Edgar Filing: WILLIAMS COMPANIES INC

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller reporting company)

10-Q

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 September 30, 2015



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

For the transition period from _____________ to _____________

Commission file number 1-4174

THE WILLIAMS COMPANIES, INC.

(Exact name of registrant as specified in its charter)



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

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

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

NO CHANGE

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes ¨ No

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

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

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



Class		Shares Outstanding at October 26, 2015
Common Stock, $1 par value		749,764,737

The Williams Companies, Inc.

Index



		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations – Three and Nine Months Ended September 30, 2015 and 2014		7
Consolidated Statement of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, 2015 and 2014		8
Consolidated Balance Sheet – September 30, 2015 and December 31, 2014		9
Consolidated Statement of Changes in Equity – Nine Months Ended September 30, 2015		10
Consolidated Statement of Cash Flows – Nine Months Ended September 30, 2015 and 2014		11
Notes to Consolidated Financial Statements		12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 3. Quantitative and Qualitative Disclosures About Market Risk		60
Item 4. Controls and Procedures		61
Part II. Other Information		61
Item 1. Legal Proceedings		61
Item 1A. Risk Factors		62
Item 6. Exhibits		64

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 and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

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:


•	The status, expected timing and expected outcome of the proposed ETC Merger;


•	Statements regarding the proposed ETC Merger;


•	Our beliefs relating to value creation as a result of the proposed ETC Merger;


•	Benefits and synergies of the proposed ETC Merger;


•	Future opportunities for the combined company;


•	Other statements regarding Williams’ and Energy Transfer’s future beliefs, expectations, plans, intentions, financial condition or performance;


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


•	Levels of dividends to Williams stockholders;


•	Future credit ratings of Williams and WPZ;


•	Amounts and nature of future capital expenditures;


•	Expansion and growth of our business and operations;


•	Financial condition and liquidity;


•	Business strategy;


•	Cash flow from operations or results of operations;


•	Seasonality of certain business components;


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


•	Demand for our services.

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


•	Satisfaction of the conditions to the completion of the proposed ETC Merger, including receipt of the approval of Williams’ stockholders;


•	The timing and likelihood of completion of the proposed ETC Merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed merger that could reduce anticipated benefits or cause the parties to abandon the proposed transaction;


•	The possibility that the expected synergies and value creation from the proposed ETC Merger will not be realized or will not be realized within the expected time period;


•	The risk that the businesses of Williams and Energy Transfer will not be integrated successfully;


•	Disruption from the proposed ETC Merger making it more difficult to maintain business and operational relationships;


•	The risk that unexpected costs will be incurred in connection with the proposed ETC Merger;


•	The possibility that the proposed ETC Merger does not close, including due to the failure to satisfy the closing conditions;


•	Whether WPZ will produce sufficient cash flows to provide the level of cash distributions we expect;


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


•	Availability of supplies, market demand and volatility of prices;


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


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


•	Whether we are able to successfully identify, evaluate and execute investment opportunities;


•	Our ability to acquire new businesses and assets and successfully integrate those operations and assets into our existing businesses as well as successfully expand our facilities;


•	Development of alternative energy sources;


•	The impact of operational and developmental hazards and unforeseen interruptions;


•	Costs of, changes in, or the results of laws, government regulations (including safety and environmental regulations), environmental liabilities, litigation, and rate proceedings;


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


•	Changes in maintenance and construction costs;


•	Changes in the current geopolitical situation;


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


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


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


•	Risks associated with weather and natural phenomena, including climate conditions;


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


•	Additional risks described in our filings with the SEC.

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

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

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K filed with the SEC on February 25, 2015 and in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

DEFINITIONS

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

Measurements:

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

Bcf: One billion cubic feet of natural gas

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

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

Fahrenheit

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

Mbbls/d: One thousand barrels per day

Mdth/d: One thousand dekatherms per day

MMcf/d: One million cubic feet per day

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

MMdth/d: One million dekatherms per day

TBtu: One trillion British thermal units

Consolidated Entities:

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

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

Constitution: Constitution Pipeline Company, LLC

Gulfstar One: Gulfstar One LLC

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

Northwest Pipeline: Northwest Pipeline LLC

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

Transco: Transcontinental Gas Pipe Line Company, LLC

WPZ: Williams Partners L.P.

Partially Owned Entities: Entities in which we do not own a 100 percent ownership interest and which, as of September 30, 2015, we account for as an equity-method investment, including principally the following:

Aux Sable: Aux Sable Liquid Products LP

Bluegrass Pipeline: Bluegrass Pipeline Company LLC

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

Moss Lake: Moss Lake Fractionation LLC and Moss Lake LPG Terminal LLC

OPPL: Overland Pass Pipeline Company LLC

UEOM: Utica East Ohio Midstream LLC

Government and Regulatory:

EPA: Environmental Protection Agency

FERC: Federal Energy Regulatory Commission

SEC: Securities and Exchange Commission

Other:

Energy Transfer: Energy Transfer Equity, L.P.

ETC: Energy Transfer Corp LP

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

ETC Merger: Merger wherein Williams will be merged into ETC

CCR: Contingent consideration right

B/B Splitter: Butylene/Butane splitter

RGP Splitter: Refinery grade propylene splitter

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

GAAP: U.S. generally accepted accounting principles

IDR: Incentive distribution right

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

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

NGL margins: NGL revenues less Btu replacement cost, plant fuel, transportation, and fractionation

PDH facility: Propane dehydrogenation facility

PART I – FINANCIAL INFORMATION

The Williams Companies, Inc.

