Edgar Filing: WILLIAMS COMPANIES INC

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission file number 1-4174

THE WILLIAMS COMPANIES, INC.

(Exact name of registrant as specified in its charter)



DELAWARE		73-0569878
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

ONE WILLIAMS CENTER
TULSA, OKLAHOMA		74172-0172
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (918) 573-2000

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 ¨

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). þ Yes ¨ No

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Shares Outstanding at July 28, 2016
Common Stock, $1 par value		750,657,574

The Williams Companies, Inc.

Index



		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations – Three and Six Months Ended June 30, 2016 and 2015		6
Consolidated Statement of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2016 and 2015		7
Consolidated Balance Sheet – June 30, 2016 and December 31, 2015		8
Consolidated Statement of Changes in Equity – Six Months Ended June 30, 2016		9
Consolidated Statement of Cash Flows – Six Months Ended June 30, 2016 and 2015		10
Notes to Consolidated Financial Statements		11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3. Quantitative and Qualitative Disclosures About Market Risk		61
Item 4. Controls and Procedures		62
Part II. Other Information		62
Item 1. Legal Proceedings		62
Item 1A. Risk Factors		63
Item 6. Exhibits		65

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

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


•	Expected levels of cash distributions by Williams Partners L.P. (WPZ) with respect to general partner interests, incentive distribution rights and limited partner interests;


•	Levels of dividends to Williams stockholders;


•	Future credit ratings of Williams and WPZ;


•	Amounts and nature of future capital expenditures;


•	Expansion of our business and operations;


•	Financial condition and liquidity;


•	Business strategy;


•	Cash flow from operations or results of operations;


•	Seasonality of certain business components;


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


•	Demand for our services.

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


•	Whether WPZ will produce sufficient cash flows to provide the level of cash distributions, including incentive distribution rights (IDRs), that we expect;


•	Whether Williams is able to pay current and expected levels of dividends;


•	Whether we will be able to effectively execute our financing plan including WPZ’s establishment of a distribution reinvestment plan (DRIP) and the receipt of anticipated levels of proceeds from planned asset sales;


•	Availability of supplies, including lower than anticipated volumes from third parties served by our midstream business, and market demand;


•	Volatility of pricing including the effect of lower than anticipated energy commodity prices and margins;


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


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


•	Whether we are able to successfully identify, evaluate and timely execute our capital projects and other investment opportunities in accordance with our forecasted capital expenditures budget;


•	Our ability to successfully expand our facilities and operations;


•	Development of alternative energy sources;


•	Availability of adequate insurance coverage and the impact of operational and developmental hazards and unforeseen interruptions;


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


•	Williams’ costs and funding obligations for defined benefit pension plans and other postretirement benefit plans;


•	Changes in maintenance and construction costs;


•	Changes in the current geopolitical situation;


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


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


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


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


•	Acts of terrorism, including cybersecurity threats and related disruptions;


•	Additional risks described in our filings with the SEC.

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

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

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 26, 2016 and in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

DEFINITIONS

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

Measurements:

Barrel: One barrel of petroleum products that equals 42 U.S. gallons

Bcf: One billion cubic feet of natural gas

Bcf/d: One billion cubic feet of natural gas per day

British Thermal Unit (Btu): A unit of energy needed to raise the temperature of one pound of water by one degree

Fahrenheit

Dekatherms (Dth): A unit of energy equal to one million British thermal units

Mbbls/d: One thousand barrels per day

Mdth/d: One thousand dekatherms per day

MMcf/d: One million cubic feet per day

MMdth: One million dekatherms or approximately one trillion British thermal units

MMdth/d: One million dekatherms per day

Tbtu: One trillion British thermal units

Consolidated Entities:

ACMP: Access Midstream Partners, L.P. prior to its merger with Pre-merger WPZ

Cardinal: Cardinal Gas Services, L.L.C.

Constitution: Constitution Pipeline Company, LLC

Gulfstar One: Gulfstar One LLC

Jackalope: Jackalope Gas Gathering Services, L.L.C.

Northwest Pipeline: Northwest Pipeline LLC

Pre-merger WPZ: Williams Partners L.P. prior to its merger with ACMP

Transco: Transcontinental Gas Pipe Line Company, LLC

WPZ: Williams Partners L.P.

Partially Owned Entities: Entities in which we do not own a 100 percent ownership interest and which, as of June 30, 2016, we account for as an equity-method investment, including principally the following:

Aux Sable: Aux Sable Liquid Products LP

Caiman II: Caiman Energy II, LLC

Discovery: Discovery Producer Services LLC

Gulfstream: Gulfstream Natural Gas System, L.L.C.

Laurel Mountain: Laurel Mountain Midstream, LLC

OPPL: Overland Pass Pipeline Company LLC

UEOM: Utica East Ohio Midstream LLC

Government and Regulatory:

EPA: Environmental Protection Agency

FERC: Federal Energy Regulatory Commission

SEC: Securities and Exchange Commission

Other:

Energy Transfer or ETE: Energy Transfer Equity, L.P.

ETC: Energy Transfer Corp LP

Merger Agreement: Merger Agreement and Plan of Merger of Williams with Energy Transfer and certain of its affiliates

ETC Merger: Merger wherein Williams was to be merged into ETC

RGP Splitter: Refinery grade propylene splitter

Fractionation: The process by which a mixed stream of natural gas liquids is separated into constituent products, such as ethane, propane, and butane

GAAP: U.S. generally accepted accounting principles

IDR: Incentive distribution right

NGLs: Natural gas liquids; natural gas liquids result from natural gas processing and crude oil refining and are

used as petrochemical feedstocks, heating fuels, and gasoline additives, among other applications

NGL margins: NGL revenues less any applicable Btu replacement cost, plant fuel, and third-party transportation and fractionation

PDH facility: Propane dehydrogenation facility

PART I – FINANCIAL INFORMATION

The Williams Companies, Inc.

Consolidated Statement of Operations

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions, except per-share amounts)
Revenues:
Service revenues	$	1,202		$	1,241		$	2,431		$	2,438
Product sales	534			598			965			1,117
Total revenues	1,736			1,839			3,396			3,555
Costs and expenses:
Product costs	401			494			719			956
Operating and maintenance expenses	394			437			785			824
Depreciation and amortization expenses	446			428			891			855
Selling, general, and administrative expenses	158			174			379			370
Net insurance recoveries – Geismar Incident	—			(126		)	—			(126		)
Impairment of long-lived assets	802			24			810			27
Other (income) expense – net	23			16			38			30
Total costs and expenses	2,224			1,447			3,622			2,936
Operating income (loss)	(488		)	392			(226		)	619
Equity earnings (losses)	101			93			198			144
Impairment of equity-method investments	—			—			(112		)	—
Other investing income (loss) – net	18			9			36			9
Interest incurred	(306		)	(278		)	(612		)	(551		)
Interest capitalized	8			16			23			38
Other income (expense) – net	17			34			32			50
Income (loss) before income taxes	(650		)	266			(661		)	309
Provision (benefit) for income taxes	(145		)	83			(143		)	113
Net income (loss)	(505		)	183			(518		)	196
Less: Net income (loss) attributable to noncontrolling interests	(100		)	69			(48		)	12
Net income (loss) attributable to The Williams Companies, Inc.	$	(405	)	$	114		$	(470	)	$	184
Amounts attributable to The Williams Companies, Inc.:
Basic earnings (loss) per common share:
Net income (loss)	$	(.54	)	$	.15		$	(.63	)	$	.25
Weighted-average shares (thousands)	750,649			749,253			750,491			748,669
Diluted earnings (loss) per common share:
Net income (loss)	$	(.54	)	$	.15		$	(.63	)	$	.24
Weighted-average shares (thousands)	750,649			752,775			750,491			752,403
Cash dividends declared per common share	$	.64		$	.59		$	1.28		$	1.17

