged receivables at March 31, 2020.
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Notes (Continued)
Note 2 – Acquisitions
UEOM
As of December 31, 2018, we owned a 62 percent interest in Utica East Ohio Midstream LLC (UEOM) which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the remaining 38 percent interest in UEOM. Total consideration paid, including post-closing adjustments, was $741 million in cash funded through credit facility borrowings and cash on hand, net of $13 million cash acquired. As a result of acquiring this additional interest, we obtained control of and consolidated UEOM.
The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $74 million noncash impairment loss related to our existing 62 percent interest (see Note 11 – Fair Value Measurements and Guarantees). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest.
Northeast JV
Concurrent with the UEOM acquisition, we executed an agreement whereby we contributed our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $1.33 billion for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $567 million, and decreased Capital in excess of par value by $426 million and Deferred income tax liabilities by $141 million in the Consolidated Balance Sheet in 2019.
The goodwill recognized in the UEOM acquisition of $187 million (includes a $1 million adjustment recorded in the first quarter of 2020) was impaired during the first quarter of 2020. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 11 – Fair Value Measurements and Guarantees).
13
Notes (Continued)
Note 3 – Revenue Recognition
Revenue by Category
The following table presents our revenue disaggregated by major service line:
Transco | Northwest Pipeline | Gulf of Mexico Midstream | Northeast Midstream | West Midstream | Other | Eliminations | Total | ||||||||||||||||||||||||
(Millions) | |||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||||||||||
Service revenues: | |||||||||||||||||||||||||||||||
Regulated interstate natural gas transportation and storage | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Gathering, processing, transportation, fractionation, and storage: | |||||||||||||||||||||||||||||||
Monetary consideration | ( | ) | |||||||||||||||||||||||||||||
Commodity consideration | |||||||||||||||||||||||||||||||
Other | ( | ) | |||||||||||||||||||||||||||||
Total service revenues | ( | ) | |||||||||||||||||||||||||||||
Product Sales: | |||||||||||||||||||||||||||||||
NGL and natural gas | ( | ) | |||||||||||||||||||||||||||||
Total revenues from contracts with customers | ( | ) | |||||||||||||||||||||||||||||
Other revenues (1) | ( | ) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||||
Revenues from contracts with customers: | |||||||||||||||||||||||||||||||
Service revenues: | |||||||||||||||||||||||||||||||
Regulated interstate natural gas transportation and storage | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Gathering, processing, transportation, fractionation, and storage: | |||||||||||||||||||||||||||||||
Monetary consideration | ( | ) | |||||||||||||||||||||||||||||
Commodity consideration | |||||||||||||||||||||||||||||||
Other | ( | ) | |||||||||||||||||||||||||||||
Total service revenues | ( | ) | |||||||||||||||||||||||||||||
Product Sales: | |||||||||||||||||||||||||||||||
NGL and natural gas | ( | ) | |||||||||||||||||||||||||||||
Total revenues from contracts with customers | ( | ) | |||||||||||||||||||||||||||||
Other revenues (1) | ( | ) | |||||||||||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
______________________________
(1) |
14
Notes (Continued)
Contract Assets
The following table presents a reconciliation of our contract assets:
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Balance at beginning of period | $ | $ | |||||
Revenue recognized in excess of amounts invoiced | |||||||
Minimum volume commitments invoiced | ( | ) | ( | ) | |||
Balance at end of period | $ | $ | |||||
Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Balance at beginning of period | $ | $ | |||||
Payments received and deferred | |||||||
Significant financing component | |||||||
Recognized in revenue | ( | ) | ( | ) | |||
Balance at end of period | $ | $ | |||||
Remaining Performance Obligations
Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current Federal Energy Regulatory Commission (FERC) tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known.
Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of March 31, 2020, do not consider potential future performance obligations for which the renewal has not been exercised and excludes contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to March 31, 2020, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities.
15
Notes (Continued)
The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of March 31, 2020.
Contract Liabilities | Remaining Performance Obligations | ||||||
(Millions) | |||||||
2020 (remainder) | $ | $ | |||||
2021 | |||||||
2022 | |||||||
2023 | |||||||
2024 | |||||||
Thereafter | |||||||
Total | $ | $ | |||||
Accounts Receivable
The following is a summary of our Trade accounts and other receivables – net:
March 31, 2020 | December 31, 2019 | ||||||
(Millions) | |||||||
Accounts receivable related to revenues from contracts with customers | $ | $ | |||||
Other accounts receivable | |||||||
Total reflected in Trade accounts and other receivables – net | $ | $ | |||||
Note 4 – Variable Interest Entities
Consolidated VIEs
As of March 31, 2020, we consolidate the following VIEs:
Northeast JV
We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
Gulfstar One
We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines which provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.
Cardinal
We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.
16
Notes (Continued)
The following table presents amounts included in our Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:
March 31, 2020 | December 31, 2019 | ||||||
(Millions) | |||||||
Assets (liabilities): | |||||||
Cash and cash equivalents | $ | $ | |||||
Trade accounts and other receivables – net | |||||||
Other current assets and deferred charges | |||||||
Property, plant, and equipment – net | |||||||
Intangible assets – net of accumulated amortization | |||||||
Regulatory assets, deferred charges, and other | |||||||
Accounts payable | ( | ) | ( | ) | |||
Accrued liabilities | ( | ) | ( | ) | |||
Regulatory liabilities, deferred income, and other | ( | ) | ( | ) | |||
Brazos Permian II
We own a 15 percent interest in Brazos Permian II, which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. During the first quarter of 2020 we recorded an impairment of our equity-method investment in Brazos Permian II (see Note 11 – Fair Value Measurements and Guarantees). Our exposure to loss is limited to the carrying value of our investment.
Note 5 – Investing Activities
Equity earnings (losses) for the three months ended March 31, 2020, includes $78 million associated with the full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement.
Impairment of equity-method investments for the three months ended March 31, 2020, includes $938 million associated with the impairment of equity-method investments (see Note 11 – Fair Value Measurements and Guarantees).
Note 6 – Provision (Benefit) for Income Taxes
The Provision (benefit) for income taxes includes:
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Current: | |||||||
Federal | $ | ( | ) | $ | ( | ) | |
State | |||||||
( | ) | ( | ) | ||||
Deferred: | |||||||
Federal | ( | ) | |||||
State | ( | ) | |||||
( | ) | ||||||
Provision (benefit) for income taxes | $ | ( | ) | $ | |||
17
Notes (Continued)
The effective income tax rate for the total provision (benefit) for both the three months ended March 31, 2020 and 2019 is greater than the federal statutory rate, primarily due to the effect of state income taxes.
During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.
Note 7 – Earnings (Loss) Per Common Share
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Dollars in millions, except per-share amounts; shares in thousands) | |||||||
Net income (loss) available to common stockholders | $ | ( | ) | $ | |||
Basic weighted-average shares | |||||||
Effect of dilutive securities: | |||||||
Nonvested restricted stock units | |||||||
Stock options | |||||||
Diluted weighted-average shares (1) | |||||||
Earnings (loss) per common share: | |||||||
Basic | $ | ( | ) | $ | |||
Diluted | $ | ( | ) | $ | |||
__________
(1) | For the three months ended March 31, 2020, |
Note 8 – Employee Benefit Plans
Net periodic benefit cost (credit) is as follows:
Pension Benefits | |||||||
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Components of net periodic benefit cost (credit): | |||||||
Service cost | $ | $ | |||||
Interest cost | |||||||
Expected return on plan assets | ( | ) | ( | ) | |||
Amortization of net actuarial loss | |||||||
Net actuarial loss from settlements | |||||||
Net periodic benefit cost (credit) | $ | $ | |||||
18
Notes (Continued)
Other Postretirement Benefits | |||||||
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Components of net periodic benefit cost (credit): | |||||||
Interest cost | $ | $ | |||||
Expected return on plan assets | ( | ) | ( | ) | |||
Reclassification to regulatory liability | |||||||
Net periodic benefit cost (credit) | $ | $ | |||||
The components of Net periodic benefit cost (credit) other than the Service cost component are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations.
During the three months ended March 31, 2020, we contributed $1 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $13 million to our pension plans and approximately $4 million to our other postretirement benefit plans in the remainder of 2020.
Note 9 – Debt and Banking Arrangements
Long-Term Debt
Retirements
We retired $1.5 billion of 5.25 percent senior unsecured notes that matured on March 15, 2020.
We retired $14 million of 8.75 percent senior unsecured notes that matured on January 15, 2020.
Commercial Paper Program
At March 31, 2020, no commercial paper was outstanding under our $4 billion commercial paper program.
Credit Facilities
March 31, 2020 | |||||||
Stated Capacity | Outstanding | ||||||
(Millions) | |||||||
Long-term credit facility (1) | $ | $ | |||||
Letters of credit under certain bilateral bank agreements | |||||||
(1) | In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program. |
Note 10 – Stockholders’ Equity
Stockholder Rights Agreement
On March 19, 2020, our board of directors approved the adoption of a limited duration stockholder rights agreement (Rights Agreement) and declared a distribution of one preferred stock purchase right for each outstanding share of common stock. The Rights Agreement is intended to protect the interests of us and our stockholders by reducing the likelihood of another party gaining control of or significant influence over us without paying an appropriate premium considering recent volatile markets. Each preferred stock purchase right represents the right to purchase, upon certain
19
Notes (Continued)
terms and conditions, one one-thousandth of a share of Series C Participating Cumulative Preferred Stock, $1.00 par value per share. Each one-thousandth of a share of Series C Participating Cumulative Preferred Stock, if issued, would have rights similar to one share of our common stock. The distribution of preferred stock purchase rights occurred on March 30, 2020, to holders of record as of the close of business on that date. The Rights Agreement expires on March 20, 2021. Please see our Current Report on Form 8-K dated March 20, 2020, for additional details of the Rights Agreement.
AOCI
The following table presents the changes in AOCI by component, net of income taxes:
Cash Flow Hedges | Foreign Currency Translation | Pension and Other Postretirement Benefits | Total | ||||||||||||
(Millions) | |||||||||||||||
Balance at December 31, 2019 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income (loss) before reclassifications | ( | ) | ( | ) | |||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) | |||||||||||||||
Other comprehensive income (loss) | ( | ) | ( | ) | |||||||||||
Balance at March 31, 2020 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Reclassifications out of AOCI are presented in the following table by component for the three months ended March 31, 2020:
Component | Reclassifications | Classification | ||||
(Millions) | ||||||
Pension and other postretirement benefits: | ||||||
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit) | $ | Other income (expense) – net below Operating income (loss) | ||||
Income tax benefit | ( | ) | Provision (benefit) for income taxes | |||
Reclassifications during the period | $ | |||||
20
Notes (Continued)
Note 11 – Fair Value Measurements and Guarantees
The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, margin deposits, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
Fair Value Measurements Using | ||||||||||||||||||||
Carrying Amount | Fair Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||
(Millions) | ||||||||||||||||||||
Assets (liabilities) at March 31, 2020: | ||||||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
ARO Trust investments | $ | $ | $ | $ | $ | |||||||||||||||
Energy derivative assets designated as hedging instruments | ||||||||||||||||||||
Energy derivative assets not designated as hedging instruments | ||||||||||||||||||||
Energy derivative liabilities not designated as hedging instruments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Additional disclosures: | ||||||||||||||||||||
Long-term debt, including current portion | ( | ) | ( | ) | ( | ) | ||||||||||||||
Guarantees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Assets (liabilities) at December 31, 2019: | ||||||||||||||||||||
Measured on a recurring basis: | ||||||||||||||||||||
ARO Trust investments | $ | $ | $ | $ | $ | |||||||||||||||
Energy derivative assets not designated as hedging instruments | ||||||||||||||||||||
Energy derivative liabilities not designated as hedging instruments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Additional disclosures: | ||||||||||||||||||||
Long-term debt, including current portion | ( | ) | ( | ) | ( | ) | ||||||||||||||
Guarantees | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
Fair Value Methods
We use the following methods and assumptions in estimating the fair value of our financial instruments:
Assets and liabilities measured at fair value on a recurring basis
ARO Trust investments: Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust (ARO Trust) that is specifically designated to fund future asset retirement obligations (ARO). The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
Energy derivatives: Energy derivatives include commodity-based exchange-traded contracts and over-the-counter contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis.
21
Notes (Continued)
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. Further, the amounts do not include cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Energy derivative assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Energy derivative liabilities are reported in Accrued liabilities and Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
Additional fair value disclosures
Long-term debt, including current portion: The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach.
Guarantees: Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.
To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $28 million at March 31, 2020. Our exposure declines systematically through the remaining term of WilTel’s obligation.
The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
We are required by our revolving credit agreement to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.
Nonrecurring fair value measurements
During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to recent macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the novel coronavirus (COVID-19) pandemic. As a result of these conditions, we performed an interim assessment of the goodwill associated with our Northeast G&P reporting unit as of March 31, 2020. This goodwill resulted from the March 2019 acquisition of UEOM (see Note 2 – Acquisitions).
The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which were determined using income and market approaches. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing companies. In assessing the fair value as of the March 31, 2020 measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA (earnings before interest, taxes,
22
Notes (Continued)
depreciation, and amortization) market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $187 million as of March 31, 2020, in Impairment of goodwill in the Consolidated Statement of Operations. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 2 – Acquisitions).
The following table presents impairments of assets and equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy, except as specifically noted.
Impairments | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
Segment | Date of Measurement | Fair Value | 2020 | 2019 | ||||||||||||
(Millions) | ||||||||||||||||
Impairment of certain assets: | ||||||||||||||||
Certain idle gathering assets (1) | West | March 31, 2019 | $ | $ | ||||||||||||
Impairment of equity-method investments: | ||||||||||||||||
RMM (2) | West | March 31, 2020 | $ | $ | ||||||||||||
Brazos Permian II (2) | West | March 31, 2020 | ||||||||||||||
Caiman II (3) | Northeast G&P | March 31, 2020 | ||||||||||||||
Appalachia Midstream Investments (3) | Northeast G&P | March 31, 2020 | ||||||||||||||
Aux Sable (3) | Northeast G&P | March 31, 2020 | ||||||||||||||
Laurel Mountain (3) | Northeast G&P | March 31, 2020 | ||||||||||||||
Discovery (3) | Transmission & Gulf of Mexico | March 31, 2020 | ||||||||||||||
UEOM (4) | Northeast G&P | March 17, 2019 | $ | |||||||||||||
Impairment of equity-method investments | $ | $ | ||||||||||||||
_______________
(1) |
(2) | Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately |
(3) | Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The impairments within our Northeast G&P segment are |
23
Notes (Continued)
primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices which historically trend with crude oil prices. The fair values of our investments in Caiman II and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0 x to 6.2 x EBITDA (weighted-average 6.0 x). The fair values of the other investments were estimated using an income approach, with discount rates ranging from 9.7 percent to 13.5 percent (weighted-average 12.6 percent). We also considered any debt held at the investee level, and its impact to fair value. The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the recent market declines previously discussed.
(4) | The estimated fair value was determined by a market approach based on the transaction price for the purchase of the remaining interest in UEOM as finalized just prior to the signing and closing of the acquisition in March 2019 (see Note 2 – Acquisitions). These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy. |
Note 12 – Contingent Liabilities
Reporting of Natural Gas-Related Information to Trade Publications
Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.
In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently has been remanded to its originally filed court, the Kansas federal district court.
In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court.
We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day.
Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court. Trial is scheduled to begin June 14, 2021.
Because of the uncertainty around the remaining pending unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter, and as a result, have exposure to future developments.
Alaska Refinery Contamination Litigation
We are involved in litigation arising from our ownership and operation of the North Pole Refinery in North Pole, Alaska, from 1980 until 2004, through our wholly owned subsidiaries, Williams Alaska Petroleum Inc. (WAPI) and MAPCO Inc. We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise
24
Notes (Continued)
from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us.
The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the Court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The Court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the Court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019.
In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $86 million. The Court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the Court entered final judgment in the case. Filing deadlines have been stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also expect to file post-judgment motions. These post-trial motions will be resolved before the appeal. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment.
Royalty Matters
Certain of our customers, including one major customer, have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases filed in Pennsylvania based on allegations that we improperly participated with that major customer in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by that major customer. That customer has reached a tentative settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement would apply to both the customer and us. The settlement as reported would not require any contribution from us.
Litigation Against Energy Transfer and Related Parties
On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer Equity, L.P. (Energy Transfer) and LE GP, LLC (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (ETE Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the ETE Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.
On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC, and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger
25
Notes (Continued)
under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion.
The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.
On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. The Court of Chancery previously scheduled trial for May 20 through May 24, 2019; the court struck the trial setting and re-scheduled trial for June 8 through June 11 and June 15, 2020; due to COVID-19, the court struck the setting and has re-scheduled trial for August 31 through September 4, 2020.
