Edgar Filing: WILLIAMS COMPANIES INC

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, 2017



¨	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). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨	Emerging growth company ¨
		(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No 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 31, 2017
Common Stock, $1 par value		826,650,874

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, 2017 and 2016		6
Consolidated Statement of Comprehensive Income (Loss) – Three and Six Months Ended June 30, 2017 and 2016		7
Consolidated Balance Sheet – June 30, 2017 and December 31, 2016		8
Consolidated Statement of Changes in Equity – Six Months Ended June 30, 2017		9
Consolidated Statement of Cash Flows – Six Months Ended June 30, 2017 and 2016		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		56
Item 4. Controls and Procedures		57
Part II. Other Information		57
Item 1. Legal Proceedings		57
Item 6. Exhibits		59

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 limited partner interests;


•	Levels of dividends to Williams stockholders;


•	Future credit ratings of Williams, WPZ, and their affiliates;


•	Amounts and nature of future capital expenditures;


•	Expansion and growth of our business and operations;


•	Expected in-service dates for capital projects;


•	Financial condition and liquidity;


•	Business strategy;


•	Cash flow from operations or results of operations;


•	Seasonality of certain business components;


•	Natural gas and natural gas liquids 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 expected levels of cash distributions;


•	Whether we are able to pay current and expected levels of dividends;


•	Whether WPZ elects to pay expected levels of cash distributions and we elect to pay expected levels of dividends;


•	Whether we will be able to effectively execute our financing plan;


•	Whether we will be able to effectively manage the transition in our board of directors and management as well as successfully execute our business restructuring;


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


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


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


•	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 and rate of adoption of alternative energy sources;


•	The impact of operational and developmental hazards, unforeseen interruptions, and the availability of adequate insurance coverage;


•	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;


•	Our 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 Securities and Exchange Commission (SEC).

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

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

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 22, 2017.

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:

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

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, 2017, 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:

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

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,
	2017			2016			2017			2016
	(Millions, except per-share amounts)
Revenues:
Service revenues	$	1,282		$	1,202		$	2,543		$	2,431
Product sales	642			534			1,369			965
Total revenues	1,924			1,736			3,912			3,396
Costs and expenses:
Product costs	537			401			1,116			719
Operating and maintenance expenses	389			394			757			785
Depreciation and amortization expenses	433			446			875			891
Selling, general, and administrative expenses	153			158			314			379
Impairment of certain assets	25			802			26			810
Other (income) expense – net	6			23			10			38
Total costs and expenses	1,543			2,224			3,098			3,622
Operating income (loss)	381			(488		)	814			(226		)
Equity earnings (losses)	125			101			232			198
Impairment of equity-method investments (Note 11)	—			—			—			(112		)
Other investing income (loss) – net (Note 4)	2			18			274			36
Interest incurred	(280		)	(306		)	(567		)	(612		)
Interest capitalized	9			8			16			23
Other income (expense) – net	21			17			95			32
Income (loss) before income taxes	258			(650		)	864			(661		)
Provision (benefit) for income taxes	65			(145		)	102			(143		)
Net income (loss)	193			(505		)	762			(518		)
Less: Net income (loss) attributable to noncontrolling interests	112			(100		)	308			(48		)
Net income (loss) attributable to The Williams Companies, Inc.	$	81		$	(405	)	$	454		$	(470	)
Amounts attributable to The Williams Companies, Inc.:
Basic earnings (loss) per common share:
Net income (loss)	$	.10		$	(.54	)	$	.55		$	(.63	)
Weighted-average shares (thousands)	826,426			750,649			825,492			750,491
Diluted earnings (loss) per common share:
Net income (loss)	$	.10		$	(.54	)	$	.55		$	(.63	)
Weighted-average shares (thousands)	828,575			750,649			827,531			750,491
Cash dividends declared per common share	$	.30		$	.64		$	.60		$	1.28

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Millions)
Net income (loss)	$	193		$	(505	)	$	762		$	(518	)
Other comprehensive income (loss):
Cash flow hedging activities:
Net unrealized gain (loss) from derivative instruments, net of taxes of $0 and ($1) in 2017	1			—			4			—
Reclassifications into earnings of net derivative instruments (gain) loss	(2		)	—			(2		)	—
Foreign currency translation activities:
Foreign currency translation adjustments, net of taxes of $3 and ($12) in 2016	—			10			—			99
Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost, net of taxes of $1 and $1 in 2017 and 2016	(1		)	(1		)	(2		)	(2		)
Net actuarial gain (loss) arising during the year, net of taxes of $2 in 2016	—			(3		)	—			(3		)
Amortization of actuarial (gain) loss included in net periodic benefit cost, net of taxes of ($2) and ($5) in 2017 and ($3) and ($6) in 2016	5			5			9			10
Other comprehensive income (loss)	3			11			9			104
Comprehensive income (loss)	196			(494		)	771			(414		)
Less: Comprehensive income (loss) attributable to noncontrolling interests	112			(98		)	309			(17		)
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	84		$	(396	)	$	462		$	(397	)

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet

(Unaudited)



