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)

WMB_2013.09.30_10Q

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, 2013



¨	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		Outstanding at October 28, 2013
Common Stock, $1 par value		683,428,418 Shares

The Williams Companies, Inc.

Index



	Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statement of Income – Three and Nine Months Ended September 30, 2013 and 2012	4
Consolidated Statement of Comprehensive Income – Three and Nine Months Ended September 30, 2013 and 2012	5
Consolidated Balance Sheet – September 30, 2013 and December 31, 2012	6
Consolidated Statement of Changes in Equity – Nine Months Ended September 30, 2013	7
Consolidated Statement of Cash Flows – Nine Months Ended September 30, 2013 and 2012	8
Notes to Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	55
Item 4. Controls and Procedures	56
Part II. Other Information	56
Item 1. Legal Proceedings	56
Item 1A. Risk Factors	57
Item 6. Exhibits	58

Certain matters contained in this report include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to anticipated financial performance, management’s plans and objectives for future operations, business prospects, outcome of regulatory proceedings, market conditions, and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

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


•	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;


•	The levels of dividends to stockholders;


•	Seasonality of certain business components;


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


•	Demand for our services.

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


•	Whether we have sufficient cash to enable us to pay current and expected levels of dividends;


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


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


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


•	Ability to acquire new businesses and assets and 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 development 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;


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


•	Changes in maintenance and construction costs;


•	Changes in the current geopolitical situation;


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


•	Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings 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; and


•	Additional risks described in our filings with the Securities and Exchange Commission.

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 to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

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

Because forward-looking statements involve risks and uncertainties, we caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in the forward-looking statements. For a detailed discussion of those factors, see Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2012, and Part II, Item 1A. Risk Factors of this Form 10-Q.

PART I – FINANCIAL INFORMATION

The Williams Companies, Inc.

Consolidated Statement of Income

(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
	(Millions, except per-share amounts)
Revenues:
Service revenues	$	736		$	675		$	2,163		$	2,019
Product sales	887			1,077			3,037			3,598
Total revenues	1,623			1,752			5,200			5,617
Costs and expenses:
Product costs	710			771			2,301			2,628
Operating and maintenance expenses	269			261			820			766
Depreciation and amortization expenses	207			196			606			545
Selling, general, and administrative expenses	130			137			385			415
Other (income) expense – net	(29		)	14			(24		)	31
Total costs and expenses	1,287			1,379			4,088			4,385
Operating income (loss)	336			373			1,112			1,232
Equity earnings (losses)	37			30			93			88
Interest incurred	(151		)	(140		)	(454		)	(421		)
Interest capitalized	27			11			75			33
Other investing income – net	10			3			62			75
Other income (expense) – net	1			—			1			(1		)
Income (loss) from continuing operations before income taxes	260			277			889			1,006
Provision (benefit) for income taxes	62			77			260			281
Income (loss) from continuing operations	198			200			629			725
Income (loss) from discontinued operations	(1		)	3			(10		)	138
Net income (loss)	197			203			619			863
Less: Net income attributable to noncontrolling interests	56			48			175			153
Net income (loss) attributable to The Williams Companies, Inc.	$	141		$	155		$	444		$	710
Amounts attributable to The Williams Companies, Inc.:
Income (loss) from continuing operations	$	143		$	152		$	454		$	572
Income (loss) from discontinued operations	(2		)	3			(10		)	138
Net income (loss)	$	141		$	155		$	444		$	710
Basic earnings (loss) per common share:
Income (loss) from continuing operations	$	.21		$	.25		$	.66		$	.94
Income (loss) from discontinued operations	—			—			(.01		)	.22
Net income (loss)	$	.21		$	.25		$	.65		$	1.16
Weighted-average shares (thousands)	683,274			626,809			682,744			613,888
Diluted earnings (loss) per common share:
Income (loss) from continuing operations	$	.20		$	.25		$	.66		$	.93
Income (loss) from discontinued operations	—			—			(.01		)	.22
Net income (loss)	$	.20		$	.25		$	.65		$	1.15
Weighted-average shares (thousands)	687,306			632,019			687,007			619,765
Cash dividends declared per common share	$	.36625		$	.3125		$	1.0575		$	.87125

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income

(Unaudited)



	Three months ended September 30,						Nine months ended September 30,
(Millions)	2013			2012			2013			2012
Net income (loss)	$	197		$	203		$	619		$	863
Other comprehensive income (loss):
Cash flow hedging activities:
Net unrealized gain (loss) from derivative instruments, net of taxes of $3 and ($9) in 2012	1			(9		)	1			25
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of $3 and $5 in 2012	(1		)	(11		)	(1		)	(15		)
Foreign currency translation adjustments	20			30			(31		)	32
Pension and other postretirement benefits:
Prior service credit arising during the year, net of taxes of ($8) and ($8) in 2013 (Note 7)	15			—			15			—
Amortization of prior service cost (credit) included in net periodic benefit cost, net of taxes of $1 and $1 in 2013	—			—			(1		)	(1		)
Net actuarial gain (loss) arising during the year, net of taxes of ($7) and ($7) in 2013 and $1 and $2 in 2012 (Note 7)	12			(1		)	12			(4		)
Amortization of actuarial (gain) loss included in net periodic benefit cost, net of taxes of ($7) and ($18) in 2013 and ($6) and ($17) in 2012	9			10			29			29
Reclassifications into earnings of (gain) loss on sale of equity securities, net of taxes of $2 in 2012	—			—			—			(3		)
Other comprehensive income (loss)	56			19			24			63
Comprehensive income (loss)	253			222			643			926
Less: Comprehensive income (loss) attributable to noncontrolling interests	56			40			175			157
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	197		$	182		$	468		$	769

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet

(Unaudited)



