UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number 001-33917
Williams Pipeline Partners L.P.
(Exact name of registrant as specified in its charter)
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Delaware
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26-0834035
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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One Williams Center, Tulsa, Oklahoma
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74172-0172
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(Address of principal executive offices)
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(Zip Code)
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(918) 573-2000
(Registrants telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
þ
No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
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No
þ
The registrant had 22,607,430 common units and 10,957,900 subordinated units outstanding as of
July 26, 2010.
WILLIAMS PIPELINE PARTNERS L.P.
FORM 10-Q
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
Certain matters contained in this report include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial
performance, managements 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 or other similar expressions.
These forward-looking statements are based on managements beliefs and assumptions and on
information currently available to management and include, among others, statements regarding:
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Amounts and nature of future capital expenditures;
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Expansion and growth of our business and operations;
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Financial condition and liquidity;
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Business strategy;
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Cash flow from operations or results of operations;
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2
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The levels of cash distributions to unitholders;
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Rate case filings; and
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Natural gas prices and demand.
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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. Limited partner units are inherently different from the capital stock of a
corporation, although many of the business risks to which we are subject are similar to those that
would be faced by a corporation engaged in a similar business. You should carefully consider the
risk factors discussed below in addition to the other information in this report. If any of the
following risks were actually to occur, our business, results of operations and financial condition
could be materially adversely affected. In that case, we might not be able to pay distributions on
our common units, the trading price of our common units could decline and unitholders could lose
all or part of their investment. 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:
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Whether we have sufficient cash from operations to enable us to maintain current
levels of cash distributions or to pay the minimum quarterly distribution following
establishment of cash reserves and payment of fees and expenses, including payments to
our general partner;
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Availability of supplies (including the uncertainties inherent in assessing and
estimating future natural gas reserves), market demand, volatility of prices, and the
availability and cost of capital;
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Inflation, interest rates, and general economic conditions (including future
disruptions and volatility in the global credit markets and the impact of these events
on Northwests customers and suppliers);
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The strength and financial resources of our and Northwests competitors;
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Development of alternative energy sources;
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The impact of operational and development hazards;
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Costs of, changes in, or the results of laws, government regulations (including
proposed climate change legislation), environmental liabilities, litigation and rate
proceedings;
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Northwests allocated costs for defined benefit pension plans and other
postretirement benefit plans sponsored by its affiliates;
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Changes in maintenance and construction costs;
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Changes in the current geopolitical situation;
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Northwests exposure to the credit risk of its customers;
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Risks related to strategy and financing, including restrictions stemming from
Northwests debt agreements, future changes in Northwests credit ratings, and the
availability and cost of credit;
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Risks associated with future weather conditions;
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Acts of terrorism; and
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Additional risks described in our filings with the Securities and Exchange Commission
(SEC).
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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
3
not intend to update the above list or to 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, 2009.
4
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
WILLIAMS PIPELINE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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(Thousands of dollars, except per-unit amounts)
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General and administrative expense
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$
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1,140
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$
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737
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$
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2,470
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$
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1,390
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Other expense
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1,200
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1,200
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Equity earnings from investment in Northwest Pipeline GP
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12,032
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12,307
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25,291
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26,625
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Interest expense affiliate
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(13
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(3
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(25
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Interest income
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2
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3
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3
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5
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Net income
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$
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9,694
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$
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11,560
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$
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21,621
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$
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25,215
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Allocation of net income used for earnings per unit calculation:
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Net income
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$
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9,694
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$
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11,560
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$
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21,621
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$
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25,215
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Allocation of net loss to general partner
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(28
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(135
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(9
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(225
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Allocation of net income to limited partners
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$
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9,722
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$
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11,695
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$
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21,630
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$
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25,440
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Basic and diluted net income per limited partner unit:
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Common units
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$
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0.29
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$
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0.35
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$
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0.64
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$
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0.76
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Subordinated units
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$
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0.29
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$
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0.35
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$
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0.64
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$
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0.76
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Weighted average number of units outstanding:
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Common units
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22,607,430
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22,607,430
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22,607,430
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22,607,430
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Subordinated units
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10,957,900
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10,957,900
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10,957,900
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10,957,900
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See accompanying notes to consolidated financial statements.
5
WILLIAMS PIPELINE PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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June 30,
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December 31,
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2010
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2009
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(Thousands of dollars)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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9,163
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$
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8,114
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Accounts receivable affiliate
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249
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Prepaid expense
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491
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193
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Total current assets
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9,903
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8,307
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Investment in Northwest Pipeline GP
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440,541
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441,608
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Total assets
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$
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450,444
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$
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449,915
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LIABILITIES AND PARTNERS CAPITAL
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Current liabilities:
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Accounts payable:
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Trade
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$
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1,662
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$
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419
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Affiliate
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297
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124
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Total current liabilities
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1,959
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543
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Contingent liabilities (Note 2)
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Partners capital
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448,485
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449,372
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Total liabilities and partners capital
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$
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450,444
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$
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449,915
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See accompanying notes to consolidated financial statements.
6
WILLIAMS PIPELINE PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six Months Ended
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June 30,
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2010
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2009
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(Thousands of dollars)
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OPERATING ACTIVITIES:
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Net income
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$
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21,621
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$
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25,215
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Adjustments to reconcile to cash provided by operations:
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Equity earnings from investment in Northwest Pipeline GP
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(25,291
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(26,625
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Distributions related to equity earnings from investment in Northwest Pipeline GP
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26,347
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22,750
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Cash provided (used) by changes in assets and liabilities:
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Accounts receivable
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(90
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Other current assets
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(298
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43
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Accounts payable
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1,416
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(561
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Other
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12
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Net cash provided by operating activities
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23,795
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20,744
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INVESTING ACTIVITIES:
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Other
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Net cash provided (used) by investing activities
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FINANCING ACTIVITIES:
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Distributions paid
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(22,993
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(22,091
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Contributions pursuant to the omnibus agreement
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247
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744
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Net cash used by financing activities
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(22,746
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(21,347
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Increase (decrease) in cash and cash equivalents
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1,049
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(603
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Cash and cash equivalents at beginning of period
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8,114
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7,760
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Cash and cash equivalents at end of period
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$
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9,163
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$
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7,157
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See accompanying notes to consolidated financial statements.
7
WILLIAMS PIPELINE PARTNERS L.P.
CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
(Unaudited)
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Accumulated
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Other
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Total
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Limited Partner
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General
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Comprehensive
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Partners
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Common
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Subordinated
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Partner
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Loss
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Capital
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(Thousands of dollars)
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Balance January 1, 2010
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$
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296,932
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$
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143,513
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$
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8,969
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$
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(42
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)
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$
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449,372
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Net income
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14,569
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7,061
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(9
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21,621
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Other comprehensive income:
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Amortization of cash flow hedge
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(11
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)
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(11
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)
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|
|
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Total other comprehensive income
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|
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|
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(11
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)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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Cash distributions
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(15,147
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)
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(7,342
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)
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(504
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)
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|
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(22,993
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)
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Contributions pursuant to the omnibus agreement
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|
|
|
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|
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|
496
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496
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|
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|
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|
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Balance June 30, 2010
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$
|
296,354
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$
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143,232
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$
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8,952
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$
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(53
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)
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$
|
448,485
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|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to consolidated financial statements.