Former Olefins Business
SABIC Petrochemicals, the other interest owner in our former Geismar, Louisiana, olefins facility we sold in July 2017, is seeking recovery from us for losses it allegedly suffered, including its share of personal injury settlements in which it was a co-defendant, as well as amounts related to lost income, defense costs, and property damage associated with an explosion and fire at the plant in June 2013. Due to the complexity of the various claims and available defenses, we are unable to reliably estimate any reasonably possible losses at this time. Trial began on October 14, 2019, as scheduled, but on October 21, 2019, the Court declared a mistrial due to the conduct of an officer of SABIC Petrochemicals and SABIC Petrochemicals’ expert witness. Trial is currently reset for November 4, 2020. We believe that certain losses incurred arising directly from the explosion and fire will be covered by our general liability policy and any uninsured losses are not expected to be material.
Other
On August 31, 2018, Transco submitted to the FERC a general rate filing principally designed to recover increased costs and to comply with the terms of the settlement in its prior rate proceeding. The new rates became effective March 1, 2019, subject to refund and the outcome of a hearing. In October 2019, we reached an agreement on the terms of a settlement with the participants that would resolve all issues in the rate case without the need for a hearing, and on December 31, 2019, we filed a formal stipulation and agreement with the FERC setting forth such terms of settlement. On March 24, 2020, the FERC issued an order approving the uncontested rate case settlement, which will become effective on June 1, 2020. As of March 31, 2020, we have provided a $248 million reserve for rate refunds related to increased rates collected since March 2019, which we believe is adequate for any refunds that may be required.
Environmental Matters
We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these
26
Notes (Continued)
activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of March 31, 2020, we have accrued liabilities totaling $30 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At March 31, 2020, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, the actual costs incurred will depend on the final amount, type, and extent of contamination discovered at these sites, the final cleanup standards mandated by the EPA or other governmental authorities, and other factors.
The EPA and various state regulatory agencies routinely promulgate and propose new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Continuing operations
Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At March 31, 2020, we have accrued liabilities of $4 million for these costs. We expect that these costs will be recoverable through rates.
We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At March 31, 2020, we have accrued liabilities totaling $6 million for these costs.
Former operations
We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.
• | Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations; |
• | Former petroleum products and natural gas pipelines; |
• | Former petroleum refining facilities; |
• | Former exploration and production and mining operations; |
• | Former electricity and natural gas marketing and trading operations. |
At March 31, 2020, we have accrued environmental liabilities of $20 million related to these matters.
27
Notes (Continued)
Other Divestiture Indemnifications
Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.
At March 31, 2020, other than as previously disclosed, we are not aware of any material claims against us involving the indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.
In addition to the foregoing, various other proceedings are pending against us which are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position.
Summary
We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.
Note 13 – Segment Disclosures
Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, and Basis of Presentation.)
Performance Measurement
We evaluate segment operating performance based upon Modified EBITDA. This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment revenues primarily represent the sale of NGLs from our natural gas processing plants to our marketing business.
We define Modified EBITDA as follows:
•Net income (loss) before:
◦Provision (benefit) for income taxes;
◦Interest incurred, net of interest capitalized;
◦Equity earnings (losses);
◦Impairment of equity-method investments;
◦Other investing income (loss) – net;
◦Impairment of goodwill;
◦Depreciation and amortization expenses;
◦Accretion expense associated with asset retirement obligations for nonregulated operations.
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Notes (Continued)
• | This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above. |
The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Operations and Total assets by reportable segment.
Transmission & Gulf of Mexico | Northeast G&P | West | Other | Eliminations | Total | ||||||||||||||||||
(Millions) | |||||||||||||||||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||||||||
Segment revenues: | |||||||||||||||||||||||
Service revenues | |||||||||||||||||||||||
External | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||
Internal | ( | ) | — | ||||||||||||||||||||
Total service revenues | ( | ) | |||||||||||||||||||||
Total service revenues – commodity consideration | |||||||||||||||||||||||
Product sales | |||||||||||||||||||||||
External | — | ||||||||||||||||||||||
Internal | ( | ) | — | ||||||||||||||||||||
Total product sales | ( | ) | |||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Three Months Ended March 31, 2019 | |||||||||||||||||||||||
Segment revenues: | |||||||||||||||||||||||
Service revenues | |||||||||||||||||||||||
External | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||
Internal | ( | ) | — | ||||||||||||||||||||
Total service revenues | ( | ) | |||||||||||||||||||||
Total service revenues – commodity consideration | |||||||||||||||||||||||
Product sales | |||||||||||||||||||||||
External | — | ||||||||||||||||||||||
Internal | ( | ) | — | ||||||||||||||||||||
Total product sales | ( | ) | |||||||||||||||||||||
Total revenues | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
March 31, 2020 | |||||||||||||||||||||||
Total assets | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
December 31, 2019 | |||||||||||||||||||||||
Total assets | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
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Notes (Continued)
The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in the Consolidated Statement of Operations.
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Modified EBITDA by segment: | |||||||
Transmission & Gulf of Mexico | $ | $ | |||||
Northeast G&P | |||||||
West | |||||||
Other | ( | ) | |||||
Accretion expense associated with asset retirement obligations for nonregulated operations | ( | ) | ( | ) | |||
Depreciation and amortization expenses | ( | ) | ( | ) | |||
Impairment of goodwill | ( | ) | |||||
Equity earnings (losses) | |||||||
Impairment of equity-method investments | ( | ) | ( | ) | |||
Other investing income (loss) – net | |||||||
Proportional Modified EBITDA of equity-method investments | ( | ) | ( | ) | |||
Interest expense | ( | ) | ( | ) | |||
(Provision) benefit for income taxes | ( | ) | |||||
Net income (loss) | $ | ( | ) | $ | |||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We are an energy infrastructure company focused on connecting North America’s significant hydrocarbon resource plays to growing markets for natural gas and NGLs through our gas pipeline and midstream business. Our operations are located in the United States.
Our interstate natural gas pipeline strategy is to create value by maximizing the utilization of our pipeline capacity by providing high quality, low cost transportation of natural gas to large and growing markets. Our gas pipeline businesses’ interstate transmission and storage activities are subject to regulation by the FERC and as such, our rates and charges for the transportation of natural gas in interstate commerce, and the extension, expansion or abandonment of jurisdictional facilities and accounting, among other things, are subject to regulation. The rates are established through the FERC’s ratemaking process. Changes in commodity prices and volumes transported have limited near-term impact on these revenues because the majority of cost of service is recovered through firm capacity reservation charges in transportation rates.
The ongoing strategy of our midstream operations is to safely and reliably operate large-scale midstream infrastructure where our assets can be fully utilized and drive low per-unit costs. We focus on consistently attracting new business by providing highly reliable service to our customers. These services include natural gas gathering, processing, treating, and compression, NGL fractionation and transportation, crude oil production handling and transportation, marketing services for NGL, crude oil and natural gas, as well as storage facilities.
Effective January 1, 2020, following an organizational realignment, our interstate natural gas pipeline Northwest Pipeline, which was reported within the West reporting segment throughout 2019, is now managed within the Transmission & Gulf of Mexico reporting segment (previously identified as the Atlantic-Gulf reporting segment). Consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources, our operations are conducted, managed, and presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities as well as corporate activities are included in Other. Our reportable segments are comprised of the following businesses:
• | Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transco and Northwest Pipeline, as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One (a consolidated variable interest entity), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream, and a 60 percent equity-method investment in Discovery. |
• | Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania, New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in our Northeast JV (a consolidated variable interest entity) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal (a consolidated variable interest entity) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain, a 58 percent equity-method investment in Caiman II, and Appalachia Midstream Services, LLC, which owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale (Appalachia Midstream Investments). |
• | West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our NGL and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in OPPL, a 50 percent equity-method investment in RMM, and a 15 percent equity-method investment in Brazos Permian II. West also included our former 50 percent equity-method investment in Jackalope, which was sold in April 2019. |
• | Other includes minor business activities that are not operating segments, as well as corporate operations. |
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Management’s Discussion and Analysis (Continued)
Dividends
In March 2020, we paid a regular quarterly dividend of $0.40 per share.
Overview of Three Months Ended March 31, 2020
Net income (loss) attributable to The Williams Companies, Inc., for the three months ended March 31, 2020, decreased $712 million compared to the three months ended March 31, 2019, reflecting:
• | An increase of $864 million of Impairment of equity-method investments; |
• | $187 million of Impairment of goodwill; |
• | A $58 million decrease in equity earnings, primarily due to our share of an impairment of goodwill recorded by an equity method investee; |
• | $19 million of lower commodity margins. |
These unfavorable changes were partially offset by:
• | $34 million of increased Service revenues; |
• | $15 million of lower Selling, general, and administrative expenses; |
• | A $72 million favorable change in Net income (loss) attributable to noncontrolling interests primarily due to the noncontrolling interests’ share of the goodwill impairment; |
• | A $273 million decrease in provision for income taxes driven by lower pre-tax income. |
The following discussion and analysis of results of operations and financial condition and liquidity should be read in conjunction with the consolidated financial statements and notes thereto of this Form 10‑Q and our Annual Report on Form 10-K dated February 24, 2020.
Recent Developments
COVID-19
The outbreak of novel coronavirus (COVID-19) has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. We are monitoring the COVID-19 pandemic and are taking steps intended to protect the safety of our customers, employees and communities, and to support the continued delivery of safe and reliable service to our customers and the communities we serve. We are continuing to monitor developments with respect to the outbreak and note the following:
• | Our financial condition, results of operations, and liquidity have not been materially impacted by direct effects of COVID-19. |
• | We believe we have the ability to access the debt market, if necessary, and continue to have significant levels of unused capacity on our revolving credit facility. |
• | We have implemented remote working arrangements where possible and restricted business-related travel. Implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business. |
• | Our remote working arrangements have not significantly impacted our internal controls over financial reporting and disclosure controls and procedures. |
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Management’s Discussion and Analysis (Continued)
Crude Oil Price Decline
In recent months, crude oil prices have decreased as a result of surplus supply and weakened demand caused by the COVID-19 pandemic. In addition, in early March, Saudi Arabia announced that it would cut export prices and increase production, contributing to a sharp decline in crude oil prices. The significant decline in crude oil prices has also impacted NGL prices. While our businesses do not have direct exposure to crude oil prices, the combined impacts of the crude oil price decline on our industry and the financial market declines driven by COVID-19 have impacted us as follows:
• | The publicly traded price for our common stock (NYSE: WMB) declined 40 percent during the first quarter of 2020, including a 26 percent decline in the month of March. As a result, our board of directors approved a limited duration shareholder rights agreement. (See Note 10 – Stockholders’ Equity of Notes to the Consolidated Financial Statements.) |
• | Driven by the decline in our market capitalization and the underlying decrease in fair value of our Northeast G&P reporting unit, we recognized a $187 million impairment of goodwill during the first quarter of 2020. (See Note 11 – Fair Value Measurements and Guarantees of Notes to the Consolidated Financial Statements.) |
• | The same economic conditions impacted the fair value of certain of our equity-method investments, resulting in $938 million of other-than-temporary impairments of these investments in the first quarter of 2020. (See Note 11 – Fair Value Measurements and Guarantees of Notes to the Consolidated Financial Statements.) |
Considering the decline in crude oil prices, we note the following about our businesses:
• | Our interstate natural gas transmission businesses are fully contracted under long-term firm reservation contracts with high credit quality customers and are not exposed to crude oil prices. |
• | We believe counterparty credit concerns in our gathering and processing business are significantly mitigated by the physical nature of our services, where we gather at the wellhead and are therefore critical to a producer’s ability to move product to market. |
• | Our on-shore natural gas gathering and processing businesses are substantially focused on gas-directed drilling basins rather than oil, with a broad diversity of basins and customers served. Further, a decline in oil drilling would be expected to result in less associated natural gas production, which could drive more demand for natural gas produced from gas-directed basins we serve. |
• | Our deepwater transportation business is supported mostly by major oil producers with a long-cycle perspective. |
NGL Margins
Per-unit non-ethane margins were approximately 24 percent lower in the first three months of 2020 compared to the same period in 2019 primarily due to a 35 percent decrease in per-unit non-ethane sales prices, partially offset by 42 percent lower per-unit natural gas feedstock prices.
NGL margins are defined as NGL revenues less any applicable Btu replacement cost, plant fuel, and third-party transportation and fractionation. Per-unit NGL margins are calculated based on sales of our own equity volumes at the processing plants. Our equity volumes include NGLs where we own the rights to the value from NGLs recovered at our plants under both “keep-whole” processing agreements, where we have the obligation to replace the lost heating value with natural gas, and “percent-of-liquids” agreements whereby we receive a portion of the extracted liquids with no obligation to replace the lost heating value.
The potential impact of commodity prices on our business for the remainder of 2020 is further discussed in the following Company Outlook.
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Management’s Discussion and Analysis (Continued)
Filing of Rate Case
On August 31, 2018, Transco filed a general rate case with the FERC for an overall increase in rates. In September 2018, with the exception of certain rates that reflected a rate decrease, the FERC accepted and suspended our general rate filing to be effective March 1, 2019, subject to refund and the outcome of a hearing. The specific rates that reflected a rate decrease were accepted, without suspension, to be effective October 1, 2018, as requested by Transco, and were not subject to refund. In March 2019, the FERC accepted our motion to place the rates that were suspended by the September 2018 order into effect on March 1, 2019, subject to refund. In October 2019, we reached an agreement on the terms of a settlement with the participants that would resolve all issues in the rate case without the need for a hearing, and on December 31, 2019, we filed a formal stipulation and agreement with the FERC setting forth such terms of settlement. On March 24, 2020, the FERC issued an order approving the uncontested rate case settlement, which will become effective on June 1, 2020. As of March 31, 2020, we have provided a $248 million reserve for rate refunds related to increased rates collected since March 2019, which we believe is adequate for any refunds that may be required.
Company Outlook
Our strategy is to provide large-scale energy infrastructure designed to maximize the opportunities created by the vast supply of natural gas and natural gas products that exists in the United States. We accomplish this by connecting the growing demand for cleaner fuels and feedstocks with our major positions in the premier natural gas and natural gas products supply basins. We continue to maintain a strong commitment to safety, environmental stewardship, operational excellence, and customer satisfaction. We believe that accomplishing these goals will position us to deliver safe and reliable service to our customers and an attractive return to our shareholders.
Our business plan for 2020 includes a continued focus on earnings and cash flow growth, while continuing to improve leverage metrics and control operating costs. Many of our producer customers are impacted by extremely low energy commodity prices, which may result in a decrease in drilling activity and the temporary shut-in of existing production in certain oil-directed and liquids-rich areas. We are responding by reducing the pace of our capital growth spending in our gathering and processing business and remaining committed to operating cost discipline.
In the current environment, the credit profiles of certain of our producer customers are increasingly challenged. But as previously discussed, the physical nature of services we provide supports the success of these customers. In many cases, we have long-term acreage dedications with strong historical contractual conveyances that create real estate interest in unproduced gas. In exchange for such dedication of production, we invest capital to build gathering lines uniquely to serve a producer’s wells. Therefore, our gathering lines are physically connected to the customer’s wellheads and pads, conditioning and connecting the production to available markets. There may not be other gathering lines nearby. The construction of gathering systems is capital intensive and it would be very costly for others to replicate, especially considering the depletion to date of the associated reserves. As a result, we play a critical role in getting a customer’s production from the wellhead to a marketable condition and location. This tends to reduce collectability risk as our services enable producers to generate operating cash flows.
In 2020, our operating results are expected to include lower deferred revenue amortization related to the West’s Barnett Shale region and Gulfstar in the Eastern Gulf region. We also expect lower NGL margins overall and lower fee revenues in the West and Eastern Gulf region primarily from a decrease in drilling activity associated with a significant reduction in crude oil prices. Northeast results are expected to increase from higher gathering and processing volumes. If current market conditions persist, the temporary shut-in of existing onshore and offshore production in certain oil-directed and liquids-rich areas will decrease our results. We expect increases from Transco’s and Northwest Pipeline’s recent expansion projects placed in-service and Transco’s rate settlement as well as a full year contribution from the Norphlet project in the Eastern Gulf region. Additionally, we expect operating results will benefit from lower expenses associated with our recently implemented organizational realignment.
Our growth capital and investment expenditures in 2020 are expected to be in a range from $1.1 billion to $1.3 billion. Growth capital spending in 2020 primarily includes Transco expansions, all of which are fully contracted with firm transportation agreements, and our Bluestem NGL pipeline project in the Mid-Continent region. In addition to growth capital and investment expenditures, we also remain committed to projects that maintain our assets for safe and reliable operations, as well as projects that meet legal, regulatory, and/or contractual commitments.
34
Management’s Discussion and Analysis (Continued)
Potential risks and obstacles that could impact the execution of our plan include:
• | Continued negative impacts of COVID-19 driving a global recession, which could result in further downturns in financial markets and commodity prices, as well as impact demand for natural gas and related products; |
• | Opposition to, and legal regulations affecting, our infrastructure projects, including the risk of delay or denial in permits and approvals needed for our projects; |
• | Counterparty credit and performance risk; |
• | Unexpected significant increases in capital expenditures or delays in capital project execution; |
• | Unexpected changes in customer drilling and production activities, which could negatively impact gathering and processing volumes; |
• | Lower than anticipated demand for natural gas and natural gas products which could result in lower than expected volumes, energy commodity prices, and margins; |
• | General economic, financial markets, or further industry downturn, including increased interest rates; |
• | Physical damages to facilities, including damage to offshore facilities by named windstorms; |
• | Other risks set forth under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 24, 2020, as supplemented by the disclosure in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q. |
We seek to maintain a strong financial position and liquidity, as well as manage a diversified portfolio of energy infrastructure assets which continue to serve key growth markets and supply basins in the United States.