(Millions, except per-share amounts)	September 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	732		$	839
Accounts and notes receivable	590			688
Deferred income tax asset	117			117
Inventories	230			175
Regulatory assets	32			39
Other current assets and deferred charges	81			66
Total current assets	1,782			1,924
Investments	4,278			3,987
Property, plant and equipment, at cost	24,934			22,546
Accumulated depreciation and amortization	(7,467		)	(7,079		)
Property, plant and equipment – net	17,467			15,467
Goodwill	646			649
Other intangibles	1,659			1,704
Regulatory assets, deferred charges, and other	623			596
Total assets	$	26,455		$	24,327
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,014		$	920
Accrued liabilities	700			628
Commercial paper	371			—
Long-term debt due within one year	1			1
Total current liabilities	2,086			1,549
Long-term debt	10,359			10,735
Deferred income taxes	3,414			2,841
Other noncurrent liabilities	1,650			1,775
Contingent liabilities (Note 12)
Equity:
Stockholders’ equity:
Common stock (960 million shares authorized at $1 par value; 718 million shares issued at September 30, 2013 and 716 million shares issued at December 31, 2012)	718			716
Capital in excess of par value	11,582			11,134
Retained deficit	(5,973		)	(5,695		)
Accumulated other comprehensive income (loss)	(338		)	(362		)
Treasury stock, at cost (35 million shares of common stock)	(1,041		)	(1,041		)
Total stockholders’ equity	4,948			4,752
Noncontrolling interests in consolidated subsidiaries	3,998			2,675
Total equity	8,946			7,427
Total liabilities and equity	$	26,455		$	24,327

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 Interest			Total
	(Millions)
Balance – December 31, 2012	$	716	$	11,134	$	(5,695	)	$	(362	)	$	(1,041	)	$	4,752		$	2,675		$	7,427
Net income (loss)	—		—		444			—			—			444			175			619
Other comprehensive income (loss)	—		—		—			24			—			24			—			24
Cash dividends – common stock	—		—		(722		)	—			—			(722		)	—			(722		)
Dividends and distributions to noncontrolling interests	—		—		—			—			—			—			(344		)	(344		)
Issuance of common stock from debentures conversion	—		1		—			—			—			1			—			1
Stock-based compensation and related common stock issuances, net of tax	2		38		—			—			—			40			—			40
Sales of limited partner units of Williams Partners L.P.	—		—		—			—			—			—			1,819			1,819
Changes in ownership of consolidated subsidiaries, net	—		409		—			—			—			409			(652		)	(243		)
Contributions from noncontrolling interests	—		—		—			—			—			—			327			327
Other	—		—		—			—			—			—			(2		)	(2		)
Balance – September 30, 2013	$	718	$	11,582	$	(5,973	)	$	(338	)	$	(1,041	)	$	4,948		$	3,998		$	8,946

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows

(Unaudited)



	Nine months ended September 30,
(Millions)	2013			2012
OPERATING ACTIVITIES:
Net income (loss)	$	619		$	863
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	606			545
Provision (benefit) for deferred income taxes	301			117
Net (gain) loss on dispositions of assets	1			(56		)
Gain on reconsolidation of Wilpro entities (Note 3)	—			(144		)
Amortization of stock-based awards	28			27
Cash provided (used) by changes in current assets and liabilities:
Accounts and notes receivable	85			82
Inventories	(53		)	19
Other current assets and deferred charges	11			28
Accounts payable	(47		)	(165		)
Accrued liabilities	91			14
Other, including changes in noncurrent assets and liabilities	60			(41		)
Net cash provided (used) by operating activities	1,702			1,289
FINANCING ACTIVITIES:
Proceeds from (payments of) commercial paper – net	370			—
Proceeds from long-term debt	1,705			2,109
Payments of long-term debt	(2,081		)	(1,313		)
Proceeds from issuance of common stock	14			935
Proceeds from sale of limited partner units of consolidated partnership	1,819			1,559
Dividends paid	(722		)	(538		)
Dividends and distributions paid to noncontrolling interests	(344		)	(246		)
Distributions paid to noncontrolling interests on sale of Wilpro assets (Note 3)	—			(38		)
Contributions from noncontrolling interests	327			4
Other – net	6			26
Net cash provided (used) by financing activities	1,094			2,498
INVESTING ACTIVITIES:
Capital expenditures*	(2,542		)	(1,652		)
Purchases of and contributions to equity method investments	(350		)	(282		)
Purchases of businesses	—			(2,049		)
Proceeds from dispositions of investments	—			79
Cash of Wilpro entities upon reconsolidation (Note 3)	—			121
Other – net	(11		)	103
Net cash provided (used) by investing activities	(2,903		)	(3,680		)
Increase (decrease) in cash and cash equivalents	(107		)	107
Cash and cash equivalents at beginning of period	839			889
Cash and cash equivalents at end of period	$	732		$	996
_________
* Increases to property, plant, and equipment	$	(2,685	)	$	(1,784	)
Changes in related accounts payable and accrued liabilities	143			132
Capital expenditures	$	(2,542	)	$	(1,652	)

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, 2012, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.

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

Unless the context clearly indicates otherwise, references in this report to “we,” “our,” “us,” or similar language refer to The Williams Companies, Inc. and its subsidiaries.

Description of Business

Our operations are located principally in the United States and are organized into the Williams Partners, Williams NGL & Petchem Services, and Access Midstream Partners reportable segments. All remaining business activities are included in Other.

Williams Partners consists of our consolidated master limited partnership, Williams Partners L.P. (WPZ), and includes gas pipeline and domestic midstream businesses. The 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), a 50 percent equity investment in Gulfstream Natural Gas System, L.L.C. (Gulfstream), and a 41 percent consolidated interest in Constitution Pipeline Company, LLC (Constitution). WPZ’s midstream operations are composed of significant, large-scale operations in the Rocky Mountain and Gulf Coast regions, operations in the Marcellus Shale region, and various equity investments in domestic natural gas gathering and processing assets and natural gas liquid (NGL) fractionation and transportation assets. WPZ’s midstream assets also include an NGL fractionator and storage facilities near Conway, Kansas as well as an NGL light-feed olefins cracker in Geismar, Louisiana, along with associated ethane and propane pipelines, and a refinery grade splitter in Louisiana.

Williams NGL & Petchem Services consists primarily of a Canadian oil sands offgas processing plant located near Fort McMurray, Alberta, an NGL/olefin fractionation facility and butylene/butane splitter facility at Redwater, Alberta, and a 50 percent consolidated interest in Bluegrass Pipeline Company LLC (Bluegrass Pipeline).