	June 30, 2017			December 31, 2016
	(Millions, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	1,918		$	170
Trade accounts and other receivables (net of allowance of $6 at June 30, 2017 and $6 at December 31, 2016)	693			938
Inventories	150			138
Assets held for sale (Note 3)	1,004			24
Other current assets and deferred charges	204			192
Total current assets	3,969			1,462
Investments	6,675			6,701
Property, plant, and equipment, at cost	38,898			38,912
Accumulated depreciation and amortization	(10,856		)	(10,484		)
Property, plant, and equipment – net	28,042			28,428
Intangible assets – net of accumulated amortization	9,481			9,663
Regulatory assets, deferred charges, and other	603			581
Total assets	$	48,770		$	46,835
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	734		$	623
Liabilities held for sale (Note 3)	36			—
Accrued liabilities	1,275			1,448
Commercial paper	—			93
Long-term debt due within one year	1,951			785
Total current liabilities	3,996			2,949
Long-term debt	21,325			22,624
Deferred income tax liabilities	5,200			4,238
Regulatory liabilities, deferred income, and other	3,068			2,978
Contingent liabilities (Note 12)
Equity:
Stockholders’ equity:
Common stock (960 million shares authorized at $1 par value; 861 million shares issued at June 30, 2017 and 785 million shares issued at December 31, 2016)	861			785
Capital in excess of par value	18,471			14,887
Retained deficit	(9,654		)	(9,649		)
Accumulated other comprehensive income (loss)	(331		)	(339		)
Treasury stock, at cost (35 million shares of common stock)	(1,041		)	(1,041		)
Total stockholders’ equity	8,306			4,643
Noncontrolling interests in consolidated subsidiaries	6,875			9,403
Total equity	15,181			14,046
Total liabilities and equity	$	48,770		$	46,835

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, 2016	$	785	$	14,887	$	(9,649	)	$	(339	)	$	(1,041	)	$	4,643		$	9,403		$	14,046
Net income (loss)	—		—		454			—			—			454			308			762
Other comprehensive income (loss)	—		—		—			8			—			8			1			9
Issuance of common stock (Note 10)	75		2,043		—			—			—			2,118			—			2,118
Cash dividends – common stock	—		—		(496		)	—			—			(496		)	—			(496		)
Dividends and distributions to noncontrolling interests	—		—		—			—			—			—			(475		)	(475		)
Stock-based compensation and related common stock issuances, net of tax	1		40		—			—			—			41			—			41
Adoption of ASU 2016-09 (Note 1)	—		1		36			—			—			37			—			37
Sales of limited partner units of Williams Partners L.P.	—		—		—			—			—			—			28			28
Changes in ownership of consolidated subsidiaries, net	—		1,498		—			—			—			1,498			(2,400		)	(902		)
Contributions from noncontrolling interests	—		—		—			—			—			—			10			10
Other	—		2		1			—			—			3			—			3
Net increase (decrease) in equity	76		3,584		(5		)	8			—			3,663			(2,528		)	1,135
Balance – June 30, 2017	$	861	$	18,471	$	(9,654	)	$	(331	)	$	(1,041	)	$	8,306		$	6,875		$	15,181

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows

(Unaudited)



	Six Months Ended June 30,
	2017			2016
	(Millions)
OPERATING ACTIVITIES:
Net income (loss)	$	762		$	(518	)
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	875			891
Provision (benefit) for deferred income taxes	91			(142		)
Net (gain) loss on disposition of equity-method investments	(269		)	—
Impairment of equity-method investments	—			112
Impairment of and net (gain) loss on sale of assets and businesses	18			803
Amortization of stock-based awards	44			34
Cash provided (used) by changes in current assets and liabilities:
Accounts and notes receivable	201			290
Inventories	(30		)	(3		)
Other current assets and deferred charges	(17		)	(21		)
Accounts payable	29			13
Accrued liabilities	(177		)	(23		)
Other, including changes in noncurrent assets and liabilities	(259		)	33
Net cash provided (used) by operating activities	1,268			1,469
FINANCING ACTIVITIES:
Proceeds from (payments of) commercial paper – net	(93		)	(304		)
Proceeds from long-term debt	2,643			4,503
Payments of long-term debt	(2,710		)	(3,301		)
Proceeds from issuance of common stock	2,125			6
Dividends paid	(496		)	(961		)
Dividends and distributions paid to noncontrolling interests	(447		)	(478		)
Contributions from noncontrolling interests	10			22
Payments for debt issuance costs	(13		)	(8		)
Contribution to Gulfstream for repayment of debt	—			(148		)
Other – net	(29		)	(5		)
Net cash provided (used) by financing activities	990			(674		)
INVESTING ACTIVITIES:
Property, plant, and equipment:
Capital expenditures (1)	(1,056		)	(1,069		)
Dispositions – net	(14		)	31
Proceeds from dispositions of equity-method investments	200			—
Purchases of and contributions to equity-method investments	(79		)	(122		)
Distributions from unconsolidated affiliates in excess of cumulative earnings	258			261
Other – net	181			153
Net cash provided (used) by investing activities	(510		)	(746		)
Increase (decrease) in cash and cash equivalents	1,748			49
Cash and cash equivalents held for sale	—			(14		)
Cash and cash equivalents at beginning of year	170			100
Cash and cash equivalents at end of period	$	1,918		$	135
_____________
(1) Increases to property, plant, and equipment	$	(1,160	)	$	(1,020	)
Changes in related accounts payable and accrued liabilities	104			(49		)
Capital expenditures	$	(1,056	)	$	(1,069	)

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, 2016, in Exhibit 99.1 of our Form 8-K dated May 25, 2017. 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.