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions)
Net income (loss)	$	(505	)	$	183		$	(518	)	$	196
Other comprehensive income (loss):
Foreign currency translation adjustments, net of taxes of $3 and ($12) in 2016 and ($6) and $10 in 2015, respectively	10			10			99			(85		)
Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost, net of taxes of $1 and $1 and $0 and $1 in 2016 and 2015, respectively.	(1		)	(1		)	(2		)	(2		)
Net actuarial gain (loss) arising during the year, net of taxes of $2.	(3		)	—			(3		)	—
Amortization of actuarial (gain) loss included in net periodic benefit cost, net of taxes of $(3) and $(6) in 2016 and ($4) and ($8) in 2015, respectively.	5			7			10			14
Other comprehensive income (loss)	11			16			104			(73		)
Comprehensive income (loss)	(494		)	199			(414		)	123
Less: Comprehensive income (loss) attributable to noncontrolling interests	(98		)	74			(17		)	(18		)
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	(396	)	$	125		$	(397	)	$	141

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet

(Unaudited)



	June 30, 2016			December 31, 2015
	(Millions, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	135		$	100
Accounts and notes receivable (net of allowance of $5 at June 30, 2016 and $3 at December 31, 2015):
Trade and other	730			1,034
Income tax receivable	8			7
Deferred income tax assets	42			42
Inventories	122			127
Assets held for sale (Note 11)	1,138			26
Other current assets and deferred charges	182			191
Total current assets	2,357			1,527
Investments	7,125			7,336
Property, plant, and equipment, at cost	38,351			39,039
Accumulated depreciation and amortization	(10,102		)	(9,460		)
Property, plant, and equipment – net	28,249			29,579
Goodwill	47			47
Other intangible assets – net of accumulated amortization	9,792			9,970
Regulatory assets, deferred charges, and other	554			561
Total assets	$	48,124		$	49,020
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	688		$	744
Liabilities held for sale (Note 11)	179			—
Accrued liabilities	903			1,078
Commercial paper	196			499
Long-term debt due within one year	786			176
Total current liabilities	2,752			2,497
Long-term debt	24,394			23,812
Deferred income tax liabilities	4,079			4,218
Other noncurrent liabilities	2,477			2,268
Contingent liabilities (Note 12)
Equity:
Stockholders’ equity:
Common stock (960 million shares authorized at $1 par value; 785 million shares issued at June 30, 2016 and 784 million shares issued at December 31, 2015)	785			784
Capital in excess of par value	14,849			14,807
Retained deficit	(9,394		)	(7,960		)
Accumulated other comprehensive income (loss)	(369		)	(442		)
Treasury stock, at cost (35 million shares of common stock)	(1,041		)	(1,041		)
Total stockholders’ equity	4,830			6,148
Noncontrolling interests in consolidated subsidiaries	9,592			10,077
Total equity	14,422			16,225
Total liabilities and equity	$	48,124		$	49,020

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Changes in Equity

(Unaudited)



	The Williams Companies, Inc., Stockholders
	Common Stock		Capital in Excess of Par Value		Retained Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	(Millions)
Balance – December 31, 2015	$	784	$	14,807	$	(7,960	)	$	(442	)	$	(1,041	)	$	6,148		$	10,077		$	16,225
Net income (loss)	—		—		(470		)	—			—			(470		)	(48		)	(518		)
Other comprehensive income (loss)	—		—		—			73			—			73			31			104
Cash dividends – common stock	—		—		(961		)	—			—			(961		)	—			(961		)
Dividends and distributions to noncontrolling interests	—		—		—			—			—			—			(478		)	(478		)
Stock-based compensation and related common stock issuances, net of tax	1		22		—			—			—			23			—			23
Changes in ownership of consolidated subsidiaries, net	—		10		—			—			—			10			(15		)	(5		)
Contributions from noncontrolling interests	—		—		—			—			—			—			22			22
Other	—		10		(3		)	—			—			7			3			10
Net increase (decrease) in equity	1		42		(1,434		)	73			—			(1,318		)	(485		)	(1,803		)
Balance – June 30, 2016	$	785	$	14,849	$	(9,394	)	$	(369	)	$	(1,041	)	$	4,830		$	9,592		$	14,422

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows

(Unaudited)



	Six Months Ended June 30,
	2016			2015
	(Millions)
OPERATING ACTIVITIES:
Net income (loss)	$	(518	)	$	196
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	891			855
Provision (benefit) for deferred income taxes	(142		)	108
Impairment of equity-method investments	112			—
Impairment of and net (gain) loss on sale of Property, plant, and equipment	803			30
Amortization of stock-based awards	34			46
Cash provided (used) by changes in current assets and liabilities:
Accounts and notes receivable	290			350
Inventories	(3		)	64
Other current assets and deferred charges	(21		)	(45		)
Accounts payable	12			(48		)
Accrued liabilities	(27		)	(7		)
Other, including changes in noncurrent assets and liabilities	33			(66		)
Net cash provided (used) by operating activities	1,464			1,483
FINANCING ACTIVITIES:
Proceeds from (payments of) commercial paper – net	(304		)	942
Proceeds from long-term debt	4,503			5,720
Payments of long-term debt	(3,301		)	(4,922		)
Proceeds from issuance of common stock	6			21
Dividends paid	(961		)	(876		)
Dividends and distributions paid to noncontrolling interests	(478		)	(462		)
Contributions from noncontrolling interests	22			57
Payments for debt issuance costs	(8		)	(29		)
Contribution to Gulfstream for repayment of debt	(148		)	—
Other – net	—			32
Net cash provided (used) by financing activities	(669		)	483
INVESTING ACTIVITIES:
Property, plant, and equipment:
Capital expenditures (1)	(1,069		)	(1,654		)
Net proceeds from dispositions	31			6
Purchases of businesses, net of cash acquired	—			(112		)
Purchases of and contributions to equity-method investments	(122		)	(483		)
Distributions from unconsolidated affiliates in excess of cumulative earnings	261			122
Other – net	153			119
Net cash provided (used) by investing activities	(746		)	(2,002		)
Increase (decrease) in cash and cash equivalents	49			(36		)
Cash and cash equivalents held for sale	(14		)	—
Cash and cash equivalents at beginning of year	100			240
Cash and cash equivalents at end of period	$	135		$	204
_________
(1) Increases to property, plant, and equipment	$	(1,020	)	$	(1,554	)
Changes in related accounts payable and accrued liabilities	(49		)	(100		)
Capital expenditures	$	(1,069	)	$	(1,654	)

See accompanying notes.

The Williams Companies, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – General, Description of Business, and Basis of Presentation

General

Our accompanying interim consolidated financial statements do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.

Energy Transfer Merger Agreement

On September 28, 2015, we entered into an Agreement and Plan of Merger (Merger Agreement) with Energy Transfer Equity, L.P. (Energy Transfer) and certain of its affiliates under which we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger), with ETC surviving the ETC Merger. The general terms of the Merger Agreement were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

ETC filed its initial Form S-4 registration statement on November 24, 2015, and on May 25, 2016, the Form S-4 was declared “effective” by the U.S. Securities and Exchange Commission. On June 9, 2016, the Federal Trade Commission cleared the ETC Merger subject to certain conditions that we and Energy Transfer agreed to undertake, to be satisfied following a closing of the ETC Merger, including the sale of certain assets.

On April 6, 2016, we announced that we commenced litigation against Energy Transfer in response to the private offering by Energy Transfer of Series A Convertible Preferred Units that Energy Transfer disclosed on March 9, 2016.

On May 3, 2016, Energy Transfer and LE GP, LLC (the general partner for Energy Transfer) filed an answer and counterclaim. The counterclaim asserted that we materially breached our obligations under the Merger Agreement.

On May 13, 2016, we announced that we filed a separate action in the Delaware Court of Chancery seeking a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the Merger Agreement by asking the court to prohibit Energy Transfer from relying on either (i) any failure to close the transaction by the “Outside Date” of June 28, 2016 (Outside Date) or (ii) any failure to obtain a Section 721(a) tax opinion from Latham & Watkins LLP (Energy Transfer’s outside counsel) (Latham), as a basis for Energy Transfer to avoid fulfilling its obligation to close the proposed transactions with us. We alleged that Energy Transfer breached the Merger Agreement through a pattern of delay and obstruction designed to allow Energy Transfer to avoid its contractual commitments.