8
WILLIAMS PIPELINE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Unless the context clearly indicates otherwise, references in this report to we, our, us
or like terms refer to Williams Pipeline Partners L.P. (Partnership), its subsidiaries and the
operations of Northwest Pipeline GP (Northwest), in which we own a 35 percent interest. When we
refer to Northwest by name, we are referring exclusively to Northwest Pipeline GP and its
consolidated affiliate, Northwest Pipeline Services LLC.
We are a Delaware limited partnership formed on August 31, 2007 to own and operate natural gas
transportation and storage assets, including a non-controlling ownership interest in Northwest. On
January 24, 2008, we completed our initial public offering (IPO) of common units. The 35 percent
of Northwest owned by us was owned by The Williams Companies, Inc. (Williams) prior to the IPO of
our common units in January 2008.
On February 17, 2010, Williams completed a strategic restructuring in which it contributed
certain of its midstream and pipeline assets, including its 45.7 percent limited partner interest
in us, its 100 percent ownership interest in our general partner, and its 65 percent interest in
Northwest to Williams Partners L.P. (Williams Partners), an affiliate of Williams and of us, in
exchange for cash and units in Williams Partners (the Dropdown). As part of the Dropdown,
Williams Partners stated its intention to commence an exchange offer for any and all of our
outstanding common units not held by Williams Partners or its affiliates at a future date and at an
exchange ratio of 0.7584 units of Williams Partners for each of our units, and later indicated that
it might propose a merger to our holders also at the previously stated exchange ratio.
On May 24, 2010, after lengthy negotiations between Williams Partners and a committee
consisting of the three directors on the Board of Directors of our general partner who meet the
independence requirements established in our partnership agreement, a merger agreement (the Merger
Agreement) providing for the merger of the Partnership into Williams Partners (the Merger) was
executed. The Merger and the Merger Agreement are described in detail in the Registration
Statement on Form S-4 initially filed by Williams Partners on June 9, 2010 and in our and Williams
Partners joint proxy statement/prospectus dated July 15, 2010 that is being provided to holders of
record of our units at the close of business on July 15, 2010, who are the holders of our units who
will be entitled to vote on the Merger at the special meeting of our unitholders scheduled for
August 31, 2010. If the Merger is approved at that meeting, it is anticipated that the Merger will
be consummated shortly thereafter and all of our units not held by Williams or its corporate
affiliates will be exchanged for units of Williams Partners at the exchange ratio set forth above.
As of June 30, 2010, Williams Partners, through its subsidiary, Williams Pipeline GP LLC, owns
a 2 percent general partner interest and a 45.7 percent limited partner interest in us.
As discussed in our 2009 Annual Report on Form 10-K, on January 20, 2010, we concluded that
our financial statements for the year ended December 31, 2008 should be restated due to the manner
in which Northwest had presented and recognized pension and postretirement obligations in certain
benefit plans for which Williams is the plan sponsor. We concluded that the impact of the error is
not material to any of the three quarterly periods of 2009.
The 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 audited
consolidated financial statements and notes thereto included in our Annual Report on Form 10-K,
filed February 23, 2010, for the year ended December 31, 2009. The accompanying consolidated
financial statements include all normal recurring adjustments that, in the opinion of management,
are necessary to present fairly our financial position at June 30, 2010, results of operations for
the three and six months ended June 30, 2010 and 2009, and cash flows for the six months ended June
30, 2010 and 2009. All intercompany transactions have been eliminated.
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.
9
WILLIAMS PIPELINE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2. Contingent Liabilities
On May 25, 2010, the Booth Family Trust filed a purported class action complaint in Tulsa
County District Court against the Partnership, Williams, Williams Partners, Williams Pipeline GP,
LLC and its individual directors. The plaintiff asserts that the individuals breached their
fiduciary duties in connection with the Partnerships entry into the Merger Agreement and that the
entities aided and abetted these alleged breaches of fiduciary duties. All of the parties against
whom the lawsuit was filed believe that the lawsuit is without merit, but to avoid any risk of
delaying the Merger, have agreed in principle to settle the lawsuit on the basis that certain
additional disclosures would be included in the joint proxy statement/prospectus. On July 9, 2010,
all parties to the lawsuit entered into a Memorandum of Understanding outlining the terms upon
which this lawsuit would be settled subject to court approval. There can be no assurance that
additional claims will not be made or additional lawsuits filed, the substance of which may be
similar to the allegations described above or that otherwise might arise from, or in connection
with, the Merger Agreement and the transactions it contemplates; however, if the lawsuit is settled
on the basis contemplated by the Memorandum of Understanding, all the defendants will receive
general release from the putative class. At June 30, 2010, we have accrued liabilities totaling
approximately $1.2 million related to the settlement terms, including accrued legal fees, specified
in the Memorandum of Understanding.
Note 3. Allocation of Net Income and Distributions
The allocation of net income between our general partner and limited partners, as reflected in
the Consolidated Statement of Partners Capital, for the three and six months ended June 30, 2010
and 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands of dollars, except per-unit amounts)
|
|
Allocation to general partner:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,694
|
|
|
$
|
11,560
|
|
|
$
|
21,621
|
|
|
$
|
25,215
|
|
Charges direct to general partner:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursable general administrative costs
|
|
|
249
|
|
|
|
374
|
|
|
|
496
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income subject to 2% allocation of general partner interest
|
|
|
9,943
|
|
|
|
11,934
|
|
|
|
22,117
|
|
|
|
25,959
|
|
General partners share of net income
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners allocated share of net income before
items directly allocable to general partner interest
|
|
|
199
|
|
|
|
239
|
|
|
|
442
|
|
|
|
519
|
|
Incentive distributions paid to general partner
|
|
|
22
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
Direct charges to general partner
|
|
|
(249
|
)
|
|
|
(374
|
)
|
|
|
(496
|
)
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss allocated to general partner
|
|
$
|
(28
|
)
|
|
$
|
(135
|
)
|
|
$
|
(9
|
)
|
|
$
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,694
|
|
|
$
|
11,560
|
|
|
$
|
21,621
|
|
|
$
|
25,215
|
|
Net loss allocated to general partner
|
|
|
(28
|
)
|
|
|
(135
|
)
|
|
|
(9
|
)
|
|
|
(225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to limited partners
|
|
$
|
9,722
|
|
|
$
|
11,695
|
|
|
$
|
21,630
|
|
|
$
|
25,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and subordinated unitholders have always shared equally, on a per-unit basis, in the
net income allocated to limited partners.