Consolidated Statement of Operations

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Millions, except per-share amounts)
Revenues:
Service revenues	$	1,239		$	1,127		$	3,677		$	2,771
Product sales	560			942			1,677			2,725
Total revenues	1,799			2,069			5,354			5,496
Costs and expenses:
Product costs	426			807			1,382			2,300
Operating and maintenance expenses	403			412			1,227			1,018
Depreciation and amortization expenses	432			369			1,287			797
Selling, general, and administrative expenses	177			171			547			457
Net insurance recoveries – Geismar Incident	—			—			(126		)	(161		)
Other (income) expense – net	5			3			62			47
Total costs and expenses	1,443			1,762			4,379			4,458
Operating income (loss)	356			307			975			1,038
Equity earnings (losses)	92			66			236			55
Gain on remeasurement of equity-method investment	—			2,522			—			2,522
Impairment of equity-method investments	(461		)	—			(461		)	—
Other investing income (loss) – net	18			11			27			43
Interest incurred	(280		)	(262		)	(831		)	(623		)
Interest capitalized	17			52			55			110
Other income (expense) – net	20			10			70			15
Income (loss) from continuing operations before income taxes	(238		)	2,706			71			3,160
Provision (benefit) for income taxes	(65		)	998			48			1,133
Income (loss) from continuing operations	(173		)	1,708			23			2,027
Income (loss) from discontinued operations	—			—			—			4
Net income (loss)	(173		)	1,708			23			2,031
Less: Net income (loss) attributable to noncontrolling interests	(133		)	30			(121		)	110
Net income (loss) attributable to The Williams Companies, Inc.	$	(40	)	$	1,678		$	144		$	1,921
Amounts attributable to The Williams Companies, Inc.:
Income (loss) from continuing operations	$	(40	)	$	1,678		$	144		$	1,917
Income (loss) from discontinued operations	—			—			—			4
Net income (loss)	$	(40	)	$	1,678		$	144		$	1,921
Basic earnings (loss) per common share:
Income (loss) from continuing operations	$	(.05	)	$	2.24		$	.19		$	2.70
Income (loss) from discontinued operations	—			—			—			—
Net income (loss)	$	(.05	)	$	2.24		$	.19		$	2.70
Weighted-average shares (thousands)	749,824			747,412			749,059			709,809
Diluted earnings (loss) per common share:
Income (loss) from continuing operations	$	(.05	)	$	2.22		$	.19		$	2.68
Income (loss) from discontinued operations	—			—			—			—
Net income (loss)	$	(.05	)	$	2.22		$	.19		$	2.68
Weighted-average shares (thousands)	749,824			752,064			752,621			714,119
Cash dividends declared per common share	$	.6400		$	.5600		$	1.8100		$	1.3875

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Millions)
Net income (loss)	$	(173	)	$	1,708		$	23		$	2,031
Other comprehensive income (loss):
Cash flow hedging activities:
Net unrealized gain (loss) from derivative instruments, net of taxes	6			—			6			—
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes	(4		)	—			(4		)	—
Foreign currency translation adjustments, net of taxes of $14 and $24 in 2015 and $13 and $5 in 2014, respectively	(74		)	(51		)	(159		)	(58		)
Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost, net of taxes of $1 and $2 in 2015 and $1 and $3 in 2014, respectively	—			(1		)	(2		)	(3		)
Amortization of actuarial (gain) loss included in net periodic benefit cost, net of taxes of ($5) and ($13) in 2015 and ($4) and ($11) in 2014, respectively	7			6			21			18
Other comprehensive income (loss)	(65		)	(46		)	(138		)	(43		)
Comprehensive income (loss)	(238		)	1,662			(115		)	1,988
Less: Comprehensive income (loss) attributable to noncontrolling interests	(157		)	12			(175		)	105
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	(81	)	$	1,650		$	60		$	1,883

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet

(Unaudited)



	September 30, 2015			December 31, 2014
	(Millions, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	125		$	240
Accounts and notes receivable – net:
Trade and other	704			972
Income tax receivable	6			167
Deferred income tax asset	73			67
Inventories	156			231
Other current assets and deferred charges	200			213
Total current assets	1,264			1,890
Investments	8,198			8,400
Property, plant, and equipment, at cost	38,761			36,435
Accumulated depreciation and amortization	(9,285		)	(8,354		)
Property, plant and equipment – net	29,476			28,081
Goodwill	1,145			1,120
Other intangible assets – net of accumulated amortization	10,053			10,453
Regulatory assets, deferred charges, and other	683			619
Total assets	$	50,819		$	50,563
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	726		$	865
Accrued liabilities	1,225			900
Commercial paper	1,530			798
Long-term debt due within one year	377			4
Total current liabilities	3,858			2,567
Long-term debt	21,805			20,888
Deferred income taxes	4,582			4,712
Other noncurrent liabilities	2,314			2,224
Contingent liabilities (Note 13)
Equity:
Stockholders’ equity:
Common stock (960 million shares authorized at $1 par value; 784 million shares issued at September 30, 2015 and 782 million shares issued at December 31, 2014)	784			782
Capital in excess of par value	14,833			14,925
Retained deficit	(6,764		)	(5,548		)
Accumulated other comprehensive income (loss)	(425		)	(341		)
Treasury stock, at cost (35 million shares of common stock)	(1,041		)	(1,041		)
Total stockholders’ equity	7,387			8,777
Noncontrolling interests in consolidated subsidiaries	10,873			11,395
Total equity	18,260			20,172
Total liabilities and equity	$	50,819		$	50,563

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, 2014	$	782	$	14,925		$	(5,548	)	$	(341	)	$	(1,041	)	$	8,777		$	11,395		$	20,172
Net income (loss)	—		—			144			—			—			144			(121		)	23
Other comprehensive income (loss)	—		—			—			(84		)	—			(84		)	(54		)	(138		)
Cash dividends – common stock	—		—			(1,356		)	—			—			(1,356		)	—			(1,356		)
Dividends and distributions to noncontrolling interests	—		—			—			—			—			—			(704		)	(704		)
Stock-based compensation and related common stock issuances, net of tax	2		66			—			—			—			68			—			68
Changes in ownership of consolidated subsidiaries, net	—		(158		)	—			—			—			(158		)	252			94
Contributions from noncontrolling interests	—		—			—			—			—			—			85			85
Other	—		—			(4		)	—			—			(4		)	20			16
Net increase (decrease) in equity	2		(92		)	(1,216		)	(84		)	—			(1,390		)	(522		)	(1,912		)
Balance – September 30, 2015	$	784	$	14,833		$	(6,764	)	$	(425	)	$	(1,041	)	$	7,387		$	10,873		$	18,260

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows

(Unaudited)



	Nine Months Ended September 30,
	2015			2014
	(Millions)
OPERATING ACTIVITIES:
Net income (loss)	$	23		$	2,031
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	1,287			797
Provision (benefit) for deferred income taxes	41			1,042
Impairment of equity-method investments	461			—
Amortization of stock-based awards	65			36
Gain on remeasurement of equity-method investment	—			(2,522		)
Cash provided (used) by changes in current assets and liabilities:
Accounts and notes receivable	374			(106		)
Inventories	76			(89		)
Other current assets and deferred charges	(6		)	(49		)
Accounts payable	(137		)	60
Accrued liabilities	(16		)	(126		)
Other, including changes in noncurrent assets and liabilities	(82		)	30
Net cash provided (used) by operating activities	2,086			1,104
FINANCING ACTIVITIES:
Proceeds from (payments of) commercial paper – net	727			39
Proceeds from long-term debt	6,885			6,134
Payments of long-term debt	(5,563		)	(864		)
Proceeds from issuance of common stock	27			3,414
Proceeds from sale of limited partner units of consolidated partnership	—			55
Dividends paid	(1,356		)	(986		)
Dividends and distributions paid to noncontrolling interests	(704		)	(509		)
Contributions from noncontrolling interests	85			260
Payments for debt issuance costs	(33		)	(40		)
Special distribution from Gulfstream	396			—
Other – net	42			24
Net cash provided (used) by financing activities	506			7,527
INVESTING ACTIVITIES:
Property, plant, and equipment:
Capital expenditures (1)	(2,425		)	(2,943		)
Net proceeds from dispositions	3			35
Purchases of businesses, net of cash acquired	(112		)	(5,958		)
Purchases of and contributions to equity-method investments	(529		)	(345		)
Distributions from unconsolidated affiliates in excess of cumulative earnings	251			165
Other – net	105			36
Net cash provided (used) by investing activities	(2,707		)	(9,010		)
Increase (decrease) in cash and cash equivalents	(115		)	(379		)
Cash and cash equivalents at beginning of year	240			681
Cash and cash equivalents at end of period	$	125		$	302
_________
(1) Increases to property, plant, and equipment	$	(2,311	)	$	(2,902	)
Changes in related accounts payable and accrued liabilities	(114		)	(41		)
Capital expenditures	$	(2,425	)	$	(2,943	)

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, 2014, in Exhibit 99.1 of our Form 8-K dated May 6, 2015. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.