On May 20, 2016, Energy Transfer filed its affirmative defenses and counterclaim and sought, among other things, a declaratory judgment that, in the event Latham failed to deliver the Section 721(a) tax opinion prior to the Outside

Notes (Continued)

Date, Energy Transfer would be entitled to terminate the Merger Agreement without liability due to the failure of a closing condition. Energy Transfer also asserted that we breached the Merger Agreement, due to our Board of Directors modifying or qualifying its approval and recommendation of the ETC Merger in addition to other alleged breaches.

On June 17, 2016, our Board of Directors declared a special dividend in the amount of $0.10 per share of our common stock, pursuant to the terms of the Merger Agreement. The special dividend was contingent on the consummation of the ETC Merger and would be payable to our holders of record at the close of business on the last business day prior to the closing of the ETC Merger.

On June 24, 2016, the Delaware Court of Chancery issued an opinion finding that Energy Transfer was contractually entitled to terminate the Merger Agreement in the event Latham was unable to deliver the required Section 721(a) tax opinion prior to the Outside Date in the Merger Agreement.

On June 27, 2016, our stockholders voted to approve the Merger Agreement and the transactions contemplated thereby. We also filed papers commencing an appeal in the Delaware Supreme Court of the Delaware Court of Chancery's June 24, 2016 ruling relating to the Merger Agreement.

On June 29, 2016, Energy Transfer announced that Latham had advised Energy Transfer that it was unable to deliver the Section 721(a) tax opinion as of the Outside Date. Energy Transfer subsequently provided us written notice terminating the Merger Agreement, citing the alleged failure of conditions under the Merger Agreement. (See Note 12 – Contingent Liabilities.)

Termination of WPZ Merger Agreement

On May 12, 2015, we entered into an agreement for a unit-for-stock transaction whereby we would have acquired all of the publicly held outstanding common units of WPZ in exchange for shares of our common stock (WPZ Merger Agreement).

On September 28, 2015, prior to our entry into the Merger Agreement, we entered into a Termination Agreement and Release (Termination Agreement), terminating the WPZ Merger Agreement. Under the terms of the Termination Agreement, we were required to pay a $428 million termination fee to WPZ, of which we currently own approximately 60 percent, including the interests of the general partner and incentive distribution rights (IDRs). Such termination fee settled through a reduction of quarterly incentive distributions we are entitled to receive from WPZ (such reduction not to exceed $209 million per quarter). The distributions from WPZ in November 2015, February 2016, and May 2016 were reduced by $209 million, $209 million, and $10 million, respectively, related to this termination fee.

ACMP Merger

On February 2, 2015, Williams Partners L.P. merged with and into Access Midstream Partners, L.P. (ACMP Merger). For the purpose of these financial statements and notes, Williams Partners L.P. (WPZ) refers to the renamed merged partnership, while Pre-merger Access Midstream Partners, L.P. (ACMP) and Pre-merger Williams Partners L.P. (Pre-merger WPZ) refer to the separate partnerships prior to the consummation of the ACMP Merger and subsequent name change. The net assets of Pre-merger WPZ and ACMP were combined at our historical basis. Our basis in ACMP reflected our business combination accounting resulting from acquiring control of ACMP on July 1, 2014.

Description of Business

We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located principally in the United States and are organized into the Williams Partners and Williams NGL & Petchem Services reportable segments. All remaining business activities are included in Other.

Williams Partners

Williams Partners consists of our consolidated master limited partnership, WPZ, and primarily includes gas pipeline and midstream businesses.

Notes (Continued)

WPZ’s gas pipeline businesses primarily consist of two interstate natural gas pipelines, which are Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline LLC (Northwest Pipeline), and several joint venture investments in interstate and intrastate natural gas pipeline systems, including a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C. (Gulfstream), and a 41 percent interest in Constitution Pipeline Company, LLC (Constitution) (a consolidated entity), which is under development.

WPZ’s midstream businesses primarily consist of (1) natural gas gathering, treating, compression, and processing; (2) natural gas liquid (NGL) fractionation, storage, and transportation; (3) crude oil production handling and transportation; and (4) olefins production. The primary service areas are concentrated in major producing basins in Colorado, Texas, Oklahoma, Kansas, New Mexico, Wyoming, the Gulf of Mexico, Louisiana, Pennsylvania, West Virginia, New York, and Ohio which include the Barnett, Eagle Ford, Haynesville, Marcellus, Niobrara, and Utica shale plays as well as the Mid-Continent region.

The midstream businesses include equity-method investments in natural gas gathering and processing assets and NGL fractionation and transportation assets, including a 62 percent equity-method investment in Utica East Ohio Midstream, LLC (UEOM), a 50 percent equity-method investment in the Delaware basin gas gathering system in the Mid-Continent region, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 58 percent equity-method investment in Caiman Energy II, LLC (Caiman II), a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery), a 50 percent equity-method investment in Overland Pass Pipeline, LLC (OPPL), and Appalachia Midstream Services, LLC, which owns equity-method investments with an approximate average 45 percent interest in multiple gathering systems in the Marcellus Shale (Appalachia Midstream Investments).

The midstream businesses also include our Canadian midstream operations, which are comprised of an oil sands offgas processing plant near Fort McMurray, Alberta, and an NGL/olefin fractionation facility at Redwater, Alberta. As of June 30, 2016, these Canadian midstream operations are classified as held for sale. (See Note 11 – Fair Value Measurements and Guarantees.)

Williams NGL & Petchem Services

Williams NGL & Petchem Services includes certain domestic olefins pipeline assets, a liquids extraction plant near Fort McMurray, Alberta, that began operations in March 2016, and a propane dehydrogenation facility under development in Canada. As of June 30, 2016, these Canadian operations are classified as held for sale. (See Note 11 – Fair Value Measurements and Guarantees.)

Other

Other includes other business activities that are not operating segments, as well as corporate operations.

Basis of Presentation

Consolidated master limited partnership

As of June 30, 2016, we own approximately 60 percent of the interests in WPZ, a variable interest entity (VIE) (see Note 2 – Variable Interest Entities), including the interests of the general partner, which are wholly owned by us, and IDRs.

WPZ is self-funding and maintains separate lines of bank credit and cash management accounts and also has a commercial paper program. (See Note 9 – Debt and Banking Arrangements.) Cash distributions from WPZ to us, including any associated with our IDRs, occur through the normal partnership distributions from WPZ to all partners.

Significant risks and uncertainties

During the second quarter of 2016, we evaluated an asset group within our Williams Partners segment for impairment as a result of an increased likelihood of gas gathering contract restructuring with certain producers and lower volume projections. Our assessment included probability-weighted scenarios of undiscounted future cash flows that considered variables including terms of our current contract, as well as potential revised terms of a restructured contract, counterparty

Notes (Continued)

performance, and pricing assumptions. This assessment resulted in the undiscounted cash flows slightly exceeding the approximate $1.6 billion carrying value of the asset group and no impairment was recorded. The use of different judgments and assumptions associated with the measurement variables noted, particularly the assumed contractual terms, expected volumes, and rates, could result in reduced levels of future cash flows which could result in a significant impairment.

Discontinued operations

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations.

Accounting standards issued but not yet adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The guidance also requires increased disclosures. The new standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The new standard requires varying transition methods for the different categories of amendments. We are evaluating the impact of the new standard on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09 “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). The objective of ASU 2016-09 is to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted; all of the amendments included in the new standard must be adopted in the same period. The new standard requires varying transition methods for the different categories of amendments. We are evaluating the impact of the new standard on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset. The new standard is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. We are evaluating the impact of the new standard on our consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (ASU 2015-17). ASU 2015-17 requires that deferred income tax liabilities and assets be presented as noncurrent in a classified statement of financial position. The new standard is effective for interim and annual periods beginning after December 15, 2016, with either prospective or retrospective presentation allowed. Early adoption is permitted. Adoption of this standard will result in a change to the presentation of deferred taxes in our Consolidated Balance Sheet as the current deferred tax balance will be reclassified to a noncurrent deferred tax balance. The standard will have no impact on our Consolidated Statement of Operations and Consolidated Statement of Cash Flows.