Expansion Projects
Our ongoing major expansion projects include the following:
Transmission & Gulf of Mexico
Hillabee
In February 2016, the FERC issued a certificate order for the initial phases of Transco’s Hillabee Expansion Project. The project involves an expansion of Transco’s existing natural gas transmission system from Station 85 in west central Alabama to an interconnection with the Sabal Trail pipeline in Alabama. The project is being constructed in phases, and all of the project expansion capacity is dedicated to Sabal Trail pursuant to a capacity lease agreement. Phase I was completed in 2017 and it increased capacity by 818 Mdth/d. We placed Phase II into service on May 1, 2020. Together, the first two phases of the project increased capacity by 1,025 Mdth/d.
Northeast Supply Enhancement
In May 2019, we received approval from the FERC to expand Transco’s existing natural gas transmission system to provide incremental firm transportation capacity from Station 195 in Pennsylvania to the Rockaway Delivery Lateral transfer point in New York. Approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection remain pending, with each such agency having denied, without prejudice, Transco’s applications for such approvals. We have refiled our applications for those approvals and have addressed the technical issues identified by the agencies. We plan to place the project into service in the fall of 2021, assuming timely receipt of these remaining approvals. The project is expected to increase capacity by 400 Mdth/d.
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Management’s Discussion and Analysis (Continued)
Southeastern Trail
In October 2019, we received approval from the FERC to expand Transco’s existing natural gas transmission system to provide incremental firm transportation capacity from the Pleasant Valley interconnect with Dominion’s Cove Point Pipeline in Virginia to the Station 65 pooling point in Louisiana. We plan to place the project into service in late 2020. The project is expected to increase capacity by 296 Mdth/d.
Leidy South
In July 2019, we filed an application with the FERC for approval of the project to expand Transco’s existing natural gas transmission system and also extend its system through a capacity lease with National Fuel Gas Supply Corporation that will enable us to provide incremental firm transportation from Clermont, Pennsylvania and from the Zick interconnection on Transco’s Leidy Line to the River Road regulating station in Lancaster County, Pennsylvania. We plan to place the project into service as early as the fourth quarter of 2021, assuming timely receipt of all necessary regulatory approvals. The project is expected to increase capacity by 582 Mdth/d.
West
Project Bluestem
We are expanding our presence in the Mid-Continent region through building a 188-mile NGL pipeline from our fractionator near Conway, Kansas to an interconnect with a third-party NGL pipeline system in Oklahoma, providing us with firm access to Mt. Belvieu pricing. As part of the project, the third-party intends to construct a 110-mile pipeline extension of their existing NGL pipeline system that will have an initial capacity of 120 Mbbls/d. Further, during the first quarter of 2019, we exercised an option to purchase a 20 percent equity interest in a Mt. Belvieu fractionation train developed by the third party. The pipeline and extension projects are expected to be placed into service during the first quarter of 2021.
Critical Accounting Estimates
Equity-Method Investments
We monitor our equity-method investments for any indications that the carrying value may have experienced an other-than-temporary decline in value.
In the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock (NYSE: WMB) as well as other industry peers and increases in equity yields within the midstream and overall energy industry, which served to increase our estimates of discount rates and weighted-average cost of capital. These changes were attributed to the swift, world-wide economic declines associated with actions to address the spread of COVID-19, coupled with the energy industry impact of significantly reduced energy commodity prices, which were further impacted by crude oil price declines associated with geopolitical actions during the quarter. These significant macroeconomic changes served as indications that the carrying amount of certain of our equity-method investments may have experienced an other-than temporary decline in fair value, determined in accordance with Accounting Standards Codification (ASC) Topic 323, “Investments - Equity Method and Joint Ventures.”
As a result, we estimated the fair value of these equity-method investments in accordance with ASC Topic 820, “Fair Value Measurement,” as of the March 31, 2020, measurement date. In assessing the fair value, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA (earnings before interest, taxes, depreciation, and amortization) market multiples as compared with recent history, and significantly higher industry weighted-average discount rates. Although there have been recent improvements subsequent to March 31, 2020, it is difficult to predict the timing and degree of any sustained recovery. As a result, we have determined that there are other-than-temporary declines in the fair value of certain of our equity-method investments, resulting in recognized impairments totaling $938 million. (See Note 11 – Fair Value Measurements and Guarantees of Notes to Consolidated Financial Statements.) This included impairments of certain of our equity-method investments in our Northeast G&P segment totaling $405 million, primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices, which historically trend with crude oil prices. This
36
Management’s Discussion and Analysis (Continued)
total was primarily comprised of impairments of our investment in Caiman II and predominantly wet gas gathering systems that are part of the Appalachia Midstream Investments. We also recognized an impairment of $97 million related to Discovery within the Transmission & Gulf of Mexico segment. We estimated the fair value of these investments as of the March 31, 2020, measurement date utilizing income and market approaches, which were impacted by assumptions reflecting the significant recent market declines previously discussed, such as higher discount rates, ranging from 9.7 percent to 13.5 percent, and lower EBITDA multiples ranging from 5.0x to 6.2x. We also considered any debt held at the investee level, and its impact to fair value. We estimate that a one percentage point increase or decrease in the discount rates used would increase these recognized impairments by approximately $197 million or decrease the level of these recognized impairments by approximately $121 million and a 0.5x increase or decrease in the EBITDA multiples assumed would decrease or increase the level of impairments recognized by approximately $48 million.
We also recognized $436 million of impairments within our West segment related to our investments in RMM and Brazos Permian II, measured using an income approach. Both investees operate in primarily crude oil-driven basins where our gathering volumes are driven by crude oil drilling. Our expectation of continued lower crude oil prices and related expectation of significant reductions in current and future producer activities in these areas led to reduced estimates of expected future cash flows. Our fair value estimates also reflected increases in the discount rates to approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. We estimate that a one percentage point increase in the discount rate would increase these recognized impairments by approximately $32 million, while a one percentage point decrease would decrease these impairments by approximately $43 million.
Judgments and assumptions are inherent in our estimates of future cash flows, discount rates, and market measures utilized and, as previously discussed, were significantly impacted by the recent unfavorable macroeconomic changes. The use of alternate judgments and assumptions could result in a different calculation of fair value, which could ultimately result in the recognition of a different impairment charge in the consolidated financial statements, potentially including impairments for investments which were evaluated but for which no impairments were recognized.
Property, Plant, and Equipment and Other Identifiable Intangible Assets
As a result of the previously described significant macroeconomic changes during the first quarter of 2020, we also evaluated certain of our property, plant, and equipment and other identifiable intangible assets for indicators of impairment. In our assessments, we considered the impact of the current market conditions on certain of our assets and did not identify any indicators that the carrying amounts of those assets may not be recoverable. The use of alternate judgments or changes in future conditions could result in a different conclusion regarding the occurrence and measurement of impairments affecting the consolidated financial statements.
37
Management’s Discussion and Analysis (Continued)
Results of Operations
Consolidated Overview
The following table and discussion is a summary of our consolidated results of operations for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The results of operations by segment are discussed in further detail following this consolidated overview discussion.
Three Months Ended March 31, | |||||||||||||
2020 | 2019 | $ Change* | % Change* | ||||||||||
(Millions) | |||||||||||||
Revenues: | |||||||||||||
Service revenues | $ | 1,474 | $ | 1,440 | +34 | +2 | % | ||||||
Service revenues – commodity consideration | 28 | 64 | -36 | -56 | % | ||||||||
Product sales | 411 | 550 | -139 | -25 | % | ||||||||
Total revenues | 1,913 | 2,054 | |||||||||||
Costs and expenses: | |||||||||||||
Product costs | 396 | 525 | +129 | +25 | % | ||||||||
Processing commodity expenses | 13 | 40 | +27 | +68 | % | ||||||||
Operating and maintenance expenses | 337 | 340 | +3 | +1 | % | ||||||||
Depreciation and amortization expenses | 429 | 416 | -13 | -3 | % | ||||||||
Selling, general, and administrative expenses | 113 | 128 | +15 | +12 | % | ||||||||
Impairment of goodwill | 187 | — | -187 | NM | |||||||||
Other (income) expense – net | 7 | 44 | +37 | +84 | % | ||||||||
Total costs and expenses | 1,482 | 1,493 | |||||||||||
Operating income (loss) | 431 | 561 | |||||||||||
Equity earnings (losses) | 22 | 80 | -58 | -73 | % | ||||||||
Impairment of equity-method investments | (938 | ) | (74 | ) | -864 | NM | |||||||
Other investing income (loss) – net | 3 | 1 | +2 | +200 | % | ||||||||
Interest expense | (296 | ) | (296 | ) | — | — | % | ||||||
Other income (expense) – net | 4 | 11 | -7 | -64 | % | ||||||||
Income (loss) before income taxes | (774 | ) | 283 | ||||||||||
Provision (benefit) for income taxes | (204 | ) | 69 | +273 | NM | ||||||||
Net income (loss) | (570 | ) | 214 | ||||||||||
Less: Net income (loss) attributable to noncontrolling interests | (53 | ) | 19 | +72 | NM | ||||||||
Net income (loss) attributable to The Williams Companies, Inc. | $ | (517 | ) | $ | 195 | ||||||||
* | + = Favorable change; - = Unfavorable change; NM = A percentage calculation is not meaningful due to a change in signs, a zero-value denominator, or a percentage change greater than 200. |
Three months ended March 31, 2020 vs. three months ended March 31, 2019
Service revenues increased primarily due to higher Northeast revenues driven by higher volumes and the March 2019 consolidation of UEOM, as well as higher transportation fee revenues at Transco primarily associated with its rate case settlement and expansion projects placed in service in 2019. This increase was partially offset by the expiration of an MVC agreement in the Barnett Shale region and lower deferred revenue amortization at Gulfstar.
Service revenues – commodity consideration decreased primarily due to lower equity NGL processing volumes due to higher ethane rejection and less producer drilling activity in addition to lower commodity prices. These revenues represent consideration we receive in the form of commodities as full or partial payment for processing services provided. Most of these NGL volumes are sold within the month processed and therefore are offset in Product costs below.
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Management’s Discussion and Analysis (Continued)
Product sales decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL sales activities, as well as lower volumes associated with our equity NGL sales activities, partially offset by higher marketing volumes. This decrease also includes lower system management gas sales. Marketing revenues and system management gas sales are substantially offset in Product costs.
Product costs decreased primarily due to lower NGL and natural gas prices associated with our marketing and equity NGL production activities. This decrease also includes lower volumes acquired as commodity consideration for NGL processing services and lower system management gas costs, partially offset by higher volumes for marketing activities.
Processing commodity expenses decreased primarily due to lower natural gas purchases associated with equity NGL production primarily due to lower volumes and lower natural gas prices.
Operating and maintenance expenses decreased due to lower maintenance and employee-related expenses, substantially offset by higher expenses related to the consolidation of UEOM in March 2019.
Depreciation and amortization expenses increased primarily due to the March 2019 consolidation of UEOM and new assets placed in service, partially offset by lower expense related to assets that became fully depreciated in the fourth quarter of 2019.
Selling, general, and administrative expenses decreased primarily due to lower employee-related expenses.
Impairment of goodwill reflects the goodwill impairment charge at Northeast G&P in 2020 (see Note 11 – Fair Value Measurements and Guarantees of Notes to Consolidated Financial Statements).
The favorable change in Other (income) expense – net within Operating income (loss) includes net favorable changes to regulatory assets and liabilities primarily associated with Transco’s rate case settlement, as well as the absence of both a 2019 impairment of a certain asset at West and a 2019 unfavorable regulatory asset adjustment at Other.
The unfavorable change in Operating income (loss) includes the 2020 impairment of goodwill at Northeast G&P, lower deferred revenue amortization in the West and at Gulfstar, and unfavorable commodity margins primarily reflecting lower NGL sales prices. The unfavorable change was partially offset by higher volumes in the Northeast, the favorable impacts of the consolidation of UEOM, and Transco's rate case settlement.
Equity earnings (losses) decreased primarily due to our share of the 2020 impairment of goodwill at RMM (see Note 5 – Investing Activities of Notes to Consolidated Financial Statements). This decrease was partially offset by an increase at Appalachia Midstream Investments.
Impairment of equity-method investments includes impairments of various equity-method investments in 2020, partially offset by the absence of a 2019 impairment of UEOM (see Note 11 – Fair Value Measurements and Guarantees of Notes to Consolidated Financial Statements).
The unfavorable change in Other income (expense) – net below Operating income (loss) is primarily due to a 2020 pension plan settlement charge.
Provision (benefit) for income taxes changed favorably primarily due to lower pre-tax income. See Note 6 – Provision (Benefit) for Income Taxes of Notes to Consolidated Financial Statements for a discussion of the effective tax rate compared to the federal statutory rate for both periods.
The favorable change in Net income (loss) attributable to noncontrolling interests is primarily due to the goodwill impairment and lower Gulfstar results, partially offset by increased results related to the formation of the Northeast JV in June 2019.
39
Management’s Discussion and Analysis (Continued)
Period-Over-Period Operating Results - Segments
We evaluate segment operating performance based upon Modified EBITDA. Note 13 – Segment Disclosures of Notes to Consolidated Financial Statements includes a reconciliation of this non-GAAP measure to Net income (loss). Management uses Modified EBITDA because it is an accepted financial indicator used by investors to compare company performance. In addition, management believes that this measure provides investors an enhanced perspective of the operating performance of our assets. Modified EBITDA should not be considered in isolation or as a substitute for a measure of performance prepared in accordance with GAAP.
Transmission & Gulf of Mexico
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Service revenues | $ | 829 | $ | 823 | |||
Service revenues – commodity consideration | 5 | 13 | |||||
Product sales | 52 | 82 | |||||
Segment revenues | 886 | 918 | |||||
Product costs | (52 | ) | (82 | ) | |||
Processing commodity expenses | (2 | ) | (5 | ) | |||
Other segment costs and expenses | (214 | ) | (237 | ) | |||
Proportional Modified EBITDA of equity-method investments | 44 | 42 | |||||
Transmission & Gulf of Mexico Modified EBITDA | $ | 662 | $ | 636 | |||
Commodity margins | $ | 3 | $ | 8 | |||
Three months ended March 31, 2020 vs. three months ended March 31, 2019
Transmission & Gulf of Mexico Modified EBITDA increased primarily due to favorable changes to Other segment costs and expenses and increased Service revenues.
Service revenues increased primarily due to a $32 million increase in Transco’s natural gas transportation revenues primarily driven by higher revenues from Transco’s rate case settlement and expansion projects placed in service in 2019. This increase was partially offset by $29 million lower gathering, processing, and other transportation fees primarily due to lower deferred revenue amortization at Gulfstar.
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins. Our commodity margins associated with our equity NGLs decreased $4 million primarily driven by unfavorable NGL sales prices. Additionally, the decrease in Product sales includes a $16 million decrease in commodity marketing sales and $6 million lower system management gas sales primarily due to lower NGL prices. Marketing revenues and system management gas sales are substantially offset in Product costs and therefore have little impact to Modified EBITDA.
Other segment costs and expenses decreased primarily due to net favorable changes associated with regulatory assets and liabilities primarily driven by the terms of settlement in Transco’s general rate case, as well as decreased maintenance costs and lower employee-related costs.
40
Management’s Discussion and Analysis (Continued)
Northeast G&P
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Service revenues | $ | 358 | $ | 276 | |||
Service revenues – commodity consideration | 2 | 5 | |||||
Product sales | 29 | 47 | |||||
Segment revenues | 389 | 328 | |||||
Product costs | (29 | ) | (47 | ) | |||
Processing commodity expenses | (1 | ) | (3 | ) | |||
Other segment costs and expenses | (110 | ) | (101 | ) | |||
Proportional Modified EBITDA of equity-method investments | 120 | 122 | |||||
Northeast G&P Modified EBITDA | $ | 369 | $ | 299 | |||
Commodity margins | $ | 1 | $ | 2 | |||
Three months ended March 31, 2020 vs. three months ended March 31, 2019
Northeast G&P Modified EBITDA increased primarily due to higher Service revenues and the favorable impact of acquiring the additional interest of UEOM, which is a consolidated entity after the remaining ownership interest was purchased in March 2019, in addition to increased Proportional Modified EBITDA of equity-method investments from higher volumes at Appalachia Midstream Investments and Caiman II.