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

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

Energy Transfer Merger Agreement

On September 28, 2015, we entered into an Agreement and Plan of Merger (Merger Agreement) with Energy Transfer Equity, L.P. (Energy Transfer) and certain of its affiliates. The Merger Agreement provides that we will be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger), with ETC surviving the ETC Merger. Energy Transfer formed ETC as a limited partnership that will be treated as a corporation for U.S. federal income tax purposes. ETC will be publicly traded on the New York Stock Exchange under the symbol “ETC.”

At the effective time of the ETC Merger, each issued and outstanding share of our common stock (except for certain shares such as those held by us or our subsidiaries and any held by ETC and its affiliates) will be canceled and automatically converted into the right to receive, at the election of each holder and subject to proration as set forth in the Merger Agreement:


•	1.8716 common shares representing limited partnership interests in ETC (ETC common shares) (Stock Consideration); or


•	$43.50 in cash (Cash Consideration); or


•	$8.00 in cash and 1.5274 ETC common shares (Mixed Consideration).

Elections to receive the Stock Consideration or the Cash Consideration will be subject to proration to ensure that the aggregate number of ETC common shares and the aggregate amount of cash paid in the ETC Merger will be the same as if all electing shares of our common stock received the Mixed Consideration. In addition, our stockholders will receive a special one-time dividend of $0.10 per share of Williams common stock, to be paid to holder of record immediately prior to the closing of the ETC Merger and contingent upon consummation of the ETC Merger.

In connection with the ETC Merger, Energy Transfer will subscribe for a number of ETC common shares at the transaction price, in exchange for the amount of cash needed by ETC to fund the cash portion of the merger consideration (the Parent Cash Deposit), and, as a result, based on the number of shares of Williams common stock outstanding as

Notes (Continued)

of the date thereof, will own approximately 19 percent of the outstanding ETC common shares immediately after the effective time of the ETC Merger.

Immediately following the completion of the ETC Merger and of the LE GP, LLC merger with and into Energy Transfer Equity GP, LLC, ETC will contribute to Energy Transfer all of the assets and liabilities of Williams in exchange for the issuance by Energy Transfer to ETC of a number of Energy Transfer Class E common units equal to the number of ETC common shares issued to our stockholders in the ETC Merger plus the number of ETC common shares issued to Energy Transfer in consideration for the Parent Cash Deposit (such contribution, together with the ETC Merger and the other transactions contemplated by the Merger Agreement, the Transactions).

To address potential uncertainty as to how the newly listed ETC common shares, as a new security, will trade relative to Energy Transfer common units, each ETC common share issued in the ETC Merger, as well as the ETC common shares issued to Energy Transfer in connection with the Parent Cash Deposit, will have attached to it one contingent consideration right (CCR). The terms of the CCRs are fully described in the form of CCR Agreement attached to the Merger Agreement as Exhibit H to Exhibit 2.1 of our Current Report on Form 8-K dated September 29, 2015.

The receipt of the merger consideration is expected to be tax-free to our stockholders, except with respect to any cash consideration received.

Completion of the Transactions is subject to the satisfaction or waiver of a number of customary closing conditions as set forth in the Merger Agreement, including approval of the ETC Merger by our stockholders, receipt of required regulatory approvals in connection with the Transactions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and effectiveness of a registration statement on Form S-4 registering the ETC common shares (and attached CCRs) to be issued in connection with the Transactions.

Termination of WPZ Merger Agreement

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

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

ACMP Merger

On February 2, 2015, we completed the merger of our consolidated master limited partnerships, Williams Partners L.P. (Pre-merger WPZ) and Access Midstream Partners, L.P. (ACMP) (ACMP Merger). The merged partnership is named Williams Partners L.P. Under the terms of the merger agreement, each ACMP unitholder received 1.06152 ACMP units for each ACMP unit owned immediately prior to the ACMP Merger. In conjunction with the ACMP Merger, each Pre-merger WPZ common unit held by the public was exchanged for 0.86672 ACMP common units. Each Pre-merger WPZ common unit held by us was exchanged for 0.80036 ACMP common units. Prior to the closing of the ACMP Merger, the Class D limited partner units of Pre-merger WPZ, all of which were held by us, were converted into WPZ common units on a one-for-one basis pursuant to the terms of the WPZ partnership agreement. Following the ACMP Merger, we own approximately 60 percent of the merged partnership, including the general partner interest and IDRs. In this report, we refer to the post-merger partnership as “WPZ” and the pre-merger entities as “Pre-merger WPZ” and “ACMP.”

Notes (Continued)

Description of Business

Our operations are located principally in the United States and are organized into the Williams Partners and Williams NGL & Petchem Services reportable segments. All remaining business activities are included in Other. For periods after the ACMP Acquisition (see Note 2 – Acquisitions), the former Access Midstream segment is reported within Williams Partners. For periods prior to the ACMP Acquisition, the results associated with our former equity-method investment in Access Midstream are reported within Other. Prior periods segment disclosures have been recast.

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., and a 41 percent interest in Constitution Pipeline Company, LLC (Constitution) (a consolidated entity).

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

The midstream businesses include equity-method investments in natural gas gathering and processing assets and NGL fractionation and transportation assets, including a 62 percent equity-method investment in Utica East Ohio Midstream, LLC (UEOM), a 50 percent equity-method investment in the Delaware basin gas gathering system in the Mid-Continent region, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC, a 58 percent equity-method investment in Caiman Energy II, LLC, a 60 percent equity-method investment in Discovery Producer Services LLC, a 50 percent equity-method investment in Overland Pass Pipeline, LLC, and Appalachia Midstream Services, LLC, which owns an approximate average 45 percent equity-method investment interest in 11 gas gathering systems in the Marcellus Shale (Appalachia Midstream Investments).

The midstream businesses also include our Canadian midstream operations, which are comprised of an oil sands offgas processing plant near Fort McMurray, Alberta, an NGL/olefin fractionation facility and butylene/butane splitter facility at Redwater, Alberta, and the Boreal Pipeline.