Access Midstream Partners consists of our equity investment in Access Midstream Partners, L.P. (ACMP). As of September 30, 2013, this investment includes an indirect 50 percent interest in Access Midstream Partners, GP, L.L.C. (Access GP), including incentive distribution rights, and a 23 percent limited partner interest in ACMP. ACMP is a publicly-traded master limited partnership that provides gathering, treating, and compression services to producers under long-term, fee-based contracts. Access GP is the general partner of ACMP.

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

Basis of Presentation

As disclosed in our 2012 Annual Report on Form 10-K, we contributed our 83.3 percent undivided interest in the olefins-production facility in Geismar, Louisiana, along with a refinery grade propylene splitter and pipelines in the Gulf region to WPZ in November 2012. As a result, prior period segment disclosures have been recast for this transaction.

Notes (Continued)

Also as disclosed in our 2012 Annual Report on Form 10-K, we have revised the overall presentation of our Consolidated Statement of Income, including the separate presentation of service revenues, product sales, product costs, and depreciation and amortization expenses. All prior periods presented have been recast, along with corresponding information presented in the Notes to Consolidated Financial Statements, to reflect this change.

Consolidated master limited partnership

During the first quarter of 2013, WPZ completed equity issuances of 15,937,500 common units representing limited partner interests, including 3,000,000 common units sold to us in a private placement transaction. In the third quarter of 2013, WPZ completed equity issuances of 24,725,000 common units representing limited partner interests. Following these transactions, we own approximately 64 percent of the interests in WPZ, including the interests of the general partner, which are wholly owned by us, and incentive distribution rights as of September 30, 2013.

The previously described equity issuances by WPZ had the combined net impact of increasing our noncontrolling interests in consolidated subsidiaries by $1.169 billion, capital in excess of par value by $408 million and deferred income taxes by $242 million in the Consolidated Balance Sheet.

WPZ is self-funding and maintains separate lines of bank credit and cash management accounts. WPZ also initiated its commercial paper program in the first quarter of 2013. (See Note 9 – Debt and Banking Arrangements.) Cash distributions from WPZ to us, including any associated with our incentive distribution rights, occur through the normal partnership distributions from WPZ to all partners.

Discontinued operations

The discontinued operations presented in the accompanying consolidated financial statements and notes primarily reflect gains in 2012 associated with certain of our former Venezuela operations. (See Note 3 – Discontinued Operations.)

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

Note 2 – Variable Interest Entities

Consolidated VIEs

We consolidate variable interest entities (VIEs) of which we are the primary beneficiary. The primary beneficiary of a VIE is the entity that has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. As of September 30, 2013, we consolidate the following VIEs:

Gulfstar

During the second quarter of 2013, a third party contributed $187 million to Gulfstar One LLC (Gulfstar) in exchange for a 49 percent ownership interest in Gulfstar. This contribution was based on 49 percent of WPZ’s estimated cumulative net investment to date. The $187 million was then distributed to WPZ. Following this transaction, WPZ owns a 51 percent interest in Gulfstar, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. WPZ is the primary beneficiary because it has the power to direct the activities that most significantly impact Gulfstar’s economic performance. WPZ, as construction agent for Gulfstar, is designing, constructing, and installing a proprietary floating-production system, Gulfstar FPS™, and associated pipelines which will initially provide production handling and gathering services for the Tubular Bells oil and gas discovery in the eastern deepwater Gulf of Mexico. The project is expected to be in service in mid-2014. WPZ has received certain advance payments from the producer customers and is committed to the producer customers to construct this system. The current estimate of the total remaining construction costs is less than $400 million, which will be funded with capital contributions from WPZ and the other equity partner, proportional to ownership interest. The producer customers will be responsible for the firm price of building the facilities if they do not develop the offshore oil and gas fields to be connected to Gulfstar.

Notes (Continued)

Constitution

During the second quarter of 2013, a third party contributed $4 million to Constitution in exchange for a 10 percent ownership interest in Constitution. This contribution was based on 10 percent of Constitution’s contributed capital to date. The $4 million was then distributed to WPZ. Following this transaction, WPZ owns a 41 percent interest in Constitution, a subsidiary that, due to shipper fixed-payment commitments under its 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 agent for Constitution, is building a pipeline connecting our 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 March 2015 and estimates the total remaining construction costs of the project to be less than $625 million, which will be funded with capital contributions from WPZ and the other equity partners, proportional to ownership interest.

Bluegrass Pipeline

We own a 50 percent interest in Bluegrass Pipeline, a subsidiary that, due to insufficient equity to finance activities during its development stage, is a VIE. We are the primary beneficiary because we have the power to direct the activities of the project that most significantly impact its economic performance until the first developmental stage milestone is met; we have the power to direct whether the project moves forward. We and our partner plan to construct an NGL pipeline connecting processing facilities in the Marcellus and Utica shale-gas areas in the northeastern United States to growing petrochemical and export markets in the gulf coast area of the United States. Pre-construction activities are under way and the project is planned to be in service in late 2015. This development stage entity is currently operating under a preliminary activities budget that governs the spending levels through February 28, 2014. Prior to that time, certain elections by either partner could change the relative ownership of the entity, impact the continued development of the project, and/or revise the determination of the primary beneficiary. The remaining amount that has been projected for spending under the preliminary activities budget is less than $140 million, and will be funded by us and our partner, proportional to ownership interest. Continued investment in this project beyond the preliminary activities stage will require additional significant capital contributions. Our Board of Directors has approved our continued investment in this project.

The following table presents amounts included in our Consolidated Balance Sheet that are for the use or obligation of these VIEs, which are joint projects in the development and construction phase:



	September 30, 2013			December 31, 2012			Classification
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	58		$	8		Cash and cash equivalents
Construction in progress	897			556			Property, plant and equipment, at cost
Accounts payable	(135		)	(128		)	Accounts payable
Construction retainage	(2		)	—			Accrued liabilities
Deferred revenue associated with customer advance payments	(110		)	(109		)	Other noncurrent liabilities

Notes (Continued)

Nonconsolidated VIEs

We have also identified certain interests in VIEs where we are not the primary beneficiary. These include:

Laurel Mountain

WPZ’s 51 percent-owned equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain) is considered to be a VIE generally due to contractual provisions that transfer certain risks to customers. As decisions about the activities that most significantly impact the economic performance of this entity require a unanimous vote of all members, WPZ is not the primary beneficiary. Our maximum exposure to loss is limited to the carrying value of this investment, which was $492 million at September 30, 2013.