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (ASC 606). ASC 606 establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for those goods or services and requires significantly enhanced revenue disclosures. In August 2015, the FASB issued ASU 2015-14 “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (ASU 2015-14). Per ASU 2015-14, the standard is effective for interim and annual

Notes (Continued)

reporting periods beginning after December 15, 2017. ASC 606 allows either full retrospective or modified retrospective transition and early adoption is permitted for annual periods beginning after December 15, 2016. We continue to evaluate both the impact of this new standard on our consolidated financial statements and the transition method we will utilize for adoption.

Note 2 – Variable Interest Entities

On January 1, 2016, we adopted ASU 2015-02 “Amendments to the Consolidation Analysis," which eliminated certain presumptions related to a general partner interest in a master limited partnership. As a result of adopting this new accounting standard, we now consider our consolidated master limited partnership a VIE. We are the primary beneficiary of WPZ because we have the power to direct the activities that most significantly impact WPZ’s economic performance.

The following table presents amounts included in our Consolidated Balance Sheet that are for the use or obligation of WPZ and/or its subsidiaries, and which comprise a significant portion of our consolidated assets and liabilities.



	June 30, 2016			December 31, 2015			Classification
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	91		$	73		Cash and cash equivalents
Accounts and notes receivable - net	720			1,026			Accounts and notes receivable – net,
Inventories	122			127			Inventories
Assets held for sale	932			13			Assets held for sale
Other current assets	177			177			Other current assets and deferred charges
Investments	7,125			7,336			Investments
Property, plant and equipment – net	27,811			28,593			Property, plant and equipment – net
Goodwill	47			47			Goodwill
Other intangible assets – net	9,791			9,969			Other intangible assets – net of accumulated amortization
Regulatory assets, deferred charges, and other noncurrent assets	459			479			Regulatory assets, deferred charges, and other
Accounts payable	(669		)	(625		)	Accounts payable
Liabilities held for sale	(151		)	—			Liabilities held for sale
Accrued liabilities including current asset retirement obligations	(666		)	(757		)	Accrued liabilities
Commercial paper	(196		)	(499		)	Commercial paper
Long-term debt due within one year	(786		)	(176		)	Long-term debt due within one year
Long-term debt	(19,116		)	(19,001		)	Long-term debt
Deferred income tax liabilities	(21		)	(119		)	Deferred income tax liabilities
Noncurrent asset retirement obligations	(849		)	(857		)	Other noncurrent liabilities
Regulatory liabilities, deferred income and other noncurrent liabilities	(1,275		)	(1,066		)	Other noncurrent liabilities

Notes (Continued)

The assets and liabilities presented in the table above also include the consolidated interests of the following individual VIEs within WPZ:

Gulfstar One

WPZ owns a 51 percent interest in Gulfstar One LLC (Gulfstar One), a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines which provide production handling and gathering services for the Tubular Bells oil and gas discovery in the eastern deepwater Gulf of Mexico. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Gulfstar One’s economic performance. Construction of an expansion project is underway that will provide production handling and gathering services for the Gunflint oil and gas discovery in the eastern deepwater Gulf of Mexico. The expansion project is expected to be completed in two phases. The first phase went into service in July of 2016 and the second phase is expected to go into service in the fourth quarter of 2016. The current estimate of the total remaining construction cost for the expansion project is approximately $67 million, which is expected to be funded with revenues received from customers and capital contributions from WPZ and the other equity partner on a proportional basis.

Constitution

WPZ owns a 41 percent interest in Constitution, a subsidiary that, due to shipper fixed-payment commitments under its long-term firm transportation contracts, is a VIE. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Constitution’s economic performance. WPZ, as construction manager for Constitution, is responsible for constructing the proposed pipeline connecting its gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems. The total remaining cost of the project is estimated to be approximately $687 million, which is expected to be funded with capital contributions from WPZ and the other equity partners on a proportional basis.

In December 2014, we received approval from the Federal Energy Regulatory Commission to construct and operate the Constitution pipeline. However, in April 2016, the New York State Department of Environmental Conservation (NYSDEC) denied a necessary water quality certification for the New York portion of the Constitution pipeline. We remain steadfastly committed to the project, and in May 2016, Constitution appealed the NYSDEC's denial of the certification and filed an action in federal court seeking a declaration that the State of New York's authority to exercise permitting jurisdiction over certain other environmental matters is preempted by federal law. In light of the NYSDEC's denial of the water quality certification and the actions taken to challenge the decision, the project in-service date is targeted as early as the second half of 2018, which assumes that the legal challenge process is satisfactorily and promptly concluded. An unfavorable resolution could result in the impairment of a significant portion of the capitalized project costs, which total $389 million on a consolidated basis at June 30, 2016, and are included within Property, plant, and equipment, at cost in the Consolidated Balance Sheet. Beginning in April 2016, we discontinued capitalization of development costs related to this project. It is also possible that we could incur certain supplier-related costs in the event of a prolonged delay or termination of the project.

Cardinal

WPZ owns a 66 percent interest in Cardinal Gas Services, L.L.C (Cardinal), a subsidiary that provides gathering services for the Utica region and is a VIE due to certain risks shared with customers. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from WPZ and the other equity partner on a proportional basis.

Jackalope

WPZ owns a 50 percent interest in Jackalope Gas Gathering Services, L.L.C (Jackalope), a subsidiary that provides gathering and processing services for the Powder River basin and is a VIE due to certain risks shared with customers. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Jackalope’s economic performance. Future expansion activity is expected to be funded with capital contributions from WPZ and the other equity partner on a proportional basis.

Notes (Continued)

Note 3 – Investing Activities

Investing Income

The six months ended June 30, 2016, includes $59 million and $50 million of other-than-temporary impairment charges related to WPZ’s equity-method investments in the Delaware basin gas gathering system and Laurel Mountain, respectively (see Note 11 – Fair Value Measurements and Guarantees).

Interest income and other

The three and six months ended June 30, 2016, include $18 million and $36 million, respectively, and the three and six months ended June 30, 2015, includes $9 million of income associated with payments received on a receivable related to the sale of certain former Venezuela assets reflected in Other investing income (loss) – net in the Consolidated Statement of Operations. Although the carrying amount of the receivable is zero, there is one remaining payment due to us (see Note 11 – Fair Value Measurements and Guarantees).

Investments

On September 24, 2015, WPZ received a special distribution of $396 million from Gulfstream reflecting its proportional share of the proceeds from new debt issued by Gulfstream. The new debt was issued to refinance Gulfstream’s debt maturities. Subsequently, WPZ contributed $248 million and $148 million to Gulfstream for its proportional share of amounts necessary to fund debt maturities of $500 million due on November 1, 2015, and $300 million due on June 1, 2016, respectively.

Note 4 – Other Income and Expenses

The following table presents certain gains or losses reflected in Other (income) expense – net within Costs and expenses in our Consolidated Statement of Operations:



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016			2015
	(Millions)
Williams Partners
Amortization of regulatory assets associated with asset retirement obligations	$	9	$	9	$	17		$	17
Net foreign currency exchange (gains) losses (1)	—		1		11			(4		)
Williams NGL & Petchem Services
Gain on sale of unused pipe	—		—		(10		)	—


(1)	Primarily relates to losses incurred on foreign currency transactions and the remeasurement of U.S. dollar denominated current assets and liabilities within our Canadian operations.

ACMP Merger and Transition

Six months ended June 30, 2016

Selling, general, and administrative expenses includes $5 million for the six months ended June 30, 2016, associated with the ACMP Merger and transition. These costs are reflected within the Williams Partners segment.

Three and six months ended June 30, 2015

Selling, general, and administrative expenses includes $5 million and $34 million for the three and six months ended June 30, 2015, respectively, primarily related to professional advisory fees and employee transition costs associated with the ACMP Merger and transition. These costs are primarily reflected within the Williams Partners

Notes (Continued)

segment. Selling, general, and administrative expenses also includes $7 million and $13 million for the three and six months ended June 30, 2015, respectively, of general corporate expenses associated with integration and re-alignment of resources.