10
WILLIAMS PIPELINE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have paid or have authorized payment of the following post-IPO cash distributions during
2008, 2009 and 2010 (in thousands, except per-unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
Per Unit
|
|
Common
|
|
Subordinated
|
|
|
|
|
|
Distribution
|
|
Total Cash
|
Payment Date
|
|
Distribution
|
|
Units
|
|
Units
|
|
2%
|
|
Rights
|
|
Distribution
|
5/15/2008
|
|
$
|
0.2242
|
|
|
$
|
5,068
|
|
|
$
|
2,457
|
|
|
$
|
154
|
|
|
$
|
|
|
|
$
|
7,679
|
|
8/14/2008
|
|
|
0.3100
|
|
|
|
7,008
|
|
|
|
3,397
|
|
|
|
212
|
|
|
|
|
|
|
|
10,617
|
|
11/14/2008
|
|
|
0.3150
|
|
|
|
7,121
|
|
|
|
3,452
|
|
|
|
216
|
|
|
|
|
|
|
|
10,789
|
|
2/13/2009
|
|
|
0.3200
|
|
|
|
7,234
|
|
|
|
3,507
|
|
|
|
219
|
|
|
|
|
|
|
|
10,960
|
|
5/15/2009
|
|
|
0.3250
|
|
|
|
7,347
|
|
|
|
3,561
|
|
|
|
223
|
|
|
|
|
|
|
|
11,131
|
|
8/14/2009
|
|
|
0.3300
|
|
|
|
7,461
|
|
|
|
3,616
|
|
|
|
226
|
|
|
|
|
|
|
|
11,303
|
|
11/13/2009
|
|
|
0.3350
|
|
|
|
7,574
|
|
|
|
3,671
|
|
|
|
230
|
|
|
|
22
|
|
|
|
11,497
|
|
02/12/2010
|
|
|
0.3350
|
|
|
|
7,574
|
|
|
|
3,671
|
|
|
|
230
|
|
|
|
22
|
|
|
|
11,497
|
|
05/14/2010
|
|
|
0.3350
|
|
|
|
7,574
|
|
|
|
3,671
|
|
|
|
230
|
|
|
|
22
|
|
|
|
11,497
|
|
08/13/2010(a)
|
|
|
0.3350
|
|
|
|
7,574
|
|
|
|
3,671
|
|
|
|
230
|
|
|
|
22
|
|
|
|
11,497
|
|
|
|
|
(a)
|
|
The board of directors of our general partner declared this cash distribution on July 27,
2010 to be paid on August 13, 2010 to unitholders of record at the close of business on August
6, 2010.
|
Note 4. Related Party Transactions
During the six months ended June 30, 2010, we received distributions totaling $26.3 million
from Northwest. Of this amount, $13.7 million represents a distribution from Northwest due to the
settlement of its outstanding advances to Williams as of January 31, 2010. We made distributions
to Williams of $11.0 million, as declared by the board of directors of our general partner, during
the six months ended June 30, 2010.
Our general partner gives us a credit for general and administrative expenses under the terms
of an omnibus agreement. The annual amounts of those credits are as follows: $1.0 million in 2010
and $0.5 million in 2011. At June 30, 2010, $0.5 million is reflected as a capital contribution in
our financial statements.
Note 5. Comprehensive Income
Comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009*
|
|
|
2010
|
|
|
2009*
|
|
|
|
(Thousands of dollars)
|
|
Net income
|
|
$
|
9,694
|
|
|
$
|
11,560
|
|
|
$
|
21,621
|
|
|
$
|
25,215
|
|
Amortization of cash flow hedge
|
|
|
(6
|
)
|
|
|
(5
|
)
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
9,688
|
|
|
$
|
11,555
|
|
|
$
|
21,610
|
|
|
$
|
25,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Prior year amount has been restated to reflect accounting for pension and postretirement
benefit obligations on a multi-employer accounting model (See Note 1). The effect of the
restatement decreased Northwests Total Comprehensive Income by $0.8 million and $1.8 million
for the three and six months ended June 30, 2009, respectively. The effect of the restatement
decreased our Total Comprehensive Income by $0.3 million and $0.6 million for the three and
six months ended June 30, 2009, respectively.
|
11
WILLIAMS PIPELINE PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6. Equity Investments
Northwest is accounted for using the equity method of accounting. As such, our interest in
Northwests net operating results is reflected as equity earnings in our Consolidated Statements of
Income. The summarized results of operations for 100 percent of Northwest are presented below:
Northwest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(Thousands of dollars)
|
|
Revenues
|
|
$
|
102,578
|
|
|
$
|
107,756
|
|
|
$
|
208,688
|
|
|
$
|
219,304
|
|
Operating expenses
|
|
|
57,159
|
|
|
|
60,743
|
|
|
|
112,978
|
|
|
|
119,139
|
|
Other income, net
|
|
|
438
|
|
|
|
449
|
|
|
|
100
|
|
|
|
640
|
|
Interest charges
|
|
|
11,441
|
|
|
|
12,300
|
|
|
|
23,511
|
|
|
|
24,735
|
|
Income taxes
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
34,378
|
|
|
$
|
35,162
|
|
|
$
|
72,261
|
|
|
$
|
76,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7. Disclosures About the Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents
The carrying amounts of these items approximate their fair
value.
12
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a growth-oriented Delaware limited partnership formed by Williams to own and operate
natural gas transportation and storage assets. Effective January 24, 2008, we own a 35 percent
general partnership interest in Northwest, a subsidiary of Williams that owns an approximate
3,900-mile, bi-directional, interstate natural gas pipeline system that extends from the San Juan
Basin in New Mexico through the Rocky Mountains and to the Northwestern United States. Northwest
also has working natural gas storage capacity of approximately 13.0 billion cubic feet (Bcf). The
remaining 65 percent general partnership interest in Northwest is owned by a subsidiary of
Williams.
Our general partnership interest in Northwest is our only significant asset. As a result, we
are dependent on Northwest for substantially all of our cash available for distribution, and the
managements discussion and analysis of financial condition and results of operations contained
herein is primarily focused on Northwest.
Recent Events
On February 17, 2010, Williams completed a strategic restructuring in which it contributed
certain of its midstream and pipeline assets, including its 45.7 percent limited partner interest
in us, its 100 percent ownership interest in our general partner, and its 65 percent interest in
Northwest to Williams Partners, an affiliate of Williams and of us, in exchange for cash and units
in Williams Partners (the Dropdown). As part of the Dropdown, Williams Partners stated its
intention to commence an exchange offer for any and all of our outstanding common units not held by
Williams Partners or its affiliates at a future date and at an exchange ratio of 0.7584 units of
Williams Partners for each of our units, and later indicated that it might propose a merger to our
holders also at the previously stated exchange ratio.