Caiman II

WPZ’s 47.5 percent-owned equity-method investment in Caiman Energy II, LLC (Caiman II) has been determined to be a VIE because it has insufficient equity to finance activities during the construction stage of the Blue Racer Midstream joint project, which is an expansion to gathering and processing and the associated liquids infrastructure serving oil and gas producers in the Utica shale primarily in Ohio and northwest Pennsylvania. WPZ is not the primary beneficiary because it does not have the power to direct the activities of Caiman II that most significantly impact its economic performance. Our maximum exposure to loss is limited to the $380 million of total contributions that we have committed to make. At September 30, 2013, the carrying value of our investment in Caiman II was $257 million, which substantially reflects our contributions to date.

Moss Lake

Our equity-method investment in Moss Lake Fractionation LLC (Moss Lake) is a VIE because it has insufficient equity to finance activities during its development stage. We currently own 50 percent of this joint project which plans to construct a new large-scale fractionation plant, expand natural gas liquids storage facilities in Louisiana and construct a pipeline connecting these facilities to the Bluegrass Pipeline. We are not the primary beneficiary because we do not have the power to direct the majority of the activities of Moss Lake that most significantly impact its economic performance at this stage. The carrying value of our investment in Moss Lake at September 30, 2013, was $2 million, which represents our contributions to date. The amount we project for spending in order to fund our proportional share of the preliminary activities budget through February 28, 2014, is $52 million. Continued investment in this project beyond the preliminary activities stage will require additional significant capital contributions.

Note 3 – Discontinued Operations

Income (loss) from discontinued operations for the three and nine months ended September 30, 2013, includes a $3 million and $15 million, respectively, pre-tax charge resulting from an unfavorable ruling associated with our former Alaska refinery related to the Trans-Alaska Pipeline System Quality Bank.

Income (loss) from discontinued operations for the nine months ended September 30, 2012, includes a $144 million gain on reconsolidation related to our majority ownership in entities (the Wilpro entities) that owned and operated the El Furrial and PIGAP II gas compression facilities prior to their expropriation by the Venezuelan government in May 2009. We deconsolidated the Wilpro entities in 2009. In 2012, the El Furrial and PIGAP II assets were sold as part of a settlement related to the 2009 expropriation of these assets. Upon closing, the lenders that had provided financing for these operations were repaid in full, and the Wilpro entities received $98 million in cash and the right to receive quarterly cash installments of $15 million (receivable) plus interest through the first quarter of 2016. Following the settlement and repayment in full of the lenders, we reestablished control and, therefore, reconsolidated the Wilpro entities and recognized the gain on reconsolidation. This gain reflected our share of the cash, including cash received in the settlement, and the estimated fair value of the receivable held by the Wilpro entities at the time of reconsolidation. See Note 11 – Fair Value Measurements for a further discussion of this receivable.

Notes (Continued)

Note 4 – Asset Sales and Other Accruals

On June 13, 2013, an explosion and fire occurred at WPZ’s Geismar olefins plant located south of Baton Rouge, Louisiana, in an industrial complex, that resulted in the tragic deaths of two employees and injuries of additional employees and contractors. The fire was extinguished on the day of the incident. The incident (Geismar Incident) rendered the facility temporarily inoperable and resulted in significant human, financial and operational effects.

We have substantial insurance coverage for repair and replacement costs, lost production and additional expenses related to the incident as follows:


•	Property damage and business interruption coverage with a combined per-occurrence limit of $500 million and retentions (deductibles) of $10 million per occurrence for property damage and a waiting period of 60 days per occurrence for business interruption;


•	General liability coverage with per-occurrence and aggregate annual limits of $610 million and retentions (deductibles) of $2 million per occurrence;


•	Workers’ compensation coverage with statutory limits and retentions (deductibles) of $1 million total per occurrence.

We have expensed $4 million and $10 million during the three and nine months ended September 30, 2013, respectively, of costs under our insurance deductibles in operating and maintenance expenses in the Consolidated Statement of Income. Recoveries under our business interruption policy will be recognized upon resolution of any contingencies with the insurer associated with the claim. Through September 30, 2013, we have recognized $50 million of insurance recoveries related to this incident as a gain to other (income) expense – net within costs and expenses in our Consolidated Statement of Income.

Included in selling, general, and administrative expenses are charges of $6 million and $14 million during the three and nine months ended September 30, 2012, respectively, related to our engagement of a consulting firm to assist in better aligning resources to support our business strategy following the spin-off of WPX Energy, Inc. (WPX). During the second quarter of 2012, we incurred acquisition transaction costs of $16 million related to the acquisition of 100 percent of the ownership interests in Caiman Eastern Midstream, LLC. These costs are also included in selling, general, and administrative expenses.

Other (income) expense – net within costs and expenses, in addition to the insurance recoveries mentioned above, includes:

•

Charges of $9 million and $15 million for the three and nine months ended September 30, 2013, respectively, related to the portion of the Eminence abandonment regulatory asset that will not be recovered through rates, pursuant to Transco’s agreement in principle associated with its general rate case filing (See Note 12 – Contingent Liabilities.). We also recognized income of $3 million and $15 million for the three and nine months ended September 30, 2013, respectively, related to insurance recoveries associated with this event;


•	Charges of $2 million during the nine months ended September 30, 2013 and $2 million and $17 million during the three and nine months ended September 30, 2012, respectively, related to project development costs associated with natural gas pipeline expansion projects;


•	A $9 million accrued loss in the three and nine months ended September 30, 2013 for a contingent liability associated with a pending producer claim against us;


•	Charges of $8 million and $15 million during the three and nine months ended September 30, 2013 and $2 million and $5 million during the three and nine months ended September 30, 2012 related to the amortization of regulatory assets associated with asset retirement obligations.