Financial Repositioning

In January 2017, we announced agreements with Williams Partners L.P. (WPZ), wherein we permanently waived the general partner’s incentive distribution rights (IDRs) and converted our 2 percent general partner interest in WPZ to a noneconomic interest in exchange for 289 million newly issued WPZ common units. Pursuant to this agreement, we also purchased approximately 277 thousand WPZ common units for $10 million. Additionally, we purchased approximately 59 million common units of WPZ at a price of $36.08586 per unit in a private placement transaction, funded with proceeds from our equity offering (see Note 10 – Stockholders’ Equity). According to the terms of this agreement, concurrent with WPZ’s quarterly distributions in February 2017 and May 2017, we paid additional consideration totaling $56 million to WPZ for these units. Subsequent to these transactions and as of June 30, 2017, we own a 74 percent limited partner interest in WPZ.

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. We have one reportable segment, Williams Partners. 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.

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.

Notes (Continued)

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 (see Note 3 – Assets Held for Sale). 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 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 66 percent interest in multiple gathering systems in the Marcellus Shale (Appalachia Midstream Investments), as well as our previously owned 50 percent equity-method investment in the Delaware basin gas gathering system (DBJV) in the Mid-Continent region (see Note 4 – Investing Activities).

The midstream businesses also included our Canadian midstream operations, which were comprised of an oil sands offgas processing plant near Fort McMurray, Alberta, and an NGL/olefin fractionation facility at Redwater, Alberta. In September 2016, we completed the sale of our Canadian operations.

Other

Our former Williams NGL & Petchem Services segment included certain domestic olefins pipeline assets as well as certain Canadian assets, which included a liquids extraction plant located near Fort McMurray, Alberta, that began operations in March 2016, and a propane dehydrogenation facility which was under development. In September 2016, the Canadian assets were sold. Considering this, the remaining assets are now reported within Other, effective January 1, 2017. Other also includes minor business activities that are not operating segments, as well as corporate operations. Prior period segment disclosures have been recast for this segment change.

Basis of Presentation

Consolidated master limited partnership

As of June 30, 2017, we own 74 percent of the interests in WPZ, a variable interest entity (VIE) (see Note 2 – Variable Interest Entities). WPZ units issued to us in connection with the Financial Repositioning, WPZ’s quarterly distribution of additional paid-in-kind Class B units to us, and other equity issuances by WPZ had the combined net impact of decreasing Noncontrolling interests in consolidated subsidiaries by $2.4 billion, and increasing Capital in excess of par value by $1.498 billion and Deferred income tax liabilities by $902 million in the Consolidated Balance Sheet.

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 previous IDRs, occur through the normal partnership distributions from WPZ to all partners.

Significant risks and uncertainties

We may monetize assets that are not core to our strategy which could result in impairments of certain equity-method investments, property, plant, and equipment, and intangible assets. Such impairments could potentially be caused by indications of fair value implied through the monetization process or, in the case of asset dispositions that are part of a broader asset group, the impact of the loss of future estimated cash flows.

Notes (Continued)

Accounting standards issued and adopted

Effective January 1, 2017, we adopted Accounting Standards Update (ASU) 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). ASU 2016-09 changed the accounting for income taxes such that all excess tax benefits and all tax deficiencies are now recognized as a discrete item in the provision for income taxes in the financial reporting period they occur and the recognition of tax benefits is no longer delayed until the tax benefit is realized through a reduction in income taxes payable. These changes are applied prospectively beginning in 2017. We recorded a cumulative-effect adjustment as of January 1, 2017, decreasing Retained deficit by $37 million in the Consolidated Balance Sheet to recognize tax benefits that were not previously recognized. ASU 2016-09 requires entities to classify excess tax benefits as an operating activity on the statement of cash flows. We are applying this part of the guidance prospectively beginning in 2017; therefore, the cash flows for prior periods were not adjusted. In recognizing compensation cost from share-based payments, ASU 2016-09 allows entities to make an accounting policy election to either recognize forfeitures when they occur or estimate the number of forfeitures expected to occur. We are recognizing forfeitures when they occur and as a result of the change in our accounting policy, we increased our Retained deficit for an insignificant cumulative-effect adjustment as of January 1, 2017. ASU 2016-09 requires entities to classify as a financing activity, on the statement of cash flows, cash paid by an employer to a taxing authority when directly withholding shares from an employee’s award to satisfy the employer’s statutory tax withholding obligation. This guidance must be applied retrospectively and we have adjusted operating and financing activities on the Consolidated Statement of Cash Flows for prior periods.