Operating and maintenance expenses includes $8 million and $12 million for the three and six months ended June 30, 2015, respectively, of transition costs reported from the ACMP Merger within the Williams Partners segment.

Interest incurred includes transaction-related financing costs of $2 million for the six months ended June 30, 2015, from the ACMP Merger.

Geismar Incident

On June 13, 2013, an explosion and fire occurred at Williams Partners’ Geismar olefins plant. The incident rendered the facility temporarily inoperable (Geismar Incident). We received $126 million of insurance recoveries during the three and six months ended June 30, 2015, reported within the Williams Partners segment and reflected as gains in Net insurance recoveries - Geismar Incident.

Additional Items

Three and six months ended June 30, 2016

Service revenues have been reduced by $15 million for the six months ended June 30, 2016, related to potential refunds associated with a ruling received in certain rate case litigation within the Williams Partners segment.

Selling, general, and administrative expenses includes $13 million and $19 million for the three and six months ended June 30, 2016, respectively, of costs associated with our evaluation of strategic alternatives within the Other segment. Selling, general, and administrative expenses also includes $11 million and $45 million for the three and six months ended June 30, 2016, respectively, of project development costs related to a proposed propane dehydrogenation facility in Alberta within the Williams NGL & Petchem Services segment. Beginning in the first quarter of 2016, these costs did not qualify for capitalization based on our strategy to limit further investment and either sell the project or obtain a partner to fund additional development.

Selling, general, and administrative expenses and Operating and maintenance expenses include $26 million for the six months ended June 30, 2016, in severance and other related costs associated with an approximate 10 percent reduction in workforce in the first quarter of 2016, primarily within the Williams Partners segment.

Other income (expense) – net below Operating income (loss) includes $18 million and $39 million for the three and six months ended June 30, 2016, respectively, for allowance for equity funds used during construction, primarily within the Williams Partners segment.

Three and six months ended June 30, 2015

Other income (expense) – net below Operating income (loss) includes $25 million and $44 million for the three and six months ended June 30, 2015, respectively, for allowance for equity funds used during construction, primarily within the Williams Partners segment. Other income (expense) – net below Operating income (loss) also includes a $14 million gain for the three and six months ended June 30, 2015, resulting from the early retirement of certain debt.

Notes (Continued)

Note 5 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions)
Current:
Federal	$	—		$	—		$	—		$	—
State	—			1			—			1
Foreign	(1		)	2			(1		)	4
	(1		)	3			(1		)	5
Deferred:
Federal	(52		)	73			(57		)	98
State	(18		)	(1		)	(11		)	2
Foreign	(74		)	8			(74		)	8
	(144		)	80			(142		)	108
Provision (benefit) for income taxes	$	(145	)	$	83		$	(143	)	$	113

The effective income tax rates for the three and six months ended June 30, 2016, are less than the federal statutory rate primarily due to a valuation allowance associated with impairments of foreign operations, the reversal of anticipatory foreign tax credits related to assets held for sale and the impact of the allocation of loss to nontaxable noncontrolling interests, partially offset by the effects of taxes on foreign operations and state income taxes. The foreign income tax provisions include the tax effect of a $341 million impairment associated with Williams Partners’ Canadian operations. (See Note 11 – Fair Value Measurements and Guarantees.)

The effective income tax rate for the three months ended June 30, 2015, is less than the federal statutory rate primarily due to the impact of the allocation of income to nontaxable noncontrolling interests, partially offset by taxes on foreign operations.

The effective income tax rate for the six months ended June 30, 2015, is greater than the federal statutory rate primarily due to a $14 million tax provision associated with an adjustment to the prior year taxable foreign income, taxes on foreign operations, and the effect of state income taxes, partially offset by the impact of the allocation of income to nontaxable noncontrolling interests.

During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.

Notes (Continued)

Note 6 – Earnings (Loss) Per Common Share



	Three Months Ended June 30,					Six Months Ended June 30,
	2016			2015		2016			2015
	(Dollars in millions, except per-share amounts; shares in thousands)
Net income (loss) attributable to The Williams Companies, Inc. available to common stockholders for basic and diluted earnings (loss) per common share	$	(405	)	$	114	$	(470	)	$	184
Basic weighted-average shares	750,649			749,253		750,491			748,669
Effect of dilutive securities:
Nonvested restricted stock units	—			1,755		—			1,985
Stock options	—			1,750		—			1,732
Convertible debentures	—			17		—			17
Diluted weighted-average shares	750,649			752,775		750,491			752,403
Earnings (loss) per common share:
Basic	$	(.54	)	$	.15	$	(.63	)	$	.25
Diluted	$	(.54	)	$	.15	$	(.63	)	$	.24

Note 7 – Employee Benefit Plans

Net periodic benefit cost (credit) is as follows:



	Pension Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions)
Components of net periodic benefit cost:
Service cost	$	13		$	15		$	27		$	29
Interest cost	16			14			31			29
Expected return on plan assets	(21		)	(18		)	(42		)	(37		)
Amortization of net actuarial loss	7			10			15			21
Net actuarial loss from settlements	1			—			1			—
Net periodic benefit cost	$	16		$	21		$	32		$	42

Notes (Continued)



	Other Postretirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	1		$	—		$	1		$	1
Interest cost	2			2			4			4
Expected return on plan assets	(3		)	(3		)	(6		)	(6		)
Amortization of prior service credit	(5		)	(4		)	(8		)	(8		)
Amortization of net actuarial loss	—			1			—			1
Reclassification to regulatory liability	1			1			2			2
Net periodic benefit cost (credit)	$	(4	)	$	(3	)	$	(7	)	$	(6	)

Amortization of prior service credit and net actuarial loss included in net periodic benefit cost (credit) for our other postretirement benefit plans associated with Transco and Northwest Pipeline are recorded to regulatory assets/liabilities instead of other comprehensive income (loss). The amounts of amortization of prior service credit recognized in regulatory liabilities were $3 million for the three months ended June 30, 2016 and 2015, and $5 million for the six months ended June 30, 2016 and 2015.

During the six months ended June 30, 2016, we contributed $3 million to our pension plans and $3 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $61 million to our pension plans and approximately $4 million to our other postretirement benefit plans in the remainder of 2016.

Note 8 – Inventories



	June 30, 2016		December 31, 2015
	(Millions)
Natural gas liquids, olefins, and natural gas in underground storage	$	53	$	57
Materials, supplies, and other	69		70
	$	122	$	127

Note 9 – Debt and Banking Arrangements

Long-Term Debt

Issuances and retirements

On January 22, 2016, Transco issued $1 billion of 7.85 percent senior unsecured notes due 2026 to investors in a private debt placement. Transco used the net proceeds to repay debt and to fund capital expenditures. As part of the new issuance, Transco entered into a registration rights agreement with the initial purchasers of the unsecured notes. Transco is obligated to file and consummate a registration statement for an offer to exchange the notes for a new issue of substantially identical notes registered under the Securities Act of 1933, as amended, within 365 days from closing and to use commercially reasonable efforts to complete the exchange offer. Transco is required to provide a shelf registration statement to cover resales of the notes under certain circumstances. If Transco fails to fulfill these obligations, additional interest will accrue on the affected securities. The rate of additional interest will be 0.25 percent per annum on the principal amount of the affected securities for the first 90-day period immediately following the occurrence of default, increasing by an additional 0.25 percent per annum with respect to each subsequent 90-day period thereafter, up to a maximum amount for all such defaults of 0.5 percent annually. Following the cure of any registration defaults, the accrual of additional interest will cease.

Notes (Continued)

Transco retired $200 million of 6.4 percent senior unsecured notes that matured on April 15, 2016.

Northwest Pipeline retired $175 million of 7 percent senior unsecured notes that matured on June 15, 2016.

Commercial Paper Program

As of June 30, 2016, WPZ had $196 million of Commercial paper outstanding under its $3 billion commercial paper program with a weighted average interest rate of 1.27 percent.