Notes (Continued)

Other investing income – net includes $11 million and $37 million of interest income for the three and nine months ended September 30, 2013, respectively, associated with a receivable related to the sale of certain former Venezuela assets (see Note 3 – Discontinued Operations). This amount reflects a current year increase in yield associated with a revision in our estimate of the cash flows expected to be received as a result of continued timely payment by the counterparty. In the nine months ended September 30, 2012, other investing income – net includes $63 million of income, including $10 million of interest, related to the 2010 sale of our interest in Accroven SRL. As part of a settlement regarding certain Venezuelan assets in the first quarter of 2012 (see Note 3 – Discontinued Operations), we also received payment for all outstanding balances due from this sale, including interest. Income had previously been recognized upon receipt of payments, as future collections were not reasonably assured.

Also included in other investing income – net for the nine months ended September 30, 2013, is a $26 million gain resulting from Access Midstream Partners’ equity issuance in April 2013. This equity issuance resulted in the dilution of our ownership interest from approximately 24 percent to 23 percent, which is accounted for as though we sold a portion of our investment.

Note 5 – Provision (Benefit) for Income Taxes

The provision (benefit) for income taxes includes:



	Three months ended September 30,					Nine months ended September 30,
	2013		2012			2013			2012
	(Millions)					(Millions)
Current:
Federal	$	25	$	58		$	(47	)	$	112
State	—		10			3			18
Foreign	2		6			3			30
	27		74			(41		)	160
Deferred:
Federal	21		6			233			123
State	9		(3		)	41			(9		)
Foreign	5		—			27			7
	35		3			301			121
Total provision (benefit)	$	62	$	77		$	260		$	281

The effective income tax rate for the total provision for the three months ended September 30, 2013, is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests and taxes on foreign operations, partially offset by the effect of state income taxes.

The effective income tax rate for the total provision for the nine months ended September 30, 2013, is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests and taxes on foreign operations, partially offset by the effect of state income taxes. The 2013 deferred provision includes $10 million related to the impact of a second-quarter Texas franchise tax law change, net of federal benefit.

The effective income tax rate for the total provision for the three months ended September 30, 2012, is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests.

The effective income tax rate for the total provision for the nine months ended September 30, 2012, is less than the federal statutory rate primarily due to the impact of nontaxable noncontrolling interests and taxes on foreign operations.

During the first quarter of 2013, we finalized a settlement with the Internal Revenue Service (IRS) on tax matters related to the IRS’s examination of our 2009 and 2010 consolidated corporate income tax returns. We recorded a tax

Notes (Continued)

provision of approximately $2 million related to these matters during the third quarter of 2012. With respect to the examined years, we made cash payments of $12 million to the IRS in February of 2013.

With the spin-off of WPX on December 31, 2011, WPX entered into a tax sharing agreement with us under which we are generally liable for all U.S. federal, state, local and foreign income taxes attributable to WPX with respect to taxable periods ending on or before the distribution date. We are also principally responsible for managing any income tax audits by the various tax jurisdictions for pre-spin-off periods. In 2012, we prepared pro forma tax returns for each tax period in which WPX or any of its subsidiaries were combined or consolidated with us. In the first quarter of 2013, we reimbursed WPX a net $2 million for the additional losses shown on the pro forma tax returns, offset with additional tax resulting from the 2009 to 2010 IRS settlement.

On September 13, 2013, the IRS issued final regulations providing guidance on the treatment of amounts paid to acquire, produce or improve tangible property and proposed regulations providing guidance on the dispositions of such property. The implementation date for these regulations is January 1, 2014. Changes for tax treatment elected by us or required by the regulations will generally be effective prospectively; however, implementation of many of the regulations’ provisions will require a calculation of the cumulative effect of the changes on prior years, and it is expected that such amount will have to be included in the determination of our taxable income in 2014, or possibly over a four-year period beginning in 2014. The IRS is expected to issue additional procedural guidance regarding 2014 tax return filing requirements and how the requirements may be implemented for the gas transmission and distribution industry. Since the changes will affect the timing for deducting expenditures for tax purposes, the impact of implementation will be reflected in the amount of income taxes payable or receivable, cash flows from operations and deferred taxes beginning in 2014, with no net tax provision effect. Pending the issuance of additional procedural guidance from the IRS, we cannot at this time estimate the impact of implementing the regulations.

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.

On October 30, 2013, WPZ announced its intent to pursue an agreement to acquire certain of our Canadian operations. As a result, we no longer consider the undistributed earnings from these foreign operations to be permanently reinvested and thus expect to recognize approximately $200 million of deferred income tax expense in the fourth quarter of 2013. Of this amount, we estimate approximately $140 million will be characterized as a current income tax liability upon consummation of the proposed transaction.

Note 6 – Earnings (Loss) Per Common Share from Continuing Operations



	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
	(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	$	143	$	152	$	454	$	572
Basic weighted-average shares	683,274		626,809		682,744		613,888
Effect of dilutive securities:
Nonvested restricted stock units	1,901		2,490		1,975		2,721
Stock options	2,113		2,535		2,169		2,695
Convertible debentures	18		185		119		461
Diluted weighted-average shares	687,306		632,019		687,007		619,765
Earnings (loss) per common share from continuing operations:
Basic	$	.21	$	.25	$	.66	$	.94
Diluted	$	.20	$	.25	$	.66	$	.93

Notes (Continued)

Note 7 – Employee Benefit Plans

Net periodic benefit cost is as follows:



	Pension Benefits
	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
	(Millions)
Components of net periodic benefit cost:
Service cost	$	11		$	10		$	33		$	29
Interest cost	12			14			38			42
Expected return on plan assets	(15		)	(16		)	(45		)	(48		)
Amortization of prior service cost	1			—			1			—
Amortization of net actuarial loss	15			13			45			40
Net actuarial loss from settlements	—			2			—			4
Net periodic benefit cost	$	24		$	23		$	72		$	67



	Other Postretirement Benefits
	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
	(Millions)
Components of net periodic benefit cost:
Service cost	$	1		$	1		$	2		$	2
Interest cost	2			4			8			10
Expected return on plan assets	(3		)	(3		)	(7		)	(7		)
Amortization of prior service credit	(3		)	(2		)	(7		)	(5		)
Amortization of net actuarial loss	1			2			4			6
Amortization of regulatory liability	1			—			1			—
Net periodic benefit cost	$	(1	)	$	2		$	1		$	6

Amortization of prior service credit and net actuarial loss included in net periodic benefit cost for our other postretirement benefit plans associated with Transco and Northwest Pipeline are recorded to net regulatory liabilities instead of other comprehensive income (loss).