Accounting standards issued but not yet adopted

In March 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-07 “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07). ASU 2017-07 requires employers to report the service cost component of net benefit cost in the same line item or items as other compensation costs arising from employee services. The other components of net benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Only the service cost component is now eligible for capitalization when applicable. ASU 2017-07 is effective beginning January 1, 2018. The presentation aspect of ASU 2017-07 must be applied retrospectively and the capitalization requirement prospectively. We are currently evaluating the impact of ASU 2017-07 on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (ASU 2017-04). ASU 2017-04 modifies the concept of goodwill impairment to represent the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Under ASU 2017-04, entities will no longer be required to determine the implied fair value of goodwill by assigning the fair value of a reporting unit to its individual assets and liabilities as if that reporting unit had been acquired in a business combination. ASU 2017-04 is effective for goodwill impairment testing for interim and annual periods beginning after December 15, 2019, and requires a prospective transition. Early adoption is permitted for interim and annual goodwill impairment tests performed after January 1, 2017, and we plan to adopt ASU 2017-04 in 2017. Our Williams Partners reportable segment has $47 million of goodwill included in Intangible assets - net of accumulated amortization in the Consolidated Balance Sheet.

In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (ASU 2016-15). ASU 2016-15 provides specific guidance on eight cash flow classification issues, including debt prepayment or debt extinguishment costs and distributions received from equity method investees, to reduce diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. ASU 2016-15 requires a retrospective transition. We do not expect ASU 2016-15 to have a material impact on our consolidated financial statements.

In June 2016, the FASB issued 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. ASU 2016-13

Notes (Continued)

is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. ASU 2016-13 requires varying transition methods for the different categories of amendments. Although we do not expect ASU 2016-13 to have a significant impact, it will impact our trade receivables as the related allowance for credit losses will be recognized earlier under the expected loss model.

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. ASU 2016-02 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. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. ASU 2016-02 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 in the process of reviewing contracts to identify leases, as well as evaluating the applicability of ASU 2016-02 to contracts involving easements/rights-of-way.

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 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 the impact ASC 606 may have on our financial statements. For each revenue contract type, we conducted a formal contract review process to evaluate the impact, if any, that ASC 606 may have. As a result of that process, we expect our revenues will increase associated with accounting for noncash consideration, which exists primarily in certain of our gas processing contracts where we receive commodities as full or partial consideration for services provided. We also expect the increase in revenues will be offset by a similar increase in costs when the commodities received are subsequently monetized. We continue to evaluate the application of accounting for noncash consideration as it relates to certain other contracts where we receive or retain commodities as part of the service arrangement. We also continue to evaluate contracts with a significant financing component, which may exist in situations where the timing of the consideration we receive varies significantly from the timing of when we provide the service. As such, we are unable to determine the potential impact upon the amount and timing of revenue recognition. We continue to develop and evaluate disclosures required under ASC 606, with a particular focus on the scope of contracts subject to disclosure of remaining performance obligations. Additionally, we have identified possible financial system and internal control changes necessary for adoption. We currently anticipate utilizing a modified retrospective transition upon the adoption of ASC 606 as of January 1, 2018.

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, 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, at which time we owned 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 were 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.

Notes (Continued)

Note 2 – Variable Interest Entities

WPZ

We own a 74 percent interest in WPZ, a master limited partnership that is a VIE due to the limited partners’ lack of substantive voting rights, such as either participating rights or kick-out rights that can be exercised with a simple majority of the vote of the limited partners. We are the primary beneficiary of WPZ because we have the power, through our general partner interest, 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, 2017			December 31, 2016			Classification
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	1,908		$	145		Cash and cash equivalents
Trade accounts and other receivables – net	688			925			Trade accounts and other receivables
Inventories	150			138			Inventories
Assets held for sale	1,004			24			Assets held for sale
Other current assets	191			181			Other current assets and deferred charges
Investments	6,675			6,701			Investments
Property, plant, and equipment – net	27,672			28,021			Property, plant, and equipment – net
Intangible assets – net	9,480			9,662			Intangible assets – net of accumulated amortization
Regulatory assets, deferred charges, and other noncurrent assets	450			467			Regulatory assets, deferred charges, and other
Accounts payable	(711		)	(589		)	Accounts payable
Liabilities held for sale	(36		)	—			Liabilities held for sale
Accrued liabilities including current asset retirement obligations	(1,022		)	(1,122		)	Accrued liabilities
Commercial paper	—			(93		)	Commercial paper
Long-term debt due within one year	(1,951		)	(785		)	Long-term debt due within one year
Long-term debt	(16,614		)	(17,685		)	Long-term debt
Deferred income tax liabilities	(19		)	(20		)	Deferred income tax liabilities
Noncurrent asset retirement obligations	(824		)	(798		)	Regulatory liabilities, deferred income, and other
Regulatory liabilities, deferred income, and other noncurrent liabilities	(1,972		)	(1,860		)	Regulatory liabilities, deferred income, and other

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 in the eastern deepwater Gulf

Notes (Continued)

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.

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 $691 million, which is expected to be funded with capital contributions from WPZ and the other equity partners on a proportional basis.

In December 2014, Constitution received approval from the Federal Energy Regulatory Commission (FERC) to construct and operate its proposed 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 pipeline. We remain steadfastly committed to the project, and in May 2016, Constitution appealed the NYSDEC’s denial of the certification. We also 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, but that lawsuit was dismissed without prejudice as the court determined that Constitution had not yet suffered any injury in fact. The oral argument before the Second Circuit Court of Appeals regarding the NYSDEC’s denial of Constitution’s application for water quality certification under Section 401 of the Clean Water Act was held on November 16, 2016. We anticipate that the Second Circuit Court of Appeals’ decision on our appeal will be issued soon. In light of the NYSDEC’s denial of the water quality certification and the actions taken to challenge the decision, the anticipated target in-service date has been revised to as early as the first half of 2019, which assumes the timely receipt of a Notice to Proceed from the FERC. An unfavorable resolution could result in the impairment of a significant portion of the capitalized project costs, which total $381 million on a consolidated basis at June 30, 2017, 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 Shale 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.