Service revenues increased primarily due to:
• | A $68 million increase at the Northeast JV, including a $32 million increase associated with the consolidation of UEOM, as previously discussed, $8 million associated with higher UEOM volumes, and $20 million higher gathering, processing, fractionation, and transportation revenues from our Ohio Valley Midstream business due to higher volumes. Additionally, revenues increased related to $8 million of higher amounts for reimbursable electricity expenses, which are offset by similar changes in electricity charges, reflected above in Other segment costs and expenses; |
• | An $8 million increase in gathering revenues at Cardinal primarily due to higher rates; |
• | A $6 million increase in gathering revenues at Susquehanna Supply Hub. |
Product sales decreased primarily due to lower non-ethane volumes within our marketing activities. The changes in marketing revenues are offset by similar changes in marketing purchases, reflected above as Product costs.
Other segment costs and expenses increased primarily due to the consolidation of UEOM in addition to higher reimbursable electricity expenses. These increases are partially offset by lower costs related to various maintenance and repairs and employee expenses.
Proportional Modified EBITDA of equity-method investments decreased $16 million as a result of the consolidation of UEOM, as previously discussed. This decrease was substantially offset by increases at Appalachia Midstream Investments and Caiman II driven by higher volumes.
41
Management’s Discussion and Analysis (Continued)
West
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Service revenues | $ | 311 | $ | 359 | |||
Service revenues – commodity consideration | 21 | 46 | |||||
Product sales | 359 | 479 | |||||
Segment revenues | 691 | 884 | |||||
Product costs | (368 | ) | (475 | ) | |||
Processing commodity expenses | (10 | ) | (31 | ) | |||
Other segment costs and expenses | (126 | ) | (148 | ) | |||
Proportional Modified EBITDA of equity-method investments | 28 | 26 | |||||
West Modified EBITDA | $ | 215 | $ | 256 | |||
Commodity margins | $ | 2 | $ | 19 | |||
Three months ended March 31, 2020 vs. three months ended March 31, 2019
West Modified EBITDA decreased primarily due to lower Service revenues and lower Commodity margins due to unfavorable commodity prices, partially offset by lower Other segment costs and expenses.
Service revenues decreased primarily due to:
• | A $38 million decrease driven by lower deferred revenue amortization and MVC deficiency fee revenues associated with the expiration of the MVC agreement in the Barnett Shale region; |
• | A $23 million decrease associated with lower rates driven by lower commodity pricing in the Barnett Shale region and the expiration of a cost-of-service period on a contract in the Mid-Continent region; |
• | A $12 million decrease associated with lower volumes; |
• | A $26 million increase in the Eagle Ford Shale region. |
The net sum of Service revenues – commodity consideration, Product sales, Product costs, and Processing commodity expenses comprise our commodity margins, which we further segregate into product margins associated with our equity NGLs and marketing margins. Product margins from our equity NGLs decreased $4 million primarily due to:
• | A $16 million decrease associated with lower sales volumes primarily due to 87 percent lower ethane sales volumes primarily due to higher ethane rejection as well as 18 percent lower non-ethane sales volumes primarily due to less producer drilling activity; |
• | A $10 million decrease associated with lower sales prices primarily due to 32 percent lower average net realized per-unit non-ethane sales prices; |
• | A $22 million increase related to a decrease in natural gas purchases associated with lower equity NGL production volumes and lower natural gas prices. |
Additionally, marketing margins decreased by $13 million primarily due to unfavorable changes in prices. The decrease in Product sales includes an $88 million decrease in marketing sales, which is due to lower sales prices, partially offset by higher marketing sales volumes. These decreases are substantially offset in Product costs.
42
Management’s Discussion and Analysis (Continued)
Other segment costs and expenses decreased primarily due the absence of a $12 million 2019 impairment of assets and lower operating and maintenance and general and administrative costs due primarily to lower employee-related costs and maintenance expenses.
Proportional Modified EBITDA of equity-method investments increased primarily due to increased activity at the RMM equity-method investment, partially offset by the absence of the Jackalope equity-method investment sold in April 2019.
Other
Three Months Ended March 31, | |||||||
2020 | 2019 | ||||||
(Millions) | |||||||
Other Modified EBITDA | $ | 7 | $ | (4 | ) | ||
Three months ended March 31, 2020 vs. three months ended March 31, 2019
Other Modified EBITDA increased primarily due to the absence of a first-quarter 2019 $12 million unfavorable adjustment to a regulatory asset associated with an increase in Transco’s estimated deferred state income tax rate following the merger transaction wherein we acquired all of the outstanding common units held by others of our former publicly traded master limited partnership.
43
Management’s Discussion and Analysis (Continued)
Management’s Discussion and Analysis of Financial Condition and Liquidity
Outlook
As previously discussed in Company Outlook, our growth capital and investment expenditures in 2020 are currently expected to be in a range from $1.1 billion to $1.3 billion. Growth capital spending in 2020 includes Transco expansions, all of which are fully contracted with firm transportation agreements, and our Bluestem NGL pipeline project in the Mid-Continent region. In addition to growth capital and investment expenditures, we also remain committed to projects that maintain our assets for safe and reliable operations, as well as projects that meet legal, regulatory, and/or contractual commitments. We intend to fund substantially all of our planned 2020 capital spending with cash available after paying dividends. We retain the flexibility to adjust planned levels of growth capital and investment expenditures in response to changes in economic conditions or business opportunities.
During the first quarter of 2020, we retired $1.514 billion of long-term debt utilizing proceeds borrowed under our credit facility. We have an additional $607 million of long-term debt maturing in 2020. Potential sources of liquidity available to address our debt maturities include proceeds from the issuance of new debt, available capacity under our credit facility, and proceeds from any asset monetizations.
Liquidity
Based on our forecasted levels of cash flow from operations and other sources of liquidity, we expect to have sufficient liquidity to manage our businesses in 2020. Our potential material internal and external sources and uses of liquidity are as follows:
Sources: | |
Cash and cash equivalents on hand | |
Cash generated from operations | |
Distributions from our equity-method investees | |
Utilization of our credit facility and/or commercial paper program | |
Cash proceeds from issuance of debt and/or equity securities | |
Proceeds from asset monetizations | |
Contributions from noncontrolling interests | |
Uses: | |
Working capital requirements | |
Capital and investment expenditures | |
Quarterly dividends to our shareholders | |
Debt service payments, including payments of long-term debt | |
Distributions to noncontrolling interests | |
Potential risks associated with our planned levels of liquidity discussed above include those previously discussed in Company Outlook.
44
Management’s Discussion and Analysis (Continued)
As of March 31, 2020, we had a working capital deficit of $551 million, including cash and cash equivalents and long-term debt due within one year. Our available liquidity is as follows:
Available Liquidity | March 31, 2020 | ||
(Millions) | |||
Cash and cash equivalents | $ | 400 | |
Capacity available under our $4.5 billion credit facility, less amounts outstanding under our $4 billion commercial paper program (1) | 2,800 | ||
$ | 3,200 | ||
(1) | In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program. We had no commercial paper outstanding as of March 31, 2020. Through March 31, 2020, the highest amount outstanding under our commercial paper program and credit facility during 2020 was $1.7 billion. At March 31, 2020, we were in compliance with the financial covenants associated with our credit facility. Borrowing capacity available under our credit facility as of May 1, 2020, was $2.8 billion. |
Dividends
We increased our regular quarterly cash dividend to common stockholders by approximately 5 percent from the previous quarterly cash dividends of $0.38 per share paid in each quarter of 2019, to $0.40 per share for the quarterly cash dividends paid in March 2020.
Registrations
In February 2018, we filed a shelf registration statement as a well-known seasoned issuer. In August 2018, we filed a prospectus supplement for the offer and sale from time to time of shares of our common stock having an aggregate offering price of up to $1 billion. These sales are to be made over a period of time and from time to time in transactions at then-current prices. Such sales are to be made pursuant to an equity distribution agreement between us and certain entities who may act as sales agents or purchase for their own accounts as principals at a price agreed upon at the time of the sale.
Distributions from Equity-Method Investees
The organizational documents of entities in which we have an equity-method investment generally require distribution of their available cash to their members on a quarterly basis. In each case, available cash is reduced, in part, by reserves appropriate for operating their respective businesses.
Credit Ratings
The interest rates at which we are able to borrow money are impacted by our credit ratings. The current ratings are as follows:
Rating Agency | Outlook | Senior Unsecured Debt Rating | ||
S&P Global Ratings | Stable | BBB | ||
Moody’s Investors Service | Stable | Baa3 | ||
Fitch Ratings | Stable | BBB- | ||
These credit ratings are included for informational purposes and are not recommendations to buy, sell, or hold our securities, and each rating should be evaluated independently of any other rating. No assurance can be given that the credit rating agencies will continue to assign us investment-grade ratings even if we meet or exceed their current criteria for investment-grade ratios. A downgrade of our credit ratings might increase our future cost of borrowing and would require us to provide additional collateral to third parties, negatively impacting our available liquidity.
45
Management’s Discussion and Analysis (Continued)
Sources (Uses) of Cash
The following table summarizes the sources (uses) of cash and cash equivalents for each of the periods presented (see Notes to Consolidated Financial Statements for the Notes referenced in the table):
Cash Flow | Three Months Ended March 31, | ||||||||
Category | 2020 | 2019 | |||||||
(Millions) | |||||||||
Sources of cash and cash equivalents: | |||||||||
Operating activities – net | Operating | $ | 787 | $ | 775 | ||||
Proceeds from credit-facility borrowings | Financing | 1,700 | 700 | ||||||
Proceeds from commercial paper – net | Financing | — | 1,014 | ||||||
Uses of cash and cash equivalents: | |||||||||
Payments of long-term debt | Financing | (1,518 | ) | (4 | ) | ||||
Common dividends paid | Financing | (485 | ) | (460 | ) | ||||
Capital expenditures | Investing | (306 | ) | (422 | ) | ||||
Dividends and distributions paid to noncontrolling interests | Financing | (44 | ) | (41 | ) | ||||
Purchases of and contributions to equity-method investments | Investing | (30 | ) | (99 | ) | ||||
Payments on credit-facility borrowings | Financing | — | (860 | ) | |||||
Purchases of businesses, net of cash acquired (see Note 2) | Investing | — | (727 | ) | |||||
Other sources / (uses) – net | Financing and Investing | 7 | (1 | ) | |||||
Increase (decrease) in cash and cash equivalents | $ | 111 | $ | (125 | ) | ||||
Operating activities
The factors that determine operating activities are largely the same as those that affect Net income (loss), with the exception of noncash items such as Depreciation and amortization, Provision (benefit) for deferred income taxes, Equity (earnings) losses, Impairment of goodwill, and Impairment of equity-method investments. Our Net cash provided (used) by operating activities for the three months ended March 31, 2020, increased from the same period in 2019 primarily due to higher operating income (excluding noncash items as previously discussed) in 2020.
Off-Balance Sheet Arrangements and Guarantees of Debt or Other Commitments
We have various other guarantees and commitments which are disclosed in Note 4 – Variable Interest Entities, Note 11 – Fair Value Measurements and Guarantees, and Note 12 – Contingent Liabilities of Notes to Consolidated Financial Statements. We do not believe these guarantees and commitments or the possible fulfillment of them will prevent us from meeting our liquidity needs.
46
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our current interest rate risk exposure is related primarily to our debt portfolio and has not materially changed during the first three months of 2020.
Item 4. Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended) (Disclosure Controls) or our internal control over financial reporting (Internal Controls) will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and Internal Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls and Internal Controls will be modified as systems change and conditions warrant.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our Disclosure Controls was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these Disclosure Controls are effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes during the first quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our Internal Control over Financial Reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Environmental
Certain reportable legal proceedings involving governmental authorities under federal, state, and local laws regulating the discharge of materials into the environment are described below. While it is not possible for us to predict the final outcome of the proceedings which are still pending, we do not anticipate a material effect on our consolidated financial position if we receive an unfavorable outcome in any one or more of such proceedings.
On June 13, 2013, an explosion and fire occurred at our formerly owned Geismar olefins plant and rendered the facility temporarily inoperable (Geismar Incident). On October 21, 2013, the EPA, Region 6, issued an Inspection Report pursuant to the Clean Air Act’s Risk Management Program following its inspection of the facility on June 24 through June 28, 2013. The report notes the EPA’s preliminary determinations about the facility’s documentation regarding process safety, process hazard analysis, as well as operating procedures, employee training, and other matters.
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On June 16, 2014, we received a request for information related to the Geismar Incident from the EPA under Section 114 of the Clean Air Act to which we responded on August 13, 2014. We have worked with the agency to resolve these matters and in the second half of 2019, entered into a Stipulation of Settlement, which includes a penalty of $750,000 that will be due within thirty days of the Court’s entry of the settlement. The Court set a fairness hearing on the settlement for December 11, 2019. Prior to the scheduled hearing, the Court continued the hearing without setting a new date.
On May 5, 2017, we entered into a Consent Order with the Georgia Department of Natural Resources, Environmental Protection Division (GADNR) pertaining to alleged violations of the Georgia Water Quality Control Act and associated rules arising from a permit issued by GADNR for construction of Transco’s Dalton expansion project. Pursuant to the Consent Order, we paid a fine of $168,750 and agreed to a Corrective Action Plan. On March 26, 2020, the GADNR issued a closure letter to Transco approving the final Corrective Action Plan implementation and acknowledging that all conditions of the Consent Order have been achieved.
On January 19, 2016, we received a Notice of Noncompliance with certain Leak Detection and Repair (LDAR) regulations under the Clean Air Act at our Moundsville Fractionator Facility from the EPA, Region 3. Subsequently, the EPA alleged similar violations of certain LDAR regulations at our Oak Grove Gas Plant. On March 19, 2018, we received a Notice of Violation of certain LDAR regulations at our former Ignacio Gas Plant from the EPA, Region 8, following an on-site inspection of the facility. On March 20, 2018, we also received a Notice of Violation of certain LDAR regulations at our Parachute Creek Gas Plant from the EPA, Region 8. All Notices were subsequently referred to a common attorney at the Department of Justice (DOJ). We are exploring global resolution of the claims at these facilities, as well as alleged violations at certain other facilities, with the DOJ. Global resolution would include both payment of a civil penalty and an injunctive relief component. We continue to work with the DOJ and the other agencies to resolve these claims, whether individually or globally, and negotiations are ongoing.
Other environmental matters called for by this Item are described under the caption “Environmental Matters” in Note 12 – Contingent Liabilities of Notes to Consolidated Financial Statements included under Part I, Item 1. Financial Statements of this report, which information is incorporated by reference into this Item.
Other litigation
The additional information called for by this Item is provided in Note 12 – Contingent Liabilities of Notes to Consolidated Financial Statements included under Part I, Item 1. Financial Statements of this report, which information is incorporated by reference into this Item.
Item 1A. Risk Factors
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019, includes risk factors that could materially affect our business, financial condition, or future results. Those Risk Factors have not materially changed, except that they are supplemented or modified by the following risk factors:
Prices for natural gas, NGLs, oil, and other commodities, are volatile and this volatility has and could continue to adversely affect our financial condition, results of operations, cash flows, access to capital, and ability to maintain or grow our businesses.
Our revenues, operating results, future rate of growth, and the value of certain components of our businesses depend primarily upon the prices of natural gas, NGLs, oil, or other commodities, and the differences between prices of these commodities and could be materially adversely affected by an extended period of low commodity prices, or a decline in commodity prices. Price volatility has and could continue to impact both the amount we receive for our products and services and the volume of products and services we sell. Prices affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional capital. Price volatility has and could continue to have an adverse effect on our business, results of operations, financial condition, and cash flows.
The markets for natural gas, NGLs, oil, and other commodities are likely to continue to be volatile. As an example, the recent “oil price war” between Russia and Saudi Arabia combined with existing oil production, including by domestic producers, and the rapid drop in demand for oil due to the economic impact of the COVID-19 pandemic resulted in a
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significant oversupply of oil and negatively impacted pricing. Wide fluctuations in prices might result from one or more factors beyond our control, including:
• | Imbalances in supply and demand whether rising from worldwide or domestic supplies of and demand for natural gas, NGLs, oil, and related commodities; |
• | Turmoil in the Middle East and other producing regions; |
• | The activities of the Organization of Petroleum Exporting Countries (OPEC) and other countries, whether acting independently of or informally aligned with OPEC, which have significant oil, natural gas or other commodity production capabilities including Russia; |
• | The level of consumer demand; |
• | The price and availability of other types of fuels or feedstocks; |
• | The availability of pipeline capacity; |
• | Supply disruptions, including plant outages and transportation disruptions; |
• | The price and quantity of foreign imports and domestic exports of natural gas and oil; |
• | Domestic and foreign governmental regulations and taxes; |
• | The credit of participants in the markets where products are bought and sold. |
We face risks related to the COVID-19 pandemic and other health epidemics.
The global outbreak of the novel coronavirus (COVID-19) is currently impacting countries, communities, supply chains, and markets. We provide a critical service to our customers, which means that it is paramount that we keep our employees safe. To date, COVID-19 has not had a material impact on our business operations. However, we cannot predict whether, and the extent to which, COVID-19 will have a material impact on our business, including our liquidity, financial condition, and results of operations. COVID-19 could pose a risk to our employees, our customers, our suppliers, and the communities in which we operate, which could negatively impact our business. To the extent that our access to the capital markets is adversely affected by COVID-19, we may need to consider alternative sources of funding for our operations and for working capital, any of which could increase our cost of capital. Measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns, may cause us to experience operational delays or to delay plans for growth. The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information concerning the severity of COVID-19 and the actions taken to contain it or treat its impact, among others.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other factors described in the Risk Factors disclosed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.