Amounts recognized in net regulatory liabilities include:



	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
	(Millions)
Amortization of prior service credit	$	(1	)	$	(2	)	$	(4	)	$	(4	)
Amortization of net actuarial loss	—			1			2			4

Notes (Continued)

During the third quarter of 2013, our other postretirement benefit plan was amended, which resulted in a remeasurement of the plan’s funded status. The overall impact of the remeasurement was to reduce our liability reflecting the plan’s funded status by $121 million, with $59 million of the decrease directly attributable to the plan amendment and $62 million due to other actuarial gains through the remeasurement date. The decrease in our liability reflecting the plan’s funded status is offset by increases to accumulated other comprehensive income (loss) and net regulatory liabilities.

During the nine months ended September 30, 2013, we contributed $92 million to our pension plans and $6 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $2 million to our other postretirement benefit plans in the remainder of 2013.

Note 8 – Inventories



	September 30, 2013		December 31, 2012
	(Millions)
Natural gas liquids, olefins, and natural gas in underground storage	$	148	$	97
Materials, supplies, and other	82		78
	$	230	$	175

Note 9 – Debt and Banking Arrangements

Credit Facilities

On July 31, 2013, we amended our $900 million and WPZ’s $2.4 billion credit facilities to increase the aggregate commitments to $1.5 billion and $2.5 billion, respectively and extend the maturity dates for both credit facilities to July 31, 2018. Additionally, Transco and Northwest Pipeline are each able to borrow up to $500 million under the amended WPZ credit facility to the extent not otherwise utilized by the other co-borrowers. Both credit facilities may also, under certain conditions, be increased up to an additional $500 million. As a result of the modifications, the previously deferred fees and costs related to these facilities are being amortized over the term of the new arrangements.

At September 30, 2013, letter of credit capacity under our $1.5 billion and WPZ’s $2.5 billion credit facilities is $700 million and $1.3 billion, respectively. At September 30, 2013, no letters of credit have been issued and no loans are outstanding on these credit facilities. We have issued letters of credit totaling $17 million as of September 30, 2013, under certain bilateral bank agreements.

Commercial Paper Program

In March 2013, WPZ initiated a commercial paper program. The program allows a maximum outstanding amount at any time of $2 billion of unsecured commercial paper notes. The maturities of the commercial paper notes vary but may not exceed 397 days from the date of issuance. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. Proceeds from these notes are used for general partnership purposes, including funding capital expenditures, working capital, and partnership distributions. At September 30, 2013, WPZ has $371 million in commercial paper outstanding at a weighted average interest rate of 0.41 percent.

Notes (Continued)

Note 10 – 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, 2012	$	(1	)	$	169		$	(530	)	$	(362	)
Other comprehensive income (loss) before reclassifications	1			(31		)	27			(3		)
Amounts reclassified from accumulated other comprehensive income (loss)	(1		)	—			28			27
Other comprehensive income (loss)	—			(31		)	55			24
Balance at September 30, 2013	$	(1	)	$	138		$	(475	)	$	(338	)

Reclassifications out of accumulated other comprehensive income (loss) are presented in the following table by component for the nine months ended September 30, 2013:



Component	Reclassifications			Classification
	(Millions)
Cash flow hedges:
Energy commodity contracts	$	(1	)	Product sales
Total cash flow hedges	(1		)

Pension and other postretirement benefits:
Amortization of prior service cost (credit) included in net periodic benefit cost	(2		)	Note 7 – Employee Benefit Plans
Amortization of actuarial (gain) loss included in net periodic benefit cost	47			Note 7 – Employee Benefit Plans
Total pension and other postretirement benefits	45

Reclassifications before income tax	44
Income tax benefit	(17		)	Provision (benefit) for income taxes
Reclassifications during the period	$	27

Notes (Continued)

Note 11 – Fair Value Measurements

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, 2013:
Measured on a recurring basis:
ARO Trust investments	$	31		$	31		$	31	$	—		$	—
Energy derivatives assets not designated as hedging instruments	6			6			—		1			5
Energy derivatives liabilities not designated as hedging instruments	(3		)	(3		)	—		(1		)	(2		)
Additional disclosures:
Notes receivable and other	82			148			1		7			140
Long-term debt, including current portion (a)	(10,358		)	(11,026		)	—		(11,026		)	—
Guarantee	(32		)	(29		)	—		(29		)	—
Assets (liabilities) at December 31, 2012:
Measured on a recurring basis:
ARO Trust investments	$	18		$	18		$	18	$	—		$	—
Energy derivatives assets not designated as hedging instruments	5			5			—		—			5
Energy derivatives liabilities not designated as hedging instruments	(1		)	(1		)	—		—			(1		)
Additional disclosures:
Notes receivable and other	95			138			2		8			128
Long-term debt, including current portion (a)	(10,734		)	(12,388		)	—		(12,388		)	—
Guarantee	(33		)	(31		)	—		(31		)	—

(a) 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 2008 rate case settlement, into an external trust (ARO Trust) that is specifically designated to fund future asset retirement obligations. 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, 2013 or 2012.

Additional fair value disclosures

Notes receivable and other: Notes receivable and other includes a receivable related to the sale of certain former

Venezuela assets (see Note 3 – Discontinued Operations). 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 $105 million at September 30, 2013. The carrying value of this receivable is $38 million at September 30, 2013. The current and noncurrent portions are reported in accounts and notes receivable and regulatory assets, deferred charges, and other, respectively, in the Consolidated Balance Sheet.