Note 3 – Assets Held for Sale

On July 6, 2017, WPZ completed the sale of Williams Olefins, L.L.C., a wholly owned subsidiary which owned our interest in the Geismar, Louisiana, olefins plant (Geismar Interest) for $2.084 billion in cash, subject to a working capital adjustment. Upon closing of the sale, WPZ entered into a long-term supply and transportation agreement with the purchaser to provide feedstock to the plant via its Bayou Ethane pipeline system. As a result of this sale, WPZ expects to record a gain of approximately $1.1 billion in the third quarter of 2017.

Notes (Continued)

The assets and liabilities of the Geismar olefins plant are presented as held for sale within the Williams Partners segment as of June 30, 2017. The following table presents the carrying amounts of the major classes of assets and liabilities included as part of the Geismar disposal group, which are presented within Assets held for sale and Liabilities held for sale in the Consolidated Balance Sheet. Also included in Assets held for sale in the Consolidated Balance Sheet are $4 million of assets held for sale within the Williams Partners segment unrelated to the Geismar Interest and at December 31, 2016, were previously included in Other current assets and deferred charges.



	Carrying Amount
	June 30, 2017
	(Millions)
Assets:
Current assets	$	72
Property, plant, and equipment – net	903
Other noncurrent assets	25
	$	1,000
Liabilities:
Current liabilities	$	35
Noncurrent liabilities	1
	$	36

The following table presents the results of operations for the Geismar disposal group.



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(Millions)
Income (loss) before income taxes of the disposal group	$	2	$	30	$	25	$	48
Income (loss) before income taxes of the disposal group attributable to The Williams Companies, Inc.	2		18		19		29

Note 4 – Investing Activities

Acquisition of Additional Interests in Appalachia Midstream Investments

During the first quarter of 2017, WPZ exchanged all of its 50 percent interest in DBJV for an increased interest in two natural gas gathering systems that are part of the Appalachia Midstream Investments and $155 million in cash. This transaction was recorded based on our estimate of the fair value of the interests received as we have more insight to this value as we operate the underlying assets. Following this exchange, we have an approximate average 66 percent interest in the Appalachia Midstream Investments. We continue to account for this investment under the equity-method due to the significant participatory rights of our partners such that we do not exercise control. WPZ also sold all of its interest in Ranch Westex JV LLC for $45 million. These transactions resulted in a total gain of $269 million reflected in Other investing income (loss) – net in the Consolidated Statement of Operations.

The fair value of the increased interests in the Appalachia Midstream Investments received as consideration was estimated to be $1.1 billion using an income approach based on expected cash flows and an appropriate discount rate (a Level 3 measurement within the fair value hierarchy). The determination of estimated future cash flows involved significant assumptions regarding gathering volumes, rates, and related capital spending. A 9.5 percent discount rate was utilized and reflected our estimate of the cost of capital as impacted by market conditions and risks associated with the underlying business.

Notes (Continued)

Impairments

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 DBJV 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, 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.

Note 5 – 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,
	2017			2016		2017			2016
	(Millions)
Williams Partners
Amortization of regulatory assets associated with asset retirement obligations	$	9		$	9	$	17		$	17
Gains on contract settlements and terminations	(2		)	—		(15		)	—
Gain on sale of RGP Splitter	(12		)	—		(12		)	—
Net foreign currency exchange (gains) losses (1)	—			—		—			11
Other
Gain on sale of unused pipe	—			—		—			(10		)


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

Additional Items

Certain additional items included in the Consolidated Statement of Operations are as follows:


•	Service revenues were 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 $3 million and $4 million for the three and six months ended June 30, 2017, respectively, and $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, Canada within the Other segment. Beginning in the first quarter of 2016, these costs did not qualify for capitalization.

•

Selling, general, and administrative expenses and Operating and maintenance expenses include $4 million and $13 million in severance and other related costs for the three and six months ended June 30, 2017 for the Williams Partners segment. The six months ended June 30, 2016 included $26 million 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.

Notes (Continued)

•

Other income (expense) – net below Operating income (loss) includes $19 million and $37 million for the three and six months ended June 30, 2017, respectively, and $13 million and $30 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. Other income (expense) – net below Operating income (loss) also includes $9 million and $37 million, for the three and six months ended June 30, 2017, respectively, and $5 million and $9 million for the three and six months ended June 30, 2016, respectively, of income associated with a regulatory asset related to deferred taxes on equity funds used during construction.

•

Other income (expense) – net below Operating income (loss) for the six months ended June 30, 2017 includes a net gain of $30 million associated with the February 2017, early retirement of $750 million of 6.125 percent senior unsecured notes that were due in 2022. (See Note 9 – Debt and Banking Arrangements.) The net gain within Williams Partners reflects $53 million of unamortized premium, partially offset by $23 million in premiums paid.