Credit Facilities



	June 30, 2016
	Stated Capacity		Outstanding
	(Millions)
WMB
Long-term credit facility	$	1,500	$	1,115
Letters of credit under certain bilateral bank agreements			14
Letters of credit under sublimit			9
WPZ
Long-term credit facility (1)	3,500		1,425
Letters of credit under certain bilateral bank agreements			2
Short-term credit facility (2)	150		—


(1)	In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of WPZ’s credit facility inclusive of any outstanding amounts under its commercial paper program.


(2)	This facility expires August 24, 2016.

Note 10 – Stockholders’ Equity

The following table presents the changes in Accumulated other comprehensive income (loss) (AOCI) by component, net of income taxes:



	Cash Flow Hedges			Foreign Currency Translation			Pension and Other Post Retirement Benefits			Total
	(Millions)
Balance at December 31, 2015	$	(1	)	$	(103	)	$	(338	)	$	(442	)
Other comprehensive income (loss) before reclassifications	—			68			(3		)	65
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			8			8
Other comprehensive income (loss)	—			68			5			73
Balance at June 30, 2016	$	(1	)	$	(35	)	$	(333	)	$	(369	)

Notes (Continued)

Reclassifications out of AOCI are presented in the following table by component for the six months ended June 30, 2016:




Component	Reclassifications			Classification
	(Millions)
Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost	$	(3	)	Note 7 – Employee Benefit Plans
Amortization of actuarial (gain) loss included in net periodic benefit cost	16			Note 7 – Employee Benefit Plans
Total pension and other postretirement benefits, before income taxes	13
Income tax benefit	(5		)	Provision (benefit) for income taxes
Reclassifications during the period	$	8

Note 11 – Fair Value Measurements and Guarantees

The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, commercial paper, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.



							Fair Value Measurements Using
	Carrying Amount			Fair Value			Quoted Prices In Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
	(Millions)
Assets (liabilities) at June 30, 2016:
Measured on a recurring basis:
ARO Trust investments	$	87		$	87		$	87		$	—		$	—
Energy derivatives assets designated as hedging instruments	1			1			—			1			—
Energy derivatives assets not designated as hedging instruments	1			1			—			—			1
Energy derivatives liabilities not designated as hedging instruments	(6		)	(6		)	(1		)	—			(5		)
Additional disclosures:
Other receivables	13			15			13			—			2
Long-term debt, including current portion (1)	(25,178		)	(24,572		)	—			(24,572		)	—
Guarantee	(29		)	(14		)	—			(14		)	—

Assets (liabilities) at December 31, 2015:
Measured on a recurring basis:
ARO Trust investments	$	67		$	67		$	67		$	—		$	—
Energy derivatives assets not designated as hedging instruments	5			5			—			3			2
Energy derivatives liabilities not designated as hedging instruments	(2		)	(2		)	—			—			(2		)
Additional disclosures:
Other receivables	12			30			10			2			18
Long-term debt, including current portion (1)	(23,987		)	(19,606		)	—			(19,606		)	—
Guarantee	(29		)	(16		)	—			(16		)	—

___________________________________

(1) Excludes capital leases.

Notes (Continued)

Fair Value Methods

We use the following methods and assumptions in estimating the fair value of our financial instruments:

Assets and liabilities measured at fair value on a recurring basis

ARO Trust investments: Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust (ARO Trust) that is specifically designated to fund future asset retirement obligations (ARO). The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market, is classified as available-for-sale, and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.

Energy derivatives: Energy derivatives include commodity based exchange-traded contracts and over-the-counter contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis. The fair value amounts are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. Further, the amounts do not include cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Energy derivatives assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Energy derivatives liabilities are reported in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheet.

Reclassifications of fair value between Level 1, Level 2, and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter. No transfers between Level 1 and Level 2 occurred during the six months ended June 30, 2016 or 2015.

Additional fair value disclosures

Other receivables: Other receivables primarily consists of margin deposits, which are reported in Other current assets and deferred charges in the Consolidated Balance Sheet. The disclosed fair value of our margin deposits is considered to approximate the carrying value generally due to the short-term nature of these items.

Other receivables also includes a receivable related to the sale of certain former Venezuela assets. The disclosed fair value of this receivable is determined by an income approach. We calculated the net present value of a probability-weighted set of cash flows utilizing assumptions based on contractual terms, historical payment patterns by the counterparty, future probabilities of default, our likelihood of using arbitration if the counterparty does not perform, and discount rates. We determined the fair value of the receivable to be $2 million and $18 million at June 30, 2016 and December 31, 2015, respectively. We began accounting for the receivable under a cost recovery model in first-quarter 2015. Subsequently, we received payments greater than the carrying amount of the receivable and as a result, the carrying value of this receivable is zero at June 30, 2016 and December 31, 2015. We have the right to receive one remaining quarterly installment of $15 million plus interest.

Long-term debt: The disclosed fair value of our long-term debt is determined by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments.

Guarantee: The guarantee represented in the table consists of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042.

To estimate the disclosed fair value of the guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet.

Notes (Continued)

Nonrecurring fair value measurements

The following table presents impairments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy.



						Impairments
						Six Months Ended June 30,
	Classification	Segment	Date of Measurement	Fair Value		2016		2015
				(Millions)
Surplus equipment (1)	Property, plant, and equipment – net	Williams Partners	June 30, 2015	$	17			$	20
Canadian operations (2)	Assets held for sale	Williams Partners	June 30, 2016	924		$	341
Canadian operations (2)	Assets held for sale	Williams NGL & Petchem Services	June 30, 2016	206		406
Certain gathering operations (3)	Property, plant, and equipment – net	Williams Partners	June 30, 2016	18		48
Level 3 fair value measurements of long-lived assets						795		20
Other impairments (4)						15		7
Impairment of long-lived assets						$	810	$	27

Equity-method investments (5)	Investments	Williams Partners	March 31, 2016	$	1,294	$	109
Other equity-method investment	Investments	Williams Partners	March 31, 2016	—		3
Impairment of equity-method investments						$	112

______________


(1)	Relates to certain surplus equipment. The estimated fair value was determined by a market approach based on our analysis of observable inputs in the principal market.

(2)

We have previously announced that our business plan for 2016 includes the expectation of proceeds from planned asset sales and we initiated a marketing process regarding the potential sale of our Canadian operations (disposal group). We have received bids during the second quarter from potential purchasers and are in advanced negotiations regarding the sale of these operations. Given the maturation of this process during the second quarter, we have designated these operations as held for sale as of June 30, 2016. As a result, we measured the fair value of the disposal group, resulting in an impairment charge. The estimated fair value was determined by a market approach based primarily on inputs received in the marketing process and reflects our estimate of the potential assumed proceeds related to our Canadian operations. We expect to dispose of our Canadian operations through a sale during the second half of 2016. The following tables present the carrying amounts of the major classes of assets and liabilities included as part of the disposal group, which are presented within Assets held for sale and Liabilities held for sale on the Consolidated Balance Sheet (and excludes certain insignificant assets held for sale that are not part of this disposal group).

Notes (Continued)



	Carrying Amount
	June 30, 2016
	(Millions)
Assets (liabilities):
Current assets	$	52
Property, plant, and equipment – net	1,687
Other noncurrent assets	138
Impairment of disposal group	(747		)
	$	1,130

Current liabilities	(50		)
Noncurrent liabilities	(129		)
	$	(179	)

The following table presents the results of operations for the disposal group, excluding the impairment noted above.



	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(Millions)
Income (loss) before income taxes of disposal group	$	(35	)	$	(5	)	$	(89	)	$	7
Income (loss) before income taxes of disposal group attributable to The Williams Companies, Inc.	(21		)	(3		)	(54		)	4


(3)	Relates to the certain gathering assets within the Mid-Continent region. The estimated fair value was determined by a market approach based on our analysis of observable inputs in the principal market.


(4)	Reflects multiple individually insignificant impairments of other certain assets that may no longer be in use or are surplus in nature for which the fair value was determined to be zero or an insignificant salvage value.