On May 24, 2010, after lengthy negotiations between Williams Partners and a committee
consisting of the three directors on the Board of Directors of our general partner who meet the
independence requirements established in our partnership agreement, a merger agreement (the Merger
Agreement) providing for the merger of the Partnership into Williams Partners (the Merger) was
executed. The Merger and the Merger Agreement are described in detail in the Registration
Statement on Form S-4 initially filed by Williams Partners on June 9, 2010 and in our and Williams
Partners joint proxy statement/prospectus dated July 15, 2010 that is being provided to holders of
record of our units at the close of business on July 15, 2010, who are the holders of our units who
will be entitled to vote on the Merger at the special meeting of our unitholders scheduled for
August 31, 2010. If the Merger is approved at that meeting, it is anticipated that the Merger will
be consummated shortly thereafter and all of our units not held by Williams or its corporate
affiliates will be exchanged for units of Williams Partners at the exchange ratio set forth above.
On May 25, 2010, the Booth Family Trust filed a purported class action complaint in Tulsa
County District Court against the Partnership, Williams, Williams Partners, Williams Pipeline GP,
LLC and its individual directors. The plaintiff asserts that the individuals breached their
fiduciary duties in connection with the Partnerships entry into the Merger Agreement and that the
entities aided and abetted these alleged breaches of fiduciary duties. All of the parties against
whom the lawsuit was filed believe that the lawsuit is without merit, but to avoid any risk of
delaying the Merger, have agreed in principle to settle the lawsuit on the basis that certain
additional disclosures would be included in the joint proxy statement/prospectus. On July 9, 2010,
all parties to the lawsuit entered into a Memorandum of Understanding outlining the terms upon
which this lawsuit would be settled subject to court approval. There can be no assurance that
additional claims will not be made or additional lawsuits filed, the substance of which may be
similar to the allegations described above or that otherwise might arise from, or in connection
with, the Merger Agreement and the transactions it contemplates; however, if the lawsuit is settled
on the basis contemplated by the Memorandum of Understanding, all the defendants will receive
general release from the putative class. At June 30, 2010, we have accrued liabilities totaling
approximately $1.2 million related to the settlement terms, including accrued legal fees, specified
in the Memorandum of Understanding.
General
Unless indicated otherwise, 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 included within Part II, Item 8. Financial Statements and Supplementary Data
of our 2009 Annual Report on Form 10-K, the consolidated financial statements and notes contained
in Part I, Item 1. Financial Statements of the Northwest Pipeline GP Quarterly Report on Form 10-Q
for the quarterly period ending June 30, 2010, and with our consolidated financial statements and
notes contained within this document.
13
Outlook
Northwests strategy to create value focuses on maximizing the contracted capacity on its
pipeline by providing high quality, low cost natural gas transportation and storage services to its
markets. Changes in commodity prices and volumes transported have little impact on revenues
because the majority of Northwests revenues are recovered through firm capacity reservation
charges. Northwest grows its business primarily through expansion projects that are designed to
increase its access to natural gas supplies and to serve the demand growth in its markets.
Northwests Capital Projects
The pipeline projects listed below are significant future pipeline projects for which
Northwest has significant customer commitments.
|
|
|
Jackson Prairie Underground Expansion.
The Jackson Prairie Storage Project, connected to
Northwests transmission system near Chehalis, Washington, is operated by Puget Sound Energy
and is jointly owned by Puget Sound Energy, Avista Corporation and Northwest. A phased
capacity expansion is currently underway and a deliverability expansion was placed in service
on November 1, 2008.
|
|
|
|
|
As a one-third owner of Jackson Prairie, in early 2006, Northwest held an open season for a new
firm storage service based on its 100 million cubic feet per day share of the planned 2008
deliverability expansion and approximately 1.2 Bcf of its share of the working natural gas
storage capacity expansion being developed over approximately a six-year period from 2007
through 2012.
|
|
|
|
|
As a result of the open season, four shippers have executed long-term service agreements for
the full amount of incremental storage service offered at contract terms averaging 33 years.
The firm service relating to storage capacity rights will be phased-in as the expanded working
natural gas capacity is developed. Northwests one-third share of the deliverability expansion
was placed in service on November 1, 2008 at a cost of approximately $16.0 million. Northwests
estimated capital cost for the capacity expansion component of the new storage service is $6.1
million, primarily for base natural gas.
|
|
|
|
|
Sundance Trail Expansion.
In November 2009, Northwest received approval from the Federal
Energy Regulatory Commission (FERC) to construct approximately 16 miles of 30-inch loop
between its existing Green River and Muddy Creek compressor stations in Wyoming as well as an
upgrade to its existing Vernal compressor station, with service targeted to commence in
November 2010. The total project, currently under construction, is estimated to cost
approximately $60 million, including the cost of replacing the existing compression at
Vernal, which will enhance the efficiency of Northwests system. Northwest executed a
transportation service agreement to provide 150 thousand dekatherms per day of firm
transportation service from the Greasewood and Meeker Hubs in Colorado for delivery to the
Opal Hub in Wyoming. Northwest will collect its maximum system rates under the firm service
agreement, and has received approval from the FERC to roll-in the Sundance Trail Expansion
costs in any future rate cases.
|
Williams Pipeline Partners L.P.s Results of Operations
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
The Partnerships net income decreased $1.9 million or 16 percent. The decrease is primarily
attributed to the $1.2 million accrual related to the settlement terms of the Memorandum of
Understanding combined with higher general and administrative expenses associated with the Dropdown
and Merger and lower equity in earnings of Northwest.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
The Partnerships net income decreased $3.6 million or 14 percent. The decrease is due to
lower equity in earnings of Northwest, higher general and administrative expenses associated with
the Dropdown and Merger and the $1.2 million accrual related to the settlement terms of the
Memorandum of Understanding.
Northwests Results of Operations
In the following discussion of the results of Northwest, all amounts represent 100 percent of
the operations of Northwest, in which we hold a 35 percent general partnership interest following
the completion of our IPO on January 24, 2008. As such, we recognized
14
equity earnings from investments of $12.0 million and $25.3 million for the three and six
months ended June 30, 2010, respectively, compared with the $12.3 million and $26.6 million for the
three and six months ended June 30, 2009, respectively.
Analysis of Financial Results
This analysis discusses financial results of Northwests operations for the three and
six-month periods ended June 30, 2010 and 2009. Variances due to changes in natural gas prices and
transportation volumes have little impact on revenues, because under Northwests rate design
methodology, the majority of overall cost of service is recovered through firm capacity reservation
charges in Northwests transportation rates.