Note 6 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(Millions)
Current:
Federal	$	—	$	—		$	3	$	—
State	2		—			8		—
Foreign	—		(1		)	—		(1		)
	2		(1		)	11		(1		)
Deferred:
Federal	59		(52		)	74		(57		)
State	4		(18		)	17		(11		)
Foreign	—		(74		)	—		(74		)
	63		(144		)	91		(142		)
Provision (benefit) for income taxes	$	65	$	(145	)	$	102	$	(143	)

The effective income tax rate for the total provision for the three months ended June 30, 2017, is less than the federal statutory rate primarily due to the impact of the allocation of income to nontaxable noncontrolling interests, partially offset by the effect of state income taxes.

The effective income tax rate for the total provision for the six months ended June 30, 2017, is less than the federal statutory rate primarily due to releasing a $127 million valuation allowance on a deferred tax asset associated with a capital loss carryover and the impact of the allocation of income to nontaxable noncontrolling interests, partially offset by the effect of state income taxes. In 2016, we recorded a valuation allowance on a deferred tax asset associated with a capital loss that was incurred with the sale of our Canadian operations. The sale of the Geismar olefins facility in July 2017 (see Note 3 – Assets Held for Sale) is expected to generate capital gains sufficient to offset the capital loss carryover, thereby allowing us to reverse the valuation allowance in full.

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.)

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 7 – Earnings (Loss) Per Common Share



	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(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	$	81	$	(405	)	$	454	$	(470	)
Basic weighted-average shares	826,426		750,649			825,492		750,491
Effect of dilutive securities:
Nonvested restricted stock units	1,499		—			1,402		—
Stock options	650		—			637		—
Diluted weighted-average shares	828,575		750,649			827,531		750,491
Earnings (loss) per common share:
Basic	$	.10	$	(.54	)	$	.55	$	(.63	)
Diluted	$	.10	$	(.54	)	$	.55	$	(.63	)

Note 8 – Employee Benefit Plans

Net periodic benefit cost (credit) is as follows:



	Pension Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	12		$	13		$	25		$	27
Interest cost	14			16			29			31
Expected return on plan assets	(21		)	(21		)	(41		)	(42		)
Amortization of net actuarial loss	7			7			14			15
Net actuarial loss from settlements	—			1			—			1
Net periodic benefit cost (credit)	$	12		$	16		$	27		$	32



	Other Postretirement Benefits
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	1		$	1		$	1		$	1
Interest cost	2			2			4			4
Expected return on plan assets	(3		)	(3		)	(6		)	(6		)
Amortization of prior service credit	(4		)	(5		)	(7		)	(8		)
Reclassification to regulatory liability	1			1			2			2
Net periodic benefit cost (credit)	$	(3	)	$	(4	)	$	(6	)	$	(7	)

Notes (Continued)

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 $2 million and $3 million for the three months ended June 30, 2017 and 2016, respectively, and $4 million and $5 million for the six months ended June 30, 2017 and 2016, respectively.

During the six months ended June 30, 2017, we contributed $49 million to our pension plans and $3 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $34 million to our pension plans and approximately $4 million to our other postretirement benefit plans in the remainder of 2017.

Note 9 – Debt and Banking Arrangements

Long-Term Debt

Issuances and retirements

On July 6, 2017, WPZ repaid its $850 million variable interest rate term loan that was due December 2018 using proceeds from the sale of its Geismar Interest. This term loan is classified as long-term in the accompanying Consolidated Balance Sheet.

On June 5, 2017, WPZ issued $1.45 billion of 3.75 percent senior unsecured notes due 2027. WPZ used the proceeds for general partnership purposes, primarily the July 3, 2017 repayment of $1.4 billion of 4.875 percent senior unsecured notes that were due in 2023. These senior notes are classified as current in the accompanying Consolidated Balance Sheet due to WPZ’s intent to repay the notes with current assets.

On April 3, 2017, Northwest Pipeline issued $250 million of 4.0 percent senior unsecured notes due 2027 to investors in a private debt placement. Northwest Pipeline used the net proceeds to retire $185 million of 5.95 percent senior unsecured notes that matured on April 15, 2017, and for general corporate purposes. As part of the issuance, Northwest Pipeline entered into a registration rights agreement with the initial purchasers of the unsecured notes. Northwest Pipeline 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. Northwest Pipeline is required to provide a shelf registration statement to cover resales of the notes under certain circumstances. If Northwest Pipeline 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 a registration 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 registration defaults of 0.5 percent annually. Following the cure of any registration defaults, the accrual of additional interest will cease.

On February 23, 2017, using proceeds received from the Financial Repositioning (see Note 1 – General, Description of Business, and Basis of Presentation), WPZ early retired $750 million of 6.125 percent senior unsecured notes that were due in 2022.

WPZ retired $600 million of 7.25 percent senior unsecured notes that matured on February 1, 2017.

Commercial Paper Program

As of June 30, 2017, no Commercial paper was outstanding under WPZ’s $3 billion commercial paper program.

Notes (Continued)

Credit Facilities



	June 30, 2017
	Stated Capacity		Outstanding
	(Millions)
WMB
Long-term credit facility	$	1,500	$	545
Letters of credit under certain bilateral bank agreements			13
WPZ
Long-term credit facility (1)	3,500		—
Letters of credit under certain bilateral bank agreements			1


(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.