(5)

Relates to Williams Partners’ equity-method investments in the Delaware basin gas gathering system and Laurel Mountain. Our carrying values in these equity-method investments had been written down to fair value at December 31, 2015. Our first-quarter 2016 analysis reflected higher discount rates for both of these investments, along with lower natural gas prices for Laurel Mountain. We estimated the fair value of these investments using an income approach based on expected future cash flows and appropriate discount rates. The determination of estimated future cash flows involved significant assumptions regarding gathering volumes and related capital spending. Discount rates utilized ranged from 13.0 percent to 13.3 percent and reflected increases in our cost of capital, revised estimates of expected future cash flows, and risks associated with the underlying businesses.

Guarantees

We are required by our revolving credit agreements to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.

Notes (Continued)

Regarding our previously described guarantee of WilTel’s lease performance, the maximum potential undiscounted exposure is approximately $32 million at June 30, 2016. Our exposure declines systematically throughout the remaining term of WilTel’s obligation.

Note 12 – Contingent Liabilities

Reporting of Natural Gas-Related Information to Trade Publications

Direct and indirect purchasers of natural gas in various states filed an individual and class actions against us, our former affiliate WPX and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.

In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. Farmland claims the order did not grant summary judgment for us and other similarly-situated defendants; we disagree, and we with other defendants have filed a motion for entry of judgment in our favor.

Because of the uncertainty around the remaining pending unresolved issues, including an insufficient description of the purported classes and other related matters, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter, and as a result, have exposure to future developments in this matter.

Geismar Incident

On June 13, 2013, an explosion and fire occurred at our Geismar olefins plant and rendered the facility temporarily inoperable. We are addressing the following matters in connection with the Geismar Incident.

On October 21, 2013, the U.S. Environmental Protection Agency (EPA) issued an Inspection Report pursuant to the Clean Air Act’s Risk Management Program following its inspection of the facility on June 24 through June 28, 2013. The report notes the EPA’s preliminary determinations about the facility’s documentation regarding process safety, process hazard analysis, as well as operating procedures, employee training, and other matters. On June 16, 2014, we received a request for information related to the Geismar Incident from the EPA under Section 114 of the Clean Air Act to which we responded on August 13, 2014. The EPA could issue penalties pertaining to final determinations.

Multiple lawsuits, including class actions for alleged offsite impacts, property damage, customer claims, and personal injury, have been filed against us. To date, we have settled certain of the personal injury claims for an aggregate immaterial amount that we have recovered from our insurers. The trial for certain plaintiffs claiming personal injury, that was set to begin on June 15, 2015, in Iberville Parish, Louisiana, has been postponed to September 6, 2016. The court also set trial dates for additional plaintiffs in November 2016 and January and April 2017. We believe it is probable that additional losses will be incurred on some lawsuits, while for others we believe it is only reasonably possible that losses will be incurred. However, due to ongoing litigation involving defenses to liability, the number of individual plaintiffs, limited information as to the nature and extent of all plaintiffs’ damages, and the ultimate outcome of all appeals, we are unable to reliably estimate any such losses at this time. We believe that it is probable that any ultimate losses incurred will be covered by our general liability insurance policy, which has an aggregate limit of $610 million applicable to this event and retention (deductible) of $2 million per occurrence.

Alaska Refinery Contamination Litigation

In 2010, James West filed a class action lawsuit in state court in Fairbanks, Alaska on behalf of individual property owners whose water contained sulfolane contamination allegedly emanating from the Flint Hills Oil Refinery in North Pole, Alaska. The suit named our subsidiary, Williams Alaska Petroleum Inc. (WAPI), and Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., as defendants. We owned and operated the refinery until 2004

Notes (Continued)

when we sold it to FHRA. We and FHRA made claims under the pollution liability insurance policy issued in connection with the sale of the North Pole refinery to FHRA. We and FHRA also filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination.

In 2011, we and FHRA settled the James West claim. We and FHRA subsequently filed motions for summary judgment on the other’s claims. On July 8, 2014, the court dismissed all FHRA’s claims and entered judgment for us. On August 6, 2014, FHRA appealed the court’s decision to the Alaska Supreme Court, which heard oral arguments in October of 2015. The Supreme Court’s decision is expected during the third quarter of 2016.

We currently estimate that our reasonably possible loss exposure in this matter could range from an insignificant amount up to $32 million, although uncertainties inherent in the litigation process, expert evaluations, and jury dynamics might cause our exposure to exceed that amount.

On March 6, 2014, the State of Alaska filed suit against FHRA, WAPI, and us in state court in Fairbanks seeking injunctive relief and damages in connection with sulfolane contamination of the water supply near the Flint Hills Oil Refinery in North Pole, Alaska. On May 5, 2014, FHRA filed cross-claims against us in the State of Alaska suit. FHRA also seeks injunctive relief and damages.

On November 26, 2014, the City of North Pole (North Pole) filed suit in Alaska state court in Fairbanks against FHRA, WAPI, and us alleging nuisance and violations of municipal and state statutes based upon the same alleged sulfolane contamination of the water supply. North Pole claims an unspecified amount of past and future damages as well as punitive damages against WAPI. FHRA filed cross-claims against us.

In October of 2015, the court consolidated the State of Alaska and North Pole cases. On February 29, 2016, we and WAPI filed Amended Answers in the consolidated cases. Both we and WAPI asserted counter claims against both the State of Alaska and North Pole, and cross claims against FHRA.

To our knowledge, exposure in these cases is duplicative of the reasonable loss exposure in the James West case.

Independent of the litigation matter described in the preceding paragraphs, in 2013, the Alaska Department of Environmental Conservation indicated that it views FHRA and us as responsible parties, and that it intended to enter a compliance order to address the environmental remediation of sulfolane and other possible contaminants including cleanup work outside the refinery’s boundaries. Due to the ongoing assessment of the level and extent of sulfolane contamination and the ultimate cost of remediation and division of costs among the potentially responsible parties, we are unable to estimate a range of exposure at this time.

Royalty Matters

Certain of our customers, including one major customer, have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases in Texas, Pennsylvania, and Ohio based on allegations that we improperly participated with that major customer in causing the alleged royalty underpayments. We have also received subpoenas from the United States Department of Justice and the Pennsylvania Attorney General requesting documents relating to the agreements between us and our major customer and calculations of the major customer’s royalty payments. On December 9, 2015, the Pennsylvania Attorney General filed a civil suit against one of our major customers and us alleging breaches of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and on February 8, 2016, the Pennsylvania Attorney General filed an amended complaint in such civil suit, which omitted us as a party. We believe that the claims asserted are subject to indemnity obligations owed to us by that major customer. Our customer and the plaintiffs in those certain Texas cases in which we are named have reached a settlement, and therefore all claims asserted against us in the Texas cases are being fully dismissed with prejudice. Due to the preliminary status of the remaining cases, we are unable to estimate a range of potential loss at this time.

Shareholder Litigation

In July 2015, a purported shareholder of us filed a putative class and derivative action on behalf of us in the Court of Chancery of the State of Delaware. The action named as defendants certain members of our Board of Directors as

Notes (Continued)

well as WPZ, and named us as a nominal defendant. On December 4, 2015, the plaintiff filed an amended complaint, alleging that the preliminary proxy statement filed in connection with our proposed merger with Energy Transfer is false and misleading. As relief, the complaint requested, among other things, an injunction requiring us to make supplemental disclosures and an award of costs and attorneys’ fees. On December 9, 2015, we moved to dismiss the amended complaint in its entirety, and on March 7, 2016, the court granted our motion.