Williams NGL & Petchem Services

Williams NGL & Petchem Services includes certain other domestic olefins pipeline assets and certain Canadian growth projects under development (including a propane dehydrogenation facility and a liquids extraction plant).

Other

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

Basis of Presentation

Consolidated master limited partnership

As of September 30, 2015, we own approximately 60 percent of the interests in WPZ, including the interests of the general partner, which are wholly owned by us, and IDRs.

Notes (Continued)

The previously described ACMP Merger and other equity issuances by WPZ had the combined net impact of increasing Noncontrolling interests in consolidated subsidiaries by $252 million and decreasing Capital in excess of par value by $158 million and Deferred income taxes by $94 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 10 – Debt and Banking Arrangements.) Cash distributions from WPZ to us, including any associated with our IDRs, occur through the normal partnership distributions from WPZ to all partners.

Discontinued operations

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

Accounting standards issued but not yet adopted

In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (ASU 2015-16). ASU 2015-16 requires an entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined; record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date; and present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The new standard is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted for financial statements that have not been issued. We do not expect the new standard will have a significant impact on our consolidated financial statements.

In August 2015, the FASB issued ASU 2015-15 “Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” (ASU 2015-15). In ASU 2015-15 the FASB stated that the guidance in ASU 2015-03 did not address the presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements, and entities are permitted to defer and present debt issuance costs related to line-of-credit arrangements as assets. The new standard is effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, and requires retrospective presentation, concurrent with ASU 2015-03. We do not expect the new standard will have a material impact on our consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11 “Simplifying the Measurement of Inventory” (ASU 2015-11). ASU 2015-11 simplifies the guidance on the subsequent measurement of inventory, excluding inventory measured using last-in, first out or the retail inventory method. Under the new standard, in scope inventory should be measured at the lower of cost and net realizable value. The new standard is effective for interim and annual periods beginning after December 15, 2016, with early adoption permitted. We are evaluating the impact of the new standard on our consolidated financial statements and our timing for adoption.

In May 2015, the FASB issued ASU 2015-07 “Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (ASU 2015-07). ASU 2015-07 removes from the fair value hierarchy investments measured using the net asset value per share (or its equivalent) practical expedient. The standard primarily impacts certain investments included in our employee benefit plans. The standard is effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, and requires retrospective presentation. Early adoption is permitted. We are evaluating the impact of the new standard on our consolidated financial statements and our timing for adoption.

In April 2015, the FASB issued ASU 2015-03 “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring

Notes (Continued)

such costs be presented as a deduction from the corresponding debt liability. The standard is effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, and requires retrospective presentation. Adoption of this standard would result in the presentation of $125 million and $108 million of debt issuance costs as of September 30, 2015 and December 31, 2014, respectively, as a direct reduction from debt in our consolidated balance sheet. The standard will have no impact on our consolidated statements of income and cash flows.

In February 2015, the FASB issued ASU 2015-02 “Amendments to the Consolidation Analysis” (ASU 2015-02). ASU 2015-02 alters the models used to determine consolidation conclusions for certain entities, including limited partnerships, and may require additional disclosures. The standard is effective for financial statements issued for interim and annual reporting periods beginning after December 15, 2015, with either retrospective or modified retrospective presentation allowed. We are evaluating the impact of the new standard on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 establishing Accounting Standards Codification 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 both the impact of this new standard on our consolidated financial statements and the transition method we will utilize for adoption.

Note 2 – Acquisitions

ACMP

We acquired control of ACMP on July 1, 2014 (ACMP Acquisition). Our basis in ACMP reflects business combination accounting, which, among other things, requires identifiable assets acquired and liabilities assumed to be measured at their acquisition-date fair values.

The following table presents the allocation of the acquisition-date fair value of the major classes of the assets acquired, which are presented in the Williams Partners segment, liabilities assumed, and noncontrolling interest at July 1, 2014. Changes to the preliminary allocation disclosed in Exhibit 99.1 of our Form 8-K dated May 6, 2015, which were recorded in the first quarter of 2015, reflect an increase of $150 million in Property, plant, and equipment and $25 million in Goodwill, and a decrease of $168 million in Other intangible assets and $7 million in Investments. These adjustments during the measurement period were not considered significant to require retrospective revisions of our financial statements.



	(Millions)
Accounts receivable	$	168
Other current assets	63
Investments	5,865
Property, plant, and equipment	7,165
Goodwill	499
Other intangible assets	8,841
Current liabilities	(408		)
Debt	(4,052		)
Other noncurrent liabilities	(9		)
Noncontrolling interest in ACMP’s subsidiaries	(958		)
Noncontrolling interest in ACMP	(6,544		)

Notes (Continued)

Eagle Ford Gathering System

In May 2015, WPZ acquired a gathering system comprised of approximately 140 miles of pipeline and a sour gas compression facility in the Eagle Ford shale for $112 million. The acquisition was accounted for as a business combination, and the preliminary allocation of the acquisition-date fair value of the major classes of assets acquired includes $80 million of Property, plant, and equipment, at cost and $32 million of Other intangible assets – net of accumulated amortization in the Consolidated Balance Sheet. Changes to the preliminary allocation disclosed in the second quarter of 2015 reflect an increase of $20 million in Property, plant, and equipment, at cost, and a decrease of $20 million in Other intangible assets – net of accumulated amortization.

UEOM Equity-Method Investment

In June 2015, WPZ acquired an approximate 13 percent additional equity interest in its equity-method investment, UEOM, for $357 million. Following the acquisition WPZ owns approximately 62 percent of UEOM. However, WPZ continues to account for this as an equity-method investment because WPZ does not control UEOM due to the significant participatory rights of its partner. In connection with the acquisition of the additional interest, we have agreed to waive approximately $2 million of our WPZ IDR payments each quarter through 2017.

Note 3 – Variable Interest Entities

As of September 30, 2015, we consolidate the following variable interest entities (VIEs):

Gulfstar One

WPZ owns a 51 percent interest in Gulfstar One LLC (Gulfstar One), a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines which provide production handling and gathering services for the Tubular Bells oil and gas discovery in the eastern deepwater Gulf of Mexico. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Gulfstar One’s economic performance. Construction of an expansion project is underway that will provide production handling and gathering services for the Gunflint oil and gas discovery in the eastern deepwater Gulf of Mexico. The expansion project is expected to be in service in the first half of 2016. The current estimate of the total remaining construction cost for the expansion project is approximately $145 million, which is expected to be funded with revenues received from customers and capital contributions from WPZ and the other equity partner on a proportional basis.