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
Northwests operating revenues decreased $5.2 million, or 5 percent. This decrease is
primarily attributed to i) lower Parachute Lateral lease revenues of $2.6 million resulting from
the termination of the Parachute Lateral lease on August 1, 2009, ii) lower other revenues of $1.0
million resulting from the absence of sublease income attributed to the restructuring of the Salt
Lake City headquarters building lease, iii) lower revenues of $0.9 million resulting from the
termination of the Everett Delta Lateral lease on November 9, 2009, and iv) lower firm
transportation commodity revenues of $0.7 million due primarily to mild weather in Northwests
market area and lower off-system deliveries on the southern end of the system. The revenue
decreases from the Parachute and Everett Delta laterals as well as the reduction in building
sublease revenues is substantially offset by decreases in lease expenses as described below.
Northwests transportation service accounted for 97 percent and 95 percent of its operating
revenues for the three-month periods ended June 30, 2010 and 2009, respectively. Natural gas
storage service accounted for 3 percent and 4 percent of operating revenues for the three-month
periods ended June 30, 2010 and 2009, respectively.
Operating expenses decreased $3.6 million, or 6 percent, due primarily to i) the termination
of the Parachute and Everett Delta leases, resulting in lower lease expense of $3.4 million and ii)
the restructuring of the Salt Lake City headquarters building lease resulting in lower building
lease expense of $1.2 million. These decreases were partially offset by higher property taxes of
$1.0 million primarily attributed to a $1.1 million reduction in 2009 for lower than anticipated
mill levies.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
Northwests operating revenues decreased $10.6 million, or 5 percent. This decrease is
primarily attributed to i) lower Parachute Lateral lease revenues of $5.2 million resulting from
the termination of the Parachute Lateral lease on August 1, 2009, ii) lower other revenues of $2.0
million resulting from the absence of sublease income attributed to the restructuring of the Salt
Lake City headquarters building lease, iii) lower firm transportation commodity revenues of $2.0
million due primarily to mild weather in Northwests market area and lower off-system deliveries on
the southern end of the system, and iv) lower revenues of $1.4 million resulting from the
termination of the Everett Delta Lateral lease on November 9, 2009. The revenue decreases from the
Parachute and Everett Delta laterals as well as the reduction in building sublease revenues is
substantially offset by decreases in lease expenses as described below.
Northwests transportation service accounted for 97 percent and 95 percent of its operating
revenues for the six-month periods ended June 30, 2010 and 2009, respectively. Natural gas storage
service accounted for 3 percent and 4 percent of operating revenues for the six-month periods ended
June 30, 2010 and 2009, respectively.
Operating expenses decreased $6.2 million, or 5 percent, due primarily to i) the termination
of the Parachute and Everett Delta leases, resulting in lower lease expense of $6.4 million and ii)
the restructuring of the Salt Lake City headquarters building lease resulting in lower building
lease expense of $2.5 million. These decreases were partially offset by higher property taxes of
$2.4 million primarily attributed to a $2.6 million reduction in 2009 for lower than anticipated
mill levies.
15
Operating Statistics
The following table summarizes volumes and capacity for the periods indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
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|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(In Trillion British Thermal Units)
|
|
Total Throughput(1)
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|
|
156
|
|
|
|
173
|
|
|
|
336
|
|
|
|
397
|
|
Average Daily Transportation Volumes
|
|
|
1.7
|
|
|
|
1.9
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|
|
|
1.9
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|
|
|
2.2
|
|
Average Daily Reserved Capacity
Under Base Firm Contracts, excluding
peak capacity
|
|
|
2.8
|
|
|
|
2.6
|
|
|
|
2.8
|
|
|
|
2.6
|
|
Average Daily Reserved Capacity
Under Short-Term Firm Contracts(2)
|
|
|
0.2
|
|
|
|
0.5
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|
|
|
0.3
|
|
|
|
0.6
|
|
|
|
|
(1)
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|
Parachute Lateral volumes of 20 trillion British thermal units (TBtu) and 43 TBtu for the
three and six months ended June 30, 2009, respectively, are excluded from total throughput as
these volumes flowed under separate contracts that did not result in mainline throughput.
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(2)
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|
Includes additional capacity created from time to time through the installation of new
receipt or delivery points or the segmentation of existing mainline capacity. Such capacity is
generally marketed on a short-term firm basis. When the capacity is sold on a long-term
basis, it is included above, under Base Firm Contracts.
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Capital Resources and Liquidity of Northwest
Northwests ability to finance its operations (including the funding of capital expenditures
and acquisitions), to meet its debt obligations and to refinance indebtedness depends on its
ability to generate future cash flows and to borrow funds. Northwests ability to generate cash is
subject to a number of factors, some of which are beyond its control, including the impact of
regulators decisions on the rates it is able to establish for its transportation and storage
services.
On or before the end of the calendar month following each quarter, available cash is
distributed to Northwests partners as required by its general partnership agreement. Available
cash is generally defined for Northwest as the sum of all cash and cash equivalents on hand at the
end of the quarter, plus cash on hand from working capital borrowings made subsequent to the end of
that quarter (as determined by Northwests management committee), less cash reserves established by
Northwests management committee as necessary or appropriate for the conduct of Northwests
business and to comply with any applicable law or agreements. In January 2010, for the three-month
period ended December 31, 2009, Northwest distributed $36.0 million of available cash to its
partners. In July 2010, Northwest declared equity distributions of $39.5 million to its partners
to be paid on July 30, 2010.
In connection with the Dropdown, Northwests participation in the Williams cash management
program was terminated. As a result of the Dropdown, Northwest became a participant in Williams
Partners cash management program. In February 2010, Northwests management committee authorized a
cash distribution of $39.3 million, which included the amount of its outstanding advances with
Williams as of January 31, 2010. As of June 30, 2010, cash advances to Williams of $38.7 million
remain outstanding and will not be available to Northwest as working capital and are therefore
reflected as a reduction in Owners Equity.
Northwest funds its capital spending requirements with cash from operating activities,
third-party debt and contributions from Northwests partners, and when necessary, with borrowings
under the New Credit Facility (described in Method of Financing, Credit Agreement).
16
Sources (Uses) of Cash
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Six Months Ended
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June 30,
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2010
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2009
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(Thousands of dollars)
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Net cash provided (used) by:
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Operating activities
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$
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115,035
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|
|
$
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125,838
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|
Financing activities
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|
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(74,641
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)
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|
(53,594
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)
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Investing activities
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|
(40,733
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)
|
|
|
(72,231
|
)
|
|
|
|
|
|
|
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Increase (decrease) in cash and cash equivalents
|
|
$
|
(339
|
)
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|
$
|
13
|
|
|
|
|
|
|
|
|
Operating Activities
Northwests net cash provided by operating activities for the six months ended June 30, 2010
decreased $10.8 million from the same period in 2009. This decrease is primarily attributed to
changes in working capital and lower cash operating results, partially offset by an increase in
changes in noncurrent assets and liabilities.