Notes receivable and other also includes a receivable from our former affiliate, WPX (see Note 12 – Contingent Liabilities) and other notes receivable. The disclosed fair value of these receivables is primarily determined by an income approach which considers the underlying contract amounts and our assessment of our ability to recover these amounts. The current portion is reported in accounts and notes receivable, and the noncurrent portion is reported in regulatory assets, deferred charges, and other 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.

Guarantees

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

Notes (Continued)

Regarding our previously described guarantee of Wiltel’s lease performance, the maximum potential exposure is approximately $36 million at September 30, 2013 and December 31, 2012. Our exposure declines systematically throughout the remaining term of WilTel’s obligation.

We have provided guarantees in the event of nonpayment by our previously owned subsidiary, WPX, on certain contracts, primarily a natural gas purchase contract extending through 2023. We estimate the maximum undiscounted potential future payment obligation under these remaining guarantees is approximately $76 million at September 30, 2013. Our recorded liability for these guarantees, which considers our estimate of the fair value of the guarantees, is insignificant.

Note 12 – Contingent Liabilities

Indemnification of WPX Matters

We have agreed to indemnify our former affiliate, WPX and its subsidiaries, related to the following matters. In connection with this indemnification, we have accrued asset and liability balances associated with these matters, and as a result, have an indirect exposure to future developments in these matters.

Issues resulting from California energy crisis

WPX’s former power business was engaged in power marketing in various geographic areas, including California. Prices charged for power by WPX and other traders and generators in California and other western states in 2000 and 2001 were challenged in various proceedings, including those before the Federal Energy Regulatory Commission (FERC). WPX has entered into settlements with the State of California (State Settlement), major California utilities (Utilities Settlement), and others that substantially resolved each of these issues with these parties.

Although the State Settlement and Utilities Settlement resolved a significant portion of the refund issues among the settling parties, WPX continues to have potential refund exposure to nonsettling parties, including various California end users that did not participate in the Utilities Settlement. WPX and certain California utilities have agreed in principle to resolve WPX’s collection of accrued interest from counterparties as well as WPX’s payment of accrued interest on refund amounts. As currently contemplated by the parties, the settlement, which is subject to FERC and California regulatory approval, would resolve most of WPX’s legal issues arising from the 2000-2001 California Energy Crisis. We currently have a net receivable from WPX related to these matters.

Reporting of natural gas-related information to trade publications

Direct and indirect purchasers of natural gas in various states filed class actions against WPX 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.

In 2011, the Nevada district court granted WPX’s joint motions for summary judgment to preclude the plaintiffs’ state law claims because the federal Natural Gas Act gives the FERC exclusive jurisdiction to resolve those issues. The court also denied the plaintiffs’ class certification motion as moot. The plaintiffs appealed the court’s ruling and on April 10, 2013, the Ninth Circuit Court of Appeals reversed the district court and remanded the cases to the district court to permit the plaintiffs to pursue their state antitrust claims for natural gas sales that were not subject to FERC jurisdiction under the Natural Gas Act. On August 26, 2013, WPX and the other defendants filed their petition for a writ of certiorari with the U.S. Supreme Court. 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 exposures at this time. However, it is reasonably possible that the ultimate resolution of these items and our related indemnification obligation could result in future charges that may be material to our results of operations.

Notes (Continued)

Other Legal Matters

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. WPZ is cooperating with the Occupational Safety and Health Administration, the Chemical Safety Board, and the U.S. Environmental Protection Agency (EPA) to conduct investigations to determine the cause of the incident. On June 28, 2013, the Louisiana Department of Environmental Quality issued a Consolidated Compliance Order & Notice of Potential Penalty to Williams Olefins, L.L.C. that consolidates claims of unpermitted emissions and other deviations under the Clean Air Act that the parties had been negotiating since 2010 and alleged unpermitted emissions arising from the Geismar Incident. Any potential fines and penalties from these agencies would not be covered by our insurance policy. Additionally, multiple lawsuits, including class actions for alleged offsite impacts, property damage, and personal injury, have been filed against various of our subsidiaries.

Due to the ongoing investigation into the cause of the incident, and the limited information available associated with the filed lawsuits, which do not specify any amounts for claimed damages, we cannot reasonably estimate a range of potential loss related to these contingencies at this time.

Gulf Liquids litigation

Gulf Liquids contracted with Gulsby Engineering Inc. (Gulsby) and Gulsby-Bay (a joint venture between Gulsby and Bay Ltd.) for the construction of certain gas processing plants in Louisiana. National American Insurance Company (NAICO) and American Home Assurance Company provided payment and performance bonds for the projects. In 2001, the contractors and sureties filed multiple cases in Louisiana and Texas against Gulf Liquids and us.

In 2006, at the conclusion of the consolidated trial of the asserted contract and tort claims, the jury returned its actual and punitive damages verdict against us and Gulf Liquids. Based on our interpretation of the jury verdicts, we recorded a charge based on our estimated exposure for actual damages of approximately $68 million plus potential interest of approximately $20 million. In addition, we concluded that it was reasonably possible that any ultimate judgment might have included additional amounts of approximately $199 million in excess of our accrual, which primarily represented our estimate of potential punitive damage exposure under Texas law.

From May through October 2007, the court entered seven post-trial orders in the case (interlocutory orders) which, among other things, overruled the verdict award of tort and punitive damages as well as any damages against us. The court also denied the plaintiffs’ claims for attorneys’ fees. On January 28, 2008, the court issued its judgment awarding damages against Gulf Liquids of approximately $11 million in favor of Gulsby and approximately $4 million in favor of Gulsby-Bay. Gulf Liquids, Gulsby, Gulsby-Bay, Bay Ltd., and NAICO appealed the judgment. In February 2009, we settled with certain of these parties and reduced our accrued liability as of December 31, 2008, by $43 million, including $11 million of interest. On February 17, 2011, the Texas Court of Appeals upheld the dismissals of the tort and punitive damages claims. As a result, we reduced our accrued liability as of December 31, 2011 by $33 million, including $14 million of interest. The Texas Court of Appeals also reversed and remanded the remaining claims for further proceedings. None of the parties filed a petition for review in the Texas Supreme Court. On May 8, 2012, the Texas Court of Appeals issued its mandate remanding the original breach of contract claims involving Gulsby and attorney fee claims (the remaining claims) to trial court. Trial is set for October 14, 2014.