Constitution

WPZ owns a 41 percent interest in Constitution, a subsidiary that, due to shipper fixed-payment commitments under its long-term firm transportation contracts, is a VIE. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Constitution’s economic performance. WPZ, as construction manager for Constitution, is building a pipeline connecting its gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems. WPZ plans to place the project in service in the fourth quarter of 2016 and estimates the total remaining construction cost of the project to be approximately $598 million, which is expected to be funded with capital contributions from WPZ and the other equity partners on a proportional basis.

Cardinal

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

Notes (Continued)

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.

The following table presents amounts included in our Consolidated Balance Sheet that are for the use or obligation of our consolidated VIEs.



	September 30, 2015			December 31, 2014			Classification
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	81		$	113		Cash and cash equivalents
Accounts receivable	53			52			Accounts and notes receivable – net, Trade and other
Other current assets	2			3			Other current assets and deferred charges
Property, plant and equipment – net	2,937			2,794			Property, plant and equipment – net
Goodwill	107			103			Goodwill
Other intangible assets – net	1,448			1,493			Other intangible assets – net of accumulated amortization
Other noncurrent assets	—			14			Regulatory assets, deferred charges, and other
Accounts payable	(39		)	(48		)	Accounts payable
Accrued liabilities	(11		)	(36		)	Accrued liabilities
Current deferred revenue	(62		)	(45		)	Accrued liabilities
Noncurrent deferred income taxes	—			(13		)	Deferred income taxes
Asset retirement obligation	(92		)	(94		)	Other noncurrent liabilities
Noncurrent deferred revenue associated with customer advance payments	(342		)	(395		)	Other noncurrent liabilities

Note 4 – Investing Activities

Investing Income

During the third quarter of 2015, we recognized other-than-temporary pre-tax impairment charges of $458 million and $3 million related to WPZ’s equity-method investments in the Delaware basin gas gathering system and certain of the Appalachia Midstream Investments, respectively (see Note 12 – Fair Value Measurements and Guarantees.) We also recognized a loss of $16 million within Equity earnings (losses) in the Consolidated Statement of Operations associated with our share of underlying property impairments at certain of the Appalachia Midstream Investments. These items are reported within the Williams Partners segment.

Gain on remeasurement of equity-method investment

Gain on remeasurement of equity-method investment of $2.522 billion for the three and nine months ended September 30, 2014, is a result of remeasuring our equity-method investment in ACMP to a preliminary acquisition-date fair value of $4.6 billion when we obtained control and consolidated ACMP following the ACMP Acquisition.

Notes (Continued)

Equity earnings (losses)

Equity earnings (losses) for the three and nine months ended September 30, 2014, include $19 million of equity losses associated with our share of certain compensation-related costs at ACMP that were triggered by the ACMP Acquisition.

Equity earnings (losses) for the nine months ended September 30, 2014, include $70 million of losses reported within Williams NGL & Petchem Services related to the write-off of previously capitalized project development costs by Bluegrass Pipeline, Moss Lake Fractionation LLC, and Moss Lake LPG Terminal LLC after our management decided to discontinue further funding of the projects. These entities were dissolved in the fourth quarter of 2014.

Interest income and other

The three and nine months ended September 30, 2015, include $18 million and $27 million, respectively, and the three and nine months ended September 30, 2014, include $14 million and $41 million, respectively, of interest income associated with a receivable related to the sale of certain former Venezuela assets reflected in Other investing income (loss) – net in the Consolidated Statement of Operations. Due to changes in circumstances that led to late payments and increased uncertainty regarding the recovery of the receivable, we began accounting for the receivable under a cost recovery model in first quarter 2015. Subsequently, we received payments greater than the remaining carrying amount of the receivable, which resulted in the recognition of interest income.

Investments

Accrued liabilities in the Consolidated Balance Sheet reflects a special distribution WPZ received on September 24, 2015, of $396 million from Gulfstream related to WPZ’s proportional share of proceeds from new debt issued by Gulfstream. The new debt was issued to refinance Gulfstream’s current debt maturities and WPZ will contribute its proportional share of amounts necessary to fund those current debt maturities when due.

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 September 30,					Nine Months Ended September 30,
	2015		2014			2015		2014
	(Millions)
Williams Partners
Amortization of regulatory assets associated with asset retirement obligations	$	8	$	8		$	25	$	25
Impairment of certain assets (See Note 12)	2		—			29		17
Net gain related to partial acreage dedication release	—		(12		)	—		(12		)

Geismar Incident

On June 13, 2013, an explosion and fire occurred at Williams Partners’ Geismar olefins plant. The incident rendered the facility temporarily inoperable (Geismar Incident).

We received $126 million and $175 million of insurance recoveries related to the Geismar Incident during the nine months ended September 30, 2015 and 2014, respectively. The nine months ended September 30, 2014, also includes $14 million of related covered insurable expenses incurred in excess of our retentions (deductibles). These amounts are reported within Williams Partners and reflected as a net gain in Net insurance recoveries – Geismar Incident in the Consolidated Statement of Operations.

Notes (Continued)

Since June 2013, we have settled claims associated with $480 million of available property damage and business interruption coverage for a total of $422 million.

ACMP Acquisition & Merger

Certain ACMP Acquisition and ACMP Merger costs included in Selling, general, and administrative expenses, Operating and maintenance expenses, and Interest incurred are as follows:


•	Selling, general, and administrative expenses includes $26 million for the nine months ended September 30, 2015, and $17 million and $19 million for the three and nine months ended September 30, 2014, respectively, primarily related to professional advisory fees associated with the ACMP Acquisition and ACMP Merger, reported within the Williams Partners segment.

•

Selling, general, and administrative expenses for the three and nine months ended September 30, 2015, also includes $1 million and $9 million, respectively, of related employee transition costs reported within the Williams Partners segment, in addition to $7 million and $20 million, respectively, of general corporate expenses associated with integration and re-alignment of resources. Selling, general, and administrative expenses for the three and nine months ended September 30, 2014, also includes $4 million of related employee transition costs reported within the Williams Partners segment, in addition to $3 million of general corporate expenses associated with integration and re-alignment of resources.


•	Operating and maintenance expenses includes $10 million for the nine months ended September 30, 2015, and $3 million for the three and nine months ended September 30, 2014, of transition costs reported within the Williams Partners segment.


•	Interest incurred includes $2 million for the nine months ended September 30, 2015, and $9 million for the nine months ended September 30, 2014, of transaction-related financing costs.

Additional Items

Selling, general, and administrative expenses includes $18 million and $25 million for the three and nine months ended September 30, 2015, respectively, of costs associated with our evaluation of strategic alternatives.

The nine months ended September 30, 2014, includes $19 million of project development costs related to the Bluegrass Pipeline Company LLC (Bluegrass Pipeline) reported within Williams NGL & Petchem Services and reflected in Selling, general, and administrative expenses in the Consolidated Statement of Operations.