Financing Activities
Cash used in financing activities for the six months ended June 30, 2010 increased $21.0
million from the same period in 2009 due to higher distributions paid to Northwests partners and
lower contributions from Williams.
Investing Activities
Cash used in investing activities for the six months ended June 30, 2010 decreased $31.5
million from the same period in 2009 due primarily to lower capital expenditures and advances to
affiliates as well as higher proceeds from sales of property, plant and equipment.
Method of Financing
Working Capital
Working capital is the amount by which current assets exceed current liabilities. Northwests
working capital requirements will be primarily driven by changes in accounts receivable and
accounts payable. These changes are primarily impacted by such factors as credit and the timing of
collections from customers and the level of spending for maintenance and expansion activity.
Changes in the terms of Northwests transportation and storage arrangements have a direct
impact on Northwests generation and use of cash from operations due to their impact on net income,
along with the resulting changes in working capital. A material adverse change in operations or
available financing may impact Northwests ability to fund its requirements for liquidity and
capital resources.
Short-Term Liquidity
Northwest funds its working capital and capital requirements with cash flows from operating
activities, and, if required, borrowings under the New Credit Facility (described below) and return
of advances previously made to Williams Partners.
Northwest invests cash through participation in Williams Partners cash management program. At
June 30, 2010, the advances due to Northwest by Williams Partners totaled approximately $75.7
million. The advances are represented by demand notes. The interest rate on the Williams Partners
demand notes was based upon the overnight investment rate paid on Williams Partners excess cash,
which was approximately 0.01 percent at June 30, 2010.
Credit Agreement
As part of the restructuring, Northwest was removed as a borrower under the $1.5 billion
credit facility it shared as co-borrower with Williams and Transcontinental Gas Pipe Line Company,
LLC (Transco). On February 17, 2010, Northwest entered into a new $1.75 billion three-year
senior unsecured revolving credit facility (New Credit Facility) with Williams Partners and
Transco, as co-borrowers, and Citibank, N.A., as administrative agent, and certain other lenders
named therein. The full amount of the New Credit
17
Facility is available to Williams Partners, and may, under certain conditions, be increased by
up to an additional $250 million. Northwest may borrow up to $400 million under the New Credit
Facility to the extent not otherwise utilized by Williams Partners and Transco. Interest on
borrowings under the New Credit Facility is payable at rates per annum equal to, at the option of
the borrower: (1) a fluctuating base rate equal to Citibank, N.A.s adjusted base rate plus an
applicable margin, or (2) a periodic fixed rate equal to the London Interbank Offered Rate
(LIBOR) plus an applicable margin. The adjusted base rate will be the highest of (i) the federal
funds rate plus 0.5 percent, (ii) Citibank, N.A.s publicly announced base rate, and (iii) one
month LIBOR plus 1.0 percent. Williams Partners pays a commitment fee (currently 0.5 percent)
based on the unused portion of the New Credit Facility. The applicable margin and the commitment
fee are based on the borrowers senior unsecured long-term debt ratings.
The New Credit Facility contains various covenants that limit, among other things, a
borrowers and its respective subsidiaries ability to incur indebtedness, grant certain liens
supporting indebtedness, merge or consolidate, sell all or substantially all of its assets, enter
into certain affiliate transactions, make certain distributions during an event of default and
allow any material change in the nature of its business.
Under the New Credit Facility, Williams Partners is required to maintain a ratio of debt to
EBITDA (each as defined in the New Credit Facility) of no greater than 5.00 to 1.00 for itself and
its consolidated subsidiaries. The debt to EBITDA ratio is measured on a rolling four-quarter
basis. For Northwest, the ratio of debt to capitalization (defined as net worth plus debt) is not
permitted to be greater than 55 percent. Each of the above ratios is tested at the end of each
fiscal quarter (with the first full year measured on an annualized basis). At June 30, 2010,
Northwest is in compliance with this covenant.
The New Credit Facility includes customary events of default. If an event of default with
respect to a borrower occurs under the New Credit Facility, the lenders will be able to terminate
the commitments for all borrowers and accelerate the maturity of the loans of the defaulting
borrower under the New Credit Facility and exercise other rights and remedies.
As of June 30, 2010, there were no letters of credit issued by the participating institutions
under the New Credit Facility, and no revolving credit loans were outstanding.
Capital Requirements
The transmission and storage business can be capital intensive, requiring significant
investment to maintain and upgrade existing facilities and construct new facilities.
Northwest categorizes its capital expenditures as either maintenance capital expenditures or
expansion capital expenditures. Maintenance capital expenditures are those expenditures required to
maintain the existing operating capacity and service capability of Northwests assets, including
replacement of system components and equipment that are worn, obsolete, completing their useful
life, or necessary to remain in compliance with environmental laws and regulations. Expansion
capital expenditures improve the service capability of the existing assets, extend useful lives,
increase transmission or storage capacities from existing levels, reduce costs or enhance revenues.
Northwest anticipates 2010 capital expenditures will be between $120 million and $140 million
which includes $60 million to $80 million for maintenance capital and $95 million to $115 million
considered nondiscretionary due to legal, regulatory and/or contractual requirements. Northwests
property, plant and equipment additions were $30.2 million ($21.7 million for maintenance and $8.5
million for expansion) and $47.8 million ($18.4 million for maintenance and $29.4 million for
expansion) for the six months ended June 30, 2010 and 2009, respectively.
Credit Ratings
During the second quarter of 2010, the credit ratings on Northwests senior unsecured
long-term debt remained unchanged with investment grade ratings from all three agencies, as shown
below:
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|
|
Moodys Investors Service
|
|
Baa2
|
Standard and Poors
|
|
BBB-
|
Fitch Ratings
|
|
BBB
|
At June 30, 2010, Northwests credit rating outlook is stable from Moodys Investors Service
and Fitch Ratings and positive from Standard and Poors.
18
With respect to Moodys, a rating of Baa or above indicates an investment grade rating. A
rating below Baa is considered to have speculative elements. A Ba rating indicates an
obligation that is judged to have speculative elements and is subject to substantial credit risk.
The 1, 2 and 3 modifiers show the relative standing within a major category. A 1 indicates
that an obligation ranks in the higher end of the broad rating category, 2 indicates a mid-range
ranking, and 3 indicates a ranking at the lower end of the category.
With respect to Standard and Poors, a rating of BBB or above indicates an investment grade
rating. A rating below BBB indicates that the security has significant speculative
characteristics. A BB rating indicates that Standard and Poors believes the issuer has the
capacity to meet its financial commitment on the obligation, but adverse business conditions could
lead to insufficient ability to meet financial commitments. Standard and Poors may modify its
ratings with a + or a - sign to show the obligors relative standing within a major rating
category.
With respect to Fitch, a rating of BBB or above indicates an investment grade rating. A
rating below BBB is considered speculative grade. A BB rating from Fitch indicates that there
is a possibility of credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow financial
commitments to be met. Fitch may add a + or a - sign to show the obligors relative standing
within a major rating category.