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Item 6. Exhibits
Exhibit No. | Description | |||
2.1 | — | |||
2.2 | — | |||
2.3 | — | |||
3.1 | — | |||
3.2 | — | |||
3.3 | — | |||
3.4 | — | |||
3.5 | — | |||
4.1 | — | |||
10.1§* | — | |||
10.2§* | — | |||
10.3§* | — | |||
10.4§* | — | |||
31.1* | — | |||
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Exhibit No. | Description | |||
31.2* | — | |||
32** | — | |||
101.INS* | — | XBRL Instance Document. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | ||
101.SCH* | — | XBRL Taxonomy Extension Schema. | ||
101.CAL* | — | XBRL Taxonomy Extension Calculation Linkbase. | ||
101.DEF* | — | XBRL Taxonomy Extension Definition Linkbase. | ||
101.LAB* | — | XBRL Taxonomy Extension Label Linkbase. | ||
101.PRE* | — | XBRL Taxonomy Extension Presentation Linkbase. | ||
104* | — | Cover Page Interactive Data File. The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document (contained in Exhibit 101). | ||
* | Filed herewith. |
** | Furnished herewith. |
§ | Management contract or compensatory plan or arrangement. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE WILLIAMS COMPANIES, INC. | |
(Registrant) | |
/s/ John D. Porter | |
John D. Porter | |
Vice President, Controller, and Chief Accounting Officer (Duly Authorized Officer and Principal Accounting Officer) | |
May 4, 2020
Exhibit 10.1
Date=Grant Date
TO: <@Name@>
FROM:
SUBJECT: 2019 Performance-Based Restricted Stock Unit Award
You have been selected to receive a performance-based restricted stock unit award to be paid if (i) the Company’s annualized Total Shareholder Return meets performance requirements in relation to the annualized Total Shareholder Return of the Company’s comparator group and (ii) the Company’s Return on Capital Employed meets performance requirements, both as established by the Committee, (“Comparator Group”) over the Performance Period. This award is subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time, and the 2019 Performance-Based Restricted Stock Unit Agreement (the “Agreement”).
This award is granted to you in recognition of your role as an employee whose responsibilities and performance are critical to the attainment of long-term goals. This award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
Subject to all of the terms of the Agreement, you will generally become entitled to payment of the award if you are an active employee of the Company on February 19, 2022 and if performance measures set forth in the Agreement are certified for the three-year Performance Period beginning January 1, 2019. The adjustment and termination provisions associated with this award are included in the Agreement.
If you have any questions about this award, you may contact a dedicated Fidelity Stock Plan Representative at 1-800-544-9354.
Exhibit 10.1
2019 PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT
THIS 2019 PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”), which contains the terms and conditions for the restricted stock units (“Restricted Stock Units” or “RSUs”) referred to in the 2019 Performance-Based Restricted Stock Unit Award Letter delivered in hard copy or electronically to the Participant (“2019 Award Letter”), is by and between THE WILLIAMS COMPANIES, INC., a Delaware corporation (the “Company”), and the individual identified on the last page hereof (the “Participant”).
1. Grant of RSUs. Subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time (the “Plan”), this Agreement, and the 2019 Award Letter, the Company hereby grants to the Participant an award (the “Award) of <@Num+C @> RSUs (“Target Number of Shares”) effective <@GrDt+C@> (the “Effective Date”). The Award, which is subject to adjustment under the terms of this Agreement, gives the Participant the opportunity to earn the right to receive the number of shares of the Common Stock of the Company equal to 0% to 200% of the Target Number of Shares based on the formula established by the Committee for calculating the number of Shares that will be paid based on the Company’s annualized Total Shareholder Return relative to the annualized Total Shareholder Return of the Company’s Comparator Group and Return on Capital Employed over the Performance Period . These shares, together with any other shares that are payable under this Agreement, are referred to in the Agreement as “Shares.” Until the Participant both becomes vested in the RSUs under the terms of Paragraph 5 and is paid such Shares under the terms of Paragraph 6, the Participant shall have no rights as a stockholder of the Company with respect to the Shares.
2. Incorporation of Plan and Acceptance of Documents. The Plan is hereby incorporated herein by reference, and all capitalized terms used herein which are not defined in this Agreement shall have the meaning set forth in the Plan. By accepting this Award, the Participant acknowledges that he or she has received a copy of, or has online access to, the Plan, and hereby automatically accepts the RSUs subject to all the terms and provisions of the Plan and this Agreement. The Participant hereby further agrees that he or she has received a copy of, or has online access to, the Plan prospectus, as updated from time to time, and hereby acknowledges his or her automatic acceptance and receipt of such prospectus electronically.
3. Committee Decisions and Interpretations; Committee Discretion. The Participant hereby agrees to accept as binding, conclusive and final all actions, decisions and/or interpretations of the Committee, its delegates, or agents, upon any questions or other matters arising under the Plan or this Agreement.
Exhibit 10.1
4. Performance Measures; Number of Shares Payable to the Participant.
(a) Performance measures established by the Committee shall be based on relative Total Shareholder Return and Return on Capital Employed, each weighted at 50%. The Committee has established a formula for calculating the designated number of Shares that will be paid based on the Company’s annualized Total Shareholder Return relative to the annualized Total Shareholder Return of each Company in the Company’s Comparator Group and Return on Capital Employed over the Performance Period, all as more fully described in Subparagraphs 4(b) through 4(c) below.
(b) The RSUs awarded to Participant and subject to this Agreement as reflected in Paragraph 1 above represent Participant’s opportunity to earn the right to payment of between 0% and 200% of the Target Number of Shares upon (i) certification by the Committee of the annualized Total Shareholder Return relative to the annualized Total Shareholder Return of the Company’s Comparator Group and Return on Capital Employed over the Performance Period, based on the formula established by the Committee and (ii) satisfaction of all the other conditions set forth in Paragraph 5 below.
(c) Subject to the Committee’s discretion as set forth in Subparagraph 4(d) below and to satisfaction of all other conditions set forth in Paragraph 5 below, the actual number of Shares earned by and payable to Participant will be determined based upon certification of the Total Shareholder Return and Return on Capital Employed results and satisfaction of all other conditions set forth in Paragraph 5 below. The portion of the Award attributable to Total Shareholder Return will be determined on a continuum ranging from 0% to 200%, depending on the level of performance certified by the Committee at the end of the Performance Period. The award percentage between these points will be determined by utilizing the Company’s placement along the continuum and calculating the resulting award percentage using the formula established by the Committee. For the portion of the Award attributable to Return on Capital Employed, the award percentage will be 0% if the Return on Capital Employed certified by the Committee is less than the Threshold established by the Committee. If Return on Capital Employed is at or above the Threshold established by the Committee, such portion will be determined on a continuum ranging from 50% to 200%, depending on the level of Return on Capital Employed certified by the Committee at the end of the Performance Period. The award percentage between these points will be determined by utilizing the Company’s placement along the continuum and calculating the resulting award percentage using the formula established by the Committee. Notwithstanding the foregoing, the payment of Shares will not exceed 100% of the target number of Shares for the portion of the Award attributable to Total Shareholder Return if the Company’s Total Shareholder Return over the Performance Period is negative.
(d) Notwithstanding (i) any other provision of this Agreement or the Plan or (ii) certification by the Committee that annualized Total Shareholder Return exceeds the annualized Total Shareholder Return of one or more members of the Company’s Comparator Group over the Performance Period or that Return on Capital Employed exceeds the threshold the Committee established, the Committee may in its sole and absolute discretion
Exhibit 10.1
reduce, but not below zero (0), the number of Shares payable to the Participant based on such factors as it deems appropriate, including but not limited to the Company’s performance. Accordingly, any reference in this Agreement to Shares that (i) become payable, (ii) may be received by a Participant or (iii) are earned by a Participant, and any similar reference, shall be understood to mean the number of Shares that are received, payable or earned after any such reduction is made.
5. Vesting; Legally Binding Rights.
(a) Notwithstanding any other provision of this Agreement, a Participant shall not be entitled to any payment of Shares under this Agreement unless and until such Participant obtains a legally binding right to such Shares and satisfies applicable vesting conditions for such payment.
(b) Except as otherwise provided in Subparagraphs 5(c) – 5(h) below and subject to the provisions of Subparagraph 4(d) above, the Participant shall vest in Shares under this Agreement only if and at the time that both of the following conditions are fully satisfied:
(i) The Participant remains an active employee of the Company or any of its Affiliates on February 19, 2022 (the “Maturity Date”); and
(ii) The Committee certifies that the either the Company’s annualized Total Shareholder Return exceeded the annualized Total Shareholder Return of one or more members of the Company’s Comparator Group or the Company’s Return on Capital Employed exceeded thresholds established by the Committee over the performance period beginning January 1, 2019 and ending December 31, 2021 (the “Performance Period”). Certification, if any, by the Committee for the Performance Period shall be made by the Maturity Date or as soon thereafter as is administratively practicable.
(c) If a Participant dies, becomes Disabled (as defined below) or qualifies for Retirement (as defined below) prior to the Maturity Date while an active employee of the Company or any of its Affiliates, at but not prior to the Maturity Date, and only to the extent and at the time that the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, upon such certification, the Participant shall vest in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Subparagraphs 4(a) through 4(d) above prorated to reflect that portion of the Performance Period prior to such Participant’s ceasing to be an active employee of the Company and its Affiliates. The pro rata number of Shares in which the Participant may become vested in such case shall equal that number determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Subparagraphs 4(a) to 4(d) above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates,
Exhibit 10.1
and the denominator of which is the total number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date.
(d) As used in this Agreement, the terms “Disabled,” “qualify for Retirement,” “Separation from Service” and “Affiliate” shall have the following respective meanings:
(i) A Participant shall be considered Disabled if such Participant (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer. Notwithstanding the forgoing, all determinations of whether a Participant is Disabled shall be made in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and guidance thereunder.
(ii) A Participant “qualifies for Retirement” only if such Participant experiences a Separation from Service (as defined in (iii) below) after attaining age fifty-five (55) and completing at least three (3) years of service with the Company or any of its Affiliates.
(iii) “Separation from Service” means a Participant’s termination or deemed termination from employment with the Company and its Affiliates (as defined in (iv) below). For purposes of determining whether a Separation from Service has occurred, the employment relationship is treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or if longer, so long as the Participant retains a right to reemployment with his or her employer under an applicable statute or by contract. For this purpose, a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for his or her employer. If the period of leave exceeds six (6) months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship will be deemed to terminate on the first date immediately following such six (6) month period. Notwithstanding the foregoing, if a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, and such impairment causes the Participant to be unable to perform the duties of the Participant’s position of employment or any substantially similar position of employment, a twenty-nine (29) month period of absence shall be substituted for such six (6) month period. For purposes of this Agreement, a Separation from Service
Exhibit 10.1
occurs at the date as of which the facts and circumstances indicate either that, after such date: (A) the Participant and the Company reasonably anticipate the Participant will perform no further services for the Company and its Affiliates (whether as an employee or an independent contractor) or (B) that the level of bona fide services the Participant will perform for the Company and its Affiliates (whether as an employee or independent contractor) will permanently decrease to no more than twenty (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period or, if the Participant has been providing services to the Company and its Affiliates for less than thirty-six (36) months, the full period over which the Participant has rendered services, whether as an employee or independent contractor. The determination of whether a Separation from Service has occurred shall be governed by the provisions of Treasury Regulation § 1.409A-1, as amended, taking into account the objective facts and circumstances with respect to the level of bona fide services performed by the Participant after a certain date.
(e) If a Participant experiences a Separation from Service prior to the Maturity Date and within two years following a Change in Control, either voluntarily for Good Reason or involuntarily (other than due to Cause), the Participant shall vest in that number of Shares equal to the Target Number of Shares.
(f) If the Participant experiences an involuntary Separation from Service prior to the Maturity Date and the Participant either receives cash severance benefits under a severance pay plan or program maintained by the Company or receives benefits under a separation agreement with the Company, at but not prior to the Maturity Date and only to the extent the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, the Participant shall, on the date of such certification, become vested in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above pro rated to reflect that portion of the Performance Period prior to the Participant’s ceasing to be an active employee of the Company and its Affiliates. The pro rata number of Shares which may be payable to the Participant on but not prior to the Maturity Date in such case shall equal that number determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that includes the Effective Date and ends on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates, and the denominator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date.
(g) If (i) the Participant experiences an involuntary Separation from Service prior to the Maturity Date due to a sale of a business or the outsourcing of any portion of a business, and (ii) the Company or any of its Affiliates fails to make an offer of comparable employment, as defined in a severance plan or program maintained by the Company, to the Participant,
Exhibit 10.1
then at the time and to the extent the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, upon such certification, the Participant shall become vested in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above pro rated to reflect that portion of the Performance Period prior to the Participant’s ceasing to be an active employee of the Company and its Affiliates. The pro rata number of Shares in which the Participant may become vested on, but not prior to, the Maturity Date in such case shall equal that number of Shares determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates, and the denominator of which is the total number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date. For purposes of this Subparagraph 5(g), a Termination of Affiliation shall constitute an involuntary Separation from Service.
(h) If in the event of a Change in Control, the acquiring or surviving company does not assume or continue this Award or does not provide equivalent awards of substantially the same value, the Participant shall, immediately prior to the Change in Control, vest in that number of Shares equal to the Target Number of Shares.
6. Payment of Shares.
(a) | (i) The payment date for all Shares in which a Participant becomes vested pursuant to Subparagraph 5(e) above shall be no more than thirty (30) days after such Participant’s Separation from Service. If such 30-day period spans two calendar years, then payment will be made in the later calendar year. However, if the Participant was a “key employee” within the meaning of Section 409A(a)(B)(i) of the Code immediately prior to his or her Separation from Service, payment shall not be made sooner than the earlier to occur of the following: (i) six (6) months following the date of such Separation from Service; and (ii) the Participant’s death. |
(ii) For purposes of this Subparagraph 6(a), “key employee” means an employee designated on an annual basis by the Company as of December 31 (the “Key Employee Designation Date”) as an employee meeting the requirements of Section 416(i) of the Code utilizing the definition of compensation under Treasury Regulation § 1.415(c)-2(d)(2). A Participant designated as a “key employee” shall be a “key employee” for the entire twelve (12) month period beginning on April 1 following the Key Employee Designation Date.
(b) The payment date for all Shares in which the Participant becomes vested pursuant to Paragraph 5 above, other than Subparagraph 5(e) (as to which the payment date is
Exhibit 10.1
determined in accordance with Subparagraph 6(a) above), shall be the calendar year containing the Maturity Date.
(c) Upon conversion of RSUs into Shares under this Agreement, such RSUs shall be cancelled. Shares that become payable under this Agreement will be paid by the Company by the delivery to the Participant, or the Participant’s beneficiary or legal representative, one or more certificates (or other indicia of ownership) representing Shares of Williams Common Stock equal in number to the number of Shares otherwise payable under this Agreement less the number of Shares having a Fair Market Value, as of the date the withholding tax obligation arises, equal to the minimum statutory withholding requirements. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code and the guidance thereunder, if federal employment taxes become due upon the Participant’s becoming entitled to payment of Shares, the number of Shares necessary to cover minimum statutory withholding requirements may be used to satisfy such requirements upon such entitlement.
7. Other Provisions.
(a) The Participant understands and agrees that payments under this Agreement shall not be used for, or in the determination of, any other payment or benefit under any continuing agreement, plan, policy, practice or arrangement providing for the making of any payment or the provision of any benefits to or for the Participant or the Participant’s beneficiaries or representatives, including, without limitation, any employment agreement, any change of control severance protection plan or any employee benefit plan as defined in Section 3(3) of ERISA, including, but not limited to qualified and non-qualified retirement plans.
(b) The Participant agrees and understands that, subject to the limit expressed in clause (iii) of the following sentence, stock certificates (or other indicia of ownership) issued may be held as collateral for monies he/she owes to Company or any of its Affiliates, including but not limited to personal loan(s), Company credit card debt, relocation repayment obligations or benefits from any plan that provides for pre-paid educational assistance. In addition, the Company may accelerate the time or schedule of a payment of vested Shares and/or deduct from any payment of Shares to the Participant under this Agreement, or to his or her beneficiaries in the case of the Participant’s death, that number of Shares having a Fair Market Value at the date of such deduction equal to the amount of such debt as satisfaction of any such debt, provided that (i) such debt is incurred in the ordinary course of the employment relationship between the Company or any of its Affiliates and the Participant, (ii) the aggregate amount of any such debt-related collateral held or deduction made in any taxable year of the Company with respect to the Participant does not exceed $5,000, and (iii) the deduction of Shares is made at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant.
(c) Except as provided in Subparagraphs 5(c) through 5(h) above, in the event that the Participant’s employment with the Company or any of its Affiliates terminates prior to the
Exhibit 10.1
Maturity Date, RSUs subject to this Agreement and any right to Shares issuable hereunder shall be forfeited.