Alaska refinery contamination litigation

In January 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 have 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

Notes (Continued)

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. Our claims against FHRA and their claims against us remain outstanding. We and FHRA filed motions for summary judgment on the other’s claims, but the motions are unlikely to resolve all the outstanding claims.

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.

Independent of the litigation matter described in the preceding paragraphs, the Alaska Department of Environmental Conservation (ADEC) indicated that it views FHRA and us as responsible parties. During the first quarter 2013, ADEC informed FHRA and us that it intends to enter a compliance order to address the environmental remediation of sulfolane and other possible contaminants including cleanup work outside the refinery’s boundaries to be performed in 2014. In addition, ADEC will seek from each of FHRA and us an adequate financial performance guarantee for the benefit of ADEC. As such, we will likely be required to contribute some amount, whether to reimburse the State, to reimburse FHRA, or to comply with an ADEC order. Due to the ongoing assessment of the level and extent of sulfolane contamination and the ultimate cost of remediation and division of costs between the named responsible parties, we are unable to estimate a range of liability at this time.

Other

In 2003, we entered into an agreement to sublease certain underground storage facilities to Liberty Gas Storage (Liberty). We have asserted claims against Liberty for prematurely terminating the sublease and for damage caused to the facilities. In February 2011, Liberty asserted a counterclaim for costs in excess of $200 million associated with its use of the facilities. Due to Liberty’s continued failure to substantiate its counterclaim, we are unable to evaluate its merits and determine the amount of any possible liability.

On August 31, 2012, Transco submitted to the FERC a general rate filing principally designed to recover increased costs and to comply with the terms of the settlement in our prior rate proceeding. The new rates became effective March 1, 2013, subject to refund and the outcome of the hearing. On August 27, 2013, Transco filed a stipulation and agreement with the FERC that would resolve all issues in this proceeding without the need for a hearing after reaching an agreement in principle with the participants. The stipulation and agreement is subject to review and approval by the FERC. We have provided a reserve for rate refunds which we believe is adequate for any refunds that may be required.

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, 2013, we have accrued liabilities totaling $45 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

Notes (Continued)

internal combustion engine maximum achievable control technology, new air quality standards for ground level ozone, one hour nitrogen dioxide emission limits, and new air quality standards impacting storage vessels, pressure valves, and compressors. We are unable to estimate the costs of asset additions or modifications necessary to comply with these new regulations 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, 2013, we have accrued liabilities of $11 million for these costs. We expect that these costs will be recoverable through rates.

We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At September 30, 2013, 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 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, 2013, we have accrued environmental liabilities of $27 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, 2013, other than as previously disclosed, we are not aware of any material claims 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.

Notes (Continued)

Summary

We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity and financial position. These calculations have been made without consideration of any potential recovery from third parties.

Note 13 – Segment Disclosures

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

Performance Measurement

We currently evaluate performance based upon segment profit (loss) from operations, which includes segment revenues from external and internal customers, segment costs and expenses, equity earnings (losses) and income (loss) from investments. General corporate expenses represent selling, general, and administrative expenses that are not allocated to our segments. Intersegment revenues are generally accounted for at current market prices as if the sales were to unaffiliated third parties.

Notes (Continued)

The following table reflects the reconciliation of segment revenues and segment profit (loss) to revenues and operating income (loss) as reported in the Consolidated Statement of Income and total assets by reportable segment.



	Williams Partners		Williams NGL & Petchem Services			Access Midstream Partners		Other		Eliminations			Total
	(Millions)
Three months ended September 30, 2013
Segment revenues:
Service revenues
External	$	731	$	—		$	—	$	5	$	—		$	736
Internal	—		—			—		2		(2		)	—
Total service revenues	731		—			—		7		(2		)	736
Product sales
External	855		32			—		—		—			887
Internal	—		27			—		—		(27		)	—
Total product sales	855		59			—		—		(27		)	887
Total revenues	$	1,586	$	59		$	—	$	7	$	(29	)	$	1,623
Segment profit (loss)	$	405	$	(2	)	$	6	$	3				$	412
Less:
Equity earnings (losses)	31		—			6		—					37
Income (loss) from investments	—		(1		)	—		—					(1		)
Segment operating income (loss)	$	374	$	(1	)	$	—	$	3				376
General corporate expenses													(40		)
Operating income (loss)													$	336

Three months ended September 30, 2012
Segment revenues:
Service revenues
External	$	668	$	2		$	—	$	5	$	—		$	675
Internal	—		—			—		2		(2		)	—
Total service revenues	668		2			—		7		(2		)	675
Product sales
External	1,049		28			—		—		—			1,077
Internal	—		32			—		—		(32		)	—
Total product sales	1,049		60			—		—		(32		)	1,077
Total revenues	$	1,717	$	62		$	—	$	7	$	(34	)	$	1,752
Segment profit (loss)	$	429	$	16		$	—	$	1				$	446
Less:
Equity earnings (losses)	30		—			—		—					30
Segment operating income (loss)	$	399	$	16		$	—	$	1				416
General corporate expenses													(43		)
Operating income (loss)													$	373

Notes (Continued)



	Williams Partners		Williams NGL & Petchem Services			Access Midstream Partners		Other		Eliminations			Total
	(Millions)
Nine months ended September 30, 2013
Segment revenues:
Service revenues
External	$	2,147	$	3		$	—	$	13	$	—		$	2,163
Internal	—		—			—		8		(8		)	—
Total service revenues	2,147		3			—		21		(8		)	2,163
Product sales
External	2,922		115			—		—		—			3,037
Internal	—		103			—		—		(103		)	—
Total product sales	2,922		218			—		—		(103		)	3,037
Total revenues	$	5,069	$	221		$	—	$	21	$	(111	)	$	5,200
Segment profit (loss)	$	1,264	$	56		$	35	$	—				$	1,355
Less:
Equity earnings (losses)	84		—			9		—					93
Income (loss) from investments	—		(3		)	26		—