Acquisitions

9 Months Ended

Sep. 30, 2012

Acquisitions [Abstract]

Acquisitions [Text Block]

Note 2. Acquisitions

On February 17, 2012, WPZ completed the acquisition of 100 percent of the ownership interests in certain entities from Delphi Midstream Partners, LLC, in exchange for $325 million in cash, net of cash acquired in the transaction, and 7,531,381 WPZ common units valued at $441 million (Laser Acquisition). The fair value of the common units issued as part of the consideration paid was determined on the basis of the closing market price of WPZ's common units on the acquisition date, adjusted to reflect certain time-based restrictions on resale. The acquired entities primarily own the Laser Gathering System, which is comprised of 33 miles of 16-inch natural gas pipeline and associated gathering facilities in the Marcellus Shale in Susquehanna County, Pennsylvania, as well as 10 miles of gathering lines in southern New York.

On April 27, 2012, WPZ completed the acquisition of 100 percent of the ownership interests in Caiman Eastern Midstream, LLC, from Caiman Energy, LLC (Caiman Acquisition) in exchange for $1.72 billion in cash, net of purchase price adjustments and subject to certain closing adjustments, and 11,779,296 WPZ common units valuedat $603 million.The fair value of the common units issued as part of the consideration paid was determined on the basis of the closing market price of WPZ's common units on the acquisition date, adjusted to reflect certain time-based restrictions on resale.Theacquired entityoperates a gathering and processing business in northern West Virginia, southwestern Pennsylvania and eastern Ohio. Acquisition transaction costs of $16 million were incurred related to the Caiman Acquisition and are reported in selling, general and administrative expensesat Williams Partners in the Consolidated Statement of Income.

These acquisitions were accounted for as business combinations which, among other things, require assets acquired and liabilities assumed to be measured at their acquisition-date fair values. The excess of cost over those fair valueswasrecorded as goodwill and allocated to our midstream businesses(the reporting unit) within the Williams Partners segment. Goodwill recognized in the acquisitions relates primarily to enhancing our strategic platform for expansion in the Marcellus and Utica shale plays in the Appalachian basin area.Substantially all of the goodwill is expected to be deductible for tax purposes.

The amounts recognized in the financial statements for the Caiman Acquisition are preliminary because our valuation work has not been completed.We are awaiting further information for valuing the working capital components, property, plant and equipment, intangible assets and contingent liabilities. In addition, we are still in the process of identifying all the assets acquired and liabilities assumed.

The following table presents the allocation of the acquisition-date fair value of the major classes of the net assets, which are presented in the Williams Partners segment:

			Laser		Caiman
Assets held-for-sale			$	18	$	-
Other current assets				3		13
Property, plant and equipment				158		663
Intangible assets:
	Customer contracts			316		1,141
	Customer relationships			-		250
	Other intangible assets			2		2
Current liabilities				(21)		(98)
Noncurrent liabilities				-		(4)
		Identifiable net assets acquired		476		1,967
Goodwill				290		360
			$	766	$	2,327

During the third quarter of 2012, we recognized measurement period adjustments related to the Caiman Acquisition that primarily increased the fair value of the identifiable intangible assets by $80 million at the acquisition date, offset by a decrease to goodwill based on more refined estimates of future cash flows from the identifiable intangible assets. An increase in amortization expense since the acquisition date was also recorded related to this adjustment.

Identifiable intangible assets recognized in the acquisitions are primarily related to gas gathering, processing and fractionationcontractsand relationships with customers. The basis for determining the value of these intangible assets is estimated future net cash flows to be derived from acquired customer contracts and relationships, which are offset with appropriate charges for the use of contributory assets and discounted using a risk-adjusted discount rate. Those intangible assets are being amortizedon a straight-line basis over an initial 30-year period during which the customer contracts and relationships are expected to contribute to our cash flows.

We expense costs incurred to renew or extend the terms of our gas gathering, processing and fractionation contractswith customers. Approximately 70 and 36 percent of the expected future revenues from the customer contracts associated with the Laser and Caiman Acquisitions, respectively, are impacted by our ability and intent to renew or renegotiate existing customer contracts. Based on the estimated future revenues during the current contract periods, the weighted-average periods prior to the next renewal or extension of the existing customer contracts associated with the Laser and Caiman Acquisitions are approximately 9 and 18 years, respectively.

We will evaluate these intangible assets for both changes in the expected remaining useful lives and impairment when events or changes in circumstances indicate, in our management's judgment, that the estimated useful lives have changed or the carrying value of such assets may not be recoverable. Changes in an estimated remaining useful life would be reflected prospectively through amortization over the revised remaining useful life. When an indicator of impairment has occurred, we compare our management's estimate of undiscounted future cash flows attributable to the intangible assets to the carrying value of the assets to determine whether an impairment has occurred and we apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes. If an impairment of the carrying value has occurred, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.

The goodwillis not subject to amortization but will be evaluated annually as of October 1for impairment or more frequently if impairment indicators are present. Our evaluation will include an assessment of events or circumstances to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If so, we will further compare our estimate of the fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, a computation of the implied fair value of the goodwill is compared with its related carrying value. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss will be recognized in the amount of the excess.

Revenues and earnings related to the Laser and Caiman Acquisitionsincluded within the Consolidated Statement of Incomesince the respective acquisition dates are not material. Supplemental pro forma revenue and earnings reflecting these acquisitions as if they had occurred as of January 1, 2011, are not materially different from the information presented in our accompanying Consolidated Statement of Income (since the historical operations of these acquisitions were insignificant relative to our historical operations) and are, therefore, not presented.