(d) The Participant acknowledges that this Award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
(e) RSUs, Shares and the Participant’s interest in RSUs and Shares, may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered at any time prior to both (i) the Participant’s becoming vested in Shares and (ii) payment of Shares under this Agreement.
(f) If the Participant at any time forfeits any or all of the RSUs pursuant to this Agreement, the Participant agrees that all of the Participant’s rights to and interest in such RSUs and in Shares issuable thereunder shall terminate upon forfeiture without payment of consideration.
(g) The Committee shall determine whether an event has occurred resulting in the forfeiture of the RSUs and any Shares issuable thereunder in accordance with this Agreement and all determinations of the Committee shall be final and conclusive.
(h) With respect to the right to receive payment of Shares under this Agreement, nothing contained herein shall give the Participant any rights that are greater than those of a general creditor of the Company.
(i) The obligations of the Company under this Agreement are unfunded and unsecured. Each Participant shall have the status of a general creditor of the Company with respect to amounts due, if any, under this Agreement.
(j) The parties to this Agreement intend that this Agreement meet the requirements of Section 409A of the Code and recognize that it may be necessary to modify this Agreement and/or the Plan to reflect guidance under Section 409A of the Code issued by the Internal Revenue Service. Participant agrees that the Committee shall have sole discretion in determining (i) whether any such modification is desirable or appropriate and (ii) the terms of any such modification.
(k) The Participant hereby automatically becomes a party to this Agreement whether or not he or she accepts the Award electronically or in writing in accordance with procedures of the Committee, its delegates or agents.
(l) Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or an Affiliate to terminate the Participant’s employment or service at any time, nor confer upon the Participant the right to continue in the employ of the Company and/or Affiliate.
Exhibit 10.1
(m) The Participant hereby acknowledges that nothing in this Agreement shall be construed as requiring the Committee to allow a Domestic Relations Order with respect to this Award.
8. Notices. All notices to the Company required hereunder shall be in writing and delivered by hand or by mail, addressed to The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention: Stock Administration Department. Notices shall become effective upon their receipt by the Company if delivered in the foregoing manner. To direct the sale of any Shares issued under this Agreement, contact Fidelity at http://netbenefits.fidelity.com or by telephone at 800-544-9354.
9. Forfeiture and Clawback. Notwithstanding any other provision of the Plan or this Agreement to the contrary, by accepting the Award represented by this Agreement, the Participant acknowledges that any incentive-based compensation paid to the Participant hereunder may be subject to recovery by the Company under any clawback policy that the Company may adopt from time to time, including without limitation any policy that the Company may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the U.S. Securities and Exchange Commission thereunder or the requirements of any national securities exchange on which the Shares may be listed. The Participant further agrees to promptly return any such incentive-based compensation which the Company determines it is required to recover from you under any such clawback policy.
10. Tax Consultation. The Participant understands he or she will incur tax consequences as a result of acquisition or disposition of the Shares. The Participant agrees to consult with any tax consultants he or she thinks advisable in connection with the acquisition of the Shares and acknowledges that he or she is not relying, and will not rely, on the Company for any tax advice.
THE WILLIAMS COMPANIES, INC.
Participant: <@Name
SSN: <@SSN @>
Exhibit 10.2
Date=Grant Date
TO: <@Name@>
FROM:
SUBJECT: 2020 Performance-Based Restricted Stock Unit Award
You have been selected to receive a performance-based restricted stock unit award to be paid if (i) the Company’s Return on Capital Employed meets performance requirements or (ii) the Company’s Debt to EBITDA Ratio meets performance requirements, both as established by the Committee, over the Performance Period. In addition, any earned award can be increased or decreased by up to 25% based on our three-year total shareholder return performance in relation to our comparator group of companies. This award is subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time, and the 2020 Performance-Based Restricted Stock Unit Agreement (the “Agreement”).
This award is granted to you in recognition of your role as an employee whose responsibilities and performance are critical to the attainment of long-term goals. This award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
Subject to all of the terms of the Agreement, you will generally become entitled to payment of the award if you are an active employee of the Company on February 24, 2023 and if performance measures set forth in the Agreement are certified for the three-year Performance Period beginning January 1, 2020. The adjustment and termination provisions associated with this award are included in the Agreement.
If you have any questions about this award, you may contact a dedicated Fidelity Stock Plan Representative at 1-800-544-9354.
Exhibit 10.2
2020 PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT
THIS 2020 PERFORMANCE-BASED RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”), which contains the terms and conditions for the restricted stock units (“Restricted Stock Units” or “RSUs”) referred to in the 2020 Performance-Based Restricted Stock Unit Award Letter delivered in hard copy or electronically to the Participant (“2020 Award Letter”), is by and between THE WILLIAMS COMPANIES, INC., a Delaware corporation (the “Company”), and the individual identified on the last page hereof (the “Participant”).
1. Grant of RSUs. Subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time (the “Plan”), this Agreement, and the 2020 Award Letter, the Company hereby grants to the Participant an award (the “Award) of <@Num+C @> RSUs (“Target Number of Shares”) effective <@GrDt+C@> (the “Effective Date”). The Award, which is subject to adjustment under the terms of this Agreement, gives the Participant the opportunity to earn the right to receive the number of shares of the Common Stock of the Company equal to 0% to 200% of the Target Number of Shares based on the formula established by the Committee for calculating the number of Shares that will be paid based on the Company’s Return on Capital Employed and Debt to EBITDA Ratio over the Performance Period, as adjusted based on the Company’s three-year Relative Total Shareholder Return (“TSR”) as compared to the Company’s comparator group as established by the Committee (the “Comparator Group”). These shares, together with any other shares that are payable under this Agreement, are referred to in the Agreement as “Shares.” Until the Participant both becomes vested in the RSUs under the terms of Paragraph 5 and is paid such Shares under the terms of Paragraph 6, the Participant shall have no rights as a stockholder of the Company with respect to the Shares.
2. Incorporation of Plan and Acceptance of Documents. The Plan is hereby incorporated herein by reference, and all capitalized terms used herein which are not defined in this Agreement shall have the meaning set forth in the Plan. By accepting this Award, the Participant acknowledges that he or she has received a copy of, or has online access to, the Plan, and hereby automatically accepts the RSUs subject to all the terms and provisions of the Plan and this Agreement. The Participant hereby further agrees that he or she has received a copy of, or has online access to, the Plan prospectus, as updated from time to time, and hereby acknowledges his or her automatic acceptance and receipt of such prospectus electronically.
3. Committee Decisions and Interpretations; Committee Discretion. The Participant hereby agrees to accept as binding, conclusive and final all actions, decisions and/or interpretations of the Committee, its delegates, or agents, upon any questions or other matters arising under the Plan or this Agreement.
Exhibit 10.2
4. Performance Measures; Number of Shares Payable to the Participant.
(a) Performance measures established by the Committee shall be based on Return on Capital Employed and Debt to EBITDA Ratio, each weighted at 50%. The Committee has established a formula for calculating the designated number of Shares that will be paid based on based on the Company’s Return on Capital Employed and Debt to EBITDA Ratio over the Performance Period, as adjusted based on the Company’s three-year Relative TSR as compared to the Company’s Comparator Group, all as more fully described in Subparagraphs 4(b) through 4(c) below.
(b) The RSUs awarded to Participant and subject to this Agreement as reflected in Paragraph 1 above represent Participant’s opportunity to earn the right to payment of between 0% and 200% of the Target Number of Shares upon (i) certification by the Committee Return on Capital Employed, Debt to EBITDA Ratio, and the Company’s annualized Relative TSR as compared to the Company’s Comparator Group over the Performance Period, based on the formula established by the Committee and (ii) satisfaction of all the other conditions set forth in Paragraph 5 below.
(c) Subject to the Committee’s discretion as set forth in Subparagraph 4(d) below and to satisfaction of all other conditions set forth in Paragraph 5 below, the actual number of Shares earned by and payable to Participant will be determined based upon certification of the Return on Capital Employed, Debt to EBITDA Ratio, and Relative TSR results and satisfaction of all other conditions set forth in Paragraph 5 below. For the portion of the Award attributable to Return on Capital Employed, the award percentage will be 0% if the Return on Capital Employed certified by the Committee is less than the Threshold established by the Committee. If Return on Capital Employed is at or above the Threshold established by the Committee, such portion will be determined on a continuum ranging from 50% to 200%, depending on the level of Return on Capital Employed certified by the Committee at the end of the Performance Period. The award percentage between these points will be determined by utilizing the Company’s placement along the continuum and calculating the resulting award percentage using the formula established by the Committee. For the portion of the Award attributable to Debt to EBITDA Ratio, the award percentage will be 0% if the Return on Capital Employed certified by the Committee is less than the Threshold established by the Committee. If the Debt to EBITDA Ratio is at or above the Threshold established by the Committee, such portion will be determined on a continuum ranging from 50% to 200%, depending on the Debt to EBITDA Ratio certified by the Committee at the end of the Performance Period. The award percentage between these points will be determined by utilizing the Company’s placement along the continuum and calculating the resulting award percentage using the formula established by the Committee. Notwithstanding the foregoing, the number of Shares earned and payable may be adjusted based on the Company’s relative TSR as compared to the Comparator Group. If the Company’s TSR is in the top one-third of the Comparator Group, the number of Shares will be increased by 25%, not to exceed 200% of Target Number of Shares. If the Company’s TSR is in the bottom one-third of the
Exhibit 10.2
Comparator Group, the number of Shares will be decreased by 25%. If the Company’s TSR is in the middle one-third of the Comparator Group, the number of Shares will not be adjusted.
(d) Notwithstanding (i) any other provision of this Agreement or the Plan or (ii) certification by the Committee that Return on Capital Employed or the Debt to EBITDA Ratio exceeds the threshold the Committee established, the Committee may in its sole and absolute discretion reduce, but not below zero (0), the number of Shares payable to the Participant based on such factors as it deems appropriate, including but not limited to the Company’s performance. Accordingly, any reference in this Agreement to Shares that (i) become payable, (ii) may be received by a Participant or (iii) are earned by a Participant, and any similar reference, shall be understood to mean the number of Shares that are received, payable or earned after any such reduction is made.
5. Vesting; Legally Binding Rights.
(a) Notwithstanding any other provision of this Agreement, a Participant shall not be entitled to any payment of Shares under this Agreement unless and until such Participant obtains a legally binding right to such Shares and satisfies applicable vesting conditions for such payment.
(b) Except as otherwise provided in Subparagraphs 5(c) – 5(h) below and subject to the provisions of Subparagraph 4(d) above, the Participant shall vest in Shares under this Agreement only if and at the time that both of the following conditions are fully satisfied:
(i) The Participant remains an active employee of the Company or any of its Affiliates on February 24, 2023 (the “Maturity Date”); and
(ii) The Committee certifies that the either the Company’s annualized Total Shareholder Return exceeded the annualized Total Shareholder Return of one or more members of the Company’s Comparator Group or the Company’s Return on Capital Employed exceeded thresholds established by the Committee over the performance period beginning January 1, 2020 and ending December 31, 2022 (the “Performance Period”). Certification, if any, by the Committee for the Performance Period shall be made by the Maturity Date or as soon thereafter as is administratively practicable.
(c) If a Participant dies, becomes Disabled (as defined below) or qualifies for Retirement (as defined below) prior to the Maturity Date while an active employee of the Company or any of its Affiliates, at but not prior to the Maturity Date, and only to the extent and at the time that the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, upon such certification, the Participant shall vest in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Subparagraphs 4(a) through 4(d) above prorated to reflect that portion of the Performance Period prior to such Participant’s ceasing to be an
Exhibit 10.2
active employee of the Company and its Affiliates. The pro rata number of Shares in which the Participant may become vested in such case shall equal that number determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Subparagraphs 4(a) to 4(d) above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates, and the denominator of which is the total number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date.
(d) As used in this Agreement, the terms “Disabled,” “qualify for Retirement,” “Separation from Service” and “Affiliate” shall have the following respective meanings:
(i) A Participant shall be considered Disabled if such Participant (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer. Notwithstanding the forgoing, all determinations of whether a Participant is Disabled shall be made in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and guidance thereunder.
(ii) A Participant “qualifies for Retirement” only if such Participant experiences a Separation from Service (as defined in (iii) below) after attaining age fifty-five (55) and completing at least three (3) years of service with the Company or any of its Affiliates.
(iii) “Separation from Service” means a Participant’s termination or deemed termination from employment with the Company and its Affiliates (as defined in (iv) below). For purposes of determining whether a Separation from Service has occurred, the employment relationship is treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or if longer, so long as the Participant retains a right to reemployment with his or her employer under an applicable statute or by contract. For this purpose, a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for his or her employer. If the period of leave exceeds six (6) months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship will be deemed to
Exhibit 10.2
terminate on the first date immediately following such six (6) month period. Notwithstanding the foregoing, if a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, and such impairment causes the Participant to be unable to perform the duties of the Participant’s position of employment or any substantially similar position of employment, a twenty-nine (29) month period of absence shall be substituted for such six (6) month period. For purposes of this Agreement, a Separation from Service occurs at the date as of which the facts and circumstances indicate either that, after such date: (A) the Participant and the Company reasonably anticipate the Participant will perform no further services for the Company and its Affiliates (whether as an employee or an independent contractor) or (B) that the level of bona fide services the Participant will perform for the Company and its Affiliates (whether as an employee or independent contractor) will permanently decrease to no more than twenty (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period or, if the Participant has been providing services to the Company and its Affiliates for less than thirty-six (36) months, the full period over which the Participant has rendered services, whether as an employee or independent contractor. The determination of whether a Separation from Service has occurred shall be governed by the provisions of Treasury Regulation § 1.409A-1, as amended, taking into account the objective facts and circumstances with respect to the level of bona fide services performed by the Participant after a certain date.
(e) If a Participant experiences a Separation from Service prior to the Maturity Date and within two years following a Change in Control, either voluntarily for Good Reason or involuntarily (other than due to Cause), the Participant shall vest in that number of Shares equal to the Target Number of Shares.
(f) If the Participant experiences an involuntary Separation from Service prior to the Maturity Date and the Participant either receives cash severance benefits under a severance pay plan or program maintained by the Company or receives benefits under a separation agreement with the Company, at but not prior to the Maturity Date and only to the extent the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, the Participant shall, on the date of such certification, become vested in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above pro rated to reflect that portion of the Performance Period prior to the Participant’s ceasing to be an active employee of the Company and its Affiliates. The pro rata number of Shares which may be payable to the Participant on but not prior to the Maturity Date in such case shall equal that number determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that includes the Effective Date and ends
Exhibit 10.2
on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates, and the denominator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date.
(g) If (i) the Participant experiences an involuntary Separation from Service prior to the Maturity Date due to a sale of a business or the outsourcing of any portion of a business, and (ii) the Company or any of its Affiliates fails to make an offer of comparable employment, as defined in a severance plan or program maintained by the Company, to the Participant, then at the time and to the extent the Committee certifies that the performance measures for the Performance Period are satisfied under Subparagraph 5(b)(ii) above, upon such certification, the Participant shall become vested in that number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above pro rated to reflect that portion of the Performance Period prior to the Participant’s ceasing to be an active employee of the Company and its Affiliates. The pro rata number of Shares in which the Participant may become vested on, but not prior to, the Maturity Date in such case shall equal that number of Shares determined by multiplying (i) the number of Shares the Participant might otherwise have received for the Performance Period in accordance with Paragraph 4 above times (ii) a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the date the Participant ceases being an active employee of the Company and its Affiliates, and the denominator of which is the total number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date. For purposes of this Subparagraph 5(g), a Termination of Affiliation shall constitute an involuntary Separation from Service.
(h) If in the event of a Change in Control, the acquiring or surviving company does not assume or continue this Award or does not provide equivalent awards of substantially the same value, the Participant shall, immediately prior to the Change in Control, vest in that number of Shares equal to the Target Number of Shares.
6. Payment of Shares.
(a) | (i) The payment date for all Shares in which a Participant becomes vested pursuant to Subparagraph 5(e) above shall be no more than thirty (30) days after such Participant’s Separation from Service. If such 30-day period spans two calendar years, then payment will be made in the later calendar year. However, if the Participant was a “key employee” within the meaning of Section 409A(a)(B)(i) of the Code immediately prior to his or her Separation from Service, payment shall not be made sooner than the earlier to occur of the following: (i) six (6) months following the date of such Separation from Service; and (ii) the Participant’s death. |
Exhibit 10.2
(ii) For purposes of this Subparagraph 6(a), “key employee” means an employee designated on an annual basis by the Company as of December 31 (the “Key Employee Designation Date”) as an employee meeting the requirements of Section 416(i) of the Code utilizing the definition of compensation under Treasury Regulation § 1.415(c)-2(d)(2). A Participant designated as a “key employee” shall be a “key employee” for the entire twelve (12) month period beginning on April 1 following the Key Employee Designation Date.
(b) The payment date for all Shares in which the Participant becomes vested pursuant to Paragraph 5 above, other than Subparagraph 5(e) (as to which the payment date is determined in accordance with Subparagraph 6(a) above), shall be the calendar year containing the Maturity Date.