Note 10 – Stockholders’ Equity

In January 2017, we issued 65 million shares of common stock in a public offering at a price of $29.00 per share. In February 2017, we issued 9.75 million shares of common stock pursuant to the full exercise of the underwriter’s option to purchase additional shares. The net proceeds of approximately $2.1 billion were used to purchase newly issued common units in WPZ as part of our Financial Repositioning. (See Note 1 – General, Description of Business, and Basis of Presentation.)

AOCI

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, 2016	$	—		$	(2	)	$	(337	)	$	(339	)
Other comprehensive income (loss) before reclassifications	3			—			—			3
Amounts reclassified from accumulated other comprehensive income (loss)	(2		)	—			7			5
Other comprehensive income (loss)	1			—			7			8
Balance at June 30, 2017	$	1		$	(2	)	$	(330	)	$	(331	)

Notes (Continued)

Reclassifications out of AOCI are presented in the following table by component for the six months ended June 30, 2017:



Component	Reclassifications			Classification
	(Millions)
Cash flow hedges:
Energy commodity contracts	$	(2	)	Product sales

Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost	$	(3	)	Note 8 – Employee Benefit Plans
Amortization of actuarial (gain) loss included in net periodic benefit cost	14			Note 8 – Employee Benefit Plans

Total before tax	9
Income tax benefit	(4		)	Provision (benefit) for income taxes
Reclassifications during the period	$	5

Notes (Continued)

Note 11 – Fair Value Measurements and Guarantees

The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, 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, 2017:
Measured on a recurring basis:
ARO Trust investments	$	119		$	119		$	119		$	—		$	—
Energy derivatives assets designated as hedging instruments	5			5			5			—			—
Energy derivatives assets not designated as hedging instruments	3			3			2			—			1
Energy derivatives liabilities designated as hedging instruments	(1		)	(1		)	—			(1		)	—
Energy derivatives liabilities not designated as hedging instruments	(6		)	(6		)	(2		)	—			(4		)
Additional disclosures:
Other receivables	6			6			6			—			—
Long-term debt, including current portion	(23,276		)	(24,786		)	—			(24,786		)	—
Guarantees	(44		)	(31		)	—			(15		)	(16		)

Assets (liabilities) at December 31, 2016:
Measured on a recurring basis:
ARO Trust investments	$	96		$	96		$	96		$	—		$	—
Energy derivatives assets designated as hedging instruments	2			2			—			2			—
Energy derivatives assets not designated as hedging instruments	1			1			—			—			1
Energy derivatives liabilities not designated as hedging instruments	(6		)	(6		)	—			—			(6		)
Additional disclosures:
Other receivables	15			15			15			—			—
Long-term debt, including current portion	(23,409		)	(24,090		)	—			(24,090		)	—
Guarantees	(44		)	(30		)	—			(14		)	(16		)

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.

Notes (Continued)

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 Regulatory liabilities, deferred income, and other 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, 2017 or 2016.

Additional fair value disclosures

Other receivables: Other receivables consist 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.

Long-term debt, including current portion: 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.

Guarantees: Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.

To estimate the disclosed fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $31 million at June 30, 2017. Our exposure declines systematically through the remaining term of WilTel’s obligation.

The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.

We are required by our revolving credit 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)

Nonrecurring fair value measurements

The following table presents impairments of assets and investments 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		2017		2016
				(Millions)
Certain olefins pipeline project (1)	Property, plant, and equipment – net	Other	June 30, 2017	$	18	$	23
Canadian operations (2)	Assets held for sale	Williams Partners	June 30, 2016	924				$	341
Canadian operations (2)	Assets held for sale	Other	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 certain assets						23		795
Other impairments and write-downs (4)						3		15
Impairment of certain assets						$	26	$	810

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 primarily to project development costs associated with an olefins pipeline project in the Gulf Coast region, the likelihood of completion of which is now considered remote. The estimated fair value of the remaining pipe and equipment considered a market approach based on our analysis of observable inputs in the principal market, as well as an estimate of replacement cost.

(2)

Relates to our Canadian operations. We 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 reflected our estimate of the potential assumed proceeds. We disposed of our Canadian operations through a sale during the third quarter of 2016.


(3)	Relates to 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 and write-downs 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’ previously owned interest in DBJV and current equity-method investment in 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 equity-method investments, along with lower natural gas prices for Laurel Mountain. We estimated the fair value of these equity-

Notes (Continued)

method 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 estimated cost of capital, revised estimates of expected future cash flows, and risks associated with the underlying businesses.

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 Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.

In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland has appealed.

In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order, and the appeal is now pending.

Because of the uncertainty around the remaining pending unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter, and as a result, have exposure to future developments 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 (Geismar Incident). As a result, there were two fatalities and numerous individuals (including employees and contractors) reported injuries. We are addressing the following contingent liabilities 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. The first two trials, for nine plaintiffs claiming personal injury, were held in Louisiana state court in Iberville Parish, Louisiana in September and November 2016. The juries returned adverse verdicts against us, our subsidiary Williams Olefins, LLC, and other defendants. To date, we have settled those cases as well as settled or agreed in principle to settle numerous other personal injury claims, and such aggregate amount greater than our $2 million retention (deductible) value has been or will be recovered from our insurers. We believe these settlements to date substantially resolve any material exposure to such claims arising from the Geismar Incident. We believe that any additional losses arising from our alleged liability will be immaterial to our expected future annual results of operations, liquidity, and financial position and will be substantially covered by our general liability insurance policy, which has an aggregate limit of $610 million applicable to this event.