The three and nine months ended September 30, 2015, include $21 million and $57 million, respectively, and the three and nine months ended September 30, 2014, include $10 million and $20 million, respectively, of allowance for equity funds used during construction (AFUDC) reported within Williams Partners in Other income (expense) – net below Operating income (loss). AFUDC increased during 2015 due to the increase in spending on various Transco expansion projects and Constitution.

Other income (expense) – net below Operating income (loss) includes a $14 million gain for the nine months ended September 30, 2015, resulting from the early retirement of certain debt.

Notes (Continued)

Note 6 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Millions)
Current:
Federal	$	—		$	(15	)	$	—		$	98
State	—			(2		)	1			2
Foreign	2			2			6			7
	2			(15		)	7			107
Deferred:
Federal	(60		)	911			38			910
State	(6		)	98			(4		)	103
Foreign	(1		)	4			7			13
	(67		)	1,013			41			1,026

Total provision (benefit)	$	(65	)	$	998		$	48		$	1,133

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

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

The effective income tax rate for the total provision for the three months ended September 30, 2014, is greater than the federal statutory rate primarily due to the effect of state income taxes, partially offset by taxes on foreign operations and the impact of nontaxable noncontrolling interests.

The effective income tax rate for the total provision for the nine months ended September 30, 2014, is greater than the federal statutory rate primarily due to the effect of state income taxes and taxes on foreign operations, partially offset by a tax benefit related to the contribution of certain Canadian operations to WPZ in the first quarter of 2014 and the impact of nontaxable noncontrolling interests.

The federal and state income tax provisions for the three and nine months ended September 30, 2014 include the tax effect of a $2.5 billion gain associated with remeasuring our equity-method investment to fair value as a result of the ACMP Acquisition. (See Note 4 – Investing Activities.)

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 from Continuing Operations



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
	(Dollars in millions, except per-share amounts; shares in thousands)
Income (loss) from continuing operations attributable to The Williams Companies, Inc. available to common stockholders for basic and diluted earnings (loss) per common share	$	(40	)	$	1,678	$	144	$	1,917
Basic weighted-average shares	749,824			747,412		749,059		709,809
Effect of dilutive securities:
Nonvested restricted stock units	—			2,424		1,900		2,205
Stock options	—			2,210		1,662		2,087
Convertible debentures	—			18		—		18
Diluted weighted-average shares (1)	749,824			752,064		752,621		714,119
Earnings (loss) per common share from continuing operations:
Basic	$	(.05	)	$	2.24	$	.19	$	2.70
Diluted	$	(.05	)	$	2.22	$	.19	$	2.68


(1)	For the three months ended September 30, 2015, 1.7 million weighted-average nonvested restricted stock units and 1.5 million weighted-average stock options have been excluded from the computation of diluted earnings per common share as their inclusion would be antidilutive due to our loss from continuing operations attributable to The Williams Companies, Inc.

Note 8 – Employee Benefit Plans

Net periodic benefit cost (credit) is as follows:



	Pension Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Millions)
Components of net periodic benefit cost:
Service cost	$	15		$	10		$	44		$	30
Interest cost	14			15			43			46
Expected return on plan assets	(19		)	(19		)	(56		)	(57		)
Amortization of net actuarial loss	11			10			32			29
Net actuarial loss from settlements	1			—			1			—
Net periodic benefit cost	$	22		$	16		$	64		$	48

Notes (Continued)



	Other Postretirement Benefits
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	—		$	—		$	1		$	1
Interest cost	3			2			7			7
Expected return on plan assets	(3		)	(3		)	(9		)	(9		)
Amortization of prior service credit	(4		)	(5		)	(12		)	(15		)
Amortization of net actuarial loss	—			—			1			—
Reclassification to regulatory liability	1			1			3			3
Net periodic benefit cost (credit)	$	(3	)	$	(5	)	$	(9	)	$	(13	)

Amortization of prior service credit and net actuarial loss included in net periodic benefit cost (credit) for our other postretirement benefit plans associated with Transco and Northwest Pipeline are recorded to regulatory assets/liabilities instead of other comprehensive income (loss). The amounts of amortization of prior service credit recognized in regulatory liabilities were $3 million for the three months ended September 30, 2015 and 2014, respectively, and $8 million and $9 million for the nine months ended September 30, 2015 and 2014, respectively.

During the nine months ended September 30, 2015, we contributed $63 million to our pension plans and $5 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $2 million to our pension plans and approximately $1 million to our other postretirement benefit plans in the remainder of 2015.

Note 9 – Inventories



	September 30, 2015		December 31, 2014
	(Millions)
Natural gas liquids, olefins, and natural gas in underground storage	$	84	$	150
Materials, supplies, and other	72		81
	$	156	$	231

Note 10 – Debt and Banking Arrangements

Long-Term Debt

Issuances and retirements

On April 15, 2015, WPZ paid $783 million, including a redemption premium, to early retire $750 million of 5.875 percent senior notes due 2021 with a carrying value of $797 million.

On March 3, 2015, WPZ completed a public offering of $1.25 billion of 3.6 percent senior unsecured notes due 2022, $750 million of 4 percent senior unsecured notes due 2025, and $1 billion of 5.1 percent senior unsecured notes due 2045. WPZ used the net proceeds to repay amounts outstanding under its commercial paper program and credit facility, to fund capital expenditures, and for general partnership purposes.

WPZ retired $750 million of 3.8 percent senior unsecured notes that matured on February 15, 2015.

Notes (Continued)

Commercial Paper Program

As of September 30, 2015, WPZ had $1.53 billion of Commercial paper outstanding under its $3 billion commercial paper program with a weighted average interest rate of 0.56 percent.

Credit Facilities

On August 26, 2015, WPZ entered into a Credit Agreement providing for a $1.0 billion short-term credit facility with a maturity date of August 24, 2016.

The agreement governing this credit facility contains the following terms and conditions:


•	This facility becomes available when the aggregate amount of outstanding loans under WPZ’s long-term credit facility plus outstanding commercial paper borrowings reach a total of $3.5 billion.

•

Various covenants that limit, among other things, a borrower’s and its respective material subsidiaries’ ability to grant certain liens supporting indebtedness, a borrower’s ability to merge or consolidate, sell all or substantially all of its assets in certain circumstances, enter into certain affiliate transactions, make certain distributions during an event of default, enter into certain restrictive agreements and allow any material change in the nature of its business.


•	If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments and accelerate the maturity of the loans and exercise other rights and remedies.

•

Each time funds are borrowed under the credit facility, the borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternate base rate plus an applicable margin, or a periodic fixed rate equal to LIBOR plus an applicable margin. The borrower is required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin and the commitment fee are determined by reference to a pricing schedule based on the borrower’s senior unsecured long-term debt ratings.

The significant financial covenant requires the ratio of debt to EBITDA, each as defined in the credit agreement, as of the last day of any fiscal quarter for which financial statements have been delivered to be no greater than 6.0 to 1.0. WPZ is in compliance with this financial covenant at September 30, 2015.