(c) Upon conversion of RSUs into Shares under this Agreement, such RSUs shall be cancelled. Shares that become payable under this Agreement will be paid by the Company by the delivery to the Participant, or the Participant’s beneficiary or legal representative, one or more certificates (or other indicia of ownership) representing Shares of Williams Common Stock equal in number to the number of Shares otherwise payable under this Agreement less the number of Shares having a Fair Market Value, as of the date the withholding tax obligation arises, equal to the minimum statutory withholding requirements. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code and the guidance thereunder, if federal employment taxes become due upon the Participant’s becoming entitled to payment of Shares, the number of Shares necessary to cover minimum statutory withholding requirements may be used to satisfy such requirements upon such entitlement.
7. Other Provisions.
(a) The Participant understands and agrees that payments under this Agreement shall not be used for, or in the determination of, any other payment or benefit under any continuing agreement, plan, policy, practice or arrangement providing for the making of any payment or the provision of any benefits to or for the Participant or the Participant’s beneficiaries or representatives, including, without limitation, any employment agreement, any change of control severance protection plan or any employee benefit plan as defined in Section 3(3) of ERISA, including, but not limited to qualified and non-qualified retirement plans.
(b) The Participant agrees and understands that, subject to the limit expressed in clause (iii) of the following sentence, stock certificates (or other indicia of ownership) issued may be held as collateral for monies he/she owes to Company or any of its Affiliates, including but not limited to personal loan(s), Company credit card debt, relocation repayment obligations or benefits from any plan that provides for pre-paid educational assistance. In addition, the Company may accelerate the time or schedule of a payment of vested Shares and/or deduct from any payment of Shares to the Participant under this Agreement, or to his or her beneficiaries in the case of the Participant’s death, that number of Shares having
Exhibit 10.2
a Fair Market Value at the date of such deduction equal to the amount of such debt as satisfaction of any such debt, provided that (i) such debt is incurred in the ordinary course of the employment relationship between the Company or any of its Affiliates and the Participant, (ii) the aggregate amount of any such debt-related collateral held or deduction made in any taxable year of the Company with respect to the Participant does not exceed $5,000, and (iii) the deduction of Shares is made at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant.
(c) Except as provided in Subparagraphs 5(c) through 5(h) above, in the event that the Participant’s employment with the Company or any of its Affiliates terminates prior to the Maturity Date, RSUs subject to this Agreement and any right to Shares issuable hereunder shall be forfeited.
(d) The Participant acknowledges that this Award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
(e) RSUs, Shares and the Participant’s interest in RSUs and Shares, may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered at any time prior to both (i) the Participant’s becoming vested in Shares and (ii) payment of Shares under this Agreement.
(f) If the Participant at any time forfeits any or all of the RSUs pursuant to this Agreement, the Participant agrees that all of the Participant’s rights to and interest in such RSUs and in Shares issuable thereunder shall terminate upon forfeiture without payment of consideration.
(g) The Committee shall determine whether an event has occurred resulting in the forfeiture of the RSUs and any Shares issuable thereunder in accordance with this Agreement and all determinations of the Committee shall be final and conclusive.
(h) With respect to the right to receive payment of Shares under this Agreement, nothing contained herein shall give the Participant any rights that are greater than those of a general creditor of the Company.
(i) The obligations of the Company under this Agreement are unfunded and unsecured. Each Participant shall have the status of a general creditor of the Company with respect to amounts due, if any, under this Agreement.
(j) The parties to this Agreement intend that this Agreement meet the requirements of Section 409A of the Code and recognize that it may be necessary to modify this Agreement and/or the Plan to reflect guidance under Section 409A of the Code issued by the Internal Revenue Service. Participant agrees that the Committee shall have sole discretion in determining (i) whether any such modification is desirable or appropriate and (ii) the terms of any such modification.
Exhibit 10.2
(k) The Participant hereby automatically becomes a party to this Agreement whether or not he or she accepts the Award electronically or in writing in accordance with procedures of the Committee, its delegates or agents.
(l) Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or an Affiliate to terminate the Participant’s employment or service at any time, nor confer upon the Participant the right to continue in the employ of the Company and/or Affiliate.
(m) The Participant hereby acknowledges that nothing in this Agreement shall be construed as requiring the Committee to allow a Domestic Relations Order with respect to this Award.
8. Notices. All notices to the Company required hereunder shall be in writing and delivered by hand or by mail, addressed to The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention: Stock Administration Department. Notices shall become effective upon their receipt by the Company if delivered in the foregoing manner. To direct the sale of any Shares issued under this Agreement, contact Fidelity at http://netbenefits.fidelity.com or by telephone at 800-544-9354.
9. Forfeiture and Clawback. Notwithstanding any other provision of the Plan or this Agreement to the contrary, by accepting the Award represented by this Agreement, the Participant acknowledges that any incentive-based compensation paid to the Participant hereunder may be subject to recovery by the Company under any clawback policy that the Company may adopt from time to time, including without limitation any policy that the Company may be required to adopt under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations of the U.S. Securities and Exchange Commission thereunder or the requirements of any national securities exchange on which the Shares may be listed. The Participant further agrees to promptly return any such incentive-based compensation which the Company determines it is required to recover from you under any such clawback policy.
10. Tax Consultation. The Participant understands he or she will incur tax consequences as a result of acquisition or disposition of the Shares. The Participant agrees to consult with any tax consultants he or she thinks advisable in connection with the acquisition of the Shares and acknowledges that he or she is not relying, and will not rely, on the Company for any tax advice.
THE WILLIAMS COMPANIES, INC.
Participant: <@Name>
SSN: <@SSN @>
Exhibit 10.3
Date=GrantDate
TO: Participant Name
FROM:
SUBJECT: 2020 Restricted Stock Unit Award
You have been selected to receive a restricted stock unit award. This award is subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time, and, the 2020 Restricted Stock Unit Agreement (the “Agreement”).
This award is granted to you in recognition of your role as an employee whose responsibilities and performance are critical to the attainment of long-term goals. This award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
Subject to all of the terms of the Agreement, you will become entitled to payment of this award if you are an active employee of the Company on the third anniversary of the grant date.
If you have any questions about this award, you may contact a dedicated Fidelity Stock Plan Representative at 1-800-544-9354.
1
Exhibit 10.3
2020 RESTRICTED STOCK UNIT AGREEMENT
THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”), which contains the terms and conditions for the Restricted Stock Units (“Restricted Stock Units” or “RSUs”) referred to in the 2020 Restricted Stock Unit Award Letter delivered in hard copy or electronically to Participant (“2020 Award Letter”), is by and between THE WILLIAMS COMPANIES, INC., a Delaware corporation (the “Company”) and the individual identified on the last page hereof (the “Participant”).
1. Grant of RSUs. Subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time (the “Plan”), this Agreement and the 2020 Award Letter, the Company hereby grants an award (the “Award”) to the Participant of Quantity Granted RSUs effective Grant Date (the “Effective Date”). The Award gives the Participant the opportunity to earn the right to receive the number of shares of the Common Stock of the Company equal to the number of RSUs shown in the prior sentence, subject to adjustment under the terms of this Agreement. These shares are referred to in this Agreement as the “Shares.” Until the Participant both becomes vested in the RSUs under the terms of Paragraph 4 and is paid such Shares under the terms of Paragraph 5, the Participant shall have no rights as a stockholder of the Company with respect to the Shares; provided, however, that the Participant shall have the right to earn Dividend Equivalents with respect to the RSUs awarded under this Agreement in accordance with Subparagraph 4(i) below.
2. Incorporation of Plan and Acceptance of Documents. The Plan is hereby incorporated herein by reference, and all capitalized terms used herein which are not defined in this Agreement shall have the respective meanings set forth in the Plan. By accepting this Award, the Participant acknowledges that he or she has received a copy of, or has online access to, the Plan and hereby automatically accepts the RSUs subject to all the terms and provisions of the Plan and this Agreement. The Participant hereby further agrees that he or she has received a copy of, or has online access to, the Plan prospectus, as updated from time to time, and hereby acknowledges his or her automatic acceptance and receipt of such prospectus electronically.
3. Committee Decisions and Interpretations. The Participant hereby agrees to accept as binding, conclusive and final all actions, decisions and/or interpretations of the Committee, its delegates, or agents, upon any questions or other matters arising under the Plan or this Agreement.
4. Vesting; Legally Binding Rights.
(a) Notwithstanding any other provision of this Agreement, (i) a Participant shall not be entitled to any payment of Shares under this Agreement unless and until such Participant obtains a legally binding right to such Shares and satisfies applicable vesting conditions for such payment and (ii) a Participant shall not be entitled to payment of any Dividend Equivalents unless and until such Participant obtains a legally binding right to, and satisfies applicable vesting conditions for payment of, the underlying Shares on which such Dividend Equivalents are payable.
2
Exhibit 10.3
(b) Except as otherwise provided in Subparagraphs 4(c) – 4(h) below, the Participant shall vest in all Shares on the third anniversary of the Effective Date (the “Maturity Date”), but only if the Participant remains an active employee of the Company or any of its Affiliates through the Maturity Date.
(c) If a Participant dies prior to the Maturity Date while an active employee of the Company or any of its Affiliates, the Participant shall vest in all Shares at the time of such death.
(d) If a Participant becomes Disabled (as defined below) prior to the Maturity Date while an active employee of the Company or any of its Affiliates, the Participant shall vest in all Shares at the time the Participant becomes Disabled. For purposes of this Subparagraph 4(d), the Participant shall be considered Disabled if he or she (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (B) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Participant’s employer. Notwithstanding the forgoing, all determinations of whether a Participant is Disabled shall be made in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the guidance thereunder.
(e) If the Participant qualifies for Retirement (as defined in (i) below) with the Company or any of its Affiliates prior to the Maturity Date, at the time of such Participant’s Retirement, the Participant shall vest in a pro rata number of the Shares as determined in accordance with this Subparagraph 4(e). The pro rata number referred to above shall be determined by multiplying the number of Shares subject to the Award by a fraction, the numerator of which is the number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the date of the Participant’s Retirement, and the denominator of which is the total number of full and partial months in the period that begins the month following the month that contains the Effective Date and ends on (and includes) the Maturity Date.
Notwithstanding the preceding paragraph, if the Participant qualifies for Retirement with the Company or any of its Affiliates prior to the Maturity Date and (i) such Retirement occurs at least 6 months after the Effective Date, (ii) the Participant has attained age sixty (60) at the time of such Retirement, and (iii) the Participant has at the time of the Retirement at least 10 years of service as an active employee of the Company and its Affiliates as determined based on the Participant’s company seniority date, then the Participant will vest in all of the Shares.
3
Exhibit 10.3
(i)For purposes of this Subparagraph 4(e), a Participant “qualifies for Retirement” only if such Participant experiences a Separation from Service (as defined in (ii) below) after attaining age fifty-five (55) and completing at least three (3) years of service with the Company or any of its Affiliates.
(ii)As used in this Agreement, “Separation from Service” means a Participant’s termination or deemed termination from employment with the Company and its Affiliates. For purposes of determining whether a Separation from Service has occurred, the employment relationship is treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed six (6) months, or if longer, so long as the Participant retains a right to reemployment with his or her employer under an applicable statute or by contract. For this purpose, a leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for his or her employer. If the period of leave exceeds six (6) months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship will be deemed to terminate on the first date immediately following such six (6) month period. Notwithstanding the foregoing, if a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, and such impairment causes the Participant to be unable to perform the duties of the Participant’s position of employment or any substantially similar position of employment, a twenty-nine (29) month period of absence shall be substituted for such six (6) month period. For purposes of this Agreement, a Separation from Service occurs at the date as of which the facts and circumstances indicate either that, after such date: (A) the Participant and the Company reasonably anticipate the Participant will perform no further services for the Company and its Affiliates (whether as an employee or an independent contractor) or (B) that the level of bona fide services the Participant will perform for the Company and its Affiliates (whether as an employee or independent contractor) will permanently decrease to no more than twenty (20%) of the average level of bona fide services performed over the immediately preceding thirty-six (36) month period or, if the Participant has been providing services to the Company and its Affiliates for less than thirty-six (36) months, the full period over which the Participant has rendered services, whether as an employee or independent contractor. The determination of whether a Separation from Service has occurred shall be governed by the provisions of Treasury Regulation § 1.409A-1, as amended, taking into account the objective facts and circumstances with respect to the level of bona fide services performed by the Participant after a certain date.
(f) If the Participant experiences a Separation from Service prior to the Maturity Date within two years following a Change in Control (as defined in (i) below), either voluntarily for Good Reason or involuntarily (other than due to Cause), the Participant shall vest in all of the Shares upon such Separation from Service.
4
Exhibit 10.3
(i)For the purposes of this Agreement, a “Change in Control” means, unless otherwise defined in an individual employment, change in control or other severance agreement, the occurrence of any of the following events:
(A) A majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not approved by a majority of the members constituting the Board prior to the date of the appointment or election; or
(B) any Person becomes a “Beneficial Owner” (such term for purposes of this definition being as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of directors (the “Company Voting Securities”); provided, however, that for purposes of this subsection (B), the following acquisitions shall not constitute a Change in Control: (w) an acquisition directly from the Company, (x) an acquisition by the Company or a subsidiary of the Company (a “Subsidiary”), (y) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (z) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (C) below); or
(C) the consummation of a reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or a Subsidiary (a “Reorganization”), or the sale or other disposition of all or substantially all of the Company’s assets (a “Sale”) or the acquisition of assets or stock of another entity (an “Acquisition”), unless immediately following such Reorganization, Sale or Acquisition: (1) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding shares of common stock of the Company (“Company Common Stock”) and outstanding Company Voting Securities immediately prior to such Reorganization, Sale or Acquisition beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Reorganization, Sale or Acquisition (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets or stock either directly or through one or more subsidiaries, the “Surviving Entity”) in substantially the same proportions as their ownership, immediately prior to such Reorganization, Sale or Acquisition, of the outstanding Company Common Stock and the outstanding Company Voting Securities, as the case may be, and (2) no Person (other than (x) the Company or any Subsidiary of the Company, (y) the Surviving
5
Exhibit 10.3
Entity or its ultimate parent, or (z) any employee benefit plan (or related trust) sponsored or maintained by any of the foregoing) is the Beneficial Owner, directly or indirectly, of 30% or more of the Company Voting Securities, and (3) at least a majority of the members of the board of directors or similar governing body of the Surviving Entity were members of the Incumbent Board at the time of the execution of the initial agreement, or at the time of the action of the Board, providing for such Reorganization, Sale or Acquisition (any Reorganization, Sale or Acquisition which satisfies all of the criteria specified in (1), (2) and (3) above shall be deemed to be a “Non-Qualifying Transaction”); or
(D) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
(ii) “Incumbent Board” means, unless otherwise defined in an individual employment, change in control or other severance agreement, individuals who, as of the Effective Date, constitute the Board and any other individual who becomes a director of the Company after that date and whose election or appointment by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board.
(iii)“Person” means, unless otherwise defined in an individual employment, change in control or other severance agreement, a Person as defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the “1934 Act”) and as used in this Subparagraph (f) and 14(d)(2) of the 1934 Act.
(g) If the Participant experiences an involuntary Separation from Service prior to the Maturity Date and the Participant either receives cash severance benefits under a severance pay plan or program maintained by the Company or receives benefits under a separation agreement with the Company, the Participant shall vest in all Shares upon such Separation from Service.
(h) If the Participant experiences an involuntary Separation from Service prior to the Maturity Date due to a sale of a business or the outsourcing of any portion of a business, the Participant shall vest in all Shares upon such Separation from Service, but only if the Company or any of its Affiliates failed to make an offer of comparable employment, as defined by a severance pay plan or program maintained by the Company, to the Participant. For purposes of this Subparagraph 4(h), a Termination of Affiliation shall constitute an involuntary Separation from Service.
(i)If the Participant becomes entitled to payment of any Shares under this Agreement, the Participant shall also be entitled to receipt of Dividend Equivalents with respect to such Shares in an amount equal to the amount of dividends, if any, that would have been payable on such Shares if such Shares had been issued and outstanding from the date of this Agreement through the payment date of the Shares. Dividend Equivalents shall remain
6
Exhibit 10.3
assets of the Company until paid hereunder and may, in the discretion of the Committee be paid in either cash or Shares. If Dividend Equivalents are paid in Shares, the number of Shares so payable will equal the total amount of Dividend Equivalents payable, if any, divided by the Fair Market Value of a Share on the payment date. No fractional Shares shall be issued.
5. Payment of Shares and Dividend Equivalents.
(a) The payment date for all Shares in which a Participant becomes vested pursuant to Subparagraph 4(b) above, and Dividend Equivalents in which the Participant becomes vested pursuant to Subparagraph 4(i), shall be the Maturity Date.
(b) The payment date for all Shares in which a Participant becomes vested pursuant to Subparagraphs 4(c) and 4(d) above, and Dividend Equivalents in which the Participant becomes vested pursuant to Subparagraph 4(i), shall be no more than thirty (30) days after the date the Participant dies or becomes Disabled, as applicable. If such 30-day period spans two calendar years, then payment will be made in the later calendar year.