Between October 2015 and December 2015, purported shareholders of us filed six putative class action lawsuits in the Delaware Court of Chancery that were consolidated into a single suit on January 13, 2016. This consolidated putative class action lawsuit relates to our proposed merger with Energy Transfer. The complaint asserts various claims against the individual members of our Board of Directors, including that they breached their fiduciary duties by agreeing to sell us through an allegedly unfair process and for an allegedly unfair price and by allegedly failing to disclose allegedly material information about the merger. The complaint seeks, among other things, an injunction against the merger and an award of costs and attorneys’ fees. On March 22, 2016, the court granted the parties’ proposed order in the consolidated action to stay the proceedings pending the close of the transaction with Energy Transfer. A purported shareholder filed a separate class action lawsuit in the Delaware Court of Chancery on January 15, 2016. The putative class action complaint alleges that the individual members of our Board of Directors breached their fiduciary duties by, among other things, agreeing to the WPZ Merger Agreement, which purportedly reduced the merger consideration to be received in the subsequent proposed merger with Energy Transfer. The complaint seeks damages and an award of costs and attorneys’ fees. On April 22, 2016, the plaintiff filed an amended complaint pleading substantially the same claims for the same basic relief. On May 6, 2016, we requested the court dismiss the lawsuit.

Another putative class action lawsuit was filed in U.S. District Court in Delaware on January 19, 2016, but the plaintiff filed a notice for voluntary dismissal on March 7, 2016, which the court accepted.

Additionally a putative class action lawsuit in U.S. District Court in Oklahoma, filed January 14, 2016, that claimed that certain disclosures about the merger violate certain federal securities laws and that the defendants are liable for such violations, was dismissed on April 28, 2016, for failure to state a claim. The plaintiff, who was seeking injunctive relief, subsequently amended his complaint. On June 16, 2016, the parties entered into a settlement agreement resolving all claims in exchange for certain supplemental disclosures, and pursuant to which we agreed to pay the plaintiff’s fees and expenses capped at $170,000.

On March 7, 2016, a purported unitholder of WPZ filed a putative class action on behalf of certain purchasers of WPZ units in U.S. District Court in Oklahoma. The action names as defendants us, WPZ, Williams Partners GP LLC, Alan S. Armstrong, and Donald R. Chappel and alleges violations of certain federal securities laws for failure to disclose Energy Transfer’s intention to pursue a purchase of us conditioned on us not closing the WPZ Merger Agreement when announcing the WPZ Merger Agreement. The complaint seeks, among other things, damages and an award of costs and attorneys’ fees. The plaintiff must file an amended complaint by August 31, 2016. We cannot reasonably estimate a range of potential loss at this time.

Litigation against Energy Transfer and related parties

On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer and LE GP, LLC alleging willful and material breaches of the Merger Agreement resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.

On April 6, 2016, we filed suit in the District Court of Dallas County, Texas, against Kelcy L. Warren, Energy Transfer’s largest unitholder, claiming that Mr. Warren tortiously interfered with the Merger Agreement by willfully, intentionally, and maliciously orchestrating the Special Offering with the purpose and effect of siphoning value to Mr. Warren and away from our stockholders and Energy Transfer’s other common unitholders, in breach of the Merger Agreement. The suit sought, among other things, compensatory and exemplary damages. On May 24, 2016, the court

Notes (Continued)

granted Mr. Warren’s motion to dismiss based on a stipulation that he would not contest personal jurisdiction on our claims in Delaware.

On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC, and the other Energy Transfer affiliates that are parties to the Merger Agreement, alleging material breaches of the Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the ETC Merger. The suit seeks, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the Merger Agreement due to any failure to obtain the Tax Opinion.

The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the Merger Agreement by us and seeking, among other things, a declaration that we are not entitled to specific performance, that Energy Transfer may terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware.

Opal 2014 Incident Subpoena

On July 14, 2016, our subsidiary, Williams Field Services Company, LLC (WFS), received a grand jury subpoena from the U.S. District Court for the District of Wyoming. The subpoena requests documents and information from WFS relating to, among other things, the April 23, 2014, explosion and fire at its natural gas processing facility in Lincoln County, Wyoming, near the town of Opal. We and WFS intend to cooperate fully with this investigation. It is not possible at this time to predict the outcome of this investigation, including whether the investigation will result in any action or proceeding against WFS, or to reasonably estimate any potential loss related thereto. We currently believe that this matter will not have a material adverse effect on our consolidated results of operations, financial position, or liquidity.

Environmental Matters

We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the EPA, and other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of June 30, 2016, we have accrued liabilities totaling $37 million for these matters, as discussed below. Our accrual reflects the most likely costs of cleanup, which are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. Certain assessment studies are still in process for which the ultimate outcome may yield significantly different estimates of most likely costs. Any incremental amount in excess of amounts currently accrued cannot be reasonably estimated at this time due to uncertainty about the actual number of contaminated sites ultimately identified, the actual amount and extent of contamination discovered, and the final cleanup standards mandated by the EPA and other governmental authorities.

The EPA and various state regulatory agencies routinely promulgate and propose new rules, and issue updated guidance to existing rules. More recent rules and rulemakings include, but are not limited to, rules for reciprocating internal combustion engine maximum achievable control technology, new air quality standards for one hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. On October 1, 2015, the EPA issued its new rule regarding National Ambient Air Quality Standards for ground-level ozone, setting a new standard of 70 parts per billion. We are monitoring the rule’s implementation and evaluating potential impacts to our operations. For these and other new regulations, we are unable to estimate the costs of asset additions or modifications necessary to comply due to

Notes (Continued)

uncertainty created by the various legal challenges to these regulations and the need for further specific regulatory guidance.

Continuing operations

Our interstate gas pipelines are involved in remediation activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At June 30, 2016, we have accrued liabilities of $6 million for these costs. We expect that these costs will be recoverable through rates.

We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At June 30, 2016, we have accrued liabilities totaling $7 million for these costs.

Former operations, including operations classified as discontinued

We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.


•	Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;


•	Former petroleum products and natural gas pipelines;


•	Former petroleum refining facilities;


•	Former exploration and production and mining operations;


•	Former electricity and natural gas marketing and trading operations.

At June 30, 2016, we have accrued environmental liabilities of $24 million related to these matters.

Other Divestiture Indemnifications

Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.

At June 30, 2016, other than as previously disclosed, we are not aware of any material claims against us involving the indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.

In addition to the foregoing, various other proceedings are pending against us which are incidental to our operations.

Summary

We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses

Notes (Continued)

beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.

Note 13 – Segment Disclosures

Our reportable segments are Williams Partners and Williams NGL & Petchem Services. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, and Basis of Presentation.)

Performance Measurement

We evaluate segment operating performance based upon Modified EBITDA (earnings before interest, taxes, depreciation, and amortization). This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments.

We define Modified EBITDA as follows:

•Net income (loss) before:

◦Provision (benefit) for income taxes;

◦Interest incurred, net of interest capitalized;

◦Equity earnings (losses);

◦Impairment of equity-method investments;

◦Other investing income (loss) – net;

◦Impairment of goodwill;

◦Depreciation and amortization expenses;

◦Accretion expense associated with asset retirement obligations for nonregulated operations.


•	This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above.

Notes (Continued)

The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Operations and Total assets by reportable segment.



	Williams Partners		Williams NGL & Petchem Services (1)		Other		Eliminations			Total
	(Millions)
Three Months Ended June 30, 2016
Segment revenues:
Service revenues
External	$	1,193	$	2	$	7	$	—		$	1,202
Internal	17		—		4		(21		)	—
Total service revenues	1,210		2		11		(21		)	1,202
Product sales
External	520		14		—		—			534
Internal	—		—		—		—			—
Total product sales	520		14		—		—			534
Total revenues	$	1,730	$	16	$	11	$	(21	)	$	1,736

Three Months Ended June 30, 2015
Segment revenues:
Service revenues
External	$	1,231	$	1	$	9	$	—		$	1,241
Internal	—		—		38		(38		)	—
Total service revenues	1,231		1		47		(38		)	1,241
Product sales
External	598		—		—		—			598
Internal	1		—		—		(1		)	—
Total product sales	599		—		—		(1		)	598
Total revenues	$	1,830	$	1	$	47	$	(39	)	$	1,839

Six Months Ended June 30, 2016
Segment revenues:
Service revenues
External	$	2,415	$	2	$	14	$	—		$	2,431
Internal	21		—		15		(36		)	—
Total service revenues	2,436		2		29		(36		)	2,431
Product sales
External	948		17		—		—