Credit rating agencies perform independent analyses when assigning credit ratings. No
assurance can be given that the credit rating agencies will continue to assign Northwest investment
grade ratings even if they meet or exceed their current criteria for investment grade ratios.
Other
Off-Balance Sheet Arrangements
Neither we nor Northwest have any guarantees of off-balance sheet debt to third parties and
maintain no debt obligations that contain provisions requiring accelerated payment of the related
obligations in the event of specified levels of declines in Williams, Williams Partners or
Northwests credit ratings.
Impact of Inflation
Northwest has generally experienced increased costs in recent years due to the effect of
inflation on the cost of labor, benefits, materials and supplies, and property, plant and
equipment. A portion of the increased labor and materials and supplies costs can directly affect
income through increased operating and maintenance costs. The cumulative impact of inflation over a
number of years has resulted in increased costs for current replacement of productive facilities.
The majority of the costs related to Northwests property, plant and equipment and materials and
supplies is subject to rate-making treatment, and under current FERC practices, recovery is limited
to historical costs. While amounts in excess of historical cost are not recoverable under current
FERC practices, Northwest believes it may be allowed to recover and earn a return based on the
increased actual costs incurred when existing facilities are replaced. However, cost-based
regulation along with competition and other market factors may limit Northwests ability to price
services or products to ensure recovery of inflations effect on costs.
Environmental Matters
Northwest is subject to the National Environmental Policy Act and other federal and state
legislation regulating the environmental aspects of its business. Except as discussed below,
Northwests management believes that it is in substantial compliance with existing environmental
requirements. Environmental expenditures are expensed or capitalized depending on their future
economic benefit and potential for rate recovery. Northwest believes that, with respect to any
expenditures required to meet applicable standards and regulations, the FERC would grant the
requisite rate relief so that substantially all of such expenditures would be permitted to be
recovered through rates. Northwest believes that compliance with applicable environmental
requirements is not likely to have a material effect upon its financial position or results of
operations.
Beginning in the mid-1980s, Northwest evaluated many of its facilities for the presence of
toxic and hazardous substances to determine to what extent, if any, remediation might be necessary.
Northwest identified polychlorinated biphenyl (PCB) contamination in air compressor systems,
soils and related properties at certain compressor station sites. Similarly, Northwest identified
hydrocarbon impacts at these facilities due to the former use of earthen pits and mercury
contamination at certain natural gas
19
metering sites. The PCBs were remediated pursuant to a Consent Decree with the U.S.
Environmental Protection Agency (EPA) in the late 1980s, and Northwest conducted a voluntary
clean-up of the hydrocarbon and mercury impacts in the early 1990s. In 2005, the Washington
Department of Ecology required Northwest to re-evaluate its previous mercury clean-ups in
Washington. Currently, Northwest is conducting assessment and remediation activities for mercury
and other constituents to bring the sites up to Washingtons current environmental standards. At
June 30, 2010, Northwest had accrued liabilities totaling approximately $7.4 million for these
costs which are expected to be incurred through 2015. Northwest is conducting environmental
assessments and implementing a variety of remedial measures that may result in increases or
decreases in the total estimated costs.
In March 2008, the EPA promulgated a new, lower National Ambient Air Quality Standard
(NAAQS) for ground-level ozone. Within two years, the EPA was expected to designate new
eight-hour ozone non-attainment areas. However, in September 2009, the EPA announced it would
reconsider the 2008 NAAQS for ground-level ozone to ensure that the standards were clearly grounded
in science and were protective of both public health and the environment. As a result, the EPA
delayed designation of new eight-hour ozone non-attainment areas under the 2008 standards until the
reconsideration is complete. In January 2010, the EPA proposed to further reduce the ground-level
ozone NAAQS from the March 2008 levels. The EPA currently anticipates finalization of the new
ground-level ozone standard in August 2010 and anticipates designation of new eight-hour ozone
non-attainment areas under the new August 2010 ozone NAAQS standards in July 2011. Designation of
new eight-hour ozone non-attainment areas are expected to result in additional federal and state
regulatory actions that will likely impact Northwests operations and increase the cost of
additions to property, plant and equipment.
Additionally, in August 2010, the EPA is expected to promulgate National Emission Standards
for hazardous air pollutants (NESHAP) regulations that will impact Northwests operations. The
emission control additions required to comply with the pending hazardous air pollutant regulations
are estimated to include costs in the range of $6 million to $9 million through 2013, the expected
compliance date.
Furthermore, the EPA promulgated the Greenhouse Gas (GHG) Mandatory Reporting Rule on
October 30, 2009, which requires facilities that emit 25,000 metric tons or more CO
2
equivalent per year from stationary fossil-fuel combustion sources to report GHG emissions to the
EPA annually beginning March 31, 2011 for calendar year 2010. Subsequently, the EPA proposed
additional reporting requirements on April 12, 2010 to address fugitive/vented GHG emissions from
petroleum and natural gas facilities. Final promulgation of the additional reporting requirements
is expected by late 2010, with an effective date of January 1, 2011. At such time, facilities that
emit 25,000 metric tons or more CO
2
equivalent per year from stationary fossil-fuel
combustion and fugitive/vented sources combined will be required to report GHG combustion and
fugitive/vented emissions to the EPA annually, beginning March 31, 2012 for calendar year 2011.
Compliance with this reporting obligation is estimated to cost $3 million to $5 million over the
next four to five years.
In February 2010, the EPA promulgated a final rule establishing a new one-hour NO
2
National Ambient Air Quality Standard. The effective date of the new NO
2
standard was
April 12, 2010. This new standard is subject to numerous challenges in the federal court.
Northwest is unable at this time to estimate the cost of additions that may be required to meet
this new regulation.
Safety Matters
Pipeline Integrity Regulations.
Northwest has developed an Integrity Management Plan that it
believes meets the United States Department of Transportation Pipeline and Hazardous Materials
Safety Administration final rule that was issued pursuant to the requirements of the Pipeline
Safety Improvement Act of 2002. In meeting the integrity regulations, Northwest has identified high
consequence areas and completed its baseline assessment plan. Northwest is on schedule to complete
the required assessments within specified timeframes. Currently, Northwest estimates that the cost
to perform required assessments and associated remediation will be primarily capital in nature and
range between $80 million and $95 million over the remaining assessment period of 2010 through
2012. Northwests management considers the costs associated with compliance with the rule to be
prudent costs incurred in the ordinary course of business and, therefore, recoverable through its
rates.
Legal Matters
Northwest is party to various legal actions arising in the normal course of business.
Northwests management believes that the disposition of outstanding legal actions will not have a
material adverse impact on its future liquidity or financial condition.