(c) The payment date for all Shares in which the Participant becomes vested pursuant to Subparagraphs 4(e), 4(f), 4(g) and 4(h) above, and Dividend Equivalents in which the Participant becomes vested pursuant to Subparagraph 4(i), shall be no more than sixty (60) days following such Participant’s Separation from Service, unless otherwise provided in Subparagraph 5(e) below. If such 60-day period spans two calendar years, then payment will be made in the later calendar year.
(d) Upon conversion of RSUs into Shares under this Agreement, such RSUs shall be cancelled. Shares that become payable under this Agreement and will be paid by the Company by the delivery to the Participant, or the Participant’s beneficiary or legal representative, of one or more certificates (or other indicia of ownership) representing shares of Williams Common Stock equal in number to the number of Shares otherwise payable under this Agreement less the number of Shares having a Fair Market Value, as of the date the withholding tax obligation arises, equal to the minimum statutory withholding requirements. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code and the guidance issued by the Internal Revenue Service thereunder, if federal employment taxes become due upon the Participant’s becoming entitled to payment of Shares, the number of Shares necessary to cover minimum statutory withholding requirements may, in the discretion of the Company, be used to satisfy such requirements upon such entitlement.
(e) If the Participant was a “key employee” within the meaning of Section 409A(a)(B)(i) of the Code immediately prior to his or her Separation from Service, and such Participant vested in such Shares under Subparagraphs 4(e), (4)(f), 4(g) or 4(h) above, payment shall not be made sooner than six (6) months following the date such Participant experienced a Separation from Service. “Key employee” means an employee designated on an annual
7
Exhibit 10.3
basis by the Company as of December 31 (the “Key Employee Designation Date”) as an employee meeting the requirements of Section 416(i) of Code utilizing the definition of compensation under Treasury Regulation § 1.415(c)-2(d)(2). A Participant designated as a “key employee” shall be a “key employee” for the entire twelve (12) month period beginning on April 1 following the Key Employee Designation Date.
6. Other Provisions.
(a) The Participant understands and agrees that payments under this Agreement shall not be used for, or in the determination of, any other payment or benefit under any continuing agreement, plan, policy, practice or arrangement providing for the making of any payment or the provision of any benefits to or for the Participant or the Participant’s beneficiaries or representatives, including, without limitation, any employment agreement, any change of control severance protection plan or any employee benefit plan as defined in Section 3(3) of ERISA, including, but not limited to qualified and non-qualified retirement plans.
(b) The Participant agrees and understands that, subject to the limit expressed in clause (iii) of the following sentence, upon payment of Shares and Dividend Equivalents under this Agreement, stock certificates (or other indicia of ownership) issued may be held as collateral for monies he/she owes to Company or any of its Affiliates, including but not limited to personal loan(s), Company credit card debt, relocation repayment obligations or benefits from any plan that provides for pre-paid educational assistance. In addition, the Company may accelerate the time or schedule of a payment of vested Shares and Dividend Equivalents, and/or deduct from any payment of Shares and Dividend Equivalents to the Participant under this Agreement, or to his or her beneficiaries in the case of the Participant’s death, that number of Shares and Dividend Equivalents having a Fair Market Value at the date of such deduction to the amount of such debt as satisfaction of any such debt, provided that (i) such debt is incurred in the ordinary course of the employment relationship between the Company or any of its Affiliates and the Participant, (ii) the aggregate amount of any such debt-related collateral held or deduction made in any taxable year of the Company with respect to the Participant does not exceed $5,000, and (iii) the deduction of Shares and Dividend Equivalents is made at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant.
(c) Except as provided in Subparagraphs 4(c) through 4(h) above, in the event that the Participant experiences a Separation from Service prior to the Participant’s becoming vested in the Shares under this Agreement, RSUs subject to this Agreement and any right to Shares and Dividend Equivalents issuable hereunder shall be forfeited.
(d) The Participant acknowledges that this Award and similar awards are made on a selective basis and are, therefore, to be kept confidential.
(e) RSUs, Shares and Dividend Equivalents and the Participant’s interest in RSUs and Shares and Dividend Equivalents may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered at any time prior to both (i) the Participant’s becoming
8
Exhibit 10.3
vested in such Shares and (ii) payment of such Shares and Dividend Equivalents under this Agreement.
(f) If the Participant at any time forfeits any or all of the RSUs pursuant to this Agreement, the Participant agrees that all of the Participant’s rights to and interest in such RSUs and in Shares and Dividend Equivalents payable thereon, if any, issuable hereunder shall terminate upon forfeiture without payment of consideration.
(g) The Committee shall determine whether an event has occurred resulting in the forfeiture of the Shares and Dividend Equivalents payable thereon in accordance with this Agreement, and all determinations of the Committee shall be final and conclusive.
(h) With respect to the right to receive payment of the Shares and Dividend Equivalents under this Agreement, nothing contained herein shall give the Participant any rights that are greater than those of a general creditor of the Company.
(i) The obligations of the Company under this Agreement are unfunded and unsecured. Each Participant shall have the status of a general creditor of the Company with respect to amounts due, if any, under this Agreement.
(j) The parties to this Agreement intend that this Agreement meet the applicable requirements of Section 409A of the Code and recognize that it may be necessary to modify this Agreement and/or the Plan to reflect guidance under Section 409A of the Code issued by the Internal Revenue Service. Participant agrees that the Committee shall have sole discretion in determining (i) whether any such modification is desirable or appropriate and (ii) the terms of any such modification.
(k) The Participant hereby automatically becomes a party to this Agreement whether or not he or she accepts the Award electronically or in writing in accordance with procedures of the Committee, its delegates or agents.
(l) Nothing in this Agreement or the Plan shall interfere with or limit in any way the right of the Company or an Affiliate to terminate the Participant’s employment or service at any time, nor confer upon the Participant the right to continue in the employ of the Company and/or Affiliate.
(m) The Participant hereby acknowledges that nothing in this Agreement shall be construed as requiring the Committee to allow a Domestic Relations Order with respect to this Award.
7. Notices. All notices to the Company required hereunder shall be in writing and delivered by hand or by mail, addressed to The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention: Stock Administration Department. Notices shall become effective upon their receipt by the Company if delivered in the foregoing manner. To direct the sale of any
9
Exhibit 10.3
Shares issued under this Agreement, contact Fidelity at http://netbenefits.fidelity.com or by telephone at 800-544-9354.
8. Tax Consultation. You understand you will incur tax consequences as a result of acquisition or disposition of the Shares and Dividend Equivalents. You agree to consult with any tax consultants you think advisable in connection with the acquisition of the Shares and Dividend Equivalents and acknowledge that you are not relying, and will not rely, on the Company for any tax advice.
THE WILLIAMS COMPANIES, INC.
Participant: Participant Name
SSN: Participant ID
10
Exhibit 10.4
GrantDate
TO: Participant Name
FROM:
SUBJECT: 2020 Restricted Stock Unit Award
You have been granted a restricted stock unit award. This award, which is subject to adjustment under the 2020 Restricted Stock Unit Agreement (the “Agreement”), is granted to you in recognition of your role as a non-management director for The Williams Companies, Inc. It is granted and subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time, and the Agreement.
Subject to all of the terms of the Agreement, you will generally become entitled to payment of this award when you leave your role as a non-management director for the Company.
If you have any questions about this award, you may contact a dedicated Fidelity Stock Plan Representative at 1-800-823-0217.
1
Exhibit 10.4
2020 RESTRICTED STOCK UNIT AGREEMENT
THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”), which contains the terms and conditions for the Restricted Stock Units (“Restricted Stock Units” or “RSUs”) referred to in the 2020 Restricted Stock Unit Award Letter delivered in hard copy or electronically to Participant (“2020 Award Letter”), is by and between THE WILLIAMS COMPANIES, INC., a Delaware corporation (the “Company”) and the individual identified on the last page hereof (the “Participant”).
1. Grant of RSUs. Subject to the terms and conditions of The Williams Companies, Inc. 2007 Incentive Plan, as amended and restated from time to time (the “Plan”), this Agreement and the 2020 Award Letter, the Company hereby grants an award (the “Award”) to the Participant of Qty Granted RSUs effective Grant Date (the “Effective Date”). The Award gives the Participant the right to receive the number of shares of the Common Stock of the Company equal to the number of RSUs shown in the prior sentence, subject to adjustment under the terms of this Agreement. These shares are referred to in this Agreement as the “Shares.” Until the Participant receives payment of the Shares under the terms of Paragraph 4, the Participant shall have no rights as a stockholder of the Company with respect to the Shares, except for the right to earn Dividend Equivalents as set forth herein.
2. Incorporation of Plan and Acceptance of Documents. The Plan is hereby incorporated herein by reference, and all capitalized terms used herein which are not defined in this Agreement shall have the respective meanings set forth in the Plan. The Participant acknowledges that he or she has received a copy of, or has online access to, the Plan and hereby automatically accepts the RSUs subject to all the terms and provisions of the Plan and this Agreement. The Participant hereby further agrees that he or she has received a copy of, or has online access to, the prospectus and hereby acknowledges his or her automatic acceptance and receipt of such prospectus electronically.
3. Board Decisions and Interpretations. The Participant hereby agrees to accept as binding, conclusive and final all actions, decisions and/or interpretations of the Board, its delegates, or agents, upon any questions or other matters arising under the Plan or this Agreement.
4. Payment of Shares; Dividend Equivalents.
(a) The Participant shall receive payment of all Shares if the Participant dies while serving as a Non-Management Director of the Company or his or her service as a Non-Management Director of the Company terminates for any other reason and such termination constitutes a “separation from service” as defined under Treasury Regulation § 1.409A-1, as amended, the Participant shall receive payment of all Shares at the time of such death or separation from service. In this regard, if at the time a Non-Management Director’s service as a Non-Management Director terminates, such Non-Management Director is also providing services to the Company or an Affiliate (as defined below) as an independent
2
Exhibit 10.4
contractor, no separation from service by such Non-Management Director shall occur, and no Shares shall be payable to such Non-Management Director until the date on which such Non-Management Director has a Separation from Service as an Independent Contractor (as defined below) from the Company and its Affiliates.
(b) All Shares that are paid pursuant to the Participant’s death or separation from service as provided in Subparagraph 4(a) above shall be paid to the Participant upon occurrence of the event giving rise to the right to payment or, in the case of Participant’s death, to the beneficiary of the Participant under the Plan or, if no beneficiary has been designated, to the Participant’s estate, provided that, except as otherwise required under Federal securities laws or other applicable law, all Shares that are paid pursuant to Subparagraph 4(a) above in the event of death shall be paid not more than 90 days following such death, and all Shares that are paid pursuant to Subparagraph 4(a) above in the event of a separation from service shall be paid not more than 30 days following such separation from service. If such 90-day or 30-day period as applicable spans two calendar years, then payment will be made in the later calendar year.
(c) Shares that become payable under this Agreement will be paid by the Company by the delivery to the Participant, or, in the case of the Participant’s death, to the Participant’s beneficiary or legal representative, of one or more certificates (or other indicia of ownership) representing shares of Williams Common Stock equal in number to the number of Shares otherwise payable under this Agreement. Notwithstanding the foregoing, to the extent permitted by Section 409A of the Code and the guidance issued by the Internal Revenue Service thereunder, if employment taxes become due or other withholding obligations arise upon the Participant’s becoming entitled to payment of Shares, the number of Shares necessary to cover minimum statutory withholding requirements may be used to satisfy such requirements upon such entitlement.
(d) Upon conversion of RSUs into Shares under this Agreement, such RSUs shall be cancelled.
(e) From and after the Effective Date, the Participant shall be entitled to accrue Dividend Equivalents with respect to each Share subject to the Award. On each date on which the Company pays a dividends to stockholders generally, the number of RSUs subject to this Agreement shall be increased by a number equal to the number of whole Shares with a value equal to the value of the dividends that would have been paid on the Shares deliverable pursuant to the RSUs (if such Shares were outstanding), divided by the Fair Market Value of the Shares on such dividend payment date. Prior to payment, the Dividend Equivalents shall be subject to the same restrictions and limitations set forth herein with respect to the RSUs to which the Dividend Equivalents relate. The Dividend Equivalents accrued hereunder shall be paid in Shares (without interest) to the Participant (or beneficiary or estate, as applicable) as and when the Shares to which such Dividend Equivalents relate are paid pursuant to this Section 4.
3
Exhibit 10.4
5. Definitions. As used in this Agreement, the following terms shall have the definitions set forth below.
(a) “Affiliate” means all persons with whom the Company would be considered a single employer under Section 414(b) of the Code, and all persons with whom such person would be considered a single employer under Section 414(c) of the Code.
(b) “Separation from Service as an Independent Contractor” will occur upon the expiration of the contract (or in the case of more than one contract, all contracts) under which services are performed by a Non-Management Director for the Company or an Affiliate, but only if the expiration constitutes a good-faith and complete termination of the contractual relationship. An expiration of a contract shall not constitute a good faith and complete termination of the contractual relationship if the Company or an Affiliate anticipates either a renewal of a contractual relationship or the Non-Management Director’s becoming an employee. The determination of whether a Separation from Service as an Independent Contractor has occurred shall be governed by the provisions of Treasury Regulation § 1.409A-1, as amended.
6. Other Provisions.
(a) The Participant understands and agrees that payments under this Agreement shall not be used for, or in the determination of, any other payment or benefit under any continuing agreement, plan, policy, practice or arrangement providing for the making of any payment or the provision of any benefits to or for the Participant or the Participant’s beneficiaries or representatives, including, without limitation, any employment agreement, any change of control severance protection plan or any employee benefit plan as defined in Section 3(3) of ERISA, including, but not limited to qualified and non-qualified retirement plans.
(b) The Participant agrees and understands that, upon payment of Shares under this Agreement, stock certificates (or other indicia of ownership) issued may be held as collateral for monies he/she owes to the Company or any of its Affiliates, including but not limited to personal loan(s) or the Company credit card debt.
(c) RSUs, Shares and the Participant’s interest in RSUs and Shares may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered at any time prior to the Participant’s becoming entitled to payment of Shares under this Agreement.
(d) With respect to the right to receive payment of the Shares under this Agreement, nothing contained herein shall give the Participant any rights that are greater than those of a general creditor of the Company.
(e) The obligations of the Company under this Agreement are unfunded and unsecured. Each Participant shall have the status of a general creditor of the Company with respect to amounts due, if any, under this Agreement.
4
Exhibit 10.4
(f) The parties to this Agreement intend that this Agreement meet the applicable requirements of Section 409A of the Code and recognize that it may be necessary to modify this Agreement and/or the Plan to reflect guidance under Section 409A of the Code issued by the Internal Revenue Service. Participant agrees that the Board shall have sole discretion in determining (i) whether any such modification is desirable or appropriate and (ii) the terms of any such modification.
(g) The Participant hereby automatically becomes a party to this Agreement whether or not he or she accepts the Award electronically or in writing in accordance with procedures of the Board, its delegates or agents.
(h) Nothing in this Agreement or the Plan shall confer upon the Participant the right to continue to serve as a director of the Company.
(i) The Participant hereby acknowledges that nothing in this Agreement shall be construed as requiring the Board or Committee to allow a Domestic Relations Order with respect to this Award.
7. Notices. All notices to the Company required hereunder shall be in writing and delivered by hand or by mail, addressed to The Williams Companies, Inc., One Williams Center, Tulsa, Oklahoma 74172, Attention: Stock Administration Department. Notices shall become effective upon their receipt by the Company if delivered in the foregoing manner. To direct the sale of any Shares issued under this Agreement, the Participant must contact Fidelity at http://netbenefits.fidelity.com or by telephone at 800-823-0217.
8. Tax Consultation. You understand you will incur tax consequences as a result of acquisition or disposition of the Shares. You agree to consult with any tax consultants you think advisable in connection with the acquisition of the Shares and acknowledge that you are not relying, and will not rely, on the Company for any tax advice.
THE WILLIAMS COMPANIES, INC.
Participant: Participant Name
SSN: Social Security Number
5
Exhibit 31.1
CERTIFICATIONS
I, Alan S. Armstrong, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Williams Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 4, 2020
/s/ Alan S. Armstrong | |
Alan S. Armstrong | |
President and Chief Executive Officer | |
(Principal Executive Officer) | |
Exhibit 31.2
CERTIFICATIONS
I, John D. Chandler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Williams Companies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 4, 2020
/s/ John D. Chandler | |
John D. Chandler | |
Senior Vice President and Chief Financial Officer | |
(Principal Financial Officer) | |
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Williams Companies, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned hereby certifies, in his capacity as an officer of the Company, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Alan S. Armstrong |
Alan S. Armstrong |
President and Chief Executive Officer |
May 4, 2020 |
/s/ John D. Chandler |
John D. Chandler |
Senior Vice President and Chief Financial Officer |
May 4, 2020 |
A signed original of this written statement required by Section 906 has been provided to, and will be retained by, the Company and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Report and shall not be considered filed as part of the Report.