Notes (Continued)

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 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. Certain claims by FHRA against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane remain pending.

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 for contractual indemnification and statutory claims for damages related to off-site sulfolane.

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 ordinances 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. Both we and WAPI asserted counter claims against both the State of Alaska and North Pole, and cross claims against FHRA. The underlying factual basis and claims in the consolidated State of Alaska and North Pole action are similar to and may duplicate exposure in the James West case. As such, on February 9, 2017, the remaining claims in the James West case were consolidated into the State of Alaska and North Pole action. A trial is scheduled to commence in the fall of 2017 that will encompass all three consolidated cases. Due to the ongoing assessment of the level and extent of sulfolane contamination, the lack of an articulated cleanup level for sulfolane, and the lack of a concrete remedial proposal and cost estimate, we are unable to estimate a range of exposure to the State of Alaska or North Pole at this time. We currently estimate that our reasonably possible loss exposure to FHRA 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.

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 filed in Pennsylvania and Oklahoma based on allegations that we improperly participated with that major customer in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by that major customer. Due to the preliminary status of the cases, we are unable to estimate a range of potential loss at this time.

Notes (Continued)

Shareholder Litigation

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 terminated merger with Energy Transfer Equity, L.P. (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. The plaintiffs have not filed an amended complaint. On July 19, 2017, the court dismissed the action with prejudice as to plaintiffs and without prejudice as to all other shareholders of us.

A purported shareholder filed a separate class action lawsuit in the Delaware Court of Chancery on January 15, 2016. The putative class action complaint alleged 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 have been received in the subsequently proposed but now terminated merger with Energy Transfer. The plaintiff filed a motion to voluntarily dismiss, which the court granted on January 13, 2017. On September 2, 2016, the same purported shareholder filed a derivative action claiming that the members of our Board of Directors breached their fiduciary duties by executing the WPZ Merger Agreement as a defensive measure against Energy Transfer. On September 28, 2016, we requested the court dismiss this action, and on May 15, 2017, the court dismissed the action. On June 6, 2017, the plaintiff filed a notice of appeal.

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 filed an amended complaint on August 31, 2016. On October 17, 2016, we requested the court dismiss the action, and on March 8, 2017, the court dismissed the complaint with prejudice. On April 7, 2017, the plaintiff filed a notice of appeal.

We cannot reasonably estimate a range of potential loss related to these matters 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 (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.

On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC, and the other Energy Transfer affiliates that are parties to the 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 merger under the Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the 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

Notes (Continued)

Opinion suits, alleging certain breaches of the Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.

On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the Merger Agreement. We filed a motion to dismiss Energy Transfer’s counterclaims, which was fully briefed on November 14, 2016, and oral argument occurred on November 30, 2016.

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, 2017, we have accrued liabilities totaling $39 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 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, 2017, we have accrued liabilities of $8 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, 2017, we have accrued liabilities totaling $8 million for these costs.

Notes (Continued)

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, 2017, we have accrued environmental liabilities of $23 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, 2017, 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 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

We have one reportable segment, Williams Partners. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, and Basis of Presentation.)

Our segment presentation of Williams Partners, which includes our consolidated master limited partnership, is reflective of the parent-level focus by our chief operating decision-maker, considering the resource allocation and governance provisions associated with the master limited partnership structure. This partnership maintains capital and cash management structures that are separate from ours. It is self-funding and maintains its own lines of bank credit and cash management accounts. These factors serve to differentiate the management of this entity as a whole.

Notes (Continued)

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:

◦Income (loss) from discontinued operations;

◦Provision (benefit) for income taxes;

◦Interest incurred, net of interest capitalized;

◦Equity earnings (losses);

◦Gain on remeasurement of equity-method investment;

◦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		Other		Eliminations			Total
	(Millions)
Three Months Ended June 30, 2017
Segment revenues:
Service revenues
External	$	1,276	$	6	$	—		$	1,282
Internal	1		3		(4		)	—
Total service revenues	1,277		9		(4		)	1,282
Product sales
External	642		—		—			642
Internal	—		—		—			—
Total product sales	642		—		—			642
Total revenues	$	1,919	$	9	$	(4	)	$	1,924

Three Months Ended June 30, 2016
Segment revenues:
Service revenues
External	$	1,193	$	9	$	—		$	1,202
Internal	17		3		(20		)	—
Total service revenues	1,210		12		(20		)	1,202
Product sales
External	530		4		—			534
Internal	—		10		(10		)	—
Total product sales	530		14		(10		)	534
Total revenues	$	1,740	$	26	$	(30	)	$	1,736

Six Months Ended June 30, 2017
Segment revenues:
Service revenues
External	$	2,532	$	11	$	—		$	2,543
Internal	1		6		(7		)	—
Total service revenues	2,533		17		(7		)	2,543
Product sales