20
Summary
Litigation, arbitration, regulatory matters, environmental matters, and safety matters are
subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the
possibility of a material adverse impact on the results of operations in the period in which the
ruling occurs. Northwests management, including internal counsel, currently believes that the
ultimate resolution of the foregoing matters, taken as a whole and after consideration of amounts
accrued, insurance coverage, recovery from customers or other indemnification arrangements, will
not have a material adverse effect on Northwests future liquidity or financial position.
Conclusion
Although no assurances can be given, Northwest currently believes that the aggregate of cash
flows from operating activities, supplemented when necessary, by advances or capital contributions
from its partners and/or borrowings under the New Credit Facility, will provide Northwest with
sufficient liquidity to meet its capital requirements. Northwest anticipates that it will be able
to access public and private debt markets on terms commensurate with its credit ratings to finance
its capital requirements, when needed.
Capital Resources and Liquidity of Williams Pipeline Partners L.P.
Our principal sources of liquidity include cash distributed to us by Northwest. We expect to
fund our operating expenses, debt service and cash distributions primarily with distributions from
Northwest. As of June 30, 2010, we had cash and cash equivalents of $9.2 million.
Prior to the completion of the restructuring on February 17, 2010, we were able to invest cash
through participation in Williams cash management program. Subsequent to the restructuring, we
may invest cash through participation in the Williams Partners cash management program. Any
advances will be represented by one or more demand obligations. The interest rate on demand notes
is based upon the overnight investment rate paid on Williams Partners excess cash, which was
approximately 0.01 percent at June 30, 2010. No cash has been invested in the Williams or Williams
Partners cash management program through June 30, 2010.
Northwest Distributions
In January 2010, we received cash distributions of $12.6 million from Northwest. In February
2010, Northwest made a cash distribution of $39.3 million to its partners to settle the outstanding
advances to Williams as of January 31, 2010, of which our share was $13.7 million. In July 2010,
Northwest declared a cash distribution of $39.5 million to its partners of which our share will be
$13.8 million to be paid on July 30, 2010.
Capital Contributions
Please see Part I, Item 1. Financial Statements Notes to Consolidated Financial Statements:
Note 4. Related Party Transactions.
Cash Distributions to Unitholders
We have paid quarterly distributions to unitholders and our general partner after every
quarter since our IPO on January 24, 2008. A quarterly cash distribution of $11.5 million was paid
on February 12, 2010, to unitholders of record at the close of business on February 5, 2010. Our
last quarterly cash distribution of $11.5 million was paid on May 14, 2010 to unitholders on record
at the close of business on May 7, 2010. On July 27, 2010 the board of directors of our general
partner declared a cash distribution of $11.5 million to be paid on August 13, 2010, to unitholders
of record at the close of business on August 6, 2010.
21
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
For quantitative and qualitative disclosures about market risk, see Part II, Item 7A.
Quantitative and Qualitative Disclosures about Market Risk of our Annual Report on Form 10-K for
the year ended December 31, 2009. Our exposures to market risk have not changed materially since
December 31, 2009.
Item 4.
Controls and Procedures
Our management, including our general partners Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15(d)-15(e) of the Securities Exchange Act) (Disclosure Controls) or our internal controls
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 Williams Pipeline Partners L.P. 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
the 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 general partners Chief
Executive Officer and Chief Financial Officer. Based upon that evaluation, our management
concluded that these Disclosure Controls are effective at a reasonable assurance level.
Second Quarter 2010 Changes in Internal Controls
There have been no changes during the second quarter of 2010 that have materially affected, or
are reasonably likely to materially affect, our Internal Controls.
22
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
The information called for by this item is provided in Part I, Item 1. Financial Statements
Notes to Consolidated Financial Statements: Note 2. Contingent Liabilities.
Item 1A.
Risk Factors
Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December
31, 2009, includes certain risk factors that could materially affect our business, financial
condition or future results. Those Risk Factors have not materially changed.
Item 6.
Exhibits
The following instruments are included as exhibits to this report.
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|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
Certificate of Limited Partnership of Williams Pipeline Partners L.P. (filed on
September 12, 2007 as Exhibit 3.1 to our Registration Statement on Form S-1) and
incorporated herein by reference.
|
|
|
|
|
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First Amended and Restated Agreement of Limited Partnership of Williams Pipeline
Partners L.P., dated January 24, 2008 (filed on January 30, 2008 as Exhibit 3.1 to
our Form 8-K) and incorporated herein by reference.
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Certificate of Formation of Williams Pipeline GP LLC (filed on September 12, 2007
as Exhibit 3.3 to our Registration Statement on Form S-1) and incorporated herein
by reference.
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First Amended and Restated Limited Liability Company Agreement of Williams
Pipeline GP LLC, dated January 24, 2008 (filed on January 30, 2008 as Exhibit 3.2
to our Form 8-K) and incorporated herein by reference.
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Credit Agreement, dated as of February 17, 2010, by and among Williams Partners
L.P., Transcontinental Gas Pipe Line Company, LLC, Northwest Pipeline GP, the
lenders party thereto and Citibank, N.A., as Administrative Agent.
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
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Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
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*
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Filed herewith
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**
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Furnished herewith
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23
SIGNATURES
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.
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Williams Pipeline Partners L.P.
(Registrant)
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By:
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Williams Pipeline GP LLC,
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its general partner
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By:
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/s/ Ted T. Timmermans
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Ted T. Timmermans
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Chief Accounting Officer
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July 29, 2010
24
EXHIBIT INDEX
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|
|
Exhibit
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|
|
Number
|
|
Description
|
|
|
Certificate of Limited Partnership of Williams Pipeline Partners L.P. (filed on
September 12, 2007 as Exhibit 3.1 to our Registration Statement on Form S-1) and
incorporated herein by reference.
|
|
|
|
|
|
First Amended and Restated Agreement of Limited Partnership of Williams Pipeline
Partners L.P., dated January 24, 2008 (filed on January 30, 2008 as Exhibit 3.1 to
our Form 8-K) and incorporated herein by reference.
|
|
|
|
|
|
Certificate of Formation of Williams Pipeline GP LLC (filed on September 12, 2007
as Exhibit 3.3 to our Registration Statement on Form S-1) and incorporated herein
by reference.
|
|
|
|
|
|
First Amended and Restated Limited Liability Company Agreement of Williams
Pipeline GP LLC, dated January 24, 2008 (filed on January 30, 2008 as Exhibit 3.2
to our Form 8-K) and incorporated herein by reference.
|
|
|
|
|
|
Credit Agreement, dated as of February 17, 2010, by and among Williams Partners
L.P., Transcontinental Gas Pipe Line Company, LLC, Northwest Pipeline GP, the
lenders party thereto and Citibank, N.A., as Administrative Agent.
|
|
|
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
|
|
|
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
|
|
|
|
|
|
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
|
|
|
|
*
|
|
Filed herewith
|
|
**
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Furnished herewith
|
25
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