On February 3, 2015, WPZ entered into a $1.5 billion short-term credit facility. In accordance with its terms, this facility terminated on March 3, 2015, upon the completion of the previously described debt offering. WPZ did not borrow under this credit facility.

Notes (Continued)

On February 2, 2015, we entered into a Credit Agreement with aggregate commitments remaining at $1.5 billion, and the credit facilities for Pre-merger WPZ and ACMP were terminated in connection with the ACMP Merger. WPZ also entered into a $3.5 billion credit facility.



	September 30, 2015
	Stated Capacity		Outstanding
	(Millions)
WMB
Loans	$	1,500	$	375
Swingline loans sublimit	50		—
Letters of credit sublimit	675		—
Letters of credit under certain bilateral bank agreements			14
WPZ
Long-term credit facility:
Loans (1)	3,500		500
Swingline loans sublimit	150		—
Letters of credit sublimit	1,125		—
Letters of credit under certain bilateral bank agreements			3
Short-term credit facility	1,000		—


(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 11 – Stockholders’ Equity

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



	Cash Flow Hedges			Foreign Currency Translation			Pension and Other Post Retirement Benefits			Total
	(Millions)
Balance at December 31, 2014	$	(1	)	$	31		$	(371	)	$	(341	)
Other comprehensive income (loss) before reclassifications	3			(103		)	—			(100		)
Amounts reclassified from accumulated other comprehensive income (loss)	(3		)	—			19			16
Other comprehensive income (loss)	—			(103		)	19			(84		)
Balance at September 30, 2015	$	(1	)	$	(72	)	$	(352	)	$	(425	)

Notes (Continued)

Reclassifications out of Accumulated other comprehensive income (loss) are presented in the following table by component for the nine months ended September 30, 2015:




Component	Reclassifications			Classification
	(Millions)
Cash flow hedges:
Energy commodity contracts	$	(3	)	Product sales
Total cash flow hedges	(3		)

Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost	(4		)	Note 8 – Employee Benefit Plans
Amortization of actuarial (gain) loss included in net periodic benefit cost	34			Note 8 – Employee Benefit Plans
Total pension and other postretirement benefits, before income taxes	30

Reclassifications before income tax	27
Income tax benefit	(11		)	Provision (benefit) for income taxes
Reclassifications during the period	$	16

Notes (Continued)

Note 12 – 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 September 30, 2015:
Measured on a recurring basis:
ARO Trust investments	$	63		$	63		$	63	$	—		$	—
Energy derivatives assets designated as hedging instruments	4			4			—		4			—
Energy derivatives assets not designated as hedging instruments	3			3			—		1			2
Energy derivatives liabilities not designated as hedging instruments	(2		)	(2		)	—		—			(2		)
Additional disclosures:
Notes receivable and other	8			12			6		2			4
Long-term debt, including current portion (1)	(22,180		)	(20,010		)	—		(20,010		)	—
Guarantee	(30		)	(17		)	—		(17		)	—

Assets (liabilities) at December 31, 2014:
Measured on a recurring basis:
ARO Trust investments	$	48		$	48		$	48	$	—		$	—
Energy derivatives assets not designated as hedging instruments	3			3			1		—			2
Energy derivatives liabilities not designated as hedging instruments	(2		)	(2		)	—		—			(2		)
Additional disclosures:
Notes receivable and other	30			57			—		4			53
Long-term debt, including current portion (1)	(20,887		)	(21,131		)	—		(21,131		)	—
Guarantee	(31		)	(27		)	—		(27		)	—

___________________________________

(1) Excludes capital leases.

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

Reclassifications of fair value between Level 1, Level 2, and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter. No transfers between Level 1 and Level 2 occurred during the nine months ended September 30, 2015 or 2014.

Additional fair value disclosures

Notes receivable and other: Notes receivable and other consists of various notes, including a receivable related to the sale of certain former Venezuela assets. The disclosed fair value of this receivable is determined by an income approach. We calculated the net present value of a probability-weighted set of cash flows utilizing assumptions based on contractual terms, historical payment patterns by the counterparty, future probabilities of default, our likelihood of using arbitration if the counterparty does not perform, and discount rates. We determined the fair value of the receivable to be $4 million at September 30, 2015. We began accounting for the receivable under a cost recovery model in first-quarter 2015. Subsequently, we received a payment greater than the carrying amount of the receivable and as a result, the carrying value of this receivable is zero at September 30, 2015. See Note 4 – Investing Activities for interest income associated with this receivable. The current and noncurrent portions of our receivables are reported in Accounts and notes receivable – net, Other current assets and deferred charges, and Regulatory assets, deferred charges, and other, respectively, in the Consolidated Balance Sheet.

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

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

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

Assets measured at fair value on a nonrecurring basis

We recorded impairment charges for the nine months ended September 30, 2015, of $20 million for our Williams Partners segment associated with certain surplus equipment reported in Property, plant, and equipment, at cost in the Consolidated Balance Sheet. The estimated fair value of this equipment at the assessment date was $17 million. The estimated fair value was determined by a market approach based on our analysis of observable inputs in the principal market. These impairment charges are recorded in Other (income) expense – net within Costs and expenses in the Consolidated Statement of Operations. These nonrecurring fair value measurements fall within Level 3 of the fair value hierarchy. Certain of these assets were previously presented as held for sale, but are now reported as held for use.

During the third quarter of 2015, we recognized other-than-temporary pre-tax impairment charges of $458 million and $3 million related to WPZ’s equity-method investments in the Delaware basin gas gathering system and certain of the Appalachia Midstream Investments, respectively, reflected within Impairment of equity-method investments in the Consolidated Statement of Operations. The historical carrying value of these investments was initially recorded based

Notes (Continued)

on estimated fair value during the third quarter of 2014 in conjunction with the ACMP Acquisition. For these Level 3 measurements, we estimated the fair value of these investments as of September 30, 2015, 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 were 11.8 percent and 8.8 percent for the Delaware basin gas gathering system and certain of the Appalachia Midstream Investments, respectively, and reflected recent increases in our cost of capital driven by market conditions and risks associated with the underlying businesses. The fair values of the Delaware basin gas gathering system and certain of the Appalachia Midstream Investments measured as of September 30, 2015, were estimated to be approximately $1.02 billion and $185 million, respectively.

Guarantees

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

Regarding our previously described guarantee of WilTel’s lease performance, the maximum potential exposure is approximately $33 million at September 30, 2015. Our exposure declines systematically throughout the remaining term of WilTel’s obligation.

Note 13 – Contingent Liabilities

Reporting of Natural Gas-Related Information to Trade Publications

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

Because of the uncertainty around the remaining pending unresolved issues, including an insufficient description of the purported classes and other related matters, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in future charges 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

As a result of the previously discussed Geismar Incident, there were two fatalities and numerous individuals (including employees and contractors) reported injuries, which varied from minor to serious. We are addressing the following matters in connection with the Geismar Incident.

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

Multiple lawsuits, including class actions for alleged offsite impacts, property damage, customer claims, and personal injury, have been filed against us. To date, we have settled certain of the personal injury claims for an aggregate immaterial amount that we have recovered from our insurers. The trial for certain plaintiffs claiming personal injury, that was set to begin on June 15, 2015 in Iberville Parish, Louisiana, has been postponed to September 6, 2016. We

Notes (Continued)

believe it is probable that additional losses will be incurred on some lawsuits, while for others we believe it is only reasonably possible that losses will be incurred. However, due to ongoing litigation involving defenses to liability, the number of individual plaintiffs, limited information as to the nature and extent of all plaintiffs’ damages, and the ultimate outcome of all appeals, we are unable to reliably estimate any such losses at this time. We believe that it is probable that any ultimate losses incurred will be covered by our general liability insurance policy, which has an aggregate annual limit of $610 million and retention (deductible) of $2 million per occurrence.

Alaska Refinery Contamination Litigation

In 2010, James West filed a class action lawsuit in state court in Fairbanks, Alaska on behalf of individual property owners whose water contained sulfolane contamination allegedly emanating from the Flint Hills Oil Refinery in North Pole, Alaska. The suit named our subsidiary, Williams Alaska Petroleum Inc. (WAPI), and Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., as defendants. We owned and operated the refinery until 2004 when we sold it to FHRA. We and FHRA made claims under the pollution liability insurance policy issued in connection with the sale of the North Pole refinery to FHRA. We and FHRA also filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination.

In 2011, we and FHRA settled the James West claim. We and FHRA subsequently filed motions for summary judgment on the other’s claims. On July 8, 2014, the court dismissed all FHRA’s claims and entered judgment for us. On August 6, 2014, FHRA appealed the court’s decision to the Alaska Supreme Court.

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

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

Independent of the litigation matter described in the preceding paragraphs, in 2013, the Alaska Department of Environmental Conservation (ADEC) 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. On March 6, 2014, the State of Alaska filed suit against FHRA and us in state court in Fairbanks seeking injunctive relief and damages in connection with the sulfolane contamination. On May 5, 2014, FHRA filed cross-claims against us in the State of Alaska suit, and FHRA also seeks injunctive relief and damages. 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.

Shareholder Litigation

In July 2015, a purported stockholder of us filed a putative class and derivative action on behalf of us in the Court of Chancery of the State of Delaware. The action names as defendants certain members of our Board of Directors (Individual Defendants), as well as WPZ, and names us as a nominal defendant. Among other things, the action seeks to enjoin the Acquisition of WPZ Public Units and seeks monetary damages, including the repayment of the termination fee that became payable by us due to the termination of the merger agreement for the Acquisition of WPZ Public Units (see Note 1 - General, Description of Business, and Basis of Presentation). The action alleges, among other things, that the Individual Defendants breached their fiduciary duties owed to us and our stockholders by failing to adequately evaluate an unsolicited proposal to acquire us in an all-equity transaction and by putting their personal interests ahead of the interests of us and our stockholders in connection with that unsolicited proposal. The action further alleges that WPZ aided and abetted the alleged breaches. We cannot reasonably estimate a range of potential loss at this time.

Notes (Continued)

Purported stockholders of us have filed various putative class actions in the Court of Chancery of the State of Delaware. Some cases name as defendants all of the individual members of our Board of Directors, Energy Transfer, and us, among others. One other case only names as defendants all of the individual members of our Board of Directors and Energy Transfer, among others. The actions allege, among other things, that the Directors breached their fiduciary duties by approving the merger into the Energy Transfer family of companies, claiming it to be the product of a flawed process that undervalues us and deprives the stockholders of the ability to participate in our long-term prospects. The actions further allege that we and/or Energy Transfer aided and abetted the Directors in their alleged breaches of fiduciary duties. The actions seek to enjoin the merger or, in the alternative, to rescind the merger. We cannot reasonably estimate a range of potential loss at this time.

Royalty Matters

Certain of our customers, including one major customer, have been named in various lawsuits alleging underpayment of royalties. In certain of these cases, we have also been named as a defendant based on allegations that we improperly participated with that major customer in causing the alleged royalty underpayments. We have also received subpoenas from the United States Department of Justice and the Pennsylvania Attorney General requesting documents relating to the agreements between us and our major customer and calculations of the major customer’s royalty payments. We believe that the claims asserted to date 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 liability at this time.

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 September 30, 2015, we have accrued liabilities totaling $41 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 emission limits, and new air quality standards impacting 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 September 30, 2015, we have accrued liabilities of $8 million for these costs. We expect that these costs will be recoverable through rates.

Notes (Continued)

We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At September 30, 2015, we have accrued liabilities totaling $7 million for these costs.

Former operations, including operations classified as discontinued

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


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


•	Former petroleum products and natural gas pipelines;


•	Former petroleum refining facilities;


•	Former exploration and production and mining operations;


•	Former electricity and natural gas marketing and trading operations.

At September 30, 2015, we have accrued environmental liabilities of $26 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 September 30, 2015, 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 14 – Segment Disclosures

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

Notes (Continued)

Performance Measurement

Prior to first quarter of 2015, we evaluated segment operating performance based on Segment profit (loss) from operations. Beginning in the first quarter of 2015, 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. Prior period segment disclosures have been recast to reflect this change.

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;

◦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.

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



	Williams Partners		Williams NGL & Petchem Services (1)		Other		Eliminations			Total
	(Millions)
Three Months Ended September 30, 2015
Segment revenues:
Service revenues
External	$	1,232	$	1	$	6	$	—		$	1,239
Internal	—		—		64		(64		)	—
Total service revenues	1,232		1		70		(64		)	1,239
Product sales
External	560		—		—		—			560
Internal	—		—		—		—			—
Total product sales	560		—		—		—			560
Total revenues	$	1,792	$	1	$	70	$	(64	)	$	1,799

Three Months Ended September 30, 2014
Segment revenues:
Service revenues
External	$	1,065	$	—	$	62	$	—		$	1,127
Internal	1		—		7		(8		)	—
Total service revenues	1,066		—		69		(8		)	1,127
Product sales
External	942		—		—		—			942
Internal	—		—		—		—			—
Total product sales	942		—		—		—			942
Total revenues	$	2,008	$	—	$	69	$	(8	)	$	2,069

Notes (Continued)



	Williams Partners		Williams NGL & Petchem Services (1)		Other		Eliminations			Total
	(Millions)
Nine Months Ended September 30, 2015
Segment revenues:
Service revenues
External	$	3,655	$	2	$	20	$	—		$	3,677
Internal	—		—		123		(123		)	—
Total service revenues	3,655		2		143		(123		)	3,677
Product sales
External	1,677		<